Resolution No. 2022-16 | Establishing Pension Funding Policy | Adopted 04/04/2022RESOLUTION NO. 2022-16
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF GILROY ESTABLISHING A PENSION FUNDING
POLICY
WHEREAS, the City of Gilroy, a municipal corporation and charter city duly organized
and existing under and pursuant to the Constitution and laws of the State of California (“City”),
is authorized to enter into contracts and agreements for the benefit of the City; and
WHEREAS, the reasons supporting this Resolution are set forth in detail in that certain
City Council Staff Report submitted for City Council consideration at its meeting of March 21,
2022 for presentation and direction, and April 4, 2022 for formal adoption, submitted to the City
Council by the City Administrator (the “Staff Report”), the contents of which Staff Report are
incorporated herein by this reference; and
WHEREAS, over the years, the City Council has taken several steps to address rising
pension costs – establishing tiers for classic members, implementing Public Employees’ Pension
Retirement Act (PEPRA), and establishing and funding a Section 115 Trust for Pension; and
WHEREAS, a Pension Funding Policy has been developed for the City of Gilroy to
provide guidance in the management of the City’s employee defined benefit pension plans
established for sworn public safety “Safety” and non-sworn “Miscellaneous” personnel and
administrated by the California Public Employees’ Retirement System (CalPERS); and
WHEREAS, the consideration by City Council of the adoption of this Resolution has
been duly noticed pursuant to applicable laws and has been placed upon the City Council
Meeting Agenda on the date set forth in the Staff Report, or to such date that the City Council
may have continued or deferred consideration of this Resolution, and on such date the City
Council conducted a duly noticed public meeting at which the City Council provided members
of the public an opportunity to comment and be heard and considered any and all testimony and
other evidence provided in connection with the adoption of this Resolution; and
WHEREAS, the City Council determines that adoption of this Resolution is in the public
interest.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Gilroy
does hereby approve the attached Exhibit A – Pension Funding Policy.
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Resolution No. 2022-16
Establishing Pension Funding Policy
City Council Regular Meeting | April 4, 2022
Page 2 of 3
PASSED, APPROVED, AND ADOPTED by the City Council of the City of Gilroy
at its meeting held on this 4th day of April 2022 by the following vote:
AYES: COUNCIL MEMBERS: ARMENDARIZ, BRACCO, HILTON,
LEROE-MUÑOZ, MARQUES, TOVAR,
BLANKLEY
NOES: COUNCIL MEMBERS: NONE
ABSTAIN: COUNCIL MEMBERS: NONE
ABSENT: COUNCIL MEMBERS: NONE
APPROVED:
Marie Blankley, Mayor
ATTEST:
Thai Nam Pham, City Clerk
DocuSign Envelope ID: 1A5C0B8C-1C82-42BE-9FD4-23137CA8ACA5
Resolution No. 2022-16
Establishing Pension Funding Policy
City Council Regular Meeting | April 4, 2022
Page 3 of 3
CERTIFICATE OF THE CLERK
I, THAI NAM PHAM, City Clerk of the City of Gilroy, do hereby certify that the attached
Resolution No. 2022-16 is an original resolution, or true and correct copy of a city Resolution, duly adopted
by the Council of the City of Gilroy at a Regular Meeting of said held on Council held Monday, April 4,
2022, at which meeting a quorum was present.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Official Seal of the City
of Gilroy this Monday, April 4, 2022.
Thai Nam Pham, CMC, CPMC
City Clerk of the City of Gilroy
Seal)
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DocuSign Envelope ID: 1A5C0B8C-1 C82-42BE-9FD4-23137CA8ACA5
PENSION FUNDING POLICY
Purpose
The purpose of this policy is to define how the City's pension funding obligations will be met. As part of
its overall compensation plan, the City provides a defined benefit pension benefit to its employees. This
benefit is administered by the California Public Employees Retirement System (CalPERS) and funded
through contributions from the City and its employees and from investment earnings on those contributions.
The CalPERS Board of Administration, under the California Public Employees' Retirement Law (PERL),
is responsible for the administration and investment of the funds it receives and determines the amounts
contributed by each of the governmental entities that participate in CalPERS. The PERL sets employee
contribution rates. The City has two separate plans with CalPERS, one for Safety employees (the Safety
Plan) and one for all other employees (the Miscellaneous Plan).
