June 17, SAFETY PLAN OF THE CITY OF STOCKTON (EMPLOYER # 55) Annual Valuation Report as of June 30, Dear Employer,

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1 C Actuarial & Employer Services Division P.O. Box Sacramento, CA Telecommunications Device for the Deaf - (916) (888) CalPERS ( ) FAX (916) SAFETY PLAN OF THE CITY OF STOCKTON (EMPLOYER # 55) Annual Valuation Report as of June 30, 2002 Dear Employer, Enclosed please find a copy of the June 30, 2002, actuarial valuation of your pension plan (a separate report is included for each plan). This valuation report contains important actuarial information about your pension plan at CalPERS. CalPERS staff actuaries are available to discuss the actuarial report with you. Effect of Poor Economy on Future Contribution Rates The poor economy continues to impact CalPERS plans by causing employer contribution rates to increase. We now know the impact on your fiscal year 2004/2005 employer contribution rate and have ESTIMATED the impact on your fiscal 2005/2006 employer contribution rate. The exhibit below displays the required and projected employer contribution rates along with the Superfunded status for fiscal years 2004/2005 and 2005/2006, respectively. The rate for 2005/2006 shown below is an estimate based on a projection of the most recent information we have available, including our latest best estimate of the investment return for fiscal 2002/2003, namely 4.0%. Please disregard any projections that we may have provided to you in the past. Fiscal Year Employer Contribution Rate Superfunded? 2004/ % NO 2005/ % (projected) NO Member contributions (whether paid by the employer or the employee) are in addition to the above rates. The projection also assumes that there are no amendments and no liability gains or losses (such as larger than expected pay increases, more retirements than expected, etc.). This is a very significant assumption because these gains and losses do occur and can have a significant effect on your contribution rate. Even for the largest plans, such gains and losses often cause a change in the employer s contribution rate of one or two percent or larger in some less common instances. The contribution rates for smaller plans are much more sensitive to liability gains and losses. Unfortunately, these gains and losses cannot be predicted so the projected employer contribution rate is just an estimate. We are very busy preparing actuarial valuations for other public agencies and expect to complete all such valuations by the end of October. We understand that you might have a number of questions about these results. While we are very interested in discussing these results with your agency, in the interest of allowing us to give every public agency their result, we ask that, if at all possible, you wait until after October 31 to contact us with questions. If you have questions, please call (888) CalPERS ( ). Sincerely, Ronald L. Seeling Chief Actuary, Actuarial and Employer Services California Public Employees Retirement System Lincoln Plaza P Street - Sacramento, CA 95814

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3 ACTUARIAL VALUATION as of June 30, 2002 for the SAFETY PLAN of the CITY OF STOCKTON (EMPLOYER # 55) REQUIRED CONTRIBUTIONS FOR FISCAL YEAR July 1, June 30, 2005 A California Public Employees Retirement System P.O. Box Sacramento, CA (888) CalPERS ( )

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5 C Actuarial & Employer Services Division P.O. Box Sacramento, CA Telecommunications Device for the Deaf - (916) (888) CalPERS ( ) FAX (916) This report presents the results of the June 30, 2002 actuarial valuation of the SAFETY PLAN OF THE CITY OF STOCKTON of the California Public Employees Retirement System (CalPERS). The valuation was performed by CalPERS staff actuaries in order to: set forth the actuarial assets and funding liabilities of this plan as of June 30, 2002; certify the actuarially required employer contribution rate of this plan for the fiscal year July 1, 2004 through June 30, 2005 is %; provide actuarial information as of June 30, 2002 to the CalPERS Board of Administration and other interested parties; and provide pension information as of June 30, 2002 to be used in financial reports subject to Governmental Accounting Standards Board (GASB) Statement Number 27. Use of this report for other purposes is inappropriate. To the best of our knowledge, this report is complete and accurate and contains sufficient information to disclose, fully and fairly, the funded condition of the SAFETY PLAN OF THE CITY OF STOCKTON. This valuation is based on the member and financial data as of June 30, 2002 provided by the various CalPERS databases and the benefits under this plan with CalPERS as of the date this report was produced. It is our opinion that the valuation has been performed in accordance with generally accepted actuarial principles, in accordance with standards of practice prescribed by the Actuarial Standards Board, and that the assumptions and methods are internally consistent and reasonable for this plan, as prescribed by the CalPERS Board of Administration according to provisions set forth in the California Public Employees Retirement Law. Ron Seeling, Ph.D., F.C.A., A.S.A., M.A.A.A. Enrolled Actuary Chief Actuary, CalPERS Bill Karch, A.S.A., M.A.A.A. Associate Pension Actuary, CalPERS

