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And welcome to the webinar. This is interpreting and communicating the new CalPERS Actuarial Report.

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Today is September 11th, 2019. Glad that all of you have joined us here. This program is a service of the CSMFO coaching program.

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It's 21st year of that coaching program being a member benefit. It's guided by the Career Development Committee, headed by Nina Nomura.

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and a cast of about 12 volunteers who identify topics like this in presenters to help be of service

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to you in the profession. We've got an important topic here, probably one of the most critical

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issues driving budget decisions these days is what's happening with the CalPERS contributions

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and how can agencies adjust to those and understand what they are in person foremost communicate them effectively.

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So that's what this webinar is all about, how to interpret the report, how to determine sensitivity

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of your contribution rates to potential future returns.

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What are some ways that people are addressing their

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unfunded accrued liabilities, which you can be thinking about strategies for dealing with

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the impact of these contribution rates?

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And today, we're very pleased that Rich Lee has taken the initiative on the city of

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San Mateo to step forward and provide his interpretation for San Mateo to let you

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and see an illustration of how you might take this information integrated and provided to

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your labor groups, to your elected officials, to people in your agency, et cetera, the public

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at large.

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So that would be a big benefit for you out of this session.

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And of course, CalPERS is going to be identifying the resources that they have available.

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So we're pleased to have Julian Robinson back.

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He's very popular with CSMFO.

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He's a senior pension actuary in the valuation services team.

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He's been elected to the Society of Actuaries Retirement Council and has been a leader both in the private sector prior to coming to CalPERS and now at CalPERS in the whole area of how do you determine what future requirements are going to be to fund the retirement of the employees.

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Also notably, he's a performing amateur stand-up comedian, so we really appreciate the

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good humor that Julian always brings to these sessions.

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Then we have Nina Ramsey, she's an associate pension actuary.

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She's been joining this valuation services team and it probably works with many of you

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and has been helping you find your reports, get connected, interpret them, etc.

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and she's interested in water sports, which is great.

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And as I mentioned, Rich Lee is coming as finance director

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from the city of San Mateo.

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He's been there since January of this year,

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but he's worked for 14 years in a number of communities

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around the San Francisco Bay Area.

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He serves on the board of directors of CSMFO.

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He's been helpful in the career development, committee efforts,

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prior to that.

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And we really appreciate all of his support

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it on a volunteer basis for the profession. He's also a freelance bass trombonist, so we

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base trombonist, so we're really excited that he's done that. He's performed at Monterey

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Jazz Festival, so we could have a whole gig here with our presenters, but we've got important

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serious things to do, so we'll proceed with those. So let me go forward, and of course I'm

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We're going to go to a polling question, and so we'd always like to see if you're learning with your colleagues, because we find if you're learning with your colleagues, that will help your agency implement what comes forward.

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So give us some feedback on who's there. If you're there on your own, that's okay. We're delighted that you're with us. Perhaps you'll want to share this information with your colleagues after the session.

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or direct them to the digital recording, all of which are available for you through the CSMFO

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coaching program. So, let me again highlight that you can use the control panel on go-to-webinar

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to download the handouts for today's session. You can also get those at the genders and archives

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tab at csmofo.org slash training slash webinars and all this information about

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where to find things and so on will be provided to you again in the follow-up

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email to the day session. So if you missed something or didn't get it when I

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sent out the reminder emails, no fear will help support you and get you what you

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need. So let's take a look at what we have here in our audience. We've got 63

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three percent of you are there in your own and the remainder in small groups. We're glad to have

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all of you today and look forward to this being very productive for you. So let me turn with that

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to our presenters here and I'm going to give the controls over to our team at CalPERS

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So, they can handle the presentation for this piece and I'll take myself and a rich off

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the camera so you can just be focusing on the CalPERS team and what they have to offer

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to you today.

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Good afternoon, everybody.

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I'm glad to be here with my colleague Nina Ramsey to discuss the CalPERS Actual Valuation

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Reports as of June 32, 2018.

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I'm sure you received them eagerly back in the beginning of August, middle of August,

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and have been spending many hours pouring over the numbers in the details.

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I

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need to expand the slides here, but...

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First around the forward arrow, and then you have control.

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Okay, there we go.

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So what we want to cover today is a little bit of background, a short discussion on the difference

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between our non-pool plans and our pool plans that's always an area where there's a little bit of confusion.

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So we want to set the situation right about that, then we'll dive into the actual reports

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and discuss the highlights of both non-pooled and pooled plans.

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And then we'll turn the tables over to Rich Lee and he'll discuss communicating CalPas

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information to all the important stakeholders that you have.

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So the key takeaways we expect to provide you with throughout this webinar are the following.

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You should know by the end of the webinar where to find your fiscal year 2020-2021 contribution

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requirements. We want you to also know what the funded status of your plans are. Our report

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shows five-year contribution projection, and we'll show you where that is. And we know that's always

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been a useful tool for you in your budgeting process. And also, we'll continue the discussion as

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we've had over the past couple of years on proactively managing your unfunded

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accrued liabilities and seeing what the options are available to you and how

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you can take action on that.

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So a

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bit of background on pooled and non pooled

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plans.

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Pooled plans which have less than 100 active members are our pooled

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plans and they're combined into two risk pools at the moment. We have a

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miscellaneous risk pool and the safety risk pool.

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As you know, all your members are either a classifier's

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miscellaneous members and they'd be part of miscellaneous plan

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or they're safety members and there'd be participants

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in some of the safety plans.

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So from an actual point of view, this 100 active member

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on the threshold is considered an appropriate level

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or to distinguish between what plans should be standalone plans,

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those are the non-pool plans,

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and those plans which should be part of the pool.

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And once a plan is part of the pool,

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we aggregate all the data and the experience

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of all the plans in the pool,

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and use that firstly in setting the normal cost,

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and just a quick review, the normal cost

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means the value of benefits which are accruing

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in the current year for the services

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as being provided by currently active people.

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And that's normal cost is shared by the employer

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and by the employee.

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And then the other component of the contribution

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is the payment of the unsundered accrued liability.

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The gains and losses experienced by the poor plans

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are shared among all the participants in the poor.

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And this is considered a good idea

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in terms of reducing the volatility that potentially would hit a small plan, if some event

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happens.

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For example, if a disability event happened to a particular plan, that could be a very

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costly event, increasing the liability significantly.

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So for our pool plans, which tend to be on the smaller side, the act of pooling spreads,

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the gains and losses across all members of the pool and they gain and they lose equally.

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On the other hand, the non-pool plans, those with greater than 100 active members,

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either miscellaneous active members or safety active members, those plans are deemed large

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and asked to be able to speak for themselves, that their own experience is what's reflected

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in their normal cost and also in the gains and losses which they have to handle into the future.

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This is an excerpt from the section 2 part of the report. Now from the, and this is referring to the pool plans.

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So each pool plan actually has two sections of the report.

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The section 1 provides you with all the contribution information, my built information, for your particular plan.

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I wanted to show what the section 2 plan is or one page out of it, which shows the results for the entire plan.

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Across the center of this slide in the grayish blue box, you can see all the different formulas that appear in the miscellaneous plan.

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On the next slide, we'll see similar information for the safety plans.

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You can see the first formulas, two percent of 62, that's the PEP formula and all of the

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other formulas across the top.

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What may be interesting to note, if you look down in the bottom part of the screen, the

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funder's status of the risk pool, as of June 30, 2018, you can see the miscellaneous pool

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had about $17.5 billion in liabilities just over $13 billion in assets and the fund

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at status for the pool in its entirety is 75.4%. So you can compare the fund at status of your

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particular player to what the fund at status is for the pool and that's one area of comparison.

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This slide shows the similar information for the safety pool.

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You can see there's a few couple more formulas applicable to the safety members.

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You're looking down at the bottom part of the screen.

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You can see the total liability for the plans in the safety pool is about $23 billion.

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dollars, supporting that is about $16.3 billion in assets. So the safety pool has a slightly

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lower fund rate ratio of 71.2%. Again, you can compare that to the level of your own

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plan.

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I'm going to switch over now and hand the bets on to my colleague Nina to discuss

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some of the actual report highlights. Thank you Julian. So every year we hand out and distribute

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the annual valuations and every year we get a bunch of questions. A lot of them are listed

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here on this slide. We're going to go through this presentation to hopefully address all of these

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questions and get you the answers that you need.

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So first, the most important question is what

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are my required contributions. On the cover page of your annual report, you'll find

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your required contributions for the 2021 fiscal year. Here is a clip of a report that lists

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the normal cost rate, the UAL, and also for non-pooled plans and PEPRA pooled plans. It

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also lists the PEPRA employee rate. We've also included the projected required contributions

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for the 21-22 fiscal year, these projections do not include the 18-19 asset loss.

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You can see in the employee-peparate column, oh no, that the employee-peparate is to be determined.

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We calculate the Peparate every year and because we need to wait for the next annual valuation,

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we won't be able to calculate that until we do the next valuation.

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Page

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4 lists similar information as to what's on the cover page.

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The differences here would be that it includes your monthly UAL payment.

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It is simply the UAL amount from the cover page divided by 12 to give you a monthly amount.

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We've also included the annual prepayment option below, which is almost $9 million there.

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the annual prepayments.

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Doing so saves you a half year's worth of interest, so for this particular plan, that savings amounts to just over $300,000. Again, the PEPRA employee contribution rate is listed, but again, this would be only for non-pulled plans and PEPRA pulled plans.

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You've seen from the past couple of slides, your total employer contribution is comprised of two parts. The normal cost rate, which is presented as a percentage of payroll, which will need to be paid throughout the year and your UAL.

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dollar payment. The options for the UAL are monthly or that annual prepayment option as mentioned

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before.

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Here's a sample of the July UAL invoice. You can see that the monthly amount is clearly

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stated there on the left, almost $700,000, and kind of hidden in the text is that prepayment

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amount that's in the blue box. Sometimes it's easy to skim over that and miss it, but that's where it is.

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So, since we are past your live, this is no longer an option for this year, but this is

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something that you may want to look out for next year.

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Also, I did want to mention that these were the two options that you have to pay your

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UAL amount.

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Please only pay one of these amounts.

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We've had several agencies who decide, hey, I've got a little extra cash, I'm going to

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tax them on to this UAL payment that really makes things a little more complicated for

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us.

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So if you could refrain from doing that and then just contact your actuary so that we can help you facilitate making that payment and getting it applied to your plan.

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Right, and we've also had some issues where agencies have just taken a monthly amount and multiplied by 12. You will certainly get a credit for that overpayment, but it will be easier for our counting folks if you choose to make the prepayment in July to actually pay the amount in this.

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So I'm showing a report and reflected on the invoice

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to avoid any later adjustments.

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All right, the next big question is,

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how is my plan doing?

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Is it in good shape?

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As you saw with the pulled section two reports,

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we also have a page in your annual evaluation page five

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that will give you your funded status for your individual plan.

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So here in the green box, you can see

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that our funded ratio is 67.1%, that is simply

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the market of value of assets divided by the entry age normal accrued liability, generating

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the 67.1.

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Now, 67.1 isn't a bad place to be, but we definitely want to strive for that 100% funded status

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as is CalPERS goal.

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Also just to mention, you may hear me or anyone else say UAL, unfunded accrued liability or unfunded

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liability, they all mean the same thing, they're just used interchangeably, saying the whole

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and gets kind of tired some after a while for UAL works for us.

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So this information is as of June 30, 2018, and you can definitely compare your funded

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status to the funded status of the pool, or compare it to your last year's funded

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status to see how your plan is doing, is it getting better or worse, and maybe you can make

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steps to improve your funded status.

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Okay, we're going to go to a polling question here because we'd like you to be sure that

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What you're interacting with your report, you're taking a look at it and you're figuring

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out some of these issues that Julian and Nina have been highlighting for you.

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So one of them is what you're even seeing is funded status for all of its plans.

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So ask you to identify which of these best to describe where your plan is currently.

