2021-03-16 CC Agenda Packet - ITEM #14 - PRESENTATION - UALCITY OF
ELSEGUNDO
Proposed Unfunded Actuarial
Liability (UAL) Policy to
Address Pension Liabilities
March 16, 2021
Ad -hoc Pension Committee Proposal
• Mayor Pro Tern Pimentel and Councilmember Nicol are
proposing a Policy to provide guidance on the development
and adoption of a funding plan for all Unfunded Actuarial
Liabilities (UAL) that are calculated annually by CALPERS, or
for liabilities remaining immediately after the issuance of a
Pension Obligation Bond.
• Discussion
Nicol
3/17/2021
by Mayor Pro Tern Pimentel and Councilmember
City of El Segundo 1 350 Main St. El Segundo, CA 90245
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Proposed UAL Policy — Fiscal Prudence
• The proposed UAL Policy recognizes that it is fiscally prudent to do the
following:
• Maintain the City's sound financial position
• Ensure the City has the flexibility to respond to changes in future service
priorities, revenue levels, and operating expenditures
• Protect the City's creditworthiness
• Ensure
that
all pension funding decisions are structured to
protect both
current
and
future taxpayers, ratepayers, and residents of the
City
Ensure that City debt is consistent with City's strategic planning goals,
objectives, capital improvement program, and operating budget
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Proposed UAL Policy - Sustainability
• The City is committed to fiscal sustainability by employing:
• long-term financial planning efforts
• maintaining appropriate reserve levels
• employing prudent practices in governance, management, budget
administration, and financial reporting
• This proposed policy is intended to make all relevant information readily
available to:
• decision -makers
• City employees
• members of the public to improve the quality of decisions, identify policy
goals, and demonstrate a commitment to sound, long-term financial
planning.
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Proposed UAL Policy - Purpose
The purpose of the funding policy is to establish a framework for funding the City of El Segundo's
defined benefit pension plan, taking into account factors that are relevant to the plan and the City.
These factors include:
• Financial position of the City
• Provide transparency to the cost of City service
• Stability of the plan and/or the affordability of the annual contributions
• Benefit security
• Terms of CALPERS contract for El Segundo, along with any related collective bargaining
agreements, which includes employees paying their full pension share
• Minimum funding requirements under State Law
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Proposed UAL Policy -Advantages
There are several advantages to developing a funding policy to address Pension unfunded
actuarial liabilities:
• Provides framework to ensure proper management of future liabilities and to minimize
effects on operations. Adoption of a funding policy will ensure a disciplined decision -
making process, which will contribute to better predictability in funding.
• Having a written summary of the funding policy that is accessible to employees and the
public will help improve transparency of funding decisions and increase the understanding
of pension funding issues.
• The exercise of developing this funding policy improves the identification, understanding,
and management of the risk factors that affect the variability of funding requirements and
the security of benefits to the employees and retirees.
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Proposed UAL Policy -Adherence
Adherence to this proposed policy signals to rating agencies
and capital markets that the City is well -managed and able to
meet its financial obligations in a timely manner.
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Proposed UAL Policy — New UAL
The unfunded actuarial liability may increase or decrease from year to year, due
to the following factors:
• Changes in actuarial assumptions and experience changes (e.g., changes
in the discount rate, changes in demographic experience, etc.)
• Changes in actuarial gains or losses due to asset returns being higher or
lower than the expected rate of return (currently set at 7%) at June 30
each year
• Changes in plan benefits
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Proposed UAL Policy — New UAL
The table below lays out the parameters for paying off/funding the unfunded
actuarial liability in a designated amount of time, based on the amount of the
liability, as follows:
3/17/2021
New Unfunded Actuarial
Liability
$04510001000
$5,0009001-$1090009000
$1090009001-$1590009000
Payoff/Funding Time Period
Over $15,000,001 Within 16 to271
City of El Segundo 1 350 Main St. El Segundo, CA 90245
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New UAL Funding Options
• Payoff per the policy funding time period (table on slide 9)
• Prepayment of the annual UAL due (discounted by 3.5%)
• Utilization of the Section 115 Pension Trust
• Additional Discretionary Payments
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New UAL Funding Options
Any new ongoing General Fund revenue source (a new tax or fee
that did not exist previously) identified in subsequent fiscal years
should not be allocated towards enhanced pension benefits.
All new ongoing revenue sources should be dedicated (up to 50%)
towards pension debt service, paying down new UAL with CaIPERS,
or funding the section 115 Pension Trust.
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Annual Policy Review
The UAL Policy should be reviewed on an annual basis, during
the strategic planning session or the budget study session, to
ensure compliance and if there needs to be any updates to the
policy.
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Questions
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