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HomeMy WebLinkAboutAgenda Report - October 19, 2016 I-01bTM CITY OF LODI COUNCIL COMMUNICATION AGENDA ITEM I1e AGENDA TITLE: Adopt Resolution Authorizing City Manager to Execute All Documents Necessary to Enter a Pension Stabilization Irrevocable Trust with Public Agency Retirement Services (PARS), Designating Funds to be Deposited into the Trust, and Selection of the Balanced (Passive Option) Investment Strategy MEETING DATE: October 19, 2016 PREPARED BY: Deputy City Manager RECOMMENDED ACTION: Adopt resolution authorizing City Manager to execute all necessary documents to enter a Pension Stabilization Irrevocable Trust with Public Agency Retirement Services (PARS), designating funds to be deposited in the Trust, and selection of the Balanced (Passive Option) Investment Strategy. BACKGROUND INFORMATION During the discussions regarding establishing budget and fiscal policies, Council also discussed establishing a third -party irrevocable trust to set aside funds to reduce the unfunded liability associated with the City's pension program. The City contracts with CaIPERS for a defined benefit pension program. This program has an unfunded liability that totals $105.7 million as of June 30, 2015, the date of the last actuarial report for the program. CaIPERS calculates the amount that the City is required to pay into this program and the City makes the required payments. However, the fund is subject to significant swings in funding levels based primarily upon the investment results of the fund. The City currently has more retirees drawing pensions than it has active employees paying into the program. As a result, the City shows a growing unfunded liability. Pre -funding these costs is a best financial management practice. Establishment of a third -party trust will allow funds to be invested in instruments that will match the long-term nature of the liability, outside of the volatility associated with the CaIPERS investment portfolio. Investment returns within the trust should produce higher yields than are available through the City's cash pool investments. Over the long-term, establishment of the trust should result in lower total costs to the City for providing retiree benefits. The only vendor offering a program in this marketspace is Public Agency Retirement Services (PARS). PARS has received a private letter ruling from the Internal Revenue Service regarding their Pension Rate Stabilization Program (PRSP) that clearly allows public agencies to establish a separate trust to pre -fund pension liabilities. PARS is a for-profit entity which has been incorporated for 32 years and has been providing OPEB Trust services for 20 years and established the PRSP in 2015. PARS utilizes US Bank as a Trustee and High Mark Capital Management as an Investment Manager. PARS offers five investment strategies, with a passive and active option within each strategy. Administrative fees are a combination of trustee fees APPROVED: (ex,,Stephen Schwabauer, Ci t'jt Manager payable to US Bank and fees payable to PARS. For a plan of our estimated size, the combination of fees would total 60 basis points (0.60%) on assets under management. If Council approves the staff recommendation, the City must choose one of the five investment strategies. The five-year gross returns (prior to asset under management fees) for the five strategies are shown in the table below: Investment Strategy 5 Year Gross Returns (Passive Option) Conservative 3.87% Moderately Conservative 4.91 % Moderate 6.08% Balanced 6.56% Capital Appreciation 6.94% The investment strategies contain a target mix of equities/fixed income/cash investments. The weighting of each component of the strategy changes with the strategy. The Conservative strategy target is weighted more toward fixed income and cash while the Capital Appreciation strategy target contains the most equity investments. Staff recommends the Balanced strategy which contains a mix of 60 percent equities and 40 percent fixed income/cash. Initial funding for this trust should come from funds that are in excess of reserve requirements for Fiscal Year 2015/16. As we close the books for FY 2015/16, it is expected that there will be available funds in the General Fund over the Council approved reserve requirements; however, that amount is not known at this time. Staff recommends that Council designate that at least 80 percent of the available funds be deposited into the trust and authorize the City Manager to approve an appropriation adjustment to that effect once the numbers are known. The referenced