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HomeMy WebLinkAbout05/19/2009, C5 - CONTRACT WITH CALPERS FOR RETIREE HEALTH BENEFITS TRUST ADMINISTRATION council M www° 5-19-09 j agenba Report im-iN CITY OF SAN LUIS OBISPO FROM: Bill Statler, Director of Finance& Information Technology Sallie McAndrew, Accounting Supervisor SUBJECT: CONTRACT WITH CALPERS FOR RETIREE HEALTH BENEFITS TRUST ADMINISTRATION RECOMMENDATION 1. Approve an agreement with the California Public Employee Retirement System (Ca1PERS) for trust administration in prefunding"Other Post Employment Benefits"(OPEB).. 2. Approve delegation of authority for disbursements from the OPEB trust. DISCUSSION Background In 2004, the Governmental Accounting Standards Board (GASB) issued Statement No. 45,which established standards for measurement, recognition and display of OPEB expenditures and related liabilities, note disclosures and required supplementary information in the financial statements of state and local government employers. For most employers, including the City, the only significant OPEB liability is for retiree health insurance coverage. The City has completed its initial evaluation of OPEB liabilities as required under GASB 45, which the Council considered on May 20, 2008. An excerpt from the 2008-09 Financial Plan Supplement summarizing the City's OPEB obligations is provided in Attachment 1; and a full copy of the May 2008 report is available in the Council reading file and on the City's site. Very Limited Obligations. As discussed in the May 20, 2008 report, the City has very limited OPEB liabilities. The primary obligation comes from the City's requirement under our contract with Ca1PERS for health coverage to provide a modest contrition towards E3'000 OPEB retiree health premiums for those who a 300 choose to retain coverage through CalPERS after retirement. This is 91.coo currently $85.16 per month and is the lowest contribution allowed by sl.cao SIX00 CalPERS for all agencies. The City's currently accounts for this on pay-as- �. + you-go (cash)basis. However, as reflected in the sidebar 200509 ?013.'13 :0:519 :0'_L23 :A'.,9:29 ]033.93 '-03&39 chart, in the not-so-distant future, thisaFY �64 Contract with CalPERS for.Retiree HealthTrust Administration Page 2 becomes much more expensive than funding this cost on an actuarial basis, as benefits are earned rather than paid-out. For this reason, the Council conceptually approved prefunding the City's retiree health care obligations on an actuarial basis via an irrevocable trust and appropriated the funds in 2008-09 needed to do so. Trust Investment and Administration Services Selection Process On March 24, 2009, a "notice of intent to issue a request for proposals" was sent to the five agencies or firms with whom we already have some relationship in managing post-employment retirement benefits. The request for proposals (RFP) was then provided to these funis; and a legal notice was placed in The Tribune and the RFP was posted on the City's web site. Six proposals were received by the closing date of April 17, 2009 from the following firms: 1. CalPERS 2. Devenii Group 3. The Hartford Fund 4. International City Management Association(ICMA) 5. Public Agency Retirement System (PARS) 61. Public Financial Management Assets Management Group (PFM) An evaluation of the written proposals was performed by a review team consisting of the Director of Finance & Information Technology, Human Resources Director, Finance Manager, Accounting Supervisor and Risks & Benefits Manager based on the following criteria as outlined in the RFP: 1. Understanding the services required by the City. 2. Quality, clarity and responsiveness of the proposal. 3. Demonstrated competence and professional qualifications necessary for successfully performing the work required by the City, including subcontractors and subconsultants. 4. Background and related experience of the specific individuals to be assigned to this work. 5. Proposed approach in providing services, including trust and investment options; Proposer's ability and qualifications to provide effective, high quality and innovative trust management and investment services;and implementation plan. 6. Proposed compensation. After considering all of the submitted proposals, the review team recommends contracting with. CalPERS for our OPEB trust and management services for three key reasons: 1. As a condition of joining the Ca1PERS .health program in 1993, the City has been making contributions towards retiree health coverage. It is a logical step to contract with CalPERS to now pre-fund our OPEB obligations through an irrevocable trust. 