AGENDA
ITEM
9 AGENDA STAFF REPORT
CALEXICO
DATE: May 17, 2023
TO: Mayor and City Council
Esperanza Colio Warren, City Manager Emmy
APPROVED BY:
PREPARED BY: Denise Garcia, Human Resources Managerog
Sandra L. Fonseca, Interim Finance Director ST
SUBJECT: Approval of an Agreement and Election of the City of Calexico to Prefund Other Post Employment Benefits Through CaPERS and Delegation of Authority to Request Disbursements from the California Employers' Retiree Benefit Trust (CERBT)
Recommendation:
It is recommended the City Council approve 1) an Agreement and Election of the City of Calexico to Prefund Other Post Employment Benefits through CaPERS and 2) Delegation of Authority to Request Disbursements from the California Employers' Retiree Benefit Trust (CERBT). This action implements City Council direction to establish an OPEB Trust that was provided in the 2022-23 Budget resolution #2022-48 (August 10, 2022).
Background:
The California Employers' Retiree Benefit Trust (CERBT) Fund is a Section 115 trust fund dedicated to prefunding Other Post-Employment Benefits (OPEB) (retiree medical benefits) for eligible California public agencies.
By joining this trust fund, Calexico can help finance future retiree medical benefits in large part from investment earnings provided by CaPERS. Since its launch in 2007, more than 575 California public employers choose CERBT as their OPEB trust fund. Locally, in Imperial County, the Imperial Irrigation District and the City of El Centro participate in the CaPERS CERBT program.
Specifically, prefunding retiree medical costs allows the City to generate investment income from employer-controlled contributions to pay for future retiree benefits; reduce future employer cash flow requirements and budget dependency with investment income; and reduce OPEB liabilities reported on employer annual financial statements. This approach is similar to the CaPERS pre- funding program already in use by Calexico to fund its pension benefits.
AGENDA
The CaPERS CERBT program allows Calexico to efficiently leverage the low-cost investment and administrative resources of CaPERS to manage this program. With ITEM limited staff, Calexico does not have the resources or training at this time to self- administer an OPEB Trust and Investment Portfolio. While banks and investment 9 advisors could independently provide investment and trust administration services to the City, the CaPERS CERT offers the most consolidated service package. Further, CaPERS is already a trusted investment partner through the City's pension program.
Flexible Investment Options
The CaPERS CERT offers participants options to tailor their investment approach between three diversified asset allocation strategies. CERBT invests participant contributions in five asset classes to achieve its long-term investment returns: Commodities, Fixed Income, Global Equity, Global Public Real Estate Investment Trusts (REITs), and Treasury Inflation Protected Securities (TIPS). As a first-time investor in the program, and with a limited initial trust contribution, the most conservative Investment Strategy 3 is proposed at this time. A copy of the CaPERS CERBT Strategy 3 Asset Class allocation benchmarks is attached and includes recent investment performance trends. Strategy 3 focuses on fixed income securities with some additional investment in global, real estate, and other asset classes. As the City's OPEB funding accumulates, this investment option can be updated in the future.
Fees
CaPERS CERBT charges employers a basis point rate charge to cover all program costs. The rate covers the following activities: Compliance; Investment management; Legal services; Ongoing administration; Record-keeping; Reporting; Start-up, transfer of assets, termination; Trustee/custodial services.
The fee rate charge is a function of both the fund operating costs and of the average asset balance of the fund. The fee rate is likely to vary over time, and may be higher or lower in the future. CERBT is a state trust fund program and retains no profit from the program. The current fee is. 1% of assets. There are no revenue sharing agreements, surrender/withdrawal/deferred sales charges, investment performance charges, or minimum fee requirements. Expenses reduce the investment earnings credited to the employer's account.
Fiscal Impact:
As of June 30, 2022, the City's unfunded OPEB liability was $23,973,201.
