HomeMy WebLinkAboutCC AG PKT 2008-02-11 #L
AGENDA STAFF REPORT
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DATE:
TO:
February 11 , 2008
THRU:
FROM:
Honorable Mayor and City Council
David N. Carmany, City Manager
Robbeyn Bird, Director of Administrative Services
Andrew J. Tse, Personnel Manager
SUBJECT: Agreement with CalPERS to Provide Retiree Benefit
Trust Services
SUMMARY OF REQUEST:
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Staff requests that Council adopt the proposed resolution approving the
agreement with CalPERS to provide retiree benefit trust management and
investment services. This agreement will allow the City to comply with
Governmental Accounting Standards Board statement #45 for the accounting of
Other Post Employment Benefits, and provide a lower risk investment
mechanism for the City to prefund the liability.
BACKGROUND:
During the January 11, 2008 City Council meeting, information was presented to
the City Council regarding Governmental Accounting Standards Board Statement
No. 45, Accounting Standards for Other Post Employment Benefits and the
requirement for the City to implement Statement 45 during the 2008 - 09 fiscal
year.
Actuary John Bartel presented to the Council at the meeting his firm's findings of
the City's healthcare other post employment benefits liability and the positive
revision that reflected recent cost reduction efforts the City has been able to
make through the collective bargaining process and agreement.
The City of Seal Beach budgeted $232,000 for retiree health care costs in fiscal
2007. Implementation of Statement 45 will result in those expenditures nearly
tripling from the current amount. Completion of this actuarial study now helps
determine the City's exposure and allows time to determine a course of action for
the fiscal year 2008 -09 and subsequent budgets. The City has the opportunity
to address this unfunded liability by pre-funding using a trust.
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Agenda Item
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California Employers' Retiree Benefits Trust (CERBT)
Page 2
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The California Public Employees' Retirement System has created a trust fund
that allows public employers to pre-fund the future cost of their retiree healthcare
insurance benefits and other post-employment benefits for their employees or
retirees.
The trust allows participating employers to make regular periodic contributions
into the trust fund. In the future, participating employers will be able to use
investment earnings to pay for retiree health benefits, similar to the California
Public Employees' Retirement System pension plan in which, long-term, three
out of four dollars paid for retirement benefits come from investment earnings
instead of current taxpayer dollars and employer contribution.
In addition to health insurance, other post-employment benefits can include
dental, vision, and other healthcare related benefits.
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With pre-funding, employers make periodic payments into the trust fund to
partially or completely fund future Other Post Employment Benefits obligations,
which produces many benefits such as using earnings from trust fund
investments to reduce employer costs; employer investment rate assumptions,
known as discount rate assumptions, will be higher, reducing annual expenses
and the unfunded liability for Other Post Employment Benefits costs; prevents an
employer's Other Post Employment Benefits obligation from becoming a
significant liability on the balance sheet; and a lower unfunded liability may result
in a higher bond rating.
The California Public Employees' Retirement System California Employers'
Retiree Benefits Trust Fund appears to be the lowest risk investment vehicle for
the City. The California Public Employees' Retirement System is the largest
retirement plan entity in the country and has demonstrated a solid record of rate
of return on its investments. As a member of the California Employers' Retiree
Benefits Trust Fund, the City's return on investment would be at the California
Public Employees' Retirement System assumption of seven and three quarters
(7% %) percent. This provides the City with higher returns than that of the open
market and lower risk of investing.
FINANCIAL IMPACT:
It was projected by the actuarial valuation that $600,000 is the fiscal commitment
required to fully fund the City's Annual Required Contribution. Most of that
amount is, approximately $430,000, an amortization of prior service costs. pay-
as-you-go is now $232,000. If the City's Annual Required Contribution is fully
funded, 3 out of 4 dollars needed long-term will be generated by investment
returns.
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California Employers' Retiree Benefits Trust (CERBT)
Page 3
e RECOMMENDATION:
Staff recommends that City Council approve the attached Resolution authorizing
the City Manager to execute the Agreement and Election of the City of Seal
Beach to Prefund Other Post Employment Benefits through the California Public
Employees' Retirement System California Employers' Retiree Benefits Trust
Fund.
