HomeMy WebLinkAboutItem 25 - Approval to Pre-Pay the City’s Safety & Miscellaneous Unfunded Actuarial Obligations FY 21-22 Finance and Management Services
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Item # 25
City of Santa Ana
20 Civic Center Plaza, Santa Ana, CA 92701
Staff Report
June 1, 2021
TOPIC: Approval to Pre-Pay the City’s Safety & Miscellaneous Unfunded Actuarial
Obligations FY 21-22
AGENDA TITLE:
Approve Prepayment for the City’s Contribution to Both the CalPERS Miscellaneous and
Safety Employee Pension Unfunded Liability for Fiscal Year 21-22 (General and Non-
General Fund)
RECOMMENDED ACTION
1. Approve a $25,244,430 pre-payment for the City’s annual Unfunded Actuarial Liability
to California Public Employees Retirement System (CalPERS) – Miscellaneous Plan
for Fiscal Year 2021-22, to save $868,611.
2. Approve a $29,101,640 pre-payment for the City’s annual Unfunded Actuarial Liability
to California Public Employees Retirement System (CalPERS) – Safety Plan for Fiscal
Year 2021-22, to save $1,001,331.
EXECUTIVE SUMMARY
The discounted pre-payments are included in the City’s proposed FY 21-22 budget. If the
City Council does not approve the recommendation, the proposed budget will need to
increase by $1,869,942.
The City is preparing to refinance its pension debt. Over the next few months, the
refinancing team will propose a debt structure that may include savings for FY 21-22. As
we move closer to the July 31 due date for FY 21-22 payment of the unfunded liability,
staff will have a better idea of how to proceed. The City may need to make monthly
payments on the unfunded liability until the debt refinancing is complete. The
recommendation will provide the maximum flexibility to meet the City’s obligation and
maximize savings while moving through the refinancing process.
DISCUSSION
The City provides a defined benefit pension plan to its employees, managed by CalPERS.
As employees provide service and accrue service credit, the City incurs a liability.
Contributions from both the City and employees offset the liability. When the contributions
Pre-Pay the City’s Safety & Miscellaneous Unfunded Actuarial Obligations FY 21-22
June 1, 2021
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(plan assets) are less than the accrued liability, there is an unfunded pension liability.
This happens when actual plan performance does not meet CalPERS assumptions, such
as the investment earnings rate and retiree mortality. The unfunded liability is a debt of
the City, as the defined benefit plan is a promise of future pension payments to
employees.
The unfunded liability for both plans are as follows:
Plan Type Unfunded Liability Amount at 6/30/19
Safety (Police and former Fire) $404.7 million
Miscellaneous (all other employees) $302.2 million
The City will receive an update on its Unfunded Liability amount as of June 30, 2020
during the summer of 2021. Each year, CalPERS requires the City to make a payment
on the unfunded liability (UL). One way to reduce the City’s cost is to pay the entire annual
contribution in July, rather than spreading the contribution equally over 12 months. If the
City chooses to pay the entire contribution by July 31st, the contribution is reduced as
follows:
Plan Type UL (Pay over 12 months) UL Pre-Pay Amount Savings
Miscellaneous $26,113,041 $25,244,430 $ 868,611
Safety $30,102,971 $29,101,640 $1,001,331
Projected Savings $1,869,942
Pension Debt Refinancing / Budget FY 2021-22 Assumptions:
The pension debt refinancing is in-process with completion expected in the fall of 2021.
Thus, staff recommends to pre-pay UL to ensure it is in receipt of the projected savings
totaling $1.9 million.
The FY 2021-22 budget has incorporated the assumption that the City will pre-pay is UL
for the upcoming fiscal year and realize the above-referenced projected savings.
ENVIRONMENTAL IMPACT
There is no environmental impact associated with this action.
FISCAL IMPACT
The General Fund is the primary source for unfunded liability payments. Restricted funds
pay for less than one-third of the contributions for miscellaneous employees.
The proposed FY21-22 pre-payment will result in an estimated net savings of $1,869,942.
