CalPERS Actuarial Issues – 6/30/18 Valuation Preliminary ... · CITY OF ESCONDIDO MISCELLANEOUS...

CITY OF ESCONDIDO MISCELLANEOUS AND SAFETY PLANS

CalPERS Actuarial Issues – 6/30/18 Valuation Preliminary Results

Mary Beth Redding, Vice President Bianca Lin, Assistant Vice President

Wai Man Yam, Actuarial Analyst Bartel Associates, LLC

October 4, 2019

Contents

\\bartcafs01\bartel_associates\clients\city of escondido\projects\calpers\6-30-18\ba escondidoci 19-10-04 calpers misc safety 18.docx

Topic Page Background 1 Miscellaneous Plan:

Historical Information 13 Projections 23

Safety Plan: Historical Information 35 Projections 45

Combined Miscellaneous and Safety 57 Leaving CalPERS 59 PEPRA Cost Sharing 61 Paying Down the Unfunded Liability 63 Irrevocable Supplemental (§115) Pension trust 69

October 4, 2019 1

DEFINITIONS

PVB - Present Value of all Projected Benefits: The value now of amounts due to be

paid in the future Discounted value (at valuation date -

6/30/18), of all future expected benefit payments based on various (actuarial) assumptions

Current Normal Cost (NC): Portion of PVB allocated to (or “earned” during) current year Value of employee and employer current service benefit

Actuarial Liability (AAL): Discounted value (at valuation date) of benefits earned through valuation date

[value of past service benefit] Portion of PVB “earned” at measurement

October 4, 2019 2

DEFINITIONS

Target- Have money in the bank to cover Actuarial Liability (past service) Unfunded Liability (UAAL or UAL) - Money short of target at valuation date

If all actuarial assumptions were always exactly met, then the plan assets would always equal AAL

Any difference is the unfunded (or overfunded) AAL Every year, the actuary calculates the difference between the expected UAAL and

Actual UAAL. This is a new layer or amortization base Each new layer gets amortized (paid off) over a period of time as part of the

contribution [rate].

October 4, 2019 3

HOW WE GOT HERE

Investment Losses CalPERS Contribution Policy Enhanced Benefits Demographics

October 4, 2019 4

HOW WE GOT HERE – INVESTMENT RETURN

Returns (after 2001) shown are gross returns, unreduced for administrative expenses. The discount rate is based on expected returns net of administrative expenses.

20-Year and 30-Year average return rates on 6/30/19 are 5.8% and 8.1%, respectively

October 4, 2019 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

October 4, 2019 6

HOW WE GOT HERE – ENHANCED BENEFITS

At CalPERS, Enhanced Benefits implemented using all (future & prior) service Typically not negotiated with cost sharing City of Escondido Tier 1 Tier 2 PEPRA

Miscellaneous 3%@60 FAE1 2%@60 FAE3 2%@62 FAE3

Safety 3%@50 FAE1 2%@50 FAE3 2.7%@57 FAE3 Note: FAE1 is highest one year (typically final) average earnings FAE3 is highest three years (typically final three) average earnings

PEPRA tier implemented for new employees hired after 1/1/13 Employee pays half of total normal cost 2019 Compensation limit

Social Security-covered participants: $124,180 Non-Social Security-covered participants: $149,016

October 4, 2019 7


1.0%

1.5%

2.0%

2.5%

3.0%

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

Miscellaneous

2%@60 2%@55 2.5%@552.7%@55 3%@60 PEPRA 2%@62

October 4, 2019 8


October 4, 2019 9

HOW WE GOT HERE – DEMOGRAPHIC

Around the State Large retiree liability compared to actives

State average: 59% for Miscellaneous, 62% for Safety Declining active population and increasing number of retirees Higher percentage of retiree liability increases contribution volatility

City of Escondido percentage of liability belonging to retirees:

Miscellaneous 60% Safety 64%

October 4, 2019 10

CALPERS CHANGES

Recent contribution policy changes: No asset smoothing No rolling amortization 5-year ramp up

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

CalPERS Board changed the discount rate: Rate Initial Impact Full Impact 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

October 4, 2019 11

CALPERS CHANGES

Risk Mitigation Strategy Move to more conservative investments over time to reduce volatility 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% discount rate over 20+ years Risk mitigation suspended from 6/30/16 to 6/30/18 valuation Did not trigger for 6/30/19 valuation

October 4, 2019 12

CALPERS CHANGES

October 4, 2019 13

SUMMARY OF DEMOGRAPHIC INFORMATION - MISCELLANEOUS

1998 2008 2017 2018 Actives Counts 539 664 581 548 Average

Age 44 44 46 45 City Service 10 11 11 11 PERSable Wages $ 38,300 $ 56,600 $ 62,500 $ 63,100

Total PERSable Wages 20,600,000 37,600,000 36,300,000 34,600,000 Inactive Members Counts

Transferred 187 234 287 311 Separated 117 250 365 378 Retired Service 244 427 553 601 Disability 20 28 22 22 Beneficiaries 28 62 64 66 Total 292 517 639 689

Average Annual City Provided Benefit for Service Retirees1 5,400 15,700 30,300 31,300

1 Average City-provided pensions are based on City service & City benefit formula, and are not

representative of benefits for long-service employees.

