Stabilization Program (PRSP) Hartnell College. February 16, 2016

Transcription

1 Pension Rate Stabilization Program (PRSP) Hartnell College February 16, 2016

2 BACKGROUND GASB 68 now requires multiple employer pension plans to report each employers net pension liability Employers are now also required to report that liability on their Statement of Net Position (balance sheet) The budget has an additional $266,692,000 in the base apportionment to assist in addressing these anticipated increases CCLC estimates the total system wide liability to be about $4.8 billion ($1.7 billion CalPERS, $3.1 billion CalSTRS) 2

3 PERS/STRS LIABILITIES AND RATE INCREASES Rate increases through : Fiscal Year CalPERS CalSTRS % 8.25% % 8.88% % 10.73% % 12.58% % 14.43% % 16.28% % 18.13% % 19.10% 3

4 HOW DO THE RATE INCREASES AFFECT YOUR DISTRICT S STRS/PERS COSTS? $9,000,000 Annual pension costs increase from $2.8 million to $5.5 million in 6 years $6,000,000 $3,000,000 $0 $2,189,000 $2,244,000 $2,002,000 $1,826,000 $1,435,500 $1,303,500 $1,294,700 $2,767,600 $3,082,100 $3,247,000 $1,509,600 $1,824,100 $2,138,600 $2,453,100, PERS STRS Notes: 1. Assuming Academic Salaries totaling $17 million do not change year over year. 2. Assuming Classified Salaries totaling $11 million do not change year over year. 4

5 SOLUTION TO ADDRESS RISING PENSION COSTS PARS has developed a Section 115trust programto enable public agencies to pre fund retirement obligations through a District controlled trust New program introduced mid 2015, with 18 California public agencies having adopted the program District can make contributions to the trust at its own discretion Contributions placed into the trust can be withdrawn at any point in the future to help pay the rising pension cost Plan has received a Private Letter Ruling (PLR) from the IRS 5

6 WHY PRE FUND PENSION OBLIGATIONS? Address Long Term Liability Districts have a fiduciary responsibility to show good stewardship of funds as pension costs continue to rise Lowers Net Pension Liability (NPL) Contributions placed into an exclusive benefit trust are considered assets that offset an unfunded Net Pension Liability (NPL) Pension Rate Stabilization When pension rates increase, assets can be transferred to CalPERS/CalSTRS, which can help to pay pylarge contribution increases Rainy Day Fund Assets can be used as emergency source of funds for pension related costs when District revenues are impaired based on economic or other conditions 6

7 WHY PRE FUND PENSION OBLIGATIONS? Strengthens Credit Rating Credit rating agencies look more favorably upon Districts who take steps to reduce liabilities Assistswith Accreditation Pre funding reduces unfunded NPL which is an area of focus during accreditation process EnsuresLocal Control over Assets Pre funding into separate account allows assets to be accessed for payment of pension costs at any time Lowers Pension Plan Costs Pre funding with PARS PRSP can lower costs through diversified investment in a locally controlled account 7

8 THE IMPACT OF PRE FUNDING Hypothetical Example Both District A and B have a $25 million pension liability, with $5 million set aside for pension related costs District A keeps the $5 million in its General Fund Pension Liability = $25,000,000 Assets = $0* Net Pension Liability = $25,000,000 District B puts the $5 million in the PARS PRSP Pension Liability = $25,000,000 Assets = $5,000,000* Net Pension Liability = $20,000,000 * Money in General Funds is not considered an asset on financial statement. Earning approx. 0.5% in General Fund accounts *Earning approx. 5.0% 7.5% with diversified investment strategy 8

9 PARS PENSION RATE STABLIZATION PROGRAM (PRSP) PROVIDERS PARS Trust Administrator & Consultant U.S. Bank Trustee/Custodian Community College League of California Community College District s PRSP Investment Manager 9

10 ROLE OF TRUST ADMINISTRATOR AND TRUSTEE TRUST ADMINISTRATOR Handles sub trust and plan level accounting Monitors contributions and processes disbursements Provides monthly and annual statements Monitors program compliance Central point of contact for all client services Local Office: Newport Beach, CA Safeguards plan assets TRUSTEE Provides oversight protection as trustee Acts as plan fiduciary Ensures trust is administered in accordancewith trust agreement Processes contributions and disbursements As discretionary i trustee, works with ihdistrict i to determine asset allocation and manage investments Local Offices: Los Angeles, San Francisco & Irvine, CA 10

11 CONTRIBUTIONS AND DISBURSEMENTS Contributions Each District has full flexibility in regard to its contribution amounts and timing Funds can be transferred into the trust at any time and can be sent either electronically or by check Disbursements Districts also have full control over the amounts and timing of disbursements, providing they are made for pension related costs Districts can request that a disbursement be made: (a) Directly to the District (to pay CalPERS/CalSTRS costs) or (b) Directly to CalPERS/CalSTRS Disbursements are made using PARS Payment Reimbursement Form and must include documentation showing CalPERS/CalSTRS costs. 11

