To: Board of Supervisors
From: Monica Nino, County Administrator
Report Title: Contra Costa County Post-Employment Health Care Plan Investment Policies
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
APPROVE amendments to the Contra Costa County Post-Employment Health Care Plan Investment Policies and Guidelines, as recommended by the Post Retirement Health Benefits Trust Agreement Advisory Body (No fiscal impact).
FISCAL IMPACT:
No direct fiscal impact.
BACKGROUND:
On December 14, 2010 the Board of Supervisors adopted Resolution No. 2010/579 authorizing the transfer of assets from the County's Post Retirement Health Benefits Trust to the Public Agencies Retirement Services (PARS) Public Agencies Post-Retirement Health Care Plan Trust. In summary, the action authorized adoption of the PARS Trust, authorized the transfer of plan assets held in the County's Post Retirement Health Benefits Trust, directed that future contributions be made to the PARS Trust, and authorized the Plan Administrator (County Treasurer-Tax Collector) to take whatever actions are required to administer the County's PARS plan(s). On February 8, 2011, subsequent Board of Supervisors action fulfilled the final requirement to formally establish an investment policy and guidelines for the investment of the County's other post-employment benefit (OPEB) assets.
As a best practice, the Post-Retirement Health Benefits Trust Agreement Advisory Body periodically reviews and updates the Investment Policies and Guidelines Document, as done in 2011, 2013, 2015, and 2019. For each cycle, considerations are made as to whether: any cleanup language is necessary to clarify meaning and application of the policies and guidelines; new legislation and regulations governing the investment practice of the Plan’s funds have been passed since the last review; asset categories and/or allocations affecting the management and performance of the investment portfolio have been introduced or removed; and there are new circumstances or direction to further guide and/or restrict the investing of funds.
The primary reason now for revising the investment policy statement was the corporate transition of HighMark Capital Management (HighMark). HighMark has served as the investment advisor to the County’s OPEB Plan since the plan’s inception in 2011. In 2022, Union Bank, the parent company of HighMark, was acquired by US Bank NA. On January 1, 2024, HighMark was merged into PFM Asset Management (PFMAM), a subsidiary of Union Bank. With the consolidation of these investment advisory firms, it was necessary to update documentation related to the investment policy statement. As part of the process, the Post Retirement Health Benefits Trust Advisory Body did a full review and revised the investment policy statement as listed below for the Board of Supervisors to consider approval:
1. Page 2: Updated the assumed earnings rate from 6.25% to 6.5%
2. Page 2: Updated the Plan asset level
3. Page 2: Removed the Alternatives asset class investment range
4. Page 2: Removed reference to back-up portfolio manager at PFMAM
5. Page 2: Removed reference to Highmark Capital supervisor
6. Page 2: Updated PFMAM contact information
7. Page 5: Added a requirement to review every three years the appropriateness of policy to achieve the Plan’s stated objectives
8. Page 7: Modified the requirement for reconciliation between custodian and Advisor to be conducted quarterly
9. Page 7: Amended asset categories. Removed alternatives and defined real assets to include REITs and global infrastructure.
10. Page 8: Updated the Plan total fund benchmark
11. Page 8: Updated target benchmark for domestic equity to Russell 3000 Index
12. Page 8: Updated target benchmark for REITs, high-yield fixed income and global infrastructure
13. Page 9: Updated the minimum and maximum investment ranges for the Plan asset mix
14. Page 10: Clarified the ability to purchase agency commercial backed securities municipal fixed income
15. Page 11: Added fixed income parameters related to quality (average effective quality (A-) and duration targeting (+/- 25% of Bloomberg US Aggregate Index)
CONSEQUENCE OF NEGATIVE ACTION:
Failure to approve the adjustment to the investment strategic ranges will have a negative impact on the management and performance of the Plan’s investment portfolio.