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mutual funds, and index -base securities. Both employer- directed and discretionary investment options are available. RCM Robinson Capital Management LLC This is an investment advisory firm registered with the Securities Exchange Commission that specializes in treasury funds management and the healthcare investment management needs of local government agencies and municipalities. Both VEBA's and Section 115 trusts can be established and they currently have two public agencies clients with $3 million in assets. US Bank is utilized for the custodial trust and other services such as record keeping, plan administration and claim processing are offered by America's VEBA solution. In -House Option -In addition to the six providers listed above, agencies have the option of administering a trust in- house. This option offers the advantage of reduced administrative costs and allows the Trustee to direct the investment of assets. While all six of the above third party providers are more than capable of administering the City's OPEB funding needs, due to existing capital markets and equity markets, staff is recommending an interim funding strategy where the City establishes an irrevocable trust and invests funds in low risk fixed income investments managed by in -house staff for an interim period not to exceed two years. This interim funding strategy will accomplish two primary goals. First, it assures that the City complies with the new accounting standards by the implementation date of June 30, 2009; and second, it preserves the capital that has been accumulated since 1998 to pay for these retiree medical benefits. This later point is critical because, as indicated earlier, the City has already accumulated approximately $48.2 million for funding OPEB obligations and it is prudent for the City to continue to manage these funds rather than transfer them to a third party until the capital markets stabilize. Considering staff has managed the Retiree Insurance Reserve Funds to date, it is qualified to continue managing the fund in the short term. Based on the actuarial assumptions, staff estimates that the investment strategy will include an initial investment sufficient to meet the ARC and will yield 4% for the next two years and 7.75% thereafter once funds have been transferred to a more diversified trust. There is a direct relationship between the actuarial assumptions employed and the overall liability and ARC. The lower the assumed investment yield, the higher the annual required contribution. Notwithstanding staff's interim strategy, the long term funding strategy will need to involve a fully diversified portfolio and will eventually require the City contract with one of the providers described above if investment returns are expected to fully meet the City's ARC requirements. Staff intends to provide the Council with a long term recommendation within 12 to 18 months. LPFD Cost Sharing The City currently has accumulated retiree medical reserves in two separate Internal Service Funds; one for the Livermore Pleasanton Fire Department (LPFD) and another for all non -fire Pleasanton employees. This separation was done to track contributions Page 12 of 13