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2 <br /> <br />policy goals, such Enterprise Funds can contribute a portion of their remaining surplus to the <br />Trust. The City will strive to ensure that any withdrawals from the Trust benefit the Enterprise <br />Funds equitably. <br /> Use of Trust Funds: The funds in the Trust may be used for any of the following purposes at the <br />City’s discretion: (1) City’s annual UAL payment to CalPERS, (2) City’s annual normal cost payment <br />to CalPERS, (3) reimbursement to the City for CalPERS pension costs, and (4) Additional <br />Discretionary Payments to CalPERS. Irrespective of the other policy objectives, the City will <br />consider withdrawing from the Trust when (a) CalPERS pension costs are rising quicker than City <br />revenues, (b) a structural deficit needs to be addressed, (c) City reserves need to be replenished <br />and (d) other factors that will help enhance the City’s financial stability and resiliency. <br /> Funding Goals: As stated above, the City is targeting a funded ratio of 90% for each of its pension <br />plans, with the ultimate goal of fully funding the obligations over time. When measuring its funded <br />ratio, the City should incorporate assets in the Trust, in addition to the assets under management <br />by CalPERS. The City may consider foregoing contributions to the Trust if its funded ratio is <br />determined to be too high, or if the current assets on deposit in the Trust are projected to be <br />sufficient to cover budgetary fluctuations in the future. <br /> Target Trust Balance: At a minimum, the Trust balance will be maintained at a level totaling 100% <br />of annual pension costs (UAL + Normal Costs for the current fiscal year). The target/ideal balance <br />for the trust shall be 150% of annual pension costs. <br /> <br />5. Additional Discretionary Payments: CalPERS allows member agencies to make Additional Discretionary <br />Payments (“ADPs”) at any time and in any amount, which would serve to reduce the City’s UAL and future <br />required contributions. The City has the option to make ADPs to CalPERS using the assets held in the Trust, <br />if desired. The City will consider ADPs within the context of its annual evaluation of reserve levels, <br />budgetary requirements, funded ratio, and other timing considerations unique to CalPERS’ investment <br />performance. ADPs may prove to be advantageous in the future once Trust levels are funded to sufficient <br />thresholds to stabilize budgetary volatility. When additional resources, such as one-time funds and year- <br />end surplus, are available, the City may also consider using them for ADPs. <br />6. Contributions from Employees: This requires employee contributions towards the employer portion of <br />the CalPERS normal cost (on top of the employee share). Currently, certain employee groups (Classic <br />members) contribute 3.0% or 3.5% towards employer contributions, depending on the tier. The City <br />intends to maintain these contributions from employees through labor negotiations. <br /> <br />7. Pension Obligation Bonds: Pension Obligation Bonds (“POBs”) are a tool that can be used to provide an <br />ADP to CalPERS upon the determination that the cost to borrow the funds for the payment is less than <br />continuing to make the projected prescribed UAL payments at the current discount rate. If the City <br />considers issuing POBs, the following guidelines will apply: <br /> Expert advice and analysis by actuaries and municipal advisors will be utilized to quantify the risk <br />of CalPERS investment underperformance (including discount rate reductions, stock market <br />crashes, or sustained investment underperformance) and the threshold at which the City would <br />be worse off issuing POBs versus not. <br /> Significant education and evaluation will occur at the City staff and Council level given the <br />complexity of POBs. <br /> The interest rate on the POBs shall be at least 2.25% less than the current CalPERS discount rate. <br />Page 195 of 242