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Home My WebLink AboutSupplemental Information Received After Posting of Agenda - California Public Employees' Retirement System UpdateAnnual Valuation Report and Actuarial Office (ACTO) Update City of Seal Beach September 25, 2017 Kerry Worgan FSA, FCIA Senior Pension Actuary, CaIPERS Review of Valuation Report and Actuarial Office (ACTO) Update Future Contributions • Valuation Date — 6/30/2016 • Actual 2018/19 ER contributions • Projected 2019/20 Contributions uses 7.375% return for 2016/17 • Rate for Normal Cost • Monthly Invoice for Unfunded liability payment Ak CaIPERS Review of Valuation Report and Actuarial Office (ACTO) Update Required Contributions (Pg 4) • Normal Cost — Cost of service earned in the coming year — Provided as dollar amount and Level percent of pay — Fluctuates due to assumption changes and changes in aggregate entry age of active members • Payment on Amortization Bases — Unfunded Liability = Accrued Liability (AL) — Assets (A) — Pay down Unfunded Liability to get back to 100% funded .% Ca1PERS a Review of Valuation Report and Actuarial Office (ACTO) Update Required Contributions — Misc. Classic Plan Development of Normal Cost as a Percentage of Payroll' Base Total Normal Cost for Formula Surcharge for Class 1 Benefits' a) FAC 1 b) PRSA Phase out of Normal Cost Difference] Plan's Total Normal Cost Formula's Expected Employee Contribution Rate Employer Normal Cost Rate Projected Payroll for the Contribution Fiscal Year Fiscal Year Fiscal Year 2017 -18 2018 -19 15314% 15.794% 0.503% 0.517% 0.678% 0.743% 0.000% 0.000% 16.495% 17.054% 6.896% 6.902% 9.599% 10,152% $ 4,503,812 $ 4,052,324 Estimated Employer Contributions Based on Projected Payroll Plan's Estimated Employer Normal Cost $ 432,321 $ 411,392 Plan's Payment on Amortization Bases' 490,751 638,624 %of Projected Payroll (illustrative only) 10.896% 15.759% Estimated Total Employer Contribution $ 923,072 $ 1,050,016 %of Projected Payroll (illustrative only) 20.495% 25.911% A, Ca1PERS Review of Valuation Report and Actuarial Office (ACTO) Update Required Contributions — Misc. PEPRA Plan Development of Normal Cost as a Percentage of Payroll' Base Total Normal Cost for Formula Surcharge for Class 1 BenefRSz a) PRSA Phase out of Normal Cost Difference; Plan's Total Normal Cost Plan's Employee Contribution Rate Employer Normal Cost Rate Fiscal Year Fiscal Year 2017 -18 2018 -19 12.783% 13.092% 0.625% 0.674% 0.000% 0.000% 13.408% 13.766% 6.500% 6.500% 6.908% 7.266% Projected Payroll for the Contribution Fiscal Year $ 643,163 $ Estimated Employer Contributions Based on Projected Payroll Plan's Estimated Employer Normal Cost $ 44,430 $ Plan's Payment on Amortization Bases4 360 %of Projected Payroll (illustrative only) 0.056% 565,566 41,094 2,241 0.396% Estimated Total Employer Contribution $ 44,790 $ 43,335 % of Projected Payroll (illustrative only) 6.964% 7.662% AA CAPERS 5 Review of Valuation Report and Actuarial Office (ACTO) Update Required Contributions — Safety Classic Plan Development of Normal Cost as a Percentage of Payroll' Base Total Normal Cost for Formula Surcharge for Class 1 Benefitsz a) FAC 1 b) PRSA Phase out of Normal Cost Difference; Plan's Total Normal Cost Formula's Expected Employee Contribution Rate Employer Normal Cost Rate Projected Payroll for the Contribution Fiscal Year Fiscal Year Fiscal Year 2017 -18 2018 -19 27.603% 28.405% 1.108% 1.140% 1.695% 1.790% 0.0000/0 0.000% 30.406% 31.335% 8.988% 8.989% 21.418% 22.346% $ 5,174,008 $ 4,771,664 Estimated Employer Contributions Based on Projected Payroll Plan's Estimated Employer Normal Cost $ 1,108,169 $ 1,066,276 Plan's Payment on Amortization Bases4 886,527 1,125,111 %of Projected Payroll (illustrative only) 17.134% 23.579% Estimated Total Employer Contribution $ 1,994,696 $ 2,191,387 %of Projected Payroll (illustrative only) 38.552% 45.925% , CAPERS 6 Review of Valuation Report and Actuarial Office (ACTO) Update Required Contributions — Safety PEPRA Plan Development of Normal Cost as a Percentage of Payroll' Base Total Normal Cost for Formula Surcharge for