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.