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Solvang council adopts PARS Section 115 trust to prefund pension and retiree health costs
Summary
The council voted 4-0 Aug. 11 to authorize a PARS Section 115 trust, move OPEB assets from CalPERS, appoint a plan administrator and require council review of the investment strategy; staff will present investment choices and an implementation plan at a follow-up meeting.
The Solvang City Council voted 4-0 on Aug. 11 to adopt Resolution 25-1302 authorizing participation in a PARS Section 115 trust to prefund pension liabilities and other postemployment benefits (OPEB) and to transfer existing CalPERS CERBT assets into that trust.
The council adopted the resolution after a presentation from Rachel Sanders of PARS and related discussion with city staff. The measure authorizes establishing a PARS trust account for pension and OPEB, appoints a plan administrator to execute trust documents, and adopts a funding policy. The council added direction that it will review and approve the investment strategy recommended by the plan administrator.
Why it matters: Council and staff described the move as a tool to gain local control over prefunding pension and retiree-health liabilities and to seek a higher net return than the city currently receives through CalPERS investments. City staff projected sharply rising CalPERS contribution requirements over the coming years and presented a plan to prefund with a separate trust as one way to smooth future budget impacts.
City finance staff said the city has budgeted up to $500,000 as an initial contribution to the trust and will consider future annual contributions at a level not to exceed that amount year to year, depending on available reserves. The adopted motion directs staff to bring a near-term report showing recommended investment allocations and the mechanics for transferring approximately $1.3 million in CalPERS OPEB assets into the PARS trust.
Rachel Sanders, PARS (presentation): “PARS is the pioneer of this program,” Sanders said, describing PARS’s IRS approval for Section 115 trusts and its partners, US Bank (trustee) and PFM Asset Management (investment manager). Sanders said PARS offers a range of five model investment strategies from conservative to capital appreciation, and noted the difference between active and passive fund structures.
Council discussion focused on governance and oversight. Council member Elizabeth Arona said she favored council review of the selected risk tier and an annual report; City Manager Randy Murphy (plan administrator by resolution) confirmed staff will bring recommended allocations back to council and work with the portfolio manager on implementation. Murphy told the council the trust structure allows the city to hold prefunded assets locally while continuing required CalPERS contributions.
The council adopted the resolution with a 4-0 roll-call vote; Mayor Pro Tem Claudia Arona was absent.
What comes next: Staff will return with recommended investment allocations, a schedule and instructions for the transfer of CalPERS OPEB assets into the PARS trust, and the plan administrator’s proposed implementation steps. The council instructed staff to present the investment strategy for council approval.
Votes at a glance: Resolution 25-1302 — Authorize PARS Section 115 trust, transfer CalPERS CERBT assets, adopt pension/OPEB funding policy. Motion adopted 4-0 (Council members Infante, Smith, Elizabeth Arona and Mayor Dave Brown voting yes; Mayor Pro Tem Claudia Arona absent).
