HomeMy WebLinkAbout01-20-2015 Public Comment Barasch 1Alfko,
Ca1PERS
October 2014
California Public Employees' Retirement System
Actuarial Office
P.O. Box 942701
Sacramento, CA 94229 -2701
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TTY: (916) 795 -3240
(888) 225 -7377 phone • (916) 79
www.calpers.ca.gov i_9Y1T9(C1zW?J
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J�TJAN 2 1 1015 L
SLO CITY CLERK
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO (Ca1PERS ID:
7574628515)
Annual Valuation Report as of June 30, 2013
Dear Employer,
As an attachment to this letter, you will find a copy of the June 30, 2013 actuarial valuation
report of your pension plan. Your 2013 actuarial valuation report contains important actuarial
information about your pension plan at Ca1PERS. Your Ca1PERS staff actuary, whose signature
appears in the Actuarial Certification Section on page 1, is available to discuss the report with you
after October 31, 2014.
Future Contribution Rates
The exhibit below displays the Minimum Employer Contribution Rate for fiscal year 2015 -16 and a
projected contribution rate for 2016 -17, before any cost sharing. The projected rate for 2016 -17
is based on the most recent information available, including an estimate of the investment return
for fiscal year 2013 -14, namely 18 percent, and the impact of the actuarial assumptions adopted
by the Ca1PERS Board in February 2014 that will impact employer rates for the first time in fiscal
year 2016 -17. For a projection of employer rates beyond 2016 -17, please refer to the "Projected
Rates" in the "Risk Analysis" section, which includes rate projections through 2020 -21 under a
variety of investment return scenarios. Please disregard any projections that we may have
provided you in the past.
Fiscal Year Employer Contribution Rate
2015 -16 28.300%
2016 -17 30.2% (projected)
Member contributions other than cost sharing (whether paid by the employer or the employee)
are in addition to the above rates. The employer contribution rates in this report do not
reflect any cost sharing arrangement you may have with your employees.
The estimate for 2016 -17 also assumes that there are no future contract amendments and no
liability gains or losses (such as larger than expected pay increases, more retirements than
expected, etc.). This is a very important assumption because these gains and losses do occur and
can have a significant impact on your contribution rate. Even for the largest plans, such gains
and losses often cause a change in the employer's contribution rate of one or two percent of
payroll and may be even larger in some less common instances. These gains and losses cannot
be predicted in advance so the projected employer contribution rates are just estimates. Your
actual rate for 2016 -17 will be provided in next year's report.
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
(CalPERS ID: 7574628515)
Annual Valuation Report as of June 30, 2013
Page 2
Changes since the Prior Year's Valuation
On January 1, 2013, the Public Employees' Pension Reform Act of 2013 ( PEPRA) took effect. The
impact of the PEPRA changes are included in the rates and the benefit provision listings of the
June 30, 2013 valuation for the 2015 -16 rates. For more information on PEPRA, please refer to
the CalPERS website.
On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change
the CalPERS amortization and rate smoothing_ policies. Beginning with the June 30, 2013
valuations that set the 2015 -16 rates, CalPERS will no longer use an actuarial value of assets and
will employ an amortization and smoothing policy that will pay for all gains and losses over a
fixed 30 -year period with the increases or decreases in the rate spread directly over a 5 -year
period.
In 2014 CalPERS completed a 2 -year asset liability management study incorporating actuarial
assumptions and strategic asset allocation. On February 19, 2014 the CalPERS Board of
Administration adopted relatively modest changes to the current asset allocation that will reduce
the expected volatility of returns. The adopted asset allocation is expected to have a long- term
blended return that continues to support a discount rate assumption of 7.5 percent. The Board
also approved several changes to the demographic assumptions that more closely align with
actual experience. The most significant of these is mortality improvement to acknowledge the
greater life expectancies we are seeing in our membership and expected continued
improvements. The new actuarial assumptions will be used to set the FY 2016 -17 contribution
rates for public agency employers. The increase in liability due to new actuarial assumptions will
be calculated in the 2014 actuarial valuation and will be amortized over a 20 -year period with a
5 -year ramp -up /ramp -down in accordance with Board policy,
Besides the above noted changes, there may also be changes specific to your plan such as
contract amendments and funding changes.
Further descriptions of general changes are included in the "Highlights and Executive Summary,
section and in Appendix A, "Actuarial Methods and Assumptions." The effect of the changes on
your rate is included in the "Reconciliation of Required Employer Contributions."
