[This transcript was generated automatically from audio using AI and hasn't been reviewed by a person -- it can contain mistakes, including plausible-sounding sentences that were never actually said. Treat it as a starting point, not a verbatim record.]

[0:02] Good morning, everybody, and welcome to get another presentation produced by the California Society Municipal Finance Officers. My name is Craig Lesner. Hopefully, you've seen us before. We've get around.
[0:13] But today we're presenting to you as you can see from the presentation on your screen, the CalPERS Actual Actuarial Excuse me, valuation reports as of June 30, 2020. It's a mouthful, right? And it's even more of an eyeful when you start looking at it. But that's the kind of stuff that we're going to be looking at today.
[0:31] And we've got a lot of people joining us today.
[0:33] These are one or more of our popular webinars.
[0:36] But for those of you that aren't used to joining us,
[0:39] and are looking for things like CPE credits,
[0:41] there's a couple of things you didn't know to make sure
[0:43] we can get you those credits.
[0:44] One, obviously if you can hear us,
[0:46] you can't get anything out of today's webinar.
[0:48] So if you're having trouble,
[0:49] there's two ways to get a hold of us through this webinar
[0:52] on the phone, obviously,
[0:54] just like in the olden days.
[0:55] Or through computer audio, usually.
[0:57] If one's not working,
[0:58] And if just by magically switching to the other one, it usually does work, it's for whatever
[1:02] reason, just the Gremlin's involved, just while you do both sometimes.
[1:07] But if you have trouble with that, let us know through the question tab, sort of you should
[1:13] be off to the right of your screen.
[1:15] If you're having trouble with polls, we have six polls today.
[1:17] The purpose of these polls are for us to record that your president and your paying attention.
[1:22] So it's important that if you are looking for CPE credits that you take those polls.
[1:26] If you're having trouble with those poles, that's usually we're told from the good folks
[1:30] that go to meeting.
[1:32] An issue with the sizing of the window or whether the window is actively engaged.
[1:36] And so what we're told is if you change the size of that window if it's larger, make it
[1:40] a little smaller, if it's small, make a little larger.
[1:42] That engages it and you should be able to take those poles.
[1:45] However, if you can't find a way to take those poles for whatever reason, we can't certify anything
[1:50] for your CPU kind of to just make sure that you pay attention to that.
[1:54] Today's objective is briefly, we want to provide guidance on how to extract the most
[1:59] value from the actual report.
[2:00] We want to look at those five of your contribution projections, highlighting some changes
[2:04] to the ADP or additional discretionary payments.
[2:08] A brief update on asset liability management process, but really focusing on that 2021 investment
[2:13] return impact and what you're all here to hear about.
[2:17] And, of course, to answer any other questions that we have.
[2:19] So if you have questions, again, you know, put these through your question tab and we'll
[2:26] filter those and get those to the speakers as best we can.
[2:29] And of course, if you're having trouble with hearing and things like that, then I'll handle
[2:32] those.
[2:33] But today, hopefully you're aware of who these speakers are.
[2:36] That's why you're already here.
[2:37] You want to hear what they have to say, but just for a brief introduction, we've got Julian
[2:40] Robinson.
[2:41] Julian is the senior pension actuary with the valuation services team at CalPERS.
[2:46] He's been with CalPERS since 2012.
[2:48] And Mr. Robinson is responsible for the actual work for various CalPERS contracting agencies throughout the state of California.
[2:55] He's also on, excuse me, CalPERS is asset liability management advisory council another month full.
[3:02] He is the actuary for the terminated agency pool, and for the judges retirement system part two, or the two, the second.
[3:10] In September 2018, he was elected to the Society of Actress Retirement Council and he frequently
[3:15] conducts webinars and current issues and represents CalPERS at conferences and other public
[3:19] events.
[3:20] In other words, he's very good or at least he's used to having to communicate a lot of complicated
[3:24] CalPERS information to people that don't exactly speak the way that they speak down at
[3:29] CalPERS or up big CalPERS.
[3:31] Joining us also, if we're a color commentator today, is Ms. Onix Jones, the CFO or the Chief
[3:35] Financial Officer for the City of Culver City, California.
[3:40] on accessing the CFO position for the city of back in February of 2019.
[3:44] So right before the good time started.
[3:46] Previously, she served for three years as the finance director
[3:48] and city treacher for the city Pomona,
[3:50] and three years as interim finance director for the city of Al-Dolanto,
[3:54] and seven years as deputy finance director for the city of Rialto.
[3:58] Mrs. Jones, excuse me, has accepted
[4:00] of experience in financial analysis and budgeting.
[4:02] She assisted two of her cities in creating utility,
[4:04] user tax revenue measures.
[4:06] And she's written budget manuals implemented
[4:08] major capital improvement projects and has led creative team building workshops.
[4:13] She's actually also a motivational speaker and an award-winning author.
[4:17] Her book, the Artificial Guide to Achieving Your Goals, won first place at the 2015 London
[4:21] Book Festival Award for the How-To category.
[4:24] Ms. Jones holds a master's degree in Professional Accountancy, from which a task to university.
[4:29] So we're hoping that on, ex-joins us today, and really gives us a perspective of how
[4:33] Culver City reacts to some of this information and how they address it and how they
[4:37] communicate it.
[4:38] So with that being said, I'd like to hand over the rains and controls to Julian.
[4:57] Julian, I think you might be muted. Let's see if we can fix it.
[5:00] Okay, let's try again. Welcome everybody this morning to the discussion on the valuation reports.
[5:09] I've been doing this for a number of years and I look forward to this each time, as a way to talk with my friends and colleagues at the CSMFO.
[5:18] I've been working with a new minister quite a while and to enjoy the questions that I get all the time and their interactions.
[5:27] I'm also happy that I'm sure it's here this morning to provide some kind of commentary to the discussion that we're going to have.
[5:35] The key takeaways we have to achieve this morning are understanding what your fiscal year 2022-23 contributions are.
[5:44] that's the main purpose of this funding port.
[5:48] We have looked at the fund that status of plans
[5:51] by the contributions, which are included in the body
[5:55] of the report, have a few comments about the fiscal year
[6:00] 2021 investment return, and the brief discussion
[6:05] on some of the alternative ways of handling
[6:08] and funded approved legalities, or I may call that
[6:12] as we go on. Just a little bit of background on the pool plans versus non pool plans.
[6:23] The, before we get to the polling question, the pool admin in our system, as I'm
[6:28] sure you're all aware, we have two types of plans, plans which have less than 100 active members,
[6:34] are all part of the pools. We have two pools in the system. The miscellaneous pool and the safety
[6:42] pool. And of course, miscellaneous plant or a covered in the miscellaneous pool and the safety
[6:49] plants are in the safety pool. The pool plants have a separate normal cost for each of the
[6:58] plants in the pool. It's a standard normal cost and if there are certain additional benefits
[7:04] that a plan provides, there were surcharges for those. One of the unique things about the
[7:11] pool plans is the gains and losses across all the plans in the pool are shared with all the
[7:18] participating plans in the pool. It's an insurance concept which gives the volatility of rates
[7:25] lower than if each individual plan reflected its own gains and losses. On the other side,
[7:32] We have about 420 non-pull plants in the system.
[7:40] All of those plants have more than 100 active members.
[7:44] And again, there's two types of those plants in this land, yes, plants, safety plants.
[7:50] There's a combined normal cost rate for all tiers in each report.
[7:56] We'll talk a little bit better a little bit more detail soon.
[8:01] And the gains and losses for each plan are allocated to that specific plan.
[8:08] So that's a unique feature of the non-pull plans.
[8:12] And since there are sufficient size to handle those kinds of gains and losses in the volatility,
[8:20] that's why they're kept separate.
