HomeMy WebLinkAbout2024-02-15; Section 115 Pension Trust Investment Advisory Services (Districts - All); Rocha, LauraTo the members of the:
CllY COUNCIL
Date~A ✓cc ✓
cM_LAcrv1VocM(3)_L
February 15, 2024
To:
From:
Via:
Council Memorandum
{cityof
Carlsbad
Memo ID# 2024011
Re:
Honorable Mayor Blackburn and Members of the City Council
Laura Rocha, Deputy City Manager, Administrative Services
Geoff Patnoe, Assistant City Manager~
Section 115 Pension Trust -lnvestme)tt-Advisory Services (Districts -All}
This memorandum provides information related to the city's Section 115 Pension Trust and the
investment advisory services provided by Vanguard lnstitutional Advisory Services (VIAS).
Effective April 1, 2024, Mercer lnvestments will complete its purehase of VIAS and no longer
offer investment advisory services to the city. Staff has coordinated with PARS, the city's trust
administrator, and identified an alternative solution with PFM Asset Management (PFMAM) that
is both comparable and competitive to the service and fee structure currently offered by VIAS.
Background
The city provides a defined benefit pension to its employees through the California Public
Employees' Retirement System, or Cai PERS. CalPERS uses a formula to calculate retiree pensions
based on an employee's age, earnings and years of service. It funds these pensions by a
combination of employer contributions, employee contributions and investment earnings. Each
year, CalPERS determines the employer's contributions based on actual investment returns and
actuarial assumptions including expected investment returns, inflation rates, salaries, retirement
ages and life expectancies.
Over the last six years, the city has taken proactive steps to address pension contribution
volatility and manage the unfunded liability. Since fiscal year 2016-17, the city has contributed
$56.4 million in additional discretionary payments to CalPERS, which has significantly helped
increase the plan's funded status. While contributing additional funds to CalPERS saves the city
future interest costs, there is also a higher risk of pension rate volatility du ring periods of poor
investment performance by Cai PERS. To mitigate this risk as well as the potential for Cai PERS to
further reduce its discount rate, many agendes in California have turned to Section 115 Trusts as
a so lution.
A Section 115 Trust is a tax-exempt investment tool that allows local governments to pre-fund
pension and retiree health costs. Once contributions are placed into the Section 115 Trust, assets
from the Section 115 Trust can only be used for retirement plan purposes. Withdrawals may be
made to either reimburse the city for retirement system contributions or to pay Cai PERS directly.
Administrative Services Branch
Finance Department
1635 Faraday Avenue I Carlsbad, CA 92008 I 442-339-2415 t
Council Memo -Section 115 Pension Trust -lnvestment Advisory Services (Districts -All)
February 15, 2024
Page 2
The benefits of a Section 115 Trust include:
• Local control over assets: The city controls the contributions, withdrawals, investment
strategy and risk level of assets in the Section 115 Trust.
• Pension rate stabilization: Assets can be transferred to CalPERS at the city's discretion to
pay for normal cost or unfunded actuarial liability contributions and can be used to
reduce or eliminate large fluctuations in the city's pension costs.
• Potential for higher investment return than General Fund: lnvestment requirements that
apply to the city's General Fund assets under California Government Code Section 53601
are not applicable to Section 115 Trust assets.
• Diversification: Section 115 Trust assets will be diversified from Ca i PERS' investments.
The City Council adopted the Public Agency Retirement Services (PARS) Public Agendes Post-
Employment Benefits Trust and appointed the City Manager as the city's Plan Administrator on
September 12, 2023.
PARS is a pioneer in the design and administration of governmental retirement trusts for public
agendes with over four decades of experience and continual corporate growth. PARS developed
the first multiple employer Section 115 Trust program for pension prefunding in the nation in
2015 and is one of only two firms that has received what is known as a private letter ruling from
the lnternal Revenue Service for pension prefunding. A private letter ruling ensures activities in
the Section 115 Trust are subject to the IRS Section 115 income tax exemption, that is, that its
investment returns are tax-exempt. Nationwide, PARS administers over 640 trusts with a
cumulative asset market value of over $10 billion. Within California, PARS administers pension
trusts for 146 cities and towns, 29 counties, 52 education districts, and 74 special districts.
While PARS is responsible for the overall administration of the Section 115 Trust, VIAS was
selected to serve as investment adviser over the funds that are contributed to the
Section 115 Trust. An internal review committee comprised of the City Treasurer, Deputy City
Manager of Administrative Services and Finance Director selected VIAS based on their
experience, long-standing reputation and most nota bly, their competitive fee structure achieved
through economies of scale.
Discussion
On January 30, 2024, the city rece ived a notice from PARS that Mercer lnvestments entered into
an agreement to acquire VIAS with the purehase expected to be finalized in early 2024. Mercer
lnvestments does not maintain a governmental plan presence and has notified PARS that it will
not be able to provide investment advisory services to the city following the transition.
This will require the city to have an alternate investment adviser in place for the Section 115
Trust Program by April 1, 2024.
Council Memo -Section 115 Pension Trust -lnvestment Advisory Services (Districts -All)
February 15, 2024
Page 3
PARS has collaborated with U.S. Bank and its wholly owned subsidiary, PFM Asset Management
LLC. (PFMAM) to provide an investment solution designed to maintain the same type of
investment advisory services that the city is currently receiving from VIAS. Through the U.S.
Bank/PFMAM solution, the city can:
• Continue the use of the same investment allocation strategy currently in place;
• Utilize a similarly low-cost, passively managed index-based approach;
• Benefit from a competitive investment fee structure that integrates trustee and investment
management fees and a portfolio structure that results in similar or, in some instances,
lower fees than the Vanguard program; and
• Receive economies of sca le pricing that can lower overall fees as additional contributions
to the program are made from other participating PARS agendes.
Currently, VIAS' service fees apply a blended fee structure that vary depending on the total amount
of assets in the Section 115 Trust. This blended rate equates to approximately 0.128%. Utilizing
PFMAM's investment advisory services would yield minimal change to this structure. In faet, the
total blended fee rate would actually decrease slightly to 0.126%. For context, applying PFMAM's
fee structure to the city's initial contribution of $10,000,000 would amount to an annual fee of
$12,600.
Trusteeand
lnvestment Advisor
Expenses
Embedded Mutual
Fund Fees
Total
Current Balanced
Portfolio with Vanguard*
0.051%
0.077%
0.128%
Projected Balanced
Portfolio with PFMAM*
0.077%
0.049%
0.126%
To ensure a smooth transition, the city has authorized U.S. Bank to serve as Discretionary Trustee
responsible for overseeing plan investments and appointed its investment subadvisor, PFMAM to
provide investment advisory services for the city's Section 115 Pension Trust Program. No action
is required from the City Council as Resolution No. 2023-238 appointed the City Manager as the
city's Plan Administrator, granted authorization to execute legal and administrative documents
with the third-party administrator, indicated to take whatever additional actions necessary to
maintain the city's participation in the program and to maintain compliance with any relevant
regulation issues or as may be issued.
Next Steps
The City Manager, serving as the city's Plan Administrator, will execute an amended adoption
agreement to the PARS Post-employment Benefits Trust, confirm the investment strategy
Council Memo -Section 115 Pension Trust -lnvestment Advisory Services (Districts -All)
February 15, 2024
Page 4
consistent with what is currently in place and authorize the discretionary trustee fee schedule for
U.S. Bank/PFMAM. The city's Section 115 Pension Trust Program will continue without change
until March 31, 2024, at which point U.S. Bank/PFMAM will take over for VIAS, effective on
April 1, 2024. Staff will continue reporting the Section 115 Trust's activities on a monthly and
quarterly basis to the City Council.
Attachment: A. Staff Report dated Sept. 12, 2023
B. Resolution No. 2023-238
cc: Scott Chadwick, City Manager
Cindie McMahon, City Attorney
Craig Lindholm, City Treasurer
Mickey Williams, Police Chief
Michael Calderwood, Fire Chief
Gary Barberio, Deputy City Manager, Community Services
Paz Gomez, Deputy City Manager, Public Works
Zach Korach, Finance Director
CITY COUNCIL
Staff Report
Meeting Date:
To:
From:
Staff Contact:
Sept. 12, 2023
Mayor and City Council
Scott Chadwick, City Manager
Zach Korach, Finance Director
zach .korach@carlsbadca.gov or 442-339-2127
Attachment A
CA Review JRT
Subject: Establishing a Public Agencies Post-Employment Benefits Trust,
Appointing Public Agency Retirement System as the Trust Administrator
and Amending and Adopting Related City Council Policies
Districts: All
Recommended Actions
1. Adopt a resolution approving the adoption of the Public Agencies Post-Employment
Benefits Trust administered by Public Agency Retirement Services
2. Adopt a resolution approving the amendment of City Council Policy No. 86 for pension
funding
3. Adopt a resolution approving the adoption of City Council Policy No. 98 for the City's
Pension Trust lnvestment Policy
Executive Summary
Pension costs are a significant and hard-to-predict expense for the city. On June 6, 2023, the
City Council directed staff to pursue the establishment of a Section 115 Trust. This trust allows
the city to stabilize pension cost volatility, maintain local control over the city's assets, and earn
a potential ly higher rate of return than if the assets were kept within the General Fund.
The City Council is now being asked to take the necessary steps to complete the establishment
of the trust. These include adopting resolutions that establish the trust and appoint Public
Agency Retirement System (PARS) as the city's trust administrator and amend and establish
policies related to pension funding and investing.
Explanation & Analysis
California Public Employees' Retirement System
The city provides a defined benefit pension to its employees through the California Public
Employees' Retirement System, or CalPERS. CalPERS uses a formula to calculate retiree
pensions based on an employee's age, earnings and years of service. It funds these pensions by
a combination of employer contributions, employee contributions and investment earnings.
Each year, CalPERS determines the employer's contributions based on actual investment
returns and actuarial assumptions including expected investment returns, inflation rates,
salaries, retirement ages and life expectancies.
