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HomeMy WebLinkAboutAgenda Packet - Finance & Human Resources Committee - 01/14/2025FINANCE & HUMAN RESOURCES COMMITTEE JANUARY 14, 2025 East Valley Water District was formed in 1954 and provides water and wastewater services to 108,000 residents within the cities of San Bernardino and Highland, and portions of San Bernardino County. EVWD operates under the direction of a 5­member elected Board. COMMITTEE MEMBERS David E. Smith Governing Board Member Ronald L. Coats Governing Board Member Finance & Human Resources Committee Meeting January 14, 2025 ­ 1:30 PM 31111 Greenspot Road, Highland, CA 92346 www.eastvalley.org PLEASE NOTE: Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection in the District’s office located at 31111 Greenspot Rd., Highland, during normal business hours. Also, such documents are available on the District’s website at eastvalley.org and are subject to staff’s ability to post the documents before the meeting. Pursuant to Government Code Section 54954.2(a), any request for a disability­related modification or accommodation, including auxiliary aids or services, that is sought in order to participate in the above agendized public meeting should be directed to the District Clerk at (909) 885­4900 at least 72 hours prior to said meeting. In order to comply with legal requirements for posting of agenda, only those items filed with the District Clerk by 12:00 p.m. on Wednesday prior to the following Wednesday meeting not requiring departmental investigation, will be considered by the Board of Directors. CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL OF BOARD MEMBERS PUBLIC COMMENTS Any person wishing to speak to the Board of Directors is asked to complete a Speaker Card and submit it to the District Clerk prior to the start of the meeting. Each speaker is limited to three (3) minutes, unless waived by the Chairman of the Board. Under the State of California Brown Act, the Board of Directors is prohibited from discussing or taking action on any item not listed on the posted agenda. The matter will automatically be referred to staff for an appropriate response or action and may appear on the agenda at a future meeting. APPROVAL OF CONSENT CALENDAR All matters listed under the Consent Calendar are considered by the Board of Directors to be routine and will be enacted in one motion. There will be no discussion of these items prior to the time the board considers the motion unless members of the board, the administrative staff, or the public request specific items to be discussed and/or removed from the Consent Calendar. 1.Approve the December 10, 2024 Finance & Human Resources Committee Meeting Minutes INFORMATIONAL ITEMS 2.Review Unfunded Accrued Liability Pension Management Policy 7.8 DISCUSSION ITEMS 3.Set the day and time for holding recurring meetings REPORTS 4.Finance Activities 5.Human Resource Activities ADJOURN FINANCE & HUMAN RESOURCES COMMITTEEJANUARY 14, 2025East Valley Water District was formed in 1954 and provides water and wastewater services to108,000 residents within the cities of San Bernardino and Highland, and portions of SanBernardino County.EVWD operates under the direction of a 5­member elected Board.COMMITTEE MEMBERS David E. Smith Governing Board Member Ronald L. Coats Governing Board Member Finance & Human Resources Committee Meeting January 14, 2025 ­ 1:30 PM 31111 Greenspot Road, Highland, CA 92346 www.eastvalley.org PLEASE NOTE: Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection in the District’s office located at 31111 Greenspot Rd., Highland, during normal business hours. Also, such documents are available on the District’s website at eastvalley.org and are subject to staff’s ability to post the documents before the meeting. Pursuant to Government Code Section 54954.2(a), any request for a disability­related modification or accommodation, including auxiliary aids or services, that is sought in order to participate in the above agendized public meeting should be directed to the District Clerk at (909) 885­4900 at least 72 hours prior to said meeting. In order to comply with legal requirements for posting of agenda, only those items filed with the District Clerk by 12:00 p.m. on Wednesday prior to the following Wednesday meeting not requiring departmental investigation, will be considered by the Board of Directors. CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL OF BOARD MEMBERS PUBLIC COMMENTS Any person wishing to speak to the Board of Directors is asked to complete a Speaker Card and submit it to the District Clerk prior to the start of the meeting. Each speaker is limited to three (3) minutes, unless waived by the Chairman of the Board. Under the State of California Brown Act, the Board of Directors is prohibited from discussing or taking action on any item not listed on the posted agenda. The matter will automatically be referred to staff for an appropriate response or action and may appear on the agenda at a future meeting. APPROVAL OF CONSENT CALENDAR All matters listed under the Consent Calendar are considered by the Board of Directors to be routine and will be enacted in one motion. There will be no discussion of these items prior to the time the board considers the motion unless members of the board, the administrative staff, or the public request specific items to be discussed and/or removed from the Consent Calendar. 