[8:23] Right? That's here at our first full question.
[8:29] All right. So the first poll question is, what type of plans do you have? So please select all that apply. Are you in a non pulled plan, a pool plan or both of the above?
[8:44] So we'll take some time to allow people to answer the poll question. I do have a question for you, Julian.
[8:54] And do you notice amongst the pool or not pooled whether the gains in loss is very, very much
[9:02] between the two different plans?
[9:06] In general, there's not significant difference unless there's some large advantage may affect
[9:14] the particular large non-pull plan.
[9:17] But in general, the, of course, the investment gains of losses are, you know, pretty much equal
[9:24] between the pool of the non-pulled, it's just the non-investment gains of losses. In other words,
[9:29] the demographic gains of losses, which potentially could have a bigger impact. But I'm right,
[9:38] I personally haven't noticed any substantial difference above between pooled and non-pulled
[9:44] That's when it comes to that.
[9:46] Oh, that's good to know.
[9:49] We would want one group to have a manager over the other.
[9:52] You know, to certainly, uh, that's so good.
[9:55] Yes.
[9:55] I should have not been to
[9:59] you.
[9:59] Okay.
[10:00] Let's see the results. So it looks like for the group that's on the call today 49% are in the pooled only. And then we do have 33% and non-pooled. And then 18% for both of the above. So we definitely will have information for everyone today, depending on which group they're in. I know you are presentation is going to speak to both.
[10:25] Right, I'm trying to advance this, here we go.
[10:31] So here's a couple of slides on highlighting some of the all the information.
[10:38] There's a section two pool report which covers all of the plans and the particular pool.
[10:45] So here we have some information about the miscellaneous
[10:47] or, as you can see, the middle of the screen with the blue highlighting of their all the basic formulas,
[10:56] which are covered in the miscellaneous pool with two prisoners 62, two prisoners 60, et cetera, et cetera.
[11:04] Those are the basic formulas which are provided in the benefit which are provided in those pools.
[11:12] And by looking at that table, you can see the relative costs of these benefits structures.
[11:20] Also of interest, perhaps at the bottom of the page, you can see the market value of assets in the miscellaneous pool is about $15 billion.
[11:30] was the liabilities of $19 billion approximately 76% funded so you can compare your individual
[11:41] plan to see how it compares to the rest of the pool.
[11:45] The next slide is similar information, but with respect to the safety pool, there's a
[12:00] the most generous benefits of the 3% at age 50 formula.
[12:07] And you can see the basic contribution rates,
[12:11] normal cost contribution, the range in 20% up to the 30%.
[12:21] The safety policy is a little bit larger than the miscellaneous pool
[12:26] with $19,000,000,000 in assets and approximately $26,000,000,000 of liabilities,
[12:35] when it has a slightly lower funded status in the miscellaneous pool.
[12:42] And you can compare your safety pool to the average of the safety pools here.
[12:55] So, in terms of the way we put together reports for the various pools, the non-pult plans are all contained in one report.
[13:06] For the pooled plans, there are going to be multiple reports, and those with pooled plans know that if you have different tiers of benefits and pretty much every agency has at least two,
[13:21] because we have a at least one classic tier and a pepper tier. So there's at least two section
[13:27] one reports that you receive and then there's a section two report which is available on the
[13:35] Kelpa's website that you can see all of the information and all of the analysis for the entire
[13:42] entire poll. So feel free to find that on the Kelpa's website I believe it is up already or
[13:51] has been recently posted or a little bit quite soon.
[13:57] Some highlights of the actual report.
[14:00] Let's get into the meeting potatoes this and to know as I've said before,
[14:05] these evaluations are for funding purposes,
[14:08] and the first three letters are for funding is fun,
[14:11] so let's strap on our seat belts and have some fun
[14:13] in the discussion that we're going to have.
[14:17] So come questions which I often get in my colleagues
[14:20] the other actress who serve the agencies this webinar this morning. What other required
[14:29] contributions everyone needs to know what their obligations are to help us, what's the
[14:36] how good a shape is the plan. Why do the contributions change for me to year?
[14:44] Where the contributions
[14:45] had it higher or lower or relatively stable. And funded a good liability is a very popular topic
[14:55] we get many calls about that, so understanding the schedules ends up.
[15:00] All alternative approaches to handling them is very important. It remembers where my peppermembers we get questions about that and what additional information is available in the reports.
[15:14] Let's tackle each of these questions about them.
[15:18] So on the front page of the report, we show the information for 2022-2023. It's we're already in the
[15:28] 21-22 fiscal year and you're making contributions currently for that year. This allows you to plan for
[15:37] what is going to happen in the next fiscal year. You also put on the front page of the report,
[15:43] a projection of the results of the 2023-24 valuation and here we put an estimate as you know the rates for
[15:55] 2023-24 will only be finalized when we do our next funding valuation next year.
[16:04] I have a little list of providers over here that the rates don't reflect any
[16:12] cost sharing information, so if you have any of those arrangements with your employees, that is
[16:19] willing to impact the rates which are shown on the front of the report.
[16:27] We didn't include any impact of the risk of the S again, the last year, the 21.2%
[16:34] Also, there's no impact in the projection of the front page with respect to any impact
[16:43] of risk mitigation or any other assumption changes, which are likely to be made over the
[16:51] next few months by kelp's board.
[16:57] There's a summary on page four of the report again of the contribution requirements,
[17:07] the
[17:07] of the contribution, and then the second component of the contribution is the payment of the
[17:15] unfunded availability. And as you know, there's an option in how you can handle the UAL payment
[17:24] of required UAL payment, you can either make a monthly payment or there's an up a disoption
[17:31] July of each year to pay the full unfunded afford liability commitment in one payment
[17:41] and if you take advantage of that, you get a half a year of interest and credit for if you
[17:51] make the payment in July of each year.
[17:57] Again, as I mentioned, the normal cost component,
[18:01] no cost is compared to components, the normal cost, which you pay on the monthly basis,
[18:08] or at least on the monthly basis depending on how often you submit the payroll to the
[18:12] workers and the UAL payment.
[18:18] Point which I always like to highlight is please don't pay your UAL that you're making
[18:26] that contribution to the injury and that's for some reason some agencies hate 12 times
[18:34] the monthly amount and that's more than required.
[18:38] But of course, if in the event that you do make that an extra payment by accident, we do
[18:44] credit it to your unfundered reliability, so it's not like the money just disappears.
[18:52] But for more precision, it's better and for our counting purposes, if the proper amount
[19:00] is paid on the next slide, I show what the invoice looks like.
[19:08] like for the first month of the year, and no, here and in the invoice, I light it in yellow here,
[19:18] is the annual amount, even though it shows at the bottom the total amount due, which is the monthly
[19:26] amount, but if you want to pre-pay, it does show that amount in the invoice.
[19:40] It is my planning
[19:41] of a shape. So one of the most common measures of a plan's financial stability is the
[19:49] funded ratio. So on this page, from front of you, we showed that 2019 and 2020 results for
[20:00] Now, there are some purposes only. Just to run through the items on the shown shown here, the present
[20:07] value of projected benefits. That's how actual estimate of what the total benefits payable for the
[20:15] plan will be for all current members. And assuming that the active members will continue working
[20:22] through retirement. The number two item, the entry-age approved liability for what we call
[20:29] the equity liability entry-age is a technical actuarial method which we use to come up with
[20:36] this number is the value of benefits which have accrued back to the valuation date and the
[20:49] project benefits and the NCH, a good liability is the expected benefits that current active
[20:57] members are expected to earn in the future with their working lifetimes. Number three is the
[21:05] market value of assets and we can take the difference between two and three, in this case the
[21:12] It's between 34 and 74 million and 254 million,
[21:18] approximately 120 million of unfunded liability.
