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2022 10 05 FAC Special Meeting0aiAr(V � GEM of the DESERT — NOTICE AND CALL OF SPECIAL MEETING OF THE LA QUINTA FINANCIAL ADVISORY COMMISSION TO THE MEMBERS OF THE LA QUINTA FINANCIAL ADVISORY COMMISSION AND TO THE COMMISSION SECRETARY: NOTICE IS HEREBY GIVEN that a Special Meeting of the La Quinta Financial Advisory Commission is hereby called to be held on Wednesday, October 5, 2022, starting at 4:00 p.m.; at La Quinta City Hall located at 78495 Calle Tampico, La Quinta, CA 92253 for the following purpose: CONSENT CALENDAR 1. Approve Meeting Minutes Dated August 24, 2022 BUSINESS SESSION 1. Appoint two Financial Advisory Commissioners to Audit and Formulate the Annual Measure G Sales Tax Oversight Compliance Report for Fiscal Year 2021/22 2. Appoint two Financial Advisory Commissioners to Review the City's General Fund Balance and Reserves Policy STUDY SESSION 1. Discuss the City's Outstanding Pension Obligations and the Financial Advisory Commission Subcommittee Recommendations DEPARTMENTAL REPORTS 1. Finance Department Current and Future Initiatives Dated: September 29, 2022 /s/ W. Richard Mills W. Richard Mills, Chairperson Attest 1 Jessica Delgado, Management Assistant DECLARATION OF POSTING I, Jessica Delgado, Management Assistant, do hereby declare that the foregoing notice for the La Quinta Financial Advisory Commission Special Meeting of October 5, 2022, was posted on the outside entry to the Council Chamber at 78495 Calle Tampico, and on the bulletin boards at 51321 Avenida Bermudas and 78630 Highway 111 on September 29, 2022. Dated: September 29, 2022 Jessica D�Igado, Management Assistant FINANCIAL ADVISORY COMMISSION Page 1 of 1 OCTOBER 5, 2022 SPECIAL MEETING t Q 0 a W fra - Cxnm ofthc f}Emyr Financial Advisory Commission agendas and staff reports are now available on the City's web page: www.laauintaca,gov SPECIA1 MEETING FINANCIAL ADVISORY COMMISSION AGENDA CITY HALL COUNCIL CHAMBER, 78495 Calle Tampico, La Quinta WEDNESDAY, OCTOBER 5, 2022 AT 4:00 P.M. Members of the public may listen to this meeting by tuning -in live via https://laguinta.12milesout.com/video/live. CALL TO ORDER Roll Call: Commissioners: Anderson, Batavick, Dorsey, Luettjohann, Mast, Way and Chair Mills PLEDGE OF ALLEGIANCE PUBLIC COMMENTS — INSTRUCTIONS Members of the public wanting to address the Commission, either for a specific agenda item or matters not on the agenda are requested to follow the instructions listed below: WRITTEN PUBLIC COMMENTS can be provided either in -person during the meeting by submitting 15 copies to the Commission Secretary, it is requested that this takes place prior to the beginning of the meeting; or can be emailed in advance to ]Delgado@)LaQuintaCA.gov, no later than 2:00 p.m., on the day of the meeting. Written public comments will be distributed to the Commission, made public, and will be incorporated into the public record of the meeting, but will not be read during the meeting unless, upon the request of the Chair, a brief summary of public comments is asked to be reported. If written public comments are emailed, the email subject line must clearly state "Written Comments" and should include: 1) full name, 2) city of residence, and 3) subject matter. FINANCIAL ADVISORY COMMISSION AGENDA Page 1 of 4 OCTOBER 5, 2022 SPECi,._ , .--. _.— VERBAL PUBLIC COMMENTS can be provided in -person during the meeting by completing a ""Request to Speak" form and submitting it to the Commission Secretary; it is requested that this takes place prior to the beginning of the meeting. Please limit your comments to three (3) minutes (or approximately 350 words). Members of the public shall be called upon to speak by the Chair. In accordance with City Council Resolution No. 2022-028, a one-time additional speaker time donation of three (3) minutes per individual is permitted; please note that the member of the public donating time must: 1) submit this in writing to the Commission Secretary by completing a "Request to Speak" form noting the name of the person to whom time is being donated to, and 2) be present at the time the speaker provides verbal comments. Verbal public comments are defined as comments provided in the speakers' own voice and may not include video or sound recordings of the speaker or of other individuals or entities, unless permitted by the Chair. Public speakers may elect to use printed presentation materials to aid their comments; 15 copies of such printed materials shall be provided to the Commission Secretary to be disseminated to Commission, made public, and incorporated into the public record of the meeting; it is requested that the printed materials are provided prior to the beginning of the meeting. There shall be no use of Chamber resources and technology to display visual or audible presentations during public comments, unless permitted by the Presiding Officer. All writings or documents, including but not limited to emails and attachments to emails, submitted to the City regarding any item(s) listed or not listed on this agenda are public records. All information in such writings and documents is subject to disclosure as being in the public domain and subject to search and review by electronic means, including but not limited to the City's Internet Web site and any other Internet Web -based platform or other Web -based form of communication. All information in such writings and documents similarly is subject to disclosure pursuant to the California Public Records Act [Government Code § 6250 et seq.]. PUBLIC COMMENT ON MATTERS NOT ON THE AGENDA At this time, members of the public may address the Commission on any matter not listed on the agenda pursuant to the "Public Comments - Instructions" listed above. The Commission values your comments; however, in accordance with State law, no action shall be taken on any item not appearing on the agenda unless it is an emergency item authorized by the Brown Act [Government Code § 54954.2(b)]. CONFIRMATION OF AGENDA FINANCIAL ADVISORY COMMISSION AGENDA Page 2 of 4 OCTOBER 5, 2022 SPECIAL MEETING ANNOUNCEMENTS, PRESENTATIONS AND WRITTEN COMMUNICATIONS - None CONSENT CALENDAR NOTE: Consent Calendar items are routine in nature and can be approved by one motion. 