AGENDA BOARD OF FIRE AND POLICE PENSION COMMISSIONERS. September 3, :30 a.m.

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1 AGENDA BOARD OF FIRE AND POLICE PENSION COMMISSIONERS September 3, :30 a.m. Los Angeles Times Building 202 W. First Street, Suite 500 Los Angeles, CA Commissioner Diannitto will participate telephonically from 4612 El Reposo Drive, Los Angeles, CA An opportunity for the public to address the Board or Committee about any item on today s agenda for which there has been no previous opportunity for public comment will be provided before or during consideration of the item. Members of the public who wish to speak on any item on today s agenda are requested to complete a speaker card for each item they wish to address, and present the completed card(s) to the commission executive assistant. Speaker cards are available at the commission executive assistant s desk. In compliance with Government Code Section , non-exempt writings that are distributed to a majority or all of the Board or applicable Committee of the Board in advance of their meetings may be viewed at the office of the Los Angeles Fire and Police Pension System (LAFPP), located at 360 East 2 nd Street, 4 th Floor, Los Angeles, California 90012, or by clicking on LAFPP s website at or at the scheduled meeting. Non-exempt writings that are distributed to the Board or Committee at a scheduled meeting may be viewed at that meeting. In addition, if you would like a copy of any record related to an item on the agenda, please contact the commission executive assistant, at (213) or by at rhonda.ketay@lafpp.com. Sign language interpreters, communication access real-time transcription, assistive listening devices, or other auxiliary aids and/or services may be provided upon request. To ensure availability, you are advised to make your request at least 72 hours prior to the meeting you wish to attend. Due to difficulties in securing sign language interpreters, five or more business days notice is strongly recommended. For additional information, please contact the Department of Fire and Police Pensions, (213) voice or (213) TDD. A. ITEMS FOR BOARD ACTION 1. CONSIDERATION OF ASSUMPTIONS FOR THE JUNE 30, 2015 RETIREE HEALTH ACTUARIAL VALUATION AND POSSIBLE BOARD ACTION 2. GOVERNMENTAL ACCOUNTING STANDARDS (GAS) 68 ACTUARIAL VALUATION AS OF JUNE 30, 2015; GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB) STATEMENT NO. 68 REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014; AND POSSIBLE BOARD ACTION 3. APPROVAL OF PROPOSED BOARD RULE 5.9 FORFEITURE OF UNCLAIMED FUNDS TO THE PLAN AND POSSIBLE BOARD ACTION 4. TRANSFER OF FUNDS FOR PURCHASE OF NEW MICROFICHE/MICROFILM MACHINE AND POSSIBLE BOARD ACTION

2 5. CONSIDERATION OF MARTHA WETZEL S REQUEST TO TRANSFER FROM TIER 3 TO TIER 5 AND POSSIBLE BOARD ACTION 6. CONSIDERATION OF CEDRICK CLEVELAND S APPEAL TO TRANSFER FROM TIER 3 TO TIER 5 AND POSSIBLE BOARD ACTION B. REPORTS TO THE BOARD 1. CONTRACTOR DISCLOSURE POLICY QUARTERLY REPORT 2. Has any Board Member made any expenditure to influence State legislative or administrative action? 3. Miscellaneous correspondence from money managers, consultants, etc. Received and Filed. 4. General Manager s Report a. Benefits Actions approved by General Manager on August 20, 2015 b. Other business relating to Department operations C. COMMITTEE CALENDAR 1. Audit Committee Last met: 07/16/15; next meeting: 10/15/15 2. Benefits Committee Last met: 04/02/15; next meeting: 09/16/15 3. Governance Committee Last met: 08/06/15; next meeting: 10/01/15 D. CONSENT ITEMS 1. Approval of Minutes of the Regular Board meeting of May 7, Findings of Fact Michael J. Almasy Tier 5 E. CONSIDERATION OF FUTURE AGENDA ITEMS F. GENERAL PUBLIC COMMENT ON MATTERS WITHIN THE BOARD S JURISDICTION G. DISABILITY CASES Alternative 2 Police Officer II Tracy L. Andres. Officer Andres will be represented by Thomas J. Wicke, Esq. of Lewis, Marenstein, Wicke, Sherwin and Lee. September 3,

3 This is a Closed Session in accordance with Government Code Section Police Officer II Lee Jensen. Officer Jensen will be represented by Michael Treger of Straussner and Sherman. H. CLOSED SESSION ITEMS FOR POSSIBLE BOARD ACTION 1. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION TO CONSIDER THE PURCHASE OF ONE (1) PARTICULAR, SPECIFIC INVESTMENT AND THE REDEMPTION/SALE OF (1) PARTICULAR, SPECIFIC INVESTMENT AND POSSIBLE BOARD ACTION 2. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION TO CONSIDER THE SALE OF TWO (2) PARTICULAR, SPECIFIC INVESTMENTS AND POSSIBLE BOARD ACTION 3. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54957(b)(1): BOARD REVIEW OF THE CITY ATTORNEY ANNUAL PERFORMANCE EVALUATION AND POSSIBLE BOARD ACTION September 3,

4 DEPARTMENT OF FIRE AND POLICE PENSIONS 360 East Second Street, Suite 400 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: SEPTEMBER 3, 2015 ITEM: A.1 FROM: SUBJECT: RAYMOND P. CIRANNA, GENERAL MANAGER CONSIDERATION OF ASSUMPTIONS FOR THE JUNE 30, 2015 RETIREE HEALTH ACTUARIAL VALUATION AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board adopt the retiree health assumptions for the June 30, 2015 Retiree Health Valuation as recommended by The Segal Company (Segal). DISCUSSION Beginning with the June 30, 2007 valuation, Segal has recommended that the health care trend assumptions used in the health valuation be reviewed annually. Every year Segal publishes a set of health care trend assumptions based on the latest research and information available. Segal has submitted their recommendations for LAFPP s health care related actuarial assumptions in the attached letter. For the June 30, 2015 valuation, Segal continues to separate the medical trend rate assumption for Medicare and non-medicare plans, and the trend rates for the two types of plans are the same again this year. However, in future years, Segal s analysis may result in separate trend rates for the two plan types (e.g., due to the fact that Medicare rates are determined by the Federal Government, whereas non-medicare rates are determined by private insurance companies). Segal s recommended health care cost trend rate for the June 30, 2015 valuation has a first year trend rate of 6.75% for the fiscal year (FY ), 6.50% for FY , then grading down by 0.25% each year until an ultimate rate of 5.00% is reached after six years (FY 2022 and later). Fiscal Year 6/30/14 Valuation Trend: Non- Medicare 6/30/14 Valuation Trend: Medicare 6/30/15 Valuation Trend: Non- Medicare 6/30/15 Valuation Trend: Medicare % 7.00% % 6.75% 6.75% 6.75% % 6.50% 6.50% 6.50% % 6.25% 6.25% 6.25% % 6.00% 6.00% 6.00% % 5.75% 5.75% 5.75% % 5.50% 5.50% 5.50% % 5.25% 5.25% 5.25% 2022 and later 5.00% 5.00% 5.00% 5.00%

5 The per capita costs assumption, which has been adjusted to reflect current medical and dental plan premiums paid by LAFPP pensioners, has been reviewed by staff and found to be accurate. Beginning with the June 30, 2015 valuation, in accordance with changes to Actuarial Standards of Practice (ASOP) No. 6, Segal will begin to utilize age-adjusted per-capita costs based on the demographics of the group being valued and the group s total expected claims or premiums. (NOTE: This new requirement is not expected to have a significant impact on the plan s liabilities.) Additionally, Segal recommends that the Medicare Part B Premium and Dental Premium trend rates remain unchanged at 5% for all years. On July 15, 2011, the City Council adopted an ordinance to permanently freeze the health subsidies and reimbursements of LAFPP members retiring or entering DROP on or after July 15, 2011 and for those employees who did not opt to make an additional 2% contribution to vest future subsidy increases. On September 5, 2014, the Los Angeles County Superior Court issued an official Writ directing LAFPP to disregard the subsidy freeze when administering subsidy benefits. However, on November 12, 2014, in response to the appeal and writ filed by the City of Los Angeles, the Court of Appeal granted a stay on the Writ issued by the trial court on September 5th. As a result of the stay, beginning with the November 30, 2014 pension payments and until otherwise ordered by the court, LAFPP once again provided a frozen subsidy to those pensioners and to any future retirees who did not elect to contribute the additional 2% of their salary. Based on staff s direction, Segal will continue to reflect the subsidy freeze for impacted members when valuing the liabilities in the June 30, 2015 valuation. In addition, neither the Court Order nor the stay addressed the legality of the collection of the 2% contributions from members who had previously agreed to pay the additional amount so that they would not be subject to the subsidy freeze. Segal will therefore follow staff s direction to assume that those contributions will continue to be made by those members who opted-in. All other assumptions and methods will be consistent with those recommended in the June 30, 2010 to June 30, 2013 triennial experience study, which was adopted by the Board on July 17, 2014, including the economic and demographic assumptions. Segal has again noted the potential tax liability related to health care reform that possibly may need to be reported in future valuations. (The Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA) contain a provision that would impose a 40% excise tax on high-cost employer plans beginning in 2018.) Segal notes that the recently adopted Statements No. 74 and 75 by the Governmental Accounting Standards Board (GASB) for financial reporting purposes is expected to require the inclusion of the excise tax in the liability. For illustration purposes, in 2012 Segal provided staff with the estimated additional liability for the excise tax calculated as of June 30, 2011, which was less than 0.7%. Statement No. 74 is effective for fiscal years beginning after June 15, 2016 for plan reporting and Statement No. 75 is effective for fiscal years beginning after June 15, 2017 for employer reporting. Based on Brown Armstrong s (LAFPP s external auditor) continued advice, no adjustment to the net OPEB obligation will be made in the 2015 valuation. However, a contingency footnote will be included in the financial statements without disclosing any potential quantitative estimates or range of estimates. Mr. Andy Yeung of The Segal Company will be present at today s Board meeting. Board Report Page 2 September 3, 2015

6 BUDGET If adopted, the recommended assumptions will be used in the June 30, 2015 valuation, which will determine the City s contribution rate for the Fiscal Year. POLICY There are no policy changes as a result of this report. This report was prepared by: Robyn L. Wilder, Chief Benefits Analyst Pensions Division RPC:JS:RLW Attachment: Segal Letter Assumptions and Methods Recommended for the June 30, 2015 Retiree Health Actuarial Valuation Board Report Page 3 September 3, 2015

7 ATTACHMENT 100 Montgomery Street Suite 500 San Francisco, CA T VIA & USPS August 27, 2015 Mr. Raymond P. Ciranna General Manager Los Angeles Fire and Police Pension Plan 360 East Second Street, 6 th Floor Los Angeles, CA Re: Los Angeles Fire and Police Pension Plan Assumptions and Methods Recommended for the June 30, 2015 Retiree Health Actuarial Valuation Dear Ray: We have provided in this letter the health care related actuarial assumptions we recommend to the Board for the June 30, 2015 retiree health valuation. The health care trend assumptions used in the health valuation are reviewed annually. Every year Segal Consulting publishes a set of health care trend assumptions based on the latest research and information available to our health actuaries. The health care trend assumptions take into account factors such as: recent and expected premium increases affecting our clients, changes in utilization of health care and cost shifting from Medicare. Other assumptions such as the proportion of members expected to be covered by each health benefit provider (e.g. Kaiser, etc.) can sometimes be volatile due to the dynamic nature of the health care market place. That projection is typically based on the enrollment experience among the current retirees at the most recent annual open enrollment. Following are our recommended assumptions for the June 30, 2015 health plan valuation: 1. Health care trend assumptions The detailed health care trend assumptions we are recommending are outlined in Item 1 of the Attachment. Similar to the 2014 valuation, the recommended trend rates for Medicare and non- Medicare medical plans happen to be the same. In future years, if our analysis suggests, we may use separate trend rates for the two types of medical plans. Medicare rate changes are determined by the budgeting process in the Federal Government, whereas Non- Medicare rate changes are determined by private insurance carriers. Due to the different funding sources and dynamics involved, it is anticipated that rate changes in the future may differ between Medicare and Non-Medicare plans. Benefits, Compensation and HR Consulting. Member of The Segal Group. Offices throughout the United States and Canada

8 Mr. Raymond P. Ciranna August 27, 2015 Page 2 ATTACHMENT For this valuation, we are recommending the first year trend rate be set at 6.75% (this is unchanged from the second year trend rate of 6.75% assumed in the June 30, 2014 valuation), then grading down by 0.25% each year until an ultimate rate of 5.00% is reached after seven years. 2. In developing the ultimate health care trend assumption of 5.00%, we have continued to rely on Segal s research and analysis on long-term costs in the health care market as a whole. 3. Per capita health care costs These per capita costs are used to project the premiums for current active members when they retire. Based on the percentage of retired members, spouses and beneficiaries electing health coverage and the proportion of members enrolled in each available medical plan, we have developed the per capita health premium costs for a member who is covered in fiscal year Based on the June 30, 2015 membership data, we have provided in Items 2(a) and 2(b) of the Attachment the observed election rates among the different medical plans. The medical coverage election assumption is shown in item 3(j) of the Attachment. We have shown in Item 2(c) of the Attachment the per capita costs for members subject to the retiree medical freeze as those members have not agreed to make an additional 2% member contribution. We do understand that LAFPP has received a Court Order to no longer freeze the medical subsidies for these members but the City is currently appealing the Court Order. Based on LAFPP s direction, we will not reflect that Court Order when we value the liabilities in our June 30, 2015 valuation until such legal action is completed. The per capita costs and election rates for the dental plan for the June 30, 2015 valuation are also provided in Items 2(d) and 3(k) of the Attachment, respectively. In calculating the per capita health care costs, we have been following all the relevant and current Actuarial Standards of Practice (ASOP). As we pointed out in our 2014 assumptions letter dated September 24, 2014 ASOP No. 6, Measuring Retiree Group Benefits Obligations and Determining Retiree Group Benefits Program Periodic Costs or Actuarially Determined Contributions, has been modified and the new requirements are effective with the June 30, 2015 valuation for LAFPP. In particular, Section includes a requirement that: the actuary should use age-specific costs in the development of the initial per capita costs and in the projection of future benefit plan costs. In general, the development of the age-specific costs should be based on the demographics of the group being valued and the group s total expected claims or premiums. Any age ranges used should not be overly broad v1/

