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STRATEGIC OUTCOMES |
ACTION |
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Department: |
☐ Safe & Prosperous |
☐ Motion |
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Finance |
☐ Active & Appealing |
☒ Resolution |
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☒ Respected & Responsible |
☐ Ordinance - Introduction |
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Division: |
☐ Connected & Engaged |
☐ Ordinance - Adoption |
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Administration |
☐ Unique & Creative |
☐ Public Hearing |
TITLE: t
Annual Public Safety Personnel Retirement System Funding Policy for Fiscal Year 2026
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SUMMARY RECOMMENDATION: Summary Recommendation
Adopt the annual Public Safety Personnel Retirement System (PSPRS) funding policy for Fiscal Year 2026, as required under Arizona Revised Statutes (A.R.S.) § 38-863.01. (Finance) (Doug Allen)
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STRATEGIC OUTCOME:
This item supports the City Council’s strategic outcome of Respected and Responsible, as it assures the City is being a good steward of public funds.
REPORT:
A.R.S. § 38-863.01 requires a PSPRS funding policy to be adopted annually.
Public Safety Personnel Retirement System (PSPRS)
The City’s police and fire employees who are regularly assigned hazardous duty participate in the PSPRS.
PSPRS is administered as an agent multiple-employer pension plan. An agent multiple-employer plan has two main functions: 1) to comingle assets of all plans under its administration, thus achieving economy of scale for more cost-efficient investments and invest those assets for the benefit of all members under its administration, and 2) serve as the statewide uniform administrator for the distribution of benefits.
Under an agent multiple-employer plan each agency participating in the plan has an individual trust fund reflecting that agencies’ assets and liabilities. Under this plan all contributions are deposited to, and distributions are made from that fund’s assets. Each fund has its own funded ratio and contribution rate, and each fund has a unique annual actuarial valuation. The City of Yuma has two trust funds, one for police employees and one for fire employees.
FUNDING RATIO GOAL IS FULLY FUNDED (100%) IN ADVANCE OF JUNE 30, 2036
Pensions that are less than fully funded place the cost of service provided in earlier periods on the current taxpayers. Fully funded pension plans are the best way to achieve taxpayer and member intergenerational equity. Most funds in PSPRS are significantly underfunded and falling well short of the goal of intergenerational equity.
City Council established this goal of fully funding the City’s PSPRS obligations in advance of June 30, 2036 for the following reasons:
● The PSPRS trust funds represent only the City of Yuma’s liability
● The fluctuating cost of amortizing Unfunded Actuarial Accrued Liability (UAAL) causes strain on the City’s budget, affecting the City’s ability to provide services
● A fully funded pension is the best way to achieve taxpayer and member intergenerational equity
The Yuma City Council has taken the following actions to achieve this goal:
● The Mayor and City Council declared resolution of the PSPRS unfunded liability a priority
● On February 19, 2021, the City issued $159,475,000 in taxable pledged revenue bonds to pay the balance of the PSPRS unfunded liability and establish a reserve account designated to maintain a fully funded PSPRS
● In July 2021 (FY 2022), the City fully paid (100%) the estimated PSPRS UAAL
CHANGE IN CONDITIONS
Due to a change in several actuarial conditions in FY 2023 and FY 2024, the City’s funded ratio has eroded below 100%. The graphs shows the causes of the unfavorable changes.
Excerpts from the PSPRS Actuarial report:
Asset experience: On a smoothed basis, “returns nearly met the assumed earnings rate.”
Liability experience: “overall was unfavorable, driven by salary increases that were higher than expected”. Assumption change, “the Board continued the decrease in payroll growth assumption from 2.0% to 1.5%.
Actuarial audit: “independent actuarial audit was performed” audit results were implemented in the 2023 valuation.
Other: “combination of all other factors that could impact liabilities year-over-year, with the primary sources being changes in benefits.”
Looking forward: volatility in returns is dampened by smoothing; if based on market value, the funded ratio would be 95.0% instead of 96.8%.
Conclusion: “improve if assumptions are met and contributions at least equal to the rates” in City’s report.
The chart below provides a historical perspective of the City’s funded ratios and balance in the cash reserve at fiscal year-end.
CONTINUED COMMITMENT
City Management will provide options for City Council consideration when the June 30, 2025, Actuarial Valuation is available in Q3/Q4 FY 2026. Budget authority to pay down the UAAL is in FY 2026 and reduce FY 2027 payroll contributions. Funding source(s) to pay the UAAL will need to be excluded from the expenditure limitation.
POLICY ATTACHED
The attached PSPRS funding policy for FY 2026 incorporates:
● Use of the templates provided by the Arizona League of Cities and Towns
● Adoption of the policy with the annual budget process to ensure meeting compliance
● Amortize the UAAL contribution rate over the maximum years allowed to not over commit the City and allow for flexibility in the event of an economic downturn and the resurgence of an UAAL
● Includes City Council’s actions to fully fund the PSPRS UAAL in July of FY 2022 and commitment to revisit the current estimated UAAL with the next actuarial report for June 30, 2025 when available.
Approving this resolution adopts the attached PSPRS Funding Policy for Fiscal Year 2026.
FISCAL REQUIREMENTS:
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CITY FUNDS: |
$ 0.00 |
BUDGETED: |
$ 0.00 |
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STATE FUNDS: |
$ 0.00 |
AVAILABLE TO TRANSFER: |
$ 0.00 |
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FEDERAL FUNDS: |
$ 0.00 |
IN CONTINGENCY: |
$ 0.00 |
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OTHER SOURCES: |
$ 0.00 |
FUNDING: ACCOUNT/FUND #/CIP |
TOTAL $ 0.00
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To total; right click number & choose “Update Field” |
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FISCAL IMPACT STATEMENT:
NONE
ADDITIONAL INFORMATION:
SUPPORTING DOCUMENTS NOT ATTACHED TO THE CITY COUNCIL ACTION FORM THAT ARE ON FILE IN THE OFFICE OF THE CITY CLERK:
NONE
IF CITY COUNCIL ACTION INCLUDES A CONTRACT, LEASE OR AGREEMENT, WHO WILL BE RESPONSIBLE FOR ROUTING THE DOCUMENT FOR SIGNATURE AFTER CITY COUNCIL APPROVAL?
☐ Department
☒ City Clerk’s Office
☐ Document to be recorded
☐ Document to be codified
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Acting City Administrator: |
Date: |
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John D. Simonton |
06/10/2025 |
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Reviewed by City Attorney: |
Date: |
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Richard W. Files |
06/08/2025 |