"Interpreting the Newly Released CalPERS Annual Actuarial Reports for Your Pension Plans" CSMFO webinar 9:00-10:30 a.m., September 20, 2018 The new CalPERS Actuarial Reports have important changes. Attend this session to learn how to use them effectively to make key budget and other planning estimates for your agency. This webinar addresses interpretation of reports for contracting public agencies only (not state agencies or school districts). IMPORTANT: Please download your report in advance and have it at hand so that you can follow along. Your report is available through your my CalPERS account or on CalPERS website (www.calpers.ca.gov and search for Public Agency Actuarial Valuation Reports) Advance registration required for this no-charge webinar: https://attendee.gotowebinar.com/register/2392984096379883009 Webinar Topics: 1. What's new in the reports? 2. Where can you see the impact of recent changes in assumptions? 3. Where can you see contribution projections for the next 6 fiscal years? 4. Where can you see information on PEPRA member contribution rates? 5. What resources are available to address your plan s unfunded accrued liability (UAL)? Presenter: * Julian Robinson, Senior Pension Actuary, CalPERS CSMFO Commentator: [tbd] Audience: local government finance professionals and human resources colleagues Get connected with these steps. 1. Register in advance for the webinar: There is no charge for participating in the webinars, but each requires advance registration. *** Advance registration required for this no-charge webinar: https://attendee.gotowebinar.com/register/2392984096379883009 Be sure to "white list" or "allow" emails from customercare@gotowebinar.com to receive notices for this webinar.
2. Connect with the webinar and audio: Use your logon information from the email confirmation you receive via email from GoToWebinar. We recommend the telephone option dial-in number provided by GoToWebinar for sound quality. Depending upon your internet connection, VOIP option for audio (computer speakers) can have delays or sound quality issues. 3. Ask questions: You may submit questions anonymously via email to CSMFO@DonMaruska.com in advance or via the webinar during the panel discussion. As moderator for the session, Don Maruska will pose the questions. 4. Presenters presentation materials: We post these with the agenda at Agendas & Archives tab of www.csmfo.org/training/webinars. The PPT will be available 24 hours before the webinar. After a webinar occurs, a digital recording along with the PowerPoint materials and results of the polling questions will be available after 24 hours at the "Agendas & Archives" tab of www.csmfo.org/training/webinars. CPE Credits: If you are a member of CSMFO and wish to obtain CPE credit, you need to register and attend in your name, respond to at least 75% of the live polling questions, and pay $25 to CSMFO after notice from CSMFO following the webinar. After payment, CSMFO emails the CPE certificate as a PDF. Post-Webinar Group Discussions Many agencies are organizing groups to participate in the webinars (live or recorded) and discuss the topics among themselves after the webinars. Some are summarizing their discussions and distributing them to managers throughout their organizations. Use the CSMFO Coaching Program as an effective way to enhance professional development in your agency. Here are some discussion starters for this session: a. How have the recent changes in assumptions affected our agency s obligations? b. How will we use the contribution projections for our budgeting needs? c. What s our strategy for addressing our plan s unfunded accrued liability? MORE RESOURCES--See the "Coaching Corner" at www.csmfo.org/coaching for valuable resources to boost your career. These include a Financial Management Skills Inventory, Resource Matrix, Coaches Gallery of 24 volunteer CSMFO Coaches willing to help you on a one-to-one basis, and an archive of digital recordings and materials from past webinars at www.csmfo.org/training/webinars. Enjoy the resources to help you succeed in local government finance. Don Maruska, MBA, JD, Master Certified Coach Director, CSMFO Coaching Program; CSMFO@donmaruska.com Author How Great Decisions Get Made and Take Charge of Your Talent www.takechargeofyourtalent.com
