C S CITY OF ESCONDIDO SAFETY AND MISCELLANEOUS PLANS CalPERS Actuarial Issues 6/30/16 Valuation Prelimina ary Results Presented by John Bartel, President Prepared by Bianca Lin, Assistant Vice President Matthew Childs, Actuarial Analyst Bartel Associates, LLC Agenda Topic Definitions How We Got Here CalPERS Changes Safety Plan: Demographic Information Plan Funded Status Contribution Rates & Projections Miscellaneous Plan: Demographic Information Plan Funded Status Contribution Rates & Projections Paying Down Unfunded Liability & Rate Stabilization Page 1 3 8 11 13 17 27 29 33 43 o:\clients\ \city of escondido\projects\calpers\6-30-16\ba escondidoci 17-09-27 calpers misc & safety 16.docx
DEFINITIONS PVB - Present Value of all Projected Benefits: Discounted value (at valuation date - 6/30/16), of all future expected benefit payments based on various (actuarial) assumptions Actuarial Liability: Discounted value (at valuation date) of benefits earnedd through valuation date [value of past service benefit] Portion of PVB earned at measurement Current Normal Cost: Portion of PVB allocated to (or earned during) current year Value of employee and employer current service benefit 1 DEFINITIONS Target- Have money in the bank to cover Actuarial Liability (past service) Unfunded Liability - Money short of target at valuation date Excess Assets / Surplus: Money over and above target at that point in time Doesn t mean you re done contributing 2
HOW WE W GOT HERE Investment Losses Enhanced Benefits CalPERS Contribution Policy Demographics 3 H OW WE GOT G HEREE INVESTMENT RETURN 30.00% MVA 22.50% 15.00% 7.50% 0.00% -7.50% -15.00% -22.50% -30.00% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 MVA 16.3%15.3%20.1%19.5% %12.5%10.5%-7.2%% -6.1% 3.7% 16. 6%12.3%11.8%19.1%-5.1% -24.0 13.3%21.7% 0.1% 13.2%18.4% 2.4% 0.6% 11.2% Above assumes contributions, payments, etc. received evenly throughout year. 4
At CalPERS, Enhanced Benefits implemented using all (future & prior) service Typically not negotiated with cost sharing City Safety HOW H WE GOT G HERE ENHANCED BENEFITS Tier 1 3%@50 FAE1 Tier 2 2%@500 FAE3 PEPRA 2.7%@ @57 FAE3 Miscellaneous Note: 3%@60 FAE1 2%@600 FAE3 2%@62 FAE3 FAE1 is highest one year (typicallyy final) average earnings FAE3 is highest three years (typically final three) average earnings 5 HOW WE GOT HERE OLD CONTRIBUTION POLICY Effective with 2003 valuations: Slow (15 year) recognition of investment losses into funded status Rolling 30 year amortization of all (primarily investment) losses Designed to: First smooth rates and Second pay off UAL Mitigated contribution volatility 6
