calpers actuarial issues 6/30/16 valuation preliminary results
TRANSCRIPT
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
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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
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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.
CONTRIBUTION PROJECTIONS -MISCELLANEOUS
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
March 13, 2018 14
CONTRIBUTION PROJECTIONS -MISCELLANEOUS
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CONTRIBUTION PROJECTIONS -MISCELLANEOUS
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CONTRIBUTION PROJECTIONS -MISCELLANEOUS
March 13, 2018 17
CONTRIBUTION PROJECTIONS -MISCELLANEOUS
March 13, 2018 18
CONTRIBUTION PROJECTIONS -MISCELLANEOUS
March 13, 2018 19
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
Transferred 16 21 28 27
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:
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 31
SUMMARY OF DEMOGRAPHIC INFORMATION -CMPA
March 13, 2018 32
2013 2014 2015 2016
Actives
Counts 45 45 44 43
Average PERSable Wages $101,200 $106,300 $110,100 $112,900
Total PERSable Wages (millions) 4.6 4.8 4.8 4.9
Inactive Counts
Transferred 11 11 15 13
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:
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 43
SUMMARY OF DEMOGRAPHIC INFORMATION -RVFD
March 13, 2018 44
2013 2014 2015 2016
Actives
Counts 32 31 31 30
Average PERSable Wages $116,000 $113,000 $120,800 $128,700
Total PERSable Wages (millions) 3.7 3.5 3.7 3.9
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
March 13, 2018 62
AGENCYCOMPARISON
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AGENCYCOMPARISON
March 13, 2018 66
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
HOW DO YOU USE THE MONEY?
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
HOW DO YOU USE THE MONEY?
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
HOW DO YOU USE THE MONEY?
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
IRREVOCABLE SUPPLEMENTAL (§115)PENSION 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?
March 13, 2018 77
IRREVOCABLE SUPPLEMENTAL (§115)PENSION TRUST
March 13, 2018 78
IRREVOCABLE SUPPLEMENTAL (§115)PENSION TRUST
March 13, 2018 79
IRREVOCABLE SUPPLEMENTAL (§115)PENSION TRUST
March 13, 2018 80
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.