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7 TABLE OF CONTENTS EXECUTIVE SUMMARY Assets and Liabilities 1 Required Contributions 1 Summary of Membership Data 2 Changes Since Prior Valuation 2 Schedule of Funding Progress 3 SECTION 1: ASSETS A. Reconciliation of the Market Value of Assets 4 B. Development of the Actuarial Value of Assets 5 SECTION 2: LIABILITIES A. Development of Accrued and Unfunded Liabilities 6 B. (Gain) / Loss Analysis 7 SECTION 3: REQUIRED CONTRIBUTIONS A. Development of Required Employer Contributions 8 B. Reconciliation of Required Employer Contributions 8 C. Roll Forward of Unfunded Liabilities 9 D. Schedule of Amortization Bases 10 E Survivor Benefit Program 11 SECTION 4: DETAILED MEMBERSHIP DATA A. Retirees and Beneficiaries By Years Retired and Retirement Type 12 B. Retirees and Beneficiaries By Age and Retirement Type 13 C. Active Members By Attained Age & Years of Service 14 APPENDICES A. Statement Of Actuarial Data, Methods And Assumptions B. Summary Of Principal Plan Provisions C. GASB Statement No. 27 D Survivor Benefit Programs Supplemental Information (Third, Fourth, And Indexed Levels) E. Glossary FIN PROCESS CONTROL ID (CUR) FIN PROCESS CONTROL ID (OLD) REPORT ID 28336

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9 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 EXECUTIVE SUMMARY Assets and Liabilities June 30, 2001 June 30, 2002 Retirement Program Market Value of Assets for the Retirement Program $ 374,563,281 $ 341,728,980 Present Value of Projected Benefits 504,417, ,583,584 Entry Age Normal Accrued Liability 401,016, ,097,759 Actuarial Value of Assets 402,287, ,901,878 Unfunded Liability (1,271,333) 71,195,881 Funded Status 100.3% 84.1% Superfunded Status No No 1959 Survivor Benefit Program (First or Second Level) Market Value for the 1959 Survivor Program 1 $ 0 $ 0 Present Value of Benefits for Current Beneficiaries 0 0 Actuarial Value of Assets 0 0 Unfunded Liability 0 0 Required Contributions Fiscal Year Fiscal Year 2003/ /2005 Employer Contribution Required (in Projected Dollars) Payment for Normal Cost $ 8,622,674 $ 9,894,390 Payment on Amortization Bases 2 306,930 5,669,756 Payment for 1959 Survivor Benefit Program Total (not less than zero) 8,929,604 15,564,146 Employer Contribution Required (Percentage of Projected Payroll) Payment for Normal Cost % % Payment on the Amortization Bases % % Payment for 1959 Survivor Benefit Program % 0.000% Total (not less than zero) % % The change in the Unfunded Liability/(Excess Assets) from the prior year and the employer rate for fiscal reflect changes during the year ending June 30, 2002, including the net actuarial gains and losses since the June 30, 2001 valuation, and any benefit changes through the date this report was produced. This includes recognition of a portion of the CalPERS fiscal negative investment return on the Market Value of Assets that is first reflected in the plan s Actuarial Value of Assets at June 30, 2002, as shown on page 5 of the report. The balance of the investment loss not reflected in the rate will have an adverse impact on the employer s rate in subsequent years due to (i) the asset smoothing method used by CalPERS, and (ii) CalPERS approach to amortizing net unamortized actuarial gains/losses at 10% per year in determining the employer s rate. Refer to Appendix A for additional details. 1 2 This is for First and Second Level only. The Third, Fourth and Indexed Levels are independent programs and are therefore billed separately. Details regarding this payment can be found on Page 10 for the current valuation. Page 1

10 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 EXECUTIVE SUMMARY (continued) Summary of Membership Data June 30, 2001 June 30, 2002 Members Included in the Valuation 1 Active Members Transferred Members Separated Members Members and Beneficiaries Receiving Payments Total 1,184 1,220 Annual Covered Payroll $ 37,359,428 $ 42,399,581 Projected Annual Payroll for Contribution Year 41,721,944 47,350,643 Present Value of Future Salaries 351,615, ,537,436 Average Annual Covered Pay $ 63,862 $ 70,784 Average Attained Age for Actives Average Entry Age into Rate Plan for Actives Average Attained Age for Transfers Average Attained Age for Separations Average Attained Age for Retirees and Beneficiaries Average Annual Benefit for Retirees and Beneficiaries $ 32,730 $ 34,959 Changes Since Prior Valuation Actuarial Assumptions There were no changes in actuarial assumptions since the prior year's actuarial valuation, with the possible exception of changes necessary to reflect a change in benefits. Methods There were no changes in methods since the prior year s actuarial valuation. Details on methodology can be found in Appendix A. Benefits The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first annual actuarial valuation following the effective date of those benefit changes. This practice is allowed under Federal rules that apply only to non-public retirement plans and is in common use in the private sector. Liabilities in this report generally reflect plan changes effective before the performance of this valuation. Please refer to Appendix B for a summary of the plan provisions used in this valuation. The effects of these changes and any other contract amendments since the prior valuation on the contribution rate are shown on page 8 of this report. However, it should be noted that no change in rate will be shown for any plan changes which were included in the 2001 actuarial valuation. In such case, the changes were already included in the prior year s rate (and would have been shown as a change in the valuation report). 1 Counts of members included in the valuation are counts of records processed by the valuation. Multiple records may exist for those who have service in more than one coverage group. This does not result in a double counting of liabilities. Counts do not include beneficiaries receiving a 1959 Survivor Benefit. Page 2

