Healdsburg City Council to consider trust fund to stabilize pension costs

In an effort to pay down its employee pension obligations and stabilize retirement costs, the Healdsburg City Council is moving to create a trust fund to help offset volatile market returns in the state retirement system for public employees.

The City Council this week tentatively agreed to set aside ?$4 million in the coming fiscal year as part of a “Pension Rate Stabilization Program,” which could help minimize sharp pension cost increases for taxpayers and make inroads on an estimated $21.5 million unfunded liability, or pension shortfall.

“We need to get a better handle on controlling our own destiny,” City Manager David Mickaelian said Wednesday, explaining that the fund is intended to protect against the “wide swings” in investment returns of the state retirement system that Healdsburg employees participate in.

The city fund will aim for a more conservative mix of investments than CalPERS, the giant state employee retirement system, which is more heavily invested in equities.

“What we’re trying to do is stabilize our pension costs in the future, by creating a trust fund,” City Councilman Gary Plass said.

In addition to the $4 million for this coming fiscal year, the city would add another $1.9 million to the fund over the following three years.

The City Council is scheduled to formally approve the concept Monday when it adopts the new city budget.

The money will come mostly from reserves in the general fund - which are pegged at almost $8.2 million - as well as other reserves in the city’s water, wastewater, electricity, community development and drainage system accounts.

If the market does well, and CalPERS investments are on target or higher, Mickaelian said the city won’t have to touch the money in the pension stabilization fund. But it can be used if state investments lag and the city is required to make a greater contribution to employee retirements.

Plass said that other city programs will not suffer as a result of the surplus reserves that will be invested in the pension fund.

“We don’t want people to think we’re increasing their (employees’) pensions,” said City Councilman Tom Chambers, adding that the city has no choice but to pay the pension obligations.

“We’re trying to be prudent with the money we have, to have a stable budget every year and be able to not get whipped around,” he said.

Healdsburg, like other cities, has struggled with the weight of pension promises made during more robust times, prior to investment losses during the recession.

At one point, the city’s unfunded pension liability was estimated as high as $26 million, but with the market rebound, it has been pegged at the lower figure of $21.5 million.

State pension reforms that took effect in 2013 instituted less generous retirement packages for new city employees and also got existing employees to pay more toward their pension programs.

There are about 84 current or past police and fire employees covered by the city’s pension plan, including active, transferred, separated or retired employees, according to Mickaelian.

There are 263 current or former classified employees covered by the pension plan.

Currently, longtime police and fire department employees pay 9 percent of their salary toward retirement and the city picks up the equivalent of 32 percent of their salary toward their pensions.

“All of our employees are paying their full share. That hadn’t always been the case,” Mickaelian said in reference to the past practice Healdsburg and other cities had of also covering some of the employees’ share of retirement contributions.

Currently, longtime public safety employees can retire as early as age 50, with 3 percent of their salary for each year of service, based on their single highest year of pay.

Longtime miscellaneous employees contribute 8 percent of their salary toward retirement and the city contributes an equivalent of 21 percent of the employee’s salary.

Those veteran employees can retire as early as age 55, with 2.5 percent of their salary for each year of service, based on their single highest year of pay.

The benefit tiers implemented for new employees in 2013 set higher retirement ages, lower benefit formulas and a three-year average to determine the final salary used to calculate pensions.

You can reach Staff Writer Clark Mason at 521-5214 or clark.mason@pressdemocrat.com. On Twitter@clarkmas.