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Mr. Culver said staff recommends an interim funding strategy that complies with GASB 45 but allows the City to establish an initial trust without a third -party trust provider. Staff advises that the annual required contribution be prefunded into the trust and invested in a portfolio that mirrors the City's current fixed income investments for a 2 -year period before diversifying into a CaIPERS like portfolio with an outside provider. The unfunded actuarial liability and annual contributions would be a little higher during that 2 -year period. Mayor Hosterman questioned if contributions would remain stable for that time. Mr. Culver clarified that they would be a stable percentage of payrolls. Mr. Culver reviewed the three funding options, explaining that some agencies issue debt to prefund the entire unfunded liability. This is not recommended as the risks include debt service in addition to the funding liability. Another option would be the pay -as- you -go method which staff determined years ago is unsustainable. Staff recommends prefunding by contributing the required annual contribution which would provide certain trust incentives, comply with GASB 45, afford clean audits, and allow for good bond ratings. Staff identified several trust fund options including a Section 115 trust through a third -party provider, in -house long -term management, and in -house interim management. Long -term management would require expertise that surpasses what staff is capable of providing so staff proposes to manage the low -risk portfolio in house and then diversify with a third -party trust provider. Councilmember McGovern questioned what could be done for health care cost containment in future labor negotiations. Mr. Fialho explained that the current benefits would be shifted to something that more closely resembles the single -party retirement rates used in the Management and Confidential Groups. Those benefits are available through age 65, after which the employee transitions to Medicare. He noted that the City prefunds that in the sense that it makes Medicare contributions with every payroll check issued. There was no public comment. Councilmember Sullivan said this is a clear example of how staff is proactive and has tackled an immense liability that staff has tackled with solid strategies. MOTION: It was m/s by Sullivan /Cook Kallio to adopt Resolution No. 09 -293 establishing an irrevocable trust, related documents, and an interim investment strategy, for the purpose of pre funding retiree medical benefits. Motion passed by the following vote: Ayes: Councilmembers Cook Kallio, McGovern, Sullivan, Mayor Hosterman. Noes: None Absent: Councilmember Thorne MATTERS INITIATED BY COUNCIL Councilmember McGovern initiated discussion on the reinstallation of the streetlights along Foothill Road. She said the Council very clearly recommended that staff work with the 2 dissenting residents to reach an equitable agreement. Mr. Fialho confirmed that staff was unable to provide a solution that satisfied the residents in question and was left with the option to forego installation of the last 3 lights. City Council Minutes Page 11 of 13 May 19, 2009