funding is associated only with the General Fund. A plan for contributing to the trust from Enterprise funds will be brought forward with the mid -year budget adjustments. On-going funding would be determined each year during the budget adoption and mid -year budget review processes. Staff recommends that Council approve engaging PARS for Pension Stabilization Trust services, select the Balanced (Passive Option) as the investment strategy, designate that at least 80 percent of the available funds over the General Fund reserve requirements for FY 2015/16 be deposited to the trust and authorize the City Manager to approve an Appropriation Adjustment to fund the Trust. FISCAL IMPACT: Funds allocated to the Pension Stabilization Trust will not be available for operations or other needs. FUNDING AVAILABLE: Amount to be determined once financial statements for the year ended June 30, 2016 are published. Jordan Ayers Deputy City Manager JA/ja AGREEMENT FOR ADMINISTRATIVE SERVICES This agreement ("Agreement") is made this day of , 2016, between Phase II Systems, a corporation organized and existing under the laws of the State of California, doing business as Public Agency Retirement Services and PARS (hereinafter "PARS") and the City of Lodi ("Agency"). WHEREAS, the Agency has adopted the PARS Public Agencies Post -Employment Benefits Trust for the purpose of pre -funding pension obligations and/or OPEB obligations ("Plan"), and is desirous of retaining PARS as Trust Administrator to the Trust, to provide administrative services. NOW THEREFORE, the parties agree: 1. Services. PARS will provide the services pertaining to the Plan as described in the exhibit attached hereto as "Exhibit IA" ("Services") in a timely manner, subject to the further provisions of this Agreement. 2. Fees for Services. PARS will be compensated for performance of the Services as described in the exhibit attached hereto as "Exhibit I B". 3. Payment Terms. Payment for the Services will be remitted directly from Plan assets unless the Agency chooses to make payment directly to PARS. In the event that the Agency chooses to make payment directly to PARS, it shall be the responsibility of the Agency to remit payment directly to PARS based upon an invoice prepared by PARS and delivered to the Agency. If payment is not received by PARS within thirty (30) days of the invoice delivery date, the balance due shall bear interest at the rate of 1.5% per month. If payment is not received from the Agency within sixty (60) days of the invoice delivery date, payment plus accrued interest will be remitted directly from Plan assets, unless PARS has previously received written communication disputing the subject invoice that is signed by a duly authorized representative of the Agency. 4. Fees for Services Beyond Scope. Fees for services beyond those specified in this Agreement will be billed to the Agency at the rates indicated in the PARS' standard fee schedule in effect at the time the services are provided and shall be payable as described in Section 3 of this Agreement. Before any such services are performed, PARS will provide the Agency with a detailed description of the services, terms, and applicable rates for such services. Such services, terms, and applicable rates shall be agreed upon in writing and executed by both parties. 5. Information Furnished to PARS. PARS will provide the Services contingent upon the Agency's providing PARS the information specified in the exhibit attached hereto as "Exhibit 1 C" ("Data"). It shall be the responsibility of the Agency to certify the accuracy, content and completeness of the Data so that PARS may rely on such information without further audit. It shall further be the responsibility of the Agency to deliver the Data to PARS in such a manner that allows for a reasonable amount of time for the Services to be performed. Unless specified in Exhibit IA, PARS shall be under no duty to question Data received from the Agency, to compute contributions made to the Page 1 Plan, to determine or inquire whether contributions are adequate to meet and discharge liabilities under the Plan, or to determine or inquire whether contributions made to the Plan are in compliance with the Plan or applicable law. In addition, PARS shall not be liable for non performance of Services to the extent such non performance is caused by or results from erroneous and/or late delivery of Data from the Agency. In the event that the Agency fails to provide Data in a complete, accurate and timely manner and pursuant to the specifications in Exhibit 1C, PARS reserves the right, notwithstanding the further provisions of this Agreement, to terminate this Agreement upon no less than ninety (90) days written notice to the Agency. 