[21:23] Let me look at the ratio, the assets divided by the liabilities
[21:28] to come up with the funded ratio amount.
[21:34] I have a question, Julian, for you.
[21:37] Is there ever a funded ratio where a city should sound the alarm
[21:41] agencies should be concerned?
[21:46] We get that question quite frequently.
[21:51] We're aiming to reach
[21:53] a hundred percent. Yes. Backbunders. If a plan drops to fifty percent, so that essentially
[22:02] means that the assets need to double in order to reach what the liabilities are to have
[22:10] the liabilities. So that's quite a extreme position, and we obviously know when to try to avoid
[22:18] that at all costs. But the most important thing is for there to be assets or times to cover,
[22:27] the benefit payment says they can do. That's the most pressing obligation and
[22:34] and calipers, but as a management, it also takes that into account that they maintain some
[22:42] level of liquidity to make sure that the benefits that are due to current retirees are made.
[22:52] And I should have mentioned that if anybody has questions, I'm not sure if people are sending
[22:55] questions yet, but no faces. Some questions as the discussion goes on, so we can deal with them as
[23:06] as you submit them. So this is the fund as that is as of June 30, 2020.
[23:18] The next question we
[23:20] free point to get is why did my plan have a change in the required contributions?
[23:29] So generally, the normal cost component, the normal cost component represents the amount
[23:35] of benefits which the count active, members are accruing each year that remains relatively
[23:43] stable.
[23:44] what does change as gains and losses for the plan? Gains and losses means that we have
[23:53] various expectations about how much we're going to earn on the assets invested and
[23:59] many people are going to live for what retirement age people are going to elect to retire
[24:05] out or kind of salary increases are given. So we have a whole slew of actual assumptions
[24:12] which are baked in to our liability numbers. Whenever there's a difference between those
[24:20] the assumptions and the actual experience that develops a gain of loss. So the gain of loss
[24:27] flows through to the into the liabilities and the unfunded approved liabilities and that's why
[24:34] this changes in the contribution he chair to handle those against muscles.
[24:41] We never ask you to pay a game unless often, immediately,
[24:45] but we have a whole amortization process depending on what the source of the game unless it's.
[24:52] So, in non-pull plans, there's a full-red reconciliation on page 15 of all the against muscles.
[25:00] For pool plans, there is a reconciliation in this section to report. And each plan in the pool is allocated a portion
[25:14] of the gains and losses based on the size of the plans, assets, based on the size of the plans,
[25:20] what liabilities and that's having the occasion to begin to losses for each of the plans in the pool is performed.
[25:34] We provide a five-year projection of where we expect contributions to be based on the assumptions in the plan.
[25:46] Now, what you see in front of you here is a projection for a non-poled plan.
[25:53] A non-poled plan contains both classic numbers and all the classic tiers as well as
[26:01] pepperminted.
[26:03] What we do in this projection, you can see the normal cost rate is decreasing over the
[26:11] five years and this is a reflection of the expectation that more members become peppermembers
[26:20] over that time. And peppermembers have lower benefits and lower normal costs, so that's
[26:27] why there's a decrease in the normal cost percent. There is a similar projection in the
[26:41] its own report and each paper tier has its own report. So you won't see a change in the normal
[26:48] costs contribution rate in the finalier projection for those plans.
[26:55] Our UAL payment here is the finalier projection of what the UAL payments is based on the current
[27:11] The point that they think to remember, particularly that this year's report is that it doesn't
[27:17] reflect the 2021 investment gain of 21.2%, so that's a very significant no gain which
[27:31] the plan is going to experience. Now the, as a result of that, we did have a risk mitigation
[27:39] event, which meant that since we earned more than the more than the 7% target and significantly
[27:46] more than the 7% target, it's kicked down our discount rate from 7% to 6.8% currently.
[27:56] So, that drop in the discount rate is going to be an impact for the next next year's valuation.
[28:04] The clock of that, and I'll talk about a little bit more detail, we're going through the whole ALM process, which I'm sure everybody is very focused on whether the board is going to be looking at the overall asset allocation for the whole fund.
[28:20] and they end up with the different discount rate in the 6.8%.
[28:31] At the bottom of the page, we have an estimate of what the percentage of payroll is,
[28:36] because I know what agencies or the rest put this thing as a lot of agencies budget based on a projection
[28:43] of the percentage of payroll based rather than based on fixed all the numbers.
[28:49] We put in the percentage of, we put in our estimate of what the projected peril is and this is based on no information from no June 30, 2020, which is arguably a little bit old.
[29:06] So you are much more able to come up with a more accurate payroll or your current peril and probably a projection that we are.
[29:19] So you can replace those payroll numbers there and then do a divide the UAL into the payroll and then add the normal cost per cent in order for you to
[29:31] misshop and there's total percentage of payroll numbers, but we provide this as a starting point for you.
[29:41] And Julian, there are some questions coming in and one is about the pension outlook tool.
[29:47] And I know that is also very useful for doing projections as well.
[29:53] And I think the question was, do you know when that will be updated with the 2020 valuation?
[30:00] Yes, a very great question. I'm going to be talking about the pension outlook tool later on, but I believe it's actually this week.
[30:09] So, very good. By the end of the week or by the beginning of next week, I mean, it should be updated because no, it's a very useful tool. We know many agencies are using it for
[30:22] for packaging purposes for more calculating UAL and other other impacts. So we're happy to be
[30:32] now submitted. It's going to be available. No, I spoke to my colleague, Kerry Walgain,
[30:37] who's very instrumental in the whole inch now look tool and the talking that it's going to
[30:44] available as of October. So let's see if you guys have access to it and it has a new new features
[30:59] which allow a little bit more flexibility and to introduce this for projections.
[31:15] With
[31:16] additional discretionary payments. This page was added, I think, last year or fairly recently,
[31:24] just giving agencies some basic information about what the required contribution is,
[31:31] the required employer contribution, and then the potential of making an additional contribution
[31:38] with different funding targets. What these funding targets mean is if I want to pay off
[31:44] My total unfunded UAL, for example, over 15 years is going to be this first line in the, I mean, the table.
[31:54] Obviously, you have to make your normal cost and minimum UAL payment.
[31:59] But if you made an additional payment, additional discretionary payment, ADP of $1 million in this example,
[32:10] It will achieve a payoff of all of the unfunded approved liability over a 15-year period.
[32:21] And similarly for the other target, unfunded target numbers here.
[32:26] Again, no five years is very aggressive, and you can see it's a significant additional contribution,
[32:32] but just to give agencies a ballpark of if they want to pay off their liabilities,
[32:39] these more rapidly,
[32:43] these are some sample numbers, which are, we put out, they're just
[32:49] sort of analysis purposes,
[32:54] all right, looks like we've reached a polling question number
[32:59] two.
[33:00] So, we'll give everybody a chance to answer, but it says, has your strategy for ADP changed
[33:07] do the COVID. So option one is no, we never had a strategy. No, we are still on course,
[33:16] consistent to pre-COVID. And yes, please submit how in the question tab. So you are
[33:23] allowed to add a little narrative as well. I will say that I'm sure many cities have had to
[33:32] rethink their forecast due to COVID and I know for us we did have a strategy not so much for the
[33:41] ADPs but we were trying to address OPEV as well and we had to shift during COVID because we weren't
[33:48] sure not only how much the revenues were going to be impacted by COVID but how long this was going to
[33:56] continue. So it will be interesting to see feedback from this poll and see what the responder say.
[34:04] Have you had any experiences Julian with the city's providing feedback because as a result of COVID
[34:12] in the strain it may have had on their current strategies for ADPs?
