HomeMy WebLinkAboutCC Reso 2020-55 - Adopting Pension Funding Policy RESOLUTION NO. 2020-55
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF UKIAH ADOPTING A
PENSION FUNDING POLICY
WHEREAS, the City Council (the "City Council") of the City of Ukiah (the "City") is obligated
by the Public Employees' Retirement Law, commencing with Section 20000 of the
Government Code of the State of California, as amended (the "Retirement Law"), to make
payments to the California Public Employees' Retirement System ("CaIPERS") relating to
pension benefits accruing to current and former City employees who are CaIPERS
members, including retired employees (the "CaIPERS Obligations"); and
WHEREAS, the City currently has an unfunded accrued liability (the "UAL") in respect of the
CaIPERS Obligations; and
WHEREAS, the CaIPERS Obligations, including the UAL, and all other aspects of the
pension plan arrangements between CaIPERS and the City, is evidenced by a contract or
contracts with CaIPERS with respect to public safety employees and miscellaneous
employees of the City, as heretofore and hereafter amended from time to time (collectively,
the "Pension Plans"); and
WHEREAS, the City is in the process of issuing revenue bonds that will generate bond
proceeds to pay off a certain portion of the City's current estimated UAL owed to CaIPERS;
and
WHEREAS, CaIPERS provides the City with new actuarial valuations on an annual basis
that calculates the City's total pension liability as of the new valuation date; and
WHEREAS, on an annualize basis, it is possible that the City will incur new UAL costs if the
City's funded assets are not equivalent to the actuarially determined liability amounts; and
WHEREAS, the City desires to establish a framework for funding new UAL costs that may
arise in the future with the objective of funding the Pension Plans at certain targeted levels
of the total accrued liability, whenever possible; and
WHEREAS, to facilitate payment of future UAL costs in a timely manner and to reduce the
risk that future UAL costs pose to the City's financial position, the City desires to adopt the
Pension Funding Policy, attached hereto (the "Policy"); and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Ukiah, as follows:
Section 1. Recitals and Findings. The City Council hereby specifically finds and declares
that all of the facts set forth in the Recitals of this Resolution are true and correct.
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Section 2. Policy. The Policy, as attached hereto as Exhibit A, is hereby approved and
adopted and shall be applicable to any new pension liabilities, or amortization bases, that
may arise in the future.
Section 3. Official Actions. The City Manager, the Finance Director, and all other officers
of the City are hereby authorized and directed, jointly and severally, to do any and all things
to effectuate the purposes of this Resolution and to implement the Policy.
Section 4. Effective Date. This Resolution shall take effect from and after the date of its
passage and adoption.
PASSED AND ADOPTED by the City Council of the City of Ukiah on September 30, 2020
by the following vote:
AYES: Councilmembers Mulheren, Brown, Scalmanini, Orozco, and Mayor Crane
NOES: None
ABSENT: None
ABSTAIN: None
Douglas F, Crane, Mayor
ATTEST:
Kristine Lawler, City Clerk
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Exhibit A
PENSION FUNDING POLICY
City of Ukiah
I. PURPOSE
The City's Pension Funding Policy documents the method the City will use to
determine its actuarially determined contributions to fund the long-term cost of
benefits to the plan participants and annuitants. The policy also:
• Provides guidance in making annual budget decisions;
• Demonstrates prudent financial management practices;
• Creates sustainable and affordable budgets for pensions;
• Reassures bond rating agencies; and
• Shows employees and the public how pensions will be funded.
II. BACKGROUND
The City provides defined benefit retirement benefits through the California
Public Employees' Retirement System (CaIPERS). CalPERS is a multiple-
employer public employee defined benefit pension plan.
All full-time and certain part-time City employees are eligible to participate in
CalPERS. CalPERS provides retirement and disability benefits, annual cost of
living adjustments and death benefits to plan members and their beneficiaries.
CalPERS acts as a common investment and administrative agent for participating
public entities within the State of California. Benefit provisions and all other
requirements are established by state statute.
The financial objective of a defined benefit pension plan is to fund the long-term
cost of benefits provided to the plan participants. In order to assure that the plan is
financially sustainable, the plan should accumulate adequate resources in a
systematic and disciplined manner over the active service life of benefitting
employees. This funding policy outlines the method the City will utilize to
determine its actuarially determined contributions to fund the long-term cost of
benefits to the plan participants and annuitants.
