Chapter 3.52

FEDERATED RETIREE HEALTH CARE TRUST FUND

Parts:

• 1 Definitions

• 2 Trust Establishment and Purpose

• 3 Deposits and Disbursements from the Trust Fund

• 4 Accounts and Investments

• 5 Composition, Powers and Duties of the Trustees

• 6 Accounting and Recordkeeping 7 Amendment and Termination

• 8 Miscellaneous

Part 1

3. By direct charge to the participants or any combination of the above.

(Ords. 24061, 26541, 30536.)

DEFINITIONS

Sections:

• 3.52.010 Definitions - rules of construction.

• 3.52.020.01 "Administrator."

The eligibility for and requirements of a conforming domestic relations order are as described in the Basic Plan Document. (Ords. 26541, 30536.)

• 3.52.020.02 "Custodian."

• 3.52.020.03 "Dependent."

• 3.52.020.04 "Governmental accounting standards board" or "GASB."

• 3.52.020.05 "GASB 43."

• 3.52.020.06 "GASB 45."

The amendments to the plan made by the urgency ordinance adopted December 18, 2001, were made to implement provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). In the event the EGTRRA provisions implemented by the urgency ordinance terminate, expire or are repealed, the amendments made by the urgency ordinance shall be deemed terminated, expired or repealed to the extent necessary to conform this plan to the requirements of Internal Revenue Code Section 457.

(Ord. 26541.)

• 3.52.020.07 "Health and welfare benefit."

• 3.52.020.08 "Investment fund."

• 3.52.020.09 "Investment manager."

• 3.52.020.10 "IRC."

• 3.52.020.11 "OPEB obligation."

• 3.52.020.12 "Plan."

• 3.52.020.13 "Property."

• 3.52.020.14 "Regulation."

• 3.52.020.15 "Retiree."

• 3.52.020.16 "Trust."

• 3.52.020.17 "Trust fund."

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§ 3.52.010

Unless the context otherwise requires, the definitions and general provisions set forth in this Part 1 govern the construction of Chapter 3.52. (Ord. 28914.)

"Administrator" means the director of the retirement services department of the City of San José.

(Ord. 28914.)

"Custodian" means a bank, mutual fund, savings and loan association, insurance company or other qualified entity selected by the trustees, to hold and administer the assets of the trust fund. (Ord. 28914.)

"Dependent" means a surviving spouse, surviving domestic partner, or surviving child, who is entitled to medical benefits under Section 3.28.1960 and/or dental benefits under Section 3.28.2010. (Ord. 28914.)

post retirement health benefits that are required to be provided in the plan's annual financial reports pursuant to Governmental Accounting Standard Board Statement No. 43, as said statement is in effect on July 1, 2011. (Ord. 28914.)

"GASB 45" means the estimates of total liability and annual employer required contribution for post retirement health benefits that are required to be provided in the city's annual financial reports pursuant to Governmental Accounting Standard Board Statement No. 45, as said statement is in effect on July 1, 2011. (Ord. 28914.)

"Health and welfare benefit" means a medical, prescription drug, or dental benefit, including a premium subsidy for the same, which is considered a post-retirement benefit other than pension under GASB 43 and/or GASB 45. Such a benefit is limited to medical care expenses, including premium subsidies as defined by IRC Section 213(d), which have been approved by the city council. (Ord. 28914.)

"Government accounting standards board" or "GASB" means the organization funded and monitored by the Financial Accounting Foundation (FAF), or successor organization, whose main purpose is to improve and create accounting reporting standards or generally accepted accounting principles (GAAP), which make it easier for users to understand and use the financial records of both state and local governments. (Ord. 28914.)

"GASB 43" means the estimates of total liability and annual employer required contribution for

"Investment fund" means an investment fund that forms part of the trust fund as established by the trustees. (Ord. 28914.)

"Investment manager" means an investment manager selected by the trustees or a delegatee of the trustees as authorized by Section 3.52.420. (Ord. 28914.)

