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.”