9 ATTACHMENT

10 1. Health Care Trend Rates ATTACHMENT ATTACHMENT Comparison of Current and Recommended Actuarial Assumptions For the June 30, 2015 Health Valuation MEDICAL TRENDS USED IN JUNE 30, 2014 VALUATION Trends to be applied in following fiscal years, to all health plans. Trend is to be applied to premium for shown fiscal year to calculate next fiscal year's projected premium. First Fiscal Year (July 1, 2014 through June 30, 2015) The fiscal year trend rates are the following: Trend (applied to calculate following year premium) Fiscal Year Non-Medicare Medicare % 7.00% % 6.75% % 6.50% % 6.25% % 6.00% % 5.75% % 5.50% % 5.25% 2022 and later 5.00% 5.00% Dental Premium Trend Medicare Part B Premium Trend 5.00% for all years 5.00% for all years v1/ SEGAL CONSULTING

11 ATTACHMENT 1. Health Care Trend Rates (continued) MEDICAL TRENDS PROPOSED FOR JUNE 30, 2015 VALUATION Trends to be applied in following fiscal years, to all health plans. Trend is to be applied to premium for shown fiscal year to calculate next fiscal year's projected premium. First Fiscal Year (July 1, 2015 through June 30, 2016) The fiscal year trend rates are the following: Trend (applied to calculate following year premium) Fiscal Year Non-Medicare Medicare % 6.75% % 6.50% % 6.25% % 6.00% % 5.75% % 5.50% % 5.25% 2022 and later 5.00% 5.00% Dental Premium Trend Medicare Part B Premium Trend 5.00% for all years 5.00% for all years v1/ SEGAL CONSULTING

12 ATTACHMENT 2. (a) Per Capita Costs and Election Rates Future retirees under age 65 are assumed, upon retirement, to elect carriers in the percents and corresponding premiums and subsidies as noted in the table below. Current retirees and current eligible survivors under age 65 are assumed to continue to cover themselves (and their spouse or domestic partner) but all children are assumed to age out at the valuation date Fiscal Year Single Party Married/With Domestic Partner Eligible Survivor Carrier Election Percent Monthly Maximum Monthly Maximum Monthly Maximum Observed Recommended Premium Subsidy Subsidy Premium Subsidy Subsidy Premium Subsidy Subsidy Fire Fire Medical $1, $1, $1, $1, $1, $1, $ $ $ Fire Kaiser $ $1, $ $1, $1, $1, $ $ $ Fire Blue Cross $1, $1, $1, $1, $1, $1, $1, $ $ Fire California Care $1, $1, $1, $1, $1, $1, $ $ $ Police Blue Cross PPO $ $1, $ $1, $1, $1, $ $ $ Blue Cross HMO $ $1, $ $1, $1, $1, $ $ $ Police Kaiser $ $1, $ $1, $1, $1, $ $ $ Fiscal Year Single Party Married/With Domestic Partner Eligible Survivor Carrier Election Percent Monthly Maximum Monthly Maximum Monthly Maximum Observed Recommended Premium Subsidy Subsidy Premium Subsidy Subsidy Premium Subsidy Subsidy Fire Fire Medical $1, $1, $1, $1, $1, $1, $ $ $ Fire Kaiser $ $1, $ $1, $1, $1, $ $ $ Fire Blue Cross $1, $1, $1, $1, $1, $1, $1, $ $ Fire California Care $1, $1, $1, $1, $1, $1, $ $ $ Police Blue Cross PPO $ $1, $ $1, $1, $1, $ $ $ Blue Cross HMO $ $1, $ $1, $1, $1, $ $ $ Police Kaiser $ $1, $ $1, $1, $1, $ $ $ v1/ SEGAL CONSULTING

13 ATTACHMENT 2. (b) Per Capita Costs and Election Rates Future retirees and current retirees under age 65 are assumed, upon reaching age 65, to elect carriers in the percents and corresponding premiums and subsidies as noted in the table below. Current retirees and current eligible survivors over age 65 are assumed to continue to cover themselves (and their spouse or domestic partner) but all children are assumed to age out at the valuation date Fiscal Year Single Party Married/With Domestic Partner Eligible Survivor Fire Carrier Observed Election Percent Recommended Monthly Premium Maximum Subsidy Subsidy Monthly Premium Maximum Subsidy Subsidy Monthly Premium Maximum Subsidy Fire Medical $ $ $ $ $ $ $ $ $ Fire Kaiser $ $ $ $ $ $ $ $ $ Fire Blue Cross $ $ $ $1, $1, $1, $ $ $ Fire California Care $ $ $ $1, $1, $1, $ $ $ Police Blue Cross PPO $ $ $ $ $ $ $ $ $ Blue Cross HMO $ $ $ $ $ $ $ $ $ Police Kaiser $ $ $ $ $ $ $ $ $ Subsidy Fiscal Year Single Party Married/With Domestic Partner Eligible Survivor Carrier Election Percent Monthly Maximum Monthly Maximum Monthly Maximum Observed Recommended Premium Subsidy Subsidy Premium Subsidy Subsidy Premium Subsidy Subsidy Fire Fire Medical $ $ $ $ $ $ $ $ $ Fire Kaiser $ $ $ $ $ $ $ $ $ Fire Blue Cross $ $ $ $1, $1, $1, $ $ $ Fire California Care $ $ $ $1, $1, $1, $ $ $ Police Blue Cross PPO $ $ $ $1, $ $ $ $ $ Blue Cross HMO $ $ $ $ $ $ $ $ $ Police Kaiser $ $ $ $ $ $ $ $ $ v1/ SEGAL CONSULTING

14 ATTACHMENT 2. (c) Per Capita Costs For Members Previously Subject to Retiree Medical Subsidy Freeze Single Party Married/With Domestic Partner Eligible Survivor Under 65 All Plans $1, $1, $ Over 65 Fire Medical $ $ $ Fire Kaiser $384.28* $ $384.28* Fire Blue Cross $ $1, $ Fire California Care $ $1, $ Police Blue Cross PPO $ $ $ Police Blue Cross HMO $478.79* $ $478.79* Police Kaiser $256.70* $ $256.70* *Future single-party subsidy levels limited to $ (d) Proposed Per Capita Costs used in June 30, 2015 Valuation Dental Plan Maximum Dental Subsidy Because almost all current retirees enrolled (see Item 3(k) for election assumption) in a dental plan are paying a premium in excess of the maximum subsidy, we will assume that 100% of future retirees with dental coverage will receive the maximum subsidy. Monthly Subsidy for Fiscal Year $ (e) Adjustment of Per Capita Medical Costs for Age, Gender and Spouse Status Applied to Per Capita Costs in Table 2(a) for Retiree Spouse Age Male Female Male Female Applied to Per Capita Costs in Table 2(b) for Retiree Spouse Age Male Female Male Female v1/ SEGAL CONSULTING

15 ATTACHMENT 3. Other Assumptions and Methods In the June 30, 2015, valuation, we will also apply the following assumptions and methodologies: a. Discount rate: 7.50% per annum, as recommended in our most recent economic assumptions study. b. Demographic assumptions: These include the incidence of service retirement, disability retirement, withdrawal, deferred vested retirement and death. We will apply the same assumptions that we recommended in the July 1, June 30, 2013 experience study and adopted by the Board on July 17, c. Funding methodologies: The Entry Age cost method, level percent of pay method will continue to be used in this valuation. d. Expected annual rate of increase in the Board s health subsidy amount: We will assume that the Board s health subsidy amount will: For all non-medicare retirees, increase at lesser of 7% or medical trend as shown on page 2, For Medicare retirees with single party premium, increase with medical trend as shown on page 2, For Medicare retirees with 2-Party premium less than or equal to the maximum subsidy as of July 1, 2015 (e.g. Fire Kaiser), increase with medical trend as shown on page 2, For Medicare retirees with 2-Party premium greater than the maximum subsidy as of July 1, 2015 (e.g. Police Blue Cross PPO), increase with lesser of 7% or medical trend as shown on page 2. e. Percentage of retirees over age 65 covered by Medicare Parts A and B: Because all active employees hired after 1986 must elect Medicare A and B coverage, we will assume 100% of future retirees will be covered by Medicare Parts A and B. f. Assets: We will use the seven-year smoothed actuarial value of asset method (with 60% to 140% Market Value Corridor) in our valuation. g. Implicit Subsidy: Unless directed otherwise by LAFPP, for valuation purposes, we will continue to proceed as if the insurance rates were underwritten separately for actives and retirees that no implicit subsidy need be valued. We are aware that a small (less than 3%) proportion of retirees under age 65 (enrolled in Fire Blue Cross and Fire California Care) may be receiving an implicit subsidy. However, because we consider the potential liability to be insignificant, we recommend that for the June 30, 2015 valuation, all premiums be treated as retiree-only v1/ SEGAL CONSULTING

16 ATTACHMENT h. Spouse Age Difference in Years for Retirees with Medical Coverage: Member Gender Average Observed Age Difference for Spouse Current Assumption Recommended Assumption Male Female The table below summarizes the data used to derive our results: New Male and Female Retirees Added in Last 3 Years Total Number with LAFPP Health Subsidy and Spouse or Domestic Partner Coverage 511 Average Retiree Age 58.5 Average Spouse Age 55.5 Average Age Difference, Rounded Down to Nearest Integer -3 i. Spousal or Domestic Partner Coverage: Observed Percentage Current Recommended Member Gender Coverage for Spouse Assumption Assumption Male and Female 78% 80% 80% The table below summarizes the data used to derive our results: Three Year Total Plan Year Ended June 30, 2015 Plan Year Ended June 30, 2014 Plan Year Ended June 30, 2013 New Retirees with LAFPP Health Subsidy New Retirees with LAFPP Health Subsidy with Spouse or Domestic Partner Coverage Spouse or Domestic Partner Coverage Percentage % v1/ SEGAL CONSULTING

17 ATTACHMENT j. Retiree Medical Coverage Election: The table below summarizes the figures for retirees eligible for LAFPP retiree medical coverage. Under 65 Service Range Observed for Current Retirees Current Assumption for Future Retirees Recommended Assumption for Future Retirees 10-14* 38.2% 45% 45% and over Over * 64.6% 80% 80% and over * Since retirees with years of service account for less than 5% of the retiree population and their observed enrollment percentages fluctuate from year to year, we have decided to leave the assumption unchanged. k. Retiree Dental Coverage Election: The table below summarizes the figures for retirees eligible for LAFPP retiree dental coverage. Observed for Current Retirees Current Assumption for Future Retirees Recommended Assumption for Future Retirees All Retirees 79.1% 80% 80% l. In the June 30, 2014 valuation, our retirement assumption for members enrolled in the DROP as of the valuation date matched the Pension Plan actuarial valuation. We will continue to assume in the June 30, 2015 valuation members will remain in the DROP for five years and then retire. m. Eligibility requirement changes since the prior valuation: Unless directed otherwise by LAFPP, we will assume that no changes in eligibility for benefits have occurred since the prior valuation v1/ SEGAL CONSULTING

18 ATTACHMENT n. Amortization period: Closed. On September 6, 2012, the Board adopted the following amortization policy: Type of Base Amortization Period (Closed) Actuarial Gains or Losses * 20 Assumption or Method Changes 25 Plan Amendments 15 ERIPs 5 Actuarial Surplus 30 * Retiree health assumption changes in this annual letter are treated as gains and losses and amortized over 20 years v1/ SEGAL CONSULTING

19 DEPARTMENT OF FIRE AND POLICE PENSIONS 360 East Second Street, Suite 400 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: SEPTEMBER 3, 2015 ITEM: A.2 FROM: RAYMOND P. CIRANNA, GENERAL MANAGER SUBJECT: GOVERNMENTAL ACCOUNTING STANDARDS (GAS) 68 ACTUARIAL VALUATION AS OF JUNE 30, 2015; GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB) STATEMENT NO. 68 REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014; AND POSSIBLE BOARD ACTION RECOMMENDATION It is recommended that the Board: 1. Review and approve the Governmental Accounting Standards (GAS) 68 Actuarial Valuation as of June 30, 2015; and, 2. Review and approve the Governmental Accounting Standards Board (GASB) 68 Statement No. 68 Report for the Fiscal Year Ended June 30, BACKGROUND In June 2012, the Government Accounting Standards Board (GASB) issued Statement No. 68, Accounting and Financial Reporting for Pensions an Amendment of GASB Statement No. 27, effective for plan years beginning after June 15, The primary objective of GAS 68 is to improve accounting and financial reporting of state and local government pension information. Requirements are intended to enhance decision-usefulness of this information. Plan sponsors will be implementing GAS 68 in their 2015 financial statements. GASB 68 requires employers to record their proportionate share of the total pension liability less the plan s fiduciary net position (i.e., net pension liability) on the face of their financial statements. A proportionate share of the total pension expense and collective deferred inflows of resources and deferred outflows of resources of the pension fund will also be reflected. Implementation of GAS 68 is included in LAFPP s Business Plan. Since 2014, staff has worked with our actuary (Segal Consulting), our external financial statement auditors (Brown Armstrong Accountancy Corporation), the City, and the City s external financial statements auditor to ensure successful implementation. DISCUSSION LAFPP s plan year beginning July 1, 2014 through June 30, 2015 is the first year for which GAS 68 applies. Segal Consulting prepared the GAS 68 Actuarial Valuation (Report). Brown

