CITY COUNCIL AGENDA PACKET - Laserfiche WebLink

Date:February 25, 2025 To:Susan Hsieh From:Doug Pryor Page:3 411 Borel Avenue, Suite 620 San Mateo, CA 94402 · (650) 377-1600 · www.foster-foster.com Contributions Contributions for CalPERS and OPEB are structured as follows: CalPERS Contributions are set by CalPERS, and the City does not have the flexibility to lower these amounts. We recommend that agencies look at the payments required by CalPERS as a minimum amount. Our projections show that the unfunded liabilities of the City CalPERS plans are expected to be paid off over approximately the next 20 years. The City has the option to utilize the Supplemental Trust, which effectively can lower short term City pension expenditures. For example, if CalPERS requires a $30 million contribution, the Supplemental Trust could be used to pay all, or part of that payment. However, it is important to keep in mind that transferring money from the Supplemental Trust to CalPERS to cover required contributions will extend the period over which the unfunded liability, as measured by total (CalPERS plus Supplemental Trust) plan assets, is paid off. OPEB Contributions to the OPEB trusts are optional. There is no requirement to pre-fund these benefits in a trust. However, we recommend benefits are prefunded. In addition to tax-payer generational equity reasons, pre- funding lowers long term benefit costs (via higher long term trust returns) and helps secure benefits that have been communicated to employees. The current recommended contributions are structured to pay off the unfunded liability over approximately 14 years for both the non-Fire plan and Fire plans. CalPERS Projections and Use of Supplemental Trust As mentioned above, the estimated June 30, 2024 unfunded liability is approximately $185 million for the combined CalPERS plans. While future require contributions are expected to pay off this unfunded liability, it will likely mean increasing contributions over approximately the next 10+ years. Future investment returns will be a key driver of future contributions. Following are projections under 2 scenarios for future investment returns. Scenario 1 Scenario 1 provides a projection of how the Supplemental Trust can be used to smooth future pension costs. The projection assumes CalPERS achieves its long term 6.8% investment return. Contributions reflect an offset for employee cost sharing agreements. Following is the combined (Miscellaneous and Safety) projection. The trust withdrawals are structured to target a level percent of payroll overall cost to the City over the projection period. Note that data labels are shown for 2024/25, 2025/26, and then every 2 years thereafter. Scenario 1 (amounts in $millions) Page 48 of 56