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THE CITY OF <br />[ALE ASANTONC <br />CITY COUNCIL AGENDA REPORT <br />May 19, 2009 <br />Finance Department <br />TITLE: ADOPT A RESOLUTION ESTABLISHING AN IRREVOCABLE TRUST, <br />RELATED DOCUMENTS AND AN INTERIM INVESTMENT STRATEGY, FOR <br />THE PURPOSE OF PRE FUNDING RETIREE MEDICAL BENEFITS <br />SUMMARY <br />In 2004, the Governmental Accounting Standards Board (GASB) issued two new <br />accounting rules requiring reporting of the unfunded costs, and disclosure of the long <br />term liability, of any non pension post employment benefits such as retirees medical <br />benefits. Because employees retiring from the City with more than five years of service <br />are eligible for a medical retiree benefit based on years of service, the City must comply <br />with these rules by June 30, 2009. While the City has been funding retiree medical <br />costs through annual contributions to the City and LPFD Retiree Insurance Reserve <br />Funds, the new rules provide opportunities for establishing investment vehicles that <br />facilitate uniform annual contributions to cover the City's total financial liability over an <br />extended period of time. With the assistance of Bartel Associates (actuarial consultant) <br />and Hanson Bridgett, LLC (legal consultants) staff has analyzed available options and is <br />recommending creation of an Internal Revenue Code Section 115 Irrevocable Trust as <br />the best means for meeting GASB rules and City financial obligations. <br />RECOMMENDATION <br />1. Approve the attached resolution providing for the adoption of a trust to fund post <br />employment benefits other than pensions (OPEB), appointment of a trustee for the <br />trust, and approval of a transfer of assets into the trust, to meet GASB reporting <br />requirements as outlined in this report. (Attachment 1) <br />2. Authorize the City Manger or his designee to execute all documents and approve <br />investments related to the Irrevocable Trust. <br />FINANCIAL STATEMENT <br />There is an annual fee of $6,500 to establish a new trust account with Bank of New <br />York, the City's third party safekeeping investment custodian. In addition, as outlined in <br />this report, the City will make annual contributions to the trust of approximately $7.7 <br />million (less current year benefit payments) in 2008 -09. <br />14 <br />