We understand that you might have a number of questions about these results. While we are
very interested in discussing these results with your agency, in the interest of allowing us to give
every public agency their results, we ask that you wait until after October 31 to contact us with
actuarial questions. If you have other questions, you may call the Customer Contact Center at
(888)-CalPERS or (886 - 225 - 7377).
Sincerely,
ALAN MILLIGAN
Chief Actuary
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
CalPERS ID; 7574628515
ACTUAWAIL CERTIFICATION
To the best of our knowledge, this report is complete and accurate and contains sufficient information to
disclose, fully and fairly, the funded condition of the MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS
OBISPO. This valuation is based on the member and financial data as of June 30, 2013 provided by the
various CalPERS databases and the benefits under this plan with CafPERS as of the date this report was
produced. It is our opinion that the valuation has been performed in accordance with generally accepted
actuarial principles, in accordance with standards of practice prescribed by the Actuarial Standards. Board,
and that the assumptions and methods are internally consistent and reasonable for this plan, as prescribed
by the CalPERS Board of Administration according to provisions set forth in the Callfornia Public Employees,
Retirement Law.
The undersigned is an actuary for CalPERS, who is a member of the American Academy of Actuaries and the
Society of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render
the actuarial opinion contained herein.
BARBARA J. WARE, FSA, MAAA
Enrolled Actuary
Senior Pension Actuary, CalPERS
Page 1
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
CalPERS ID: 7574628515
• �
This report presents the results of the June 30, 2013 actuarial valuation of the MISCELLANEOUS PLAN OF
THE CITY OF SAN LUIS OBISPO of the California Public Employees' Retirement System (CalPERS). This
actuarial valuation sets the fiscal year 2015 -16 required employer contribution rates.
On January 1, 2013, the Public Employees' Pension Reform Act of 2013 ( PEPRA) took effect. The impact of
most of the PEPRA changes are included in the rates and the benefit provision listings of the June 30, 2013
valuation, which sets the 2015 -16 contribution rates. For more Information on PEPRA, please refer to the
CalPERS website.
On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change the CaIPERS
amortization and smoothing policies. Prior to this change, CaIPERS employed an amortization and smoothing
policy, which spread investment returns over a 15 -year period while experience gains and losses were
amortized over a rolling 30 -year period. Effective with the June 30, 2013 valuations, CalPERS will no longer
use an actuarial value of assets and will employ an amortization and smoothing policy that will spread rate
increases or decreases over a 5 -year period, and will amortize all experience gains and losses over a fixed
30 -year period. The new amortization and smoothing policy is used in this valuation.
In 2014 CalPERS completed a 2 -year asset liability management study incorporating actuarial assumptions
and strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively
modest changes to the current asset allocation that will reduce the expected volatility of returns. The
adopted asset allocation is expected to have a long -term blended return that continues to support a
discount rate assumption of 7.5 percent. The Board also approved several changes to the demographic
assumptions that more closely align with actual experience. The most significant of these is mortality
improvement to acknowledge the greater life expectancies we are seeing in our membership and expected
continued improvements. The new actuarial assumptions will be used to set the FY 2016 -17 contribution
rates for public agency employers. The increase in liability due to new actuarial assumptions will be
calculated in the 2014 actuarial valuation and will be amortized over a 20 -year period with a 5 -year ramp -
up /ramp -down in accordance with Board policy.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2013. The
purpose of the report is to:
• Set forth the assets and accrued liabilities of this plan as of June 30, 2013;
• Determine the required employer contribution rate for the fiscal year July 1, 2015 through June 30,
2016;
• Provide actuarial information as of June 30, 2013 to the CalPERS Board of Administration and other
interested partles; and to
• Provide pension Information as of June 30, 2013 to be used in financial reports subject to Governmental
Accounting Standards Board (GASB) Statement Number 27 for a Single Employer Defined Benefit
Pension Plan.
California Actuarial Advisory Panel Recommendations
This report includes all the basic disclosure elements as described in the Mo&?l Disdosure Elements for
Actuarial Valuation Reports recommended in 2011 by the California Actuarial Advisory Panel (CAAP), with
the exception of including the original base amounts of the various components of the unfunded liability in
the Schedule of Amortization Bases shown on page 19.
