HomeMy WebLinkAboutM- 4 Mitigation of Pers Rate Increase (4V
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The City of Azusa
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Finance Department • 213 E. Foothill Blvd. • P.O. Box 1395 • Azusa, CA 91702-1395
Tel : (626) 812-5203 • FAX(626)334-6358
AGENDA ITEM
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: GEOFF CRAIG, DIRECTOR OF FINANC
VIA: RICK COLE, CITY MANAGER; -
DATE: JULY 1, 1998
SUBJECT: MITIGATION OF PERS RATE INCREASE
Background
During the Budget preparation cycle, Ca1PERS notified the City that its employer contribution
rates for the 1998-99 fiscal year for miscellaneous employees would be increasing by 3.94%of
payroll. Staff contacted CalPERS and received quotations for lowering the payments by 2.438%
of payroll per year by extending the length of time over which the City makes them. The safety
rate can be lowered as well. In light of the budget cutbacks that departments are now
implementing, staff recommends that Council authorize the Finance Director to formally request
Ca1PERS to lower the employer contribution rates by extending the payment period.
Findings
The major component of the City's payments to Ca1PERS is the"employer contribution." This
represents the percentage of current payroll which, for people with prior service, when remitted
to Ca1PERS over the course of their employment here, will amass funds sufficient to make the
monthly annuity payments over their respective life expectancies. During the Budget preparation
cycle, Ca1PERS notified the City that its employer contribution rates for the 1998-99 fiscal year
for miscellaneous employees would be increasing by 3.94%of payroll and that the rate for safety
employees would be decreasing by 2.429%of payroll. This resulted in a net budget increase of
about$190,000 for the General Fund and roughly an equal amount for the other funds combined.
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The approved Budget contains sufficient appropriations for the increase. However, achieving
this is one of the factors necessitating program and staff reductions.
Azusa's prior service "funding horizon" ends in 18 years, in the year 2016. On the other hand,
Ca1PERS' actuarial policy for extension of the funding horizon is to a maximum of 30 years, to
the year 2028. In light of this, staff contacted Ca1PERS and requested quotations for lowering
the payments by extending the funding horizon.
Ca1PERS can temporarily(for 5 years) lower the City's employer contribution rates by 2.438% of
miscellaneous employee payroll by reducing the amortization period for certain investment
credits. Furthermore, extending the funding horizon 2 years to 2018 will ensure that, even after 5
years, the rate will not exceed (or even resume) its current level. In addition, the City can reduce
the safety rate by a further 1.356% of safety employee payroll by extending its funding horizon
12 years to 2028. By making these three changes, for the next 5 years,the General Fund's
payments would drop below the budgeted amount by at least$140,000 per fiscal year, and
likewise for the other funds. The reduction would take effect immediately.
The interest on this transaction would be quite low and would vary between about 1% and
3.83%, depending upon many factors. The City can pay in full at any time, but even if the City
takes the entire 30 years to pay the employer contribution, the changes appear to make sense
from a cost viewpoint. In light of this and the budget cutbacks that departments are now
implementing, staff recommends that Council authorize the Finance Director to formally request
Ca1PERS to lower the employer contribution rates by accelerating the credit and extending the
funding horizons.
Recommendation
Staff recommends that Council authorize the Finance Director to execute the necessary
documents with Ca1PERS to lower the employer contribution rates by accelerating the City's
receipts of its credits and extending the funding horizons.
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RESOLUTION NO. 98- C 13 3
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA,
CALIFORNIA, TO GRANT ANOTHER DESIGNATED PERIOD FOR TWO
YEARS ADDITIONAL SERVICE CREDIT
WHEREAS,the City Council of the City of Azusa is a contracting Public Agency of the
Public Employees' Retirement System, and
WHEREAS, said Public Agency desires to provide another designated period for Two
Years Additional Service Credit, Section 20903, based on the contract amendment included in said
contract which provided for Section 20903, Two Years Additional Service Credit, for eligible
members,
NOW, THEREFORE, BE IT RESOLVED, that said City Council does seek to add
another designated period, and does hereby authorize this Resolution, indicating a desire to add
a designated period from August 4, 1998 through December 31, 1998 for all eligible City
employees.0' .i I APPROVED AND ADOPTED this 3rd day of August, 1998.
fk .,
MAYOR
I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the City Council
of the City of Azusa at a regular meeting thereof, held on the 3rdday of August, 1998 by the
following vote of the Council:
AYES COUNCIL MEMBERS: HARDISON, STANFORD, ROCHA, BEEBE, MADRID
NOES COUNCIL MEMBERS: NONE
ABSENT COUNCIL MEMBERS: N E
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