How Did Establishing A Pension Obligation Bond Save The Fire District Over $160,000?
What is a Side Fund? There has been a lot of conversation about Montecito Fire District's Pension Obligation Bond and how it relates to the pay off of the District's Side Fund.
CalPERS provides this official definition of a Side Fund: "At the time of joining a risk pool, a side fund was created to account for the difference between the funded status of the pool and the funded status of the plan."
Risk pools were established by CalPERS in 2003. Risk Pools are collections of employers with the same benefit formula and were created to collectively share risks. (For example investment risk, longevity risk, disability risks, salary risks). According to Kerry Worgan, our plan actuary from CalPERS, there are generally 200 -250 agencies in each risk pool depending on the benefit formulas being grouped.
In creating these Risk Pools, participants were charged special payments to pay off the difference of the funded status of the entire pool they were assigned, and the funded status of their specific plan. (ie Miscellaneous, Safety etc.). These fees were built into the participant's regular contributions and amortized over 11 years.
In 2011, MFD found a mechanism to save the District on the cost of remaining amortized fees utilizing a Pension Obligation Bond. This bond was at a lower interest rate, and saved the District over $160,000.
This bond was not required to "pay underfunded pension obligations" as has been referenced in recent publications. The Pension Obligation Bond was a fiscally responsible move on the part of the Fire District Board to pay off the Side Fund that had been incorporated and amortized into the District's CalPERS employer contributions in 2005.
Montecito Fire operates on a balanced budget. By law, the preliminary budget is adopted no later than June 30, and the final budget is adopted no later than September 30. All expenditures are reviewed by the Board of Directors at the District's monthly Board meetings, which are held on the 3rd Monday of each month at 8:30 am at Montecito Fire District Headquarters. Meetings are open to the public and agendas are posted on our website at least 72 hours prior to all regular meetings.