West Covina explores Section 115 pension trust for improved returns and reduced liabilities

During the recent West Covina City Council meeting on March 18, 2025, city officials discussed the potential establishment of a Section 115 pension trust, a financial tool aimed at pre-funding post-employment benefits and pension liabilities. This discussion comes as the city seeks to enhance its financial stability and manage its pension obligations more effectively.

The Section 115 trust is designed to provide a savings mechanism for various post-employment benefits, including health, vision, and dental care for retirees. Currently, West Covina has a modest balance in its existing trust, which was established in 2017 with an initial transfer of $312,000. Over the years, the trust has seen limited growth, with recent figures showing a balance of approximately $19,000 as of January 2023.

City officials highlighted the advantages of a Section 115 trust, noting that many local governments have successfully utilized this tool to achieve higher investment returns compared to traditional options. For instance, while local agency investments have yielded around 4% in the past year, the trust could potentially offer returns closer to 12%, albeit with some volatility.

Council members expressed interest in the long-term benefits of maintaining funds within the trust rather than reallocating them to the general fund. By allowing the trust to grow, the city could reduce its pension liabilities, ultimately freeing up resources for other community needs, such as public safety.

However, the council also acknowledged the challenges associated with committing funds to the trust. Some members raised concerns about how this might impact the city’s ability to invest in essential services, including hiring more police officers. The discussion emphasized the need for a balanced approach, ensuring that while the city seeks higher returns, it also prioritizes the safety and stability of its investments.

As part of the city's ongoing financial strategy, officials plan to review their cash and fund balance during the upcoming budget process. They will also consider issuing a request for proposals for investment management services to optimize the city’s overall portfolio.

The meeting underscored West Covina's commitment to addressing its financial obligations while ensuring that the needs of the community remain a top priority. As the city navigates these financial decisions, residents can expect continued discussions on how best to manage public funds for the benefit of all.