SUBMITTED BY:
NOTED AND APPROVED:
~i'i ~
Robbeyn ird, Dir of Admin Services
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David Carmany, ty Manager
Attachments:
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A. Resolution
B. "Agreement and Election of the City of Seal Beach to Prefund Other Post Employment Benefits
through the California Public Employees' Retirement System California Employers' Retiree
Benefits Trust Fund
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RESOLUTION NUMBER
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A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEAL
BEACH, CALIFORNIA APPROVING THE AGREEMENT WITH
CALPERS TO PROVIDE RETIREE BENEFIT TRUST SERVICES
WHEREAS. the Governmental Accounting Standards Board Statement No. 45,
Accounting Standards for Other Post Employment Benefits, established new
financial reporting requirements: and
WHEREAS, the City Is required to Implement Statement No. 45 during the 2008
- 09 fiscal year; and
WHEREAS, the City has completed an actuarial study of Its Other Post
Employment Benefits liabilities; and
WHEREAS, the City has the opportunity to address this unfunded liability by pre-
funding using a trust; and
WHEREAS, the California Public Employee's Retirement System has created a
trust fund that allows public employers to pre-fund the future cost of their retiree
healthcare Insurance benefits and other post employment benefits for their
employees and retirees; and
WHEREAS, the trust allows particlpallng employers to make regular periodiC
contributions Into the trust fund. which in the future Investment earnings will be
utilized to pay for ratiree health benefits, similar to the California Public
Employee's Retirement System pension plan.
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NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SEAL BEACH
DOES HEREBY RESOLVE:
Section 1. The Agreement and Election of the City of Seal Beach to Prefund
Other Post Employment Benefits through California Public Employee's
Retirement System is approved.
PASSED, APPROVED and ADOPTED by the City Council of the City of Seal
Beach at a regular meeting held on the 11th day of Februarv ,2008 by the
following vote:
AYES: Councllmember
NOES: Councllmember
ABSENT: Councilmember
ABSTAIN: Councllmember
Mayor
ATTEST:
City Clerk
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STATE OF CALIFORNIA
COUNTY OF ORANGE
CITY OF SEAL BEACH
}
} SS
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I, Linda Devine, City Clerk of the City of Seal Beach. California, do hereby certify
that the foregoing resolution Is the original copy of Resolution Number
on file In the office of the City Clerk, passed, approved, and adopted by the City
Council of the City of Seal Beach at a regular meeting held on the 11th day
of Februarv ,2008.
City Clerk
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CALIFORNIA EMPLOYER'S RETIREE BENEFIT TRUST PROGRAM ("CERBr')
AGREEMENT AND ELECTION
OF
City of Seal Beach
(NAME OF EMPLOYER)
TO PREFUND OTHER POST EMPLOYMENT
BENEFITS THROUGH CalPERS
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WHEREAS (1) Government Code Section 22940 establishes in the State Treasury the
Annuitants' Health Care Coverage Fund for the prefunding of health care coverage for
annuitants (Prefunding Plan); and
WHEREAS (2) The California Public Employees' Retirement System (CaIPERS) Board
of Administration (Board) has sole and exclusive control and power over the
administration and investment of the Prefunding Plan (sometimes also referred to as
CERBT), the purposes of which include, but are not limited to (i) receiving contributions
from participating employers and establishing separate Employer Prefunding Accounts
in the Prefunding Plan for the performance of an essential governmental function (Ii)
investing contributed amounts and income thereon, if any, in order to receive yield on
the funds and (iii) disbursing contributed amounts and income thereon, if any, to pay for
costs of administration of the Prefunding Plan and to pay for health care costs or other
post employment benefits in accordance with the terms of participating employers'
plans; and
WHEREAS (3)
City of Seal Beach
(NAME: OF EMPLOYERJ
(Employer) desires to participate in the Prefunding Plan upon the terms and conditions
set by the Board and as set forth herein; and
WHEREAS (4) Employer may participate in the Prefunding Plan upon (i) approval by
the Board and (Ii) filing a duly adopted and executed Agreement and Election to Prefund
Other Post Employment Benefits (Agreement) as provided in the terms and conditions
of the Agreement; and
WHEREAS (5) The Prefunding Plan is a trust fund that is inlended to perform an
essential governmental function within the meaning of Section 115 of the Internal
Revenue Code as an agent multiple-employer plan as defined in Governmental
Accounting Standards Board (GAS B) Statement No. 43 consisting of an aggregation of
single-employer plans, with pooled administrative and investment functions;
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NOW, THEREFORE, BE IT RESOLVED THAT EMPLOYER HEREBY MAKES THE
FOLLOWING REPRESENTATION AND WARRANTY AND THAT THE BOARD AND
EMPLOYER AGREE TO THE FOLLOWING TERMS AND CONDITIONS:
A. Representation and Warranty
Employer represents and warrants that it is a political subdivision of the State of
California or an entity whose income is excluded from gross income under Section 115
(1) of the Internal Revenue Code.