Over the past three budget/fiscal years, FY 2021, 2022, and 2023, the City has begun addressing this long-term liability by accumulating funds to make an initial contribution to an OPEB trust. Contributions from the General, Water, and Wastewater funds have been accumulated in the #602/Retiree Medical Internal Service Fund. The annual contribution in 2023 was set by the City's actuary to amortize the unfunded liability over the next 30 years. Through June 30, 2023, the Fund has $712,000 earmarked for the OPEB Trust.
With ongoing annual contributions that are set and controlled annually by the City through its budget, the City will be positioned to buy down future retiree medical benefit cash flow requirements by the interest earned in the CERBT. The CERT will be legally restricted to providing retiree medical benefits and protects retirees by accumulating dedicated resources for this purpose.
For financial reporting, CERBT Investment balances will directly reduce the Net OPEB liability reported in the City's Financial Statements. Long-term debt reduction is an objective identified by the California State Auditor in their published risk factors for California Cities.
Attachments:
•
A. Approval of an Agreement and Election of the City of Calexico to Prefund Other Post Employment Benefits Through CaPERS •
B. Delegation of Authority to Request Disbursements
C. CERBT Investment Strategy 3
Attachment "A"
Approval of an Agreement and Election of the City of Calexico to Prefund Other Post Employment Benefits Through CalPERS
CALIFORNIA EMPLOYERS' RETIREE BENEFIT TRUST PROGRAM ("CERBT")
AGREEMENT AND ELECTION
OF
CITY OF CALEXICO
(NAME OF EMPLOYER)
TO PREFUND OTHER POST-EMPLOYMENT
BENEFITS THROUGH CalPERS
WHEREAS (1) Government Code Section 22940 establishes in the State Treasury the Annuitants' Health Care Coverage Fund forthe prefunding of health care coverage for annuitants (Prefunding Plan); and
WHEREAS (2) The California Public Employees' Retirement System (CalPERS) Board of Administration (Board) has sole and exclusive control and power over the administration and investment of the Prefunding Plan (sometimes also referred to as CERT), the purposes of which include, but are not limited to (i) receiving contributions from participating employers and establishing separate Employer Prefunding Accounts in the Prefunding Plan for the performance of an essential governmental function (i) investing contributed amounts and income thereon, if any, in order to receive yield on the funds and iii) disbursing contributed amounts and income thereon, if any, to pay for costs of administration of the refunding Plan and to pay for health care costs or other post-employment benefits in accordance with the terms of participating employers' plans; and
WHEREAS (3) CITY OF CALEXICO
(NAME OF EMPLOYER)
(Employer) desires to participate in the Prefunding Plan upon the terms and conditions set by the Board and as set forth herein; and
WHEREAS (4) Employer may participate in the Prefunding Plan upon (i) approval by the Board and (ii) filing a duly adopted and executed Agreement and Election to Prefund Other Post-Employment Benefits (Agreement) as provided in the terms and conditions of the Agreement; and
WHEREAS (5) The Prefunding Plan is a trust fund that is intended to perform an essential governmental function within the meaning of Section 115 of the Internal Revenue Code as an agent multiple-employer defined benefit plan as defined in Governmental Accounting Standards Board (GASB) Statements for Accounting and Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans (OPEB Standards) consisting of an aggregation of single-employer plans, with pooled administrative and investment functions;
Rev 1/12/2022 Page 1 of 10
NOW, THEREFORE, BE IT RESOLVED THAT EMPLOYER HEREBY MAKES THE
FOLLOWING REPRESENTATION AND WARRANTY AND THAT THE BOARD AND EMPLOYER AGREE TO THE FOLLOWING TERMS AND CONDITIONS:
A. Representation and Warranty
Employer represents and warrants that it is a political subdivision of the State of California or an entity whose income is excluded from gross income under Section 115 (1) of the Internal Revenue Code.
