HomeMy WebLinkAboutCC Policy No. 202 - Pension Funding PolicyCITY COUNCIL POLICY
CITY OF NATIONAL CITY
AMENDED:
ADOPTED: September 7, 2021
POLICY #202 TITLE: Pension Funding Policy
Purpose
The purpose of this policy is to define how the City’s pension funding obligations will be met. As
part of its overall compensation plan, the City provides a defined benefit pension benefit to its
employees. This benefit is administered by the California Public Employees Retirement System
(CalPERS) and funded through contributions from the City and its employees and from investment
earnings on those contributions. The CalPERS Board of Administration, under the California
Public Employees’ Retirement Law (PERL), is responsible for the administration and investment
of the funds it receives and determines the amounts contributed by each of the governmental
entities that participate in CalPERS. The PERL sets employee contribution rates. The City has
two separate plans with CalPERS, one for Safety employees (the Safety Plan) and one for all
other employees (the Miscellaneous Plan).
Policy
It is the policy of the City to fulfill its obligation to its residents and employees to maintain fiscally
responsible management practices and to its employees to ensure that promised retirement
benefits are funded. To that end, the City will meet its pension funding obligations as follows:
1. Actuarially Determined Contributions: Each fiscal year, the City will contribute to CalPERS
the amount determined by CalPERS actuaries to be the minimum required employer
contribution for that year. The minimum contribution consists of two components, no rmal
cost and unfunded accrued liability (UAL). The normal cost is expressed as a rate that is
applied to pensionable payroll costs and reflects the cost of pension benefits earned by
employees in the current fiscal year. The UAL payment is a flat dollar amount that
represents a portion of the cost of past benefits earned by employees, but for which,
because of deviations in actual experience and changes in assumptions about investment
performance, the normal cost rates established for those prior years has been determined
to be insufficient to provide the promised retirement benefit. The CalPERS actuaries
recalculate the total UAL each year and an updated multi -year amortization schedule is
provided to show the projected annual minimum payments.
2. Annual UAL Prepayment: CalPERS offers the option to make monthly payments on the
UAL or prepay the entire annual amount at a discounted level by the end of July. The City
will prepay its annual obligation each year to achieve budgetary savings.
3. Section 115 Pension Trust: The City will maintain a pension stabilization fund in the form
of a Section 115 Pension Trust. The targeted funding level for this fund is defined in City
Council Policy 201, Maintenance of Reserve Funds. Assets in the Section 115 Pension
Trust may be used only for pension related costs and at the direction of the City Council.
Once the targeted funding level is reached, the earnings on the assets in the Trust may
CITY COUNCIL POLICY
CITY OF NATIONAL CITY
AMENDED:
ADOPTED: September 7, 2021
POLICY #202 TITLE: Pension Funding Policy
be applied to offset a portion of the City’s annual pension contributions to CalPERS or
make additional discretionary payments to CalPERS.
4. Targeted Funding Level: The City’s goal is to achieve and maintain a funded status for
each of its plans of between 80% and 100%. A funded status of 100% signifies that the
City’s pension assets with CalPERS match its accrued liabilities.
5. Additional Discretionary Payments: CalPERS allows member agencies to make additional
discretionary payments at any time and in any amount, which would serve to reduce the
UAL and future required contributions. The City will consider this option in the context of
its annual evaluation of reserve levels and budgetary requirements.
6. Pension Obligation Bonds (POBs): POBs are a tool that can be used to provide an
additional discretionary payment to CalPERS upon the determination that the cost to
borrow the funds for the payment is less than continuing to make the projected prescribed
UAL payments at the current discount rate. If the City issues POBs, the following
guidelines will apply:
a. Expert advice and analysis by actuaries and municipal advisors will be utilized to
quantify the risk of CalPERS investment underperformance, including discount
rate reductions, stock market crashes, or sustained investment underperformance,
and the threshold at which the City would be worse off issuing POBs versus not.
b. The interest rate on the POBs shall be at least 2.5% less than the current CalPERS
discount rate.
c. The final maturity date on the POBs will be no more than the then current term of
the UAL.
d. The POBs structure will contain an early call provision.
Related Policy References
Council Policy #201: Maintenance of Reserves
Prior Policy Amendments
None