October 4, 2019 14

SUMMARY OF DEMOGRAPHIC INFORMATION - MISCELLANEOUS

Starting in 2012, inactives were no longer counted separately for different coverage groups (e.g. before and after Social Security coverage)

October 4, 2019 15

PLAN FUNDED STATUS - MISCELLANEOUS

June 30, 2017 June 30, 2018 Actuarial Accrued Liability

Active $ 146,200,000 $ 140,800,000 Retiree 231,000,000 263,100,000 Inactive 27,400,000 31,600,000 Total 404,600,000 435,500,000

Assets 277,200,000 294,900,000 Unfunded Liability 127,400,000 140,600,000 Funded Ratio 68.5% 67.7%

October 4, 2019 16


City CalPERS Asset and Actuarial Liability ($Millions)

October 4, 2019 17


Discount Rate Sensitivity June 30, 2018

Discount Rate

7.00% 6.50% 6.00% AAL $ 435,500,000 $ 463,300,000 $ 491,000,000 Assets 294,900,000 294,900,000 294,900,000 Unfunded Liability 140,600,000 168,400,000 196,100,000 Funded Ratio 67.7% 63.7% 60.1%

October 4, 2019 18


Unfunded Accrued Liability Changes

Unfunded Accrued Liability on 6/30/17 $ 127,400,000 Expected 6/30/18 Unfunded Accrued Liability 128,600,000 Other Changes

• Asset Loss (Gain) (8.6% return for FY 2018) (3,000,000) • Assumption Change (DR 7.25% → 7%) 11,300,000 • Method Change (Software system) 3,300,000 • Contribution & Experience Loss (Gain) 400,000 • Total 12,000,000

Unfunded Accrued Liability on 6/30/18 140,600,000 Projected Unfunded Accrued Liability on 6/30/19 143,100,000

October 4, 2019 19

FUNDED RATIO - MISCELLANEOUS

6/30/19 funded status estimated

October 4, 2019 20

FUNDED STATUS (MILLIONS) - MISCELLANEOUS


October 4, 2019 21

CONTRIBUTION RATES - MISCELLANEOUS

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

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%11.3%11.5%Total 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%39.2%43.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%Historical Employer Contribution Rates (Percent of Payroll)

Benefit Improvement 3%@60

October 4, 2019 22

CONTRIBUTION RATES - MISCELLANEOUS

6/30/17 6/30/18 2019/2020 2020/2021 Total Normal Cost 18.9% 19.2% Employee Normal Cost 7.6% 7.7% Employer Normal Cost 11.3% 11.5% Amortization Payments 27.9% 32.2%2 Total Employer Contribution Rate 39.2% 43.7%

2019/20 Employer Contribution Rate 39.2% Payroll < Expected 2.2% 6/30/14 Assumption Change (5th Year) 1.1% 6/30/16 Discount Rate Change (3rd Year) 0.3% 6/30/17 Discount Rate & Inflation (2nd Year) 0.4% 6/30/18 Discount Rate change (1st Year) 1.5% Other (Gains)/Losses (1.0%)

2020/21 Employer Contribution Rate 43.7%

2 Equivalent to 8.6% of UAL. One year, 7% interest on the UAL is 26.1% of payroll .

October 4, 2019 23

CONTRIBUTION PROJECTIONS - MISCELLANEOUS

Market Value Investment Return: June 30, 2019 6.7%3 Future returns based on stochastic analysis using 1,000 trials

Single Year Returns at4 25th Percentile 50th Percentile 75th Percentile Current Investment Mix 0.1% 7.0% 14.8% Ultimate Investment Mix 0.8% 6.0% 11.4%

Assumes investment returns will, generally be 6.5% (as compared to 7.0%) over the next 9 years and higher beyond that.

Discount Rate decreases due to Risk Mitigation policy No Other: Gains/Losses, Method/Assumption Changes, Benefit Improvements Different from CalPERS projection

3 Gross return based on July 2019 CalPERS press release 4 Nth percentile means N percentage of our trials result in returns lower than the indicated rates.

