HomeMy WebLinkAbout04-15-2014 B2 PERS Liability Options
FROM: Wayne Padilla, Finance Director
SUBJECT: REPORT ON OPTIONS FOR PAYING DOWN LIABILITIES
RECOMMENDATION
Hold in abeyance financial analysis conducted for this report and defer action pending California
Public Employees Retirement System (CalPERS) decisions that could significantly change
pooled retirement plans which are being considered later in April, with financial impacts known
in late summer.
REPORT-IN-BRIEF
A component of the work program supporting Council’s Major City Goal of Fiscal Health in the
2013-15 Financial Plan directed staff to prepare a cost/benefit analysis regarding the City’s
ability to make payments on the CalPERS Tier 1 safety side fund, other pension obligations, or
to offset ongoing CalPERS employer rate increases, and to present the analysis with
recommendations to the City Council.
Prior to July 2007, the City maintained a standalone public safety retirement plan through
CalPERS. Beginning with the June 30, 2003 actuarial valuation CalPERS created risk pools in
order to combine individual plans having less than 100 members to provide for risk sharing.
When the City joined the safety pool in 2007, CalPERS created the side fund to account for the
difference between the funded status of the City’s standalone safety plan and that of the safety
pool. At the time that the City joined the safety pool, its standalone safety plan had an unfunded
liability which now totals $24.5 million according to the latest CalPERS actuarial report as of
June 30, 2012.
At its December 10, 2013 meeting, the City Council reaffirmed its desire for a comprehensive
analysis on the safety retirement plan’s side fund liability and the implications of paying at least
a portion of this liability. During the City Council’s discussion of the mid-year budget review on
February 18, 2014 the Council directed that $3 million of the General Fund reserve should be
set-aside to provide the resources necessary to pay down one or more existing liabilities. This
report presents information related to those liabilities that are owed to CalPERS and to the
CJPIA.
Staff conferred with Barbara Ware, the City’s assigned actuary at the California Public
Employees Retirement System (CalPERS), to understand in greater depth the side fund, how it is
currently managed, and what options are available to make a partial or complete payment against
that liability. Staff learned that even if the full amount of the safety side fund was paid in full,
the unfunded liability may not be fully retired if the monies paid to CalPERS do not earn a rate
of return consistent with the actuarially determined assumptions. In other words, in the event
that the investment return is less than the CalPERS assumed rate of return (currently 7.5%), there
would be an additional liability that would be reflected in the safety pool and difficult to
distinguish from the City’s share of the pool’s unfunded liability.
Meeting Date
Item Number
4-15-2014
B2 - 1
Council Agenda Report—Options for Paying Down Liabilities Page 2
The information contained in this report represents the cost and savings estimates for the options
that exist to address the side fund liability:
1. Fully retire the debt using pension obligation bonds, or
2. Make a partial prepayment against the debt of up to $3 million in July 2014, or
3. Do not make a lump sum payment to CalPERS but continue to make the required
payments to CalPERS under their current funding formula.
In addition to considering the safety side fund liability, staff also considered the benefits of
paying off the remaining retrospective deposit that is owed to the California Joint Powers
Insurance Authority (CJPIA) for retrospective adjustment charges related to the liability
insurance program for plan years up to 2009-10. The amount of this liability as of June 30, 2014
will be $2,065,494 including accrued interest.
As this report was being finalized staff learned from Barbara Ware that there are a number of
significant changes affecting pooled retirement plans that the CalPERS Board will be
considering during the same week as tonight’s Council meeting. Because these potential changes
can have a significant impact on the City’s future retirement costs and the side fund liability
amounts starting in 2015-16, staff recommends that any decision to use the reserve set aside to
pay down its liabilities be deferred until more is learned about these changes if they are adopted.
According to Ms. Ware, CalPERS will begin releasing financial information regarding any
decisions that are made to change the funding of pooled retirement plans in August of this year.
Had these changes not been contemplated by CalPERS, staff’s recommendation from this
analysis would have been to conceptually approve the following actions to reduce the City’s
liabilities associated with retirement and insurance:
1. Apply $935,000 of the General Fund reserve set-aside against the safety side fund
liability that is owed to the California Public Employees Retirement System (CalPERS).
2. Apply $2.065 million from the $3.0 million general fund “reserve set-aside” to retire the
retrospective deposit balance owed to the California Joint Powers Insurance Authority
(CJPIA).
3. Apply the savings in 2014-15 that result from the first two recommendations against
additional charges due to CJPIA in July 2014 over and above budgeted amounts.
The impacts of the actions shown above would be to:
1. Create on-going retirement cost savings that average $32,000 per year ($743,000
cumulatively) by reducing the side fund liability charge that is an on-going component of
the safety retirement plan charge as shown in Exhibit E to this report.