B. Adoption and Approval of the Agreement; Effective Date; Amendment (1) Employer's governing body shall elect to participate in the Prefunding Plan by adopting this Agreement and filing with the CaPERS Board a true and correct original or certified copy of this Agreement as follows:
Filing by mail, send to: CaPERS
CERBT (OPEB)
P.O. Box 1494
Sacramento, CA 95812-1494
Filing in person, deliver to:
CaPERS Mailroom
CERBT (OPEB)
400 Q Street
Sacramento, CA 95811
(2) Upon receipt of the executed Agreement, and after approval by the Board, the Board shall fix an effective date and shall promptly notify Employer of the effective date of the Agreement.
(3) The terms of this Agreement may be amended only in writing upon the agreement of both CaPERS and Employer, except as otherwise provided herein. Any such amendment or modification to this Agreement shall be adopted and executed in the same manner as required for the Agreement. Upon receipt of the executed amendment or modification, the Board shall fix the effective date of the amendment or modification. (4) The Board shall institute such procedures and processes as it deems necessary to administer the Prefunding Plan, to carry out the purposes of this Agreement, and to maintain the tax exempt status of the Prefunding Plan. Employer agrees to follow such procedures and processes.
Rev 1/12/2022 Page 2 of 10
CalPERS
C. Other Post-Employment Benefits (OPEB) Cost Reports and Employer Contributions (1) Employer shall provide to the Board an OPEB cost report on the basis of the actuarial assumptions and methods prescribed by the Board. Such report shall be for the Board's use in financial reporting, and shall be prepared at least as often as the minimum frequency required by applicable GASB OPEB Standards. This OPEB cost report may be prepared as an actuarial valuation report or, if the employer is qualified under GASB OPEB Standards, may be prepared as an Alternative Measurement Method (AMM) report.
(a) Unless qualified under GASB OPEB Standards, to provide an AMM report, Employer shall provide to the Board an actuarial valuation report.
Such report shall be for the Board's use in financial reporting, and shall be prepared at least as often as the minimum frequency required by GASB OPEB Standards, and shall be:
1) prepared and signed by a Fellow or Associate of the Society of Actuaries who is also a Member of the American Academy of Actuaries or a person with equivalent qualifications acceptable to the Board;
2) prepared in accordance with generally accepted actuarial practice and GASB OPEB Standards; and,
3) provided to the Board prior to the Board's acceptance of contributions for the valuation period or as otherwise required by the Board. b) If qualified under GASB OPE Standards, Employer may provide to the Board an AMM report. Such report shall be for the Board's use in financial reporting, shall be prepared at least as often as the minimum frequency required by GASB OPEB Standards, and shall be:
1) affirmed by Employer's external auditor, or by a Fellow or Associate of the Society of Actuaries who is also a Member of the American Academy of Actuaries or a person with equivalent qualifications acceptable to the Board, to be consistent with the AMM process described in GASB OPE Standards;
prepared in accordance with GASB OPEB Standards; and,
provided to the Board prior to the Board's acceptance of contributions for the valuation period or as otherwise required by the Board.
(2) The Board may reject any OPE cost report for financial reporting purposes submitted to it, but shall not unreasonably do so. In the event that the Board Rev 1/12/2022 Page 3 of 10
CaPERS
determines, in its sole discretion, that the OPE cost report is not suitable for use in the Board's financial statements or if Employer fails to provide a required OPE cost report, the Board may obtain, at Employer's expense, an OPEB cost report that meets the Board's financial reporting needs. The Board may recover from Employer the cost of obtaining such OPEB cost report by billing and collecting from Employer or by deducting the amount from Employer's account in the Prefunding Plan. (3) Employer shall notify the Board of the amount and time of contributions which contributions shall be made in the manner established by the Board. (4) Employer contributions to the Prefunding Plan may be limited to the amount necessary to fully fund Employer's actuarial present value of total projected benefits, as supported by the OPEB cost report for financial reporting purposes acceptable to the Board. As used throughout this document, the meaning of the term "actuarial present value of total projected benefits" is as defined in GASB OPEB Standards. If Employer's contribution causes its assets in the Prefunding Plan to exceed the amount required to fully fund the actuarial present value of total projected benefits, the Board may refuse to accept the contribution.