1. Approve Meeting Minutes Dated August 24, 2022 BUSINESS SESSION 1. Appoint two Financial Advisory Commissioners to Audit and Formulate the Annual Measure G Sales Tax Oversight Compliance Report for Fiscal Year 2021/22 2. Appoint two Financial Advisory Commissioners to Review the City's General Fund Balance and Reserves Policy STUDY SESSION 1. Discuss the City's Outstanding Pension Obligations and the Financial Advisory Commission Subcommittee Recommendations DEPARTMENTAL REPORTS 1. Finance Department Current and Future Initiatives COMMISSIONERS' ITEMS ADJOURNMENT The next regular quarterly meeting of the La Quinta Financial Advisory Commission will be held November 9, 2022, commencing at 4:00 p.m. at the La Quinta City Hall Council Chamber, 78-495 Calle Tampico, La Quinta, CA 92253. FINANCIAL ADVISORY COMMISSION AGENDA Page 3 of 4 OCTOBER 5, 2022 SPECIAL MEETIN, DECLARATION OF POSTING I, Jessica Delgado, Management Assistant, of the City of La Quinta, do hereby declare that the foregoing Agenda for the Commission meeting was posted on the City's website, near the entrance to the Council Chamber at 78-495 Calle Tampico, and the bulletin boards at 78-630 Highway 111, and 51-321 Avenida Bermudas, on September 29, 2022 DATED: September 29, 2022 Jessica�Delgado, Management Assistant City of La Quinta, California Public Notices • The La Quinta City Hall Council Chamber is handicapped accessible. If special equipment is needed for the hearing impaired, please contact the Commission Secretary at (760) 777-71501 twenty-four (24) hours in advance of the meeting and accommodations will be made. • If background material is to be presented to the Commission during a Commission meeting, please be advised that 15 copies of all documents, exhibits, etc., must be supplied to the Commission Secretary for distribution. It is requested that this takes place prior to the beginning of the meeting. FINANCIAL ADVISORY COMMISSION AGENDA Page 4 of 4 OCTOBER 5, 2022 SPECIAL MEETING CONSENT CALENDAR ITEM NO. 1 FINANCIAL ADVISORY COMMISSION SPECIAL MEETING MINUTES WEDNESDAY, AUGUST 24, 2022 CALL TO ORDER A special meeting of the La Quinta Financial Advisory Commission (Commission) was called to order at 4:00 p.m. by Chair Batavick. This meeting provided teleconferencing accessibility pursuant to Executive Orders N-60-20 and N-08-21 executed by the Governor of California, and subsequently Assembly Bill 361 (AB 361, 2021), enacted in response to the state of emergency relating to novel coronavirus disease 2019 (COVID-19) and enabling teleconferencing accommodations by suspending or waiving specified provisions in the Ralph M. Brown Act (Government Code § 54950 et seq.), and City Council Resolution No. 2021-035, adopted by the City Council on September 28, 2021, and reaffirmed on August 2, 2022, members of the public, the Financial Advisory Commission, the City Manager, City Attorney, City Staff, and City Consultants may participate in this special meeting by teleconference only. PRESENT: Commissioners Anderson, Dorsey, Luettjohann, Mast, Mills, Way and Chair Batavick ABSENT: None STAFF PRESENT: Finance Director Martinez, Financial Services Analyst Hallick, Account Technician Batuta, and Deputy City Clerk McGinley PLEDGE OF ALLEGIANCE Commissioner Dorsey led the audience in the Pledge of Allegiance. The Commission and staff shared a brief introduction of their background and experiences. PUBLIC COMMENT ON MATTERS NOT ON THE AGENDA - None CONFIRMATION OF AGENDA Staff requested that Business Session Item No. 3 "Receive and File the Annual Comprehensive Financial Report for the year ended June 30, 2021" be moved up and considered first on the agenda. The Commission concurred. FINANCIAL ADVISORY COMMISSION MINUTES Page 1 of 4 August 24, 2022 SPECIAL MEETING BUSINESS SESSION - taken out of Agenda order 3. RECEIVE AND FILE THE ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR) FOR THE YEAR ENDED JUNE 30, 2021 Finance Director Martinez and CPA Partner Phillip White with Eide Bailly, LLC auditing firm (EB) presented the staff report, which is on file in the Finance Department. Mr. White explained EB's audit purview and scope, and sections related to the independent auditor report, found on page 1, of the ACFR. The Commission, staff, and Mr. White discussed steps taken to strengthen internal controls; details of the City's internal controls over financial reporting that was identified for accounting entry adjustments referenced on page 1 in the ACFR summary (Attachment 1); and the three levels of internal control deficiencies. Further discussion followed regarding footnote 17 on pages 67-72 of the ACFR, referencing Long -Term Debt and debt related to the former Redevelopment Agency (RDA) of the City and Successor Agency debt noted in ACFR that is not a direct obligation for the City. Commissioner Mills suggested adding more detail to footnotes on long-term debt related to RDA for a better understanding. Staff and Mr. White mention that a brief history can be found in footnote 17 on page 67 of the ACFR, but can look at ways to improve clarity. Commissioner Way inquired on a meeting with staff to review the ACFR for a better understanding. Finance Director Martinez confirmed coordinating a review in the future. Motion - A motion was made and seconded by Commissioners Dorsey/Way to receive and file the Annual Comprehensive Financial Report for the year ended June 30, 2021, as submitted. Motion passed unanimously. ANNOUNCEMENTS, PRESENTATIONS, AND WRITTEN COMMUNICATIONS - None > > > taken out of Agenda order CONSENT CALENDAR ITEMS 1. APPROVE MEETING MINUTES DATED JUNE 1, 2022 2. RECEIVE AND FILE REVENUE AND EXPENDITURE REPORT DATED APRIL 30, 2022 3. RECEIVE AND FILE REVENUE AND EXPENDITURE REPORT DATED MAY 31, 2022 4. RECEIVE AND FILE FOURTH QUARTER FISCAL YEAR 2021/22 TREASURY REPORTS FOR APRIL, MAY, AND JUNE 2022 FINANCIAL ADVISORY COMMISSION MINUTES Page 2 of 4 August 24, 2022 SPECIAL MEETING Chair Bativick inquired about the non -general fund revenue listed under top five revenue/income sources for May on page 2 of the staff report for Consent Calendar Item No. 3. Financial Services Analyst Hallick explained the larger amount of $12,931,361 is pertaining to the debt service payment mentioned in the discussion regarding the ACFR. Commissioner Mills noted he was not able to review the ACFR as he was out of town and would not be able to vote on this item. Motion - A motion was made and seconded by Commissioners Anderson/Way to approve the Consent Calendar, as submitted. Motion passed: ayes - 6, noes - 0, abstain - 1 (Mills). BUSINESS SESSION - Continued 1. APPOINT A FINANCIAL ADVISORY COMMISSIONER CHAIRPERSON AND VICE -CHAIRPERSON FOR FISCAL YEAR 2022/23 Finance Director Martinez and Financial Services Analyst Hallick presented the staff report, which is on file in the Finance Department. Commissioners Mills and Dorsey expressed their interest to serve on the Commission as Chairperson and Vice -Chairperson for fiscal year 2022/23. Motion - A motion was made and seconded by Commissioners Way/Anderson to appoint Commissioners Mills and Dorsey as Chairperson and Vice -Chairperson, respectively, for fiscal year 2022/23. Motion passed unanimously. 