Special Notice / Hearing: None__
Vote Required: Majority
To: Honorable Board of Supervisors
From: Supervisor Dave Pine, District 1
Michael P. Callagy, County Executive
Subject: Memorandum of Understanding with SamCERA
RECOMMENDATION:
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Adopt a resolution:
A) Authorizing the County Executive, or designee(s), acting in consultation with the County Attorney, to negotiate and enter into a Memorandum of Understanding (MOU) with San Mateo County Employees’ Retirement Association (SamCERA) providing the terms and conditions by which the County would make supplemental contributions to SamCERA in the amount of $50 million in Fiscal Year 2024-25 and $50 million in Fiscal Year 2029-30 for the purposes of maintaining a minimum average employer contribution rate of 27% of payroll; and
B) Authorizing the allocation and use of one-time sources in the amount of $50 million in Fiscal Year 2024-25 and an additional $50 million in Fiscal Year 2029-30, to make supplemental contributions to SamCERA pursuant to the MOU and subject to inclusion in County recommended budgets; and
C) Authorizing the County Executive, or designee(s), to execute, on behalf of the County, all notices, consents, approvals, amendments, terminations, and other documents as necessary and advisable to give effect to this resolution and the MOU.
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BACKGROUND:
On November 19, 2013, the County entered into a Memorandum of Understanding (2013 MOU) with the San Mateo County Employees’ Retirement Association (SamCERA) with the goal of reducing the County’s unfunded actuarial accrued liability (UAAL) by making supplemental contributions beyond its statutory obligations. The supplemental contributions can provide greater security for SamCERA benefits for active and retired members; enhance the solvency of the retirement system; and reduce the County’s long-term costs of contributing to the system by accelerating the reduction of the UAAL.
To account for these additional contributions, SamCERA created a special account known as the County Supplementary Contribution Account (CSCA). The County made an initial deposit of $50 million into the CSCA in May 2014 and was authorized to make additional deposits of $10 million per year beginning in Fiscal Year 2014-15 and concluding in Fiscal Year 2022-23 for a total contribution of $140 million. In addition to these payments, and as part of the MOU, the County agreed to pay the higher of the Statutory Contribution Rate (SCR) or 38.14%, which resulted in supplementary contributions of $76,336,486.
Under the 2013 MOU, the County, at its sole discretion, could increase or decrease or make none of the supplemental contribution funding amounts listed above. In FY 2018-19 the County made a larger contribution of $50 million which increased the County’s total contributions to the CSCA to $266,336,486. These funds were invested with other retirement assets and subject to the same market risk with the earnings or losses impacting the UAAL reduction and required contributions. The CSCA is used solely for member benefits and administrative costs. The term of the 2013 MOU ended as of June 30, 2023.
DISCUSSION:
The County desires to continue to reduce its pension liabilities and therefore is seeking to enter into a new MOU with SamCERA to make additional supplemental contributions to the CSCA or similar SamCERA account of $50 million in FY 2024-25 and $50 million in FY 2029-30. The additional contributions are intended to maintain a minimum average employer contribution rate of 27% of payroll. These additional contributions are expected to lower pension costs by approximately $131 million over the next 12 years. If actuarial assumptions are realized, the County can maintain a funding ratio between 88% and 100%. A demonstrative chart prepared by SamCERA’s actuary showing the SamCERA Employer Retirement Contribution Scenario contemplated by the proposed MOU is included with this memorandum, including an explanatory description provided by SamCERA.
In order to proceed with a new MOU, staff recommends that the Board authorize the County Executive, in consultation with the County Attorney, to coordinate with SamCERA staff to prepare and enter into a new MOU for approval by the SamCERA Board of Retirement to implement the prepayment plan. The treatment by SamCERA and its actuarial firm of the supplemental contributions will be a critical component of the new MOU with its main tenets consistent with the 2013 MOU expected to be substantially as follows:
• All supplemental County contributions would be treated actuarially to benefit only the County. SamCERA's other employers (the Mosquito and Vector Control District and the Superior Court) will not see any positive or negative actuarial impact from the County’s supplemental contributions.
• All supplemental funds would become part of SamCERA’s invested assets and treated the same as all other funds for investment purposes.
• The County would always retain full discretion to provide a smaller or greater contribution than the planned 27% level, but never less than the minimum actuarially determined contributions consistent with Chapter 3 (commencing with Section 31450) of Part 3 of Division 1 of Title 3 of the Government Code (’37 Act”) and the California Public Employees’ Pension Reform Act of 2013 (“PEPRA”) contained in Article 4 of Division 7, Title 1 (Commencing with Section 7522) Government Code, referred to in the 2013 MOU as the Statutory Contribution Rate (SCR). The County, in its sole discretion, would also be able to discontinue, increase, or decrease its planned supplemental contributions for any year.
• The MOU would be effective upon full execution by the parties and approval by the SamCERA Retirement Board and remain in effect through the end of Fiscal Year 2029-30.
• The MOU could be amended by mutual written agreement of the parties.
Under the anticipated MOU, the responsibility for determining the appropriate funding levels for the retirement system would remain the responsibility of the SamCERA Board of Retirement. The Retirement Board would continue to periodically review investment return assumptions and adjust as needed in accordance with SamCERA’s statutory duties.
Staff further recommends that the Board authorize the allocation of one-time funds to fund the County’s supplemental contributions under the new MOU.
The County Attorney has reviewed the resolution as to form.
EQUITY IMPACT:
The prepayment of pension obligations will reduce overall pensions costs to the County which can make resources available for equity-focused initiatives such as social services, affordable housing, community, and development programs, all which can benefit marginalized and underserved populations.
FISCAL IMPACT:
The additional contributions under the anticipated MOU will be funded with one-time sources of funds, including without limitation, reserves, or other one-time funding sources. The first lump sum contribution of $50 million in FY 2024-25 will be included in Non-Departmental services FY 2024-25 Recommended Budget and the second lump sum contribution of $50 million in FY 2029-30 will be included in the FY 2029-30 Recommended Budget.
Attachment I: SamCERA Employer Rate Scenario