HomeMy WebLinkAboutItem 8.1 - 1421 PARS Pension Rate Stabilization Plan
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STAFF REPORT
CITY COUNCIL
DATE: May 2, 2017
TO: Honorable Mayor and City Councilmembers
FROM:
Christopher L. Foss, City Manager
SUBJECT:
Resolution Approving Public Agencies Post-Employment Benefits Trust
Program by Public Agency Retirement Services (PARS) to Pre-Fund
Pension Obligations
Prepared by: Colleen Tribby, Director of Administrative Services
EXECUTIVE SUMMARY:
The City Council will consider the establishment of an irrevocable Section 115 trust,
administered by Public Agency Retirement Services, to pre-fund pension obligations.
This option would supplement the City's annual contributions to CalPERS, at the
discretion of the City. Any funds in the trust would count as pension assets, thus
reducing the City’s net pension liability, which can be used to offset increasing pension
rates.
STAFF RECOMMENDATION:
Adopt the Resolution Approving the Adoption of the Public Agencies Post -Employment
Benefits Trust Administered by Public Agency Retirement Services (PARS).
FINANCIAL IMPACT:
There is no financial impact associated with establishing the trust to pre-fund retirement
benefit obligations, administered by Public Agency Retirement Services. Contributions
to the trust, as determined by the City Council at a future meeting, will impact General
Fund reserves.
DESCRIPTION:
The City of Dublin’s pension trust, administered by California Public Employee
Retirement System (CalPERS), is funded partly by City contributions and employee
contributions, but primarily from interest earnings on funds invested. As shown below,
the most recent CalPERS actuarial report shows that the pension plan is 78.4% funded,
which is among the higher funded ratios for local agencies in California.
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The City’s annual required contributions to fund the plan a re determined by CalPERS’
actuarial assumptions, including demographic assumptions (retirement age,
employment and mortality rate projections) and economic assumptions (discount rate,
and wage and price inflation projections). Changes in these assumptions impact
contribution rates and thus affect agency budgets.
In December 2016, CalPERS announced the lowering of the discount rate, or the rate of
return it expects to earn on its investments, from 7.5% to 7.0% over the next three
years. During the Budget Study Session on April 4, 2017, Staff discussed the impact
that action will have on the City of Dublin's annual contributions to its pension plan. Staff
informed the City Council that the change would increase pension payments by an
estimated $525,000 annually, by Fiscal Year 2022-23. The following table provides
detailed information on the projected changes over that time period:
Current Discount Rate 7.50%7.50%7.50%7.50%7.50%7.50%
2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
Normal Cost Rate *11.7%11.7%11.7%11.7%11.7%11.7%
Normal Cost 1,128,000$ 1,162,000$ 1,197,000$ 1,233,000$ 1,270,000$ 1,308,000$
Unfunded Liability Payment 663,512$ 827,271$ 1,000,258$ 1,109,707$ 1,231,826$ 1,322,885$
CURRENT TOTAL COST 1,791,512$ 1,989,271$ 2,197,258$ 2,342,707$ 2,501,826$ 2,630,885$
Revised Discount Rates 7.50%7.375%7.25%7.00%7.00%7.00%
2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
New Normal Cost Rate *11.7%12.2%12.7%13.7%13.7%13.7%
New Normal Cost 1,128,000$ 1,212,000$ 1,299,000$ 1,444,000$ 1,487,000$ 1,532,000$
New Unfunded Liability Payment 663,512$ 848,000$ 1,050,000$ 1,248,000$ 1,447,000$ 1,621,000$
NEW TOTAL COST 1,791,512$ 2,060,000$ 2,349,000$ 2,692,000$ 2,934,000$ 3,153,000$
Cost Increase -$ 70,729$ 151,742$ 349,293$ 432,174$ 522,115$
Increase %0.0%3.6%6.9%14.9%17.3%19.8%
* Normal cost rate before employee sharing.
The Fiscal Year 2017-18 Budget Update already built in an additional $515,000,
growing annually in the 10-Year Forecast, for lump sum pension contributions to reduce
the City’s unfunded liability. During the Budget Study Session , the City Council
approved increasing that annual funding to $1 million, to provide cushion for potential
further CalPERS increases, with the idea that unused funds would be set aside in the
General Fund reserve for pension and retiree health.