20 Armstrong Accountancy Corporation audited Segal s Report as reflected in the GASB 68 Statement No. 68 Report that includes the Independent Auditor s Report and Schedule of Employer Allocations for Fiscal Years ended June 30, 2014 and Once approved by the Board, these reports will be provided to the City with the following disclaimer: To complete their financial statements, each Employer (the City, and the Harbor Department) will need to record its own proportionate share of collective pension amounts for all benefits provided through LAFPP s pension plan. LAFPP has provided a schedule of pension amounts by Employer, prepared by the independent actuary Segal Consulting in accordance with the methodology set forth in GASB 68, based on data maintained and provided by LAFPP. This schedule has been audited by independent auditor Brown Armstrong Accountancy Corporation. Please note that LAFPP is not responsible for Employers compliance with the requirements of GASB 68. Employers are solely responsible for accurately presenting their financial statements within the requirements of GASB 68. CONCLUSION The GAS 68 Actuarial Valuation as of June 30, 2015 contains information and schedules that will assist the City and the Harbor Department in implementing the new reporting requirements for The new GASB rules redefine pension liability and expense for financial reporting, and do not apply to contribution amounts for pension funding purposes. For example, the new GASB rules impact financial reporting with respect to pension liability, total pension liability, and the treatment of the Deferred Retirement Option Plan (DROP), and do not impact contribution amounts or funding policies and practices. BUDGET Costs up to $25,000 are budgeted. POLICY There is no policy impact associated with this report. This report was prepared by: Erin J. Kenney, Departmental Audit Manager Internal Audit Section RPC/EJK Attachment 1. Governmental Accounting Standards (GAS) 68 Actuarial Valuation as of June 30, 2015 Attachment 2. Governmental Accounting Standards Board (GASB) 68 Statement No. 68 Report for the Fiscal Year Ended June 30, 2014 Board Report Page 2 September 3, 2015

21 City of Los Angeles Fire and Police Pension Plan Governmental Accounting Standards (GAS) 68 Actuarial Valuation as of June 30, 2015 This report has been prepared at the request of the Board of Commissioners to assist the sponsors of the Fund in preparing their financial report for the pension plan. This valuation report may not otherwise be copied or reproduced in any form without the consent of the Board of Commissioners and may only be provided to other parties in its entirety. The measurements shown in this actuarial valuation may not be applicable for other purposes. Copyright 2015 by The Segal Group, Inc. All rights reserved.

22 100 Montgomery Street Suite 500 San Francisco, CA T August 19, 2015 Board of Fire and Police Pension Commissioners City of Los Angeles Fire and Police Pension Plan 360 East Second Street, Suite 400 Los Angeles, CA Dear Board Members: We are pleased to submit this Governmental Accounting Standard (GAS) 68 Actuarial Valuation as of June 30, It contains various information that will need to be disclosed in order to comply with GAS 68. This report was prepared in accordance with generally accepted actuarial principles and practices at the request of the Board to assist the sponsors in preparing their financial report for the pension plan. The census and financial information on which our calculations were based was provided by LAFPP. That assistance is gratefully acknowledged. The measurements shown in this actuarial valuation may not be applicable for other purposes. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; and changes in plan provisions or applicable law. The actuarial calculations were completed under the supervision of Andy Yeung, ASA, MAAA, FCA, Enrolled Actuary. We are members of the American Academy of Actuaries and we meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion herein. To the best of our knowledge, the information supplied in the actuarial valuation is complete and accurate. Further, in our opinion, the assumptions as approved by the Board are reasonably related to the experience of and expectations for LAFPP. We look forward to reviewing this report with you and to answering any questions. Sincerely, Segal Consulting, a Member of The Segal Group, Inc. By: EK/hy Paul Angelo, FSA, MAAA, FCA, EA Senior Vice President and Actuary Andy Yeung, ASA, MAAA, FCA, EA Vice President and Associate Actuary v2/

23 SECTION 1 SECTION 2 SECTION 2 (CONTINUED) SECTION 3 VALUATION SUMMARY GAS 68 INFORMATION ACTUARIAL ASSUMPTIONS AND METHODS AND APPENDICES Purpose... i Significant Issues in Valuation Year... i Summary of Key Valuation Results... iv Important Information about Actuarial Valuations... v EXHIBIT 1 General Information Financial Statements, Note Disclosures and Required Supplementary Information for a Single- Employer Pension Plan... 1 EXHIBIT 2 Net Pension Liability... 4 EXHIBIT 3 Target Asset Allocation... 5 EXHIBIT 4 Discount Rate Sensitivity... 7 EXHIBIT 8 Pension Expense EXHIBIT 9 Deferred Outflows of Resources and Deferred Inflows of Resources EXHIBIT 10 Schedule of Proportionate Share of the Net Pension Liability EXHIBIT 11 Schedule of Reconciliation of Net Pension Liability Actuarial Assumptions and Methods Appendix A Calculation of Discount Rate as of June 30, Appendix B Glossary of Terms EXHIBIT 5 Schedule of Changes in Net Pension Liability Last Two Fiscal Years... 8 EXHIBIT 12 Schedule of Recognition of Changes in Total Net Pension Liability EXHIBIT 6 Schedule of Employer Contributions Last Ten Fiscal Years... 9 EXHIBIT 13 Allocation of Changes in Total Net Pension Liability EXHIBIT 7 Determination of Proportionate Share... 11

24 SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan Purpose This report has been prepared by Segal Consulting to present certain disclosure information required by Governmental Accounting Standard (GAS) 68 as of June 30, The results used in preparing this GAS 68 report are comparable to those used in preparing the Governmental Accounting Standard (GAS) 67 report for the plan based on a reporting date and a measurement date as of June 30, This valuation is based on: The benefit provisions of the Pension Plan, as administered by the Board of Commissioners; The characteristics of covered active members, terminated vested members, and retired members and beneficiaries as of June 30, 2013, provided by LAFPP; The assets of the Plan as of June 30, 2014, provided by LAFPP; Economic assumptions regarding future salary increases and investment earnings; and Other actuarial assumptions, regarding employee terminations, retirement, death, etc. Significant Issues in Valuation Year The following key findings were the result of this actuarial valuation: The Governmental Accounting Standards Board (GASB) approved two new Statements affecting the reporting of pension liabilities for accounting purposes. Statement 67 replaces Statement 25 and is for plan reporting. Statement 68 replaces Statement 27 and is for employer reporting. Statement 67 is effective with the fiscal year ending June 30, 2014 for Plan reporting and Statement 68 is effective with the fiscal year ending June 30, 2015 for employer reporting. The information contained in this valuation is intended to be used (along with other information) in order to comply with Statement 68. It is important to note that the new GASB rules only redefine pension liability and expense for financial reporting purposes, and do not apply to contribution amounts for pension funding purposes. Employers and plans can still develop and adopt funding policies under current practices. When measuring pension liability GASB uses the same actuarial cost method (Entry Age method) and the same type of discount rate (expected return on assets) as LAFPP uses for funding. Note that, with regard to the actuarial cost method, the new GASB rules use a version of the Entry Age method where the Total Pension Liability (TPL) must be fully accrued by the time a member either enters the DROP or is expected to elect the DROP. This is in contrast to the version of the Entry Age method used for funding, where the Actuarial Accrued Liability (AAL) is not fully accrued i

25 SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan until members retire from employment after participation in the DROP. Under the GASB method, actives who are expected to enroll in the DROP in the future would report an annual Service Cost that is higher than the Normal Cost used for funding, while members already in the DROP would report no Service Cost even though their Normal Cost continues to accrue for funding. As the service retirement rates we use in the funding valuation have been developed based on the later date of exit from the DROP, we have adjusted those rates in this valuation so that they are based on the earlier date of first participation in the DROP. Those rates are provided in Section 3. The Net Pension Liability (NPL) is equal to the difference between the TPL and the Plan s Fiduciary Net Position. The Plan s Fiduciary Net Position is equal to the market value of assets and therefore, the NPL measure is very similar to an Unfunded Actuarial Accrued Liability (UAAL) calculated on a market value basis. The NPL decreased from $3.584 billion as of June 30, 2013 to $1.872 billion as of June 30, 2014, primarily as a result of favorable investment results during 2013/2014 and the change in actuarial assumptions as of June 30, Changes in these values during the last two fiscal years ending June 30, 2013 and June 30, 2014 can be found in Exhibit 5. For this report, the reporting dates for the employer are June 30, 2015 and June 30, The NPLs measured as of June 30, 2014 and 2013 have been determined by rolling forward the TPL from actuarial valuations as of June 30, 2013 and 2012, respectively. The Plan s Fiduciary Net Position (plan assets) was valued as of the measurement dates. Consistent with the provisions of GAS 68, the assets and liabilities measured as of June 30, 2014 and June 30, 2013 are not adjusted or rolled forward to the respective June 30, 2015 and June 30, 2014 reporting dates. The discount rates used to determine the TPL and NPL as of June 30, 2014 and 2013 were 7.75% and 7.75%, respectively, following the same assumptions used by LAFPP in the funding valuations as of June 30, 2013 and June 30, However, as the Board of Commissioners has approved a new discount rate of 7.50% (together with other new actuarial assumptions) for use in the next pension funding valuation as of June 30, 2014, we have estimated the impact of this assumption change by (1) revaluing the actuarial valuation TPL as of June 30, 2013 (before the roll forward) and (2) using this revalued TPL in rolling forward the results from June 30, 2013 to June 30, The detailed calculations used in the derivation of the discount rate can be found in Appendix A of Section 3. Various other information that is required to be disclosed can be found throughout Exhibits 1 through 13 in Section 2. ii

26 SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan It should be noted that there are two member categories in LAFPP: (1) the Harbor Port Police (an enterprise fund) and (2) the other members associated with the City s Fire and Police Departments. We have been directed by LAFPP to provide the pension expense and NPL for each of the two member categories. Both the pension expense and the NPL for each member category have been obtained from internal valuation results which have been developed separately for each of the members associated with the Fire and Police Departments and the Harbor Port Police. The Plan Fiduciary Net Position for each membership category was estimated by adjusting the valuation value of assets for each membership category by the ratio of the total LAFPP Plan Fiduciary Net Position to total LAFPP valuation value of assets. Results shown in this report exclude any employer contributions made after the measurement date of June 30, Employers should consult with their auditors to determine the deferred outflow that should be created for these contributions. iii

27 SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan Summary of Key Valuation Results Reporting Date for Employer under GAS 68 6/30/2015 (1) 6/30/2014 (2) Measurement Date for Employer under GAS 68 6/30/2014 6/30/2013 Disclosure elements for fiscal year ending June 30: 1. Service cost (3) $368,017,648 $361,192, Total Pension Liability 18,861,992,028 18,264,528, Plan s Fiduciary Net Position 16,989,704,585 14,680,373, Net Pension Liability 1,872,287,443 3,584,155, Pension expense $148,766,618 N/A Schedule of contributions for fiscal year ending June 30: 6. Actuarially determined contributions $440,698,260 $375,448, Actual Contributions 440,698, ,448, Contribution deficiency (excess) (6) (7) 0 0 Demographic data for plan year ending June 30: 9. Number of retired members and beneficiaries 12,502 12, Number of vested terminated members (4) Number of DROP members 1,277 1, Number of active members 11,820 12,033 Key assumptions as of June 30: 13. Investment rate of return 7.50% 7.75% 14. Inflation rate 3.25% 3.50% 15. Projected salary increases (5) Ranges from 4.75% to 11.50% based on years of service Ranges from 5.25% to 12.25% based on years of service (1) The reporting date and measurement date for the plan are June 30, (2) The reporting date and measurement date for the plan are June 30, (3) Please note that service cost is always based on the previous year s assumptions, meaning both values are based on the assumptions shown as of June 30, (4) Includes terminated members due only a refund of member contributions. (5) Includes inflation at 3.25% (3.50% for the June 30, 2013 valuation) plus a real across-the-board salary increase of 0.75% plus merit and promotional increases that vary by service. iv

28 SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan Important Information about Actuarial Valuations In order to prepare an actuarial valuation, Segal Consulting ( Segal ) relies on a number of input items. These include: Plan of benefits Plan provisions define the rules that will be used to determine benefit payments, and those rules, or the interpretation of them, may change over time. It is important to keep Segal informed with respect to plan provisions and administrative procedures, and to review the plan description in this report (as well as the plan summary included in our funding valuation report) to confirm that Segal has correctly interpreted the plan of benefits. Participant data An actuarial valuation for a plan is based on data provided to the actuary by LAFPP. Segal does not audit such data for completeness or accuracy, other than reviewing it for obvious inconsistencies compared to prior data and other information that appears unreasonable. It is important for Segal to receive the best possible data and to be informed about any known incomplete or inaccurate data. Assets This valuation is based on the market value of assets as of the valuation date, as provided by LAFPP. Actuarial assumptions In preparing an actuarial valuation, Segal projects the benefits to be paid to existing plan participants for the rest of their lives and the lives of their beneficiaries. This projection requires actuarial assumptions as to the probability of death, disability, withdrawal, and retirement of each participant for each year. In addition, the benefits projected to be paid for each of those events in each future year reflect actuarial assumptions as to salary increases and cost-of-living adjustments. The projected benefits are then discounted to a present value, based on the assumed rate of return that is expected to be achieved on the plan s assets. There is a reasonable range for each assumption used in the projection and the results may vary materially based on which assumptions are selected. It is important for any user of an actuarial valuation to understand this concept. Actuarial assumptions are periodically reviewed to ensure that future valuations reflect emerging plan experience. While future changes in actuarial assumptions may have a significant impact on the reported results, that does not mean that the previous assumptions were unreasonable. The user of Segal s actuarial valuation (or other actuarial calculations) should keep the following in mind: The valuation is prepared at the request of the Board to assist the sponsors of the Fund in preparing items related to the pension plan in their financial reports. Segal is not responsible for the use or misuse of its report, particularly by any other party. An actuarial valuation is a measurement of the plan s assets and liabilities at a specific date. Accordingly, except where otherwise noted, Segal did not perform an analysis of the potential range of future financial measures. The actual long-term cost of the plan will be determined by the actual benefits and expenses paid and the actual investment experience of the plan. v