12 INVESTMENT OPTIONS OPTION A: Discretionary Trustee Approach U.S. Bank, the program trustee, when acting on a discretionary basis, offers managed portfolios and provides oversight of the investment process. Portfolios have been designed exclusively for the PARS PSRP. Options include: 1. Actively Managed Portfolios: (a) Conservative Income, (b) Income, (c) Balanced, and (d) Growth 2. Low Cost Index/ETF Portfolios: (a) Conservative Income, (b) Income, (c) Balanced, and (d) Growth 3. Fixed Income Portfolio 4. Customized Approach if District obtains sufficient asset size 12

13 PARS PRSP: U.S. Bank Investment Strategies Short Term Fixed Income Conservative Income Using asset allocation, we will build diversified portfolios that include a variety of investment types and styles. The asset allocation that is best for your district will depend on your tolerance for risk, time horizon and investment objectives. These asset allocation Income Balanced Growth strategies will be updated periodically based upon market and economic analyses. I N S T I T U T I O N A L T R U S T & C U S T O D Y 13

14 INVESTMENT OPTIONS (CONTINUED) OPTION B: District Directed Trustee Approach Vanguard, one of the world s leading investment managers, has developed 3 portfolios exclusively for PARS clients Directed, non advisory approach designed for its very low cost Portfolios are comprised of institutional class, index based, mutual funds and based on the following target asset allocations: Portfolio Equity Fixed Income Other Conservative 35% 57% 8% Balanced 53% 39% 8% Growth 69% 23% 8% If a District wishes to use an alternative investment advisor, PARS PRSP can accommodate this option with its fully yflexible investment structure 14

15 STEPS TO IMPLEMENTATION The PRSP has been set up for simple, streamlined implementation using the following step by step procedure: District contacts PARS or CCLC to schedule individual follow up meeting (or request resolution if ready to proceed) PARS and CCLC meet with District staff to further discuss specific plan and funding provisions PARS provides plan and trust documents for review The District s Board formally approves joining the PRSP by adopting a resolution District staff finalize investment selection Documents are signed by the District s designated Plan Administrator and returned to PARS The District s account is set up within hours Once ready, the District can then send its first 7 contribution to the trust 15

16 WHAT ARE THE FEES? OPTION A: DISCRETIONARY TRUSTEE APPROACH Trust Administration/Consulting Fees COMPANY NAME PLAN SET UP FEE ONGOING PARS & CCLC None 0.25% for assets $0 $10 million 0.20% for assets $10 15 million 0.15% for assets $15 50 million 0.10% for assets over $50 million Subject to $300 monthly minimum * PARS does not receive any compensation from the investments or any commissions, back end loads, or any other forms of compensation Trustee/Investment Management Fees COMPANY NAME DISCRETIONARY TRUSTEE/CUSTODIAL FEES U.S. Bank 0.30% Investment products are: NOT A DEPOSIT NOT FDIC INSURED MAY LOSE VALUE NOT BANK GUARANTEED NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY 16

17 Trust Administration/Consulting Fees WHAT ARE THE FEES? OR OPTION B: DIRECTED TRUSTEE APPROACH COMPANY NAME PLAN SET UP FEE ONGOING PARS & CCLC None 0.25% for assets $0 $10 million 0.20% for assets $10 15 million 0.15% for assets $15 50 million 0.10% for assets over $50 million Subject to $300 monthly minimum PARS does not receive any compensation from the investments or any commissions, back end loads, or any other forms of compensation Trustee Fees COMPANY NAME U.S. Bank COMPANY NAME DIRECTED TRUSTEE FEE 0.05% 05% first $25 million 0.04% next $25 million 0.03% over $50 million This tiered fee schedule, for directed trustee services, applies to each of the three pools in option (a) or each individual investment account in option (b)." $10 per transaction fee also applies to option (b) Provider of Districts choice listed below U.S. Bank does not provide investment oversight or due diligence for the underlying investments. Investment Management Fees (a) Vanguard (b) Provider of Districts choice INVESTMENT MANAGEMENT FEE 0.07% for assets under $50 million 0.04% for assets $50 $150 million 0.03% for assets $150 $250 million 0.01% for assets $250 $500 million 0.005% for assets over $500 million (Fees are based on combined assets in each of the three pools) Fee determined by Districts selected provider Under these options, the District and/or its directed investment advisor assumes investment management responsibility. 17

18 CONTACTS Public Agency Retirement Services (PARS) Natasha Davidson, Consultant Ext. 145 Community College League of California (CCLC) Kimi Shigetani, Vice President Elaine Reodica, Program Manager, District Services g 18