1.Approve the December 10, 2024 Finance & Human Resources Committee Meeting Minutes INFORMATIONAL ITEMS 2.Review Unfunded Accrued Liability Pension Management Policy 7.8 DISCUSSION ITEMS 3.Set the day and time for holding recurring meetings REPORTS 4.Finance Activities 5.Human Resource Activities ADJOURN FINANCE & HUMAN RESOURCES COMMITTEEJANUARY 14, 2025East Valley Water District was formed in 1954 and provides water and wastewater services to108,000 residents within the cities of San Bernardino and Highland, and portions of SanBernardino County.EVWD operates under the direction of a 5­member elected Board.COMMITTEE MEMBERSDavid E. SmithGoverning Board Member Ronald L. CoatsGoverning Board MemberFinance & Human Resources Committee MeetingJanuary 14, 2025 ­ 1:30 PM31111 Greenspot Road, Highland, CA 92346www.eastvalley.orgPLEASE NOTE:Materials related to an item on this agenda submitted to the Board after distribution of theagenda packet are available for public inspection in the District’s office located at 31111Greenspot Rd., Highland, during normal business hours. Also, such documents are availableon the District’s website at eastvalley.org and are subject to staff’s ability to post thedocuments before the meeting.Pursuant to Government Code Section 54954.2(a), any request for a disability­relatedmodification or accommodation, including auxiliary aids or services, that is sought in orderto participate in the above agendized public meeting should be directed to the District Clerkat (909) 885­4900 at least 72 hours prior to said meeting. In order to comply with legal requirements for posting of agenda, only those items filed with the District Clerk by 12:00 p.m. on Wednesday prior to the following Wednesday meeting not requiring departmental investigation, will be considered by the Board of Directors. CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL OF BOARD MEMBERS PUBLIC COMMENTS Any person wishing to speak to the Board of Directors is asked to complete a Speaker Card and submit it to the District Clerk prior to the start of the meeting. Each speaker is limited to three (3) minutes, unless waived by the Chairman of the Board. Under the State of California Brown Act, the Board of Directors is prohibited from discussing or taking action on any item not listed on the posted agenda. The matter will automatically be referred to staff for an appropriate response or action and may appear on the agenda at a future meeting. APPROVAL OF CONSENT CALENDAR All matters listed under the Consent Calendar are considered by the Board of Directors to be routine and will be enacted in one motion. There will be no discussion of these items prior to the time the board considers the motion unless members of the board, the administrative staff, or the public request specific items to be discussed and/or removed from the Consent Calendar. 1.Approve the December 10, 2024 Finance & Human Resources Committee Meeting Minutes INFORMATIONAL ITEMS 2.Review Unfunded Accrued Liability Pension Management Policy 7.8 DISCUSSION ITEMS 3.Set the day and time for holding recurring meetings REPORTS 4.Finance Activities 5.Human Resource Activities ADJOURN Agenda Item #1 January 14, 20251 Meeting Date: January 14, 2025 Agenda Item #1 Consent Item 1 3 0 6 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Approve the December 10, 2024 Finance & Human Resources Committee Meeting Minutes RECOMMENDATION That the Finance & Human Resources Committee approve the Finance & Human Resources Committee meeting minutes. DISTRICT PILLARS AND STRATEGIES V - Community Engagement, Advocacy, and Leadership a. Utilize Effective Communication Methods to Foster Exceptional Community Relations FISCAL IMPACT There is no fiscal impact associated with this agenda item. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS December 10, 2024 Minutes Page 1 of 3 5 1 8 Draft pending approval EAST VALLEY WATER DISTRICT December 10, 2024 FINANCE & HUMAN RESOURCES COMMITTEE MEETING MINUTES PUBLIC COMMENTS APPROVAL OF CONSENT CALENDAR INFORMATIONAL ITEMS Page 2 of 3 5 1 8 REVIEW UNFUNDED ACCRUED LIABILITY MANAGEMENT POLICY 7.8 Mr. Flynn with California Municipal Advisors (CalMuni) gave a presentation of the District’s Pension Liability Management, that included a discussion on Unfunded Accrued Liability (UAL). He stated that California Public Employees Retirement System (CalPERS) takes 18- months to evaluate variables affecting the District’s pension plan. Mr. Flynn also discussed the history, current status, and future forecast of pension funding. He recommended that the District’s goal is to be 85% funded in CalPERS and presented UAL mitigation techniques that should be