29 SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan If LAFPP is aware of any event or trend that was not considered in this valuation that may materially change the results of the valuation, Segal should be advised, so that we can evaluate it. Segal does not provide investment, legal, accounting, or tax advice. Segal s valuation is based on our understanding of applicable guidance in these areas and of the plan s provisions, but they may be subject to alternative interpretations. The Board should look to their other advisors for expertise in these areas. As Segal Consulting has no discretionary authority with respect to the management or assets of LAFPP, it is not a fiduciary in its capacity as actuaries and consultants with respect to LAFPP. vi

30 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 1 General Information Financial Statements, Note Disclosures and Required Supplementary Information for a Single-Employer Pension Plan Plan Description Plan administration. The City of Los Angeles Fire and Police Plan (LAFPP) was established by the City of Los Angeles in LAFPP is a single employer public employee retirement system whose main function is to provide retirement benefits to the safety members employed by the City of Los Angeles. It should be noted that there are two member categories in LAFPP: (1) the Harbor Port Police (an enterprise fund) and (2) the other members associated with the City s Fire and Police Departments. The Fire and Police Pension Plan is administered by a Board of Commissioners composed of five commissioners who are appointed by the Mayor, two commissioners elected by Police Members of the Plan and two commissioners elected by Fire Members of the Plan. Under provisions of the City Charter, the City Administrative Code and the State Constitution, the Board has the responsibility to administer the Plan. Plan membership. At June 30, 2014, pension plan membership consisted of the following: Retired members or beneficiaries currently receiving benefits 12,502 Vested terminated members entitled to but not yet receiving benefits (1) 131 DROP members 1,277 Active members 11,820 Total 25,730 (1) Includes terminated members due only a refund of member contributions. Benefits provided. LAFPP provides service retirement, disability, death and survivor benefits to eligible sworn members of the Los Angeles Fire, Police and Harbor Departments. Sworn employees become members upon graduation from the Police Academy or Fire Drill Tower. There are currently six tiers applicable to members of the LAFPP. Tier 1 includes members hired on or before January 28, Tier 2 includes members hired from January 29, 1967 through December 7, 1980, and those Tier 1 members who transferred to Tier 2 during the enrollment period of January 29, 1967 to January 29, Tier 3 includes members hired from December 8, 1980 through June 30, 1997 and those Tier 4 members hired during the period of July 1, 1997 through December 31, 1997 who elected to transfer to Tier 3 by the enrollment deadline of June 30, Tier 4 includes members 1

31 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan hired from July 1, 1997 through December 31, 2001 and those Tier 3 members who elected to transfer to Tier 4 by the enrollment deadline of June 30, Tier 5 includes members hired from January 1, 2002 through June 30, 2011 and those active members of Tiers 2, 3, or 4 who elected to transfer to Tier 5 during the enrollment period of January 2, 2002 through December 31, Tier 6 was established for all firefighters and police officers hired on or after July 1, Tier 1, Tier 2, and Tier 4 members are eligible to retire once they attain 20 years of service. Tier 3 members are eligible to retire once they reach age 50 and have attained 10 or more years of service. Tier 5 and Tier 6 members are eligible to retire once they reach age 50 and have attained 20 or more years of service. The Service Retirement benefit the member will receive is based upon age at retirement, final average compensation, years of retirement service credit and tier. The Tier 1 Service Retirement benefit is calculated pursuant to the provisions of Section 1304 of the Los Angeles Charter. The monthly allowance for a member with between 20 to 25 years of service who retires from active status is equal to 40% of the average monthly rate of salary assigned to the ranks or positions held by the member during the three years immediately preceding the date of his/her retirement plus 2% of the average rate of salary for each year of service in excess of 20 years. The monthly allowance for a member with between 25 to 34 years of service who retires from active status is equal to 50% of the average monthly rate of salary assigned to the ranks or positions held by the member during the three years immediately preceding the date of his/her retirement plus 1 2/3% of the average rate of salary for each year of service in excess of 25 years. The monthly allowance for a member with 35 or more years of service who retires from active status is equal to 66 2/3% of the average monthly rate of salary assigned to the ranks or positions held by the member during the three years immediately preceding the date of his/her retirement. The Tier 2 Service Retirement benefit is calculated pursuant to the provisions of Section 1408 of the Los Angeles Charter. The monthly allowance for a member with less than 25 years of service who retires from active status is equal to 2% of Normal Pension Base per year of service. The monthly allowance for a member with 25 or more years of service who retires from active status is equal to 55% of Normal Pension Base plus 3% per year over 25 of Normal Pension Base, with a maximum of 70% of Normal Pension Base. The Tier 3 Service Retirement benefit is calculated pursuant to the provisions of Section 1504 of the Los Angeles Charter. The monthly allowance for a member with less than 20 years of service who retires from active status is equal to 2% of Final Average Salary per year of service. The monthly allowance for a member with 20 or more years of service who retires from active status is equal to 40% of Final Average Salary plus 3% per year over 20 of Final Average Salary, with a maximum of 70% of Final Average Salary. The Tier 4 Service Retirement benefit is calculated pursuant to the provisions of Section 1604 of the Los Angeles Charter. The monthly allowance for a member who retires from active status is equal to 40% of Final Average Salary plus 3% per year of service over 20, with a maximum of 70% of Final Average Salary. 2

32 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan The Tier 5 Service Retirement benefit is calculated pursuant to the provisions of Section of the Los Angeles Administrative Code. The monthly allowance for a member who retires from active status is equal to 50% of Final Average Salary plus 3% per year of service over 20, except for the 30th year, where 4% is provided, with a maximum of 90% of Final Average Salary. The Tier 6 Service Retirement benefit is calculated pursuant to the provisions of Section 1704 of the Los Angeles Charter. The monthly allowance for a member who retires from active status is equal to 40% of Final Average Salary, plus 3% of Final Average Salary per year of service from 21 through 25, 4% of Final Average Salary per year of service from 26 through 30, and 5% of Final Average Salary per year of service over 30, with a maximum of 90% of Final Average Salary. Under Tier 1, pension benefits are calculated based on the average monthly rate of salary assigned to the ranks or positions held by the member during the three years immediately preceding the date of his/her retirement. Under Tier 2, pension benefits are calculated based on the Normal Pension Base, the final monthly salary rate. Under Tiers 3 6, pension benefits are calculated based on the Final Average Salary. Under Tiers 3 5, the Final Average Salary is the highest monthly average salary actually received during any 12 consecutive months of service. Under Tier 6 the Final Average Salary is the highest monthly average salary actually received during any 24 consecutive months of service. LAFPP provides annual cost-of-living adjustments (COLAs) to retirees. The cost-of-living adjustments are made each July 1 and vary by Tier. Under Tier 1 and Tier 2, the COLA is based on the percentage change in the average of the Consumer Price Index for the Los Angeles-Riverside-Orange County Area--All Items For All Urban Consumers. Under Tier 3 and Tier 4, the COLA is the same as under Tier 1 and Tier 2 but is capped at 3%, with a prorated COLA in the first year of retirement. Under Tier 5 and Tier 6, the COLA is the same as under Tier 3 and Tier 4, with the excess of the COLA over 3% banked for future use when the COLA is under 3%. The City of Los Angeles contributes to the retirement plan based upon actuarially determined contribution rates adopted by the Board of Commissioners based upon recommendations received from LAFPP s actuary after the completion of the annual actuarial valuation. The average employer contribution rate for fiscal year (based on the June 30, 2012 valuation) was 33.69% of compensation if paid on July 15, All members are required to make contributions to LAFPP regardless of tier in which they are included. However, members are exempt from making contributions when their continuous service exceeds 30 years for Tiers 1 through 4, and 33 years for Tier 5 and Tier 6. The average member contribution rate for fiscal year (based on the June 30, 2012 valuation) was 9.51% of compensation paid biweekly. 3

33 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 2 Net Pension Liability Reporting Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Measurement Date for Employer under GAS 68 June 30, 2014 June 30, 2013 The components of the Net Pension Liability are as follows: Total Pension Liability $18,861,992,028 $18,264,528,081 Plan s Fiduciary Net Position 16,989,704,585 14,680,373,040 Net Pension Liability $1,872,287,443 $3,584,155,041 Plan s Fiduciary Net Position as a percentage of the Total Pension Liability 90.07% 80.38% The Net Pension Liability (NPL) was measured as of June 30, 2014 and The Plan s Fiduciary Net Position (plan assets) was valued as of the measurement date while the Total Pension Liability (TPL) was determined based upon rolling forward the TPL from actuarial valuations as of June 30, 2013 and 2012, respectively. Plan provisions. The plan provisions used in the measurement of the NPL are the same as those used in the LAFPP actuarial valuation as of June 30, Actuarial assumptions and methods. The total pension liability as of June 30, 2014 was remeasured as of June 30, 2014 to reflect the following actuarial assumptions that the Board of Commissioners has approved for use in the pension funding valuation as of June 30, 2014: Inflation 3.25% Salary increases Ranges from 4.75% to 11.50% based on years of service, including inflation Investment rate of return 7.50%, including inflation but net of Pension Plan investment expense Other assumptions See analysis of actuarial experience during the period July 1, 2010 through June 30, 2013 and Section 3 for the service retirement rates after they have been adjusted to be based on the assumed date of first participation in the DROP. 4

34 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 3 Target Asset Allocation The long-term expected rate of return on pension plan investments was determined in 2014 using a building-block method in which expected future real rates of return (expected returns, net of inflation) are developed for each major asset class. These returns are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage, adding expected inflation and subtracting expected investment expenses and a risk margin. The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation but before investment expenses, used in the derivation of the long-term expected investment rate of return assumption are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Large Cap U.S. Equity 23.00% 6.03% Small Cap U.S. Equity 6.00% 6.71% Developed International Equity 16.00% 6.71% Emerging Markets Equity 5.00% 8.02% U.S. Core Fixed Income 14.00% 0.52% High Yield Bonds 3.00% 2.81% Real Estate 10.00% 4.73% TIPS 5.00% 0.43% Commodities 5.00% 4.67% Cash 1.00% -0.19% Unconstrained Fixed Income 2.00% 2.50% Private Equity 10.00% 9.25% Total Portfolio % 5.12% Discount rate: The discount rate used to measure the Total Pension Liability (TPL) was 7.50% and 7.75% as of June 30, 2014 and June 30, 2013, respectively. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rates for each tier and that employer contributions will be made at rates equal to the actuarially determined contribution rates for each tier. For this purpose, only employer contributions that are intended to fund benefits for current plan members and their beneficiaries are included. Projected employer contributions that are intended to fund the service costs for future plan members and their beneficiaries, as well 5

35 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan as projected contributions from future plan members, are not included. Based on those assumptions, the Pension Plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments for current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the TPL as of both June 30, 2014 and June 30,

36 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 4 Discount Rate Sensitivity Sensitivity of the Net Pension Liability to changes in the discount rate. The following presents the Net Pension Liability (NPL) of LAFPP as of June 30, 2014, calculated using the discount rate of 7.50%, as well as what LAFPP s NPL would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50%) than the current rate: Net Pension Liability 1% Decrease (6.50%) Current Discount Rate (7.50%) 1% Increase (8.50%) Fire and Police $4,366,137,036 $1,861,824,464 $(196,339,518) Harbor Port Police 19,891,987 10,462,979 3,527,366 Total for the City $4,386,029,023 $1,872,287,443 ($192,812,153) 7

37 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 5 Schedule of Changes in Net Pension Liability Last Two Fiscal Years Reporting Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Measurement Date for Employer under GAS 68 June 30, 2014 June 30, 2013 Total Pension Liability 1. Service cost $368,017,648 $361,192, Interest 1,392,552,174 1,344,600, Change of benefit terms Differences between expected and actual experience -234,637, ,388, Changes of assumptions -69,482, Benefit payments, including refunds of member contributions -858,986, ,503, Net change in Total Pension Liability $597,463,947 $414,900, Total Pension Liability beginning 18,264,528,081 17,849,627, Total Pension Liability ending $18,861,992,028 $18,264,528,081 Plan s Fiduciary Net Position 10. Contributions employer $440,698,260 $375,448, Contributions employee 124,394, ,777, Net investment income 2,617,089,650 1,707,776, Benefit payments, including refunds of member contributions -858,986, ,503, Administrative expense -13,865,199-12,200, Other Net change in Plan s Fiduciary Net Position $2,309,331,545 $1,333,298, Plan s Fiduciary Net Position beginning 14,680,373,040 13,347,074, Plan s Fiduciary Net Position ending $16,989,704,585 $14,680,373, Net Pension Liability ending (9) (18) $1,872,287,443 $3,584,155, Plan s Fiduciary Net Position as a percentage of the Total Pension Liability 90.07% 80.38% 21. Covered employee payroll (1) $1,308,148,504 $1,277,031, Plan s Net Pension Liability as percentage of covered employee payroll % % (1) Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories. 8

38 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 6 Schedule of Employer Contributions Last Ten Fiscal Years Year Ended June 30 Actuarially Determined Contributions (1) Contributions in Relation to the Actuarially Determined Contributions Contribution Deficiency (Excess) Covered-Employee Payroll (2) Contributions as a Percentage of Covered Employee Payroll (3) 2005 $135,853,688 $135,853,688 $0 N/A (4) N/A (4) ,945, ,945,802 0 N/A (4) N/A (4) ,946, ,946,082 0 $1,130,296, % 2008 (5) 261,635, ,635, ,188,972, % ,697, ,697, ,253,658, % ,516, ,516, ,266,311, % ,092, ,092, ,289,856, % ,593, ,593, ,213,395, % ,448, ,448, ,277,031, % ,698, ,698, ,308,148, % See accompanying notes to this schedule on next page. (1) (2) (3) (4) (5) All Actuarially Determined Contributions through June 30, 2014 were determined as the Annual Required Contribution under GAS 25 and 27. Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories. Contribution rate as a percentage of payroll reflects discount applied when the employer prepays its contributions. This rate has been backed into by dividing the actual contributions by the budgeted covered-employee payroll. Not available. Figures include amounts transferred and contributed during the fiscal year that were related to the transfer of certain Harbor Port Police members from the Los Angeles City Employees Retirement System into LAFPP. 9