2. APPOINT TWO FINANCIAL ADVISORY COMMISSIONERS TO REVIEW THE CITY'S OUTSTANDING PENSION OBLIGATION Financial Services Analyst Hallick presented the staff report, which is on file in the Finance Department. The Commission and staff discussed timeline and review process for the City's outstanding pension obligation. Commissioners Anderson and Dorsey expressed interest to be on the subcommittee for review of the City's pension obligation. Motion - A motion was made and seconded by Commissioners Mills/Mast to appoint Commissioners Anderson and Dorsey to serve on the subcommittee for review of the City's pension obligation. Motion passed unanimously. STUDY SESSION - None DEPARTMENTAL REPORTS All reports are on file in the Finance Department. FINANCIAL ADVISORY COMMISSION MINUTES Page 3 of 4 August 24, 2022 SPECIAL MEETING 1. FINANCE DEPARTMENT CURRENT AND FUTURE INITIATIVES Finance Director Martinez mentioned an additional subcommittee will also be requested for review of request for proposal (RFP) for auditing services at the February 2023 Commission meeting. Commissioner Batavick asked if requesting an RFP for auditing services was for best practice; Staff confirmed and noted the RFP followed the City's established procurement process for services pursuant to the City's adopted Purchasing Policy. 2. FIRST QUARTER 2022 (JANUARY-MARCH) SALES TAX UPDATE FOR THE CITY OF LA QUINTA The Commission and staff discussed sales activity growth for non -confidential business types. Financial Services Analyst Hallick said she would reach out to the City's consultant, HdL Coren & Cone, Inc. to see if more information on growth can be provided and would share with the Commission. Further discussion followed regarding sales tax revenue. COMMISSIONERS' ITEMS The Commission discussed Measure A, an initiative petition proposing to phase -out and permanently ban non -hosted short-term vacation rentals (STVRs) in non- exempt areas of the City by December 31, 2024, which qualified and will be on the November 8, 2022 ballot. Staff said they would share with the Commission the links to Council meetings where this item was discussed. The Commission inquired when the City plans to do a citywide fee study. Staff explained the City annually updates the City's Master Fee Schedule to reflect annual Consumer Price Index (CPI) increases; and every five to seven years completes a citywide comprehensive fee analysis to determine if fee adjustments are needed to improve the correlation between the City's cost of providing services and the fees imposed to recover those costs; and staff will provide additional information on this matter to the Commission. ADJOURNMENT There being no further business, it was moved by Commissioners Way/Mast to adjourn this meeting at 5:58 p.m. Motion passed unanimously Respectfully submitted, Jessica Delgado, Management Assistant City of La Quinta, California FINANCIAL ADVISORY COMMISSION MINUTES Page 4 of 4 August 24, 2022 SPECIAL MEETING BUSINESS SESSION ITEM NO. 1 City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING: October 5, 2022 STAFF REPORT AGENDA TITLE: APPOINT TWO FINANCIAL ADVISORY COMMISSIONERS TO AUDIT AND FORMULATE THE ANNUAL MEASURE G SALES TAX OVERSIGHT COMPLIANCE REPORT FOR FISCAL YEAR 2021/22 RECOMMENDATION Appoint two Financial Advisory Commissioners to audit and formulate the annual Measure G Compliance Report for Fiscal Year 2021/22. EXECUTIVE SUMMARY • Measure G, the one percent (1%) Transactions and Use Tax measure was approved by voters at the November 8, 2016 General Election and subsequently adopted by resolution on December 20, 2016 with an effective date of April 1, 2017. Additional funds are subject to citizen oversight. • Staff recommends the Financial Advisory Commission (FAC) appoint two Commissioners to serve on the sub -committee to verify revenue and expenses associated with Measure G funds. • The sub -committee shall prepare a report and present their findings to the FAC on November 9, 2022, and to City Council on December 6, 2022. BACKGROUND/ANALYSIS The Measure was approved on November 8, 2016 and adopted by resolution on December 20, 2016 with an effective date of April 1, 2017. Additional funds generated by the Measure are subject to citizen oversight. Starting in June 2017, Measure G funds have been received monthly. City staff recommends appointing two Commissioners on the sub -committee. Staff and the sub -committee shall present a report to FAC on November 9, 2022 for discussion and confirmation prior to City Council review and approval on December 7, 2022. Staff anticipates up to two, two-hour virtual meetings during the next month. The review will include the following: 1. A review of revenue received during fiscal year 2021/22 2. A review of approved use of funds for capital projects, reserves, and contract services 3. A review of proposed future uses 4. A review of current funds available for appropriation 5. A review of the proposed FY 2021/22 financial statement balance and disclosure ALTERNATIVES The subcommittee may be comprised of up to three commissioners. Prepared by: Claudia Martinez, Interim Finance Director/City Treasurer BUSINESS SESSION ITEM NO. 2 City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING: October 5, 2022 STAFF REPORT AGENDA TITLE: APPOINT TWO FINANCIAL ADVISORY COMMISSIONERS TO REVIEW THE CITY'S GENERAL FUND BALANCE AND RESERVES POLICY RECOMMENDATION Appoint two Financial Advisory Commissioners to review the City's General Fund Balance and Reserves Policy. EXECUTIVE SUMMARY • The General Fund Balance and Reserves Policy (Policy) was adopted by City Council in 2018. • The Policy calls for periodic review to ensure reserve category targets are appropriate to the City's financial position as well as the current economic environment. • The subcommittee shall present their initial findings to the FAC on November 9, 2022. BACKGROUND/ANALYSIS During fiscal 2017/18, at the request of the City Council, the FAC conducted a study of the City's reserves. The study included a review of the policy and fundings in place at the time, a comparison to other jurisdictions, best practices as recommended by the Government Accounting Standards Board (GASB), potential revenue or expenditure volatility based on economic or political conditions, mitigation risks including an insurance review, and vulnerability of the City infrastructure to natural disasters. After several months of study, the new policy was adopted by City Council on May 15, 2018 establishing five reserve categories and assigning target values for each. At the time, initial funding was allocated to each category, with subsequent allocations made in fiscal years 2018/19, 2019/20, and 2020/21. Despite having to utilize reserves during the economic downturn caused by the COVID-19 pandemic, the City was able to reach fully funded status in fiscal 2020/21. This subcommittee will review the current target funding levels for each reserve category in the context of the current economic conditions as well as potential future events and make recommendations for changes to funding levels as needed. ALTERNATIVES The Policy calls for periodic review, therefore no alternative is recommended at this time. Prepared by: Rosemary Hallick, Financial Services Analyst Reviewed by: Claudia Martinez, Finance Director/City Treasurer City of La Quinta STUDY SESSION ITEM NO. 1 FINANCIAL ADVISORY COMMISSION MEETING: October 5, 2022 STAFF REPORT AGENDA TITLE: DISCUSS THE CTY'S