City of Sausalito Joins PARS’ OPEB Trust & Pension Stabilization Program

Categories: California Developments,Hot Sheets,OPEB/GASB 45/75,Pension Rate Stabilization
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Tucked against the hills of a national park along the San Francisco Bay, Sausalito boasts a unique and spirited history. In the pre Golden Gate Bridge years, its close proximity across the bay from San Francisco helped Sausalito become a refuge from busy city life and develop into a bustling transportation hub. Today, Sausalito attracts a steady stream of visitors looking to experience the art galleries, floating home communities or simply to enjoy dinner on the coast watching the ships roll in. As Sausalito’s cultural and economic spirit changed over time, the City continued to thrive due in large part to its effective leadership. This leadership continues today as the City Council prides itself on being on the forefront of forward-thinking financial management.

In the past decade as CalPERS mounting liabilities and OPEB funding has become a significant burden for many municipalities; Sausalito has stayed ahead of the curve by implementing several reforms to lower pension and OPEB costs and remain fiscally viable. Reduced benefit tiers have been implemented for new hires, along with OPEB benefits being transitioned from a Defined Benefit to a Defined Contribution plan. Sausalito had also set-aside money specifically for OPEB since 2005.

While these actions on pension and OPEB benefits improved Sausalito’s financial situation, their continued diligence led them to hearing about PARS’ OPEB Trust Program and newly-developed Pension Rate Stabilization Program. These two prefunding programs offered several benefits that interested the City, and they officially adopted both PARS programs in early 2015.

At their core, these two programs allow agencies to prefund their pension and OPEB benefits by putting money into an irrevocable IRC Section 115 multiple-employer trust. This trust can generate a better rate of return with diversified investing, while also helping agencies to lower the unfunded liabilities on their financial statements.

With the Pension Rate Stabilization Program, the City of Sausalito saw a vehicle to:

  • Generate more investment flexibility compared to general fund investments
  • Retain local control over the access to plan assets and investment risk tolerance level
  • Create a “rainy day fund” to stabilize their pension contribution rate to CalPERS by using this separate trust
  • Lower net pension liabilities (NPL) for GASB 67/68 reporting due to assets in the prefunding trust
  • Increase the confidence level that all pension liabilities will be fully funded, even if investment returns do not perform to CalPERS’ expectations

The PARS OPEB Trust Program is similar in its ability to add investment flexibility for Sausalito, with early calculations showing the additional benefits of:

  • Reducing their total (current and future) liability by 38%
  • Reducing their actuarial accrued liability by 30%
  • Reducing their ARC by 26%

The City also noted that credit rating agencies look favorably on cities with an OPEB prefunding plan in place, and that the Government Finance Officers Association (GFOA) consider it a “best practice.”

For more information or to request a complimentary proposal contact PARS at (800) 540-6369 x 127 or info@pars.org.


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