6. Records. Throughout the duration of this Agreement, and for a period of five (5) years after termination of this Agreement, PARS shall provide duly authorized representatives of Agency access to all records and material relating to calculation of PARS' fees under this Agreement. Such access shall include the right to inspect, audit and reproduce such records and material and to verify reports furnished in compliance with the provisions of this Agreement. All information so obtained shall be accorded confidential treatment as provided under applicable law. 7. Confidentiality. Without the Agency's consent, PARS shall not disclose any information relating to the Plan except to duly authorized officials of the Agency, subject to applicable law, and to parties retained by PARS to perform specific services within this Agreement. The Agency shall not disclose any information relating to the Plan to individuals not employed by the Agency without the prior written consent of PARS, except as such disclosures may be required by applicable law. 8. Independent Contractor. PARS is and at all times hereunder shall be an independent contractor. As such, neither the Agency nor any of its officers, employees or agents shall have the power to control the conduct of PARS, its officers, employees or agents, except as specifically set forth and provided for herein. PARS shall pay all wages, salaries and other amounts due its employees in connection with this Agreement and shall be responsible for all reports and obligations respecting them, such as social security, income tax withholding, unemployment compensation, workers' compensation and similar matters. 9. Indemnification. PARS and Agency hereby indemnify each other and hold the other harmless, including their respective officers, directors, employees, agents and attorneys, from any claim, loss, demand, liability, or expense, including reasonable attorneys' fees and costs, incurred by the other as a consequence of, to the extent, PARS' or Agency's, as the case may be, negligent acts, errors or omissions with respect to the performance of their respective duties hereunder. 10. Compliance with Applicable Law. The Agency shall observe and comply with federal, state and local laws in effect when this Agreement is executed, or which may come into effect during the term of this Agreement, regarding the administration of the Plan. PARS shall observe and comply with federal, state and local laws in effect when this Agreement is executed, or which may come into effect during the term of this Agreement, regarding Plan administrative services provided under this Agreement. Page 2 1 1. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. In the event any party institutes legal proceedings to enforce or interpret this Agreement, venue and jurisdiction shall be in any state court of competent jurisdiction. 12. Force Majeure. When a party's nonperformance hereunder was beyond the control and not due to the fault of the party not performing, a party shall be excused from performing its obligations under this Agreement during the time and to the extent that it is prevented from performing by such cause, including but not limited to: any incidence of fire, flood, acts of God, acts of terrorism or war, commandeering of material, products, plants or facilities by the federal, state or local government, or a material act or omission by the other party. 13. Ownership of Reports and Documents. The originals of all letters, documents, reports, and data produced for the purposes of this Agreement shall be delivered to, and become the property of the Agency. Copies may be made for PARS but shall not be furnished to others without written authorization from Agency. 14. Designees. The Plan Administrator of the Agency, or their designee, shall have the authority to act for and exercise any of the rights of the Agency as set forth in this Agreement, subsequent to and in accordance with the written authority granted by the Governing Body of the Agency, a copy of which writing shall be delivered to PARS. Any officer of PARS, or his or her designees, shall have the authority to act for and exercise any of the rights of PARS as set forth in this Agreement. 