11 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 EXECUTIVE SUMMARY (continued) Schedule of Funding Progress The Schedule of Funding Progress below shows the recent history of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability to payroll. Valuation Date Accrued Liability (a) Actuarial Value of Assets (b) Unfunded Liability (a)-(b) Funded Status (b)/(a) Annual Covered Payroll (c) UAAL As a % of Payroll [(a)-(b)]/(c) Retirement Program 6/30/00 $ 378,034,777 $ 392,448,426 $ (14,413,649) 103.8% $ 36,567,454 (39.4%) 6/30/01 401,016, ,287,608 (1,271,333) 100.3% 37,359,428 (3.4%) 6/30/02 447,097, ,901,878 71,195, % 42,399, % 1959 Survivor Program 6/30/00 $ 0 $ 0 $ 0 - $ 36,567, % 6/30/ ,359, % 6/30/ ,399, % Page 3

12 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 1 ASSETS A Reconciliation of the Market Value of Assets over the Prior Fiscal Year Retirement Program 1. Beginning Balance 6/30/01 $ 374,563, Employer Contributions 1 5,137, Employee Contributions 1 3,802, Benefit Payments to Retirees and Beneficiaries (17,855,404) 5. Refunds (79,011) 6. Lump Sum Payments 0 7. Investment Return (23,818,463) 8. Transfers In/Out and Miscellaneous Adjustments 2 (21,506) 9. Ending Balance 6/30/02 341,728,980 [(1)+(2)+(3)+(4)+(5)+(6)+(7)+(8)] 1959 Survivor Benefit Program (First or Second Level) 1. Beginning Balance 6/30/01 $ 0 2. Contributions (Employer and Employee) Benefit Payments 0 4. Transfers to the Third, Fourth or Indexed Level Pool and 0 Miscellaneous Adjustments 5. Investment Return 0 6. Ending Balance 6/30/02 0 [(1)+(2)+(3)+(4)+(5)] 1 2 In accordance with Generally Accepted Accounting Principles (GAAP), CalPERS Fiscal Services Division s accounting records include accounts receivable to recognize income from transactions in the period in which those transactions occurs. When CalPERS receives payroll information, it determines the amount receivable for employer and employee contributions. Thus, contribution amounts may reflect contributions due, even if not paid. This includes such things as prepayments to the unfunded liability, receivable payments and transfers between plans. Page 4

13 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 1 ASSETS (continued) B Development of the Actuarial Value of Assets Retirement Program 1. Actuarial Value of Assets as of June 30, 2001 $ 402,287, Contributions received during fiscal ,940, Benefits and Refunds paid during fiscal (17,934,415) 4. Transfers and Miscellaneous Adjustments paid during fiscal (21,506) 5. Expected investment earnings during fiscal ,824,194 [(1) x ( ½ - 1) x ((2) + (3) + (4))] 6. Expected Actuarial Value of Assets as of June 30, ,095,964 [(1) + (2) + (3) + (4)+ (5)] 7. Market Value of Assets as of June 30, ,728, Actuarial Value of Assets as of June 30, ,901,878 [(6) + ((7) - (6)) / 3, but not less than 90% or more than 110% of (7)] 9. Assets (Gain) / Loss [(6) (8)] 50,194, Actuarial Value as a Percentage of Market Value as of June 30, % [(8) / (7)] 1959 Survivor Benefit Program (First or Second Level) 1. Actuarial Value of Assets as of June 30, 2001 $ 0 2. Contributions received during fiscal Benefits paid during fiscal Transfers and Miscellaneous Adjustments paid during fiscal Expected investment earnings during fiscal [(1 x ( ½ - 1) x ((2) + (3) + (4))] 6. Expected Actuarial Value of Assets as of June 30, [(1) + (2) + (3) + (4) + (5)] 7. Market Value of Assets as of June 30, Actuarial Value of Assets as of June 30, [(6) + ((7) - (6)) / 3, but not less than 90% or more than 110% of (7)] 9. Actuarial Value as a Percentage of Market Value as of June 30, % [(8) / (7)] Page 5

14 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 2 LIABILITIES A Development of Accrued and Unfunded Liabilities for the Retirement Program 1. Present Value of Projected Benefits a) Active Members $ 320,825,605 b) Transferred Members 2,821,423 c) Separated Members 2,578,338 d) Members and Beneficiaries Receiving Payments 238,358,218 e) Total 564,583, Present Value of Future Employer Normal Costs 81,707, Present Value of Future Employee Contributions 35,778, Entry Age Normal Accrued Liability a) Active Members [(1a) - (2) - (3)] 203,339,780 b) Transferred Members 2,821,423 c) Separated Members 2,578,338 d) Members and Beneficiaries Receiving Payments 238,358,218 e) Total 447,097, Actuarial Value of Assets 375,901, Unfunded Accrued Liability/(Excess Assets) [(4e) - (5)] 71,195,881 Page 6

