AC 10-24-2022 PresentationsAudit Committee Regular Meeting
October 24, 2022
OPEB & Pension Trust Investment
Policies
Background
OPEB Trust
Pension Trust
Investment Policies
CalPERS Update
Comparison of Pension Funding with Neighboring Cities
Agenda
2
Background
State and
CalPERS
Control
Pension Funding Challenges
Underfunded
Pension
System
Volatility Risk
Gives City
Local Control
of Pension
Assets
Solution: Section 115 Trust
Prefunds
Future Pension
Costs
Stabilizes
Volatility in
Pension Costs
Diversifies
Pension Assets
from CalPERS
How is a Pension Plan Funded?
Contributions
Investment
Earnings
Retirement
Benefits
Impact of Investment Returns
Retirement
Benefits
Investment
Earnings
If the investment return is lower than expected …
… the City’s required contributions will increase to cover the shortfall
Contributions
Impact of Discount Rate
Discount Rate
Liabilities, Contributions
Funded Status
Probability of meeting
investment return
OPEB Trust
OPEB Trust
Established FY 2009-10
•$19.3M contributions
•$31.3M* assets
•5.77%* annual return
* As of June 30, 2022 $2.0M$0.9M$1.4M
$8.0M$7.0M
$23.1M
$29.4M
$38.0M
$31.3M$29.8M
Contributions, Disbursements, and Assets
Contributions
Disbursements
Total Assets
OPEB Plan Status
June 30, 2021
Measurement Date
June 30, 2022
Measurement Date
Accrued Liability $28.6M $29.9M
Market Value of Assets $38.0M $31.3M
Unfunded Accrued Liability $(9.4)M $(1.5)M
Funded Ratio 132.8% 104.9%
Pension Trust
Pension Trust
Established FY 2017-18
•$16.0M contributions
•$17.2M* assets
•3.94%* annual return
* As of June 30, 2022
$8.0M
$4.0M
$2.0M $2.0M
$12.7M
$18.5M
$17.2M
$16.4M
Contributions, Disbursements, and Assets
Contributions
Disbursements
Total Assets
80%funded status within 20 years
6.25%discount rate
What is our pension funding goal?
$16.0M
Contributions
$17.2M
Market Value
As of June 30, 2022
$43.9M
$51.8M
$8.0M
$18.5M
$17.2M
$0.0M
$10.0M
$20.0M
$30.0M
$40.0M
$50.0M
$60.0M
2017-18 2022-23 2027-28 2032-33
Progress Towards Pension Funding Goal
5% Investment Return
6.25% Investment Return
Actual Market Value
Investment Policies
Audit Committee Roles and Responsibilities
•Establish, approve, and maintain investment
objectives, guidelines, and policies.
•Appoint Investment Managers
•Monitor investment performance
•Review portfolio’s asset allocation and investment
structure
Investment Manager Roles and Responsibilities
•Manage the day-to-day investment of portfolio in
accordance with investment policy guidelines and
objectives
•Exercise full investment discretion and prudence in
the selection and diversification of investments
•Provide annually to the City’s Audit Committee a
commentary and analysis of investment
performance
Last Year’s Audit Committee Changes
•Prohibiting direct or indirect exposure to
cryptocurrencies
•Prohibiting leveraged securities, other than
registered hedged equity and hedged fixed
income positions
•Limiting registered hedged equity and fixed
income positions to 10% of the portfolio
“Balanced” Investment Objective
Designed to provide
moderate current
income with moderate
growth of capital
Asset Class Range Target
Equities 50%-70%63%
Fixed Income 20%-40%29%
Real Estate 0%-15%5%
Commodities 0%-10%2%
Cash 0%-10%1%
CalPERS Update
CalPERS Plan Status
June 30, 2020
Valuation Date
June 30, 2021
Valuation Date
Accrued Liability $157.6M $168.4M
Market Value of Assets $103.8M $127.1M
Unfunded Accrued Liability $53.8M $41.3M
Funded Ratio 65.9% 75.5%
Investment
Returns
-6.1%
FY 2021-22
6.9%
20-Year
-7.2%-6.1%
3.7%
16.6%
12.3%11.8%
19.1%
-5.1%
-24.0%
13.3%
21.7%
0.1%
13.2%
18.4%
2.4%0.6%
11.2%
8.6%6.7%
4.7%
21.3%
-6.1%
2000-01 2005-06 2010-11 2015-16 2020-21
CalPERS Historical Investment Returns
Annual Investment Return
6.8% Discount Rate
Impact of
Investment
Return
annual costs
increase by$2.0M
in FY 2028-29
$6.9M
$7.7M
$5.0M
$5.9M
$2.9M
$7.9M
$5.2M
$0.0M
$1.0M
$2.0M
$3.0M
$4.0M
$5.0M
$6.0M
$7.0M
$8.0M
$9.0M
2022-23 2027-28 2032-33 2037-38
CalPERS Annual Required Contribution
6.8% Discount Rate
6.8% Discount Rate + FY 2021 Investment Gain
6.8% Discount Rate + FY 2021 Investment Gain
+ FY 2022 Investment Loss
Impact on Contributions (FY 2028-29)
Impact of
Discount Rate
If the discount
rate goes down1%
annual costs
increase by
up to$2.9M
$7.4M
$4.7M
$6.9M
$10.1M
$7.5M
$0.0M
$2.0M
$4.0M
$6.0M
$8.0M
$10.0M
$12.0M
2022-23 2027-28 2032-33 2037-38
CalPERS Annual Required Contribution
7.00% Discount Rate
6.00% Discount Rate
Comparison of Pension Funding with
Neighboring Cities
75%75%77%78%79%81%84%87%
Palo Alto Cupertino Milpitas Gilroy Sunnyvale Campbell Mountain
View
Los Gatos
CalPERS Plan Funded Status (CalPERS Assets)
June 30, 2021
Source: calpers.ca.gov/page/employers/actuarial-resources/public-agency-actuarial-valuation-reports
78%80%81%81%84%86%88%89%
Gilroy Palo Alto Sunnyvale Campbell Mountain
View
Cupertino Los Gatos Milpitas
CalPERS Plan Funded Status (All Pension Assets)
June 30, 2021
Source: calpers.ca.gov/page/employers/actuarial-resources/public-agency-actuarial-valuation-reports
Questions?
Thank you!