October 4, 2019 24


New hire assumptions: 92.5% of 2019/20 new hires are PEPRA members and 7.5% are Classic

members Percentage of PEPRA member future hires to increase from 92.5% to 100%

over 3 years 6/30/18 employee distribution:

Benefit Tier Count 6/30/18 Payroll 3%@60 FAE1 337 $ 23,984,743 2%@60 FAE3 14 1,224,889 2%@62 FAE3 (PEPRA) 197 9,366,270

Teamsters Miscellaneous Classic members cost sharing: 1% of PERSable pay for 18/19 2% of PERSable pay for 19/20 3% of PERSable pay for 20/21 and thereafter Assumes Teamsters Classic payroll is 31% of Miscellaneous Classic payroll

October 4, 2019 25


0%

10%

20%

30%

40%

50%

60%

70%

Contribution Projection – Percent of PayExcludes EE Cost Sharing

25th Percentile 50th Percentile 75th Percentile

October 4, 2019 26


0%

10%

20%

30%

40%

50%

60%

70%



October 4, 2019 27


39.2%43.7%

45.9% 47.8% 49.4% 50.8%48.8% 49.7%

42.4% 42.9% 43.4% 43.6%

11.3% 11.5% 11.3% 11.0% 11.0% 11.1% 11.0% 10.9% 10.8% 10.7% 10.7% 10.6%

27.9%32.2% 34.6%

36.8% 38.4% 39.8% 37.8% 38.8%

31.6% 32.1% 32.7% 33.0%

0%

10%

20%

30%

40%

50%

60%

70%

19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31

Contribution Projection – Percent of Pay Excludes EE Cost Sharing (50th Percentile)

Total Normal Cost UAL Payment

October 4, 2019 28


$0

$5,000

$10,000

$15,000

$20,000

$25,000

19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31

Contribution Projection - $000s Excludes EE Cost Sharing (50th Percentile)


October 4, 2019 29


0%

10%

20%

30%

40%

50%

60%

70%

Contribution Projection – Percent of PayIncludes EE Cost Sharing


October 4, 2019 30


0%

10%

20%

30%

40%

50%

60%

70%



October 4, 2019 31


38.6%43.1% 45.3% 47.2% 48.8% 50.3% 48.3% 49.3%

42.0% 42.5% 43.0% 43.3%

11.3% 11.5% 11.3% 11.0% 11.0% 11.1% 11.0% 10.9% 10.8% 10.7% 10.7% 10.6%

-0.5% -0.7% -0.6% -0.6% -0.6% -0.5% -0.5% -0.5% -0.4% -0.4% -0.4% -0.3%

27.9%

32.2% 34.6% 36.8% 38.4% 39.8% 37.8% 38.8%

31.6% 32.1% 32.7% 33.0%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31

Contribution Projection – Percent of Pay Includes EE Cost Sharing (50th Percentile)

Total Normal Cost EE Cost Share UAL Payment

October 4, 2019 32


-$5,000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31

Contribution Projection - $000s Includes EE Cost Sharing (50th Percentile)


October 4, 2019 33

FUNDED STATUS - MISCELLANEOUS

25%

50%

75%

100%

125%

150%

175%Funded Status Projection


October 4, 2019 34

FUNDED STATUS - MISCELLANEOUS

This page intentionally blank

October 4, 2019 35

SUMMARY OF DEMOGRAPHIC INFORMATION - SAFETY

1998 2008 2017 2018 Actives Counts 224 252 250 249 Average

Age 40 40 40 41 City Service 12 12 12 12 PERSable Wages $ 53,900 $ 89,600 $ 100,700 $ 103,200

Total PERSable Wages 12,100,000 22,600,000 25,200,000 25,700,000 Inactive Members Counts

Transferred 35 69 66 69 Separated 21 28 48 47 Retired Service 50 101 176 184 Disability 50 83 108 109 Beneficiaries 6 17 21 21 Total 106 201 305 314

Average Annual City Provided Benefit for Service Retirees5 27,400 53,600 64,300 65,500

5 Average City-provided pensions are based on City service & City benefit formula, and are not

representative of benefits for long-service employees.

