Council directs financial analysis of options for Section 115 pension prefunding

Councilmembers asked staff on March 18 to prepare a financial analysis that compares options for investing city reserves, including the use of a Section 115 pension trust, to prefund pension and other post‑employment benefits (OPEB).

Acting Finance Director Maria Luis Olia provided a background on a Section 115 trust—an IRS‑authorized vehicle some local governments use to prefund liabilities—and noted the city previously established a Section 115 trust in 2017 and placed modest funds and earnings there. She presented comparative, historical returns provided by vendors: Local Agency Investment Fund and the Los Angeles County investment pool had relatively modest short‑term returns, while PARS (a common administrator for Section 115 trusts) showed higher multi‑year returns in the materials the city reviewed; Olia warned investment returns can be volatile and that a Section 115 trust restricts those funds to pension or OPEB liabilities.

Councilmembers expressed interest in the potential long‑term benefits of disciplined prefunding but also emphasized caution: investing for higher return carries market risk and funds placed in a Section 115 trust are not available for general‑fund spending. Councilmember Contos asked whether committing funds to a Section 115 trust would reduce capacity to fund other priorities such as public safety; staff said the analysis should model those tradeoffs.

Councilmember Contos moved—and Councilmember Gutierrez seconded—a motion directing staff to conduct a financial analysis comparing investment scenarios and the budgetary implications for the general fund and services. The motion passed unanimously. Staff said it would include scenarios, projected returns, and the effects on reserves and city programs when it returns to council.