CIT Y OF SALINAS CIT Y COUNCIL STUDY SESSION September 26, 2017

Transcription

1 CIT Y OF SALINAS CIT Y COUNCIL STUDY SESSION September 26, 2017

2 Base Pay Additional Pays -Auto Allowance -Bilingual Pay -Canine Officer -Certification Pay (30+) -Commercial Driver s Lic -Community Relations -Confidential Premium -Crime Scene Invest. -Detective Premium -Differentials SEIU -Educ. Incentive (30+) -Field Training Officer -Fire Staff Premium -Gang Detail -Hazardous Conditions SEIU -Hazardous Materials IAFF -Longevity -Master Police Officer -Motors Patrol Premium -NFRIS Report Checker -On Call Pay -Overtime -Paramedic -Personnel & Training -Platoon Training Coord/EMS -Police Records Assignment -Residency Stipend -Search Pay Premium -Shift Differential -Supervisor Premium -Temporary Upgrade Pay -Traffic/Motors -Uniform/Footwear Allowance 2

3 CalPERS Active Members and 603 Retired Members Police: Fire: Non-Public Safety: New York Life 18 Active Members and 50 Retired Annuitant Members Non-Public Safety: 2 60 Social Security All Employees Except Public Safety 6.2% of Payroll 3

4 Annual Leave Annual Leave Buyback Bereavement Flex/Management Leave Holidays/Floating Industrial Leave Military Leave Temp Employee Sick Leave Biennial Physical Examination Cafeteria Benefit Deferred Comp Fitness Test/Gym Reimbursement Health/Dental/Vision Life Insurance Long Term Disability Retiree Medical (Police & Fire) Retiree PEMHCA Minimum Take Home Vehicles/Auto Allowance Tuition Reimb./Prof Development Unemployment Insurance Workers Compensation 4

5 Total Base Pay CalPERS Retirement Health/Dental/Vision Overtime Workers Compensation Social Security New York Life Retirement Longevity Bilingual Fitness Test/Gym Reimbursement $ 55,380,500 18,358,320 12,194,410 5,794,975 3,158,063 2,391, , , , ,000 5

6 Annual Leave Buyback Flex/Management Leave Uniform Allowance Long Term Disability Insurance Education Incentive Pay Auto Allowance Deferred Compensation Life Insurance $ 2,050,000 1,316, , , , , ,338 65,800 6

7 Total Pays $ 232, $ 212, $ 179, Salary/Pays Police Officer Firefighter Non-Sworn - AMPS Maximum Base $ 107, $ 88, $ 97, Bilingual $ 5, $ 4, $ 4, Premium $ 8, $ 15, $ 2, Education/Cert $ 6, $ 1, $ 4, Flex/Management $ 6, $ 6, Annual Leave $ 13, $ 13, $ 12, Fitness $ 1, $ 1, $ 1, Longevity $ 8, $ 4, $ 4, Tuition $ $ 1, $ 1, Uniform $ 1, $ 1, Health $ 24, $ 27, $ 27, Retirement $ 49, $ 54, $ 16,542.00

8 Paramedic Shift Differential Hazardous Materials Retiree Medical Contribution/Police & Fire Supervisor Prem. (Division Head) Residency Stipend Mechanic Education Incentive Tuition Assistance / Professional Dev. Senior Mechanic Supervisor Prem. $ 297, , ,900 85,000 83,000 44,200 27,400 26,200 2,700 8

9 Position Pension Years of Service Year of Retirement City Manager $182, Fire Chief $192,871, Deputy Fire Chief $181, Deputy Police Chief $155, Deputy Librarian $ 43, Police Officer $ 79, Admin Secretary $ 51,

10 Annual Leave Years of Service Leave Days/Hours 40 Hour Sched. IAFF/FSA Annual Leave Years of Service Leave Hours Hour Sched Days or 176 Hours Days or 216 Hours Days or 232 Hours Days or 240 Hours Days or 248 Hours Days or 256 Hours Days or 264 Hours

11 Paid Holidays 12 Paid holidays per year fixed within appropriate MOU 2 Floating holidays per year for Non-Public Safety Units 1 Floating holiday per year for FSA, POA, PMA Management Leave or Flex Time Leave Prorated: Varies by MOU, but ranges from days 11