Class 1 Benefits' a) PRSA Phase out of Normal Cost Difference' Plan's Total Normal Cost Plan's Employee Contribution Rate Employer Normal Cost Rate Fiscal Year Fiscal Year 2017 -18 2018.19 0.000% 24.141% 0.000% 1.574% 0.000% 0.000% 0.000% 25.715% 0.000% 12.750°% 0.000% 12.965°% Projected Payroll for the Contribution Fiscal Year $ 0 $ Estimated Employer Contributions Based on Projected Payroll Plan's Estimated Employer Normal Cost $ 0 $ Plan's Payment on Amortization Base54 0 %of Projected Payroll (illustrative only) 0.000% 96,432 12,502 63 0.066°% Estimated Total Employer Contribution $ 0 $ 12,565 % of Projected Payroll (illustrative only) 0.000°% 13.031% Aw CAPERS 7 Review of Valuation Report and Actuarial Office (ACTO) Update Funded Status (page 5) • Present Value of Projected Benefits — current value of all future expected benefits • Accrued Liability (AL) — current value of accrued benefits • Market Value of Assets (MVA)— current value of plan assets • Funded Ratio — MVA divided by AL . * %- Ca1PERS e Review of Valuation Report and Actuarial Office (ACTO) Update Funded Status — Misc. Classic Plan Plan's Funded Status 1. Present Value of Projected Benefits (PVB) 2. Entry Age Normal Accrued Liability (AL) 3. Plan's Market Value of Assets (MVA) 4. Unfunded Accrued liability (UAL) [(2) - (3)] 5. Funded Ratio [(3) (2)] 14%, CaIPERS June 30, 2015 June 30, 2016 $ 49,448,789 $ 50,724,498 43,709,248 45,365,214 35,001,043 33,542,582 8,708,205 11,822,632 801% 73,9% Review of Valuation Report and Actuarial Office (ACTO) Update Funded Status — Misc. PEPRA Plan Plan's Funded Status June 30, 2015 June 30, 2016 1. Present Value of Projeded Benefits (PVB) $ 819,237 $ 816,024 2. Entry Age Normal Accrued Liability (AL) 133,033 197,526 3. Plan's Market Value of Assets (MVA) 127,448 175,321 4, Unfunded Accrued liability (UAL) [(2) - (3)] 5,585 2245 5. Funded Ratio [(3) (2)] 95.8% 88,8% Ca1PERS I Review of Valuation Report and Actuarial Office (ACTO) Update Funded Status — Safety Classic Plan Plan's Funded Status 1. Present Value of Projected Benefits (PVB) 2. Entry Age Normal Accrued Liability (AL) 3. Plan's Market Value of Assets (MVA) 4. Unfunded Accrued Liability (UAL) [(2) - (3)] 5. Funded Ratio [(3) (2)] .►��. CaIPERS June 30, 2015 June 30, 2016 $ 11,911,908 $ 81,790,868 67,464,019 70,875,950 52,017,223 50,729,262 15,446,796 20,146,688 77.1% 71.6% Review of Valuation Report and Actuarial Office (ACTO) Update Funded Status — Safety PEPRA Plan Plan's Funded Status 1, Present Value of Projected Benefds (PVB) $ 2. Entry Age Normal Accrued Liablity (AL) 3. Plan's Market Value of Assets (MVA) 4. Unfunded Accrued Liability (UAL) [(2) - (3)] 5. Funded Ratio [(3) (2)] 14k.. Ca1PERS June 30, 2015 June 30, 2016 0 $ 337,917 0 27,006 0 25,032 0 1,974 0.0% 92.7% 12 Review of Valuation Report and Actuarial Office (ACTO) Update Schedule of Amortization Bases (pg 9) • Unfunded Liability broken down by source — Assumption /Method changes (20 years) — Asset Gains and Losses (30 years) — Non -Asset Gains and Losses (30 years) • Scheduled payments are minimum required A CAPERS 13 Review of Valuation Report and Actuarial Office (ACTO) Update Amortization Payments (Pg 9) — Misc. Date Amounts for Final 2018 -19 .... ............................... Establishe Amortization 0 .... ..... .. Perlo4„ .. ,06(3 0(13........ 2 ?....... .0614113........ i3....... Balance Payment 6(3%14. ........ ?AW)%7..... 109.395........ $139 009 ........ Amounts for Foal 2018 -19 ........... I ................... Date Amounts for Final 2018 -19 .... ............................... Sc1u.MUled Payment Balance Payment Balance 6(30(18,,,,,. ror201q -.W., $207,036 „.$5AV 36 ......,$,2,60,mU .... (272,956,,,,.,,,,$3 599137,,,,,,,,,, $2n 761,,,,, . 10,986)......... Cm TO .......... 3x.4w)..... ............ K 105 ...............$167...... $29,985 $2.241 $(3866,Q9 ?)........ ).153 968).... .,$,93257......... i2 370,7,03.......... $29,985 Amounts for Foal 2018 -19 ........... I ................... Date Scheduled Establish¢ Amortization Balance Payment Balance Payment Balance Payment E ......... Period ........ 6(30(16. ........ ?01617 .... ... 6(30(1T ....... ?017. 18....... 6(30(18 ...... lor 2018 ;19,,, .............. FRESH START 06/30/16 20 $22,205 $(2,061) $25,979 $(2.018) $29,985 $2.241 ' TOTAL $22,205 $(2,061) $25,979 $(2418) $29,985 $7.241 CaIPERS 14 Review of Valuation Report and Actuarial Office (ACTO) Update Amortization Payments (Pg 9) — Safety ....... 16....... 0, 696,?9 ;....... W, 5.4.9 ......... $3,793171.......5.141. 210.........33 926,593..........5215,763.... Amourds ror Rawl 2018 -19 Date 46011 79........34 ............... 53, 185,887......5%,270..........33 460,251...........393a8Q4..... Scheduled d 6whlbAre Amortization Balance Payment glance Payment Balance Pa .......... C,,,,,,,., Perl?C........ 6�?0 %1 ?.........2016- 17....... 6(?0� ??........ 1017.- 38...... 6(30(18...... ror,2111 &19 .........0§( ?4/13........ 27....... 31643,434........ WEI843........ i7 990 730.......$.34,,.........$8,245 ...............32 698.......... � ?.6i?.1.... , ...... 6(30(13,,,,,,,, 49.......;109 IM ....... ;,516 ft ........ $7891,897.......$, 531, 528.... ......$j6,M66.1..........5?�884 32 035................338....... ........46(.34(13........ 2? ....... 1186,772).........$i?4?) ).........1190, ?1S)....... {i.3, ). .........5.(9,3,810)........... (264) ., .... SC4i959)..... ....... 16....... 0, 696,?9 ;....... W, 5.4.9 ......... $3,793171.......5.141. 210.........33 926,593..........5215,763.... Ama ro Fil 2018 -19 .... mou ............r ...sca................ ....... 29.......53 46011 79........34 ............... 53, 185,887......5%,270..........33 460,251...........393a8Q4..... ....... 29....... SL11, 259).........$0 ............... 5112 ,669).......SS170)........... Payment S C12,609)............5�34o...... Payment ........44....... 53,6?4 949........ $.0 .............. 5? 94 ?,543...... $o .............. 54,19059:? ..........396.oeo..... ....... 30.......31600766)........30. 6/30(1 .....,for .............. . j1695 073)......50 ...............W2 647).......... 0 ,608)..... . Ca1PERS 15 Ama ro Fil 2018 -19 .... mou ............r ...sca................ Date Scheduled Establishe Amortization Balance Payment Balance Payment Balance Payment tl ..... PerI94........ 6[301.44........ 1116, - 17.......6(301.17........ 2017,- 18,,,,... 6/30(1 .....,for 06(30(16........ 34.......51, 790. ...........50 . .............. 51, 922..........50 ...............32 061 ................$29....... .....46(30(16........ 29....... 5413 ............. MM) ........... 51, 185. ......... 51737). ........... 32 035................338....... 06/30/16 30 12291 $0 (246) f0 (264) 4(4) ;1,974 $(715) $2,861 $(737) $3,834 ;83 . Ca1PERS 15 Review of Valuation Report and Actuarial Office (ACTO) Update Projected Contributions (pg 5) - Misc. Classic Plan • PEPRA Plan Required Contribution Projected Future Employer Contributions (Assumes 7.375% Return for Fiscal Year 2016 -17) Fiscal Year 2018 -19 2019 -20 2020 -21 2021 -22 2022 -23 2023 -24 2024 -25 Normal Cost % 10.152% 10.6% 11.6% 11.6% 11.6% 11.6% 11.6% UAL Payment $638,624 $808,000 $935,000 $1,097,000 $1,237,000 $1,330,000 $1,408,000 • PEPRA Plan A CAPERS 'h Required Contribution Projected Future Employer Contributions (Assumes 7.375% Return for Fiscal Year 2016 -17) Fiscal Year 2018 -19 2019 -20 2020 -21 2021 -22 2022 -23 2023 -24 2024 -25 Normal Cost % 7.266% 7.3% 7.4% 7.4% 7.4% 7.4% 7.4% UAL Payment $2,241 $2,500 $3,000 $3,600 $4,300 $5,000 $5,500 A CAPERS 'h Review of Valuation Report and Actuarial Office (ACTO) Update Projected Contributions (pg 5) - Safety • Classic Plan • PEPRA Plan Required Contribution Projected Future Employer Contributions (Assumes 7.375% Return for Fiscal Year 2016 -17) Fiscal Year 2018 -19 2019 -20 2020 -21 2021 -22 2022 -23 2023 -24 2024 -25 Normal Cost% 22.346% 23.3% 25.1% 25.1% 25.1% 1 25.1% 1 25.1% UAL Payment $1,125,111 $1,399,000 $1,605,000 $1,862,000 1 $2,063,000 1 $2,234,000 1 $2,362,000 • PEPRA Plan AA, Cal PERS 17 Required Contribution Projected Future Employer Contributions (Assumes 7.375% Return for Fiscal Year 2016 -17) Fiscal Year 2018 -19 2019 -20 2020 -21 2021 -22 2022 -23 2023 -24 2024 -25 Normal