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File Number: 15-536 Fire Department retiree health care. The total amount of unfunded liabilities in 2013 was $119 million; in 2014 that liability increased to $158 million. The 2015 liability is under review by the City’s actuaries and will be reported sometime later this year. The growing annual payment requirement impacts the City’s budget and diminishes funds that are available for projects and services. This growing liability and its potential impact to public services was highlighted in Mayor Cutter’s 2015 State of the City Address as a serious issue of concern that would need to be addressed. A series of internal meetings subsequently took place, followed by review and discussion by the Finance Committee on June 16 and July 21, 2015. The City Council has also responded to mitigate the City’s growing pension liability by taking the following actions. First, the City has paid the full annual required contribution (ARC), as determined by the actuaries each year. Second, the City Council approved a $24 million refinancing of pension liabilities, which accrue interest cost at the rate of 7.5% per year, with General Fund-backed debt that accrues interest at approximately 4%. Third, the City Council directed all staff to contribute up to 9% of salary to offset the growing pension cost. These employee contributions were subsequently phased-in, beginning in 2013. Fourth, the City Council created an additional pension tier for new employees hired after May 2010, which increased new employees’ contribution rates and reduced their defined benefit by 20 percent. Lastly, it is important to note that the City of San Leandro provides its employees with a retiree health care plan that is relatively modest in scope. This prudently structured plan has served to reduce the long term financial liabilities associated with providing the benefit. The State of California also has offered some relief by passing the Public Employees’ Pension Reform Act (PEPRA). As a result of this legislation, employees hired after January 1, 2013 pay at least 6.75% of salary toward their pension, must retire at an older age , and will receive a reduced defined benefit. Existing “classic” CalPERS members (enrolled prior to January 1, 2013), are not subject to most of these changes imposed by PEPRA. In May 2014, CalPERS notified the City of a “pension surcharge” to its Safety Plan due to a formula change implemented by CalPERS. The Pension surcharge was estimated to be approximately $1.15 million annually. In May 2015, City staff appealed to CalPERS and received an alternative payment option, which would reduce City Safety Plan pension contributions during the next three years and produce present value savings over the next 30 years. This option was discussed at the Finance Committee meeting held in June 2015. The Committee determined that the extra payments in the years after the first three years to be too high, and instead recommends extra payments in the next five years if possible as described below. DISCUSSION Unfunded liabilities represent a cumulative challenge that has grown over many years. The City has made this issue a priority and is working toward awareness, approaches and strategies to diminish its scale and impact. The City Council also has taken the following steps to lower the City’s unfunded liability: ·Employee labor contracts that require all employees to pay the full employee share. Page 2 City of San Leandro Printed on 9/15/2015