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I do see additional questions here about asking people asking where to find their valuation

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report.

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Again, that was sent to you with the details for how to find it in your MyCalPERS.

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Was outlined in the reminder email for today's session.

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And we encourage you to take a look at that and follow that in detail.

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It will be, we'll send it out again in the follow-up email so that you can be looking at that.

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and of course Nina and her team are willing to help you after today's webinar and finding

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it if there's some difficulty with your particular information.

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So we'll give a moment more here and then we'll close this poll and here we go.

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So let's see what we have from our audience here.

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So a brief commentary, Julian and Nina about what you're seeing and where people are with their funding levels.

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00:19:57,620 --> 00:20:03,080
Some of them are as deadly less than 50%, but only 1% of you are in that situation.

217
00:20:03,940 --> 00:20:08,200
But others are over 80, so it has both extremes and a bunch in the middle.

218
00:20:09,340 --> 00:20:14,660
Yeah, I think this is the kind of distribution that we expected to see.

219
00:20:14,660 --> 00:20:23,700
that no solid wasn't 50% in that range 70 to 79% and also a group in the 60 to 69%

220
00:20:23,700 --> 00:20:34,080
no of which covers almost 80% of the plants, so that's consistent with our expectations.

221
00:20:40,540 --> 00:20:43,720
The materials here and some questions are coming in so we'll be at the next break.

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00:20:43,720 --> 00:20:45,820
We'll be covering some of the questions that are flowing in.

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00:20:48,140 --> 00:20:48,320
Great.

224
00:20:49,220 --> 00:20:53,080
So moving on, why did my required contributions change?

225
00:20:53,580 --> 00:20:57,580
Every year, we have our economic and demographic assumptions.

226
00:20:57,940 --> 00:21:00,120
We assume what your UAL will be in the future.

227
00:21:00,760 --> 00:21:04,460
But we all know that year over year, we can't match those assumptions perfectly,

228
00:21:05,180 --> 00:21:06,720
so you will have gains and losses.

229
00:21:07,500 --> 00:21:13,100
This is page 14 of the annual report, which gives you a brief analysis of your gains and losses.

230
00:21:13,100 --> 00:21:22,080
We have the contribution game loss here of 346,000, meaning this would be a loss, saying

231
00:21:22,080 --> 00:21:26,360
that we did not receive the amount of contributions that we expected.

232
00:21:27,320 --> 00:21:31,080
Under that, we have your asset gain of $2.6 million.

233
00:21:31,340 --> 00:21:36,880
This is probably due to our investment gain for the June 30, 2018 fiscal year.

234
00:21:37,540 --> 00:21:42,120
and then below that we have the liability game loss which relates mostly to the

235
00:21:42,120 --> 00:21:47,300
demographics of how your employees experience is throughout the year and that

236
00:21:47,300 --> 00:21:51,060
is also a game. The sum of those creates your total game loss.

237
00:21:55,120 --> 00:21:55,600
Okay maybe I'll

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00:21:55,600 --> 00:21:58,860
drop in here with just a few questions that are right and so we don't have them back

239
00:21:58,860 --> 00:22:10,420
up too much. So one of the things that people are asking is especially about the

240
00:22:10,420 --> 00:22:17,180
compare them with others, and wondering why is their ratio higher or lower than some

241
00:22:17,180 --> 00:22:22,260
other city. And they're asking us a simplest answer that the funded ratio changes based

242
00:22:22,260 --> 00:22:27,240
on the risk pool for pool plans and the census of the plan participants or are there other

243
00:22:27,240 --> 00:22:33,260
factors that you would highlight people mentioning in trying to describe the differences between

244
00:22:33,260 --> 00:22:42,960
one city and another? So for non-pool plans as we discussed mentioned a little bit earlier their

245
00:22:42,960 --> 00:22:53,940
experience is the main focus so if they've given for example larger salary increases or there's

246
00:22:53,940 --> 00:23:02,920
a whole lot of disability events so those those are expensive events in terms of the

247
00:23:02,920 --> 00:23:10,720
mobility and can increase liability and therefore reduce the fund ratio of the plan.

248
00:23:11,540 --> 00:23:18,520
For pooled plans, when the whole pooling structure was set up, different plans entered the pool

249
00:23:18,520 --> 00:23:20,900
at different funding levels.

250
00:23:21,680 --> 00:23:30,500
And most plans, I think at this point are almost done, amortizing their side funds, but those

251
00:23:30,500 --> 00:23:36,360
certainly had an impact on what the funded status of the plans were over time.

252
00:23:37,300 --> 00:23:43,880
I would say another factor in determining the funded status is if a plan has made additional payments in the past,

253
00:23:44,000 --> 00:23:51,400
or in the past few years even, making those additional payments will result in an increase to your funded status.

254
00:23:54,650 --> 00:23:57,330
One other question is coming up on the page 4.

255
00:23:57,590 --> 00:24:02,690
The presentation you noted that PEPRA contribution rate is 6.25%.

256
00:24:02,690 --> 00:24:08,650
It's personally saying that their agency rate is annual rate is 7.25%, wondering why there's

257
00:24:08,650 --> 00:24:10,550
a difference or are they just misinterpreting it.

258
00:24:11,990 --> 00:24:14,870
Right, so that was just a sample clip.

259
00:24:15,170 --> 00:24:18,650
For any given plan, the PEPRA employee contribution rate could be different.

260
00:24:18,650 --> 00:24:23,810
It's possible that the person asking the question, maybe they have a safety plan.

261
00:24:24,290 --> 00:24:26,830
Those pepper contributions rates tend to be higher.

262
00:24:28,410 --> 00:24:28,650
Right.

263
00:24:28,970 --> 00:24:37,390
And also within the non-pool plans in particular, the demographics of the plan have a large

264
00:24:37,390 --> 00:24:37,770
impact.

265
00:24:38,350 --> 00:24:46,370
The older the group of pepper participants are, the shorter the time until they reach retirement

266
00:24:46,370 --> 00:24:52,910
and therefore the contribution rates for the normal cost for those benefits is higher,

267
00:24:53,330 --> 00:24:58,050
and therefore half the normal cost for those per per members is also going to be higher.

268
00:24:58,770 --> 00:25:02,930
And within the pool there's going to be different rates as well because besides the basic benefits,

269
00:25:03,570 --> 00:25:10,890
there are certain tier one benefits which are elective. For example, in some of the classic plans,

270
00:25:10,890 --> 00:25:16,470
that could be a final average of one year instead of a final average, three year, PRSA and

271
00:25:16,470 --> 00:25:23,310
other kind of benefits which all add to the basic ongoing normal cost of the plan.

272
00:25:23,890 --> 00:25:28,850
And if that's, if some of those have been applied to, well, of course, you kind of find

273
00:25:28,850 --> 00:25:34,890
a one year for PEPRA, but some of those other elective benefits can apply to PEPRA and impact

274
00:25:34,890 --> 00:25:36,970
the PEPRA normal cost in that respect.

275
00:25:38,810 --> 00:25:41,790
Just one more question here to make sure we're getting everybody on the same page.

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00:25:41,790 --> 00:25:46,630
So to speak, people are looking for their page 14 in their report, some don't see it.

277
00:25:47,410 --> 00:25:49,770
Wondering is that because of the nature of their plan?

278
00:25:49,910 --> 00:25:51,750
They don't have a page 14 that you refer to.

279
00:25:51,770 --> 00:25:52,470
Yeah, right.

280
00:25:52,630 --> 00:25:56,410
The page 14, I think that slide we need to correct through the heading.

281
00:25:56,650 --> 00:25:58,730
Is that only applied to non-pool plans?

282
00:25:58,930 --> 00:25:59,090
Yeah.

283
00:26:01,810 --> 00:26:08,810
For plans, if you can look in the section 2 report,

284
00:26:08,810 --> 00:26:13,250
And that shows the complete game loss analysis with the entire pool.

285
00:26:14,350 --> 00:26:25,330
And what happens is each plan in the pool is allocated a certain percentage of that total game loss for that plan.

286
00:26:25,410 --> 00:26:33,590
And that shows up in the amortization page, which we're going to be looking at shortly for pool plans as well as non-pool plans.

287
00:26:33,590 --> 00:26:36,060
So thank you very much.

288
00:26:36,140 --> 00:26:39,520
I think we've cleared up a number of the questions that were arising just wanted to be sure

289
00:26:39,520 --> 00:26:42,520
people were tracking along and this was working for them.

290
00:26:42,680 --> 00:26:46,400
So just a couple of things that I'm hearing from you is that some of your illustrations

291
00:26:46,400 --> 00:26:51,560
are from specific agency situations and your agency may be different and therefore some of

292
00:26:51,560 --> 00:26:56,180
your rates or numbers are obviously going to be different and again there's a difference

293
00:26:56,180 --> 00:27:00,100
between the pool and the non pooled plants as to which pages are there for which purpose

294
00:27:00,100 --> 00:27:04,140
and so people need to kind of keep that in mind if you're not seeing exactly what

295
00:27:04,140 --> 00:27:08,400
But in your plan, what you're seeing on the screen here, is that fair?

296
00:27:09,420 --> 00:27:09,640
Yes.

297
00:27:12,080 --> 00:27:13,460
So, let's move forward here.

298
00:27:14,220 --> 00:27:19,580
I'll take the results down, we're ready to move on to the next.

299
00:27:20,100 --> 00:27:20,340
Okay.

300
00:27:20,980 --> 00:27:21,800
Let's take a look.

301
00:27:23,420 --> 00:27:23,720
All right.

302
00:27:23,880 --> 00:27:27,960
So, this slide right here was mentioning what we were just talking about, was that the pulled

303
00:27:27,960 --> 00:27:32,520
plans can find their gain loss analysis in the Section 2 report, and you can access that

304
00:27:32,520 --> 00:27:34,640
through the CalPERS.ca.gov website.

305
00:27:34,640 --> 00:27:43,000
Right, and the slide also needs to be updated because it's showing the 630-2007-17 front page,

306
00:27:43,020 --> 00:27:51,380
but the new section should be available pretty soon, and you can see the, or the analysis for the

307
00:27:51,380 --> 00:27:57,180
most recent valuation in that report. Okay, just a quick question on that because we got a number of

308
00:27:57,180 --> 00:28:03,580
emails that were coming in. People weren't able to find their reports on the calpers.ca.gov,

309
00:28:03,580 --> 00:28:06,540
and you were directing them to my CalPERS,

310
00:28:07,600 --> 00:28:10,020
some information in one place and not the other,

311
00:28:10,180 --> 00:28:12,480
or not for everybody yet in the website.

312
00:28:13,460 --> 00:28:14,880
Can you help clarify that because people,

313
00:28:15,100 --> 00:28:16,320
if you're questioning the folks?

314
00:28:17,100 --> 00:28:17,980
Yeah, that's correct.

315
00:28:18,380 --> 00:28:21,660
The reports have not yet been uploaded

316
00:28:21,660 --> 00:28:25,680
to the general CalPERS public website.

317
00:28:26,440 --> 00:28:29,360
So we expect that to be happening pretty soon.

318
00:28:29,680 --> 00:28:32,340
There's been some delays in that.

319
00:28:32,340 --> 00:28:38,540
But each agency should be able to access their own valuation reports

320
00:28:38,540 --> 00:28:40,960
through our MyCalPIS platform.

321
00:28:41,880 --> 00:28:44,520
Okay, so the most important thing for our audience right now

322
00:28:44,520 --> 00:28:47,860
is if you're seeking to find your report and you haven't successfully yet,

323
00:28:48,100 --> 00:28:52,060
go through MyCalPERS and use the instructions that we sent out

324
00:28:52,060 --> 00:28:54,900
in the reminder email for today's session.

325
00:28:55,060 --> 00:28:56,380
They'll get you right there.

326
00:28:56,900 --> 00:28:57,900
Okay, thank you.

327
00:29:03,740 --> 00:29:05,980
All right, where are my contributions headed?

