FROM: Debby Cherney, Chief Executive Officer
SUBJECT: General Policy No. 010 (Pre-Funding of Contributions)
RECOMMENDATION:
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Recommend that the Board approve and adopt updates to General Policy No. 010 (Pre-Funding of Contributions); Recommend that the Board establish a pre-funding discount rate of 0.66% for Fiscal Years 2027, 2028, and 2029.
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BACKGROUND:
General Policy No. 005 involves the periodic review of Board Policies and indicates that the review shall be every three years.
Pursuant to General Policy No. 005, staff has conducted a review of General Policy No. 010 (Pre-Funding of Contributions). This policy was originally adopted in 2006, and has remained largely unchanged in the intervening years as the Board has regularly reviewed the policy.
Embedded within the policy is a discount rate to be used in the event that an employer desires to fund all or part of their estimated employer contributions at the beginning of the fiscal year. That rate has been set at the SBCERA assumed rate of return less 50 basis points; the 50 basis points (bps) were established by a study done at the time the policy was initially adopted, and is intended to make SBCERA neutral between pre-funding and regularly scheduled funding throughout the fiscal year.
Staff worked with Russell Investments to calculate whether the imputed costs of the pre-funding are still in line with the original study. Russell prepared an analysis which is attached as Exhibit A. Their finding is that, on average, the difference is 66 bps. Accordingly, the current policy setting the maximum of 50 bps is not adequate.
Staff recommends that General Policy No. 010 (Pre-Funding of Contributions) be updated to incorporate a study, performed every three years, to establish the appropriate discount rate. This rate would then be applied for the next three fiscal years, and communicated to all of the SBCERA Participating Employers. Staff further recommends that Board estab...
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