City of Culver City, California
Agenda Item Report
Meeting Date: 03/12/2012 Item Number: C-4
CITY COUNCIL AGENDA ITEM: Adoption of a Resolution Establishing a Post-
Employment Welfare Benefits Program Trust
Contact Person/Dept.:
Jeff Muir/Finance Department
Phone Number:
(310) 253- 5865
Fiscal Impact: Yes [x] No [] General Fund: Yes [x] No []
Public Hearing: [] Action Item: [] Attachments: [X]
Commission Action Required: Yes [] No [X] Date: _______________
Public Notification: (Email) Meetings and Agendas – City Council (03/08/12)
Department Approval:
Jeff Muir (03/07/12)
City Attorney Approval:
Carol Schwab (by H. Baker) (03/07/12)
Chief Financial Officer Approval:
Jeff Muir (03/07/12)
City Manager Approval:
John M. Nachbar (03/07/12)
RECOMMENDATION:
Staff recommends the City Council take the following actions relative to the
execution of a Governmental Accounting Standards Board (GASB) Statement 43
(GASB 43) qualifying IRS Section 115 trust (Trust) for the purposes of funding
GASB Statement 45 (GASB 45) retiree healthcare and other post-employment
(OPEB) liabilities:
Adopt a resolution approving a Post-Employment Welfare Benefits Program
Trust Agreement between the City, PFM Asset Management LLC, as Trust
Administrator, and Union Bank, N.A., as Trustee and Custodian, and authorizing
the City Manager, City Attorney, and Chief Financial Officer to execute all
documents and take all necessary actions to implement the Trust.
BACKGROUND:
GASB 43 and GASB 45
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required government entities to begin treating Other Post
Employment Benefits (OPEB) in a similar fashion to pensions. This includes a
requirement for independent actuarial calculations to determine the total liability
based on the benefit provided, disclosure of this liability in the financial statements,
calculation of the Annual Required Contribution (ARC) to fund the total liability over a
thirty year period, and recording any unfunded portion of the annual ARC as a
liability on the balance sheet. The most common types of OPEB benefits include
health insurance and dental, vision, prescription, or other healthcare benefits
provided to eligible retirees and, in some cases, their beneficiaries.
Culver City currently provides health care insurance for retirees and their eligible
dependents at varying levels based on the hire date and date of retirement. Recent City of Culver City, California
Agenda Item Report
negotiations eliminated all but the statutory minimum City contribution towards
retiree medical costs for new hires. There were also reductions in the benefit for
current employees. A grandfathering provision was included allowing many current
employees to retain their prior level of benefit. Additionally, the benefit level for
existing retirees cannot be modified. According to the last actuarial report
completed, the City’s OPEB liability as of July 1, 2009 is $213,205,000, and the
Annual Required Contribution is $11,754,000. The City is seeking an updated
actuarial study based on the modifications that were made through negotiations, but
the City will still have a significant OPEB liability. The City currently does not pre-
fund any of the costs, and therefore the discount rate used by the actuary in
calculating the liability is very low. This results in an already large liability being
even larger.
Although there is no legal requirement at this time to fund the reported OPEB
liability, it is expected to become a requirement at some point in the future.
However, similar to pension liabilities, the City should be funding the future costs of
the benefit for active employees during their years of service, so that these funds
can accumulate with the benefit of compounding investment returns over time to
help fund the benefit. As a matter of prudent financial management, the City has
already identified a few funding sources and begun setting aside funds to offset this
liability. Currently, there is a total of approximately $1.4 million set aside for OPEB.
Although the City has begun setting funding aside, it does not offset the City’s OPEB
liability unless the funds are deposited in an irrevocable trust, which dedicates the
funds to OPEB related expenditures and protect against the funding being used for
other purposes in the future. Again, this is similar to the pension benefit, where
funds are deposited with CalPERS.
Establishing an OPEB trust to fund these costs will yield three significant benefits for
the City as well as its employees and retirees:
1. Protection of retiree healthcare benefits. A trust would ensure that the funding
set aside and contributed to this account would be irrevocable and barred from
being used for any other purpose.
2. Improve investment returns and bolster benefits plan sustainability. Investing
through a trust as opposed to the vehicles allowed for the City’s standard
investments will generally yield a better return since those funds can be invested
in higher-yield securities. Currently, the City’s investments are yielding about 1%
or less and initial estimates for returns on a trust are approximately 6 to 7
percent. This significantly higher growth rate would reduce the initial liability.
3. Beneficial accounting and actuarial treatment in the City’s financial statements.
A trust would, even without fully funding it, significantly reduce the City’s
liability/expenses listed on its financial statements. This could positively affect
future bond ratings. City of Culver City, California
Agenda Item Report
Trust establishment is a separate issue from benefit levels. Establishing a trust will
not affect the retiree benefits plan currently in place; it will only change the
mechanism through which those benefits are dispersed. Any adjustments in
benefits, for current and future retirees, would have to be determined separately
through the meet-and-confer process and do not affect the establishment of the
trust.
In early 2011, the City Council approved an agreement with PFM Asset
Management for the creation of an irrevocable trust for retiree medical benefits.
Staff has worked with PFM, as well as legal counsel, to develop the trust document
being recommended for approval.
DISCUSSION:
The Trust Agreement will be between the City as “Employer”, PFM Asset
Management, LLC as the “Trust Administrator / Investment Advisor” and Union Bank
N.A., as “Trustee/Custodian”. As the Employer, the City may delegate any of its
powers and responsibilities under the Trust Agreement relating to the investment
and administration of Trust assets (i.e., the “Trust Administrator”). The
responsibilities of the Trust Administrator / Investment Advisor and Trustee /
Custodian are summarized as follows:
• PFM Asset Management, LLC (PFM) will serve as Trust Administrator and
Investment Advisor to the Trust. PFM’s responsibilities include managing the
assets in accordance with the Investment Policy Statement, coordinating
investment and funding planning activities with City staff, recommending
policy and asset allocation changes to the Trust Review Committee, reporting
investment performance regularly, and providing a variety of other OPEB and
market related educational services. The decision to hire PFM to serve in this
capacity was made by the City Council in January 2011.
• Union Bank, N.A., (Union Bank) will serve as the Trustee and Custodian.
Union Bank will be responsible for asset safekeeping, contribution and
distribution processing, investment transaction processing, monthly reporting
of asset holdings and transactions, and providing reporting support for the
annual audit. The decision to use Union Bank in this capacity was due to
their competitive proposed fee structure, and was also approved by City
Council in January 2011.
Day-to-day administration of the Trust pursuant to the Investment Policy Statement
and the Trust Agreement will be the responsibility of PFM and Union Bank. An
OPEB Trust Investment Review Committee comprised of the City Manager, the
Chief Financial Officer, and the Human Resources Director will be created to City of Culver City, California
Agenda Item Report
periodically review the trust investments. The Committee shall meet at least
annually to compare the Trust’s performance against benchmarks, and review the
rate of return, and asset allocation with the parameters prescribed by the Investment
Policy Statement.
FISCAL ANALYSIS:
Establishment of an OPEB Trust will allow the City to invest funds to pay for retiree
health costs in a manner not afforded under the City’s investment restrictions. This
is expected to lead to higher long-term returns than the City can receive without a
trust. This, in turn, will lead to lower costs to the City to meet its obligations to fund
retiree health premium costs. Upon full execution of the Trust, an initial deposit of
$1.4 million comprising funds that have been set aside for this purpose shall be
made.