OUTSTANDING PENSION OBLIGATIONS AND THE FINANCIAL ADVISORY COMMISSION SUBCOMMITTEE RECOMMENDATIONS RECOMMENDATION Discuss City's outstanding pension obligations and the Financial Advisory Commission subcommittee recommendations. EXECUTIVE SUMMARY • As of June 30, 2021, the City's CalPERS Actuarial Report for the Classic Plan reported unfunded liabilities of $10,258,228. • As of June 30, 2022, the City's pension trust had a balance of $10,137,888. • Financial Advisory Commission (FAC) formed a subcommittee to review the City's outstanding pension obligations and provide recommendations for City Council's consideration. FISCAL IMPACT Accelerating payments to California Public Employees' Retirement System (CaIPERS) could impact the General Fund budget, reserves, and/or pension trust balances. BACKGROUND/ANALYSIS In 2020, the FAC appointed two Commissioners to review the City's outstanding pension obligations. As a result of their findings, the FAC recommended, and City Council agreed, to continue to pay down the City's unfunded liability as fiscal conditions allowed. The City has made Additional Discretionary Payments (ADPs) toward the unfunded liability of just over $1.0 million in fiscal 2020/21 and $2.5 million in fiscal 2021/22, with an additional $1.0 million budgeted in 2022/23. The FAC had requested that the pension funding be reviewed again when the newest actuarial reports became available, which was August 2022. Additional Discretionary Payments to CaIPERS Fiscal Year Classic Tier Tier 2 PEPRA Tier Total 2018/ 19 $ - $ 15,353 $ 22,060 $ 37,413 2019/20 $ - $ 20,000 $ 10,000 $ 30,000 2020/21 $ 1,000,000 $ 6,419 $ 57,345 $ 1,063,764 2021 /22 $ 2,500,000 $ 2,500,000 TOTAL $ 3,500,000 $ 41,772 $ 89,405 $ 3,631,177 On August 24, 2022, the FAC appointed Commissioners Anderson and Dorsey to complete an updated study of the pension obligations. The subcommittee met twice to review and discuss the following items: • CalPERS overview and how pensions are funded • Total Public Employee Retirement Fund (PERF) market value and annualized returns • Benefit tiers available at the City and current funding status of each • Pension terminology • Pension trust performance and fees • How the assets in the pension trust can be applied to outstanding pension obligations • How extra payments to CalPERS are applied to outstanding pension obligations • CalPERS Actuarial Reports for the City's three pension tiers The goal of this study session is to provide an overview of the subcommittee's findings and recommendations as summarized in Attachment 1. Feedback from this study session may be incorporated into the study, which will be brought back to the FAC in November for recommendations to City Council. RECOMMENDATIONS • Send an ADP to CalPERS utilizing unassigned reserves. • Send an ADP to CalPERS utilizing pension trust funds. • Consider ongoing ADPs as fiscal conditions allow, based on market conditions and future actuarial reports' unfunded liability balances. ALTERNATIVES Prepared by: Rosemary Hallick, Financial Services Analyst Attachment: 1. Fiscal Year 2022/23 Pension Subcommittee Findings ATTACHMENT 1 W Qa�&a CALIFORNIA Fiscal Year 2022/23 Pension Subcommittee Findings summary of Financial Advisory Commission (FAQ Subcommittee On August 24, 2022, the FAC appointed Commissioners Anderson and Dorsey to review the City's outstanding pension obligations with the City's Financial Services Analyst and the Finance Director. This report summarizes key findings of the subcommittee. The subcommittee reviewed and discussed the following items: • CalPERS overview and how pensions are funded • Total Public Employee Retirement Fund (PERF) market value and annualized returns • Benefit tiers available at the City of La Quinta (City) and current funding status of each • Pension terminology • Pension trust performance and fees • How the assets in the pension trust can be applied to outstanding pension obligations • How extra payments to CalPERS are applied to outstanding pension obligations • CalPERS Actuarial Reports for the City's three pension tiers CaIPERS Public Employees' Retirement Fund (PERF) CalPERS Investment and Pension Funding Facts at -a -Glance for fiscal year 2020/21 are included as Exhibit A. As of June 30, 2021, the funded status of the CalPERS PERF is approximately 80%, with total assets of $477.3 billion. Annual investment returns from 2012 to 2021 have been as high as 21.3% and as low as 0.1%. Along with other factors, CalPERS uses long-term investment returns to assist in their determination of the discount rate, which is currently 6.8% CalPERS pension dollars paid to retirees come from investment earnings as well as employer and employee contributions to the fund, as illustrated below: City of LA Quinta Pension Plans The City of La Quinta has three active pension plans with CalPERS. • Classic: This plan covers members who were first employed at the City prior to January 1, 2013. • Tier 2: Covers members who were Classic at another participating agency but have since transferred to the City. • PEPRA: The Public Employees Pension Reform Act that went into effect January 1, 2013 covers members who first joined CalPERS after that date. Classic Tier Tier 2 PEPRA Tier Hire Date On and before 12/31/2012 On and after 12/17/2012 On and after 1/1/2013 Benefit Formula 2.5% at age 55 2% at age 60 2% at age 62 Benefit Vesting Schedule 5 years of service 5 years of service 5 years of service Benefit Payments monthly for life monthly for life monthly for life Retirement Age 50 and up 50 and up 52 and up Required employee contribution rate 7.960% 6.930% 7.750% Required employer contribution rate 14.060% 10.100% 7.680% Number of Active Members* 22 7 58 Number of Retired Members* 118 2 0 * As of June 30, 2021 from CalPERS valuation reports. CaIPERS Actuarial Reports Actuarial reports are provided each year around August to each member agency. The most recent reports, issued in August 2022 are for fiscal year ending June 30, 2021. The City receives three reports, one for each pension plan tier. CalPERS actuarial reports include the following information: • Employer unfunded accrued liability payment projections for five years • Employer normal cost rates for bi-weekly payroll calculations • Employee bi-weekly payroll contribution rate for the next two years • Funded ratio of each pension tier • Summarized amortization schedule for each tier's unfunded liability • Amortization schedule alternatives when applicable • Funding history • Discount rate sensitivity analysis • Hypothetical plan termination liability calculations The most current reports reflect the plans' funded status as follows: Classic Tier Tier 2 PEPRA Tier Entry Age Normal Accrued Liability $54,300,788 $925,328 $2,912,438 Plan's Market Value of Assets $44,042,560 $1,013,126 $3,184,276 Unfunded Accrued Liability $10,258,228 -$87,798 -$271,838 Funded Ratio 81.10% 109.50% 109.30% Pension Trust Performance and Uses The City established a Section 