15. Notices. All notices hereunder and communications regarding the interpretation of the terms of this Agreement, or changes thereto, shall be effected by delivery of the notices in person or by depositing the notices in the U.S. mail, registered or certified mail, return receipt requested, postage prepaid and addressed as follows: (A) To PARS: PARS; 4350 Von Karman Avenue, Suite 100, Newport Beach, CA 92660; Attention: President (B) To Agency: City of Lodi; 221 West Pine Street, P.O. Box 3006, Lodi, CA 95240; Attention: Deputy City Manager Notices shall be deemed given on the date received by the addressee. 16. Term of Agreement. This Agreement shall remain in effect for the period beginning October 20, 2016 and ending October 19, 2019 ("Term"). This Agreement may be terminated at any time by giving thirty (30) days written notice to the other party of the intent to terminate. Absent a thirty (30) day written notice to the other party of the intent to terminate, this Agreement will continue unchanged for successive twelve month periods following the Term. 17. Amendment. This Agreement may not be amended orally, but only by a written instrument executed by the parties hereto. 18. Entire Agreement. This Agreement, including exhibits, contains the entire understanding of the parties with respect to the subject matter set forth in this Agreement. Page 3 In the event a conflict arises between the parties with respect to any term, condition or provision of this Agreement, the remaining terms, conditions and provisions shall remain in full force and legal effect. No waiver of any term or condition of this Agreement by any party shall be construed by the other as a continuing waiver of such term or condition. 19. Attorneys Fees. In the event any action is taken by a party hereto to enforce the terms of this Agreement the prevailing party herein shall be entitled to receive its reasonable attorney's fees. 20. Counterparts. This Agreement may be executed in any number of counterparts, and in that event, each counterpart shall be deemed a complete original and be enforceable without reference to any other counterpart. 21. Headings. Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 22. Effective Date. This Agreement shall be effective on the date first above written, and also shall be the date the Agreement is executed. AGENCY: BY: Steve Schwabauer TITLE: City Manager DATE: PARS: BY: Approrod as to form Tod Hammeras TITLE: Chief Financial Officer DATE: Page 4 City Attorney EXHIBIT lA SERVICES PARS will provide the following services for the City of Lodi Public Agencies Post - Employment Benefits Trust: 1. Plan Installation Services: (A) Meeting with appropriate Agency personnel to discuss plan provisions, implementation timelines, actuarial valuation process, funding strategies, benefit communication strategies, data reporting, and submission requirements for contributions/reimbursements/distributions; (B) Providing the necessary analysis and advisory services to finalize these elements of the Plan; (C) Providing the documentation needed to establish the Plan to be reviewed and approved by Agency legal counsel. Resulting final Plan documentation must be approved by the Agency prior to the commencement of PARS Plan Administration Services outlined in Exhibit IA, paragraph 2 below. 2. Plan Administration Services: (A) Monitoring the receipt of Plan contributions made by the Agency to the trustee of the PARS Public Agencies Post -Employment Benefits Trust ("Trustee"), based upon information received from the Agency and the Trustee; (B) Performing periodic accounting of Plan assets, reimbursements/distributions, and investment activity, based upon information received from the Agency and/or Trustee; (C) Coordinating the processing of distribution payments pursuant to authorized direction by the Agency, and the provisions of the Plan, and, to the extent possible, based upon Agency -provided Data; (D) Coordinating actions with the Trustee as directed by the Plan Administrator within the scope this Agreement; (E) Preparing and submitting a monthly report of Plan activity to the Agency, unless directed by the Agency otherwise; (F) Preparing and submitting an annual report of Plan activity to the Agency; (G) Facilitating actuarial valuation updates and funding modifications for compliance with GASB 45, if prefunding OPEB obligations; (H) Coordinating periodic audits of the Trust; (I) Monitoring Plan and Trust compliance with federal and state laws. 3. PARS is not licensed to provide and does not offer tax, accounting, legal, investment or actuarial advice. Page 5 EXHIBIT 1B FEES FOR SERVICES PARS will be compensated for performance of Services, as described in Exhibit 1A based upon the following schedule: (A) An annual asset fee paid by the Agency or paid from Plan Assets based on the following schedule: For Plan Assets from: Annual Rate: $0 to $10,000,000 0.25% $10,000,001 to $15,000,000 0.20% $15,000,001 to $50,000,000 0.15% $50,000,001 and above 0.10% Annual rates are prorated and paid monthly. The annual asset fee shall be calculated by the following formula [Annual Rate divided by 12 (months of the year) multiplied by the Plan asset balance at the end of the month]. Trustee and Investment Management Fees are not included. (B) The annual asset fee referenced above shall be paid as follows: Annual Asset Fee Payment Option (Please select one option below): Q Annual Asset Fee shall be paid from Plan Assets. 