Good afternoon.

Good afternoon.

It's four o'clock.

Today is Wednesday, May 27th, and I'm calling to order the finance committee of the city of San Diego City Council.

Madam, would you please take the rule?

After each agenda item is presented, the mayor will ask for committee member comments and then take public comment.

You will have two minutes for your comment.

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And we also take rule to establish coordinate.

Councillor Right there?

Present.

And by saying that also is not intended.

We will continue to our first item.

Item 2A, the pension trust, and we have financial almost 100%.

Thank you.

Good afternoon.

Good afternoon, mayor, members of the finance committee.

This afternoon I will present the city of St.

Landro's pension trust analysis.

And I'm joined here today by one of our consultants, the city's actuary, Boster Foster, Drew Ballard.

Thank you.

So today we're gonna provide a bit of an update on the city's pension trust.

So the city assembly does have a pension trust that we do provide regular updates to both the finance committee as well as to the full council.

We will be taking specific review based on direction from the finance committee to analyze a pension trust drawdown to help mitigate budget challenges.

And so that's um kind of a highlight of what we'll talk about today as far as it relates to the city's pension trust.

So just want to give a little bit of background context around the pension trust.

So what is a Section 115 supplemental trust?

Um it is often referred to in the context of an IRS section 115, it's an irrevocable tax exempt trust established by government entities like the city of San Leandro.

Um we often uh use it to prefund post-retirement employee benefits such as OPEP or retiree medical or um pensions, and so today when we're talking about a section 115 trust, we're talking about the city's pension trust.

And so, what can uh that trust be used for?

Um, it can be used to reimburse uh cities for CalPERS contributions or their annual payments, um, and you can also make direct payments to Calpers out of your trust fund.

Um, the trust pension cannot be used for any other expenses not related to pension reimbursement or payments directly covers.

So, why establish a pension one uh 15 or pension trust that the city of San Landro has?

Uh, again a pension trust helps stabilize um pension costs, mitigates budget challenges, and ensures uh future financial obligations are met for its employees.

Pension trust does allow for more flexibility and control over investment strategies and risk tolerance and is more visible.

So by the city establishing a pension trust that allows us to determine the investment strategies and when uh it chooses to draw down on that pension trust to pay for those Calper's expenses.

Um the city established a pension trust to ensure adequate funding for future obligations, specifically during the peak of CaliPers' required annual payments, and that trust was established by the city of San Landro any project, so since its inception, uh this is a chart that shows the pension trust contributions and the current asset balance.

So the city uh made its first contribution in June of 2022, about 6.5 million, have made meaningful contributions every year up until this current fiscal year, where we have contributed about a half a million based on positive performance over the last several years.

This the trust has grown not only by the contributions made by the city but also the investments are and so currently the uh balance in the trust for our pension is 38.6 a month.

Um, this provides a projection of assumed um uh performance of our trust benefit uh student our trust pension uh based on known factors today with no drawdown.

So as you can see, we have a balance of 41.1 million currently in the trust projected at the end of 2027.

Um, should the city not draw down on this pension trust with a continued uh conservative growth of about 5% each year.

Um, we have a projected balance of 99.1 million by 2045.

So I talked a little bit about CalPERS annual payments and why the trust was established.

And so I want to talk a little bit about what those CalPERS payments look like and how they can potentially vary from year to year.

So what is a CalPERS annual payment?

CalPERS annual payment is often referred to as the actually determined contribution.

You'll hear acronyms such as an ADC.

So ADC is determined as the sum of the following.

There's the normal cost, which is a percent of your current payroll.

It's an annual cost of pension benefits burned by active employees representing the current cost of workforce, paid as a percentage of the payroll.

This is paid through both a combination of contributions by both the employer and the employee.

And that's a fixed dollar amount.

And what that represents is the shortfall between the projected benefits to be paid, so our promise, our obligation that we have made to employees, and the assets that the city currently holds in the pension trust.

This just provides a little bit more of a graphical detail of what an ADC is.

As I stated, an ADC is a required annual contribution to a pension plan like CalPERS.

It's calculated by a plan actually and it's designed to provide benefits as they come due and fund the plan over the long term.

And so what's included in that ADC we talked about in the previous slide, which is the normal cost, the amortization payment for the UAAL, and then there's also some costs associated with administration, as well as any changes based on asset gains and losses and other factors.

And so why is this important and why does it matter and why we focus on it?

So the ADC again is the actuary's required funding amount that helps maintain the long-term financial health and security of the city's pension obligations.