MOTION:
That the City Council:
1. Adopt a resolution approving the Post-Employment Welfare Benefits Program
Trust Agreement between the City, PFM Asset Management LLC, as Trust
Administrator, and Union Bank, N.A., as Trustee and Custodian, and authorizing
the City Manager, City Attorney, and Chief Financial Officer to execute all
documents and take all necessary actions to implement the Trust; and,
2. Authorize the City Attorney to review/prepare the necessary documents; and,
3. Authorize the City Manager to execute such documents on behalf of the City;
and,
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The official title of GASB 45 is Accounting and Financial Reporting for Postemployment Benefits Other than Pensions
and was issued in June 2004.
MEETING DATE: 03/12/2012
AGENDA ITEM: Adopt a Resolution Establishing a Post-Employment
Welfare Benefits Program Trust.
ATTACHMENTS
1. Resolution
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2. Post-Employment Welfare Benefits Program Trust
Agreement
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123DRAFT
2/2/12
POST-EMPLOYMENT WELFARE BENEFITS PROGRAM TRUST
By and among
City of Culver City,
PFM ASSET MANAGEMENT LLC,
as Trust Administrator
and
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
Dated __________, 2012
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POST-EMPLOYMENT WELFARE BENEFITS PROGRAM TRUST
This Trust Agreement is made this _________ day of ___________, 2012 (this
“Agreement”), among City of Culver City (“Employer”), U.S. BANK NATIONAL
ASSOCIATION (together with any successor trustee hereunder, “Trustee”) and PFM ASSET
MANAGEMENT LLC (together with any successor trust administrator hereunder, “Trust
Administrator”);
W I T N E S S E T H:
WHEREAS, Employer wishes to provide for retiree health benefits and other post-
employment benefits other than pension benefits (“OPEB”) (“Benefits”) for employees and other
participants (all collectively referred to herein as “Beneficiaries”) as and to the extent provided in
its benefit plans attached to this Agreement as Exhibit A, as amended or supplemented from time
to time (“Plans”) and as described in Section I, below; and
WHEREAS, Employer and Trustee desire to establish a trust (“Trust”), which will be an
entity separate from Employer for the exclusive purpose of providing funds to pay Benefits, with
the intent that (i) the income of the Trust will be exempt from federal and state income tax (under
Internal Revenue Code Section 115 with respect to federal income tax), (ii) transfers to the Trust
will not be taxable to Beneficiaries, (iii) the Trust will qualify for purposes of Governmental
Accounting Standards Board Statement 45 (“GASB 45”) pursuant to GASB 45, and (iv) all
assets of the Trust are and will be irrevocably dedicated to, and shall be used for the exclusive
purpose of, providing for payments of Benefits and for paying expenses of administering the
Trust, and will not be available to any creditors of Employer; and;
WHEREAS, Trustee is willing to accept the Trust; and
WHEREAS, the Trust is authorized under California Government Code Sections 53201,
53206, and 53622, and Section 5 of Article XIIIB of the California Constitution; and
WHEREAS, the Trust is an entity separate from Employer for the exclusive benefit of the
Beneficiaries and not of Employer; and
WHEREAS, the indicia of ownership of Trust assets shall be held by Trustee at all times
and the Trust assets shall not be considered funds or assets of Employer for any purpose; and
WHEREAS, PFM Asset Management LLC is willing to serve as Trust Administrator of
the Trust with the rights and duties of the Trust Administrator provided in this Agreement
(“Trust Administrator”).
WHEREAS, Trust Administrator shall have exclusive authority and responsibility for the
management, disposition and investment of Trust assets in its sole judgment in accordance with
this Agreement, without any requirement of consent by Employer or, except as expressly
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provided herein, of notice to Employer; and
WHEREAS, the Trust does not contravene Article XVI, Section 6 of the California
Constitution by reason of the fact that the Trust is and will remain an entity different and
separate from Employer; and
WHEREAS, Employer is a state or political subdivision or other entity the income of
which is exempt from federal income tax under Internal Revenue Code Section 115; and
WHEREAS, Trustee is a national banking association and a corporate trustee, with all
requisite powers and capabilities to act as Trustee and administer the Trust as set forth in this
Agreement; and
NOW, THEREFORE, Employer hereby irrevocably establishes the Trust with Trustee to
be held, administered, and distributed by Trustee as provided in this Agreement, and Trust
Administrator, Employer, and Trustee agree as follows:
Section I. Exhibits.
The following Exhibits are attached hereto and by this reference incorporated herein and
made a part hereof
(a) Exhibit A to this Agreement contains a copy or other description of the Plans and
defines the terms “Beneficiaries,” “Plans” and “Benefits,” as used in the preamble to this
Agreement.
(b) Exhibit B to this Agreement describes Employer’s initial contribution to the Trust.
(c) Exhibit C to this Agreement is a copy of the Investment Policy Statement
delivered by Trust Administrator to Employer, which is satisfactory to Employer.
(d) Exhibit D to this Agreement is a copy of the agreement (“TPA Agreement”)
between Employer and ____________________ pursuant to which __________________ will
serve as third party administrator of the Plans (“TPA”) and will perform the services of TPA
provided in Exhibit D and as contemplated by this Agreement without cost to the Trust. [Not
necessary if Benefits Administration is done in house]
(e) Exhibit E to this Agreement is a schedule of investments which the Trust is
permitted to acquire, retain and sell (“Permitted Investments”).
Section II. General Trust Provisions.
(a) The Trust created hereunder is hereby declared to be irrevocable. Employer shall,
however, have the right at any time, by an instrument in writing, executed and delivered to
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Trustee and Trust Administrator, to amend this Agreement, or to terminate the Trust in
accordance with the provisions of Section 10 hereof; provided, however, that the duties, powers
and liabilities of the Trustee or Trust Administrator shall not be increased without their written
consent and provided further, such amendment or termination does not render the Trust
"revocable" or adversely affect the status of the Trust described in the preamble to this
Agreement.
(b) The principal of the Trust, together with any earnings thereon, shall be held by
Trustee separate and apart from any assets of Employer. All Trust assets and all income thereon
are irrevocably dedicated to, and shall be used for the exclusive purpose of, making payments of
Benefits to or for the benefit of Beneficiaries and for paying expenses of administering the Trust.
At no time will any Trust assets be used for, or diverted to, any other purposes.
(c) The Trustee shall have exclusive right, title and interest in and to the assets of the
Trust.
(d) Assets held in the Trust may not be used to satisfy claims of creditors of
Employer, except to the extent that such are claims to receive Benefits.
(e) Beneficiaries shall have no preferred claim, lien on, or security interest in, or any
beneficial interest in any particular assets of the Trust. Beneficiaries shall be entitled to receive
payments of assets of the Trust only when, as and if determined by third party administrator
(“TPA”) in accordance with this Agreement.
(f) Except to the extent allowed by law, the expectation of any Beneficiary to receive
any Benefits is not subject to attachment or garnishment or other legal process by any creditor of
any such Beneficiary, nor shall any Beneficiary have the right to alienate, anticipate, commute,
pledge, encumber or assign any Benefit until the same shall have been paid.
(g) In its sole discretion, Employer from time to time at any time may make (or cause
to be made) additional contributions of cash or other assets acceptable to Trustee to the Trust,
from employer contributions, employee contributions or any other source. Neither Trustee, or
any Beneficiary or any party to or any other entity referred to in this Agreement shall have any
right to compel such additional contributions. All such contributions and all income thereon are
irrevocably dedicated to, and shall be used for the exclusive purpose of, making payments of
Benefits and for paying expenses of administering the Trust.
