CalPERS Actuarial Issues 6/30/16 Valuation Preliminary Results

TOWN OF SANANSELMO

MISCELLANEOUS AND SAFETYPLANS

CalPERS Actuarial Issues – 6/30/16 Valuation

Preliminary Results

Doug Pryor, Vice President

Bianca Lin, Assistant Vice President

Matthew Childs, Actuarial Analyst

Bartel Associates, LLCMarch 13, 2018

HOW WE GOTHERE

Investment Losses

Enhanced Benefits

CalPERS Contribution Policy

Demographics

March 13, 2018 1

HOW WE GOT HERE – INVESTMENT RETURN

Above assumes contributions, payments, etc. received evenly throughout year.

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%

-30.00%

March 13, 2018 2

-22.50%

-15.00%

-7.50%

0.00%

7.50%

15.00%

22.50%

30.00%MVA

HOW WE GOT HERE–ENHANCED BENEFITS

At CalPERS, Enhanced Benefits implemented using all (future & prior) service

Typically not negotiated with cost sharing

March 13, 2018 3

Town Tier 1 Tier 2 PEPRA

Miscellaneous 2.7%@55 FAE1 2%@55 FAE1 2%@62 FAE3

Safety 3%@50 FAE1 3%@55 FAE1 N/A

JPA Tier 1 Tier 2 PEPRA

CMPA 3%@55 FAE1 N/A 2.7%@57 FAE3

RVFD 3%@55 FAE1 N/A 2.7%@57 FAE3

Note:

FAE1 is highest one year (typically final) average earnings

FAE3 is highest three years (typically final three) average earnings

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

March 13, 2018 4

HOW WE GOTHERE

Around the State

Large retiree liability compared to actives

Declining active population

Town percentage of liability belonging to retirees:

March 13, 2018 5

Miscellaneous

Safety:

64%

Town 79%

CMPA 73%

RVFD 72%

CALPERS CHANGES

Contribution policy changes:

No asset smoothing

No rolling amortization

5-year ramp up

Included in 6/30/13 valuation (first impact 15/16 rates; full impact 19/20)

Assumption changes:

Anticipate future mortality improvement

Other, less significant, changes

Included in 6/30/14 valuation (first impact 16/17 rates; full impact 20/21)

CalPERS Board will change their discount rate:

Rate Initial Full

March 13, 2018 6

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 CHANGES

Risk Pool changes

All Risk Pools combined into one Miscellaneous & one Safety

Collect payment on UAL as dollar amount, not as % of pay

Payments allocated to agencies based on liability & assets rather than

payroll

Included in 6/30/13 valuation (impacts 15/16 rates)

December 2017 CalPERS Board selected asset allocation similar to current

portfolio. No further change to the discount rate.

Risk Mitigation Strategy

Move to more conservative investments over time

Only when investment return is better than expected

Lower discount rate in concert

Essentially use ≈50% of investment gains to pay for cost increases

Likely get to 6.0% over 20+ years

March 13, 2018 7

CALPERS CHANGES

February 2018 CalPERS adopted new amortization policy

Applies only to newly established amortization bases

Fixed dollar amortization rather than % pay

Amortize gains/losses over 20 rather than 30 years

5-year ramp up (not down) for investment gains and losses

No ramp up/down for other amortization bases

Minimizes total interest paid over time and pays off UAL faster

Effective June 30, 2019 valuation for 2021/22 contributions

Included in this study

March 13, 2018 8

CALPERS CHANGES

March 13, 2018 9

SUMMARY OF DEMOGRAPHIC INFORMATION -MISCELLANEOUS

March 13, 2018 11

2003 2008 2015 2016

Actives

Counts 46 39 32 32

Average PERSable Wages $55,800 $65,600 $79,500 $81,800

Total PERSable Wages (millions) 2.6 2.6 2.5 2.6

Inactive Counts

Transferred 28 32 30 28

Separated 22 30 35 38

Retired 30 44 64 66

FUNDED STATUS -MISCELLANEOUS

March 13, 2018 12

CONTRIBUTION PROJECTIONS -MISCELLANEOUS

Market Value Investment Return:

11.2%1 June 30, 2017

Future returns based on stochastic analysis using 1,000 trials:

Single Year Returns at2 25th Percentile 50th Percentile 75th 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

Assumption Changes – Discount Rate

Decrease to 7.0% by June 30, 2018 valuation

Additional Discount Rate decreases expected due to Risk Mitigation

policy.

New amortization policy adopted February 2018.

1

2

March 13, 2018 13

Based on CalPERS 6/30/17 CAFR

Nth percentile means N percentage of our trials result in returns lower than the indicated rates.


City has no Employer Paid Member Contributions (EPMC)

Includes Tier 2 (2%@55) effective February 1, 2007

New hire assumptions:

Assumes 50% of 2013 new hires will be Classic Tier 2 Members (2%@55)

and 50% will be New Members with PEPRA benefits

Assumes Classic Tier 2 Members will decrease from 50% to 0% of new

hires over 20 years

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POLICE SAFETYPLAN

CMPA responsible for Town’s Police Safety CalPERS plan with Town paying

37% of total contributions.

CalPERS contract with the Town

This section provides total Plan costs (Town and CMPA)

Additionally:

Town’s projected portion provided on last page

Total of all Town Safety projected contributions provided in Total Town

Portion section of this report

March 13, 2018 21

SUMMARY OF DEMOGRAPHIC INFORMATION– POLICE SAFETY

March 13, 2018 22

2003 2008 2015 2016

Actives

Counts 18 18 - -

Average PERSable Wages $80,000 $100,200 N/A N/A

Total PERSable Wages (millions) 1.4 1.8 N/A N/A

Inactive Counts


Separated 8 6 6 6

Retired 33 41 56 57

FUNDED STATUS -SAFETY

March 13, 2018 23

CONTRIBUTION PROJECTIONS– SAFETY (TOWN’S PORTION)

March 13, 2018 29

CMPA SAFETYPLAN

Town responsible for 37% of CMPA CalPERS contributions.

