Kingsburg’s CalPERS pension plans holds steady

Report from city manager indicates the city’s six pension funds have rebounded from a big hit

Kingsburg City Manager Alex Henderson briefs council members on CalPERS regulations. (Kenny Goodman)
Darren Fraser
Published March 26, 2024  • 
11:00 am

KINGSBURG – As of the latest Kingsburg City Council meeting, City Manager Alexander Henderson presented Kingsburg’s CalPERS pension plan performance for fiscal year 2022-2023, emphasizing progress and the need for careful oversight amid market fluctuations.

In his presentation to the city council at its March 20 meeting, Henderson said the city’s six CalPERS pension plans for fiscal year 2022-2023 performed better than they did in the prior fiscal year. 

“The council has made policy changes that have helped us avoid programming or staffing reductions,” said Henderson. One of the changes includes a policy to automatically “sweep,” or save, any extra money at the end of each year to help cover increasing pension costs.

Henderson kicked off the presentation with a historical review of how the CalPERS fund has performed dating back to 2013. Back then, it had about $258 billion in assets, but now stands over $464 billion.

He also issued a word of caution by pointing out that the volatility of the CalPERS fund in recent years requires some careful oversight. In 2021, there was a big win with a 21% return, but it was followed by a tough year with a 6% loss, which Henderson described as a “big hit.”

Regarding the overall status of the fund, Henderson said that at the end of fiscal year 2021-2022, the funded status was nearly 71%. The funded status at the end of fiscal year 2022-2023 is estimated to be slightly better at 72%.

Looking at the overall health of the fund, Henderson mentioned that it was nearly 71% funded at the end of fiscal year 2021-22, and is expected to be around 72% funded by the end of fiscal year 2022-23. He compared this to a high of 101% in 2006-2007 and a low of 61% during the Great Recession.

PERS ACTIVITY

Henderson explained how changes in the Public Employees’ Retirement System (PERS) activities affect the fund’s performance. Over the years, the CalPERS board has adjusted the discount rate, which is the rate of return on investments. Currently, it’s at 6.8%, and a 21% return in 2021 caused an automatic rate reduction.

He noted that 2022 saw a 6.1% loss, the first since the Great Recession, but 2023 showed promise with a 5.8% return.

“2023 was a much better year from an investment standpoint for the stock market globally than 2022,” Henderson said. “The second half of 2023 and first portion of 2024 have remained relatively strong, too, so, hopefully, we’ll see that reflected and will continue until the end of this fiscal year.”

Kingsburg has six CalPERS pension plans, including Classic and PEPRA plans for different employee groups, which include Miscellaneous, Public Safety and Fire Safety. PEPRA, which started in 2013, changed some rules, like lowering the pensionable salary cap.

Henderson also talked about employee contributions. PEPRA employees contribute 50% of their costs, while Classic plan participants pay varying amounts.

In October 2019, Kingsburg made an $850,000 Additional Discretionary Payment (ADP) to the CalPERS fund.

“An ADP is similar to making an additional mortgage payment on your home,” said Henderson.

In December 2021, the city made a second ADP in the amount of $750,000. Henderson noted that this $1.6 million in ADPs affords the city estimated interest savings totaling $1.78 million, including payments.

These ADPs may prove pivotal as the city takes the next steps for the coming fiscal year. These next steps include the release of the updated end-of-year actuarial documents that will be released in August. Henderson said the city will continue to monitor CalPERS returns and utilize ADPs and fund saving to offset rising contributions.

Darren Fraser
Reporter