2. Of the six proposers, only CalPERS has already established an investment program for funds placed with them. In the case of the other firms, this would need to be developed uniquely Contract with CalPERS for Retiree Health Trust Administration Page 3 for the CityS their proposals were largely directed towards managing health benefit disbursements. These services are already provided to the City at no added cost by Ca1PERS. 3. The trust established by Ca1PERS, the California Employers' Retiree Benefit Trust(CERBT), includes more than 200 members. They have the most experience in managing public agency OPEB trusts, and accordingly, we believe that they offer the best vehicle for effective stewardship of our OPEB assets. Next Steps After Council approval of the agreement and delegation of disbursement authority, a completed enrollment packet will be submitted to Ca1PERS. Along with these two documents, the enrollment packet consists of: 1. Certification of OPEB Funding Policy& GASB 43/45 Reporting Compliance (Completed by Finance& Information Technology Director). 2. Certification of OPEB Actuarial Information (Completed by the Actuarial Firm). 3. Summary of Actuarial Information Required for Ca1PERS Financial Statements (Completed by the Actuarial Firm). Once the City's enrollment is accepted by Ca1PERS, which will take two to three weeks, the City may make its first contribution within seven days. This will allow us to pre-fund the actuarial obligation 2008-09. CONCURRENCES Human Resources concurs with this recommendation. FISCAL IMPACT The CaIPERS compensation process is set up so that all fees will be netted annually against the investment earnings. Consistent with CatPERS policies, the actuarial assumption for CERBT is 7.75%, over the long term. Trust participants will pay the costs of administering the trust, as measured and reported in the Comprehensive Annual Financial Report (CAFR). Fees will vary from year to year but are projected to range between 0.2% and 0.5% of earnings per year. As detailed in attached report presented to the Council in May 2008, the City's actuarial valuation has shown that a full pre-funding plan (7.75% discount rate) is more cost-effective than our current pay-as-you-go (4.25% discount rate) model. Funds for pre-funding are available in the 2008-09 Budget and will be reflected in the Preliminary Financial Plan for 2009-11. ALTERNATIVES 1. Contract with another vendor. A thorough, competitive RFP process was completed and the review team was unanimous in its decision to recommend contracting with Ca1PERS. Contract with CalPERS for Retiree Health Trust Administration Page 4 2. Do not go forward with actuarial funding via an irrevocable trust. The pre-funding of OPEB liability can be done internally through a trust that cannot legally be used for any purpose other than to pay retiree healthcare benefits. This funding option carries the assumed discount rate of 4.25%versus 7.75% for an irrevocable. As such, it is not as cost-effective. 3. Continue pay-as-you-go. The City's retiree healthcare plan is not currently funded on an actuarial basis. Without pre-funding, benefits can continue to be paid on a pay-as-you-go basis. However, as detailed in the attached report, this will become much more expensive in the not-so-distant future. Additionally, GASB 45 requires that retiree healthcare benefits be accounted for on an accrual basis (as benefits are earned). This would mean reporting the unfunded liability on our financial statements. ATTACHMENTS 1. Excerpt from 2008-09 Financial Plan Supplement: Retiree Health Care Obligations 2. Agreement and Election of City of San Luis Obispo to Pre-Fund OPEB through Ca1PERS 3. Delegation of Authority to Request Disbursements ON FILE IN THE COUNCIL OFFICE AND AVAILABLE ON THE CITY'S WEB SITE May 20, 2008 Council Agenda Report http://www.slocity.org/cityclerk/agendas/2008/052008/bl gasb45analvsis.12df .j, '�. .. :.M. "! " '..e'4:. hx a ._q4� t'.i •,.— T:Tinance&MGASB 45 Ttust\5-19-09 Council Agenda Report\Council Agenda Report,5-19-09.doc Attachment RETIREE HEALTH CARE OBLIGATIONS VERY LIMITED COST OBLIGATIONS 3. And the City's ability to fund this modest cost is unlikely to improve in the future. For context, annual payments under this approach will Compared with many other cities throughout the account for about 0.5% of the City's annual State and the nation, the City has taken a very budget. conservative approach to providing post- employment health care benefits. The following DESCRIPTION OF THE CITY'S PROGRAM summarizes the City's costs for this on a cash, "pay- as-you=go"basis for the last five years: The City's primary cost obligation for retiree health Fiscal Year Cost %of Total benefits is our election to participate in the 2007-08* 72,000 0.08% California Public Employees' Retirement System 2006-07 37,100 0.05% (CahPERS) Health Benefit Program under the 2005-06 34,700 0.02% "unequal contribution option." 