B. Adoption and Approval of the Agreement; Effective Date; Amendment
(1) Employer's governing body shall elect to participate in the Prefunding Plan by
adopting this Agreement and filing with the CalPERS Board a true and correct original
or certified copy of this Agreement as follows:
Filing by mail, send to:
CalPERS
Constituent Relations Office
CERBT (OPEB)
P.O. Box 942709
Sacramento, CA 94229-2709
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Filing in person, deliver to:
CalPERS Mailroom
Attn: Employer Services Division
400 Q Street
Sacramento, CA 95814
(2) Upon receipt of the executed Agreement, and after approval by the Board, the
Board shall fix an effective date and shall promptly notify Employer of the effective date
of the Agreement.
(3) The terms of this Agreement may be amended only in writing upon the agreement
of both CalPERS and Employer, except as Qtherwise provided herein. Any such
amendment or modification to this Agreement shall be adopted and executed in the
same manner as required for the Agreement. Upon receipt of the executed amendment
or modification, the Board shall fix the effective date of the amendment or modification.
(4) The Board shall institute such procedures and processes as it deems necessary to
administer the Prefunding Plan, to carry out the purposes of this Agreement, and to
maintain the tax exempt status of the Prefunding Plan. Employer agrees to follow such
procedures and processes.
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C. Actuarial Valuation and Employer Contributions
(1) Employer shall provide to the Board an actuarial valuation report on the basis of the
actuarial assumptions and methods prescribed by the Board. Such report shall be for
the Board's use in financial reporting, shall be prepared atleast as often as the
minimum frequency required by GASB Statement No. 43, and shall be:
(a) prepared and signed by a Fellow or Associate ofthe Society of Actuaries
who is also a Member of the American Academy of Actuaries or a person
with equivalent qualifications acceptable to the Board;
(b) prepared in accordance with generally accepted actuarial practice and
GASB Statement Nos. 43 and 45; and, .
(c) provided to the Board prior to the Board's acceptance of contributions for
the valuation period or as otherwise required by the Board.
(2) The Board may reject any actuarial valuation report submitted to it, but shall not
unreasonably do so. In the event that the Board determines, in its sole discretion, that
the actuarial valuation report is not suitable for use in the Board's financial statements or
if Employer fails to provide a required actuarial valuation, the Board may obtain, at
Employer's expense, an actuarial valuation that meets the Board's financial reporting
needs. The Board may recover from Employer the cost of obtaining such actuarial
valuation by billing and collecting from Employer or by deducting the amount from
Employer's account in the Prefunding Plan.
(3) Employer shall notify the Board of the amount and time of contributions which
contributions shall be made in the manner established by the Board.
(4) Employer contributions to the Prefunding Plan may be limited to the amount
necessary to fully fund Employer's actuarial present value of total projected benefits, as
supported by the actuarial valuation acceptable to the Board. As used throughout this
document, the meaning of the term "actuarial present value of total projected benefits"
is as defined in GASB Statement No. 45. If Employer's contribution causes its assets in
the Prefunding Plan to exceed the amount required to fully fund the actuarial present
value of total projected benefits, the Board may refuse to accept the contribution.