"IRC" means the Internal Revenue Code of 1986, as amended. (Ord. 28914.)

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§ 3.52.020.20

"OPEB obligation" means the obligation for post-employment benefits other than pension benefits as defined under GASB 43 and/or GASB 45. (Ord. 28914.)

"Plan" means the health plan or plans in which retirees and dependents may participate in order to obtain health and welfare benefits pursuant to Parts 16 and 17 of Chapter 3.28. (Ord. 28914.)

"Property" refers to any property, real or personal, or partial interests therein, wherever situated, including, but not limited to, preferred and common stocks, shares of investment companies, bonds, notes, debentures and mortgages, equipment trust certificates, investment trust certificates, interests in limited liability companies, in partnerships whether limited or general or in any insurance contract, policy, annuity, or other investment media offered by an insurance company, in which trust assets may be invested pursuant to California law. (Ord. 28914.)

"Regulation" means a policy, procedure, rule or regulation adopted by the trustees, establishing administrative procedures for the administration of the trust.

(Ord. 28914.)

"Trust fund" means all such money, property, and all investments made therewith and proceeds thereof and all earnings and profits thereon, less payments made by the trustees as authorized in this chapter, which trust fund shall be known as the federated city employees health care trust fund. (Ord. 28914.)

"Trust year" means the twelve-month period beginning each July 1 and ending the following June 30 on which the books and records of the trust are maintained.

(Ord. 28914.)

"Trustees" means the board of trustees as set forth in Section 3.52.400. (Ord. 28914.)

Words used herein in the masculine gender shall be construed to include the feminine gender where appropriate, and words used herein in the singular or plural shall be construed as being in the plural or singular where appropriate. Accounting terms and principles used herein or applicable hereto shall be as defined and described from time to time by pronouncements and other guidance of the governmental accounting standards board ("GASB"), or any successor organization. (Ord. 28914.)

Part 2

"Retiree" means a former employee of the city who is retired and is entitled to health and welfare benefits under the plan as described in Parts 16 and 17 of Chapter 3.28.

(Ord. 28914.)

"Trust" means the trust created and established by this chapter. (Ord. 28914.)

TRUST ESTABLISHMENT AND PURPOSE

Sections:

• 3.52.100 Trust established - Name - Purpose.

• 3.52.110 Trust fund. 3.52.120 Exclusive benefit. 3.52.130 Taxation. 3.52.140 Group trust.

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§ 3.52.100

• A. There is hereby established an irrevocable trust, which shall be known as the federated city employees health care trust, to:

  1. Receive contributions made by the city on or after July 1, 2011, for the purpose of providing a funding source for the payment of medical benefits described in Part 16 of Chapter 3.28, the dental benefits described Part 17 of Chapter 3.28 of this title.

  2. Receive contributions made by employees on or after June 24, 2012 for the purpose of providing a funding source for the payment of medical benefits described in Part 16 of Chapter 3.28, the dental benefits described Part 17 of Chapter 3.28 of this title and any other health and welfare benefits and any other postemployment benefits other than pensions as approved by city.

  3. Make distributions from the trust fund for the health and welfare benefits provided for in the plan and for the reasonable expenses of administering the trust and the plan.

• B. Participation in, and any coverage under, the trust shall not constitute nor be construed as a commitment to provide a specific type or level of benefit; nor shall the trust constitute a specific, accrued or vested benefit for any specific employee, retiree, or dependent.

• C. The city intends that the income accruing to the trust shall be excluded from city income for tax purposes, as such trust income is derived from the exercise of an essential governmental function as provided for under Section 115(1) of the IRC, Revenue Rulings 77-261 and 90-74, and other relevant guidance.

• (Ords. 28914, 29066.)

The trust has exclusive authority and control over the administration and management of the trust fund, the investment of trust assets, and dis-

bursements from the trust fund. The trustees shall receive and accept for the purposes hereof all contributions described herein and shall hold, invest, reinvest, manage, administer, and distribute property and the increments, proceeds, earnings, and income solely to meet OPEB obligations and to fund health and welfare benefits under the plan as described herein. (Ord. 28914.)

