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City of San Leandro <br />Notes to Basic Financial Statements <br />For the year ended June 30, 2013 <br />NOTE 14 - EMPLOYEE RETIREMENT PLANS (Continued) <br />Funding Policy - Active plan members are required by state statute to contribute 8% for miscellaneous <br />employees hired before January 1, 2010 and 9% for safety employees of their annual covered salary. The <br />City makes the contributions required for most City employees on their behalf and for their account, <br />which amounted to $2,568,172 for the year ended June 30, 2013. The city is required to contribute at an <br />actuarially determined rate; the fiscal year 2012-13 rate for miscellaneous employees is 21.78%. <br />As previously mentioned the safety fund is in a cost-sharing multiple -employer plan and the city's current <br />employer contribution rate required is 26.42% of annual covered payroll. In 2003-04, CalPERS combined <br />the retirement plans for all public agencies with less than 100 active members to reduce the volatility of <br />employer contribution rates. CalPERS also created for each member a side fund to amortize each <br />agency's June 30, 2003 unfunded liabilities, amortized over a closed period that depends on the plan date <br />of entry into Ca1PERs. A negative side fund, which the city incurred at the time causes the required <br />employer contribution rate to be increased by the amortization of the side fund. The safety side fund is <br />distinct from the City's other CalPERS plans and liabilities. The public safety side fund employer <br />contribution rate is 22.63% which is amortized at 7.5% and scheduled to be fully amortized by June 30, <br />2024. The total required contribution rate in fiscal year 2012-13 for public safety is 49.04% of annual <br />covered payroll for both side fund and multiple -employer plan, an increase of 5% from prior fiscal year. <br />The safety side fund is distinct from the City's other CalPERS plans. Side funds are retired over a fixed <br />term with a fixed amortization schedule based on CalPERS actuarial earnings assumption rate (7.5%). <br />The City's plan has the side fund scheduled to be fully amortized by June 30, 2024. The City's actuary <br />has measured the amortization pay off of the side fund balance to amount to $24,000,000 as of June 30 <br />2011. In March 2012, the City issued $18,305,000 taxable Pension Obligation Bonds to save the City <br />money with lower interest rate significantly less than the interest rate the CalPERS charges to amortize <br />the side fund. These bonds are not tax exempt under Federal regulations. The taxable bonds true interest <br />cost rate was 4.72%, which is significantly less than the 7.75% charged by Ca1PERS, represents an <br />expected savings over the life of the bonds. During fiscal year 2011-12, the City deposited $24,971,910 <br />with CalPERS to pay off the side fund. The 13 -year amortization period for the City's side fund frames <br />the savings opportunity being considered. <br />Annual Pension Cost - For fiscal year 2012-13 the City's annual pension costs of $6,798,060 for <br />CalPERS was equal to the City's required and actual contribution. The required contribution rate for the <br />fiscal year 2012-13 was determined as a part of the June 30, 2012, actuarial valuation which used the <br />entry age normal actuarial cost method with the contributions determined as a percent of pay. The <br />actuarial assumptions included (a) 7.50% investment rate of return (net of administrative expenses); (b) <br />projected salary increases that range from 3.30% to 14.20% for miscellaneous members, and from 3.30% <br />to 14.20% for safety members; (c) an inflation component of 2.75%, and (d) 3% per year cost -of -living <br />adjustments for retirees. The actuarial values of the Miscellaneous and Safety Plans' assets were <br />determined using a technique that smooths the effect of short-term volatility in the market value of <br />investments over a three-year period. Initial unfunded liabilities are amortized over a closed period that <br />depends on the plan's date of entry into CALPERS. CalPERS unfunded actuarial accrued liability is being <br />amortized at a fixed percentage of projected payroll. The remaining amortization period at June 30, 2013 <br />was 16 years. <br />75 <br />