(h) Trustee shall not be responsible for enforcing the payment of any contributions to
the Trust.
(i) Trust Administrator shall have exclusive authority and responsibility for the
management and investment of Trust assets, and Trustee is authorized and directed to comply
with the written directions of Trust Administrator concerning Trust assets. Trust Administrator
shall not issue any such direction in violation of the terms of the Trust.
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(j) No Beneficiary shall be deemed a third-party beneficiary of this Agreement, nor
shall any Beneficiary have the right to compel any payment of any amount from the assets of the
Trust or to enforce any duties of any party to or other entity referred to in this Agreement.
Section III. Payments from Trust.
(a) The TPA, [pursuant to the TPA Agreement,] shall determine the amount of
Benefits payable under the Plans and shall have exclusive authority and responsibility to
determine the amount of such Benefits to be paid out of the assets of the Trust and the amount
which shall be paid to each Beneficiary. TPA shall direct Trustee in writing to disburse amounts
in respect of Benefits from the Trust (i) to TPA for subsequent distribution to or for the benefit of
Beneficiaries or (ii) to disburse amounts in respect of Benefits directly to or for the benefit of
Beneficiaries. No assets of the Trust may be paid to Employer at the instructions of the TPA.
(b) Except as otherwise provided by law, Trustee shall be fully protected in making
payments out of the Trust at the direction of TPA.
(c) Trustee’s sole obligation as to disbursements from the Trust in respect of Benefits
shall be to observe the instructions of TPA to the extent that the Trust has assets to make
disbursements as instructed by TPA. Nothing contained in the Trust or any Plan shall constitute
a guarantee that Trust assets will be sufficient to pay any Benefit to any Beneficiary.
(d) Trustee is authorized to disburse amounts from the Trust to pay the expenses of
administering the Trust as expressly authorized by this Agreement, or as instructed in writing by
Trust Administrator.
Section IV. Investments.
(a) Trustee shall hold and administer Trust assets without distinction between
principal and income.
(b) Trustee, in the exercise of its fiduciary judgment or as instructed by Trust
Administrator, may commingle, hold and invest as one fund, for investment or administration
purposes, the assets (or a portion of the assets) of the Trust and similar trusts; provided that
Trustee shall account separately for all assets, income, gains, losses, distributions and expenses
of Trust.
(c) Trust assets shall be invested only in Permitted Investments. Trust Administrator
shall have full power and authority to invest and reinvest Trust assets in any Permitted
Investments permitted under this Agreement.
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(d) Transactions in Permitted Investments which require execution through a broker
shall be executed through such broker or brokers as Trust Administrator shall select. The indicia
of ownership of Trust assets shall be held by Trustee at all times, and the Trustee shall serve as
sole custodian with respect to Trust assets.
(e) Any entity affiliated with Trustee may act as broker or dealer to execute
transactions, including the purchase of securities directly distributed, underwritten or issued by
an entity affiliated with Trustee, at standard commission rates, mark-ups or concessions, and to
provide investment services with respect to the Trust.
(f) To the extent directed by Trust Administrator, Trustee is authorized and
empowered:
(1) To invest and reinvest Trust assets, together with the income
therefrom, in Permitted Investments.
(2) To maintain accounts at, execute transactions through, and lend on
an adequately secured basis stocks, bonds or other securities to, any brokerage firm including
any firm that is an affiliate of Trustee.
(3) To vote upon or tender any stocks, bonds or other securities and to
give general or special proxies or powers of attorney with or without power of substitution; to
exercise any conversion privileges, subscription rights or other options of which Trustee receives
actual notice, and to make any payments incidental thereto; to consent to or otherwise participate
in corporate reorganizations or other changes affecting corporate securities and to delegate
discretionary powers and to pay any assessments or charges in connection therewith; and
generally to exercise any of the powers of an owner with respect to stocks, bonds, securities or
other property held in Trust.
(4) To deposit or invest all or any part of the assets of the Trust in
savings accounts or certificates of deposit or other deposits in a bank or savings and loan
association or other depository institution, including Trustee or any of its affiliates; provided
that, with respect to such deposits with Trustee or an affiliate, the deposits bear a reasonable rate
of interest.
(5) To invest and reinvest any Trust assets in one or more collective
investment funds.
(6) To hold, manage, improve, repair and control all investment
property, real or personal, forming part of the Trust; to sell, convey, transfer, exchange, partition,
pledge, encumber, lease for any term, even extending beyond the duration of this Trust, and
otherwise dispose of the same from time to time.
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(7) To take such actions as may be necessary or desirable to protect
the Trust from loss due to the default on mortgages held in the Trust including the appointment
of agents or trustees in such other jurisdictions as may seem desirable, to transfer property to
such agents or trustees, to grant to such agents such powers as are necessary or desirable to
protect the Trust, to direct such agent or trustee, or to delegate such power to direct, and to
remove such agent or trustee.
(8) To settle, compromise or abandon all claims and demands in favor
of or against the Trust.
(9) To borrow money from any source and to execute promissory
notes, mortgages, or other obligations and to pledge or mortgage any Trust assets as security.
(10) To designate and engage the services of such agents,
representatives, advisers, counsel and accountants, any of whom may be an affiliate of Trustee or
a person who renders services to such an affiliate and, as part of its expenses under this
Agreement, to pay their reasonable expenses and compensation.
(11) To hold in cash, without liability for interest, such portion of the
Trust assets as is pending investment, or payment of expenses, or the distribution of Benefits.
(12) To make, execute and deliver, as Trustee, any and all deeds, leases,
mortgages, conveyances, waivers, releases or other instruments in writing necessary or
appropriate for the accomplishment of any powers listed in this Agreement.
(13) To register securities, or any other property, in its name or in the
name of any nominee, including the name of any affiliate or the nominee name designated by
any affiliate, with or without indication of the capacity in which property shall be held, or to hold
securities in bearer form and to deposit any securities or other property in a depository or
clearing corporation.
(14) To pay or cause to be paid from the Trust any and all real or
personal property taxes, income taxes or other taxes with respect to the Trust.
(15) To enter into interest rate, currency, cash-flow, indexed (including
indexed to equities) and other types of swaps and hedges designed to hedge payment, interest
rate, currency, duration, spread or similar exposure related to any investment or program of
investments of Trust assets or to manage asset/liability matching between investments and
Benefits to be paid therefrom.
(16) To exercise all of the further rights, powers, options and privileges
granted, provided for, or vested in trustees generally under the laws of the State of California so
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that the powers conferred upon Trustee herein shall not be in limitation of any authority
conferred by law or under this Agreement, but shall be in addition thereto; provided that such
powers satisfy applicable requirements (if any) of the laws of the State of California.
(17) Generally to do all other acts which Trustee deems necessary or
appropriate for the protection of the Trust.
Section V. Trust Administrator Services and Trust Administrator and Trustee
Compensation.
(a) Trust Administrator shall determine the asset allocation of investments for Trust
assets in its judgment from time to time in light of the anticipated amounts of cash required by
the Trust for distributions and other expenses, and the principles set forth in the Investment
Policy Statement. Trust Administrator shall execute the Investment Policy Statement by buying
and selling investments for the Trust as described in Section IV hereof. Initially, the Trust assets
shall be invested in specified investment funds in specified proportions as set forth in the
Investment Policy Statement. Thereafter, Trust Administrator shall exercise its professional
judgment with respect to investments and shall have no obligation to consult with or obtain
approval of Employer.
