AGREEMENT FOR ADMINISTRATIVE SERVICES
This agreement (“Agreement”) is made this _____ day of _____________, 2021, between Phase II Systems, a corporation organized and existing under the laws of the State of California, doing business as Public Agency Retirement Services and PARS (hereinafter “PARS”) and the [Agency Name] (“Agency”).
WHEREAS, the Agency has adopted the PARS Public Agencies Post-Employment Benefits Trust for the purpose of pre-funding pension obligations and/or Other Post-Employment Benefits (“OPEB”) obligations (“Plan”) and is desirous of retaining PARS as Trust Administrator to the Trust, to provide administrative services.
NOW THEREFORE, the parties agree:
1. Services. PARS will provide the services pertaining to the Plan as described in the exhibit attached hereto as “Exhibit 1A” (“Services”) in a timely manner, subject to the further provisions of this Agreement.
2. Fees for Services. PARS will be compensated for performance of the Services as described in the exhibit attached hereto as “Exhibit 1B”.
3. Payment Terms. Payment for the Services will be remitted directly from Plan assets unless the Agency chooses to make payment directly to PARS. In the event that the Agency chooses to make payment directly to PARS, it shall be the responsibility of the Agency to remit payment directly to PARS based upon an invoice prepared by PARS and delivered to the Agency. If payment is not received by PARS within thirty (30) days of the invoice delivery date, the balance due shall bear interest at the rate of 1.5% per month. If payment is not received from the Agency within sixty (60) days of the invoice delivery date, payment plus accrued interest will be remitted directly from Plan assets, unless PARS has previously received written communication disputing the subject invoice that is signed by a duly authorized representative of the Agency.
4. Fees for Services Beyond Scope. Fees for services beyond those specified in this Agreement will be billed to the Agency at the rates indicated in the PARS’ standard fee schedule in effect at the time the services are provided and shall be payable as described in Section 3 of this Agreement. Before any such services are performed, PARS will provide the Agency with a detailed description of the services, terms, and applicable rates for such services. Such services, terms, and applicable rates shall be agreed upon in writing and executed by both parties.
5. Information Furnished to PARS. PARS will provide the Services contingent upon the Agency providing PARS the information specified in the exhibit attached hereto as “Exhibit 1C” (“Data”). It shall be the responsibility of the Agency to certify the accuracy, content and completeness of the Data so that PARS may rely on such information without further audit. It shall further be the responsibility of the Agency to deliver the Data to PARS in such a manner that allows for a reasonable amount of time for the Services to be performed. Unless specified in Exhibit 1A, PARS shall be under no duty to question Data received from the Agency, to compute contributions made to the
7.3.b
Packet Pg. 176 Attachment: Exhibit A Agreement for Administrative Services (Establish PARS Post Employment Benefits Trust Program)
Plan, to determine or inquire whether contributions are adequate to meet and discharge liabilities under the Plan, or to determine or inquire whether contributions made to the Plan are in compliance with the Plan or applicable law. In addition, PARS shall not be liable for nonperformance of Services to the extent such nonperformance is caused by or results from erroneous and/or late delivery of Data from the Agency. In the event that the Agency fails to provide Data in a complete, accurate and timely manner and pursuant to the specifications in Exhibit 1C, PARS reserves the right, notwithstanding the further provisions of this Agreement, to terminate this Agreement upon no less than ninety (90) days written notice to the Agency.
6. Records. Throughout the duration of this Agreement, and for a period of five (5) years after termination of this Agreement, PARS shall provide duly authorized representatives of Agency access to all records and material relating to calculation of PARS’ fees under this Agreement. Such access shall include the right to inspect, audit and reproduce such records and material and to verify reports furnished in compliance with the provisions of this Agreement. All information so obtained shall be accorded confidential treatment as provided under applicable law.
7. Confidentiality. Without the Agency’s consent, PARS shall not disclose any information relating to the Plan except to duly authorized officials of the Agency, subject to applicable law, and to parties retained by PARS to perform specific services within this Agreement. The Agency shall not disclose any information relating to the Plan to individuals not employed by the Agency without the prior written consent of PARS, except as such disclosures may be required by applicable law.
8. Independent Contractor. PARS is and at all times hereunder shall be an independent contractor. As such, neither the Agency nor any of its officers, employees or agents shall have the power to control the conduct of PARS, its officers, employees, or agents, except as specifically set forth and provided for herein. PARS shall pay all wages, salaries, and other amounts due its employees in connection with this Agreement and shall be responsible for all reports and obligations respecting them, such as social security, income tax withholding, unemployment compensation, workers’ compensation, and similar matters.
9. Indemnification. PARS and Agency hereby indemnify each other and hold the other harmless, including their respective officers, directors, and employees, from any claim, loss, demand, liability, or expense, including reasonable attorneys’ fees and costs, incurred by the other as a consequence of, to the extent, PARS’ or Agency’s, as the case may be, negligent acts, errors or omissions with respect to the performance of their respective duties hereunder.
10. Compliance with Applicable Law. The Agency shall observe and comply with federal, state and local laws in effect when this Agreement is executed, or which may come into effect during the term of this Agreement, regarding the administration of the Plan.
PARS shall observe and comply with federal, state, and local laws in effect when this Agreement is executed, or which may come into effect during the term of this Agreement, regarding Plan administrative services provided under this Agreement.
7.3.b
Packet Pg. 177 Attachment: Exhibit A Agreement for Administrative Services (Establish PARS Post Employment Benefits Trust Program)
11. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. In the event any party institutes legal proceedings to enforce or interpret this Agreement, venue and jurisdiction shall be in any state court of competent jurisdiction.
