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HomeMy WebLinkAbout2023-09-12; City Council; Resolution 2023-239RESOLUTION NO. 2023-239 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING THE AMENDMENT OF CITY COUNCIL POLICY NO. 86 FOR PENSION FUNDING WHEREAS, the City Council of the City of Carlsbad, California has determined that financial policies are central to a strategic, long-term approach to financial management; and WHEREAS, the city's Pension Funding Policy, City Council Policy No. 86, was adopted by the City Council on June 18, 2019; and WHEREAS, the city wishes to amend the policy for purposes of including assets, contributed to the city's Section 115 Pension Trust, in the city's overall pension funded ratio or status calculation. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1.That the above recitations are true and correct. 2.That the City Council of the City of Carlsbad, California accepts the Pension Funding Policy dated September 12, 2023 (Attachment A). PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 12th day of September, 2023, by the following vote, to wit: AYES: NAYS: ABSTAIN: ABSENT: Blackburn, Bhat-Patel, Acosta, Burkholder, Luna. None. None. None. ftt � KEITH BLACKBURN, Mayor SHERRY FREISINGER, City Clerk (SEAL) ,,,,,,11111111111,,,,, :S-"� � CA b 1111,, � O·,.-r(l q_,. S' � ..•• ��� � �" / � •• •. \1\� "'-'m·· ��o[ 11 �\�l % \�� • j � � .... _..,� / §� �··· ... ,u,•u• •• • � %,, Ali_······!··"··�,'I-J ,,,,111 IFO��''".:$' 111111111111111111'� City Council POLICY STATEMENT Subject: Pension Funding Policy Purpose Policy No. 86 Date Issued Sept. 12,2023 Resolution No. 2023-239 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 i11 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 (Cal PERS). Cal PERS is a multiple-employer public employee defined benefit pension plan. All full-time and certain part-time employees hired and all city safety employees, are eligible to participate in Cal PERS. 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. CalPERS 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 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. Attachment A Pension Funding Policy Sept. 12, 2023 Page 2 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. Statement of policy The city will ensure the costs of the city's defined benefit pension plans will be funded in an equitable and sustainable manner. The city commits. to fund these benefits based on regular actuarial valuations and commits to maintaining no less than an 80% funded ratio, with a target funded ratio of 80% to 85%. The city will ensure that resources are available to both fulfill the city's contractual promises to its employees and minimize the chance that funding these benefits will interfere with the city's ability to provide essential services to the public. Procedure 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 CalPERS 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 administrative services Finance Director or Deputy City Manager of Administrative Services 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 Pension Funding Policy Sept. 12, 2023 Page 3 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. Assets contributed to the city's Section 115 Pension Trust shall be counted towards the calculation of this point-in-time measure. 5.Contributions to and withdrawals from the city's Section 115 Pension Trust shall require authorization by the City Council. 6.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. 7.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. 8.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. 9.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.