(5) Any EmplOyer contribution will be at least $5000 or be equal to Employer's Annual
Required Contribution as that term is defined in GASe Statement No. 45. Contributions
can be made at any time following the seventh day after the effective date of the
Agreement provided that Employer has first complied with the requirements of
Paragraph C.
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D. Administration of Accounts, Investments, Allocation of Income
(1) The Board has established the Prefunding Plan as an agent plan consisting of an
aggregation of single-employer plans, with pooled administrative and investment
functions, under the terms of which separate accounts will be maintained for each
employer so that Employer's assets will provide benefits only under employer's plan.
(2) All Employer contributions and assets attributable to Employer contributions shall be
separately accounted for in the Prefunding Plan (Employer's Prefunding Account).
(3) Employer's Prefunding Account assets may be aggregated with prefunding account
assets of other employers and may be co-invested by the Board in any asset classes
appropriate for a Section 115 Trust.
(4) The Board may deduct the costs of administration of the Prefunding Plan from the
investment income or Employer'S Prefunding Account in a manner determined by the
Board.
(5) Investment income shall be allocated among employers and posted to Employer's
Prefunding Account as determined by the Board but no less frequently than annually.
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(6) If Employer's assets in the Prefunding Plan exceed the amount required to fully fund
the actuarial present value of total projected benefits, the Board, in compliance with
applicable accounting and legal requirements, may return such eJCCess to Employer.
E. Reports and Statements
(1) Employer shall submit with each contribution a contribution report in the form and
containing the information prescribed by the Board.
(2) The Board shall prepare and provide a statement of Employer's Prefunding Account
at least annually reflecting the balance in Employer's Prefunding Account, contributions
made during the period and income allocated during the period, and such other
information as the Board determines.
F. Disbursements
(1) Employer may receive disbursements not to exceed the annual premium and other
costs of post employment healthcare benefits and other post employment benefits as
defined in GASB 43.
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(2) Employer shall notify CalPERS in writing in the manner specified by CalPERS of the
persons authorized to request disbursements from the Prefunding Plan on behalf of
Employer.
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(3) Employer's request for disbursement shall be in writing signed by Employer's
authorized representative, in accordance with procedures established by the Board.
The Board may require that Employer certify or otherwise establish that the monies will
be used for the purposes of the Prefunding Plan.
(4) Requests for disbursements that satisfy the requirements of paragraphs (2) and (3)
that are received on or after the first of a month will be processed by the 15th of the
following month. (For example, a disbursement request received on or between March
1st and March 31st will be processed by April 15th; and a disbursement request
received on or between April 1st and April 30th will be processed by May 15th.)
(5) CalPERS shall not be liable for amounts disbursed in error if it has acted upon the
instruction of an individual authorized by Employer to request disbursements. In the
event of any other erroneous disbursement, the extent of CaIPERS' liability shall be the
actual dollar amount of the disbursement, plus interest at the actual earnings rate but
not less than zero.
(6) No disbursement shall be made from the Prefunding Plan which exceeds the
balance in Employer's Prefunding Account.
. G. Costs of Administration
Employer shall pay its share of the costs of administration of the Prefunding Plan, as
determined by the Board.
H. Termination of Employer Participation in Prefunding Plan
(1) The Board may terminate Employer's participation in the Prefunding Plan if:
(a) Employer gives written notice to the Board of its election to terminate;
(b) The Board finds that Employer fails to satisfy the terms and conditions of
this Agreement or of the Board~s rules or regulations.
(2) If Employer's participation in the Prefunding Plan terminates for any of the foregoing
reasons, all assets in Employer's Prefunding Account shall remain in the Prefunding
Plan, except as otherwise provided below, and shall continue to be invested and accrue
income as provided in Paragraph D.
(3) After Employer's participation in the Prefunding Plan terminates, Employer may not
make contributions to the Prefunding Plan.