October 4, 2019 36

SUMMARY OF DEMOGRAPHIC INFORMATION - SAFETY

October 4, 2019 37

PLAN FUNDED STATUS - SAFETY

June 30, 2017 June 30, 2018 Actuarial Accrued Liability

Active $ 122,700,000 $ 133,900,000 Retiree 242,400,000 261,600,000 Inactive 12,900,000 12,900,000 Total 378,000,000 408,400,000

Assets 267,700,000 285,300,000 Unfunded Liability 110,300,000 123,100,000 Funded Ratio 70.8% 69.9%

October 4, 2019 38


City CalPERS Asset and Actuarial Liability ($Millions)

October 4, 2019 39


Discount Rate Sensitivity June 30, 2018

Discount Rate

7.00% 6.50% 6.00% AAL $ 408,400,000 $ 437,200,000 $ 466,000,000 Assets 285,300,000 285,300,000 285,300,000 Unfunded Liability 123,100,000 151,900,000 180,700,000 Funded Ratio 69.9% 65.3% 61.2%

October 4, 2019 40


Unfunded Accrued Liability Changes

Unfunded Accrued Liability on 6/30/17 $ 110,300,000 Expected 6/30/18 Unfunded Accrued Liability 113,400,000 Other Changes

• Asset Loss (Gain) (8.6% return for FY 2018) (2,800,000) • Assumption Change (DR 7.25% → 7%) 11,600,000 • Method Change (Software system) 1,800,000 • Contribution & Experience Loss (Gain) (900,000) • Total 9,700,000

Unfunded Accrued Liability on 6/30/18 123,100,000 Projected Unfunded Accrued Liability on 6/30/19 126,800,000

October 4, 2019 41

FUNDED RATIO - SAFETY


October 4, 2019 42

FUNDED STATUS (MILLIONS) - SAFETY


October 4, 2019 43

CONTRIBUTION RATES - SAFETY

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

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 20.6 21.7Total 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 49.2 53.5

0%

10%

20%

30%

40%

50%

60%Historical Employer Contribution Rates (Percent of Payroll)

Benefit Improvement 3%@50

October 4, 2019 44

CONTRIBUTION RATES - SAFETY

6/30/17 6/30/18 2019/2020 2020/2021 Total Normal Cost 30.1% 31.3% Employee Normal Cost 9.5% 9.6% Employer Normal Cost 20.6% 21.7% Amortization Payments 28.6% 31.7%6 Total Employer Contribution Rate 49.2% 53.5%

2019/20 Employer Contribution Rate 49.2% Payroll < Expected 0.3% 6/30/14 Assumption Change (5th Year) 1.2% 6/30/16 Discount Rate Change (3rd Year) 0.5% 6/30/17 Discount Rate & Inflation (2nd Year) 0.6% 6/30/18 Discount Rate change (1st Year) 2.3% Other (Gains)/Losses (0.6%)

2020/21 Employer Contribution Rate 53.5%

6 Equivalent to 7.0% of UAL. One year, 7% interest on the UAL is 31.8% of payroll .

October 4, 2019 45

CONTRIBUTION PROJECTIONS - SAFETY

Market Value Investment Return: June 30, 2019 6.7%7 Future returns based on stochastic analysis using 1,000 trials

Single Year Returns at8 25th Percentile 50th Percentile 75th Percentile Current Investment Mix 0.1% 7.0% 14.8% Ultimate Investment Mix 0.8% 6.0% 11.4%

Assumes investment returns will, generally be 6.5% (as compared to 7.0%) over the next 9 years and higher beyond that.

Discount Rate decreases due to Risk Mitigation policy No Other: Gains/Losses, Method/Assumption Changes, Benefit Improvements Different from CalPERS projection

7 Gross return based on July 2019 CalPERS press release. 8 Nth percentile means N percentage of our trials result in returns lower than the indicated rates.

October 4, 2019 46


New hire assumptions: 92.5% of 2019/20 new hires are PEPRA members and 7.5% are Classic

members Percentage of PEPRA member future hires to increase from 92.5% to 100%

over 3 years 6/30/18 employee distribution:

Benefit Tier Count 6/30/18 Payroll 3%@50 FAE1 178 $19,876,827 2%@50 FAE3 14 1,369,570 2.7%@57 FAE3 (PEPRA) 57 4,442,376

Non-management Classic Safety members cost sharing 1.5% of PERSable payroll for 18/19 2.5% of PERSable payroll for 19/20 3.0% of PERSable payroll for 20/21 and thereafter Assumes non-management Classic Safety payroll are 90% of total Classic

Safety payroll

October 4, 2019 47


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%



October 4, 2019 48


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%



October 4, 2019 49


49.2%53.5%

56.4%59.2% 61.1%

57.7%61.1% 62.5% 63.7% 64.7% 65.5% 66.1%

20.6% 21.7% 21.3% 20.9% 21.0% 21.3% 21.3% 21.3% 21.2% 21.2% 21.1% 21.0%

28.6% 31.7% 35.1%38.2% 40.2%

36.4%39.8% 41.2% 42.5% 43.5% 44.4% 45.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31