Pension Funding:A Guide for Elected Officials, issued by eleven national groups
including the U.S. Conference of Mayors, the International City/County
Management Association, and the Government Finance Officers Association,
established the following five general policy objectives for a pension funding policy:
• Actuarially Determined Contributions. A pension funding plan should
be based upon an actuarially determined contribution (ADC) that
incorporates both the cost of benefits in the current year and the
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amortization of the plan's unfunded actuarial accrued liability.
• Funding Discipline. A commitment to make timely, actuarially
determined contributions to the retirement system is needed to
ensure that sufficient assets are available for all current and future
retirees.
• Interperiod equity. Annual contributions should be reasonably
related to the expected and actual cost of each year of service so
that the cost of employee benefits is paid by the generation of
taxpayers who receives services from those employees.
• Contributions as a stable percentage of payroll. Contributions
should be managed so that employer costs remain consistent as a
percentage of payroll over time.
• Contributions as a manageable budget expense. Contributions
should be stable and a manageable portion of revenue.
• Accountability and transparency. Clear reporting of pension funding
should include an assessment of whether, how, and when the plan
sponsor will ensure sufficient assets are available for all current and
future retirees.
III. POLICY
A. Actuarially Determined Contribution (ADC)
CalPERS actuaries will determine the City's ADC to CalPERS based on
annual actuarial valuations. The ADC will include the normal cost for
current service and amortization of any under-funded amount. The normal
cost will be calculated using the entry age normal cost method using
economic and non-economic assumptions approved by the CalPERS
Board of Administration.
The City will review the CalPERS annual actuarial valuations to validate
the completeness and accuracy of the member census data and the
reasonableness of the actuarial assumptions.
B. Additional Discretionary Payment (ADP) Contribution
The City will consider making ADP contributions with one-time General
Fund and applicable proprietary funds resources, with the objectives of
increasing the plan's funded status, by reducing the unfunded actuarially
accrued liability, and reducing ongoing pension costs.
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C. Pension Obligations Bonds
The City will consider pension obligation bonds if:
• Such bonds have expected savings using borrowing costs and CaIPERS'
discount rate;
• At the time of issuances, pension bond proceeds plus existing assets at
CalPERS and at the City's pension stabilization trust cannot exceed
pension liabilities.
The City and its advisors will discuss and consider the risks of any potential
pension obligation bonds.
Any pension obligation bonds, or refundings of pension obligation bonds, must be
approved by the City Council.
D. Pension Stabilization Fund (PSF)
The City will establish a Pension Stabilization Fund (PSF) by June 30, 2021. The
PSF will be used to accumulate financial resources for the purposes of ensuring
the City meets its ADC in any given fiscal year and make ADP contributions.
Transfers to and from the PSF will be subject to the same City budgetary and
financial policies that guide other interfund transfers. Proprietary and other
governmental funds may contribute to the PSF. Such funds may withdraw
resources from the PSF to meet their respective ADC or ADP when approved by
the City Council through the annual budget process or by direct action. There is
no requirement for any fund to transfer financial resources to the PSF. Any
transfers to the PSF should come from one-time resources, including, but not
limited to, budgetary surpluses, and shall not be made in lieu of funding current
obligations or operational/capital needs. Resources in the fund may be invested
in any variety of instruments available to the City under its investment policy.
E. Transparency and Reporting
Funding of the City's pension plans should be transparent to vested
parties including plan participants, annuitants, the City Council, and
residents. In order to achieve this transparency, the following information
shall be available:
• Copies of the annual actuarial valuations for the City's CalPERS
plans shall be made available to the City Council.
• The City's Comprehensive Annual Financial Report shall be published
on its website. This report includes information on the City's annual
contributions to the pension systems and their funded status.
• The City's annual operating budget shall include the City's
contributions to CalPERS.
F. Review of Funding Policy
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Funding a defined benefit pension plan requires a long-term horizon. As
such, the City will review this policy regularly to determine if changes to it
are needed to evaluate the adequacy or appropriateness of resources
being accumulated.
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