115 pension trust in August 2019 in order to set aside money for the City's pension obligation, with an initial contribution of $6,540,000. An additional contribution of $3,640,000 was made in fiscal year 2019/20. The pension trust balance as of June 30, 2022 was $10,137,888. PARS Trust Balance 512,000,000 511,500,000 511,000,000 510.500,000 S10,000,000 59,500,000 $9,000,000 �`��ryo3P��0�°��63 �vo�°�~oya�1P -P °�ryoyo�-o��-o3a�-P-0���-P-P�°�~03 -P -0 103 flip -03�l0 ��03��~03 �-aryl-0 -P ���03 - 3� -K 4 4 1\ q e� yob ti1� y� 4 ti\ 3'K el 4 �� �� %K a� tio� yti� y1� ti� 3P a� 4 The Section 115 Trust addresses the City's pension obligations by accumulating assets to reduce the net pension liability. However, in accordance with generally accepted accounting principles, the assets in the Section 115 Trust are not considered to have present service capacity as plan assets and are therefore considered restricted assets of the City in the General Fund rather than pension plan assets. The assets held in trust will be considered pension plan assets at the time they are transferred out of the Trust into the pension plan with CalPERS. Investments are in a moderately conservative investment strategy which has dual goals of current income and capital appreciation. A major portion of the assets are committed to income producing securities; therefore, market fluctuations are expected. The City also pays management fees for the pension trust, which total $152,326 inception -to -date as of June 30, 2022. Annualized returns for both the trust and the PERF are shown below: Annualized Returns As of June 30, 2021 PARS Trust CaIPERS YTD 11.58% 21.30% 3-years 8.18% 10.70% 5-years 6.56% 10.30% 10- ears 5.73% 8.50% Information about both plans can be found in Exhibits A (Investment & Pension Funding Fact -at -a -Glance) and B (PARS Diversified Portfolio - Moderately Conservative). Additional Discretionary Payments to CalPERS Additional contributions made directly to CalPERS can be applied to specific tiers and amortization bases within tiers. The greatest interest rate savings are derived from the agency choosing to apply additional payments to the highest balance with the longest amortization period. For the past several years, the City has been sending additional payments from savings directly to CalPERS as follows: waunionai uiscreiionary raymenis io t.airr-mo Fiscal Year Classic Tier Tier 2 PEPRA Tier Total 2018/19 $ - $ 15,353 $ 22,060 $ 37,413 2019/20 $ - $ 20,000 $ 10,000 $ 30,000 2020/21 $ 1,000,000 $ 6,419 $ 57,345 $ 1,063,764 2021 /22 $ 2,500,000 $ 2,500,000 TOTAL $ 3,500,000 $ 41,772 $ 89,405 $ 3,631,177 Recommendations • Send an ADP to CalPERS utilizing unassigned reserves. Given the City's current fiscal position, the subcommittee recommends using unassigned reserves. • Send an ADP to CalPERS utilizing pension trust funds. Given the higher long-term investment returns and to save on investment management fees, the subcommittee also recommends using pension trust funds. • Consider ongoing ADP's as fiscal conditions allow, based on market conditions and future actuarial reports' unfunded liability balances. As of the currently available actuarial reports, the Classic Tier has an unfunded liability of $10,258,228. Taking into consideration the current balance in the pension trust, the market returns of both the trust and the PERF, and the fees associated with retaining the money in the trust fund, the subcommittee recommends using a portion of the trust funds to pay down the unfunded liability. Along with recommended funding from unassigned reserves, the committee is recommending the following three options for review: Funding Source Total Unfunded Unassigned Liability Payment Pension Trust Reserves Option 1 $10,258,228 $5,000,000 $5,258,228 Option 2 $7, 500, 000 $5,000,000 $2,500,000 Option 3 $5,000,000 $2,500,000 $2,500,000 As needed, additional payments could be included in the General Fund budget for consideration each fiscal year. The subcommittee is aware that based on current unfavorable economic conditions, the unfunded liability is likely to continue to rise before the effect of the ADP's is recognized. As economic conditions improve the funding picture will also improve, noting the considerable lag time between actual events and the publishing of the actuarial reports which delays visibility to those improvements. A glossary of pension terminology is attached as Exhibit C. 2021 $477.3 21.3% 2020 $392.5 4.7% 2019 $372.6 6.7% 2018 $354.0 8.6% 2017 $326.4 11.2% 2016 $302.0 0.6% 2015 $301.9 2.4% 2014 $300.3 18.4% 2013 $257.9 13.2% 2012 $233.4 0.1% Public Employees' Retirement Fund (PERF) Time -weighted rate of return net of investment expenses Annualized Investment Returns* (for FYend 6130) FY to date . . . . . . . . . . . . . . . . . . . 21.3% 3 years . . . . . . . . . . . . . . . . . . . . . 10.7% 5 years . . . . . . . . . . . . . . . . . . . . . 10.3% 10 years . . . . . . . . . . . . . . . . . . . . 8.5% 20 years . . . . . . . . . . . . . . . . . . . . 6.9% 30 years . . . . . . . . . . . . . . . . . . . . 8.4% * Time -weighted rote of return net of investment expenses EXHIBIT A Investment & Pension Funding Facts at a Glance for Fiscal Year 2020-21 Investments (PERF*) Total Fund Market Value & Fund Returns Total Fund Market Value 1988 - 2021 by Fiscal Year** (forFYend 6130) (for FYend 6130) (in billions) (%) $477.3bil 1988 1994 2000 2007 2015 2021 Discount Rate Changes 2022-23* (State/School). . . . . . . 7.0% - 6.8% 2023-24* (PA) . . . . . . . . . . . 7.0% - 6.8% 2019-20* (State) .............. 7.25% - 7.0% 2020-21* (School/PA). . . . . . . .7.25% - 7.0% 2018-19* (State) . . . . . . . . . 7.375% - 7.25% 2019-20* (School/PA). . . . . . . 7.375% - 7.25% 2017-18* (State). . . . . . . . . . . 7.5% - 7.375% 2018-19* (School/PA) . . . . . . . . 7.5% - 7.375% * FYrequired contribution Alik,. CaIPERS Ever effort has been made to verify the accuracy o the information, which is intended or general use only. 0 01-2022-1 Every fy yf f f g y0 Investments (cont'd) Current Asset Allocation 51.4% Public Equity 29.8% Global Fixed Income 9.6% Real Assets 8.3% Private Equity 0.9% Other: 2.5% Total Fund (1.6%) Financing & Liquidity Asset Allocation Current Strategic Asset Allocation Allocation Public Equity 51.4% 50.0% Global Fixed Income 29.8% 28.0% Real Assets 9.6% 13.0% Private Equity 8.3% 8.0% Total Fund 2.5% — Financing & Liquidity (1.6%) 1.0% Facts at a Glance for Fiscal Year 2020-21 Investment & Pension Funding » 2 California Investments W 12.3% $58.7billion California investments as percentage of the total fund Fair Value (in millions) Total California Investments $58,656 Public Equity* $34,074 Global Fixed Income** $8,980 Real Assets*** $13,150 Private Equity*** $2,452 Includes listed public equities corporate bonds. " Fixed income also includes a portion of MBS & ABS, which have significant geographical exposure to CA & MHLP. As of March 31, 2021 Sustainable Investing CAPERS actively engages with the