HomeMy WebLinkAbout08.b. Authorize the allocation of $2.5 million budgeted for unfunded liabilities to the OPEB (Other Post-Employment Benefits) TrustCentral San
BOARD OF DIRECTORS
POSITION PAPER
8.b.
Board Meeting Date: February 2, 2017
Subject:
AUTHORIZE THE ALLOCATION OF $2.5 MILLION BUDGETED FOR
UNFUNDED LIABILITIES IN THE CURRENT FISCAL YEAR TO
CENTRAL SAN'S EXISTING OTHER POST -EMPLOYMENT BENEFITS
PARS (OPEB) TRUST
Submitted By: Initiating Dept/Div.:
Thea Vassallo
Finance Manager
Administration/Finance
REVIEWED AND RECOMMENDED FOR BOARD ACTION:
P. Leiber - Director of Finance and Administration
A. Sasaki - Deputy General Manager
Roger S. Bail
General Mana
y
ISSUE: The Board has directed staff to bring forth an actio item allocating the entire
$2.5 million budgeted in the current year operations and ma ance (O&M) budget to
be used toward reducing the unfunded liability to the existing Public Agency Retirement
Services (PARS) Other Post -Employment Benefits (OPEB) Trust. By approving this
action, the Board will authorize the General Manager to make the allocation.
BACKGROUND: At the November 10, 2016 Board Workshop, the Board discussed
where to apply both the $2.5 million budgeted in the current fiscal year O&M budget to
be used toward unfunded liabilities, and the $3.359 million unrestricted extra reserve
funds remaining at the end of Fiscal Year (FY) 2015-16.
Representatives from PFM Asset Management LLC were present at the Workshop.
They outlined the implications and advantages/disadvantages of allocating all currently
available dollars toward reducing Central San's pension unfunded actuarial accrued
liabilities (UAAL) and the unfunded liabilities associated with Central San's existing
OPEB Trust. Specifically, PFM recommended that the budgeted $2.5 million be
allocated to the existing OPEB Trust, and reduce the amortization period from 22 to 18
years. PFM also recommended that the entire $3.359 million be allocated toward
establishing a new Internal Revenue Code Section 115 Pension Trust for the UAAL
associated with Contra Costa County Employees' Retirement Association (CCCERA).
The Board concurred with PFM's recommendations as prudent and in the best interests
of Central San and its ratepayers. Staff was directed to present the Board with the
following action items at future meetings:
1. Allocate the entire $2.5 million budgeted for this fiscal year toward unfunded
liabilities in the existing OPEB Trust; and
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POSITION PAPER
Board Meeting Date: February 2, 2017
Subject:
AUTHORIZE THE ALLOCATION OF $2.5 MILLION BUDGETED FOR
UNFUNDED LIABILITIES IN THE CURRENT FISCAL YEAR TO CENTRAL
SAN'S EXISTING OTHER POST -EMPLOYMENT BENEFITS PARS (OPEB)
TRUST
2. Establish and initially fund an IRC Section 115 Pension Trust with the $3.359
million extra reserve fund balance at the end of FY 2015-16.
At this time, staff is requesting approval to accomplish the first item above, allocating
the $2.5 million budgeted amount to the OPEB Trust. Staff will return ata future
meeting to establish and fund the Section 115 Pension Trust.
ALTERNATIVES/CONSIDERATIONS: Apply the $2.5 million in the FY 2016-17 budget
to the pension UAAL and apply the $3.359 prior year budget savings to other spending
priorities. This approach would not reduce the OPEB unfunded liability, and would
result in a missed opportunity to generate long-term cash savings by pre -funding these
obligations.
FINANCIAL IMPACTS: At an initial cost of $2.5 million, this action will generate long-
term cash savings at an estimated $15.4 million and increase the funding status of the
OPEB Trust.
COMMITTEE RECOMMENDATION: The Finance Committee reviewed this matter at
its January 18, 2017 meeting and recommended that the Board approve the allocation
of funds, and ask the full Board their preference in making a lump sum contribution of
$2.5 million, or to spread the payments over several months.
RECOMMENDED BOARD ACTION: Authorize the General Manager to allocate the
entire $2.5 million budgeted in the FY 2016-17 O&M budget toward reducing unfunded
liabilities in Central San's existing PARS OPEB Trust.
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