Additionally, this report includes the following "Enhanced Risk Disclosures" also recommended by the CAAP
in the Model Disclosure Elements document:
• A "Deterministic Stress Test," projecting future results under different investment income
scenarios
• A "Sensitivity Analysis," showing the impact on current valuation results using a 1 percent plus or
minus change in the discount rate.
Page 5 V/
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
CalPERS ID: 7574628515
The use of this report for any other purposes may be inappropriate. In particular, this report does not
contain information applicable to altemative benefit costs. The employer should contact their actuary before
disseminating any portion of this report for any reason that is not explicitly described above.
Actuarially Determined Employer Contributions
1. Contribution in Projected Dollars
a) Total Normal Cost
b) Employee Contribution'
c) Employer Normal Cost [(1a) — (1b)]
d) Unfunded Liability Contribution
e) Required Employer Contribution [(lc) + (1d)]
Projected Annual Payroll for Contribution Year
2. Contribution as a Percentage of Payroll
a) Total Normal Cost
b) Employee Contribution'
c) Employer Normal Cost [(2a) — (2b)]
d) Unfunded Liability Rate
e) Required Employer Rate [(2c) + (2d)]
Minimum Employer Contribution Rate2
Annual Lump Sum Prepayment Option
Fiscal Year
2014 -15
$ 3,920,804
1,685,008
2,235,796
3,294,273
$ 5,530,069
21,062,601
18.615%
8.000%
10.615%
15.640%
26.255%
`--� 26.255%
5,333,672
Fiscal Year
2015 -16
$ 3,792,898
1,618,297
2,174,601
3,600,628
$ 5,775,229
20,407,279
18.586%
7.930%
10.656%
17.644%
28.300%
28.300%
5,570,125
'For classic members this is the percentage specified in the Public Employees Retirement Law, net of any
reduction from the use of a modified formula or other factors. For PEPRA members the member contribution
rate is based on 50 percent of the normal cost. A development of PEPRA member contribution rates can be
found in Appendix D. Employee cost sharing is not shown in this report.
2-1-he Minimum Employer Contribution Rate under PEPRA is the greater of the required employer rate or the
employer normal cost.
3Payment must be received by CalPERS before the first payroll reported to CalPERS of the new fiscal year
and after June 30. If there is contractual cost sharing or other change, this amount will change.
1. Present Value of Projected Benefits
2. Entry Age Normal Accrued Liability
3. Market Value of Assets (MVA)
4. Unfunded Liability [(2) — (3)]
5. Funded Ratio [(3) / (2)]
Superfunded Status
June 30, 2012
$ 183,114,403
157,222,583
$ 91,667,733
$ 65,554,850
58.3%
June 30, 2013
$ 188,893,171
163,764,694
$ 101,989,051
$ _ 61,775,643
62.3%
No No
Page 6 V/
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
CalPERS ID: 7574628515
Rfi,� � .�A EO US PLAN of the C ilrY 0 F HS
0855pa
��orm t4on. =nor ompli nce ith SASS ant 27
Disclosure under GASB 27 follows. However, note that effective for financial statements for fiscal
yedrs beginning after June 15, 2014, GASB 68 replaces GASB 27. This will be the last year that GASB
dipclosure information will be included in your annual actuarial report. GASB 68 will require
additional reporting that CalPERS is intending to provide upon request for an additional fee. We
urge you to start discussions with your auditors on how to implement GASB 68.
Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required contribution
(ARC) plus an adjustment for the cumulative difference between the APC and the employer's actual plan
contributions for the year. The cumulative difference is called the net pension obligation (NPO). Since GASB 68
replaces GASB 27, for fiscal year 2015 -16, the APC is replaced by the Actuarially Determined Contribution (ADC).
The ADC for July 1, 2015 to June 30, 2016 is 28.300% percent of payroll. In order to calculate the dollar value of
the ADC for inclusion in financial statements prepared as of June 30, 2016, this contribution rate, less any
employee cost sharing, as modified by any amendments for the year, would be multiplied by the payroll of
covered employees that was actually paid during the period July 1, 2015 to June 30, 2016. The employer and the
employer's auditor are responsible for determining the NPO, APC or ADC for a given fiscal year.
A summary of principal assumptions and methods used to determine the funded status is shown below.
