City may see higher pension costs

Huntington Beach will pay higher retirement contribution rates in the future, according to an actuary.

John Bartel, of Bartel Associates, told officials during a council study session Monday that the California Public Employees’ Retirement System is planning on changing its discount rate to 7.25% from the current 7.5%, requiring public employees to drop more money into the pension system.

CalPERS describes the discount rate as being generally the same as the expected rate of return on investments. It is used to calculate the current value of expected plan payments.

“Not great news, not good news. Depressing news, but it’s something that we will need to deal with as a council and as a city,” Mayor Connie Boardman said at the end of Monday’s discussion.

Another factor that would increase the contribution rate is greater life expectancy. As employees live longer, the city’s unfunded liability becomes larger, requiring the city to put more money into the system, Bartel said.

Unfunded liabilities are obligations that the city hasn’t budgeted for.

As of 2011, the city had a total of about $279 million in unfunded liabilities, Huntington Beach finance director Lori Ann Farrell said in an email.

In the current fiscal year, Huntington Beach will contribute $24.3 million to CalPERS, but should the discount rate change, the city would pay an estimated $46.4 million by the 2019-2020 fiscal year — nearly double the amount in seven years.

“It’s a significant increase for the city and it’s a significant increase on the city’s budget,” City Manager Fred Wilson said.

Bartel suggested that the city use any extra money in the budget to pay down its unfunded liabilities or negotiate with employees to contribute more early on, he said.

“We would all concur with that,” Wilson said. “In order to deal with this issue, we have to work with the employees to have them pay more for their retirement. We have to look at other ways to deal with it as well. I think the bottom line for us is that it would require more of the budget being allocated to cover CalPERS costs.”

Bartel warned council members and others at the meeting that all his recommendations were made with “a fair amount of trepidation,” he said.

“You guys have to make the tough decisions. I don’t have to worry about streets being fixed, sidewalks being repaired,” Bartel said. “If you have time, what I would do is begin the planning soon rather than later.”

anthonyclark.carpio@latimes.com

Twitter: @acocarpio