companies we own to protect the long-term sustainability of our investment. From issues regarding environmental responsibility to safe labor practices, we keep an open dialog with company leaders and vote our proxies. Number of companies where 131000+ CAPERS cast proxy votes in 2021 worldwide (calendar year) Pension Funding Funded Status of Retirement Plans by Member Category State School PA Total 2019-20 70.6% * 68.6%* 71.1%* 70.6%* 2018-19 70.0% * 68.5%* 70.8%* 70.2%* 2017-18 69.5% * 68.6%* 70.4%* 69.8%* 2016-17 65.8% * 68.7%* 69.5%* 68.0%* 2015-16 62.3% 67.8% 66.2% 68.3% 2014-15 69.4% 77.5% 74.5% 73.1% 2013-14 72.1% 82.0% 77.9% 76.3% 2012-13 66.1% 76.2% 70.5% 69.8% 2011-12 66.1% 75.4% 70.1% 69.6% Based on a 7..0% discount rate and includes the terminated agency pool and 1959 survivor benefit plan. Contributions,10-Year Review (in thousands) Employer Member Investment Contributions Contributions & Other Income 2020-21 $20,034,757 $4,757,000 $88,059,909 2019-20 $22,039,561 $4,901,000 $18,516,994 2018-19 $15,612,678 $4,664,618 $22,969,664 2017-18 $19,917,796* $4,415,129 $27,448,098 2016-17 $12,329,837 $4,214,578 $32,977,020 2015-16 10,892,489 4,015,754 1,548,442 2014-15 9,997,705 3,826,072 6,702,997 2013-14 8,777,602 3,775,038 45,598,044 2012-13 8,123,833 3,897,078 30,291,983 2011-12 7,772,913 3,598,437 (196,014) Amount includes an additional $6 billion dollar contribution by the state. Facts at a Glance for Fiscal Year 2020-21 Investment & Pension Funding » 3 Funded Status Total PERF 7 0.6% 800 82% 2019-20" 2020-21** The PERF is the Public Employees' Retirement Fund. This percentage includes the terminated agency pool and the 7959 survivor benefit plan. Percentage based on a 7.0% discount rate. The 82% estimate is based on the 7% discount rate as of 613012027. On 71112021, the risk mitigation event was triggered due to the 21.3% investment return for FY2020-21 and the 80% estimate is based on the new 6.8% discount rate. Total Employer Contributions School districts and Charter Schools $3 billion / 15% $20 b — State of California $6 billion / 32% Public agencies $11 billion / 53% Shared Responsibility Every dollar paid to CRIERS retirees comes from three sources*: Investment earnings 604 CalPERS employers 294 CalPERS members 11d Income over the last 20 years. EXHIBIT B IHIGHMARK`° [iL�7� rs��►�iL��1s[el�►►d���l WHY THE PARS DIVERSIFIED MODERATELY CONSERVATIVE PORTFOLIO? Comprehensive Investment Solution HighMark® Capital Management, Inc.'s (HighMark) diversified investment portfolios are designed to balance return expectations with risk tolerance. Key features include: sophisticated asset allocation and optimization techniques, four layers of diversification (asset class, style, manager, and security), access to rigorously screened, top tier money managers, flexible investment options, and experienced investment management. Rigorous Manager Due Diligence Our manager review committee utilizes a rigorous screening process that searches for investment managers and styles that have not only produced above -average returns within acceptable risk parameters, but have the resources and commitment to continue to deliver these results. We have set high standards for our investment managers and funds. This is a highly specialized, time consuming approach dedicated to one goal: competitive and consistent performance. Flexible Investment Options In order to meet the unique needs of our clients, we offer access to flexible implementation strategies: HighMark Plus utilizes actively managed mutual funds while Index Plus utilizes index -based securities, including exchange -traded funds. Both investment options leverage HighMark's active asset allocation approach. Risk Management The portfolio is constructed to control risk through four layers of diversification - asset classes (cash, fixed income, equity), investment styles (large cap, small cap, international, value, growth), managers and securities. Disciplined mutual fund selection and monitoring process helps to drive return potential while reducing portfolio risk. INVESTMENT OBJECTIVE Efficient Frontier To provide current income, with capital appreciation as a �Capitallppredation Balanced secondary objective. The major Moderate portion of the assets is committed to income -producing 3 derately Conservative securities. Market fluctuations ConservativeMo should be expected Risk (Standard Deviation) ASSET ALLOCATION - MODERATELY CONSERVATIVE PORTFOLIO Strategic Range Policy Tactical j 20 - 40% 30% ` 32% Fixed Income 50 - 80% 65% 67% 5% ANNUALIZED TOTAL RETURNS Emross of beddednvestment Fund Fees)Management Fees, but Net of HighMark Plus Composite (Active) Index Plus Composite (Passive) Current Quarter* � 3.67ocl Current Quarter* � 3.25% Blended Benchmark*,** 3.12% Blended Benchmark*,** 3.12% Year To Dat 3.97% Year To Date* 3.50% Blended Benchmark*,** 3.47% Blended Benchmark*,** 3.47% 1 Year 14.19% 1 Year 11.58% Blended Benchmark** 11.97% Blended Benchmark** 11.97% 3 Year 8.62% 3 Year 8.18% Blended Benchmark** 8.24% Blended Benchmark** 8.24% 5 Year 5 Year 6.56% Blended Benchmark** 6.78% Blended Benchmark** 6.78% 10 Year 110 Year 5.73% Blended Benchmark** 5.89% Blended Benchmark** 5.89% *Returns less than one year are not annualized. **Breakdown for Blended Benchmark: From 10/1/2012 -Present: 15.5% S&P500, 3% Russell Mid Cap, 4.5 % Russell 2000, 2% MSCI EM (net), 4 % MSCI EAFE (net), 49.25% BBG Barclays US Agg, 14% ICE BofA 1-3 Yr US Corp/Gov't, 1.75% ICE BofA US High Yield Master II, 1% Wilshire REIT, and 5% FTSE 1 Mth US T-Bill. From 4/1/2007 - 9/30/2012: the blended benchmark was 25% S&P 500: 1.5% Russell 2000, 3.5% MSCI EAFE (net), 25% ICE BofA 1-3 Year Corp./Govt, 40% BBG Barclays US Agg, 5% FTSE 1 Mth US T-Bill. Prior to April 2007, the blended benchmark was 30% S&P 500, 25% ICE BofA 1-3Yr Corp/Gov, 40% BBG Barclays US Agg, and 5% FTSE 1 Mth US T-Bill. ANNUAL RETURNS (Gross of Investment Management Fees, but Net of Embedded Fund Fees) HighMark Plus Composite (Active) Index Plus Composite (Passive) 2008 12008 - 2009 18.71 % 2009 11.92% 2010 10.467 2010 - 9.7 2011 1.75% 2011 3.24% 2012 M 10.880/2- 2012 8.24% 2013 7.30% 2013 6.78% 2014 4.4 2014 !