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Extracted from Consolidated Report
This investigation was originally published as part of a larger consolidated report containing multiple investigations. View the consolidated PDF for the complete document.
Los Angeles County Grand Jury
• 2010-2011
Civil Grand Jury County of LOS Angeles
⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.
⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.
Findings 6 findings
F1
Page 315
Total CalPERS and retiree health UAAL, including and Pension Obligation Bond debt, equaled $116.6 million as of June 30, 2009, which is significant.
F2
Page 315
A significant portion of this liability is related to OPEB, or retiree health benefits provided to City employees. As of June 30, 2009, the UAAL for OPEB equaled $49.1 million, or 42.2% of all unfunded retirement obligations in 2009.
F3
Page 315
OPEB liabilities are growing rapidly. In part, this is because the City has chosen not to fund its Annual Required Contribution at the levels recommended by actuaries. In FY 2008-2009, the City contributed only 34.2% of the requirement; and, in FY 2009- 2010, the City contributed only 30.2% of the requirement. In FY 2009-2010, this represented a funding shortfall of approximately $2.7 million. Since 2007, the City has also not funded the full amount of the ARC for the MMRP closed plan.
F4
Page 315
The policy to fund these benefits on a pay-as-you-go basis is striking because the City has unique pension funding authority authorized by the voters when they approved special property tax levies in 1946 and 1952. Revenue from this levy were sufficient to nearly fund the full cost of the CalPERS Annual Required Contribution in FY 2009-2010. As a result, the City only needs to fund the OPEB, MMRP and POB debt from discretionary resources.
F5
Page 315
With the exception of attempts to reduce the City’s pick up of the employees contribution to CalPERS, the City appears to have done very little to reign in the cost of the retirement benefits that it provides. A blue ribbon committee in 2006 recommended revenue solutions to cope with the City’s “pension-funding shortfall,” 282 A 2010 – 2011 LOS ANGELES COUNTY CIVIL GRAND JURY and subsequent steps by the City Council have involved adopting a resolution to pass through the portion of property tax revenue collected by the Redevelopment Agency from the special property tax levy.
F6
Page 324
The City has moved forward aggressively to pre fund its OPEB obligations, being one of only 14 out of 70 OPEB cities to do so in the County. While the City’s most recent actuarial evaluation from 2008 reported a funded ratio of only 45.2% on $5.8 million in liabilities, recent finance reports show that the cash balance in the fund has grown substantially to $3.4 million as of January 31, 2011.
Recommendations 2
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R1Page 307Monterey Park’s City Council adopt policies to fully fund the ARC for both the MMRP and OPEB retirement benefit plans for employees in order to ensure future funding of benefits and earn investment income which would discount the annual required contributions
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R2Page 307Monterey Park’s City Council direct its City management to explore alternatives for reducing retirement benefit costs, including possible additional revisions to the amount of the employee contribution pick up paid by the City and alternative employee cost sharing arrangements for retiree health benefits. REQUEST FOR RESPONSE California Penal Code Sections48 §933 (c) and §933.05 requires a written response to all Recommendations contained in this Report which shall be made no later than ninety (90) days after the CGJ publishes its Report (filed with the Clerk of the Court). Respond to: Presiding Judge Los Angeles County Superior Court Clara Shortridge Foltz Criminal Justice Center 210 West Temple Street, Eleventh Floor, Room 11-506 Los Angeles, CA 90012 All responses for the 2010 - 2011 CGJ Report’s Recommendations must be submitted to the above address on or before the end of business September 30, 2011. Responses are required from: Recommendation Number(s) Responding Agency 1 City of Monterey Park 2 City of Monterey Park 48 Reference California Penal Code Sections §933(c) and §933.05 at the beginning of this 2010-2011 CGJ Report 2010 – 2011 PHASE II: SECTION 5 HERMOSA BEACH POLICE SAFETY PLAN SUMMARY The Hermosa Beach Police Safety Plan is one of 3 plans the City provides to its employees through CalPERS. In 2009, this plan had the highest contribution rate in the County at approximately 57.9% of salaries for the employer and employee share of pension benefit costs for uniformed personnel. The City also contributed to a defined benefit retiree health plan for these employees at a rate of approximately 5.3% of salaries, for a total retirement contribution rate of 62.2% in that year. Pension contributions are projected by CalPERS to increase by an additional 8.0% by 2012, increasing the total effective rate for uniformed Police Department retirement benefits to 70% of salaries by that year if retiree health rates remain static. This growth in contributions is also occurring with the Miscellaneous and Fire Safety plans for Hermosa Beach. Also administered for the City by CalPERS, the Miscellaneous employee effective contribution rate was 27.1% of salaries in 2009 and could increase by an additional 2% by 2012.The Fire Safety employee effective contribution rate was 51.9% in 2009, and could increase by an additional 3% by 2012. In total for the 3 plans, CalPERS projects that the City will be required to contribute $4,149,982 on base salaries of $12,751,612 in FY 2011-2012, or approximately 32.5% of salaries excluding retiree health benefits. The City has recognized the significance of the funding difficulties that it faces and has initiated several strategies to reduce costs including proposals to labor unions to modify pension formulas. However, the City is not proposing to reduce or eliminate the City’s commitment to pick up the 7% (Miscellaneous) and 9% (Safety) employee contributions for CalPERS pensions at this time. The City is considering the issuance of Pension Obligation Bonds (POBs) to take advantage of current lower interest rates on borrowing. In recent analysis, bond advisors have estimated that POBs would save an estimated $329,818 over 8 years. PURPOSE The Hermosa Beach Police Safety Plan was chosen by the CGJ for in-depth review, based on the high annual required contribution for pension and retiree health benefits, amounting to over 62% of pensionable salaries in 2009, and expected to rise to over 70% of pensionable salaries by 2012.