Yorba Linda City Council tackles unfunded pension, retiree health benefits liabilities

Two of Yorba Linda's unfunded liabilities – city employee pension payments and other post-retirement benefits – received renewed attention and specific action at a recent City Council meeting.

Council members want to save money by speeding up amortization of the unfunded pension liability from 30 years to 20 years or less and pre-fund a portion of the city's unfunded retiree healthcare liability.

The council appropriated $320,490 for an extra payment to the California Public Employees Retirement System, deposited $200,000 to the city's Other Post-Employment Benefits Trust and allotted $89,555 from library reserves as the library's share of the two payments.

The city began the accelerated amortization process in June with a $214,555 payment to CalPERS, representing a 19 percent boost over the minimum required contribution to the unfunded liability of $1,131,170.

The extra $214,555 was supplemented with $40,173 the city saved by making the CalPERS payment in July, rather than sending in payments in 12 monthly installments, resulting in the unfunded liability payment besting the required minimum by 23 percent.

“Unfortunately,” according to a recent report presented to the council by Finance Director Scott Catlett, “the city's unfunded liability increased by $4 million or 23 percent last year.”

Catlett noted in his report: “As a result, the city's recent additional payments were more than offset by the increase in the liability.” To maintain a 20-year amortization strategy, the current extra city payment jumped $161,083 from the previous $214,555.

“The city's pension plan has assets totaling approximately $44.3 million (down from $45 million last year), and an unfunded pension liability of approximately $21.2 million (up from $17.2 million last year),” Catlett explained, or 67.6 percent funded, down from 72.4 percent.

Catlett reported that “a number of factors are putting pressure on the plan's funded status, including reductions to the discount rate and significant changes to actuarial assumptions.”

The $200,000 deposited to a trust created to pre-fund a portion of retiree healthcare benefits follows a $234,406 contribution made in June, which grew to $241,910 by Sept. 30, because of interest earnings.

The unfunded liability for these benefits has dropped some $2 million from about $17.4 million as a result of recent changes in benefits for new employees and the plan to begin pre-funding.

Currently, about nine of the city's 101 full-time employees earn lower retiree medical benefits, a number expected to increase in future years.

Financing for these added payments comes from the city's reserve fund. A recently adopted policy calls for the council to consider additional spending when reserves exceed 60 percent of a year's operating budget. Reserves between 50 and 60 percent of a year's budget are labeled “spendable excess reserves,” which totaled about $4 million on June 30.