12. Force Majeure. When a party’s nonperformance hereunder was beyond the control and not due to the fault of the party not performing, a party shall be excused from performing its obligations under this Agreement during the time and to the extent that its performance is prevented by such cause. Such cause shall include, but not be limited to:
any incidence of fire, flood, acts of God or unanticipated communicable disease, acts of terrorism or war commandeering of material, products, plants or facilities by the federal, state or local government, a material act or omission by the other party or any law, ordinance, rule, guidance or recommendation by the federal, state or local government, or any agency thereof, which becomes effective after the date of this Agreement that delays or renders impractical either party’s performance under the Agreement.
13. Ownership of Reports and Documents. The originals of all letters, documents, reports, and data produced for the purposes of this Agreement shall be delivered to and become the property of the Agency. Copies may be made for PARS but shall not be furnished to others without written authorization from Agency.
14. Designees. The Plan Administrator of the Agency, or their designee, shall have the authority to act for and exercise any of the rights of the Agency as set forth in this Agreement, subsequent to and in accordance with the written authority granted by the Governing Body of the Agency, a copy of which writing shall be delivered to PARS.
Any officer of PARS, or his or her designees, shall have the authority to act for and exercise any of the rights of PARS as set forth in this Agreement.
15. Notices. All notices hereunder and communications regarding the interpretation of the terms of this Agreement, or changes thereto, shall be effected by delivery of the notices in person or by depositing the notices in the U.S. mail, registered or certified mail, return receipt requested, postage prepaid and addressed as follows:
(A) To PARS: PARS; 4350 Von Karman Avenue, Suite 100, Newport Beach, CA 92660; Attention: President
(B) To Agency: [Agency]; [Agency Address]; Attention: [Plan Administrator Title] Notices shall be deemed given on the date received by the addressee.
16. Term of Agreement. This Agreement shall remain in effect for the period beginning _______________, 2021 and ending _____________, 2024 (“Term”). This Agreement may be terminated at any time by giving thirty (30) days written notice to the other party of the intent to terminate. Absent a thirty (30) day written notice to the other party of the intent to terminate, this Agreement will continue unchanged for successive twelve-month periods following the Term.
17. Amendment. This Agreement may not be amended orally, but only by a written instrument executed by the parties hereto.
7.3.b
Packet Pg. 178 Attachment: Exhibit A Agreement for Administrative Services (Establish PARS Post Employment Benefits Trust Program)
18. Entire Agreement. This Agreement, including exhibits, contains the entire understanding of the parties with respect to the subject matter set forth in this Agreement.
In the event a conflict arises between the parties with respect to any term, condition or provision of this Agreement, the remaining terms, conditions, and provisions shall remain in full force and legal effect. No waiver of any term or condition of this Agreement by any party shall be construed by the other as a continuing waiver of such term or condition.
19. Attorneys Fees. In the event any action is taken by a party hereto to enforce the terms of this Agreement the prevailing party herein shall be entitled to receive its reasonable attorney’s fees.
20. Counterparts. This Agreement may be executed in any number of counterparts, and in that event, each counterpart shall be deemed a complete original and be enforceable without reference to any other counterpart.
21. Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions.
22. Effective Date. This Agreement shall be effective on the date first above written, and also shall be the date the Agreement is executed.
AGENCY:
BY:
Plan Administrator Name
TITLE:
DATE:
PARS:
BY:
Tod Hammeras
TITLE: Chief Financial Officer
DATE:
7.3.b
Packet Pg. 179 Attachment: Exhibit A Agreement for Administrative Services (Establish PARS Post Employment Benefits Trust Program)
EXHIBIT 1A
SERVICES
PARS will provide the following services for the [Agency Name] Public Agencies PostEmployment Benefits Trust:
1. Plan Installation Services:
(A) Meeting with appropriate Agency personnel to discuss plan provisions, implementation timelines, actuarial valuation process, funding strategies, benefit communication strategies, data reporting, and submission requirements for contributions/reimbursements/distributions;
(B) Providing the necessary analysis and advisory services to finalize these elements of the Plan;
(C) Providing the documentation needed to establish the Plan to be reviewed and approved by Agency legal counsel. Resulting final Plan documentation must be approved by the Agency prior to the commencement of PARS Plan Administration Services outlined in Exhibit 1A, paragraph 2 below.
2. Plan Administration Services:
(A) Monitoring the receipt of Plan contributions made by the Agency to the trustee of the PARS Public Agencies Post-Employment Benefits Trust (“Trustee”), based upon information received from the Agency and the Trustee;
(B) Performing periodic accounting of Plan assets, reimbursements/distributions, and investment activity, based upon information received from the Agency and/or Trustee;
(C) Coordinating the processing of distribution payments pursuant to authorized direction by the Agency, and the provisions of the Plan, and, to the extent possible, based upon Agency-provided Data;
(D) Coordinating actions with the Trustee as directed by the Plan Administrator within the scope of this Agreement;
(E) Preparing and submitting a monthly report of Plan activity to the Agency, unless directed by the Agency otherwise;
(F) Preparing and submitting an annual report of Plan activity to the Agency; (G) Facilitating actuarial valuation updates and funding modifications for compliance with the applicable GASB pronouncements and/or statements, if prefunding OPEB obligations;
(H) Coordinating periodic audits of the Trust;
(I) Monitoring Plan and Trust compliance with federal and state laws.