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(4) After Employer's participation in the Prefunding Plan terminates, disbursements
from Employer's Prefunding Account may continue upon Employer's instruction or
otherwise in accordance with the terms of this Agreement.
(5) After thirty-six (36) months have elapsed from the effective date of this Agreement
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(a) Employer may request a trustee to trustee transfer of the assets in
Employer's Prefunding Account. Upon satisfactory showing to the Board
that the transfer will satisfy applicable requirements of the Internal
Revenue Code and the Board's fiduciary duties, then the Board shall
effect the transfer within one hundred twenty (120) days. The amount to
be transferred shall be the amount in the Employer's Prefunding Account
as of the disbursement date and shall include investment earnings up to
the investment earnings allocation date immediately preceding the
disbursement date. In no event shall the investment earnings allocation
date precede the transfer by more than 120 days.
(b) Employer may request a disbursement of the assets in Employer's
Prefunding Account. Upon satisfactory showing to the Board that all of
Employer's obligations for payment of post employment health care
benefits and other post employment benefits and reasonable
administrative costs of the Board have been satisfied, then the Board shall
effect the disbursement within one hundred twenty (120) days. The
amount to be disbursed shall be the amount in the Employer's Prefunding
Account as of the disbursement date and shall include investment
earnings up to the investment earnings allocation dae immediately
preceding the disbursement date. In no event shall the investment
earnings allocation date pre(:E!de the disbursement by more than 120
days.
(6) After Employer's participation in the Prefunding Plan terminates and at such time
that no assets remain in Employer's Prefunding Account, this Agreement shall
terminate.
(7) If, for any reason, the Board terminates tt1e Prefunding Plan, the assets in
Employer's Prefunding Account shall be paid to Employer after retention of (i) amounts
sufficient to pay post employment health care benefits and other post employment
benefits to annuitants for current and future annuitants described by the employer's
current substantive plan (as defined in GASB 43), and (iI) amounts sufficient to pay
reasonable administrative costs of the Board.
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(8) If Employer ceases to exist but Employer's Prefunding Plan continues to exist and if
no provision has been made by Employer for ongoing payments to pay post
employment health care benefits and other post employment benefits to annuitants for
current and future annuitants, the Board is authorized to and shall appoint a third party
administrator to carry out Employer's Prefunding Plan. Any and all cost! associated
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with such appointment shall be paid from the assets attributable to contributions by
Employer.
(9) If Employer should breach the representation and warranty set forth in Paragraph
A., the Board shall take whatever action it deems necessary to preserve the tax-exempt
status of the Prefunding Plan.
I. General Provisions
(1) Books and Records.
Employer shall keep accurate books and records connected with the performance of
this Agreement. Employer shall ensure that books and records of subcontractors,
suppliers, and other providers shall also be accurately maintained. Such books and
records shall be kept in a secure location at the Employer's office(s) and shall be
available for inspection and copying by CalPERS and its representatives.
(2) Audit.
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(a) During and for three years after the term of this Agreement, Employer
shall permit the Bureau of State Audits, CaIPERS, and its authorized
representatives, and such consultants and specialists as needed, at all
reasonable times during normal business hours to inspect and copy, at the
expense of CaIPERS, books and records of Employer relating to its
performance of this Agreement.
(b) Employer shall be subject to examination and audit by the Bureau of State
Audits, CaIPERS, and its authorized representatives, and such
consultants and specialists as needed, during the term of this Agreement
and for three years after final payment under this Agreement. Any
examination or audit shall be confined to those matters connected with the
performance of this Agreement, including, but not limited to, the costs of
administering this Agreement. Employer shall cooperate fully with the
Bureau of State Audits, CaIPERS, and its authorized representatives, and
such consultants and specialists as needed, in connection with any
examination or audit. All adjustments, payments, and/or reimbursements
determined to be necessary by any examination or audit shall be made
promptly by the appropriate party.
(3) Notice.
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(a) Any notice, approval, or other communication required or permitted under
this Agreement will be given in the English language and will be deemed
received as follows:
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1. Personal delivery. lI'vtIen personally delivered to the recipient.
