Coalition Urges Against a Free Trust Fund for the City Employees.
On February 14, 2017, Glendale City Manager is recommending the establishments of a “Pension Stabilization Fund.” An additional layer of insurance for city employee pensions for which Glendale gets nothing in return.
A Pension Stabilization Fund is an irrevocable trust. An account setting aside funds only for the purpose and the benefit of city employees pensions. This trust fund can not be used for any other purpose and can not be taken back. These trusts have come into fashion recently because of CALPERS low returns but also because of failed cities that have filed bankruptcies and attempted to strip pension obligations.
Irrevocable trust are asset protection tools. Their primary purpose is to set aside funds that can not be reached by creditors of the city at any time. Even in bankruptcy. Funding this trust fund provides an additional layer of protection to pensions to the detriment of the cities total assets and all other obligations. Glendale gets nothing in return from the city employees for this extra level of insurance.
At this point in time, the fate of Glendale is intertwined with its pension obligations to city employees. In essence we are all in it together, we will all sink or swim together. Everybody has an interest in resolving the pension crisis that Glendale faces. The city, the residents, and the employees if they want to be assured that their retirement will survive in the next 20 years.
The promised returns stated by the report does not make it clear that the funds must stay untouched through out the life of the trust. If funds are withdrawn in a particular year to “stabilize” an annual payment, then that amount will not be available to earn investment returns.
In practice, returns can be eaten away by fees unless the fund is continually funded on an ongoing basis. So you can be assured every year staff will try to put more money in this fund. Even CALPERS recommendation on this issue also states that continual funding is needed and also that all stakeholders should have input in the establishment. (see below CALPERS Feb 16, 2017, recommendation)
The promised return of 5% or 6% are average returns over many years and carry the same disclaimer as any other investments “Past returns is not guarantee for future results”. Below is an additional white paper that states continual funding is needed if return on investment is expected.
There is no rush to adopt this fund. I urge you to not take the recommendation of staff, who happen to be the beneficiaries of this trust. Spending this $24 million now is a free give away without getting anything for the city.
Coalition urges council members to think long term, and consider who will be paying these pensions in the future. If this is something the city employees would like to have to protect their pensions, maybe we can get all stake holders together and start a conversation towards a real solution to the cities pension problem.
