PERS system fund payoff�pNN F
tO8 sat�9 COUNCIL AGENDA REPORT
DATE: JUNE 5, 2014
TO: MAYOR AND TOWN COUNCIL
FROM: GREG LARSON, TOWN MANAGER
MEETING DATE: 06/16/14
ITEM NO: J
SUBJECT: PUBLIC EMPLOYEES RETIREMENT SYSTEM SIDE FUND PAYOFF
A. AUTHORIZE RETIREMENT OF CALIFORNIA PUBLIC EMPLOYEES
RETIREMENT SYSTEM (CALPERS) SIDE FUND IN THE AMOUNT OF
$4,534,538
B. AUTHORIZE BUDGET ADJUSTMENT IN THE AMOUNT OF $4,534,538
TO THE GENERAL FUND NON - DEPARTMENTAL PROGRAM (1201)
UTILIZING GENERAL FUND RESERVE FOR BUDGET
STABILIZATION ($2.OM), EXPECTED FY 13/14 GENERAL FUND
REVENUES ABOVE EXPENDITURES ($I.IM), WITH SHORT TERM
USE OF INTERFUND LOAN FROM TOWN'S COMPENSATED
ABSENCES FUND TO BE REPAID WITH EXCESS REVENUES FROM
FINAL FY 13/14 FINANCIAL CLOSE, AND PARTIAL UTILIZATION OF
THE $2.8M PERS SURPLUS GENERAL FUND DEPOSIT ACCOUNT
($1.4M)
RECOMMENDATION:
1. Authorize retirement of California Public Employees Retirement System (CALPERS)
side fund in the amount of $4,534,538.
2. Authorize budget adjustment in the amount of $4,534,538 to the general fund non-
departmental program (120 1) utilizing general fund reserve for budget stabilization
($2.0m), expected FY 13/14 General Fund revenues above expenditures ($1.1 M), with
short term use of interfund loan from the Town's Compensated Absences Fund to be
repaid with excess revenues from final FY 13/14 financial close), and partial utilization
of the $2.8M PERS surplus General Fund deposit account (recommended amount
$1.4M).
BACKGROUND
As part of staff's FY 2014/15 recommended budget proposal presented on Monday, May 19, 2014
staff had included a recommendation for Town Council to consider paying off all or a portion of its
PERS Side Fund liability. Discussion continued to the following meeting wherein more data was
PREPARED BY: AY
Finance & inistrative Services Director/ Town Treasurer
Reviewed by: P\)_ Assistant Town Manager
Attorney
PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: PUBLIC EMPLOYERS RETIREMENT SYSTEM SIDE FUND PAYOFF
JUNE 5, 2014
available from PERS regarding payoff costs and potential reductions in employer contribution rates
associated with any payoffs. Based upon the expected annual employer contribution rate and
expected savings data confirmed by PERS, and the availability of funding, staff received direction
to add to the agenda for June 16 a consent calendar report authorizing the Town to pay off the entire
Side Fund Liability as of June 30, 2014.
DISCUSSION:
In 2003, California legislation mandated that all CALPERS member agencies with less than 100
employee members be enrolled in a risk - sharing plan in order to establish less volatile employer
contribution rates for small agencies. At the time of being placed in the pool, a "Side Fund" was
established by CALPERS actuaries to account for the difference between the funded status of the
Town's plan and the funded status of the overall risk pool. The side fund liability is treated by
CALPERS essentially as a loan, with an effective interest rate set at the expected investment rate
of return earned by the pool, which is currently 7.5 %.
The Town has the opportunity to reduce its retirement plan expenses by approximately $13M over
the next six fiscal years by paying off its CALPERS Side Fund by June 30, 2014. Funds are
expected to be available from a combination of actual General Fund reserves above the required
25% threshold of General Fund Operating Budget expenditures ($2.OM), anticipated GF excess
revenues above expenditures for FY 13/14 ($I.1M) and partial utilization of General Fund deposit
account in the recommended amount of ($1.4M). A short term loan from the Town's Compensated
Absences Fund is recommended by staff to serve as bridge financing until the FY 13/14 books are
closed and the excess revenues above expenditures for the year is confirmed. The Compensated
Absences Fund will be repaid immediately as funds are available from the year end close.