In addition to budgeting for lump sum contributions and potential rate increases, Dublin
has taken a number of other steps to address increases for both pension and retiree
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health increases. These include paying off the PERS Side Fund obligation, increasing
required employee contributions for pension, funding the City’s share of the Alameda
County Fire Department’s retiree health costs, and reducing the retiree hea lth provision
to City employees hired after January 1, 2016.
While Dublin’s actions have helped mitigate rate increases, Staff recognizes that the
CalPERS decision is a clear indicator of the new economic environment and raises
questions as to whether the discount rate will ultimately be lowered again, or another
decision taken that negatively impacts contribution rates. To that end, Staff has been
evaluating other ways to reduce unfunded pension liabilities and contain future rate
increases. One option, as discussed during the Budget Study Session, is the use of a
Section 115 Trust, as a secondary way to pre-fund pension benefits.
Historically, Section 115 trusts have primarily been used for prefunding only Other Post-
Employment Benefits (OPEB, or retiree health). All of the OPEB prefunding plans,
including the City of Dublin’s, are operated under Internal Revenue Code Section 115.
Recently, in a private letter ruling, the Internal Revenue Service (IRS) said that Section
115 trusts could also be used for prefunding pension benefits, creating a new tool for
agencies.
A Section 115 Trust offers the following benefits:
Funds offset unfunded pension liabilities (General Fund reserves do not)
Agencies control the risk tolerance of the portfolio
Greater investment flexibility and risk diversification compared to an agency’s
General Fund investments
Assets can be sent directly to CalPERS to offset unexpected contribution rate
increases or be used as a rainy day fund when revenues are impaired based on
economic or other conditions
Improved credit rating
Flexibility to access assets any time to pay employer pension obligations.
There are currently only two independent retirement plan administrators, Public Agency
Retirement Systems (PARS) and Public Financial Management Group (PFM). Staff
evaluated the work done by other agencies in assessing this new service, which
included comparisons of services offered and fees to administer the trust (Attachment 3
is Daly City’s evaluation), and also met with representatives of PARS and their
investment manager, HighMark Capital Management. Staff believes that because of the
City’s existing successful relationship with PARS for part-time retirement benefits,
PARS’ commitment to providing flexibility for the City to participate i n selecting
investment strategies for its funds, and slightly lower fees to administer the plan , the
City would be best served by selecting PARS as its plan administrator.
Approval of the Resolution (Attachment 1) would adopt the PARS Public Agencies Post-
Employment Benefits Trust and allow for the execution of legal and administrative
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documents and other related actions required to administer the City’s Program. The
proposed agreement is included as Attachment 2.
At this time, Staff recommends that the City Council authorize only the establishment of
the trust and the authorization to enter into a contract with PARS , actions which have no
fiscal impact. A discussion of potential funding levels will be brought to the City Council
as part of the year-end reserve designations at the meeting of June 22, 2017.
NOTICING REQUIREMENTS/PUBLIC OUTREACH:
None.
ATTACHMENTS:
1. Resolution Approving the Adoption of the Public Agencies Post -Employment Benefits
Trust Administered by PARS
2. Proposed Agreement for Administrative Services with PARS
3. Evaluation of PARS and PFM (City of Daly City)
RESOLUTION NO. XX - 17
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
* * * * * * * * * * *
APPROVING THE ADOPTION OF THE PUBLIC AGENCIES POST-EMPLOYMENT
BENEFITS TRUST ADMINISTERED BY PUBLIC AGENCY RETIREMENT SERVICES
(PARS)
WHEREAS, PARS has made available the PARS Public Agencies Post -Employment
Benefits Trust (the “Program”) for the purpose of pre -funding pension obligations and/or OPEB
obligations; and
WHEREAS, the City of Dublin (“City) is eligible to participate in the Program, a tax-
exempt trust performing an essential governmental function within the meaning of Section 115
of the Internal Revenue Code, as amended, and the Regulations issued there under, and is a
tax-exempt trust under the relevant statutory provisions of the State of California; and
WHEREAS, the City’s adoption and operation of the Program has no effect on any
current or former employee’s entitlement to post -employment benefits; and
WHEREAS, the terms and conditions of post-employment benefit entitlement, if any,
are governed by contracts separate from and independent of the Program; and
WHEREAS, the City’s funding of the Program does not, and is not intended to, create
any new vested right to any benefit nor strengthen any existing vested right; and
WHEREAS, the City reserves the right to make contributions, if any, to the Program.
