AgdaPkt 2017-05-22 Joint SA PFA - Laserfiche WebLink

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Page 6 of 7 Whether to add additional funds to the Trust in future fiscal years would require an annual evaluation, and depend upon the City’s year-end budget position and overall financial outlook. Making a substantial contribution to the Trust now provides the greatest opportunity for investment earnings over time, and more significant leverage in paying future pension contributions. ALTERNATIVES The City Council has previously directed that staff develop strategies to address unfunded liabilities such as future pension obligations. An alternative to establishing a Section 115 Trust would be to make additional payments directly to CalPERS. One benefit of this approach is that the City would be credited with the CalPERS’ assumed ROR. Today, this is 7.5 percent, though it will decrease to 7 percent by FY 2019-20 as previously described in this report. Under CalPERS practices, additional contributions would be applied evenly over a period of time. This means the City would receive an even amount of rate relief over a long period, including in years in which the City had sufficient resources to fund the required annual payments. The primary drawbacks to making additional contributions directly to CalPERS are that the City would have less flexibility, as the City would not control the investment approach or the timing of when funds would be applied. Should the Council prefer to make a payment directly to CalPERS rather than establish a Section 115 Trust, staff would still recommend making this contribution by depositing the fund balance that exceeds the 15 percent reserve. FISCAL IMPACT The initial deposit to the trust would come from the General Fund at FY 2016-17 year- end, and is dependent upon the fiscal year-end closing results. The amount of funding would be based upon maintaining a 15 percent General Fund reserve, and allocating any monies over the 15 percent threshold to the Trust. Staff’s preliminary estimates indicate the initial Trust deposit could be approximately $7.8 million to $8.8 million. Establishing the Section 115 Trust Program to pre-fund pension obligations has no direct fiscal impact other than the ongoing fees charged by the Trust administrator and each of the respective trustees. The total combined administrative, trustee, and investment management fees start at 0.50 percent for assets between $5.0 and $10.0 million. The fees would be paid from the Trust assets. A deposit of $7.8 million would incur annual fees of $39,000, and a deposit of $8.8 million would incur annual fees of $44,000. 9.A. - Page 6