Sept. 12, 2023 Item #11 Page 1 of 36
In recent years, Cai PERS has twice lowered its expected investment returns (known as discount
rates), thereby increasing the likelihood of achieving the target rate of return, but consequently
increasing the city's pension costs.
• First, in 2016, the Cai PERS Board of Administration voted to lower the Cai PERS discount
rate assumption from 7.5% to 7.0% incrementally over three years. This was driven by
poor investment returns during the Great Recession and actuarial assumption changes
increasing the gap between pension assets and liabilities, resulting in Cai PERS' funded
ratio fa Iling below desired levels.
• Then in 2021, CalPERS completed its quadrennial asset liability management process,
which reviewed investment strategies and actuarial assumptions. The fiscal year 2020-
21 investment gain of 21.3% triggered Cai PERS' Funding Risk Mitigation Policy,
prompting the Cai PERS Board to approve another discount rate reduction from 7.0% to
6.8%.
When Cai PERS achieves certain levels of return in excess of its target rate, its policy directs
portions of the return to be used to relieve pressure on the target rate in future periods. In
other words, Cai PERS uses a portion of its investment return to fund the additional costs
associated with reducing its discount rate. Again, while lowering the discount rate increases the
likelihood of Cai PERS achieving their target rate of return, the city's costs increase as a result.
City's CalPERS plan
The actuarial liability represents the present value of the plan, the unfunded liability is the
difference between pension assets and liabilities and the funded status is the ratio of pension
assets to liabilities.
As of CalPERS' June 30, 2021, actuarial valuation, the city's plan had:
• A total actuarial liability of $828.8 million.
• An unfunded liability of $115.9 million
• A funded status of 86%
However, in fiscal year 2021-22, CalPERS experi enced an investment loss of -6.1% which
significantly reduced the city's funded status. As of the June 30, 2022, actuarial valuation
(released in August 2023), the city's plan, in total, has:
• An actuarial liability of $874.4 million
• An unfunded liability of $222.4 million
• A funded status of 74.6%
While CalPERS' -6.1% investment performance in fiscal year 2021-22 will not impact the city's
required contributions until fiscal year 2024-25, the city's current funded status is 74.6%,
putting it below the target of 80% set by City Council Policy No. 86. To achieve an 80% funded
status, the city would need to contribute an additional discretionary payment of $47,553,869 to
CalPERS.
Sept. 12,2023 Item #11 Page 2 of 36
The chart below shows the volatility of Cai PERS' investment returns over the last 20 fiscal years,
highlighting the need to take steps to provide more stability for the city's pension costs.
CalPERS historical investment returns
31J%
20¼ I I "' I I = I il I I I I!! 1{)% I I I .. I .; I .., ■ E 0% -• -~ ■ I I ..,
> ,5
«i -10% :, .; "' <{
-20%
-30% .,. "' r-r-"' "' ~ ... N "' ;!; "' ~ !:. ~ 2: 0 rj N "' 0 0 "' <? 0 0 ; .. .. ; "' N N ,i, ,; .; "' "' cl, ,;. .. ::: :!i ;1: ~ ;;; ~ :i: ~ -~ " 0 0 " " 0 0 .. N
it ,_ it ,. it it it il: it it it it it i;: il: it it ,_ ,_ it ~
-Annua! investment return -Discount rate
Over the last six years, the city has taken proactive steps to address pension contribution
volatility and manage the unfunded liability. Since fiscal year 2016-17, the city has contributed
$56.4 million in additional discretionary payments to Cai PERS, which has significantly helped
increase the plan's funded status. While contributing additional funds to Cai PERS saves the city
future interest costs, there is also a higher risk of pension rate volatility during periods of poor
investment performance by Cai PERS. To mitigate this risk as well as the potential for CalPERS to
further reduce its discount rate, many agendes in California have turned to Section 115 Trusts
as a solution.
Section 115 Trust - A pension rate stabilization program
A Section 115 Trust is a tax-exempt investment tool that allows local governments to pre-fund
pension and retiree health costs. Once contributions are placed into the trust, assets from the
trust can only be used for retirement plan purposes. Withdrawals may be made to either
reimburse the city for retirement system contributions or to pay Cai PERS directly.
The benefits of a Section 115 Trust include:
• Local control over assets: The city controls the contributions, withdrawals, investment
strategy and risk level of assets in the trust.
• Pension rate stabilization: Assets can be transferred to CalPERS at the city's discretion to
pay for normal cost or unfunded actuarial liability contributions and can be used to
reduce or eliminate large fluctuations in the city's pension costs.
• Potential for higher investment return than General Fund: lnvestment requirements
that apply to the city's General Fund assets under California Government Code Section
53601 are not applicable to trust assets.
• Diversification: Trust assets will be diversified from CalPERS' investments.
Sept. 12, 2023 Item #11 Page 3 of 36
The Section 115 Trust will be available to help offset future increases in pension costs while
minimizing the impact on the city's operating budget. ltwill provide the city with an alternative
to sending funds directly to Cai PERS while giving the city the flexibility to make additional
payments to Cai PERS to reduce itS' unfunded actuarial liability at the city's discretion.
Many cities in California concerned with pension cost volatility have adopted a Section 115
Trust. Over 175 cities, towns and counties, 52 education districts and 72 special districts have
established a trust, including Oceanside, San Marcos, Solana Beach, Coronado and Escondido,
to name a few within San Diego County.
Trust administrator and investment strategy
The establishment of a Section 115 Trust requires the city to appoint a trust administrator.
Trust administrators are necessary and responsible for administering the trust as well as
deploying the investment portfolio for the assets contributed to the trust. The investment
strategy itself would beat the sole discretion of the City Council, governed by a City Council-
approved investment policy (the proposed City Council Policy No. 98) and managed by the City
Treasurer and Finance Department.
Bidding process
• Staff recommended the City Council take the steps to adopt a Section 115 Trust at the
Jun e 6, 2023, City Council meeting. The City Council then directed staff to mave forward
with the request for proposal process in sea rch of a trust administrator and investment
manager fora Section 115 Trust.
• Staff released the request on July 17, 2023.
• The city received three proposals by the Aug. 4, 2023, deadline.
• An internal review committee comprised of the City Treasurer, Deputy City Manager of
Administrative Services and Finance Di rector evaluated the proposals based primarily on
the firms' experience, level of service and proposed fees.
• The internal review committee unanimously selected Public Agency Retirement
Services, commonly known as PARS, to recommend as the city's trust administrator.
PARS is a pioneer in the design and administration of governmental retirement trusts for public
. agencies with over four decades ofexperience and continual corporate growth. PARS
developed the first multiple employer Section 115 Trust program for pension prefunding in the
nation in 2015 and is ane of only two firms that has received what is known as a private letter
ruling from the lnternal Revenue Service for pension prefunding. A private letter ruling ensures
activities in the trust are subject to the IRS Section 115 income tax exemption, that is, that its
investment returns are tax-exempt. Nationwide, PARS ad ministers over 640 trusts with a
cumulative asset market value of over $10 billion. Within California, PARS administers pension
trusts for 146 cities and towns, 29 counties, 52 education districts, and 74 special districts.
PARS works with two investment management firms: High Mark, a subsidiary of U.S. Bank, and
Vanguard. Both firms offer similar customization for the city's investment portfolio.
Historical investment performance between HighMark and Vanguard is relatively competitive;
however, Vanguard offers its services at a significantly lower cost. It is able to do this because it
Sept. 12, 2023 Item #11 Page 4 of 36
combines, or pools, its assets to achieve economies of scale. Given these considerations, the
internal review committee unanimously selected Vanguard to recommend to the City Council
as the city's investment manager for the Section 115 Trust.
The chart below compares the investment performance of HighMark, Vanguard, CalPERS'
California Employers' Retiree Benefit Trust and the city's General Fund over the last one, three,
five and 10 fiscal years. {The chart compares HighMark and Vanguard's performance using a
capital appreciation strategy in which funds are invested with approximately 75% in stocks, 20%
in bands and 5% in cash. The General Fund does not invest in these types of funds and is
included for comparative performance purposes only.)
lnvestment performances compared
12%
10%
8%
6%
4%
2%
0% I ■ .I. ■
1-year 3-year 5-year 10-year
■ High Mark ■ Vanguard ■ Cai PERS CERBT* ■ General Fund
Varying risk tolerance levels, or investment strategies, can be selected for the trust's
investments. The composition level of fixed income versus equity investments drives the level
of risk tolerance. Generally, there are "conservative" strategies that invest more heavily in
fixed-income investments (bands) compared to equities (stocks). Conversely, more aggressive
growth and appreciation strategies invest more heavily in equities compared to fixed incomes.
While the capital appreciation investment strategy has proven to perform better historically
compared to more conservative portfolios, there is a higher level of inherent risk and volatility.
Along with maintaining local control over the city's assets, a Section 115 Trust is intended to
preserve the assets, particularly by investing more conservatively than Cai PERS. Staff
recommend a "balanced" investment strategy, with 60% in equity, 35% in fixed-income
investments and 5% in cash. A "balanced" investment strategy translates to a 6.25% annua l
target rate of return, as set forth in the proposed Pension Trust lnvestment Policy (Attachment
A to Exhibit 3).
Funding strategy
CalPERS' poor investment performance in fiscal year 2021-22 resulted in the city's funded
status being reduced to 74.6%. To achieve an 80% funded status, the city could consider making
a $47.5 million contribution to CalPERS. However, given the volatility of CalPERS' investment
Sept. 12, 2023 Item #11 Page 5 of 36
performance, and to maintain local control over city assets, staffare recommending the City
Council amend City Council Policy No. 86 to al low assets in the Section 115 Trust to count
toward the city's calculation of its funded status and 80% target.
Policy No. 86 states that "in the event the city is unable to meet the minimum combined
pension funded ratio of 80% with current resources (i.e., without borrowing or using reserves),
the Finance Director or Deputy City Manager of Administrative Services will identify a
reasonable period to return to a minimum 80% funded ratio status."
