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Findings and Recommendations 3 findings
F1
Continually rising retirement costs and obligations put funding of jurisdictions' services and projects at risk. X AGREE PARTIALLY DISAGREE - explain disputed portion below DISAGREE - explain below Response explanation (required for responses other than "Agree"):
Related Recommendations (1)
R1
To prevent reductions in public services, each of the six public agencies studied in this report should increase, and make public, their efforts to manage and reduce retirement costs and obligations. X HAS BEEN IMPLEMENTED HAS NOT BEEN IMPLEMENTED BUT WILL BE IMPLEMENTED IN THE FUTURE - indicate timeframe below REQUIRES FURTHER ANALYSIS - explain scope and timeframe below (not to exceed six months) WILL NOT BE IMPLEMENTED - explain below Response summary, timeframe or explanation: The City continues with a long-term strategy to increase its efforts to manage and reduce retirement costs and has made some efforts in highlighting those efforts. A summary of the major efforts include: 1) Permanent reduction in across-the-board compensation to all employees of at least 10% which reduced the escalation of future retirement liabilities. 2) Established a cap on Other Post-Employment Benefits (OPEB) such that there is a maximum hard-dollar cost and that retirees become ineligible upon reaching Medicare eligibility age (currently 65). 3) Issued Pension Obligation Bonds that will be paid off in 2022. They immediately reduced the City's interest costs on this Pension debt from the then 7.75% rate. Current estimated, annual savings are $190,000, based on the recently lowered 7.50% PERS discount rate. 4) In advance of statewide reform (PEPRA), proactively implemented a second tier, lower benefited pension system for all newly hired employees. For public safety employees, the plan became effective September 2011 and for all other employees, March 2012. Unlike PEPRA, that became effective June 2013, the City's second tier does not exempt any new hires from the lower benefited plan (PEPRA allows new hires from other CalPERS or similar systems to start with the original, higher cost retirement system). 5) Established in June 2013 a $2.1 million future obligation reserve to be converted into allocations for future liabilities, including establishment of a material retiree benefit trust to pre-fund future pension liabilities. 6) Implemented an annual process such that when it is financial advantageous the City makes a lump-sum prepayment to CalPERS to lower retirement costs. Continued to obtain larger cost sharing by employees of their CalPERS retirement costs. 8) Continued through recent negotiations to restrict any proposals that would directly grow employee future retirement costs. The elements of this strategy, individually and on the aggregate have been discussed in public, at City Council meetings when Council action was taken to adopt them.
F2
A clear and complete statement of the total retirement costs and obligations has not been provided in the budget narrative for either the public or elected officials. AGREE X PARTIALLY DISAGREE - explain disputed portion below DISAGREE - explain below Response explanation (required for responses other than "Agree"): Already contained in the May 12, 2015 Proposed Fiscal Year 2015 Budget was a description of the total unfunded retiree obligations (see the Finance Director's Overview within the Budget in Brief summary, attached). This discussion portrayed the total obligations as compared to funding levels and detailed the benefit levels provided for retiree health. An additional financial schedule was added to the Adopted (final) Fiscal Year 2015 Budget that provides the details of the total annual costs and total obligation for retiree obligations.
Related Recommendations (1)
R2
Each of the six public agencies studied in this report should provide, in language understandable to the public, the totality of retirement obligations in their annual budget narratives beginning with the fiscal year 2015/16 budget. X HAS BEEN IMPLEMENTED HAS NOT BEEN IMPLEMENTED BUT WILL BE IMPLEMENTED IN THE FUTURE - indicate timeframe below REQUIRES FURTHER ANALYSIS - explain scope and timeframe below (not to exceed six months) ___ WILL NOT BE IMPLEMENTED - explain below Response summary, timeframe or explanation: Please see the response to Finding 2. In addition, we have historically included similar schedules detailing total retiree obligations, including a description of the benefit levels, in our audited, Comprehensive Annual Financial Report (CAFR) (attached).