(b) Trust Administrator shall reassess and may alter the asset allocation of the Trust
at least annually. Trust Administrator shall “rebalance” the investments of the Trust at least
annually to maintain the ratios of the asset allocation of the Trust then in effect, and shall consult
with the Actuary [(as defined in the TPA Agreement)] and TPA at least annually to determine
whether there are reasons to revise the Investment Policy Statement. Trust Administrator shall
continuously review the performance of the investment of Trust assets and, in its judgment, shall
purchase or sell Permitted Investments for the Trust. In addition, Trust Administrator shall
provide to Employer, Trustee and TPA a quarterly analysis of the performance of the
investments of the Trust and statement of any changes in investments made in such quarter. The
asset information for such analysis shall be supplied to Trust Administrator by Trustee.
(c) Trust Administrator shall appoint a responsible accounting firm to conduct an
annual audit of the Trust at the sole expense of Employer. The results of such audit shall be
provided to Trust Administrator, to Trustee and, to Employer.
(d) Trustee shall have sole custody of cash, securities and other assets of the Trust.
Trust Administrator is authorized to give instructions to Trustee as to deliveries of securities and
payments of cash for the account of the Trust. Trust Administrator shall not take possession of
or act as custodian for the cash, securities or other assets of the Trust and shall have no
responsibility in connection therewith.
(e) (1) Except as otherwise stated herein, the Trust shall incur total costs not
exceeding 1.0% (one percent) per year of the Net Assets of the Trust for the payment of Trust
Administration Fees. “Net Assets” means the net market value of all cash and investments assets
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as of the end of the most recent quarter as determined and reported by Trustee. “Trust
Administration Fees” means the fees of the applicable investment funds, the fees for all services
of Trust Administrator, and fees of Trustee in its role as custodian of the Trust assets (which fees
of Trustee shall be paid by Trust Administrator to Trustee).
(2) At the end of each calendar quarter, Trust Administrator shall submit to
Trustee, with a copy to Employer, an invoice for payment of the Trust Administration Fees for
the preceding calendar quarter, which amount shall not exceed 0.25% (one-quarter of one
percent) of the Net Assets of the Trust. Trust Administrator is authorized to instruct Trustee to
disburse funds from the Trust for the payment of the Trust Administration Fees to Trust
Administrator. If either Trust Administrator or Trustee shall serve for less than the entire
quarter, the compensation shall be pro-rated.
(3) For services provided by Trustee to the Trust pursuant to this Agreement
(exclusive of the services provided by Trustee as custodian, the fees for which are paid as set
forth in paragraph (d)(1) above), Trustee shall be paid an annual fee not to exceed $1,000 (the
“Trustee Fee”). Trustee is authorized to disburse funds from the Trust to itself for the payment
of the Trustee Fee.
(4) If and to the extent that Trustee shall request Trust Administrator to render
services to the Trust other than those to be rendered by Trust Administrator hereunder, such
additional services shall be compensated separately on terms to be agreed upon between Trust
Administrator and Trustee.
(f) (1) Trust Administrator shall furnish at its own expense all necessary
administrative services, office space, equipment, clerical personnel, telephone and other
communication facilities, and executive and supervisory personnel required to perform its duties
under this Agreement.
(2) Except as expressly provided otherwise herein, Trustee is authorized to
disburse funds from the Trust to pay the expenses of administering the Trust, including, without
limitation, taxes, payable by the Trust, fees and expenses of legal counsel to the Trust, if any,
and, insurance premiums.
(g) Trust Administrator hereby represents that it is a registered investment advisor
under the Investment Advisers Act of 1940. Trust Administrator shall immediately notify
Employer and Trustee if at any time during the term of this Agreement it is not so registered or if
its registration is suspended. Trust Administrator agrees to perform its duties and responsibilities
under this Agreement with reasonable care as provided by law. The federal securities laws
impose liabilities under certain circumstances on persons who are required to act in good faith.
Nothing in this Agreement shall in any way constitute a waiver or limitation of any rights which
Employer, Trust Administrator or Trustee may have under any federal securities laws.
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(h) Employer and Trustee understand that Trust Administrator performs investment
advisory services for various other clients which may include investment companies,
commingled trust funds and individual portfolios. Employer and Trustee agree that Trust
Administrator may give advice or take action with respect to any of its other clients which may
differ from advice given or the timing or nature of action taken with respect to the Trust, so long
as it is the policy of Trust Administrator, to the extent practical, to allocate investment
opportunities to the Trust over a period of time on a fair and equitable basis relative to other
clients. Trust Administrator shall not have any obligation to purchase, sell or exchange any
security for the Trust solely by reason of the fact that Trust Administrator, its principals,
affiliates, or employees may purchase, sell or exchange such security for the account of any other
client or for themselves.
(i) Trust Administrator shall promptly give notice to Employer and Trustee if Trust
Administrator shall have received written notice of the filing against it or any professional of
Trust Administrator who has performed any service with respect to the Trust in the 24 preceding
months, of any complaints or disciplinary actions by the Securities and Exchange Commission or
any other agency or department of the United States, any registered securities exchange, the
NASD, any Attorney General or any regulatory agency or authority of any State.
(j) Trust Administrator, its employees, officers and representatives, shall not be
deemed to be employees, agents, partners, servants, and/or joint ventures of Employer or Trustee
by virtue of this Agreement or any actions or services rendered under this Agreement.
(k) Trust Administrator shall maintain appropriate records of all its activities
hereunder.
(l) Trust Administrator warrants that it has delivered to Employer and Trustee, at
least five business days prior to the execution of this Agreement, Trust Administrator's current
Securities and Exchange Commission Form ADV, Part II, including, without limitation, Exhibit
H thereto (Trust Administrator's disclosure statement). Employer and Trustee acknowledge
receipt of such disclosure statement at least five business days prior to the execution of this
Agreement.
(m) The provisions of this Agreement shall be binding on Trust Administrator and its
successors and assigns, provided, however, that the rights and obligations of Trust Administrator
may not be assigned without the prior written consent of Employer.
Section VI. Trustee Accounting.
(a) Trustee shall keep accurate and detailed records of all investments, receipts,
disbursements, and all other transactions, including such specific records as shall be agreed upon
in writing between Trust Administrator and Trustee.
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(b) Within 60 days following the close of each calendar quarter (and within 60 days
after removal or resignation of Trustee), Trustee shall deliver to Trust Administrator and
Employer a written account of the Trust during such calendar quarter (or during the period from
the close of the last preceding calendar quarter to the date of such removal or resignation),
setting forth all deposits, investments, receipts, disbursements and other transactions effected by
it, including a description of transfers made and income received by the Trust, all securities and
investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued
interest paid or receivable being shown separately), all disbursements for the payment of
Benefits, administrative expenses (any amounts paid to Trustee shown separately) or other costs
paid from the Trust, and showing all cash, securities and other property held in the Trust at the
end of such calendar quarter or as of the date of such removal or resignation, as the case may be.
(c) All securities shall be valued at fair market value as of the date of valuation, as
determined by Trustee on the basis of such available information as Trustee may deem
reasonable, subject to such smoothing method (for actuarial valuation purposes) that averages
returns over a period of years that may be adopted by Trust Administrator and submitted in
writing to Trustee.
Section VII. Standard of Care and Indemnification.