15 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 2 LIABILITIES (continued) B (Gain)/Loss Analysis 6/30/01 6/30/02 for the Retirement Program To calculate the cost requirements of the plan, assumptions are made about future events that affect the amount and timing of benefits to be paid and assets to be accumulated. Each year actual experience is compared to the expected experience based on the actuarial assumptions. This results in actuarial gains or losses, as shown below. A. Total (Gain)/Loss for the Year 1. Unfunded Liability/(Excess Assets) as of 6/30/01 $ (1,271,333) 2. Expected Payment on the Unfunded Liability (UL) during (3,099,456) 3. Interest through 6/30/02 [.0825 x (A1) ((1.0825) ½ - 1) x (A2) + adj. * ] 20, Expected UL before all other changes [(A1) - (A2) + (A3)] 1,848, Change in UL due to new plan amendments 0 6. Change in UL due to changes in actuarial methods or assumptions 0 7. Expected UL after all other changes [(A4) + (A5) + (A6)] 1,848, Actual UL as of 6/30/02 71,195, Total (Gain)/Loss for [(A8) (A7)] 69,347,325 B. Contribution (Gain)/Loss for the Year 1. Expected Contribution $ 8,399, Expected Interest on Expected Contributions 339, Actual Contribution 8,940, Expected Interest on Actual Contribution 361, Contribution (Gain)/Loss [(B1)+(B2) (B3)-(B4)] (562,162) C. Asset (Gain)/Loss for the Year 1. Actuarial Value of Assets as of 6/30/01 $ 402,287, Contributions Received during ,940, Benefits and Refunds Paid during (17,934,415) 4. Transfers/Misc. Adjustments paid during fiscal (21,506) 5. Expected Int. [.0825 x (C1) + ((1.0825) ½ - 1) x ((C2) + (C3) + (C4))] 32,824, Expected Assets as of 6/30/02 [(C1) + (C2) + (C3) + (C4) + (C5)] 426,095, Actual Actuarial Value of Assets as of 6/30/02 375,901, Asset (Gain)/Loss for [(C6)-(C7)] 50,194,086 D. Liability (Gain)/Loss for the Year 1. Total (Gain)/Loss (A9) $ 69,347, Contribution (Gain)/Loss (B5) (562,162) 3. Asset (Gain)/Loss (C8) 50,194, Liability (Gain)/Loss [(D1) (D2) (D3)] 19,715,401 Development of the (Gain)/Loss Balance as of 6/30/02 1. (Gain)/Loss Balance as of 6/30/01 $ 2. Payment Made on the Balance during Interest through 6/30/02 [.0825 x (1) ((1.0825) 1/2 1) x (2)] 4. Scheduled (Gain)/Loss Balance as of 6/30/02 [(1) (2) + (3)] $ 5. (Gain)/Loss for Fiscal Year ending 6/30/02 [(A9) above] 6. Final (Gain)/Loss Balance as of 6/30/02 [(4) + (5)] $ * An adjustment has been made in cases where there was an amendment during the year to reflect the partial year s payment for the amendment. Page 7

16 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 3 REQUIRED CONTRIBUTIONS A Development of Required Employer Contributions Fiscal Year Employer Contribution Required (in Projected Dollars) 2004/2005 Payment for Normal Cost $ 9,894,390 Payment on Amortization Bases 1 5,669,756 Payment for 1959 Survivor Benefit Program 2 0 Total (not less than zero) 15,564,146 Employer Contribution Required (Percent of Projected Payroll) Payment for Normal Cost % Payment on the Amortization Bases % Payment for 1959 Survivor Benefit Program % Total (not less than zero) % 1 2 Details regarding this payment can be found on Page 10 for the current valuation. This is for First and Second Level only. The Third, Fourth and Indexed Levels are independent programs and are therefore billed separately. B Reconciliation of Required Employer Contributions Percentage of Projected Payroll Estimated $ Based on Projected Payroll 1. Contribution for 7/1/03-6/30/ % $ 8,929, Effect of changes since the prior valuation a) Effect of changes in 1959 Survivor Benefit program % 0 b) Effect of unexpected changes in demographics and financial results % 5,429,832 c) Effect of plan changes 0.000% 0 d) Effect of elimination of amortization base 0.000% 0 e) Effect of change in payroll N/A 1,204,710 f) Effect of changes in actuarial methods or assumptions 0.000% 0 g) Net effect of the changes above [Sum of (a) through (f)] % 6,634, Contribution for 7/1/04-6/30/05 [(1)+(2g)] % 15,564, The contribution actually paid may be different if a prepayment of unfunded actuarial liability is made or a plan change became effective after the prior year s actuarial valuation was performed. This is for First and Second Level only. The Third, Fourth and Indexed Levels are independent programs and are therefore billed separately. For agencies that changed from First or Second Level to Third, Fourth or Indexed Level, the display above will show a change to a zero rate for the 1959 Survivor Benefit program. Page 8