NOW THEREFORE, BE IT RESOLVED THAT:
1. The City Council hereby adopts the PARS Public Agencies Post-Employment
Benefits Trust, effective _________________, 2017; and
2. The City Council hereby appoints the City Manager, or his/her successor or his/her
designee as the City’s Plan Administrator for the Program; and
3. The City’s Plan Administrator is hereby authorized to execute the PARS legal and
administrative documents on behalf of the City and to take whatever additional
actions are necessary to maintain the City’s participation in the Program and to
maintain compliance of any relevant regulation issued or as may be issued;
therefore, authorizing him/her to take whatever additional actions are required to
administer the City’s Program.
PASSED, APPROVED AND ADOPTED this 2nd day of May, 2017, by the following
vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
______________________________
Mayor
ATTEST:
_________________________________
City Clerk
AGREEMENT FOR ADMINISTRATIVE SERVICES
This agreement ( "Agreement ") is made this day of , 2017, between
Phase H Systems, a corporation organized and existing tinder the laws of the State of
California, doing business as Public Agency Retirement Services and PARS (hereinafter
"PARS ") and the [Agency Name] ( "Agency ").
WHEREAS, the Agency has adopted the PARS Public Agencies Post - Employment Benefits
Trust for the purpose of pre- firnding pension obligations and/or OPEB obligations ( "Plan "),
and is desirous of retaining PARS as Trust Administrator to the Trust, to provide
administrative services.
NOW THEREFORE, the parties agree:
1. Services. PARS will provide the services pertaining to the Plan as described in the
exhibit attached hereto as "Exhibit W ( "Services ") in a timely manner, subject to the
further provisions of this Agreement.
2. Fees for Services. PARS will be compensated for performance of the Services as
described in the exhibit attached hereto as "Exhibit;IB ".
3. Payment Terms. Payment for the Services will be remitted directly from Plan assets
unless the Agency chooses to make payment directly to PARS. In the event that the
Agency chooses to make payment directly to PARS, it shall be the responsibility of the
Agency to remit payment directly to PARS based upon an invoice prepared by PARS and
delivered to the Agency. If payment is not received by PARS within thirty (30) days of
the invoice delivery date, the balance due shall bear interest at the rate of 1.5% per
month. If payment is not received from the Agency within sixty (60) days of the invoice
delivery date, payment plus accrued interest will be remitted directly from Plan assets,
unless PARS has previously received written communication disputing the subject
invoice that is signed by a duly authorized representative of the Agency.
4. Fees for Services Beyond Scope. Fees for services beyond those specified in this
Agreement will be billed to the Agency at the rates indicated in the PARS' standard fee
schedule in effect at the time the services are provided and shall be payable as described
in Section 3 of this Agreement. Before any such services are performed, PARS will
provide the Agency with a detailed description of the services, terms, and applicable rates
for such services. Such services, terms, and applicable rates shall be agreed upon in
writing and executed by both parties.
5. Information Furnished to PARS. PARS will provide the Services contingent upon the
Agency's providing PARS the information specified in the exhibit attached hereto as
"Exhibit 1C" ( "Data "). It shall be the responsibility of the Agency to certify the
accuracy, content and completeness of the Data so that PARS may rely on such
information without finilner audit. It shall further be the responsibility of the Agency to
deliver the Data to PARS in such a manner that allows for a reasonable amount of time
for the Services to be performed. Unless specified in Exhibit 1A, PARS shall be under
no duty to question Data received from the Agency, to compute contributions made to the
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Plan, to determine or inquire whether contributions are adequate to meet and discharge
liabilities under the Plan, or to determine or inquire whether contributions made to the
Plan are in compliance with the Plan or applicable law. In addition, PARS shall not be
liable for non performance of Services to the extent such non performance is caused by or
results from erroneous and/or late delivery of Data from the Agency. In the event that the
Agency fails to provide Data in a complete, accurate and timely manner and pursuant to
the specifications in Exhibit 1C., PARS reserves the right, notwithstanding the fiullner
provisions of this Agreement, to terminate this Agreement upon no less than ninety (90)
days written notice to the Agency.
