DATE: March 1, 2022
DEPARTMENT: Department of Finance
FROM: Mark Roberts, Director of Finance
TITLE: Pension Trust Update
RECOMMENDED MOTION:
No action is required. This report is for informational purposes only.
EXECUTIVE SUMMARY:
This staff report provides an update and status on the establishment of an Internal Revenue Code Section 115 irrevocable supplemental pension trust (“Section 115 trust”) and an agreement with PFM Asset Management LLC (“PFM”) to provide administrative services for the trust.
BACKGROUND:
On March 20, 2018, the City Council approved a resolution authorizing an adoption agreement to establish a Section 115 trust and an agreement with PFM to provide administrative services for the trust. In addition, $3 million was allocated to a reserve for the initial funding of the trust. However, it was recently discovered the trust has not yet been established and funded and the agreement with PFM and other necessary documents have not been executed.
As noted in the staff report requesting Council’s approval of the trust and execution of the related documents, establishing a Section 115 Trust to accumulate funds to reduce the City’s unfunded pension liability and mitigate the impact of fluctuations in future pension costs is part of an overall strategy to stabilize the City’s structural deficit. Therefore, it is important to complete the work to do so.
Staff is reviewing the trust adoption agreement, PFM Agreement, and related documents, to determine whether they require updating. It is anticipated all necessary documents will be executed and the trust established and funded by March 31, 2022 with no further action by Council required.
CEQA CONSIDERATION:
The City of Salinas has determined that the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378).
STRATEGIC PLAN INITIATIVE:
These agreements will achieve the strategic plan and Council goal of Effective, Sustainable Government.
DEPARTMENTAL COORDINATION:
Department of Finance staff is working in conjunction with the City Attorney’s Office to ensure all documents are up to date and require no substantive changes which would require Council approval.
FISCAL AND SUSTAINABILITY IMPACT:
Although dependent upon the total of trust assets managed, staff has estimated the initial cost of trust administration services to be approximately $30,000 per year, which the City may elect to have deducted from the trust account. Investment returns of the trust are difficult to estimate; however, they are also dependent upon the balance of the trust’s assets, as well as the risk tolerance selected for the investment portfolio.
ATTACHMENTS:
March 20, 2018 Staff Report – “115 Trust Service Agreements” March 20, 2018 Resolution
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