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Desert Hot Springs council establishes Section 115 trust to prefund pension liabilities
Summary
The council unanimously adopted a resolution to establish a Section 115 trust administered by PARS with US Bank as trustee and PFM Asset Management as investment manager, a tool intended to smooth future CalPERS contribution volatility.
The Desert Hot Springs City Council unanimously approved a resolution on Feb. 18 to establish an IRS Section 115 trust designed to prefund the city’s pension liabilities.
Ryan Nasio, senior vice president with Public Agency Retirement Services (PARS), told the council PARS would administer the trust, US Bank would serve as trustee and custodian, and PFM Asset Management would serve as investment manager. Nasio said there is no setup cost and that implementation begins once the council adopts a resolution and the city signs related documents; fees are charged only after assets are placed in the trust. Sample fees discussed included an initial asset-based fee for PARS (quarter of 1%) plus asset fees for trustee and investment management that can vary by asset level.
Nasio emphasized that contributions to the Section 115 trust are intended to be made in addition to, not instead of, the city’s required annual CalPERS contribution; the trust is a locally controlled vehicle the city can tap to smooth future employer contribution volatility and potentially earn a higher return than keeping additional assets in the general fund. Presentation slides cited recent pension contribution pressures and projected employer-contribution increases in coming years as context for the tool.
Council members moved and seconded a motion adopting the resolution and authorizing the City Manager to execute implementing documents; the motion passed unanimously. Staff will coordinate with PARS and PFM on account setup and investment policy work following the vote.