F3
Enrollment in the CalPERS Employers Retiree Benefit Trust Fund reduces employer contributions, prevents retiree health obligations from becoming a significant budget liability, and contributes to a positive credit rating. AGREE X PARTIALLY DISAGREE - explain disputed portion below DISAGREE - explain below Response explanation (required for responses other than "Agree"): We agree that enrollment in Retiree Benefit Trust Funds is a valuable and essential tool for government agencies to dedicate general funding for the restricted purpose of offsetting future retiree liabilities. However, there are other options than CalPERS that can have lower entry and maintenance costs. Regarding lowering employer contributions, the City would not see a reduction in employer contributions to CalPERS but rather would contribute additional general purpose funding towards unfunded obligations. Finally, without a significant funding strategy, a Trust will have a marginal impact to mitigate future liabilities or enhance the City's credit rating.
Related Recommendations (2)
R3
The Board of Supervisors and the City Councils of Santa Cruz, Scotts Valley and Watsonville should enroll in the California Employers Retiree Benefit Trust Fund (CalPERS Trust Fund) to pre-fund retiree health obligations and unfunded liabilities. HAS BEEN IMPLEMENTED \overline{\boldsymbol{\chi}} has not been implemented but will be implemented in the future - indicate timeframe below REQUIRES FURTHER ANALYSIS - explain scope and timeframe below (not to exceed six months) WILL NOT BE IMPLEMENTED - explain below Response summary, timeframe or explanation: As a continuation of the development of our $2.1 million unfunded obligations reserve, we will be building into our FY2017 budget development (1) a funding mechanism to build our reserve; (2) the establishment of a Retiree Trust with a provider yet to be determined (as stated in response to Finding #3, there are providers other than CalPERS to be considered); and (3) the process by which contributions are made to the Trust. FY 2016 Proposed Budget in Brief Finance Director's Overview Contained within the FY 2016 Proposed Budget are new schedules, expanded summaries and document changes meant to provide greater transparency and easier usability. Some of the notable changes are: Created a new tab section for Reorganized the Capital this Budget in Brief to allow for Improvement Program to (1) quicker, easier reference move to the intro the Climate Action and Unfunded project
R8
Continued through recent negotiations to restrict any proposals that would directly grow employee future retirement costs. The elements of this strategy, individually and on the aggregate have been discussed in public, at City Council meetings when Council action was taken to adopt them. Recommendation 2: Each of the six public agencies studied in this report should provide, in language understandable to the public, the totality of retirement obligations in their annual budget narratives beginning with the fiscal year 2015/16 budget. X HAS BEEN IMPLEMENTED HAS NOT BEEN IMPLEMENTED BUT WILL BE IMPLEMENTED IN THE FUTURE - indicate timeframe below REQUIRES FURTHER ANALYSIS - explain scope and timeframe below (not to exceed six months) ___ WILL NOT BE IMPLEMENTED - explain below Response summary, timeframe or explanation: Please see the response to Finding 2. In addition, we have historically included similar schedules detailing total retiree obligations, including a description of the benefit levels, in our audited, Comprehensive Annual Financial Report (CAFR) (attached). Recommendation 3: The Board of Supervisors and the City Councils of Santa Cruz, Scotts Valley and Watsonville should enroll in the California Employers Retiree Benefit Trust Fund (CalPERS Trust Fund) to pre-fund retiree health obligations and unfunded liabilities. HAS BEEN IMPLEMENTED \overline{\boldsymbol{\chi}} has not been implemented but will be implemented in the future - indicate timeframe below REQUIRES FURTHER ANALYSIS - explain scope and timeframe below (not to exceed six months) WILL NOT BE IMPLEMENTED - explain below Response summary, timeframe or explanation: As a continuation of the development of our $2.1 million unfunded obligations reserve, we will be building into our FY2017 budget development (1) a funding mechanism to build our reserve; (2) the establishment of a Retiree Trust with a provider yet to be determined (as stated in response to Finding #3, there are providers other than CalPERS to be considered); and (3) the process by which contributions are made to the Trust. FY 2016 Proposed Budget in Brief Finance Director's Overview Contained within the FY 2016 Proposed Budget are new schedules, expanded summaries and document changes meant to provide greater transparency and easier usability. Some of the notable changes are: Created a new tab section for Reorganized the Capital this Budget in Brief to allow for Improvement Program to (1) quicker, easier reference move to the intro the Climate Action and Unfunded project
Additional Recommendations 5
These recommendations are not explicitly linked to specific findings.
