City of richmond ▎ 1
City of richmond
PARS 115 Trust – OPEB Review/Pension Rate Stabilization Program (PRSP) July 5, 2022
City of richmond ▎ 2
Contacts
Mitch Barker
Executive Vice President
(800) 540-6369 x116
[email protected]
Andrew Brown, CFA
Director, Senior Portfolio Manager
(415) 705-7605
[email protected]
Michael Wiehn, CFA
Institutional Relationship Manager
(415) 705-7181
[email protected]
Kevin O’Rourke
Senior Municipal Consultant
(707) 249-5356
[email protected]
City of richmond ▎ 3
Pars 115 Trust Team
Trust Administrator & Consultant
38 Years of Experience
(1984-2022)
2,000+
Plans under
Administration
1,000+
Public Agency
Clients
$6.7 B
Assets under
Administration
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)
$20.2 B
Assets under
Management &
Advisement
Trustee
• 5th largest commercial bank and one of the
nation’s largest trustees for Section 115 trusts
• Safeguard plan assets
• Oversight protection as plan fiduciary
• Custodian of assets
159
Years of Experience
(1863-2022)
$5.0 T
Assets under
Administration
490+
115 Trust Clients
• Serves as record-keeper, consultant,
and central point of contact
• Sub-trust accounting
• Coordinates all agency services
• Monitors plan compliance
(IRS/GASB/State Government Code)
• Processes contributions/disbursements
• Hands-on, dedicated support teams
500 K+
Plan Participants
City of richmond ▎ 4
Subaccounts
OPEB and Pension assets are
individually sub-accounted,
and can be divided by dept.,
bargaining group, or cost center
Assets in the PARS Section 115
Combination Trust can be used
to address unfunded liabilities.
Financial Stability
Allows separate investment
strategies for OPEB and
Pension subaccounts.
Flexible Investing
OPEB and Pension assets
aggregate and reach lower fees
on tiered schedule sooner –
saving money!
Economies-of-ScaleAnytime Access
Trust funds are available
anytime; OPEB for OPEB
and Pension for Pension.
No set-up costs, no minimum
annual contribution amounts,
and no fees until assets are added.
No Set Up Cost or Minimums
Existing OPEB-Only Trust
OPEB
PARS Section 115 Combo Trust
PARS IRS -Approved Section 115 Trust
Assets from your existing
OPEB trust can be quickly and
securely transferred to the PARS
Section 115 Combination Trust,
which is capable of prefunding
both OPEB & Pension.
OPEB Pension
prefund
either or both
General Fund
Transfer
GASB 75 GASB 68
Assets in both accounts are accounted
for separately per GASB rules.
$32.1 M
$32.1 M
City of richmond ▎ 5
490+ OPEB/PENSION clients including:
BAY AREA COUNTIES
Contra Costa
Napa
Solano
Sonoma
BAY AREA CITIES
Updated June 2022
Alameda
Atherton
Benicia
Brisbane
Burlingame
Colma
Cupertino
Daly City
Dublin
Emeryville
Fairfax
Fairfield
Gilroy
Half Moon Bay
Healdsburg
Hercules
Livermore
Los Altos Hills
Morgan Hill
Napa
Novato
Oakley
Orinda
Pacifica
Palo Alto
Piedmont
Pinole
Pittsburg
Pleasant Hill
Pleasanton
Redwood City
Richmond
Rio Vista
Rohnert Park
Ross
San Anselmo
San Leandro
San Ramon
Santa Clara
Sausalito
Tiburon
Union City
Vallejo
Woodside
Yountville
City of richmond ▎ 6
Summary of Agency’s OPEB Plan
AS OF MARCH 31, 2022:
Initial Contribution: June 2008: $3,700,000
Additional Contributions: $32,840,594
Total Contributions: $36,540,594
Disbursements: $12,787,109
Total Investment Earnings: $8,373,179
Account Balance: $32,126,665
Plan Type: IRC Section 115 Irrevocable Exclusive Benefit Trust Trustee Approach: Discretionary
Plan Effective Date: April 1, 2008
Plan Administrator: Finance Director/Treasurer
Current Investment Strategy: Balanced HighMark PLUS (Active) Strategy; Individual Account City of richmond ▎ 7
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
Plan Year Ending
Contributions
Disbursements
Total Assets
Summary of Agency’s OPEB Plan
HISTORY OF CONTRIBUTIONS, DISBURSEMENTS, AND TOTAL ASSETS AS OF MARCH 31, 2022:
Year End Contributions Disbursements Total Assets
Dec-08 $3,700,000 $0 $2,925,446
Dec-09 $3,700,000 $3,668,450 $3,763,186
Dec-10 $1,165 $2,242,216 $1,733,127
Dec-11 $0 $0 $1,712,003
Dec-12 $49,022 $1,700,000 $175,354
Dec-13 $800,000 $0 $1,085,696
Dec-14 $2,520,369 $3,296,802 $338,507
Dec-15 $0 $0 $334,566
Dec-16 $1,782,535 $0 $2,176,816
Dec-17 $6,999,680 $0 $9,913,801
Dec-18 $7,503,066 $0 $16,395,146
Dec-19 $4,002,180 $1,879,640 $21,837,898
Dec-20 $3,201,709 $0 $28,404,719
Dec-21 $2,280,868 $0 $33,922,246
Dec-22 $0 $0 $32,126,665
City of richmond ▎ 8
OPEB Actuarial Results
Measurement Date:
June 30, 2020
Discount Rate: 5.76%
Measurement Date:
June 30, 2021
Discount Rate: 5.75%
Total OPEB Liability (TOL) $120,302,969 $123,244,653
Fiduciary Net Position $22,861,318 $32,439,802*
Net OPEB Liability (NOL) $97,441,651 $90,804,851
Funded Status 19.0% 26.3%
Service Cost $4,292,499 $2,072,959
Annual Benefit Payments
(Pay-as-you-Go)
$7,753,129
For FY 2019-20
$7,011,178
For FY 2020-21
*As of March 31, 2021, assets at $32,126,665 (approx. ~26.1% funded).