6. Records. Throughout the duration of this Agreement, and for a period of five (5) years
after termination of this Agreement, PARS shall provide duly authorized representatives
of Agency access to all records and material relating to calculation of PARS' fees sunder
this Agreement. Such access shall include the right to inspect, audit and reproduce such
records and material and to verify reports finmished in compliance with the provisions of
this Agreement. All information so obtained shall be accorded confidential treatment as
provided under applicable law.
7. Confidentiality. Without the Agency's consent, PARS shall not disclose any
information relating to the Plan except to duly authorized officials of the Agency, subject
to applicable law, and to parties retained by PARS to perform specific services within
this Agreement. The Agency shall not disclose any information relating to the Plan to
individuals not employed by the Agency without the prior written consent of PARS,
except as such disclosures may be required by applicable law.
8. Independent Contractor. ' PARS is and at all times hereunder shall be an independent
contractor. As such, neither the Agency nor any of its officers, employees or agents shall
have the power to control the conduct of PARS, its officers, employees or agents, except
as specifically set forth and provided for herein. PARS shall pay all wages, salaries and
other amounts due its employees in connection with this Agreement and shall be
responsible for all reports and obligations respecting them, such as social security,
income tax withholding, unemployment compensation, workers' compensation and
similar matters.
9. Indemnification. PARS and Agency hereby indemnify each other and hold the other
harmless, including their respective officers, directors, employees, agents and attorneys,
from any claim, loss, demand, liability, or expense, including reasonable attorneys' fees
and costs, incurred by the other as a consequence of, to the extent, PARS' or Agency's,
as the case may be, negligent acts, errors or omissions with respect to the performance of
their respective duties hereunder.
10. Compliance with Applicable Law. The Agency shall observe and comply with federal,
state and local laws in effect when this Agreement is executed, or which may come into
effect during the term of this Agreement, regarding the administration of the Plan.
PARS shall observe and comply with federal, state and local laws in effect when this
Agreement is executed, or which may come into effect during the term of this
Agreement, regarding Plan administrative services provided under this Agreement.
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11. Applicable Law. This Agreement shall be governed by and constrlued in accordance
with the laws of the State of California. In the event any party institutes legal
proceedings to enforce or interpret this Agreement, venue and jurisdiction shall be in any
state court of competent jurisdiction.
12. Force Majeure. When a party's nonperformance hereunder was beyond the control and
not due to the fault of the party not performing, a party shall be excused from performming
its obligations under this Agreement during the time and to the extent that it is prevented
from performing by such cause, including but not limited to: any incidence of fire, flood,
acts of God, acts of terrorism or war, commandeering of material, products, plants or
facilities by the federal, state or local government, or a material act or omission by the
other party.
13. Ownership of Reports and Documents. The originals of all letters, documents, reports,
and data produced for the purposes of this Agreement shall be delivered to, and become
the property of the Agency. Copies may be made for PARS but shall not be fiunished to
others without written authorization fiom Agency.
14. Designees. The Plan Administrator of the Agency, or their designee, shall have the
authority to act for and exercise any of the rights of the Agency as set forth in this
Agreement, subsequent to and in accordance with the written authority granted by the
Governing Body of the Agency, a copy of which writing shall be delivered to PARS.
Any officer of PARS, or his or her designees, shall have the authority to act for and
exercise any of the rights of PARS as set forth in this Agreement.