October 24, 2022
Treasurer’s Investment Report
Month ending September 30, 2022
Policies
Cash and Investments
Investments
Compliance
Agenda
2
Policies
•California Government Code
•Municipal Code
•Audit Committee Charter
•City Investment Policy
•Pension Trust Investment Policy
•OPEB Trust Investment Policy
Policies
4
Cash and Investments
General
$105,329,003
49%
Special
Revenue
$45,588,397
21%
Debt Service
$2,682,650
1%
Capital Projects
$40,034,177
18%
Enterprise
$12,476,572
6%
Internal Service
$10,453,792
5%
Cash and Investments by Fund Type
Cash
$30,005,583
14%
Cash
Equivalents
$21,059,752
10%
Investments
$148,259,206
68%
Restricted for Pension
$17,240,051
8%
Cash and Investments by Account Type
$216.6M $216.6M
6
Cash and Investments –General Ledger Balance by Fund
As of September 30, 2022
Fund Type
Beginning
Balance Receipts Disbursements
Journal
Adjustments
Ending
Balance
General Fund 107,825,771 7,739,191 (9,681,257)(554,702)105,329,003
Special Revenue 47,075,939 354,490 (1,535,428)(306,605)45,588,397
Debt Service 2,682,650 ---2,682,650
Capital Projects 40,550,898 155 (516,876)-40,034,177
Enterprise 12,974,247 130,548 (664,195)35,972 12,476,572
Internal Service 9,882,836 440 (522,469)1,092,986 10,453,792
Total $220,992,342 $8,224,824 $(12,920,225)$267,651 $216,564,592
7
Beginning Balance Ending Balance % of Portfolio
Cash in banks and on hand
Operating Checking (Wells Fargo)34,386,299 29,966,945 14%
Workers' Compensation Checking (Wells Fargo)33,701 25,305 0%
Payroll Checking (Wells Fargo)--0%
Restricted for Bond Repayments1 (BNY Mellon)8,333 8,333 0%
Petty Cash and Change 5,000 5,000 0%
Cash Equivalents
Local Agency Investment Fund 21,059,752 21,059,752 10%
Investments
Investments (Chandler)148,259,206 148,259,206 68%
Restricted for Pension (PARS)17,240,051 17,240,051 8%
Total Cash and Investments $220,992,342 $216,564,592 100%
Cash and Investments –General Ledger Balance
As of September 30, 2022
1 Cash held by fiscal agent for bond repayments 8
Beginning Balance Ending Balance % of Portfolio
Cash in banks1
Operating Checking (Wells Fargo)34,432,707 31,613,882 15%
Workers' Compensation Checking (Wells Fargo)36,010 25,694 0%
Payroll Checking (Wells Fargo)--0%
Restricted for Bond Repayments2 (BNY Mellon)8,333 8,333 0%
Cash Equivalents
Local Agency Investment Fund 21,099,180 21,099,180 10%
Investments
Investments (Chandler)148,209,503 145,810,488 68%
Restricted for Pension (PARS)17,693,782 16,385,602 8%
Total Cash and Investments $221,479,515 $214,943,179 100%
Cash and Investments –Bank Balance
As of September 30, 2022
1 Unadjusted balance from the bank statement. Does not reflect outstanding checks or deposits in transit.
2 Cash held by fiscal agent for bond repayments 9
Investments
Section 115 Trust
Equities
66%
Fixed
Income
28%
Real Assets
5%Cash
1%
Market Value by Asset Class
Asset Class Range Target
Equities 50%-70%63%
Fixed Income 20%-40%29%
Real Estate 0%-15%5%
Commodities 0%-10%2%
Cash 0%-10%1%
11
Section 115 Trust
As of September 30, 2022
Beginning