17 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 3 REQUIRED CONTRIBUTIONS (continued) C Roll Forward of Unfunded Liabilities for the Retirement Program There is a two year lag between the Valuation Date and the Fiscal Year. The assets, liabilities and funded status of the plan are measured as of the valuation date. The employer contribution rate determined by the valuation is for the fiscal year beginning two years after the valuation date. This valuation has a valuation date of June 30, 2002 and determines the employer contribution rate for the fiscal year. This two year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and due to the need to provide public agencies with their employer contribution rates well in advance of the start of the fiscal year. The Unfunded Liability is used to determine the employer contribution for the fiscal year and therefore it must be rolled forward two years from the valuation date to the first day of the fiscal year. The Unfunded Liability is rolled forward each year by subtracting the expected Payment of the Unfunded Liability for the fiscal year and adjusting for interest. The Expected Payment on the Unfunded Liability for a fiscal year is equal to the Expected Employer Contribution for the fiscal year minus the Expected Normal Cost for the year. The Employer Contribution Rate for the first fiscal year is determined by the actuarial valuation two years ago and the rate for the second year is from the actuarial valuation one year ago. The Normal Cost Rate for each of the two fiscal years is assumed to be the same as the rate determined by the current valuation. All expected dollar amounts are determined by multiplying the rate by the expected payroll for the fiscal year based on a projection from the payroll used in the current valuation. Retirement Program 1. Employer Contribution Rate for from 6/30/2000 Valuation % 2. Projected Annual Payroll for from 6/30/2002 Valuation 2 $ 43,989, Employer Contribution Rate for from 6/30/2001 Valuation % 4. 1 Projected Annual Payroll for from 6/30/2002 Valuation 2 $ 45,639, Projected Annual Payroll for from 6/30/2002 Valuation 2 $ 47,350, Employer Normal Cost Rate from 6/30/2002 Valuation % 7. 6/30/2002 Unfunded Liability $ 71,195, Expected Employer Normal Cost for = (6) x (2) 9,192, Expected Employer Contribution = (1) x (2) 6,925, Expected Payment on Unfunded Liability = (9) (8) (2,266,342) 11. Expected Interest on (7) and (10) at 8.25% assuming mid-year payments of contributions 5,965, /30/2003 Expected Unfunded Liability = (7) - (10) + (11) 79,427, Expected Employer Normal Cost for = (6) x (4) $ 9,536, Expected Employer Contribution = (3) x (4) 9,768, Expected Payment on Unfunded Liability = (14) (13) 231, Expected Interest on (12) and (15) at 8.25% 6,543, /30/2004 Rolled Forward Unfunded Liability = (12) - (15) + (16) 85,739,541 1 An adjustment has been made in cases where there was an amendment during the year to reflect the partial year s payment for the amendment. 2 Annual payroll is assumed to increase by 3.75% each year. Page 9

18 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 3 REQUIRED CONTRIBUTIONS (continued) D Schedule of Amortization Bases for the Retirement Program The schedule below shows the development of the payment on the Amortization Bases shown on page 8. This payment represents the employer contribution toward the Unfunded Liability. Each row of the schedule gives a brief description of a base (or portion of the Unfunded Liability), the date the base was established, the original amount, and the number of years from June 30, 2004 to the final payment (Amortization Period). The balance of the base is then shown for the year immediately following the valuation date and the expected payment and projected base are shown for the next two fiscal years. The last year shown is the one for which rates are established in this report. The total expected payments for the fiscal years and are the fiscal year s expected payrolls multiplied by the difference between the fiscal year s total employer rate percentage and the June 30, 2002 employer normal cost percentage. The total payroll is expected to grow by 3.75% annually. Please see Appendix A for more detail, particularly for an explanation of how amortization periods are determined. Date Established Amorti -zation Period Expected Payment Balance * 6/30/03 Expected Payment * Amounts for Fiscal Scheduled Payment for the Fiscal Year Balance Beginning of Fiscal Year Payment as Percentage of Payroll Initial Balance Reason for Base Amount 6/30/02 FRESH START 06/30/02 $71,195, $71,195,881 $(2,266,342) $79,427,517 $231,391 $85,739,541 $5,669, % TOTAL $71,195,881 $(2,266,342) $79,427,517 $231,391 $85,739,541 $5,669, % * Note that each expected balance after 6/30/02 assumes cash receipt of the required employee contributions. If the plan is superfunded and the employee contributions were transferred out of employer assets, the balances after 6/30/02 will be different than shown above. Page 10

19 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 3 REQUIRED CONTRIBUTIONS (continued) E 1959 Survivor Benefit Program Shown below is the information regarding your First or Second Level 1959 Survivor Benefit program. Funded Status of 1959 Survivor Program as of June 30, Accrued Liability $ 0 2. Assets at Actuarial Value 0 3. Unfunded Liability/(Excess Assets) [(1) (2)] 0 Required Contribution for Fiscal Total Premium Required $ 0 2. Amortization of the Unfunded Liability 0 3. Total Required Contributions [(1) + (2)] 0 4. Expected Employee Premiums 0 5. Total Required Employer Premium [(3) (4), but not less than 0] 0 6. Expected Payroll for the Rate Payment Year 0 7. Contribution Rate for 1959 Survivor Benefit [(5) / (6)] 0 Page 11