Notice is effective on delivery.
2. First Class Mail. lI'vtIen mailed first class to the last address of the
recipient known to the party giving notice. Notice is effective three
delivery days after deposit in a United States Postal Service office
or mailbox.
3. Certified mail. lI'vtIen mailed certified mail, return receipt requested.
Notice is effective on receipt, if delivery is confirmed by a return
receipt.
4. Overnight Delivery. lI'vtIen delivered by an overnight delivery
service, charges prepaid or charged to the sender's account, Notice
is effective on delivery.. if delivery is confirmed by thl! delivery
service.
5.
Telex or Facsimile Transmission. When sent by telex or fax to the
last telex or fax number of the recipient known to the party giving
notice. Notice is effective on receipt, provided that (i) a duplicate
copy of the notice is promptly given by first-class or certified mail or
by ovemiglt delivery, or (ii) the receiving party delivers a written
confirmation of receipt. Any notice given by telex or fax shall be
deemed received on the next business day if it is received after
5:00 p.m. (recipienfs time) or on a nonbusiness day.
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6. E-mail transmission. When sent by e-mail using software that
provides unmodifiable proof (i) that the message was sent, (ii) that
the message was delivered to the recipienfs information processing
system, and (iii) of the time and date the message was delivered to
the recipient along with a verifiable electronic record of the exact
content of the message sent.
Addresses for the purpose of giving notice are as shown in Paragraph 8.(1) of this
Agreement.
(b) Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified
shall be deemed effective as of the first date that said notice was refused,
unclaimed, or deemed undeliverable by the postal authorities, messenger
or overnight delivery seNce.
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(c) Any party may change its address, telex, fax number, or e-mail address by
giving the other party notice of the change in any manner permitted by this
Agreement.
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(d) All notices, requests, demands, amendments, modifications or other
communications under this Agreement shall be in writing. Notice shall be
sufficient for all such purposes if personally delivered, sent by first class,
registered or certified mail, return receipt requested, delivery by courier
with receipt of delivery, facsimile tra~mission with written confirmation of
receipt by recipient, or e-mail delivery with verifiable and unmodifiable
proof of content and time and date of sending by sender and delivery to
recipient. Notice is effective on confirmed receipt by recipient or 3
business days after sending, whichever is sooner.
(4) Modification
This Agreement may be supplemented, amended, or modified only by the mutual
agreement of the parties. No supplement, amendment. or modification of this
Agreement shall be binding unless it is in writing and signed by the party to be charged.
(5) Survival
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All representations, warranties, and covenants contained in this Agreement, or in any
instrument, certificate, exhibit, or other writing intended by the parties to be a part of
their Agreement shall survive the termination of this Agreement until such time as all
amounts in Employer's Prefunding Account have been disbursed.
(6) Waiver
No waiver of a breach, failure of any condition, or any right or remedy contained in or
granted by the provisions of this Agreement shall be effective unless it is in writing and
signed by the party waiving the breach, failure, right, or remedy. No waiver of any
breach, failure, right, or remedy shall be deemed a waiver of any other breach, failure,
right, or remedy, whether or not similar, nor shall any waiver constitute a continuing
waiver unless the writing so specifies.
(7) Necessary Acts, Further Assurances
The parties shall at their own cost and expense execute and deliver such further
documents and instruments and shall take such other actions as may be reasonably
required or appropriate to evidence or carry out the intent and purposes of this
Agreement.
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A majority vote of Employer's Governing Body at a public meeting held on the "..
day of the month of Februery in the year 2008 , authorized entering
into this Agreement
Signature of the Presiding Officer:
Printed Name of the Presiding Officer: Charles Antos, Mayor
Name of Governing Body:
City Council of the City of Seal Beach
Name of Employer: City of Seal Beach
Date: February 11, 2008
BOARD OF ADMINISTRATION
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
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BY
KENNETH W. MARZION
ACTUARIAL AND EMPLOYER SERVICES BRANCH
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
To be completed by CalPERS
The effective date of this Agreement is:
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