(5) No contributions are required. Contributions can be made at any time following the effective date of the Agreement provided that Employer has first complied with the requirements of Paragraph C.
D. Administration of Accounts, Investments, Allocation of Income (1) The Board has established the Prefunding Plan as an agent plan consisting of an aggregation of single-employer plans, with pooled administrative and investment functions, under the terms of which separate accounts are maintained for each employer so that the Employer's assets will provide benefits only under the Employer's post-employment benefit plan(s).
(2) All Employer contributions and assets attributable to Employer contributions shall be separately accounted for in the Prefunding Plan (Employer's Prefunding Account). (3) Employer's Prefunding Account assets may be aggregated with prefunding account assets of other employers and may be co-invested by the Board in any asset classes appropriate for a Section 115 Trust.
(4) The Board may deduct the costs of administration of the Prefunding Plan from the investment income or Employer's Prefunding Account in a manner determined by the Board
(5) Investment income shall be allocated among participating employers and posted to Employer's Prefunding Account as determined by the Board but no less frequently than annually.
Rev 1/12/2022 Page 4 of 10 CAPERS
(6) If Employer's assets in the Prefunding Plan exceed the amount required to fully fund the actuarial present value of total projected benefits, the Board, in compliance with applicable accounting and legal requirements, may return such excess to Employer.
E. Reports and Statements
(1) Employer shall submit with each contribution a contribution report in the form and containing the information prescribed by the Board.
(2) The Board shall prepare and provide a statement of Employer's Prefunding Account at least annually reflecting the balance in Employer's Prefunding Account, contributions made during the period and income allocated during the period, and such other information as the Board determines.
F. Disbursements
(1) Employer may receive disbursements not to exceed the annual premium and other costs of post-employment healthcare benefits and other post-employment benefits as defined in GASB OPEB Standards.
(2) Employer shall notify CaPERS in writing in the manner specified by CaPERS of the persons authorized to request disbursements from the Prefunding Plan on behalf of Employer.
(3) Employer's request for disbursement shall be in writing signed by Employer's authorized representative, in accordance with procedures established by the Board.
The Board may require that Employer certify or otherwise establish that the monies will be used for the purposes of the Prefunding Plan.
(4) Requests for disbursements that satisfy the requirements of paragraphs (2) and (3) will be processed monthly.
(5) CaPERS shall not be liable for amounts disbursed in error if it has acted upon the written instruction of an individual authorized by Employer to request disbursements. In the event of any other erroneous disbursement, the extent of CaPERS' liability shall be the actual dollar amount of the disbursement, plus interest at the actual earnings rate but not less than zero.
(6) No disbursement shall be made from the Prefunding Plan which exceeds the balance in Employer's Prefunding Account.
G. Costs of Administration
Employer shall pay its share of the costs of administration of the Prefunding Plan, as determined by the Board
Rev 1/12/2022 Page 5 of 10
H. Termination of Employer Participation in Prefunding Plan (1) The Board may terminate Employer's participation in the Prefunding Plan if:
(a) Employer gives written notice to the Board of its election to terminate; (b) The Board finds that Employer fails to satisfy the terms and conditions of this Agreement or of the Board's rules or regulations.
(2) If Employer's participation in the Prefunding Plan terminates for any of the foregoing reasons, all assets in Employer's Prefunding Account shall remain in the Prefunding Plan, except as otherwise provided below, and shall continue to be invested and accrue income as provided in Paragraph D.
(3) After Employer's participation in the Prefunding Plan terminates, Employer may not make contributions to the Prefunding Plan.
(4) After Employer's participation in the Prefunding Plan terminates, disbursements from Employer's Prefunding Account may continue upon Employer's instruction or otherwise in accordance with the terms of this Agreement. (5) After the Employer's participation in the Prefunding Plan terminates, the governing body of the Employer may request either:
(a) A trustee to trustee transfer of the assets in Employer's Prefunding Account; provided that the Board shall have no obligation to make such transfer unless the Board determines that the transfer will satisfy applicable requirements of the Internal Revenue Code, other law and accounting standards, and the Board's fiduciary duties. If the Board determines that the transfer will satisfy these requirements, the Board shall then have one hundred fifty (150) days from the date of such determination to effect the transfer. The amount to be transferred shall be the amount in the Employer's Prefunding Account as of the date of the transfer (the "transfer date") and shall include investment earnings up to an investment earnings allocation date preceding the transfer date. In no event shall the investment earnings allocation date precede the transfer date by more than 150 days.