[34:18] Yeah, some cities have indicated they wanted to regularly make additional contributions
[34:26] But, as you mentioned, because of the financial stress on their budgets from different areas,
[34:38] they've had to head back on potential additional payments.
[34:43] Other agencies have somehow added additional funds available and have accelerated some of their ADP payments.
[34:54] So that across the board has been some different experience.
[35:03] So the results for the group is, no, we are still on course consistent with pre-COVID, that was 61%. So that's really good news.
[35:15] And we lost the rest of the results.
[35:20] There we go.
[35:23] Thanks for working on it.
[35:25] Yeah, it's coming.
[35:26] And then no, we never had a strategy,
[35:29] so maybe after today's presentation,
[35:32] this is something that the people who are attending may want to discuss
[35:37] with management to create a strategy,
[35:41] but there's 33% that said no,
[35:43] they never had a strategy.
[35:44] And then six percent said yes, and they have various, probably various ways of how they changed their strategy.
[35:54] Okay, all right.
[35:56] That's a very interesting results.
[35:59] That was.
[36:00] So this count, right, change.
[36:04] We did, so the valuation that we just completed the June 30,
[36:13] 2020,
[36:13] have, as I mentioned before, a risk mitigation policy event was triggered this year and those
[36:21] get triggered by earning more than the 7% discount rate, which was kind of the target for
[36:33] the year. And since there's various triggers above the 7% if it's we get 2% above that
[36:40] we significantly exceeded it, so that meant that our discount rate was reduced at least
[36:48] from 7% to 6.8% and in general the effect of a lower discount rate is an increase in the
[37:01] crude liabilities and in the normal costs. So the notion behind the risk mitigation event and
[37:09] change in the discount rate, is that now after having a very good investment year, we – that's
[37:17] a feeling that there should be some risk taken off the table in some of the investments that
[37:24] so that reduces the expectation, the long-term return asset expectation, and the share in the
[37:33] is shared between the system and the employers that's why the lives may be high, but the assets are also going to be higher, and then there's a little bit of an increase potentially in normal costs.
[37:51] And I will say that we had to explain this concept to some of our members, especially those
[37:59] from the different unions and bargaining units, because they were very elated when the
[38:05] results of last year's interest rate return last fiscal year were announced and they thought,
[38:11] yes, so that means it's going to be smooth sailing. And we just kind of had to let them know that
[38:18] with the implementation of the policy, there is an offset.
[38:21] But it is much better situation now than years ago,
[38:26] when we lower down to the 7% discount rate.
[38:30] That was a significant hit to the city's budget.
[38:34] But this is nicer.
[38:36] This is an easier transition.
[38:38] And I agree that discount rate probably
[38:41] needs to be realigned to where it's more realistic.
[38:44] So I think this is great change.
[38:51] So a few comments about our asset liability management were in the middle of this process at the moment.
[39:01] It's conducted every four years. There's a deep analysis about the set allocation of the funders and what the potential earnings are for each class of assets.
[39:16] and the risks associated with that and then I hope folks who are on this call are
[39:25] tuning into the monthly regular board meetings that CalPERS has the meeting a few weeks ago
[39:37] September meeting and you can go on to the CalPERS website and listen to the presentation
[39:42] to the investment committee about the some some of the preliminary presentations of what
[39:50] the potential candidate portfolios look like and the expected discount rates which are
[39:59] Thank you.
[40:00] Associated with them, we're going to need enough further discussion at the November board meeting and we encourage all of the folks on this quarter, number one, tuning in and also participate in this opportunity for public comment.
[40:20] or I'm at all of all of these meetings, so, and I think it's like that this an event of meeting will also be a virtual meeting as well.
[40:31] So to be able to have a phone in and have your three minutes of opportunity to share your thoughts with the board and your concerns and the very responsive to that.
[40:44] And it's a valuable way of being able to express your views to the management of the system.
[40:55] So there's been no webinar's also associated with the asset-level management review.
[41:03] there also hosted on the kelpers web site and if you go to the kelpers web site and
[41:09] the search for as a liability management AOLM, you should be able to
[41:14] find pretty quickly some of the earlier webinars, which are being presented on this topic.
[41:24] I think there's another one scheduled for the month of October.
[41:28] So please check out the Kelps website for more information about that.
[41:35] So besides the review of the assets side of the portfolio and some of the information you can see here,
[41:40] see on the screen in front of you, we also do a review of the demographic assumptions in our experience study.
[41:49] So we look at some, for example, the our expected mortality rates and the actual mortality rate experience.
[41:59] Now what one point to mention that the dates that we used for this review only goes through June 30, 2019.
[42:10] So it doesn't reflect any of the impact of COVID on the mortality experience.
[42:16] in some significant impact, because of COVID, the big question from an actual standpoint is,
[42:28] is this just a temporarily temporary impact on mortality rates or is there believe that there
[42:35] could be potentially longer-term impacts on the mortality rates. And of course, the jury is still out
[42:45] with respect to that and we're kind of in the middle of this whole event anyway so it's a
[42:52] private charter where anybody to reach any conclusions at this point however the different people
[42:58] have different views and have started potentially impacts on liability is going forward.
[43:07] This was a recent change in 2000 to 19. We introduced a new
[43:14] and metysation policy, which effectively limits the period of MSATs into 20 years, which is
[43:27] shorter than now, 30-year period, which means the MSATs contains losses, is done more rapidly.
[43:39] Okay, are there any alternative unfunded or crude libel to more amortization schedules?
[43:47] So I'm sure everybody is familiar with this site here with our very imposing schedule
[43:56] of amortization bases, no brainactory and for finance people, numbers is a very exciting
[44:09] of art in my mind, but other people have different views on that.
[44:16] So the amitization schedule, basically, show how the unfunded afford liability has emerged
[44:27] over the, almost two decades, if you can see at the bottom of the screen, it's a $19.5 million
[44:39] that was found at a food liability as of evaluation date and you can see all the component
[44:44] pieces over the years.
[44:52] So essentially what ADP does is you're selecting an amount and it goes to...
[45:00] What's paying down, sound or all of the basis that we see? There were a number of agencies over
[45:10] the past year that did a pension obligation bond and a pay off significant amounts of their
[45:17] unsundered accrued liability. And there were many other agencies which were made around a plan to make
[45:25] significant contributions each year paying off various, the basis, the components of this
[45:33] unfunded recruit liability. One other option which we have in the emergencies, some have adopted
[45:42] is what we call a fresh start. So they take their complex series, a table of amortization basis
[45:53] And say, hey, what happens if we want to pay that off in an orderly manner over 15 years, or 10 years, or a fixed period of time?
[46:03] So there's a schedule in each of the reports, which in the straightive purposes shows what would happen if it gets paid off over 15 years, or 10 years.
[46:15] the Bammet Session period may be different in different reports.
[46:20] Of course, we're not going to let you choose an Mammet Session period,
[46:24] which is going to generate a lower UAL payment than the required payment.
[46:30] So it has to generate a more rapid payoff, which means you're going to get
[46:34] to generate savings.
[46:36] So if you see at the bottom of this page here in the estimate savings,
[46:40] If an agency went to a 15-year amortization, they would end up saving the 15 and a $15 and a half million dollars over the whole lifetime of the amortization.
[46:55] So it's also some agencies that see the significant savings that can be achieved in making additional contributions or electing a fresh start.
[47:07] as you can see in these schedules here. One point to remember is that if you an agency does choose
[47:15] to make a fresh start, you can't unpop the balloon service speaker, so it's an irrevocable
[47:24] decision to make a fresh start decision collection. What some agencies do is instead of making
[47:32] the election may make an ADP, as if they had made that election, so it has an impact on
[47:45] the savings, but it maintains the flexibility in the future. If the funds are not there
[47:50] for the commitment, for a 15-year commitment, to nearly do it on an out-hot basis, and mirroring
[47:59] the payment would have been had and the election didn't make. But all these kind of discussions,
[48:05] no, please contact your actuary and your actuary's name is in each of the reports. So to have
[48:13] no discussions about this kind of thing.
