HomeMy WebLinkAbout2019-06-18; Council Policy No. 86 - Pension Funding Policy{cityof
Carlsbad
Policy No.
Date Issued:
Effective Date:
Attachment A
86
Resolution No.
Cancellation Date: N/ A
Supersedes No. N/ A
Council Policy Statement
Category: FINANCIAL MANAGEMENT POLICIES
Specific Subject: Pension Funding Policy
PURPOSE:
The purpose of this policy is to provide reasonable assurance that the costs of the city's defined
benefit pension plans will be funded in an equitable and sustainable manner. It codifies the city's
commitment to fund these benefits based on regular actuarial valuations, and to measure and report
them in accordance with generally accepted accounting principles (GAAP). Adhering to a funding
policy that embodies these funding and accounting principles is a prudent governance practice, and
helps achieve intergenerational equity among those who financially support the plan. It also ensures
that resources are available to fulfill the city's contractual promises to its employees, and minimizes
the chance that funding of these benefits will interfere with the city's ability to provide essential
services to the public.
BACKGROUND:
The city provides "defined benefit" retirement benefits through the California Public Employees'
Retirement System (CalPERS). CalPERS is a multiple-employer public employee defined benefit
pension plan.
All full-time, certain part-time, and all city safety employees are eligible to participate in CalPERS.
CalPERS provides retirement and disability benefits, annual cost of living adjustments, and death
benefits to plan members and their beneficiaries. Benefits are based on years of credited service,
equal to one year of full time employment. Cal PERS acts as a common investment and administrative
agent for participating public entities within the State of California. Benefit provisions and all other
requirements are established by State of California statute and city resolution.
Pension Funding: A Guide for Elected Officials, issued by eleven national groups including the U.S.
Conference of Mayors, the International City/County Management Association, and the Government
Finance Officers Association, established the following five general policy objectives for a pension
funding policy:
1. Actuarially Determined Contributions -a pension funding plan should be based
upon an actuarially determined contribution (ADC) that incorporates both the cost
of benefits in the current year and the amortization of the plan's unfunded actuarial
accrued liability.
2. Funding Discipline -a commitment to make timely, actuarially determined
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contributions to the retirement system is needed to ensure that sufficient assets are
available for all current and future retirees.
3. Intergenerational equity -annual contributions should be reasonably related to the
expected and actual cost of each year of service, so the cost of employee benefits
is paid by the generation of taxpayers who receives services from those employees.
4. Contributions as a stable percentage of payroll -contributions should be
managed so that employer costs remain consistent as a percentage of payroll over
time.
5. Accountability and transparency -clear reporting of pension funding should
include an assessment of whether, how, and when the plan sponsor will ensure
sufficient assets are available for all current and future retirees.
The financial objective of a defined benefit pension plan is to fund the long-term cost of benefits
provided to the plan participants. To assure that the plan is financially sustainable, the plan should
accumulate adequate resources in a systematic and disciplined manner over the active service life of
benefitting employees. This funding policy outlines the method the city will utilize to determine its
actuarially determined contributions to fund the long-term cost of benefits to the plan participants
and annuitants.
POLICY:
To achieve the purpose of this policy, the city will take the following actions:
1. The city will use the actuarially determined contribution (ADC) provided by CalPERS annually
to serve as the basis for its pension contributions. The ADC will include the normal cost for
current service (variable cost) and the amortization of any unfunded amount (fixed cost). The
normal cost will be calculated using the entry age normal cost method using economic and
non-economic assumptions approved by the Cal PERS Board of Administration.
2. The city will review the CalPERS annual actuarial valuations to validate the completeness and
accuracy of the member census data and the reasonableness of the actuarial assumptions.
3. The city supports a policy of funding the full amount of the actuarially determined
contribution each year and making the full contribution as determined by CalPERS. In the
event the city is unable to fund the full amount of the actuarially determined contribution in
each year with current resources (i.e., without borrowing or using reserves), the deputy city
manager, administrative services, or designee, will identify a reasonable period to return to
full funding.
4. The city will commit to a combined (both the city's miscellaneous and safety plans) pension
funded ratio of no less than a minimum of 80%, with a target funded ratio range of 80% to
85%. For the purposes of this policy, the term "funded ratio" refers to the level of the
pension plans assets, at market value, in proportion to the pension plans accrued liability.
This is an annual point-in-time measure, as of the valuation date.
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Policy No. 86
5. In the event the city is unable to meet the minimum combined pension funded ratio of 80%
with current resources (i.e., without borrowing or using reserves), the finance director or
deputy city manager of administrative services will identify a reasonable period to return to a
minimum 80% funded ratio status.
6. The city will demonstrate accountability and transparency by communicating all information
necessary for assessing the city's progress toward meeting its pension funding objectives.
This will be achieved, in part, by ensuring full and accurate implementation of Governmental
Accounting Standards Board No. 68, effective fiscal year 2014-15.
7. As part of the annual budget adoption process, the city manager or deputy city manager of
administrative services will report to the City Council on the following:
a. most recent actuarially determined pension contribution
b. most recent actuarially funded ratio and its compliance with either #4 or #5 above
c. any other significant issues associated with funding the defined benefit pension in a
stable and equitable manner as described above.
8. Staff will monitor changes to and expansions of pension funding best practices, as well as any
additional guidance provided by the Government Finance Officers Association that relate to
the funding of defined benefit pensions. Staff will return to City Council with modifications to
this policy as needed.
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