ADMINISTRATIVE REPORT
MEETING DATE: June 25, 2025 AGENDA CATEGORY: Consent - Agreements TO: Honorable Mayor and City Council
FROM: Randy McKeegan, Finance Director
DATE: June 9, 2025
SUBJECT: Amendment No. 1 to Agreement No. 2022-034 with Public Agency Retirement Services (PARS) (extend term to June 30, 2028) for the management of the Other Post-Employment Benefits Trust (OPEB) and Pension Stabilization Trust.
RECOMMENDATION:
Staff recommends approval of amendment.
BACKGROUND:
The Governmental Accounting Standards Board (GASB) issued Statement number 74 and 75 in June 2015 respectively. These GASB Statements replaced statements number 43 and 45 and updated the reporting requirements for all government agencies that provide Other Post -Employment Benefits (OPEB) such as the City’s Retiree Medical Subsidy Program. The GASB Statements require the measurement and reporting of the benefits that have been earned compared to the amount of funds that have been set aside to pay for the future cash obligations. The GASB Statements also require that any cash set aside to fund the future obligations ( and thus reduce any unfunded liability) be placed in an irrevocable trust fund to guarantee that the monies can only be used for the purpose intended, which is to make future payments related to the Retiree Medical Subsidy program.
In 2007, the City selected PARS to join and administer their Internal Revenue Code Section 115 Irrevocable Trust Account in an effort to comply with these accounting standards. Since it’s inception, this trust has accumulated annual actuarial determined contributions and relate d investment income resulting in a balance, as of April 30, 2025, of $98.9 million. Based on the most recent actuarial report, the OPEB liability is just over $108 million, which means that the plan is over 90% funded in comparison to being just over 4% when the Section 115 Trust was established.
In 2022, the City established a second irrevocable trust account called the Pension Rate Stabilization Program to address the unfunded liability related to the City’s pension plan. This trust allows the City to draw from accumulated trust funds to offset pension expenses if required contributions spike or if serious budgetary shortfalls occur. The current unfunded liability as reported by the most recent actuarial report from CalPERS is over $614 million. As of Ap ril 30, 2025, the trust has an accumulated balance of $5.9 million, roughly 1% of the unfunded liability.
PARS has provided incredible service and administration of both trust funds by PARS over the last 18 years and staff recommends the continuation of this partnership.
FISCAL IMPACT:
The fee schedule has a tier structure based on the current portfolio balance. The fee structure is detailed in Exhibit B of the original agreement. Fees are paid directly from plan assets. Based on current portfolio assets, we estimate that the annual administration costs will be in the range of $95,000 per year. These services are budgeted within our Fiscal Year 2025-26 budget.
COUNCIL GOAL:
Innovative and Efficient City Government
ATTACHMENTS:
Agreement 2022-034(1)