[48:18] How much savings for ADP is generated? What we do have a tool
[48:23] managing employer contribution tools, which, at quest, we put early, a customized spreadsheet
[48:32] together for each plan that you have, and you can run different ADP scenarios with
[48:40] that spreadsheet. You can also do some of the analysis with the pension outlook tool as
[48:48] And there's a mention of Contecua Actory if you're interested in this tool.
[48:56] So here's just a couple of screenshots from that tool.
[49:03] I know there's a lot of numbers on here, but to know around this area here in the middle you can
[49:10] choose the amount of the ADP. You can choose the date on which you want to make the ADP. And
[49:19] you can also select, which of the basis you want to pay off when you make that selection.
[49:29] A lot of agencies choose to pay off the longest basis first because that helps achieve the most
[49:36] in just savings when you pay off a bass with the 25 years of outstanding
[49:46] less and too, till it's fully paid off rather than the shorter space, but there's
[49:51] this different options and we encourage you to take advantage of that.
[49:57] So here is also a number.
[50:00] The tab on this tool where you can make a projection of what happened in the base of the 21.3% investment earnings and what
[50:11] no future earnings are likely to be. And you see what the impact on your unfunded credibility is for those changes.
[50:21] So it's quite a powerful tool, and it allows you to do some modeling and projections and things along those lines.
[50:32] So Julian, if you're an agency and we have a large sum of money, it's one time, it comes into the agency and the decision is, let's do an advanced payment or a direct payment to CalPERS.
[50:45] And we can use the tool to help us, but is it actually very also available to help us decide which basis would be best for our agency to make a direct payment to?
[50:59] Yes.
[51:00] You should definitely have a discussion with your actual about that because in the event that you do want to make a payment.
[51:09] that actually has to request the paperwork to be put together for you to complete at the time that
[51:16] you send in the additional payment, but then there's a discussion on the pros and cons of
[51:24] which, which, which basis, which basis, I'm laughing, you know, pay off yes, so we're here to help you
[51:32] with all of that kind of decision making in analysis.
[51:40] Okay,
[51:42] where are the pepper members?
[51:44] We get asked. So for a non-pull plan, all of the members in the plan, whatever tier,
[51:53] whether it's a classic tier 1, classic tier 2 and pepper, they're all included in the same report.
[52:00] And non-planned requires the same employer rate for all members in the plan.
[52:08] That's the employer makes a contribution for all members of the plan.
[52:13] So what essentially happens is it turns out to be a blended rate for all the different tiers from the employer side.
[52:22] Now, for the employee contribution, that's completely different.
[52:26] You know, the classic members rates are set by statute and the paper rates are also,
[52:34] I mean, members are required to pay 50% of the normal cost.
[52:42] And there's a page in the non-pull report, which note directly shows what the pepper calculation is.
[52:55] and the pepper contribution rate for members can change from time to time.
[53:03] And the basic principle is if there's a change of 1% or more since the previous change in the pepper rate,
[53:16] then the member rate will be adjusted.
[53:19] If the difference is less than 1% in the pepura and employee contribution rate remains the same.
[53:29] So, for this particular plan, in front of you, you can see that the change in the rate from the basis was 12.59.
[53:38] The total normal cost rate was 13.16 for the pepura members benefits.
[53:43] again, it's a new looking at the normal cost for peppermint events. Of course, and then
[53:52] so since the difference here is less than 1%, there was no change needed for peppermint
[53:58] events for the upcoming fiscal year. But please keep in mind that with changes of assumptions,
[54:08] as I mentioned, the drop from 7 to 6.8% and wherever the board may end up, potentially
[54:17] called lead to a change in the paper contribution rate for different members.
[54:27] We show in non-pool plans the normal cost rate for the different, for the different tiers.
[54:35] So you can see this plan is plan has two classic level benefits and a pepper level, which
[54:42] should the normal cost for each of the levels and the number of active members have at
[54:50] the particular plans. We have been seeing a lot of plans, of course, where the
[54:56] Pepper, membership is no.
[55:00] Increasing, it's kind of rare to see, you know, any significant increases in classic tiers, essentially, there are those are, those are closed, and there's a transfer from what, from one kelp is planned for another kelp is planned. So we, we, we wanted to those changes and overall that leads to a, a decreasing normal cost for, for
[55:49] We have some other additional information in the reports, which show the sensitivity to changes in the assumptions, what's interesting to you.
[56:02] Here on this one, the rate of return sensitivity of the discount rate gets moved from 7% down to 6%
[56:11] You can see that there's a significant increase in the crude liabilities as well as a significant increase in the normal cost rate.
[56:21] Similarly, if there was an increase in the normal cost rate, we would see a decrease in both a good liability and the normal cost rate.
[56:35] We also show in the next slide what a change in the inflation rate would have on the liabilities.
[56:44] And then find when you also show what the normal cost and what the the impact of a change of the mortality rates,
[56:54] because that's a significant assumption how long retirees are expected to earn their benefits.
[57:03] We have a slide in here, which summarizes some of the impact on these liabilities.
[57:09] I mean, up to 11 o'clock, so I have to let our needs to start our part of the presentation
[57:16] as a couple of more slides to cover before I hand over the controls.
[57:20] On these, we have a slide in here, which discusses the hypothetical termination liabilities
[57:26] in the plan. No, most of the plans, I'm sure all of the folks on the call here have ongoing plans,
[57:35] but we do have on occasion plans which terminate.
[57:38] and the underlying assumptions for terminating plan
[57:43] or significantly different, much, much lower discount rates
[57:47] and that reflects the very conservative investment strategy
[57:53] that assets for terminated plans are,
[57:58] because we essentially use government bonds
[58:02] for the terminated poll assets.
[58:10] polling question number three. Now this is one where everybody needs their crystal ball. It says I think the pandemic will last until.
[58:21] So, in the end of 2021, which is this year, early 2022, late 2022 and after 2022, so we'll
[58:31] give some time for attendees to select their option.
[58:37] And I just have a question for you, Julian.
[58:40] And, you know, of course, it's hard to tell how long the impact of this pandemic is going
[58:45] to go on for.
[58:47] But what are your thoughts on when our numbers that are being produced for CalPERS are going to start reflecting different mortality rates as a result of this pandemic?
[59:00] Will it take a couple of years or how long will it be, you think?
[59:07] Well, this is two issues. So number one is no black thing. The number of people that have actually passed away from COVID and the impact that has on the pension plans. That's one thing. And then this is the second impact is the longer term impact on mortality rates in general.
[59:32] So, regarding the first issue, the, you know, when we do our valuations as of next year from 2021.
[59:45] Sorry about the background noise.
[59:51] The valuations will reflect, you know, any deaths through June 30, 2021 reflected in.
[1:00:00] The next graduation. So we've got to see some gains and losses in marriage with respect to that. Again, the following year's
[1:00:10] valuation will never reflect even more than that data as well.
[1:00:17] I'm with respect to a lot of the longer term. Okay. Let's see what the group says late 2022, which I think
[1:00:29] is actually optimistic.
[1:00:32] The others, let's see, 2% says the end of this year,
[1:00:37] 19% says early next year, and then after 2022,
[1:00:42] which is probably where my vote would be 35%.
[1:00:46] So kind of mixed across the board,
[1:00:50] but a lot of people are hopeful by the end of next year,
[1:00:54] this will kind of be over.
[1:00:56] So we hope so.