2. Obtain the largest amount of savings in the shortest period of time by immediately
eliminating $2.065 million in debt
3. Free up the five annual installment payments in the amount of $429,537 each that were
programmed into the City’s 5 Year Fiscal Forecast starting in 2014-15 for a total of
$2,147,685
B2 - 2
Council Agenda Report—Options for Paying Down Liabilities Page 3
DISCUSSION
The City provides retirement benefits for full-time employees through the California Public
Employees Retirement System (CalPERS). Employees who serve as sworn public safety
officers (police officers and fire fighters) are members of the Safety Plan which has three benefit
tiers:
1. The first provides a 3% at age 50 benefit
2. The second tier for police provides a 2% at age 50 benefit while the second tier for fire
personnel provides a 3% at age 55 benefit
3. The third tier program for both police and fire personnel provides a 2.7% at age 57
benefit
Employees who work in other capacities such as planners and clerical staff are members of the
Miscellaneous Plan, which also has three benefit tiers.
1. The first tier provides a 2.7% at age 55 benefit
2. The second tier provides a 2% at age 60 benefit
3. The third tier provides a 2% at age 62 benefit
CalPERS establishes the annual employer contribution rate that is charged against the City’s
payroll costs for eligible employees. The safety pool contribution rate is comprised of these
components:
1. Normal Cost, which is the amount needed to fund benefits earned by active employees in
the upcoming year
2. Unfunded Rate which is the amount charged to pay down the unfunded liability
3. Amortization of Side Fund which is the amount required to amortize the safety side fund
liability over 30 years
In addition to the employer contribution rate, CalPERS sets the member contribution rate which
is paid by each employee through a payroll deduction. The amounts of each rate applicable to
2014-15 are shown below:
Police Fire
Tier 1 Tier 2 Tier 3 Tier 1 Tier 2 Tier 3
Normal Cost 20.128% 15.973% 12.25% 20.128% 17.128% 12.25%
Unfunded Rated 9.428% 5.49% 9.428% 5.937%
Amortization of Side Fund 15.645% 15.645%
Employee Contribution 9.0% 9% 12.25% 9% 9% 12.25%
It is important to note that these rate components are based on actuarially determined factors, one
of which is the assumption that the annual safety salary expense of the City will be equal to the
CalPERS estimate and that safety salaries will always grow by 3%. Currently the CalPERS
estimated payroll amount for 2014-15 is $2.3 million greater than the City’s forecast salary
expense for that fiscal year. While the City pays the legally required annual contributions each
year, the difference in the amount of the City’s actual salary expense and the amount assumed by
B2 - 3
Council Agenda Report—Options for Paying Down Liabilities Page 4
CalPERS causes the annual contribution to fall short of what the actuarial report states is
required to pay down the liability within 30 years. The difference between what the City pays
and what the actuarial report shows as the target amount can vary by a range of $120,000 to $1.5
million per year, for just the side fund payment to the safety pool. It is because of this that
CalPERS is apparently contemplating a change that would require the annual contributions paid
by the City to the safety pool to be based on their calculated amount and not through the use of
the employer rate multiplied times the actual safety payroll processed by the City. Refer to
Exhibit C for the comparison of the CalPERS target side fund payment amount and the estimated
payments that would be made by the City using the current funding methodology.
Each October CalPERS provides an actuarial valuation report for each benefit plan that updates
certain values to reflect changes in plan activity since the previous valuation. These changes
include but are not limited to:
The difference between the expected 7.5% rate of return and the actual amount
realized
Changes in the number of plan members who retire each year
Changes in the number of new plan members
Changes in the annual payroll provided to existing members of the plan
The actuarial valuations also provide new information on the variables associated with
maintaining the plan, such as the amount of the unfunded liability and the annual Employer
Contribution rate described above, which represents the amount for every dollar of safety payroll
that the City is required to pay from the start of the following fiscal year.
During the discussion with Barbara Ware, staff confirmed the following about the City’s current
benefit plans.
Effect of Interest Earnings
The City places its idle cash in several different investments. For short term cash needs, the City
uses the state Local Agency Investment Fund which pays an annual return of approximately
.25%. For monies invested for longer terms, the interest rate varies from approximately .33% to
just below 1%. For calendar year 2013 the total interest earned by the City was .89%. As
discussed in the next section of this report, CalPERS assumes that all investments and liabilities
will return 7.5% each year. When this does not occur and other changes in variables do not
mitigate the shortfall, the liability amounts increase. When making assumptions about
borrowing to pay off the side fund, the imputed rate of interest was forecast to be approximately
4% over the life of the debt. Theoretically, due to the disparity in the amount of return on
invested monies, paying off a higher interest debt such as the side fund liability can be a better
use of the idle cash.
Discount factor
Currently adopted CalPERS actuarial assumptions rely on an investment return of at least 7.5%
on all of the amounts it invests as well as on all of the amounts that are owed to it (i.e. unfunded
liabilities such as the safety side fund amount). If the actual rate of return is less than this
amount and all other factors remain the same (i.e. number of annual retirements, mortality,
compensation adjustments, etc.), later annual valuations will reflect a greater unfunded liability.
