HomeMy WebLinkAboutNovember 16Finance and Investment Committee Special Meeting
Town of Los Altos Hills
Town Hall, Tuesday, November 16, 2015
The meeting was called to order at 4:30 pm by Chairman Epstein who welcomed new member Betty Kayton.
Members present: Courtenay Corrigan, Allan Epstein, John Harpootlian, Betty Kayton, Kjell
Karlsson, Roddy Sloss and Chris Welborn.
Members absent: Susan Mason, Stan Mok, Bill Silver
Associate members: Frank Lloyd, present; Jim Lai, absent
Staff present: Pak Lin, Finance & Administration Services Director
Public present: None
Guest present: Doug Pryor, Vice President, Bartel Associates, LLC
Approval of minutes
The September 15, 2015 prior meeting minutes were approved by members who attended the prior meeting.
Report on Preliminary Results of June 30, 2015 GASB 45 Actuarial Report on Town of Los Altos Hills
Retiree Healthcare Plan (“OPEB”) by Doug Prior
Mr. Pryor commented on the fifty four page report his firm prepared for the Town that was distributed to members
before the meeting and responded to questions. New requirements arising from GASB 75 issued on June 2, 2015
and effective for the fiscal year ended June 30, 2018 will significantly affect the accounting and reporting for
related costs primarily due to: 1) A new actuarial assumption called an Implied Subsidy that will add an estimated
$280,000 to the unfunded liability and $26,000 to annual payments; and 2) A new requirement to report the
unfunded actuarial liability for past service costs on the Town’s Balance Sheet estimated at $896,000 as of June 30,
2015 including the $280,000 Implied Subsidy. Mr. Pryor also highlighted other changes affecting plan costs since
his last report as of June 30, 2013 including a premium decline and employee resignations favorably affecting costs
and the Implied Subsidy, a CalPERS change in expected long term compensation costs and a new Excise Tax under
the ACA adding future costs. These changes increase the estimated Actuarial Liability at June 30, 2015 by seven
percent as measured by calculating the June 30, 2015 liability using June 30, 2013 assumptions.
In response to questions and based on discussion among the Committee, Mr. Pryor noted that unexpected future
events such as employee turnover and changing actuarial assumptions could result in lowering the unfunded
liability and suggested that prepaying up to 80% of the unfunded liability would be unlikely to overfund the Plan.
As of June 30, 2015 the plan is 67% funded. A recommendation to continue prefunding the plan will be made in
conjunction with the decision to prepay the unfunded pension liability. Questions about historical plan design for
Tier I retirees could not be answered in the meeting and Ms. Lin and Mr. Epstein will make inquires to add clarity.
Discussion of prepaying the CalPERS unfunded pension liability – Doug Pryor
Mr. Pryor initiated the subject discussion noting that prepaying the Town’s pension liability (similar to
prepayments made toward retiring the unfunded OPEB liability) is an opportunity now available for the first time.
Prepayments can be made directly to CalPERS or to independent investment trusts where withdrawals are limited
to paying Pension Plan liabilities. While not fully understood, investment choices are believed to be potentially
higher yielding and broader in scope than investment opportunities presently under the Town’s investment policy.
Because the yield differences are significant between returns from prefunding the Town’s employee benefits
November 16, 2015 FIC minutes, continued page 2.
compared to excess cash subject to the Town’s Investment Policy, this is a matter of interest to the Committee. No
deadline for making such prefunding contributions is believed to exist at present. Mr. Pryor identified two third
party administered trusts for this purpose in addition to making prepayments directly to CalPERS. Ms. Lin is
making inquiries into the Trust offered by PFM, the Town’s investment advisor. Mr. Epstein noted that CalPERS
is nearing a decision on lowering its discount rate from the current 7.5% rate, which dependent on the new rate
adopted, could significantly increase the unfunded pension liability estimated at approximately $2 million as of
June 30, 2015. The Committee believes it should formulate a recommendation to Council on prepaying unfunded
pension and OPEB liabilities before the Town’s annual budget cycle is completed next year.
Report on Council Activities of interest by Courtenay Corrigan
A satisfaction survey of Town residents is being conducted by Godbe Research which is intended to provide
guidance on a proposed Community Center. Roger Spreen has been appointed to Town Council based on a vote of
Town Council to complete the term of Rich Larsen who resigned. John Harpootlian will become mayor in the
Council’s December meeting. Council voted to exclude its members from FIC membership and reduce the
Committee to nine members. This change will be effective with the amendment of the Standing Committee
Resolution at the November 19, 2015 Council Meeting. The Mayor and Vice Mayor will become liaisons to the
committee.
Report on Finance Department activities of interest by Pak Lin
Work on the Town’s annual audited financial statements is nearing completion and Ms. Lin will distribute a draft
report to Committee members as soon as possible before the next scheduled meeting. Initial interviews of
candidates for the Town’s Finance Manager position will begin this week. Bank of America has informed the
Town it will no longer be serving municipal government customers due to issues related to meeting Basel III
liquidity requirements and asked the Town to find its replacement by April 30, 2016. Ms. Lin is presently
discussing this opportunity with Wells Fargo Bank. The Town is considering outsourcing a substantial portion of
the work related to issuing and collecting fees for permits and licenses. Ms. Lin and Mr. Epstein led a brief
discussion of the need to strengthen cash management procedures to ensure excess funds are timely transferred
from the non-interest bearing bank account to interest yielding investment funds. Ms. Lin has recently moved the
excess funds to the LAIF fund and is working on a policy defining investable funds and related monitoring
procedures for the committee’s review. Review of the FIC monthly project summary report was deferred to the
next meeting.
Presentations from the Floor
None.
Proposed topics and dates for future meetings
The next FIC meeting date is Monday, December 7, 2015 at 4:30 pm. Ms. Lin and the Town’s auditor will present
the draft Consolidated Annual Financial Report for review and discussion. Other topics planned for future
meetings are: CalPERS Pension Fund valuation; Cash Flow Analysis and Investment of Funds; New procedures for
permitting and license fees; Prepayment of OPEB and Pension liabilities; New banking relationship; Financial
policy and procedures review; Midyear budget review/update; Review of FIC Monthly Project Summary Report,
and introduction of new representative from PFM, the Town’s financial advisor.
Adjournment The meeting adjourned at 7 pm.
Respectfully submitted by Roddy Sloss, Committee Secretary