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THE CITY OF 07 pL£ASANTON. CITY COUNCIL AGENDA REPORT June 7, 2011 Finance TITLE: APPROVE PREPAYMENT OF THE CALPERS SIDE FUND UNFUNDED LIABILITY FOR THE POLICE GROUP SUMMARY In fiscal year 2003, California legislation mandated that all agencies with less than 100 active members be enrolled in a risk-sharing pool with all other agencies in the State with similar benefit packages. The City's Police Group was the only City group that had less than 100 active members; consequently the Police Group was put into a risk pool. At the time of joining the risk pool, a Side Fund was created to account for the difference between the funded status of the City's plan and the funded status of the risk pool. CaIPERS then funded the Side Fund obligation on behalf of the City and in turn the City must repay the obligation to CaIPERS. The outstanding amount is $7,840,284 as of June 30, 2011. This obligation is being repaid over a 20 year period at an interest rate of 7.75%, which is the actuarially assumed rate of return for the CaIPERS fund. Paying off the Side Fund Loan early will yield significant long-term financial benefits to the City including savings of future interest costs of $3,509,653 and an immediate reduction in operating expenses starting in the 2011/12FY. The savings from the repayment of the Side Fund Loan is not included in the Two Year Budget (Budget). This item will be presented to Council and if approved, will be incorporated in the Budget. RECOMMENDATION Staff recommends that Council adopt the Resolution authorizing the payoff of the CaIPERS side fund for the Safety Police Plan. FINANCIAL STATEMENT Paying off the Side Fund Loan early will yield significant long-term financial benefits to the City including savings of future interest costs of $3,509,653 and an immediate reduction in operating expenses starting in the 2011/12FY. The total amount needed to payoff the side fund is $7,840,284. These funds will come from the Retiree Medical Reserve Funds held by the City.