This means that while the city may prepay all or a portion of the safety side fund liability, at any
B2 - 4
Council Agenda Report—Options for Paying Down Liabilities Page 5
time that CalPERS does not earn the required rate of return on the monies that the city has paid,
an additional liability may be created in the safety pool benefit program that would not reappear
as a separate safety side fund obligation. This generally results in increases to contribution rates
for the safety pool and the City’s safety pool liability would be increased based on its
proportional share of all pool liabilities
Unfunded Liability Amounts
The unfunded liability is the difference between the value of accrued plan benefits and the value
of plan assets. The unfunded liability amount constantly changes and in theory is never retired
until the last retiree is paid in full. The City’s existing unfunded liabilities using the market value
of assets (see Note 1 at end of report) from the most recent CalPERS actuarial valuation report
based on the year ending June 30, 2012 results are listed below.
Miscellaneous Plan – all tiers $65,555,000
Safety Side Fund $24,500,000
Safety Pool Liability $32,851,000
Safety Plan Tier 2 and 3 benefits $0
The last actuarial report indicates that the City will be paying the following amounts for every
dollar of payroll cost to pay down the unfunded liabilities in 2014-15:
Miscellaneous Plans 15.64%
Safety Plan
Side fund 15.645%
Police 2nd Tier Pool 5.49%
Fire 2nd Tier Pool 5.937%
Unfortunately CalPERS does not publish a Frequently Asked Questions or guidance document
on this topic, but the City’s assigned actuary, Barbara Ware, will be available by phone for the
Council meeting of April 15, 2014, and questions provided to staff in advance of the meeting,
will be provided to Ms. Ware so she may address them at the meeting.
According to the latest actuarial report, the safety side fund has 23 more years before it is fully
amortized and this timeframe is the basis for the analyses that have been presented in this report.
Using Pension Obligation Debt to Retire the Side Fund Liability
Staff prepared the analysis in Exhibit A which shows the cost of continuing to pay the annual
required contribution to CalPERS for the safety side fund liability based on the current payment
methodology compared to the cost of annual pension obligation bond payments. The overall cost
to the City is increased by approximately $3.2 million by using this method of debt reduction.
The pension bond expense is based on an average interest rate of 4% with level, fixed debt
service payments to pay off the outstanding obligation. This varies in amount from the cost of
continuing to pay CalPERS the required annual contribution because the contribution amount is
tied to the estimated value of annual payroll multiplied by the amortization of side fund
B2 - 5
Council Agenda Report—Options for Paying Down Liabilities Page 6
component of the annual employer charge which will not result in the safety side fund liability
being paid off in 30 years because the annual safety payroll cost is much less than the target
amount that has been set by CalPERS under its actuarial assumptions.
Exhibit B compares the same pension bond costs to the estimated annual side fund contributions,
assuming that CalPERS begins to require a fixed annual payment in-lieu of providing an annual
employer rate that is applied against the City’s actual payroll costs. This analysis shows that the
use of a pension obligation bond may become feasible after several years due to the estimated
lower cost of the annual bond payments compared to the estimates for the required annual
payments to CalPERS. Because this analysis shows that the pension obligation bond payments
are still more expensive than the estimated annual side fund contributions for the next five years,
issuing a bond at this time is not recommended.
From our discussion with Barbara Ware, staff learned that if the entire safety side fund liability is
paid off, the safety side fund account is eliminated and the employer contribution rate is lowered
to reflect the elimination of the unfunded amount component described earlier. However, if
CalPERS fails to earn the required return on the money paid by the City to retire the safety side
fund liability, a new liability amount will appear in the safety pool program. As discussed
earlier, the City shares in all changes to the safety pool liability amounts on a proportional basis
and the amount of any increase resulting from such an increase in the liability is likely to be
rather small. The possible increase in liability was not an overriding consideration in
recommending against using pension obligation bonds to pay off the side fund because this
potential liability increase would be small.
Making a Partial Payment against the Side Fund Liability
Whether the City retires the debt in full or with a partial payment, CalPERS will reduce the
annual contribution that the City is required to pay for servicing the side fund liability obligation
through the rate that is charged each year. The current annual cost to the City for the payment
against the safety side fund liability is 15.645% of safety payroll costs and the total annual
estimated cost is shown in Exhibit C. If the City makes a prepayment to CalPERS for the full $3
million that the Council has set aside, the annual rate would be reduced by 1.91% based on the
following formula:
($3M/$24.5M = 12.24%)
15.645% x .1224 = 1.91% reduction
Based on the City’s projected 2014-15 safety payroll salary estimate, the reduction of 1.91% in
the retirement rate will cut $170,000 from the expected side fund payment next year. However,
as shown in Exhibit D, it will take 24 years to recover the full $3 million payment. The
reduction in the rate will generate on-going savings that would vary according to the level of
salary that is paid under the safety retirement plan. This assumes that there are no other changes
made by CalPERS to alter the current payment requirement.
