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City of San Leandro <br />Meeting Date: July 16, 2018 <br />Staff Report <br />Agenda Section:File Number:18-349 CONSENT CALENDAR <br />Agenda Number:8.S. <br />TO:City Council <br />FROM:Jeff Kay <br />Acting City Manager <br />BY:David Baum <br />Finance Director <br />FINANCE REVIEW:David Baum <br />Finance Director <br />TITLE:Staff Report for a MOTION to Approve Proposal to Pre-pay CalPERS Annual <br />Required Contribution <br />SUMMARY AND RECOMMENDATION: <br />It is recommended that the Mayor and Council direct staff to pre-pay the Fiscal Year 2018-2019 <br />obligation in the amount of $10,000,375 for the City’s Unfunded Accrued Liability calculated by <br />CalPERS. <br />BACKGROUND <br />The California Public Employees Retirement System (CalPERS) currently invoices the City <br />monthly to collect pension cost for current and former City employees. Employer contributions <br />are determined by periodic actuarial valuations that are based on the benefit formulas the City <br />provides. <br />Prior to Fiscal Year 2015-16, CalPERS billed employers for all contributions, which included the <br />normal cost plus the unfunded accrued liability (UAL) portion (combined) as a total percentage <br />of payroll. As a result of the discount rate change approved by CalPERS on December 21, <br />2016, employers are now required to pay a percentage of payroll for the normal cost portion and <br />a monthly dollar amount for the unfunded liability portion. CalPERS also provided an option of <br />prepaying the UAL portion annually as opposed to monthly to reduce the amount of interest <br />annually. The discount rate is the long-term interest rate used to fund future pension benefits and <br />it is also known as the assumed rate of return because it's what CalPERS expects its <br />investments to earn during the fiscal year. <br />The annual required contribution total is the sum of the plan's employer normal cost (NC) rate <br />(expressed as a percentage of payroll) plus the employer UAL contribution amount (billed <br />monthly in dollars). Only the UAL portion of the employer contribution can be prepaid (which <br />must be paid in full no later than July 31). The NC rate represents the annual cost of service <br />accrual for the upcoming fiscal year, for active employees. The UAL is the amortized dollar <br />amount needed to fund past service credit earned (or accrued) for members who are currently <br />Page 1 City of San Leandro Printed on 7/10/2018