Rather than making a one-time payment of $47.5 million to Cai PERS, staff recommend the city
contribute the difference between the current funded status of 74.6% and the 80% target to
the Section 115 Trust over a five-year period. The city would make an initial contribution of
$10.0 million followed by four annual contributions of $7.5 million with Genera l Fund dolla rs.
Over the five-year period and beyond, assets in the trust would be invested, in accordance with
the proposed City Council Policy No . 98 -Pension Trust lnvestment Policy, with a "balanced"
investment strategy. Staff project that at the end of fiscal year 2027-28, assets in the trust will
meet the 80% funded status target. Any deposits or withdrawals from the trust will require
approval from the City Council.
The city's funded status changes every year based on CalPERS' investment performance. In the
event the city's combined funded stat us meets or exceeds the 80% target level, it is important
the Section 115 Trust continues to serve the city as a pension rate stabilization tool. The asset
balance in the trust will be evaluated to ensure it is on track to accumulate sufficient funds to
cover the additional costs associated with a potential future reduction in Ca i PERS' discount
rate.
The city has modeled alternative discount rate scenarios of 6%, 6.25% and 6.5%. The lower the
discount rate, the more the city pays to Cai PERS. The investment community has forecasted
long-term expected rates of return between 6% and 6.5%, and CalPERS' investment consu ltant,
Wilshire Associates, has forecasted a long-term expected rate of return of 6.2%. Staff
400 +$167M
350 +$118M
300 +$66M
"' 250 C ~ 200 ·e
E 150 V)-
100
so
0
6.8% 6.5% 6.25% 6%
Note: Cost increases are in respect to cost estimates assuming a 6.8% discount rate
Sept. 12, 2023 Item #11 Page 6 of 36
L.
recommend using a more conservative discount rate of 6.25% for the assets in the Section 115
Trust.
While the trust would help ensure an 80% combined funded ratio is maintained, the ultimate
funding goal would befor the city to have sufficient assets in the trust to be prepared for
further discount rate reductions by CalPERS.
With an initial contribution of $10 million, followed by four annual contributions of $7.5 million,
and assuming an annual rate of return of 6.25%, not only would the city's fu_nded status reach
80% over a five-year period, but over a 20-year period there would be sufficient assets in the
trust to fund a potential reduction in Cai PERS' discount rate from the current 6.8% to 6.25%.
This potential reduction in CalPERS' discount rate represents an additional $118 million in
currently unfunded pension costs for the City of Carlsbad.
Projected value of assets assuming 1.48% and 6.25% investment returns
$140
V, $120 C
0
E $100
C > 2:. $80 V,
~ Q)
V, V, > $60 '+-0
Q)
:::i
ro $40 >
"'O Q)
~ $20 u Q) ·o .... c.. $-
LI) lO r---CO m 0 ,-i N rn tj-L/1 lO r---00 m 0 ri N rn tj-N N N N N rn rn rn rn ';' rn ('() rn rn ('() tj-tj-tj-tj-tj-
sl-J, cb r.!.. C(J en o ri ..:., (Yl sl-J, cb r.!.. C(J en o ri ..:., J,
N N N N N N rn (Yl rn ('() ('() ('() (Yl rn ('() ('() tj-tj-tj-tj-
>->->->->->->->->->->->->->->->->->->->-LL. LL. LL. LL. LL. LL. LL. LL. LL. LI.. LL. LL. LL. LL. LL. LL. LL. LL. LL. LL.
-1.48% investment return -6.25% investment return
Conclusion
Staffare recommending the City Council adopt three resolutions:
1. A resolution approving the adoption of the Public Agencies Post-Employment Benefits
Trust administered by Public Agency Retirement Services (Exhibit 1).
2. A resolution approving the amendment of City Council Policy No. 86 for pension funding
(Exhibit 2) (The proposed changes to Policy No. 86 are shown in Exhibit 4).
3. A resolution approving the adoption of City Council Policy No. 98 for the City's Pension
Trust lnvestment Policy (Exhibit 3).
Sept. 12, 2023 Item #11 Page 7 of 36
With a Section 115 Trust:
• The city would not need to make an immediate payment to Cai PERS for $47.5 million.
Rather, over a five-year period, the city will contribute assets to the Section 115 Trust to
reach a combined 80% funded ratio.
• lf Cai PERS reduces its discount rate, the city will have funds available to mitigate fiscal
impacts to the city's operating budget.
• Local control over assets -The city would control the timing of contributions and
withdrawals, investment strategy, and risk level of assets in the trust.
• Trust assets can be transferred to Cai PERS at the city's discretion to pay for normal costs
or unfunded actuarial liability contributions and can be used to reduce or eliminate
large fluctuations in the city's pension costs.
• Potential for higher investment returns than would be possible under the !imitations
that apply to the city's General Fund assets under Government Code Section 53601.
Those !imitations are not applicable to assets in the trust.
• Trust assets will be diversified from CalPERS' investments.
lf a trust is not established and a five-year funding strategy to reach an 80% funded ratio is not
approved, then an immediate $47.5 million contribution to Cai PERS may be required by City
Council Policy No. 86. In addition,
• lf Cai PERS reduces its discount rate, the city may be less prepared to mitigate fiscal
impacts on the city's operating budget.
• Continuing to make discretionary payments to CalPERS reduces the city's local control
over assets.
• lnvestment returns in the General Fund may be lower than what the trust's returns
would be
• Contributions will continue to be fully concentrated under Cai PERS' management.
Fiscal Analysis
The city's current funded ratio is 74.6%, which is $47.5 million below the city's 80% policy
target. Rat her than immediately contributing the $47.5 million to Cai PERS, $40 million would be
contributed to the Section 115 Trust over a five-year period with an annual target rate of return
of 6.25%. Contributions to the trust will move the funds from "unassigned" fund balance to
"restricted" fund balance in the General Fund. These funds will be available to count towards
the city's funded ratio as set forth in City Council Policy No. 86, as amended, and mitigate
budgetary pressures resulting from potential volatility in Cai PERS' required contributions made
by the city.
The city will pay fees for trust administration and investment management. The fees are
calculated on a sliding scale between 0.22% down to 0.12% depending on the total value of
assets in the trust. For example, foliowing a $10 million initial contribution to the trust, there
would be an annua I trust administration fee of $20,000 and an investment management fee of
$2,000. The fees will be deducted from trust assets.
Next Steps
Staff will execute the trust documents and begin implementing the program over the next 60-
90 days in accordance with the city's proposed Pension Trust lnvestment Policy. The City
Treasurer and staff will regularly monitor the activities in the trust and meet with the trust
Sept. 12, 2023 Item #11 Page 8 of 36
administrator and investment manager an a quarterly basis to review the portfolio's
performance.
Environmental Evaluation
This action does not constitute a project within the meaning af the California Environmental
Quality Aet under California Public Resources Code Section 21065 and therefore does not
require environmental review because it has no potential to cause either a direct physical
change in the environment or a reasonably foreseeable indirect physical change in the
environment.
Exhibits
1. City Council resolution approving the adoption af the Public Agencies Post-Employment
Benefits Trust administered by Public Agency Retirement Services
2. City Council resolution approving the amendment af City Council Policy No. 86 for pension
funding
3. City Council resolution approving the City Council Policy No. 98 for the City's Pension Trust
lnvestment Policy
4. City Council Policy No. 86 showing proposed revisions
Sept. 12, 2023 Item #11 Page 9 of 36
RESOLUTION NO. 2023-238
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, APPROVING THE ADOPTION OF THE PUBLIC AGENCIES POST-
EMPLOYMENT BENEFITS TRUST ADMINISTERED BY PUBLIC AGENCY
RETIREMENT SERVICES
Exhibit 1
WHEREAS, it is determined to be in the best interest of the City of Carlsbad to set aside funds
for the purpose of pre-funding its California Public Employees' Retirement System (CalPERS) pension
obligations that will be held in trust for the exclusive purpose of making future contributions of the
city's required pension contributions and any employer contributions in excess of such required
contributions at the discretion of the city; and
WHEREAS, Public Agency Retirement Services (PARS) has made available the PARS Public
Agencies Post-Employment Benefits Trust (the Program) for the purpose of pre-funding the City of
Carlsbad's pension obligations; and
WHEREAS, the city is eligible to participate in the Program, a tax-exempt trust performing an
essential governmental function within the meaning of Section 115 of the lnternal Revenue Code, as
amended, and the regulations issued there under, and is a tax-exempt trust under the relevant
statutory provisions of the State of California; and
WHEREAS, the city's adoption and operation of the Program have no effect on any current or
former employee's entitlement to post-employment benefits; and
WHEREAS, the terms and conditions of post-employment benefit entitlement, if any, are
governed by contracts separate from and independent of the Program; and
WHEREAS, the city's funding of the Program does not, and is not intended to, create any new
vested right to any benefit nor strengthen any existing vested right; and
WHEREAS, the city reserves the right to make contributions, if any, to the Program; and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as
follows:
1. That the above recitations are true and correct.
2. That the City Council hereby adopts the PARS Public Agencies Post-Employment Benefits
Trust, effective September 12. 2023; and
3. The City Council hereby appoints the City Manager or their successor or their designee
as the city's Plan Administrator for the Program; and
Sept. 12, 2023 Item #11 Page 10 of 36
4. The city's Plan Administrator is hereby authorized to execute legal and administrative
documents with the third-party administrator selected by the City Council and to take
whatever additional actions necessary to maintain the city's participation in the
Program and to maintain compliance with any relevant regulation issues or as may be
issued; therefore, authorizing him/her to take whatever addition al actions are required
to ad minister the city's Program.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council af the City of
Carlsbad on the 12th day of September, 2023, by the following vote, to wit:
AYES:
NAVS:
ABSTAIN:
ABSENT:
Sept. 12,2023
Blackburn, Bhat-Patel, Acosta, Burkholder, Luria.
None.
None.
None.