HOW WE GOT HERE OLD CONTRIBUTION POLICY Around the State Large retiree liability compared to actives Declining active population City percentage of liability belonging to retirees: Safety 63% Miscellaneous 55% 7 CALPER RS CHANGES Contribution policy changes: No asset smoothing No rolling amortizati ion 5-year ramp up Included in 6/30/13 valuation (first impact 15/166 rates; full impact 19/20) Assumption changes: Anticipate future mortality improvement Other, less significan nt, changes Included in 6/30/14 valuation (first impact 16/177 rates; full impact 20/21) CalPERS Board will change their discount rate: Rate Initial Fulll 6/30/16 valuation 7.375% 18/19 22/23 6/30/17 valuation 7.25% 19/20 23/24 6/30/18 valuation 7.00% 20/21 24/25 Risk mitigation suspended until 6/30/18 valuation CalPERS Board reviewing their Capital Market Assumptions next summer/fall, Likely no further changes to discount rate 8
CALPER RS CHANGES Risk Mitigation Strategy Move to more conservative investmentss over time Only when investment return is better than expected Lower discount rate in concert Essentially use 50% of investment gains to pay y for cost increases Likely get to 6.0% over 20+ years 9 CALPER RS CHANGES 7.75% Discount Rate used as of Actuarial Valuation Date 7.50% 7.25% 7.00% 6.75% 6.50% 6.25% 6.00% 5.75% 5th percentile 25th percentile 50th percentile 75th percentile 95th Percentile 10
SUMMARY OF DEMOGRAD APHIC INFORMATION - SAFETY Actives Counts Averagee Age City Service PERSable Wages Total PERSable Wages (millions) Receiving Payments Counts Service Disablity Beneficiaries Total Averagee Annual City Provided Benefit 1 Service Disability Service Retirements in last 5 years 1996 234 39 40 11 12 $49,700 $ $83,000 11.6 21.0 94 2006 253 87 79 11 177 $ $48,100 29,100 67,800 2015 251 40 12 $97,900 24.6 160 106 18 284 $59,700 43,800 53,200 2016 244 40 12 $99,800 24. 3 169 107 19 295 $62,200 46,300 58,500 1 Average City providedd pensions are based on City servicee & City benefit formula, and are not representative of benefits for long service employees. 11 MEMBERS INCLUDEDD IN VALUATION - SAFETY 12
FUNDED F RATIO R - SAFETY June 30, 2015 June 30, 2016 $ 120,000,0000 Active AAL $ 119,100,000 205,800,0000 11,600,0000 Retiree AAL Inactive AAL 225,900,000 13,200,000 337,400,0000 248,600,0000 (88,800,000) Total AAL Market Asset Value (Unfunded Liability) 358,200,000 245,700,000 (112,500,000) 13 FUNDED F RATIO R - SAFETY What happened between 6/30/15 and 6/30/16? Unfunded Liability (Increase)/Decreasee $(23.7) million Gains (losses) Asset gain/( (loss) Assumption Change Actuarial gain/(loss) Average Salary Number of Actives Number of Inactives Number of Retirees Other gain/( (loss) Contributions Other (expected) $97,900 251 104 284 $(17.5) million $(5.6) million $1.8 million $99,800 244 113 295 $(2.4) million 14
FUNDED F RATIO R - SAFETY 6/30/17 & 6/30/18 funded status estimated. 15 FUNDEDD STATUSS (MILLIONS) - SAFETY 6/30/17 & 6/30/18 funded status estimated. 16
CONTRIBUTION RATES - SAFETYY 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/ /15 15/16 16/17 17/18 18/19 ER Normal Cost 13.7% 14.7% 12.0% 14.8% 14.8% 17.1% 17.1% 17.1% 19.1% 19.0% 18.7% 18.8% 18.7% 18.8% 19..9% 20.1% 20.7% 20.3% 18.6% 19.2% 19.1% 19.8% Total ER Cont Rate 11.8% 12.8% 2.7% 0.0% 0.0% 7.3% 9.4% 21.2% 30.4% 29.1% 29.4% 30.3% 30.1% 30.5% 34..0% 33.7% 34.5% 36.9% 37.1% 37.8% 39.2% 44.5% 17 CONTRIBUTION RATES - SAFETYY 6/30/15 2017/2018 Total Normal Cost 