Comprehensive Annual Financial Report - City of Santa Monica

CITY OF SANTA MONICA, CALIFORNIA
Notes to Basic Financial Statements, Continued
For the fiscal year ended June 30, 2009
Funding Policy
Active full-time members in the Plan are required to contribute 8% for miscellaneous employees and
9% for safety employees of their annual covered salary. The City makes such employee contributions
on their behalf and for their account. The City is required to contribute the actuarially determined
remaining amounts necessary to fund the benefits for its members. The actuarial methods and
assumptions used are those adopted by the CalPERS Board of Administration. CalPERS prepares
separate actuarial valuations for miscellaneous, fire safety and police safety members. The required
employer contribution rate for the fiscal year ended June 30, 2009 was 15.458% for miscellaneous
members; 33.415% for police safety members and 21.647% for fire safety members. The contribution
requirements of the plan members are established by State statute and the employer contribution rate is
established and may be amended by CalPERS. The miscellaneous members do reimburse the City for
the cost of an enhanced benefit at a rate of 6.7%.
Annual Pension Cost
For the fiscal year ended June 30, 2009, the City’s annual pension cost and actual contributions were
$26,944,672. The City also contributed $13,497,001 on behalf of employees. Employees directly
contributed $204,271. Total contributions were $40,645,944. The required contribution for the fiscal
year ended June 30, 2009 was determined as part of the June 30, 2006 actuarial valuation using the entry
age normal actuarial cost method with the contributions determined as a percentage of payroll. The
actuarial assumptions included (a) 7.75% investment rate of return (net of administrative expenses); (b)
projected salary increases that vary by duration of service ranging from 3.25% to 14.45% for
miscellaneous members, from 3.25% to 11.15% for safety members, and (c) 3.25% cost-of-living
adjustment. Both (a) and (b) include an inflation component of 3.00%. The actuarial value of the
Plan’s assets was determined using a technique that smoothes the effect of short-term volatility in the
market value of investments by computing an expected value of assets along with the actual market
value of assets. The Plan’s unfunded accrued liability (or excess assets) is being amortized as a level
percentage of projected payrolls on a closed basis over a period not to exceed twenty years.
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