Trustees Approve Investment Strategy for COM’s Unfunded Liability
$2.1 million will be deposited into an irrevocable trust
Kentfield, CA— June 25, 2013 — On June 18, 2013, at its regular monthly meeting, the College of Marin Board of Trustees approved a comprehensive investment strategy that will address the college’s unfunded liability for employee health benefits. Approximately $2.1 million of funds designated for the Other Post Employer’s Retiree Benefit Trust (OPEB) will be deposited into the California Employer’s Retiree Benefit Trust (CERBT) the last week of June to start prefunding the college’s OPEB Trust.
The approval of the investment strategy is the last step in a process that began several years ago to fund the college’s outstanding retiree health benefits liability. The college began putting money in a designated fund in fiscal year 2005-06 and added to it in good financial years.
“The District’s Board of Trustees has been steadfast in its commitment to address the liability by setting aside significant funds over several years,” said College of Marin Superintendent President Dr. David Wain Coon. “The good news is that with this new investment strategy the college could begin funding retiree benefits entirely from the trust beginning with the 2018-19 fiscal year.”
The newly approved investment strategy will allow the college to pay down its $5.1 million unfunded liability over the next five years using a combination of returns on the OPEB trust and an estimated total of $4,632,161 in payments from its general fund as follows: $892,850 in FY 2012-13, $869,363 in FY 2013-14, $787,384 in FY 2014-15, $754,933 in FY 2015-16, $716,154 in FY 2016-17, and a final payment of $610,477 in FY 2017-18 at which time the actuarial consultant, using a seven percent growth rate, projects that the trust will have grown from $2.1 million to over $2.9 million thereby fully funding the remaining liability.
According to the most recent actuarial study by the firm Total Compensation Systems, Inc. (TCS), as of June 2013 the college’s unfunded liability is the lowest that it has been having decreased from $5.6 million in September 2012 to $5.1 million today. In addition, more employees are coming off of the plan as they reach the age of 70 will result in annual payout reductions.
The process to develop a viable investment strategy to address the college’s unfunded liability was initiated in August 2012, when nine firms were invited to submit proposals to assist the college with trust administration, trustee services, and investment management. Three firms: California Public Employees’ Retirement System (CalPERS), Community College League of California Joint Powers Agency (CCLCJPA), and Public Agency Retirement Services (PARS) submitted proposals.
The California Public Employees’ Retirement System (CalPERS) was selected by college Trustees at their November 13, 2012, monthly meeting to manage and invest the college’s OPEB trust. CalPERS is a state agency and does not retain profit from trust operations; it charges a single fee rate that covers all administrative and investment services relating to CERBT. The decision to select CalPERS was based on several key factors, including low single fee rate and investment performance. Operating in a volatile market, the average annual CERBT investment return rate has been 10% for the three year period ending September 30, 2012.
The Agreement and Election of Marin Community College District to prefund OPEB through CalPERS and the Delegation of Authority to Request Disbursements from the Other Post Employment Prefunding Plan were passed by the Board of Trustees on January 15, 2013. As part of the process to integrate into CalPERS’ CERBT, an update of the District’s Actuarial Study of Retiree Health Liabilities through June 2013 was completed by TCS in April 2013.
Trustees voted on June 18, 2013, to approve an investment strategy OPEB Trust in CalPERS CERBT by a vote of 5-1-1. Trustee Conti voted No and Trustee O’Brien was absent.
A copy of the California Employers’ Retiree Benefit Trust Presentation to the Marin Community College District Board on June 18, 2013, is available online.