3. PARS is not licensed to provide and does not offer tax, accounting, legal, investment or actuarial advice.
7.3.b
Packet Pg. 180 Attachment: Exhibit A Agreement for Administrative Services (Establish PARS Post Employment Benefits Trust Program)
EXHIBIT 1B
FEES FOR SERVICES
PARS will be compensated for performance of Services, as described in Exhibit 1A based upon the following schedule:
An annual asset fee shall be paid from Plan assets based on the following schedule:
For Plan Assets from: Annual Rate:
$1 to $10,000,000 0.25%
$10,000,001 to $15,000,000 0.20%
$15,000,001 to $50,000,000 0.15%
$50,000,001 and above 0.10%
Annual rates are prorated and paid monthly. The annual asset fee shall be calculated by the following formula [Annual rate divided by 12 (months of the year) multiplied by the Plan asset balance at the end of the month]. Trustee and Investment Management Fees are not included.
7.3.b
Packet Pg. 181 Attachment: Exhibit A Agreement for Administrative Services (Establish PARS Post Employment Benefits Trust Program)
EXHIBIT 1C
DATA REQUIREMENTS
PARS will provide the Services under this Agreement contingent upon receiving the following information. Agency is solely responsible for ensuring that all information and documentation provided to PARS is true, correct, and authorized:
1. Executed Legal Documents:
(A) Certified Resolution
(B) Adoption Agreement to the Public Agencies Post-Employment Benefits Trust (C) Trustee Investment Forms
2. Contribution – completed Contribution Transmittal Form signed by the Plan Administrator (or authorized Designee) which contains the following information:
(A) Agency name
(B) Contribution amount
(C) Contribution date
(D) Contribution method (Check, ACH, Wire)
3. Distribution – completed Payment Reimbursement/Distribution Form signed by the Plan Administrator (or authorized Designee) which contains the following information:
(A) Agency name
(B) Payment reimbursement/distribution amount
(C) Applicable statement date
(D) Copy of applicable premium, claim, statement, warrant, and/or administrative expense evidencing payment
(E) Signed certification of reimbursement/distribution from the Plan Administrator (or authorized Designee)
4. Other information pertinent to the Services as reasonably requested by PARS and Actuarial Provider.
7.3.b
Packet Pg. 182 Attachment: Exhibit A Agreement for Administrative Services (Establish PARS Post Employment Benefits Trust Program) City of Patterson 1
City of Patterson
PARS 115 Trust – Pension Rate Stabilization Program (PRSP) January 18, 2022
7.3.c
Packet Pg. 183 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City of Patterson 2
Pars 115 Trust Team
Trust Administrator & Consultant
38 Years of Experience
(1984-2022)
2,000+
Plans under
Administration
1,000+
Public Agency
Clients
$6.4 B
Assets under
Administration
500 K+
Plan
Participants
• Recordkeeping
• Sub-trust accounting
• Monitors plan compliance
• Processes contributions/disbursements
• Hands-on, dedicated support teams
• Coordinates all agency services
Investment Manager
• Investment sub-advisor to trustee, U.S. Bank
• Investment policy assistance
• Uses open architecture
• Active and passive platform options
• Customized portfolios (with minimum asset level)
103
Years of Experience
(1919-2022)
$19.0B
Assets under
Management/Advisement
Trustee
• 5th largest commercial bank and one of the
nation’s largest trustees for Section 115 trusts
• Safeguards plan assets
• Oversight protection as plan fiduciary
• Custodian of assets
159
Years of Experience
(1863-2022)
$5.0T
Assets under
Administration
430+
115 Trust
Clients
7.3.c
Packet Pg. 184 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City of Patterson 3
Combined Miscellaneous
& Safety Groups *
Valuation as of
June 30, 2019
Valuation as of
June 30, 2020
Change
Actuarial Liability $43.0 M $47.4 M 10.3% ↑
Assets $33.0 M $36.3 M 10.2% ↑
Unfunded Liability $10.0 M $11.1 M 10.6% ↑
Funded Ratio 76.65% 76.59% 0.1% ↓
Employer Contribution Amount $1.8 M $2.15 M 16.3% ↑
(FY 20-21) (FY 21-22)
Employer Contribution Amount – Projected *
---
$2.37 M 10.3% ↑
(FY 26-27)
Pension Funding Status
As of June 30, 2020, City of Patterson’s CalPERS pension plan is funded as follows:
* Data through 2026-27 from Agency’s latest CalPERS actuarial valuation.
