Cypress targets fully funded pension by 2030
Peter Grant is the city manager for Cypress; he can be reached at pgrant@cypressca.org. Matt Burton is the city’s finance director and can be reached at mburton@cypressca.org.
Cypress plans to wipe out its unfunded pension liability by 2030. Even more remarkable: The city will do this without taking on any new debt, thanks to a combination of strategic planning and fiscal discipline that blaze a path toward financial sustainability.
As every city knows — especially those with their own police department — the combination of people living longer into retirement, underwhelming state pension returns, and lower discount rates are straining local budgets. With annual liability payments to the California Public Employee Retirement System (CalPERS) on track to nearly double in five years, Cypress faced a $30 million wake-up call in 2017.
Building a pension war chest
As a first step to managing its exploding pension costs, Cypress partnered with Public Agency Retirement Services (PARS) to establish a Section 115 Pension Trust — a powerful, tax-exempt financial tool that gives municipalities more options to address pension liabilities. A pension trust allows cities to invest strategically, maintain local control, and responsibly pursue higher returns than state law allows for regular portfolio assets.
Section 115 Pension Trusts are relatively common in 2024. But Cypress’ approach — seven years ago and today — is not.
“The city of Cypress was among the earliest adopters of the approach to pre-fund pension liabilities in a separately controlled tax-exempt pension trust apart from the state’s retirement system,” said Dennis Yu, executive vice president of PARS. “They recognized early on that the trust created a unique opportunity to enhance the city’s overall financial resilience and provide long-term pension stability.”
Benefitting from decades of smart planning, successful economic development, and financial discipline, the city council created its pension trust with a $10 million initial investment. Every year since, Cypress has prioritized additional contributions to the pension trust, dedicating at least half of its year-end surpluses to it.
Thanks to those investments and earnings, Cypress’ pension trust grew to $33.9 million in September 2024, outpacing the Local Agency Investment Fund, managed by the California State Treasurer’s Office.
These returns demonstrate how a forward-thinking investment approach can effectively create a new source of revenue and steadily offset a city’s pension liabilities.
How Cypress gets to zero by 2030
When Cypress established its pension trust in 2017, the city council worked with PARS to develop an investment strategy that was specific to the city’s risk tolerance and liquidity considerations. Cypress chose a balanced investment portfolio with an annual projected return of approximately 5.5% over 30 years.
According to PARS, this would grow its pension trust to $45 million by 2030 — impressive, but still $8 million short of its $53.1 million projected pension liability. Encouraged by its pension trust’s success, the city council in 2023 set a bold new target: completely offset its pension liability by 2030.
After considering several options developed by city leadership and PARS, the city council decided to contribute another $4.5 million to the pension trust. Paired with a shift to a slightly more aggressive investment mix, this put Cypress on track to fully offset its pension liability by 2030.
“The real utility of a Section 115 Pension Trust comes from funding it year after year and prioritizing long-term investments,” Cypress Mayor Scott Minikus said. “The city council is committed to ensuring Cypress is sustainable — to being a municipal corporation that never goes out of business.”
A blueprint for other cities
Cypress’ approach to pension debt isn’t just a solution to a financial problem: It’s an example of what good governance can achieve. It demonstrates that any city, regardless of its fiscal situation, can improve its long-term economic circumstances.
“What sets Cypress apart from the other 150 cities that we work with is that it has been one of the most aggressive cities in the entire state to address its pension liabilities,” Yu said. “Very few of the cities that PARS works with are on target to achieve a full offset of their pension liabilities with their 115 Pension Trust assets in such a short time frame.”
Addressing pension liability isn’t a sprint — it’s a marathon. And like any race, cities can start the process to sustainability one step at a time. Follow Cypress’ example of consistently investing surpluses and one-time revenues into a pension trust and your city will find itself on a more sustainable path.