• A. This trust is created for the sole and exclusive purpose of funding health and welfare benefits for retirees and dependents under the plan. No portion of the principal or income of this trust shall revert to the city except in a manner consistent with the irrevocability of contributions under the IRC and GASB 43 and/or GASB 45, or shall be used for or diverted to any purpose other than meeting the city's obligations to provide the health and welfare benefits described in Parts 16 and 17 of Chapter 3.28 and any other health and welfare benefits as approved by the city council and the payment of reasonable expenses of the plan and the trust. Trust assets shall not be used to satisfy the claims of any creditor of the city or the trustees.

• B. At no time shall any part of the trust fund be used for, or diverted to, purposes other than for the exclusive purpose of funding health and welfare benefits for retirees and their eligible dependents, as applicable, as provided herein and under the plan and for defraying the reasonable expenses of administering the trust and the plan. No part of the trust's net earnings may inure to the benefit of a private person. Private parties do not participate in, or benefit from, the operation of the trust.

• C. All investments, receipts, disbursements, and other transactions thereunder may be maintained in a common account, which contributions shall be used solely for the payment of benefits, expenses and other charges properly allocable to the trust.

• (Ord. 28914.)

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§ 3.52.220

The trust provides no guaranty that payments or reimbursements to employees, former employees, retirees, or dependents will be tax-free. The trustees may obtain a ruling from the Internal Revenue Service concerning the federal tax treatment of the trust's income. The ruling concerning federal tax treatment of the trust's income may not be cited or relied upon by the city whatsoever as precedent concerning any other matter relating to the city's health plan(s) (including post-retirement health plans). The trustees and the city may also obtain a ruling from the Internal Revenue Service concerning whether contributions to the city's health plan(s) and/or payments from the city's health plan(s) (including reimbursements of medical expenses) are excludable from the gross income of employees, former employees or retirees, under the IRC. (Ord. 28914.)

The trust fund may participate under Section 401(a)(24) of the IRC in a qualified group trust that meets the requirements of Section 401(a) of the IRC in accordance with Revenue Ruling 81-100, as amended by Revenue Rulings 2004-67 and 2011-1, or other relevant guidance. (Ord. 28914.)

Part 3

DEPOSITS AND DISBURSEMENTS FROM THE TRUST FUND

Sections:

• 3.52.200 Trust deposits.

• 3.52.210 Sub-trusts and accounts.

• 3.52.220 Trust payments.

• A. The trustees hereby delegate to the administrator the responsibility for accepting contributions to the trust, remitting said contributions to the custodian, and paying benefits as described herein from the trust fund. The ad-

ministrator is also responsible for crediting the deposits to the appropriate sub-trust, if subtrusts have been established. In all cases, deposits of contributions shall be treated as actually made only as of the date the funds are accepted as in good order by the administrator.

• B. The trustees shall hold, invest, and reinvest the trust fund. The administrator shall account for contributions, income, and payments made to or from the trust. The trustees, custodian and administrator shall not be responsible for the adequacy of the trust fund to meet and discharge any liabilities of the city.

• C. Contributions to fund the benefits funded by the trust shall consist of amounts determined pursuant to this code and any applicable collective bargaining agreements.

• (Ord. 28914.)

Separate sub-trusts or accounts in the trust fund may be maintained by the trustees for appropriate categories of employees and/or retirees. The trustees shall not be required to maintain separate investments for any sub-trust or account. Earnings may be credited to each sub-trust or account from time to time.

(Ord. 28914.)

• A. Trust assets may be used to defray the cost of the city's obligations to pay for health and welfare benefits for retirees and their dependents entitled to health care coverage under Sections 3.28.1950 through 3.28.1995, and for reasonable expenses, fees and allocated administrative fees and expenses. The benefits amount shall be determined by Parts 16 and 17 of Chapter 3.28 and any amount necessary to pay health and welfare benefits as approved by the city council.