(b) A disbursement of the assets in Employer's Prefunding Account; provided that the Board shall have no obligation to make such disbursement unless the Board determines that, in compliance with the Internal Revenue Code, other law and accounting standards, and the Board's fiduciary duties, all of Employer's obligations for payment of post-employment health care benefits and other post-employment benefits and reasonable administrative costs of the Board have been satisfied. If the Board determines that the disbursement will satisfy these requirements, the Rev 1/12/2022 Page 6 of 10
Board shall then have one hundred fifty (150) days from the date of such determination to effect the disbursement. The amount to be disbursed shall be the amount in the Employer's Prefunding Account as of the date of the disbursement (the "disbursement date") and shall include investment earnings up to an investment earnings allocation date preceding the disbursement date. In no event shall the investment earnings allocation date precede the disbursement date by more than 150 days.
(6) After Employer's participation in the Prefunding Plan terminates and at such time that no assets remain in Employer's Prefunding Account, this Agreement shall terminate.
(7) If, for any reason, the Board terminates the Prefunding Plan, the assets in Employer's Prefunding Account shall be paid to Employer after retention of (i) amounts sufficient to pay post-employment health care benefits and other post-employment benefits to annuitants for current and future annuitants described by the employer's current substantive plan (as that term is used in GASB OPEB Standards), and (i) amounts sufficient to pay reasonable administrative costs of the Board. (8) If Employer ceases to exist but Employer's Prefunding Plan continues to exist and if no provision has been made by Employer for ongoing payments to pay post- employment health care benefits and other post-employment benefits to annuitants for current and future annuitants, the Board is authorized to and shall appoint a third party administrator to carry out Employer's Prefunding Plan. Any and all costs associated with such appointment shall be paid from the assets attributable to contributions by Employer.
(9) If Employer should breach the representation and warranty set forth in Paragraph A., the Board shall take whatever action it deems necessary to preserve the tax-exempt status of the Prefunding Plan.
I. General Provisions
(1) Books and Records.
Employer shall keep accurate books and records connected with the performance of this Agreement. Employer shall ensure that books and records of subcontractors, suppliers, and other providers shall also be accurately maintained. Such books and ecords shall be kept in a secure location at the Employer's office(s) and shall be available for inspection and copying by CaPERS and its representatives (2) Audit.
(a) During and for three years after the term of this Agreement, Employer shall permit the Bureau of State Audits, CaPERS, and its authorized Rev 1/12/2022 Page 7 of 10
CalPERS
representatives, and such consultants and specialists as needed, at all reasonable times during normal business hours to inspect and copy, at the expense of CaPERS, books and records of Employer relating to its performance of this Agreement.
(b) Employer shall be subject to examination and audit by the Bureau of State Audits, CaPERS, and its authorized representatives, and such consultants and specialists as needed, during the term of this Agreement and for three years after final payment under this Agreement. Any examination or audit shall be confined to those matters connected with the performance of this Agreement, including, but not limited to, the costs of administering this Agreement. Employer shall cooperate fully with the Bureau of State Audits, CaPERS, and its authorized representatives, and such consultants and specialists as needed, in connection with any examination or audit. All adjustments, payments, and/or reimbursements determined to be necessary by any examination or audit shall be made promptly by the appropriate party.
(3) Notice.
(a) Any notice, approval, or other communication required or permitted under this Agreement will be given in the English language and will be deemed received as follows:
Personal delivery. When personally delivered to the recipient.
Notice is effective on delivery.
First Class Mail. When mailed first class to the last address of the recipient known to the party giving notice. Notice is effective three delivery days after deposit in a United States Postal Service office or mailbox.