Cost % 12.965% 13.2% 13.9% 13.9% 119% 13.9% 13.9% UAL Payment $63 $170 $360 $570 $790 $950 $1,100 AA, Cal PERS 17 Review of Valuation Report and Actuarial Office (ACTO) Update Alternate Schedule of Amortization Bases (pg 11) • Paying down sooner saves interest • For example, — Classic Misc. Plan — 20 year "Fresh Start" saves $2,746,350 — 15 year "Fresh Start" saves $6,779,294 • Additional discretionary payments can provide significant savings 14, CAPERS 18 Review of Valuation Report and Actuarial Office (ACTO) Update Projected Unfunded Liability — Misc Classic Plan 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Projected Unfunded Liability 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 -4-Current t Fresh Start 15 Fresh Start 20 -. CajPERS 19 Review of Valuation Report and Actuarial Office (ACTO) Update Projected UAL Payments — Misc Classic Plan 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 Projected UAL Payments 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 ■ Current ■ Fresh Start 15 Fresh Start 20 , CaIPERS 20 Review of Valuation Report and Actuarial Office (ACTO) Update Accelerated Funding Multiple ways to do it — Fresh start over a reduced period — Additional Discretionary Payment (ADP) on an ad hoc basis • Ad hoc basis - Employer Option — Short -term Savings : Apply to Shortest Base — Long -term Savings : Apply to Longest Base — Flexible 14k, CaIPERS 21 21 Review of Valuation Report and Actuarial Office (ACTO) Update Accelerated Funding • Fresh Start — Must pay off bases faster than existing schedule — Creates new higher Minimum UAL payment — Significant long -term savings — Inflexible A.. CAPERS 22 22 Review of Valuation Report and Actuarial Office (ACTO) Update Accelerated Funding • Discuss with your Ca1PERS Actuary — they will explain options and show financial impacts • Help us Understand your Goals • Ca1PERS will prepare paperwork and payment instructions — need Payment Amount & Payment Date • New Amortization schedules show up in next valuation report A,, CAPERS 23 23 ... CaWERS 24 Review of Valuation Report and Actuarial Office (ACTO) Update Balancing the Fund Benefits .2t k, Ca1PERS Investment Returns Sustainable Funding • Fiduciary duty • Constitutional authority • Statutory requirement • Professional standards Actuarial Assumptions Asset Allocation (Economic and Demographic (Risk Assumptions and Assumptions, and Review Capital Market Assumptions) of Current Discount Rate) Currently reviewed every three years Currently reviewed every four years per Board policy per Board policy Sustainable Funding • Fiduciary duty • Constitutional authority • Statutory requirement • Professional standards Review of Valuation Report and Actuarial Office (ACTO) Update Asset Allocation (ALM Study) • Review of investment allocations: — Capital Market Assumptions — Portfolio Volatility • Asset Liability Management workshop in November, 2017 • Create 3 -4 Alternative Portfolios • Impact on Accrued Liabilities and Normal Cost • Decision on future Discount Rates • Board adoption December, 2017 . \4� CAPERS 27 Review of Valuation Report and Actuarial Office (ACTO) Update Experience Study • Review of all actuarial assumptions: — Mortality, move to new improvement scale MP2016 — Inflation, capital markets trending lower than 2.75% — Salary growth, tied to inflation — Retirement ,Termination and Disability Rates • Analysis of past plan experience and trends • Recommendations for future experience • Impact on Accrued Liabilities and Normal Cost • Board first reading November, 2017, adoption December, 2017 28 �% CaIPERS What Can Agencies Do? Review of Valuation Report and Actuarial Office (ACTO) Update Communications with Board • Finance & Administration Committee (FAC) Richard Costigan — FAC Chair • Trade -off between volatility and cost • Is lower volatility the most important factor? • Make your views known A. CAPERS 30 Review of Valuation Report and Actuarial Office (ACTO) Update One final takeaway... A C C u m U a t d V a e —Actual Return ? Ca1PERS 31 Review of Valuation Report and Actuarial Office (ACTO) Update Questions? A. Ca1PERS 32