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Report regarding a Single-Employer Section 115 Pension Prefunding Trust (Christie Donnelly, Director of Finance)
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RECOMMENDATION
Recommendation
It is recommended that 1) the City Council direct staff to proceed with development of a single-employer Internal Revenue Code Section 115 pension prefunding trust for the purpose of setting aside reserves for future pension obligations; 2) Direct staff to evaluate an initial pension reserve funding level with the preliminary target of $24 million, with the final recommended amount to be informed by analysis from finance staff, with input from a municipal advisor, and 3) Direct staff to return to the City Council for approval of the final trust documents, governance and investment structure, service providers, recommended initial funding amount, treatment of the City's existing Pension Stabilization Reserve, and any required budget appropriation.
No funds would be transferred into a trust as a result of the recommended action at this meeting.
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BACKGROUND/DISCUSSION
The City’s FY 2026-27 budget utilizes $5.5M of general fund reserve to offset an operational deficit. Recent developments indicate that this deficit, without consideration of the state’s uncertain Property in-lieu of Vehicle License Fees (VLF) backfill, will in fact be closer to $12.5M. To address these ongoing budget pressures without having to impact ongoing services, staff continue to identify strategies that leverage the City’s current reserve position in order to strengthen long-term financial stability rather than allowing ongoing operating deficits to gradually erode those resources. One of these tools is the establishment of a Section 115 Pension Trust.
The City participates in the California Public Employees' Retirement System (CalPERS) through two pension plans: a Safety Plan for sworn police and fire employees and a Miscellaneous Plan for most other City employees. The City's annual employer pension obligation has two compo...
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