Part 3 — RETIREMENT FUND

A.

In order to continue in force and make effectual pensions and retirements already existing or that may be granted in the future in favor of members of the retirement plan heretofore established pursuant to the provisions of Chapter 3.24 of this Code, and in order to carry out the provisions of this chapter, the retirement fund heretofore continued in existence by the provisions of Chapter 3.24 and specifically by the provisions of Section 3.24.300 of the San José Municipal Code, is hereby continued in existence and is hereby made a combined common fund for the component of the retirement system established by this chapter and for the component of the retirement system established by Chapter 3.24, and for the components of any and all other retirement systems with which it has heretofore been combined. All income and other moneys which are required pursuant to the provisions of this chapter to be paid to this retirement system or into the retirement fund shall be paid into and held in said fund; and all benefits or allowances payable to any member or person under this retirement system shall be paid from said fund. Said fund is known as and shall continue to be known as the "San José Federated City Employees Retirement Fund."

B.

At no time prior to the satisfaction of all liabilities with respect to members of this plan and their beneficiaries shall any part of the corpus or income of the retirement fund be used for, or diverted to, purposes other than for the exclusive benefit of the members and their beneficiaries.

(Prior code § 2904.1100; Ords. 25092, 27838.)

The board has the exclusive control of the administration and investment of the retirement fund.

(Prior code § 2904.1101; Ord. 25092.)

A.

Except as provided in subsection B., the city director of finance is the custodian of the retirement fund, subject to the exclusive control of the board as to administration and investment. All payments from the fund shall be made in the manner required for the disbursement of other public funds, but only upon authorization of the board.

B.

The board may enter into contractual arrangements with California banks or with national banking associations to provide master custody services with respect to the assets of the retirement fund. Such contracts shall be entered into in the name of the board of administration for the federated city employees retirement system.

(Prior code § 2904.1102; Ord. 25092.)

The board shall deposit, to the credit of the retirement fund, all amounts received by it under this chapter in the city treasury or in such custodial accounts as are established with the custodian bank.

(Prior code § 2904.1104; Ord. 25092)

A.

Definitions. For the purpose of this Section 3.28.340, the terms listed herein shall have the following meanings:

"Income account" means the account established in the general reserve pursuant to Subsection B. below.

"Interest crediting rate" means the interest rate determined by the board for crediting the employee contribution reserve.

B.

Retirement fund reserves. There shall be established in the retirement fund the following reserves:

The employee contribution reserve.

a.

The board shall credit to the employee contribution reserve all contributions made by members of the retirement system and all interest payable pursuant to Subsection C. below.

b.

Moneys in the employee contribution reserve shall be available for the payment of benefits and for the return of contributions pursuant to Section 3.28.780.

The general reserve.

a.

The board shall establish an income account and shall credit the income account with all rents, interest, dividends, realized gains and losses, unrealized gains and losses, and all other income other than employer contributions, received during the fiscal year. The board shall pay from the income account all expenses and administrative costs as they are incurred.

b.

The board shall credit to the general reserve all contributions made by the city, all interest payable pursuant to Subsection C. below, and that portion of the excess earnings determined pursuant to Subsection D. below.

c.

Moneys in the general reserve shall be available for the payment of benefits and for the payment of the expenses and administrative costs of the retirement system.

Such other reserves as the board may determine from time to time.

C.

Credit to contributions and reserves. All interest credited pursuant to this Subsection C. shall be deducted from the income account.

Interest shall be credited to the employee contribution reserve on a semi-annual basis, or more frequently if authorized by the board, at the interest crediting rate.

Interest shall be credited to the general reserve as follows:

a.

Interest at the actuarially assumed annual rate of return adopted by the board pursuant to Section 3.28.200 or at the actual rate of return earned by the retirement fund during the applicable fiscal year, whichever is lower; plus

b.

Interest calculated as the difference between (i) the interest that would have been credited to the employee contribution reserve had the employee contribution reserve been credited at the actuarially assumed annual rate of return adopted by the board pursuant to Section 3.28.200 or at the actual rate of return earned by the retirement fund during the applicable fiscal year, whichever is lower, and (ii) the interest actually credited to the employee contribution reserve pursuant to Subsection C.1. above; provided, however, that there shall be no offset to the general reserve in any case where this difference is a negative number.

D.

Excess earnings.

Within ninety days from and after receipt of audit reports for each fiscal year, the board shall determine the balance remaining in the income account after crediting of interest as provided in Subsection C. above, and after payment of administrative costs and expenses of the retirement system for the applicable fiscal year.

If the balance remaining in the income account is greater than zero, the board shall, by written resolution, declare that balance to be the excess earnings for the applicable fiscal year, shall transfer the excess earnings to the general reserve. If the balance remaining in the income account is less than or equal to zero, the board by written resolution shall declare that there are no excess earnings and shall adjust the general reserve to reflect any negative balance in the income account so that the balance in the income account is zero as of the beginning of each fiscal year.