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R4In advance of statewide reform (PEPRA), proactively implemented a second tier, lower benefited pension system for all newly hired employees. For public safety employees, the plan became effective September 2011 and for all other employees, March 2012. Unlike PEPRA, that became effective June 2013, the City's second tier does not exempt any new hires from the lower benefited plan (PEPRA allows new hires from other CalPERS or similar systems to start with the original, higher cost retirement system).
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R5Established in June 2013 a $2.1 million future obligation reserve to be converted into allocations for future liabilities, including establishment of a material retiree benefit trust to pre-fund future pension liabilities.
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R6Implemented an annual process such that when it is financial advantageous the City makes a lump-sum prepayment to CalPERS to lower retirement costs. Continued to obtain larger cost sharing by employees of their CalPERS retirement costs.
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R9RETIREMENT PLANS A. Pension Plan Plan Description The City contributes to the California Public Employees' Retirement System (PERS); an agent multiple-employer defined benefit pension plan. The Police and Fire Safety plans are required to participate in a risk pool since there were less than 100 active members in at least one valuation since June 30, 2003. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. 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 statute and City ordinance. Copies of PERS' Annual Financial Report may be obtained from their Executive Office located at 400 P Street, Sacramento, CA 95814. Funding Policy The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. Based on CalPERS requirements, active plan members in the Miscellaneous Plan are required to contribute 7% of their annual covered salary; while active plan members in the Police and Fire Plans are required to contribute 9% of their annual covered salary. The City is required to contribute at an actuarially determined rate for the remaining amounts necessary to cover benefits. In December 2010, the City contributed a total of $22,989,831 to CalPERS to pay off the CalPERS Police side fund obligation in the amount of $12,732,528 and the CalPERS Fire side fund obligation in the amount of $10,257,303. These amounts will be amortized as a level percentage of payroll over a ten year period. The payoff of the CalPERS side fund obligations did not affect the benefits due to existing or prior City employees. The fiscal year 2014, actuarially determined employer rates for the annual covered payroll are as listed below: Miscellaneous Employees 16.029% Police Employees 27.877% Fire Employees 27.877% Annual Pension Cost For fiscal year 2014, the City's annual pension cost of $9,254,901 for PERS was equal to the City's actual contributions. The required contribution was determined as part of the June 30, 2013, actuarial valuation using the entry age normal actuarial cost method. City of Santa Cruz Notes to Basic Financial Statements, Continued For the year ended June 30, 2014
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R10POST-EMPLOYMENT RETIREMENT BENEFITS Retiree Medical Plan The City of Santa Cruz Post-Retirement Health Care Plan is a single-employer defined benefit healthcare plan administered by the California Public Employees' Retirement System (CalPERS). The Plan provides healthcare insurance benefits to eligible retirees. The City contributes the Public Employees' Medical and Hospital Care Act (PEMHCA) minimum required employer contribution of $115 per month towards the retiree monthly premium for eligible retirees participating in PEMHCA. The Plan does not issue a financial report. All part-time and full-time regular employees that meet specified Memorandum of Understanding (MOU) continuous service and minimum age requirements are also eligible to receive a Retiree Medical Incentive. Employees must meet the following minimum eligibility requirements: Service - Ten years of continued service with the City and be at least 55 years of age 0 Supervisor - Ten years of continued service with the City and be at least age 50 years of age City of Santa Cruz Notes to Basic Financial Statements, Continued For the year ended June 30, 2014
No Responses Found 1
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Santa Cruz
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