CalPERS Safety and Miscellaneous Employees Retirement Plans
Substantially all City employees are eligible to participate in pension plans offered by California Public Employees Retirement System (CALPERS) an agent multiple employer defined benefit pension plan which acts as a common investment and administrative agent for its participating member employers. CALPERS provides retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. The City’s employees participate in the separate Safety (Police and Fire) and Miscellaneous (all other) Employee Plans. Benefit provisions under both Plans are established by State statute and City resolution. Benefits are based on years of credited service, equal to one year of full time employment. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CALPERS; the City must contribute these amounts.
Effective July 1, 2003, the City adopted the provisions of Internal Revenue Code Section 4 1 4(h)(2) on behalf of its miscellaneous and police safety personnel, so that employees may pay their PERS contribution out of pre-tax compensation. The City continues to pay the tax deferred contributions on behalf of applicable personnel.
CALPERS determines contribution requirements using a modification of the Entry Age Normal Method. Under this method, the City's total normal benefit cost for each employee from date of hire to date of retirement is expressed as a level percentage of the related total payroll cost. Normal benefit cost under this Method is the level amount the employer must pay annually to fund an employee' s projected retirement benefit. The actuarial assumptions used to compute contribution requirements are also used to compute the actuarially accrued liability. Unfunded liability is actuarially calculated and a lump sum payment is paid annually toward it.
CALPERS uses the market related value method of valuing the Plan's assets. An investment rate of return of 7.50% is assumed, including inflation rate at 2.75 %. Annual salary increases are assumed to vary by duration of service. Changes in liability due to plan amendments, changes in actuarial assumptions, or changes in actuarial methods are amortized as a level percentage of payroll on a closed basis over twenty years. Investment gains and losses are accumulated as they are realized and amortized over a rolling thirty year period.
Effective for the June 30, 2013 Annual Actuarial Valuation, CalPERS will no longer be smoothing assets, but instead will be smoothing rates. Therefore, the Annual Actuarial Valuations will only be reporting on the Market Value of Assets.
As required by new State law, effective July 1, 2005, the City's Miscellaneous and Safety Plans were terminated, and the employees in those plans were required by CALPERS to join new State-wide pools. One of the conditions of entry to these pools was that the City true-up any unfunded liabilities in the former Plans, either by paying cash or by increasing its future contribution rates through a Side Fund offered by CALPERS. The City satisfied its Miscellaneous and Safety Plans unfunded liabilities by agreeing to contribute to the Side Fund through an addition to its normal contribution rates.
In FY 2012-13 the City enacted a number of pension reforms:
- The balance of the Miscellaneous Plan's Side Fund liability of $413,515 and the balance of the Fire Safety Plan's Side Fund liability of $1,333,859 were paid off during fiscal year ended June 30, 2013.
- Closed Tier 1 to new entrants – Soft Freeze
- Created Tier 2 and Tier 3;
- Transferred firefighters to SMFPD
- Lowered Pay Ranges
- Required employees to pay a portion of the Employer’s Contribution Share
- Established trust funds to put aside additional funds toward pensions and OPEB liabilities
As noted above, the City has tiered pension plans for employees hired after July 1, 2012. CalPERS annual actuarial analysis reports can be found in the following links: