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Page 4 of 7 For additional context, the increases in the employer contribution rate in each pension plan are also significant. Costs are shown below (by plan) for the projected year with the highest contribution rate percentage in a thirty-year time frame: · Miscellaneous Plan: Contributions increase from $8.1 million in FY 2016-17 to $17.5 million in FY 2024-25 (the projected year with the highest contribution rate). Contributions are expected to increase over this period from a current rate of 26.3 percent of payroll to 42.7 percent of payroll in FY 2024-25. · Safety Plan: Contributions increase from $11.5 million in FY 2016-17 to $27.5 million in FY 2030-31 (the projected year with the highest contribution rate). Contributions are expected to increase over this period from a current rate of 42.9 percent of payroll to 68.3 percent of payroll in FY 2030-31. Again, these projections are at a 50 percent confidence level. Given the magnitude of the projected increases, the long-term fiscal sustainability of the City depends upon taking prudent, meaningful, and swift actions to address the City’s pension obligations. Section 115 Trust One way to address the City’s pension costs is to set up an irrevocable pension supplemental Section 115 Trust. Section 115 Trust funds must be dedicated only towards pre-funding pension obligations, and offer the following benefits: · Act as a reserve fund to help the City pay for increasing CalPERS annual contribution requirements · Provide local control and more flexibility in investment allocations compared to maintaining funds in a City-invested reserve or giving money to CalPERS to pay down unfunded liability · Offer higher investment returns than could be attained by maintaining monies within the City’s investment portfolio (which is restricted by State regulations to fixed income instruments and has yielded a return of approximately 1.0 percent in the last year) There are currently only two independent retirement plan administrators in California authorized to offer Section 115 Trusts, PARS and Public Financial Management Group (PFM). Both administrators have received a Private Letter Ruling from the Internal Revenue Service, which assures participants of the tax-exempt status of their investments. The differences between PARS and PFM are illustrated in Attachment 1. To date, the most widely adopted Section 115 Trust Program has been the plan administered by PARS. PARS offers a successful track record of investment experience serving public agencies, flexible investment options with five investment strategies, and the ability to diversify and customize investments in a judicious fashion. PARS has partnered with U.S. Bank to serve as a trustee for this program. 9.A. - Page 4