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City of El Mirage
Public Safety Personnel Retirement System
Pension Funding Policy
The intent of this policy is to clearly communicate the Council’s pension funding objectives
and its commitment to our employees and the sound financial management of the City and
to comply with new statutory requirements of Laws 2018, Chapter 112.
Several terms are used throughout this policy:
Unfunded Actuarial Accrued Liability (UAAL) – Is the difference between trust assets
and the estimated future cost of pensions earned by employees. This UAAL results from
actual results (interest earnings, member mortality, disability rates, etc.) being different
from the assumptions used in previous actuarial valuations.
Annual Required Contribution (ARC) – Is the annual amount required to pay into the
pension funds, as determined through annual actuarial valuations. It is comprised of two
primary components: normal pension cost – which is the estimated cost of pension
benefits earned by employees in the current year; and, amortization of UAAL – which is
the cost needed to cover the unfunded portion of pensions earned by employees in
previous years. The UAAL is collected over a period of time referred to as the
amortization period. The ARC is a percentage of the current payroll.
Funded Ratio – Is a ratio of fund assets to actuarial accrued liability. The higher the
ratio the better funded the pension is with 100% being fully funded.
Intergenerational equity – Ensures that no generation is burdened by substantially
more or less pension costs than past or future generations.
The City’s police and fire employees who are regularly assigned hazardous duty participate
in the Public Safety Personnel Retirement System (PSPRS).
Public Safety Personnel Retirement System (PSPRS)
PSPRS is administered as an agent multiple-employer pension plan. An agent multiple-
employer plan has two main functions: 1) to comingle assets of all plans under its
administration, thus achieving economy of scale for more cost efficient investments, and
invest those assets for the benefit of all members under its administration and 2) serve as
the statewide uniform administrator for the distribution of benefits.
Under an agent multiple-employer plan each agency participating in the plan has an
individual trust fund reflecting that agencies’ assets and liabilities. Under this plan all
contributions are deposited to and distributions are made from that fund’s assets, each fund
has its own funded ratio and contribution rate, and each fund has a unique annual actuarial
valuation. The City of El Mirage has two trust funds, one for police employees and one for
fire employees.
Council formally accepts the assets, liabilities, and current funding ratio of the City’s PSPRS
trust funds from the June 30, 2020 actuarial valuation, which are detailed below.
Trust Fund
Assets
Accrued
Liability
Unfunded
Actuarial Accrued
Liability
Funded
Ratio
El Mirage Police
$15,652,724
$25,463,079
$ 9,810,355
61.5%
El Mirage Fire
$ 8,539,928
$ 9,571,414
$ 1,031,486
89.2%
City of El Mirage Totals
$24,192,652
$35,034,493
$10,841,841
69.1%
PSPRS Funding Goal
Pensions that are less than fully funded place the cost of service provided in earlier periods
(amortization of UAAL) on the current taxpayers. Fully funded pension plans are the best
way to achieve taxpayer and member intergenerational equity. Most funds in PSPRS are
significantly underfunded and falling well short of the goal of intergenerational equity.
The Council’s PSPRS funding ratio goal is 100% (fully funded) by June 30, 2036.
Council established this goal for the following reasons:
•
The PSPRS trust funds represent only the City of El Mirage’s liability
•
A fully funded pension is the best way to achieve taxpayer and member
intergenerational equity
Council has taken the following actions to achieve this goal:
•
Maintain ARC payment from operating revenues – Council is committed to
maintaining the full ARC payment (normal cost and UAAL amortization) from
operating funds. The estimated combined ARC for FY21 is $390,505 for Fire and
$1,249,842 for Police and will be able to be paid from operating funds without
diminishing City services.
•
Additional payments above the ARC
o Council has advised that unspent Council Contingency be considered at the
end of each fiscal year to pay down any unfunded liability. This would occur
by specific Council Action at a public meeting each fiscal year.
o Council has resolved that ten million dollars ($10,000,000) be placed into a
special account for the purpose of making two million dollar ($2,000,000)
annual payments, to PSPRS to reduce the UAAL, each fiscal year on or
about July 1 beginning in 2021.
▪
Any interest earned from the investment of these funds will also be
used to reduce the UAAL.
o The Council will review, on an annual basis, the progress of reducing the
UAAL and determine if additional deposits can be made into the special
account to either increase the additional annual contribution or extend the
number of years of additional annual contributions.
o Reduction of the special account balance for any purpose other than reducing
the UAAL will require a resolution of Council approved by a supermajority
through a roll call vote process.
Based on these actions the Council plans to achieve its goal of 100% funding by June 30,
2036, if not sooner, in accordance with the amortization timeline set forth by the PSPRS
June 30, 2020 Actuarial Valuation.