Like many local governments in California, the City of Laguna Woods contracts with the California Public Employees’ Retirement System (“CalPERS”) to provide defined pension benefits for employees.
Qualified employees hired prior to January 1, 2013, or otherwise eligible pursuant to the Public Employees’ Pension Reform Act of 2013 (“PEPRA”), are considered “classic” pension plan members. Classic members are enrolled in a pension plan with a “2% at age 55” retirement formula. Though not required by law, classic members contribute 7% of their annual covered salary to their pension plan.
Qualified employees hired on or after January 1, 2013, and not otherwise eligible for “classic” pension plan enrollment, are considered “PEPRA” pension plan members. PEPRA members are enrolled in a pension plan with a “2% at age 62” retirement formula. PEPRA members contribute a variable percentage of their annual covered salary to their pension plan in an amount calculated in accordance with state law.
The City of Laguna Woods is required to make employer contributions to its pension plans that are based on a variety of assumptions including, but not limited to, rates of return on pooled investments managed by CalPERS. The difference between the sum of the City of Laguna Woods’ accumulated pension plan assets and the total projected cost of earned pension benefits is referred to as “unfunded accrued liability.”
City of Laguna Woods Administrative Policy 2.9 calls for the consideration of lump sum payments to reduce unfunded accrued liability for pension plans at least as frequently as each biennial budget development process. It also establishes a goal of maintaining an at least 80% funded level for all pension plans.
Since May 2017, the City Council has approved periodic lump sum payments to reduce the unfunded accrued liability of its pension plans. Those contributions additionally help to reduce future employer contributions and mitigate potential future impacts of reductions in or variances from CalPERS’ discount rate (expected rate of return on pooled investments).
CalPERS produces an annual valuation report for the City of Laguna Woods’ pension plans based on information available as of June 30 of the preceding year. The valuation reports include the annual required contributions from both the City of Laguna Woods and its employees for the next fiscal year, a projection of the annual required contributions for the following fiscal year, funding calculations, and related information.
On September 18, 2024, the City Council approved lump sum payments to pay off the total unfunded accrued liability of its pension plans as of the fiscal year ended June 30, 2023. Those lump sum payments have caused the City of Laguna Woods’ pension plans to be fully funded according to the most current actuarial valuations.
On April 7, 2021, the City Council adopted two resolutions (Resolution Nos. 21-13 and 23-14) that enabled the City of Laguna Woods’ participation in the California Employers’ Pension Prefunding Trust (“CEPPT”). The CEPPT is established in the State of California’s Treasury for the purpose of allowing eligible public agencies to prefund required pension plan contributions.
Since January 2024, the City Council has approved periodic contributions to the CEPPT to prefund required pension contributions. Those contributions diversify the City of Laguna Woods’ investment portfolio and are invested in a manner intended to generate earnings to offset future lump sum payments to reduce the unfunded accrued liability of the City of Laguna Woods’ pension plans.