328
00:29:05,980 --> 00:29:11,200
Now, this is definitely very important information for your budgeting purposes, so we've included

329
00:29:11,200 --> 00:29:13,460
it on page 5 of your report.

330
00:29:14,200 --> 00:29:18,840
You can see that year-over-year, we expect the normal cost to stay relatively stable,

331
00:29:18,840 --> 00:29:23,400
which is why you don't see it changing, and our UAL payment is also listed and you can see

332
00:29:23,400 --> 00:29:28,060
it growing, and I will touch on why it might be growing in the next couple of slides.

333
00:29:28,960 --> 00:29:33,640
We've also presented your projected future contributions as a percentage of payroll.

334
00:29:33,640 --> 00:29:40,180
Now, we calculate what we think your payroll is going to be, but you might have a better idea of what it actually is.

335
00:29:40,540 --> 00:29:53,420
In that case, you could apply your known payroll to the percentage of payroll figure that we've provided to hopefully give you a more accurate or more precise total dollar amount.

336
00:30:01,170 --> 00:30:09,770
So in December of 2016, our CalPERS board decided to reduce the discount rate from 7.5% to 7%. We've been

337
00:30:09,770 --> 00:30:15,690
phasing this in over the past few valuations and now have fully phased in the discount rate drop

338
00:30:15,690 --> 00:30:23,890
to 7%. This affects all of the non-pooled and pooled plans. And generally with the lower discount

339
00:30:23,890 --> 00:30:29,610
rate, it's going to cause your costs to increase. This is just because we can no longer

340
00:30:29,610 --> 00:30:34,630
assume a higher rate of return going into the future, meaning that these plans are

341
00:30:34,630 --> 00:30:39,550
going to be more expensive today. The full impact of this discount rate change will take

342
00:30:39,550 --> 00:30:45,650
total seven years. We have five years remaining on that to fully phase in. This is due to

343
00:30:45,650 --> 00:30:51,390
our current amortization policy, which smooths in costs with a five-year ramp. So your

344
00:30:51,390 --> 00:30:56,170
For 2021 rates, we'll have the first step in that ramp and we'll increase over the next

345
00:30:56,170 --> 00:30:59,970
four consecutive years at which point it will level out.

346
00:31:07,310 --> 00:31:11,270
New to this year's valuation too far.

347
00:31:12,270 --> 00:31:15,470
We have implemented our new actuarial valuation system.

348
00:31:16,030 --> 00:31:21,730
You will find the cost of these changes, not the cost of the system.

349
00:31:22,270 --> 00:31:26,570
The cost of the changes in your amortization schedule listed as method change.

350
00:31:26,570 --> 00:31:32,030
We are now able to perform some of our calculations better and to get more precise numbers.

351
00:31:32,690 --> 00:31:36,770
This changing cost is accounted for in your amortization schedule.

352
00:31:39,050 --> 00:31:47,890
We've also reduced the inflation rate to 2.5 percent and our payroll growth assumption

353
00:31:47,890 --> 00:31:52,430
to 2.75 percent as the board adopted a reduction in the inflation as well.

354
00:31:52,990 --> 00:31:57,050
The demographic assumptions we're using are the same as we used in last year's valuation,

355
00:31:57,730 --> 00:32:00,550
and we don't expect those to change for the next couple of valuation.

356
00:32:02,630 --> 00:32:07,630
Effective in next year's valuation, the June 30, 2019 valuation, we will be implementing

357
00:32:07,630 --> 00:32:13,430
our new amortization policy. This will first impact your fiscal year 21-22 rates

358
00:32:13,430 --> 00:32:19,010
and will be prospective only, meaning that only the future basis will have this new policy applied

359
00:32:19,010 --> 00:32:23,690
And all of your existing bases will continue with the current amortization policy.

360
00:32:27,480 --> 00:32:30,600
And with that, I'm going to hand it back to Julian for some UAL talk.

361
00:32:31,280 --> 00:32:31,680
That's right.

362
00:32:32,520 --> 00:32:36,180
You all talk about these things, so we'll talk about UAL now.

363
00:32:37,820 --> 00:32:43,180
The amortization schedule and alternatives is an important part of the report.

364
00:32:43,720 --> 00:32:50,860
And I find with most of my discussions with the agencies I have really focuses on that schedule.

365
00:32:50,860 --> 00:32:58,600
So let's look at it now. I know it's a little bit imposing. To me, it's a work of art and maybe

366
00:32:58,600 --> 00:33:03,340
Hank should be hanging in the gallery somewhere because it tells really a very interesting story.

367
00:33:04,180 --> 00:33:12,640
We have highlighted the bottom three rows of the table here in a blue shade to show you the

368
00:33:12,640 --> 00:33:22,100
the last three rows which were added in the final evaluation this year. This is for

369
00:33:22,100 --> 00:33:27,900
a non-pool plan. Actually, for a pool plan, there's a fourth row because there's a split

370
00:33:27,900 --> 00:33:36,940
between the asset game loss and the other components of the game loss. We show here the date

371
00:33:36,940 --> 00:33:43,020
each of these bases was established, and we indicate, you know, the amortization pattern.

372
00:33:43,560 --> 00:33:49,800
So some of them have no ramps, some of them have ramps, and we've indicated where along

373
00:33:49,800 --> 00:33:55,420
the path of the ramping it is, so if you flick your eyes down that column, you can see that

374
00:33:55,420 --> 00:34:05,940
the older bases, no, the votes established in 2006, 2013 and 2014 have already reached

375
00:34:05,940 --> 00:34:13,700
the top of the ramp, the 100% and the bases below are ramping up over the next number

376
00:34:13,700 --> 00:34:24,200
of years. We also showed the escalation rate because our current methodology allows the payments

377
00:34:24,200 --> 00:34:30,320
in each consecutive year to be increasing by 2.75%.

378
00:34:30,320 --> 00:34:35,100
The intention of this escalation rate is, in general,

379
00:34:35,240 --> 00:34:37,760
to match what the payroll increase radius,

380
00:34:38,280 --> 00:34:41,600
so the contribution amount to amortize

381
00:34:41,600 --> 00:34:46,360
a new particular basis remains a relatively stable percentage

382
00:34:46,360 --> 00:34:47,820
of salary.

383
00:34:48,540 --> 00:34:51,260
Back in the day that was, I guess, more significant,

384
00:34:51,260 --> 00:34:59,920
but nowadays we charge you a flat dollar amount to pay down the UIL so that

385
00:34:59,920 --> 00:35:08,960
connection is not as strong as it was before. Then we show across the rest of

386
00:35:08,960 --> 00:35:15,140
the columns how we expect the amortization to unfold and in the last

387
00:35:15,140 --> 00:35:25,820
outcome we determine what the payment will be for fiscal 2021, the next fiscal year.

388
00:35:27,020 --> 00:35:32,740
Whenever I have a discussion with an agency about making an additional payment towards

389
00:35:32,740 --> 00:35:39,940
paying down their unfunded credibility, the discussion focuses on this table and the selection

390
00:35:39,940 --> 00:35:47,520
of a base or two to pay off completely or partially depending on the funds available

391
00:35:47,520 --> 00:35:48,780
at the particular time.

392
00:35:52,620 --> 00:36:00,040
One of the other methods of handling your unfunded accrued liability is to consider doing

393
00:36:00,040 --> 00:36:01,320
a fresh start.

394
00:36:02,020 --> 00:36:07,620
So on this schedule in the report, we show on the left side of the page what the current

395
00:36:07,620 --> 00:36:15,500
monetization schedule is essentially the minimum payment that you need based on our

396
00:36:15,500 --> 00:36:16,720
monetization policy.

397
00:36:17,900 --> 00:36:26,380
Then we say, what would happen if you essentially did a refinancing of your entire balance?

398
00:36:26,600 --> 00:36:32,780
And here for this plan, the balance is 114.5 million dollars.

399
00:36:32,780 --> 00:36:42,420
So what will happen if we said, let's refinance this whole debt over 15 years or over 10 years.

400
00:36:42,940 --> 00:36:47,560
And we still, and as you can see in the payment column, the payments are still escalating

401
00:36:47,560 --> 00:36:50,840
at 2.75%.

402
00:36:51,560 --> 00:36:57,440
What this essentially does is, you know, pay down your unfundered accrued liability more rapidly.

403
00:36:57,440 --> 00:37:03,420
And at the bottom of the page, in the bottom of the screen, you can see if an agency elects

404
00:37:03,420 --> 00:37:11,540
a 15-year amputation fresh start, they would end up saving close to $20 million.

405
00:37:12,420 --> 00:37:19,480
And if they elected a more aggressive fresh start a 10-year, they'd end up saving almost

406
00:37:19,480 --> 00:37:20,200
$50 million.

407
00:37:20,200 --> 00:37:29,500
dollars. This is no surprise for finance people. We're financing this obligation at 7 percent

408
00:37:29,800 --> 00:37:37,520
and the interest component certainly adds up. With the fresh start, if an agency elects

409
00:37:37,520 --> 00:37:44,740
a fresh start, it's an irrevocable election, which means you can't change your mind in

410
00:37:44,740 --> 00:37:51,060
two or three years that, oh, I wish I never had elected that, we can't handle the payments.

411
00:37:51,920 --> 00:38:00,380
So what I suggest to many agencies is, well, instead of electing the fresh start, let's

412
00:38:00,930 --> 00:38:07,820
do what I call a soft fresh start and decide to make an additional contribution each year

413
00:38:07,820 --> 00:38:14,860
equal to the difference between what the 15 year fresh start or the tenure fresh start

414
00:38:14,860 --> 00:38:20,780
would have been compared to the minimum required contribution.

415
00:38:21,340 --> 00:38:27,120
So for example, on the child in front of you, if the agency wanted to make an additional

416
00:38:27,120 --> 00:38:35,420
contribution, it would be the $10.3 million minus the $9.3 million, approximately $1 million

417
00:38:35,420 --> 00:38:43,720
dollar additional contribution if they wanted to essentially patent their payments to meet

418
00:38:43,720 --> 00:38:50,960
a 15-year amortization. And then each year, when we produce a new report and a similar process

419
00:38:51,880 --> 00:39:00,120
can be adopted. And doing it this way, you maintain the flexibility of not being locked in

420
00:39:00,120 --> 00:39:03,440
to a fixed ematization schedule.

421
00:39:04,000 --> 00:39:06,420
And of course, when you elect a fresh start,

422
00:39:07,120 --> 00:39:10,200
it fresh starts all the bases at a particular date.

423
00:39:10,820 --> 00:39:12,600
But each subsequent valuation,

424
00:39:12,800 --> 00:39:15,040
you're gonna have the additional rows

425
00:39:15,800 --> 00:39:19,620
bases appear that we saw on the previous page.

426
00:39:25,490 --> 00:39:28,510
What we suggest if you're considering making an

427
00:39:28,510 --> 00:39:31,310
additional discretionary payment and ADP

428
00:39:31,310 --> 00:39:40,770
or fresh start is to contact your actually, we have a tool which is very useful and a new

429
00:39:40,770 --> 00:39:50,270
instructional video that goes along with it to show you how to navigate this complex spreadsheet

430
00:39:50,270 --> 00:39:58,290
and which will help you analyze the impact of making an additional contribution to the plan.

431
00:39:58,290 --> 00:40:08,410
In order to obtain this tool, managing my contributions, you have to reach out to your

432
00:40:08,410 --> 00:40:17,990
CalPas Actuary and because each spreadsheet is customized based on the unfunded approgulability

433
00:40:17,990 --> 00:40:23,670
of your particular plan and all the bases in it, so we need to generate those on an individual

434
00:40:23,670 --> 00:40:33,070
basis and we can provide them relatively quickly. It's a very powerful tool and helps understand

435
00:40:33,070 --> 00:40:39,310
the impact of paying off a base, which has been a short number of years to the end of

436
00:40:39,310 --> 00:40:44,290
the amortization compared to a large number of years to the end of the amortization period.