2004-04 29,900 0.04% 2003-04 25,000 0.03% Background. The City's primary "other post *Estimated employment benefits than pensions" (OPEB) obligation is the minimum contribution that the City As reflected above, these represent a very small part is required to make under its participation in the of the City's costs: for example, in 2007-08, this Ca1PERS health care program. When the City represents less than one-tenth of one percent of the joined the Ca1PERS plan in 1993, it immediately budget. experienced an increase in the plan choices available along with a significant reduction in rates. And due New Reporting Standard: GASB 45. As discussed to Ca1PERS purchasing power, the City has below, changes in generally accepted accounting continued to experience competitive health care rates principles adopted by the Governmental Accounting since then. Standard Board (GASB) under Statement No. 45 (GASB 45) and effective for the City in 2008-09 However, as a condition of joining the CalPERS will shift the reporting of retiree health care benefits health program, the City agreed to contribute a to an actuarial basis. While GASB 45 affects minimum of $16 per month towards retiree health financial reporting of retire health care obligations, it care coverage. Under the regulations in place at the does not dictate how state and local governments time, this was scheduled to increase by 5%per year.. should fund these obligations. For example, if By 2007, this had risen to only $20 per month. agencies budgeted and funded these costs on a cash However, legislation adopted in 2006 (AB 2544) basis before the effective date of GASB 45, they can significantly altered this formula, resulting in continue to do so afterwards. significant increases in the City's required contribution. However, based on a detailed analysis presented to The following chart compares projected contribution the Council in May 2008, the 2008-09 Budget g P P J includes funding for retiree health care benefitson rates, pre-AB 2544 and post-AB 2544. As reflected an actuarial basis for three reasons: in this chart, contributions take a big jump in 2008. The only good news is that under AB 2544, the 1. In the not so distant future, it becomes cheaper increases in contribution rates should level-off by to pre-fund this cost on an actuarial basis than 2013 at about $145 per month. While higher than continuing to fund it on a pay-as-you-go basis. we expected, this is still much lower than the costs incurred by most California agencies. 2. The cost of this modest benefit is unlikely to become less expensive in the future. C:2 H-32 RETIREE HEALTH CARE OBLIGATIONS Ca1PERS Retiree Heath Care Contributions Key Role of the Discount Minimum Monthl Contributions (Investment)Rate in Determining Costs Year Pre-AB 2544 Post-AB 2545 2007 $20.30 $2030 There are a number of assumptions that determine 2008 25.15 72.75the actuarial cost of OPEB obligations, including: 2009 30.47 85.16 2010 36.28 98.71 1. Amount of the benefit 2011 42.57 113.33 2. Projected cost increases of the benefit 2012 49.36 128.93 2013 56.63 145.38 3. Projected retirees and their level of participation in the program As noted above, the City has historically paid these 4. Age distribution modest costs on a pay-as-you-go basis. Based on 5. Mortality and spousal coverage scheduled increases, OPEB costs on a cash basis are 6. Current unfunded liabilities projected to be$188,000 in 2008-09. 7. Discount(investment)rate ACCOUNTING FOR FUTURE COSTS While each of these assumptions plays an important -,, role in determining costs and contribution rates, the discount (investment) rate is a critical factor and one As discussed above, until 2008-09, the City of the few that the City has some control over, accounted for our limited retiree health care costs on depending on how it chooses to fund OPEB costs. a pay-as-you-go basis, which was consistent at the Three basic funding options. There are three basic time with generally accepted accounting principles. However, beginning in 2008-09, GASB 45 will funding options and each carries its own assumed require that these costs be reported in the future on discount (investment) rate by the actuary under an actuarial basis. Complying with GASB 45 GASB 45 guidelines: required performing an actuarial evaluation to determine these costs and prepare a plan for funding pay-As-You-Go , • 4.25% them. The results of this actuarial valuation of our Pre-Fund Intemally 4.25% retiree health care plans were presented to the Pre-Fund Via an Irrevocable Trust* 7.75% Council on May 20, 2008. * This is how the City accounts for pension costs via Impact on the City participation in Ca1PERS. The chart below summarizes the City's OPEB As reflected in the chart above, the difference liabilities and costs on an actuarial basis assuming between 4.25% and 7.75% is significant in discount rate options of 4.25%and 7.75%. determining annual required contributions. Keeping all other assumptions the same, it is much less 2008-09 O.EB Liabilities and Annual Costs expensive to fund annual OPEB costs via an Discount Rate irrevocable trust, where the discount rate is 7.75%, 4.25% 7.75% than other options, where the discount rate is 4.25%. Actuarial Liability $10,765,000 $5,918,000 For context,the City's total net assets at June 30,1007 were$278.3 million Pay As-You-Go Versus Pre-Funded Cost Trends Annual Required Contribution(ARC) Normal Cost 595,000 277,000 Pre-funding OPEB costs is initially more expensive Amortization of Prior Accrued Cost 467,000. 