Part 4 — RETIREMENT FUND

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 3.32, and in order to carry out the provisions of this chapter, the retirement fund heretofore created and existing pursuant to Chapter 3.32, and pursuant to Section 78a of the City Charter, is hereby continued, and is hereby made a combined or common fund for the police and fire department retirement plan established by this Chapter 3.36 and by Chapter 3.32, with the elements of the plan in each chapter being a component of a single retirement plan. All contributions, income and other moneys which are required, pursuant to the provisions of this chapter, to be paid to this retirement plan or into the retirement fund, shall be paid into and held in said fund; and all benefits or allowances payable to any member or beneficiary under this retirement plan shall be paid from said fund. Said combined or common fund shall be known as the "police and fire department retirement fund."

(Prior code § 2903.125; Ords. 25084; 27768.)

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

(Prior code § 2903.126; Ord. 25084.)

A.

Except as provided in subsection B., the city director of finance is and shall be the custodian of the retirement fund, subject to the exclusive control of the board as to the administration and investment of the same.

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 police and fire department retirement plan.

C.

All payments from the fund shall be made by the city director of finance upon demands made by the retirement board.

D.

All amounts received by the board or by the system under the provisions of this chapter shall be deposited with the custodian bank or the city director of finance to the credit of the retirement fund, including but not limited to any and all contributions, any and all interest earned on bank deposits, and any and all other income of this system or of the fund.

(Prior code § 2903.127; Ord. 25084.)

A.

Without limiting the authority of the board itself to invest and reinvest the moneys of the retirement fund as provided in Section 3.36.540, the board may adopt an investment resolution or resolutions containing detailed investment guidelines, consistent with Section 3.36.540. 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 3.36.560, 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 to the board on a monthly basis.

B.

Without limiting the authority of the board itself to invest and reinvest the moneys in the retirement fund as provided in Section 3.36.540 or to delegate authority for investment and reinvestment as provided in subsection A. of this section, the board may, by resolution, designate a person by name to make short-term investments and reinvestments of moneys in the retirement fund and to purchase, sell, or exchange such short-term investments and reinvestments of moneys in the retirement fund and to purchase, sell, or exchange such short-term investments. For purposes of this subsection, "short-term investments" shall consist of the following:

Repurchase agreements and reverse repurchase agreements;

Short-term investment fund;

Investments which are in commercial paper, United States Treasury bills, bankers' acceptances, negotiable certificates of deposit, or similar evidences of indebtedness; and

a.

Which are of no more than one year in duration; and

b.

Which are liquid in nature; and

c.

Which are not investments in bonds or preferred or common stock.

The person to be so designated by the board shall be either a member of the board, a qualified investment advisor who has entered into a contractual arrangement pursuant to Section 3.36.560, or an officer or employee of the city. The person so designated shall serve in said capacity at the pleasure of the board and shall report monthly to the board on such short-term investments.

Moneys to be invested pursuant to this Subsection B. shall be only those moneys not then required for investments made pursuant to Section 3.36.540 and Subsection A. of this section.

(Prior code § 2903.129; Ords. 20115, 21076, 21305, 23560, 25084.)

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.

(Prior code § 2903.128; Ords. 19989, 21145, 21607, 22509, 23560, 25084, 28886, 29198.)

A.

The retirement board may enter into contractual arrangements with broker-dealers and with California or national banks for such brokers-dealers or banks to provide security lending services pursuant to security loan agreements. Such contracts shall be entered into in the name of the board of administration for the police and fire department retirement plan.

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. The lender may terminate the contract upon not more than five business days' notice as agreed and the borrower may terminate the contract upon not less than two business days' notice as agreed. The borrower shall provide collateral to the lender in the form of cash, bonds or other interest-bearing notes and obligations of the United States or irrevocable letters of credit from California or national banks approved by the board. Such collateral shall be in an amount equal to at least one hundred two percent of the market value of the loan securities as agreed. The lender shall monitor the market value of the loaned securities daily. The loan agreement shall provide for payment of additional collateral on a daily basis, or at such times as the value of the loaned securities increases, to agreed-upon ratios. In no event shall the amount of the collateral be less than the market value of the loaned securities.

"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:

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. 21864, 25084.)

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:

a.

In its own name;

b.

In common ownership with the Federated City Employees Retirement System;

c.

Through a title holding corporation or trust satisfying the requirements of Internal Revenue Code Section 501(c)(25);

d.

Through a title holding corporation satisfying the requirements of Internal Revenue Code Section 501(c)(2); or

e.