Julian Robinson, Senior Pension Actuary, CalPERS Julian Robinson is a Senior Pension Actuary with the Valuation Services Team at CalPERS. He has been with CalPERS since 2012. Mr. Robinson is responsible for the actuarial work for various CalPERS contracting agencies throughout the State of California. Mr. Robinson has experience in the pension, employee benefits and insurance industries. Before joining CalPERS he was a Vice President at American General Life Companies, Manager of Global Benefits for Marsh & McLennan Companies, and a Vice President at Aon Consulting in the M&A group. Mr. Robinson is a Fellow of the Society of Actuaries, an Enrolled Actuary under the Employee Retirement Income Security Act and a Member of the American Academy of Actuaries. Mr. Robinson earned a Bachelor s degree in Economics from Macquarie University, Sydney, Australia. Gavin Curran, Administrative Services Director, Laguna Beach Gavin Curran began as Finance Officer for the City of Laguna Beach in 2004 and was named Director of Finance and Information Technology Services in 2008, and Director of Administrative Services in 2017. In his current position, Gavin oversees the operations of the City s Finance, Information Technology, Human Resources/Risk Management and Digital Communications divisions for the City of Laguna Beach. Gavin has twenty-five years of municipal finance experience. He began his career in 1992 working for a Public Accounting firm specializing in government accounting and auditing, and later served as the Assistant Finance Director of the City of El Segundo. Gavin holds a B.S. degree in Accounting and a B.A. degree in Business Administration from Loyola Marymount University. He is an active member in the California Society of Municipal Finance Officers and the Government Finance Officers Association.
Interpreting the Newly Released CalPERS Annual Actuarial Reports Coaching Program September 20, 2018
Coaching Program: 20 th year as member benefit Career Development Committee 2
Overview of Session Topics: 1. What's new in the reports? 2. Where can you see the impact of recent changes in assumptions? 3. Where can you see contribution projections for the next 6 fiscal years? 4. Where can you see information on PEPRA member contribution rates? 5. What resources are available to address your plan s unfunded accrued liability (UAL)? Presenter: Julian Robinson, Senior Pension Actuary, CalPERS CSMFO Color Commentator: Gavin Curran, Director of Admin Services, City of Laguna Beach Producer and Moderator: * Don Maruska, Master Certified Coach, Director, CSMFO Coaching Program 3
Polling Question #1: How many persons are participating at your location? 4
CalPERS Actuarial Valuation Reports as of June 30, 2017 Julian Robinson, FSA, EA, MAAA, Senior Pension Actuary & Gavin Curran, Director of Admin Services, City of Laguna Beach September 2018
Webinar Topics Background Non-pooled plans vs Pooled plans Actuarial Report Highlights Non pooled plans Pooled plans 6
Key Takeaways Contribution Requirements for FY 2019-20 Funded Status of the Plans 5-Year Contribution Projections Alternatives for proactively managing Unfunded Accrued Liabilities 7
Key Takeaways Using actuarial report to: Develop pension strategies Project future pension costs, budget planning Communicating pension strategies to decision makers Overview of City of Laguna Beach Pension Strategies
Background Non-Pooled Plans / Pooled Plans 9
Pooled Plans vs Non-Pooled Plans Plans with less than 100 active members are combined into Risk Pools Miscellaneous Risk Pool Safety Risk Pool Aggregate data and experience of all pooled plans Setting normal cost Vary by plan formula and provisions Pool s gains/losses allocated among pooled plans proportionate share based on accrued liability 10
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Actuarial Report Highlights 13
Common Questions What are my required contributions? Is my plan in good shape? Why did my required contributions change? Where are my required contributions headed? Are there any alternative UAL amortization schedules? Where are my PEPRA members? What additional information is available in the reports? 14
Non-Pooled & Pooled Plans What are my required contributions? - Cover page Rates do not reflect any cost sharing information FY 2020-21 projection: Phase in of discount rate 7.00% Doesn t reflect the FY 2017-18 asset gain 15
Non-Pooled and Pooled Plans What are my required contributions? Page 4 16
