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File Number: 11 -430 plan with pooling (cost- sharing) arrangements for participating employers. All risks, rewards, and costs, including benefit costs, are shared and are not attributable to the individual employers. A single valuation covers plan members and the same contribution rate applies to all employers. A menu of benefit provisions and other requirements are established by state statute within the Public Employees' Retirement Law. The City has contractually selected optional benefit provisions from the benefit menu and adopted these benefits by City Council resolution. At the time the City was required to join the Safety Risk Pool in 2004, a side fund was created to account for the difference between the funded status of the pool and the funded status of the previous City Plan. Today, the City's total outstanding CalPERS pension obligation and the required annual employer contribution is determined by the City's share of the Safety Risk Pool and separate amortization of the City's side fund. The proposed transaction would refinance the existing side fund obligation to take advantage of low bond market rates. It would not change benefits owed to existing or prior employees. DISCUSSION Effective June 30, 2004, CalPERS created risk pools by pooling assets and liabilities across groups of employers to produce large risk sharing pools intended to dramatically eliminate or at least reduce large fluctuations in employers' contribution rates caused by unexpected demographic events. CalPERS combined the retirement plans for all public agencies with less than 100 active members to reduce the volatility of employer contribution rates. CalPERS also created for each member a side fund to amortize each agency's June 30, 2003 unfunded liability over a fixed term at a fixed interest rate. A negative side fund, like San Leandro's Public Safety's, causes the required employer contribution rate to be increased by the amortization of the side fund. The safety side fund is distinct from the City's other CalPERS plans and liabilities. Side funds are retired over a fixed term with a fixed amortization schedule based on CalPERS actuarial earnings assumption rate (7.75 %). The City's plan has the side fund scheduled to be fully amortized by June 30, 2024. The City's actuary has estimated the outstanding side fund balance at $24.4 million as of June 30, 2011. For pension obligation bonds to provide the City cost savings, the interest rate, including the cost of issuance, must be significantly less than the interest rate the CalPERS charges to amortize the side fund. These bonds are not tax exempt under Federal regulations. Therefore, the taxable bonds, not to exceed the amount of $19,000,000, must be placed at a rate significantly less than the 7.75% charged by CalPERS to realize savings. The 13 -year amortization period for the City's side fund frames the savings opportunity being considered. U.S. Treasury yield continues to fluctuate weekly because of the ongoing national and global economic turmoil and uncertainty. In just the past three months, rates have moved from 4.6% to 5.5% to 5.1 %. The City's actuary and underwriter have estimated that the City's pension obligation bonds, together with the Water Pollution Control Plant Fund loan, will save the General Fund between $250,000 and $500,000 annually. The resolution approves the financing documents, including the Indenture of Trust between the City and U.S. Bank National Association, Bond Purchase Agreement, and the Official City of San Leandro Page 2 Printed on 12/13/2011