409,000 than pay-as-you-go funding: an additional $498,000 Total"ARC" 1,062,000 686,000 in 2008-09, assuming funding via an irrevocable Pay-As-You-Go Cost 188,000. 188,000 trust. GASB 45 does not require that the City Variance:.ARC vs.Pay-as-You 874,000 49s,000 budget or fund OPEB costs at this higher level — now or in the future. However, as reflected in the chart below, the cost in the not-so-distant future H-33 s RETIREE HEALTH CARE OBLIGATIONS (about 15 years from now) becomes much more expensive under pay-as-you-go versus pre-funding. General Fund 373,700 Community Development Block Grant 1,800 Water Fund 51,500 s:-ioo Sewer Fund 47,100 Parking Fund 10,900 r_000 f, Tranist Fund 3,100 Golf Fund 3,900 51'500 Whale Rock 6,000 s3 Total $498,000 1300 Funding via an Irrevocable Trust } As discussed above the most cost-effective 200}'t6 20331: 2018'19 =1124 20 '9 2033133 203839 � approach in funding this cost is via an irrevocable trust, since it allows for higher actuarial yields on And at the end of the amortization period, costs investments, which in turn reduces contribution become much less expensive, as there are no longer rates. Staff also believes that the trust that Ca1PERS any unfunded liabilities. has established for this purpose is the best vehicle for this in assuring effective stewardship of these Moreover, under the pay-as-you-go approach, the assets. While other options exist, the fact is that fact, as CalPERS has an outstanding, long-term track record unfunded liability never goes away. Ir shown in the following chart, it continues to grow. in managing these types of assets. On the other hand, funding at the "ARC" level While funding is provided in the 2008-09 Budget on results in no unfunded liabilities at the end of the this basis, executing an agreement and committing amortization period,only ongoing normal costs. funding will not occur until State budget issues (and potential impact on cities) are resolved, which is not Unfunded Liabilitv Trends likely to occur until Fall 2008. �A U3p00 1 130.000 CSA00 f S:O,WO 313.000 f10A00 t3.000 :m 2.or, :o:s 2.e23 =1 :o33 ±pas - Pry AS.Y.{c +Fc3 P3rFcd=8 Based on Council direction in May 2008, the City will begin pre-funding the OPEB obligation via an irrevocable trust in 2008-09. As reflected above, the net added cost for this organization-wide is $498,000. Of this amount, $373,700 will be incurred in the General Fund and the balance in other funds, summarized as follows: H-34 CS` Attachment CALIFORNIA EMPLOYER'S RETIREE BENEFIT TRUST PROGRAM ("CERBT") AGREEMENT AND ELECTION OF CITY OF SAN LUIS OBISPO (NAME OF EMPLOYER) TO PREFUND OTHER POST EMPLOYMENT BENEFITS THROUGH CaIPERS WHEREAS (1) Government Code Section 22940 establishes in the State Treasury the Annuitants' Health Care Coverage Fund for the prefunding of health care coverage for annuitants (Prefunding Plan); and WHEREAS (2) The California Public Employees' Retirement System (CaIPERS) Board - of Administration (Board) has sole and exclusive control and power over the administration and investment of the Prefunding Plan (sometimes also referred to as CERBT), the purposes of which include, but are not limited to (i) receiving contributions from participating employers and establishing separate Employer Prefunding Accounts in the Prefunding Plan for the performance of an essential governmental function (ii) investing contributed amounts and income thereon, if any, in order to receive yield on the funds and (iii) disbursing contributed amounts and income thereon, if any, to pay for costs of administration of the Prefunding Plan and to pay for health care costs or other post employment benefits in accordance with the terms of participating employers' plans; and WHEREAS (3) CITY OF SAN LUIS OBISPO (NAME OF EMPLOYER) (Employer)desires to participate in the Prefunding Plan upon the terms and conditions set by the Board and as set forth herein; and WHEREAS (4) Employer may participate in the Prefunding Plan upon (i) approval by the Board and (ii)filing a duly adopted and executed Agreement and Election to Prefund Other Post Employment Benefits (Agreement) as provided in the terms and conditions of the Agreement; and WHEREAS (5) The Prefunding Plan is a trust fund that is intended to perform an essential governmental function within the meaning of Section 115 of the Internal Revenue Code