reviewed and considered annually, as part of the District’s budget cycle. The Chief Financial Officer stated that the Unfunded Accrued Liability Management Policy 7.8 will be discussed in more detail at the next regularly scheduled Committee meeting. Information only, no action required. The Finance Supervisor explained procedures prescribed by the State to unencumber stale-dated checks; to keep the funds from escheating to the State. The Committee recommended that the authorization for the Chief Financial Officer to perform procedures prescribed in the Government Code and Code of Civil Procedure for the purpose of unencumbering stale-dated checks to keep from escheating to the State be presented to the full Board of Directors for approval. Information only, no action required. The Finance Supervisor reviewed the Popular Annual Financial Report with the Committee and stated it is a summarized, user-friendly version of the District’s Annual Comprehensive Financial Report. Information only, no action required. The Chief Financial Officer gave updates on the Continuing Disclosure Annual Report for FY 2023-24 and the District Auditors’ contract for next FY 2024-25. Page 3 of 3 5 1 8 HUMAN RESOURCE ACTIVITIES The Director of Administrative Services gave recruitment and emergency preparedness updates. The meeting adjourned at 2:41 p.m. Ronald L. Coats David E. Smith Governing Board Member Governing Board Member Agenda Item #2 January 14, 20251 Meeting Date: January 14, 2025 Agenda Item #2 Informational Item 1 3 0 7 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Review Unfunded Accrued Liability Pension Management Policy 7.8 RECOMMENDATION That the Finance & Human Resources Committee recommend that the Board of Directors approve the attached Unfunded Accrued Liability Pension Management Policy 7.8. BACKGROUND / ANALYSIS The District contracts with the California Public Employees Retirement System (CalPERS) to provide retirement benefits for all full-time employees. As part of the Contract with CalPERS, the District is obligated to pay any unfunded accrued liability (UAL) under each of the Pension Plans. The UAL is the shortfall between the amount that will be necessary to pay benefits already earned by current and former employees covered by CalPERS, and investments held in trust to pay those benefits. CalPERS’ rate of return on the investments held in trust have consistently underperformed expectations over the past 25 years. Missing the target rate of return of 6.5% causes the District’s UAL to vary each year. The District currently budgets a flat amount to bring down the UAL. However, the lower rate of return has reduced the District’s ability to bring down the UAL as desired. A new policy is desired to accommodate the varying CalPERS’ annual rate of return. To better manage the District’s pension plans, staff is recommending the development of a pension management policy (the Pension Management Policy) to, among other things, set forth the following goals and objectives: 1. Establish, attain, and maintain targeted pension plan funding levels; 2. Provide sufficient assets to permit the payment of all Pension Plan benefits; 3. Manage future contribution volatility to the extent reasonably possible; 4. Set forth all possible cost mitigation measures available to the District; 5. Strive to make Annual Discretionary Payments to accelerate UAL pay-down, reduce interest costs, and stabilize future payments; 6. Maintain the District’s sound financial position and creditworthiness; 7. Provide guidance in making annual budget decisions; 8. Create sustainable and fiscally sound future budgets; 9. Demonstrate prudent financial management practices; and Agenda Item #2 January 14, 20252 Meeting Date: January 14, 2025 Agenda Item #2 Informational Item 1 3 0 7 10. Ensure that pension funding decisions protect both current and future stakeholders. In a continued effort to help ensure that any future pension liabilities do not grow to unmanageable levels, staff have worked with California Municipal Advisors (CalMuni) to develop a proposed Pension Management Policy for Board consideration. If approved, the Pension Management Policy would require that any new increase or decrease in the liability resulting from the annual CalPERS actuarial valuation be explicitly identified each year during the budget cycle, and that the District consider making discretionary contributions with District resources (or other legally available resources), with the objectives of increasing each of the Pension Plans funded status, by reducing the unfunded actuarily accrued liability, and reducing ongoing pension costs. The Pension Management Policy will also provide guidance in making annual budget decisions, demonstrate prudent financial management practices, help create fiscally sustainable budgets for pension in future years, and help reassure bond rating agencies and investors that the District is being proactive in the management of its fiscal affairs. DISTRICT PILLARS AND STRATEGIES II - Sustainability, Transparency, and Accountability a. Uphold Transparent and Accountable Fiscal and Resource Management FISCAL IMPACT There is no impact to the current budget. The aspirational targets of the Policy may affect future budget recommendations to be presented to the Board of Directors. