Department of Human Resources

Date: To: From: SUBJECT: June 2, 2004 All Employees Monica Moloney, Director of Human Resources RESTRUCTURING OF PAYMENT OF EMPLOYER’S CONTRIBUTION TO CALPERS FOR 2004-05

The purpose of this memo is to advise you of the City’s intention to request a 30-year amortization of the City’s 2004-05 employer contribution to the California Public Employees’ Retirement System(CalPERS) effective July 1, 2004. When various benefit improvements were approved, the long-term costs of these benefits were to be paid back over a period of several years, usually 20 years. Both the miscellaneous and safety plans have remaining terms of varying length, with the maximum being 19 years. By requesting a 30-year amortization beginning July 1, 2004, we can essentially re-finance the employer’s contribution over a longer period of time and reduce the annual payment. Preliminary information from CalPERS indicates that the employer’s miscellaneous rate would drop from 16.8% to 13.7% for fiscal year 2004-05. The safety rate would drop from 36.6% to 29.5% for fiscal year 2004-05. This means savings of nearly $1.1 million city-wide, of which about $941,000 is in the general fund. While this would not completely eliminate the shortfall in the general fund, it will go a long way toward closing the gap and lessen the possibility of other operational cuts to balance the budget in 2004-05. CalPERS has also assured the City that making this change will not jeopardize the security of benefits for any participant in the City’s retirement plan. We believe this is a prudent action in the near-term, because it will lower the immediate cost to the City. In the long term, we may see a rise in rates to offset this reduction, but a number of economic factors will affect the rates over the next thirty years. We have experienced a wide fluctuation in the employer’s rates over the last few years. CalPERS investments for the current fiscal year (which will be used to set our rates in 2006-07) are once again above their assumed annual rate of 8.25%. CalPERS may offer additional payment options as time goes by, and we will consider those as they become available. Please feel free to contact me or Karen Jenny if you have any questions.

990 Palm Street San Luis Obispo, CA 93401-3249 805/781-7250 FAX: 805/542-9867 E-mail: