CITY COUNCIL AGENDA PACKET - Laserfiche WebLink

Date:February 25, 2025 To:Susan Hsieh From:Doug Pryor Page:5 411 Borel Avenue, Suite 620 San Mateo, CA 94402 · (650) 377-1600 · www.foster-foster.com OPEB Projections OPEB funding commenced in 2010/11 for both OPEB plans. For OPEB, benefits are paid directly to retirees by the City. This contrasts with CalPERS, where benefits are always paid by the trust. Note that OPEB benefits paid by the City outside of the trust are effectively a contribution to the plan. If the recommended Actuarially Determined Contribution (ADC) is larger than benefits paid, an additional contribution would be made to the trust. If the ADC is less than benefits paid, a portion of benefits paid by the City would be reimbursed by the trust. OPEB ADCs for 2025/26 for both the Fire and Non-Fire OPEB plans are less than the projected benefit payments. Following are 2025/26 ADC’s and expected benefit payments: (amounts in $millions) Non-Fire Fire Total Expected Benefit Payments $4.8 $0.9 $5.7 ADC 3.0 0.8 3.8 Trust payment to City (reimbursement for benefits paid)1.8 0.1 1.9 A few general observations: Without the trust, total City OPEB expenditures would be $5.7 million (expected benefit payments). With the trust, total City OPEB expenditures are $3.8 million (expected benefit payments less the trust payment to the City). Conclusion Ideally, we recommend that the City not draw down the Supplemental Trust to make CalPERS payments and would pay the full OPEB ADC for the following reasons: This keeps the plans on their current path to achieve 100% funding (over approximately 20 years for CalPERS and 14 years for OPEB). For CalPERS Miscellaneous and Fire plans, this would facilitate the continued growth of their current 72.9% and 73.9% total funded ratios, respectively. Any Supplemental Trust transfer that is used to pay required CalPERS contributions will reduce the overall trust assets (CalPERS asset plus Supplemental Trust assets) from where the assets would have been, by the amount transferred. Each $10 million transferred to cover CalPERS required contributions reduces the total CalPERS funded ratio by approximately 1.3% ($10M/$742M). Maintain budget flexibility with the Supplemental Trust for CalPERS. Continue to secure benefits with trust assets and align costs for these benefits with employee services. However, this recommendation is made without consideration of other City budget demands and financial constraints. When overall City financial considerations are taken into account, we recognize that alternative paths can be selected without drastically risking the benefit security of these plans. If the City is seeking some budget relief, possible approaches to consider: CalPERS Base the Supplemental Trust withdrawal on the Scenario 1 approach above (assumes CalPERS will achieve their 6.8% long term investment return), resulting in $4.1 million in 2025/26 budgetary relief. Using the Supplemental Trust in this way would be consistent with the purpose of using it to level out contributions. It is important though to keep in mind where the projected trajectory of contributions will likely go, even if CalPERS meets their assumptions. Given this, the City might also consider taking ½ of the relief projected under Scenario 1, transferring approximately $2 million from the Supplemental Trust to CalPERS, and revisiting plan funding in a year or two. OPEB The magnitude of the numbers is much smaller on OPEB (2025/26 ADCs are $28.8 million for CalPERS and $3.8 million for OPEB) so we recommend the City stay the course and continue with full ADC funding. Page 50 of 56