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS Unfunded Accrued Liability Management Policy 7.8 EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 1 of 12 Section 1. Purpose The purpose of this Unfunded Accrued Liability Management Policy (the “Policy”) is to strategically address the existing and any future unfunded accrued liability (the “UAL”) associated with the East Valley Water District’s (the “District”) California Public Employees’ Retirement System (CalPERS) pension plans (the “Pension Plans”). This Policy also addresses some of the principal elements and core parameters central to the policy objectives discussed in this Policy. In the development of this Policy, the District strives to reduce its UAL and the associated financing costs in the most cost-efficient and fiscally responsible manner possible. The District is committed to fiscal sustainability by employing long-term financial planning efforts, striving to maintain appropriate reserve levels, and employing prudent practices in governance, management, budget administration, and financial reporting. This Policy is intended to make all relevant information readily available to decision-makers and the public to improve the quality of decisions and transparency, identify policy goals, and to demonstrate a commitment to long-term financial planning. Development of this Policy signals to rating agencies and capital markets that the District is willing to set policies that improve its ability to meet its obligations in a timely manner. The Policy is intended to reflect a reasonable and conservative approach to managing UAL costs associated with the Pension Plans. This Policy recognizes that the Pension Plans are subject to market volatility, and that actual economic and demographic experience of the plans will differ from the actuarial assumptions. Accordingly, it is intended to allow for adaptive responses to changing circumstances, providing flexibility to address such volatility in a financially sound manner. As such, the District will be required to continually monitor its Pension Plans and the corresponding UAL. Section 2. Policy Goals and Objectives The overarching goals and objectives of this Policy are as follows: •Establish, attain, and maintain targeted pension plan funding levels •Provide sufficient assets to permit the payment of all benefits under the Pension Plans EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 2 of 12 •Seek to manage and control future contribution volatility to the extent reasonably possible •Strive to make Annual Discretionary Payments to accelerate UAL pay-down, reduce interest costs, and stabilize future payments •Maintain the District’s sound financial position and creditworthiness •Provide guidance in making annual budget decisions •Create sustainable and fiscally sound future budgets •Demonstrate prudent financial management practices •Ensure that pension funding decisions protect both current and future stakeholders •Create transparency as to how and why the Pensions Plans are funded Section 3. Background and Discussion EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 3 of 12 B. Pension Costs and Liabilities. In order to fund its employees’ pension benefits, the District is required to make contributions (a portion of which may come from the employees) to CalPERS. CalPERS then invests these contributions to generate returns to help fund the pension benefits. The regular required contributions, known as the “Normal Cost,” are calculated as a percent of salaries and represent the annual cost of service accrual for the upcoming fiscal year for active employees. If, for any reason, the actual Pension Plan experience and investment performance fall short of the actuarial assumptions, the Pension Plan can become underfunded, (i.e. the Pension Plan’s Total Accrued Liability exceeds the Plan’s Market Value of Assets). This shortfall is known as the Unfunded Accrued Liability (the “UAL”) and usually has to be covered by the District through a series of UAL Payments, which are above and beyond the “Normal Cost” contributions. The UAL Payments are calculated in total dollar amounts, not as a percent of salaries. EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 4 of 12 amortization bases every year, the Pension Plans must be monitored annually and managed continually – there is no one-time solution. CalPERS has adopted the UAL amortization methods that were meant to help public agencies “ease into” paying for the UAL increases. New UAL amortization bases are implemented incrementally, with a five-year ramp-up period, and at times include additional small increases in each of the subsequent years. The ramp-up period, while reducing the cash flow impact in the near term, increases the overall UAL