28.4% Employee Normal Cost 9.3% Employer Normal Cost 19.1% Amortization Bases 20.1% Total Employer Contribution Rate 39.2% Amortization Period Multiple What Happened from 6/30/15 to 6/ /30/16: 2017/18 Rate Payroll < Expected Asset Method Change (4 th Year) 6/30/14 Assumption Change (3 rd Year) 6/30/14 (Gains)/Losses (3 rd Year) 6/30/15 (Gains)/Losses (2 nd Year) 6/30/16 Discount Rate change (1 st Year) 6/30/16 (Gains)/Losses (1 st Year) 2018/19 Rate 39.2% 0.8% 1.5% 1.2% (1.3%) 1.1% 0.5% 1.5% 44.5% 6/30/ /16 2018/2019 29.2% 9.4% 19.8% 24.7% 44.5% Multiple 18
CONTRIBUTION PROJECTIP IONS - SAFETY Market Value Investment Return: June 30, 2016 0.6% 2 June 30, 2017 11.2% 3 Future returns based on stochastic analysis using 1,000 trials Single Year Returns at 4 25 th Percentile 50 th Percentile 75 th Percentile 7.0% Investment Mix 0.1% 7.0% 14.8% 6.0% Investment Mix 0.8% 6.0% 11.4% Assumes investment returns will, generally be 6.5% (as compared to 7.0%) over the next 10 years and higher beyond that. No Other: Gains/Losses, Method/Assumption Changes, Benefit Improvements Tier 2 2%@50 FAE3 effective 5/27/12 Excludes Employer Paid Member Contribut tions (EPMC) 2 3 4 Based on CalPERS 6/30/16 CAFR. Based on CalPERS press release on 7/14/17, preliminary investment return of 11.2%. N th percentilee means N percentage of our trials result in returns lower than the indicated rates. 19 CONTRIBUTION PROJECTIP IONS - SAFETY New hire assumptions: Assumes 50% of 2013 new hires will be Classic Tier 2 Members (2%@50) and 50% will be New Members with PEPRA benefits Assumes Classic Members willl decreasee from 50% to 0% of new hires over 10 years 20
CONTRIBUTION PROJECTIP IONS - SAFETY 90% 80% Discount Rate Reduced from 7.5% to 7% over 3 Years 70% 60% 50% 40% 30% 20% 10% 0% 25th Percentile 50th Percentile 75th Percentile 21 CONTRIBUTION PROJECTIP IONS - SAFETY 90% Discount Rate Reduced from 7.5% to 7% over 3 Years 80% 70% 60% 50% 40% 30% 20% 10% 0% 25th Percentile 50th Percentile 75th Percentile 22
CONTRIBUTION PROJECTIP IONS - SAFETY 90% 80% 70% 60% 50% 40% 30% 20% 10% Discount Rate Reduced 53.6% 57.4% 49.0% 44.5% 39.2% 35.7% 20.1% 24.7% 28.5% 31.6 6% 19.1% 19.8% 20.5% 22.1 1% 21.7% from 7.5% to 7% over 3 Years 60.2% 61.8 8% 61.2% 62.0% 62.2% 62.9% 57.9% 38.5% 39. 9% 36.2% 39.6%40.5% 40.9% 41.8% 21.6% 21.9% 21.8% 21.6% 21.5% 21.3% 21.1% 0% 17/18 18/19 19/20 20/21 21/22 22/23 23/ /24 24/25 25/26 26/27 27/28 28/29 Total Normal Cost UAL Payment 23 CONTRIBUTION PROJECTIP IONS - SAFETY $ 25,000 Discount Rate Reduced from 7.5% to 7% over 3 Years ($000s) $ 20,000 $ 15,000 $ 10,000 $5,000 11,838 10,530 5,,388 6,574 5,,143 5,264 13,427 7,809 5,617 20,878 21,5 592 22,481 18,011 20,024 19,062 18,4 403 16,689 15,136 13,649 14,207 14,943 10,382 11,532 12,306 12,946 11,4 481 8,905 6,230 6,307 6,478 6,756 6,921 7,078 7,229 7,384 7,537 $0 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 25/26 Total Normal Cost UAL Payment 26/27 27/ /28 28/29 24
