Council keeps full funding goalThe Oro Valley Town Council voted 7-0 last Wednesday night to approve the Town’s updated Public Safety Personnel Retirement System (PSPRS) funding policy for fiscal year 2027. The policy continues the Town’s goal of keeping its public safety pension plans fully funded. This applies to the Town’s police pension plan under the Public Safety Personnel Retirement System and the dispatchers’ plan under the Corrections Officer Retirement Plan (CORP).
Plans are slightly overfunded
The latest actuarial reports show that both plans are now slightly above full funding. The police PSPRS plan is 101.0% funded. The dispatchers’ CORP plan is 100.2% funded. Finance Director David Gephart told council that the police plan has about $91.2 million in actuarial assets and about $90.3 million in actuarial liabilities. That leaves the plan overfunded by about $903,000.
Town will still make an extra payment
Because the police pension plan is now fully funded, the State actuary lowered the Town’s recommended employer contribution rate for fiscal year 2027 from 12.61% to 10.47% of police payroll. That lower rate would require a Town contribution of about $1.015 million. However, the Town will not reduce its contribution to that minimum amount. It will add an extra $214,185 to help preserve the plan’s funding cushion. That brings the Town’s total police pension contribution to about $1.229 million for the year.
Gephart explained that the Town made about $1.16 million in excess pension payments during the current fiscal year. That was intended to help offset the possible effect of higher police pay under the April police Memorandum of Understanding (MOU) agreement. Combined with the current $903,000 overfunded position, the Town has a cushion of a little more than $2 million. That is why staff recommended reducing, but not eliminating, excess payments in 2027.
The 2022 decision to full fund the pension has generated millions in savings
Gephart reviewed the Town’s 2022 decision to eliminate the unfunded police pension liability of about $28 million. That year, the Town issued $17.98 million in pension obligation bonds at a 2.39% interest rate. It also made a one-time $10 million payment from reserves. That moved the plan from a large unfunded position to full funding and changed the Town’s PSPRS cost structure.
Gephart estimated that that action has saved the Town about $856,000 a year over the past four years, or about $3.4 million so far, even after accounting for bond debt service interest. He said those savings should continue for another 15 to 17 years and the savings will be even greater after the debt is repaid.
Policy remains one to watch
Gephart cautioned that pension funding is not fixed permanently. Investment returns, retirements, pay changes, assumptions, and actuarial experience can all affect the funding level. He said the Town will not know the full current-year impact until the next actuarial report is released in December. Still, he told council he does not expect Oro Valley to return to the much lower funding levels it once had. The policy goal is to remain in the mid-to-high 90% range at minimum, with the intent of staying at or near 100% funded.
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Policy remains one to watch
Gephart cautioned that pension funding is not fixed permanently. Investment returns, retirements, pay changes, assumptions, and actuarial experience can all affect the funding level. He said the Town will not know the full current-year impact until the next actuarial report is released in December. Still, he told council he does not expect Oro Valley to return to the much lower funding levels it once had. The policy goal is to remain in the mid-to-high 90% range at minimum, with the intent of staying at or near 100% funded.
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