(a) All Trust assets and all income thereon shall be used for the exclusive purpose of
providing for the payments of Benefits to or for the benefit of Beneficiaries and for paying
expenses of administering the Trust. Trustee and Trust Administrator, when making, selling or
otherwise managing investments of the funds, shall discharge their duties with respect to the
investment of the funds (i) solely in the interest of, and for the exclusive purposes of making
payments of Benefits to or for the benefit of Beneficiaries, maximizing the amount available for
providing Benefits, minimizing Employer contributions thereto, and paying expenses of
administering the Trust, (ii) with the care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent person acting in a like capacity and familiar with these matters
would use in the conduct of an enterprise of a like character and with like aims, and (iii) shall
diversify the investments of the assets so as to minimize the risk of loss and to maximize the rate
of return, in accordance with the Investment Policy Statement.
(b) Employer, from its own funds and not from any assets of the Trust, shall
indemnify Trustee and each of its affiliates (collectively, “Trustee Indemnified Parties”) against,
and shall hold them harmless from, any and all loss, claims, liability, and expense, including cost
of defense and reasonable attorneys’ fees, (collectively, “damages”) imposed upon or incurred at
any time by any Trustee Indemnified Party by reason of or in connection with the performance of
Trustee’s services under this Agreement, except to the extent such damages resulted from such
Trustee Indemnified Party’s performance (or non-performance) of its duties under this
Agreement in a manner that constitutes willful misconduct or willful breach of the standard of
care articulated in Section VII(a) above.
14
12
(c) Employer, from its own funds and not from any assets of the Trust, and Trustee,
solely from the assets of the Trust and not from its own assets, jointly and severally, shall
indemnify Trust Administrator and each of its affiliates (collectively, “Administrator
Indemnified Parties”) against, and shall hold them harmless from, any and all damages imposed
upon or incurred by any Administrator Indemnified Party by reason of, or in connection with its
services under this Agreement, except to the extent that such damages resulted from the
Administrator Indemnified Party’s performance (or non-performance) of its duties under this
Agreement in a manner that constitutes willful misconduct or willful breach of the standard of
care articulated in Section VII(a) above.
(d) The indemnification obligations provided for in this Agreement shall survive the
termination of this Agreement.
Section VII. Resignation and Removal of Trust Administrator.
(a) Trust Administrator may resign at any time upon 90 days prior written notice to
Employer, which notice may be waived by Employer. Employer may remove Trust
Administrator upon 90 days prior written notice to Trust Administrator and the Trustee, which
notice may be waived by Trust Administrator.
(b) Upon notice of Trust Administrator’s resignation, Employer shall promptly
designate a successor Trust Administrator qualified to act as Trust Administrator of the Trust
under the laws of the State of California, such resignation to be effective upon acceptance of
appointment by such successor Trust Administrator. Employer shall not remove the Trust
Administrator unless Employer shall have designated such a successor Trust Administrator who
shall have agreed with Employer and Trustee to act as Trust Administrator pursuant to this
Agreement.
(c) Until a successor Trust Administrator is appointed and assumes its duties as Trust
Administrator under this Agreement, Trust Administrator shall be entitled to compensation for
its services in accordance with Section V(e)(1) of this Agreement.
(d) Any company into which the Trust Administrator may be merged or converted or
with which it may be consolidated or any company resulting from any merger, conversion or
consolidation to which it shall be a party or any company to which the Trust Administrator may
sell or transfer all or substantially all of its investment advisory business, shall be, with the prior
written consent of Employer, the successor to such Trust Administrator.
(e) A successor Trust Administrator shall have no duty to audit or otherwise inquire
into the acts or transactions of its predecessor.
15
13
Section IX. Resignation and Removal of Trustee.
(a) Trustee may resign at any time upon 90 days prior written notice to Trust
Administrator, which notice may be waived by Trust Administrator. Trust Administrator may
remove Trustee as provided in Paragraph b below, upon 90 days prior written notice to Trustee,
which notice may be waived by Trustee.
(b) Employer shall have the power upon written instructions to Trust Administrator to
cause Trust Administrator to remove Trustee (or any successor trustee) and to replace Trustee (or
any such successor trustee) with a corporate Trustee satisfactory to Trust Administrator in its
sole judgment.
(c) Upon notice of Trustee’s resignation or removal, Trust Administrator shall
promptly designate a successor corporate Trustee qualified to act as Trustee of the Trust under
the laws of the State of California, such resignation or removal to be effective upon acceptance
of appointment by such successor corporate Trustee.
(d) If Trust Administrator does not designate a successor corporate Trustee, or if a
successor corporate Trustee designated by Trust Administrator has not accepted its appointment
within 90 days after Trustee gives notice of its resignation or receives notice of removal, Trustee
may, at the expense of the Trust, apply to a court of competent jurisdiction to appoint a successor
corporate Trustee.
(e) Until a successor corporate Trustee is appointed and assumes its duties, Trustee
shall be entitled to compensation for its services according to its fee schedule then in effect for
acting as Trustee in accordance with the Trust.
(f) Any company into which the Trustee may be merged or converted or with which
it may be consolidated or any company resulting from any merger, conversion or consolidation
to which it shall be a party or any company to which the Trustee may sell or transfer all or
substantially all of its corporate trust business, shall be the successor to such Trustee without the
execution or filing of any paper or any further act, anything herein to the contrary
notwithstanding.
(g) A resigning Trustee shall transfer the Trust assets and shall deliver the books,
accounts and records of the Trust to the successor corporate Trustee as soon as practicable.
(h) A resigning Trustee is authorized to reserve such amount as may be necessary for
the payment of its fees and expenses incurred prior to its resignation or removal, and the Trust
assets shall remain liable to reimburse the resigning or removed Trustee for any costs or fees
payable to Trustee under the terms of this Agreement.
(i) A successor corporate Trustee shall have no duty to audit or otherwise inquire
into the acts or transactions of its predecessor.
16
14
Section X. Amendment, Merger, Transfer or Termination.
(a) At any time that there is in existence any Trust created by Employer which
satisfies the terms of Section II of this Agreement and whose income is excluded under Internal
Revenue Code section 115 (“Qualified Trust”), at the direction of Employer, the Trust may be
merged with a Qualified Trust, or all or part of its assets (net of any amount as may be
reasonably necessary to pay the fees and expenses of Trust Administrator, Trustee and other
expenses of the Trust) transferred to a Qualified Trust; provided, however, that no such merger
may increase Trustee’s obligations under this Agreement without Trustee’s written approval, no
such merger or transfer may render the Trust “revocable,” and no such merger or transfer may
adversely affect the status of the Trust as described in the preamble to this Agreement.
(b) Employer has reserved the right to amend or terminate the Benefits being funded by
this Trust and to discontinue its contributions to the Trust. Employer shall notify Trustee in
writing if the Benefits have been terminated or if Employer has determined to discontinue
contributions to the Trust. Upon the termination of all Benefits, the Trust shall terminate in
accordance with subsection (d), below.
(c) Neither Trust Administrator nor Employer nor any entity related to any of them
shall have any beneficial interest in the Trust or receive any amounts upon termination of the
Trust except as provided in (d), below.
(d) Upon any termination of the Trust, the assets of the Trust then held by Trustee,
except such assets as may be needed to pay expenses or liabilities of the Trust, shall first be
distributed pursuant to the terms of the Plans in accordance with the written directions of
Employer of Trust Administrator. Then, if there is any balance after the satisfaction of all
liabilities to the Participants and their beneficiaries under the Plans, Trustee shall return said
balance to Employer; provided, however, that none of the assets of the Trust will be distributed
to any entity that is not a State, a political subdivision of a State, or an entity the income of which
is excluded from gross income under Internal Revenue Code section 115; and provided further,
that no such termination or distribution adversely affect retroactively the status of the Trust as
described in the preamble to this Agreement. Unless sooner terminated, the Trust shall terminate
when there shall be no assets of the Trust remaining in the hands of the Trustee.