39 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan Notes to Exhibit 6 Methods and assumptions used to establish actuarially determined contribution rates: Valuation date Actuarially determined contribution rates are calculated as of June 30, two years prior to the end of the fiscal year in which contributions are reported Actuarial cost method Entry Age Actuarial Cost Method Amortization method For Tier 1, level dollar amortization is used with last period ending on June 30, For Tiers 2, 3 and 4, level percent of payroll amortization with multiple layers is used as a percent of total valuation payroll from the respective employer (i.e., City or Harbor Port Police). For Tiers 5 and 6, level percent of payroll with multiple layers is used as a percent of combined payroll for these tiers from the respective employer (i.e., City or Harbor Port Police). Remaining amortization period Actuarial gains/losses are amortized over 20 years. Assumption changes are amortized over 25 years. Plan changes are amortized over 15 years. Asset valuation method Market value of assets less unrecognized returns in each of the last seven years. Unrecognized return is equal to the difference between the actual market return and the expected return on the market value, and is recognized over a seven-year period. Deferred gains and losses as of June 30, 2013 have been combined and will be recognized over a period of six years from July 1, The actuarial value of assets is further adjusted, if necessary, to be within 40% of the market value of assets. Before Reflection of Assumptions Approved After Reflection of Assumptions Approved Actuarial assumptions: for Pension Funding Valuation for Pension Funding Valuation as of June 30, 2014 as of June 30, 2014 Investment rate of return 7.75%, net of administrative expenses 7.50%, gross of administrative expenses Inflation rate 3.50% 3.25% Real across-the-board salary increase 0.75% 0.75% Projected salary increases (1) Ranges from 5.25% to 12.25% based on years of service Ranges from 4.75% to 11.50% based on years of service Cost of living adjustments 3.50% of Tiers 1 and 2 retirement income and 3.00% of Tiers 3, 4, 5, and 6 retirement income. Other assumptions Same as those used in the June 30, 2013 funding actuarial valuation 3.25% of Tiers 1 and 2 retirement income and 3.00% of Tiers 3, 4, 5, and 6 retirement income. See analysis of actuarial experience during the period July 1, 2010 through June 30, 2013 (1) Includes inflation at 3.25% (3.50% for the June 30, 2013 valuation) plus real across-the-board salary increase of 0.75% plus merit and promotional increases that vary by service. 10

40 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 7 Determination of Proportionate Share Allocation of June 30, 2014 Net Pension Liability Member Category Total NPL Fire and Police $1,861,824,464 Harbor Port Police 10,462,979 Total for the City $1,872,287,443 Notes: The Net Pension Liability (NPL) for each member category is the Total Pension Liability (TPL) minus the Plan Fiduciary Net Position (plan assets). The Total Pension Liability for each member category is obtained from internal valuation results and is calculated separately for each of the members associated with the Fire and Police Departments and the Harbor Port Police. The Plan Fiduciary Net Position for each membership category was estimated by adjusting the valuation value of assets for each membership category by the ratio of the total LAFPP Plan s Fiduciary Net Position to total LAFPP valuation value of assets. The following items are allocated based on the internal valuation results maintained and calculated separately for each of the members associated with the Fire and Police Departments and the Harbor Port Police. 1) Net Pension Liability 2) Service cost 3) Interest on the Total Pension Liability 4) Expensed portion of current-period benefit changes 5) Expensed portion of current-period difference between expected and actual experience in the Total Pension Liability 6) Member contributions 7) Projected earnings on plan investments 8) Expensed portion of current-period differences between actual and projected earnings on plan investments 9) Administrative expense 10) Recognition of beginning of year deferred outflows of resources as pension expense 11) Recognition of beginning of year deferred inflows of resources as pension expense 11

41 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 8 Pension Expense Total for all Employers Reporting Date for Employer under GAS 68 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2014 Components of Pension Expense 1. Service cost $368,017, Interest on the Total Pension Liability 1,392,552, Expensed portion of current-period changes in proportion and differences between employer's contributions and proportionate share of contributions 0 4. Expensed portion of current-period benefit changes 0 5. Expensed portion of current-period difference between expected and actual experience in the Total Pension Liability (41,020,550) 6. Expensed portion of current-period changes of assumptions or other inputs (12,147,251) 7. Member contributions (124,394,889) 8. Projected earnings on plan investments (1,155,859,729) 9. Expensed portion of current-period differences between actual and projected earnings on plan investments (292,245,984) 10. Administrative expense 13,865, Other Recognition of beginning of year deferred outflows of resources as pension expense Recognition of beginning of year deferred inflows of resources as pension expense Net amortization of deferred amounts from changes in proportion and differences between employer s contributions and proportionate share of contributions 0 Pension Expense $148,766,618 12

42 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 8 (continued) Pension Expense Fire and Police Reporting Date for Employer under GAS 68 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2014 Components of Pension Expense 1. Service cost $364,618, Interest on the Total Pension Liability 1,388,872, Expensed portion of current-period changes in proportion and differences between employer's contributions and proportionate share of contributions 0 4. Expensed portion of current-period benefit changes 0 5. Expensed portion of current-period difference between expected and actual experience in the Total Pension Liability (40,983,473) 6. Expensed portion of current-period changes of assumptions or other inputs (12,063,325) 7. Member contributions (123,456,579) 8. Projected earnings on plan investments (1,153,225,966) 9. Expensed portion of current-period differences between actual and projected earnings on plan investments (291,560,899) 10. Administrative expense 13,833, Other Recognition of beginning of year deferred outflows of resources as pension expense Recognition of beginning of year deferred inflows of resources as pension expense Net amortization of deferred amounts from changes in proportion and differences between employer s contributions and proportionate share of contributions 0 Pension Expense $146,035,124 13

43 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 8 (continued) Pension Expense Harbor Port Police Reporting Date for Employer under GAS 68 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2014 Components of Pension Expense 1. Service cost $3,398, Interest on the Total Pension Liability 3,679, Expensed portion of current-period changes in proportion and differences between employer's contributions and proportionate share of contributions 0 4. Expensed portion of current-period benefit changes 0 5. Expensed portion of current-period difference between expected and actual experience in the Total Pension Liability (37,077) 6. Expensed portion of current-period changes of assumptions or other inputs (83,926) 7. Member contributions (938,310) 8. Projected earnings on plan investments (2,633,763) 9. Expensed portion of current-period differences between actual and projected earnings on plan investments (685,085) 10. Administrative expense 31, Other Recognition of beginning of year deferred outflows of resources as pension expense Recognition of beginning of year deferred inflows of resources as pension expense Net amortization of deferred amounts from changes in proportion and differences between employer s contributions and proportionate share of contributions 0 Pension Expense $2,731,494 14

44 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 9 Deferred Outflows of Resources and Deferred Inflows of Resources Total for all Employers Reporting Date for Employer under GAS 68 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2014 Deferred Outflows of Resources 1. Changes in proportion and differences between employer's contributions and proportionate share of contributions (1) $0 2. Changes of assumptions or other inputs 0 3. Net difference between projected and actual earnings on pension plan investments 0 4. Difference between expected and actual experience in the Total Pension Liability 0 5. Total Deferred Outflows of Resources $0 Deferred Inflows of Resources 6. Changes in proportion and differences between employer's contributions and proportionate share of contributions (1) $0 7. Changes of assumptions or other inputs 57,335, Net difference between projected and actual earnings on pension plan investments 1,168,983, Difference between expected and actual experience in the Total Pension Liability 193,616, Total Deferred Inflows of Resources $1,419,935,956 Deferred outflows of resources and deferred inflows of resources related to pension will be recognized as follows: Reporting Date for Employer under GAS 68 Year Ended June 30: 2016 $(345,413,785) 2017 (345,413,785) 2018 (345,413,785) 2019 (345,413,786) 2020 (38,280,815) Thereafter 0 (1) Calculated in accordance with Paragraphs 54 and 55 of GAS

45 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 9 (continued) Deferred Outflows of Resources and Deferred Inflows of Resources Fire and Police Reporting Date for Employer under GAS 68 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2014 Deferred Outflows of Resources 1. Changes in proportion and differences between employer's contributions and proportionate share of contributions (1) $0 2. Changes of assumptions or other inputs 0 3. Net difference between projected and actual earnings on pension plan investments 0 4. Difference between expected and actual experience in the Total Pension Liability 0 5. Total Deferred Outflows of Resources $0 Deferred Inflows of Resources 6. Changes in proportion and differences between employer's contributions and proportionate share of contributions (1) $0 7. Changes of assumptions or other inputs 56,938, Net difference between projected and actual earnings on pension plan investments 1,166,243, Difference between expected and actual experience in the Total Pension Liability 193,441, Total Deferred Inflows of Resources $1,416,624,478 Deferred outflows of resources and deferred inflows of resources related to pension will be recognized as follows: Reporting Date for Employer under GAS 68 Year Ended June 30: 2016 $(344,607,697) 2017 (344,607,697) 2018 (344,607,697) 2019 (344,607,697) 2020 (38,193,690) (1) Calculated in accordance with Paragraphs 54 and 55 of GAS 68. Thereafter 0 16

46 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 9 (continued) Deferred Outflows of Resources and Deferred Inflows of Resources Harbor Port Police Reporting Date for Employer under GAS 68 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2014 Deferred Outflows of Resources 1. Changes in proportion and differences between employer's contributions and proportionate share of contributions (1) $0 2. Changes of assumptions or other inputs 0 3. Net difference between projected and actual earnings on pension plan investments 0 4. Difference between expected and actual experience in the Total Pension Liability 0 5. Total Deferred Outflows of Resources $0 Deferred Inflows of Resources 6. Changes in proportion and differences between employer's contributions and proportionate share of contributions (1) $0 7. Changes of assumptions or other inputs 396, Net difference between projected and actual earnings on pension plan investments 2,740, Difference between expected and actual experience in the Total Pension Liability 175, Total Deferred Inflows of Resources $3,311,478 Deferred outflows of resources and deferred inflows of resources related to pension will be recognized as follows: Reporting Date for Employer under GAS 68 Year Ended June 30: 2016 $(806,088) 2017 (806,088) 2018 (806,088) 2019 (806,089) 2020 (87,125) (1) Calculated in accordance with Paragraphs 54 and 55 of GAS 68. Thereafter 0 17

47 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 9 (continued) Deferred Outflows of Resources and Deferred Inflows of Resources Notes: Amounts shown in this exhibit were allocated by Fire and Police and Harbor Port Police member categories based on the internal calculations as described in Exhibit 7. In determining the pension expense: - Any differences between projected and actual investment earnings on pension plan investments are recognized over a period of five years beginning with the year in which they occur. - Differences between expected and actual experience and changes of assumptions are recognized over the average of the expected remaining service lives of all employees that are provided with pensions through LAFPP determined as of June 30, 2013 (the beginning of the measurement period ending June 30, 2014) and is 5.72 years. The average of the expected remaining service lives of all employees was determined by: - Calculating each active employee s expected remaining service life as the present value of $1 per year of future service at zero percent interest. - Setting the remaining service life to zero for each nonactive or retired members. - Dividing the sum of the above amounts by the total number of active employee, nonactive and retired members. There is no change in the pension expense brought about by Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions. This is because calculations are done separately to track TPL and Plan Fiduciary Net Position for each of the Fire and Police Departments and Harbor Port Police. We did not attempt to determine the beginning balances for deferred inflows or resources and deferred outflows of resources as of the beginning of the period for the 2014 plan year. Per paragraph 137 of GAS 68, these balances are assumed to be zero. 18

48 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 10 Schedule of Proportionate Share of the Net Pension Liability Total for all Employers (1) Reporting Date for Employer under GAS 68 as of June 30 Proportion of the Net Pension Liability Proportionate share of Net Pension Liability Coveredemployee payroll (1) Proportionate share of the Net Pension Liability as a percentage of its coveredemployee payroll Plan s Fiduciary Net Position as a percentage of the Total Pension Liability % $3,584,155,041 $1,277,031, % 80.38% % 1,872,287,443 1,308,148, % 90.07% Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories. 19

49 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 10 (continued) Schedule of Proportionate Share of the Net Pension Liability Fire and Police (1) Reporting Date for Employer under GAS 68 as of June 30 Proportion of the Net Pension Liability Proportionate share of Net Pension Liability Coveredemployee payroll (1) Proportionate share of the Net Pension Liability as a percentage of its coveredemployee payroll Plan s Fiduciary Net Position as a percentage of the Total Pension Liability % $3,569,834,904 $1,266,729, % 80.41% % 1,861,824,464 1,296,529, % 90.10% Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories. 20

50 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 10 (continued) Schedule of Proportionate Share of the Net Pension Liability Harbor Port Police (1) Reporting Date for Employer under GAS 68 as of June 30 Proportion of the Net Pension Liability Proportionate share of Net Pension Liability Coveredemployee payroll (1) Proportionate share of the Net Pension Liability as a percentage of its coveredemployee payroll Plan s Fiduciary Net Position as a percentage of the Total Pension Liability % $14,320,137 $10,301, % 68.00% % 10,462,979 11,619, % 79.16% Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories. 21

51 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 11 Schedule of Reconciliation of Net Pension Liability Total for all Employers Reporting Date for Employer under GAS 68 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2014 Reconciliation of Net Pension Liability 1. Beginning Net Pension Liability $3,584,155, Pension Expense 148,766, Employer Contributions (440,698,260) 4. New Net Deferred Inflows/Outflows (1,419,935,956) 5. New Net Deferred Flows Due to Change in Proportion 0 6. Recognition of Prior Deferred Inflows/Outflows 0 7. Ending Net Pension Liability $1,872,287,443 22

52 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 11 (continued) Schedule of Reconciliation of Net Pension Liability Fire and Police Reporting Date for Employer under GAS 68 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2014 Reconciliation of Net Pension Liability 1. Beginning Net Pension Liability $3,569,834, Pension Expense 146,035, Employer Contributions (437,421,086) 4. New Net Deferred Inflows/Outflows (1,416,624,478) 5. New Net Deferred Flows Due to Change in Proportion 0 6. Recognition of Prior Deferred Inflows/Outflows 0 7. Ending Net Pension Liability $1,861,824,464 23

