REPORT TO COUNCIL
SUBJECT
Title
Approve Amendment 1 to the Pension Trust Agreement with PFM Asset Management, LLC for the Sunnyvale Post-Employment Pension and Retiree Healthcare Benefits Program and Consent to the Assignment from PFM Asset Management LLC to U.S. Bancorp Asset Management Inc. for the Pension Trust Agreement for the Sunnyvale Post-Employment Pension and Retiree Healthcare Benefits Program
Report
REPORT IN BRIEF
Approval is requested to execute the amendment to the existing Pension Trust Agreement with PFM Asset management for a lower fee schedule to manage City’s Post-Employment Pension and Retiree healthcare Benefits program. Additionally, approval is requested to accept the assignment to transfer the trust agreement from PFM Asset Management LLC to U.S. Bancorp Asset Management Inc as the City’s investment advisor.
EXISTING POLICY
Pursuant to Section 2.08.040 of the Sunnyvale Municipal Code, Council approval is required for the procurement of goods and/or services greater than $250,000 in any one transaction.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378 (b) (4) in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
BACKGROUND AND DISCUSSION
On May 8, 2018, the City Council approved for the City to execute a Post-Employment Benefits Trust Agreement (Attachment 4) with PFM Asset Management, LLC (PFMAM) for the Sunnyvale Post-Employment Pension and Retiree Healthcare Benefits Programs. In Section VI(e) of the 2018 agreement, City agreed to pay for the Trust Administration Fees as follows:
|
Investment Advisory Fee Schedule |
|
|
First $50 million in net assets |
0.28% |
|
Over $50,000,000 |
0.20% |
In January 2021, PFMAM offered a lower fee structure to the City due to the longstanding partnership. PFMAM was able to provide a lower fee schedule as follows:
|
Investment Advisory Fee Schedule |
|
|
First $25 million in net assets |
0.30% |
|
Next $75million in net assets |
0.15% |
|
Next $200 million in net assets |
0.10% |
|
Thereafter |
0.02% |
In addition, on July 23, 2021, PFMAM notified the City that the holding company of the PFMAM and its affiliates entered into a definitive agreement to sell PFMAM and other associated entities to U.S. Bancorp Asset Management Inc. (USBAM) (Attachment 2 and 3). This transaction is expected to close near the end of calendar year 2021. The City’s investment advisory contract with PFMAM allows assignment only upon City’s consent.
FISCAL IMPACT
The City has about $160 million in investment assets with PFMAM in the Pension and OPEB programs. The City would have paid about $360,000 for the investment fee with the original fee structure. With the new few fee structures, City’s annual fee is about $247,000 and a saving of $112,000 annually.
Regarding the USBMA acquisition of PFMAM, the City staff does not anticipate any service disruptions or changes to our primary service team for the acquisition. There is no fiscal impact on the City.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City's official-notice bulletin board outside City Hall, Sunnyvale Public Library and Department of Public Safety. In addition, the agenda and report are available at the Office of the City Clerk and on the City's website.
RECOMMENDATION
Recommendation
Take the following actions:
- Authorize the City Manager to execute the First Amendment to the Post-Employment Benefits Trust Agreement with U.S. Bank National Association and PFM Asset Management LLC; and
- Execute the Consent to Deemed Assignments of Investment Advisory Agreements for the OPEB Trust and Pension Program Trust from PFM Asset Management LLC to U.S. Bancorp Asset Management Inc.
Staff
Prepared by: Inderdeep Dhillon, Finance Manager
Prepared by: Grace Zheng, Assistant Director of Finance
Reviewed by: Tim Kirby, Director of Finance
Reviewed by: Jaqui Guzmán, Deputy City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. Draft First Amendment
2. OPEB Trust Consent Letter
3. Pension Program Consent Letter
4. Post-Employment Benefits Trust Agreement