HomeMy WebLinkAboutStaff Report 2322 City of Palo Alto (ID # 2322)
City Council Informational Report
Report Type: Informational Report Meeting Date: 11/21/2011
November 21, 2011 Page 1 of 4
(ID # 2322)
Title: CalPers Pension 2011
Subject: Transmittal of the CalPERS City of Palo Alto Pension Plan Annual
Valuation Report as of June 30, 2010
From: City Manager
Lead Department: Administrative Services
Discussion
The City of Palo Alto provides a defined pension benefit to its employees through the State of
California Pension Retirement System (CalPERS), which manages and administers the program.
Pursuant to CalPERS rules, City employees vest in the pension program after 5 years of service
and, over time, the City has offered different pension payout formulas. The CalPERS program
maintains two trust accounts: 1) for safety employees (fire and police, mostly sworn personnel);
and 2) for miscellaneous employees (all other non-safety personnel such as field personnel,
administrative support and managers). The current safety employee retirement formula is 3
percent for each year worked and eligibility starts at 50 years of age (3% @50). The City
recently reached agreement with the International Association of Fire Fighters on a two-tier
pension format that changes the pension formula for new firefighters to 3% @55 year of age.
For a majority of current miscellaneous employees, the formula is 2.7 percent per year worked
with eligibility starting at the age of 55 (2.7@55). However, in July 2010 the City changed the
formula for new employees to 2 percent per year with eligibility starting at the age of 60
(2%@60). This new formula applies to employees starting employment with the City on or after
that effective date. As a result of the new formula the City should begin to see savings for
miscellaneous employees in the 2012 pension rates due in October 2012 and savings associated
with pension changes in the firefighter union should appear in the October 2014 report.
CalPERS annually prepares an actuarial analysis to determine the City’s pension liability and
annual required contribution for the two trusts. The actuarial is based on current employees’
accrued benefit, former employees that are vested but have yet to retire and retired employees
as of June 30, 2010. Staff received the actuarial reports dated October 2011 on October 24,
2011. The timing The CalPers actuarial analysis is completed two years in the arrears.
November 21, 2011 Page 2 of 4
(ID # 2322)
The chart below reflects the rates paid for 2011/12, the new rate for 2012/13, and the
projected rates for 2013/14 and 2014/15.
PERS Projected Rates
Current Next Year Year to Projected Year to Projected Year to
Payment Payment Year Payment Year Payment Year
2011/12 2012/13 Change 2013/14 Change 2014/15 Change
Miscellaneous1
21.73%
22.97%
23.3%
23.7%
1.24% 0.33% 0.40%
Safety2
30.13%
31.05%
31.5%
32.0%
0.92% 0.45% 0.50%
1) The employee share of pension costs is 8%, of which the employee pays 2% and the City pays 6% for Management and the
employee pays 5.75% of the 8% for SEIU.
2) The employee share of pension costs for Safety is 9%, of which the City pays the full share. Beginning in October 2011 Fire
union personnel pays 6.5 percent of the employee share and in July 2012 Fire union personnel will pay the full 9% of the
employee share.
Overall, the projected annual increases for the next three years have dropped compared to the
increases projected in December 2010 (CMR:455:10). The 2012/2013 rates for miscellaneous
stayed about the same with safety lower than anticipated by 1.25%. The biggest impact
happens in 2013/2014 where miscellaneous drops by 2.5 percent and safety by 5.8 percent
compared to last year’s CalPERS actuarial report (CMR:455:10). CalPERS continues with their
method of asset smoothing and the amortization of gains and losses in order to phase in the
impact of investment losses experienced in FY2009.
November 21, 2011 Page 3 of 4
(ID # 2322)
The pension liability and current funding for safety and miscellaneous employees is shown here:
FY 2011/12
FY
2012/13
6/30/2009 6/30/2010 Change
Miscellaneous
Unfunded Liability (AVA)1
$
100,435,301
$
104,459,382 $4,024,081 4%
Unfunded Liability (MVA)2 $210,675,369 $197,298,382 ($13,376,987) (6%)
Accrued Liability
$
499,199,907
$
521,269,469 $22,069,562 4%
Market Value of Assets
$
288,524,538
$
323,971,012 $35,446,474 12%
Safety
Unfunded Liability (AVA)1 $ 44,018,407 $ 49,481,996 $5,463,589 12%
Unfunded Liability (MVA)2 $172,078,263 $190,527,731 $18,449,468 11%
Accrued Liability
$
280,292,862
$
293,895,452 $13,602,590 5%
Market Value of Assets
$
172,078,263
$
190,527,731 $18,449,468 11%
1) (AVA) Based on a point in time (June 30, 2010) comparison between the smoothed Market Value of Assets and the
Actuarial Liability. Smoothing occurs over a very long (15 years) period and is not a great indicator of how well funded the
plan is. This number will be much less volatile from one year to the next and is used to determine the City’s 2012/13 fiscal
year contribution.
2) (MVA) - Based on a point in time (June 30, 2010 in this case) comparison between the Market Value of Assets and the
Actuarial Liability. This number will be volatile from one year to the next but is the best indicator of how well funded the
plan is. It also is the likely amount (with some minor modifications) GASB will require the City to recognize on its financial
statement when GASB Statement No. 27 is revised next year.
CalPERS calculations of the annual required contribution is as follows:
Miscellaneous $ 15,687,239 $ 15,800,795 $113,556 1%
Safety $ 7,323,707 $ 7,870,938 $547,231 7%
November 21, 2011 Page 4 of 4
(ID # 2322)
The following table provides a summary of valuation data as of June 30, 2010
Miscellaneous Safety
Active Members 790 191
Average Annual Covered Pay $ 79,109 $ 120,578
Transferred Members (to other
agency) 276 60
Average Annual Covered Pay $ 105,686 $ 114,673
Terminated Members (yet to retire) 300 35
Average Annual Covered Pay $ 58,766 $ 75,250
Retired Members and Beneficiaries 903 375
Average Annual Covered Pay $ 27,797 $ 38,542
It is important to note that the FY 2012 numbers are based on CalPERS three year amortization
of the 24% investment loss experienced in FY 2009. It also includes adjustments in
demographics since there are increases in life expectancy and income. Furthermore, it accounts
for the 20 percent gain in assets experienced in FY 2011. Theses changes only address the
City’s employer pension rate and it does not impact any portion of the employee rate share the
City partially pays for its employees.
Staff will incorporate the rate projections for 2013 and beyond into the long range financial
forecast that staff will bring to the Finance Committee in early 2012.
Attachments:
Attachment A: Miscellaneous Employees Pension Plan Annual Valuation Report as of June
30, 2010 (PDF)
Attachment B: Safety Employees Pension Plan Annual Valuation Report as of June 30, 2010
(PDF)