• B. Any amounts remaining in the trust fund after all health and welfare benefits, fees and expenses have been paid shall be retained for

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§ 3.52.220

payment of future health and welfare benefits until all city liabilities for such benefits and expenses have been satisfied.

(Ord. 28914.)

Part 4

ACCOUNTS AND INVESTMENTS

Part 5

COMPOSITION, POWERS AND DUTIES OF THE TRUSTEES

Sections:

• 3.52.410 Powers and duties.

Sections:

Except to the extent prohibited by applicable law, the trustees or custodian may commingle the assets held by the trust for investment purposes. (Ord. 28914.)

• A. Except as otherwise provided by regulation, or as delegated to the custodian, administrator or an investment manager by the trustees, the trustees shall have complete control of the management and investment of the trust fund, and shall have all powers necessary or convenient to enable it to exercise such control.

• B. The trustees or trustees' delegate may invest and reinvest funds held by the trust fund in any investments which are legal investments under California law, and shall have the discretion to decide the allocation of funds among such investments. The trustees may purchase, acquire, hold, lease, sell, and convey real and personal property, and place funds held herein with banks or trust companies which have corporate trust powers, with insurance companies authorized to do business within the State of California, and do all such other acts permitted by law.

• (Ord. 28914.)

• A. The board of administration for the federated city employees retirement system shall serve as the trustees of this trust. The appointment and term of trustees shall be made pursuant to Part 10 of Chapter 2.08.

• B. By acceptance of their continued appointment to the board of administration of the federated city employees retirement plan, the trustees have agreed to accept this trust and to perform the duties of the trustees prescribed hereunder.

• (Ord. 28914.)

In administering the trust, the trustees shall have such power and authority, including discretion with respect to the exercise of that power and authority, as may be necessary, advisable, desirable, or convenient to the trustees, in its sole discretion as a fiduciary subject to the provisions of this chapter, and consistent with Part 10 of Chapter 2.08, plus all powers and duties given to them by the provisions of Chapter 3.28, including the power and authority:

• A. To enforce rules and regulations with respect to the trust not inconsistent with the trust, GASB 43 or GASB 45, IRC Section 115 or applicable law;

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§ 3.52.420

• B. To determine, consistent with the applicable laws, rules or regulations, all questions of law or fact that may arise as to any person or entity claiming rights under the trust;

• C. Subject to and consistent with GASB 43 and GASB 45, IRC Section 115 and applicable law, to construe and interpret the trust and to correct any defect, supply any omission, or reconcile any inconsistency in the trust;

• D. To adopt and amend investment policies, guidelines, restrictions, and requirements;

• E. To utilize trust assets for the provision of health and welfare benefits in accordance with this chapter, for retirees and dependents who are eligible for a benefit as determined under Parts 16 and 17 of Chapter 3.28 and any other health and welfare benefits as approved by the city council and the payment of reasonable expenses of the plan and the trust;

• F. To implement termination of trusteeship and transfer of assets to successor trustees as permitted by law;

• G. To employ and contract with actuaries, auditors, accountants, investment advisers, investment brokers, other consultants, medical personnel, and other agents and employees;

• H. To collect and disburse all investment proceeds under the trust;

• I. To provide for and promulgate all the regulations and forms that are deemed as necessary or desirable in fulfilling its purposes of assisting in funding health and welfare benefits and in maintaining proper records and accountings consistent with GASB 43 and GASB 45 and Internal Revenue Service requirements;

• J. To bring and defend actions, sue and be sued, and plead and be impleaded;

• K. To expend funds for the reasonable expenses of the trustees while engaged in the performance of their duties, includ-

ing entering into agreements and expending funds for investment related services selected by the trustees;

• L. To employ insurance companies, banks, trust companies, and/or investment brokers as agents for the keeping of records and the receipt and disbursement of funds held by or due to the trustees;

• M. To exercise generally any of the powers of an owner with respect to all or any part of the trust fund;

