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Oxnard committee backs Section 115 trust to fund OPEB and pension liabilities
Summary
The committee recommended that the City Council adopt a resolution establishing a Section 115 trust to fund future OPEB and pension liabilities; staff and consultant said the trust supplements direct CalPERS payments and gives investment flexibility. Committee vote: 3-0.
The Finance and Governance Committee on April 22 recommended that the City Council adopt a resolution to establish a Section 115 trust to prefund future OPEB and pension liabilities and authorized the city manager to execute agreements for a trust administrator, custodian and trustee.
CFO Javier Chargo de Lazaro and consultant Mike Schuster of Schuster Associates explained the trust's purpose: to provide an additional vehicle for prefunding liabilities with greater investment flexibility than CalPERS alone. Schuster said a Section 115 trust offers diversification and tactical options that can complement CalPERS, noting that the city's locally managed defined-benefit enhancements had outperformed CalPERS over the most recent reporting period presented to the committee. "It provides the city with their own flexibility and controls a little bit more of their own destiny than CalPERS," Schuster said.
Committee members asked about account structure, legal constraints and funding plans. Staff clarified that although the master trust permits separate subaccounts (a combined account, a pension account and an OPEB account), the City of Oxnard plans to establish separate accounts for pension stabilization and OPEB so funds are not commingled. Staff and counsel explained that OPEB and pension-stabilization funds must be tracked and used according to their respective legal purposes.
On funding, staff said the city plans an initial and ongoing approach: roughly $250,000 per year aimed at the OPEB trust and, after completing a one-time payment to CalPERS that reduces amortization bases, applying the projected annual CalPERS payment savings (estimated in staff discussion at about $1 million per year in potential savings) into the pension trust over time. Staff cautioned that exact annual contributions will depend on the fiscal surplus and implementation timing.
Some committee members asked for longer-term performance data before relying on outperformance claims. Councilmember Star said one year of excess return is not sufficient to rely on future outperformance; Schuster and staff acknowledged the need to evaluate returns over multiple years and emphasized that the Section 115 trust is one part of a multi-pronged approach that also includes CalPERS payments and other liability-management actions.
The committee voted 3-0 to recommend that council adopt the resolution and authorize trust agreements. Committee member Rodriguez, Committee member Starr and Chair McArthur recorded aye votes.
Why it matters: Creating a Section 115 trust gives the city another tool to prefund liabilities and to smooth pension and OPEB costs over time. Staff characterized the trust as complementary to additional payments to CalPERS rather than a replacement.
What's next: The committee's recommendation will be forwarded to the full City Council for consideration; staff will return with implementation details and proposed contribution schedules as fiscal planning permits.