Balance Contributions
Earnings/
Losses Expenses Distributions
Ending
Balance
Pension 17,693,782 -(1,302,894)(5,287) -16,385,602
OPEB 32,172,805 -(2,370,361)(9,610)-29,792,835
Total $49,866,587 $-$(3,673,254)$(14,896) $-$46,178,437
Rate of Return *
1-month 3-month 1-year 3-year 5-Year 10-Year
City of Cupertino Pension -7.36%-4.87%-20.38%2.06%--
City of Cupertino OPEB -7.37%-4.85%-20.39%0.86%2.46%4.72%
12*Rate is annualized for periods longer than one year
Local Agency Investment Fund (LAIF)
As of September 30, 2022
Beginning
Balance Deposits
Interest
Earnings* Withdrawals
Ending
Balance
Annual Interest
Rate
LAIF $21,099,180 $-$-$-$21,099,180 0.75%
*Interest is deposited quarterly 13
Investments (Chandler)
As of September 30, 2022
Beginning Value Ending Value
Market Value 148,209,503 145,810,488
Par Value 155,361,549 155,548,714
Book Value 155,316,485 155,475,533
Average Maturity 2.82 years 2.76 years
Average Modified Duration 2.44 2.38
Average Purchase Yield-to-Market 1.56%1.58%
Rate of Return*
3-month 1-year 3-year 5-year 10-year
City of Cupertino -1.96%-6.61%-0.67%N/A N/A
ICE BofA 1-5 Yr US Treasury & Agency Index -2.28%-6.78%-0.97%N/A N/A
14* Rate is annualized for periods longer than one year
Compliance
1.All of the City’s investments are in compliance
with state law and the City’s Investment Policy
2.In compliance with California Government Code
53646 (b)(3), the City has sufficient funds to meet
its expenditure requirements for the next six
months
Compliance
16
Questions?
October 24, 2022
Treasurer’s Report
Month ending September 30, 2022
Policies
Receipts, Disbursements, and Cash
Balance
Revenues, Expenses, and Fund Balance
Agenda
2
•California Government Code
•Municipal Code
•Audit Committee Charter
Policies
3
4
Receipts, Disbursements, and Cash Balance
Beginning Balance Ending Balance
Fund Type Fund Number/Name as of August 31, 2022 Receipts Disbursements Journal Adjustments as of September 30, 2022
General Fund 100 General Fund 107,635,775 7,739,191 (9,681,257) (554,702) 105,139,007
General Fund 130 Investment Fund 189,996 - - - 189,996
Special Revenue Funds 210 Storm Drain Improvement 2,224,465 - (15,579) - 2,208,886
Special Revenue Funds 215 Storm Drain AB1600 1,797,747 2,635 - - 1,800,382
Special Revenue Funds 230 Env Mgmt Cln Crk Strm Drain 1,001,745 482 (110,395) (85,695) 806,137
Special Revenue Funds 260 CDBG 695,474 79,706 (12,699) (291) 762,190
Special Revenue Funds 261 HCD Loan Rehab 221,894 - - - 221,894
Special Revenue Funds 265 BMR Housing 5,691,586 350 (56,839) (37,317) 5,597,780
Special Revenue Funds 270 Transportation Fund 14,192,761 256,317 (990,933) (183,303) 13,274,842
Special Revenue Funds 271 Traffic Impact 718,870 - - - 718,870
Special Revenue Funds 280 Park Dedication 20,459,992 15,000 (348,982) - 20,126,010
Special Revenue Funds 281 Tree Fund 71,405 - - - 71,405
Debt Service Funds 365 Public Facilities Corp 2,682,650 - - - 2,682,650
Capital Project Funds 420 Capital Improvement Fund 28,765,475 155 (516,876) - 28,248,755