FUNDED ST TATUS S SAFETY 150% Funded Status Discount Rate Reduced from 7.5% to 7% over 3 Years 125% 100% 75% 50% 75th Percentile 50th Percentile 25th Percentile 25 FUNDED ST TATUS S SAFETY This page intentionally blank 26
SUMMARY OF DEMOGRAPHIC INFORMATION - MISCELLANEOUS Actives Counts Averagee Age City Service PERSable Wages Total PERSable Wages (millions) Receiving Payments Counts Service Disablity Beneficiaries Total Averagee Annual City Provided Benefit 5 Service Disability Service Retirements in last 5 years 1996 521 43 45 9 11 $36,500 $ $52,700 19.0 34.3 259 2006 652 376 26 62 464 $ $11,200 5,100 16,700 2015 579 46 12 $58,400 33.8 527 23 56 606 $28,400 5,500 31,200 2016 588 46 11 $61,400 36. 1 542 23 57 622 $28,700 5,600 32,100 5 Average City providedd pensions are based on City servicee & City benefit formula, and are not representative of benefits for long service employees. 27 MEMBERS INCLUDED IN VALUATIOV ON - MISCELLANEOUS Starting 2012, inactives weree no longer counted separately for different coverage groups (e.g. before and after Social Security coverage) 28
FUNDED RATIO - MISCELLANEOUS June 30, 2015 June 30, 2016 $ 136,100,0000 Active AAL $ 146,100,000 203,600,0000 24,500,0000 Retiree AAL Inactive AAL 212,900,000 26,200,000 364,200,0000 256,100,0000 (108,100,000) Total AAL Market Asset Value (Unfunded Liability) 385,200,000 253,300,000 (131,900,000) 29 FUNDED RATIO - MISCELLANEOUS What happened between 6/30/15 and 6/30/16? Unfunded Liability (Increase)/Decreasee $(23.8) million Gains (losses) Asset gain/( (loss) Assumption Change Actuarial gain/(loss) Average Salary Number of Actives Number of Inactives Number of Retirees Other gain/( (loss) Contributions Other (expected) $58,400 579 578 606 $(18.1) million $(5.5) million $1.0 million $61,400 588 609 622 $(1.2) million 30
FUNDED RATIO - MISCELLANEOUS 6/30/17 & 6/30/18 funded status estimated. 31 FUNDED STATUS (MILLIONS) - MISCELLANEOUS 6/30/17 & 6/30/18 funded status estimated. 32
C CONTRIBUTION RATES - MISCELLANEOUS 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/ /15 15/16 16/17 17/18 18/19 ER Normal Cost 7.1% 6.9% 6.1% 6.4% 6.6% 7.1% 7.2% 7.4% 7.6% 7.5% 7.3% 10.3% 10.1% 10.0% 9.8% 9.9% 10.3% 9.9% 10.1% 10.6% 10.2% 10.5% Total ER Cont Rate 6.2% 4.7% 0.0% 0.0% 0.0% 0.0% 0.0% 5.5% 10.5% 10.8% 10.5% 19.3% 18.7% 20.1% 22. 7% 23.8% 25.1% 26.9% 28.8% 30.8% 32.5% 34.9% 33 C CONTRIBUTION RATES - MISCELLANEOUS 6/30/15 2017/2018 Total Normal Cost 17.9% Employee Normal Cost 7.7% Employer Normal Cost 10.2% Amortization Bases 22.4% Total Employer Contribution Rate 32.5% Amortization Period Multiple What Happened from 6/30/15 to 6/ /30/16: 2017/18 Rate Asset Method Change (4 th Year) 6/30/14 Assumption Change (3 rd Year) 6/30/14 (Gains)/Losses (3 rd Year) 6/30/15 (Gains)/Losses (2 nd Year) 6/30/16 Discount Rate change (1 st Year) Payroll Increased More Than Expected 6/30/16 (Gains)/Losses (1 st Year) 2018/19 Rate 32.5% 1.4% 1.2% (1.1%) 0.6% 0.3% (0.8%) 0.8% 34.9% 6/30/ /16 2018/2019 18.2% 7.6% 10.5% 24.3% 34.9% Multiple 34
