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HomeMy WebLinkAbout01-20-2015 Public Comment Barasch 2ACalifornia Public Employees' Retirement System Actuarial Office P.O. Box 942709 COUNCIL MEETING: OI Sacramento. CA 94229 -2709 TEL rrr: {916) 7ss -3240 ITEM NO.: 7i;_�_� Ca1PERS (888) 225 -7377 phone — (916) 795 -2744 fax D & 64A loiited, ' YM- calpers.ca.gov — I October 2014 '� (CIE S I D AFETY PLAN OF THE CITY OF SAN LUIS OBISPO JAN 2 1201-5 (CalPERS ID: 7574628515) Annual Valuation Report as of Tune 30, 2013 SLO CITY CLERK 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. Because this plan is in a risk pool and the CaIPERS Board approved structural changes to risk pooling on May 21, 2014 you will notice some changes between your last actuarial report and this one. An overview of the changes to pooling is provided below and we urge you to carefully review the information provided in this report. Because this plan is in a risk pool, the following valuation report has been separated into two Sections: • Section 1 contains specific information for your plan, including the development of your Pooled employer contributions and projected employer contributions, and • Section 2 contains the Risk Pool Actuarial Valuation a ro rlate to your plan, as of June 30, 2013. pP p Section 2 can be found on the CaIPERS website at "Employers ", "Actuarial, Risk Pooling & GASB 27 Information" " sk Pooling", "Risk) of Annual in order Valuation Reports'; then select the appropriate pool report. Your 2013 actuarial valuation report contains important actuarial information about your pension plan at CaIPERS. Your CaIPERS staff actuary, whose signature appears in the Actuarial Certification Section on page 1, is available to discuss your report with you after October 31 2014. Future Contribution Rates Fiscal Employer Normal Year Employer Payment of Cost Rate '�' 2015 -16 tJnfunded Liabiii 2016 -17 ro'ected 20.230% $ 3,056,723 .3% t '4 An-) r-7., The exhibit above displays the Minimum Employer Contributions, before any cost sharing, 201.5 -16 along with estimates of the contributions for 2016 -17. The estimated contributions for 2016 -17 are based on a projection of the most recent information we have available including an estimated 18.0 percent investment return for fiscal 2013 -14, the impact of the ew amortization methods adopted by the CalPERS Board in April 2013 that will impact employer rates for the first time in 2015 -16 and new actuarial assumptions adopted by the CaiP RS Board in February 2014 that will impact rates for the first time in 2016 -17. These new demographic assumptions include a 20 -year projected improvement in mortality, CALPERS ACTUARIAL VALUATION - June 30, 2013 SAFETY 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 SAFETY PLAN of the CITY OF SAN LUIS OBISPO of the California Public Employees' Retirement System (CaIPERS). This actuarial valuation was used to set the 2015 -16 required employer contribution rates. 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 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. The impact of this new actuarial methodology is reflected in the 'Analysis of Future Invesbnent Return Scenario.' subsection of the "RiskAnaiysisnsection of your report. On January 1, 2013, the Public Employees' Pension Reform Act of 2013 ( PEPRA) took effect. In addition to creating new retirement formulas for newly hired members PEPRA also effectively closed all existing active risk pools to new employees. As such it is no longer appropriate to assume that the payroll of the risk pools for the classic formulas will continue to grow at 3 percent annually. Funding the promised pension benefits as a percentage of payroll would lead to the underfunding of the plans. In addition the current allocation of the existing unfunded liabilities based on payroll would create equity issues for employers within the risk pools. Furthermore the declining payroll of the classic formula risk pools will lead to unacceptable levels of employer rate volatility. In order to address these issues the CalPERS Board of Administration approved at their May 21, 2014 meeting structural changes to the risk pools. All pooled plans will be combined into two active pools, one for all miscellaneous groups and one for all safety groups, effective with the 2013 valuations. By combining the pools this way the payroll of the risk pools and the employers within the pools can once again be expected to increase at the assumed 3 percent annual growth. However two important changes are being made which will affect employers. 1. Beginning with FY 2015 -16 CalPERS will collect employer contributions toward your unfunded liability and side fund as dollar amounts instead of the prior method of a contribution rate. This change will address the funding issue that would still arise from the declining population of classic formula members. Although employers will be invoiced at the beginning of the fiscal year for their unfunded liability and side fund payments the plan's normal cost contribution will continue to be collected as a percentage of payroll. 2. The pool's unfunded liability will be allocated to each individual plan based on the plan's total liability rather than by the plan's individual payroll. This will allow employers to track their own unfunded liability and pay it down faster if they choose. The change in the allocation of unfunded liabilities will result in some employers paying more towards their unfunded liability and some paying less. The impact of most of the PEPRA changes will first show up in the rates and the benefit provision listings of the June 30, 2013 valuation that sets the contribution rates for the 2015 -16 fiscal year. For more detailed information on changes due to PEPRA, please refer to the CalPERS website. 