as an agent multiple-employer plan as defined in Governmental Accounting Standards Board (GASB) Statement No. 43 consisting of an aggregation of single-employer plans, with pooled administrative and investment functions; Rev 12/17/2008 r� r Attechment 2 NOW, THEREFORE, BE IT RESOLVED THAT EMPLOYER HEREBY MAKES THE FOLLOWING REPRESENTATION AND WARRANTY AND THAT THE BOARD AND EMPLOYER AGREE TO THE FOLLOWING TERMS AND CONDITIONS: A. Representation and Warranty Employer represents and warrants that it is a political subdivision of the State of California or an entity whose income is excluded from gross income under Section 115 (1) of the Internal Revenue Code. B. Adoption and Approval of the Agreement; Effective Date; Amendment (1) Employer's governing body shall elect to participate in the Prefunding Plan by adopting this Agreement and filing with the CaIPERS Board a true and correct original or certified copy of this Agreement as follows: Filing by mail, send to: CalPERS Constituent Relations Office CERBT (OPEB) P.O. Box 942709 Sacramento, CA 94229-2709 Filing in person, deliver to: CalPERS Mailroom Attn: Employer Services Division 400 Q Street Sacramento, CA 95814 (2) Upon receipt of the executed Agreement, and after approval by the Board, the Board shall fix an effective date and shall promptly notify Employer of the effective date of the Agreement. (3) The terms of this Agreement maybe amended only in writing upon the agreement of both CaIPERS and Employer, except as otherwise provided herein. Any such amendment or modification to this Agreement shall be adopted and executed in the same manner as required for the Agreement. Upon receipt of the executed amendment or modification, the Board shall fix the effective date of the amendment or modification. (4) The Board shall institute such procedures and processes as it deems necessary to administer the Prefunding Plan, to cant'out the purposes of this Agreement, and to maintain the tax exempt status of the Pref finding Plan. Employer agrees to follow such procedures and processes. Rev 12/17/2008 2 (2 L�� Attachment C. Actuarial Valuation and Employer Contributions (1) Employer shall provide to the Board an actuarial valuation report on the basis of the actuarial assumptions and methods prescribed by the Board. Such report shall be for the Board's use in financial reporting, shall be prepared at least as often as the minimum frequency required by GASB Statement No. 43, and shall be: (a) prepared and signed by a Fellow or Associate of the Society of Actuaries who is also a Member of the American Academy of Actuaries or a person with equivalent qualifications acceptable to the Board; (b) prepared in accordance with generally accepted actuarial practice and GASB Statement Nos. 43 and 45; and, (c) provided to the Board prior to the Board's acceptance of contributions for the valuation period or as otherwise required by the Board. (2) The Board may reject any actuarial valuation report submitted to it, but shall not unreasonably do so. In the event that the Board determines, in its sole discretion, that the actuarial valuation report is not suitable for use in the Board's financial statements or if Employer fails to provide a required actuarial valuation, the Board may obtain, at Employer's expense, an actuarial valuation that meets the Board's financial reporting needs. The Board may recover from Employer the cost of obtaining such actuarial valuation by billing and collecting from Employer or by deducting the amount from Employer's account in the Prefunding Plan. (3) Employer shall notify the Board of the amount and time of contributions which contributions shall be made in the manner established by the Board. (4) Employer contributions to the Prefunding Plan may be limited to the amount necessary to fully fund Employer's actuarial present value of total projected benefits, as supported by the actuarial valuation acceptable to the Board. As used throughout this document, the meaning of the term "actuarial present value of total projected benefits" is as defined in GASB Statement No. 45.. If Employer's contribution causes itsassetsin the Prefunding Plan to exceed the amount required to fully fund the actuarial present. value of total projected benefits, the Board may refuse to accept the contribution. (5) The minimum Employer contribution will be at least $5000 or be equal to Employer's Annual Required Contribution, whichever is less, as that term is defined in GASB Statement No. 45. Contributions can be made at any time following the seventh day after the effective date of the Agreement provided that Employer has first complied with the requirements of Paragraph C. Rev 12/17/2008 3 C L� /O r Attachment Z D. Administration of Accounts, Investments, Allocation of Income (1) The Board has established the Prefunding Plan as an agent plan consisting of an aggregation