CONTRIBUTION PROJECTIONS - MISCELLANEOUS Market Value Investment Return: June 30, 2016 0.6% 6 June 30, 2017 11.2% 7 Future returns based on stochastic analysis using 1,000 trials Single Year Returns at 8 25 th Percentile 50 th Percentile 75 th Percentile 7.0% Investment Mix 0.1% 7.0% 14.8% 6.0% Investment Mix 0.8% 6.0% 11.4% Assumes investment returns will, generally be 6.5% (as compared to 7.0%) over the next 10 years and higher beyond that. No Other: Gains/Losses, Method/Assumption Changes, Benefit Improvements Tier 2 2%@60 FAE3 effective 12/ /23/12 Excludes Employer Paid Member Contribut tions (EPMC) 6 7 8 Based on CalPERS 6/30/16 CAFR. Based on CalPERS press release on 7/14/17, preliminary investment return of 11.2%. N th percentilee means N percentage of our trials result in returns lower than the indicated rates. 35 CONTRIBUTION PROJECTIONS - MISCELLANEOUS New hire assumptions: Assumes 50% of 2013 new hires will be Classic Tier 2 Members (2.0%@60) and 50% will be New Members with PEPRA benefits Assumes Classic Members willl decreasee from 50% to 0% of new hires over 20 years 36
CONTRIBUTION PROJECTIONS - MISCELLANEOUS 60% Discount Rate Reduced from 7.5% to 7% over 3 Years 50% 40% 30% 20% 10% 0% 25th Percentile 50th Percentile 75th Percentile 37 CONTRIBUTION PROJECTIONS - MISCELLANEOUS 60% Discount Rate Reduced from 7.5% to 7% over 3 Years 50% 40% 30% 20% 10% 0% 25th Percentile 50th Percentile 75th Percentile 38
CONTRIBUTION PROJECTIONS - MISCELLANEOUS 60% Discount Rate Reduced from 7.5% to 7% over 3 Years 50% 40% 30% 20% 40.6% 42.8% 37.9% 32.5% 34.9% 31.5% 22.4% 24.3% 27.1% 29.0 0% 44.6% 45.6 6% 46.6% 33.3% 34. 2% 35.3% 44.8% 45.4% 33.6%34.2% 38.0% 38.8% 26.9% 27.8% 10% 10.2% 10.5% 10.8% 11.6 6% 11.3% 11.3% 11.4% 11.3% 11.2% 11.2% 11.1% 11.0% 0% 17/18 18/19 19/20 20/21 21/22 22/23 23/ /24 24/25 25/26 26/27 27/28 28/29 Total Normal Cost UAL Payment 39 CONTRIBUTION PROJECTIONS - MISCELLANEOUS $ 25,000 $ 20,000 $ 15,000 $ 10,000 $5,000 19,818 20,861 21,96 69 21,754 22,674 19,576 20,562 18,463 16,987 15,400 14,810 15,647 16,6 40 16,303 17,099 13,760 13,571 13,868 14,719 12,035 11,005 1 2,122 9,608 8,,267 Discount Rate Reducedd from 7.5% to 7% over 3 Years ($000s) 3,,768 4,152 4,395 4,864 4,892 5,008 5,214 5,328 5,450 5,576 5,708 5,843 $0 17/18 18/19 19/20 20/21 21/222 22/23 23/24 24/25 25/26 26/27 27/28 28/29 Total Normal Cost UAL Payment 40
FUNDED STATUS - MISCELLANEOUS 150% Funded Status Discount Rate Reduced from 7.5% to 7% over 3 Years 125% 100% 75% 50% 75th Percentile 50th Percentile 25th Percentile 41 FUNDED STATUS - MISCELLANEOUS This page intentionally blankk 42
PAYING P DOWN THE UNFUNDEDU D LIABILITY & RATE STABILIZATION Where do you get the money from? How do you use the money? 43 WHERE DO YOU GET G THE MONEY FROM? POB: Usually thought of as interest arbitrage between expected earnings and rate paid on POB No guaranteed savings Including paying off CalPERS Side Fund PEPRA prevents contributions from dropping below normal cost Savings offset when investment return is good GFOA White Paper Borrow from General Fund Excess Reserves? Pay GF back like a loan Payments should come from all funds 44