(Prior code § 2904.1103; Ords. 20596, 22263, 22486, 23087, 25092, 27436, 29174.)

The board shall invest and reinvest the moneys in the retirement fund in accordance with the following standards:

A.

The assets of the retirement plan are trust funds and shall be held for the exclusive purposes of providing benefits to members of the plan and their beneficiaries and defraying reasonable expenses of administering the plan. The assets of the retirement plan must not revert, and no contributions shall be permitted to be returned to the employers, except as permitted by Revenue Ruling 91-4.

B.

The board shall discharge its duties with respect to the plan solely in the interest of, and for the exclusive purposes of providing benefits to, members of the plan and their beneficiaries, maintaining the actuarial soundness of the plan in a manner consistent with Article XVI, Section 17 of the California Constitution (the "1992 California Pension Protection Act"), and defraying reasonable expenses of administering the plan. The board's duty to the members and their beneficiaries shall take precedence over any other duty.

C.

The board shall discharge its duties with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of like character and with like aims.

D.

The board shall diversify the investments of the plan so as to minimize the risk of loss and to maximize the rate of return, unless under the circumstances, it is clearly prudent not to do so.

E.

The retirement plan may participate under Section 401(a)(24) of the Internal Revenue Code in a qualified group trust that meets the requirements of Section 401(a) of the Internal Revenue Code in accordance with Revenue Ruling 81-100, as amended by Revenue Ruling 2004-67.

(Ords. 25092, 28885, 29174.)

Without limiting the authority of the board itself to invest and reinvest the moneys of the retirement fund as provided in Section 3.28.350, the board may adopt an investment resolution or resolutions containing detailed guidelines, consistent with Section 3.28.350. While the resolution or resolutions are in effect, investments consistent with such guidelines may be made by an officer of the board, an officer or employee of the city, or a qualified investment advisor who has entered into a contractual arrangement pursuant to Section 3.28.375, provided that such officer, employee or advisor has been delegated such authority by the board and such officer, employee or advisor has been designated by name in the investment resolution or resolutions. Any transactions made pursuant to the foregoing provisions of this section shall be reported monthly to the board by the person or persons to whom the board has delegated such authority.

(Ord. 25092.)

A.

The retirement board may enter into contractual arrangements with broker-dealers and with banks for such broker-dealers or banks to provide security lending services pursuant to security loan agreements on such conditions, consistent with this section, as the board may determine.

B.

For the purposes of this section, "security loan agreement" and "marketable securities" shall be defined as follows:

"Security loan agreement" means a written contract whereby a legal owner, the lender, agrees to lend specific marketable corporate or government securities for a period not to exceed one year. The lender retains the right to collect from the borrower all dividends, interest, premiums, rights, and any other distributions to which the lender would otherwise have been entitled. The lender waives the right to vote the securities during the term of the loan.

"Marketable securities" means securities that are freely traded on recognized exchanges or market places.

C.

Any contractual arrangements entered into pursuant to this section shall require all of the following:

The lender may terminate the security loan agreement upon not more than five business days' notice as agreed and the borrower may terminate the security loan agreement upon not less than two business days' notice as agreed.

The borrower shall provide collateral to the lender in a form approved by the board, and in an amount equal to at least one hundred two percent of the market value of the loaned securities as agreed.

Daily monitoring of the market value of the loaned securities.

Payment by the borrower of additional collateral on a daily basis, or at such times as the value of the loaned securities increases, to agreed-upon ratios, but in no event shall the amount of the collateral be less than the market value of the loaned securities.

Maintenance of detailed records of all security loans.

Development of controls and reports to monitor the conduct of the transactions.

Publication of the net results of the security loan transactions separate from the results of other investment activities.

(Ords. 24690, 25092.)

A.

The board may:

Acquire, hold for investment or sell commercial, industrial and residential real estate, and real estate related debt instruments in the following forms: in its own name or in common ownership with the police and fire department retirement plan or through a title holding corporation or trust satisfying the requirements of Internal Revenue Code Section 501(c)(25);

Lease real property owned by the board for any lawful purpose and for terms which may extend beyond the duration of this retirement system;

Create restrictions and easements affecting the real property owned by the board; and

Exercise all other rights, privileges and powers which an owner of real property would have, unless otherwise prohibited by the terms of this retirement plan or by other applicable law.

B.

The board shall take title as follows:

Title to all commercial, industrial and residential real estate and all real estate related debt instruments acquired by the board on behalf of this retirement system shall be taken and held in one of the following forms: directly by the board of administration in the name of board of administration as trustee for the federated city employees retirement fund, or through a title holding corporation or trust satisfying the requirements of Internal Revenue Code Section 501(c)(25).