of single-employer plans, with pooled administrative and investment functions, under the terms of which separate accounts will be maintained for each employer so that Employer's assets will provide benefits only under employer's plan. (2) All Employer contributions and assets attributable to Employer contributions shall be separately accounted for in the Prefunding Plan (Employer's Prefunding Account). (3) Employer's Prefunding Account assets may be aggregated with prefunding account assets of other employers and may be co-invested by the Board in any asset classes appropriate for a Section 115 Trust.. (4) The Board may deduct the costs of administration of the Prefunding Plan from the investment income or Employer's Prefunding Account in a manner determined by the Board. (5) Investment income shall be allocated among employers and posted to Employer's Prefunding Account as determined by the Board but no less frequently than annually. (6) If Employer's assets in the Prefunding Plan exceed the amount required to fully fund the actuarial present value of total projected benefits, the Board, in compliance with applicable accounting and legal requirements, may return such excess to Employer. E. Reports and Statements (1) Employer shall submit with each contribution a contribution report in the form and containing the information"prescribed by the Board. (2) The Board shall prepare and provide a statement of Employer's Prefunding Account at least annually reflecting the balance in Employer's Prefunding Account', contributions made during the period and income allocated during the period, and such other information as the Board determines. F. Disbursements (1) Employer may receive disbursements not to exceed the annual premium and other costs of post employment healthcare benefits and other post employment benefits as defined in GASB 43. (2) Employer shall notify CalPERS in writing in the manner specified by CaIPERS of the persons authorized to request disbursements from the Prefunding Plan on behalf of Employer. Rev 12/17/2008 4 CS�// i Attachment Z (3) Employer's request for disbursement shall be in writing signed by Employer's authorized representative, in accordance with procedures established by the Board. The Board may require that Employer certify or otherwise establish that the monies will be used for the purposes of the Prefunding Plan. (4) Requests for disbursements that satisfy the requirements of paragraphs (2) and (3) that are received on or after the first of a month will be processed by the 15th of the following month. (For example, a disbursement request received on or between March 1 st and March 31 st will be processed by April 15th; and a disbursement request received on or between April 1 st and April 30th will be processed by May 15th.) (5) CalPERS shall not be liable for amounts disbursed in error if'it has acted upon the written instruction of an individual authorized by Employer to request disbursements. In the event of any other erroneous disbursement, the extent of CaIPERS' liability shall be the actual dollar amount of the disbursement, plus interest at the actual earnings rate but not less than zero. (6) No disbursement shall be made from the Prefunding Plan which exceeds the balance in Employer's Prefunding Account. G. Costs of Administration Employer shall pay its share of the costsofadministration of the Prefunding Plan, as determined by the Board. H. Termination of Employer Participation in Prefunding Plan (1) The Board may terminate Employer's participation in the Prefunding Plan if' (a) Employer gives written notice to the Board of its election to terminate; (b) The Board finds that Employer fails to satisfy the terms and conditions of this Agreement or of the Board's rules or regulations. (2) If Employer's participation in the Prefunding Plan terminates for any of the foregoing reasons, all assets in Employer's Prefunding Account shall remain in the Prefunding Plan, except as otherwise provided below, and shall continue to be invested and accrue income as provided in Paragraph D. (3) After Employer's participation in the Prefunding Plan terminates, Employer may not make contributions to the Prefunding Plan. Rev 12/17/2008 5 C6 /� I I AttachmOntr (4) After Employer's participation in the Prefunding Plan terminates, disbursements from Employer's Prefunding Account may continue upon Employer's instruction or otherwise in accordance with the terms of this Agreement. (5) After thirty-six (36) months have elapsed from the effective date of this Agreement or at such earlier date as may be approved by the Board in its sole discretion: (a) Employer may request a trustee to trustee transfer of the assets in Employer's Prefunding Account. Upon satisfactory showing to the Board that the transfer will satisfy applicable requirements of the Internal Revenue Code and the Board's fiduciary