Rule of thumb: For every one percent increase in the discount rate, the unfunded liability is lowered by 10-12%.
City of richmond ▎ 9
PARS Pension Rate
Stabilization Program
for prefunding pension obligations
The
City of richmond ▎ 10
• Since 2015, GASB 68
has required disclosing
Net Pension Liability on financial
statements as a line item on the
balance sheet
• Before the concept of pension
prefunding, the only way to
reduce retirement system
unfunded liabilities was to send
additional contributions in
excess of annual required
employer contributions
• Pension trust prefunding
assets can be transferred to
the retirement system at the
Agency’s direction, which can
help offset future rate increases
(i.e., pension rate stabilization).
Background – Pension
CalPERS Changes
CalPERS has announced changes directly
affecting unfunded liability amounts and
employer contributions:
Lowering of Discount Rate 1
CalPERS lowered the
discount rate from 7.0% to 6.8%.
The impact is reflected in the
June 30, 2021 valuation reports.
Shortened Amortization Period 2
New actuarial liabilities are
amortized over 20 years instead of
30, increasing required annual
employer contribution amounts*
7.0%
6.8%
30 years
20 years
2 5-year ramp up in payments beginning
FY 15-16 with full impact in FY 19/20.
1 Contributions from policy changes beginning
FY 23-24.
City of richmond ▎ 11
Combined Miscellaneous
& Safety Groups *
Valuation as of
June 30, 2019
Valuation as of
June 30, 2020 Change
Actuarial Liability $1.194 B $1.219 B 2.1% ↑
Assets $843.6 M $852.8 M 1.1% ↑
Unfunded Liability $350.9 M $366.9 M 4.6% ↑
Funded Ratio 70.6% 69.9% 1.0% ↓
Employer Contribution Amount $38.5 M $40.4 M 4.9% ↑(FY 20-21) (FY 21-22) Employer Contribution Amount – Projected * --- $49.0 M 21.4% ↑(FY 27-28) Pension Funding Status
As of June 30, 2020, City of Richmond’s CalPERS pension plan is funded as follows:
* Data through 2027-28 from Agency’s latest CalPERS actuarial valuation.
City of richmond ▎ 12
Why Prefund Pension Obligations?
Complete Local Control over Assets
City has complete control over assets, including contributions, disbursements and the timing, amount, and risk tolerance level of investments
1. Pension Rate Stabilization
Assets can be transferred to the retirement system at the City’s direction, potentially reducing/eliminating large fluctuations in employer contribution amounts
2. Rainy Day Fund
Emergency source of funds when employer revenues are strained in difficult budgetary or economic times
3. Diversification
Allows for investment flexibility and offers the potential for assets to earn greater returns than the General Fund; spread the risk vs. sending additional money to CalPERS
4. City of richmond ▎ 13
Strategy Equity (%) 1 Year 3 Years 5 Years 10 Years
Capital
Appreciation 65-85% 4.22% 11.34% 9.99% 9.19%
Balanced 50-70% 2.49% 9.69% 8.73% 7.94%
Moderate 40-60% 1.50% 8.42% 7.64% 6.99%
Moderately
Conservative 20-40% -0.56% 5.80% 5.48% 5.16%
Conservative 5-20% -2.02% 3.88% 3.92% 3.79%
HighMark Capital Management
ACTIVE PORTFOLIO RETURNS
* Past performance does not guarantee future results.
As of March 31, 2022
City of richmond ▎ 14
Plan Set-Up Fee: Ongoing Fees:
None 0.35% for assets under $5 million
0.25% for assets $5-10 million
0.20% for assets $10-15 million
0.15% for assets $15-50 million
0.10% for assets over $50 million
Program Fees
Plan Set-Up Fee: Ongoing Fees:
None 0.25% for assets $0-10 million
0.20% for assets $10-15 million
0.15% for assets $15-50 million
0.10% for assets over $50 million
* PARS does not receive any compensation from the investments or any commissions, back-end loads, or any other forms of compensation. ** Subject to change due to rebalancing, as fees are waived for plan assets in First American Funds (money market) Trust Administration/Consulting Fees*
Discretionary Trustee/Investment Management Fees**
As of March 31, 2021
City of richmond ▎ 15
Why take this step?
1. Smooths out pension rate volatility
2. Offers hedge against Inflation
3. Provides a fiscal tool in your financial toolbox
4. Prepares today for tomorrow’s pension realities
Questions?
City of richmond ▎ 16
Why PARS?
1. 115 Trust services for Prefunding Pension and OPEB is our Core business, unlike CalPERS
2. Market pioneer and leader with over 270 PRSP client agencies in California (approximately 70 for CalPERS)
3. 1st IRS-approved Section 115 Combination Trust (prefunding both OPEB and Pension in the same trust); CalPERS CEPPT does not have IRS approval
4. Can reimburse Agency for up to 2 years of expenses (current year + prior year) vs. CalPERS who only reimburses for 1 year; helpful in an emergency or tough budget year
5. Dedicated Portfolio Manager
• Fiduciary responsibility
• Investment policy assistance
• Annual onsite reviews
• Cell phone access
6. Choice of 5 risk tolerance levels (active or passive) and custom option vs. 2 passive options only for CEPPT
7. Greater Net Performance (8.59% vs. 7.98% for CalPERS; 10-Year Returns as of 3/31/22)