Non-Pooled & Pooled Plans Employer Contribution comprised of 2 components 1. Normal Cost Rate (% of Payroll) 2. UAL Dollar Payment Annual UAL Prepayment Option Only for UAL Dollar Payment component Discount of a half year of interest Avoid overpaying Normal Cost Rate must be paid regularly throughout the year 17
UAL Invoice July 1, 2018 18
Non-Pooled & Non Pooled Plans Is my plan in good shape? Page 5 Unfunded Liability = UAL = Unfunded Accrued Liability Funded Ratio is one indicator of the plan s health Information as of June 30, 2017 19
Polling Question #2: What is the funded ratio of your plan? 20
Non-Pooled Plans Why did my required contributions change? Page 14 Expected liability and asset values compared with actual values Explains changes to the UAL amount 21
Pooled Plans Gain/Loss Analysis Gain/Loss Analysis performed for entire pool Share of Gain/Loss allocated to each plan in the pool Appears in Section 2 Reports Available on CalPERS website www.calpers.ca.gov Forms & Publications 22
Non-Pooled and Pooled Plans Why did my contributions change? Amortization Schedule and Alternatives Schedule of Required UAL Amortization Payments Two sample Fresh Start Alternatives Pay off UAL more rapidly Other alternatives available 23
Non-Pooled & Pooled Plans Non-Pooled p16 / Pooled p9 Bases comprising the plan s UAL 24
Non-Pooled & Pooled Plans NEW!! UAL Base Amortization 25
Amortization Schedule and Alternatives 26
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Non-Pooled & Pooled Plans Where are my required contributions headed? Page 5 Assumes expected return for FY2017-18 and thereafter No demographic gains or losses after 6/30/17 included Total as % of Payroll for illustration purposes only 28
Discount Rate Change On December 21, 2016 the CalPERS Board adopted a 7% discount rate with a 3-year phase-in 7.375% to be used 6/30/2016 7.25% to be used 6/30/2017 7.00% to be used 6/30/2018 Affects all non-pooled and pooled actuarial valuations Lower discount rates result in higher accrued liabilities and normal costs Full impact of 7.00% discount rate will take 7 years due to phase-in procedures 29
Other Assumption Changes Effective for June 30, 2017 valuation Inflation assumption 2.625% 2.50% for 6/30/18 valuation Payroll growth 2.875% 2.75% for 6/30/18 valuation Updated demographic assumptions Mortality rates Early Retirement rates Adopted by Board in December 2017 30
Polling Question #3: Which of these statements are true? 31
Non-Pooled Plans Where are my PEPRA members? Non pooled plans include PEPRA members Non pooled plans require the same employer rate for all members in the plan Non pooled plans require differing employee rates Classic member rate is set by statute PEPRA member rate can be found in Appendix D 32
Non-Pooled Plans Normal Cost for Each Group/Tier Appendix D New in June 30, 2017 valuation reports NEW!! 33
Pooled Plans Where are my PEPRA members? Separate report for PEPRA members Separate contributions for pooled PEPRA members 34
Non-Pooled & Pooled Plans Additional information NP p23 / P p15 Highly sensitive to the discount rate 35
Polling Question #4: Which discount rate sensitivities do you intend to communicate to your elected officials and public? 36
Non-Pooled & Pooled Plans Additional Information NP p25 / P p17 2 discount rate scenarios Prevailing Treasury Bond rates Unfunded Term Liability = Hypothetical Term Liability less Market Value of Assets Highly sensitive to the discount rate 37
Other information 38
Key Takeaways Contribution Requirements for FY 2019-20 Funded Status of the Plans 5-Year Contribution Projections Alternatives for proactively managing Unfunded Accrued Liabilities Attend CalPERS Educational Forum & meet your actuary 39
CalPERS Educational Forum October 22 24, 2018 in Indian Wells Visit CalPERS website (www.calpers.ca.gov) and scroll down to Events 40
LAGUNA BEACH STRATEGY Additional discretionary payments above required amount To date, paid $10 million over required amount Payments only benefit City Plans Projected to save City $24 million over 30 years Each $1 million payment is estimated to save $1.7 million over 30 years 16-17 PAYMENT TO CALPERS ALL FUNDS STRATE GY $9.1 $6.3 $7.3 $9.9 $11. $9.1 8 18-19- 19 20 REQUIRED 21-22
CONCERNS FROM CITY COUNCIL AND PUBLIC Rising Pension Costs Do additional discretionary payments benefit only the City? Impact of Involuntary Terminations?