duties, then the Board shall effect the transfer within one hundred twenty (120) days. The amount to be transferred shall be the amount in the Employer's Prefunding Account as of the disbursement date and shall include investment earnings up to the investment earnings allocation date immediately preceding the disbursement date. In no event shall the investment earnings allocation date precede the transfer by more than 120 days. (b) Employer may request a disbursement of the assets in Employer's Prefunding Account. Upon satisfactory showing to the Board that all of Employers obligations for payment of post employment health care benefits and other post employment benefits and reasonable administrative costs of the Board have been satisfied, then the Board shall effect the disbursement within one hundred twenty (120) days. The amount to be disbursed shall be the amount in the Employer's Prefunding Account as of the disbursement date and shall include investment earnings up to the investment earnings allocation date immediately preceding the disbursement date: In no event shall the investment earnings allocation date precede the disbursement by more than 120 days. (6) After Employers participation in the Prefunding Plan terminates and at such time that no assets remain in Employer's Prefunding Account, this Agreement shall terminate. (7) If, for any reason, the Board terminates the Prefunding Plan, the assets in Employer's Prefunding Account shall be paid to Employer after retention of(i) amounts sufficient to pay post employment health carebenefits and other post employment benefits to annuitants for current and future annuitants described by the employers current substantive plan (as defined in GASB 43), and (ii) amounts sufficient to pay reasonable administrative costs of the Board. (8) If Employer ceases to exist but Employer's Prefunding Plan continues to exist and if no provision has been made by Employer for ongoing payments to pay post employment health care benefits and other post employment benefits to annuitants for current and future annuitants, the Board is authorized to and shall appoint a third parry Rev 12/17/2008 6 C'7_ administrator to carry out Employer's Prefunding Plan. Any and all costs associated with such appointment shall be paid from the assets attributable to contributions by Employer. (9) If Employer should breach the representation and warranty set forth in Paragraph A., the Board shall take whatever action it deems necessary to preserve the tax-exempt status of the Prefunding Plan. I. General Provisions (1) Books and Records. Employer shall keep accurate books and records connected with the performance of this Agreement. Employer shall ensure that books and records of subcontractors, suppliers, and other providers shall also be accurately maintained. Such books and records shall be kept in a secure location at the Employer's office(s) and shall be available for inspection and copying by CaIPERS and its representatives. (2) Audit. (a) During and for three years after the term of this Agreement, Employer shall permit the Bureau of State Audits, CaIPERS, and its authorized representatives, and such consultants and specialists as needed, at all reasonable timesduring normal business hours to inspect and copy, at the expense of CalPERS, .books and records of Employer relating to its performance of this Agreement. (b) Employer shall be subject to examination and audit by the Bureau of State Audits, CaIPERS, and its authorized representatives, and such consultants and specialists as needed, during the term of this Agreement and for three years after final payment under this Agreement. Any examination or audit:shall be confined to those matters connected with the performance of this Agreement, including, but not limited to, the costs of administering this Agreement. Employer shall cooperate fully with the Bureau of State Audits; CaIPERS, and its authorized representatives, and such consultants and specialists as needed, in connection with any examination or audit. All adjustments, payments, and/or reimbursements determined to be necessary by any examination or audit shall be made promptly by the appropriate party. (3) Notice. (a) Any notice, approval, or other communication required or permitted under this Agreement will be given in the English language and will be deemed received as follows: Rev 12/17/2008 7 I®e■p■■a �y��Jp■ 1. Personal delivery. When personally delivered to the recipient. Notice is effective on delivery. 2. First Class Mail.. When mailed first class to the last address of the recipient known to the party giving notice. Notice is effective three delivery days after deposit in a United States Postal Service office or mailbox. 3. Certified mail. When mailed certified mail, return receipt requested. Notice is effective on receipt, if delivery is confirmed by a return receipt. 