=�5.40% 2015 0.32% 2015 -0.18% 2016 4.94% 2016 5.42% 2017 9.56% 2017 8.08% 2018 -2.60% 2018 ` dL -2.33% 2019 13.73% 2019 13.53% 2020 10.76% 2020 PORTFOLIO FACTS HighMark Plus (Active) Index Plus (Passive) Composite Inception Date 08/2004 Composite Inception Date 05/2005 No of Holdings in Portfolio 20 No of Holdings in Portfolio 13 HOLDINGS HighMark Plus (Active) Columbia Contrarian Core 13 Vanguard Growth & Income Adm Dodge & Cox Stock Fund iShares S&P 500 Value ETF Harbor Capital Appreciation - Retirement T. Rowe Price Growth Stock - I iShares Russell Mid -Cap ETF Vanguard Real Estate ETF Index Plus (Passive) iShares Core S&P 500 ETF iShares S&P 500 Value ETF iShares S&P 500 Growth ETF iShares Russell Mid -Cap ETF Vanguard Real Estate ETF iShares Russell 2000 Value ETF iShares Russell 2000 Growth ETF iShares Core MSCI EAFE ETF Undiscovered Managers Behavioral Value-R6 Vanguard FTSE Emerging Markets ETF Victory RS Small Cap Growth - R6 DFA Large Cap International Portfolio Dodge & Cox International Stock MFS International Growth - R6 Hartford Schroders Emerging Markets Eq Vanguard Short -Term Invest -Grade Adm PIMCO High Yield Instl PIMCO Total Return Fund - Inst PGIM Total Return Bond - R6 DoubleLine Core Fixed Income - I First American Government Obligations Z STYLE Intl Stocks Mid Cap 2.3 Large Cap Growtl 3.5 Large Cap Core 8.9 Short -Term B 11.7% High y Vanguard Short -Term Invest -Grade Adm iShares Core U.S. Aggregate Vanguard High -Yield Corp Adm First American Government Obligations Z Holdings are subject to change at the discretion of the investment manager. Large Cap Value Real Estate 1.0 Interm-Term Bond 53.2 The performance records shown represent a size -weighted composite of tax exempt accounts that meet the following criteria: Accounts are managed by HighMark with full investment authority according to the PARS Moderately Conservative active and passive objectives. The adviser to the PARS portfolios is US Bank, and HighMark serves as sub -adviser to US Bank to manage these portfolios. US Bank may charge clients as much as 0.60 % annual management fee based on a sliding scale. US Bank pays HighMark 60 % of the annual management fee for assets sub -advised by HighMark under its sub -advisory agreement with US Bank. The 0.36 % paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio's returns. Assuming an investment for five years, a 5 % annual total return, and an annual sub -advisory fee rate of 0.36 % deducted from the assets at market at the end of each year, a $10 million initial value would grow to $12.53 million after fees (Net -of -Fees) and $12.76 million before fees (Gross -of -Fees). Gross returns are presented before management and custodial fees but after all trading expenses and reflect the reinvestment of dividends and other income. A client's return will be reduced by the advisory fees and other expenses it may incur as a client. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade -date accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benchmark returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An investor cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies in the U.S. stock market. The MSCI EAFE Index is a free float -adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a free float -adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the mid -cap segment of the U.S. equity universe. The Russell 2000 Index measures the performance of the small -cap segment of the U.S. equity universe. The ICE BofA US High Yield Master II Index tracks the performance of below investment grade U.S. dollar -denominated corporate bonds publicly issued in the U.S. domestic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unmanaged Bloomberg Barclays U.S. Aggregate Bond Index is generally representative of the U.S. taxable bond market as a whole. The ICE BofA 1-3 Year U.S. Corporate & Government Index tracks the bond performance of the ICE BofA U.S. Corporate & Government Index, with a remaining term to final maturity less than 3 years. The unmanaged FTSE 1-Month U.S. Treasury Bill Index tracks the yield of the 1-month U.S. Treasury Bill. HighMark Capital Management, Inc. (HighMark), an SEC -registered investment adviser, is a wholly owned subsidiary of MUFG Union Bank, N.A. (MUB). HighMark manages institutional separate account portfolios for a wide variety of for -profit and nonprofit organizations, public agencies, and public and private retirement plans. MUB, a subsidiary of MUFG Americas Holdings Corporation, provides certain services to HighMark and is compensated for these services. Past performance does not guarantee future results. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing HighMark strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by the Bank or any Bank affiliate, and MAY lose value, including possible loss of principal. EXHIBIT C Glossary of Pension Terms Actuarial Accrued Liability: The total dollars needed as of the valuation date to fund all benefits earned in the past for current members. Actuarial Assumptions: Assumptions made about certain events that will affect pension costs. Assumptions generally can be broken down into two categories: demographic and economic. Demographic assumptions include such things as mortality, disability and retirement rates. Economic assumptions include discount rate, salary growth, and inflation. Actuarial Methods: Procedures employed by actuaries to achieve certain funding goals of a pension plan. Actuarial methods include funding method, setting the length of time to fund the Accrued Liability and determining the Value of Assets. Actuarial Valuation: The determination, as of a valuation date, of the Normal Cost, Accrued liability, and related actuarial present values for a pension plan. These valuations are performed annually or when an employer is contemplating a change to their plan. ALM: Asset -Liability Management. A review of the expected future cost of pension payments and investment returns. Assets are reviewed through capital market assumptions, strategic asset allocations, and risk. Liabilities are reviewed through demographic and economic trends such as life expectancy, membership dynamics, salary growth, retirement trends, and inflation. The most recent ALM cycle ended in November 2021 with the CalPERS board approving a new discount rate of 6.8% Amortization Bases: Separate payment schedules for different portions of the Unfunded Liability. The total Unfunded Liability of a plan is segregated by a cause (base), and each such base will be separately amortized and paid for over a specific period of time. Generally, in an actuarial valuation, the separate bases consist of changes in unfunded liability due to contract amendments, actuarial assumption changes, actuarial methodology changes, and/or gains and losses. Amortization Period: Number of years required to pay off an Amortization Base. Capital Market Assumptions: estimates investment returns, volatilities, correlations, and market constraints by asset segment. Classic Member: A member who joined CalPERS prior to January 1, 2013 and who is not defined as a new member under PEPRA (See definition of new member below). Funding formula is 2.5% at 55 Discount Rate Assumption: the rate of interest used in calculating the accrued liabilities and normal cost for employers, it represents the long-term assumed rate of return on investments based on the portfolio allocation decided by the board. Also known as the Actuarial Interest Rate Entry Age: The earliest age at which a plan member begins to accrue benefits under a defined benefit pension plan. In most cases, this is the age of the member on their date of hire. Entry Age Normal Cost Method: an actuarial method that allocates the present value of projected benefits in a