[1:00:59] We certainly need to thank you.
[1:01:04] So here, this was your question about the impact on the actual valuation.
[1:01:08] So, I wish you this year or how they had anything but the valuation ending June 30, 2021,
[1:01:15] will have a significant information on the COVID impact.
[1:01:23] There's other information in the reports, which you can see there on the slide.
[1:01:30] We talked about pension outlook before and I mentioned that the new tool is going to be available
[1:01:37] in the beginning of October tomorrow or the next week.
[1:01:42] So we can do a question.
[1:01:44] Our next polling question, which is a good one,
[1:01:48] Are you using the pension outlook tool?
[1:01:52] The option is yes, not yet.
[1:01:55] I will once it's available for pool plans or no.
[1:02:00] And I do know that the pension tool is very helpful and useful.
[1:02:07] And I encourage everyone to go out to the site and just play around with it.
[1:02:15] That's the whole plan.
[1:02:15] actually we should have updated this slide because it is available for pool plans
[1:02:21] awesome and has been for quite a while so hopefully all of our participants are aware of that
[1:02:29] and again it's a very pretty user-friendly tool to use you get access to it from the regular
[1:02:39] help us wet website. Anybody can sign up to get access to it. Okay, so 23% or using it.
[1:02:52] Hopefully, we'll.
[1:02:54] So 41% then I think the information you just shared will be very helpful to the 41%
[1:03:01] for those that are part of the pool plan. Just know that the tool is available for you now. And hopefully
[1:03:08] for those that say know that they'll at least venture out to the website and take a look at the
[1:03:13] tool. I know I had to use it during the first time we you CalPERS lowered the discount rate
[1:03:21] and there was a template that went around but then this tool was created and it's been really helpful
[1:03:28] when you want to play around with you know the different scenarios so please go out and check that out.
[1:03:37] good, and in the last thing, or well, for couples or wrapping up things, not the actually that's
[1:03:45] put together your report and signed it, it's right there in the report, so you can
[1:03:50] ways reach out to that actually, or, you know, that's a preferred method,
[1:03:57] you call the support center, you'll eventually get connected with your actually, but that may take
[1:04:02] a little bit longer, just want to throw it in. One word about the Calpis educational forum,
[1:04:12] which is online. This year is coming up in October. So please check it out website, whether
[1:04:18] it's for you or other folks in your agency. There's a lot of stuff about Calpis and
[1:04:24] aspects of benefits and administration and things along those lines, so you or many members of your staff may be interested in looking at or joining the educational forum later on in the October.
[1:04:45] But the key takeaways are a no contribution rates for next year.
[1:04:51] We took out the fund status of your contributions.
[1:04:55] Some issues about handling your unsundant criminal abilities in the impact of 20.
[1:05:00] May 2021 for you to invest in returns and use the recommendation to the virtual education forum and all.
[1:05:11] And everything else is my grandend on experience.
[1:05:16] Thank you so much, Julian. I learned a lot myself from the presentation.
[1:05:23] And so I appreciate that and to remind her for me too to go back out to look at the tool once it's been updated.
[1:05:32] Let's see here.
[1:05:34] Do I have?
[1:05:36] Yes, I am.
[1:05:39] I'm in control.
[1:05:40] Here we go.
[1:05:41] So how do we communicate information about CalPERS to city council and members of the public?
[1:05:51] So, in this slide here, we have our CalPERS annual valuation and this is actually from Page Six.
[1:05:59] This is the slide that Julian showed previously the table there as a five-year projection.
[1:06:06] And so, we do use, oops, let's see. We went forward to the polling.
[1:06:15] There we go.
[1:06:15] We do use this table, but I also do a 10 year forecast for city council and the members of the public.
[1:06:24] So we take it a step further, and we actually send our data and our report over to Bartel, which is also an agency we use for actually services.
[1:06:35] And so Bartel gives us a 10 year projection.
[1:06:38] And you can see there in the graph there that number one, some of the assumptions that Bartell factors into our numbers is the investment returns for the previous year.
[1:06:51] So fiscal year 2020, the 4.7% return is factored in the 21% return 21.2% return is factored in to this forecast as well.
[1:07:03] And that was from fiscal year 21.
[1:07:07] And so we also have employee cost sharing.
[1:07:10] And as Julian indicated, that's not built into these numbers.
[1:07:13] So they factor that in.
[1:07:15] And as Julian indicated, the projected payroll figures may need to be updated.
[1:07:20] Because we know our payroll figures best.
[1:07:22] So all that information is factored in.
[1:07:24] And we get this 10 year forecast that we can use.
[1:07:27] What you have here is the miscellaneous group.
[1:07:30] The green line is the normal cost, the red line is our unfundant liability payment, so the blue is represented of the total annual amount that we could expect to pay over the next 10 years.
[1:07:43] However, because we do have cost sharing agreements for both miscellaneous and safety group, the purple line represents the cost sharing.
[1:07:51] So when we combine that, we get a net employer cost, which is the gray line, so that's really the information we're communicating to council. It also shows the savings that we're realizing as a result of the employee cost share agreement.
[1:08:06] But as you can see even for the miscellaneous group, the safety is even higher.
[1:08:10] This is a significant contribution amount each year, so it becomes a major part of our budget.
[1:08:17] And when we're forecasting out 10 years, we definitely want to factor that in and it helps us make decisions.
[1:08:23] And in fact, we have done tax measures as a result of looking at our forecast 10 years out.
[1:08:30] Just to make sure that we have enough revenue for the next 10 years, we had a tax measure that was going to sunset in fiscal year 23.
[1:08:37] We went back to the community and explained why we needed to continue it for another 10 years.
[1:08:44] And so this is really helpful, and so I encourage you to look at the five-year forecast and really get familiar with the information.
[1:08:55] Next slide, do you use the five-year employer contribution projection for budgeting? So yes, yes, but we updated, you may update it for payroll calculations for cost sharing agreements, things of that nature, or no, you don't look at it.
[1:09:13] let's see what the results are.
[1:09:19] And we'll give people time to answer.
[1:09:25] And I will, I will go ahead, Julian.
[1:09:28] In I was gonna say that, I think you can also use
[1:09:31] the pension outlook tool to, yes.
[1:09:34] In the rate of five or 10 year,
[1:09:36] maybe even longer projection as well.
[1:09:40] Absolutely.
[1:09:43] It's definitely useful to try to get all your resources
[1:09:47] that you have because, you know, the information and let's see what results are, 40% say yes,
[1:09:56] 42% say yes and they update it and make sure.
[1:10:00] And then 18% said no. So we need to get the 18% on board with this. It's very helpful.
[1:10:09] All right. Next slide. And why is doing the 10 year forecast helpful? Well, one of the reasons, as you see here, this is a report from the CalPERS annual evaluation report.
[1:10:23] And it shows the history of the investment returns.
[1:10:28] And so, you know, as those investment returns vary,
[1:10:32] it impacts what your contribution costs are.
[1:10:36] And so this is just one small example.
[1:10:38] So we received a report from Bartel back in April 2019
[1:10:42] with our projections.
[1:10:44] And you can see with the blue line that the contribution costs
[1:10:49] were pretty significant and they were increasing each year.
[1:10:52] And now with our updated report, that does factor in the investment returns of the 4.7% and the 21.2% from fiscal year 21, you see a significant difference.
[1:11:06] And so actually when you get out to fiscal year 27, 2627, the variance is about $2 million.
[1:11:15] So it's almost like we got a $2 million raise.
[1:11:17] Thank you CalPERS because the investment return really did make a shift in our forecasting.
[1:11:28] So it's just important. The only point here is take a look at it each year, do the projections each year.
[1:11:36] And just see where you are and communicate that information to the public to council, whoever would be interested in this information.
