Pension Rate Pension
Rate
Stabilization Program (PRSP)
Hartnell College
February 16, 2016
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 2015‐16 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
PERS/STRS LIABILITIES AND RATE INCREASES
Rate increases through 2020‐21:
Fiscal Year
CalPERS
CalSTRS
2013‐14
11.44%
8.25%
2014‐15
11.77%
8.88%
2015‐16
11.85%
10.73%
2016 17
2016‐17
13 05%
13.05%
12 58%
12.58%
2017‐18
16.60%
14.43%
2018‐19
18.20%
16.28%
2019‐20
19.90%
18.13%
2020‐21
20.40%
19.10%
3
HOW DO THE RATE INCREASES AFFECT YOUR 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
$6,000,000 $1,826,000
$3,000,000 $1,294,700
$1,303,500
$2,002,000
$2,189,000
$2,244,000
STRS
$1,435,500
$1,509,600
$1,824,100
$2 138 600
$2,138,600
$2 453 100
$2,453,100
2014‐2015
2015‐2016
2016‐2017
2017‐2018
$2,767,600
$
,
,
$3,082,100
$3,247,000
2018‐2019
2019‐2020
2020‐2021
$0 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
PERS
SOLUTION TO ADDRESS RISING PENSION COSTS
•
PARS has developed a Section 115 trust program to enable public agencies to PARS
has developed a Section 115 trust program to enable public agencies to
pre‐fund retirement obligations through a District‐controlled trust
•
New program introduced mid 2015, with 18 California public agencies having 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Contributions placed into the trust can be withdrawn at any point in the future to help pay the rising pension cost •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
WHY PRE‐FUND PENSION OBLIGATIONS?
Address Long‐Term Liability g
y
• Districts have a fiduciary responsibility to show good stewardship of funds as pension costs continue to rise Lowers Net Pension Liability (NPL)
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 p y g
pay large 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
WHY PRE‐FUND PENSION OBLIGATIONS? Strengthens Credit Rating
Strengthens Credit Rating • Credit rating agencies look more favorably upon Districts who take steps to reduce liabilities
Assists with Accreditation
Assists with Accreditation • Pre‐funding reduces unfunded NPL which is an area of focus during accreditation process
Ensures Local Control over Assets
Ensures Local 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
THE IMPACT OF PRE‐FUNDING
Hypothetical Example ‐
yp
p Both District A and B have a $25 million pension liability, p
y
with $5 million ‘set aside’ for pension related costs District A keeps the $5 million in its p
General Fund
District B puts the $5 million in the
p
PARS PRSP
Pension Liability = $25,000,000
Assets = $0*
Net Pension Liability = $25,000,000
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 *Earning approx. 5.0%‐7.5% with diversified investment strategy
financial statement. Earning approx. 0.5% in General Fund accounts
8
PARS PENSION RATE STABLIZATION PARS
PENSION RATE STABLIZATION
PROGRAM (PRSP) PROVIDERS
PARS
U.S. Bank
Trust Administrator Trust
Administrator
& Consultant
Community College y
g
League of California
Trustee/Custodian
Community College g
District’s PRSP
9
Investment Investment
Manager
ROLE OF TRUST ADMINISTRATOR AND TRUSTEE
TRUSTEE
TRUST ADMINISTRATOR
p
g
• Handles sub‐trust and plan level accounting
• Safeguards plan assets
Safeguards plan assets
• Monitors contributions and processes • Provides oversight protection as trustee
disbursements
• Acts as plan fiduciary
• Provides monthly and annual statements
Provides monthly and annual statements
• Ensures trust is administered in accordance with Ensures trust is administered in accordance with
• Monitors program compliance
trust agreement • Central point of contact for all client services
• Processes contributions and disbursements
• As discretionary trustee, works with District to A di
i
k i h Di i
determine asset allocation and manage investments
Local Office: Newport Beach, CA
Local Offices: Los Angeles, San Francisco & Irvine, CA
10
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
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
INVESTMENT OPTIONS
OPTION A: Discretionary Trustee Approach
y
pp
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
PARS PRSP: U.S. Bank Investment Strategies
PARS PRSP: U.S. Bank Investment Strategies
Short‐Term Fixed Income
Conservative Income
Using asset allocation
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
strategies will be
updated periodically
based upon market and
economic analyses.
Income
INSTITUTIONAL TRUST & CUSTODY
Balanced
l
d
13
Growth
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
Conservative Balanced
G
Growth
h
Equity
35%
53%
69%
Fixed Income
57%
39%
23%
Other
8%
8%
8%
• If a District wishes to use an alternative investment advisor, PARS PRSP can accommodate this option with its fully flexible investment structure
p
f yf
14
STEPS TO IMPLEMENTATION
The PRSP has been set up for simple, streamlined implementation using the following step‐by‐step procedure:
1 2
3
4
5
6
7
• 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 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 48‐72 hours ‐ Once ready, the District can then send its first contribution to the trust
15
WHAT ARE THE FEES?
WHAT ARE THE FEES? OPTION A: DISCRETIONARY TRUSTEE APPROACH
Trust Administration/Consulting Fees
COMPANY NAME
PARS & CCLC
PLAN SET UP FEE
ONGOING
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
COMPANY NAME
DISCRETIONARY TRUSTEE/CUSTODIAL FEES
DISCRETIONARY TRUSTEE/CUSTODIAL FEES
U.S. Bank
0.30%
Investment products are:
p
NOT A DEPOSIT
NOT FDIC INSURED
MAY LOSE VALUE
NOT BANK GUARANTEED
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
16
WHAT ARE THE FEES? OR OPTION B: DIRECTED TRUSTEE APPROACH
Trust Administration/Consulting Fees
COMPANY NAME
PARS & CCLC
PLAN SET UP FEE
ONGOING
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
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
DIRECTED TRUSTEE FEE
U.S. Bank
0.05% first $25 million
0
05% fi t $25 illi
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
COMPANY NAME
(a) Vanguard
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)
(b) Provider of Districts choice
Fee determined by Districts selected provider
Under these options, the District and/or its directed investment advisor assumes investment management responsibility. 17
CONTACTS
Public Agency Retirement Services (PARS)
Natasha Davidson, Consultant
800.540.6369
Ext. 145
ndavidson@pars.org
Community College League of California (CCLC)
Kimi Shigetani, Vice President
kimi@ccleague.org
Elaine Reodica, Program Manager, District Services
ereodica@ccleague.org
@
g
g
18
916.245.5027