7.3.c
Packet Pg. 185 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City of Patterson 4
• Section 115 Trusts are used by local governments to fund essential governmental functions (i.e., pension benefits and retiree health care) into an irrevocable trust • The PARS Trust received the first IRS Private Letter Ruling (PLR) in June 2015 to fund both OPEB and Pension Liabilities for a multiple-employer trust • Any income derived from a Section 115 Trust is tax exempt • CA Govt Code Section 53216.6 govern plan investments
• Contributions
— Agency has full flexibility in regard to its contribution amounts and timing — Funds can be transferred into the trust at any time
• Once contributions are placed into The PARS Trust, assets from the Trust can be used for specific benefit plan purposes including:
— Reimbursing the Agency for PERS Contributions
— Paying down specific CalPERS liabilities
— Paying plan expenses (actuarial valuation or audit)
Section 115 Trust Background
7.3.c
Packet Pg. 186 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City of Patterson 5
PARS Client list – PRSP (251)
CITIES & TOWNS (122)
Alameda
Anaheim
Atherton
Atwater
Beaumont
Bell Gardens
Benicia
Beverly Hills
Brea
Brisbane
Burlingame
Camarillo
Capitola
Carmel
Chino Hills
Chula Vista
Claremont
Colma
Commerce
Corcoran
Coronado
Costa Mesa
Cudahy
Cupertino
Cypress
Daly City
Del Rey Oaks
Dinuba
Duarte
Dublin
El Cajon
El Centro
El Segundo
Emeryville
Escondido
Fairfax
Fairfield
Fountain Valley
Fullerton
Garden Grove
Gilroy
Glendale
Goleta
Grass Valley
Half Moon Bay
Healdsburg
Hercules
Huntington Beach
Indian Wells
Indio
La Habra
La Mesa
La Quinta
La Verne
Laguna Niguel
Lake Forest
Lemon Grove
Lodi
Los Alamitos
Los Altos Hills
Manhattan Beach
Merced
Monrovia
Morgan Hill
Napa
National City
Norco
Norwalk
Novato
Oakley
Oroville
Pacifica
Palmdale
Palo Alto
Pasadena
Perris
Pico Rivera
Piedmont
Pinole
Pittsburg
Placentia
Pleasanton
Port Hueneme
Rancho Cucamonga
Redwood City
Rialto
Riverside
Rohnert Park
Rolling Hills
Ross
San Anselmo
San Jacinto
San Leandro
San Ramon
Sanger
Santa Ana
Santa Clara
Santa Clarita
Sausalito
Selma
Solana Beach
Stanton
Stockton
Taft
Temecula
Thousand Oaks
Tiburon
Tustin
Twentynine Palms
Union City
Upland
Vallejo
Villa Park
Walnut
West Covina
West Sacramento
Westminster
Woodland
Woodside
Yountville
Yuba City
Yucca Valley
COUNTIES (21)
Calaveras
Colusa
Humboldt
Kings
Lake
Lassen
Mariposa
Merced
Monterey
Napa
Nevada
Placer
Plumas
Riverside
San Benito
Siskiyou
Solano
Sutter
Tulare
Yolo
Yuba
SPECIAL DISTRICTS (62)
Agoura Hills/Calabasas Community Center JPA
Alameda County Mosquito Abatement District
Beach Cities Health District
Bighorn-Desert View Water Agency
Central Contra Costa Sanitary District
Conejo Recreation & Park District
Delta Diablo (Sanitation District)
East Bay Regional Park District
East Contra Costa Fire Protection District
East Orange County Water District
El Dorado Hills County Water District
Fallbrook Public Utility District
Goleta West Sanitary District
Great Basin Unified Air Pollution Control District
Greater Vallejo Recreation District
Hesperia Fire Protection District
Housing Authority of the County of Butte
Housing Authority of the County of San Bernardino
Housing Authority of the County of Santa Cruz
Humboldt Bay Municipal Water District
Mesa Water District
Metropolitan Transportation Commission
Midpeninsula Regional Open Space District
Midpeninsula Water District
Mojave Desert Air Quality Management District
Montecito Fire Protection District
Monterey Bay Unified Air Pollution Control District
Monterey County Mosquito Abatement District
Moraga-Orinda Fire Protection District
Mosquito & Vector Mgmt Dist. of Santa Barbara Co.
Mountains Recreation and Conservation Authority
Municipal Pooling Authority
Municipal Water District of Orange County
Napa County Mosquito Abatement District
Nevada County Consolidated Fire Department
North Central Fire District
Novato Sanitary District
Orange County Fire Authority
Orange County LAFCO
Orange County Mosquito & Vector District
Orchard Dale Water District
Pebble Beach Community Services District
Placer County Air Pollution Control District
Public Agency Risk Sharing Authority of CA
Rancho Cucamonga Fire Protection Department
Regional Housing Authority
Sacramento Area Flood Control Agency
San Elijo Joint Powers Authority
San Mateo Mosquito and Vector Control District
Santa Fe Irrigation District
Shasta Valley Cemetery District
South Coast Water District
Southern Marin Fire Protection District
Superior Court of CA, County of Inyo
Superior Court of CA, County of Kern
Sweetwater Springs Water District
Three Valleys Municipal Water District
Twentynine Palms Water District
West Bay Sanitary District
Western Riverside Council of Governments
Yorba Linda Water District
Zone 7 Water District
EDUCATION DISTRICTS (46)
Allan Hancock CCD
Brea Olinda USD
Citrus CCD
Coast CCD
Grossmont-Cuyamaca CCD
Hartnell CCD
Imperial CCD
Marin CCD
Pasadena CCD
Rancho Santiago CCD
Rio Hondo CCD
San Bernardino CCD
San Luis Obispo County CCD
(Cuesta College)
Shasta-Trinity-Tehama Joint CCD
Victor Valley CCD
West Valley-Mission CCD
Yosemite CCD
Alisal Union SD
Alta Loma USD
Bass Lake Joint Union ESD
Beverly Hills USD
Calistoga Joint USD
Campbell Union HSD
Corning Union ESD
Coronado USD
Cotati-Rohnert Park USD
El Monte Union HSD
Fontana USD
Hermosa Beach City SD
Hesperia Unified SD
Lakeside Union SD
Lemon Grove SD
Lindsay USD
Madera Unified SD
Natomas USD
Ocean View SD
Ontario-Montclair SD
Placer Union HSD
Porterville USD
River Delta USD
San Marino USD
Santa Rita Union SD
Shasta County OE
Visalia USD
Whittier City SD
Updated January 2022
7.3.c
Packet Pg. 187 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City of Patterson 6
1 Complete Local Control over Assets
Pension Rate Stabilization Program provides an alternative to sending money directly to retirement system to address unfunded pension liabilities 2 Pension Rate Stabilization
Assets can be transferred to retirement system plan at the Agency’s direction, which can reduce or eliminate large fluctuations in Employer contributions to retirement system
3 Rainy Day Fund
Emergency source of funds when Employer revenues are impaired based on economic or other conditions
4 Diversified Investing
Potential for Greater Return than General Fund
Why Prefund Pension Obligations?