Per CALPERS the Town's Side Fund balance will be $4,534,538 on June 30, 2014. If no Side Fund
payoff were to occur on June 30, 2014, the Side Fund balance would be amortized by adding
approximately 14.3% to the Town's employer contribution rates over the next six fiscal years with
total annual payments ranging from $760K to $910K in year six, totaling approximately $5.8
million. If the Side Fund is paid off on June 30, 2014 the lump sum payment of $4.5 million will net
the Town approximately $1.3 million in actual expenditure reductions over a six year period or
approximately $220K in annual savings through FY 2020/21.
With the drop in rates of return for the Town's investment portfolio, (currently averaging less than
I%) the opportunity to reduce interest charges of approximately 7.5% is compelling when compared
to the expected improvements to the Town's annual investment return over the next six fiscal years.
FISCAL IMPACT:
If the Side Fund is paid off on June 30, 2014 the payment of $4.5 million will net the Town
approximately $1.3 million in actual expenditure savings over a six year period translating to
approximately $220K in annual savings through FY 2020/21. Actual employer contributions are
expected to reduce by approximately $760K in FY 2014/15 to $910K in FY 20/21.
California Public Employees' Retirement System
Actuarial Office
P.O. Box 942709
Sacramento, CA 94229 -2709
TTY: (916) 795-3240
CIWEFS (888) 225 -7377 phone • (916) 795 -2744 fax
GJ.r j(� www.calpers.ca.gov
June 2, 2014
CalPERS ID: 4589482285
Employer Name: TOWN OF LOS GATOS
Rate Plan: SAFETY PLAN
Re: Lump Sum Payment to reduce 2014 -2015 pooled employer contribution rates
Dear Requestor:
As requested, 2014 -2015 employer contribution rate information on your lump sum payment follows.
If you are aware of others interested in this information (i.e. payroll staff, county court employees,
port districts, etc.), please inform them.
The information is based on the most recent annual valuation and assumes payment bylune 30, 2014 and no
further contractual or financing changes taking effect before June 30, 2015. The Side Fund resulting from risk pooling
valued at ( ;4,534,538) (including any adjustments due to plan amendments, vouchers, golden handshakes, etc.)
as of June 30, 2014, will be reduced or eliminated by a lump sum payment in the amount of §4,534,538. Any later
adjustments due to plan amendments, vouchers, golden handshakes, or financing changes could increase or
reestablish a negative side fund.
We will not be able to say what the 2015 -2016 employer contribution rate is until we complete the 2013 valuation in
October.
The change in your 2014/2015 employer contribution rate after you make the proposed lump sum payment is
displayed in the "Change to 2014/2015 Total Employer Rate" line below.
Valuation as of June 30, 2012
Pre - Payment
Post- Payment
Projected 6/30/2014 Side Fund (SF)
($4,534,538)
Proposed Lump Sum Pmt by 6/30/2014
$4,534,538
Revised projected 7/1/2014 SF
$0
2014 -2015 Employer Contribution Rate
Risk Pool's Net Employer Normal Cost
17.453%
17.453%
Risk Pool's Payment on Amortization Bases
9.428%
9.428%
Surcharges for Class 1 Benefits
a) FAC 1
0.968%
0.968%
b) PRSA
1.707%
1.707%
Phase out of Normal Cost Difference
0.000%
0.000%
Amortization of Side Fund
14.311%
0.000%
Total Employer Contribution Rate
43.867%
29.556%
Amortization Period
7 years
N/A
Change to 14/15 Total Employer Contribution Rate
(14.311%)
To initiate this change, the enclosed Lump Sum Payment Request must be completed and returned to the Fiscal
Services Division with a wire transfer or a check by June 30, 2014. A copy should be sent to`us.
If you have questions, please call (888) CaIPERS (225- 7377).
Oav's/ �'.
DAVID CLEMENT, ASA, MAAA, EA
Senior Pension Actuary, CalPERS
PAGE 3
MAYOR AND TOWN COUNCIL
SUBJECT: PUBLIC EMPLOYERS RETIREMENT SYSTEM SIDE FUND PAYOFF
JUNE 5, 2014
Sufficient funds are available in the General Fund Budget Stabilization Reserve ($2.OM), expected
FY 13/14 General Fund revenues above expenditures ($1.1M), with short term use of interfund loan
from the Town's Compensated Absences Fund to be repaid with excess revenues from final FY
13/14 financial close, and partial utilization of the $2.8M PERS surplus General Fund deposit
account (recommended amount $1.4M).
Attachment:
CALPERS Side Fund Lump Sum Payment Determination Letter Dated June 2, 2014
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