15. Notices. All notices hereunder and communications regarding the interpretation of the
terms of this Agreement, or changes thereto, shall be effected by delivery of the notices
in person or by depositing the notices in the U.S. nail, registered or certified mail, return
receipt requested, postage prepaid and addressed as follows:
(A) To PARS: PARS; 4350 Von Kanman Avenue, Suite 100, Newport Beach, CA
92660; Attention: President
(B) To Agency: [Agency]; [Address]; [City, State, Zip]; Attention: [Plan Administrator]
Notices shall be deemed given on the date received by the addressee.
16. Term of Agreement. This Agreement shall remain in effect for the period begiruiing
2017 and ending , 2020 ( "Term "). This Agreement
may be terminated at any time by giving thirty (30) days written notice to the other party
of the intent to terminate. Absent a thirty (30) day written notice to the other party of the
intent to terminate, this Agreement will continue unchanged for successive twelve month
periods following the Tenn.
17. Amendment. This Agreement may not be amended orally, but only by a written
instrument executed by the parties hereto.
18. Entire Agreement. This Agreement, including exhibits, contains the entire
understanding of the parties with respect to the subject matter set forth in this Agreement.
In the event a conflict arises between the parties with respect to any terms, condition or
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provision of this Agreement, the remaining terms, conditions and provisions shall remain
in fiill force and legal effect. No waiver of any tens or condition of this Agreement by
any party shall be constnied by the other as a continuing waiver of such term or
condition.
19. Attorneys Fees. In the event any action is taken by a party hereto to enforce the terms of
this Agreement the prevailing party herein shall be entitled to receive its reasonable
attorney's fees.
20. Counterparts. This Agreement may be executed in any number of cotmiterparts, and in
that event, each cotmterpart shall be deemed a complete original and be enforceable
without reference to any other cotunterpart.
21. Headings. Headings in this Agreement are for convenience only and shall not be used to
interpret or constnie its provisions.
22. Effective Date. This Agreement shall be effective on the date fast above written, and
also shall be the date the Agreement is executed.
AGENCY:
BY:
TITLE:
DATE:
PARS:
BY:
Tod Hammeras
TITLE: Chief Financial Officer
DATE:
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11:
SERVICES
PARS will provide the following services for the [Agency Name] Public Agencies Post -
Employment Benefits Trust:
1. Plan Installation Services:
(A) Meeting with appropriate Agency personnel to discuss plan provisions,
implementation timelines, actuarial valuation process, fiunding strategies, benefit
communication strategies, data reporting, and submission requirements for
contributionsheimbuu sements /dish ib- utions;
(B) Providing the necessary analysis and advisory services to finalize these elements of
the Plan;
(C) Providing the documentation needed to establish the Plan to be reviewed and
approved by Agency legal counsel. Resulting filial Plan documentation Foust be
approved by the Agency prior to the commencement of PARS Plan Administration
Services outlined in Exhibit 1A, paragraph 2 below.
2. Plan Administration Services:
(A) Monitoring the receipt of Plan contributions made by the Agency to the trustee of the
PARS Public Agencies Post - Employment Benefits Trust ( "Trustee "), based upon
information received from the Agency and the Trustee;
(B) Performing periodic accounting of Plan assets, reimbursements /distributions, and
investment activity, based upon information received from the Agency and/or
Trustee;
(C) Coordinating the processing of distribution payments pursuant to authorized direction
by the Agency, and the provisions of the Plan, and, to the extent possible, based upon
Agency- provided Data;
(D) Coordinating actions with the Trustee as directed by the Plan Administrator within
the scope this Agreement;
(E) Preparing and submitting a monthly report of Plan activity to the Agency, -unless
directed by the Agency otherwise;
(F) Preparing and submitting an annual report of Plan activity to the Agency;
(G) Facilitating actuarial valuation updates and handing modifications for compliance
with GASB 45/75, if prefanding OPEB obligations;
(H) Coordinating periodic audits of the Trust;
(I) Monitoring Plan and Trust compliance with federal and state laws.
3. PARS is not licensed to provide and does not offer tax, accounting, legal, investment or
actuarial advice.