Contribution Projection – Percent of Pay Excludes EE Cost Sharing (50th Percentile)


October 4, 2019 50


$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31

Contribution Projection - $000s Excludes EE Cost Sharing (50th Percentile)


October 4, 2019 51


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%



October 4, 2019 52


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%



October 4, 2019 53


47.2%51.2%

54.3% 57.2% 59.2%55.9%

59.4% 60.8% 62.2% 63.2% 64.1% 64.7%

20.6% 21.7% 21.3% 20.9% 21.0% 21.3% 21.3% 21.3% 21.2% 21.2% 21.1% 21.0%

-2.1% -2.2% -2.1% -2.0% -1.9% -1.8% -1.7% -1.7% -1.6% -1.5% -1.4% -1.3%

28.6%31.7% 35.1%

38.2% 40.2%36.4%

39.8% 41.2% 42.5% 43.5% 44.4% 45.1%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31

Contribution Projection – Percent of Pay Includes EE Cost Sharing (50th Percentile)


October 4, 2019 54


-$5,000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31

Contribution Projection - $000s Includes EE Cost Sharing (50th Percentile)


October 4, 2019 55

FUNDED STATUS - SAFETY

25%

50%

75%

100%

125%

150%

175%Funded Status Projection


October 4, 2019 56

FUNDED STATUS - SAFETY


October 4, 2019 57

COMBINED MISCELLANEOUS AND SAFETY

28 30

33 36

38 38 40 42

40 42

43 45

15 16 17 19 20 21 21 22

19 20 21 21

13 14 16 17 18 17

19 20

21 22 23 24

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31

Contribution Projection ($Millions)Includes EE Cost Sharing

Miscellaneous & Safety

Miscellaneous + Safety Miscellaneous Safety

October 4, 2019 58

COMBINED MISCELLANEOUS AND SAFETY

Funded Status Summary on June 30, 2018 (Amounts in $Millions)

Miscellaneous Safety Total

AAL $ 436 $ 408 $ 844 Assets 295 285 580 Unfunded AAL 141 123 264 Funded Ratio 67.7% 69.9% 68.7%

October 4, 2019 59

LEAVING CALPERS

Participation in CalPERS is governed by State law and CalPERS rules The following are considered “withdrawing” from CalPERS:

Exclude new hires from CalPERS & giving them a different pension Stop accruing benefits for current employees

“Withdrawal” from CalPERS: Treated as plan termination Liability increased for conservative investments Liability increased for future demographic fluctuations Liability must be funded immediately by withdrawing agency Otherwise, retiree benefits are cut

October 4, 2019 60

LEAVING CALPERS

CalPERS Termination Estimates on June 30, 2018 (Amounts in Millions)

Ongoing Plan Termination Basis Discount Rate 7.00% 2.5% 3.25%

Miscellaneous Actuarial Accrued Liability $ 436 $ 719 $ 660 Assets 295 295 295 Unfunded AAL (UAAL) 141 424 365

Safety Actuarial Accrued Liability $ 408 $ 714 $ 648 Assets 285 285 285 Unfunded AAL (UAAL) 123 429 363

Total Unfunded AAL (UAAL) 264 853 728 Funded Ratio 68.7% 40.5% 44.3%

October 4, 2019 61

PEPRA COST SHARING

Target of 50% of total normal cost paid by all employees PEPRA members must pay greater of 50% of total normal cost or bargained

amount if higher Employer cannot pay any part of PEPRA member required employee

contributions Employer may impose current employees pay 50% of total normal cost (limited

to 8% of pay for Miscellaneous and 12% for Safety) if not agreed through collective bargaining by 1/1/18

Miscellaneous Plan 2020/21: Classic Members New Members Tier 1

3%@60 FAE1 Tier 2

2%@60 FAE3 PEPRA

2%@62 FAE3 Employer Normal Cost 13.3% 10.4% 7.27% Member Normal Cost 8.0% 7.0% 7.00% Total Normal Cost 21.3% 17.4% 14.27% 50% Target 10.7% 8.7% 7.14%

October 4, 2019 62

PEPRA COST SHARING

Safety Plan 2020/21: Classic Members New Members Tier 1

3%@50 FAE1 Tier 2

3%@55 FAE3 PEPRA

2.7%@57 FAE3 Employer Normal Cost 23.4% 21.5% 13.93% Member Normal Cost 9.0% 9.0% 13.00% Total Normal Cost 32.4% 30.5% 26.93% 50% Target 16.2% 15.3% 13.47%

PEPRA Member Contributions:

2019/20 2020/21

Group

Total NC

(Basis)

Member

Rate

Total Normal

Cost

Change

Member

Rate

Method

Miscellaneous 13.79% 7.00% 14.27% 0.478% 7.00% Agency Basis

Safety 24.30% 12.25% 26.22% 1.92% 13.00% Pool Basis

October 4, 2019 63

PAYING DOWN THE UNFUNDED LIABILITY & RATE STABILIZATION

Where do you get the money from? How do you use the money?

