Title
Staff Report for a Motion to Approve Proposal to Pre-pay CalPERS Annual Required Contribution
Body
SUMMARY AND RECOMMENDATION:
It is recommended that the Finance Committee recommend to the City Council pre-payment of the Fiscal Year 2019-2020 obligation in the amount of $11,881,893 for the City's Unfunded Accrued Liability calculated by CalPERS.
BACKGROUND
The California Public Employees Retirement System (CalPERS) currently invoices the City monthly to collect pension cost for current and former City employees. Employer contributions are determined by periodic actuarial valuations that are based on the benefit formulas the City provides.
Prior to Fiscal Year 2015-16, CalPERS billed employers for all contributions, which included the normal cost plus the unfunded accrued liability (UAL) portion (combined) as a total percentage of payroll. As a result of the discount rate change approved by CalPERS on December 21, 2016, employers are now required to pay a percentage of payroll for the normal cost portion and a monthly dollar amount for the unfunded liability portion. CalPERS also provided an option of prepaying the UAL portion annually as opposed to monthly to reduce the amount of interest paid by jurisdictions annually. The discount rate is the long-term interest rate used to fund future pension benefits and it is also known as the assumed rate of return because it is what CalPERS expects its investments to earn during the fiscal year.
The annual required contribution total is the sum of the plan's employer normal cost (NC) rate (expressed as a percentage of payroll) plus the employer UAL contribution amount (billed monthly). Only the UAL portion of the employer contribution can be prepaid (which must be paid in full no later than July 31). The NC rate represents the annual cost of service accrual for the upcoming fiscal year, for active employees. The UAL is the amortized dollar amount needed to fund past service credit earned (or accrued) for m...
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