repayment costs for the District by delaying repayment. Since the UAL balances accrue interest at the rate that is equal to the then current Discount Rate, the delayed payments prior to the commencement of the amortization and the reduced payments during the ramp-up period that do not fully cover the interest costs result in negative amortization, causing further increases to the UAL balance. To help reduce the overall costs of the UAL repayment, this Policy encourages level annual payments (i.e., no ramp-up) whenever possible. Section 4. Policy A. Funding Level Objective. It is the District’s policy to strive to achieve and maintain a Pension “Funded Ratio” (being the ratio by which the Market Value of Assets—as set forth in the most recently published Valuation Report—compares to the Entry Age Normal Accrued Liability or “Total Accrued Liability”—as set forth in the most recently published Valuation Report) for each Pension Plan of 85% (the “Funding Level Objective”). Funding Level Objective = 85% Achieving and maintaining the 85% Funding Level Objective ensures that the ongoing contributions of the District and its employees are properly and adequately funding the retirement benefits of today’s workers. The reason for a Funding Level Objective of 85% rather than 100% is to allow some cushion for the possibility that good investment returns by CalPERS in a given year might push the funded level of a Pension Plan above 100% (commonly referred to as “superfunded status”). The District will strive to manage the 15% differential (i.e., the difference between 85% and 100%) through its own investment process by virtue of a “115 Trust Pension Fund” discussed herein. EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 5 of 12 Guidance: To achieve the Funding Level Objective and ensure compliance with best management practices, this Policy provides the following guidance: 1. Pre-Pay the Entire Annual UAL Payment by July 31st of each year. On or before July 31st of each year, the District receives its annual CalPERS UAL invoice. The District has two payments options. The invoice can (1) be paid in equal monthly increments, or (2) be fully pre-paid at the beginning of the fiscal year by July 31st. By prepaying the entire invoice amount due by July 31st, the District can concurrently save approximately 3.5% compared to making the monthly payments. As such, every effort should be made to pre-pay the UAL payment upon receipt of the annual invoice. 2. Pre-Pay UAL from Reserves, One-Time Revenues and Fund Surpluses. Reserves normally do not earn returns that can offset the interest rate that CalPERS charges on the outstanding UAL balance. Supplemental contributions into the Pension Plans and/or the 115 Trust Pension Reserve Fund (see Section 4C below) from available reserves, one-time revenues and fund surpluses can generate substantial long-term net savings. Each supplemental contribution, referred to by CalPERS as an Additional Discretionary Payment (ADP), reduces the UAL balance, the Annual Required Contributions (ARC) for future years, and the total interest costs associated with the UAL. Therefore, during each budget cycle, the District staff shall review all available reserves, one-time revenues and fund surpluses to determine whether any such funds could be used to make an ADP to pay down the UAL, keeping in mind operational and capital budgetary constraints while maintaining adequate reserves and balancing the fiscal soundness of eliminating the high-interest UAL debt. Every effort should be made to make an ADP during years with added bases to avoid ramp-up periods and the associated costs. ADPs should not adversely affect the general operations and fiscal soundness of the District. 3. Capital Financing. When considering capital improvement projects, staff regularly reviews and plans for reserving cash to fund some or all of these capital improvement projects. When considering how to pay for current and future capital improvement projects, staff should review the current tax- exempt market to assess if it would be more cost effective to borrow at tax- EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 6 of 12 exempt rates to pay for the capital projects and redirect the reserved cash (and/or such other appropriate funds of the District) to make ADPs to CalPERS. If there are projected cost savings by using this method, and a capital financing strategy is to be implemented, the Board would need to approve of the ADPs being paid to CalPERS prior to the financing to ensure that the once reserved capital project funding is applied to UAL paydowns. 4. Utilize Savings Achieved from Refunding Outstanding Non-Pension Related Debt to Pre-Pay UAL. During each budget cycle, the District staff should review all outstanding long-term non- pension related debt of the District to determine whether a refunding of such debt might result in net present value (NPV) savings of greater than 3%, and if so, consider a structure and strategy that frontloads the savings from such debt refunding, which can then be used to pay down the UAL or make a contribution to the 115 Trust Pension Reserve Fund discussed herein. This strategy should only be used if the interest rates on the currently outstanding debt is sufficiently below the then-current Discount Rate to ensure that overall NPV savings of greater than 3% are achieved by the District. 