Fully funding CalPERS will save the city $5.9 million over a 30-year period.
The City Council has voted to pay off its unfunded employee pension liability, saving the city $5.9 million in interest over a 30-year period.”It’s a nearly $6 million savings over the next 30 years,” said Keith Neves, the city’s director of finance. “It would be like paying off your mortgage early.” The council authorized a payment of $3.7 million to the California Public Employees Retirement System, which the city contracts to provide pension benefits for its retirees.
Neves said the payment shouldn’t have a significant impact on city funds because the city’s reserve policy is still fully funded, and the unrestricted general fund balance will be roughly $17.5 million.”
We’re a little lucky here,” Neves said. “We have a lot of one-time money that came in from development, so we’re paying off our liabilities with that one-time money.”
The council also approved a second recommendation of depositing $1 million into a trust for future changes in assumptions by CalPERS.
The assessment of the city’s unfunded liability can change year to year. If it does, the trust is there to to pay off any new unfunded liability or premiums.
According to a city staff report, CalPERS determines a percentage rate of regular salary required to fund earned pension benefits each year. If the total amount of contributions is less than the total forecast cost of earned pension benefits, the difference represents an “unfunded actuarial accrued liability.”
The city’s unfunded liability as of Aug. 31 was $3.7 million, amortized over a closed, 30-year period. Members of the council hailed the decision as an achievement for the city of Lake Forest.
“Paying off Lake Forest’s unfunded pension liability really is a monumental achievement,” said Councilman Andrew Hamilton. “This really is a unique situation to have both our other post employment benefits and our pension liabilities paid off.”
Source: Orange County Register