Capital Project Funds 427 Stevens Creek Corridor Park 165,031 - - - 165,031
Capital Project Funds 429 Capital Reserve*11,620,392 - - - 11,620,392
Enterprise Funds 520 Resource Recovery 5,875,339 119,834 (94,033) (59,466) 5,841,674
Enterprise Funds 560 Blackberry Farm 1,233,928 1,994 (110,388) 31,272 1,156,806
Enterprise Funds 570 Sports Center 2,266,171 - (337,886) 61,149 1,989,435
Enterprise Funds 580 Recreation Program 3,598,809 8,720 (121,888) 3,017 3,488,657
Internal Service Funds 610 Innovation & Technology 4,129,836 - (278,616) 617,183 4,468,402
Internal Service Funds 620 Workers' Compensation 3,669,107 - (4,221) 93,530 3,758,415
Internal Service Funds 630 Vehicle/Equip Replacement 880,817 440 (116,734) 388,731 1,153,253
Internal Service Funds 641 Compensated Absence/LTD 1,553,910 - (8,408) (2,762) 1,542,740
Internal Service Funds 642 Retiree Medical (350,834) - (114,489) (3,696) (469,019)
Total 220,992,342$ 8,224,824$ (12,920,225)$ 267,651$ 216,564,592$
5
Fund Balances/Net Position
Beginning Fund Balance Ending Fund Balance
Fund Type Fund Number/Name as of August 31, 2022 Revenues Expenditures as of September 30, 2022
General Fund 100 General Fund 96,400,636 4,104,027 11,018,443 89,486,219
General Fund 130 Investment Fund 229,425 - - 229,425
Special Revenue Funds 210 Storm Drain Improvement 2,224,465 - 15,579 2,208,886
Special Revenue Funds 215 Storm Drain AB1600 1,797,747 2,635 - 1,800,382
Special Revenue Funds 230 Env Mgmt Cln Crk Strm Drain 1,014,211 482 184,480 830,213
Special Revenue Funds 260 CDBG 1,302,959 171 12,990 1,290,140
Special Revenue Funds 261 HCD Loan Rehab 221,894 - - 221,894
Special Revenue Funds 265 BMR Housing 5,690,944 350 93,514 5,597,780
Special Revenue Funds 270 Transportation Fund 14,171,105 256,317 1,156,478 13,270,944
Special Revenue Funds 271 Traffic Impact 718,870 - - 718,870
Special Revenue Funds 280 Park Dedication 20,445,582 15,000 334,572 20,126,010
Special Revenue Funds 281 Tree Fund 71,405 - - 71,405
Debt Service Funds 365 Public Facilities Corp 2,682,650 - - 2,682,650
Capital Project Funds 420 Capital Improvement Fund 25,715,685 - 533,299 25,182,385
Capital Project Funds 427 Stevens Creek Corridor Park 165,031 - - 165,031
Capital Project Funds 429 Capital Reserve*11,620,392 - - 11,620,392
Enterprise Funds 520 Resource Recovery 5,242,943 119,834 142,504 5,220,273
Enterprise Funds 560 Blackberry Farm 930,384 54,213 104,591 880,006
Enterprise Funds 570 Sports Center 2,467,115 215,107 142,348 2,539,874
Enterprise Funds 580 Recreation Program 3,259,842 107,103 141,772 3,225,173
Internal Service Funds 610 Innovation & Technology 3,787,537 621,305 288,361 4,120,481
Internal Service Funds 620 Workers' Compensation 2,243,436 109,116 19,807 2,332,745
Internal Service Funds 630 Vehicle/Equip Replacement 2,486,338 392,598 100,979 2,777,957
Internal Service Funds 641 Compensated Absence/LTD 1,553,910 197 11,367 1,542,740
Internal Service Funds 642 Retiree Medical (350,834) - 118,185 (469,019)
Total 206,093,672$ 5,998,455$ 14,419,270$ 197,672,857$
Questions?