As you will note later in this report, staff’s analysis indicates that using a portion of the $3
million is more beneficial to pay off the retrospective liability to CJPIA. Staff conducted analysis
of the benefits of using the remaining $935,000 to pay down the side fund. This analysis (Exhibit
E) indicates that the city could save an average of $32,000 annually ($743,000 over the life of
B2 - 6
Council Agenda Report—Options for Paying Down Liabilities Page 7
the side fund) by making this pre-payment. Based on this analysis this approach is part of the
recommended actions to limit the City’s long-term liabilities.
Note that CalPERS will allow the City to make a payment against the safety side fund liability at
any time but requests advance notice so they can provide the City with the appropriate rate
adjustments to coincide with the payment made against the liability by the City.
Rate Trends
The City has learned that the Miscellaneous Benefit Plan will have a blended employer rate. This
means that CalPERS intends to combine the actuarial assumptions of the 2nd and 3rd tier
miscellaneous benefit programs with those of the original benefit program (i.e. the unfunded
liability will be shared amongst all tiers). This is contrary to what staff had originally understood
would happen which was that CalPERS would establish separate and lower employer rates for
the 2nd and 3rd tiers. However, as more employees join the new reduced benefit programs, the
on-going cost for the overall Miscellaneous Plan will be reduced. What this means is CalPERS is
unable to provide the specific amount of savings that will be achieved related to the proportion of
an agency’s personnel that are in the 2nd and 3rd tiers.
The City also learned that CalPERS is considering changes to the manner in which the annual
amount owed by the City will be set each year. As mentioned above, the actuarial plan
valuations identify the rate per dollar of payroll that the City must pay and this is applied against
the actual payroll cost. Because CalPERS uses an actuarial assumption that payroll will grow by
3% each year and because their assumption for payroll costs has grown to be more than the
amount actually paid by the City, the amount the City pays CalPERS for the annual contribution
is well below the annual payment amount shown in the actuarial valuation.
This difference helps contribute to the growth of the unfunded liability. Because CalPERS has
recognized that many public agency’s payroll costs have fallen below the amount derived by the
actuarial assumptions and chronic underfunding of the required annual amount is the result,
CalPERS may require agencies to make a required fixed annual payment in place of payments
that are based on the employer contribution rate multiplied times every dollar of payroll that is
paid by the agency. This will likely increase the City’s annual cost by the amounts shown in the
last column of Exhibit C for the side fund component of the employer cost by the cumulative
amount of $15.2 million.
Retrospective Deposit Liability
In addition to the unfunded retirement liabilities, the City has also recognized a liability owed to
the CJPIA for retrospective adjustment charges related to the liability insurance program for plan
years up to 2009-10. The remaining amount owed is $2,065,494 including accrued interest of
1.99% as of July 1, 2014. The City Council approved a 6 year repayment plan and the 5
remaining payments that total $2,147,500 are reflected in the 5 Year Fiscal Forecast.
By taking $2.065 million from the $3 million General Fund Reserve that was set-aside by the
City Council in February as part of the mid-year budget review, this entire debt can be retired
and the annual payments of $429,537 can be used in part to address other anticipated cost
increases from CJPIA.
CONCLUSION ON USE OF GENERAL FUND RESERVE SET-ASIDE
B2 - 7
Council Agenda Report—Options for Paying Down Liabilities Page 8
Staff recently learned from Barbara Ware that the CalPERS board is going to consider changes
to the safety pool program this month. These potential changes are significant and include:
1). The creation of a single safety pool. This would wrap all public safety plans into one
large pool;
2). The creation of a new side fund liability amount for each safety agency. This means
that the City would have two safety side fund liabilities with the total estimated to be
$57.3 million;
3). Within the existing safety pool, liabilities are allocated based on the relative size of
each member’s annual payroll. Under the proposal, liabilities will be allocated based on
each member’s total liability compared to the pool’s total liability; and
4). Other changes that will be considered include the shift to a fixed dollar required
annual contribution amount in place of an employer rate that is charged against the City’s
actual payroll costs starting in 2015-16. This has the potential to raise the City’s annual
contribution for the side fund payment component alone by amounts that range from
$120,000 to as much as $1.5 million per year for the safety pool. This amount would be
in addition to any other changes that would affect the City’s annual retirement costs such
as changes in asset smoothing and retiree mortality rates. (refer to Exhibit C)
Because CalPERS may create a second safety side fund liability and modify the safety pool
administration, it would not be prudent to move forward with a pension obligation bond at this
time. Additionally, since it will take CalPERS at least until August to provide the City with
details showing what the implications from these actions will be, staff recommends delaying a
decision on the use of the $3 million reserve set aside until that information has been obtained.
In the meantime, the planned installment payment can be made to the CJPIA in July 2014. If it
is later found that proceeding with the payoff of the remaining balance of the retrospective
deposit still provides the most benefit, the City will still have nearly the same amount of savings
from making the payment a few months into the new fiscal year.
