ITEM NO. 8.1
AGENDA REPORT
 
Meeting Date: October 10, 2017
To: Board of Directors
From: Marc Marcantonio, General Manager
Presented By: Brett R. Barbre, Asst General Manager
    Reviewed by Legal: Pending
Prepared By: Brett R. Barbre, Asst General Manager
Subject: Establishing Public Agency Retirement Services (PARS) Public Agencies Post-Employment Benefits Trust and Adopting Pay Down Schedules for the District's Other Post Employment Benefits (OPEB) and Public Employees' Retirement System (PERS) Liabilities
SUMMARY:
At the September 26, 2017 meeting, the Board directed staff to return with an agreement for the establishment of a Section 115 trust account with an entity that manages an investment trust designed to prefund pension account liabilities.  The Pension Rate Stabilization Program (PRSP), which has been established by PARS, is the only option available which will allow the District to pre-fund PERS pension liabilities outside of the CalPERS system.  In addition, YLWD can utilize the same account to pre-fund the District's OPEB liabilities.
STAFF RECOMMENDATION:
That the Board of Directors:

(1) approve Resolution No. 17-32 adopting the Public Agencies Post-Employment Benefits Trust administered by PARS, subject to review as to form by general counsel;

(2) direct staff to make a payment in the amount of $247,599 in order to open the PARS account and select the Moderate Risk Investment Strategy;

(3) adopt a 5 year pay down schedule for the District's OPEB liabilities, beginning July 1, 2018, in the amount of $377,239;

(4) adopt a pay down schedule, in an annual amount and schedule to be determined at the meeting, to prefund the District's PERS pension liabilities beginning July 1, 2018; and

(5) direct staff to prepare a policy with pay down schedules for the District's OPEB and PERS pension liabilities for consideration at the October 24, 2017 regular meeting.

DISCUSSION:

In 2012, the Government Accounting Standards Board (GASB) issued Statement No. 68, Accounting and Financial Reporting for Pensions.  GASB 68 requires that governmental employers that sponsor Defined Benefit plans (i.e., CalPERS) must recognize a net pension liability (unfunded accrued liability) on their balance sheet.  This is the difference between the District’s total pension liability (actuarial accrued liability) and actual plan assets.  GASB 68 became effective for fiscal years starting after June 15, 2014.

To address the GASB 68 net pension liability, the District’s only prior option was to commit additional funds to CalPERS (in excess of its annual required contributions) to reduce its unfunded liability.  However, a recent private letter ruling received by PARS from the IRS established that the District could create a separate trust to "pre-fund" its CalPERS unfunded liability.  This would provide the District with an alternative to sending funds to CalPERS that will allow for greater local control over assets, investment by a professional fund management team selected and monitored by the District, with future excess contributions transferred to CalPERS at the District’s discretion.

In an effort to help public agencies address and manage their GASB 68 liability, PARS has developed the PARS Post-Employment Benefits Trust Program.  PARS has assembled leading professionals to provide the District with the necessary services required under one program to pre-fund pension and retiree health care liabilities through an IRS reviewed program. The program has been established as a multiple employer trust so that public agencies regardless of size can join the program to receive the necessary economies of scale to keep administrative fees low and avoid any setup costs.  The trust permits the District, under federal and state law, to invest in a more diversified array of investments to maximize investment returns long term and reduce the District’s liability.

There are three investment strategies agencies may select.  A low risk strategy; a moderate risk strategy; and a high risk strategy.  Staff recommends the MODERATE RISK strategy. 

OPEB Liability

Staff was directed to work with our actuary to determine the 5 year pay down.  The current numbers, as of June 30, 2017, are below:

      Total OPEB Liability (TOL)

$3,595,567

  Current Plan Fiduciary Net position (PFN)

$1,322,152

  Net OPEB Liability (NOL)

$2,273,415

  Projected Total Costs to the District (FY18 thru FY37)

$5,937,500

  Projected 5 Year Pay Down Costs

$3,095,995

  Annual Extra Payment to PARS Account

$377,239

Annual estimated payment to cover OPEB costs (no reimbursement from OPEB fund requested) which is paid out of the Salary & Benefits portion of the budget:

      Year 1   $210,100
  Year 2  $224,700
  Year 3  $251,700
  Year 4  $254,400
  Year 5  $268,900

Following year 5, no more pay down costs would be required and all payments for OPEB related expenses would be paid from PARS to CERBT.  Total savings are estimated to be $2,841,505.

PERS Liability

Staff was directed to bring back amortization schedules for PERS Pension Unfunded Accrued Liabilities (UAL).  Our projected UAL on June 30, 2018, is $8,908,548.

Attached are the following schedules (Attachment - PERS Schedules):

Current (30 year pay down) – the amount in this schedule is our annual payment, for we budget and pay out of the Salary & Benefits portion of the budget.

20, 15, 10, and 5 year pay down schedules – the amount required to pay down in the number of years listed…the additional annual payment would be the difference between the CURRENT and the corresponding number listed for that particular pay down schedule.  Please note the below numbers are for the first line or first year of the schedule.  THESE NUMBERS WILL FLUCTUATE YEAR TO YEAR.

     EXAMPLE: June 30, 2018    
         
  Current Amount:

$436,713

Estimated Savings:     $0
         
  20 Year Pay Down:    

$665,936

Estimated Savings: $1,984,111
     
    $436,713 to CalPERS and $229,223 to PARS
         
  15 Year Pay Down: $810,284 Estimated Savings:  $4,807,654
     
    $436,713 to CalPERS and $373,571 to PARS
         
  10 Year Pay Down: $1,105,248 Estimated Savings: $7,207,634
     
    $436,713 to CalPERS and $668,535 to PARS
         
  5 Year Pay Down: $2,002,946 Estimated Savings: $9,244,154
         
    $436,713 to CalPERS and $1,566,233 to PARS

Please bear in mind these are only estimates and we anticipate more volatility for the PERS Pension Liability.

The CalPERS assumption rate was 7.50% through the end of FY 2016-17.  Moving forward, it will be reduced in the coming years as follows:

     

July 1, 2018 

      7.375%

 

July 1, 2019

      7.25%

 

July 1, 2020

      7.00%

ADMINISTRATIVE ITEMS

In order to start the implementation process with PARS, we will need the following items approved by the Board of Directors:

      1. 
Resolution of the Board of Directors approving the opening of a PARS Account (Attachment - Resolution No. 17-32)
 

2.

 Draft Administrative Services Agreement (Attachment – DASA)

Both the resolution and the draft agreement are routine in nature and are in the process of being reviewed by General Counsel.        

ATTACHMENTS:
Name: Description: Type:
PERS_Schedules.pdf PERS Schedules Backup Material
Resolution_17-32.pdf Resolution 17-32 Backup Material
DASA.pdf Draft Agreement with PARS Backup Material