FY 2021 2122 ADOPTED OPERATING AND FY 2021 2526 CIP BUDGETS

pension to its employees.

Furthermore, a new State law known as PEPRA (Public Employee Pension Reform Act), became effective in January 2013 and changed CalPERS pensions for “new employees.” Since the majority of Morgan Hill’s employees are not impacted by these changes, any cost savings will be realized over time as new employees, who are not current CalPERS members through another public agency, join the organization. Currently, 54 full-time employees (or 28 percent of the approved full- time positions) are classified as new employees for pension purposes. This is up from 45 full-time employees, or 23 percent, two years ago. In addition to the revenue loss due to the COVID-19 pandemic, the City is also expecting its pension contributions to CalPERS to increase as a result of CalPERS’ expected investment loss for the current fiscal year ending June 30, 2020. As of March 31, 2020, CalPERS is experiencing an investment loss of 4.0 percent versus the expected annual return of 7 percent. CalPERS investment loss will translate to higher pension contribution from local agencies, including City of Morgan Hill beginning FY 2022-23. Staff has included approximately $0.9 million impact in the forecast for the two fiscal years beginning FY 2022-23, with the assumptions that CalPERS would generate a higher return in the following years that would offset the current year loss. In FY 2020- 21, the City’s contribution for sworn police officers is 50.420 percent of pay, lower than CalPERS required employer’s contribution due to the 6.121 percent shared by our employees. The projected City’s contribution for sworn police officers for FY 2021 -22 is 52.964 percent. These amounts are in addition to the employees’ 9 percent of pay contribution to their retirement. For all other employees, the employer’s required contribution is 25.354 percent of pay (20.869 percent City-paid and 4.485 percent employee-paid). These amounts are in addition to the employees’ 8 percent of pay contribution to their retirement for FY 2020 -21. For FY 2021-22, the forecasted rate is 26.940 percent of pay (21.662 percent City-paid and 5.278 percent employee- paid). The chart below illustrates the CalPERS employer contribution rate projections through FY 2025- 26:

24 ADOPTED BUDGET MESSAGE