437
00:40:44,730 --> 00:40:44,930
I

438
00:40:48,510 --> 00:40:56,150
mentioned pension avenue. Yes, so thank you, Nina. We've helped in the process of developing

439
00:40:56,150 --> 00:41:02,270
a new tool which is going to be called the Pension Navigator which is going to allow agencies

440
00:41:02,270 --> 00:41:11,550
or at the outset of those agencies with non-pool plans to do a more sophisticated long-term

441
00:41:11,550 --> 00:41:15,630
projection of where their costs are going to be.

442
00:41:15,630 --> 00:41:26,010
So it's going to allow flexibility in assuming different investment return scenarios into

443
00:41:26,010 --> 00:41:33,450
the future and different discount rates and the impact that might have on their contributions.

444
00:41:34,090 --> 00:41:38,810
We expect that to be, well we know it's going to be presented to CalPAS Board next week

445
00:41:38,810 --> 00:41:55,190
And there's a session on that at the educational forum coming up in October, and we're not quite sure exactly when it's going to be released, but it's going to be part of my kelpas platform when it is.

446
00:41:55,570 --> 00:41:57,230
So stay tuned for that.

447
00:41:59,310 --> 00:42:01,610
And I'll turn it back over to Dean.

448
00:42:01,610 --> 00:42:08,190
No, okay. Right, so also a lot of plans are interested to know where are my PEPRA members?

449
00:42:09,150 --> 00:42:14,890
So non-pooled plans, they have their classic and PEPRA members all mixed together to determine

450
00:42:14,890 --> 00:42:16,450
their rate and their UAL.

451
00:42:19,190 --> 00:42:24,690
The pooled plans will have their specific plan, the PEPRA-only

452
00:42:24,690 --> 00:42:28,610
plan, which will have all the PEPRA members and the costs associated to them.

453
00:42:30,970 --> 00:42:31,970
You may notice

454
00:42:31,970 --> 00:42:37,050
in your nonpled plans that we establish an employee contribution rate for your

455
00:42:37,050 --> 00:42:41,530
PEPA members and it may differ from your classic employee contribution rate

456
00:42:41,530 --> 00:42:47,710
that is because the classic rate is established by statute and the PEPA

457
00:42:47,710 --> 00:42:55,170
rate is calculated by us. You can find this clip from your report in Appendix D.

458
00:42:55,890 --> 00:43:01,030
Right, and this is a non-planned plan.

459
00:43:02,470 --> 00:43:09,730
We did receive a question about, I guess, what's on this slide and then connected to what's

460
00:43:09,730 --> 00:43:16,130
on the next slide, and this also appears in Appendix D, and is a breakdown of the normal

461
00:43:16,130 --> 00:43:20,430
cost rate for each of the benefitiers that you have in the plan.

462
00:43:20,430 --> 00:43:27,150
So, in this plan, they have a miscellaneous first-level, second-level, and the pepper level.

463
00:43:27,570 --> 00:43:33,030
And you can see the normal cost rates which apply to all of these things.

464
00:43:34,850 --> 00:43:42,050
The determination of the pepper rate actually follows quite a complex formula

465
00:43:42,050 --> 00:43:49,690
depending on the number of pepper members in the plan and the percentage of the pepper

466
00:43:49,690 --> 00:43:56,630
members compared to the total number of active members. So there can be sometimes a difference

467
00:43:56,630 --> 00:44:04,550
between the pepper level normal cost you see on this page and the pepper level analysis

468
00:44:04,550 --> 00:44:11,930
on the previous page. If anybody has any further questions about that, I feel free to

469
00:44:11,930 --> 00:44:20,670
reach out to me or to your CalPas actuary for a deeper dive into this complex issue.

470
00:44:26,400 --> 00:44:34,360
As I mentioned earlier, the pooled plans have their own PEPRA member report that has the contributions for just those PEPRA members.

471
00:44:39,230 --> 00:44:43,310
Here we have some additional information that we include in your annual valuation.

472
00:44:43,950 --> 00:44:49,470
This is a clip from the non-pooled plan page 23 and in the pooled plans at DONPage 15.

473
00:44:49,470 --> 00:44:51,950
This is the discount rate sensitivity.

474
00:44:52,430 --> 00:44:54,170
Here we have a list of

475
00:45:00,000 --> 00:45:28,900
Crew liability, unfunded, and the funded status, which those numbers occur throughout the report. So, those should be familiar. But we also show you what your contributions would look like if we increased or decreased the discount rate by 1%. In the 6% row, you can see that the decrease in the discount rate drives up costs and reduces your funded status. The opposite is true for a discount rate of 8%. The normal cost goes down, your funded status goes up.

476
00:45:31,680 --> 00:45:34,720
Now, this is a new one that we've included this year.

477
00:45:34,960 --> 00:45:36,800
It is mortality rate sensitivity.

478
00:45:37,680 --> 00:45:43,980
We decided to look at what would happen if we increased or decreased the post-retirement

479
00:45:43,980 --> 00:45:45,120
mortality rates.

480
00:45:45,760 --> 00:45:50,460
The 10% lower mortality rates means that people live longer.

481
00:45:51,100 --> 00:45:54,460
When people live longer, that means we're going to be paying out their benefits for longer,

482
00:45:54,920 --> 00:45:57,220
which means their accrued liability has increased.

483
00:45:57,220 --> 00:46:02,500
And if you flow through, the assets stay at the same, the unfunded liability increases

484
00:46:02,500 --> 00:46:04,220
and your funded status decreases.

485
00:46:05,080 --> 00:46:11,540
The same can be said for the 10% higher mortality rates, meaning that people are dying sooner

486
00:46:11,540 --> 00:46:17,260
than we thought they would, unless benefits are going to be paid out, so your accrued liability

487
00:46:17,260 --> 00:46:20,440
is decreased, and your funded status is increased.

488
00:46:23,500 --> 00:46:27,280
Apologies for the noise in the background, the shades have decided to close.

489
00:46:28,660 --> 00:46:33,620
Moving on, one more new table that we've decided to include this year is inflation rate sensitivity.

490
00:46:34,460 --> 00:46:39,180
So, you can see our current inflation rate of 2.5 percent, those results are in the first column.

491
00:46:40,380 --> 00:46:47,060
Also, we've decided to look at what would happen if the inflation rate were decreased or increased by 1 percent.

492
00:46:48,220 --> 00:46:52,160
Decreasing the inflation rate by 1 percent affects a lot of things.

493
00:46:52,160 --> 00:46:57,060
Basically, pay raises wouldn't happen as we expect, which means your accrued liability

494
00:46:57,060 --> 00:47:01,540
has gone down just because you aren't paying out as much to your employees.

495
00:47:02,080 --> 00:47:06,140
Also your funded status has increased because that accrued liability has decreased.

496
00:47:07,420 --> 00:47:12,840
If inflation were to go up, we would expect pay raises to be more frequent or higher in general,

497
00:47:13,820 --> 00:47:17,860
thus increasing your accrued liability and reducing your funded status.

498
00:47:17,860 --> 00:47:24,440
Right, and of course, our inflation assumption that impacts benefits in pay, because almost

499
00:47:24,440 --> 00:47:33,000
everybody has at least a 2% caller attached to their pensions of this inflation rate sensitivity

500
00:47:33,000 --> 00:47:33,580
analysis.

501
00:47:34,040 --> 00:47:37,120
I'm also reflect the impact on pensions in payment too.

502
00:47:41,940 --> 00:47:43,800
Here's another page that should be familiar.

503
00:47:44,020 --> 00:47:46,240
It is our hypothetical termination liability.

504
00:47:47,120 --> 00:47:50,880
Here we have listed your market value of assets and your liability.

505
00:47:50,880 --> 00:47:56,320
termination liability at 2.5% discount and 3.25% discount.

506
00:47:57,000 --> 00:48:02,060
When a plan decides to terminate, we move them into the terminated agency pool and at

507
00:48:02,060 --> 00:48:07,500
that point, CalPERS assumes all liability and risk for that plan, that is because we

508
00:48:07,500 --> 00:48:11,880
are no longer to reach out to the employer to say, hey, we need you to contribute more money.

509
00:48:12,300 --> 00:48:19,040
That's not an option for us anymore because we don't have any ability to receive future

510
00:48:19,040 --> 00:48:24,960
contributions, we need to put these plans into a much more conservative portfolio, which

511
00:48:24,960 --> 00:48:30,080
is why the discount rates are significantly less than the 7% discount rate we have for

512
00:48:30,080 --> 00:48:30,940
active plans.

513
00:48:32,260 --> 00:48:36,860
Decreasing the discount rate, as mentioned before, really increases that accrued liability,

514
00:48:37,420 --> 00:48:40,720
which is why you can see that the termination liability is so much higher.

515
00:48:47,510 --> 00:48:51,190
We've seen a lot of information here about what's happening with your contribution rates,

516
00:48:51,190 --> 00:48:56,830
what is going to be occurring and that of course starts to raise the issue for you

517
00:48:56,830 --> 00:49:01,310
of what your agency is doing to address its pension liability. So we're going to invite

518
00:49:01,310 --> 00:49:08,650
you to respond to a polling question here and to click off as many of these initiatives

519
00:49:08,650 --> 00:49:15,430
as your agency is undertaking to try to address these challenges. While that's happening,

520
00:49:15,430 --> 00:49:23,230
let me see what I can do to try to move through a mountain of questions. So some of these obviously

521
00:49:23,230 --> 00:49:29,430
are going to need to be addressed when you talk with your CalPERS X-Wary. So

522
00:49:37,880 --> 00:49:38,700
some interested

523
00:49:38,700 --> 00:49:47,080
in getting some additional clarification about how the annual unfunded accrued liability payment

524
00:49:47,080 --> 00:49:54,160
is calculated for each year on page five shows the five you're projected and required contributions

525
00:49:55,700 --> 00:50:02,400
and this agency you see in their UAL increase because you just describe a little bit again how

526
00:50:02,400 --> 00:50:08,020
you make that kind of calculation just in broad terms so that people can understand how that comes

527
00:50:08,020 --> 00:50:20,020
together? Sure. The projection is based on what we require to amortize each of the

528
00:50:20,020 --> 00:50:25,000
bases, each of the components of the unfunded accrued liability. So on that very busy

529
00:50:25,000 --> 00:50:34,380
page, which we looked at earlier, we show what the amortization payment is through the fiscal

530
00:50:34,380 --> 00:50:36,540
2020-2021.

531
00:50:37,080 --> 00:50:44,760
So when we produce our projection for the next five years, we're essentially extending

532
00:50:45,240 --> 00:50:54,340
the payment table out for the next five years and add up the payment on each of those

533
00:50:54,340 --> 00:51:04,680
basis, and that's how we determine what the expected the projected UAL payments will

534
00:51:04,680 --> 00:51:05,860
be in those years.

535
00:51:08,560 --> 00:51:12,780
Let's take a look here and see what people are doing, share the results.

536
00:51:13,980 --> 00:51:20,560
So here's a cross-section from our several hundred sites participating today, nearly 300 are

537
00:51:20,560 --> 00:51:24,480
on this live session, even more registered for it than that.

538
00:51:24,480 --> 00:51:29,660
But just a quick commentary about what you see that people are doing and how that compares

539
00:51:29,660 --> 00:51:34,300
with some of the other things that you've been observing in your practice with agencies

540
00:51:34,300 --> 00:51:35,040
around the state.

541
00:51:37,210 --> 00:51:45,850
Yeah, I think it's very good news that I see that no over 80% of agencies are doing something

542
00:51:45,850 --> 00:51:49,890
to deal with the unfunded recruit liability issue.

543
00:51:49,890 --> 00:51:56,390
I guess the most direct way of doing it is making the additional discretionary payment,

544
00:51:57,010 --> 00:52:03,510
but if you want to maintain, I guess, more of your own control over the money than the

545
00:52:03,510 --> 00:52:11,030
615 pension trust is a very good idea, and as you probably know, CalPERS has established

546
00:52:11,030 --> 00:52:17,990
it's own. It's called the SEPT, which is now open for business, a section-month-15 trust.