12 Unit Employees IAFF 82 SPOA 104 PMA 29 SMEA 59 FSA 8 SEIU 46 Gross Amount $ 2,417,237 2,053, , , ,337 84,248 12

13 Employee Pay and Benefits continue to grow Rate of growth unsustainable Caution and Fiscal Restraint 13

14 Develop and implement a plan to pay down the City s Unfunded Actuarial Liability Create a Pension Rate Stabilization Program Change the service delivery method of certain public services Undertake appropriate methods to get City employees to pay a larger portion of annual pension contribution 14

15 CalPERS Update and Path Forward September 26, 2017

16 CalPERS Background 1,439 School Districts 1 State of California 1,581 Public Agencies 3,021 Total Employers in Retirement Program 1.85 Million Members 650,000 Receiving Monthly Pension Benefit Source: June 30, 2016 Comprehensive Annual Financial Report * Retirees and beneficiaries and survivors

17 Our Members

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19 Pensions are a Shared Responsibility Employer Employees CalPERS Pension

20 Shared Responsibility 6

21 Today: $335 billion in assets 11.20% 8.83% 4.39% 6.60% 8.40% 2016/17 PORTFOLIO RETURN 5-YR ANNUALIZED RETURN 10-YR ANNUALIZED RETURN 20-YR ANNUALIZED RETURN ANNUALIZED RETURN SINCE 1988

22 CalPERS Historical Allocation Discount Rate,10yr Rolling Return, and 10yr US Treasury Yield 16% 100% Fixed Income 14% 12% 10% 8% 6% 4% 2% 0% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Inflation Public Equity Private Equity Real Asset Cash Discount Rate (LHS) 10 year Treasury (LHS) PERF 10yr Rolling Return (LHS) Data Source: CalPERS Comprehensive Annual Financial Reports (CAFR) for Discount rate, 10yr rolling returns and allocation Data Source: Bloomberg for 10YR US Treasury Constant Maturity Rate (H15T10Y) Inflation asset class was not provided as a separate line item in the 2014 & 2015 CAFRs. Used the asset allocations from the AA-Spreadsheet

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24 Factors Driving Funding Risk Plan Demographics Asset and liability ratios Plans are maturing Public employees are living longer Increased cash outflows Market Conditions Current portfolio and market environment includes significant risk of volatility Market valuations and return expectations 10

25 Why A Discount Rate Change in December 2016? Market conditions have changed Seeing more uncertainty in the forecast Next 10 years are consequential To close the cash flow funding gap Risks in system continue to grow 11

26 Rate of Return in % Rate of Return in % Change in Market Conditions ALM Assumptions 8.05% 7.5% 7.1% Years 1-30 Dec % % % Years 1-30 Assumed rate of return 12

27 $ Billions Contribution & Benefit Payments Historical & Projected PERF Contributions & Investments for Benefit Payments Current Contribution Addt'l Contribution at 7% Disc Rate Investments Used 13

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29 Approved Discount Rate Phase-In for Public Agencies 7.5% g 7.0% Required contributions from FY to FY FY % FY % FY %

30 Timing of Change to Annual Valuations Valuation Date Contribution Rate Change State 6/30/16 17/18 Schools & Public Agencies 6/30/16 18/19 Affiliate Plans 6/30/16 17/18 16

31 Contribution Increases From Discount Rate Change Normal Cost UAL Payments Valuation Date FY Impact Misc. Plans Safety Plans Misc. Plans Safety Plans 6/30/ % % 0.5% % 2% - 3% 2% - 3% 6/30/ % - 1.5% 1.0% - 2.5% 4% - 6% 4% - 6% 6/30/ % - 3.0% 2.0% - 5.0% 10% - 15% 10% - 15% 6/30/ % - 3.0% 2.0% - 5.0% 15% - 20% 15% - 20% 6/30/ % - 3.0% 2.0% - 5.0% 20% - 25% 20% - 25% 6/30/ % - 3.0% 2.0% - 5.0% 25% - 30% 25% - 30% 6/30/ % - 3.0% 2.0% - 5.0% 30% - 40% 30% - 40% 17