4. Overnight.Delivery. When delivered by an overnight delivery service, charges prepaid or charged to the sender's account, Notice is effective on delivery, if delivery is confirmed by the delivery service. 5. Telex or Facsimile Transmission. When sent by telex or fax to the last telex or fax number of the recipient known to the party giving notice. Notice is effective on receipt, provided that (i) a duplicate copy of the notice is promptly given by first-class or certified mail or by overnight delivery, or (ii) the receiving party delivers a written confirmation of receipt. Any notice given by telex or fax shall be deemed received on the next business day if it is received after 5:00 p.m. (recipient's time) or on a nonbusiness day. 6. E-mail transmission. When sent by e-mail using software that provides unmodifiable proof(i)that the message was sent, (ii) that the message was delivered to the recipient's information processing system, and (iii) of the time and date the message was delivered to the recipient along with a verifiable electronic record of the exact content of the message sent. Addresses for the purpose of giving notice are as shown in Paragraph B.(1) of this Agreement. (b) Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the party to be notified shall be deemed effective as of the first date that said notice was refused, unclaimed, or deemed undeliverable by the postal authorities, messenger orovemight delivery service. (c) Any party may change its address, telex, fax number, or e-mail address by giving the other party notice of the change in any manner permitted by this Agreement. Rev 12/17/2008 8 Aftachment==Z"_ (d) All notices, requests, demands, amendments, modifications or other communications under this Agreement shall be in writing. Notice shall be sufficient for all such purposes if personally delivered, sent by first class, registered or certified mail, return receipt requested, delivery by courier with receipt of delivery, facsimile transmission with written confirmation of receipt by recipient, or e-mail delivery with verifiable and unmodifiable proof of content and time and date of sending by sender and delivery to recipient. Notice is effective on confirmed receipt by recipient or 3 business days after sending, whichever is sooner. (4) Modification This Agreement may be supplemented, amended, or modified only by the mutual agreement of the parties. No supplement, amendment, or modification of this Agreement shall be binding unless it is in writing and signed by the party to be charged. (5) Survival All representations, warranties, and covenants contained in this Agreement, or in any instrument, certificate, exhibit, or other writing intended by the parties to be a part of their Agreement shall survive the termination of this Agreement until such time as all amounts in Employer's Prefunding Account have been disbursed. (6) Waiver No waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this Agreement shall be effective unless it is in writing and signed by the party waiving the breach, failure, right, or remedy. No waiver of any breach, failure, right, or remedy shall be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, nor shall any waiver constitute a continuing waiver unless the writing so specifies. (7) Necessary Acts, Further Assurances The parties shall at their own cost and expense execute and deliver such further documents and instruments and shall take such other actions as may be reasonably required or appropriate to evidence or carry out the intent and purposes of this Agreement. Rev 12/17/2008 9 Attachd A majority vote of Employer's Governing Body at a public meeting held on the 19th day of the month of May in the year 2009 authorized entering into this Agreement. Signature of the Presiding Officer: Printed Name of the Presiding Officer: David F. Romero Name of Governing Body: City Council Name of Employer: City of San Luis Obispo Date: BOARD OF ADMINISTRATION CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM BY KENNETH W. MARZION ACTUARIAL AND EMPLOYER SERVICES BRANCH CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM To be completed by CaIPERS The effective date of this Agreement is: Rev 12/17/2008 10 f — DELEGATION OF AUTHORITY TO REQUEST DISBURSEMENTS RESOLUTION OFTHE CITY COUNCIL (GOVERNING BODY) OFTHE CITY OF SAN LUIS OBISPO (NAMEOF EMPLOYER) The City of San Luis Obispo delegates to the incumbents in (GOVERNING BODY) the positions of Finance Director, Finance Manager,Accounting Supervisor, Human Resources Director, (TI-I-LE) Risk& Benefits Manager,Assistant City Manager and City Manager authority to request on behalf (TITLE) of the Employer disbursements from the Other Post Employment Prefunding Plan and to certify as to the purpose for which the disbursed funds will be used. By Title Mayor Witness Date OPEB Delegation of Authority(2/07)