Pension Ad Hoc Subcommittee
Public pension liability is a statewide problem in California. Many government agencies are working to find sound solutions to alleviate the expensive and growing cost of public pension liability. Brea, like many other California cities, is working to mitigate the increase in pension costs resulting from several economic factors. The Pension Ad Hoc Subcommittee, consists of Mayor Pro Tem Hupp, and Council Member Parker and was formed by the Brea City Council to explore possibilities of reducing the City’s pension liabilities. The cost of pension obligations has become more expensive over the years as people are living longer thus increasing and extending payment obligations.
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How Did Cities Get Here?
- Superfunding in the 1990s led to enhanced benefits for safety employees – moved from 2% @ 50 to 3% @ 50 in 2001. Miscellaneous employees - 2% at 60 to 2% @ 55 in 1999.
- Other factors, such as people living longer, retiring earlier, etc.
- Investment portfolio performance. Gains and losses are amortized over a 20-year horizon with a ramp-up over the first five years and levels off the remaining 15 years. The below table illustrates CalPERS annualized investment returns over various time periods as of June 30, 2020.
How Has Brea Addressed
Increasing Pension Costs?
- All eligible employees are paying 100% of the full employee share of the CalPERS retirement costs.
- In 2013, lower pension benefits for new Public Employees’ Pension Reform Act (PEPRA) employees, which will ultimately result in lower pension costs for the City.
- Non-executive public safety bargaining units (Police and Fire) are now contributing 3% toward the employer share. Most miscellaneous bargaining units are contributing 1% toward the employer’s share. FY 2019-20, employees have paid approximately $2.3 million toward their retirement.
- In FY 2015-16, the City established a Section 115 Irrevocable Trust Fund (“Trust”) with Public Agency Retirement Services (PARS) to help stabilize future pension obligation costs. As of June 30, 2021, the City has contributed $6.76 million towards this Trust and has a market value of $11 million. Funds can only be used to pay pension obligation costs.
- General Fund retirement costs are budgeted at approximately $10.1 million and represent 17.1% of the City’s fiscal year 2021-22 General Fund adopted budget.
City's Projected Unfunded Accrued Liability
The table below illustrates the City’s combined (safety and miscellaneous) Unfunded Accrued Liability (UAL) in comparison to the CalPERS projected payroll assumptions and total projected employer costs for the City of Brea for the next 30 years. Information provided is based upon the June 30, 2019, actuarial reports and the assumptions used to identify the City’s UAL amount. Assumptions include a 7% annual investment return, payroll growth of 2.75%, and an inflation rate of 2.5%.
Projected Employer Contributions (All Plans, All Funds)
The table below illustrates the City’s projected combined (safety and miscellaneous) employer contribution rates for the next 30 years. Information provided is based upon the June 30, 2019, actuarial reports and the assumptions used to identify the projected employer contribution amount. Assumptions include a 7% annual investment return, payroll growth of 2.75%, and an inflation rate of 2.5%.
Brea’s Unfunded Pension Liability
The City’s combined Accrued Unfunded Liability (UAL)
obligation was $138.98 million as of June 30, 2019.
Total Funded Status (Miscellaneous and Safety)
The funded status of a pension plan(s) is simply the value of assets divided by the value of promised benefits. Below details the City of Brea’s combined (safety and miscellaneous) funded status as of June 30, 2019, in comparison to June 30, 2018.
Brea’s Other Post-Employment Benefits and Public Agency Retirement
The City currently provides Other Post-Employment Benefits (OPEB) to eligible retired employees to assist with the monthly cost of medical premiums, up to $335 a month. This does not include pension benefits paid to the retiree. Based on the June 30, 2019, Actuarial Valuation, the City’s OPEB UAL obligation was $25.1 million.
To mitigate the longer-term impacts, the City established an OPEB Fund (Fund 150) as well as an Irrevocable Trust with Public Agency Retirement Services (PARS). This Trust provides a mechanism for the City to pre-fund a portion of its unfunded OPEB actuarial liabilities. The Brea City Council is currently exploring option(s) to contribute to this Trust in the future.
In addition, the City has negotiated with employee bargaining units to reduce the OPEB benefits for new employees to the Public Employees’ Medical & Hospital Care Act (PEMHCA) minimum amount. This will provide long-term assistance in reducing the City’s OPEB obligations.