If the Council wishes to move ahead and take action to pay off its debts, staff recommends
utilizing $2.065 million of the $3.0 million that was set-aside within the general fund reserve
during the mid-year budget review to pay off the retrospective deposit liability and use the
remaining $935,000 from that account to make a partial prepayment of the CalPERS Safety side
fund liability. Based on the information presented in Exhibit F this will provide the largest
amount of savings in the shortest period of time by immediately eliminating the $2.065 million
debt and creating on-going cost savings by reducing the safety side fund liability charge that is
an on-going component of the safety plan charge. The estimated savings from the partial
prepayment of the side fund liability is also shown in Exhibit E.
FISCAL IMPACT
If the Council chooses to move forward and retire the retrospective deposit amount owed to the
California Joint Powers Insurance Authority and then apply the remaining amount of the General
Fund reserve set-aside to the safety side fund liability, the City will accomplish the following
with regard to the CJPIA deposit:
1. Immediately eliminate $2.065 million in debt;
B2 - 8
Council Agenda Report—Options for Paying Down Liabilities Page 9
2. Free up the five installment payments in the amount of $429,537 each that were
programmed into the City’s 5 Year Fiscal Forecast starting in 2014-15 for a total of
$2,147,685; and
3. Save $82,200 in interest over 5 years compared to making the remaining installment
payments to CJPIA. This is due to the fact that the 1.99% interest is accrued on
outstanding balance only. For comparative purposes, after making a $3 million
prepayment against the safety side fund liability, it will take 24 years to recoup the $3
million payment.
{Refer to Exhibit F for an analysis of the above results}
With regard to making a $935,000 prepayment against the safety side fund liability the City will:
1. Immediately eliminate $935,000 in debt (subject to CalPERS ability to earn 7.5% interest
each year).
2. Create on-going retirement cost savings that average $32,000 per year by reducing the
side fund liability charge that is an on-going component of the safety retirement plan
charge as shown in Exhibit E to this report.
This amount of combined savings is nearly enough to fund the cost of the retrospective
adjustment charges that will be payable in July 2014 to CJPIA which were the result of a second
retrospective calculation through the 2011-12 fiscal period. The City Council was made aware of
these new costs during staff’s presentation on the Mid-Year Budget Update. The total amount of
these additional charges is $39,300 for the workers compensation program and $442,700 for the
liability insurance program.
ALTERNATIVES
1. Put all of the set-aside towards the side fund liability. The City Council may direct
that the full amount of the reserve set-aside is applied to the side fund liability with
CalPERS. This is not seen as being an effective use of the set-aside portion of the general
fund reserve since it will take 24 years to recoup the investment in the form of reductions
in the amount paid to CalPERS and there is a chance that CalPERS may not achieve its
target rate of return each year, causing a new liability to be created to make up for the
loss of interest on the amount paid to retire the side fund liability.
2. Use the set-aside differently. The Council may direct that the reserve set-aside is put to
other uses. Council should provide staff with direction regarding other potential uses of
the reserve set-aside so an analysis and recommendation can be provided.
3. Put all of the set-aside towards the side fund liability and direct staff to begin the
process of issuing Pension Obligations Bonds to pay off the remaining balance. If
CalPERS changes its rate setting methodology it would be prudent to reevaluate this
option. However, based on the current actuarial methodology this does not appear to be
the most prudent way to limit the City’s liabilities.
EXHIBITS
B2 - 9
Council Agenda Report—Options for Paying Down Liabilities Page 10
Exhibit A – Compares the cost of annual pension obligation bond payments to the
estimated annual payments that the City would pay to CalPERS over the same time
period. This calculation is based on the estimated safety payroll cost of the City for
the periods shown. The higher cost of the debt service payment stream makes this
option unfeasible at this time.
Exhibit B – Provides a comparison between the estimated side fund payments to be charged by
CalPERS assuming that they require a fixed annual payment beginning in 2015-16
in-lieu of providing an annual employer rate that is applied against the City’s actual
payroll costs to the cost of annual pension obligation bond payments.
Exhibit C- The following exhibit provides a comparison between the estimated side fund
payments to be charged by CalPERS assuming that they require a fixed annual
payment beginning in 2015-16 and the projected annual side fund payments that
would be made under the current funding method which uses an annual employer rate
that is applied against the City’s actual payroll costs.
Exhibit D - Provides the estimated savings to be achieved from applying $3.0 million from the
general fund reserve set-aside to the side fund liability, compared to the estimated
cost of making the annual payments to CalPERS under the current payment formula
based on the city’s forecast payroll costs.
Exhibit E – Provides the estimated savings to be achieved from applying $935,000 from the
general fund reserve set-aside to the side fund liability, compared to the estimated
cost of making the annual payments to CalPERS under the current payment formula
based on the city’s forecast payroll costs.
Exhibit F –This exhibit shows that if the City applies $3.0 million to pay off the side fund
liability next year instead of paying off the liability owed to the California Joint
Powers Insurance Authority, it will take 24 years to achieve savings of $3.0 million
and more than 24 years to achieve the same amount of savings that the City obtains
from paying down the retrospective deposit owed to the CJPIA.
Exhibit G – This exhibit shows the normal cost and unfunded rate components for the
miscellaneous retirement plan.
