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  Agenda Item   28.    
City Council Meeting
Meeting Date: 08/17/2021  
FROM: Bill Gallardo

Investment Policy Guidelines for the City of Brea's Other Post Employment Benefits (OPEB) Trust Fund
Review and approve the Investment Guidelines for the City's Other Post Employment Benefits (OPEB) Trust Fund through Public Agency Retirement Services (PARS).
At their May 5, 2020 meeting, the City Council approved the Investment Guidelines as presented for the City's OPEB Trust Program ("Plan") following the Investment Advisory Committee's recommendation of a Moderate Investment Objective. The below chart summarizes the Strategic Asset Allocation for the Moderate Investment Objective:
Strategic Asset Allocation Ranges
Cash Fixed Income Equity
0-20% 40%-60% 40%-60%
Policy: 5% Policy: 45% Policy: 50%

The goal of the Plan's investment program, as identified in the Investment Guidelines, is to provide a reasonable level of growth which will result in sufficient assets to pay the present and future obligations of the Plan. The following objectives are intended to assist in achieving this goal:
  • The Plan should seek to earn a return in excess of its policy benchmark over the life of the Plan; and
  • The Plan’s assets will be managed on a total return basis which takes into consideration both investment income and capital appreciation. While the Plan Sponsor recognizes the importance of preservation of capital, it also adheres to the principle that varying degrees of investment risk are generally rewarded with compensating returns. To achieve these objectives, the Plan Sponsor allocates its assets (asset allocation) with a strategic perspective of the capital markets.
The purpose of the guidelines are to:
  • Facilitate the process of ongoing communication between the Plan sponsor and its plan fiduciaries;
  • Confirm the Plan’s investment goals and objectives and management policies applicable to the investment portfolio identified below and obtained from the Plan sponsor;
  • Provide a framework to construct a well-diversified asset mix that can potentially be expected to meet the account’s investment needs that is consistent with the account’s investment objectives, liquidity considerations and risk tolerance;
  • Identify any unique considerations that may restrict or limit the investment discretion of its designated investment managers; and
  • Help maintain a long-term perspective when market volatility is caused by short-term market movements.
In light of the economic uncertainty of the COVID-19 pandemic, the initial contribution to this Plan was temporarily suspended.  The Plan currently has no assets and the City Council is anticipated to discuss an initial contribution at the Mid-Year Budget Update in February 2022.  Any initial contribution is recommended to be dollar cost averaged over a 12-month period based upon the Investment Advisory Committee recommendation discussed at the April 27, 2020 Investment Advisory Committee meeting.  

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 Other Post Employment Benefits (OPEB) 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 is 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
OPEB Trust Investment Policy Guidelines - Redline Version
OPEB Trust Investment Policy Guidelines - Clean Version

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