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Investment Policy Guidelines for the City of Brea's Employee Benefits Fund Pension Plan
Review and approve the Investment Policy Guidelines for the City of Brea’s Employee Benefits Fund Pension Plan through Public Agency Retirement Services (PARS).
On November 17, 2015, the City Council approved participation within the Public Agencies Post-Employment Benefit Trust Program that established the City of Brea's Employee Benefits Fund Pension Plan ("Plan"). The Plan is administered by Public Agencies Retirement Services (PARS) to assist the City in "pre-funding" its pension obligations in an irrevocable Section 115 Trust account. Some of the benefits of participating in the program are summarized below:
City maintains oversight of investment management and control over the risk tolerance level of the portfolio;
Assets held in the PARS Section 115 Trust account allow for greater investment flexibility and risk diversification compared to the City's General Fund investments;
Assets could be accessed to offset unexpected CalPERS rate increases (rate stabilization);
Potential to improve an agency's bond rating; and
Flexibility to access assets at any time as long as it is used to pay employer's pension obligations.
The investment strategies for these assets are defined within the City's Investment Policy Guidelines that were developed and evaluated by PARS, HighMark Capital Management (the Plan’s Investment Advisory Firm) and the City's Investment Advisory Committee (IAC). The purpose of the Investment Policy Guidelines is to facilitate communication and confirm the City's investment objectives for the Plan. It also helps maintain a long-term perspective when market volatility is caused by short-term market movements. The policy also details the Plan's Trustee, the Investment Manager and the Investment Advisory Committee's roles and responsibilities.
On January 19, 2016, the City Council adopted the City’s Investment Policy Guidelines for the Plan and confirmed the Investment Advisory Committee's recommendation of selecting the “Balanced” Asset Allocation Strategy of the five strategies offered by the Plan’s Investment Advisory Firm, HighMark Capital Management. This strategy provides growth of principal and income on the long term horizon.
On June 26, 2021, the Investment Advisory Committee, including PARS and HighMark Capital Management, reviewed the Investment Policy Guidelines and recommended providing minor clarifying language under the responsibility of the Investment Manager. This provides consistent language as what is presented in the City/Successor Agency Investment Policy.
The recommendation is to amend the Investment Policy Guidelines for the City of Brea's Employee Benefits Fund Pension Plan Trust Fund to expand the Investment Manager's responsibility to include or amend the following:
Communicate to the City Council, the Investment Advisory Committee, City Treasurer and the Administrative Services Director when investment portfolios demonstrate low performance, if any, which occurs between each periodic report; and
If a security owned by the City is downgraded to a level below the requirements of this policy, making the security ineligible for additional purchases, the following steps will be taken:
Any actions taken related to the downgrade by the investment manager will be communicated to the City Council, the Investment Advisory Committee, City Treasurer and the Administrative Services Director within two (2) business days.
If a decision is mde to retain the secuity, the credit situation will be monitored and reported to the City Council.
This change is incorporated as part of the 2021 annual review and no other changes are recommended at this time. For ease of reference, both the redline version and clean version with the recommended changes are attached.
On July 26, 2021, the Investment Advisory Committee reviewed the Investment Policy Guidelines and recommended for City Council approval.
There is no fiscal impact for approving the Investment Policy Guidelines.
William Gallardo, City Manager
Prepared by: Alicia Brenner, Senior Fiscal Analyst
Concurrence: Cindy Russell, Administrative Services Director
Pension Trust Fund Investment Policy Guidelines - Redline Version
Pension Trust Fund Investment Policy Guidelines - Clean Version
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