Despite Palo Alto’s Pension Liabilities Increasing, Prefunding with PARS Aiming to Pay Off 90% in 15 Years

Categories: California Developments,PARS News,Pension Rate Stabilization
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Palo Alto Daily Post, by Daily Post Staff  September 15, 2020

The city of Palo Alto’s unfunded pension liability has increased by 4.7% to $476 million, according to CalPERS, the agency that runs the city’s pension funds.

However, that percentage doesn’t reflect the city’s effort to hedge against the liability by putting money into a side fund for pensions. That effort is showing some success in reducing the liabilities.

The growth in the unfunded liability in one year was $21,356,267, or 4.68%. The term “unfunded liability” means the city has no ability to pay this debt.

In the early 2000s, the city’s pension liabilities were fully funded. Today, between 61.3% and 66.1% of the city’s pension liabilities are funded.

This problem isn’t unique to Palo Alto. CalPERS, which covers state and local government employers, has a total unfunded liability of $138.9 billion. CalSTRS, the pension program for school districts, has a $107.3 billion liability.

But the official CalPERS numbers from Sacramento don’t reflect an effort by the city to prepare for a future pension shortfall by stashing money into a side fund. This side fund, formally known as a Public Agency Retirement Services Section 115 Trust Fund, aims to pay off 90% the city’s unfunded pension liability in 15 years.

When the side fund numbers are applied to the city’s unfunded liabilities, the city’s pension picture looks more positive. For the year ending June 30, 2018, the city’s pension liability drops from $455 million (the CalPERS number) to $433 million (including the side fund). For the most recent fiscal year ending June 30, 2019, the liability falls from $476.9 million to $444.6 million.