Title
Finance Committee Meeting Highlights of June 16, 2015
Body
CITY OF SAN LEANDRO
FINANCE COMMITTEE
June 16, 2015
San Leandro City Hall
835 East 14th Street
San Leandro, California
(Sister Cities Gallery)
1. CALL TO ORDER
Meeting was called to order at 5:00 p.m.
1.A. Attendance
Committee Members: Pauline Russo Cutter, Mayor; Jim Prola, Vice Mayor; Benny Lee, Council Member
City Staff: Chris Zapata, City Manager; David Baum, Finance Director; Will Fuentes, Assistant Finance Director; Mary Ann Perini, Budget & Compliance Manager
1.B. Announcements
2. DISCUSSION ITEMS
2.A. Discussion Regarding Retirement Liabilities and Policy
Unfunded Retirement Liabilities
With $157 million in Unfunded Liabilities and growing, staff is seeking to achieve council’s goal to place the City on a firm foundation to reach long term financial stability.
Over the past 23 years, data leading up to the current status of the City’s pension funds at CalPERS shows how pension contribution rates dramatically decreased and then increased for both Public Safety and Miscellaneous employees in years 1995 - 1999 with a period of declining investment returns during years 1998 - 2002 and began to rise again substantially with an average rate of return of 7.4% which is just under the assumed 7.5% - 7.75% for the past 10 years.
California State’s pension reform law, which took effect on January 1, 2013, will likely mitigate PERS liability growth rates. The new law lengthens the retirement age to 62 for Miscellaneous Employees with an employee contribution rate of 6.75% and age 57 for Public Safety Employees with an employee contribution rate of 12.25%.
New Pension Challenge and Restructuring Options
San Leandro teamed up with Union City and Newark to request some relief from CalPERS in order to minimize a $1.15 million surcharge to Public Safety pension Unfunded Liabilities. With testimony provided by Finance Director David Baum on May 19, 2015, CalPERS offered a reduced payment for Public Safety pensions beginning fiscal year 2015-16 allowing San Leandro the option to pay off the Unfunded Liabilities over the next 15 years rather than the next 30 years which would assume a savings of $24.4 million using a 7.5% discount rate the City would make lower payments over the next 3 years and increasing payments over years 4 - 15.
Current Employees’ Pension Retirement Tiers - CalPERS Formulas
The following pension tiers seek to reduce the City’s obligations by requiring employees to work longer careers and minimize benefits for newer employees starting employment after May 2010:
Misc (Non-sworn) SLCEA, SLMO, Confidential and Unrepresented Employees
Tier 1: Employees hired prior to May 6, 2010:
• 2.5% at age 55 (2% early retirement at age 50, 2.5% max benefit at age 55)
Tier 2: Employees hired May 6, 2010 through December 31, 2012:
• 2% at age 55 (1.426% early retirement at age 50, 2.418% max benefit at age 63)
Tier 3: Employees hired January 1, 2013 and after:
• 2% at age 62 (1% early retirement at age 52, 2.5% max benefit at age 67)
Safety (Sworn), SLPMA and SLPOA Employees
Tier 1: Employees hired prior to January 1, 2013
• 3% at age 50 (no early retirement age, 3% max benefit at age 50)
Tier 2: Employees hired after January 1, 2013
• 2.7% at age 57 (2% early retirement at age 50, 2.7% max benefit at age 57)
Retirees are eligible for a max benefit of $4,320 in annual reimbursements. The majority of Alco Fire recipients are eligible for as much as $1,559/month for a total of $18,700 in 2014.
Due to the rise in Unfunded Liabilities, San Leandro will fully fund the Alameda County Fire Department Other Post-Employment Benefits annual required contributions (ACFD OPEB ARC) over the next 2 years and pay 125% of the City Miscellaneous Employees ARC.
Policy Discussion and Considerations:
Chris Zapata suggested that a policy be put in writing stating that San Leandro will commit to paying a minimum of 100% ARC and review the reserves to see if 16.7% is agreed upon then take a portion of excess reserves and apply it to the Unfunded Liabilities.
In terms of carry over usage and major property sales, using up to 50% of those funds and applying it to pay down the debt.
3. PUBLIC COMMENTS
4. COMMITTEE MEMBER COMMENTS
5. ADJOURN
Meeting adjourned at 6:30 p.m.