Certified mail. When mailed certified mail, return receipt requested.
Notice is effective on receipt, if delivery is confirmed by a return receipt.
4. Overnight Delivery. When delivered by an overnight delivery if delivery is confirmed by the deliver
service.
5. Telex or Facsimile Transmission. When sent by telex or fax to the last telex or fax number of the recipient known to the party giving notice. Notice is effective on receipt, provided that (i) a duplicate copy of the notice is promptly given by first-class or certified mail or by overnight delivery, or iii) the receiving party delivers a written Rev 1/12/2022 Page 8 of 10
CaPERS
confirmation of receipt. Any notice given by telex or fax shall be deemed received on the next business day if it is received after 5:00 p.m. (recipient's time) or on a nonbusiness day.
E-mail transmission. When sent by e-mail using software that provides unmodifiable proof (i) that the message was sent, (i) that the message was delivered to the recipient's information processing system, and (iii) of the time and date the message was delivered to the recipient along with a verifiable electronic record of the exact content of the message sent.
Addresses for the purpose of giving notice are as shown in Paragraph B. (1) of this Agreement.
(b) Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the party to be notified shall be deemed effective as of the first date that said notice was refused, unclaimed, or deemed undeliverable by the postal authorities, messenger or overnight delivery service.
(c) Any party may change its address, telex, fax number, or e-mail address by giving the other party notice of the change in any manner permitted by this Agreement.
(d) All notices, requests, demands, amendments, modifications or other communications under this Agreement shall be in writing. Notice shall be sufficient for all such purposes if personally delivered, sent by first class, registered or certified mail, return receipt requested, delivery by courier with receipt of delivery, facsimile transmission with written confirmation of receipt by recipient, or e-mail delivery with verifiable and unmodifiable proof of content and time and date of sending by sender and delivery to recipient. Notice is effective on confirmed receipt by recipient or 3 business days after sending, whichever is sooner.
(4) Survival
All representations, warranties, and covenants contained in this Agreement, or in any instrument, certificate, exhibit, or other writing intended by the parties to be a part of their Agreement shall survive the termination of this Agreement until such time as all amounts in Employer's Prefunding Account have been disbursed. (5) Waiver
No waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this Agreement shall be effective unless it is in writing and Rev 1/12/2022 Page 9 of 10 CaPERS
signed by the party waiving the breach, failure, right, or remedy. No waiver of any breach, failure, right, or remedy shall be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, nor shall any waiver constitute a continuing waiver unless the writing so specifies.
(6) Necessary Acts, Further Assurances
The parties shall at their own cost and expense execute and deliver such further documents and instruments and shall take such other actions as may be reasonably required or appropriate to evidence or carry out the intent and purposes of this Agreement.
A majority vote of Employer's Governing Body at a public meeting held on the 17th day of the month of May in the year 2023 ., authorized entering into this Agreement.
Signature of the Presiding Officer:
Raul Urena
Printed Name of the Presiding Officer:
City of Calexico City Council
Name of Governing Body:
City of Calexico
Name of Employer:
Date: May 17, 2023
BOARD OF ADMINISTRATION
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
BY
MELODY BENAVIDES
DIVISION CHIEF, PENSION CONTRACTS AND PREFUNDING PROGRAMS
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
To be completed by CaPERS
The effective date of this Agreement is:
Rev 1/12/2022 Page 10 of 10
CalPERS
Attachment "B
Delegation of Authority to Request Disbursements
MA CaPERS
California Public Employees' Retirement System California Employers' Retiree Benefit Trust (CERBT)
100 Q Street, Sacramento, CA 9581
www.calpers.ca.gov
Delegation of Authority to Request Disbursements
California Employers' Retiree Benefit Trust
(CERBT)
RESOLUTION
OF THE
CITY COUNCIL
(GOVERNING BODY)
OF THE
CITY OF CALEXICO
(NAME OF EMPLOYER)
The City of Calexico City Council
delegates to the incumbents
(GOVERNING BODY)
Finance Director
in the positions of and
(TITLE)
City Manager
and/or
(TITLE)
Human Resources Manager
authority to request on
(TITLE)
behalf of the Employer disbursements from the Other Post Employment Prefunding Plan and to certify as to the purpose for which the disbursed funds will be used.
