A RESOLUTION affirming the City's intent to fully fund its required contributions to the Seattle City Employees' Retirement System (SCERS).

WHEREAS, the City provides and manages a defined-benefit pension for its non-uniformed employees to serve as a source of retirement income, along with Social Security; and

WHEREAS, the City, as plan sponsor, and SCERS' employee members are jointly responsible for providing sufficient funds support the pension system's costs and have elected to prefund these pension obligations as they are accrued, which allows the money to be invested in the interim and generate a substantial share of the total cost of the benefit through investment returns; and

WHEREAS, SCERS, like most public pension plans, suffered significant investment losses due to the financial crises of 2008 and resulting recession, which lowered its funded ratio, on a mark-to-market basis, from 92% on January 1, 2008 to 62% by January 1, 2010; and

WHEREAS, in the wake of those 2008 investment losses, the City and its employee unions agreed to raise employee contributions into SCERS from 8.03% of regular (non-overtime) payroll in 2010 to 10.03% by 2012; and

WHEREAS, per SMC 4.36.110.C, the City is required to match the employee contributions, with the result that the total contribution increased from 16.06% of regular (nonovertime) payroll in 2010 to 20.06% by 2012; and

WHEREAS, SMC 4.36.110.C also requires the City to pay, in addition to the matching contributions, "the actuarially determined City contribution" to guarantee benefits, but the code does not further specify timeframes or funding targets; and

WHEREAS, in 2010, the SCERS actuary concluded, after a review of demographic data, economic assumptions, and financial performance, that additional contributions above 20.06% of regular payroll would be required to amortize the system's unfunded liabilities over 30 years, a commonly used funding goal; and

WHEREAS, the SCERS Board of Administration adopted an asset smoothing policy in 2011 in which the effects of investment performance are phased in over five years to mitigate funding rate volatility, a practice typically found in other public pension systems; and

WHEREAS, on a smoothed basis and with strong investment performance in 2010, SCERS' funded ratio improved to 74%, but despite that, the actuary again concluded that additional contributions above 20.06% of regular payroll would be required in 2012 and later to amortize the system's unfunded liabilities over 30 years; and

WHEREAS, the City desires to improve SCERS' financial position and put the system back on a path toward full funding; NOW THEREFORE,

BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEATTLE, THE MAYOR CONCURRING, THAT:

Section 1. The City will fully fund its actuarially required contributions to SCERS in the 2012 Adopted Budget and thereafter. The City will base its contribution rate on a five-year smoothed asset valuation as described in the most recent actuarial report, and the rate will be sufficient to amortize the system's unfunded liabilities in 30 or fewer years.

Section 2. To that end, the 2012 Adopted Budget includes sufficient appropriation for the City to pay 11.01% of regular (non-overtime) payroll into SCERS. This is greater than the employee contribution of 10.03%. It brings the combined contribution to 21.04%, which is the actuarially required amount for 2012 as described in January 1, 2011 Actuarial Valuation and the October 12, 2011 cost update letter from Milliman Actuaries.

Section 3. The City endorses the actuarial assumptions and methods adopted by the SCERS Board of Administration and utilized in the January 1, 2011 valuation. These include:

A. The entry age normal actuarial cost method

B. An investment return rate of 7.75%

C. A five-year smoothed method for asset valuation

D. Generational mortality tables that take future life expectancy improvements into account

E. Expected average membership growth of 1% per year

F. Other economic and demographic assumptions as described in the valuation.

Section 4. Each year, and in the event the SCERS Board of Administration should wish to change its actuarial assumptions and methods, the City requests that the Board consult with the Mayor and the City Council by the tenth day of July regarding the impacts of such changes on funding requirements, as described in SMC 4.36.180.A, to allow sufficient time to make budget preparations.

Section 5. The City will update its contribution rate to SCERS annually to a level not less than the actuarial required contribution for that year as determined by the most recent valuation. The City may elect to exceed the required contribution rate in any given year in the interest of funding stability or to amortize the system's unfunded liabilities in fewer than 30 years.

Adopted by the City Council the ____ day of ____________________, 2011, and signed by me in open session in authentication of its adoption this________ day

of ______________________, 2011.

_________________________________

President ___________of the City Council

THE MAYOR CONCURRING:

_________________________________

Michael McGinn, Mayor

Filed by me this ____ day of ________________________, 2011.

____________________________________

Monica Martinez Simmons, City Clerk

(Seal)

John McCoy LEG SCERS Pension Funding RES October 17, 2011 Version # 3