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•C tlGl
FEES FOR SERVICES
PARS will be compensated for performance of Services, as described in Exhibit IA based
upon the following schedule:
An annual asset fee shall be paid fiom Plan Assets based on the following schedule:
For Plan Assets from: Annual Rate:
$0 to $10,000,000 0.25%
$10,000,001 to $15,000,000 0.20%
$15,000,001 to $50,000,000 0.15%
$50,000,001 and above 0.10%
Annual rates are prorated and paid monthly. The annual asset fee shall be calculated by
the following formula [Annual Rate divided by 12 (months of the year) multiplied by the
Plan asset balance at the end of the month]. Trustee and Investment Management Fees
are not included.
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Io:g-Ii:318
DATA REQUIREN ENTS
PARS will provide the Services under this Agreement contingent upon receiving the
following information:
Executed Legal Doctuments:
(A) Certified Resolution
(B) Adoption Agreement to the Public Agencies Post - Employment Benefits Tiust
(C) Trustee Investment Forms
2. Contribution — completed Contribution Transmittal Form signed by the Plan
Administrator (or authorized Designee) which contains the following information:
(A) Agency name
(B) Contribution arnotuit
(C) Contribution date
(D) Contribution method (Check, ACH, Wire)
3. Distribution — completed Payment Reimbursement/Distribution Form signed by the
Plan Administrator (or authorized Designee) which contains the following
information:
(A) Agency name
(B) Payment reimbursement /distribution amount
(C) Applicable' statement date
(D) Copy of applicable premium, claim, statement, warrant, and/or administrative
expense evidencing payment
(E) Signed certification of reimbuusement /distribution from the Plan Administrator
(or authorized Designee)
4. Other information pertinent to the Services as reasonably requested by PARS and
Actuarial Provider.
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City Council Agenda Report Continuation of Discussion on Authorizing Participation in the Public Agencies Post-Employment Benefits Section 115 Trust Program to Pre-Fund Pension and Other Post-Employment Benefits Meeting Date: April 10, 2017 Page 2 of 5 The table below provides an overview of the two firms: Public Agency Retirement Services (PARS)Public Financial Management(PFM)Founded in 1984 1975HeadquartersNewport Beach Philadelphia
Office Locations in California Newport Beach - PARS
San Francisco - HighMark San Francisco & Los Angeles
Core Business Administration of 115 Trust for
prefunding OPEB/Pension Investment advisory services
Programs
Section 115 Trust for Pensions & OPEB,
supplemental defined benefit programs,
alternate retirement systems for part-time
employees, customized defined contribution
programs to supplement CalPERS
Section 115 Trusts for Pension & OPEB,
financial advisory, asset management and
consulting services
IRS Private Letter RulingYes; multiple employer Yes; multiple employer trust
No; single employer trust
Investment Manager HighMark Capital Management PFM Asset Management
Trustee US Bank (Los Angeles)Multiple employer plan - Wells Fargo
Single employer plan - TBD
Plans under Administration1,400+ plans for 800+ public agencies only200+ plans, mostly public agencies
Section 115 Pension
& OPEB Trust Clients
250+, including 72 for pension prefunding
(such as Alameda, Brisbane, Capitola,
Half Moon Bay, Morgan Hill, Napa,
Palo Alto, Rohnert Park, Sausalito,
Santa Clara, Tiburon)
115+, including 2 for pension prefunding
(Santa Cruz and Chino Valley Fire)
Annual Fees for Assets
under $5 million Approx. $26,500 Approx. $28,500
Investment Assets
under Administration
Approx. $2.2 billion (PARS)
Approx. $15.2 billion (HighMark)Approx. $62.0 billion
Investment Options 5 risk-tolerance levels (active or passive),
and custom option Custom only
Performance Returns
Actual 5-year historical returns
of 5 model portfolios:*
- Capital Appreciation: 9.53%
- Balanced: 8.12%
- Moderate: 7.24%
- Moderately Conservative: 5.51%
- Conservative: 4.07%
*Returns as of December 31, 2016
Composite returns only
(not based on historical returns
of actual portfolios)
Minimums
No minimum contribution;
No minimum fee;
No start up fees;
No trade or transactions fees
Minimum fee: $20,000 across all accounts;
Account fee: $500;
Trade fee: $8/trade