FY 2425 2526 Recommended Operating Budget

Employee Pensions

The City provides retirement benefits to its employees through the California Public Employee Retirement System (CalPERS). Like most California cities, Morgan Hill provides a defined benefit pension to its employees. Furthermore, state law known as PEPRA (Public Employee Pension Reform Act), became effective in January 2013 and changed CalPERS pensions for “new employees.” Since a large portion 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 classic members through another public agency, join the organization. Currently, 106 full-time employees (or 55% of the active full-time positions) are classified as new employees for pension purposes. In FY 24- 25, the City’s contribution to CalPERS for sworn police officers is 21.20% of pay for a Classic Member or those hired before January 1, 2013. This is in addition to a lump sum payment for the Unfunded Accrued Liability (UAL) of about $2.4 million. The City’s contribution is lower than the CalPERS required employer’s contribution due to the 6.12% shared by our employees. The projected City’s contribution for sworn police officers for FY 25 -26 is 21.18% on top of the lump sum payment for the UAL of about $2.6 million. These amounts are in addition to the employees’ 9% of pay contribution to their retirement. For all other employees or those classified as Miscellaneous members, the employer’s required contribution is 5.66% of pay, net of the employee share of the employer cost of 6.12%. This is in addition to the lump sum payment of the UAL of $3.8 million for FY 24- 25. These amounts are in addition to the employees’ 8% of pay contribution to their retirement. For FY 25-26, the forecasted rate, net of employee share of employer cost, is 5.38% of pay and the lump sum payment of the UAL in the amount of $4.1 million. The chart below illustrates the CalPERS employer contribution rate of normal cost projections, before employee sharing, and the annual UAL amount through FY 29-30:

Millions

30%

$7

$6

25%

$5

20%

$4

15%

$3

10%

$2

5%

$1

0%

$-

Misc

Safety

UAL $Amount

BUDGET MESSAGE 27