WHERE DO YOU GET G THE MONEY FROM? One time payments Council resolution to use a portion of one time money, e.g. 1/3 to one time projects 1/3 to replenish reserves and 1/3 to pay down unfundedd liability 45 CITY IDENTIFIED ADDITIONAL REVENUE Projected Additional Unfunded d Liability Payments (In $Millions) Fiscal Year 17/18 18/19 19/20 20/21 21/22 UAL Payment Increases from 17/18 Safety Miscellaneous Total $ - - - $ 1.2 1.3 2.5 $ 2.4 2.7 5.1 $ 3.5 3.9 7.4 $ 5.0 5.3 10.3 Add l Revenue Identified Net Budget Need 2.0 (2.0) 3.5 (1.0) 1.8 3.3 5.6 1.8 3.2 7.1 11 Fiscal Year 22/23 23/24 24/25 25/26 26/27 UAL Payment Increases from 17/18 Safety Miscellaneous Total $ 6.2 6.5 12.7 $ 6.9 7.4 14.3 $ 6.1 8.4 14.5 $ 7.6 8.0 15.6 $ 8.3 8.8 17.1 Add l Revenue Identified 1.0 2.6 2.6 2.6 2.6 Net Budget Need 11.7 11.7 11.9 13.0 14.5 9 Per City ( 8/4/17 email) ). 46
MAKE M PAYMENTS DIRECTLYD TO CAL LPERS Make payments directly to CalPERS: Treat as contribution gain: CalPERS default Very modest short term contribution impact Apply to all bases in proportion n: Lowers payment Does not shorten amortization period Request shorter amortization period (Fresh Start): Higher short term payments Less interest and lower long term payments PEPRA prevents contributions from dropping below normal cost Savings offset when investmen nt return is good 47 MAKE M PAYMENTS DIRECTLYD TO CAL LPERS Make payments directly to CalPERS (continued): Target specific amortization bases: Paying off shorter amortization bases, largerr contribution savings over shorter period: e.g. 10 year base gets 12.5 for $1 Less interest savings compared to paying off longer amortization bases Paying off longer amortization bases, smaller contribution savings over longer period: e.g. 25 year base gets 6.6 for $1 More interest savingss compared to paying off shorter amortization bases 48
MAKE M PAYMENTS DIRECTLYD TO CAL LPERS Projections assume City sends identified additional revenue from slide 46 directly to CalPERS each year to pay down unfundedd liability for certain bases Because biggest impact desired in the short term, shorter, rather than longer, bases are targeted. Revenue allocation Safety: 46% Miscellaneous: 54% Based on 6/30/16 UAL Years 6/30/18 Remaining Balance Safety Amortization Bases: Pays off 2003 Benefit Change base 6 $ 7.7 Million Pays off 2003 Arnettt Case base 7 0.1 Pays off 2009 Assumption Change base 13 4.1 Pays down 2011 Assumption Change base 15 5.7 Miscellaneous Amortizat tion Bases: Pays off 2003 Assumption Change base 7 6.4 Pays off 2006 Benefit Change base 9 21.7 Pays down 2009 Assumption Change base 13 10.8 49 MAKE PAYMENTS DIRECTLYD TO CAL LPERS This page intentionally blankk 50