547
00:52:19,490 --> 00:52:24,130
So you can use that vehicle. I know there are other vehicles available as well,

548
00:52:24,710 --> 00:52:35,170
and the cost sharing and internal reserves are also powerful tools in dealing with the cost

549
00:52:35,170 --> 00:52:37,390
for an agency over the long term.

550
00:52:40,700 --> 00:52:42,740
The cost sharing here just to clarify for people

551
00:52:42,740 --> 00:52:49,680
is really what share the employees pick up of the contributions that you're referring

552
00:52:49,680 --> 00:52:50,220
on that.

553
00:52:50,780 --> 00:52:53,260
Yes, I think that's the intent here, yeah.

554
00:52:54,280 --> 00:52:54,540
Okay.

555
00:52:55,200 --> 00:52:55,400
All right.

556
00:52:55,540 --> 00:52:58,320
Well, thank you very much for those clarifications and observations.

557
00:52:58,780 --> 00:53:00,660
And let's move forward.

558
00:53:00,800 --> 00:53:07,730
I know there's quite a bit more to cover, but see what's here and we'll move along.

559
00:53:07,950 --> 00:53:12,890
Yeah, but we're going to be wrapping up the count as part of the presentation pretty soon.

560
00:53:12,890 --> 00:53:16,970
And so there's some other information which you can find in the reports.

561
00:53:17,470 --> 00:53:22,970
This is the actual assumptions can be found in appendix A, if you're interested in

562
00:53:22,970 --> 00:53:28,450
a deep dive into that, the discount rate, the inflation assumptions or the mortality assumptions

563
00:53:28,450 --> 00:53:31,750
withdrawal of assumptions, disabilities, et cetera, et cetera.

564
00:53:32,690 --> 00:53:40,110
The benefit provisions are found in appendix B for non-pool plans on page 18, this is a brief

565
00:53:40,110 --> 00:53:41,430
summary for pool plans.

566
00:53:42,050 --> 00:53:48,410
In Appendix C, we have the participant data, I'm showing the number of the average age

567
00:53:48,410 --> 00:53:54,550
average service for the active members, average salary and some relevant statistics for the

568
00:53:54,550 --> 00:53:58,590
retirees as well as the terminated and transferred employees.

569
00:53:59,450 --> 00:54:03,970
There's also a section, a pepper section which we discussed a little bit earlier can be found

570
00:54:03,970 --> 00:54:12,790
in the non-pool plans, in Appendix D, and of course the pool plans have their own separate

571
00:54:12,790 --> 00:54:18,670
PEPRA graduation reports, so information for those can be found in that separate report.

572
00:54:19,970 --> 00:54:25,190
So just before you go on here, I wanted to cover a topic that came through in the number

573
00:54:25,190 --> 00:54:25,650
of questions.

574
00:54:26,130 --> 00:54:31,270
People are especially interested in being able to explain to their elected officials into

575
00:54:31,270 --> 00:54:37,750
the public. What's happening with their unfunded accrued liabilities? How to parse out all the

576
00:54:37,750 --> 00:54:44,450
different contributors to those moving up or down? Do you have any guidance for how people could

577
00:54:44,450 --> 00:54:53,750
go about that analysis and be able to explain clearly to their elected officials in public?

578
00:54:54,030 --> 00:55:00,030
Hey, this is why that number is changing because there are many factories that are coming to play

579
00:55:00,030 --> 00:55:06,470
people want to know what's driving us getting our liability larger or you know flat or smaller or

580
00:55:06,470 --> 00:55:13,530
whatever. Well I think we're very lucky that Rich Lee is going to just share with us his approach

581
00:55:13,530 --> 00:55:21,210
to that and maybe after he's shared his views and stuff we can add some of our own help as

582
00:55:21,210 --> 00:55:27,570
the views to that too but I don't want to feel anything under of course. All right great great thank

583
00:55:27,570 --> 00:55:28,350
So

584
00:55:31,170 --> 00:55:36,790
the key takeaways again is we should be able to determine what your requirements are

585
00:55:36,790 --> 00:55:42,050
for fiscal year 2021, the fund status of your plan, we've talked in detail about the

586
00:55:42,050 --> 00:55:49,510
five-year contribution projections and how we've created those, we've had a brief discussion

587
00:55:49,510 --> 00:55:55,450
on the productively managing your unfunded reliability with making additional discussion payments

588
00:55:55,450 --> 00:56:00,970
as well as fresh starts, and then also we'd like to throw out a mention that the Calpa's

589
00:56:00,970 --> 00:56:05,890
educational forum is going to be coming up at the end of October, and we'd love to

590
00:56:05,890 --> 00:56:11,750
see as many of you out there at that event to meet your actories and the other Calpa staff

591
00:56:11,750 --> 00:56:14,990
to discuss any of your pension or health issues.

592
00:56:18,780 --> 00:56:23,360
So just a couple quick slides just wanted to give you some information on how you can contact

593
00:56:23,360 --> 00:56:24,060
your actuary.

594
00:56:24,060 --> 00:56:29,060
Your actuary's name is there in the Actual Certification section of your report.

595
00:56:29,600 --> 00:56:31,160
So you will be able to find out their name.

596
00:56:31,700 --> 00:56:35,860
We've had some new actuaries or maybe your agency's seen some turnover.

597
00:56:36,120 --> 00:56:38,580
You don't know who your actuary is. That's one way to find it.

598
00:56:38,960 --> 00:56:43,940
You can also call in to the CalPERS customer support center at 188 CalPERS

599
00:56:44,460 --> 00:56:48,620
and just request to speak to your actuary or you may list whatever question you have

600
00:56:48,620 --> 00:56:49,820
and we'll get back to you.

601
00:56:51,220 --> 00:56:54,880
Lastly, as Jillian mentioned, our educational forum is coming up.

602
00:56:55,120 --> 00:56:57,540
It's October 28th through 30th in Oakland.

603
00:56:58,140 --> 00:56:59,960
The information is on this slide.

604
00:57:00,140 --> 00:57:02,120
Hopefully you've all signed up to attend already.

605
00:57:02,540 --> 00:57:04,900
But I do believe there is still time if you want to sign up.

606
00:57:05,900 --> 00:57:07,800
And that concludes it for us.

607
00:57:08,880 --> 00:57:12,100
And we'll get to more questions later on in the discussion.

608
00:57:13,220 --> 00:57:14,740
Great. Well, thank you very much.

609
00:57:15,160 --> 00:57:17,820
And in order to tee up the next section here,

610
00:57:18,360 --> 00:57:21,760
We really wanted to give you a polling question because the important thing is, you know,

611
00:57:21,840 --> 00:57:26,460
you've got to tell your story to your elected officials, to your agency, to the labor groups,

612
00:57:26,460 --> 00:57:27,320
into the community.

613
00:57:28,800 --> 00:57:33,680
So, you need to, first of all, figure out, you know, what is your bottom line of your story

614
00:57:33,680 --> 00:57:35,820
and where are you in that?

615
00:57:36,020 --> 00:57:41,520
And in order to see what that is for our audience, we have this polling question.

616
00:57:41,520 --> 00:57:59,880
And so we ask you to pick which of these situations you see yourself in, your agency in with regard to the CalPERS contributions, et cetera, so that then, you know, that's kind of the bottom line of your story.

617
00:58:00,380 --> 00:58:03,820
And the question is, okay, now what are we going to do to deal with that?

618
00:58:05,200 --> 00:58:12,100
And that's where you're going to be hearing Rich Lee's story from San Mateo about what

619
00:58:12,100 --> 00:58:15,440
they face and how they're dealing with it and how they're communicating it.

620
00:58:16,080 --> 00:58:19,020
So we'll give you a bit of time to go through that.

621
00:58:20,440 --> 00:58:25,120
And again, I'm still getting questions here about section two of the report, et cetera, being

622
00:58:25,120 --> 00:58:26,660
posted on the CalPERS website.

623
00:58:26,740 --> 00:58:28,200
When is it going to happen?

624
00:58:28,460 --> 00:58:34,180
And it is available now on my CalPERS, but when is it going to be on the CalPERS website

625
00:58:34,180 --> 00:58:34,640
itself?

626
00:58:35,780 --> 00:58:41,420
The Section 2 report is not yet ready, so I don't think you can find it on either place.

627
00:58:42,040 --> 00:58:46,800
Right now only the Section 1 reports and the non-pulled reports are available only through

628
00:58:46,800 --> 00:58:47,580
my CalPERS.

629
00:58:48,600 --> 00:58:49,020
Okay.

630
00:58:49,500 --> 00:58:52,720
And when do you expect the Section 2 that you were referencing to be available?

631
00:58:55,180 --> 00:59:00,540
We're hoping sometime in the next few weeks we can respond to the group if we get a definite

632
00:59:00,540 --> 00:59:00,860
date.

633
00:59:00,860 --> 00:59:01,580
Does that help?

634
00:59:03,060 --> 00:59:11,940
Yeah, what would be useful, I think, is if you could just contact CSMFO and they can send a notice out on the member's list.

635
00:59:13,360 --> 00:59:16,500
Email list and that would be a quick way to get information out to people.

636
00:59:18,040 --> 00:59:18,280
Sure.

637
00:59:18,280 --> 00:59:31,180
Okay, so let's take a look at the situation here, and this is actually a good time for us to segue over to Rich Lee and Rich.

638
00:59:31,560 --> 00:59:46,280
Why don't you share an observation here about what you're seeing from this information and the polling question, and that'll be a good kick into your section.

639
00:59:47,500 --> 00:59:53,780
Good afternoon, CSMFO, Richlee, and this looks pretty consistent with the discussions I've

640
00:59:53,780 --> 00:59:56,140
had with my colleagues throughout the state on.

641
01:00:00,000 --> 01:00:12,100
Contribution on up to their challenge for their organization and they're going to have to make significant changes to their operations in order to handle the additional contributions.

642
01:00:14,470 --> 01:00:31,590
So let's get into how you can describe and share the story. And it's all set up for you to launch forward. Great. Thank you, Don. And I just wanted to say thank you to Jillian and Nina for lending their expertise.

643
01:00:31,590 --> 01:00:38,950
to CSMFO. I really want to very valuable to our members, so thank you. Obviously, there's

644
01:00:38,950 --> 01:00:45,170
quite a bit of information that's in the actuarial evaluation each year, as kind of professionals

645
01:00:45,170 --> 01:00:51,890
for our organizations that were asked to essentially become conversions and fluent and really become

646
01:00:51,890 --> 01:00:59,430
the resident experts in pension benefits and pension liabilities. I've been looking at actuarial

647
01:00:59,430 --> 01:01:05,990
evaluations for over seven years, and I can say that CalPERS has done quite a bit in investing

648
01:01:05,990 --> 01:01:12,330
and the information that's provided in these evaluations. Every year they've added enhancements,

649
01:01:12,710 --> 01:01:19,930
improvements, so my hats off to them for continuing to address the member agency's need for information.

650
01:01:20,930 --> 01:01:27,570
So the next portion of the presentation, whether you're just starting on your journey of understanding

651
01:01:27,570 --> 01:01:32,810
pensions, or if you are the resident experts, I've always found that there's something new

652
01:01:32,810 --> 01:01:35,230
to learn through reading through the actuary evaluations.

653
01:01:35,910 --> 01:01:42,130
So that being said, I recognize that time is a valuable commodity.

654
01:01:42,730 --> 01:01:47,310
And if there's any section that you're going to look at in the actuarial evaluation, that's

655
01:01:47,310 --> 01:01:48,070
pretty comprehensive.

656
01:01:48,570 --> 01:01:53,270
It's this section right here, so that's the plan's funded status, because it has everything

657
01:01:53,270 --> 01:01:57,070
the major components of what makes up your contribution.

658
01:01:57,850 --> 01:02:05,120
Namely, that it's showing you your total pension liability.

