Accept CalPERS Annual Valuation Reports as of June 30, 2020; receive update on the status of pension funding; and authorize the Interim Chief Financial Officer to make an additional discretionary contribution to CalPERS in coordination with the Yolo County Superior Court. (No general fund impact) (Haynes)

The Pension Funding Policy (Attachment A), adopted in May 2018, requires that the County Administrator or Chief Financial Officer provide an annual report to the Board of Supervisors on the status of pension funding as well as a summary of the actuarial valuation reports for the upcoming fiscal year once released by the California Public Employees’ Retirement System (CalPERS).

As the tables above show, the funded ratio for the Miscellaneous Plan declined from 66.1% to 65.6%, while the funded ratio for the Safety Plan increased slightly from 66.3% to 66.5%.  While the current valuation reports do not reflect any significant changes in actuarial assumptions or policies, actual investment returns for the fiscal year ending June 30, 2020 were 4.7% compared to the long-term target of 7.0%. The investment return for the fiscal year ending June 30, 2021, which will be factored into next year’s valuation reports that will set contribution rates for 2023-24, was 21.3%. However, in accordance with the Funding Risk Mitigation Policy approved by the CalPERS Board of Administration in 2015, this significant return will trigger a reduction in the discount rate from 7% to 6.8%.
 
Actuarial Report Summary
As the pension plan administrator, CalPERS performs various administrative services including investment, benefit administration, and actuarial services for the County of Yolo. The Actuarial Valuation Reports as of June 30, 2020 for both the Miscellaneous and Safety plans (Attachment B and C) are used to set the County’s pension funding rates for the 2022-23 fiscal year.  Key assumptions used in the Actuarial Reports are summarized below:

While there were no significant changes to actuarial methods or assumptions in the June 30, 2020 valuation, in November 2021 CalPERS finalized an Asset Liability Management (ALM) review process, which provided a comprehensive review of the pension system’s investment portfolio and actuarial liabilities. The CalPERS Board of Administration voted to hold the current discount rate of 6.8% and adopted new actuarial assumptions including a slightly longer life expectancy for retirees and beneficiaries. These changes will be incorporated into the June 30, 2021 actuarial valuation report.
 
The table below provides a summary of the required employer contribution rates for both the Miscellaneous and Safety plans over the past five years, as well as projected employer contribution rates for the next five years as included in the actuarial valuation report:

The Pension Funding Policy approved by the Board in 2018 provided for the establishment of a Section 115 Pension Trust in order to accumulate assets to safeguard the County’s ability to pay the required annual pension contribution and to obtain long-term savings from paying down the unfunded liability. The table below shows the activity and balances of the Pension trust since it was established in 2018:

In Fiscal Year 2020-21 the Board of Supervisors authorized the Chief Financial Officer to make a discretionary contribution to CalPERS in coordination with the Yolo County Superior Court. Based on an analysis prepared by the Department of Financial Services (DFS), the Courts contributed a share of 7.1437% and the County 92.8563% based on the calculated share of the Miscellaneous Plan unfunded liability between the two agencies. The County also made a proportional contribution to the Safety Plan. These additional discretionary contributions are shown below:

For 2021-22, DFS has updated the analysis to determine if additional discretionary contributions are feasible while maintaining the target balance in the Pension Trust.  Based on this updated analysis (Attachment D), the County is able to make an additional discretionary contribution of approximately $3.1 million, with a proportionate contribution of $236,000 by the Court:

Staff recommends that the Board authorize the Chief Financial Officer to make an additional discretionary contribution to CalPERS based on the proportionate Miscellaneous Plan share between the County and the Court as reflected in Attachment D, and in an amount not to exceed a total County contribution of $3,318,362. Staff further recommends that the Board authorize the County Administrator or Chief Financial Officer to update the MOU with the Court as needed to execute the additional discretionary contribution. 

The Department of Financial Services has worked with the Yolo County Superior Court to gauge the Court's interest in making an additional discretionary contribution. Staff from DFS provided the updated analysis to the Court in March 2022, and the Court indicated their interest in paying the maximum amount toward the pension plan's unfunded liability.