DATE: October 6, 2025
TO: Mayor and Members of the City Council
President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
VIA: Stefan Chatwin, City/District Manager
FROM: Nate Cruz, Finance Director
DEPARTMENT: Finance
SUBJECT: SUPPLEMENTAL APPROPRIATION OF $4,500,000 TO THE INTERNAL REVENUE CODE SECTION 115 IRREVOCABLE
TRUST TO FUND PUBLIC EMPLOYEES MEDICAL AND
HOSPITAL CARE ACT (PEMHCA) LIABILITIES
RECOMMENDATION
It is recommended that the City Council/Board of Directors (“Council”) adopt the attached resolution to appropriate $4.5 million from the Internal Service Fund PEMHCA Fund 508 to the City’s Internal Revenue Code (IRC) Section 115 Trust for PEHMCA Liabilities.
EXECUTIVE SUMMARY
On October 21, 2024, the Council approved the creation of an irrevocable Trust under IRC Section 115 to address unfunded post-employment liabilities related to the PEMHCA. The Trust investment strategy presented to Council assumed a $4.5 million initial deposit into the trust, with additional annual deposits beginning in FY 2024-25.
While the annual deposits have been made since FY 2024-25, the initial deposit of $4.5 million was not made due to a miscommunication between the City’s actuary firm Precision Actuarial and staff. The proposed resolution appropriates funds to make that $4.5 million initial deposit.
BACKGROUND/ANALYSIS
At the beginning of FY 2024-25, the City had Unfunded Accrued Actuarial Liability (UAAL) of $8.9 million with approximately $6.6 million in an Internal Service Fund established to finance those liabilities (PEMCHA Fund 508).
To reduce the unfunded liability, the City approved a Section 115 Trust legally dedicated to paying PEMHCA liabilities. By placing monies in the Trust, the City can reduce its net unfunded liability because: (a) such legally restricted funds can be included in the actuarial calculated liability, and (b) funds invested in the Trust can have an investment strategy focused on growth instead of the City’s treasury policy which prioritizes capital preservation and liquidity.
The growth financing strategy approved by the Council assumed an initial deposit of $4.5 million with annual contributions over 10 years of approximately $300,000 per year. However, due to miscommunication between the City’s actuaries and staff, the City only made the annual contributions and never made the initial $4.5 million deposit.
The proposed supplemental appropriation would allow a payment from PEMCHA Fund 508 to the Section 115 Trust.
FISCAL IMPACT
The proposed resolution would appropriate $4.5 million from the Internal Service Fund (Fund 508) to account number 508-0460-999.4155. Fund 508 currently has approximately $6.4 million in fund balance.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Staff Empowerment and Operational Excellence
ATTACHMENTS:
Attachment 1 – City Resolution
Attachment 2 – EMID Resolution