7.3.c
Packet Pg. 188 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City of Patterson 7
• Agency maintains oversight of the
investment manager and the portfolio’s
risk tolerance level
• Investment restrictions that apply to the
general fund (CA Government Code 53601)
are not applicable to assets held in
The PARS Section 115 Irrevocable Trust
• Assets held in The PARS Section 115
Irrevocable Trust can be invested per
Government Code Sections 53216 (Pension)
and 53620 (OPEB)
• Investments can be diversified and invested
in a prudent fashion
• Investments can be tailored to the Agency’s unique demographics and needs • Increased risk diversification
Investment Flexibility
Diversified Investing
Assets held in The PARS Section
115 Irrevocable Trust can be
diversely invested in a prudent
fashion per Government Code
Sections 53216 (Pension)
and 53620 (OPEB).
GOV § 53216 (Pension)
GOV § 53620 (OPEB)
7.3.c
Packet Pg. 189 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City of Patterson 8
Strategy Equity (%) 1 Year 3 Years 5 Years 10 Years
Capital
Appreciation 65-85% 23.25% 11.22% 11.42% 11.12%
Balanced 50-70% 19.24% 10.30% 10.11% 9.83%
Moderate 40-60% 15.94% 9.54% 8.93% 8.72%
Moderately
Conservative 20-40% 9.83% 7.80% 6.61% 6.64%
Conservative 5-20% 5.40% 6.58% 4.95% 4.97%
HighMark Capital Management
ACTIVE PORTFOLIO RETURNS
* Past performance does not guarantee future results.
As of September 30, 2021
7.3.c
Packet Pg. 190 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City of Patterson 9
Key Program Advantages
1. IRS-approved trust structure which protects the Agency from Day 1 of prefunding
2. Market pioneer and leader with 240+ PRSP client agencies in California
3. Low-cost prefunding solution with economies-of-scale and low investment fees
4. No start-up costs
5. No minimum annual contribution amounts or minimum annual fees
6. No fees charged until assets are in trust
7. No trading fees
8. No termination fees or restrictions
9. True, historical return information over 1, 3, 5 and 10 year periods – not hypotheticals
10. Five active or passive risk tolerance portfolios in addition to a custom portfolio option
7.3.c
Packet Pg. 191 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City of Patterson 10
Contacts
Jennifer Meza
Manager, Consulting
(800) 540-6369 x141
[email protected]
7.3.c
Packet Pg. 192 Attachment: City of Patterson - City Council Presentation (Establish PARS Post Employment Benefits City Council Agenda Report
TO: Mayor McCord and Members of the City Council
FROM: Ken Irwin, City Manager
BY: Saadiah Ryan, Finance Director
MEETING DATE: January 18, 2022
ITEM NO: 7.4
SUBJECT: Adopt Resolution No. 2022-02, approving the Pension Funding Policy.
RECOMMENDATION
Motion to Adopt Resolution No. 2022-02, approving the Pension Funding Policy.
BACKGROUND
The proposed City of Patterson Pension Funding Policy (Exhibit “A”) has been developed to provide guidance in the management of the City’s defined benefit pension plans. These plans, administered by the California Public Employees’ Retirement System (CalPERS), have been established for sworn public safety (Safety) and non-sworn (Miscellaneous) personnel. The funding of these plans has been a significant fiscal challenge for the City for many years. As a result, the City began efforts to address the issue.
On June 19, 2012, the City Council adopted resolution no 2012-40 final budget for fiscal year 2012-2013 that showed City Council had set-aside $1 million to Pension and OPEB Reserves.
On June 26, 2017, the City Council adopted resolution no 2017-28 final budget for fiscal year 2017-2018 that showed City Council approved an increased to set-aside Pension and OPEB Reserves amount to $1,571,713.
Required contributions to CalPERS rose dramatically during the past decade. This was primarily due to CalPERS lowering its assumptions regarding future investment return, along with actual returns during that period falling below their investment targets. Moving forward, contribution requirements are projected to remain relatively steady over the next decade thanks to the strong investment return achieved by CalPERS in Plan Year 2020-21.
7.4 Packet Pg. 193
ANALYSIS
Like many other Cities, City of Patterson was impacted by COVID-19 pandemic since March 2020. Cost cutting measures were adopted for FY 2020-2021 in the amount of $1.3 million. The set-aside Pension and OPEB reserves remained intact throughout the pandemic. As the City of Patterson continues to bring in new residential and commercial developments, both property taxes and sales tax have increased at an unexpected rate. The City of Patterson is fortunate to see significant increase in sales tax in the fiscal year 2020-2021, a combined effect of growth in developments and the change in sales tax reporting of one of the top sales tax producers. Based on the sales tax exceptional performance, there are available funds that could be channeled to increase the Pension and OPEB reserve. Hence, staff developed Pension Funding Policy see (“Exhibit A”).
The proposed Pension Funding Policy would:
• Outline goals to get pensions 90% funded by 2025 and 95% funded by 2028. • Stabilize future pension outlays from General Fund by setting aside money in Section 115 Pension Trust.
Upon adoption of the Pension Funding Policy, City staff would like to move the Pension and OPEB reserve amount $1.5 million to the Pension Section 115 Trust Fund administered by PARS.
In March 2022, City staff will also bring an OPEB Funding Policy to City Council for review and adoption.
The amount to be invested in OPEB Section 115 Trust Fund administered by PARS will be determined from the available General Fund unassigned reserve balance and the Sales Tax performance based on fiscal year 2020-2021 audited numbers.
