STRATEGIC BUSINESS PLAN
Pension Plan The City participates in the California Public Employees Retirement System (CalPERS) to provide retirement and other benefits to its employees. Detailed information on the City’s plans with CalPERS can be found in the City’s Comprehensive Annual Financial Report and annual Actuarial Valu ation Reports 1 prepared by CalPERS. These reports include information on required contributions, assets, liabilities and rates, methods and assumptions, as well as a risk analysis for the City’s plans. Risks for the plans include potential differences in rates of termination, retirement, mortality, salary growth and investment returns compared to plan assumptions. Differences between actual experience and plan assumptions can increase the City’s unfunded liability; a risk analysis section is provided within the Actuarial Valuation Reports showing the volatility of the City’s annual funding rates, the impact of varying investment return scenarios on the City’s future rates, and an analysis of the impact of a change in the plan’s discount rate on the City’s fu ture rates and liabilities. To address the unfunded pension liability, the City of Irvine implemented a lower tier of retirement benefits for newly hired non-sworn personnel. Subsequently, the California Legislature implemented the Public Employees’ Pens ion Reform Act (PEPRA) that further lowers retirement formulas for all new members. CalPERS has adopted a number of policy and assumption changes including: lowering the discount rate from 7.5 percent to 6.8 percent; accelerating the amortization period for gains and losses; and updating actuarial assumptions to better align with mortality, salary scales, and inflation. In June 2013, the Irvine City Council adopted a plan to reduce its unfunded pension liability. The plan utilizes funds from the City’s As set Management Plan (AMP) of $5 million per year to make accelerated funding payments. In FY 2017-18, the City Council took action to include an additional $2 million from the General Fund each year. The FY 2023-25 contributions from the AMP is recommended as part of budget adoption process. This plan leverages the City’s AMP funding, currently earning less than two percent, to reduce its unfunded pension liability growing at 7 percent per year. The accelerated payment plan savings resulting from lower pension rates were to be used to repay the loan to the AMP over time. The table below summarizes the projected rates for the Miscellaneous and Safety Plans anticipated from the additional payments.
Fiscal Year
2020-21
2021-22
2022-23
2023-24
2024-25
Safety Rate
46.07%
38.26%
38.61%
40.40%
41.00%
Miscellaneous Rate
29.70%
21.35%
22.11%
22.33%
23.10%
As of the last valuation report, the pension funding status was 81.2 percent funded for the Miscellaneous Plan (Civilian) and 79.9 percent funded for the Safety (Sworn) Plan, up from 66.7 percent and 70.5 percent from when the plan was implemented. One of the elements of the City Council adopted plan calls for the City to capture rate savings in the annual budget to repay the AMP over time. The City has realized prepayment and rate savings and year-end surplus to date from the effects of extra payments made in decreasing its unfunded liability and a decrease in employer contribution rates. Recognizing that economic conditions, earnings rates and CalPERS actuarial assumptions are fluid, the plan adopted by the City Council is a dynamic plan. The plan was implemented with the expectation it will be adjusted over time and can be stopped and started again if deemed necessary by the City Council due to a recession or for other reasons. Additional funding can also be contributed to offset adverse actuarial
FY 2023-25 Adopted Budget
431
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