53 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 11 (continued) Schedule of Reconciliation of Net Pension Liability Harbor Port Police Reporting Date for Employer under GAS 68 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2014 Reconciliation of Net Pension Liability 1. Beginning Net Pension Liability $14,320, Pension Expense 2,731, Employer Contributions (3,277,174) 4. New Net Deferred Inflows/Outflows (3,311,478) 5. New Net Deferred Flows Due to Change in Proportion 0 6. Recognition of Prior Deferred Inflows/Outflows 0 7. Ending Net Pension Liability $10,462,979 24

54 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 12 Schedule of Recognition of Changes in Total Net Pension Liability Reporting Date for Employer under GAS 68 Year Ended June 30 Differences between Expected and Actual Experience Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Differences between Expected and Actual Experience on Total Pension Liability Recognition Period (Years) Reporting Date for Employer under GAS 68 Year Ended June 30: Thereafter 2015 $(234,637,547) 5.72 $(41,020,550) $(41,020,550) $(41,020,550) $(41,020,550) $(41,020,550) $(29,534,797) - Net increase (decrease) in pension expense $(41,020,550) $(41,020,550) $(41,020,550) $(41,020,550) $(41,020,550) $(29,534,797) - Reporting Date for Employer under GAS 68 Year Ended June 30 Effect of Assumption Changes Recognition Period (Years) Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Assumption Changes Reporting Date for Employer under GAS 68 Year Ended June 30: Thereafter 2015 $(69,482,273) 5.72 $(12,147,251) $(12,147,251) $(12,147,251) $(12,147,251) $(12,147,251) $ (8,746,018) - Net increase (decrease) in pension expense $(12,147,251) $(12,147,251) $(12,147,251) $(12,147,251) $(12,147,251) $ (8,746,018) - As described in Exhibit 9, the average of the expected remaining service lives of all employees that are provided with pensions through LAFPP (active and inactive employees) determined as of June 30, 2013 (the beginning of the measurement period ending June 30, 2014) is 5.72 years. 25

55 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 12 (continued) Schedule of Recognition of Changes in Total Net Pension Liability Reporting Date for Employer under GAS 68 Year Ended June 30 Differences between Projected and Actual Earnings Increase (Decrease) in Pension Expense Arising from the Recognition of Differences between Projected and Actual Earnings on Pension Plan Investments Recognition Period (Years) Reporting Date for Employer under GAS 68 Year Ended June 30: Thereafter 2015 $(1,461,229,921) 5.00 $(292,245,984) $(292,245,984) $(292,245,984) $(292,245,984) $(292,245,985) - - Net increase (decrease) in pension expense $(292,245,984) $(292,245,984) $(292,245,984) $(292,245,984) $(292,245,985) - - Reporting Date for Employer under GAS 68 Year Ended June 30 Total Differences Total Increase (Decrease) in Pension Expense Reporting Date for Employer under GAS 68 Year Ended June 30: Thereafter 2015 $(1,765,349,741) $(345,413,785) $(345,413,785) $(345,413,785) $(345,413,785) $(345,413,786) $(38,280,815) - Net increase (decrease) in pension expense $(345,413,785) $(345,413,785) $(345,413,785) $(345,413,785) $(345,413,786) $(38,280,815) - 26

56 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan EXHIBIT 13 Allocation of Changes in Total Net Pension Liability There is no change in the pension expense brought about by Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions. This is because calculations are done separately to track TPL and Plan s Fiduciary Net Position for each of the Fire and Police Departments and Harbor Port Police. 27

57 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Actuarial Assumptions and Methods The following assumptions were adopted by the Board based on the Actuarial Experience Study as of June 30, 2013 and the Economics Assumptions Study as of June 30, Mortality Rates Healthy: RP-2000 Combined Healthy Mortality Table (separate for males and females), projected to 2022 with scale BB set back one year for members. RP-2000 Combined Healthy Mortality Table (separate for males and females), projected to 2022 with scale BB set forward one year for beneficiaries. Disabled: RP-2000 Combined Healthy Mortality Table (separate for males and females), projected to 2022 with scale BB set forward one year. The tables shown above were determined to contain sufficient provision appropriate to reasonably reflect future mortality, based on a review of mortality experience as of the measurement date. 28

58 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Termination Rates Before Retirement: Pre-Retirement Mortality: Rate (%) Mortality Age Male Female All pre-retirement deaths are assumed to be service connected. 29

59 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Termination Rates Before Retirement (continued): Rate (%) Disability* Age Fire Police * 90% of disabilities are assumed to be service connected. Disability rates are not applied to members eligible to enter the DROP. 30

60 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Termination Rates Before Retirement (continued): Rate (%) Termination (< 5 Years of Service) Years of Service Fire Police Rate (%) Termination (5+ Years of Service) * Age Fire Police * No termination is assumed after a member is eligible for retirement. This includes all active members currently in Tier 2. Members in Tiers 3, 5 and 6 who are not eligible to receive a deferred vested retirement benefit are assumed to receive refund of contributions. 31

61 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Retirement Rates for Funding Valuation: Rate(%) Fire Police Age Tiers 2&4 Tiers 3&5 Tier 6 Tiers 2&4 Tiers 3&5 Tier DROP Program: DROP participants are considered active members until they leave the DROP and begin receiving retirement benefits. Members are assumed to remain in the DROP for 5 years. Of all members expected to retire with a service retirement benefit, we project a 95% probability that members have elected the DROP before retirement if they will have also satisfied the requirements for participating in the DROP for 5 years. 32

62 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Retirement Rates After Adjustment for DROP Participation: As the service retirement rates we use in the funding valuation have been developed based on the later date of exit from the DROP, we have adjusted those rates in this GASB valuation so that they are based on the earlier date of first participation in the DROP. Retirement rates used in our June 30, 2014 funding valuation are shown again on the next page. Please note that those rates are applicable in the GASB valuation for actives not eligible to enter the DROP. A sample of those rates used in the GASB valuation for an active eligible to enter the DROP at age 55 are as follows: 33

63 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Age Retirement Rates for funding valuation (Also applicable to actives not eligible to enter the DROP in GASB valuation) Tiers 2&4 Sample Retirement Rates for GASB valuation (For actives eligible to enter the DROP at 55) Fire Police Fire Police Tiers 3&5 Tier 6 Tiers 2&4 Tiers 3&5 Tier % 0.00% 0.00% 10.00% 0.00% 0.00% % 0.00% 0.00% 10.00% 0.00% 0.00% Age Tiers 2&4 Tiers 3&5 Tier 6 Tiers 2&4 Tiers 3&5 Tier 6 34

64 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Retirement Age and Benefit for Inactive Vested Participants: For deferred vested members, retirement assumption is age 50. Unknown Data for Members: Exclusion of Inactive Vesteds: Definition of Active Members: Percent Married/Domestic Partner: Age of Spouse: Future Benefit Accruals: Consumer Price Index: Member Contribution and Matching Account Crediting Rate: 5.00% Net Investment Return: Same as those exhibited by members with similar known characteristics. If not specified, members are assumed to be male. All inactive participants are included in the valuation. First day of biweekly payroll following employment for new department employees or immediately following transfer from other city department. 80% of male members, 60% of female members Wives are 3 years younger than their husbands. 1.0 year of service per year. Increase of 3.25% per year; benefit increases due to CPI subject to a 3.0% maximum for Tiers 3 through %, net of investment expenses Administrative Expenses: Out of the total 1.00% of payroll in administrative expense, 0.94% of payroll payable bi-weekly is allocated to the Retirement Plan. This is equal to 0.91% of payroll payable at beginning of the year. 35

65 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Salary Increases: Annual Rate of Compensation Increase Inflation: 3.25% per year; plus 0.75% across the board salary increases; plus the following Merit and Longevity increases based on years of service. Service Connected Disability Benefits: Years of Service Additional Salary Increase % or more 0.75 Years of Service Benefit Less than 20 55% of Final Average Salary % of Final Average Salary More than 30 75% of Final Average Salary Nonservice Connected Disability Benefits: 40% of Final Average Salary 36

66 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan Actuarial Value of Assets: Actuarial Cost Method: Funding Policy: The market value of assets less unrecognized returns. Unrecognized return is equal to the difference between the actual and expected returns on a market value basis, and is recognized over a seven-year period. Deferred gains and losses as of June 30, 2013 have been combined and will be recognized in equal amounts over a period of six years from that date. The actuarial value of assets is further adjusted, if necessary, to be within 40% of the market value of assets. Entry Age Normal Actuarial Cost Method. Entry Age is the current age minus Service Credit. Actuarial Accrued Liability is calculated on an individual basis and is based on costs allocated as a level percentage of compensation. The City of Los Angeles Fire & Police Pension Plan makes contributions equal to the Normal Cost adjusted by amount to amortize any Surplus or Unfunded Actuarial Accrued Liability. Both the Normal Cost and the Actuarial Accrued Liability are determined under the Entry Age Normal cost method. Any changes in Surplus or Unfunded Actuarial Accrued Liability due to actuarial gains or losses are amortized over separate twenty year periods as a level percentage of payroll. Any changes in Surplus or Unfunded Actuarial Accrued Liability from plan amendments are amortized over separate fifteen year periods as a level percentage of payroll. Any changes in Surplus or Unfunded Actuarial Accrued Liability from plan assumption changes are amortized over separate twenty-five year periods as a level percentage of payroll. Normal Cost and Actuarial Accrued Liability are calculated on an individual basis and are allocated by service. For Tier 1, the Unfunded Actuarial Accrued Liability is amortized using level dollar amortization ending on June 30, For Tiers 2, 3 and 4, the Unfunded Actuarial Accrued Liability is amortized using level percent of payroll as a percent of total valuation payroll from the respective employer (i.e., the City or Harbor Port Police). For Tiers 5 and 6, the Unfunded Actuarial Accrued Liability is amortized using level percent of payroll as a percent of combined payroll for these tiers from the respective employer (i.e., City or Harbor Port Police). 37

67 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX A Calculation of Discount Rate as of June 30, 2014 Projection of Pension Plan s Fiduciary Net Position ($ in millions) Projected Beginning Projected Projected Projected Projected Projected Ending Year Plan Fiduciary Total Benefit Administrative Investment Plan Fiduciary Beginning Net Position Contributions Payments Expenses Earnings Net Position July 1 (a) (b) (c) (d) (e) (f) = (a) + (b) - (c) - (d) + (e) 2013 $14,680 $565 $859 $14 $2,617 $16, , ,284 17, , , ,355 18, , , ,420 19, , , ,485 20, , , ,553 21, , , ,622 22, , , ,690 23, , , ,757 24, , , ,824 25, , , ,356 32, , , ,348 32, , , ,331 32, , , ,304 31, , , ,271 31, , , , , , , , , , , , * , , Discounted Value: 5 ** * Less than $1 million, when rounded. ** $7,743 million when discounted with interest at the rate of 7.50% per annum has a value of $5 million as of June 30,

68 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX A (continued) Calculation of Discount Rate as of June 30, 2014 Projection of Pension Plan s Fiduciary Net Position ($ in millions) Notes: (1) Amounts may not total exactly due to rounding. (2) Amounts shown in the year beginning July 1, 2013 row are actual amounts, based on the information provided by LAFPP. (3) Years , , and have been omitted from this table. (4) Column (a): Except for the "discounted value" shown for 2116, none of the projected beginning plan fiduciary net position amounts shown have been adjusted for the time value of money. (5) Column (b): Projected total contributions include employee and employer normal cost rates applied to closed group projected payroll (based on covered active members as of June 30, 2013), plus employer contributions to the unfunded actuarial accrued liability. Contributions are assumed to occur beginning of the year. (6) Column (c): Projected benefit payments have been determined in accordance with paragraph 39 of GAS 67, and are based on the closed group of active, inactive vested, retired members, and beneficiaries as of June 30, The projected benefit payments reflect the cost of living increase assumptions to be used in the June 30, 2014 valuation report. The projected benefit payments are assumed to occur beginning of the month, on average. (7) Column (d): Projected administrative expenses are calculated as approximately 0.09% of the projected beginning plan fiduciary net position amount. The 0.09% portion was based on the average of the actual administrative expenses from 2008 to Administrative expenses are assumed to occur halfway through the year, on average. (8) Column (e): Projected investment earnings are based on the assumed investment rate of return of 7.50% per annum except for 2013/2014. (9) As illustrated in this Exhibit, the Plan's fiduciary net position was projected to be available to make all projected future benefit payments for current Plan members. In other words, there is no projected "cross-over date" when projected benefits are not covered by projected assets. Therefore, the long-term expected rate of return on Plan investments of 7.50% per annum was applied to all periods of projected benefit payments to determine the total pension liability as of June 30, 2014 shown earlier in this report, pursuant to paragraph 44 of GAS No

69 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX B GLOSSARY OF TERMS Definitions of certain terms as they are used in Statement 68; the terms may have different meanings in other contexts. Active employees Individuals employed at the end of the reporting or measurement period, as applicable. Actual contributions Cash contributions recognized as additions to a pension Plan s Fiduciary Net Position. Actuarial present value of projected benefit payments Projected benefit payments discounted to reflect the expected effects of the time value (present value) of money and the probabilities of payment. Actuarial valuation The determination, as of a point in time (the actuarial valuation date), of the service cost, Total Pension Liability, and related actuarial present value of projected benefit payments for pensions performed in conformity with Actuarial Standards of Practice unless otherwise specified by the GASB. Actuarial valuation date The date as of which an actuarial valuation is performed. Actuarially determined contribution A target or recommended contribution to a defined benefit pension plan for the reporting period, determined in conformity with Actuarial Standards of Practice based on the most recent measurement available when the contribution for the reporting period was adopted. Ad hoc cost-of-living adjustments (ad hoc COLAs) Cost-of-living adjustments that require a decision to grant by the authority responsible for making such decisions. 40