20 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 4 DETAILED MEMBERSHIP DATA A Counts and Average Annual Benefits For Retirees and Beneficiaries By Years Retired and Retirement Type Type of Retirement Benefit Years Retired Service Disability Retiree Death In Service Death After All Total Retiree Non-industrial Industrial Non-industrial Industrial Retirement Benefits Benefits Under 5 Yrs $59,928 $48,345 $44,136 $0 $0 $12,451 $53,727 $6,769, $41,364 $16,626 $34,792 $0 $47,105 $10,965 $37,273 $3,130, $40,598 $18,651 $35,423 $0 $36,342 $28,858 $36,743 $3,968, $33,349 $0 $28,557 $0 $24,866 $22,005 $30,567 $2,078, $28,082 $18,949 $18,725 $0 $20,891 $11,886 $21,024 $1,114, $16,943 $9,528 $11,014 $0 $0 $11,326 $12,794 $550, and Over $10,206 $0 $7,515 $7,624 $10,579 $5,344 $6,749 $182,212 Total Average $42,849 $24,465 $33,759 $7,624 $30,408 $13,738 $34,959 $17,793,944 Counts of members do not include alternate payees receiving benefits while the member is still working. Therefore, the total counts may not match information on page 2 of the report. Multiple records may exist for those who have service in more than one coverage group. This does not result in double counting of liabilities. Page 12

21 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 4 DETAILED MEMBERSHIP DATA (continued) B Counts and Average Annual Benefits For Retirees and Beneficiaries By Age and Retirement Type Type of Retirement Benefit Attained Service Retiree Disability Retiree Death In Service Death After All Total Age Non-industrial Industrial Non-industrial Industrial Retirement Benefits Benefits Under $0 $0 $0 $0 $0 $0 $0 $ $0 $0 $25,480 $0 $0 $0 $25,480 $76, $0 $0 $25,486 $0 $0 $0 $25,486 $229, $0 $0 $26,234 $0 $47,105 $0 $31,452 $251, $0 $10,668 $27,676 $0 $46,182 $25,859 $27,661 $580, $64,694 $0 $30,851 $0 $0 $12,451 $45,260 $1,855, $55,270 $31,968 $40,329 $0 $24,297 $22,623 $45,986 $5,518, $48,929 $19,117 $33,547 $0 $20,891 $21,048 $40,286 $3,424, $39,982 $18,949 $42,134 $0 $28,921 $19,661 $37,846 $2,724, $31,089 $0 $30,537 $0 $0 $17,060 $28,398 $1,675, $24,662 $0 $20,843 $0 $0 $10,462 $19,589 $881, $26,000 $0 $16,826 $0 $0 $6,485 $16,818 $319, and Over $10,273 $0 $11,303 $7,624 $10,579 $9,181 $9,477 $255,867 All Ages Average $42,849 $24,465 $33,759 $7,624 $30,408 $13,738 $34,959 $17,793,944 Counts of members do not include alternate payees receiving benefits while the member is still working. Therefore, the total counts may not match information on page 2 of the report. Multiple records may exist for those who have service in more than one coverage group. This does not result in double counting of liabilities. Page 13

22 SAFETY PLAN OF THE CITY OF STOCKTON EMPLOYER NUMBER 55 SECTION 4 DETAILED MEMBERSHIP DATA (continued) C Counts and Average Annual Payroll for Active Members By Attained Age & Years of Service Attained Years of Service at Valuation Date Valuation Age All Years Payroll $43,145 $0 $0 $0 $0 $0 $43,145 $647, $50,199 $64,319 $0 $0 $0 $0 $52,787 $3,167, $52,839 $66,343 $71,126 $0 $0 $0 $61,152 $9,111, $52,883 $68,637 $74,540 $89,578 $82,844 $0 $70,166 $8,279, $50,996 $67,360 $76,618 $80,193 $86,782 $0 $75,382 $7,538, $44,886 $69,176 $80,085 $82,658 $88,642 $0 $82,512 $6,188, $0 $62,940 $73,487 $87,083 $92,473 $117,940 $89,554 $5,194, $0 $84,558 $70,962 $78,844 $96,121 $109,580 $94,623 $2,081, $0 $0 $0 $0 $72,165 $119,217 $95,691 $191, $0 $0 $0 $0 $0 $0 $0 $0 All Ages Average $50,884 $67,284 $74,938 $81,972 $90,811 $111,830 $70,784 $42,399,582 Counts of members included in the valuation are counts of the records processed by the valuation system. Multiple records may exist for those who have service in more than one coverage group. This does not result in double counting of liabilities. Page 14