KEITH BLACKBURN, Mayor
()pL
SHERRY FREISINGER, City Clerk
(SEAL)
Item #11 Page 11 of 36
AGREEMENT FOR ADMINISTRATIVE SERVICES
PUBLIC AGENCY RETIREMENT SERVICES (PARS)
Attachment A
THIS AGREEMENT is made and entered into as of the ______ day of
___________ , 20_, by and between the City of Carlsbad, California, a
municipal corporation, ("City"), and Phase li Systems, a corporation organized and existing under
the laws of the State of California, doing business as Public Agency Retirement Services and
PARS, ("Contractor").
RECITALS
A. City requires the professional services of a Contractor that is experienced in trust
administration.
B. Contractor has the necessary experience in providing professional services and
advice related to trust administration.
C. Contractor has submitted a proposal to City and has affirmed its willingness and
ability to perform such work.
NOW, THEREFORE, in consideration of these recitals and the mutual covenants
contained herein, City and Contractor agree as follows:
1. SCOPE OF WORK
City retains Contractor to perform, and Contractor agrees to render, those services (the
"Services") that are defined in' attached Exhibit "A", which is incorporated by this reference in
accordance with this Agreement's terms and conditions.
2. STANDARD OF PERFORMANCE
While performing the Services, Contractor will exercise the reasonable professional care and ski li
customarily exercised by reputable members of Contractor's profession practicing in the
Metropolitan Southern California Area, and will use reasonable diligence and best judgment while
exercising its professional skill and expertise.
3. TERM
The term of this Agreement will be effective fora period of three years from the date first above
written. The City Manager may amend the Agreement to extend it for two additional one-year
periods or parts thereof. Extensions will be based upon a satisfactory review of Contractor's
performance, City needs, and appropriation of funds by the City Council. The parties will prepare
a written amendment indicating the effective date and length of the extended Agreement.
4. TIME IS OF THE ESSENCE
Time is of the essence for each and every provision of this Agreement.
5. COMPENSATION
The total fee payable for the Services to be performed during the initial Agreement term will be
based on the amount of assets held in the Trust as set forth in Exhibit "B" ("Compensation"). No
other compensation for the Services will be allowed except for items covered by subsequent
amendments to this Agreement. Payment for the Services will be remitted directly from Plan
assets unless the City chooses to make payment directly to Contractor. In the event that the City
chooses to make payment directly to the Contractor, it shall be the responsibility of the City to
remit payment directly to the Contractor based upon an invoice prepared by Contractor and
delivered to City.
Sept. 12, 2023
6. STATUS OF CONTRACTOR
Contractor will perform the Services in Contractor's own way as an independent contractor and
in pursuit of Contractor's independent calling, and not as an employee of City. Contractor will be
under control of City only as to the result to be accomplished, but will consult with City as
necessary. The persons used by Contractor to provide services under this Agreement will not be
considered employees of City for any purposes.
The payment made to Contractor pursuant to the Agreement will be the full and complete
compensation to which Contractor is entitled. City will not make any federal or state tax
withholdings on behalf of Contractor or its agents, employees or subcontractors. City will not be
required to pay any workers' compensation insurance or unemployment contributions on behalf
of Contractor or its employees or subcontractors. Contractor agrees to indemnify City within thirty
(30) days for any tax, retirement contribution, social security, overtime payment, unemployment
payment or workers' compensation payment which City may be required to make on behalf of
Contractor or any agent, employee, or subcontractor of Contractor for work done under this
Agreement. At the City's election, City may deduct the indemnification amount from any balance
owing to Contractor.
7. SUBCONTRACTING
Contractor will not subcontract any portion of the Services without prior written approval of City.
lf Contractor subcontracts any of the Services, Contractor will be fully responsible to City for the
acts and emissions of Contractor's subcontractor and of the persons either directly or indirectly
employed by the subcontractor, as Contractor is for the acts and emissions of persons directly
employed by Contractor. Nothing contained in this Agreement will create any contractual
relationship between any subcontractor of Contractor and City. Contractor will be responsible for
payment of subcontractors. Contractor will bind every subcontractor and every subcontractor of
a subcontractor by the terms of this Agreement applicable to Contractor's work unless specifically
noted to the contrary in the subcontract and approved in writing by City.
8. OTHER CONTRACTORS
The City reserves the right to employ other Contractors in connection with the Services.
9. INDEMNIFICATION
Contractor and City hereby indemnify each other and hold the other harmless, including their
respective officers, directors, and employees, 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, Contractor's or City's, as the case may be, negligent acts, errors or emissions with respect
to the performance of their respective duties hereunder.
10. INSURANCE
Contractor will obtain and maintain for the duration of the Agreement and any and all
amendments, insurance against claims for injuries to persons or damage to property which may
arise out of or in connection with performance of the services by Contractor or Contractor's
agents, representatives, employees or subcontractors. The insurance will be obtained from an
insurance carrier admitted and authorized to do business in the State of California. The insurance
carrier is required to have a current Best's Key Rating of not less than "A-:VII"; OR with a surplus
line insurer on the State of California's List of Approved Surplus Line lnsurers (LASLI) with a rating
in the latest Best's Key Rating Guide of at least "A-:X"; OR an alien non-admitted insurer listed by
the National Association of lnsurance Commissioners (NAIC) latest quarterly listings report.
Sept. 12, 2023 2 Item #11 Page 13 of 36
10.1 Coverage and Limits.
Contractor will maintain the types of coverage and minimum limits indicated below, unless the
Risk Manager or City Manager approves a lower amount. These minimum amounts of coverage
will not constitute any !imitations or cap on Contractor's indemnification obligations under this
Agreement. City, its officers, agents and employees make no representation that the limits of the
insurance specified to be carried by Contractor pursuant to this Agreement are adequate to
protect Contractor. lf Contractor believes that any required insurance coverage is inadequate,
Contractor will obtain such additional insurance coverage, as Contractor deems adequate, at
Contractor's sole expense. The full limits available to the named insured shall also be available
and applicable to the City as an additional insured.
10.1.1 Commercial General Liability (CGL) lnsurance. lnsurance written on an
"occurrence" basis, including personal & advertising injury, with limits no less than $2,000,000 per
occurrence. lf a general aggregate limit applies, either the general aggregate limit shall apply
separately to this project/location or the general aggregate limit shall be twice the required
occurrence limit. Required limit may be satisfied either by a standalone policy or in combination
with an excess/umbrella policy.
10.1.2 Automobile Liability. (if the use of an automobile is involved for Contractor's work
for City). $2,000,000 combined single-limit per accident for bodily injury and property damage.
10.1.3 Workers' Compensation and Employer's Liability. Workers' Compensation limits as
required by the California Labor Code. Workers' Compensation will not be required if Contractor
has no employees and provides, to City's satisfaction, a declaration stating this.
10.1.4 Professional Liability. Errors and omissions liability appropriate to Contractor's
profession with limits of not less than $1,000,000 per claim. Coverage must be maintained fora
period of five years following the date of completion of the work.
10.2 Additional Provisions. Contractor will ensure that the policies of insurance required under
this Agreement contain, or are endorsed to contain, the following provisions:
10.2.1 The City will be named as an additional insured on Commercial General Liability
which shall provide primary coverage to the City.
10.2.2 Contractor will obtain occurrence coverage, excluding Professional Liability, which
will be written as claims-made coverage.
10.2.3 This insurance will be in force du ring the life of the Agreement and any extensions
of it and will not be canceled without thirty (30) days (10-day notice of cancellation for non-
payment of premium) prior written notice to City sent by certified mail pursuant to the Notice
provisions of this Agreement.
10.3 Providing Certificates of lnsurance and Endorsements. Prior to City's execution of this
Agreement, Contractor will furnish certificates of insurance and endorsements to City.
10.4 Failure to Maintain Coverage. lf Contractor fails to maintain any of these insurance
coverages, then City will have the option to declare Contractor in breach, or may purehase
replacement insurance or pay the premiums that are due on existing policies in arder to maintain
the required coverages. Contractor is responsible for any payments made by City to obtain or
maintain insurance and City may collect these payments from Contractor or deduct the amount
paid from any sums due Contractor under this Agreement.
Sept. 12, 2023 3 Item #11 Page 14 of 36
10.5 Submission of lnsurance Policies. City reserves the right to require, at any time, complete
and certified copies of any or all required insurance policies and endorsements.
11 . BUSINESS LICENSE
Contractor will obtain and maintain a City of Carlsbad Business License for the term of the
Agreement, as may be amended from time-to-time.
12. ACCOUNTING RECORDS .
Contractor will maintain complete and accurate records with respect to costs incurred under this
Agreement. All records will be clearly identifiable. Contractor will allow a representative of City
during normal business hours to examine, audit, and make transcripts or copies of records and
any other documents created pursuant to this Agreement. Contractor will allow inspection of all
work, data, documents, proceedings, and activities related to the Agreement for a period of three
(3) years from the date of final payment under this Agreement.
13. OWNERSHIP OF DOCUMENTS
All work produet produced by Contractor or its agents, employees, and subcontractors pursuant
to this Agreement is the property of City. In the event this Agreement is terminated, all work
produet produced by Contractor or its agents, employees and subcontractors pursuant to this
Agreement will be delivered at once to City. Contractor will have the right to make one (1) copy
of the work produet for Contractor's records.
14. COPYRIGHTS
Contractor agrees that all copyrights that arise from the services will be vested in City and
Contractor relinquishes all claims to the copyrights in favor of City.
15. NOTICES
The name of the persons who are authorized to give written notice or to receive written notice on
behalf of City and on behalf of Contractor under this Agreement.
For City
Name Laura Rocha
Deputy City Manager,
Title Administrative Services
Department _F_i_n_a_n_ce ______ _
City of Carlsbad
1635 Faraday Avenue.
Address Carlsbad, CA 92008
Phone No. 442-339-2415
For Contractor
Name Mr. Daniel Johnson
Title President
4350 Von Karman Avenue, Suite
Address 100 --------------
New port Beach, CA 92660
Phone No. (800) 540-6369
Email djohnson@pars.org
Each party will notify the other immediately of any changes of address that would require any
notice or delivery to be directed to another address.