[1:11:44] But the investment returns from fiscal year 21 are definitely going to have a positive impact on our contributions cost going forward.
[1:11:53] And we hold that discontinues, but it's just something you have to monitor every year.
[1:11:59] Next slide.
[1:12:01] Now this is a discussion about the funded status and you discussed this Julian and showed us where to go and the report to find out what is the funded status of the agency.
[1:12:14] And I see that, you know, not only is this something of interest to council, but the bigger question is they do want to know, when are we going to get 100% funded?
[1:12:25] This is another report we received from Bartel. This is more of a stochastic report. So there's different.
[1:12:31] The most likely result is there the old green line there to we would be 100% funded around fiscal year 2039.
[1:12:43] That would be the most likely time that the agency this is for the miscellaneous group only would be fully funded.
[1:12:50] However, there is a 75% chance by this report that we would be fully funded at 100% in fiscal year 2029.
[1:13:01] And then there's also 25% chance that we would not be fully funded in the near future.
[1:13:09] 24 or not, it would be sometime after 24, 9. Again, we just look at this annually, we want to make sure we're going in the right direction.
[1:13:19] We do communicate what our unfunded liability is to counsel.
[1:13:24] In fact, our unfunded liability is 280 million, and this was in the report just released from CalPERS.
[1:13:31] And so that's a material amount for our city, so it is something to monitor.
[1:13:36] and make sure we're just moving in the right direction.
[1:13:40] That number should be getting larger each year.
[1:13:44] And I do say, I did want to share,
[1:13:47] as a result of fiscal year 21,
[1:13:50] we do show that our projection is that we will be at 70,
[1:13:54] what is that 70, 177% in fiscal year 21.
[1:13:59] So that is up from the 68.3%.
[1:14:02] So that's good news, we're headed in the right direction.
[1:14:04] So you want to check that for your agency just to make sure that you're going to be seeing similar type results.
[1:14:15] Oops.
[1:14:17] Let's go back.
[1:14:21] I'm not going backwards.
[1:14:25] I may need some help from from Craig.
[1:14:29] There we go.
[1:14:30] Thank you.
[1:14:32] So this next slide is the work of art that Julian says that he sees when he sees this table.
[1:14:40] And I don't know if it's a work of art for us, but I will tell you why I like this table.
[1:14:47] As he discussed, depending on if you wanted to make a direct payment and you wanted to make it to your short bases or your long bases,
[1:14:56] you know, it would vary on how much money you would save.
[1:15:00] This is from our schedule. This is page 16. The lines that are highlighted in blue. If we took those and those are our short bases and we did a pre-payment.
[1:15:15] So, for the city of Culver City, we did set up a section 115 pension trust. In fiscal year 2019, we invested $10 million.
[1:15:23] And now is worth about 13.7 million projected to be around 14 million by the end of this year.
[1:15:31] Give her take, we'll see how the market does.
[1:15:34] But say we took that and we wanted to do a direct payment.
[1:15:39] And so we applied a portion to miscellaneous and a portion to safety.
[1:15:43] And as you can see here at the bottom of the slide,
[1:15:46] if we took 5.3 million towards miscellaneous,
[1:15:50] we would have a savings of 1.3 million.
[1:15:52] I will say if we took the rest of the money and applied it to the safety group, we would have a savings of 3.7 million.
[1:16:02] So it would be a total interest savings of about $5 million if we applied it to the short bases.
[1:16:10] Now if we in turn took the same amount of money but applied it to the long bases, which are the rows that are highlighted in kind of peach color.
[1:16:19] And we took the same amount of money, we would have a contribution savings for the miscellaneous
[1:16:25] group of 7.2 million, which is significantly more, and if we did the remainder of our balance
[1:16:33] and did a direct payment to the safety group, we would have a savings of 10.7 million.
[1:16:40] So we would have a total interest savings of about $17.9 million dollars.
[1:16:48] And so they're definitely advantages to making their direct payments if you have the funds available.
[1:16:55] Again, I, one-time money is also helpful to use those direct payments for one-time money.
[1:17:03] If it's not something that can be built into the budget on a regular basis.
[1:17:08] But definitely worth the savings there, and other option that we have looked at when communicating to council is taking the section 115 trust and pulling payments from it each year.
[1:17:27] And so, what you do is establish a target contribution amount, which on the graph on the left would be the orange line.
[1:17:38] And so, we've decided, okay, this is our target, our contribution budget.
[1:17:42] This is what we want to build into our budget. It's consistent.
[1:17:47] We can budget for it. We know the amount each year, so for the next, you know, seven years or so, we know how much we're going to pay.
[1:17:55] But when the actual contribution amount comes in, it is likely that it may come in higher than your target.
[1:18:02] And so in that scenario, what you can do is pull money from the section 115 trust to make up the difference.
[1:18:09] And so the graph on the right, the bar chart on the right shows pulling money from the section 115 trust, so the balance is going down each year.
[1:18:20] But Bartel did some analysis for us to see, you know, how much
[1:18:26] intersavings could we earn on this money over the years?
[1:18:30] And so again, we started out with an investment of 10 million, as I indicated,
[1:18:35] today it's worth about 13.7 million, if we used a 6% rate of return,
[1:18:42] which we think is, you know, doable over the next few years,
[1:18:47] We could potentially earn about 11.3 million dollars in interest.
[1:18:52] And so that is money that basically is helping us kind of lower our expenditures each year.
[1:19:00] So we would take money out the first year in this graph you see the funds would be withdrawn in fiscal year 2023.
[1:19:12] and it would continue through 2033, fiscal year 2033.
[1:19:17] And for the safety group, which is not here on this slide,
[1:19:20] we would continue to make payments to 2035.
[1:19:23] So over a 16 year period,
[1:19:26] we would be able to utilize these funds.
[1:19:30] So this is another idea that agencies consider as well.
[1:19:35] So with that,
[1:19:37] we are at discussion and Q&A.
[1:19:41] So, if there are any questions from the group that they would like to ask Julian or myself,
[1:19:48] you can send those through.
[1:19:50] There should be a panel there for questions and answers that you can submit.
[1:19:57] And we will read off your questions.
[1:20:05] I'm not seeing any questions come in, so obviously, I mean, we did get into some detail questions throughout the session, but I just, sorry, we went to a little too far. So just on a couple other issues though, obviously, if anybody in the audience has questions, oh, sorry. I think Julie and someone might have control here, let me take that slide.
[1:20:26] You know, if you do guys have any questions, I did clear beforehand to give out Julie's email, you know, you could be a very popular person and obviously on it.
[1:20:35] In in showing and sharing how she works with her board in her city.
[1:20:40] Either or are willing to answer questions that maybe if we don't get to today, we just have a question.
[1:20:45] And I'm a little just asking on it.
[1:20:47] Okay, for help, as CalPERS noticed an increase in retirement and if so, what effective
[1:20:52] any is that having, um, that's a good one, that is.
[1:20:57] Yeah, I think we have noticed, you know, impact on retirement rates, I guess, my most
[1:21:05] impacted by COVID,
[1:21:10] um, difficult to say exactly what the impact is going to be on the, on the
[1:21:17] funding status. Possibly there could be gains. People taking the benefit early on the other
[1:21:25] hand, the benefits will now be in retirement rather than actively working, so people will
[1:21:32] be expected to be receiving benefits for a longer period of years, so there's kind of offsetting
[1:21:40] impacts on the potential of setting impacts on the liability so until we actually sit down
[1:21:48] with paint papers that I speak and do the actual calculations. It's not separate, but certainly
[1:21:56] there we have noticed that agencies have had some higher retirement episodes and then we'll
[1:22:07] to see if it's also made up by additional new highest coming in as well, and generally for a new
[1:22:14] higher, there's going to be a pepper employee compared to a retiring classic, so you would expect
[1:22:19] the overall costs to decrease from that factor though, a number of different impacts put potentially here.