23 Appendix A STATEMENT OF ACTUARIAL DATA, METHODS AND ASSUMPTIONS

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25 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A DATA As stated in the Actuarial Certification, the data which serves as the basis of this valuation has been obtained from the various CalPERS databases. We have reviewed the valuation data and believe that it is reasonable and appropriate in aggregate. We are unaware of any potential data issues that would have a material effect on the results of this valuation, except that data does not contain information about reciprocal systems. Therefore, salary information in these cases may not be accurate. This situation is relatively infrequent, however, and when it does occur, generally does not have a material impact on the employer contribution rates. ACTUARIAL METHODS Funding Method The actuarial funding method used for the Retirement Program is the Entry Age Normal Cost Method. Under this method, projected benefits are determined for all members and the associated liabilities are spread in a manner that produces level annual cost as a percent of pay in each year from the age of hire (entry age) to the assumed retirement age. The cost allocated to the current fiscal year is called the normal cost. The actuarial accrued liability for active members is then calculated as the portion of the total cost of the plan allocated to prior years. The actuarial accrued liability for members currently receiving benefits, for active members beyond the assumed retirement age, and for members entitled to deferred benefits, is equal to the present value of the benefits expected to be paid. No normal costs are applicable for these participants. The excess of the total actuarial accrued liability over the actuarial value of plan assets is called the unfunded actuarial accrued liability. Funding requirements are determined by adding the normal cost and an amortization of the unfunded liability as a level percentage of assumed future payrolls. All changes in liability due to plan amendments, changes in actuarial assumptions, or changes in actuarial methodology are amortized separately over a 20-year period. In addition, all gains or losses are tracked and 10% of the net unamortized gain or loss will be amortized each year. Finally, if a plan s accrued liability exceeds the actuarial value of assets, the annual contribution with respect to the total unfunded liability may not be less than the amount produced by a 30-year amortization of the unfunded liability. An exception to the funding rules above is used whenever the application of such rules results in inconsistencies. In these cases a fresh start approach is used. This simply means that the current unfunded actuarial liability is projected and amortized over a set number of years. As mentioned above, if the annual contribution on the total unfunded liability was less than the amount produced by a 30-year amortization of the unfunded liability, the plan actuary would implement a 30-year fresh start. In addition, a fresh start is needed in the following situations: 1) when a positive payment would be required on a negative unfunded actuarial liability (or conversely a negative payment on a positive unfunded actuarial liability); or 2) when the fresh start is being used to avoid a negative total rate. It should be noted that the actuary may choose to use a fresh start under other circumstances. In all cases, the period of the fresh start is chosen by the actuary according to his or her best judgement, and will not be less than five years nor greater than 30 years. The actuarial funding method for the 1 st and 2 nd Level 1959 Survivor Benefit is the modified Term Insurance Method. There is no actuarial accrued liability for active members; all liability is due to survivors of former active members. The normal cost is calculated as the amount needed to provide benefits to survivors of deaths expected in the next one-year period. A-1

26 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A Asset Valuation Method In order to dampen the effect of short term market value fluctuations on employer contribution rates, the following asset smoothing technique is used. First an Expected Value of Assets is computed by bringing forward the prior year s Actuarial Value of Assets and the contributions received and benefits paid during the year at the assumed actuarial rate of return. The Actuarial Value of Assets is then computed as the Expected Value of Assets plus one-third of the difference between the actual Market Value of Assets and the Expected Value of Assets as of the valuation date. However in no case will the Actuarial Value of Assets be less than 90% or greater than 110% of the actual Market Value of Assets. MISCELLANEOUS Superfunded Status If the rate plan is superfunded (actuarial value of assets exceeds the present value of benefits), as of the most recently completed annual valuation, the employer may cover their employees member contributions (both taxed and tax-deferred) using their employer assets during the fiscal year for which this valuation applies. This would entail transferring assets within the Public Employees Retirement Fund (PERF) from the employer account to the member accumulated contribution accounts. This change was implemented effective January 1, 1999 pursuant to Chapter 231 (Assembly Bill 2099) which added Government Code Section Internal Revenue Code Section 415 The limitations on benefits imposed by Internal Revenue Code Section 415 were not taken into account in this valuation. The effect of these limitations has been deemed immaterial on the overall results of this valuation. A-2

27 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A ACTUARIAL ASSUMPTIONS Economic Assumptions Investment Return 8.25% compounded annually (net of expenses). This assumption is used for all plans. Salary Growth Annual increases that vary by category and duration of service. For Safety members, annual increases are also dependent on entry age. The assumed increases are shown below. Annual Percent Increase Public Agency Public Agency Safety Duration of Service Miscellaneous Entry under Age 40 Entry 40 & Over 0 through 2 3 through through % % % Overall Payroll Growth 3.75% compounded annually (used in projecting the payroll over which the unfunded liability is amortized). This assumption is used for all plans. Inflation 3.50% compounded annually. This assumption is used for all plans. Miscellaneous Loading Factors Credit for Unused Sick Leave Final Average Salary is increased by 1% for those agencies that have accepted the provision providing Credit for Unused Sick Leave. Conversion of Employer Paid Member Contributions (EPMC) Final Average Salary is increased by the Employee Contribution Rate for those agencies that have contracted for the provision providing for the Conversion of Employer Paid Member Contributions (EPMC) during the final compensation period. Norris Decision (Best Factors) Employees hired prior to July 1, 1982 have projected benefit amounts increased in order to reflect the use of Best Factors for these employees in the calculation of optional benefit forms. This is due to a 1983 Supreme Court decision, known as the Norris decision, which required males and females to be treated equally in the determination of benefit amounts. Consequently, anyone already employed at that time is given the best possible conversion factor when optional benefits are determined. No loading is necessary for employees hired after July 1, A-3

