City explores tackling unfunded liability with additional payments

City officials are exploring the possibility of lowering unfunded liability debts with additional payments.
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FILE: The front of City Hall in Downtown Winters. Photo by Matthew Keys

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The proposal would increase the amount the city pays toward about half of the pension plans in place for nearly three dozen city employees by including them as a standard payment in future annual budgets in an effort to keep pension costs from skyrocketing in the future. Unfunded liability debts are ones in which the debt balance exceeds the amount of assets, investments and other money available to cover them. The liability is similar to a home mortgage loan that is paid in installments over time. Winters has three types of unfunded liability debts, with the largest being the city’s obligation to pay into six different CalPERS pensions offered to 38 city employees, including police officers and firefighters. The police department has three pension plans: A classic plan, a Tier 2 plan and a new plan born out of the California Public Employees’ Pension Reform Act (PEPRA) of 2013. The fire department has a single plan, and then there are two other plans — a classic plan and a PEPRA plan — for other city employees. At the council meeting on Aug. 7, Winters Director of Financial Management Shelly Gunby noted that the city’s approximate unfunded liability debt balance under the six pension plans was a little over $3.8 million at the end of June 2017. That debt balance jumped to an estimated $5.1 million as of June 30, a year-over-year increase of around $1.3 million. The majority of the unfunded liability comes from the two classic pension plans offered by the city, Gunby noted. Those plans have been in place since 1978 and “it’s taken 40 yars to get to the point it’s at,” Gunby said. “We don’t want the new plans to get to that point,” Gunby said. “We want to stop them. We want to make sure they’re under control and not allow them to get out of control.” One way to do that, Gunby says, is to start paying off the three plans that have the lowest unfunded liability debt: The two PEPRA plans and the police department’s Tier 2 plan. The total unfunded liability debt of the three plans are estimated to be just under $50,000, according to figures provided by the city. Gunby said that amount can be factored in to future budgets as an automatic payment. Once those debt obligations are taken care of, Gunby suggests focusing attention on the fire department’s only pension plan, which has an estimated unfunded liability balance of around $130,000. “That’s not a huge difference, or a huge impact, when you’re talking about $3 million,” Gunby said, “but it’s a step in the right direction.” Gunby said tackling the two classic pension plans was going to take time. “This is our retirement,” she said. “This is a big amount of money…but if we can take an incremental approach to this, we can make sure that staff and the city are both taken care of.” Gunby proposed taking an “incremental approach” to paying down the balance on the two classic plans with money from future economic windfalls. “My hope is that we get the hotels built, we get the new houses built, and then our approach becomes, we make a significant payment every year that just becomes part of our normal budgeting process so we don’t necessarily have to have big discussions about it,” Gunby said. “It just becomes — we want to get this down faster, we want to get this under control.” City council members seemed intrigued by the idea of setting aside additional funds to pay down the pension’s unfunded liability debt. “Even though we’re still underfunded, we’re in a better shape,” Mayor Bill Biasi remarked. “I…like the idea of setting some money aside.” Council Member Pierre Neu agreed, but cautioned that the city would want to explain to the public its proposed intention to set aside money at a time when residents were likely to face increasing fees on city services. “What they’re mostly going to be concerned about is increased garbage and sewer fees, and what they’re wondering is why are we putting this money over here? Why are we doing this?” Neu said. “I think it can be controversial and I think if there’s something we can do to inform the public about what we’re doing and why we’re doing it, I think we should.”]]>

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4 comments
  1. Have they looked at a lump sum buyout and simply convert everyone to defined contribution plans?
    Why not just fix the problem permanently?

    1. Hi Todd, thanks for your question. Some employees are “grandfathered” in to their plans, so a lump sum buyout would not be possible.

  2. Have they looked at a lump sum buyout and simply convert everyone to defined contribution plans?
    Why not just fix the problem permanently?

    1. Hi Todd, thanks for your question. Some employees are “grandfathered” in to their plans, so a lump sum buyout would not be possible.

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