MORE PENSION STRATEGIES 1. Incorporate future pension increase into the budget as soon as possible. 2. For the next five year use 1/3 to 1/2 of budget savings toward unfunded pension liability. Re-evaluate after five years. 3. Temporarily suspend repayments of internal loans and divert payments to CalPERS.
OTHER PENSION STRATEGIES 4. If feasible, use existing cash: Lower General Fund Reserve requirement and use cash toward payment. Use Insurance or Vehicle Replacement reserves repaid with future pension cost savings. Disaster Contingency Fund, temporarily replace with line of credit and repaid with cost savings. Parking Fund contribution of $1 million a year.
Expected Increase in CalPERS Cost Valuation Date Fiscal Year for Required Contribution Discount Rate Additional Required City Payment to CalPERS June 30, 2015 FY 2017-18 7.500% $0 June 30, 2016 FY 2018-19 7.375% $300,000* June 30, 2017 FY 2019-20 7.250% $1,400,000 June 30, 2018 FY 2020-21 7.000% $1,800,000 June 30, 2019 FY 2021-22 7.000% $2,100,000 June 30, 2020 FY 2022-23 7.000% $2,500,000 June 30, 2021 FY 2023-24 7.000% $2,700,000 June 30, 2022 FY 2024-25 7.000% $2,800,000 * Already programmed into the budget
LAGUNA BEACH STRATEGY FISCAL YEAR 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Beginning Balance Pension Smoothing 300,000 850,000 1,850,000 1,900,000 2,000,000 1,800,000 1,200,000 700,000 Revenue over estimates (1%/Year) 450,000 900,000 1,350,000 1,800,000 1,800,000 1,800,000 1,800,000 1,850,000 Savings Prepay Required Pension Liability 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Reprogram Side Fund Loan 300,000 850,000 Total Sources 550,000 1,000,000 1,450,000 1,900,000 1,900,000 1,900,000 2,200,000 2,800,000 Increase in CalPERS Costs (1,400,000) (1,800,000) (2,100,000) (2,500,000) (2,700,000) (2,800,000) Ending Balance Pension Smoothing 850,000 1,850,000 1,900,000 2,000,000 1,800,000 1,200,000 700,000 700,000
Polling Question #5: Which of these strategies are attractive for your agency? 47
Post-Webinar Discussion Questions a. How have the recent changes in assumptions affected our agency s obligations? b. How will we use the contribution projections for our budgeting needs? c. What s our strategy for addressing our plan s unfunded accrued liability? 48
Contacts for today s webinar Presenter: Julian Robinson, Senior Pension Actuary, CalPERS Julian.Robinson@calpers.ca.gov CSMFO Color Commentator: Gavin Curran, Director of Admin Services, City of Laguna Beach gcurran@lagunabeachcity.net Producer and Moderator: * Don Maruska, Master Certified Coach, Director, CSMFO Coaching Program CSMFO@donmaruska.com 49
Polling Question #6 How was the webinar of value for you and your agency? 50
Resources and Feedback A digital audio recording of the session and an Agenda packet with PDF of the PPT with polling results and other materials will become available in ~ 24 hours at the Agendas & Archives tab of www.csmfo.org/training/webinars Other coaching resources, including volunteer one-to-one coaches are available at www.csmfo.org/training/coaching Please complete the follow up survey, including suggested topics for future webinars. 51
Register now for upcoming webinar q California s Economic Outlook How to plan for it in your budgets 9:00 a.m. 10:30 a.m., Wed., October 31 52