MAKE M PAYMENTS DIRECTLYD TO CAL LPERS 90% Additional CalPERS Contributionss - Safety Discount Rate Reduced from 7.5% to 7% over 3 Years 80% 70% 60% 50% 40% 39.2% 44.5% 43.8% 53..6% 57.4% 49.0% 50..9% 51.8% 47.0% 60.2% 61.8 8% 61.2% 62.0% 62.2% 62.9% 57.9% 53.9% 55.3 3% 56.3% 59.0% 59.2% 58.7% 59.6% 30% 20% 10% 0% 17/18 18/19 19/20 20/21 21/22 22/23 23/ /24 24/25 25/26 26/27 27/28 28/29 Original Expected CalPERS Rates After Additional CalPERS Payments 51 MAKE M PAYMENTS DIRECTLYD TO CAL LPERS $25,000 Additional CalPERS Contributions - Safety Discount Rate Reducedd from 7.5% to 7% over 3 Years ($000s) $20,000 $15,000 $10,000 11,838 10,530 11,662 18,011 1 20,024 20 0,878 21,592 22,481 9,062 18,40 3 19,302 19 9,947 20,369 21,299 16,689 15,136 13,427 14,357 15,0 44 16,124 1 7,045 17,88 8 12,885 $5,000 $0 17/18 18/ /19 19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 Original Expected CalPERS Rates After Additional CalPERS Payments 28/29 52
MAKE M PAYMENTS DIRECTLYD TO CAL LPERS 60% Additional CalPERS Contributions - Miscellaneous Discount Rate Reduced from 7.5% to 7% over 3 Years 50% 40% 30% 32.5% 34.9% 34.4% 40..6% 42.8% 37.9% 38..7% 39.4% 36.5% 44.6% 45.6 6% 46.6% 44.8% 45.4% 40.3% 41.0% 40.9% 40.3% 38.0% 3 8.8% 38.0% 37.2% 38.0% 20% 10% 0% 17/18 18/19 19/20 20/21 21/22 22/23 23/ /24 24/25 25/26 26/27 27/28 28/29 Original Expected CalPERS Rates After Additional CalPERS Payments 53 MAKE M PAYMENTS DIRECTLYD TO CAL LPERS $25,000 $20,000 $15,000 $10,000 Additional CalPERS Contributions - Miscellaneous Discount Rate Reducedd from 7.5% to 7% over 3 Years ($000s) 19,818 2 0,861 21,96 69 21,754 22 2,674 19,576 20,562 18,463 16,987 15,400 16,215 16,98 84 17,913 1 8,753 19,28 85 19,570 19 9,017 19,1811 20,177 13,760 14,856 12,035 13,579 $5,000 $0 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 Original Expected CalPERS Rates After Additional CalPERS Payments 54
HOW DO YOU USE THE MONEY? Internal Service Fund Typically used for rate stabilization Restricted investments: Likely low (0.5%-1.0%) investmen nt returns Short term/high quality, designed for preservation of principal Assets can be used by Council for other purposes Does not reduce Unfunded Liability 55 IRREVOCABLE SUPPLEMS MENTAL ( 115) PEN NSION TRUST > 100 trusts established PARS, PFM & Keenan Investments significantly less restricted than City investment funds: Likely higher (4% - 6%) but more volatile investment returns Trust Assets: Can t be used by Council for other purposes Can only be used to: Reimburse City for CalPERS contributions Make payments directly to CalPERS Will not reduce Net Pension Liability: City total net financial position will be the same 56
IRREVOCABLE SUPPLEMS MENTAL ( 115) PEN NSION TRUST Consider: How much can you put into Trust? Initial seed money? Additional amounts in future years? When do you take money out? Target budget rate? Year target budget rate kicks in? Before or after CalPERS rate exceeds budgeted rate? 57 IRREVOCABLE SUPPLEMS MENTAL ( 115) PEN NSION TRUST Pension Supplemental Trust Illustration Additional revenue identified from slide 48 Revenue allocation Safety: 46% Miscellaneous: 54% Based on 6/30/16 UAL Two alternatives Use additional revenue to reduce amount City must pay each year and Set aside additional revenue each year into supplemental trust and use to smooth out contributionn peaks 58
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