After the City Council adopts the FY 2021-22 Budget, funds will be budgeted and made
available in the following accounts for the specified year:
Pre-Pay the City’s Safety & Miscellaneous Unfunded Actuarial Obligations FY 21-22
June 1, 2021
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EXHIBIT(S)
1. CalPERS Valuation Report as of 6/30/2019, page 4 – Miscellaneous
2. CalPERS Valuation Report as of 6/30/2019, page 4 – Safety
Submitted By: Kathryn Downs, FMSA Executive Director
Approved By: Kristine Ridge, City Manager
Fiscal Year
Accounting
Unit –
Account No.
Fund
Description
Accounting Unit,
Account No.
Description
Amount
Miscellaneous Plan
FY 2021-22 01105020-
61102 General Fund
Unfunded Liability
(UAL), Retirement –
Employer Unfunded -
Miscellaneous
$17,922,840
FY 2021-22 Various (Non
General Fund)
Various (Non
General
Fund)
Unfunded Liability
(UAL), Retirement –
Employer Unfunded -
Miscellaneous
$7,321,660
Total $25,244,430
Safety Plan
FY 2021-22 01105020-
61103 General Fund
Unfunded Liability
(UAL), Retirement -
Employer Unfunded -
Police
$19,839,920
FY 2021-22 01105020-
61104
General Fund Unfunded Liability
(UAL), Retirement -
Employer Unfunded -
Fire
$9,261,719.
Total $29,101,640
CalPERS Actuarial Valuation - June 30, 2019
Miscellaneous Plan of the City of Santa Ana
CalPERS ID: 4843991156
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2021-22
Employer Normal Cost Rate 11.90%
1) Monthly Employer Dollar UAL Payment $2,176,087
2) Annual UAL Prepayment Option*$25,244,430
Required PEPRA Member Contribution Rate 7.00%
Fiscal Year Fiscal Year
2020-21 2021-22
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 19.626% 19.58%
Employee Contribution1 7.554% 7.68%
Employer Normal Cost2 12.072% 11.90%
Projected Annual Payroll for Contribution Year $64,495,716 $63,294,039
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $12,657,929 $12,392,973
Employee Contribution1 4,872,006 4,860,982
Employer Normal Cost2 7,785,923 7,531,991
Unfunded Liability Contribution 23,390,827 26,113,041
% of Projected Payroll (illustrative only) 36.267% 41.26%
Estimated Total Employer Contribution $31,176,750 $33,645,032
% of Projected Payroll (illustrative only) 48.339% 53.16%
1 For classic members, this is the percentage specified in the Public Employees Retirement Law, net of any reduction from
the use of a modified formula or other factors. For PEPRA members, the member contribution rate is based on 50 percent
of the normal cost. A development of PEPRA member contribution rates can be found in
section. Employee cost sharing is not shown in this report.
2 The Employer Normal Cost is a blended rate for all benefit groups in the plan. For a breakout of normal cost by benefit
EXHIBIT 1
CalPERS Actuarial Valuation - June 30, 2019
Safety Plan of the City of Santa Ana
CalPERS ID: 4843991156
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2021-22
Employer Normal Cost Rate 22.93%
1)Monthly Employer Dollar UAL Payment $2,508,581
2)Annual UAL Prepayment Option*$29,101,640
Required PEPRA Member Contribution Rate 13.00%
Fiscal Year Fiscal Year
2020-21 2021-22
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 33.176% 32.83%
Employee Contribution1 9.595% 9.90%
Employer Normal Cost2 23.581% 22.93%
Projected Annual Payroll for Contribution Year $43,462,651 $44,257,265
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $14,419,169 $14,529,660
Employee Contribution1 4,170,241 4,381,469
Employer Normal Cost2 10,248,928 10,148,191
Unfunded Liability Contribution 26,223,726 30,102,971
% of Projected Payroll (illustrative only) 60.336% 68.02%
Estimated Total Employer Contribution $36,472,654 $40,251,162
% of Projected Payroll (illustrative only) 83.917% 90.95%
1 For classic members, this is the percentage specified in the Public Employees Retirement Law, net of any reduction from
the use of a modified formula or other factors. For PEPRA members, the member contribution rate is based on 50 percent
of the normal cost. A development of PEPRA member contribution rates can be found in
section. Employee cost sharing is not shown in this report.
2 The Employer Normal Cost is a blended rate for all benefit groups in the plan. For a breakout of normal cost by benefit
EXHIBIT 2