Yorba Linda grapples with unfunded pension, post-retirement employee benefit liabilities

Yorba Linda – along with the many other governmental agencies in California– is grappling with unfunded liabilities related to pensions and other post-employment employee benefits.

And – as is the case with some of the other public bodies – this city is working on solutions to the problem, with an array of answers scheduled to be presented for discussion and potential action at a City Council meeting in June during a mid-point review of a two-year budget.

Yorba Linda has an unfunded pension liability of $14.9 million, according to the most recent actuarial study from the state Public Employees Retirement System, Finance Director Scott Catlett stated in a report to council members earlier this month.

The CalPERS study pegs the city's pension plan as 75.1 percent funded, representing a drop in the unfunded liability by $952,000 and a boost in the funded percentage from 71.2 per cent from just a year ago, Catlett reported.

“CalPERS has completed a multi-year process of mitigating various risks inherent in the actuarial factors that influence rates,” Catlett noted. The changes increased what would have been a $12.5 million unfunded liability and dropped a 78.3 percent funded ratio to the current figures.

The changes “account for anticipated increases in employee and retiree mortality in the years ahead, lower anticipated investment earnings and amortizing losses in a more direct and accelerated fashion,” Catlett stated.

He added: “All of these changes will increase the health of the city's pension plan in the long-term and over time decrease the likelihood of a repeat of the challenges experienced by CalPERS during the last decade.”

Another result of the changes will be to increase the current rate of 20.1 percent of the city's payroll paid to CalPERS to a projected 26.6 percent by 2020-21. The higher rate will lead to the city's plan reaching 100 percent funding in about 30 years, Catlett noted.

Catlett also indicated the city is studying methods of targeting the unfunded liability “at an accelerated rate” by shortening amortization to 20 or 15 years, “which would increase the city's costs during the repayment period but could save as much as $7.9 million in total.”

Other options would be for the city to make larger, elective payments in city-selected years or start paying the higher rates now rather than phasing them in during the next five-year period.

An unfunded liability for post-employment benefits stands at $15.3 million, and “is the result of the city's current practice of funding medical contributions for retirees on a pay-as-you go basis,” Catlett stated.

Financing alternatives scheduled to be presented to the council in June include establishing city-funded trust or reserve accounts, modifying benefits for future employees to reduce city contributions and/or adding a vesting period for employees to be eligible for city contributions to retiree medical insurance.