Through a Limited Liability Company;

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

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 plan shall be taken and held in one of the following forms:

a.

Directly by the board of administration in the name of board of administration as trustee for the police and fire department retirement fund;

b.

Through a title holding corporation or trust satisfying the requirements of Internal Revenue Code Section 501(c)(25);

c.

Through a title holding corporation satisfying the requirements of Internal Revenue Code Section 501(c)(2); or

d.

Through a Limited Liability Company.

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 Federated City Employees Retirement System 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 fifty percent interest, and the board of administration, as trustee for the police and fire department retirement fund, as to an undivided fifty percent interest, together as tenants in common.

C.

For the purposes of this Section 3.36.550, a title holding corporation or trust satisfying the requirements of Internal Revenue Code Section 501(c)(25), a title holding corporation satisfying the requirements of Internal Revenue Code Section 501(c)(2), or a Limited Liability Company may be such a corporation, trust or company established by the board.

(Prior code § 2903.130; Ords. 25084, 25951, 27595, 28088.)

Notwithstanding any provisions in this Code to the contrary, whenever any check drawn against the retirement fund in payment of accumulated contributions or any benefits remains unclaimed or the claimant cannot be found, the proceeds of such check shall be redeposited in the retirement fund and held for the claimant without any 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 to the retirement system. The board may at any time, after revision of said 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 § 2903.130; Ord. 25084.)

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 police and fire department retirement plan.

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 licensed as real estate brokers by the State of California.

(Ords. 21607, 25084, 25553.)

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 Part 14 and Part 15 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 Part 14 and Part 15 of this plan, and earnings and interest attributable to such contributions may be made to the medical benefits account or to the trusts established by Chapters 3.54 and 3.56.

D.

Contribution rates to fund the benefits for sickness, accident, hospitalization, dental or medical expenses for those members eligible for benefits under Part 14 and 15 of this plan shall be established by the board as determined by the board's actuary and shall be borne by the city and the eligible members of the plan as follows:

Contributions for dental benefits shall be made by the city and the members in the ratio of three-to-one (3:1).

Contributions for other benefits provided through the medical benefits account shall be made by the city and the members in the ratio of one-to-one (1:1).

E.

Except as otherwise provided in this Section 3.36.575, 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 14 and 15 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.

F.

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 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).

G.

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.

H.

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.

I.

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. 27768, 28332, 28886, 29065, 29879.)

A.

Members who would otherwise be eligible for coverage under Parts 14 and 15 of this plan shall be provided a one-time irrevocable election to instead be covered under Chapter 3.57, in accordance with the process described in Chapter 3.57. Coverage under Chapter 3.57 shall not become effective until IRS approval to transfer member contributions previously contributed under Part 14 and Part 15 to the funding vehicle established under Chapter 3.57 is obtained. On a date determined by the City after coverage under Chapter 3.57 becomes effective, such member's Chapter 3.57 account shall receive a credit for all prior contributions made by the member under Parts 14 and 15 of this plan and such member's contribution rate shall be determined under Chapter 3.57.

B.

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 14 and 15 of this plan who do not make the one-time irrevocable election described in Subsection 3.36.576.C will be eight percent of compensation as defined under Section 3.36.020.3 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 eleven percent of covered compensation or greater for a year, the city may in its discretion choose to only contribute a maximum of eleven percent of covered compensation for such year.

C.

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 14 and 15 of this plan.

D.

Effective on the date determined by the city once the VEBA is established, tier 2 members shall be subject to the provisions of Chapter 3.57 of this plan with respect to healthcare benefits and tier 2 members shall contribute the amount specified under Chapter 3.57 and shall not be provided benefits under or make contributions under Parts 14 and 15 of this plan.

(Ords. 29879, 30044.)

Effective January 1, 2018, and each January 1 thereafter, the annual retirement benefit of each member who is not a Tier 2 member will be reviewed by the Board to determine if the member's retirement allowance (including any cost of living adjustments) is equal to at least seventy-five percent (75%) of the purchasing power of the member's retirement allowance calculated as of the member's retirement date, adjusted for inflation by reference to the most current consumer price index for all urban consumers (CPI- U), San Francisco-Oakland-San José metropolitan area. If the value of the member's retirement allowance falls below seventy-five percent (75%) of purchasing power, the member shall receive an annual lump sum payment of the difference between the member's current retirement allowance and the amount required to achieve seventy-five percent (75%) purchasing power as a separate line item on the pension check as of February 1, 2018, and each February 1 thereafter.

(Ords. 29879, 30007.)