Sept. 12, 2023 4 Item #11 Page 15 of 36
16. CONFLICT OF INTEREST
Contractor shall file a Conflict of I nterest Statement with the City Clerk in accordance with the
requirements of the City of Carlsbad Conflict of lnterest Code. The Contractor shall report
investments or interests as required in the City of Carlsbad Conflict of lnterest Code.
YesD No ■
lf yes, list the contact information below for all individuals required to file:
Name Email Phone Number
17. GENERAL COMPLIANCE WITH LAWS
Contractor will keep fully informed of federal, state and local laws and ordinances and regulations
which in any manner affect those employed by Contractor, or in any way affect the performance
of the Services by Contractor. Contractor will at all times observe and comply with these laws,
ordinances, and regulations and will be responsible for the compliance of Contractor's services
with all applicable laws, ordinances and regulations.
Contractor will be aware of the requirements of the Immigration Reform and Control Aet of 1986
and will comply with those requirements, including, but not limited to, verifying the eligibility for
employment of all agents, employees, subcontractors and consultants whose services are
required by this Agreement.
18. DISCRIMINATION AND HARASSMENT PROHIBITED
Contractor will comply with all applicable local, state and federal laws and regulations prohibiting
discrimination and harassment.
19. DISPUTE RESOLUTION
lf a dispute should arise regarding the performance of the Services the foliowing procedure will
be used to resolve any questions of faet or interpretation not otherwise settled by agreement
between the parties. Representatives of Contractor or City will reduce such questions, and their
respective views, to writing. A copy of such documented dispute will be forwarded to both parties
involved along with recommended methods of resolution, which would be of benefit to both
parties. The representative receiving the letter will reply to the letter along with a recommended
method of resolution within ten (10) business days. lf the resolution thus obtained is unsatisfactory
to the aggrieved party, a letter outlining the disputes will be forwarded to the City Manager. The
City Manager will consider the facts and solutions recommended by each party and may then opt
to direct a solution to the problem. In such cases, the action of the City Manager will be binding
upon the parties involved, although nothing in this procedure will prohibit the parties from seeking
remedies available to them at law.
20. TERMINATION
In the event of the Contractor's failure to prosecute, deliver, or perform the Services, City may
terminate this Agreement for nonperformance by notifying Contractor by certified mail of the
termination. lf City decides to abandon or indefinitely postpone the work or services contemplated
by this Agreement, City may terminate this Agreement upon written notice to Contractor. Upon
notification of term i nation, Contractor has five (5) business days to deliver any documents owned
by City and all work in progress to City address contained in this Agreement. City will make a
Sept. 12,2023 5 Item #11 Page 16 of 36
determination of faet based upon the work produet delivered to City and of the percentage of work
that Contractor has performed which is usable and of worth to City in having the Agreement
completed. Based upon that tinding City will determine the final payment of the Agreement.
City may terminate this Agreement by tendering thirty (30) days written notice to Contractor.
Contractor may terminate this Agreement by tendering thirty (30) days written notice to City. In
the event of termination of this Agreement by either party and upon request of City, Contractor
will assemble the work produet and put it in arder for proper filing and closing and deliver it to City.
Contractor will be paid for work performed to the termination date; however, the total will not
exceed the lump sum fee payable under this Agreement. City will make the final determination as
to the portions of tasks completed and the compensation to be made.
21. COVENANTS AGAINST CONTINGENT FEES
Contractor warrants that Contractor has not employed or retained any company or person, other
than a bona tide employee working for Contractor, to solicit or secure this Agreement, and that
Contractor has not paid or agreed to pay any company or person, other than a bona tide
employee, any fee, commission, percentage, brokerage fee, gift, or any other consideration
contingent upon, or resulting from, the award or making of this Agreement. For breach or violation
of this warranty, City will have the right to annul this Agreement without liability, or, in its discretion,
to deduct from the Agreement price or consideration, or otherwise recover, the full amount of the
fee, commission, percentage, brokerage fees, gift, or contingent fee.
22. CLAIMS AND LAWSUITS
By signing this Agreement, Contractor agrees that any Agreement claim submitted to City must
be asserted as part of the Agreement process as set forth in this Agreement and not in anticipation
of litigation or in conjunction with litigation. Contractor acknowledges that if a false claim is
submitted to City, it may be considered fraud and Contractor may be subject to criminal
prosecution. Contractor acknowledges that California Government Code sections 12650 et seq.,
the False Claims Aet applies to this Agreement and, provides for civil penalties where a person
knowingly submits a false claim to a public entity. These provisions include false claims made
with deliberate ignorance of the false information or in reckless disregard of the truth or falsity of
information. lf City seeks to recover penalties pursuant to the False Claims Aet, it is entitled to
recover its litigation costs, including attorney's fees. Contractor acknowledges that the filing of a
false claim may subject Contractor to an administrative debarment proceeding as the result of
which Contractor may be prevented to aet as a Contractor on any public work or improvement for
a period of up to five (5) years. Contractor acknowledges debarment by another jurisdiction is
grounds for City to terminate this Agreement.
23. JURISDICTION AND VENUE
Any action at law or in equity brought by either of the parties for the purpose of enforcing a right
or rights provided for by this Agreement will be tried in a court of competent jurisdiction in the
County of San Diego, State of California, and the parties waive all provisions of law providing for
a change of venue in these proceedings to any other county.
24. SUCCESSORS AND ASSIGNS
It is mutually understood and agreed that this Agreement will be binding upon City and Contractor
and their respective successors. Neither this Agreement nor any part of it nor any monies due or
to become due under it may be assigned by Contractor without the prior consent of City, which
shall not be unreasonably withheld.
Sept. 12, 2023 6 Item #11 Page 17 of 36
25. ENTIRE AGREEMENT
This Agreement, together with any other written document referred to or contemplated by it, along
with the purehase arder for this Agreement and its provisions, embody the entire Agreement and
understanding between the parties relating to the subject matter of it. In case of conflict, the terms
of the Agreement su persede the purehase arder. Neither this Agreement nor any of its provisions
may be amended, modified, waived or discharged except in a writing signed by both parties. This
Agreement may be executed in counterparts.
26. AUTHORITY
The individuals executing this Agreement and the instruments referenced in it on behalf of
Contractor each represent and warrant that they have the legal power, right and actual authority
to bind Contractor to the terms and conditions of this Agreement.
27. INFORMATION FURNISHED TO CONTRACTOR
Contractor will provide the Services contingent upon the City providing Contractor the information
specified in the exhibit attached hereto as Exhibit "C" ("Data Requirements"). It shall be the
responsibility of the City to certify the accuracy, content, and completeness of the Data so that
Contractor may rely on such information without further audit. It shall further be the responsibility
of the City to del iver the Data to Contractor in such a manner that allows for a reasonable amount
of time for the Services to be performed. Unless specified in Exhibit "A", Contractor shall be under
no duty to question Data received from the City, to compute contributions made to the 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, Contractor shall not be liable for nonperformance of
Services to the extent such nonperformance is caused by or results from erroneous and/ar late
delivery of Data from the City. In the event that the City fails to provide Data in a complete,
accurate and timely manner and pursuant to the specifications in Exhibit "C", Contractor 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 City.
28. 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 its performance is prevented by such cause.
Such cause shall include, but not be limited to: any incidence of fire, flood, acts of God or
unanticipated communicable disease, acts of terrorism or war commandeering of material,
produets, plants or facilities by the federal, state or local government, a material aet or omission
by the other party or any law, ordinance, rule, guidance or recommendation by the federal, state
or local government, or any agency thereof, which becomes effective atter the date of this
Agreement that delays or renders impractical either party's performance under the Agreement.
III
III
III
III
III
III
Sept. 12, 2023 7 Item #11 Page 18 of 36
CONTRACTOR
By:
(sign here)
Daniel Johnson, President
• (print name/title)
By:
(sign here)
Tod Hammeras, Chief Financial Officer
(print name/title)
CITY OF CARLSBAD, a municipal
corporation of the State of California
By:
[INSERT TITLE OF PERSON
AUTHORIZED TO SIGN (City Manager or
Mayor or Division Director as authorized
by the City Manager)]
ATTEST:
SHERRY FREISINGER
City Clerk
lf required by City, proper notarial acknowledgment of execution by contractor must be attached.
lf a corporation, Agreement must be signed by one corporate officer from each of the foliowing
two groups.
GroupA
Chairman,
President, or
Vice-President
Group B
Secretary,
Assistant Secretary,
CFO or Assistant Treasurer
Otherwise, the corporation must attach a resolution certified by the secretary or assistant
secretary under corporate seal empowering the officer(s) signing to bind the corporation.
APPROVED AS TO FORM:
:;DIE~ City Attorney
tcity Attorney
Sept. 12, 2023 8 Item #11 Page 19 of 36
EXHIBIT "A"
SCOPE OF SERVICES
Contractor will provide the following services for the City of Carlsbad Public Agencies Post-
Employment Benefits Trust:
1. Plan Installation Services:
(A) Meeting with appropriate City 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 City legal counsel. Resulting final Plan documentation must be approved by
the City prior to the commencement of PARS Plan Administration Services outlined in
Exhibit "A", paragraph 2 below.
2. Plan Administration Services:
(A) Monitoring the receipt of Plan contributions made by the City to the trustee of the PARS
Public Agencies Post-Employment Benefits Trust ("Trustee"), based upon information
received from the City and the Trustee;
(B) Performing periodic accounting of Plan assets, reimbursements/distributions, and
investment activity, based upon information received from the City and/or Trustee;
(C) Coordinating the processing of distribution payments pursuant to authorized direction
by the City, and the provisions of the Plan, and, to the extent possible, based upon City-
provided Data;
(D) Coordinating actions with the Trustee as directed by the Plan Administrator within the
scope of this Agreement;
(E) Preparing and submitting a monthly report of Plan activity to the City, unless directed
by the City otherwise;
(F) Preparing and submitting an annual report of Plan activity to the City;
(G) Facilitating actuarial valuation updates and funding modifications for compliance with
the applicable GASB pronouncements and/or statements, if prefunding OPEB obligations;
(H) Coordinating periodic audits of the Trust;
(I) Monitoring Plan and Trust compliance with federal and state laws.