• N. To administer or require oaths and affirmations, to issue subpoenas to compel the attendance of witnesses or the production of books, papers and documents, and to take and hear testimony concerning any matter pending before the trustees. If any person so subpoenaed neglects or refuses to appear or produce any book, paper or document as required by said subpoena, or shall refuse to testify before the trustees or answer any questions which a majority of the trustees decides to be proper and pertinent, the trustees shall have the power to initiate proceedings in the proper court to have such person declared guilty of contempt. The chief of police shall, on request of the trustee, have such subpoenas served by a police officer or officers; and

• O. To take all actions consistent with this chapter necessary or appropriate to administer or carry out the purposes of the trust; provided, however, the trustees need not take any action unless in its opinion there are sufficient trust assets available for the expense thereof.

(Ord. 28914.)

In addition to the powers stated in Section 3.52.410, the trustees may from time to time delegate to an investment manager, custodian or committee formed by the trustees certain of its fiduciary

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§ 3.52.420

responsibilities under the trust. Any such investment manager, custodian of or committee shall remain a fiduciary until such delegation is revoked by the trustees, which revocation may be without cause and without advance notice. Such individual, committee, or organization shall have such power and authority with respect to such delegated fiduciary responsibilities as the trustees have under the trust.

(Ord. 28914.)

• G. The trustees shall have no liability for: (i) the acts or omissions of any investment manager; (ii) the acts or omissions of any insurance company; (iii) the acts or omissions of any investment fund; (iv) the acts or omissions of any custodian; or (vi) the acts or omissions of any contractor, vendor, actuary or other service provider.

(Ord. 28914.)

The trustees' responsibilities and liabilities shall be subject to the following limitations:

• A. The trustees shall have no duties other than those expressly set forth in this chapter and those imposed on the trustees by applicable laws.

• B. The trustees shall be responsible only for money and property actually received by the trust, and then to the extent described in this chapter.

• C. The trustees shall have no responsibility or duty to define the specific design of the health and welfare benefits, including but not limited to, selecting providers; nor shall the trustees be responsible for establishing the health and welfare benefits, or for setting the amount of premium subsidy to be paid by the trust.

• D. The trustees shall not be responsible for any particular federal, state or local income, payroll or other tax consequence to the city or a retiree, spouse, or dependent, and shall not be responsible for any tax-reporting obligation relating to payments or disbursements to such persons.

• E. The trustees shall not be responsible for the correctness of any determination of payments to, or disbursements from, the trust fund.

• F. No trustee shall have any liability for the acts or omissions of any predecessor or successor in office.

The trustees may rely upon a certification of the administrator with respect to any instruction, direction, or approval of such administrator and may continue to rely upon such certification until a subsequent certification is filed with the trustees. The trustees shall have no duty to make any investigation or inquiry as to any statement contained in any such writing but may accept the same as fully authorized.

(Ord. 28914.)

The trustees shall be protected further in relying upon a written certification that purports to be from any custodian, investment manager, insurance company, or mutual fund as to the person or persons authorized to give instructions or directions on behalf of such custodian, investment manager, insurance company or mutual fund and continue to rely upon such certification until a subsequent written certification is filed with the trustees. (Ord. 28914.)

Part 6

ACCOUNTING AND RECORDKEEPING

Sections:

The trustees shall maintain or cause to be maintained suitable records, data, and information

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§ 3.52.700

relating to its responsibilities hereunder. The trust's books and records relating thereto shall be open to inspection and audit at reasonable times, subject to applicable law. (Ord. 28914.)

The trustees shall cause an independent audit of the trust fund to be performed annually for each trust year, with results reported to the trustees. (Ord. 28914.)

The trustees shall publish an annual consolidated report for each trust year that includes the fiscal transactions of the trust fund for the preceding trust year; and the amount of the accumulated cash, securities, and other assets of the trust fund. (Ord. 28914.)