Note: (1) Under the new Governmental Accounting Standards Board Pronouncements (#’s 67
and 68) that will be put into effect over the next two years, the market value of plan assets
becomes the only measurement of that value that will be accepted. This is based on the
determination of the investments’ value on the open market as of J une 30th each year using a
recognized and independent valuation method. Prior to this change, an agency could use the
Actuarial Value of Assets which is determined using probability tables and risk adjustment, to
compensate for the future income of pension contributors and other factors such as mortality.
B2 - 10
Council Agenda Report—Options for Paying Down Liabilities Page 11
The following exhibit compares the cost of annual pension bond payments to the estimated
annual payments that the City would pay to CalPERS over the same time period based on the
estimated safety payroll cost of the City for the periods shown. The higher cost of the debt
service makes this option unfeasible.
B2 - 11
Council Agenda Report—Options for Paying Down Liabilities Page 12
Exhibit A
Estimated
Side Fund
Payment*
Pension
Bond Annual
Payments
Bond Cost
Over (Under)
Estimated
Side Fund
Pymts
Year
2013-14 1,376,695 1,941,074 564,379
2014-15 1,390,978 1,947,424 556,446
2015-16 1,590,500 1,944,942 354,442
2016-17 1,744,615 1,944,609 199,994
2017-18 1,734,872 1,945,707 210,835
2018-19 1,778,545 1,948,794 170,249
2019-20 1,828,545 1,948,359 119,814
2020-21 1,874,464 1,943,910 69,446
2021-22 1,917,889 1,945,883 27,994
2022-23 1,945,979 1,944,120 (1,859)
2023-24 1,966,190 1,947,922 (18,268)
2024-25 1,958,591 1,946,877 (11,714)
2025-26 1,948,377 1,946,165 (2,212)
2026-27 1,943,625 1,945,602 1,977
2027-28 1,961,571 1,944,678 (16,893)
2028-29 1,968,434 1,947,810 (20,624)
2029-30 1,929,367 1,944,968 15,601
2030-31 1,915,848 1,946,423 30,575
2031-32 1,873,968 1,946,953 72,985
2032-33 1,798,020 1,946,151 148,131
2033-34 1,760,066 1,948,441 188,375
2034-35 1,736,862 1,948,232 211,370
2035-36 1,747,060 1,945,092 198,032
2036-37 1,799,472 1,948,242 148,770
$43,490,531 $46,708,378 $3,217,847
* Assumes that the City pays the CalPERS calculated side
fund payment based on the City's estimated cost of actual
safety payroll costs to be paid over the timeframe shown.
B2 - 12
Council Agenda Report—Options for Paying Down Liabilities Page 13
The following exhibit provides a comparison between the estimated side fund payments to be
charged by CalPERS assuming that they require a fixed annual payment beginning in 2015-16
in-lieu of providing an annual employer rate that is applied against the City’s actual payroll
costs, to the cost of annual pension obligation bond payments.
B2 - 13
Council Agenda Report—Options for Paying Down Liabilities Page 14
Exhibit B
Pension
Bond Annual
Payments
Bond Cost Over
(Under)
Estimated Side
Fund Fixed
Payments
Estimated
Side Fund
Fixed
Year Payment
2013-14 $1,706,837 1,941,074 $234,237
2014-15 1,758,042 1,947,424 $189,382
2015-16 1,810,794 1,944,942 $134,148
2016-17 1,865,118 1,944,609 $79,491
2017-18 1,921,072 1,945,707 $24,635
2018-19 1,978,704 1,948,794 ($29,910)
2019-20 2,038,065 1,948,359 ($89,706)
2020-21 2,099,207 1,943,910 ($155,297)
2021-22 2,162,183 1,945,883 ($216,300)
2022-23 2,227,048 1,944,120 ($282,928)
2023-24 2,293,860 1,947,922 ($345,938)
2024-25 2,362,676 1,946,877 ($415,799)
2025-26 2,433,556 1,946,165 ($487,391)
2026-27 2,506,563 1,945,602 ($560,961)
2027-28 2,581,759 1,944,678 ($637,081)
2028-29 2,659,212 1,947,810 ($711,402)
2029-30 2,738,989 1,944,968 ($794,021)
2030-31 2,821,158 1,946,423 ($874,735)
2031-32 2,905,793 1,946,953 ($958,840)
2032-33 2,992,967 1,946,151 ($1,046,816)
2033-34 3,082,756 1,948,441 ($1,134,315)
2034-35 3,175,239 1,948,232 ($1,227,007)
2035-36 3,270,496 1,945,092 ($1,325,404)
2036-37 3,368,611 1,948,242 ($1,420,369)
$ 58,760,703 $46,708,378 ($12,052,325)
B2 - 14
Council Agenda Report—Options for Paying Down Liabilities Page 15
The following exhibit provides a comparison between the estimated side fund payments to be
charged by CalPERS assuming that they require a fixed annual payment beginning in 2015-16
and the projected annual side fund payments that would be made under the current funding
method which uses an annual employer rate that is applied against the City’s actual payroll costs.