70 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX B (continued) GLOSSARY OF TERMS Ad hoc postemployment benefit changes Postemployment benefit changes that require a decision to grant by the authority responsible for making such decisions. Agent employer An employer whose employees are provided with pensions through an agent multiple-employer defined benefit pension plan. Agent multiple-employer defined benefit pension plan (agent pension plan) A multiple-employer defined benefit pension plan in which pension plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer s share of the pooled assets is legally available to pay the benefits of only its employees. Allocated insurance contract A contract with an insurance company under which related payments to the insurance company are currently used to purchase immediate or deferred annuities for individual employees. Also may be referred to as an annuity contract. Automatic cost-of-living adjustments (automatic COLAs) Cost-of-living adjustments that occur without a requirement for a decision to grant by a responsible authority, including those for which the amounts are determined by reference to a specified experience factor (such as the earnings experience of the pension plan) or to another variable (such as an increase in the consumer price index). Automatic postemployment benefit changes Postemployment benefit changes that occur without a requirement for a decision to grant by a responsible authority, including those for which the amounts are determined by reference to a specified experience factor (such as the earnings experience of the pension plan) or to another variable (such as an increase in the consumer price index). Closed period A specific number of years that is counted from one date and declines to zero with the passage of time. For example, if the recognition period initially is five years on a closed basis, four years remain after the first year, three years after the second year, and so forth. 41

71 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX B (continued) GLOSSARY OF TERMS Collective deferred outflows of resources and deferred inflows of resources related to pensions Deferred outflows of resources and deferred inflows of resources related to pensions arising from certain changes in the collective Net Pension Liability. Collective Net Pension Liability The Net Pension Liability for benefits provided through (1) a cost-sharing pension plan or (2) a single-employer or agent pension plan in circumstances in which there is a special funding situation. Collective pension expense Pension expense arising from certain changes in the collective Net Pension Liability. Contributions Additions to a pension Plan s Fiduciary Net Position for amounts from employers, nonemployer contributing entities (for example, state government contributions to a local government pension plan), or employees. Contributions can result from cash receipts by the pension plan or from recognition by the pension plan of a receivable from one of these sources. Cost-of-living adjustments Postemployment benefit changes intended to adjust benefit payments for the effects of inflation. Cost-sharing employer An employer whose employees are provided with pensions through a cost-sharing multiple-employer defined benefit pension plan. Cost-sharing multiple-employer defined benefit pension plan (cost-sharing pension plan) A multiple-employer defined benefit pension plan in which the pension obligations to the employees of more than one employer are pooled and pension plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan. Covered-employee payroll The payroll of employees that are provided with pensions through the pension plan. 42

72 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX B (continued) GLOSSARY OF TERMS Deferred retirement option program (DROP) A program that permits an employee to elect a calculation of benefit payments based on service credits and salary, as applicable, as of the DROP entry date. The employee continues to provide service to the employer and is paid for that service by the employer after the DROP entry date; however, the pensions that would have been paid to the employee (if the employee had retired and not entered the DROP) are credited to an individual employee account within the defined benefit pension plan until the end of the DROP period. Defined benefit pension plans Pension plans that are used to provide defined benefit pensions. Defined benefit pensions Pensions for which the income or other benefits that the employee will receive at or after separation from employment are defined by the benefit terms. The pensions may be stated as a specified dollar amount or as an amount that is calculated based on one or more factors such as age, years of service, and compensation. (A pension that does not meet the criteria of a defined contribution pension is classified as a defined benefit pension for purposes of Statement 68.) Defined contribution pension plans Pension plans that are used to provide defined contribution pensions. Defined contribution pensions Pensions having terms that (1) provide an individual account for each employee; (2) define the contributions that an employer is required to make (or the credits that it is required to provide) to an active employee s account for periods in which that employee renders service; and (3) provide that the pensions an employee will receive will depend only on the contributions (or credits) to the employee s account, actual earnings on investments of those contributions (or credits), and the effects of forfeitures of contributions (or credits) made for other employees, as well as pension plan administrative costs, that are allocated to the employee s account. 43

73 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX B (continued) GLOSSARY OF TERMS Discount rate The single rate of return that, when applied to all projected benefit payments, results in an actuarial present value of projected benefit payments equal to the total of the following: 1. The actuarial present value of benefit payments projected to be made in future periods in which (a) the amount of the pension Plan s Fiduciary Net Position is projected (under the requirements of Statement 68) to be greater than the benefit payments that are projected to be made in that period and (b) pension plan assets up to that point are expected to be invested using a strategy to achieve the long-term expected rate of return, calculated using the long-term expected rate of return on pension plan investments. 2. The actuarial present value of projected benefit payments not included in (1), calculated using the municipal bond rate. Entry age actuarial cost method A method under which the actuarial present value of the projected benefits of each individual included in an actuarial valuation is allocated on a level basis over the earnings or service of the individual between entry age and assumed exit age(s). The portion of this actuarial present value allocated to a valuation year is called the normal cost. The portion of this actuarial present value not provided for at a valuation date by the actuarial present value of future normal costs is called the actuarial accrued liability. Inactive employees Terminated individuals that have accumulated benefits but are not yet receiving them, and retirees or their beneficiaries currently receiving benefits. Measurement period The period between the prior and the current measurement dates. Multiple-employer defined benefit pension plan A defined benefit pension plan that is used to provide pensions to the employees of more than one employer. 44

74 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX B (continued) GLOSSARY Net Pension Liability The liability of employers and nonemployer contributing entities to employees for benefits provided through a defined benefit pension plan. Nonemployer contributing entities Entities that make contributions to a pension plan that is used to provide pensions to the employees of other entities. For purposes of Statement 68, employees are not considered nonemployer contributing entities. Other postemployment benefits All postemployment benefits other than retirement income (such as death benefits, life insurance, disability, and long-term care) that are provided separately from a pension plan, as well as postemployment healthcare benefits, regardless of the manner in which they are provided. Other postemployment benefits do not include termination benefits. Pension plans Arrangements through which pensions are determined, assets dedicated for pensions are accumulated and managed, and benefits are paid as they come due. Pensions Retirement income and, if provided through a pension plan, postemployment benefits other than retirement income (such as death benefits, life insurance, and disability benefits). Pensions do not include postemployment healthcare benefits and termination benefits. Plan members Individuals that are covered under the terms of a pension plan. Plan members generally include (1) employees in active service (active plan members) and (2) terminated employees who have accumulated benefits but are not yet receiving them and retirees or their beneficiaries currently receiving benefits (inactive plan members). Postemployment The period after employment. 45

75 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX B (continued) GLOSSARY OF TERMS Postemployment benefit changes Adjustments to the pension of an inactive employee. Postemployment healthcare benefits Medical, dental, vision, and other health-related benefits paid subsequent to the termination of employment. Projected benefit payments All benefits estimated to be payable through the pension plan to current active and inactive employees as a result of their past service and their expected future service. Public employee retirement system A special-purpose government that administers one or more pension plans; also may administer other types of employee benefit plans, including postemployment healthcare plans and deferred compensation plans. Real rate of return The rate of return on an investment after adjustment to eliminate inflation. Service costs The portions of the actuarial present value of projected benefit payments that are attributed to valuation years. Single employer An employer whose employees are provided with pensions through a single-employer defined benefit pension plan. Single-employer defined benefit pension plan (single-employer pension plan) A defined benefit pension plan that is used to provide pensions to employees of only one employer. 46

76 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan APPENDIX B (continued) GLOSSARY OF TERMS Special funding situations Circumstances in which a nonemployer entity is legally responsible for making contributions directly to a pension plan that is used to provide pensions to the employees of another entity or entities and either of the following conditions exists: 1. The amount of contributions for which the nonemployer entity legally is responsible is not dependent upon one or more events or circumstances unrelated to the pensions. 2. The nonemployer entity is the only entity with a legal obligation to make contributions directly to a pension plan. Termination benefits Inducements offered by employers to active employees to hasten the termination of services, or payments made in consequence of the early termination of services. Termination benefits include early-retirement incentives, severance benefits, and other termination-related benefits. Total Pension Liability The portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service in conformity with the requirements of Statement v2/

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86 DEPARTMENT OF FIRE AND POLICE PENSIONS 360 East Second Street, Suite 400 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: SEPTEMBER 3, 2015 ITEM: A.3 FROM: RAYMOND P. CIRANNA, GENERAL MANAGER SUBJECT: APPROVAL OF PROPOSED BOARD RULE 5.9 FORFEITURE OF UNCLAIMED FUNDS TO THE PLAN AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board approve the proposed Board Policy Section 5.9 Forfeiture of Unclaimed Funds to the Plan (Attachment). DISCUSSION Charter Section 1246 was added as part of Charter Amendment G, approved by voters on March 8, Charter Section 1246 gives the Board the authority to declare a forfeiture of all monies, including but not limited to contributions, interest thereon and benefits, that become payable or distributable from the Plan to any owner who either cannot be found or refuses to accept the payment or distribution of such monies within ten years of the date such monies become payable or otherwise distributable from the Plan. Additionally, Charter Section 1246 allows for the Board, or General Manager if delegated the authority by Board rule, to relieve a person of any such forfeiture. Charter Section 1246 was necessary to ensure that such funds remain with the Plan. Similar language was inadvertently removed from the Charter when the new Charter was approved by voters in Under California law, any such monies would escheat to the state after three years if the owner had not accepted the distribution. However, California law allows for monies to remain with a retirement system if the plan document contains a provision similar to Charter Section Per the authority provided by Charter Section 1246, staff recommends that the Board delegate its authority to declare a forfeiture of money or relieve a person from forfeiture of money to the General Manager. BUDGET There is no budget impact associated with this proposed Board Policy. POLICY The City Attorney s Office has reviewed and approved Board Policy Section 5.9, as proposed.

87 This report was prepared by: Greg Mack, Manager Communications & Active Member Services Section RPC:JS:GFM Attachment: Proposed Board Policy Section 5.9 Board Report Page 2 September 3, 2015

88 ATTACHMENT Los Angeles Fire & Police Pension System MEMBER ACCOUNTS CREDITING OF INTEREST 5.1 The General Manager shall determine the approximate earned investment income of all funds for each (6) six-month period ending December 31 and June 30, excluding profits and losses from the sale of securities, as follows: Earned Investment Income for the six-month period divided by (1/2 of the beginning asset balance + each of the following five months asset balance + 1/2 of ending asset balance) divided by six months. A recommendation shall be presented to the Board, based upon this calculation. The Board shall adopt an official interest rate that shall be credited to individual member contribution accounts. REFUNDS OF CONTRIBUTIONS 5.2 Upon the written request of terminated System members, the General Manager shall process refunds of contributions, plus interest credited as of the last day of each June and December, and additional interest for any period of service between the next preceding last day of June and December and the end of the pay period preceding the date of termination, at the rate at which regular interest was last credited to plan member's individual accounts. Refunds for Public Service Purchases (PSP), as described in Section 5.5 below, are subject to the provisions of Administrative Code Section A member may elect that a refund, due to overpayment of PSP as determined by an actuarial true-up, be processed via trustee-to-trustee transfer to the City s Deferred Compensation 457(b) Plan if the 457(b) plan was a source of the original PSP payment. (Amended 4/5/12) Upon application by a former member of LAFPP who currently is employed by the City as a member of LACERS, the General Manager is authorized to transfer all contributions (including interest) of the former member directly to LACERS for the purpose of enabling the former member to purchase service credit and other benefits as authorized under the provisions of LACERS. In connection with this transfer, the former member shall be required to sign a written waiver of all rights to benefits from LAFPP. The purpose of this Board rule is to restore the rights that former members previously had (prior to December 21, 1996) to transfer their contributions to LACERS in order to purchase service credit and other benefits with LACERS in a manner that is consistent with the provisions of LACERS and current tax law. This rule shall not establish a reciprocity program between LACERS and LAFPP. (Section added 07/05/2012) CONTRIBUTIONS OWED TO THE SYSTEM 1

89 ATTACHMENT 5.3 The General Manager is authorized to collect mandatory regular pension contributions owed to the System that were not collected and voluntary additional pension contributions as defined in Administrative Code Section For amounts less than or equal to a member s biweekly contribution, no notification is required to the member. For amounts greater than a member s biweekly contribution, the member shall be notified of the amount due and provided an opportunity to pay the total amount in a lump sum. If the member does not pay such amount within 30 days of such notification, the General Manager is authorized to initiate deductions from the member's salary in the amount of 2% until the amount due has been collected. This 2% deduction may be reduced upon the member s election to pay interest equivalent to the Board approved assumed actuarial rate in effect when the agreement is made. The payment period, not to exceed ten years, shall be determined in advance by the member, except however, the General Manager may prescribe a minimum payment amount. The entire balance may be paid at any time. If the member applies for a pension prior to completing the agreement, the entire balance of the purchase agreement, including interest accrued to date, becomes due. (Amended 12/06/12) CONTRIBUTIONS COLLECTED IN ERROR 5.4 The General Manager is authorized to refund mandatory and non-mandatory contributions collected in error. PURCHASE OF SERVICE CREDIT 5.5 Upon the written request of a member of Tier 3, Tier 4, Tier 5 or Tier 6, application may be made for purchase of Years of Service Credit. Plan membership is defined by City Charter 1502(c), 1602(c), 1702(d) and Administrative Code (c). Only active, non-drop members of the Police, Fire, and Harbor departments are allowed to purchase service credit as defined in applicable Charter and Administrative Code provisions. (Amended 05/16/13) (i) Recruit Training Time City Charter 1500(a), 1600(a), 1700(b) and Administrative Code (a) A member may purchase their entire recruit training time or they may purchase a prorated amount. (Amended 05/16/13) (ii) Prior Service Time City Charter 1500(b), 1502(m)(4), 1514(d), 1600(f), 1602(m)(4), 1700(d), 1702(p)(4)&(6), 1714(e), Administrative Code (m)(4) and (d) A member may purchase the entire period of prior service as a former member of Tiers 1, 2, 3, 5, or 6 by re-depositing the entire amount of refunded contributions and interest, or may purchase a portion of such service by depositing a prorated amount of the refunded contributions and interest in accordance with paragraph B. (Amended 05/16/13) (iii) Temporary Disability paid at State rate City Charter 1502(m)(4), 1514(e), 1602(m)(4), 1614(e), 1702(p)(4) and 1714(g), Administrative Code (m)(4) and (e) 2