3. Contractor is not licensed to provide and does not offer tax, accounting, legal, investment or
actuarial advice.
Sept. 12, 2023 9 Item #11 Page 20 of 36
EXHIBIT "B"
COMPENSATION
Contractor wili be compensated for performance of Services, as described in Exh ibit "A" based
upon the foliowing schedule :
An annual asset fee shali be paid from Plan assets based on the foliowing schedule:
For Plan Assets from:
$1 to $10,000,000
$10,000,001 to $15,000,000
$15,000,001 to $50,000,000
$50,000,001 and above
Annual Rate:
0.25%
0.20%
0.15%
0.10%
Annual rates are prorated and paid monthly. The annual asset fee shali be calculated by the
foliowing formula [Annual rate divided by 12 (months of the year) multiplied by the Plan asset
balance at the end of the month]. Trustee and lnvestment Management Fees are not included.
Sept. 12, 2023 10 Item #11 Page 21 of 36
EXHIBIT "C"
DATA REQUIREMENTS
Contractor will provide the Services under this Agreement contingent upon receiving the foliowing
information. City is solely responsible for ensuring that all information and documentation provided to
Contractor is true, correct, and authorized:
1. Executed Legal Documents:
(A) Certified Resolution
(B) Adoption Agreement to the Public Agencies Post-Employment Benefits Trust
(C) Trustee lnvestment Forms
2. Contribution -completed Contribution Transmittal Form signed by the Plan Administrator (or
authorized Designee) which contains the foliowing information:
(A) City 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 foliowing information:
(A) City name
(B) Payment reimbursement/distribution amount
(C) Applicable statement date
(D) Copy of applicable premium, claim, statement, warrant, and/ar administrative expense
evidencing payment
(E) Signed certification of reimbursement/distribution from the Plan Administrator (or
authorized Designee)
4. Other information pertinent to the Services as reasonably requested by Contractor and
Actuarial Provider.
Sept. 12, 2023 11 Item #11 Page 22 of 36
RESOLUTION NO. 2023-239
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, APPROVING THE AMENDMENT OF CITY COUNCIL POLICY NO.
86 FOR PENSION FUNDING
Exhibit 2
WHEREAS, the City Council of the City of Carl sbad, California has determined that financial
policies are central to a strategic, lang-term approach to financial management; and
WHEREAS, the city's Pension Funding Policy, City Council Policy No. 86, was adopted by the City
Council on June 18, 2019; and
WHEREAS, the city wishes to amend the policy for purposes of including assets, contributed to
the city's Section 115 Pension Trust, in the city's overall pension funded ratio or status calculation.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as
fol lows:
1. That the above recitations are true and correct.
2. That the City Council of the City of Carlsbad, California accepts the Pension Funding
Policy dated September 12, 2023 (Attachment A).
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of
Carlsbad on the 12th day of September, 2023, by the foliowing vote, to wit:
AYES:
NAVS:
ABSTAIN:
ABSENT:
Sept. 12, 2023
Blackburn, Bhat-Patel, Acosta, Burkholder, Luna.
None.
None.
None.
ftt
KEITH BLACKBURN, Mayor
SHERRY FREISINGER, City Clerk
(SEAL)
Item #11 Pa ge 23 of 36
City Council
POLICY STATEMENT
Subject: Pension Funding Policy
Purpose
Policy No.
Date lssued
Attachment A
86
Sept. 12, 2023
Resolution No. 2023-239
The purpose of this policy is to provide reasonable assurance that the costs of the city's defined benefit
pension plans will be funded in an equitable and sustainable manner. It codifies the city's commitment
to fund these benefits based on regular actuarial va luations, and to measure and report them in
accordance with generally accepted accounting principles (GAAP). Adhering to a funding policy that
embodies these funding and accounting principles is a prudent governance practice, and helps achieve
intergenerational equity among those who financially support the plan. It also ensures that resources
are available to fulfill the city's contractual promises to its employees, and minimizes the chance that
funding of these benefits will interfere with the city's ability to provide essential services to the public.
Background
The city provides defined benefit retirement benefits through the California Public Employees'
Retirement System (Cai PERS). CalPERS is a multiple-employer public employee defined benefit pension
plan.
All full-time and certain part-time employees hired and all city safety employees, are eligible to
participate in CalPERS. CalPERS provides retirement and disability benefits, annual cost of living
adjustments, and death benefits to plan members and their beneficiaries. Benefits are based on years
of credited service, equal to one year of full time employment. Cai PERS acts as a common investment
and administrative agent for participating public entities within the State of California. Benefit
provisions and all other requirements are established by State of California statute and city resolution.
Pension Funding: A Guide for Elected Officials, issued by eleven national groups including the U.S.
Conference of Mayors, the International City/County Management Association, and the Government
Finance Officers Association, established the foliowing five general policy objectives fora pension
funding policy:
1. Actuarially Determined Contributions -a pension funding plan should be based
upon an actuarially determined contribution (ADC) that incorporates both the cost
of benefits in the current year and the amortization of the plan's unfunded actua rial
accrued liability.
2. Funding Discipline -a commitment to make timely, actuarially determined
contributions to the retirement system is needed to ensure that sufficient assets are
avai lable for all current and future retirees.
3. lntergenerational equity -annual contributions should be reasonably related to the
expected and actual cost of each year of service, so the cost of employee benefits
is paid by the generation of taxpayers who receives services fromthose employees.
Sept. 12, 2023 Item #11 Page 24 of 36
Pension Funding Policy
Sept. 12, 2023
Page 2
4. Contributions as a stable percentage of payroll -contributions should be
managed so that employer costs remain consistent as a percentage af payroll over
time.
5. Accountability and transparency -clear reporting af pension funding should
include an assessment of whether, how, and when the plan sponsor will ensure
sufficient assets are available for all current and future retirees.
The financial objective of a defined benefit pension plan is to fund the lang-term cost of benefits
provided to the plan participants. Toassure that the plan is financially sustainable, the plan should
accumulate adequate resources in a systematic and disciplined manner over the active service life of
benefitting employees. This funding policy outlines the method the city will utilize to determine its
actuarially determined contributions to fund the lang-term cost af benefits to the plan participants and
annuitants.
Statement of policy
The city will en sure the costs of the city's defined benefit pension plans will be funded in an
equitable and sustainable manner. The city commits to fund these benefits based an regular
actuarial valuations and commits to maintaining no less than an 80% funded ratio, with a target
funded ratio of 80% to 85%. The city will ensure that resources are available to both fulfill the
city's contractual promises to its employees and minimize the chance that funding these
benefits will interfere with the city's ability to provide essential services to the public.
Procedure
To achieve the purpose af this policy, the city will take the following actions:
1. The city will use the actuarially determined contribution (ADC) provided by Cai PERS annually to
serve as the basis for its pension contributions. The ADC will include the normal cost for current
service (variable cost) and the amortization af any unfunded amount (fixed cost). The normal
cost will be calculated using the entry age normal cost method using economic and non-
economic assumptions approved by the CalPERS Board af Administration.
2. The city will review the CalPERS annua I actuarial valuations to validate the completeness and
accuracy af the member census data and the reasonableness af the actuarial assumptions.
3. The city supports a policy of funding the full amount af the actuarially determined contribution
each year and making the full contribution as determined by Cai PERS. In the event the city is
unable to fund the full amount of the actuarially determined contribution in each year with
current resources (i.e., without borrowing ar using reserves), the administrative services Finance
Di rector or Deputy City Manager of Administrative Services will identify a reasonable period to
return to full funding.
4. The city will commit to a combined (both the city's miscellaneous and safety plans) pension
funded ratio of no less than a minimum of 80%, with a target funded ratio range of 80% to 85%.
For the purposes of this policy, the term "funded ratio" refers to the level of the pension plans
Sept. 12, 2023 Item #11 Page 25 of 36
Pension Funding Policy
Sept. 12, 2023
Page 3
assets, at market value, in proportion to the pension plans accrued liability. This is an annual
point-in-time measure, as of the valuation date. Assets contributed to the city's Section 115
Pension Trust shall be counted towards the calculation of this point-in-time measure.
5. Contributions to and withdrawals from the city's Section 115 Pension Trust shall require
authorization by the City Council.
6. In the event the city is unable to meet the minimum combined pension funded ratio of 80% with
current resources (i.e., without borrowing or using reserves), the Finance Director or Deputy
City Manager of Administrative Services will identify a reasonable period to return to a
minimum 80% funded ratio status.
7. The city will demonstrate accountability and transparency by communicat1ng all information
necessary for assessing the city's progress toward meeting its pension funding objectives. This
will be achieved, in part, by ensuring full and accurate implementation of Governmental
Accounting Standards Board No. 68, effective fiscal year 2014-15.
8. As part of the annual budget adoption process, the City Manager or Deputy City Manager of
Administrative Se rvices will report to the City Council on the following:
a. most recent actuarially determined pension contribution
b. most recent actuarially funded ratio and its compliance with either #4 or #5 above
c. any other significant issues associated with funding the defined benefit pension in a
stable and equitable manner as described above.
9. Staff will monitor changes to and expansions of pension funding best practices, as well as any
additional guidance provided by the Government Finance Officers Association that relate to the
funding of defined benefit pensions. Staff will return to City Council with modifications to this
policy as needed.
Sept. 12,2023 Item #11 Page 26 of 36
RESOLUTION NO. 2023-240
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, APPROVING THE ADOPTION OF CITY COUNCIL POLICY NO. 98
FOR THE CITY'S PENSION TRUST INVESTMENT POLICY
Exhibit 3
WHEREAS, the City Council of the City of Carlsbad, California has determined that financial
policies are central to a strategic, long-term approach to financial management; and
WHEREAS, the city's Pension Trust, established for the sole purpose of benefiting the general
public, has available funds to invest in accordance with principles of sound treasury management; and
WHEREAS, the city invests funds in accordance with provisions of California Government Code
Section 53600.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as
follows:
1. That the above recitations are true and correct.
2. That the City Council of the City of Carls bad, California accepts the In vestment Policy for
the Pension Trust dated September 12, 2023 (Attachment A).
