Buellton pauses extra CalPERS payments, directs $175,000 toward pension volatility reserve

The Buellton City Council on May 14 directed staff to stop making additional discretionary payments (ADPs) to CalPERS and to set aside the previously planned $175,000 annually as a pension volatility reserve.

A pension consultant told the council that recent favorable investment returns have substantially improved the city's funded status but warned of future market reversals. The consultant recommended building a volatility reserve — targeting a minimum of about $800,000 — to insulate city services in the event of a market downturn that increases unfunded accrued liability (UAL) payments. He advised against continuing ADPs to CalPERS because once overfunded, funds sent to CalPERS cannot be retrieved.

Council members debated whether to keep the reserve in-house (unrestricted but earmarked) or place it in a Section 115 trust, which permits a more diversified investment strategy appropriate for long-term liabilities but limits use strictly to pension or retiree medical costs. Several members supported an in-house reserve with clear guardrails; others favored the Section 115 trust for its potential higher returns under a moderate risk profile.

Council consensus directed staff to discontinue further ADPs to CalPERS, to redirect the $175,000 annual discretionary contribution into a pension volatility reserve, and to return with side-by-side analyses of an in-house restricted reserve versus a Section 115 trust and proposed reserve parameters.