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2018/19 to the PARS Trust Conservative Portfolio and withdrew it throughout the year <br /> to cover the City's required CaIPERS payment, the City would have earned $443,700 <br /> more than it did through the City's investment portfolio. While staff does not expect the <br /> PARS Trust Conservative Portfolio to sustain those levels of earnings, based on historic <br /> earnings, staff expects the PARS Trust Conservative Portfolio to earn at least 200 basis <br /> points more than the City's investment portfolio. <br /> The City will use PARS Trust investment earnings to help pay its increased annual <br /> pension contributions when it becomes a financial hardship to do so within the City's <br /> annual operating budget. Staff will draw down the principal of additional investments <br /> throughout the year to cover the City's CaIPERS payments. <br /> BACKGROUND <br /> After considering options to prepay the City's approximate $160 million pension liability, <br /> on March 6, 2018, City Council authorized adoption of a Section 115 Trust to be <br /> administered by PARS. On June 5, 2018 City Council adopted a PARS investment <br /> strategy, Section 115 Pension Trust Fund Policy Guidelines and allocated $28 million to <br /> the City's PARS Trust. Of the $28 million, $6.7 million was deposited into the PARS <br /> Conservative Portfolio and the balance into PARS Capital Growth Custom Portfolio. The <br /> City's objective is to ensure there will be sufficient funds in the PARS Trust to meet the <br /> City's expected increased pension contributions associated with the City's unfunded <br /> pension liability and CaIPERS policies that require cities and other jurisdictions to fully <br /> fund pension liabilities by 2047. <br /> Between July 1, 2018 when the City initially deposited funds into the PARS Trust Fund <br /> and December 31, 2019, the Capital Growth Custom Investment portfolio earned 11.4 <br /> percent and the Conservative Portfolio earned 7.96 percent. <br /> The City's Section 115 Pension Trust policy guidelines do not permit City staff to make <br /> additional deposits to the PARS Trust and only allow withdrawals under limited <br /> circumstances. In addition, the City's Section 115 Pension Trust Fund Policy Guidelines <br /> do not specify which investment portfolio to withdraw from first. <br /> DISCUSSION <br /> Because the PARS Conservative Portfolio has consistently outperformed the City's <br /> investment portfolio, staff believes it is in the City's best financial interest to allow staff to <br /> deposit up to the City's required annual CaIPERS pension payment into the PARS <br /> Conservative Portfolio and make withdrawals to make the CaIPERS periodic pension <br /> payments throughout the year. The investment earnings would remain in the PARS <br /> Trust Fund to be available in the future to cover the City's increased pension payments <br /> when the City needs it most such as during an economic downturn and/or after a major <br /> natural disaster. <br /> Finally, the proposed amendment to the Section 115 Pension Trust Fund Policy <br /> Guidelines specifies that when the City needs to withdraw from the PARS Trust Fund, <br /> the initial withdrawal will be from the Conservative Investment Portfolio. The objective of <br /> this proposed amendment is to ensure the City is withdrawing from the investment <br /> portfolio that is least likely to have incurred losses during an economic downturn. <br /> Page 2 of 3 <br />