B2 - 15
Council Agenda Report—Options for Paying Down Liabilities Page 16
Exhibit C
PERS
City
PERS Estimated City Estimated
Projected Side Fund Estimated Side Fund Annual
Year Payroll Payment* Payroll Payment ** Difference
2014-15 11,237,153 1,758,042 8,890,878 1,390,978 $367,064
2015-16 11,574,268 1,810,794 8,979,787 1,590,500 $220,294
2016-17 11,921,496 1,865,118 8,822,919 1,744,615 $120,503
2017-18 12,279,140 1,921,072 8,603,285 1,734,872 $186,200
2018-19 12,647,515 1,978,704 8,413,384 1,778,545 $200,159
2019-20 13,026,940 2,038,065 8,188,917 1,828,545 $209,520
2020-21 13,417,748 2,099,207 7,970,161 1,874,464 $224,743
2021-22 13,820,281 2,162,183 7,706,052 1,917,889 $244,294
2022-23 14,234,889 2,227,048 7,388,395 1,945,979 $281,069
2023-24 14,661,936 2,293,860 7,007,530 1,966,190 $327,670
2024-25 15,101,794 2,362,676 6,497,767 1,958,591 $404,085
2025-26 15,554,848 2,433,556 5,952,111 1,948,377 $485,179
2026-27 16,021,493 2,506,563 5,345,305 1,943,625 $562,938
2027-28 16,502,138 2,581,759 4,797,707 1,961,571 $620,188
2028-29 16,997,202 2,659,212 4,197,733 1,968,434 $690,778
2029-30 17,507,118 2,738,989 3,585,359 1,929,367 $809,622
2030-31 18,032,332 2,821,158 3,024,286 1,915,848 $905,310
2031-32 18,573,302 2,905,793 2,453,041 1,873,968 $1,031,825
2032-33 19,130,501 2,992,967 1,927,480 1,798,020 $1,194,947
2033-34 19,704,416 3,082,756 1,485,829 1,760,066 $1,322,690
2034-35 20,295,548 3,175,239 1,118,545 1,736,862 $1,438,377
2035-36 20,904,415 3,270,496 842,050 1,747,060 $1,523,436
2036-37 21,531,547 3,368,611 633,902 1,799,472 $1,569,139
$ 58,760,703
$43,490,531
*amount is based on the CalPERS estimate for payroll which grows 3% under their
assumptions
** amount is based on the estimated actual payroll costs for the city
B2 - 16
Council Agenda Report—Options for Paying Down Liabilities Page 17
The following exhibit provides the estimated savings to be achieved from applying $3.0 million
from the general fund reserve set-aside to the side fund liability, compared to the estimated
cost of making the annual payments to CalPERS under the current payment formula based on the
city’s forecast payroll costs. Note that it will take 24 years to generate $3.0 million in savings.
B2 - 17
Council Agenda Report—Options for Paying Down Liabilities Page 18
Exhibit D
City
City Estimated
Estimated Side Fund Annual Cumulative
Side Fund Payment Savings from Savings
Year Payment * After Side Fund from Side Fund
$3M Pymt Prepayment Payment
(3,000,000)
2014-15 1,390,978 1,221,162 169,816 (2,830,184)
2015-16 1,590,500 1,418,986 171,514 (2,658,670)
2016-17 1,744,615 1,576,126 168,488 (2,490,182)
2017-18 1,734,872 1,570,530 164,342 (2,325,840)
2018-19 1,778,545 1,617,810 160,735 (2,165,105)
2019-20 1,828,545 1,672,177 156,368 (2,008,736)
2020-21 1,874,464 1,722,272 152,192 (1,856,544)
2021-22 1,917,889 1,770,697 147,192 (1,709,352)
2022-23 1,945,979 1,804,837 141,142 (1,568,210)
2023-24 1,966,190 1,832,329 133,861 (1,434,349)
2024-25 1,958,591 1,834,514 124,076 (1,310,273)
2025-26 1,948,377 1,834,679 113,698 (1,196,575)
2026-27 1,943,625 1,841,511 102,114 (1,094,461)
2027-28 1,961,571 1,869,954 91,617 (1,002,844)
2028-29 1,968,434 1,888,266 80,168 (922,676)
2029-30 1,929,367 1,860,873 68,493 (854,182)
2030-31 1,915,848 1,858,091 57,757 (796,426)
2031-32 1,873,968 1,827,123 46,846 (749,580)
2032-33 1,798,020 1,761,196 36,824 (712,757)
2033-34 1,760,066 1,731,689 28,376 (684,380)
2034-35 1,736,862 1,715,501 21,361 (663,019)
2035-36 1,747,060 1,730,976 16,084 (646,935)
2036-37 1,799,472 1,787,362 12,110 (634,825)
$43,490,531 $41,125,356 $2,365,175
*Assumes City continues to pay the annual rate set by CalPERS for side fund reduction times the
amount of annual safety payroll
B2 - 18
Council Agenda Report—Options for Paying Down Liabilities Page 19
This exhibit provides the estimated savings to be achieved from applying $935,000 from the
general fund reserve set-aside to the side fund liability, compared to the estimated cost of making
the annual payments to CalPERS under the current payment formula based on the city’s forecast
payroll costs.