[1:22:30] Here's a question that just came in, Julian, thank you for that. The latest report factors and the
[1:22:35] returns from which fiscal year is the 2019 or the 2020, I believe?
[1:22:40] Right, through June 30, 2020, 2020, the next report will factor in the large game that
[1:22:47] we had plus the potentially offset by any decision the board makes with respect to and changes
[1:22:56] of the discount rate.
[1:22:58] And, Julie, it isn't true that the investment returns, for example, from 2021, you don't
[1:23:04] really start to see the effects of that until maybe some of the later years.
[1:23:10] Right, so the next report, which will do be the June 30, 2021 report, which will set the
[1:23:18] contribution rates for 2324. So it will take a little bit of time for, before we see the impact
[1:23:26] of that. Yeah. So into the right, yes.
[1:23:30] And Julie, here's another question. Can you please walk through the difference of the pepper
[1:23:33] normal costs, shown on page 22 and 23. So, pardon the movement, but let me go back to navigate
[1:23:42] back to those pages.
[1:23:45] The fees,
[1:23:50] 22 and 23. Right. Yes. So, on, let's go back to the previous page,
[1:23:58] yeah, that page there. Okay. So, I mentioned what when we were looking at the normal cost projection,
[1:24:05] over this five year period for a non-pull plan.
[1:24:10] We can see the normal costs rate,
[1:24:13] no decreasing, it's 9.
[1:24:15] For the 22, 23 fiscal year, it's 9.83.
[1:24:20] Then we're having a decrease to 9.6,
[1:24:22] like 0.4, and 1.2 and 0.8.
[1:24:25] So the, because in general,
[1:24:28] no if you're dealing with the same group of employees,
[1:24:32] the normal costs should stay the same.
[1:24:34] But what we're factoring in here is based on the experience of the plan,
[1:24:40] the newer as new Pepper members, join in, join the plan,
[1:24:45] normal costs rate for those Pepper members.
[1:24:50] And has the overall effect of reducing the average normal cost for the entire plan.
[1:24:58] So what we do in the package.
[1:25:00] Reaction here is reflect, note the change in the balance of the number of paper employees, increases.
[1:25:08] The number of that is an impact of reducing the average normal costs of the whole group and similarly the normal cost percentage for the employer.
[1:25:20] So that's all we're demonstrating here.
[1:25:23] I don't think there was anything on, no more cost related on that second slide.
[1:25:32] Yeah, there was nothing specifically, no more cost related to you.
[1:25:37] And, honestly, we got a question actually for you too.
[1:25:39] Why not make the contribution directly to Galpers versus the 115 trust?
[1:25:44] You know, it really is a decision of the agency.
[1:25:47] I think for city council at the time,
[1:25:50] it, you know, when you look at our unfinished liability, it was just 10 million. It wasn't a whole lot.
[1:25:58] And they really focus on the forecast significantly, um, put a lot of weight into, will we be
[1:26:06] able to meet our expenditures five, seven years down the road. And the decision was one,
[1:26:13] let's see if we can get a better rate of return with our pension trust. But then also, let's have
[1:26:19] available so it can kind of even out our budget projections because it was really clear we had a structural
[1:26:26] deficit moving forward. Now we may want to revisit that because as I indicated we did recently
[1:26:34] get a new tax measure passed and you know kind of as a result of COVID and things going on we went
[1:26:40] to the community and said you know we need this tax measure and they supported it so it is something
[1:26:46] that may need to be revisited going forward.
[1:26:49] The decision at that time was, let's secure our budget
[1:26:53] so that we know, yes, so one more.
[1:26:58] Oh, you're going to do a different thing.
[1:27:00] I'm going back to there.
[1:27:01] We got a follow-up question to the patient.
[1:27:03] OK, I'm going to point through.
[1:27:04] Got it.
[1:27:05] And so, you know, let's make our budget so we can manage it.
[1:27:10] And we'll have that money available to make the difference
[1:27:13] When we get those increased contribution costs, we can make that with, you know, the funds in the section 115 address.
[1:27:23] Sorry to throw you off on, I said, and I know what to do.
[1:27:25] No worries.
[1:27:26] No worries.
[1:27:27] Go right ahead.
[1:27:27] But I just want to follow up.
[1:27:28] I think there's going to be the last opportunity for a question this today.
[1:27:31] Oh, if I mean that if you look on pages 22, sorry.
[1:27:34] I'm reading the question.
[1:27:35] And 23 of the valuation reports, the normal cost for the same year for Petra members is different.
[1:27:41] For example, our report shows 13.98% on page 22, and 12.95% on page 23,
[1:27:48] both are for the normal cost for fiscal year 22 to 23. Does that make sense?
[1:27:54] Yes. So what's going on there? It's a complicated answer. I'll try to do it in the nutshell.
[1:28:03] We, we determine the pepper contribution rate that employees pay a looking at the percentage
[1:28:13] of members in the plan, which are representatives.
[1:28:19] So basically it's less than a quarter of the active people, and this is only from the non-co plans.
[1:28:24] So in the non-co plan, if there's less than 25% of the members who are pepper members,
[1:28:31] the more we effectively do is we run all of the active members through and treat them as if
[1:28:40] they were peppermembers, notionally, and come up with a contribution rate as if all the members
[1:28:47] of the plan were peppermembers. If there's more than 25% or maybe 50% that can remember exactly,
[1:28:57] then we just run the Pepper members as a standalone group,
[1:29:04] lowering all of the classic members.
[1:29:07] So there are some demographic differences
[1:29:08] between the entire group and Pepper group
[1:29:13] that stand alone, so that generates the difference
[1:29:16] between the Pepper rates you see on one page
[1:29:18] and the following page,
[1:29:20] and getting into the details and the full figure.
[1:29:23] Which is exactly why we put your email up there and so just as we wrap up today, folks, let me just launch our last poll of the day and just which of today's session were of the greatest value.
[1:29:34] Provide guns on how to extract the most value from your 20 report that's pretty that's pretty valuable I would think.
[1:29:40] Discuss the changes you were seeing in the reports review the five of your contribution projections talk about the 80 p changes or all of the above.
[1:29:47] And obviously, we say goodbye today to Julie and Anonix.
[1:29:52] Thank you both so much for spending time.
[1:29:54] I know Julie and your kind of, this is kind of like a recurring theme for you,
[1:29:57] like, about the same time every year.
[1:29:59] And, you know,
[1:30:00] It's an encore performance because I think it's so useful for people and our members.
[1:30:04] And so we definitely thank you for repeating the performance again.
[1:30:08] And on X, I think it's especially helpful when we take this sort of state-wide information
[1:30:12] and really make it come to life and talk about, you know, in your particular example, the city of Culver City
[1:30:17] and how you can get it. We really do appreciate you guys taking the time today to kind of share that information with us.
[1:30:23] You're very welcome.
[1:30:27] And so with that, I'd like to again, thanks everyone for joining us today, and until next time,
[1:30:34] the just for everyone's clarification, the current copy of the handout will be available
[1:30:41] on the CSMO website, which is available here at this audio archive.
[1:30:46] There will be a video recording of this session, which I'm sure people will need to go through
[1:30:54] and recall those detailed pages that we looked at.
[1:30:58] But all that should be available by tomorrow afternoon.
[1:31:00] So if anybody has any issues or questions with that,
[1:31:02] feel free to let me know.
[1:31:03] But in the meantime, thanks, everyone,
[1:31:05] and have a great day.
[1:31:07] Thank you.
[1:31:08] Thank you.