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of
Carlsbad on the 12th day of September, 2023, by the following vote, to wit:
AYES:
NAVS:
ABSTAIN:
ABSENT:
Sept. 12, 2023
Blackburn, Bhat-Patel, Acosta, Burkholder, Luna.
None.
None.
None.
KEITH BLACKBURN, Mayor
11!
SHERRY FREISINGER, City Clerk
(SEAL)
Item #11 Page 27 of 36
City Council
POLICY STATEMENT
Subject: Pension Trust lnvestment Policy •
Purpose
Po licy No.
Date lssued
Attachment A
98
Sept. 12, 2023
Resolution No. 2023-240
The city established a Section 115 Trust with Public Agency Retirement Services (PARS) to assist
in stabilizing the potential impact of pension cost volatility on the city's operating budget. The
city intends to use the trust to pre-fund pension costs and proactively address any unfunded
liability. The city's goal is to have sufficient assets in the trust to maintain an 80% funded ratio
or status and to fund the additional costs associated with a potential future reduction in
CalPERS discount rate from 6.8% and 6.25%.
Account Name: City of Carlsbad Pension Trust
Account Number: XXXXXXXX
lnvestment Authority: Full lnvestment Authority
Current Assets: $0
Time Horizon: Long-Term
Target Rate of Return: 6.25%
Communication Schedule: Meetings will be conducted at least once per year
lnvestment Manager: Vanguard lnstitutional Advisory Services
lnvestment Objective: "Balanced"
This investment objective is designed to provide a moderate amount of current income with
moderate growth of capital. Investors should have sufficient tolerance for price and return
volatility and substantial periodic declines in investment value. This objective is recommended
for investors with a long-term time horizon.
The strategic asset allocation ranges and tactical targets for this objective are listed below:
Benchmark
Asset Class Range Target
Fixed lncome 35-45% 40%
Equities 49-59% 54%
Real Estate 4-8% 6%
Commodities n/a 0%
Cash n/a 0%
Sept. 12, 2023 Item #11 Page 28 of 36
Pension Trust lnvestment Policy
Sept. 12,2023
Page 2
Background
The city provides a defined benefit pension to its employees through the California Public
Employees' Retirement System (CalPERS). Cai PERS uses a formula to calculate retiree pensions
based on an employee's age, earnings, and years of service. It funds these pensions by a
combination of employer contributions, employee contributions and investment earnings. Each
year, Cai PERS determines the employer's contributions based on actual investment returns and
actuarial assumptions including expected investment returns (known as discount rates),
inflation rates, salaries, retirement ages and life expectancies.
In recent years, Cai PERS has twice lowered its discount rate, thereby increasing the likelihood af
achieving the target rate of return, but consequently increasing the city's pension costs. First, at
their Dec. 21, 2016, meeting, the Cai PERS Board of Administration voted to lower the CalPERS
discount rate assumption from 7.5% to 7.0% incrementally over three years. This was driven by
poor investment returns du ring the Great Recession and actuarial assumption changes
increasing the gap between pension assets and liabilities, resulting in the Cai PERS fund ed ratio
falling below desired levels. Then in November 2021, CalPERS completed its quadrennial Asset
Liability Management process, which reviewed investment strategies and actuarial
assumptions. The fiscal year 2020-21 investment gain of 21.3% triggered Cai PERS' Funding Risk
Mitigation Policy, prompting the Cai PERS Board to approve another discount rate reduction
from 7.0% to 6.8% at the November 15-17, 2021, meetings. When CalPERS achieves certain-
levels of return in excess of their target rate, their policy directs portions of the return to be
used to relieve pressure on the target rate in future periods. Again, while lowering the discount
rate increases the likelihood of Cai PERS achieving their target rate of return, the city's costs
increase as a result.
Over the last six years, the city has taken proactive steps to address pension contribution
volatility and manage the unfunded liability. Since fiscal year 2016-17, the city has contributed
$56.4 million in additional discretionary payments to CalPERS, which has significantly helped
increase the plan's funded status. While contributing additional funds to Cai PERS saves the city
future interest costs, there is also a higher risk of pension rate volatility du ring periods of poor
investment performance by Cai PERS. To mitigate this risk as well as the potential for Cai PERS to
further reduce its discount rate, the city has established a Section 115 Trust.
Statement of policy
SECTION 1: OVERVIEW
This document defines the investment policy, guidelines and performance objectives applicable
to the assets of the City of Carlsbad's Section 215 Trust. The goal of this Policy is to create an
investment framework within which the assets can be actively yet prudently managed.
Sept. 12, 2023 Item #11 Page 29 of 36
Pension Trust lnvestment Policy
Sept. 12, 2023
Page 3
The purpose of this document is threefold:
• First, it will set forth an investment structure for managing the Portfolio assets. This
structure is expected to produce an appropriate level of overall diversification and total
investment return over the investment time horizon.
• Second, it will serve to encourage effective communications between the organization
and parties involved with investment management decisions.
• Third, it will provide a framework to measure ongoing investment performance.
Within the constraints imposed by this Policy, lnvestment Managers are expected to comply
with all applicable fiduciary and due diligence requirements under the "prudent investor" ru les,
which state: "lnvestments shall be made with judgment and care, under circumstances then
prevailing, which persons of prudence, discretion and intelligence exercise in the management
of their own affairs, not for speculation, but for investment, considering the probable safety of
their capital as well as the probable income to be derived." All applicable laws, ru les and
regulations from various local, state, federal and international political entities that may impact
the Portfolio are to be adhered to.
SECTION 2: DIVERSIFICATION
The lnvestment Manager is responsible for maintaining the balance between the various asset
classes based on the investment objective's strategic asset allocation. Asa general policy, the
lnvestment Manager will maintain reasonable diversification at all times by asset class, credit
quality, issuer, sector, industry, and country.
The following parameters shall be adhered to in managing the portfolio:
Fixed lncome Assets
• The fixed income investments are to maintain intermediate-term average weighted
du ration, between three and seven years.
• At the time of purehase, no single fixed-income issuer shall exceed 2% of the total market
value of the Portfolio, except for U.5. Treasury or Agency obligations.
• The di reet high-yield portionshall constitute no more than 10% of the total market value
of the Portfolio.
• Hedged fixed-income positions shall constitute no more than 10% of the total market
value of the Portfolio.
Eguity & Growth Assets
• The domestic equity investments are expected to be diversified at all times by size,
industry, sector, and style (Large Cap, Mid Cap, and Small Cap).
Sept. 12, 2023 Item #11 Page 30 of 36
Pension Trust lnvestment Policy
Sept. 12, 2023
Page 4
• At the time of purehase, no individual equity security shall exceed 3% of the total market
value of the Portfolio.
• The international equity investments (including emerging markets) shall constitute no
more than 25% of the total market value of the Portfolio ..
• The real estate investments shall be captured through the use of diversified mutual funds
or ETFs investing in REITs; and shall constitute no more than 15% ofthe total market value
of the Portfolio.
• The commodities investments shall be captured through the use of diversified mutual
funds or ETFs; and shall constitute no more than 10% of the total market value of the
Portfolio.
• Hedged equity positions shall constitute no more than 10% of the total market value of
the Portfolio.
SECTION 3: PERMITTED ASSET CLASSES AND SECURITY TYPES
Fixed lncome & Cash Eguivalent lnvestments:
• Domestic Certificates of Deposit (rated A-1/P-1 or better)
• Domestic Commercial Paper (rated A-1/P-1 or better)
• Floating Rate Notes
• Money Market Mutual Funds
• U.S. Treasury Bonds, Bills and Notes
• U.S. Agency (and lnstrumentality) Discount Notes, Notes, and Bonds
• Treasury lnflation-Protected Securities (TIPS)
• Municipal Bonds and Notes
• Corporate Bonds
• Mortgage-Backed Bonds (MBS)
• Asset-Backed Bonds (ABS)
• High-Yield Bonds (rated B-/B3 or better)
• Dollar denominated Foreign Bonds and Notes
• Bond Mutual Funds
Eguity lnvestments:
• Common & Preferred Stocks
• American Depository Receipts (ADRs)
• Domestic and International Equity Mutual Funds (Open and Closed)
• Emerging Market Equity Funds or Exchange Traded Funds (ETFs)
Alternative lnvestments:
• Commodities Mutual Funds or Exchange Traded Notes (ETNs)
• REIT lnvestment or Pooled Strategy or Fund of REITs
• Registered Hedge Funds or Hedge Fund of Funds
Sept. 12, 2023 Item #11 Page 31 of 36
Pension Trust lnvestment Policy
Sept. 12,2023
Page 5
SECTION 4: PROHIBITED ASSET CLASSES AND TRANSACTIONS
The lnvestment Manager is prohibited from purchasing or holding any of the following types of
investments:
• Partnerships unless investing in Master Limited Partnerships invested in a mutual fund
and limited in scope and allocation of Portfolio based on asset class !imitations of table
above
• letter stock and other unregistered securities; physical commodities or other commodity
contracts; and short sales or margin transactions
• lnvestments in the equity securities of any company with a record of less than three years
of continuous operation, including the operation of any predecessor
• lnvestments for the purpose of exercising control of management
• Direct or indirect exposure to cryptocurrencies
• Leveraged securities, other than registered Hedged Equity and Hedged Fixed lncome
positions
SECTION 5: DUTIES AND RESPONSIBILITIES
1) CITY OF CARLSBAD CITY COUNCIL
a) Establish, approve, and maintain investment objectives, guidelines, and policies.
b) Appoint lnvestment Managers who can be reasonably expected to adhere to the
investment guidelines and meet the investment objectives as established .
c) Monitor the investment performance of the Portfolio and compare actual investment
performance relative to an appropriate benchmark index given the stated investment
guidelines and objectives set forth in this Policy.
d) Conduct a formal review of the Portfolio's asset allocation, investment structure and
performance annually or more frequently as the need arises.
e) Periodically revi ew the Portfolio performance against objectives.
