Poway City Council considering special pension account
Poway City Council members informally agreed Tuesday night the city needs to get more proactive in dealing with steadily rising employee pension plan costs.
The city should seriously look into creating a “Section 115 Trust” into which surplus city funds can be invested, the council agreed during a non-binding “workshop” session. The fund would be used to make annual payments to the California Public Employee Retirement System (CalPERS), which administers the pension plans for most of the city’s employees.
“Establishing a 115 trust would provide the city with an alternative to sending funds directly to CalPERS and would provide greater city control over assets and portfolio management,” City Manager Tina White wrote in a staff report.
The matter will return to the council next month following a final report on the now-closed 2017-18 fiscal year. Once it is determined how much surplus is available, the council will decide what to do with the money.
The city will be paying about $4.6 million to CalPERS this fiscal year, White said, with employees contributing another $1.3 million.
Poway, like other cities, counties and districts throughout California, has been seeing substantial increases in their required contributions to CalPERS, White said. Mary Beth Redding, vice president of a consulting firm hired in March for $14,250 to examine the city’s pension obligations, told the council the rate hikes will likely continue for many years and will not return to 2017-18 levels until about 2041.
“It’s not a pretty picture,” Redding told the council. The long string of projected rate hikes are attributed in part to fund investment losses during the Great Recession, the fact that retirees are living longer and a policy change by the CalPERS government board to become more conservative with investments, she said.
The retirement account for the 52 city’s safety employees, plus 44 retired employees, is 70.5 percent funded while the account for 176 miscellaneous worker, plus 239 retirees, is 73.3 percent funded. Together, that totals about a $47.5 million shortfall, the council was told. The last time the accounts were fully funded was 2007, the start of the Great Recession.
About 70 employees hired before 2012 are part of the now-closed Public Agency Retirement System. That plan is well funded since the council pumped $3.1 million in surplus money into it between 2015 and 2016.
Having the city withdraw from CalPERS is “practically impossible,” Redding said, as the fund would demand the city pay into the fund its full benefit obligations. That might cost the city between $170 million and $200 million, she said.
That leaves the options of either continue to pay directly to CalPERS or creating a Section 115 Trust, Redding told the council.
The trusts, around since 2014, have been a popular option with governmental agencies, Redding said, as the money placed into to them can be invested in a more broad range of categories.
The council sentiment seemed to be to proceed with establishing the fund and start it off with as much money as possible. How much that might be will be determined following a report on the close out of the 2017-18 fiscal year.
Email: editor@pomeradonews.com