Part 7

AMENDMENT AND TERMINATION

Sections:

such dissolution, the trustees shall proceed to wind up the affairs of the trust in an orderly manner and within a reasonable period of time considering relevant circumstances. After paying or making reasonable provision for the payment of all liabilities of the trust, and upon receipt of such releases, indemnities or like documentation as the trustees may reasonably deem necessary for the protection of the trustees, the trustees shall distribute the remaining property of the trust to the city, in cash or in kind or partly each. This distribution shall be made for the sole purpose of assisting the city in the payment of health and welfare benefits for retirees and their dependents who are eligible for a benefit as determined under Parts 16 and 17 of Chapter 3.28 and any other health and welfare benefits as approved by the city council, and the payment of reasonable expenses of the plan and the trust. In making the distribution, the trustees may retain an amount for reasonable, allocated administrative fees and expenses. In no event will trust assets be distributed to or revert to any entity that is not the State of California, a political subdivision of the state, or an entity whose income is excluded from gross income under IRC Section 115.

(Ord. 28914.)

Part 8

MISCELLANEOUS

This chapter may be amended by the city council at any time and in any manner permitted by applicable California law and not inconsistent with GASB 43 and GASB 45 or IRC Section 115. Notice of such amendment shall be promptly provided to the trustees, administrator, and custodian. (Ord. 28914.)

The trust created by this chapter is irrevocable. (Ord. 28914.)

Sections:

• 3.52.700 Construction and governing law.

• 3.52.710 Parties bound.

• 3.52.720 Necessary parties to disputes.

• 3.52.730 Severability.

• 3.52.740 Nonassignment.

• 3.52.750 Erroneous payments.

• 3.52.760 Release.

The trust shall have perpetual existence, except if dissolved by the city council. Following any

• A. The provisions of this chapter shall be construed, enforced and administered and the validity thereof determined in accordance with

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§ 3.52.700

the IRC and the laws of the city and the. If any provision of the trust created by this chapter is held to violate the IRC, state law, or this code, or to be illegal or invalid for any other reason, that provision shall be deemed to be null and void, but the invalidation of that provision shall not otherwise affect the trust.

• B. The headings and subheadings in this chapter are inserted for convenience of reference only and are not to be considered in the construction of any provision of the trust created by this chapter.

• C. In resolving any conflict among provisions of this chapter and in resolving any other uncertainty as to the meaning or intention of any provision of this trust created by this chapter, the interpretation that: (i) causes the trust to be exempt from tax as a governmental instrumentality under IRC Section 115; and (ii) causes the trust to comply with all applicable requirements of the IRC and the laws of the city and the state, shall prevail over any different interpretation.

(Ord. 28914.)

The provisions of the trust created by this chapter shall be binding upon the trustees, the administrator, the city and, as the case may be, the delegates, successors, and assigns of each of them. (Ord. 28914.)

Necessary parties to any accounting, litigation, or other proceedings relating to the trust agreement shall include only the trustees. (Ord. 28914.)

The city may not commute, sell, assign, transfer, or otherwise convey any right to assets it may have under the trust. The assets held under this trust shall not be subject to the rights of the creditors of the city, the trustees, the custodian, or the administrator, and shall be exempt from execution, attachment, prior assignment or any other judicial relief or order for the benefit of creditors or other third person. (Ord. 28914.)

If the trustees or the administrator make any payment that, according to the terms of the trust, and the benefits provided hereunder, should not have been made, the trustees or administrator may recover that incorrect payment, by whatever means necessary as allowed by state law, whether or not it was made due to the error of the trustees or administrator, from the person to whom it was made or from any other appropriate party, including but not limited to deduction of the amount of the incorrect payment when making any future payments to or on behalf of the recipient of the incorrect payment. (Ord. 28914.)

Any payment to an insurance company, or its designee, shall, to the extent thereof, be in full satisfaction of the claim of such entity being paid thereby and the trustees or administrator may condition payment thereof on the delivery by the insurance company, or its designee, of a duly executed receipt and release in such form as may be determined by the trustees. (Ord. 28914.)