October 4, 2019 64

WHERE DO YOU GET THE MONEY FROM?

POB: Usually thought of as interest arbitrage between expected earnings and rate

paid on POB No guaranteed savings PEPRA prevents contributions from dropping below normal cost

Savings offset when investment return is good GFOA Advisory

Borrow from General Fund similar to State One time payments

Governing body 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

October 4, 2019 65

HOW DO YOU USE THE MONEY?

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 governing body for other purposes Does not reduce Unfunded Liability

October 4, 2019 66


Make payments directly to CalPERS: Likely best long-term investment return Must be considered an irrevocable decision

Extra payments cannot be used as future “credit” PEPRA prevents contributions from dropping below normal cost

Option #1: Request shorter amortization period (Fresh Start): Higher short term payments Less interest and lower long term payments Likely cannot revert to old amortization schedule

Savings offset when investment return is good (PEPRA)

October 4, 2019 67


Make payments directly to CalPERS (continued): Option #2: Target specific amortization bases:

Extra contribution’s impact muted by reduced future contributions CalPERS can’t track the “would have been” contribution

No guaranteed savings Larger asset pool means larger loss (or gain) opportunity

Paying off shorter amortization bases: larger contribution savings over shorter period: e.g. 10 year base reduces contribution 11.9¢ for $1 Less interest savings vs paying off longer amortization bases

Paying off longer amortization bases: smaller contribution savings over longer period: e.g. 25 year base reduces contribution 6.2¢ for $1 More interest savings vs paying off shorter amortization bases

October 4, 2019 68



October 4, 2019 69

IRREVOCABLE SUPPLEMENTAL (§115) PENSION TRUST

Can only be used to: Reimburse City for CalPERS contributions Make payments directly to CalPERS

Investments significantly less restricted than City investment funds Fiduciary rules govern Trust investments Usually, designed for long term returns

Assets don’t count for GASB accounting Are considered Employer assets

Over 100 trusts established, mostly since 2015 Trust providers: PARS, PFM, Keenan California Employers’ Pension Prefunding Trust (CEPPT) effective July

2019 Strategy 1: Expected Return 5% (48 stocks / 52% bonds) Strategy 2: Expected Return 4% (22% stocks / 78% bonds)

October 4, 2019 70


More flexibility than paying CalPERS directly City decides if and when and how much money to put into Trust City decides if and when and how much to withdraw to pay CalPERS or

reimburse Agency Funding strategies typically focus on

Reducing the unfunded liability

Fund enough to make total CalPERS UAL = 0 Make PEPRA required payments from Trust when overfunded

Stabilizing contribution rates

Mitigate expected contribution rates to better manage budget Combination

Use funds for rate stabilization/budget predictability Target increasing fund balance to pay off UAL sooner

October 4, 2019 71


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?

October 4, 2019 72

COMPARISON OF OPTIONS

Supplemental Trust CalPERS Flexible Locked In Likely lower long-term return Likely higher long-term return Investment strategy choice No investment choice Does not reduce net pension

liability for GASB reporting Reduces net pension liability for

GASB reporting More visible More restricted

October 4, 2019 73


Direct Payment to CalPERS Following example illustrates additional contribution to CalPERS on June 30,

2019: Miscellaneous

Long Base: 2016 Gain/Loss (28 year amortization) Short Base: 2003 Assumption Change (5 years amortization)

Safety Long Base: 2016 Gain/Loss (28 years amortization) Short Base: 2003 Benefit Change (5 years amortization)

Estimated Savings Miscellaneous Safety Short Base $3.8 million $3.6 million $ Savings (000’s) $696 $514 PV Savings @ 3% (000’s) 373 278 Long Base $3.8 million $3.6 million $ Savings (000’s) $5,212 $4,888 PV Savings @ 3% (000’s) 2,205 2,068

October 4, 2019 74


Payment to 115 Trust

City’s PARS 115 Trust Balance at 7/31/19: $7,039,989 Projected to 6/30/20: $7.4 million Allocation based on UAL

Miscellaneous: 52% Safety 48%

Miscellaneous Safety Initial Balance @6/30/20 $3.8 million $3.6 million Trust Earnings 5% 5% Trust Target

- Target contribution rate 46.3% 61.1% - 1st year Trust used 2023/24 2027/28 - Last year Trust used 2026/27 2032/33

