Accept CalPERS Annual Valuation Reports as of June 30, 2022; receive update on the status of pension funding; and authorize the 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).
 
Pension Funding Status
The tables below provide a summary of the funded status for the Miscellaneous and Safety plans for the most recent five years: 

As the tables above show, the funded ratio for the Miscellaneous Plan decreased from 75.5% to 66.0%, while the funded ratio for the Safety Plan decreased from 76.9% to 67.9%.  These decreases in funded status were a result of CalPERS returns of -6.1% in 2021-22 significantly underperforming their target rate of return of 6.8%. While not yet reflected, CalPERS announced returns of 5.8% in 2022-23 that continued to underperform their targeted rate of return of 6.8%. These returns will be factored into the June 2023 valuation (to be received in Summer 2024) and will decrease funded status and increase contributions when compared to the current valuation. 

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, 2022 for both the Miscellaneous and Safety plans (Attachment B and C) are used to set the County’s pension funding rates for the 2024-25 fiscal year.  Key assumptions used in the Actuarial Reports are summarized below:

CalPERS performed the annual actuarial valuation study of the County's pension program that resulted in the June 30, 2022 Actuarial Valuation. The Actuarial Valuation assumes projected investment rate of return, payroll growth, eligibility for the types of benefits provided, and life expectancy for retirees and beneficiaries. Investment losses coupled with other actuarial assumptions resulted in higher contribution rates for FY2024-25, an increase in the Unfunded Liability, and a decrease of the funding ratio in both the Miscellaneous and Safety Plan.

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:

Pension Trust
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:

** A contribution was made but not reflected in the table above since it was sent to Section 115 Pension Trust and recorded in the County's accounting system after June 30, 2023 (FY2023-24).

Additional Discretionary Contribution
In Fiscal Year 2022-23, 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 7.0046% and the County 92.9954% 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 2023-24, 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 up to $1.67 million assuming the Court makes a proportionate contribution of $112,923. 

Staff recommends that the Board authorize the Chief Financial Officer to make an additional discretionary contribution to CalPERS based on Option B as reflected in Attachment D. This option includes the amount of $112,923 budgeted by the Court towards the Miscellaneous Plan and in an amount not to exceed a total County contribution of $1,678,454; for a combined contribution amount of $1,791,377.

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. The Court has indicated their interest in paying a budgeted amount toward the pension plan's unfunded liability. To this end, staff from DFS provided updated its discretionary contribution analysis in May 2024.