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Regular-General Government # 33.
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| Board of Supervisors |
Financial Services |
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| Subject |
| Approve Pension Funding Policy to reflect best practices; adopt budget resolution to move $800,000 in pension reserves as initial contribution to the Pension Trust, and to create an internal service fund to account for pension costs and recovery. (General fund impact $800,000) (4/5 vote required) (Newens) |
| Recommended Action |
- Approve the Pension Funding Policy;
- Direct county staff to create an Irrevocable Section 115 Pension Trust;
- Adopt budget resolution to move $800,000 in pension reserves as initial contribution to the Pension Trust, and to create an internal service fund to account for pension costs and recovery; and
- Direct the Chief Financial Officer to calculate the savings from the prepayment of PERS contribution in 2017-18 and transfer this amount to the newly created Pension Trust.
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| Strategic Plan Goal(s) |
Operational Excellence
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| Reason for Recommended Action/Background |
The Board of Supervisors directed staff from the County Administrator's Office and Department of Financial Services to develop strategies to address the increasing size of the unfunded pension liability. An initial set of strategies for pension funding stabilization was proposed to the board at the 12/13/2016 meeting (Attachment A - Pension Funding Strategies). The plan was to create mechanisms to stabilize the pension liability in increasing level of commitment.
Several actions have already been taken to implement this direction toward pension cost stabilization:
- Accounting Reserve - The Board adopted in September, 2017 an accounting reserve of $800,000 for pension funding purposes.
- Discretionary Contributions - County Financial Services staff reviewed the ability to perform discretionary contributions to CalPERS. It was determined this was not currently a viable option due to the inclusion of multiple employers in the County Miscellaneous Plan including Yolo Superior Courts. The other participants would need to make equitable discretionary contributions as CalPERS does not separate employers within the County's plans.
- Prepayment of Annual Contributions - The Department of Financial Services received authorization at the May 23, 2017 meeting to prepay CalPERS for the 2017/18 CalPERS required contributions. This is estimated to yield savings of approximately $415,000, which will be directed to pension stabilization effort.
This Board action is a continuation of the effort toward pension stabilization through the creation of a pension funding policy (Attachment B - Pension Policy). Adopting a Pension Funding Policy is a best practice recommended by the Government Finance Officers' Association (GFOA) who provides guidance in governmental finance. The policy is intended to provide guidance on the County's effort to stabilize pension funding in the long-term, though it does not attempt to reduce the pension liability through modification of benefits. This latter aspect of liability control is being addressed by the HR Division.
The key elements of the pension policy include the following objectives:
- Report annually to the Board of Supervisors on Pension Actuarial Valuations and funded status.
- Follow guiding principles of Intergenerational Equity and Financial Sustainability.
- Explicitly recognize factors that may grow or change the pension liability.
- Achieve a full (100%) funded status for pension benefits in the long-term.
- Authorize the CFO to prepay CalPERS contributions when fiscally prudent.
- Evaluate longer-term opportunities for additional savings through shorter amortization schedule.
- Create an Irrevocable Pension Trust to accumulate resources for purpose of stabilizing pension funding obligation.
- Use a supplemental charge on payroll expenditures that ramps up to fund the Pension Trust minimum balance.
- After the minimum balance is achieved, consider further accumulation of assets to reduce the pension liability.
- Create an Internal Service Fund for transparency of pension funding activity.
A budget adjustment has been proposed in order to set up the new internal service fund and to move the $800,000 accounting reserve as initial funding to the Pension Trust.
After the books for fiscal year ending 6/30/18 are closed, the Chief Financial Officer will calculate the savings realized from prepayment of CalPERS contribution and transfer the amount to the new Pension Trust, as intended by the Board on 5/23/17. Thereafter, according to the proposed policy, these savings will be presented to the Board for approval during the annual budget adoption.
This policy will be revisited periodically in light of future actuarial results, changes in benefits or other changes caused by laws or regulations. |
| Collaborations (including Board advisory groups and external partner agencies) |
| The Department of Financial Services collaborated closely with the County Administrator's Office on developing strategies to address the unfunded pension liability. The pension policy and actions requested are part of this on-going collaboration. |
| Competitive Bid Process |
| Not applicable. |
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| Fiscal Impact |
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| Source of Funds for this Expenditure |
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Explanation (Expenditure and/or Revenue) |
| Further explanation as needed: |
The 2017/18 budget included a reserve for Pension Liability in the amount of $800,000. The proposed budget resolution authorizes the transfer of this amount into the County's Section 115 Pension Rate Stabilization Trust once established.
The recommended action also includes a transfer in 2018-19 of an estimated savings of $415,000 resulting from the prepayment of PERS contribution in FY 17/18 to the Pension Trust.
The fiscal impact in future years will be in accordance with the ramp-up plan of supplemental contributions in accordance with the Pension Funding policy. |
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