659
01:02:05,960 --> 01:02:08,960
That's the 275. This is an example.

660
01:02:09,380 --> 01:02:10,660
San Mateos miscellaneous plan.

661
01:02:11,380 --> 01:02:14,020
So our total pension liability is 275 million.

662
01:02:14,400 --> 01:02:19,460
Our market value of assets for the miscellaneous plan is 194 million.

663
01:02:20,240 --> 01:02:22,680
So that leaves us with an unfunded

664
01:02:22,680 --> 01:02:28,800
a crude liability of $80 million and the funding ratio of 70.7%.

665
01:02:28,800 --> 01:02:33,620
So if you only have three seconds to spare, this is what you want to look at.

666
01:02:34,220 --> 01:02:38,640
If you have additional time, you want to dig into the market value of assets.

667
01:02:39,480 --> 01:02:44,720
So at the top is the beginning value or beginning balance of your market value of assets

668
01:02:44,720 --> 01:02:46,860
and at the bottom is your ending.

669
01:02:47,620 --> 01:02:51,800
And I've highlighted some of the major components of the market value of assets.

670
01:02:51,800 --> 01:02:56,560
It's lines three and four, those are your contributions, whether they're their employer

671
01:02:56,560 --> 01:03:00,900
or employee, at the major part of how you get from the beginning to the end.

672
01:03:01,660 --> 01:03:07,260
Line five, those are payments to retarded nuisance and beneficiaries, so obviously a large

673
01:03:07,260 --> 01:03:13,600
portion of the outflow going from the market value assets to your those that have earned the

674
01:03:13,600 --> 01:03:13,940
benefit.

675
01:03:14,740 --> 01:03:19,660
And finally, probably most importantly is the net investment return, so how much money

676
01:03:19,660 --> 01:03:22,940
and investment income is coming to this pension plan.

677
01:03:26,060 --> 01:03:27,340
Looking at the total pension liability,

678
01:03:27,660 --> 01:03:29,540
there's really a couple of things I wanted to point out.

679
01:03:30,380 --> 01:03:32,740
So, San Mateo's total pension liability

680
01:03:32,740 --> 01:03:35,420
for its miscellaneous plan is 275 million.

681
01:03:36,140 --> 01:03:38,400
I've highlighted the members and beneficiaries

682
01:03:38,400 --> 01:03:42,660
receiving payment because just that portion alone

683
01:03:42,660 --> 01:03:46,000
is 50 over 58% of the total pension liability.

684
01:03:46,700 --> 01:03:49,040
Put a different way, these are members

685
01:03:49,040 --> 01:03:50,940
that are no longer working for the agency.

686
01:03:50,940 --> 01:03:55,280
So over half of our total pension liability are people that are no longer here but earning

687
01:03:55,280 --> 01:03:55,720
benefits.

688
01:03:59,720 --> 01:04:04,600
The actuarial evaluation does show the funded status and there are really two areas that

689
01:04:04,600 --> 01:04:11,260
I focus on in communicating this to our elected officials, to our members of the public and

690
01:04:11,260 --> 01:04:12,300
to staff.

691
01:04:12,880 --> 01:04:14,400
First is the unfunded liability.

692
01:04:15,040 --> 01:04:20,600
So this shows an eight-year history going back to 2011 in terms of the valuation date.

693
01:04:20,600 --> 01:04:28,740
As you can see, our unfunded liability grew from $47 million to $80 million dollars, so that's quite a significant jump.

694
01:04:29,220 --> 01:04:32,720
Along with that, obviously related is the funded ratio.

695
01:04:33,500 --> 01:04:38,060
So the funded ratio decreased overall from 75% down to 70%.

696
01:04:38,060 --> 01:04:42,080
That's a metric that you want to keep a very close eye on.

697
01:04:42,780 --> 01:04:46,540
And what we dig into some other important metrics in the next couple of slides.

698
01:04:47,500 --> 01:04:53,520
This is also a very important historical trend that CalPERS provides is their return on investment

699
01:04:53,520 --> 01:05:00,020
for the entire trustment. This goes back to 1999 and as you can see quite a bit of volatility,

700
01:05:01,000 --> 01:05:09,620
and of course the significant loss of negative 24% in 2009. Why this volatility is important

701
01:05:09,620 --> 01:05:14,400
is this red line, which is an approximation of the discount rate.

702
01:05:15,060 --> 01:05:22,740
So, the discount rate put in layman's terms is the assumption for the long-term return

703
01:05:22,740 --> 01:05:23,180
on investment.

704
01:05:24,040 --> 01:05:29,540
So, any deviation from that, whether above or below, is going to result in what Julian and

705
01:05:29,540 --> 01:05:31,340
Nina spoke to in hammeredization base.

706
01:05:32,020 --> 01:05:39,320
If the return is actually below the discount rate, then that's when we might have a problem.

707
01:05:39,320 --> 01:05:47,620
So, this is San Mateo's actual list of amortization bases for its miscellaneous plan.

708
01:05:48,160 --> 01:05:50,780
A couple of things to reaffirm.

709
01:05:51,400 --> 01:05:52,700
That's relatively new.

710
01:05:53,380 --> 01:05:55,940
The ramp up, ramp down the arrows.

711
01:05:56,460 --> 01:05:59,620
That's indicating what trajectory it's currently headed at.

712
01:06:00,300 --> 01:06:04,220
Something that I think I have Julian on speed dial.

713
01:06:04,600 --> 01:06:07,080
I basically call him at least once a month with questions.

714
01:06:08,160 --> 01:06:12,920
and something that's helpful that he explained to me other than the percentages with the ramping method

715
01:06:14,680 --> 01:06:21,880
for market gains and losses. The ramping method that is essentially ending with this current actual

716
01:06:21,880 --> 01:06:26,080
value evaluation, actually let me correct that.

717
01:06:26,640 --> 01:06:35,020
Anyways, it's one fifth every year, one fifth for the first year and then two fifths for the second year and so on and so forth.

718
01:06:35,660 --> 01:06:42,440
Essentially, you're recognizing 20% of the impact each year until you get to year 5 and

719
01:06:42,440 --> 01:06:43,980
then you have 100%.

720
01:06:44,920 --> 01:06:51,340
The second is to emphasize that this is the last year of having 30 years as the amortization

721
01:06:51,340 --> 01:06:51,800
period.

722
01:06:52,440 --> 01:06:56,440
In other words, how long are we going to be paying off the market gain or loss?

723
01:06:57,760 --> 01:07:03,200
The amortization period was changed by the CalPERS Board of Administration, so it's no longer

724
01:07:03,200 --> 01:07:04,920
over 30 years for market gains and losses.

725
01:07:05,220 --> 01:07:06,160
It's not going to be 20 years.

726
01:07:07,040 --> 01:07:11,060
There are really two principle motivations for that.

727
01:07:11,580 --> 01:07:13,880
The first was to address negative amortization.

728
01:07:14,620 --> 01:07:15,660
I know it's hard to see here,

729
01:07:15,760 --> 01:07:17,240
but you should look in your own amortization,

730
01:07:17,600 --> 01:07:18,760
list of amortization basis.

731
01:07:19,540 --> 01:07:22,320
What you'll see, if you look at the balance,

732
01:07:22,940 --> 01:07:24,120
you'll see the balance, for example,

733
01:07:24,220 --> 01:07:28,900
here the first balance is 4.9 million,

734
01:07:28,900 --> 01:07:37,600
and we're making a payment of $836,000 and the balance for June 30th of 2019 is going down to

735
01:07:37,600 --> 01:07:44,260
4.4 million. So in that case, the balance is going down. However, if you look at a larger

736
01:07:44,260 --> 01:07:49,880
amortization base here, probably the largest one for the city is $26 million. That's for the

737
01:07:49,880 --> 01:07:56,300
amortization base they are established on June 30th of 2013. We're making a payment of $1.4 million

738
01:07:56,300 --> 01:08:06,140
dollars in 2018-19 or made-up payment, the balance is actually increasing to 27.3 million and

739
01:08:06,140 --> 01:08:15,380
really that addresses the phenomenon as negative amortization. So the balance of the loan or

740
01:08:15,380 --> 01:08:20,780
the mortgage if you will is actually going up for a number of years until you're able to return

741
01:08:20,780 --> 01:08:27,460
it to the original principal amount. So again, one of the motivations for moving to a

742
01:08:27,460 --> 01:08:33,840
shorter amortization period is to address negative amortization. The second and related

743
01:08:33,840 --> 01:08:40,520
motivation is a term known as intergenerational equity. That means that the liabilities

744
01:08:40,520 --> 01:08:49,260
that are being generated in my generation, that my generation is paying for those, my community

745
01:08:49,260 --> 01:08:50,240
is paying for those,

746
01:08:52,790 --> 01:08:57,730
the liabilities that are generated for my children's generation

747
01:08:57,730 --> 01:09:02,450
will be paid by their generation, so there's a little bit of equity or fairness in terms

748
01:09:02,450 --> 01:09:04,910
of who the liability belongs to.

749
01:09:07,820 --> 01:09:12,580
One of the things that we're asked to do, again, I want to emphasize that there's quite

750
01:09:12,580 --> 01:09:17,820
a bit of complex information and there's a wealth of information in the actuarial valuation.

751
01:09:18,780 --> 01:09:25,800
Our role, as I see it, as finance professionals is to make it more accessible, especially to

752
01:09:25,800 --> 01:09:29,820
those that are not finance professionals are like officials, are members of the public.

753
01:09:30,540 --> 01:09:36,040
So there's a few terms that I like to re-translate that are used in actual evaluation.

754
01:09:36,740 --> 01:09:38,520
First is the amortization base.

755
01:09:39,240 --> 01:09:42,020
I think of that as more like a mortgage or a loan.

756
01:09:42,880 --> 01:09:47,640
It's very similar, there's a balance that we're paying off, and there's interest that

757
01:09:47,640 --> 01:09:48,260
we're being charged.

758
01:09:48,660 --> 01:09:50,960
So that's a different way of seeing it, but it's very similar.

759
01:09:51,860 --> 01:09:54,140
The second is the amortization period.

760
01:09:54,140 --> 01:09:57,020
That's really how much time are we given to pay off that loan?

761
01:09:57,960 --> 01:10:01,060
It's helpful when you're thinking of a fresh start.

762
01:10:02,080 --> 01:10:06,000
So the fresh start, I think of that as you're refinancing all

763
01:10:06,000 --> 01:10:08,700
of the existing amortization basis or your loans,

764
01:10:09,640 --> 01:10:12,920
I do want to re-emphasize something that Julian mentioned

765
01:10:13,650 --> 01:10:19,460
and that the fresh start is irrevocable.

766
01:10:19,940 --> 01:10:22,140
In other words, once you say yes

767
01:10:22,140 --> 01:10:28,000
and the CalPERS makes it so, you can't go back, so it's not a decision to be entered into lightly.

768
01:10:29,880 --> 01:10:32,480
The funded status, I do want to revisit that.

769
01:10:33,560 --> 01:10:39,180
Yes, there is complex, actuarial map happening to create the actuarial valuation.

770
01:10:39,700 --> 01:10:43,260
I try to simplify that for the into simple map.

771
01:10:43,900 --> 01:10:47,040
So you're really just looking at your assets divided by our liabilities

772
01:10:47,040 --> 01:10:49,920
and that's how they derive the funded ratio.

773
01:10:49,920 --> 01:10:56,220
So if you look at San Mateo's funded ratio, again, if you recall, this was the first,

774
01:10:56,560 --> 01:11:01,180
and if I mentioned if you only had three seconds to spare, this is what you should be

775
01:11:01,180 --> 01:11:01,620
looking at.

776
01:11:02,220 --> 01:11:11,920
So we had 194 million in assets, and we have 275 million in total liability, so that's

777
01:11:11,920 --> 01:11:15,840
how CalPERS gets a funded ratio of 70.7%.

778
01:11:15,840 --> 01:11:22,740
Again, this is our miscellaneous plan only if you were to combine it with our safety plan

779
01:11:22,740 --> 01:11:24,020
as a whole.

