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rate of return by depositing funds into the PARS Section 115 Trust. Further, CaIPERS earned 11 .2 percent in 20171. Thus, it is likely that the City will exceed CaIPERS returns with the custom portfolio. The City will use those investment earnings to help pay its increased annual pension contributions when it becomes a financial hardship to do so within the City's annual operating budget. BACKGROUND At the Council Meeting of December 19, 2017, John Bartel, President, Bartel Associates, LLC, presented the actuarial valuation of the City's pension plan with CaIPERS. The presentation outlined the City's pension Unfunded Actuarial Liability (UAL) as of June 30, 2016,which totaled $160 million. This figure is expected to grow over the next several years which will impact the City's annual contribution into the system. The City's annual CaIPERS contributions are projected to grow from $14.2 million in FY 2017/18 to $21.6 million in 2021/22, and continue increasing to $28.5 million by 2026/27. Mr. Bartel presented a variety of options to address the City's growing pension expenses, including participating in a Section 115 Trust Program, to help mitigate the City's pension cost increases over time. Below is a summary of the benefits of a Section 115 Trust Program: 1) Local control over assets 2) Pension rate stabilization 3) Investment flexibility 4) Addresses unfunded pension liabilities 5) Improved credit rating At the conclusion of Mr. Bartel's presentation, Council directed the Committee to work with staff on a strategy to address the City's short and long term pension obligations with an emphasis on selecting a Section 115 Pension Trust Fund. Based on direction from the Committee, staff issued a Request for Proposal (RFP) for Section 115 Pension Trust Fund administration services. Staff received proposals from three eligible firms. Staff reviewed the proposals and scored PARS the highest based on years of experience administering Section 115 trusts, the number of similar trusts under their management, overall better investment returns, and fees. On March 6, 2018, City Council authorized adoption of a Section 115 Trust to be administered by PARS. In order to deposit funds in the PARS Trust the City needs to adopt a PARS investment strategy. In addition, staff is proposing that City Council adopt Section 115 Pension Trust withdrawal policy guidelines to help ensure there will be sufficient funds in the Trust Fund to meet the City's increased pension contributions until such time as the City's unfunded CaIPERS liability has been fully funded. ' it is unclear from CaiPERS website whether the 11.2 percent return in 2017 is gross or net of fees. Page 2 of 4