Since 2002, the unfunded portion of the city's promised retirement benefits have more than tripled. Petaluma will pay $5.3 million for pension costs this fiscal year, and next year its obligation is projected to increase to $5.7 million.

CalPERS — the state's public employees retirement fund — is cautioning that the economic recession and stock market volatility will impact future employer rates. It is likely that the city's unfunded percentage will increase in the next couple of years, as happened immediately following the last crash in 2002 and 2003.

City Manager John Brown said Petaluma expects a "slight increase" in the city's pension cost next year and noted that "rate smoothing" techniques adopted by CalPERS have helped rein in costs for cities.

"They do what they can to provide us with rate stability," he said. "It's an expense we can't avoid, so we budget for it."

Meanwhile, the cost of the city's two-pronged pension plan — one for police and fire employees, the other for so-called "miscellaneous" workers — continues to grow.

Cities and CalPERS track pension costs through several figures, including the "unfunded liability" associated with each retirement plan and the percentage of each plan that is funded.

Unfunded liabilities are the amount of promised pensions that exceed what cities, employees and CalPERS earnings can afford at any one time. They are calculated on an annual basis, but are a means to monitor how cities are doing in dealing with their pensions costs — not an immediate debt that must be paid, CalPERS officials said.

In Petaluma, the unfunded liability of the city's pension plan stands at $28.5 million as of the 2007-2008 fiscal year, the latest date for which figures are available.

That means the city's current pension plan value — approximately $181 million — is about 84 percent funded.

That "funded status" is how cities track their progress in paying pension costs, said Ed Fong, a CalPERS spokesman.

Comparing funding percentages is the only fair way to examine a city's pension situation with others, CalPERS said. Each city is different — in the number of employees and retirees it has, in the details of its retirement benefits, in its budget situation, he said.

Fong has said a funded status of 90 percent or above can be considered "very good."

CalPERS has said that although unfunded liabilities can appear large, they do not represent a cost that cities must pay immediately.

"It's easy to glom on an unfunded liability and start talking about it as if it is a debt, as if somebody has to write a check tomorrow," Fong told the Argus-Courier in 2007. "It's an ongoing entity. At any given point, you're looking to see if you're on target with what you need to pay."

The funded status of the city's pension plan has fluctuated in recent years, as CalPERS earnings in the stock market have affected how much of the city's promised retirement pensions can be considered "funded."

Petaluma's pension plans are funded through three main sources: CalPERS investment earnings, a set employee contribution (9 percent of salary for police and firefighters, 7 percent for other employees) and the city's contribution.

In the early part of the decade, many cities' pension funds were "overfunded" thanks to booming stock market returns, and city contributions to the plans were low.

That led cities to adopt retirement plans that paid amounts up to 90 percent of an employee's salary each year.

Some police and fire employees, including Petaluma's, can retire under what's called the "3 percent at 50" plan, meaning retirement can begin at age 50, with 3 percent of final salary given for every year worked.

That could amount to an annual pension of more than $100,000 for some employees, usually supervisors or managers, and some recent Petaluma retirees from the police and fire departments receive in excess of that amount each year.

Such amounts — and the burden they put on cities when stock market earnings fall short — have led critics to demand that "gold-plated" retirement benefits be reduced and that state's pension system be reformed.

Employee groups, however, have said cases of retirees receiving six-digit pensions are the exception, and that most rank-and-file workers don't retire with pensions based on a fire or police chief's salary.

Retirement benefits are a key part of recruiting new employees, Petaluma employee union representatives have argued, and any changes that would offer lesser benefits to new workers could hurt recruitment.

The issue is expected to receive renewed attention next year due to a petition that is being circulated in California, calling for voters to enact statewide pension changes through a November 2010 ballot measure.

(Contact Corey Young at corey.young@arguscourier.com)