By
Mayor
Title
Witness
Date
Attachment "C"
CERBT Investment Strategy 3
California Employers' Retiree Benefit Trust (CERBT)
CERBT Strategy 3 CalPERS
March 31, 2023
Objective Composition
The CERBT Strategy 3 portfolio seeks to provide capital Asset Class Allocations and Benchmarks appreciation and income consistent with its strategic asset The CERBT Strategy 3 portfolio consists of the following asset classes and allocation. There is no guarantee that the portfolio will achieve its corresponding benchmarks:
investment objective.
Target Target
Asset Class Benchmark
Allocation Range
The CERBT Strategy 3 portfolio is invested in various asset classes.
CalPERS periodically adjusts the composition of the portfolio in Global Equity 23% * 5% MSCI All Country World order to match the target allocations. Generally, equities are Index IMI (Net) intended to help build the value of the employer's portfolio over the Bloomberg Long Liability Fixed Income 51% + 5%
long term while bonds are intended to help provide income and Index stability of principal. Also, strategies invested in a higher percentage Treasury Inflation- Bloomberg US TIPS Index, of equities seek higher investment returns (but assume more risk) 9% * 3% Protected Securities Series L
compared with strategies invested in a higher percentage of bonds. Real Estate Investment FTSE EPRA/NAREIT 14% ‡ 5%
Compared with CERBT Strategy 1 and Strategy 2, this portfolio has Trusts ("REITS') Developed Index (Net) a lower allocation to equities than bonds and other assets. Commodities 3% * 3% S&P GSCI Total Return Historically, funds with a lower percentage of equities have Index displayed less price volatility and, therefore, this portfolio may + 2% Cash 91-Day Treasury Bill
experience comparatively less fluctuation of value. Employers that seek greater stability of value, in exchange for possible lower investment returns, may wish to consider this portfolio.
Portfolio Benchmark
CaPERS Board may change the list of approved asset classes in The CERBT Strategy 3 benchmark is a composite of underlying asset class market composition as well as targeted allocation percentages and ranges indices, each assigned the target weight for the asset class it represents. at any time.
Target vs. Actual Asset Class Allocations
The following chart shows policy target allocations compared with actual asset allocations as of the specified reporting month-end. CaPERS may temporarily deviate from the target allocation to a particular asset class based on market, economic, or Assets Under Management other considerations.
As of the specified reporting month-end:
CERBT Strategy 3 •Target Actual
60%
CERBT Strategy 3 Annual Operating Ratio
0.10% 40%
$779,622,472
20%
0%
Global Fixed TIPS REITS Commodities Cash
Equity Income
CERBT Strategy 3 Performance as of March 31, 2023
Since Inception*
1 Month 3 Months Fiscal YTD 1 Year 3 Years* 5 Years* 10 Years* (January 1, 2012) Gross Return :3 2.07% 4.21% 0.96% -8.96% 3.53% 3.34% 3.77% 4.57% Net Return ?3 2.06% 4.19% 0.89% -9.04% 3.45% 3.25% 3.67% 4.47% Benchmark Returns 2.04% 4.03% 0.88% -9.05% 3.37% 3.20% 3.46% 4.30% Standard Deviation* 10.85% 9.45% 7.59% 7.33%
* Retums for periods greater than one year are annualized. 'Gross retums are net of SSGA operating expenses.
^ Net returs are net of SSGA operating expenses, investment management, administrative and recordkeeping fees.
Expenses are described in more detail on page 2 of this document. *Standard deviation is based on gross retums and is reported for periods greater than 3 years.
