The cities of Coronado and Healdsburg became two of the latest municipalities to join the rapidly growing PARS Pension Rate Stabilization Program (PRSP); where funds can be set aside and invested to reduce liabilities and address pension obligations all while remaining under local control and discretion of the city. This innovative Section 115 multiple-employer trust helps cities prepare for future pension fund rate increases, at a risk tolerance level that aligns with their demographics and investment policies.

Both Coronado and Healdsburg are renowned tourist destinations, with Coronado laying claim to the 130 year old Hotel Del Coronado resort, and Healdsburg boasting some of the most famous wine regions in the U.S., perhaps the world. With the volatility of the tourism industry, it has been important for leaders of these cities to make long-term financial decisions that can withstand unexpected downturns.

For the past several years, pension liabilities have been a focal point of both cities’ fiscal conversations as both realize the importance of staying ahead of increasing costs. With the recent release (and now implementation) of GASB 68, the search for long-term solutions became that much more pressing to city leaders.

A New and Better Option

Already having prior business relationships with PARS, Healdsburg and Coronado were among the first agencies to hear about the PARS Pension Rate Stabilization Program (PRSP). Its unique GASB-compliant design appealed to both cities and was seen as an immediate and long-term improvement to pension pre-funding. This Program, which was awarded a favorable IRS Private Letter Ruling, also allows pre-funding of retiree medical benefits (OPEB), which are sub-accounted for separately.

City leaders of Healdsburg noted that prior to the PARS PRSP, the only option for reducing unfunded pension liabilities was to commit additional funds to their pension program. Unfortunately these funds would then be subject to the same market volatility risk of that program’s 7.5% pension investment policy target, plus those funds would then be unaccessible to the City. With the PARS plan, participating agencies can match their investment strategy with their risk tolerance and performance goals, diversify investments, earn a potentially greater rate of return than the General Fund and have local access to the funds should pension rates continue to rise.

The City of Coronado had already set aside money in their General Fund earmarked for pension, but they wanted to get more out of those funds. They pointed out that the PARS PRSP would not only earn a greater rate of return in the long run compared to their current arrangement, but also that the assets in the trust would immediately lower the City’s Net Pension Liability (NPL) for GASB 68 purposes. Understanding that pre-funding benefit liabilities represents “best practice’ by the Government Finance Officer’s Association (GFOA), Coronado also noted that credit rating agencies perceive pre-funding into a trust more favorably than earmarking funds within the City’s pooled cash and investments.

The City Councils for both Healdsburg and Coronado agreed with their respective staff’s recommendation and voted to adopt the PARS Pension Rate Stabilization Program (PRSP) to begin pre-funding their pension liabilities.

For more information or to find out how the PARS PRSP can lower your city’s pension liabilities, contact:

Mitch Barker at 800.540.6369 x 116; mbarker@pars.org
Dennis Yu at 800.540.6369 x 104; dyu@pars.org