City Finance Director Proposes Paying $27.1 Million to Pension Fund in One Payment, to Earn $1 Million Discount

Published : Monday, July 10, 2017 | 5:12 AM

The City of Pasadena stands to save about $1 million by paying its annual obligation to the California Public Employees Retirement System (CalPERS) in advance.

Pasadena Finance Director Matthew Hawkesworth has prepared a report for the City Council’s Finance Committee, which meets on Monday, July 11, indicating his department plans to pay CalPERS the amount $27,127,512 as prepayment for the whole of fiscal year 2018, instead of monthly payments as the City used to do.

If the City were to make 12 monthly payments for the 2018 obligations, it would pay CalPERS a total of $28,126,404.

In the report, Hawkesworth explained that with new procedures introduced beginning in FY 2018, the City now knows in advance how much the payment to CalPERS will be for the fiscal year. He added the City has the ability to make a lump sum prepayment of the fiscal year’s unfunded accrued liability (UAL) to the pension fund before August 1, 2018 at a lesser amount compared to making monthly payments.

Hawkesworth added that by prepayment of the entire amount, CalPERS is able to invest all of the funds for 11 months of the fiscal year, earning more return on investment. The difference in return on investment, he said, is returned to the City by way of a discount that’s essentially half of the 7.5 percent forecasted return.

“This savings equates to approximately $1 million for FY 2018,” Hawkesworth said in the report. “With the recent direction of the City Council to establish a Section 115 Trust to prefund future pension costs, staff recommends transferring this savings to the trust at year-end and returning for the appropriate authorization.”

With the City’s budget running on a projected deficit for the next couple of years, the plan will provide a means “to set aside additional funding without costing the City’s funds any additional money,” the report said.

The Finance Committee’s agenda for Monday’s meeting includes the prepayment plan as an information item.

At the meeting, the Committee will also receive a Third Quarter Monitoring Report on the Capital Investment Program for fiscal years 2017 through 2021.

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