Program
Valuation Date
June 30, 2013
Actuarial Cost Method
Entry Age Normal Cost Method
Amortization Method
Level Percent of Payroll
Asset Valuation Method
Market Value
Actuarial Assumptions
91,85 581
Discount Rate
7.50% (net of administrative expenses)
Projected Salary Increases
3.30% to 14.20% depending on Age, Service, and type of employment
Inflation
2.75%
Payroll Growth
3.00%
Individual Salary Growth
A merit scale varying by duration of employment coupled with an assumed
206.0%
annual inflation growth of 2.75% and an annual production growth of 0.25 %.
Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into
CalPERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20 -year period.
Gains and losses that occur in the operation of the plan are amortized over a 30 -year period with Direct Rate
Smoothing with a 5 -year ramp up /ramp down. If the plan's accrued liability exceeds the actuarial value of plan
assets, then the amortization payment on the total unfunded liability may not be lower than the payment
calculated over a 30 -year amortization period. More detailed information on assumptions and methods is provided
in Appendix A of this report. Appendix B contains a description of benefits included in the valuation.
The Schedule of Funding Progress below shows the recent history of the actuarial accrued liability, actuarial value
of assets, their relationship and the relationship of the unfunded actuarial accrued liability to payroll.
Valuation
Date
Accrued
Liability
(a)
Actuarial value
of Assets*
(b)
Unfunded
Liability (UL)
(a)-(b)
Funded Ratios
(b) /(a)
Annual
Covered Payroll
(c)
UL As a % of
Payroll
[(a)-(b)l /(c)
06/3P/09
130,763,751
91,85 581
38,913,170
70.2%
20,528,923
189.6%
06/30/10
138,627,317
_97,281,747
41,345,570
70.2%
20,069,935
206.0%
06130111
150/6514167
103 392f269
47,258,898
68.6%
19,945,693
236.9%
06/30/12
157,222.5
69.3%
19,275,264
250.6%
D6/30/13
163,7K6941 694
101,989,051
61775 643
62.3%
18,675,551
330.8%
* Beginning with the 6/30/2013 valuation Actuarial Vale of Assets equals Market Value of Assets per CalPERS
Direct Rate Smoothing Policy.
Page 31
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
CalPERS ID: 7574628515
The estimated rate for 2016 -17 is based on a projection of the most recent information we have available,
including an estimated 18 percent investment return for fiscal 2013 -14, the impact of the new smoothing methods
adopted by the CalPERS Board in April 2013 that will impact employer rates for the first time in 2015 -16 and an
estimate of the impact of the new actuarial assumptions adopted by the CaIPERS Board in February 2014. These
ndw demographic assumptions include a 20 -year projection of on -going mortality improvement. A complete listing
cif the new demographic assumptions to be implementEd with the June 30, 2014 annual actuarial valuation and
incorporated in the projected rates for FY 2016 -17 and beyond can be found on the CalPERS website at:
http: / /www.calpers.ca.aov /eip -dots/ about /nubs /employer /actuarial - assumptions xls
The table below shows projected employer contribution rates (before cost sharing) for the next five Fiscal Years,
assuming CalPERS earns 18 percent for fiscal year 2013 -14 and 7.50 percent every fiscal year thereafter, and
assuming that all other actuarial assumptions will be realized and that no further changes to assumptions,
contributions, benefits, or funding will occur between now and the beginning of the fiscal year 2016 -17.
Analysis of Future Investment Return Scenarios
In 2014 CaIPERS completed a 2 -year asset liability management study incorporating actuarial assumptions and
strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively modest
changes to the current asset allocation that will reduce the expected volatility of returns. The adopted asset
allocation is expected to have a long- term blended return that continues to support a discount rate assumption of
7.5 percent. The newly adopted asset allocation has a lower expected investment volatility which will result in
better risk characteristics than an equivalent margin for adverse deviation. The current asset allocation has an
expected standard deviation of 12.45 percent while the newly adopted asset allocation has a lower expected
standard deviation of 11.76 percent.
The investment return for fiscal year 2013 -14 was announced July 14, 2014. The investment return in fiscal year
2013 -14 is 18.42 percent before administrative expenses. This year, there will be no adjustment for real estate
and private equities. For purposes of projecting future employer rates, we are assuming an 18.0 percent
investment return for fiscal year 2013 -14.
The investment return realized during a fiscal year first affects the contribution rate for the fiscal year two years
later. Specifically, the investment return for 2013 -14 will first be reflected in the June 30, 2014 actuarial valuation
that will be used to set the 2016 -17 employer contribution rates, the 2014 -15 investment return will first be
reflected in the June 30, 2015 actuarial valuation that will be used to set the 2017 -18 employer contribution rates
and so forth.
