Loading...
HomeMy WebLinkAboutJune 7DRAFT - Finance and Investment Committee Meeting Town of Los Altos Hills Town Hall Council Meeting Room Monday, June 7, 2010 Chair Roddy Sloss who prepared these minutes called the meeting to order at 4:00 p.m. Members present: Allan Epstein, Jim Lai, Frank Lloyd, Jean Mordo, Stan Mok, Bill Silver, Roddy Sloss, Lalla Stark Members absent: None Staff present: Nick Pegueros, Finance Director Guest present: John Bartel, President, Bartel Associates, consulting actuary for the Town Public Present: None Approval of minutes: The May 3, 2010 meeting minutes were approved as submitted. Report by Nick Pegueros on Recent Finance Department Activities: The temporary full time accountant from Maze & Associates is continuing to perform well. A formal hiring process schedule has not yet been set. Discussion with John Bartel: A wide ranging discussion with John Bartel was held on the subjects of CalPERS prepayment mechanics, CalPERS pension rate setting methodology, steps and considerations in terminating the Town’s relationship with CalPERS, expected CalPERS normal cost pension rate increase, OPEB vs. Pension CalPERS investment differences, “spiking” and the estimated funding shortfall in present and past service costs as a result of the 2008/2009 financial crisis. Although Bartel & Associates work on the Town’s current OPEB funding and liability is completed, the report has not yet issued and that subject was not discussed. Among the points discussed are the following: 1. The Pension Plan Side Fund calculation is driven by attempting to maintain a consistent percentage of payroll, and therefore neither the payment amount nor final liability is fixed. Where CalPERS calculations require an estimate of future investment performance, it uses 7.75%. If the Town’s payroll rises, the Side Fund payment obligation will rise. A payroll increase is assumed in setting the current Side Fund prepayment amount. Side Fund payment collections ultimately go into the general pension pool of funds and there will be no accounting of collections over or under initially set targets. Mr. Bartel will send the Town a breakdown of the principal and interest portions of future expected payments. 2. CalPERS pension plan funding rate is expected to increase by ½% in the next year. He also suspects they may lower the long term investment performance rate from 7.75% to 7.5% or 7.25%. Mr. Bartel estimates underfunding of current and past service costs for the Town’s portion of its risk pool is approximately $900,000. This amount is not reported by CalPERS. Mr. Bartel regards accruing a reserve for this underfunding over a period of years, a rational and conservative approach. 3. The Government Accounting Standards Board is considering a new standard for accruing underfunded pension costs that could require government agencies to accrue these costs over as little as 15 years as compared to the current standard of 30 years. Mr. Bartel believes it is reasonably possible that CalPERS could follow suit and adopt this practice for payment of past service costs. Adopting this new standard would likely result in a significant increase in the annual pension plan funding rate. 4. Mr. Bartel believes the Town’s legal agreement with CalPERS provides the option for the Town to separate from CalPERS but it is not practical for the following reasons: a. CalPERS administrative costs are approximately ½% of pension costs. Mr. Bartel estimates the Town’s cost for performing these activities would be in the 5%-10% range for actuarial costs plus investment management costs, and payment administration costs. Continued DRAFT - Finance and Investment Committee Meeting Minutes, Monday, June 7, 2010 – page 2. b. CalPERS require that it manage either all or none of the Town’s pension costs. c. CalPERS will make a conservative separation estimate using perhaps a 5% vs. 7.75% investment return assumption in calculating the amount due to the Town resulting in a “haircut.” 5. While it may not be practical to leave CalPERS, it is possible for the Town to offer different pension benefits to new employees as compared to existing employees. CalPERS can accommodate different pension schemes including a little used 1.5% at 65 formula. 6. Spiking (deliberately boosting retirement pay by bunching benefits into final year of employment) is not allowed by CalPERS for sick pay, vacation pay or overtime in the calculation of the base for determining pension benefits... Mr. Bartel will furnish a draft letter to the Town covering the foregoing points related to establishing an Internal Service Fund for supplemental funding past and current service costs not fully funded by CalPERS. Mr. Bartel recommended that if adequate funds are available, the Town should pay off the Side Fund and in so doing future side fund obligations would be permanently discharged. After receipt of Mr. Bartel’s analysis of future Side Fund payments including principal and interest, Mr. Sloss will calculate the implicit interest rate in the prepayment and if the result is 7% or greater, the FIC will recommend to Town Council that the prepayment totaling $637,200 by June 30, 2010 be made providing the CalPERS actuary provides a revised letter stating this payment will permanently discharge this obligation in the amount of 4.488% of payroll. (Five FIC members were present at this point. Ms. Stark was not present and subsequently noted she is not in favor of making the Side Fund prepayment). Report by Jean Mordo on Recent Council Activities of Interest: Nothing to report. Presentation by Nick Pegueros on the 6/30/11 Town budget. Worksheets comparing the draft fiscal year 6/30/11 Town budget to estimated results for fiscal year 6/30/10 and projected fiscal years 6/30/12 and 6/30/13 were distributed for discussion and review. Amounts were not changed from balances discussed in the May 20, 2010 Joint Study Session with Town Council. The final presentation of the budget to Council is not yet completed but will be distributed to the Committee and Council for comment later in the week. Next FIC meeting is August 2, 2010. Adjournment - The meeting adjourned at 7:00 p.m.