Vacaville Managing its Unfunded Liability Debt?"*

R2

- Vacaville City Council should have staff research and present to the Council other health care choices. Response to Finding 2 and Recommendation 2: The City disagrees with Finding 2 that it has not looked beyond CalPERS for health coverage. The City of Vacaville has provided health insurance for active and retired employees since 1975. During that 49+ years, health premiums have increased exponentially nationwide. Over 300 cities in California contract with CalPERS for group health insurance. CalPERS health is the largest public employer purchaser of health benefits in California and the second largest employer purchaser in the nation after the federal government. CalPERS provides coverage to over 1.5 million members. CalPERS group health offers numerous plan options for employees and includes coverage for early (non-Medicare) retirees. City staff has explored options other than CalPERS for health but, due to the aforementioned non- Medicare retirees, receives a "decline to quote" from vendors. CalPERS, being such a large purchaser of health for actives and all retirees does not face adverse selection as the City would trying to obtain health insurance with such a small population (800 vs. the 1.5 million under CalPERS health). The rates the City would receive would have to be high enough for the insurer to make a profit based on our census and therefore would be too costly for the City. In 2005, recognizing the need for addressing the increasing costs and growing unfunded liability of this benefit, the Council directed staff to work with labor unions to find solutions and work toward a sustainable model and has continued that direction over the last 19 years. The City had paid for 100% of the benefit for actives and retirees to that point. After 30 years of providing that level of benefit the approach to make changes has been incremental but deliberate in assuring the City could still attract and retain the high level of talent the council and citizens expect while working toward a more sustainable benefit model. Between 2005 and 2017 the Council, staff, and all City labor unions accomplished: Three separate reductions of the City contribution to active and retiree health 2009 – reduced from 100% to 95% 2010 - reduced from 95% to 92% 0 2016 - reduced from 92% to current 85% 2017 - increase to $100/mo from safety employees 0 As of June 30, 2021, the trust fund balance (including City and employee contributions) 0 was $61.5 million. Implementation of a vesting schedule - 2009 . Prior to the vesting schedule, someone could come work for the City for 1 day and retire the next with full retiree medical benefits. The vesting schedule required a minimum of 5 years at the City of Vacaville to receive any level of retiree medical. Adoption of an OPEB funding policy - 2015 . The policy established a goal of increasing the funding of the annual Actuarially 0 Determined Contribution (ADC) in each successive year until reaching full funding of the ADC in 2020. The City was able to reach this goal of fully funding the annual contribution amount (ADC) in 2018 and has continued to do so every fiscal year since that time. In 2018, the council recognized the need for more drastic changes to address OPEB and directed staff to negotiate a new, lower benefit tier for future hires during that year's upcoming round of contract negotiations with labor groups. At the conclusion of those labor negotiations, a new tier of retiree medical was established with a drastically reduced retirement benefit for non-safety employees hired on or after December 1, 2018, and safety employees hired on or after January 1, 2020.

R3

– Vacaville City Council consider using the reserve account to reduce the OPEB Unfunded Liability Debt. Response to Finding and Recommendation 3: The City agrees with the recommendation of considering the use of reserve funds to reduce the unfunded liability and has implemented this liability reducing strategy since 2022. In addition to fully funding its annual OPEB and pension ADCs, the City has also used $9.8M in reserve funds to make additional payments, also referred to as ADPs, towards its pension unfunded liabilities to save on long- term interest costs. ADPs are voluntary and the City balances the use of them with the budget and other funding priorities. Additionally, the City also takes advantage of its strong cash reserves by prepaying its annual pension unfunded liability contribution at the beginning of the fiscal year rather than throughout the fiscal year; this strategy results in $800K in interest cost savings each year.

R4

- The City of Vacaville reduce the Unfunded Liability Debt by avoiding the inclusion of special pays when calculating retirement pensions. Response to Finding and Recommendation 4: The City cannot agree with Finding or Recommendation 4. State law (Public Employees Retirement Law or PERL) dictates what compensation is included in calculating retirement pensions. Specifically, Government Code sections, 20630, 20636, 20636.1, 7522.34 and California Code of Regulations sections 571 and 571.1). The City does not make these determinations. Sincerely, John Carli, Mayor Attachment: Request Response Letter from Solano County Grand Jury, dated June 26, 2024