Based on a 18 percent investment return for fiscal year 2013 -14, the April 17, 2013 CalPERS Board- approved
amortization and rate smoothing method change, the February 18, 2014 new demographic assumptions including
20 -year mortality improvement using Scale BB and assuming that all other actuarial assumptions will be realized,
and that no further changes to assumptions, contributions, benefits, or funding will occur between now and the
beginning of the fiscal year 2016 -17, the effect on the 2016 -17 Employer Rate is as follows:
Estimated 2016 -17 Employer Rate Estimated Increase in Employer Rate between
2015 -16 and 2016 -17
30.2% 1.9%
Irl -
Page 26
New Rate
Projected Future Employer Contribution Rates
2015 -16
2016 -17
2017 -18 2018 -19
2019 -20 2020 -21
Contribution Rates:
1 28.300%
30.2%
31.4% 32.6%
33391. 34.0%
Analysis of Future Investment Return Scenarios
In 2014 CaIPERS completed a 2 -year asset liability management study incorporating actuarial assumptions and
strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively modest
changes to the current asset allocation that will reduce the expected volatility of returns. The adopted asset
allocation is expected to have a long- term blended return that continues to support a discount rate assumption of
7.5 percent. The newly adopted asset allocation has a lower expected investment volatility which will result in
better risk characteristics than an equivalent margin for adverse deviation. The current asset allocation has an
expected standard deviation of 12.45 percent while the newly adopted asset allocation has a lower expected
standard deviation of 11.76 percent.
The investment return for fiscal year 2013 -14 was announced July 14, 2014. The investment return in fiscal year
2013 -14 is 18.42 percent before administrative expenses. This year, there will be no adjustment for real estate
and private equities. For purposes of projecting future employer rates, we are assuming an 18.0 percent
investment return for fiscal year 2013 -14.
The investment return realized during a fiscal year first affects the contribution rate for the fiscal year two years
later. Specifically, the investment return for 2013 -14 will first be reflected in the June 30, 2014 actuarial valuation
that will be used to set the 2016 -17 employer contribution rates, the 2014 -15 investment return will first be
reflected in the June 30, 2015 actuarial valuation that will be used to set the 2017 -18 employer contribution rates
and so forth.
Based on a 18 percent investment return for fiscal year 2013 -14, the April 17, 2013 CalPERS Board- approved
amortization and rate smoothing method change, the February 18, 2014 new demographic assumptions including
20 -year mortality improvement using Scale BB and assuming that all other actuarial assumptions will be realized,
and that no further changes to assumptions, contributions, benefits, or funding will occur between now and the
beginning of the fiscal year 2016 -17, the effect on the 2016 -17 Employer Rate is as follows:
Estimated 2016 -17 Employer Rate Estimated Increase in Employer Rate between
2015 -16 and 2016 -17
30.2% 1.9%
Irl -
Page 26
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
CalPERS ID: 7574628515
Below is an estimate of the financial position of your plan if you had terminated your contract with CalPERS as of
June 30, 2013 using the discount rates shown below. Your plan liability on a termination basis is calculated
differently compared to the plan's ongoing funding liability. For this hypothetical termination liability both
Aompensation and service Is frozen as of the valuation date and no future pay increases or service accruals are
Included. In December 2012, the CalPERS Board ' adopted a more conservative investment policy and asset
"'allocation strategy for the Terminated Agency Pool. Since the Terminated Agency Pool has limited funding sources,
expected benefit payments are secured by risk -free assets. With this change, CalPERS increased benefit security
for members while limiting its funding risk. This asset allocation has a lower expected rate of return than the PERF.
Consequently, the lower discount rate for the Terminated Agency pool results in higher liabilities for terminated
plans.
In order to terminate your plan, you must first contact our Retirement Services Contract Unit to initiate a
Resolution of Intent to Terminate. The completed Resolution will allow your plan actuary to give you a preliminary
termination valuation with a more up-to -date estimate of your plan liabilities. CalPERS strongly advises you to
consult with your plan actuary before beginning this process.