California Employers' Retiree Benefit Trust (CERBT)
CERBT Strategy 3 CalPERS
March 31, 2023
General Information What Employers Own
Each employer invested in CERBT Strategy 3 owns units of this portfolio, Information Accessibility which invests in pooled asset classes managed by CaPERS and/or external The CERBT Strategy 3 portfolio consists of assets managed internally by advisors. Employers do not have direct ownership of the securities in the CaPERS and/or by extemal advisors. Since it is not a mutual fund, a portfolio. prospectus is not available and daily holdings are not published. CaPERS provides a quarterly statement of the employer's account and other Price information about the CERBT. For total market value, detailed asset The value of the portfolio changes daily based upon the market value of the allocation, investment policy and current performance information, please underlying securities. Just as prices of individual securities fluctuate, the visit our website at: www.calpers.ca.gov. portfolio's value also changes with market conditions.
Principal Risks of the Portfolio
The CaPERS Board, through its Investment Committee, directs the The CaPERS CERBT Fund provides California government employers with a CERBT investment strategy based on policies approved by the Board of trust through which they may prefund retiree medical costs and other post- Administration. State Street Global Advisors (SSGA) manages all employment benefits (OPEB). CERBT is not, however, a defined benefit plan. underlying investments for CERBT, which include: Global Equity, Fixed There is no guarantee that the portfolio will achieve its investment objectives Income, Real Estate Investment Trusts, Treasury Inflation-Protected or provide sufficient funding to meet employer obligations. Further, CaPERS Securities, and Commodities.' will not make up the difference between an employer's CERBT assets and the actual cost of OPEB provided to an employer's plan members.
Custodian and Record Keeper
State Street Bank serves as custodian for the CERBT. Northeast An investment in the portfolio is not a bank deposit, nor is it insured or Retirement Services serves as recordkeeper. guaranteed by the Federal Deposit Insurance Corporation (FDIC), CaPERS, the State of California or any other government agency.
Expenses There are risks associated with investing, including possible loss of principal.
CERT is a self-funded trust in which participating employers pay for all The portfolio's risk depends in part on the portfolio's asset class allocations administrative and investment expenses. Expenses reduce the gross and the selection, weighting and risks of the underlying investments. For more investment return by the fee amount. The larger the expenses, the greater information about investment risks, please see the document entitled "CERBT the reduction of investment return. Currently, CERBT expenses are 0.10% Principal Investment Risks" located at www.calpers.ca.gov. which consist of administrative expenses borne by CaPERS to administer and oversee the Trust assets, investment management and administrative Fund Performance fees paid to SSGA to manage all asset classes, and recordkeeping fees paid to Northeast Retirement Services to administer individual employer Performance data shown on page 1 represents past performance and is no guarantee of future results. The investment return and principal value of an accounts. The expenses described herein are reflected in the net asset value per unit. The expense ratio is subject to change at any time and investment will fluctuate so that an employer's units, when redeemed, may be worth more or less than their original cost. Current performance may be without prior notification due to factors such as changes to average fund assets or market conditions. CaPERS reviews the operating expenses higher or lower than historical performance data shown. For current performance information, please visit www.calpers.ca.gov and follow the annually and changes may be made as appropriate. Even if the portfolio links to California Employers' Retiree Benefit Trust. loses money during a period, the expenses will still be charged.
CERBT Strategy Risk Levels
CaPERS offers employers the choice of one of three investment strategies. Projected risk levels among strategies vary, depending upon the target asset class allocations. Generally, equities carry more risk than fixed income securities.
Asset Class Target Allocations' | Strategy 1 Strategy 2 Strategy 3 Global Equity 49% 34% 23% LERBT Strategy t
More conservative Less conservative
Fixed Income 23% 41% 51%
CERBT Strategy 2
Treasury Inflation-Protected Securites 5% 5% 9% More conservative Less conservative Real Estate Investment Trusts 20% 17% 14%
EERHT Statery 3
Commodities 3% 3% 3% More conservative Less conservative Since June 2018 SSGA has passively managed all CERBT asset classes. Previously Fixed Income, TIPS and Commodity asset classes were managed internally by CaPERS.