City of Pleasant Hill
Pension Rate Stabilization Program
(PRSP)
Funding Policy
1 Purpose and Introduction
The purpose of this Pension Rate Stabilization Program (PRSP) Funding Policy (“Policy”) is to establish a methodology and a process for funding current and future costs associated with the City’s contractual obligations to provide pension benefits as set forth in the City’s labor agreements.
Adoption and Implementation
The City Council is responsible for adopting the Pension Rate Stabilization Program (PRSP) and for approving any significant revision. The designated Plan Administrators are responsible for developing administrative procedures, as needed, to implement the Policy. In this role, the Plan Administrators are authorized to make minor administrative changes in the Policy as long as they are intended to carry out the purpose of this Policy and will not have any significant policy impact. The City Council will review and approve this policy via resolution, as needed, to ensure it meets the current and future needs of the City.
Initial Set Up
The City shall establish an Internal Revenue Service Code Section 115 approved irrevocable trust to achieve a higher rate of return on investments than that earned in LAIF.
Once the City transfers funds into such a trust, they can only be utilized for payment of employee pension costs.
The following outlines the governance and administration of the proposed Trust:
City Council has the authority to establish the Trust and define policies for the administration of the Trust funds.
The Plan Administrator will have overall responsibility for the Trust funds and will develop and manage procedures in accordance with the City Council’s adopted policies. The City Council will designate the City Treasurer and the Finance Manager as the Plan Administrators.
Trust Administrator, Public Agency Retirement Services (PARS), keeps plan documents current to ensure that they reflect the substantive plan and provides ongoing consulting, reporting and plan accounting records.
Trustee, currently US Bank, will be the plan’s trustee and custodian and will safeguard the assets in the Trust, hold the investment securities for safekeeping and make disbursements on request.
2 Investment Manager, currently Highmark Capital Management, will recommend investment portfolio allocations based upon the Pension Trust Funds’ adopted investment policies and manage those assets accordingly.
Trust Administrator
PARS has established a multiemployer irrevocable trust in compliance with the requirements of Section 115 of the Internal Revenue Code. While it is a multi-employer trust, each employer’s contributions benefit only its own employees. There is no sharing of either liability or investment earnings, and separate employer accounts are maintained.
PARS serves as the administrator of the Trust.
Trustee
Any contributions made to the program are held and invested by a trustee. The trustee duties include:
1. Safeguarding assets for the benefit of retirees;
2. Providing oversight protection of the investments;
3. Custodian of the assets; and
4. Disbursing funds to pay for pension costs.
Investment Manager
Investment Manager assists the City with selecting investment strategy depending on what rate of return the City expects to earn and level of risk tolerance the City is willing to take. Investment Manager provides annual review of the investment portfolio and asset allocation as well as takes on fiduciary responsibility for the City’s pension asset management.
Asset Allocation Investment Strategy
PARS provides flexibility to the City in the selection of the investment strategy for its funds in the Trust, giving the City control on target yield and level of risk on its investments. The City has the ability to select one of five Investment Options that best suits its desired or expected return on its investments in the Trust. Each Investment Option allocates the assets in varying investment combinations of equity, fixed income, and cash. With each Investment Option, as the expected rate of return increases, so does the assumed risk. 3 The Asset Allocation Strategies and the corresponding Investment Options currently available are:
Equity Fixed Income Cash
Conservative 5% - 20% 60% - 95% 0% - 20%
Moderately Conservative 20% - 40% 50% - 80% 0% - 20%
Moderate 40% - 60% 40% - 60% 0% - 20%
Balanced 50% - 70% 30% - 50% 0% - 20%
Capital Appreciation 65% - 85% 10% - 30% 0% - 20%
The City Council will select the most appropriate investment option in the Trust.
This Policy recognizes that there will be investment market place volatility and that actual economic and demographic experience will differ from assumed experience. Accordingly, this Policy is intended to provide flexibility to smooth such volatility and experience in a reasonable, systematic and financially sound manner.
Contributions
To begin the funding of the Trust, the City will make a one-time contribution of $1.0 million to the Trust utilizing General Fund resources.
The City will consider making additional contributions to the Trust based on the net position of the General Fund recommended by the City Manager and Finance Manager. The amount will be based on unassigned General Fund Balance when revenues exceed costs (not including Measure K funds) in the audited financial statements. The contribution amount will be based on the annual excess audited unassigned General Fund Balance (not including Measure K). The recommended contribution amount will be based on the higher of 10% or $50,000 of the excess unassigned General Fund Balance.
Withdrawals
In order to establish a procedure for withdrawals of the funds:
a. City Manager will make recommendations to City Council during the budget process.
b. If needed immediately, City Manager will bring City Council Agenda Item for approval.