B2 - 19
Council Agenda Report—Options for Paying Down Liabilities Page 20
Exhibit E
City Estimated
Side Fund
Payment after
Making $935k
Prepayment
City
Estimated
Side Fund
Payment
Savings from
Side Fund
Prepayment Year
2014-15 1,390,978 1,337,633 53,345
2015-16 1,590,500 1,536,621 53,879
2016-17 1,744,615 1,691,706 52,908
2017-18 1,734,872 1,683,233 51,639
2018-19 1,778,545 1,728,025 50,520
2019-20 1,828,545 1,779,452 49,094
2020-21 1,874,464 1,826,681 47,783
2021-22 1,917,889 1,871,646 46,243
2022-23 1,945,979 1,901,625 44,354
2023-24 1,966,190 1,924,127 42,062
2024-25 1,958,591 1,919,635 38,955
2025-26 1,948,377 1,912,651 35,726
2026-27 1,943,625 1,911,534 32,090
2027-28 1,961,571 1,932,804 28,767
2028-29 1,968,434 1,943,257 25,178
2029-30 1,929,367 1,907,841 21,525
2030-31 1,915,848 1,897,709 18,139
2031-32 1,873,968 1,859,258 14,711
2032-33 1,798,020 1,786,446 11,574
2033-34 1,760,066 1,751,154 8,912
2034-35 1,736,862 1,730,153 6,708
2035-36 1,747,060 1,742,007 5,053
2036-37 1,799,472 1,795,666 3,806
$43,490,531 $42,747,561 $742,970
Savings is shown by comparing the estimated cost for the side
fund payment based on the City's own estimate for annual
payroll to the estimated cost after CalPERS applies a .6%
reduction to the annual side fund payment rate component
B2 - 20
Council Agenda Report—Options for Paying Down Liabilities Page 21
This exhibit shows that if the City applies $3.0 million to pay off the side fund liability next
year instead of paying off the liability owed to the California Joint Powers Insurance Authority,
it will take 24 years to achieve savings of $3.0 million and nearly 25 years to achieve the same
amount of savings that the City obtains from paying down the retrospective deposit owed to the
CJPIA.
B2 - 21
Council Agenda Report—Options for Paying Down Liabilities Page 22
Exhibit F
City
City Estimated
Cumulative
Estimated Side Fund Annual Cumulative Savings from Savings from
Side Fund Payment Savings from Savings Prepayment Prepayment
Year Payment * After Side Fund from Side Fund of CJPIA of CJPIA
$3M Pymt Prepayment Payment Retro Deposit Retro Deposit
(3,000,000)
(2,065,494)
2014-15 1,390,978 1,221,162 169,816 (2,830,184) 429,537 (1,635,957)
2015-16 1,590,500 1,418,986 171,514 (2,658,670) 429,537 (1,206,420)
2016-17 1,744,615 1,576,126 168,488 (2,490,182) 429,537 (776,883)
2017-18 1,734,872 1,570,530 164,342 (2,325,840) 429,537 (347,346)
2018-19 1,778,545 1,617,810 160,735 (2,165,105) 429,537 82,191
2019-20 1,828,545 1,672,177 156,368 (2,008,736)
2020-21 1,874,464 1,722,272 152,192 (1,856,544)
2021-22 1,917,889 1,770,697 147,192 (1,709,352)
2022-23 1,945,979 1,804,837 141,142 (1,568,210)
2023-24 1,966,190 1,832,329 133,861 (1,434,349)
2024-25 1,958,591 1,834,514 124,076 (1,310,273)
2025-26 1,948,377 1,834,679 113,698 (1,196,575)
2026-27 1,943,625 1,841,511 102,114 (1,094,461)
2027-28 1,961,571 1,869,954 91,617 (1,002,844)
2028-29 1,968,434 1,888,266 80,168 (922,676)
2029-30 1,929,367 1,860,873 68,493 (854,182)
2030-31 1,915,848 1,858,091 57,757 (796,426)
2031-32 1,873,968 1,827,123 46,846 (749,580)
2032-33 1,798,020 1,761,196 36,824 (712,757)
2033-34 1,760,066 1,731,689 28,376 (684,380)
2034-35 1,736,862 1,715,501 21,361 (663,019)
2035-36 1,747,060 1,730,976 16,084 (646,935)
2036-37 1,799,472 1,787,362 12,110 (634,825)
$43,490,531 $41,125,356 $2,365,175
*Assumes City continues to pay the annual rate set by CalPERS for side fund reduction times the amount of annual
safety payroll
B2 - 22
Council Agenda Report—Options for Paying Down Liabilities Page 23
Exhibit G
Miscellaneous
Normal Cost 18.615%
Unfunded Rated 15.64%
Employee Contribution 8%
B2 - 23
Page intentionally left
blank.
B2 - 24