manner that produces a level annual cost over the earnings of an individual between entry age and assumed retirement age (designed to fund a member's total plan benefit over the course of his or her career). Costs allocated to the current fiscal year are called normal costs. This method is designed to yield a rate expressed as a level percentage of payroll. Experience Study: A review of the demographics and economic assumptions that are used to calculate the projected liabilities and required contributions. Looks at life expectancy, workforce changes, inflation and payroll trends. Fresh Start: When multiple amortization bases are collapsed to one base and amortized together over a new funding period. Funded Status: A measure of how well funded, or how "on track" a plan or risk pool is with respect to assets versus accrued liabilities. A ratio greater than 100 percent means the plan or risk pool has more assets than liabilities and a ratio less than 100 percent mean liabilities are greater than assets. GASB 68: The accounting standard governing a state or local governmental employer's financial reporting for pensions. Market Value of Assets (MVA): The value of a plan's assets in the open marketplace on a specific date. New Member (under PEPRA): A new member includes an individual who becomes a member of a public retirement system for the first time on or after January 1, 2013, and who was not a member of another public retirement system prior to that date, and who is not subject to reciprocity with another retirement system. The PEPRA funding is 2% at 62. Normal Cost: The annual cost of service accrual for the upcoming fiscal year for active employees. The normal cost should be viewed as the long-term contribution rate. POBs: Pension Obligation Bonds Pension Actuary: A business professional that is authorized by the Society of Actuaries and the American Academy of Actuaries to perform the calculations necessary to properly fund a pension plan. PEPRA: Public Employees' Pension Reform Act of 2013, passed to help curb rising pension costs. PERF: Public Employees Retirement Fund Present Value of Benefits (PVB): The total dollars needed as of the valuation date to fund all benefits earned in the past or expected to be earned in the future for current members. Risk Mitigation Policy: seeks to reduce funding risk over time, by adjusting the discount rate (as well as the expected investment returns and strategic asset allocation targets) if the investment performance significantly outperforms the discount rate. Strategic Asset Allocation: Percentage of total investments by asset class, including global equity, fixed incomes, real assets, private equity, private debt, and liquidity. Tier 2: The City has a second tier, for employees who started their government career at another agency as a Classic member. The funding formula for Tier 2 is 2% at 60. Unfunded Accrued Liability (UAL): When a plan or pool's Market Value of Assets is less than its Accrued Liability, the difference is the plan or pool's Unfunded Accrued Liability (or unfunded liability). If the unfunded liability is positive, the plan or pool will have to pay contributions exceeding the Normal Cost. DEPARTMENTAL REPORT ITEM NO. 1 City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING DEPARTMENT REPORT TO: Members of the Financial Advisory Commission FROM. Claudia Martinez, Finance Director DATE: October 5, 2022 SUBJECT: FINANCE DEPARTMENT CURRENT AND FUTURE INITIATIVES In addition to items presented as staff reports, the Finance Department would like to provide updates on the following matters. AUDIT & FINANCIAL REPORTING • Completed the Single Audit for federal funds for fiscal year 2020/21 • Citywide Comprehensive fiscal year 2021/22 audit will take place from November 7t" through November 18tn o Year-end entry and audit prep work is well underway • Annual Street and Road Improvement Audit to be filed with the State Controller's Office will take place the week of October 10tn • Annual Measure A Local Streets and Roads Audit to be filed with the Riverside County Transportation Commission will take place the week of October 17tn COMMITTEE UPDATES • Annual Measure G Sales Tax Oversight Compliance Report for FY 2021/22 o Appointment of sub -committee • Reserve Policy Update o Appointment of sub -committee It is important to note the items mentioned in this update are in addition to the daily functions of the Finance Department, which include, but are not limited to, staff report writing/review, payroll, accounts payable, accounts receivable, revenue processing, journal entries, capital accounting, project accounting, purchasing, investing, cash/treasury management, bank reconciliations, budgeting, research and analysis, staff training and development, and general financial support for all City departments. POWER POINTS FINANCIAL ADVISORY COMMISSION SPECIAL MEETING October 5, 2022 Financial Advisory Commissio Special Meeting 10/05/2022 Financial Advisory Commission 10/05/2022 Study Session Item No. 1 Discuss the City's Outstanding Pension Obligations and the Financial Advisory Subcommittee Recommendations #m. �s CALj - : Ilk - II i M,� T. CaIPERS at a Glance • Largest pension fund in the nation — $477.3 billion in assets (6/30/2021) • 12.3%, or $58.7 billion in California investments • 2,892 employers - state, local agencies, school districts • Over 2 million members How Retiree Benefits are Funded 604 294 114 CaIPERS investment CaIPERS CAPERS employers members - earnings Benefit Tiers/Plan Types • Classic: Employees hired on or before December 31, 2012. — Benefit formula: 2.5% at 55 • PEPRA: Public Employees Pension Reform Act, all employees hired on or after January 1, 2013. — Benefit formula: 2% at 62 • Tier 2: The City offers a tier for Classic employees coming from other agencies. — Benefit formula: 2% at 60 10/05/2022 10/05/2022 10 10/05/2022 11 12 10/05/2022 13 14 The Financial Advisory Commission's Next Regular Quarterly Meeting is on November 9, 2022 a4 . Y CALF 4 t COMMISSIONER HANDOUTS FAC SPECIAL MEETING OCTOBERS 2022 FINANCIAL ADVISORY COMMISSION MEETING - OCTOBER 5, 2022 - HANDOUT BY CHAIRPERSON MILLS - COMMISSIONER'S ITEM NO.1 FINANCE DEPARTMENT POTENTIAL FUTURE INITIATIVES PREPARED BY W. RICHARD MILLS OCTOBER 3, 2022 PRIOR PROJECTS: 1. 457 PLAN REVIEW 2. FIRE SERVICES REVISITED 3. SALES TAX CONSULTING RFP 4. PURCHASING POLICY 5. CASH HANDLING POLICY UPCOMING ITEMS: STAFF TO COORDINATE A REVIEW OF THE CITY'S ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR) IN RESPONSE TO COMMISSIONER WAY'S REQUEST ON AUGUST 24, 2022. APPOINTMENT OF A SUBCOMMITTEE IN FEBRUARY 2023 TO REVIEW RFP FOR AUDITING SERVICES. STAFF WILL PROVIDE COMMISSION WITH ADDITIONAL INFORMATION ON CITY WIDE FEE STUDY - REQUESTED ON AUGUST 24, 2022. OTHER UPDATES: MEETING BETWEEN CHAIR MILLS AND FINANCE DIRECTOR MARTINEZ ON SEPTEMBER 26, 2022 - A SUPPLEMENTAL REPORT FOR EASE OF UNDERSTANDING THE ACFR MANAGEMENT DISCUSSION WILL BE CONSIDERED BY STAFF.