780
01:11:24,730 --> 01:11:30,180
All of our pension plans are 65% funded for this most current actuarial valuation.

781
01:11:33,330 --> 01:11:40,010
Again, this is CalPERS forecast for contributions for normal cost and for the UAL payment.

782
01:11:42,040 --> 01:11:46,680
One area that I wanted to emphasize is that these contributions assume and I've highlighted

783
01:11:46,680 --> 01:11:52,460
that CalPERS will meet its mark, that it will meet the discount rate of 7%.

784
01:11:52,460 --> 01:11:56,840
If there's any deviation from that, I'll show you that in the next slide.

785
01:11:57,020 --> 01:12:02,200
But even with a 7% return on investment, the UAL is still going to be increasing

786
01:12:02,200 --> 01:12:08,200
for our miscellaneous plan from just under 6 million to 8.1 million in 2020.

787
01:12:10,950 --> 01:12:17,950
However, if there's any deviation from the discount rate, that really is one of the value

788
01:12:17,950 --> 01:12:21,890
the sensitivity analysis that CalPERS provides.

789
01:12:22,550 --> 01:12:26,250
For example, if the, over the next three years,

790
01:12:26,250 --> 01:12:29,510
if the return on investment is more like 4%,

791
01:12:29,510 --> 01:12:33,370
if you look out at 24, 25, that's the difference

792
01:12:33,370 --> 01:12:34,610
of a million and a half dollars.

793
01:12:35,230 --> 01:12:38,430
So a 3% difference in return on investment

794
01:12:38,430 --> 01:12:39,750
compared to the discount rate,

795
01:12:40,370 --> 01:12:43,030
that will equate to a million and a half dollars more

796
01:12:43,030 --> 01:12:44,470
that the city's going to have to contribute

797
01:12:44,470 --> 01:12:46,170
just for its miscellaneous plan alone.

798
01:12:46,850 --> 01:12:52,230
something to consider and to fold into what we're going to discuss on the next couple of slides.

799
01:12:54,310 --> 01:12:59,770
So this is the next couple of areas that I'm going to kind of skip over a little bit because

800
01:12:59,770 --> 01:13:06,570
Julian and Meena addressed it. The first one is the sensitivity analysis on the unfunded

801
01:13:06,570 --> 01:13:13,270
decree liability and the funded status for the discount rate. That's been in the actual

802
01:13:13,270 --> 01:13:32,070
for evaluation for a number of years just by demonstration if the discount rate were to be reduced down to 6% rather than 7% that would reduce our funded status from 70% down to 62% so quite a significant decrease.

803
01:13:32,730 --> 01:13:39,030
And of course our related unfunded accrued viability would increase from 80 million to 115 million.

804
01:13:39,030 --> 01:13:45,430
The second sensitivity analysis that is new to this year is the mortality assumption.

805
01:13:46,090 --> 01:13:53,400
So if the mortality assumption were to be 10 percent lower, our funded status would

806
01:13:53,400 --> 01:13:57,150
decrease slightly 10 percent.

807
01:13:58,130 --> 01:14:02,910
The third sensitivity analysis that is new for this year is the inflation rate.

808
01:14:03,070 --> 01:14:08,210
So to reemphasize, the current inflation rate assumption is 2.5 percent.

809
01:14:08,210 --> 01:14:15,890
If the inflation rate were to decrease down to 1.5%, then our funded status would increase

810
01:14:15,890 --> 01:14:17,590
to 75%.

811
01:14:18,180 --> 01:14:23,530
In order of magnitude of these three sensitivity analyses that were provided by CalPERS,

812
01:14:24,490 --> 01:14:31,610
the discount rate still has the most magnitude in terms of the impact to the unfunded

813
01:14:31,610 --> 01:14:37,910
crew liability on the funded status. But again, these are the latter two are enhancements

814
01:14:37,910 --> 01:14:43,490
that the CalPERS Actuarial Team continues to add each year to the evaluation.

815
01:14:46,580 --> 01:14:46,940
For the

816
01:14:46,940 --> 01:14:53,060
Cidius Emmetale, this shows over the next 10 years what our anticipated increase in total

817
01:14:53,060 --> 01:14:55,020
of pension contributions is expected to be.

818
01:15:00,110 --> 01:15:29,310
For the current fiscal year, we're paying just over $16 million for our decilinious and safety plans. By the year 2030, we expect that to be well over $27 million. So that's quite a significant increase in contribution. And it's not all that uncommon for our colleagues all throughout the state. And where this comes into play is we have to put that into context.

819
01:15:29,310 --> 01:15:30,850
and to our operations.

820
01:15:31,570 --> 01:15:33,170
We can't look at it in a vacuum.

821
01:15:33,970 --> 01:15:37,910
So what I've shown here is for the next six years,

822
01:15:38,510 --> 01:15:42,850
how our pension contributions are in relation to all of our other operating costs.

823
01:15:43,730 --> 01:15:47,950
As you can see in the light blue colors,

824
01:15:48,390 --> 01:15:50,590
our salaries, wages, and benefits,

825
01:15:50,590 --> 01:15:52,550
that is the majority of our operations.

826
01:15:53,470 --> 01:15:57,710
And that is consistent with what I've seen with my colleagues as well.

827
01:15:57,710 --> 01:16:07,810
Yes, they are related because pension contributions are a percentage in terms of contributing to

828
01:16:07,810 --> 01:16:16,950
CalPERS, but in the grand scheme of things for San Mateo, it is a small and growing part

829
01:16:16,950 --> 01:16:18,090
of our operating budget.

830
01:16:20,700 --> 01:16:27,780
This is our 10-year plan shown graphically with the total resources or total revenues shown

831
01:16:27,780 --> 01:16:34,200
known in the green line and the total requirements or projected expenditures in the red line.

832
01:16:34,560 --> 01:16:39,880
As you can see for a majority of the 10-year plan, our total requirements are anticipated

833
01:16:39,880 --> 01:16:42,260
to exceed our total resources.

834
01:16:43,520 --> 01:16:46,760
The tune of somewhere between $2 and $3 million per year.

835
01:16:47,740 --> 01:16:50,400
Now there's an important caveat behind that.

836
01:16:51,180 --> 01:16:57,600
As our total requirements exceed our total resources, we're going to continue to draw

837
01:16:57,600 --> 01:17:03,820
down upon our fund balance. Here in San Mateo, we're very fortunate to be in a good position.

838
01:17:07,620 --> 01:17:14,820
Our fund balance, our reserve policy, is 25% of our budgeted expenditures. So this

839
01:17:15,340 --> 01:17:21,960
unassigned fund balance is above and beyond that fund policy. So we have currently $45 million

840
01:17:22,560 --> 01:17:27,500
in unassigned fund balance that we anticipate we're going to draw down upon over the next 10 years

841
01:17:27,500 --> 01:17:29,100
until there's nothing left.

842
01:17:30,380 --> 01:17:34,020
One important or a couple of caveats behind our long-term plan,

843
01:17:35,020 --> 01:17:39,500
first is that there are a number of discretionary items

844
01:17:39,500 --> 01:17:41,160
that we've funded in our 10-year plan.

845
01:17:42,600 --> 01:17:45,780
Probably most importantly is the additional discretionary payment.

846
01:17:46,580 --> 01:17:51,060
So in the average, we're anticipating to contribute $2 million

847
01:17:51,060 --> 01:17:55,960
more to CalPERS each year to address our pension liability.

848
01:17:56,780 --> 01:18:02,500
The second is additional support from our general fund to support our CIP program.

849
01:18:03,460 --> 01:18:06,740
And third is we have what's known as the housing set aside.

850
01:18:07,280 --> 01:18:14,820
One million dollars form as a reserve in our general fund to address housing needs in San Mateo.

851
01:18:15,580 --> 01:18:25,640
In order to address the deficit over the 10-year plan, our city council can very easily tell us to forgo

852
01:18:25,640 --> 01:18:32,180
any one of these discretionary items. However, there's trade-offs with that. For example, if we were to

853
01:18:32,180 --> 01:18:39,300
not make additional contributions to CalPERS, then we would continue to accrue interest on the

854
01:18:39,300 --> 01:18:45,260
liability that we would, that we did not pay off. So that's one trade-off. With a CIP support,

855
01:18:45,780 --> 01:18:55,420
that $2 million really goes towards CIP for our street. That would be a direct impact on providing

856
01:18:56,120 --> 01:18:58,400
reliable infrastructure to our community.

857
01:18:59,260 --> 01:19:04,900
And the third and just as important is our housing set aside, where one of the many

858
01:19:04,900 --> 01:19:11,360
counties located in the state that has housing crisis, and our council was doing all it

859
01:19:11,360 --> 01:19:17,360
can to address that, and then to really, we need that to, they need the support in terms

860
01:19:17,360 --> 01:19:22,740
of funding to provide these resources for the members of our community that needed to desperately.

861
01:19:22,740 --> 01:19:30,740
So, to sum it up, there's really, yes, these answers can be easily addressed to the

862
01:19:30,740 --> 01:19:35,560
deficit in our 10-year plan, but there's going to be trade-offs if these are the answers

863
01:19:35,560 --> 01:19:36,360
that you're looking for.

864
01:19:42,610 --> 01:19:48,850
So, there's a few action items that were you to address with your own agency.

865
01:19:49,770 --> 01:19:53,170
First, is to download your actuarial valuation.

866
01:19:53,910 --> 01:19:59,570
You can go to my CalPERS, you can also just look to a web browser and search for CalPERS

867
01:19:59,570 --> 01:20:04,330
actuarial evaluations and these are documents that are available to the general public so

868
01:20:04,330 --> 01:20:06,650
you can download them from there and just search for your agency.

869
01:20:08,050 --> 01:20:13,590
The second is once you have your actuarial evaluation is to go to the first couple of pages

870
01:20:13,590 --> 01:20:18,690
and find your fiscal year 21 contribution requirements so again that's going to be your normal

871
01:20:18,690 --> 01:20:20,750
cost and your UAL contribution.

872
01:20:20,750 --> 01:20:26,330
Third is to find out what your fund and ratio is.

873
01:20:26,890 --> 01:20:29,130
It appears from the polling survey

874
01:20:29,130 --> 01:20:31,830
that everybody is aware of how to find that.

875
01:20:32,910 --> 01:20:34,390
But keep an eye on the trend.

876
01:20:34,710 --> 01:20:36,790
Is it trending upwards or downward?

877
01:20:39,500 --> 01:20:44,100
If your agency has not been making additional contributions to purrs,

878
01:20:45,480 --> 01:20:50,020
contact your actuary and ask them if they can provide that tool

879
01:20:50,020 --> 01:20:52,780
to analyze what the impact would be.

880
01:20:52,780 --> 01:21:04,860
If you did make additional contribution and determine if that is a resource that city council or your board is willing to make in order to address the pension liability.

881
01:21:06,560 --> 01:21:10,560
The third is to get to know your CalPERS Actuary if you don't already.

882
01:21:11,280 --> 01:21:13,980
If I can take just a minute to promote two things.

883
01:21:13,980 --> 01:21:21,920
In addition to the CalPERS forum, CalPERS has graciously volunteered to, again, come to the

884
01:21:21,920 --> 01:21:31,860
DSMFO conference. It will be January 28th through the 31st in Anaheim. Please keep an eye out for

885
01:21:31,860 --> 01:21:39,360
notification emails from our leadership team to schedule meetings with CalPERS actuaries. While it's

886
01:21:39,360 --> 01:21:44,680
to contact your loan over the phone, there's something to be said about having a face-to-face

887
01:21:44,680 --> 01:21:45,020
meeting.

888
01:21:45,680 --> 01:21:47,560
So I definitely want to advertise that.

889
01:21:50,400 --> 01:21:58,260
For San Mateo and we found the best value for addressing CalPERS contributions as well

890
01:21:58,260 --> 01:22:02,120
as other competing demands is to put them into our long-term financial plan.