32 Employer Contributions - $ Employer Contributions - % City of Salinas Projected Employer Contributions (Normal Cost + UAL Payment) $7,000,000 Miscellaneous Plan 30% $6,000,000 25% $5,000,000 $4,000,000 $3,000,000 $2,000,000 20% 15% 10% $1,000,000 5% $ % Employer Contribution - $ Employer Contribution - % 18

33 Employer Contributions - $ Employer Contributions - % City of Salinas Projected Employer Contributions (Normal Cost + UAL Payment) Safety Police Plan $16,000,000 80% 70% $12,000,000 60% 50% $8,000,000 40% 30% $4,000,000 20% 10% $ % Employer Contribution - $ Employer Contribution - % 19

34 Employer Contributions - $ Employer Contributions - % City of Salinas Projected Employer Contributions (Normal Cost + UAL Payment) $12,000,000 Safety Fire Plans Combined 90% $10,000,000 80% 70% $8,000,000 60% $6,000,000 $4,000,000 50% 40% 30% $2,000,000 20% 10% $ % Employer Contribution - $ Employer Contribution - % 20

35 City of Salinas Main Causes of Projected Contribution Increases Lower expectations for future investment return - Discount rate lowering to 7.0% as of 6/30/ Full impact phased-in over 7 years Phase-in of investment losses for fiscal years ending 6/30/2015 and 6/30/2016 (2.4%, and 0.6% returns respectively) Investment gain for year ending 6/30/2017 is not reflected in these results 21

36 City of Salinas Funded Status as of 6/30/2016 Miscellaneous Plan Accrued Liability % Termination Liability - 3.0% 30% 70% 56% 44% Market Value of Assets Unfunded Accrued Liability Market Value of Assets Unfunded Termination Liability 22

37 City of Salinas Funded Status as of 6/30/2016 Safety Police Plan Accrued Liability % Termination Liability - 3.0% 36% 64% 61% 39% Market Value of Assets Unfunded Accrued Liability Market Value of Assets Unfunded Termination Liability 23

38 City of Salinas Funded Status as of 6/30/2016 Safety Fire Plans Combined Accrued Liability % Termination Liability - 3.0% 35% 38% 65% 62% Market Value of Assets Unfunded Accrued Liability Market Value of Assets Unfunded Termination Liability 24

39 External Factors Driving Risk Asset Liability Management (ALM) Framework Asset Liability Management (ALM) Plan Demographics Benefit Structure Market Conditions Actuarial Assumptions Actuarial Reports Funding & Risk Mitigation Policy Actuarial Policies: Smoothing/ Amortization Investment Allocation Treasury Management PEPRA External Factors Reducing Risk Pension Beliefs 25

40 Stay Informed Through the ALM Process Jan Educational Workshop: Public Access Nov Experience Study & Educational Workshop: Candidate Portfolios Dec First opportunity for Board to Adopt ALM Changes Feb Second Opportunity for Board to Adopt ALM Changes Apr Educational Workshop: Private Assets Jun Approval of Capital Market & Economic Assumptions Jul Fiscal Year Investment Returns Announced & Educational Workshop: Leverage Oct CalPERS Educational Forum Jul Implementation of Board Decisions

41 Considerations Pension prefunding options for employers CalPERS focus: reducing cost & complexity Vested rights cases for county pension systems PEPRA employees will reduce unfunded liability curve - Already nearly 30% of all members Stakeholder engagement with Board and executive team 27

42 QUESTIONS 28

43 Definitions Asset Liability Management (ALM) An integrated look at our assets and liabilities to determine the right mix of investments for our portfolio, specifically designed to achieve a sound and sustainable fund. Done on a rolling 4-year cycle. Discount Rate Also known as the assumed rate of return. It is what we assume our $304 billion in investments will return in a typical fiscal year, July 1 to June 30. Normal Cost The annual cost of service accrual for the upcoming fiscal year for active employees. The normal cost should be viewed as the long term contribution rate. Risk Mitigation Policy A mechanism that triggers adjustments to strategic asset allocations and reduces discount rate by a set amount when returns exceed a certain threshold. Unfunded Liability / Unfunded Actuarial Accrued Liability (UAL) When a plan or pool s Market Value of Assets is less than its Accrued Liability, the difference is the plan or pool s Unfunded Liability. If the Unfunded Liability is positive, the plan or pool will have to pay contributions exceeding the Normal Cost.