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City of San Leandro <br />Meeting Date: July 15, 2019 <br />Staff Report <br />Agenda Section:File Number:19-401 CONSENT CALENDAR <br />Agenda Number:8.L. <br />TO:City Council <br />FROM:Jeff Kay <br />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 Finance Committee recommend to the City Council pre-payment of <br />the Fiscal Year 2019-2020 obligation in the amount of $11,881,893 for the City’s Unfunded <br />Accrued Liability calculated by CalPERS. <br /> <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 /> <br />Prior to Fiscal Year 2015-16, CalPERS billed employers for all contributions, which included <br />the normal cost plus the unfunded accrued liability (UAL) portion (combined) as a total <br />percentage of payroll. As a result of the discount rate change approved by CalPERS on <br />December 21, 2016, employers are now required to pay a percentage of payroll for the normal <br />cost portion and a monthly dollar amount for the unfunded liability portion. CalPERS also <br />provided an option of prepaying the UAL portion annually as opposed to monthly to reduce the <br />amount of interest paid by jurisdictions annually. The discount rate is the long-term interest rate <br />used to fund future pension benefits and it is also known as the assumed rate of return <br />because it is what CalPERS expects its investments to earn during the fiscal year. <br /> <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). Only the UAL portion of the employer contribution can be prepaid (which must be <br />paid in full no later than July 31). The NC rate represents the annual cost of service accrual for <br />the upcoming fiscal year, for active employees. The UAL is the amortized dollar amount <br />needed to fund past service credit earned (or accrued) for members who are currently <br />Page 1 City of San Leandro Printed on 7/9/2019 <br />480