(e) The Trust shall remain in existence until all assets have been distributed.
(e) Upon termination of the Trust, Trust Administrator and Trustee shall continue to
have all powers provided in this Agreement as are necessary or desirable for the orderly
liquidation and distribution of Trust assets in accordance with the provisions hereof.
Section XI. Miscellaneous.
(a) The Trust shall be governed by, and interpreted in a manner consistent with, the
laws of the State of California and, to the extent applicable, the Internal Revenue Code.
17
15
(b) This Agreement is not a joint exercise of powers agreement, does not create a
joint powers or joint action authority, and the obligations of Employer and the Trust are several
and not joint. Neither Trustee nor Trust Administrator shall be responsible for any contributions,
costs, Benefits, distributions, acts or omissions of Employer or TPA.
(c) Each party to this Agreement represents and warrants that the person or persons
signing this Agreement on behalf of such party is authorized and empowered to sign and deliver
this Agreement for such party.
(d) Employer shall notify Trust Administrator and Trustee in a separate writing of the
person or persons, by office or other position of employment, who are authorized to act on behalf
of Employer in all matters relating to the Trust.
(e) Trust Administrator shall notify Trustee and Employer in a separate writing of all
those who are authorized to act on behalf of Trust Administrator in all matters relating to the
Trust.
(f) If there is any conflict between the Plans and this Agreement, this Agreement
shall control.
(g) In the event any provision of this Agreement is held to be invalid for any reason,
such invalidity shall not affect any other provisions of this Agreement and this Agreement shall
be construed and enforced as if the invalid provision had never been included.
(h) This Agreement may be executed in any number of counterparts, each of which
shall be considered as an original.
(i) All communications under this Agreement shall be in writing and shall be deemed
to have been duly given (1) on the date of receipt if served personally or by confirmed facsimile
or other similar communication; (2) on the first business day after sending if sent for guaranteed
next day delivery by a next-day courier service; or (3) on the fourth business day after mailing if
mailed to the party or parties to whom notice is to be given by registered or certified mail, return
receipt requested, postage prepaid, and properly addressed as follows:
If to Employer: City of Culver City
______________________________________
______________________________________
______________________________________
18
16
If to Trust Administrator: PFM Asset Management LLC
Two Logan Square, Suite 1600
18
th
and Arch Streets
Philadelphia, PA 19103
Attention:___________________________
If to Trustee: U.S. Bank Association
P. O. Box 64488
St. Paul, MN 55164-0488
Attention:_______________________
IN WITNESS WHEREOF, and as evidence of establishment of the Trust created
hereunder, the parties have caused this Agreement to be executed as of the date first above
written:
[EMPLOYER]
By:_____________________________
Name: __________________________
Title: __________________________
PFM ASSET MANAGEMENT LLC,
As Trust Administrator
By:__________________________
Name: ________________________
Title: __________________________
U.S. BANK NATIONAL ASSOCIATION,
By:__________________________
Name: __________________________
Title: __________________________
19
OHS West:260112093.4 A-1
EXHIBIT A
PLANS
[ATTACH COPY OR OTHER DESCRIPTION OF THE PLANS
INCLUDE DEFINITIONS OF “BENEFICIARIES,” “PLANS”
AND “BENEFITS”]
20
OHS West:260112093.4 B-1
EXHIBIT B
EMPLOYER’S INITIAL CONTRIBUTION
Employer’s initial contribution to the Trust of $___________ was deposited with Trustee
on ____________ [date].
21
OHS West:260112093.4 D-1
EXHIBIT C
INVESTMENT POLICY STATEMENT
[PER SECTION V(a)]
22
OHS West:260112093.4 D-1
EXHIBIT D
EMPLOYER/TPA AGREEMENT
23TABLE OF CONTENTS
Page
OHS West:260112093.4
-i-
Section I. Exhibits .......................................................................................................... 3
Section II. General Trust Provisions................................................................................ 3
Section III. Payments from Trust ...................................................................................... 5
Section IV. Investments .................................................................................................... 5
Section V. Trust Administrator Services and Trust Administrator and Trustee
Compensation ................................................................................................ 8
Section VI. Trustee Accounting ...................................................................................... 10
Section VII. Standard of Care and Indemnification ........................................................... 11
Section VIII. Resignation and Removal of Trust Administrator ......................................... 12
Section IX. Resignation and Removal of Trust Administrator ......................................... 13
Section X. Amendment, Merger, Transfer or Termination ............................................. 14
Section XI. Miscellaneous .............................................................................................. 14
EXHIBIT A PLANS ......................................................................................................... A-1
EXHIBIT B EMPLOYER’S INITIAL CONTRIBUTION ............................................ B-1
EXHIBIT C CERTIFICATE OF EMPLOYER ............................................................... C-1
EXHIBIT D EMPLOYER/TPA AGREEMENT ............................................................ D-1
24Exhibit A
PLANS
The City of Culver City provides healthcare benefits (“Benefits”) to eligible
retirees and their dependents (“Beneficiaries”). Benefit levels are established
through agreements and memorandums of understanding ("Plans") between
the City and employees or bargaining groups.
Governmental Accounting Standards Board (GASB) Statement No. 45
required the City to begin disclosing our liability for other post-employment
benefits (OPEB) such as retiree medical costs beginning with the year ended
June 30, 2008. In preparation for this requirement, an actuarial valuation of
our retiree medical liability was completed in 2010. The 2010 valuation
showed Culver City’s total liability for retiree medical costs to be $213.2
million.
There are multiple plans that determine eligibility for the retiree healthcare
benefit. A summary follows:
Tier I – Employees who retired before January 1, 2007. Effective through
December 31, 2006, the City contribution for medical insurance provided
through the PERS Health plan shall be set at an amount equal to Kaiser Los
Angeles Region rates (Employee/retiree, Employee/Retiree and Spouse, and
Employee/retiree and Family, as applicable) plus fifty percent (50%) of the
difference between Kaiser Los Angeles Region rates and the most expensive
plan rates. Employees and retirees selecting plans with premiums in excess
of the City contribution shall be responsible for the remaining premium
difference.
Tier II – Employees who retired between January 1, 2007 and December 31,
2011. City pays 95% of premium for all plans except PERS Care. City pays
70% of premium for PERS care.
Tier III – Employees hired prior to July 1, 2011 that retire after December
31, 2011.
A. Employees that had at least 20 years of service in CalPERS by
12/31/11, or those who will reach 25 years of City service AND retire
by 1/1/2022 are “grandfathered” into the same benefit as retirees
under Tier II. City pays 95% of all plans except PERS Care, City pays
70% of PERS Care.
B. Employees with 5 years of City service get $500.65 per month
towards employee only coverage. Allowance grows at average growth
of CalPERS plan premiums, but is capped at 4% annually. There is
an additional dependent benefit that employees can vest into of
$437.00 per month, also capped at 4% annual growth. Vesting is
2520% of this amount for 6 years City service, 40% for 7 years, etc., up
to 100% of this amount at 10 years City service.
Tier IV – Employees hired on or after July 1, 2011 are provided the PEMHCA
minimum only.
26Exhibit B
EMPLOYER’S INITIAL CONTRIBUTION
Employer anticipates making an initial contribution to the Trust in the
amount of One Million Four Hundred Thousand Dollars ($1,400,000) to be
deposited with Trustee within 30 days of full execution of the Agreement, or
as soon thereafter as is reasonably practicable.