Title to all commercial, industrial and residential real estate and all real estate related debt instruments acquired by the board on behalf of this retirement plan to be held in common ownership with the police and fire department retirement plan shall be taken and held in the following name: board of administration as trustee for the federated city employees retirement fund, as to an undivided specified percent interest, and the board of administration, as trustee for the police and fire department retirement fund, as to an undivided specified percent interest, together as tenants in common. The percent interests to be specified in the title shall be determined by the boards of administration.

C.

For the purposes of this Section 3.28.365, a title holding corporation or trust satisfying the requirements of Internal Revenue Code Section 501(c)(25) may be such a corporation or trust established by the board.

(Ords. 25092, 25994.)

Notwithstanding any provision in this chapter or any other ordinance to the contrary, whenever any check drawn against the retirement fund in payment of accumulated contributions or for any benefit remains unclaimed or the claimant cannot be found, the amount of such check shall be redeposited in the retirement fund and held for the claimant without further accumulation of interest, and such redeposit shall not operate to reinstate the membership of the claimant in this system. If such proceeds, whether heretofore or hereafter redeposited, are not claimed within four years after the date of redeposit, they shall revert to and become a part of the accumulated contributions of the city, held in the retirement fund to meet the liabilities of the city on account of current services. The board may at any time after reversion of proceeds to the city, and upon receipt of proper information satisfactory to it, return such proceeds so held for the city to the credit of the claimant, to be administered in the manner provided under this system.

(Prior code § 2904.1106; Ord. 25092.)

A.

The board may enter into contractual arrangements with any person or persons or association or associations, who meet the requirements of subsection B. or C., to provide counsel to the board with respect to the board's policies of investing and reinvesting of moneys in the retirement fund. Such contracts shall be entered into in the name of the board of administration for the federated city employees retirement system.

B.

Any person or association who provides services to the board with regard to financial securities:

Shall be a person or association whose principal business consists of investment counseling services; and

Shall be registered as an investment adviser under such laws as may require such registration.

C.

With respect to real estate advisors, the board shall enter into contractual arrangements only with persons or associations whose principal officers are engaged in the business of advising and evaluating commercial, industrial or residential real estate investments, mortgage banking or property management, and which are duly licensed to perform real estate advisor services in the jurisdiction where the real property is located.

(Prior code § 2904.1107; Ords. 21606, 25092, 25641.)

A.

There is hereby established as of July 1, 1995, the medical benefits account as a separate account within the retirement fund. The medical benefits account shall be maintained in compliance with Internal Revenue Code Section 401(h) and the regulations promulgated thereunder. Monies in the medical benefits account may be commingled with other monies in the retirement fund solely for the purposes of investment.

B.

All contributions made to the retirement fund to provide for the payment of benefits for sickness, accident, hospitalization, dental or medical expenses of persons receiving monthly allowances under the provisions of this Plan, and all earnings and interest attributable to such contributions to the retirement fund, shall be placed in the medical benefits account. All contributions to the medical benefits account shall be reasonable and ascertainable. At the time the City makes a contribution to the medical benefits account, the City shall designate in writing that such contribution is solely for the medical benefits account.

C.

Contributions to provide for the payment of benefits for sickness, accident, hospitalization, dental or medical expenses of persons receiving monthly allowances under the provisions of this Plan, and earnings and interest attributable to such contributions may be made to the medical benefits account or to the trust established by Chapter 3.52.

D.

All funds in the medical benefits account shall be used only for the payment of benefits and expenses allowed under Internal Revenue Code Section 401(h) and the regulations promulgated thereunder. The medical benefits account shall be used to provide medical and dental benefits in accordance with Parts 16 and 17 of this Chapter. Prior to the satisfaction of all liabilities under this Plan to provide such benefits, no funds in the medical benefits account shall be used for, or diverted to, any other purpose.

E.

All benefits provided through the medical benefits account, plus any life insurance protection provided under the Plan, shall be subordinate to the retirement and survivors' benefits provided by the Plan. Accordingly, at all times after the date on which the medical benefits account is established, the aggregate of the City's contributions to the medical benefits account shall not exceed twenty-five percent (25%) of its total aggregate contributions to the Plan (other than contributions to fund prior service). For the purpose of this limitation, City contributions include any contributions which are "picked-up" pursuant to Internal Revenue Code Section 414(h).

F.

Upon the satisfaction of all liabilities under this Plan to provide the benefits described in this Section, any amount remaining in the medical benefits account shall be paid to the City.

G.

In the event that a member's interest in the medical benefits account is forfeited prior to the termination of the Plan, an amount equal to the forfeiture shall be applied as soon as practicable to reduce the City

contributions, if any, to the medical benefits account.