Valuation Hypothetical
Date
Termination
Liability'
06/30/11
$ 210,660,131 $
06/30/12
280,130,739
06/30/13
261,554,743
Market Value
of Assets
(MVA)
92,801,108 $
91,667,733
101,989,051
Unfunded Termination
Termination Funded
Liability Ratio
117,859,023
188,463,006
159,565,692
Termination
Liability
Discount
Rate,
44.1% 4.82%
32.7% 2.98%
39.0% 3.72% �--
1 The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with
Board policy. Other actuarial assumptions, such as wage and inflation assumptions, can be found in appendix A.
z The discount rate assumption used for termination valuations is a weighted average of the 10 and 30 -year US
Treasury yields in effect on the valuation date that equal the duration of the pension liabilities. For purposes of this
hypothetical termination liability estimate, the discount rate used, is the yield on the 30 -year US Treasury Separate
Trading of Registered Interest and Principal of Securities (STRIPS). Note that as of June 30, 2014 the 30 -year
STRIPS rate was 3.55 percent.
Pa��
CALPERS ACTUARIAL VALUATION — June 30, 2013 APPENDIX E
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
GLOSSARY OF ACTUARIAL TERMS
(Mossary of Actuarial Terms
Accrued Liability (also called Actuarial Accrued Liability or EnbyAge Normal Accrued Liability)
The total dollars needed as of the valuation date to fund all benefits earned in the past for current members.
Actuarial Assumptions
Assumptions made about certain events that will affect pension costs. Assumptions generally can be broken
down into two categories: demographic and economic. Demographic assumptions include such things as
mortality, disability and retirement rates. Economic assumptions include discount rate, salary growth and
inflation.
Actuarial Methods
Procedures employed by actuaries to achieve certain funding goals of a pension plan. Actuarial methods include
funding method, setting the length of time to fund the Accrued Liability and determining the Actuarial Value of
Assets.
Actuarial Valuation
The determination, as of a valuation date, of the Normal Cost, Accrued liability, Actuarial Value of Assets and
related actuarial present values for a pension plan. These valuations are performed annually or when an
employer is contemplating a change to their plan provisions.
Actuarial Value of Assets
The Actuarial Value of Assets used for funding purposes is obtained through an asset smoothing technique
where investment gains and losses are partially recognized in the year they are incurred, with the remainder
recognized in subsequent years.
This method helps to dampen large fluctuations in the employer contribution rate.
Amortization Bases
Separate payment schedules for different portions of the Unfunded Liability. The total Unfunded Liability of a
Risk Pool or non - pooled plan can be segregated by "cause," creating "bases" and each such base will be
separately amortized and paid for over a specific period of time. However, all bases are amortized using
investment and payroll assumptions from the current valuation. This can be likened to a home having a first
mortgage of 24 years remaining payments and a second mortgage that has 10 years remaining payments. Each
base or each mortgage note has its own terms (payment period, principal, etc.)
Generally, in an actuarial valuation, the separate bases consist of changes in unfunded liability due to contract
amendments, actuarial assumption changes, actuarial methodology changes, and or gains and losses. Payment
periods are determined by Board policy and vary based on the cause of the change.
Amortization Period
The number of years required to pay off an Amortization Base.
Annual Required Contributions (ARC)
The employer's periodic required annual contributions to a defined benefit pension plan as set forth in GASB
Statement No. 27, calculated in accordance with the plan assumptions. The ARC is determined by multiplying the
employer contribution rate by the payroll reported to CalPERS for the applicable fiscal year. However, if this
contribution is fully prepaid in a lump sum, then the dollar value of the ARC is equal to the Lump Sum
Prepayment.
Classic Member (under PEPRA)
A classic member is a member who joined CalPERS prior to January, 1, 2013 and who is not defined as a new
member under PEPRA. (See definition of new member below)
Discount Rate Assumption
The actuarial assumption that was called "investment return" in earlier CalPERS reports or "actuarial interest
rate" in Section 20014 of the California Public Employees' Retirement Law (PERL).
E -1
CALPERS ACTUARIAL VALUATION — June 30, 2013 APPENDIX E
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
GLOSSARY OF ACTUARIAL TERMS
Entry Age
The earliest age at which a plan member begins to accrue benefits under a defined benefit pension plan. In
most cases, this is the age of the member on their date of hire.
Entry Age Normal Cost Method
An actuarial cost method designed to fund a member's total plan benefit over the course of his or her career.
This method is designed to yield a rate expressed as a level percentage of payroll.
(The assumed retirement age less the entry age is the amount of time required to fund a member's total benefit.
Generally, the older a member on the date of hire, the greater the entry age normal cost. This is mainly because
there is less time to earn investment income to fund the future benefits.)