Policy
It is the policy of the City to fulfill its obligation to maintain fiscally responsible management practices and
to ensure that promised retirement benefits are funded. To that end, the City will meet its pension funding
obligations as follows:
1.Section 115 Pension Trust: The City has established and will maintain a pension stabilization
fund in the form of a Section 115 Pension Trust. Assets in the Section 115 Pension Trust may
be used only for pension related costs and at the direction of the City Council. Once the targeted
funding level is reached, the earnings on the assets in the Trust may be applied to offset a
portion of the City's annual pension contributions to CalPERS or make additional
discretionary payments to CalPERS.
2.Actuarially Determined Contributions: Each fiscal year, the City will contribute to
CalPERS the amount determined by CalPERS actuaries to be the minimum required employer
contribution for that year. The minimum contribution consists of two components, normal cost
and unfunded accrued liability (UAL). The normal cost is expressed as a rate that is applied to
pensionable payroll costs and reflects the cost of pension benefits earned by employees in the
current fiscal year. The UAL payment is a flat dollar amount that represents a portion of the cost
of past benefits earned by employees, but for which, because of deviations in actual experience
and changes in assumptions about investment performance, the normal cost rates established
for those prior years has been determined to be insufficient to provide the promised retirement
benefit. The CalPERS actuaries recalculate the total UAL each year and an updated multi-year
amortization schedule is provided to show the projected annual minimum payments.
3.Annual UAL Prepayment: CalPERS offers the option to make monthly payments on the
UAL or prepay the entire annual amount at a discounted level by the end of July. The City will
prepay its annual obligation each year to achieve budgetary savings. The City will transfer an
amount equivalent to the budgetary savings from the prepayment to the Section 115 Pension
Trust. The transfer to the trust shall be within the same fiscal year the savings are realized.
4.Allocation from Annual Year-end Savings: Upon meeting the City's General Fund Reserve
Policy of 30% (20% for operations, and 10% for economic uncertainty), up to 25%
(twenty-five percent) of all future year-end savings in General Fund expenditures shall be
transferred to the Section 115 Pension Trust subject to approval of the City Council. Year-end
savings are determined upon the close of the fiscal year. Special considerations shall be made by
the Finance Director each year when determining potential year-end savings so as not to leave
any General Fund supported funds (Worker's Compensation and Liability Insurance Fund) with a
negative fund balance.
EXHIBIT A
Resolution No. 2022-16
Establishing Pension Funding Policy
City Council Regular Meeting | April 4, 2022
Page 5 of 3
5. Targeted Funding Level: The City’s goal is to achieve and maintain a funded status for each of
its plans of between 90% and 100%. A funded status of 100% signifies that the City’s pension
assets with CalPERS match its accrued liabilities.
6. Additional Discretionary Payments: CalPERS allows member agencies to make additional
discretionary payments at any time and in any amount, which would serve to reduce the UAL and
future required contributions. The City will consider this option in the context of its annual
evaluation of reserve levels and budgetary requirements.
7. Pension Obligation Bonds (POBs): POBs are a tool that can be used to provide an additional
discretionary payment to CalPERS upon the determination that the cost to borrow the funds for the
payment is less than continuing to make the projected prescribed UAL payments at the current
discount rate. If the City issues POBs, the following guidelines will apply:
a. Expert advice and analysis by actuaries and municipal advisors will be utilized to quantify
the risk of CalPERS investment underperformance (including discount rate reductions,
stock market crashes, or sustained investment underperformance) and the threshold at
which the City would be worse off issuing POBs versus not.
b. The interest rate on the POBs shall be at least 2% less than the current CalPERS discount
rate.
c. The final maturity date on the POBs will be no more than the then current term of the UAL.
d. The POBs structure will contain an early call provision.
e. The POBs shall not finance Normal Costs and shall only be used to refinance unfunded
pension liabilities.
f. The POBs should provide significant demonstrated cash flow savings.
g. The City shall budget and transfer 100% of cash flow savings (determined at bond issuance,
not adjusted annually for any new unfunded liability, or change in actuarial assumptions)
to be transferred to the Section 115 Trust to bolster the pension trust to mitigate against
future UAL likely to occur. The annual transfers should occur until a reserve target amount
of $12 million is met, at which time the Council would revisit the policy.
h. In the event of an economic hardship, or other unanticipated fiscal emergency, the City
Council may make an emergency declaration to reduce the annual transfer to the section
115 trust, only if the existing 10% economic uncertainty reserve in the General Fund is
projected to be depleted. This declaration will only apply to the fiscal year in which it was
made. Ongoing fiscal challenges will require a second or third emergency declaration.
EXHIBIT A
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