Los Gatos committee reviews using $4M 115 trust to reduce CalPERS unfunded liability

The Los Gatos Town Pension and OPEB Trusts Oversight Committee received an actuarial presentation from Foster & Foster showing the town's pension plans carry about $67 million in unfunded liability and funded ratios near 77% for the miscellaneous plan and about 70% for the safety plan. The committee discussed whether to transfer roughly $4 million from the town's 115 trust to CalPERS to accelerate liability paydown.

Foster & Foster actuary Drew Ballard told the committee that recent CalPERS investment results (about 12% for fiscal 2025) reduce the unfunded liability and improve funded ratios versus prior projections. Ballard said the firm's projections assume CalPERS will revert to a 6.8% long-term discount rate, and that under those assumptions contribution rates are stable in the short term and projected to decline as the unfunded liability is amortized.

Ballard said the town's unfunded liability breaks down at about $31 million for the miscellaneous plan and $36 million for the safety plan, and that conversion of the 115 trust to an additional CalPERS payment would remove those dollars from the town's separate trust and apply them directly to long-amortization layers. In a modeled scenario applying a $4 million transfer on June 30, 2026, he estimated long-term interest savings of about $3.6 million and an annual near-term reduction in CalPERS payments on the order of $300,000 (noting a roughly two-year reporting lag for budget recognition).

Council Member Renie asked why the pronounced historical peak in employer contribution rates seen several years ago no longer appears in current projections. Ballard and staff replied that changes in CalPERS amortization policies (moving from longer 30-year spreads to more recent 20-year spreads for new layers), along with recent above-expectation investment returns, have materially lowered projected unfunded liabilities and altered the timing of contribution peaks. They also noted CalPERS has recently suspended an automatic 'risk mitigation' trigger that previously reduced discount rates after large gains, leaving the present discount rate at 6.8% pending an asset-liability study.

Council Member Hudis raised the timing of valuations, noting the town often receives CalPERS valuations many months after the valuation date. Ballard explained that CalPERS produces valuations for many agencies and that the resulting lag is typical; Foster & Foster therefore incorporates the most recent return data and the town's internal payroll forecasts to update short-term projections when possible.

Two public commenters urged faster use of the 115 trust to avoid carrying additional interest costs. A commenter identified on the card as "Bert the Cap" raised concerns during the consent period about pension-related losses and urged investigation; a second commenter, Gus, during the actuarial item said the town could be losing roughly $16,000 a month if action is delayed. Ballard's scenario and staff responses addressed long-term savings and short-term budget impacts but did not record a formal motion to transfer the trust balance during this meeting.

Procedurally, the committee unanimously approved the consent calendar (items 1'3) on a motion by Council Member Hudis, seconded by Vice Mayor Risto. The committee did not take a formal vote on transferring the 115 trust balance; staff presented the actuarial scenarios for committee consideration and follow-up.

The committee closed public comment and adjourned; the council reconvened for the town council meeting shortly thereafter. The actuarial reports and the Foster & Foster slides were presented as the committee's information; any decision to transfer 115 trust funds to CalPERS would require a separate authorization by the town consistent with accounting and CalPERS procedures.