DATE:
June 18, 2024
TO:
Chair and Board Members, Hesperia Water District
FROM:
Rachel Molina, City Manager
BY:
Casey Brooksher, Director of Administrative Services
SUBJECT:
Approval of a Multiple Employer Other Post Employment Benefit (OPEB)/Pension 115 Trust with Shuster Advisory Group, LLC
RECOMMENDED ACTION
It is recommended that the Board of Directors for the Hesperia Water District adopt Resolution No. HWD 2024-11, authorizing the City Manager to execute agreements with Shuster Advisory Group LLC, Charles Schwab Trust Bank, and Alta Trust Company for the establishment and administration of a Multiple Employer OPEB and Pension 115 Trust.
BACKGROUND
A Section 115 Trust is a vehicle authorized by the Internal Revenue Code, which allows an agency to segregate funds from general assets for the purpose of funding an essential government function (e.g. pension and post-employment obligations). Some of the benefits that a Section 115 Trust program can provide to agencies include utilizing the trust as a budget stabilization tool, improving the entity’s overall credit rating, and an opportunity to earn higher investment returns. Trust assets are irrevocably committed to the government function identified in the trust agreement and the Water District will retain control over the investment strategy of the funds. A Section 115 Trust is a fiscally prudent approach to pre-funding actuarially accrued liabilities and is considered a “best practice” by the Government Finance Officers Association (GFOA).
For the reasons identified above, the City of Hesperia and Hesperia Fire Protection District (HFPD) currently have agreements with Shuster Advisory Group LLC, Charles Schwab Trust Bank, and Alta Trust Company for Multiple Employer OPEB and Pension 115 Trusts, as approved by the City Council and HFPD Board on May 16, 2023.
ISSUES/ANALYSIS
During the May 7, 2024, FY 2024-25 Budget Workshop, the establishment of the Pension and OPEB Section 115 Trusts for the Water District was discussed, along with utilizing $750,000 in Water District reserves to fund the District’s Pension Trust as reflected in the FY 2023-24 Revised Budget. Further, the FY 2024-25 Proposed Budget includes an additional contribution of $750,000, allocating $500,000 to the Water District’s Pension Trust and $250,000 to the Water District’s OPEB Trust.
Shuster is an independent investment advisory firm and fiduciary. They provide governmental and institutional retirement plan consulting services as well as private wealth management. Shuster is a SEC-Registered Investment Advisor with over $7 billion in assets under management focusing on serving the unique needs of governmental agencies and special districts serving over 90 cities, agencies, and public entities. Shuster serves as fiduciary to plan investments and provides investment selection, monitoring, and management, with custody services provided by Charles Schwab Trust Bank for the safekeeping of plan assets, and trustee services provided by Alta Trust for Federal and State compliance monitoring.
Shuster is the same firm that took over fiduciary responsibilities of the employee’s 457(b) deferred compensation and 401(a) plans in August 2018. Shuster entered the public retirement plan sector after analyzing the sector and realizing that cities and agencies were being underserved and over-charged for their retirement plans, directly impacting the supplemental retirement savings of the public employees. Hiring Shuster for these services resulted in a reduction in total plan costs for the 457(b) and 401(a) plans, in addition to a significant improvement in the quality of the investments available in the retirement plan. Shuster has proven to be analytical and responsive to the City’s needs.
As such, it is recommended that the Water District Board approve Resolution No. HWD 2024-11 for the establishment and administration of the Water District Multiple Employer OPEB and Pension 115 Trusts with Shuster Advisory Group.
CITY GOAL SUPPORTED BY THIS ITEM
Organizational Health: Foster a high-performing organization that provides opportunities for professional growth.
Financial Health: Maintain a balanced budget and adequate reserves.
FISCAL IMPACT
The FY 2023-24 allocation to the Water District’s Section 115 Pension Trust of $750,000 will be funded from District reserves.
ALTERNATIVE(S)
Provide alternative direction to staff.
ATTACHMENT(S)
Resolution No. HWD 2024-11
City of Hesperia STAFF REPORT City of Hesperia STAFF REPORT City of Hesperia
STAFF REPORT
City of Hesperia
STAFF REPORT
Staff Report to the Board Members of the Hesperia Water District Approval of a Multiple Employer Other Post Employment Benefit (OPEB)/Pension 115 Trust with Shuster Advisory Group, LLC June 18, 2024