Council Approves Pension Rate Stabilization Program

Program would pre-fund City pensions and post-employment benefits

Published : Tuesday, August 29, 2017 | 5:26 AM

Following a recommendation by the Department of Finance and the Finance Committee, the Pasadena City Council unanimously voted Monday to establish a Public Agency Retirement Services (PARS) Section 115 Trust Pension Rate Stabilization Program, in order to pre-fund the City’s pension and other post employment benefits.

In a staff report, the Department of Finance said a pension rate stabilization program under a Section 115 trust would be beneficial as contributions placed in an exclusive benefit trust could address the City’s net pension liability.

The plan also noted that there is investment flexibility with a Section 115 trust, compared to restrictions on general fund investments.

There is also increased diversification of plan assets through diverse assets management, and investments can be tailored to the City’s unique demographics and desired risk tolerance, the Finance Department said.

The City of Pasadena is currently facing budget deficits in its 2017-2018 fiscal year, and is expected to spend more than it earns for at least the next five years, with the cost of pensions for City personnel cited as a primary reason for projected increased costs.

In the education sector, pension costs are similarly straining the Pasadena Unified School District’s budget planning. The District expects a $5.7 million budget deficit this year which could grow to $10 to $12 million in future years. Rising pension costs account for more than a third of proposed increases to next year’s state education budget.

The City’s Department of Finance’s report noted that, to date, there are currently 92 public agencies which have adopted the Pension Rate Stabilization Program (PRSP) through PARS, including Glendale, Manhattan Beach, Rolling Hills and Palo Alto.

The report also noted that the PARS Section 115 Trust Pension Rate Stabilization Program was developed in an effort to help public agencies address and manage their GASB 68 liability.

The City currently has two retirement plans for current employees through CalPERS: one to fund pensions for miscellaneous (non-safety employees) and one to fund pensions for safety employees (fire and police sworn personnel).

As of the June 30, 2016 CalPERS valuation, the funding ratio of the City’s miscellaneous plan dropped from 74.8 percent to 70.1 percent rate, and the funding ratio of the City’s safety plan declined from 75.6 percent to 70.9 percent.

The combined unfunded liability for these two plans was reported at $470 million, an increase of $93 million from the prior year while the City’s total assets in the plans stood at over $1.1 billion, same as the prior year.

The recommendation was approved as a consent calendar items, a list of agenda items generally approved without discussion.

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