891
01:22:03,420 --> 01:22:07,660
If you haven't expanded your financial plan to go beyond five years, it's something that

892
01:22:07,660 --> 01:22:09,280
I definitely recommend for you to do.

893
01:22:09,280 --> 01:22:15,300
And I guess I was a little ahead of the card before the horse.

894
01:22:16,120 --> 01:22:19,780
Please schedule a meeting with your CalPERS actuary for our conference.

895
01:22:20,660 --> 01:22:24,800
And with that, we'll move on to the next one question.

896
01:22:25,660 --> 01:22:35,540
Thanks. That was great. Rich, thank you very much for sharing how you're navigating through these data to provide useful information for your organization.

897
01:22:35,540 --> 01:22:41,400
So, tick off as many items as you think would make sense for your agency to be doing with regard to its

898
01:22:41,400 --> 01:22:48,720
actual referral report while it's happening and going to invite Julian and Nina to come back on the camera here.

899
01:22:49,260 --> 01:22:55,900
We're going to be covering a number of additional questions after the polling question is done here.

900
01:22:56,380 --> 01:23:04,520
There is a question for you that came up about your presentation wondering if you have a particular target

901
01:23:04,520 --> 01:23:10,420
have in San Mateo for what funded ratio to be? Is that something that you're working

902
01:23:10,420 --> 01:23:15,580
towards or how do you how do you calculate what your target is here that you're trying

903
01:23:15,580 --> 01:23:21,740
to achieve? You know that's actually a subject that hasn't come up with our council. What

904
01:23:21,740 --> 01:23:28,360
I can say is we do have a our council that established a goal a couple of years ago. My predecessor

905
01:23:31,400 --> 01:23:40,200
the city council established a goal to have no pension liability by the year 2050.

906
01:23:41,040 --> 01:23:48,220
So that's quite a lofty goal. I think the city has the political will and the

907
01:23:48,220 --> 01:24:01,080
the operational staff to get it done in terms of the funded percentage over the next foreseeable future.

908
01:24:01,240 --> 01:24:07,120
I don't think we've quite identified a goal other than 100% funded by 2050.

909
01:24:09,870 --> 01:24:10,250
All right, great.

910
01:24:10,390 --> 01:24:16,090
Let's take a look at the action items here and what people look to do.

911
01:24:17,370 --> 01:24:17,930
So

912
01:24:20,170 --> 01:24:24,510
people are targeting many of the items that you highlighted for them.

913
01:24:25,070 --> 01:24:32,190
So thanks for providing a crisp action list there so people can make their way through

914
01:24:32,190 --> 01:24:34,490
the forest here and find what they need to know.

915
01:24:35,150 --> 01:24:35,930
That's super.

916
01:24:36,490 --> 01:24:39,610
I'm going to come back here to the group as a whole.

917
01:24:39,990 --> 01:24:44,050
I do want to highlight as we're covering some additional questions that have come in before

918
01:24:44,050 --> 01:24:44,570
we finish.

919
01:24:44,570 --> 01:24:50,590
There are post-webinar discussion questions, we encourage you to think about these questions.

920
01:24:50,790 --> 01:24:54,990
What are the implications of your actual report for your budget, your labor discussions, etc?

921
01:24:55,630 --> 01:24:59,650
Are you going to communicate the information and what's your plan for managing the CalPERS

922
01:24:59,650 --> 01:25:01,010
contribution requirements?

923
01:25:01,690 --> 01:25:07,710
I did get a request that came through the question function here about that CalPERS tool for

924
01:25:07,710 --> 01:25:15,130
figuring out what an advanced contribution might be.

925
01:25:15,550 --> 01:25:16,950
And again, I want to highlight to people.

926
01:25:17,050 --> 01:25:19,630
If I heard you correctly, Julian and Nina,

927
01:25:20,110 --> 01:25:22,170
they really need to ask their actuary for that,

928
01:25:22,270 --> 01:25:24,710
because the actuary needs to load their specific information.

929
01:25:25,370 --> 01:25:29,110
It's not something we can just put out on the CSMFO listservant.

930
01:25:29,110 --> 01:25:31,130
It's going to help people get to where they need to go.

931
01:25:31,270 --> 01:25:31,910
Is that correct?

932
01:25:32,450 --> 01:25:34,370
People weren't clear about that with their question.

933
01:25:34,810 --> 01:25:35,730
Yes, that's correct.

934
01:25:35,730 --> 01:25:43,990
We would preload the Excel worksheet with the individual data from that specific plan and then we would be able to provide it to the employer directly.

935
01:25:45,530 --> 01:25:46,770
Okay, that's great.

936
01:25:47,590 --> 01:25:50,990
So we have contact information for today's presenters.

937
01:25:50,990 --> 01:25:56,530
We have another polling question here and then we'll finish up with some other questions that came in.

938
01:25:57,150 --> 01:26:03,050
But we'd like you to tick off as many items as you or your agency gained value out of today's presentation.

939
01:26:03,050 --> 01:26:11,650
So we get some feedback for the hard work of our presenters and some learning from you about what was particularly useful for you out of today's session.

940
01:26:12,090 --> 01:26:20,090
While that's happening, I want to just take a look at some of the additional questions that have come in and see if we can knock off a few more of them here.

941
01:26:21,630 --> 01:26:27,770
So people were asking, you know, it's gotten around that CalPERS didn't meet its discount rate for 18, 19.

942
01:26:27,770 --> 01:26:33,750
And so people are getting asked, well, given what the actual rate is, what's the implication

943
01:26:33,750 --> 01:26:39,190
of what they actually earned in the current fiscal year for the just closed fiscal year

944
01:26:39,510 --> 01:26:40,450
for future rates.

945
01:26:40,730 --> 01:26:41,970
How good people figure that out?

946
01:26:44,920 --> 01:26:53,060
Well, the returns that we got for the late 1990 was 6.8 percent, so we were slightly below

947
01:26:53,060 --> 01:27:02,500
our target of a long-term target of 7%, so that's going to generate no asset loss,

948
01:27:02,800 --> 01:27:09,040
it's going to be relatively small since we only miss the target by a small amount.

949
01:27:14,090 --> 01:27:19,730
If an agency wanted to try and do an estimate for that, I think that can be done in the

950
01:27:19,730 --> 01:27:27,730
manager employee contribution tool, I think that's a tab on that which allows you to do a projection for the next year

951
01:27:29,250 --> 01:27:38,670
with a adding-in asset loss based into the next year's projection. But it's not something I would expect

952
01:27:38,670 --> 01:27:46,890
to have a large impact on the projection since it was a relatively small loss.

953
01:27:46,890 --> 01:27:52,660
And we can see from the polling results here that people got value out of the many areas

954
01:27:52,660 --> 01:27:56,320
and this is a very ambitious webinar to try to cover all these different topics.

955
01:27:56,940 --> 01:28:01,160
So thank you presenters for doing a fantastic job on this account.

956
01:28:01,440 --> 01:28:03,580
And let me just see if there's anything else here.

957
01:28:04,760 --> 01:28:08,720
Julie, and did you have a comment about what people might use as a target?

958
01:28:08,720 --> 01:28:12,280
A lot of people are asking for, hey, is there some sort of target they should have on their

959
01:28:12,280 --> 01:28:13,200
funded ratio?

960
01:28:13,200 --> 01:28:19,060
So what does CalPERS advise about that or how can people think about it because they're

961
01:28:19,060 --> 01:28:24,880
getting questions from their elected officials in public while is their contribution funded

962
01:28:24,880 --> 01:28:27,460
ratio good, or is it bad, or is it whatever?

963
01:28:29,360 --> 01:28:38,160
You know, as an end point that before our target is for all plans to be 100% funded, and you

964
01:28:38,160 --> 01:28:40,940
with our U-ambitization policy with the maximum,

965
01:28:41,180 --> 01:28:43,200
you know, for maximum of 20 years,

966
01:28:44,180 --> 01:28:47,660
that's the long-term goal.

967
01:28:48,100 --> 01:28:49,340
The granted there are some basis

968
01:28:49,340 --> 01:28:52,940
which are gonna amortize over a still a longer period than that.

969
01:28:53,960 --> 01:29:01,360
A lot of people say a fund that's that is over 90%

970
01:29:01,900 --> 01:29:04,760
is a more comfortable place to be in.

971
01:29:04,760 --> 01:29:08,320
and I think that's true.

972
01:29:09,620 --> 01:29:12,600
But any steps, whether it's additional contributions

973
01:29:12,600 --> 01:29:19,680
or a 15-trust or building up internal reserves, all of those,

974
01:29:20,660 --> 01:29:22,640
if you actually, that's an important point

975
01:29:22,640 --> 01:29:28,320
that if you do have these reserves in excess of what CalPAS has,

976
01:29:28,720 --> 01:29:31,180
that's not going to be reflected on the fund and status

977
01:29:31,180 --> 01:29:37,640
to show now report, because we can't reflect additional money which is accumulated separately.

978
01:29:37,980 --> 01:29:43,020
All we can reflect now reports are the assets that CalPIS has in the Perth.

979
01:29:43,600 --> 01:29:51,120
So make sure that when you're communicating to your council or your stakeholders, if you

980
01:29:51,120 --> 01:29:59,440
have significant other holdings that you add that into your calculation for the funded status.

981
01:30:00,020 --> 01:30:14,640
Okay. Well, we're at our timing. So I'd just like to turn, in turn, first to Julian and then Nina and then the rich. What's just a short word or phrase that you would offer is a closing comment, something to stick in people's minds from today's session?

982
01:30:16,920 --> 01:30:30,640
Julian? I think it's valuable to stay engaged with your actual report and your actuary to CalPERS. We're here to help. We understand the

983
01:30:30,640 --> 01:30:38,940
the issues and the one to give us, give you our best advice and know the challenges which are facing you.

984
01:30:39,700 --> 01:30:45,760
Yeah, definitely don't hesitate to reach out to your actuary. We are here to help you with your future planning,

985
01:30:45,760 --> 01:30:51,840
and if there's any way that we can make the process easier for you, we would definitely be willing and happy to do that.

986
01:30:56,710 --> 01:31:01,470
Automatic lines in their facility and they operate regardless of what's happening.

987
01:31:01,470 --> 01:31:03,910
So, risks are a quick closing word.

988
01:31:06,060 --> 01:31:07,220
Thank you for the opportunity.

989
01:31:08,000 --> 01:31:10,840
As the CSMFO members may recall,

990
01:31:11,220 --> 01:31:15,900
the Lincoln California City has released that survey results indicating that

991
01:31:15,900 --> 01:31:19,740
pension contributions are going to be an ongoing concern and going to consume

992
01:31:19,740 --> 01:31:21,620
a greater portion of our operating budget.

993
01:31:21,840 --> 01:31:25,580
So, it's incumbent upon us as finance officials to become conversion

994
01:31:25,580 --> 01:31:30,360
and really the agency experts in leading our agencies through this,

995
01:31:30,520 --> 01:31:31,560
the next generation.

996
01:31:31,560 --> 01:31:40,860
So my closing word is thankful. I'm thankful to Julian Robinson and neither Ramsey and to

997
01:31:40,860 --> 01:31:46,300
Rich Lee for their outstanding work and preparation for today's webinar. And to all of you who are

998
01:31:46,300 --> 01:31:52,160
working so hard to help your agencies figure out and their responses to the challenges that you

999
01:31:52,160 --> 01:31:58,820
face on these and many other financial issues affecting your community. So this is Don Mariska on behalf

1000
01:31:58,820 --> 01:32:05,020
the CSMFO coaching program, thanking you all for your time today and encouraging you to continue

1001
01:32:05,020 --> 01:32:11,280
to participate in our upcoming webinars. You'll be getting information via the CSMFO email list,

1002
01:32:11,540 --> 01:32:16,740
but when those are and encourage you to sign up and participate and learn together.

1003
01:32:17,420 --> 01:32:18,560
Thanks so much and have a great day.