5. Sources of Revenue. All fees, rates and charges should incorporate full allocation of pension costs for employees providing associated services. While some funds cannot contribute more than their fair share, they should not contribute less than their fair share. District staff shall review allocation of labor costs to proprietary and other funds to ensure full reimbursement of the pension cost burden. 6. Pension Obligation Financing. The District shall consider issuing taxable municipal debt obligations (Pension Obligations) to refinance the UAL, in part or in whole, if such bond obligations are expected to produce minimum cash flow savings of at least 8%. Pension Obligations shall not utilize swaps or derivatives of any kind and should be structured with reasonable and flexible call provisions (with a maximum of 10- year call provision). Pension Obligations shall be used only to prepay the UAL liabilities, and shall not be used to finance EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 7 of 12 Normal Cost payments. The issuance of Pension Obligations must be voted upon and approved by the Board. To the extent directed by the Board after due consideration, annual savings achieved by issuing the Pension Obligations should be used to either (i) directly prepay new UAL amortization bases as they arise, (ii) make deposits into the 115 Trust Pension Reserve Fund, (iii) offset operational costs, and/or (iv) fund any other legally permissible activities of the District. 7. Annual Review of the CalPERS Actuarial Valuation Reports and Associated Tasks. The District staff shall review or cause to be reviewed the annual CalPERS actuarial valuation reports once they are made public by CalPERS. The review should focus on identifying the annual changes to each of the Pension Plan’s UAL and quantifying the associated cost implications and the corresponding impact on the Funded Ratio. Staff should annually reach out to the District’s CalPERS actuary to request a calculation of flat payments (rather than ramp-up payments) for all outstanding and new UAL amortization bases. In making ADPs, the District staff shall determine or cause to be determined the optimal application of the ADPs to the outstanding UAL amortization bases to achieve the Funding Level Objective as well as desired budgetary outcomes. EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 8 of 12 B. District Contributions EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 9 of 12 (i.e., UAL and Normal Costs) associated with the District’s Pension Plans in accordance with the goals and objectives set forth in this Policy. 2. Funding the 115 Trust Pension Reserve Fund. (a)Annual Contributions and Other Contributions. The District will endeavor to make Annual Contributions and Other Contributions in the amounts and manner specified in Section 4B above until such time that the 115 Trust Pension Reserve Fund reaches the 115 Trust Pension Reserve Fund Maximum (as outlined in section 4C3 below). (b)Sequestered Savings. Upon the issuance of each series of Pension Obligations, for each of the ensuing ten (10) consecutive years (or such other period of years as deemed appropriate by the Board at the time of any subsequent issuances of Pension Obligations) following such issuance, a fixed dollar amount equal to [50%] (or such other percentage as deemed appropriate by the Board at the time of any subsequent issuances of Pension Obligations) of the “Total Sequestered Savings” (as calculated in the manner set forth below) achieved by issuing Pension Obligations (the “Annual Sequestered Savings Savings”), shall be transferred from the operating fund and deposited into the 115 Trust Pension Reserve Fund until such time that the 115 Trust Pension Reserve Fund reaches the 115 Trust Pension Reserve Fund Maximum (as outlined in section 4C3 below), and thereafter all Sequestered Savings will be directed to a “Pension Obligation Prepayment Fund” which will be established and maintained by the District for the purpose of prepaying any outstanding Pension Obligations. Annual Sequestered Savings = SSP x( UALDS - DS ) Y SSP = Sequestered Savings Percentage UALDS = Scheduled UAL debt service being paid off by the Pension Obligations DS = Total principal amount of Debt Service on the Pension Obligations Y = Number of years to pay back Sequestered Savings EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 10 of 12 Example of Annual Sequestered Savings Calculation A $5M Pension Obligation was issued for the purpose of prepaying UAL. The total UAL debt service (UALDS) paid off with the Pension Obligation was $8,000,000 and the total debt service (DS) on the Pension Obligation is $7,000,000. The District elected