Palos Verdes Estates, CA
Home MenuUnderstanding CalPERS and Pension Obligations
The City of Palos Verdes Estates participates in CalPERS, California’s statewide public employee retirement system. Like many public agencies, the City is required to fund retirement benefits that have already been earned by current and former employees.
What is CalPERS?
CalPERS is California's statewide public employee retirement system. Palos Verdes Estates participates in CalPERS, as do thousands of local governments, special districts, and public agencies throughout California.
Why doesn't the City simply leave CalPERS?
While this question is often asked, leaving CalPERS is generally not a practical option for public agencies.
If a city exits CalPERS, it must immediately pay the full amount of its pension obligations through a process known as a termination liability.
In many cases, the termination liability can be significantly higher than the City's existing unfunded liability because CalPERS must assume a more conservative investment return when calculating the amount owed.
As a result, leaving CalPERS can require a substantial immediate payment that exceeds what many agencies can reasonably afford.
What is an unfunded liability?
An unfunded liability represents retirement benefits already earned by current and former employees that have not yet been fully funded through investment earnings and employer contributions.
Like most California cities, Palos Verdes Estates carries an unfunded liability that must be paid over time.
How much does the City currently pay?
The City currently pays approximately $2 million annually toward retirement-related obligations.
These costs are projected to increase in future years under current schedules.
Why is the City discussing additional pension payments?
One option discussed by the City Council is making additional payments beyond the required minimum.
Making additional payments today may:
- Reduce long-term interest costs
- Reduce future annual pension payments
- Improve long-term financial stability
- Potentially free up future funding for City services and infrastructure
The discussion is not whether the City should pay its pension obligation. The discussion is whether funds generated by a new parcel tax should be dedicated to additional pension payments.
What happens if the City does nothing beyond the required payments?
The City would continue making the required CalPERS payments according to the established schedule.
Making only the required payments would meet the City’s obligations, but it may not reduce long-term costs or future annual payment pressures as quickly as additional payments could.
Why this matters
Pension costs are one part of the City’s broader financial picture. Understanding these obligations helps residents evaluate how future funding decisions may affect public safety, infrastructure, wildfire mitigation, and long-term financial stability.