$ Savings (000’s) $1,177 $2,496 PV Savings @ 3% (000’s) 510 916

October 4, 2019 75


Direct Payment to CalPERS Miscellaneous

38.6%

45.3%

48.8% 48.3%

42.0% 43.0%41.3%

37.4%

31.3%

25.0%

16.4%

9.6% 9.3% 9.1% 9.0% 8.9%

48.3%

43.0%

46.5%48.3%

42.0% 43.0%41.3%

37.4%

31.3%

25.0%

16.4%

9.6% 9.3% 9.1% 9.0% 8.9%

48.3%

44.7%

48.1% 47.6%

41.4% 42.4%40.7%

36.7%

30.7%

24.3%

15.8%

9.5% 9.3% 9.1% 9.0% 8.9%

45.3%

48.8% 48.3%

42.0% 43.0%41.3%

37.4%

31.3%

25.0%

16.4%

9.6% 9.3% 9.1%

0%

10%

20%

30%

40%

50%

60%


Current Target Short Base Target Long Base Target - No Payment Reduction

October 4, 2019 76



15,252

17,441

19,852 20,753

19,054

20,599 20,893 19,962

17,645

14,874

10,312

6,332 6,521 6,755 7,036 7,366

19,051

16,566

18,928

20,753

19,054

20,599 20,893 19,962

17,645

14,874

10,312

6,332 6,521 6,755 7,036 7,366

19,051

17,236

19,582 20,468

18,753

20,281 20,557 19,608

17,271

14,480

9,896

6,270 6,521 6,755 7,036 7,366

17,441

19,852 20,753

19,054

20,599 20,893 19,962

17,645

14,874

10,312

6,332 6,521 6,755

$0

$5,000

$10,000

$15,000

$20,000

$25,000

Contribution Projection – ($000s)Includes POB Proceeds and Debt Service


October 4, 2019 77



38.6%

45.3%

48.8% 48.3%

42.0% 43.0%41.3%

37.4%

31.3%

25.0%

16.4%

9.6% 9.3% 9.1% 9.0% 8.9%

38.6%

56.8% 58.0%59.7%

61.4% 62.4%

17.7% 17.9%15.3%

13.5%

9.7% 9.5% 9.3% 9.1% 9.0% 8.9%

44.4% 45.6%47.4%

49.0% 50.0%51.4% 51.5%

15.3%13.5%

9.7% 9.5% 9.3% 9.1%

0%

10%

20%

30%

40%

50%

60%

70%

Contribution Projection – ($000s)Includes EE Cost Sharing

Current Fresh Start 10 Year Fresh Start 15 Year

October 4, 2019 78



October 4, 2019 79



140,070 133,220

121,124

105,873

91,673

77,991

62,410

47,785

34,504

24,033

15,265

7,708

- - - -

136,270 130,716

120,207

105,873

91,673

77,991

62,410

47,785

34,504

24,033

15,265

7,708

- - - -

136,270 129,246

117,144

101,919

87,781

74,206

58,786

44,383

31,399

21,311

13,029

6,077 - - - -

133,220

121,124

105,873

91,673

77,991

62,410

47,785

34,504

24,033

15,265

7,708

- -$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000UAAL Projection – ($000s)