28 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A Demographic Assumptions Post-Retirement Mortality Rates vary by age and sex for healthy benefit recipients and for non-industrially disabled (disability not job-related) retirees. Rates vary by age for retirees who are industrially disabled (disability is jobrelated). See sample rates in table below. These rates are used for all plans. Non-Industrially Disabled Industrially Disabled Healthy Recipients (Not Job-Related) (Job-Related) Age Male Female Male Female Male & Female Marital Status For active members, a percentage married upon retirement is assumed according to the following table. Member Category Percent Married Miscellaneous Member 85% Local Police 90% Local Fire 90% Other Local Safety 90% School Police 90% Age of Spouse It is assumed that female spouses are 3 years younger than male spouses. This assumption is used for all plans. Separated Members It is assumed that members refund immediately if non-vested, retire immediately if eligible, or retire at the earliest retirement age if not eligible. A-4

29 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A Service Retirement Rates vary by age and sex. See table below. Public Agency Miscellaneous 60 Age Male Female Age Male Female Termination with Refund Rates vary by entry age, sex and service. See sample rates in tables below. Termination with Refund (Male) Entry Years of Service Age or more Termination with Refund (Female) Entry Years of Service Age or more A-5

30 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A Public Agency Miscellaneous 60 (continued) Non-Industrial (Not Job-Related) Death, Non-Industrial (Not Job-Related) Disability, Termination with Vested Deferred Benefits Rates vary by age and sex. See sample rates in table below. Male Female Attained Non- Industrial (Not Job- Related) Non- Industrial (Not Job- Related) Termination with Vested Deferred Non- Industrial (Not Job- Related) Non- Industrial (Not Job- Related) Termination with Vested Deferred Age Death Disability Benefits Death Disability Benefits Industrial (Job-Related) Disability Rates vary by age and sex. Rates are zero unless the agency has specifically contracted for Industrial Disability benefits. If so, each Non-Industrial Disability rate shown above will be split into two components: 50% will become the Non-Industrial Disability rate and 50% will become the Industrial Disability rate. Industrial (Job-Related) Death Rates vary by age and sex. Rates are zero unless the agency has specifically contracted for Industrial Death benefits. If so, each Non-Industrial Death rate shown above will be split into two components: 99% will become the Non-Industrial Death rate and 1% will become the Industrial Death rate. A-6

31 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A Public Agency Miscellaneous 55, 55, 55, 60 Service Retirement Rates vary by age and sex. See table below. Male Retirement Rates Age Female Retirement Rates Age A-7

32 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A Public Agency Miscellaneous 55, 55, 55, 60 (continued) Termination with Refund Rates vary by entry age, sex, and service. See sample rates in tables below. Termination with Refund (Male) Entry Years of Service Age or more Termination with Refund (Female) Entry Years of Service Age or more A-8

33 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A Public Agency Miscellaneous 55, 55, 55, 60 (continued) Non-Industrial (Not Job-Related) Death, Non-Industrial (Not Job-Related) Disability, Termination with Vested Deferred Benefits Rates vary by age and sex. See sample rates in table below. Male Female Attained Non- Industrial (Not Job- Related) Non- Industrial (Not Job- Related) Termination with Vested Deferred Non- Industrial (Not Job- Related) Non- Industrial (Not Job- Related) Termination with Vested Deferred Age Death Disability Benefits Death Disability Benefits Industrial (Job-Related) Disability Rates vary by age and sex. Rates are zero unless the agency has specifically contracted for Industrial Disability benefits. If so, each Non-Industrial Disability rate shown above will be split into two components: 50% will become the Non-Industrial Disability rate and 50% will become the Industrial Disability rate. Industrial (Job-Related) Death Rates vary by age and sex. Rates are zero unless the agency has specifically contracted for Industrial Death benefits. If so, each Non-Industrial Death rate shown above will be split into two components: 99% will become the Non-Industrial Death rate and 1% will become the Industrial Death rate. A-9

34 STATEMENT OF ACTUARIAL METHODS AND ASSUMPTIONS PUBLIC AGENCY APPENDIX A Public Agency Fire 50, 55, 55 and 50 Service Retirement Rates vary by age and benefit formula. See table below. Attained Age 50 and The rate is set to 100% for any year in which the combination of age and service results in a benefit that would be limited to 90% of final compensation. Termination with Refund Rates vary by entry age and service. See sample rates in table below. Termination with Refund Entry Years of Service Age or more Non-Industrial (Not Job-Related) Death, Non-Industrial (Not Job-Related) Disability, Industrial (Job-Related) Death, Industrial (Job-Related) Disability, Termination with Vested Deferred Benefits Rates vary by age. See sample rates in table below. Non- Industrial (Not Job- Non- Industrial (Not Job- Industrial Industrial Termination with Vested Attained Related) Related) (Job-Related) (Job-Related) Deferred Age Death Disability Death Disability Benefits A-10