Title
Update regarding the City’s current pension funding strategy and investment return assumption of the Coral Gables Retirement System.
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At the direction of the Commission, the City’s current funding strategy is to make extra payments above required amounts to reduce the unfunded pension liability faster than scheduled and thus increase the funded ratio of the plan. Showing more rapid progress toward increasing the funded ratio is very important to the City to show it is addressing the concerns of rating agencies in order to maintain (Moodys) and achieve (S&P) its AAA bond rating. Additionally, reducing the unfunded liability is an important part of the City’s Strategic Plan which is currently being developed.
The Commission committed to additional funding towards the unfunded liability through the adoption of Resolution No. 2015-271, whereby the City will maintain funding levels at $26 million (plus indexing) even though the required contribution is expected to be less. The extra payments would go towards increasing the funded ratio by funding a portion of the outstanding liability. The rating agencies, outside consultants, and City staff embrace the Commission’s desire to lower the unfunded pension liability in this manner. If the City can reduce the requirement by paying off some of the Unfunded Actuarial Accrued Liability (UAAL) components, the gap between the requirement and the City’s payments can be sustained. Additionally, the City’s commitment to additional pension funding would generate a significant reduction in the unfunded liability repayment period.
The Pension Board is considering lowering the Investment Return Assumption from 7.75% to 7.0% over the next few years and requested that the City propose a plan to get there. As you will see below, moving to a 7.0% Investment Return Assumption as proposed by the Pension Actuary would jeopardize the City’s current strategy for addressing the unfunded liability and funding status.
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