FISCAL IMPACT
There is no direct fiscal impact associated with the adoption of the proposed Pension Funding Policy. We would expect some future savings for the City due to the difference in investment income on the money in the Section 115 Pension Trust, as opposed to returns on internal reserves.
7.4.a
Packet Pg. 194 Attachment: Staff Report Pension Funding 1-18-22 (Adoption of a Pension Funding Policy) 1 of 1
RESOLUTION NO. 2022 – 02
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF PATTERSON
ADOPTION OF PENSION FUNDING POLICY
WHEREAS, a Pension Funding Policy has been developed for the City of Patterson (“City”) to provide guidance in the management of the City’s defined benefit pension plans established for sworn public safety (“Safety”) and non-sworn (“Miscellaneous”) personnel and administered by the California Public Employees’ Retirement System (“CalPERS”); and
WHEREAS, City staff hereby recommends that the City Council approves and adopts the Pension Funding Policy attached hereto as Exhibit A, which will provide conservative and assertive guidance to defined benefit pension plans.
NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF PATTERSON HEREBY approves and adopts the Pension Funding Policy attached hereto as Exhibit A.
PASSED AND ADOPTED this 18
th day of January 2022, by the following roll call vote:
AYES:
NOES:
EXCUSED:
APPROVED:
Dennis McCord, Mayor
ATTEST:
Aracely Alegre, Acting City Clerk
7.4.b
Packet Pg. 195 Attachment: Resolution No. 2022-02 establish pension funding policy 1-18-22 (Adoption of a Pension Funding Policy) Pension Funding Policy
CITY OF PATTERSON, CALIFORNIA
FINANCE ADMINISTRATIVE DIRECTIVE
Subject:
Pension Funding Policy
Directive No. 017 Page No. 1 of 11
Effective Date:
1/18/2022
Revised date:
Overview
The City of Patterson has developed a Pension Funding Policy to guide the City Council and Staff in making decisions related to the funding of pension benefits. This document outlines that policy.
1. Purpose Section
The City of Patterson’s Pension Funding Policy documents the method the City of Patterson will use to determine its annual pension contributions. The annual pension contributions fund the longterm cost of benefits to the plan participants and annuitants. The policy also:
• Provides guidance in making annual budget decisions;
• Demonstrates prudent financial management practices;
• Reassures bond rating agencies; and
• Shows employees and the public how pensions will be funded Nothing in this funding policy shall constitute an obligation upon the City of Patterson, nor an implied contract. The City of Patterson’s Council may revoke or amend this policy whenever it determines the changes to be in the best interest of the City of Patterson.
2. Background Section
The City of Patterson provides defined retirement benefits through the California Public Employees’ Retirement System (CalPERS). CalPERS is a multiple-employer public employee defined benefit pension plan.
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All full-time and certain part-time City employees are eligible to participate in CalPERS. CalPERS provides retirement, disability and death benefits and annual cost of living adjustments to plan members and their beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities with the State of California. Benefit provisions and all other requirements are established by state statute.
The financial objective of a defined benefit pension plan is to fund the long-term cost of benefits provided to the plan members. In order to assure that the plan is financially sustainable, the plan should accumulate adequate resources in a systematic and disciplined manner over the active service life of benefitting employees. This funding policy outlines the method that the City of Patterson will utilize to determine its Actuarially Determined Contributions to fund the long-term cost of benefits to the plan members and annuitants.
Pension Funding: A Guide for Elected Officials, issued by eleven national groups including the U.S. Conference of Mayors, the International Agency/County Management Association, and the Government Finance Officers Association, established the following five general policy objectives for a pension funding policy:
• Actuarially Determined Contributions. A pension funding plan should be based upon an actuarially determined contribution (ADC) that incorporates both the cost of benefits in the current year and the amortization of the plan’s unfunded actuarial accrued liability. • Fund Discipline. A commitment to make timely, actuarially determined contributions to the retirement system is needed to ensure that sufficient assets are available for all current and future retirees.
• Intergenerational equity. Annual contributions should be reasonably related to the expected and actual cost of each year of service, so that the cost of employee benefits is paid by the generation of taxpayers who receive services from those employees. • Contributions as a stable percentage of payroll. Contributions should be managed so that employer costs remain consistent as a percentage of payroll over time. • Accountability and transparency. Clear reporting of pension funding should include an assessment of whether, how, and when the plan sponsor will ensure sufficient assets are available for all current and future retirees.
3. Policy Section
A. Goals of Funding Policy
:
3A1: The City of Patterson’s goal is to reach 90% funding of the Actuarial Liability by 2025 and 95% percent funding of the Actuarial Liability by 2028.
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Packet Pg. 197 Attachment: Patterson Pension Funding Policy Draft 1-18-22 Revised (Adoption of a Pension Funding Policy) Pension Funding Policy
3A2: The City of Patterson’s goal is to stabilize contribution rates. 3A3: The City of Patterson’s goal is to fund liabilities using the discount rate adopted by the CalPERS Board for funding purposes.
3A4: In addition to the contributions required to meet the above goals, the City of Patterson will periodically make additional contributions to a Section 115 Pension Trust, with the goal of providing additional stabilization to future contribution requirements from the City’s General Fund.
B. Actuarially Determined Contribution (ADC)
CalPERS actuaries will determine the City of Patterson’s minimum required contribution to CalPERS based on approved Actuarial Standards of Practice as reported in an annual actuarial valuation. The ADC will include the normal cost for current service and amortization of any under-funded amount. The normal cost will be calculated using the entry age normal cost method using economic and non-economic assumptions approved by CalPERS Board of Administration.
The City of Patterson will review the CalPERS annual actuarial valuations to validate the completeness and accuracy of the member census data and the reasonableness of the actuarial assumptions.