This section provides total CMPA costs

Additionally:




March 13, 2018 31

SUMMARY OF DEMOGRAPHIC INFORMATION -CMPA

March 13, 2018 32

2013 2014 2015 2016

Actives

Counts 45 45 44 43



Inactive Counts


Separated 8 10 10 11

Retired 70 71 73 72

FUNDED STATUS -CMPA

March 13, 2018 33

CONTRIBUTION PROJECTIONS–CMPA (TOWN’S PORTION)

March 13, 2018 42

RVFD SAFETYPLAN

Town responsible for 40.5% of RVFD CalPERS Normal Cost contributions and

52.9% of Unfunded Accrued Liability (UAL) payments.

This section provides total RVFD costs

Additionally:




March 13, 2018 43

SUMMARY OF DEMOGRAPHIC INFORMATION -RVFD

March 13, 2018 44

2013 2014 2015 2016

Actives

Counts 32 31 31 30



Inactive Counts

Transferred 2 1 1 1

Separated - - - -

Retired 38 41 40 40

FUNDED STATUS -RVFD

March 13, 2018 45

CONTRIBUTION PROJECTIONS–RVFD (TOWN’S PORTION)

March 13, 2018 54

TOTAL TOWNPORTION

Total Town portion calculated as follows:

100% of Miscellaneous Plan

37% of Police Safety Plan

37% of CMPA Safety Plan

40.5%/52.9% of RVFD Plan Normal Cost/UAL payments

March 13, 2018 55

TOTALTOWN PORTION - SAFETY

March 13, 2018 56

TOTALTOWN PORTION –MISCELLANEOUS AND SAFETY

March 13, 2018 57

AGENCYCOMPARISON

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AGENCYCOMPARISON

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AGENCYCOMPARISON

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AGENCYCOMPARISON

March 13, 2018 68

PAYING DOWN THE UNFUNDED LIABILITY & RATE STABILIZATION

Where do you get the money from?

Pension Obligation Bonds

Borrow from existing reserves/funds

One time payments

How do you use the money?

Give directly to CalPERS

Set up an internal service fund/reserve

Set up an IRC §115 Supplemental Pension Trust

March 13, 2018 69

WHERE DO YOU GET THE MONEYFROM?

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

March 13, 2018 70

WHERE DO YOU GET THE MONEYFROM?

March 13, 2018 71

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 unfunded liability

HOW DO YOU USE THE MONEY?

Make payments directly to CalPERS:

Treat as contribution gain:

CalPERS default

Very modest short term contribution impact

Apply to all bases in proportion:

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 investment return is good

March 13, 2018 72


March 13, 2018 73

Make payments directly to CalPERS (continued):

Target specific amortization bases:

Paying off shorter amortization bases, larger 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 savings compared to paying off shorter amortization

bases


March 13, 2018 74

Internal Service Fund

Typically used for rate stabilization

Restricted investments:

Likely low (0.5%-1.0%) investment returns

Short term/high quality, designed for preservation of principal

Assets can be used by Council for other purposes

Does not reduce Unfunded Liability


March 13, 2018 75

Internal Service Fund

Typically used for rate stabilization

Restricted investments:

Likely low (0.5%-1.0%) investment returns

Short term/high quality, designed for preservation of principal

Assets can be used by Council for other purposes

Does not reduce Unfunded Liability

IRREVOCABLE SUPPLEMENTAL (§115)PENSION 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

March 13, 2018 76


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?

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OPEB - BENEFIT SUMMARY

Valuation (Bickmore)

Town

June 30, 2017

CMPA

July 1, 2015

RVFD

July 1, 2017

Eligibility Retire directly from Agency under CalPERS

Age 501 & 5 years of CalPERS service or disability

Benefit $225/ month

(future caps not less

than PEMHCA

minimum - $128 in

2017)

Hired < 1/1/13

Kaiser single

premium cap with

10 years

Dual Kaiser cap if

hired <7/1/07 and

15 years Hired > 1/1/13

PEMHCA minimum

Hired < 4/1/13

PEMHCA Unequal Method

Full single premium

Dual/Family 2017 caps vary($1,447-1,582/mo.)

Hired > 4/1/13

PEMHCA minimum

Other Surviving coverage based on retirement plan election2

No dental, vision, life, Medicare Part B reimbursements

Implied Subsidy included in valuations

1

2

March 13, 2018 83

Age 52 for Miscellaneous PEPRA members.

CMPA surviving spouses eligible for PEMHCA minimum only if hired after 7/1/07 or hired before and <15 years.

OPEB - RESULTS

Valuation Summary – Town Portion(Amounts in 000’s)

Town CMPA RVFD

6/30/17 7/1/15 7/1/17

AAL $ 2,536 $ 6,164 $ 4,784

Assets - - 1,142

Unfunded AAL 2,536 6,164 3,642

2016/17 2016/17 2018/19

ARC8 - $

Normal Cost $ 103 $ 179 $ 87

UAAL Amortization 152 338 271

Total ARC 255 517 358

8

March 13, 2018 84

Interest included in Normal Cost and UAAL Amortization.

CalPERS Actuarial Issues 6/30/16 Valuation Preliminary Results

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