0 Annual Asset Fee shall be invoiced to and paid by the Agency. Page 6 EXHIBIT I C DATA REQUIREMENTS PARS will provide the Services under this Agreement contingent upon receiving the following information: I . Executed Legal Documents: (A) Certified Resolution (B) Adoption Agreement to the Public Agencies Post -Employment Benefits Trust (C) Trustee Investment Forms 2. Contribution — completed Contribution Transmittal Form signed by the Plan Administrator (or authorized Designee) which contains the following information: (A) Agency name (B) Contribution amount (C) Contribution date (D) Contribution method (Check, ACH, Wire) 3. Distribution — completed Payment Reimbursement/Distribution Form signed by the Plan Administrator (or authorized Designee) which contains the following information: (A) Agency name (B) Payment reimbursement/distribution amount (C) Applicable statement date (D) Copy of applicable premium, claim, statement, warrant, and/or administrative expense evidencing payment (E) Signed certification of reimbursement/distribution from the Plan Administrator (or authorized Designee) Other information pertinent to the Services as reasonably requested by PARS and Actuarial Provider. Page 7 RESOLUTION NO. 2016-190 A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING THE CITY MANAGER TO EXECUTE ALL DOCUMENTS NECESSARY TO ENTER A PENSION STABILIZATION TRUST WITH PUBLIC AGENCY RETIREMENT SERVICES; FURTHER DESIGNATING AT LEAST 80 PERCENT OF AVAILABLE FUNDS OVER GENERAL FUND RESERVE REQUIREMENTS FOR FISCAL YEAR 2015/16 BE DEPOSITED INTO THE TRUST; AUTHORIZING THE CITY MANAGER TO APPROVE APPROPRIATION ADJUSTMENT TO FUND THE TRUST; AND SELECTING THE BALANCED (PASSIVE OPTION) INVESTMENT STRATEGY WHEREAS, Council held Shirtsleeve meetings on February 2, February 9, and September 13, 2016, to discuss a comprehensive set of budget and fiscal policies; and WHEREAS, establishing a pension stabilization trust to pre -fund the unfunded liability associated with the City's pension fund is a prudent best practice for local government agencies; and WHEREAS, Public Agency Retirement Services (PARS) is the only entity currently providing a trust to pre -fund unfunded pension liabilities; and WHEREAS, staff recommends that Council approve using PARS' Balanced (Passive Option) investment strategy; and WHEREAS, staff recommends that the General Fund portion of the initial funding come from funds in excess of Council -established reserve levels for the Fiscal Year 2015/16; and WHEREAS, staff recommends that initial funding be at least 80 percent of the reserves in excess of the established reserve levels; and WHEREAS, staff will bring forward a plan for Enterprise Fund contributions along with the Fiscal Year 2016/17 mid -year budget review; and WHEREAS, staff further recommends that the City Manager be authorized to approve an Appropriation Adjustment for the General Fund contribution once the final numbers are known for Fiscal Year 2015/16. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Lodi 1) hereby authorizes the City Manager to execute all documents necessary to enter a Pension Stabilization Trust with Public Agency Retirement Services (PARS); 2) hereby designates that at least 80 percent of the available funds over the General Fund reserve requirements for Fiscal Year 2015/16 be deposited into the trust and authorizes the City Manager to approve an Appropriation Adjustment to fund the trust once the final numbers for Fiscal Year 2015/16 are known; and 3) hereby selects the Balanced (Passive Option) as the investment strategy. Dated: October 19, 2016 I hereby certify that Resolution No. 2016-190 as passed and adopted by the City Council of the City of Lodi in a regular meeting held October 19, 2016, by the following votes: AYES: COUNCIL MEMBERS — Johnson, Mounce, Nakanishi, and Mayor Chandler NOES: COUNCIL MEMBERS — Kuehne ABSENT: COUNCIL MEMBERS — None ABSTAIN: COUNCIL MEMBERS — None 2016-190 ?re/tAlzias NIFE . FERRAIOLO ity Clerk