The City of Patterson will contribute an amount no less than the ADC as required by CalPERS.
C. Section 115 Pension Trust Contribution
To address long-term pension costs and rising unfunded accrued liabilities, the City of Patterson established a Section 115 Trust to pre-fund pension obligations. The objective of contributions to a 115 trust is to increase the plan’s funded status by reducing the unfunded accrued liability, lowering annual pension contribution volatility, and reducing ongoing pension costs.
115 Trust Contribution Options:
3C1: To begin the funding of the 115 Pension Trust, the City of Patterson will make a onetime contribution of $1.5 Million to the 115 Pension Trust utilizing General Fund resources.
3C2: The City of Patterson will consider making additional contributions to the 115 Pension trust at a rate of approximately $250 thousand per year when revenue from the current year Sales Tax increase by 15% from prior year Sales Tax. In the event of a projected deficit in the General Fund for the fiscal year, City Manager and Finance Director will review in good faith the City’s overall fiscal condition and reach a determination on whether the additional contributions can be implemented.
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Packet Pg. 198 Attachment: Patterson Pension Funding Policy Draft 1-18-22 Revised (Adoption of a Pension Funding Policy) Pension Funding Policy
115 Trust Usage Options:
3C3: The City of Patterson may use accumulated 115 Trust funds to make some or all of the City’s ADC contributions when the City Council determines that General Fund Revenues for the year are not sufficient to make those required contributions. 3C4: The City of Patterson may use accumulated 115 Trust funds to help reach the City’s funding goals stated in Section 3A1, or additional goals as determined by the City Council.
D. Transparency and Reporting
Funding of the City of Patterson’s pension plans should be transparent to interested parties including plan members, annuitants, the City Council and Patterson residents. In order to achieve this transparency, the following information shall be available:
• Copies of the annual actuarial valuations for the City of Patterson’s CalPERS plans shall be made available to the City of Patterson Council. • The City of Patterson’s Annual Comprehensive Financial Report shall be published on its website. This report includes information on the City of Patterson’s annual contributions to the pension systems and their funded status. • The City of Patterson’s annual operating budget shall include the City’s contributions to CalPERS.
• The City of Patterson’s Funding Policy shall be published on its website.
E. Review of Funding Policy
Funding a defined benefit pension plan requires a long-term horizon. As such, the City Council will review this policy no less frequently than once every five years to determine if changes to this policy are needed to ensure adequate resources are being accumulated.
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Packet Pg. 199 Attachment: Patterson Pension Funding Policy Draft 1-18-22 Revised (Adoption of a Pension Funding Policy) Proprietary and Confidential © 2021 GovInvest Inc.
Pension Funding
City of Patterson
January 18, 2022
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Packet Pg. 200 Attachment: Pension Funding_Patterson_010522 v1 (Adoption of a Pension Funding Proprietary and Confidential © 2021 GovInvest Inc.
Understanding Pension Funding
2 Pension Basics Changes Since the
Last Valuation
Impact of Changes
How is your agency
doing relative to other
agencies?
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Pension Basics
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City has Two Safety Benefit Structures
Safety PEPRA Safety
Hire Date On or before
12/31/12
On or after
1/1/13
Formula 3.0% @ 55 2.7% @ 57
Final Pay Period 36 months 36 months
COLA 2% per year 2% per year
Employee
Contributions 9% of pay 13.0% of pay
(50% of Normal Cost)
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City has Two Miscellaneous Benefit Structures
Miscellaneous PEPRA
Miscellaneous
Hire Date On or before
12/31/12
On or after
1/1/13
Formula 2.7% @ 55 2% @ 62
Final Pay Period 36 months 36 months
COLA 2% per year 2% per year
Employee
Contributions 8% of pay 6.75% of pay
(50% of Normal Cost)
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Projected Classic vs PEPRA Payroll
6 42.2%
59.4%
75.3%
87.3%
96.3% 99.1% 99.9%
0%
20%
40%
60%
80%
100%
120%
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 Classic PEPRA % PEPRA
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Assumptions Set Future Cost & Funding Expectations
7 Economic
• Inflation
• Investment Return
• Salary Growth
Demographic
• Retirement
• Disability
• Death
• Termination
Major Driver of
Plan Cost
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How is Patterson doing
Relative to Other Agencies?
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Comparison Metrics
• Funded Percentage
• Plan assets divided by Plan liabilities
• Calculated as of June 30, 2020
• Total Contribution Percentage
• Required Contribution divided by Projected Pensionable Compensation 9 7.4.d
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Comparison Group
• City results are being compared against the results for all CalPERS agencies in the Risk Pool
• Comparisons are made to similar classifications:
• Classic Miscellaneous Plan against all Classic Miscellaneous Plans • PEPRA Miscellaneous Plan against all PEPRA Miscellaneous Plans • Classic Safety Plan against all Classic Safety Plans
• PEPRA Safety Plan against all PEPRA Safety Plans
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Miscellaneous Plan
– Funded Percentage as of June 30, 2020 (76.9%)
11 Patterson
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Miscellaneous Plan
– Total Contribution Percentage as of June 30, 2020 (30.9%) 12 Patterson
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Patterson
PEPRA Miscellaneous Plan
– Funded Percentage as of June 30, 2020 (90.7%)
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PEPRA Miscellaneous Plan
– Total Contribution Percentage as of June 30, 2020 (7.8%) 14 Patterson
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Safety Plan
– Funded Percentage as of June 30, 2020 (73.4%)
15 Patterson
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Safety Plan
– Total Contribution Percentage as of June 30, 2020 (43.0%) 16 Patterson
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PEPRA Safety Plan
– Funded Percentage as of June 30, 2020 (89.7%)
17 Patterson
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Packet Pg. 216 Attachment: Pension Funding_Patterson_010522 v1 (Adoption of a Pension Funding Proprietary and Confidential © 2021 GovInvest Inc.