90 ATTACHMENT A member may purchase their entire temporary disability paid at State rate, or they may purchase a prorated amount. (Amended 05/16/13) (iv) Non-service connected disability pension City Charter 1502(m)(2), 1602(m)(2), 1702(p)(2), Administrative Code (m)(2) Members who elect to have service credit restored for time spent on a non-service connected disability pension may purchase the entire time or a prorated amount. (Amended 05/16/13) (v) Paramedic/Civilian Ambulance Service while a member of the City Employees Retirement System for current members of Tier 3 or Tier 4; former members of Tier 3 or Tier 4 who transferred to Tier 5; and former members of Tier 2 who transferred to Tier 5 City Charter 1500(d), 1600(g), Administrative Code (d) and (c)(4) Members who received a refund of contributions and interest from the City Employees Retirement System for a service as a paramedic/civilian ambulance employee can purchase this prior service, or a partial period of this service, by re-depositing the amount refunded plus interest that would have been earned had the member not received the refund. (Amended 07/21/2005) (vi) Public Service Purchase (PSP) Administrative Code A member may increase the monthly retirement allowance or survivorship benefits based upon the increased retirement allowance with the purchase of public service credit, not to exceed 4 years, that includes full-time service with a public entity, including a branch of the military service. Verification through a Certification of Service or presentation of original proof of military service time (DD214) will serve to establish eligibility of service time sought for purchase. (vii) Office of Public Safety (OPS) Service Purchase Program Administrative Code Members who were transferred to the Police Department from the Department of General Services OPS and gained status in Class Code 2214, 2217, 2223, 2227, 2232, or 2244, and who become members of Tier 6 may purchase service. Only sworn service in Class Codes 3183, 3185, 3188, and 3198 is eligible for purchase. Former OPS officers are eligible to purchase either the minimum or the maximum eligible OPS service credit as determined by the Plan s actuary. Members shall not be allowed to purchase a different number of years of service for Tier 6 health benefit purposes than for purposes of other Tier 6 benefits. Eligible members must enter into a written purchase agreement on or before June 30, (Added 10/16/14) The following rules apply to the purchases above unless otherwise stated: A. Service credit may be purchased by a single cash payment or on an installment basis through payroll deduction, or both. However, if the member is purchasing nonqualified permissive service credit as defined by Internal Revenue Code Section 415(n), the member may not make the purchase with after-tax contributions unless the member has five or more service credit years. In accordance with Los Angeles Administrative Code Section (q) if a member 3

91 ATTACHMENT making a purchase of nonqualified service has less than five service credit years, a trustee-to-trustee transfer from the City of Los Angeles Deferred Compensation Plan or a rollover from an eligible retirement plan is the only payment option available. Members who elect to purchase prior service, recruit training time or temporary disability through payroll deduction contract shall be limited to two such contracts for any one type of purchased service. Members who elect to make a public service purchase through payroll deduction contract shall be limited to one such contract for each period of service purchased. Each such purchase service contract may be initiated or ended by a lump sum payment. For OPS service purchases made through payroll deduction the member may terminate the payroll deduction contract and cease further payments. The member shall not be allowed to complete this purchase at a later date or enter into another agreement to purchase this service. The member will receive prorated years of service based on the payments already made. A member may make any cash payment or lump sum payment authorized above by using a trustee-to-trustee transfer from the City of Los Angeles Deferred Compensation Plan. Should a trustee-to-trustee transfer not be large enough to cover the entire cost of the purchase, any balance owing may then be paid by the member either as a lump sum payment or on an installment basis through payroll deduction. If the member is purchasing nonqualified permissive service, the member must have five or more service credit years. A member who is purchasing nonqualified permissive service and who has fewer than five service credit years and opted for trustee-to-trustee transfer or rollover will only be allowed to do so, if the purchase amount will be fully covered by the transfer or rollover. A trustee-totrustee transfer may also be used by Tier 2 members to purchase Lost Service Time. A member purchasing OPS service may make a lump sum payment by waiving his or her right to all benefits (based on all his or her non-ops service) with LACERS and authorizing a transfer of all his or her remaining LACERS member contributions and accrued interest from LACERS to LAFPP, provided that the total amount of the member s remaining LACERS contributions and interest does not exceed the remaining amount that the member owes to LAFPP for the purchase. (Amended 10/16/14) B. When payment is made through payroll deduction, the member may elect a payment period not to exceed ten years for all purchases except public service and OPS service purchases. For public service and OPS service purchases, the member may elect a payment period that is not to exceed thirty years, does not extend past the date on which the member would attain the maximum years of service permitted by his/her tier when the public service or OPS service purchase is included, and establishes payment three months prior to the member s intended retirement/drop entry date for all contracts. The General Manager may prescribe a minimum payment amount for all contracts. The member s payroll deduction for a contract will be the greater of the minimum amount prescribed by the General Manager or the amount necessary to complete the contract within the allowable time as defined in the previous paragraph. The schedule, which shall be determined by the member in advance, cannot be 4

92 ATTACHMENT changed except the member may pay off the balance at any time. The member shall be charged an amount equivalent to the Board determined assumed actuarial interest rate in effect when the contract is signed. However, OPS service purchases will pay an interest rate of 7.75%. For the purchase of prior service, an additional amount equivalent to the interest that would have been earned in accordance with Section 5.1 (i.e., the amount credited to member accounts) shall also be charged. For all purchases described in Section 5.5, except for purchase of prior service, public service, or OPS service purchases, no additional amount will be charged if the purchase agreement begins within one year of the member s eligibility to make the purchase. If the purchase is made after the one year eligibility date, an additional amount equivalent to the interest that would have been earned in accordance with Section 5.1 shall also be charged from one year following the eligibility date until the beginning date of the purchase agreement. Such payments may be made on either a pre-tax or post-tax basis, except that payroll deductions for public service and OPS service purchase contracts may be made only on a post-tax basis, with pre-tax contributions subject to all requirements of the Internal Revenue Code. Purchases of service credit time for Tier 5 and Tier 6 Plan members are to be calculated based on the pension rate in effect during the period of service time to be purchased. If a contribution rate change falls within a pay period, a pro-rated rate shall be applied. (Amended 10/16/14) C. A qualified surviving spouse/domestic partner may complete the purchase of years of service agreed to by a member, and subject to a true up for public service purchases, by remitting a lump sum payment prior to benefits being granted. (Amended 10/16/14) WORKERS COMPENSATION AWARD RECAPTURE 5.6 Disability pension payments must be reduced by the total amount of compensation awarded or paid pursuant to Workers Compensation in accordance with Los Angeles City Charter Article XI, Part 3, Section 1212 (Effect of Receipts of Workers Compensation). As to Workers Compensation payments being received concurrently with a disability pension, the General Manager is directed to reduce the monthly pension by the monthly equivalent of the Workers Compensation payments. As to Workers Compensation awards or payments received prior to the granting of the disability pension, the General Manager is directed to deduct from monthly pension payments on an installment basis until the total amount of prior Workers Compensation has been offset. Each deduction made on an installment basis shall be in an amount of no less than twenty-five (25) percent of the monthly gross pension amount. The member, at his or her discretion, may elect to repay the full amount of prior Workers Compensation at any time. The member and General Manager may agree on deduction amounts greater than twenty-five (25) percent. If a member, upon being granted a disability pension, is eligible to receive a pension payment retroactive to a date earlier than the Board action date, the deduction provisions stated above shall be applied to the retroactive pension payment. (Amended 03/07/13) 5

93 ATTACHMENT WORKERS COMPENSATION RECAPTURE SUSPENSION 5.7 Members receiving disability pension payments that are reduced by the Workers Compensation recapture amount may apply for a six-month recapture suspension. The recapture suspension will only apply to the amount determined as no less than twentyfive (25) percent of the monthly gross pension amount. The suspension request with justification must be made in writing addressed to the General Manager. The General Manager or the Board will review and may approve the recapture suspension request. However, Workers Compensation payments being received continuously on a bi-weekly basis are not subject to suspension and will continue to reduce the pensioner s monthly pension payment. In the event that the member would need an additional recapture suspension, a request addressed to the General Manager should be submitted. The request will be presented to the Board for consideration. The Board may request additional documentation prior to the approval of the Worker s Compensation recapture suspension. Upon the Board s approval, the succeeding six monthly pension payments will be issued without the deduction of the monthly worker s compensation recapture subject to suspension. Requests received during the first ten days of the current month will be presented to the Board on the second meeting of the current month. Requests received after the first ten days of the current month will be presented to the Board on the first meeting of the following month. (Amended 03/07/13) ACCEPTANCE OF ELECTRONIC SIGNATURES 5.8 The Board authorizes the acceptance of an electronic signature on a document that requires a signature. Such document shall be given the same force as a signed, valid original document, if the document and electronic signature are submitted using technology that the Board deems sufficient to ensure its integrity, security and authenticity. The system deemed sufficient shall embody all of the following attributes: a) User ID and password are unique to each member, and b) The User ID and password are capable of verification. (Section added 05/02/13) FORFEITURE OF UNCLAIMED FUNDS TO THE PLAN 5.9 The Board authorizes the General Manager to declare a forfeiture of money or relieve a person from forfeiture of money. The General Manager is authorized to declare a forfeiture of all monies, including but not limited to contributions, interest, and benefits, that become payable or distributable from LAFPP to any owner who either cannot be found or refuses to accept payment or distribution within ten years of the date such monies become payable or distributable from LAFPP. (Section added 09/03/15) HISTORY Adopted: Circa June 13, 1996; Amended 07/21/05, 04/05/12, 07/05/12, 12/06/12, 03/07/13, 05/02/13, 05/16/13, 02/20/14 and, 10/16/14 and 09/03/15. (Also listed after amended sections). REVIEW 6

94 ATTACHMENT This policy shall be reviewed by the Board as needed and may be amended by the Board at any time. 7

95 DEPARTMENT OF FIRE AND POLICE PENSIONS 360 East Second Street, Suite 400 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: SEPTEMBER 3, 2015 ITEM: A.4 FROM: RAYMOND P. CIRANNA, GENERAL MANAGER SUBJECT: TRANSFER OF FUNDS FOR PURCHASE OF NEW MICROFICHE/MICROFILM MACHINE AND POSSIBLE BOARD ACTION RECOMMENDATION That the Board authorize a transfer of $10,000 from Account Contractual Services to Account Furniture, Office, and Technical Equipment to purchase a microfiche/microfilm machine. DISCUSSION As indicated in various Fiscal Year Business Plan updates to the Board for the Document Imaging System Project, staff have identified issues with the scanned microfiche/microfilm records returned to LAFPP from an outside vendor. These records consist mostly of historical memberrelated payroll data that need to be retained by the Department. Staff determined that the most cost effective approach regarding the microfiche/microfilm documents would be to correct the documents onsite by procuring a new state of the art microfiche/microfilm machine to be used as to view and edit records. The two microfiche/microfilm machines currently used by the department are out-of-date and have limited editing features. The Department of General Services (GSD) will initiate the competitive bidding process to purchase a new microfiche/microfilm machine based on LAFPP s needs and specifications. The new machine must be purchased as a line item using the Furniture, Office, and Technical Equipment Account 7300, as it is anticipated that the equipment purchase will exceed $5,000 based on recent quotes. Because there are no existing funds to cover this purchase in the Fiscal Year Budgetary Account 7300, a transfer between accounts is necessary. BUDGET The Fiscal Year Budgetary Account Contractual Services has funds to cover the expense of the new machine. There would be no impact to the overall LAFPP budget after the transfer is completed. POLICY There is no policy change associated with this request.

96 This report was prepared by: Erick S. Kurimoto, Senior Clerk Typist Administrative Services Section RPC:WSR:SHC:ESK:JP Board Report Page 2 September 3, 2015

97 DEPARTMENT OF FIRE AND POLICE PENSIONS 360 East Second Street, Suite 400 Los Angeles, CA (213) REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS DATE: SEPTEMBER 3, 2015 ITEM: B.1 FROM: SUBJECT: RAYMOND P. CIRANNA, GENERAL MANAGER CONTRACTOR DISCLOSURE POLICY QUARTERLY REPORT THIS REPORT IS PROVIDED TO THE BOARD FOR INFORMATIONAL PURPOSES. The Board adopted the Contractor Disclosure Policy to provide transparency in LAFPP s contracting process and to help ensure that investment and procurement decisions are made solely on the merits of the goods or services proposed to be provided by Contractors to LAFPP. Section 1.18.G.2.f of the Policy reads as follows: LAFPP internal audit staff will compile a quarterly Board report containing the names and amount of compensation agreed to be provided to each Intermediary by each Contractor; the campaign contributions and gifts of each Contractor as reported in the Contractor Disclosures; the List of Contacts; and the List of Exclusions. In accordance with the above section, Staff is providing its quarterly report to the Board. Ninety disclosure reports were received by the Internal Audit Section (IAS) for the period ending June 30, The following table is a breakdown of the reports received by IAS and the reports outstanding at the time this report was prepared. Description No. Outstanding No. Received Quarterly Disclosures (69 Required) Completed Quarterly Reports 68 Outstanding Quarterly Reports 1 Annual Disclosures (0 Required) Completed Annual Reports Outstanding Annual Reports Additional Disclosures (22 Required) Private Equity Funds (New Fund or Increased Commitment) 5 RFP Respondent 17 Total 1 90 Attachment 1 lists outstanding disclosure reports, exclusions, disclosed contributions, contacts, gifts, and intermediary information. Attachment 2 is a summary of the gift information disclosed by the private equity consultant, Portfolio Advisors.