Yorba Linda City Council examines staff report on unfunded pension, retiree health benefits liability

Part of a lengthy and detailed financial report presented to City Council members recently focused on liabilities related to Yorba Linda's unfunded pension and retiree health benefits for employees – a topic that's generated anxieties for many public agencies throughout the state.

The facts and figures regarding the city's obligations for both current and retired employees, as outlined by Finance Director Scott Catlett in a report council “received and filed” after extended discussion, provide an interesting analysis of the issue's impact on local taxpayers.

Yorba Linda's pension plan has $45 million in assets held by the California Public Employees Retirement System, known as CalPERS. To be fully funded, assets should total closer to $60 million.

The unfunded liability is about $14.9 million, making the plan 75.1 percent funded, an uptick from the low point of 63.3 percent funded recorded in 2009 during the economic downswing.

The improvement “reflects both strong investment earnings in the years following the recession and significant decisions made by CalPERS...to mitigate risk and increase the long-term health of the pension fund,” Catlett reported.

Among decisions noted by Catlett is the agency moving “from an actuarial value of assets to a market value of assets to more accurately reflect the true amount of funds on hand.” This and the other changes will increase the future viability of the city's pension plan.

But the changes also increase the city's unfunded liability and the annual rates the city pays to CalPERS, set as a percentage of the city payroll and projected to increase to 30 percent by 2025 before stabilizing at 19 percent. The unfunded liability should be eliminated by 2045.

Of the city's 105 employees, 88 are in a plan allowing full retirement at age 55 with a benefit of two percent of the employee's highest annual pay for each year worked. The remaining 17 are in a plan with full retirement at age 62 with the two percent based on an average of the highest salary for three years worked.

The 88 employees pay 7 percent of salary for each year's pension contribution, while the 17 pay half the cost of the pension benefit. Eventually, all employees will pay half, estimated at 9.5 percent of salary. Currently, 155 retired employees collect CalPERS pensions.

The city's current annual CalPERS contribution of about $1.7 million will climb to $2.4 million in 2025 before gradually declining to $1 million in 2045, according to projections in Catlett's report.

The city's unfunded liability for retiree medical contributions is $15.3 million, more than double from 10 years ago. The current annual growth rate of 12 percent is expected to slow to 7 per-cent in future years.

Catlett noted: “A reduction in retiree medical benefits for future employees will be required if the city wants to curtail the long-term costs...associated with retiree medical insurance.”