PEPRA Safety Plan
– Total Contribution Percentage as of June 30, 2020 (13.5%) 18 Patterson
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Changes Since Prior Valuation
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CalPERS Investment Return:
21.3%
Strong Investment Return Triggers Lower Discount Rate
Provision of Funding Risk Mitigation Policy
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CalPERS Historic Investment Returns
21 -3.1%
35.4%
24.6%
13.8%
3.9%
15.7%
9.7%
6.5%
12.5%
14.5%
2.0%
16.3%
15.3%
20.1%
19.5%
12.5%
10.5%
-7.2% -6.1%
3.7%
16.6%
12.3%
11.8%
19.1%
-5.1%
-24.0%
13.3%
21.7%
0.1%
13.2%
18.4%
2.4%
0.6%
11.2%
8.6%
6.7%
4.7%
21.30%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
19841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018201920202021 Plan Year Ending June 30
Actual Discount Rate 5 per. Mov. Avg. (Actual)
Dot Com Crash
Great Recession
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More Money from Investment Return means
Less Money Required from Contributions
22 Contributions
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Lower Bond Yields make it More Difficult to Hit
Investment Targets
23 Source: CalPERS
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Funding Risk Mitigation Policy
- Less Investment Risk means Lower Expected Investment
Return
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Lower Discount Rate Means Less Money is Expected
from Future Investments
25 Discount Rate
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Major Assumption Changes
• Discount Rate – Reduced from 7.0% to 6.8%
• Inflation – Reduced from 2.5% to 2.3%
• Wage Growth – Increased from 2.75% to 2.8%
• Demographic Assumptions – Minor Changes to Mortality, Retirement, Termination and Disability Rates
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What is the Impact of those
Changes?
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Funded Status Comparison
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Funded Status
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Total Required Employer Contributions
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Proposed Funding Policy
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Why are Funding Policies Important
• Pension obligations are expensive and can become a serious financial threat to agencies without regular and appropriate attention;
• Pensions require long-term management therefore it is important to develop pension management strategies memorialize practices;
• Provides guidance in making annual budget decisions;
• Demonstrates prudent financial management practices;
• Reassures bond rating agencies; and
• Shows employees and the public how pensions will be funded.
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Three Sections
• Why is this Policy being put in
place?
• Basic information related to
setting funding policy
• How the Policy will work
33 Purpose Background Policy
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Purpose
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Purpose
• Documents method the City will use to determine its annual pension contributions;
• Provides guidance in making annual budget decisions;
• Demonstrates prudent financial management practices;
• Reassures bond rating agencies; and
• Shows employees and the public how pensions will be funded 35 7.4.d
Packet Pg. 234 Attachment: Pension Funding_Patterson_010522 v1 (Adoption of a Pension Funding Proprietary and Confidential © 2021 GovInvest Inc.
Background
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Background
• City provides retirement benefits through CalPERS
• All full-time and certain part-time employees of the City are eligible to participate in CalPERS
• Funding goal – Fund the long-term cost of benefits provided to the plan members
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Policy
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Goals
• Make contributions to CalPERS to reach
• 90% funding by 2025
• 95% funding by 2028
• Stabilize contributions from General Fund
• Additional contributions, when possible, to Section 115 Trust to allow for future contribution flexibility
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Actuarially Determined Contribution
40 Normal Cost
Unfunded
Actuarial
Liability (UAL)
Amortization
Payment
Total
Employer
Contribution
Cost for current service -
Paid as a percent of payroll
Payment toward past
service - Paid as a dollar
amount each year
Minimum Payment City
can make to CalPERS
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Section 115 Pension Trust –
Contributions Into Trust
• At Discretion of City Council
• Begin funding - one-time contribution of $1.5 Million • Additional funding - approximately $500 thousand per year when revenue from the recent Sales Tax reaches 110% of projected returns 41 7.4.d
Packet Pg. 240 Attachment: Pension Funding_Patterson_010522 v1 (Adoption of a Pension Funding Proprietary and Confidential © 2021 GovInvest Inc.
Section 115 Pension Trust –
Payments from Trust
• At Discretion of City Council
• Some or All Required Contributions – When General Fund revenues insufficient to make payments
• Additional Funding - help reach the City’s funding goals stated in Section 3A1, or additional goals as determined by the City Council 42 7.4.d
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Transparency and Reporting
• CalPERS Annual Actuarial Valuation Reports to City Council • Annual Operating Budget lists pension contributions
• On website:
• Funding Policy
• Annual Comprehensive Financial Report
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Review Policy • At Discretion of City Council • No less frequently than once every five years 44 7.4.d
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Questions
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Packet Pg. 244 Attachment: Pension Funding_Patterson_010522 v1 (Adoption of a Pension Funding Proprietary and Confidential © 2021 GovInvest Inc.
While tested against actuarial valuation results, the software results will not necessarily match actuarial valuation results, as no two actuarial models are identical. The software offers financially sound projections and analysis; however, outputs do not guarantee compliance with standards under the Government Accounting Standards Board or Generally Accepted Accounting Principles. The software and this presentation are not prepared in accordance with standards as promulgated by the American Academy of Actuaries, nor do outputs or this presentation constitute Statements of Actuarial Opinion. GovInvest has used census data, plan provisions, and actuarial assumptions provided by Customer and/or Customer’s actuary to develop the software for Customer. GovInvest has relied on this information without audit.
Disclaimer
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