27Exhibits C and E
INVESTMENT POLICY STATEMENT and PERMITTED INVESTMENTS
(immediately follows this page)
28
INVESTMENT POLICY STATEMENT
FOR
CITY OF CULVER CITY
OTHER POST-EMPLOYEMENT BENEFITS TRUST
29
|1010|TABLE OF CONTENTS
SECTION PAGE
Purpose ......................................................................................................................................... 3
Investment Authority .................................................................................................................. 3
Statement of Investment Objectives ............................................................................................. 4
Investment Guidelines ................................................................................................................ 5
Time Horizon
Liquidity and Diversification
Asset Allocation
Rebalancing Philosophy
Risk Tolerance
Performance Expectations
Selection of Investment Managers .............................................................................................. 6
Guidelines for Portfolio Holdings .............................................................................................. 7
Direct Investments by Advisor
Limitations on Managers’ Portfolios
? Equities
? REITs
? Inflation Hedge
? Fixed Income
? Cash Equivalents
Portfolio Risk Hedging
Prohibited Portfolio Investments
Safekeeping
Control Procedures ....................................................................................................................... 9
Review of Investment Objectives
Review of Investment Performance
Voting of Proxies
Adoption of Investment Policy Statement ................................................................................... 10
30
|1010|The City of Culver City (the “City”) has established the Post-Employment Welfare Benefits Program
Trust (the “Trust”). The Trust is intended to provide for funding of non-pension post-employment
benefits (“OPEB”) for employees who meet the age and service requirements outlined in the City of
Culver City plan documents. The Trustees of the Trust hereby adopt this Investment Policy Statement
(“Policy Statement”) for the following purposes.
Purpose
The main investment objective of the Trust is to achieve long-term growth of Trust assets by
maximizing long-term rate of return on investments and minimizing risk of loss to fulfill the City’s
current and long-term OPEB obligations.
The purpose of this Policy Statement is to achieve the following:
1. Document investment objectives, performance expectations and investment guidelines for
Trust assets.
2. Establish an appropriate investment strategy for managing all Trust assets, including an
investment time horizon, risk tolerance ranges and asset allocation to provide sufficient
diversification and overall return over the long-term time horizon of the Trust.
3. Establish investment guidelines to control overall risk and liquidity.
4. Establish periodic performance reporting requirements that will effectively monitor
investment results and ensure that the investment policy is being followed.
5. Comply with all fiduciary, prudence, due diligence and legal requirements for Trust assets.
Investment Authority
The City has appointed the OPEB Trust Investment Review Committee (the “Committee”) to oversee
certain policies and procedures related to the operation and administration of the Trust. The
Committee shall be comprised of the City Manager, the Chief Financial Officer and the Human
Resources Director. The Committee will have authority to implement the investment policy and
guidelines in the best interest of the Trust to best satisfy the purposes of the Trust. In implementing
this Policy Statement, the Committee believes it may delegate certain functions to:
1. An investment advisor (“Advisor”) to assist the Committee in the investment process and to
maintain compliance with this Policy Statement. The Advisor may assist the Committee in
establishing investment policy, objectives, and guidelines; selecting investment managers
(“Managers”) or mutual funds and other common investment vehicles as specifically approved
by the Committee from time to time (“Investments”); reviewing Managers and Investments
over time; measuring and evaluating performance; and other tasks as deemed appropriate. The
Advisor may also select Investments with discretion to purchase, sell, or hold specific securities
that will be used to meet the Trust’s investment objectives. Neither the Advisor nor any
31
|1010|Manager shall ever take possession of any securities, cash or other assets of the Trust, all of
which shall be held by the custodian. The Advisor must be registered with the Securities and
Exchange Commission.
2. A custodian to maintain possession of physical securities and records of street name securities
owned by the Trust, collect dividend and interest payments, redeem maturing securities, and
effect receipt and delivery following purchases and sales, among other duties. The custodian
may also perform regular accounting of all assets owned, purchased, or sold, as well as
movement of assets into and out of the Trust.
3. A trustee, such as a bank trust department, if the Trust does not have its own Trustees, to
assume fiduciary responsibility for the administration of Trust assets; provided, however, that if
the Committee shall have appointed an investment advisor, then any trustee appointed under
this paragraph shall have no authority with respect to selection of investments.
4. Additional specialists such as attorneys, auditors, actuaries, retirement plan consultants, and
others to assist the Committee in meeting its responsibilities and obligations to administer Trust
assets prudently.
Statement of Investment Objectives
The investment objectives of the Trust are as follows:
1. To invest assets of the Trust in a manner consistent with the following fiduciary standards:
(a) all transactions undertaken must be for the sole interest of Trust beneficiaries, and (b)
assets are to be diversified in order to minimize the impact of large losses from individual
investments.
2. To provide for funding and anticipated withdrawals on a continuing basis for payment of
benefits and reasonable expenses of operation of the Trust.
3. To conserve and enhance the value of Trust assets in real terms through asset appreciation
and income generation, while maintaining a reasonable investment risk profile.
4. To minimize principal fluctuations over the Time Horizon (as defined below).
To achieve a long-term level of return commensurate with contemporary economic
conditions and equal to or exceeding the investment objective set forth in this Policy
Statement under the section labeled “Performance Expectations”.
32
|1010|Investment Guidelines
Time Horizon
The Trust’s investment objectives are based on a 20-year investment horizon (“Time Horizon”).
Interim fluctuations should be viewed with appropriate perspective. The Committee has adopted a
long-term investment horizon such that the risks and duration of investment losses are carefully
weighed against the long-term potential for appreciation of assets.
Liquidity and Diversification
In general, the Trust will hold up to six months of cash, cash equivalent, and/or money market funds
(collectively, “Liquidity Assets”) for near term Trust benefits and expenses (the “Trust Distributions”).
All remaining assets will be invested in longer-term securities (the “Investment Assets”). Investment
Assets shall be diversified with the intent to minimize the risk of long-term investment losses.
Consequently, the total portfolio will be constructed and maintained to provide diversification with
regard to the concentration of holdings in individual issues, issuers, countries, governments or
industries.
Asset Allocation
The Committee believes that to achieve the greatest likelihood of meeting the Trust’s investment
objectives and the best balance between risk and return for optimal diversification, the Trust should
allocate assets into the two broad classes called Investment Assets and Liquidity Assets. The
Investment Assets will be invested in accordance with the targets for each asset class as follows to
achieve an average total annual rate of return that is equal to or greater than the Trust’s actuarial
discount rate as described in the section titled “Performance Expectations”. The Liquidity Assets will
be held and used to pay for Trust Distributions.
Investment Assets
Asset Weightings
Asset Classes Range Target
Domestic Equity 12% - 32% 22%
International Equity 2% - 22% 12%
REITs 0% - 10% 2%
Inflation Hedge 0% - 10% 2%
Fixed Income 50% - 80% 60%
Cash Equivalent 0% - 20% 0%
Liquidity Assets
Asset Weightings
Asset Class Range Target
Cash Equivalent 0 - 100% 100%
33
|1010|
The Advisor and each Manager will be evaluated against their peers on the performance of the total
funds under their direct management.
Rebalancing Philosophy
The asset allocation range established by this Policy Statement represents a long-term perspective. As
such, rapid unanticipated market shifts or changes in economic conditions may cause the asset mix to
fall outside Policy Statement ranges. When these divergences occur, the Advisor will rebalance, and
cause the Managers to rebalance, the assets within the specified ranges.