Current Target Short Base Target Long Base Target Assets - No Payment Reduction

October 4, 2019 80



October 4, 2019 81


Direct Payment to CalPERS Safety

47.2%

54.3%

59.2% 59.4%62.2%

64.1% 64.4%

60.5%

55.4%

47.3%

37.0%

21.0%

17.4% 17.1% 16.9% 16.8%

60.6%

50.8%

55.7%

59.4%62.2%

64.1% 64.4%

60.5%

55.4%

47.3%

37.0%

21.0%

17.4% 17.1% 16.9% 16.8%

60.6%

53.6%

58.3% 58.5%61.3%

63.3% 63.6%

59.7%

54.5%

46.5%

36.1%

20.2%17.4% 17.1% 16.9% 16.8%

54.3%

59.2% 59.4%62.2%

64.1% 64.4%

60.5%

55.4%

47.3%

37.0%

21.0%

17.4% 17.1%

0%

10%

20%

30%

40%

50%

60%

70%



October 4, 2019 82



12,544

15,547

17,888 18,950

20,944

22,808 24,201 23,987

23,173

20,906

17,255

10,360 9,064 9,398 9,800 10,276

16,108

14,542

16,826

18,950

20,944

22,808 24,201 23,987

23,173

20,906

17,255

10,360 9,064 9,398 9,800 10,276

16,108 15,355

17,635 18,683

20,662

22,510 23,887 23,655

22,822

20,536

16,864

9,948 9,064 9,398 9,800 10,276

15,547

17,888 18,950

20,944

22,808 24,201 23,987

23,173

20,906

17,255

10,360 9,064 9,398

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000



October 4, 2019 83



47.2%

54.3%

59.2% 59.4%62.2%

64.1% 64.4%

60.5%

55.4%

47.3%

37.0%

21.0%17.4% 17.1% 16.9% 16.8%

47.2%

52.9%54.9%

57.8%60.3%

62.2%64.1% 64.6% 63.4%

60.8%

54.2%

17.7% 17.4% 17.1% 16.9% 16.8%

60.3%62.3%

65.1%67.6%

69.6%71.5% 71.9%

29.7%27.2%

20.6%17.7% 17.4% 17.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%



October 4, 2019 84



12,544

15,547

17,888 18,950

20,944

22,808 24,201 23,987

23,173

20,906

17,255

10,360 9,064 9,398 9,800 10,276 12,544

15,153 16,593

18,436

20,304

22,133

24,072 25,596

26,532 26,867 25,301

8,720 9,064 9,398 9,800 10,276

17,265 18,823

20,789

22,789

24,756

26,842

28,520

12,451 12,001

9,606 8,720 9,064 9,398

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000



October 4, 2019 85



126,711 124,912 119,044

113,217

104,338

92,763

78,627

63,896

49,496

36,854

25,221

13,684

- - - -

123,148

122,955 119,044

113,217

104,338

92,763

78,627

63,896

49,496

36,854

25,221

13,684

- - - -

123,148 121,185

115,312

109,509

100,689

89,214

75,228

60,706

46,584

34,302

23,123

12,154

- - - -

124,912 119,044

113,217

104,338

92,763

78,627

63,896

49,496

36,854

25,221

13,684

- -$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000



October 4, 2019 86



126,711 124,912 119,044

113,217

104,338

92,763

78,627

63,896

49,496

36,854

25,221

13,684

- - - -

126,711 124,735 121,337

116,251

109,163

99,714

87,487

72,001

52,701

28,947

- - - - - -

120,276

111,525

100,046

85,364

66,926

44,100

16,153

- - - - - -$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000



October 4, 2019 87


Payment to 115 Trust Miscellaneous

October 4, 2019 88



October 4, 2019 89



0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000Supplemental Trust Balance ($000s)

50th Percentile

October 4, 2019 90



October 4, 2019 91


Payment to 115 Trust Safety

60.8% 61.1% 61.1% 61.1%

57.6%

47.2%

54.3%55.9%

60.8%63.2%

64.7% 64.2%

57.6%

51.0%

42.5%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

Contribution Rate ProjectionIncludes EE Cost Sharing

Target 50th Percentile

October 4, 2019 92



12,925

15,547

17,888 18,950

20,944

22,808 24,201 23,987

23,173

20,906

$2,000

$7,000

$12,000

$17,000

$22,000

$27,000

Contribution ProjectionsIncludes EE Cost Sharing ($000s)

Target 50th Percentile

October 4, 2019 93



0

1,000

2,000

3,000

4,000

5,000

6,000Supplemental Trust Balance ($000s)

50th Percentile

October 4, 2019 94

ACTUARIAL CERTIFICATION

This report presents analysis of the City of Escondido CalPERS pension plans. The purpose of this report is to provide the City: Historical perspective on the plan investment returns, assets, funded status and contributions. Projections of likely future contributions and the impact of investment volatility

The calculations and projections in this report are based on information contained in the City’s June 30, 2018 and earlier CalPERS actuarial valuation reports. We reviewed this information for reasonableness, but do not make any representation on the accuracy of the CalPERS reports.

Future investment returns and volatility are based on Bartel Associates Capital Market model which results in long term returns summarized on pages 23 and 45.

Future results may differ from our projections due to differences in actual experience as well as changes in plan provisions, CalPERS actuarial assumptions or methodology. Other than variations in investment return, this study does not analyze these.

To the best of our knowledge, this report is complete and accurate and has been conducted using generally accepted actuarial principles and practices. As members of the American Academy of Actuaries meeting the Academy Qualification Standards, we certify the actuarial results and opinions herein.

Respectfully submitted,

Mary Elizabeth Redding, FSA, EA, MAAA Vice President Bartel Associates, LLC October 4, 2019

Bianca Lin, FSA, EA, MAAA Assistant Vice President Bartel Associates, LLC October 4, 2019

CalPERS Actuarial Issues – 6/30/18 Valuation Preliminary ... · CITY OF ESCONDIDO MISCELLANEOUS...

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