CITY OF MENIFEE
SUBJECT: Establishment of Section 115 Trust
MEETING DATE: January 13, 2026
TO: Finance Committee
PREPARED BY: Margarita Cornejo, Deputy Finance Director REVIEWED BY: Travis Hickey, Chief Financial Officer
APPROVED BY: Armando G. Villa, City Manager
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RECOMMENDED ACTION
1. Recommend City Council consider engaging Public Agency Retirement Services (“PARS”) in a Professional Services Agreement for Section 115 Trusts Establishment, Administration and Investment Management Services.
DISCUSSION
At the September 9, 2025 Finance Commitee meeting, the Commitee reviewed the prospect of moving forward with establishing Section 115 Trusts.
Purpose of Section 115 Trusts
To address and alleviate larger pension and Other Post-Employment Benefits (“OPEB”) liabilities, public agencies have the opportunity to set up a Section 115 Trust. A Section 115 Trust is a tax- exempt investment tool for cities to prefund essential government expenses (i.e., retirement plan benefits). Since these trust assets are designated for essential government expenses, they are exempt from state-mandated investment restrictions placed on the City’s internally managed portfolio. As a result, the City can earn a long-term rate of return greater than what it would attain through its investment pool.
Funds placed in a Section 115 Trust can remain in the Trust until the City chooses to draw down its assets to pay obligations. To remain tax-exempt, assets held in a Section 115 Trust are designated as irrevocable, meaning they must be used to fund the City’s pension or OPEB obligations. Therefore, withdrawals from the trust may be made to reimburse the City for current and/or previous year’s payments or to pay pension or OPEB costs directly.
Request for Proposals (“RFP”) for Section 115 Trust Services Following feedback received by the Finance Committee at the September meeting, staff issued RFP No. 2026-2 for Section 115 Pension Trust administration services (Establishment,
City of Menifee Staff Report
Establishment of Section 115 Trust
January 13, 2026
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Administration, and Investment Management) at the end of October 2025. A total of four proposal responses were received. An evaluation committee comprised of Finance staff evaluated the proposals and invited the top two proposals for finalist interviews.
The finalists averaged weighted results of the evaluation completed are summarized in Table 1 and Table 2 below.
TABLE 1 – RFP Proposal Evaluation
Firm Average Score
(100 Possible Points)
Phase II Systems (dba PARS) 92.00
CalPERS 88.67
Keenan & Associates 84.33
Gaard Capital LLC 50.00
TABLE 2 – RFP Interview Portion (Top 2 Finalists)
Firm Average Score
(100 Possible Points)
Phase II Systems (dba PARS) 92.33
CalPERS 82.67
The result of the evaluation identified PARS as the most competitive proposer. In both the proposal and interview process, PARS demonstrated extensive experience with Section 115 trusts, from set-up to on-going administration, and provided a clear and cohesive approach to move forward.
Next Steps
1. Council Approval of Section 115 Consultant: Upon recommendation by the Finance Committee, a formal professional services agreement will be presented for City Council consideration to engage PARS for Section 115 Trusts Establishment, Administration and Investment Management Services.
2. Section 115 Trusts & Plan Administrator Establishment: Working with PARS, staff will prepare the necessary staff report(s) and resolution(s) authorizing the City to join the PARS Combo trust and appointing a Plan Administrator.
3. Investment Options/Strategy reviewed
4. Trust Accounts Established
5. City determines Contribution amounts
6. On-Going Administration and Annual In-Person Reviews City of Menifee Staff Report
Establishment of Section 115 Trust
January 13, 2026
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FISCAL IMPACT
The associated Section 115 Trust costs with PARS will be percentage based and relative to the City’s trust portfolio size. In summary, the City will be paying a combined 31.95 basis points (.3195%) represented by: 1) trust administration/consulting fees, estimated at 25 basis points (.25%) for a portfolio of under $10 million and 2) trust and investment advisory/management fees of 6.95 basis points (.0695%) (as of 9/30/2025) for the pooled combined assets of the PARS Option A: Target Index Strategy. While there are associated administration costs for such services, the potential to earn a long-term rate of return greater than what it would attain through its investment pool would offset some of these costs.
ATTACHMENTS
None.