Similarly, if the Liquidity Assets fall to a level where Trust Distributions cannot be met and no
contributions are anticipated, the Advisor will raise Liquidity Assets by reducing Investment Assets in
a manner resulting in a range consistent with the ranges stated in this Policy Statement. When the
Advisor is notified of new contributions, the Advisor will review the Trust allocation and fill the
Liquidity Assets first, followed by Investment Assets.
Risk Tolerance
The Trust will be managed in a style that seeks to minimize principal fluctuations over the established
Time Horizon and that is consistent with the Trust's investment objectives.
Performance Expectations
Over the long-term, a rolling five year period, the performance objective for Trust will be to achieve an
average total annual rate of return that is equal to or greater than the Trust’s actuarial discount rate,
which is expected to be 6.0%. Additionally, it is expected that the annual rate of return on Trust assets
will be commensurate with the then prevailing investment environment. Measurement of this return
expectation will be judged by reviewing returns in the context of industry standard benchmarks, peer
universe comparisons for individual Trust Investments and blended benchmark comparisons for the
Trust in its entirety.
Selection of Investment Managers
The Advisor shall prudently select appropriate Managers to invest the assets of the Trust. Managers
must meet the following criteria:
? The Manager must be a bank, insurance company, or investment adviser as defined by the
Investment Advisers Act of 1940.
? The Manager must provide historical quarterly performance data compliant with Global Investment
Performance Standards (GIPS
®
), Securities & Exchange Commission (“SEC”), and Financial
Industry Regulatory Agency (“FINRA”) rules, as appropriate.
? The Manager must provide detailed information on the history of the firm, key personnel, support
personnel, key clients, and fee schedule (including most favored nation clauses). This information
34
|1010|can be a copy of a recent Request for Proposal (“RFP”) completed by the Manager or regulatory
disclosure.
? The Manager must clearly articulate the investment strategy that will be followed and document
that the strategy has been successfully adhered to over time.
? The Manager must confirm receipt, understanding and adherence to this Policy Statement and any
investment specific policies by signing a consent form provided to the Manager prior to investment
of Trust assets.
Guidelines for Portfolio Holdings
Direct Investments by Advisor
Every effort shall be made, to the extent practical, prudent and appropriate, to select Investments that
have investment objectives and policies that are consistent with this Policy Statement (as outlined in
following sub-sections of the “Guidelines for Portfolio Holdings”). However, given the nature of the
Investments, it is recognized that there may be deviations between this Policy Statement and the
objectives of these Investments.
Limitations on Managers’ Portfolios
EQUITIES
Domestic Equities. No more than 5% of the Manager’s total equity portfolio valued at market may be
invested in the equity of any one corporation, ownership of the shares of one company shall not exceed
2% of those outstanding, and not more than 25% of equity valued at market may be held in any one
sector, as defined by the Industry Classification Benchmark universe database. Other than these
constraints, there are no quantitative guidelines as to issues, industry or individual security
diversification. However, prudent diversification standards should be developed and maintained by the
Manager.
International Equities. No more than 5% of the total equity portfolio valued at market may be invested
in the common equity of any one corporation, ownership of the shares of one company shall not
exceed 2% of those outstanding, and not more than 25% of equity valued at market may be held in any
one sector, as defined by the Industry Classification Benchmark universe database. The overall non-
U.S. equity allocation should include a diverse global mix that is comprised of the equity of companies
from multiple regions and sectors. The emerging markets exposure, as defined by Morgan Stanley
Capital International Inc. (“MSCI”), should be limited to 35% of the non-U.S. portion of the portfolio.
REIT
Real estate assets will be held only in diversified Investments, primarily holding Real Estate
Investment Trusts and servicing companies.
35
|1010|INFLATION HEDGE ASSETS
Inflation hedging assets will include only Investments holding among other assets: Treasury Inflation
Protected Securities (“TIPS”), commodities or commodity derivative contracts, index-linked derivative
contracts, the equity of companies in generally accepted businesses believed to hedge inflation.
FIXED INCOME
Fixed income investments shall be high quality with a preponderance of the investments in (1) U.S.
Treasury, federal agencies and U.S. Government guaranteed obligations, (2) investment grade
corporate issues including convertibles, and (3) sovereign debt of foreign countries.
Fixed income securities of any one issuer shall not exceed 5% of a total bond portfolio at time of
purchase. The 5% limitation does not apply to issues of the U.S. Treasury or other Federal Agencies.
The overall rating of the fixed income assets shall be at least "A", based on the rating of one of the
three rating agencies (Fitch, Moody's or Standard & Poor's). In cases where the yield spread
adequately compensates for additional risk, high yield securities (BB+ or lower), can be purchased or
held up to a maximum of 20% of total market value of fixed income securities of the Trust.
Cash Equivalents
Cash equivalents shall be held in funds complying with Rule 2(a)-7 of the Investment Company Act of
1940.
Portfolio Risk Hedging
Portfolio investments designed to hedge various risks including volatility risk, interest rate risk, etc. are
allowed to the extent that the Investments do not create direct portfolio leverage. One example of a
hedge vehicle is an exchange traded fund (“ETF”) which takes short positions.
Prohibited Investments
Except for purchase within authorized Investments, securities having the following characteristics, are
not authorized and shall not be purchased: letter stock and other unregistered securities, commodities
or commodity contracts where the Trust is a counterparty, short sales, margin transactions, private
placements (with the exception of Rule 144A securities), or venture capital funds, private equity, or
hedge funds. Further, derivatives, options, futures, or any other investment for the sole purpose of
direct portfolio leveraging are prohibited. Direct ownership of real estate, natural resource properties
such as oil, gas or timber and the purchase of collectibles is also prohibited.
Safekeeping
All assets of the Trust shall be held by a custodian approved by the Committee and in consultation with
the Advisor for safekeeping of Trust assets. The custodian shall produce statements on a monthly
basis, listing the name and value of all assets held, and the dates and nature of all transactions in
36
|10 10|accordance with the terms in the Trust Agreement. Investments of the Trust not held as Liquidity
Assets or Investment Assets shall, at all times, be invested in interest-bearing accounts. Investments
and portfolio securities may not be loaned.
Control Procedures
Review of Investment Objectives
The Advisor shall review annually and report to the Committee the appropriateness of this Policy
Statement for achieving the Trust’s stated objectives. It is not expected that this Policy Statement will
change frequently. In particular, short-term changes in the financial markets should not require an
adjustment in this Policy Statement.
Review of Investment Performance
The Advisor shall report on a quarterly basis to the Committee to review the investment performance
of the Trust. In addition, the Advisor will be responsible for keeping the Committee advised of any
material change in investment strategy, Managers, and other pertinent information potentially affecting
performance of the Trust.
The Advisor shall compare the investment results on a quarterly basis to appropriate peer universe
benchmarks, as well as market indices in both equity and fixed income markets. Examples of
benchmarks and indexes that will be used include the S&P 500 Index for large cap equities, Russell
2000 Index for small cap equities, MSCI Europe, Australasia, and Far East (EAFE) Index for
international equities, Barclays Capital Aggregate Bond Index for fixed income securities, and the U.S.
91 Day T-bill for cash equivalents.
Voting of Proxies
The Advisor will vote the shares of the Investments, and Managers will vote securities in the
respective portfolio managed by such Managers, consistently with its proxy policy and in the best
interest of the Trust.
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Adoption of Investment Policy Statement
Any changes and exceptions to this Policy Statement will be made in writing and adopted by the
Committee. Once adopted, changes and exceptions will be delivered to each Manager, as appropriate,
by the Advisor.
Approved by the City of Culver City OPEB Trust Investment Review Committee:
Resolved by:
Chair
Date
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