2) INVESTMENT MANAGER
The lnvestment Manager will be responsible for carrying out the activities related to the
Portfolio in accordance with the Policy including:
a) Manage the day-to-day investment of Portfolio assets in accordance with the Policy
guidelines and objectives included herein.
b) Exercise full investment discretion and prudence in the se lection and diversification
of investments.
c) Promptly bring to the attention of the City Treasurer or designee any investment that
is subsequently downgraded and fails to meet the quality gu idelines, along with a
recommendation of retention or disposal.
Sept. 12,2023 Item #11 Page 32 of 36
Pension Trust lnvestment Policy
Sept. 12, 2023
Page 6
d) Provide on a quarterly basis the foliowing investment reporting:
(i) Year-to-date rate of return
(ii) Annualized one, three, five, etc. rates of return
SECTION 6: INVESTMENT POLICY STATEMENT REVIEW
The City Council will review and adopt this lnvestment Policy Statement at least annually to
determine whether stated investment objectives are still relevant and the continued feasibility
of achieving the same. It is not expected that the Policy will change frequently. In particular,
short-term changes in the financial markets should not require adjustments to the Policy.
lf at any time the lnvestment Manager finds the above guidelines too restrictive or possibly
injurious to investment returns, they should communicate that information immediately to the
City Council.
Sept. 12, 2023 Item #11 Page 33 of 36
Exhibit 4
City Council Policy No.
Date lssued
POLICY STATEMENT
Reso lution No.
Subject: Pension Funding Policy
Purpose
The purpose of this policy is to provide rea sonable assurance that the costs of the city's defined benefit
pension plans will be funded in an equitable and sustainable manner. It codifies the city's commitment
to fund these benefits based on regular actuarial valuations, and to measure and report them in
accordance with generally accepted accounting principles (GAAP). Adhering to a funding policy that
embodies these funding and accounting principles is a prudent governance practice, and helps achieve
intergenerational equity among those who financially support the plan. It also ensures that resources
are available to fulfill the city's contractual promises to its employees, and minimizes the chance that
funding ofthese benefits will interfere with the city's ability to provide essential services to the public.
Background
The city provides defined benefit retirement benefits through the California Public Employees'
Retirement System (CalPERS). CalPERS is a multiple-employer public employee defined benefit pension
plan.
All full-time and certain part-time employees hired and all city safety employees, are eligible to
participate in CalPERS. CalPERS provides retirement and disability benefits, annual cost of living
adjustments, and death benefits to plan members and their beneficiaries. Benefits are based on years
of credited service, equal to one year offull time employment. CalPERS acts as a common investment
and administrative agent for participating public entities within the State of California. Benefit
provisions and all other requirements are established by State of California statute and city resolution.
Pension Funding: A Guide for Elected Officials, issued by eleven national groups including the U.S.
Conference of Mayors, the International City/County Management Association, and the Government
Finance Officers Association, established the foliowing five general policy objectives fora pension
funding policy:
1. Actuarially Determined Contributions -a pension funding plan should be based
upon an actuarially determined contribution (ADC) that incorporates both the cost
of benefits in the current year and the amortization ofthe plan's unfunded actuarial
accrued liability.
2. Funding Discipline -a commitment to make timely, actuarially determined
contributions to the retirement system is needed to ensure that sufficient assets are
available for all current and future retirees.
3. lntergenerational equity -annua I contributions should be reasonably related to the
expected and actual cost of each year of service, so the cost of employee benefits
is paid by the ge neration of taxpayers who receives services from those employees.
Sept. 12, 2023 Item #11 Page 34 af 36
City Council Policy Statement
Date
Page 2
4. Contributions as a stable percentage of payroll -contributions should be
managed so that employer costs remain cons istent as a percentage of payroll over
time.
5. Accountability and transparency-clear reporting of pension funding should
include an assessment of whether, how, and when the plan sponsor will ens ure
sufficient assets are available for all current and future retirees.
The financial objective of a defined benefit pension plan is to fund the lang-term cost of benefits
provided to the plan participants. Toassure that the plan is financially sustainable, the plan should
accumulate adequate resources in a systematic and disciplined manner over the active service life of
benefitting employees. This funding policy outlines the method the city will utilize to determine its
actuarially determined contributions to fund the lang-term cost of benefits to the plan participants and
annuitants.
Statement of policy
The city will ensure the costs of the city's defined benefit pension plans will be funded in an
equitable and sustainable manner. The city commits to fund these benefits based on regular
actuarial valuations and commits to maintaining no less than an 80% funded ratio, with a target
funded ratio of 80% to 85%. The city will ensure that resources are available to both fulfill the
city's contractual promises to its employees and minimize the chance that funding these
benefits will interfere with the city's ability to provide essential services to the public.
Procedure
To achieve the purpose of this policy, the city will take the foliowing actions:
1. The city will use the actuarially determined contribution (ADC) provided by Cai PERS annually to
serve as the basis for its pension contributions. The ADC will include the normal cost for current
service (variable cost) and the amortization of any unfunded amount (fixed cost). The normal
cost will be calculated using the entry age normal cost method using economic and non-
economic assumptions approved by the CalPERS Board of Administration.
2. The city will review the CalPERS annual actuarial valuations to validate the completeness and
accuracy of the member census data and the reasonableness of the actuarial assumptions.
3. The city supports a policy of funding the full amount of the actuarially determined contribution
each year and making the full contribution as determined by CalPERS. In the event the city is
unable to fund the full amount of the actuarially determined contribution in each year with
current resources (i.e., without borrowing or using reserves), the administrative services Finance
Director or Deputy City Manager of Administrative Services will id entify a reasonable period to
return to full funding.
4. The city will commit to a combined (both the city's miscellaneous and safety plans) pension
funded ratio of no less than a minimum of 80%, with a target funded ratio range of 80% to 85%.
For the purposes of this policy, the term "funded ratio" refers to the level of the pension plans
Sept. 12, 2023 Item #11 Page 35 of 36
City Council Policy Statement
Date
Page 3
assets, at market value, in proportion to the pension plans accrued liability. This is an annua!
point-in-time measure, as of the valuation date. Assets contributed to the city's Section 115
Pension Trust shall be counted towards the calculation of this point-in-time measure.
5. Contributions to and withdrawals from the city's Section 115 Pension Trust shall require
authorization by the City Council.
6. In the event the city is unable to meet the minimum combined pension funded ratio of 80% with
current resources (i.e., without borrowing or using reserves), the Finance Di rector or Deputy
City Manager of Administrative Services will identify a reasonable period to return to a
minimum 80% funded ratio status.
7. The city will demonstrate accountability and transparency by communicating all information
necessary for assessing the city's progress toward meeting its pension funding objectives. This
will be achieved, in part, by ensu ring ful! and accurate implementation of Governmental
Accounting Standards Board No. 68, effective fiscal year 2014-15.
8. As part of the annua I budget adoption process, the City Manager or Deputy City Manager of
Administrative Services will report to the City Council on the following:
a. most recent actuarially determined pension contribution
b. most recent actuarially funded ratio and its compli ance with either #4 or #5 above
c. any other significant issues associated with funding the defined benefit pension in a
stable and equitable manner as described above.
9. Staff will monitor changes to and expansions of pension funding best practices, as well as any
additional guidance provided by the Government Finance Officers Association that relate to the
funding of defined benefit pensions. Staff will return to City Council with modifications to this
policy as needed.
Sept. 12, 2023 Item #11 Page 36 of 36
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, APPROVING THE ADOPTION OF THE PUBLIC AGENCIES POST-
EMPLOYMENT BENEFITS TRUST ADMINISTERED BY PUBLIC AGENCY
RETIREMENT SERVICES
Attachment B
WHEREAS, it is determined to be in the best interest of the City of Carlsbad to set aside funds
for the purpose of pre-funding its California Public Employees' Retirement System (CalPERS) pension
obligations that will be held in trust for the exclusive purpose of making future contributions of the
city's required pension contributions and any employer contributions in excess of such required
contributions at the discretion of the city; and
WHEREAS, Public Agency Retirement Services (PARS) has made available the PARS Public
Agencies Post-Employment Benefits Trust (the Program) for the purpose of pre-funding the City of
Carlsbad's pension obligations; and
WHEREAS, the city is eligible to participate in the Program, a tax-exempt trust performing an
essential governmental function within the meaning of Section 115 of the lnternal Revenue Code, as
amended, and the regulations issued there under, and is a tax-exempt trust under the relevant
statutory provisions of the State of California; and
WHEREAS, the city's adoption and operation of the Program have no effect on any current or
former employee's entitlement to post-employment benefits; and
WHEREAS, the terms and conditions of post-employment benefit entitlement, if any, are
governed by contracts separate from and independent of the Program; and
WHEREAS, the city's funding of the Program does not, and is not intended to, create any new
vested right to any benefit nor strengthen any existing vested right; and
WHEREAS, the city reserves the right to make contributions, if any, to the Program; and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as
follows:
1. That the above recitations are true and correct.
2. That the City Council hereby adepts the PARS Public Agencies Post-Employment Benefits
Trust, effective .September 12. 2023; and
3. The City Council hereby appoints the City Manager or their successor or their designee
as the city's Plan Administrator for the Program; and
4. The city's Plan Administrator is hereby authorized to execute legal and administrative
documents with the third-party administrator selected by the City Council and to take
whatever additional actions necessary to maintain the city's participation in the
Program and to maintain compliance with any relevant regulation issues or as may be
issued; therefore, authorizing him/her to take whatever addition al actions are required
to administer the city's Program.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of
Carlsbad on the 12th day of September, 2023, by the following vote, to wit:
AYES:
NAVS:
ABSTAIN:
ABSENT:
Blackburn, Bhat-Patel, Acosta, Burkholder, Luna.
None.
None.
None.
KEITH BLACKBURN, Mayor
()pL
SHERRY FREISINGER, City Clerk
(SEAL)