Fresh Start
A Fresh Start is when multiple amortization bases are collapsed to one base and amortized together over a new
funding period.
Funded Status
A measure of how well funded, or how "on track" a plan or risk pool is with respect to assets verses accrued
liabilities. A ratio greater than 100% means the plan or risk pool has more assets than liabilities and a ratio less
than 100% means liabilities are greater than assets. A funded ratio based on the Actuarial Value of Assets
indicates the progress toward fully funding the plan using the actuarial cost methods and assumptions. A funded
ratio based on the Market Value of Assets indicates the short -term solvency of the plan.
GASB 27
Statement No. 27 of the Governmental Accounting Standards Board. The accounting standard governing a state
or local governmental employer's accounting for pensions.
GASB 68
Statement No. 68 of the Governmental Accounting Standards Board. The accounting standard governing a state
or local governmental employer's accounting and financial reporting for pensions. GASB 68 replaces GASB 27
effective the first fiscal year beginning after June 15, 2014.
New Member (under PEPRA)
A new member includes an individual who becomes a member of a public retirement system for the first time on
or after January 1, 2013, and who was not a member of another public retirement system prior to that date, and
who is not subject to reciprocity with another public retirement system.
Normal Cost
The annual cost of service accrual for the upcoming fiscal year for active employees. The normal cost should be
viewed as the long term contribution rate.
Pension Actuary
A business professional that is authorized by the Society of Actuaries, and the American Academy of Actuaries to
perform the calculations necessary to properly fund a pension plan.
PEPRA
The California Public Employees' Pension Reform Act of 2013
Prepayment Contribution
A payment made by the employer to reduce or eliminate the year's required employer contribution.
Present Value of Benefits (PVB)
The total dollars needed as of the valuation date to fund all benefits earned in the past or expected to be earned
in the future for current members.
Rolling Amortization Period
An amortization period that remains the same each year, rather than declining.
E -2
CALPERS ACTUARIAL VALUATION — June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
GLOSSARY OF ACTUARIAL TERMS
APPENDIX E
Superfunded
A condition existing when a plan's Actuarial Value of Assets exceeds its Present Value of Benefits. Prior to the
passage of PEPRA, when this condition existed on a given valuation date for a given plan, employee
contributions for the rate year covered by that valuation could be waived.
Unfunded Liability
When a plan or pool's Actuarial Value of Assets is less than its Accrued Liability, the difference is the plan or
pool's Unfunded Liability. If the Unfunded Liability is positive, the plan or pool will have to pay contributions
exceeding the Normal Cost.
E -3
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF SAN LUIS OBISPO
CaIPERS ID: 7574628515
The actuarial calculations supplied in this communication are based on a number of assumptions about very long-
term demographic and economic behavior. Unless these assumptions (terminations, deaths, disabilities,
retirements, salary growth, and investment return) are exactly realized each year, there will be differences on a
yearato-year basis. The year -to -year differences between actual experience and the assumptions are called
actuarial gains and losses and serve to lower or raise the employer's rates from one year to the next. Therefore,
the' rates will inevitably fluctuate, especially due to the ups and downs of investment returns.
Asset Volatility Ratio (AVR)
Plans that have higher asset to payroll ratios produce more volatile employer rates due to investment return. For
example, a plan with an asset to payroll ratio of 8 may experience twice the contribution volatility due to
investment return volatility, than a plan with an asset to payroll ratio of 4. Below we have shown your asset
volatility ratio, a measure of the plan's current rate volatility. It should be noted that this ratio is a measure of the
current situation. It increases over time but generally tends to stabilize as the plan matures.
Liability Volatility Ratio (LVR)
Plans that have higher liability to payroll ratios produce more volatile employer rates due to investment return and
changes in liability. For example, a plan with a liability to payroll ratio of 8 is expected to have twice the
contribution volatility of a plan with a liability to payroll ratio of 4. The liability volatility ratio is also included in the
table below. It should be noted that this ratio indicates a longer -term potential for contribution volatility and the
asset volatility ratio, described above, will tend to move closer to this ratio as the plan matures.
Rate Volatility
1. Market Value of Assets without Receivables
2. Payroll
3. Asset Volatility Ratio (AVR = 1. / 2.)
4. Accrued Liability
5. Liability Volatility Ratio (LVR = 4. / 2.)
As of June 30, 2013
101,773,549
18,675,551
5.4
163,764,694 ✓
8.8
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