H.

Except as otherwise provided under Section 3.28.381, City and member contributions to the medical benefits account shall be made on the same periodic basis as City and member contributions are made to the retirement fund. City contributions and member contributions to the medical benefits account may be paid on different payment schedules as may be determined by the Board.

(Ords. 27838, 28332, 28885, 28914, 29904.)

A.

Effective on the date determined by the City once the VEBA is established, contributions to fund the healthcare benefits for qualified members and qualified survivors who are eligible for benefits to be provided under the terms of Parts 16 and 17 of this Plan who do not make the one-time irrevocable election described in subsection 3.28.381.D. will be seven and one-half percent (7.5%) of compensation as defined under Section 3.28.030.05 for members and such percentage of covered compensation for City contributions as determined by the actuary to be necessary to fund the amount of the annual required contribution each year; provided, however, that if the City's portion of the required contribution is determined to be fourteen percent (14.0%) of covered compensation or greater for a year, the City may in its discretion choose to only contribute a maximum of fourteen percent (14.0%) of covered compensation for such year.

B.

Except as otherwise provided in Part 16 and Part 17 of this Plan, members, other than Tier 2 members, rehired after September 27, 2013, shall not be eligible for retiree healthcare benefits provided under Part 16 or Part 17 of this Plan. Effective on the date determined by the City once the VEBA is established, such members shall be provided retiree healthcare benefits in accordance with provisions of Chapter 3.58 and member's contribution rate to fund such benefits shall be determined under Chapter 3.58.

C.

Except as otherwise provided in this Section 3.28.381, Tier 2 members shall not be eligible for the retiree healthcare benefits provided under Parts 16 and 17 of this Plan. Effective on the date determined by the City once the VEBA is established, Tier 2 members shall be provided retiree healthcare benefits in accordance with provisions of Chapter 3.58 and member's contribution rate to fund such benefits shall be determined under Chapter 3.58.

Notwithstanding the first paragraph of subsection 3.28.381.C., Tier 2 members represented by the Operating Engineers, Local 3 and the Association of Building, Mechanical and Electrical Inspectors who were hired or rehired on or after September 30, 2012 but before September 27, 2013 are eligible for retiree

health benefits under Part 16 and Part 17 of this Plan and shall make retiree healthcare contributions in accordance with Section 3.28.381.A.

D.

On or soon after the date determined by the City once the VEBA is established, members described in subsection 3.28.381.A, subsection 3.28.381.B., or subsection 3.28.381.C.1. who are eligible for benefits under Part 16 and/or Part 17 shall be provided a one-time irrevocable election to instead be covered under Chapter 3.58, in accordance with the process described in Chapter 3.58. Coverage under Chapter 3.58 for such members becomes effective upon IRS approval of the transfer of prior member contributions made under Parts 16 and 17 to the funding vehicle established under Chapter 3.58. On a date determined by the City after coverage under Chapter 3.57 becomes effective, such member's Chapter 3.58 account shall receive a credit for all prior contributions made by the member under Parts 16 and 17 of this Plan and such member's retiree health benefits and contribution rate shall be determined under Chapter 3.58.

E.

Notwithstanding anything else in this Plan to the contrary, unrepresented Tier 2 members in Unit 99, Unit 81 and Unit 82 shall not be eligible for retiree healthcare benefits under Part 16 and Part 17 of this Plan nor retiree healthcare benefits under Chapter 3.58. Unrepresented members of Unit 99, Unit 81 and Unit 82 who are not Tier 2 members as defined by Section 3.28.030.28 that are rehired after September 27, 2013 are also ineligible for retiree health benefits under Part 16 and Part 17 of this Plan and the retiree health benefits under Chapter 3.58 and shall not make contributions under either program. For members who previously made contributions under Part 16 and 17, the City shall transfer any amount equal to the member's prior contributions (without accrued interest) to the funding vehicle used to provide the benefits under Chapter 3.58 for such member's future use.

F.

The City Manager shall have the discretion to terminate the existing Tier 2 retiree medical benefits plan. In that event, Tier 2 members shall not be provided benefits or make contributions under Parts 16 and 17 of this Plan.

(Ords. 29904, 30017, 30044.)

Contribution rates to fund the benefits for sickness, accident, hospitalization, dental or medical expenses shall be established by the board as determined by the board's actuary and shall be borne by the city and the members of the plan as follows:

A.

Contributions for dental benefits shall be made by the city and the members in the ratio of eight-to-three.

B.

Contributions for medical and dental insurance premiums costs attributable to the early retirement incentive programs described in Parts 18, 19, and 20 of this chapter shall be borne by the city.

C.

Contributions for other medical benefits shall be made by the city and the members in the ratio of one-to- one.

(Ord. 28914.)