to sequester 50% of the total savings over a 10-year period (Y), which in this example results in Annual Sequestered Savings of $50,000. Annual Sequestered Savings = 0.5x( 8,000,000 - 7,000,000 ) 10 = $50,000 3. Operation of the 115 Trust Pension Reserve Fund. All Annual Contributions and Other Contributions that have been directed to the 115 Trust Pension Reserve Fund, along with all applicable Sequestered Savings, shall be used solely for the purpose of making ADP’s (and Normal Cost payments during a Fiscal Hardship, as defined below) to CalPERS for the purpose of achieving and maintaining the Funding Level Objective. With the goal of achieving and maintaining the Funding Level Objective, each year during the budget cycle, District staff shall calculate, or cause to be calculated, the upcoming Fiscal Year’s estimated Funded Ratio by taking into account the most recent Valuation Report’s statement of Funded Ratio and adjusting for the estimated UAL amortization base that will be either added or subtracted due to the prior Fiscal Year’s investment result of either exceeding or falling short of the then current Discount Rate for that Fiscal Year (the “Estimated Funded Ratio”). If the Estimated Funded Ratio is estimated to be less than the Funding Level Objective, to the extent funds are available in the 115 Trust Pension Reserve Fund, the appropriate member of staff shall either make, or shall direct the Investment Manger to make, an ADP to CalPERS in the amount necessary to bring the Funded Ratio back up to the Funding Level Objective. Additionally, if sufficient funds are available in the 115 Trust Pension Reserve Fund, staff shall assess whether to fully amortize any new UAL amortization bases to reduce the long-term interest costs associated with the “ramping” procedures used by CalPERS. EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 11 of 12 Except in the case of a Fiscal Hardship, as defined below, moneys in the 115 Trust Pension Reserve Fund shall not be used to pay Normal Costs until such time as the amount therein, when combined with the Market Value of Assets (as set forth in the most recently published Valuation Report) exceeds the 115 Trust Pension Reserve Fund Maximum. To the extent monies in the 115 Trust Pension Reserve Fund on June 30th exceed the 115 Trust Pension Reserve Fund Maximum (after consideration has been given to the amounts therein required to be paid to CalPERS for the ensuing Fiscal Year to maintain the Estimated Funded Ratio at or above the Funding Level Objective), any accrued surplus over [108]% may be used to offset the District’s Normal Cost payment made to CalPERS in such Fiscal Year, and any applicable Sequestered Savings will be directed to the Pension Obligation Prepayment Fund. 4. Fiscal Hardship. “Fiscal Hardship” means an economic hardship, or other unanticipated fiscal emergency, that has been declared by resolution of the Board. D. Transparency and Reporting. Funding of the Pension Plans should be transparent to all stakeholders, including plan participants, annuitants, the Board, and District residents. To achieve this Policy objective, copies of the annual actuarial valuation reports for each Pension Plan shall be made available to the Board, and shall be posted on the District’s website. The District’s audited financial statements shall also be posted on the District’s website because they include, among other things, information on the District’s current and future annual Pension Plan contributions as well as the funded status of each Pension Plan. E. Annual Budget to Contain Policy Directed Information. The District’s annual operating budget shall consider the items specified in this Policy for inclusion in each such annual budget. F. Review of Policy. Funding a defined benefit pension plan requires a long-term horizon planning approach. This Policy is intended to provide general objectives and guidelines, which will require periodic review to consider changes in the District’s financial position and Pension Plan funded status over time. As such, the District staff will review this Policy for implementation of new best practices and will provide such EAST VALLEY WATER DISTRICT Policy Title: Unfunded Accrued Liability Management Policy Original Approval Date: January 22, 2025 Last Revised:Policy No: 7.8 Page 12 of 12 proposed changes to the Board for adoption on an as needed basis, not to exceed 5 years. Agenda Item #3 January 14, 20251 Meeting Date: January 14, 2025 Agenda Item #3 Discussion Item 1 3 0 8 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Set the day and time for holding recurring meetings RECOMMENDATION That the Finance & Human Resources Committee set the day and time for holding recurring meetings. DISTRICT PILLARS AND STRATEGIES V - Community Engagement, Advocacy, and Leadership a. Utilize Effective Communication Methods to Foster Exceptional Community Relations FISCAL IMPACT There is no fiscal impact associated with this agenda item. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS No Attachments