WALNUT CREEK — Lawmakers could soon begin socking away money for a looming hike in the cost of retirement benefits earned by city employees.
At a recent study session on Walnut Creek’s growing pension problem, the City Council agreed to begin setting up a trust that will be used to address the soon-to-be-skyrocketing annual contributions the city must make to the state agency that administers public employee pensions.
Lawmakers will adopt the trust and decide how much money to set aside at an upcoming council meeting.
With the decision, the city joins more than 50 public agencies, including Alameda, Sausalito and Napa county, that have established — or are establishing — irrevocable supplemental pension trusts.
The trusts allow an agency to set aside and invest funds, and then use the returns to help pay an annual contribution to the California Public Employees’ Retirement System, which manages retirement benefits for police and non-safety staffers.
While Walnut Creek has existing budget surpluses and expects to see more in the coming years, higher-than-expected employer contributions could squeeze the operating budget, said Jeffrey Mohlenkamp, the city’s administrative services director.
According to city data, the value of benefits earned by police as of June 30, 2015, is about $151 million, and about $188 million for non-safety staffers.
CalPERS has experienced lower-than-expected returns on the investments it uses to fund retiree benefits, requiring employers to increase their contributions into the system. Walnut Creek paid more than $8 million to CalPERS in 2016 for police and city staffer pensions, and the amount could nearly triple by 2032, according to city data.
The city has a projected $89 million unfunded liability, or gap between the value of retirement benefits earned by past and current employees, and the money available to fund them, according to a report.
Pension expert John Bartel, whose firm Bartel & Associates has been working with the city, said trusts are “one of the best options” to address the steep ascent in annual contributions.
“It’s the same thing you would do if you had a variable rate note on your mortgage and you knew that interest rates were going up,” Bartel said. “You need to prepare for those higher payments.”
Benefits of such trusts include less restrictions than city investment funds and less performance volatility, according to Bartel.
Exactly how much the city will initially place in the trust, and how those funds will be distributed will be determined after the council has considered a long-range financial forecast later this summer, Mohlenkamp said.
Funds in the trust can only be used to pay for pension costs.
