To: Board of Directors
From: Lewis Broschard, Chief, Contra Costa County Fire Protection District
Report Title: Termination of Pension Obligation Stabilization Fund
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
CONSIDER terminating the Pension Obligation Stabilization Fund and transferring the balance to the Contra Costa County Employee Retirement Association and the Fire District's Capital Construction Fund.
DIRECT the County Treasurer and Auditor-Controller to take the necessary steps to terminate the Fire District Pension Obligation Bond Stabilization Fund (Fund 202400); transfer $17,000,000 to the Contra Costa County Employee Retirement Association as excess contributions prior to July 31, 2026; and transfer the remaining balance of $10,381,809.94 to the Fire District’s Capital Construction Fund (Fund 202500).
FISCAL IMPACT:
This action will terminate a reserve fund of $27.4 million that is no longer required to be maintained and transfer the balance to support the construction of new fire stations and to provide additional funds to the CCCERA pension system. Net interest accrued on the excess contributions in the District’s CCCERA account will be positive for the Fire District. The fund was originally established from Fire District operational funds in 2005. (General Fund)
BACKGROUND:
The District’s Pension Obligation Bonds were fully paid off in 2024. A Pension Obligation Bond Stabilization Fund (POB Stabilization Fund) was required to be maintained while the bonds were active. As a result of the bonds being paid off, the retention of a dedicated POB Stabilization Fund is no longer necessary. There is a balance of $27,381,809.94 in the POB Stabilization Fund. As the POB Stabilization Fund is no longer required, the funds in that fund can be directed for other uses as approved by this Board.
The District can contribute funds into its CCCERA pension account in the form of excess normal contributions that will act as an internal reserve fund within the District’s pension account and earn interest at CCCERA’s guaranteed, annualized fixed rate of return of 6.75%. These excess contributions must be transferred to CCCERA prior to July 31, 2026 in order to qualify for the interest credit. The funds can be used for any pension related expense within the District’s CCCERA account, but cannot be moved out of the CCCERA pension system, and therefore would be restricted to assist the District in pension related expenses only. These funds can be used to offset any unanticipated increase in pension costs that may occur in the future, transferred within CCCERA to pay down unfunded liability at future date, and act as an internal stabilization or reserve fund for the District’s pension account.
The District is in the process of planning and constructing several new fire stations to support our communities with expanded service or to replace aging infrastructure. The costs of construction have increased over the past few years and additional funds to support the current, and future, projects will help to ensure the District’s ability to complete these projects with dedicated capital construction funds.
The Fire Chief recommends the termination of the POB Stabilization Fund (Fund 202400) and the transfer of $17,000,000 as excess normal contributions to the Fire District’s CCCERA pension account and the transfer of the remaining POB Stabilization Fund balance of $10,381,809.94 to the Fire District’s Capital Construction Fund (Fund 202500). It is important to note the funds must be transferred to CCCERA prior to July 31, 2026 in order to be eligible for the annual interest credit of 6.75%.
CONSEQUENCE OF NEGATIVE ACTION:
If the Board chooses not to terminate the POB Stabilization Fund and transfer the balance, that fund will remain in place and the District will not be in a position to strengthen its CCCERA pension funding or increase funding support for new fire station construction using the available POB Stabilization funds.