HomeMy WebLinkAboutFiscal Year 2014/15 Preliminary Unaudited General Fund BalanDept ID FN 15-022 Page 1 of 2
Meeting Date 12/21/2015
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CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
MEETING DATE: 12/21/2015
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Fred A Wilson, City Manager
PREPARED BY: Lori Ann Farrell, Director of Finance
SUBJECT: Fiscal Year 2014/15 Preliminary Unaudited General Fund Balance Designation
to a Section 115 Trust to Reduce Unfunded Liabilities
Statement of Issue
At the August 17, 2015 Long -Term Financial Plan Update, the Finance Department recommended
the use of one-time revenue to establish an Internal Revenue Service Section 115 Trust to further
expedite the pre -payment of unfunded liabilities City Council authorization is requested to
establish a Section 115 Trust and to allocate $1 0 million from one-time revenues received in FY
2014/15 to help mitigate unfunded pension liabilities
Financial Impact
This action approves the designation and deposit of $1 0 million in preliminary, unaudited General
Fund balance to a separate Section 115 Trust Fund to help pre -fund the City's pension and retiree
medical obligations
Recommended Action
Authorize the City Manager to execute into any and all documents necessary for the creation of a
Section 115 Trust Fund and set aside a $1 0 million deposit and appropriation for the initial funding
of the Trust to help pay down the City's unfunded liabilities
Alternative Action(s)
Do not approve the recommended action and direct staff accordingly
Analysis
The CalPERS Board of Administration has implemented numerous changes to its actuarial
methodologies and practices in order to improve the funded status of the pension plans for its
member agencies statewide In order to accomplish this goal, localities will experience significant
increases in their future Employer contribution rates starting in FY 2015/16 and FY 2016/17 and
into the foreseeable future While the City has built these projected rate increases into the Long
Term Financial Plan projections, more still needs to be done to prepare for these increased pension
costs As one of the City's Council's Strategic Planning Goals is to "Strengthen Economic and
Financial Sustainability", staff recommends the creation of a Section 115 Trust with one-time funds
remaining at year end from General Fund balance, to help reduce the City's unfunded liabilities
and/or help mitigate future rate increases
Item 18. - 1 HB -210-
Dept ID FN 15-022 Page 2 of 2
Meeting Date 12/21/2015
Pension Benefits
The Governmental Accounting Standards Board (GASB) Issued Statement No 68, Accounting and
Financial Reporting for Pensions, which requires that government employers that sponsor Defined
Benefit plans (i e , pensions) recognize a net pension liability (unfunded accrued liability) on the
balance sheet This is the difference between the City's total pension liability (actual accrued
liability) and actual plan assets
Benefits of a Section 115 Trust
The use of an irrevocable Section 115 Trust (trust) designed to pre -fund retirement obligations can
help the City reduce its GASB 68 Net Pension Liability Investments held in trust are designed for
the long term horizon and are likely much higher in investment returns - 5 to 7 percent - given the
increase in flexibility and rate of investment choices The trust is restricted to be used only for
transferring proceeds to CalPERS and/or directly reimburse the employer for CalPERS or other
retiree pension and retiree medical contributions It also gives the City flexibility to contribute a
large amount, thus significantly reducing the City's unfunded liabilities The trust can also act as a
rainy day fund when the City's revenues are impaired based on economic or other unexpected
conditions Lastly, the Trust's investment mix and allocations can be determined by the City,
thereby allowing the City to develop a unique mix of investments tailored to its own risk tolerance
and with lower investment return assumptions than even CalPERS, thereby decreasing the plan's
volatility
A publicly available Request for Proposals would need to be issued to select the actual Plan
Administrator and Investment Manager of the Trust While CalPERS is currently exploring
providing a Section 115 Trust tool to participating agencies in the future, it is not likely such a tool
will be available in the next three years Ultimately, the Section 115 Trust gives more local control
over the City's assets while creating a more actuarially sound retirement system
Lastly, please note that the preliminary unaudited available General Fund Balance is an estimate
and is still subject to potential change The City's final unaudited figures for the fiscal year ended
September 30, 2015, will be available on or before March 31, 2016, pursuant to Generally Accepted
Accounting Principles and Governmental Accounting Standards Board requirements
Environmental Status
Not applicable
Strategic Plan Goal
Strengthen Economic and Financial Sustainability
Attachment(s)
None
xs -211- Item 18. - 2