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 (see Appendix). 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. Rate Plan belonging to the Safety Risk Pool Page 5 ✓ CALPERS ACTUARIAL VALUATION - June 30, 2013 SAFETY PLAN OF THE CITY OF SAN LUIS OBISPO CalPERS ID: 7574628515 This section 1 report for the SAFETY PLAN of the CITY OF SAN LUIS OBISPO of the California Public Employees' Retirement System (CalPERS) was prepared by the Plan Actuary in order to: • Set forth the assets and accrued liabilities of this plan as of June 30, 2013; • Determine the required employer contribution for this plan 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 parties; and • 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 Cost Sharing Multiple Employer Defined Benefit Pension Plan. The use of this report for any other purposes may be inappropriate. In particular, this report does not contain information applicable to alternative benefit costs. The employer should contact their actuary before disseminating any portion of this report for any reason that is not explicitly described above. California Actuarial Advisory Panel Recommendations This report includes all the basic disclosure elements as described in the Model Disclosure Elements for Actuarial Valualion Reports recommended in 2011 by the California Actuarial Advisory Panel (CARP), 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 12. 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. Rate Plan belonging to the Safety Risk Pool Page 6 CALPERS ACTUARIAL VALUATION - June 30, 2013 SAFETY PLAN OF THE CITY OF SAN LUIS OBISPO CalPERS ID: 7574628515 Plan's Fended Status 1. Present Value of Projected Benefits (PVB) 2. Entry Age Normal Accrued Liability 3-Plan's Market Value of Assets (MVA) 4. Unfunded Liability [(2) - (3)] 5. Funded Ratio [(3) / (2)] ,pacteTN Contributions June 30, 2012 June 30, 2013 175,463,574 $ 179,399,535 149,614,808 154,745,704 92,263,961 1001909,667 57,350,847 53,836,037 61.7% 65.2% The contribution rate and amount shown below is an estimate for the employer contribution for fiscal year 2016 -17. The estimated contribution is based on a projection of the most recent information we have available, including an estimate of the investment return for fiscal year 2013 -14, namely 18.0 percent. It also reflects implementation of the direct rate smoothing method and the impact of new.actuarial assumptions. Projected Employer Contribution Rate: Projected Plan UAL Contribution 21.3% 3,402,670 The estimate also assumes that there are no liability gains or losses among the plans in your risk pool, that your plan has no new amendments in the next year, and that your plan's and your risk pool's payrolls both increase exactly 3.0 percent in the 2013 -14 fiscal year. Therefore, the projected employer contribution for 2016 -17 is strictly an estimate. Your actual rate for 2016 -17 will be provided in next year's valuation report. A more detailed analysis of your projected employer contributions over the next five years can be found in the "Risk Analysis" section of this report. Rate Plan belonging to the Safety Risk Pool Page 8 ✓ CALPERS ACTUARIAL VALUATION - June 30, 2013 SAFETY PLAN OF THE CITY OF SAN LUIS OBISPO CalPERS ID: 7574628515 As part of this report, a sensitivity analysis was performed to determine the effects of various investment returns during fiscal years 2014 -15, 2015 -16 and 2016 -17 on the 2017 -18, 2018 -19 and 2019 -20 employer rates. Once again, the projected rate increases assume that all other actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur. Five different investment return scenarios were selected. • The first scenario is what one would expect if the markets were to give us a 5th percentile return from July 1, 2014 through June 30, 2017. The 5th percentile return corresponds to a -3.8 percent return for each of the 2014 -15, 2015 -16 and 2016 -17 fiscal years. • The second scenario is what one would expect if the markets were to give us a 25`h percentile return from July 1, 2014 through June 30, 2017. The 25h percentile return corresponds to a 2.8 percent return for each of the 2014 -15, 2015 -16 and 2016 -17 fiscal years. • The third scenario assumed the return for 2014 -15, 2015 -16, 2016 -17 would be our assumed 7.5 percent investment return which represents about a 49th percentile event. • The fourth scenario is what one would expect if the markets were to give us a 75th percentile return from July 1, 2014 through June 30, 2017. The 75th percentile return corresponds to a 12.0 percent return for each of the 2014 -15, 2015 -16 and 2016 -17 fiscal years. • Finally, the last scenario is what one would expect if the markets were to give us a 95th percentile return from July 1, 2014 through June 30, 2017. The 95th percentile return corresponds to a 18.9 percent return for each of the 2014 -15, 2015 -16 and 2016 -17 fiscal years. F The table below shows the estimated projected contribution rates and the estimated increases for your plan under the five different scenarios. 2014 -17 Investment Return Scenario _ Estimated Employer UAL Contribution Estimated Total Change in Employer UAL Contribution between 2016 -17 and 2019 -20 2017 -18 2018 -19 2019 -20 -3.8% 5th rcentile ; 3,976 688 $4,779,459 15,812,444 12,409,774 2.8% 25th percentile) 3,854 011 245 $5,099,3 70 1 696 700 7.5% $3,766,621 __L4,417 $1,149 349 4 551 651 $1,148 981 12.0% 75th percentile) 3 682 930 $3,885,094 3,944,896 $ 592 226 18.9% 95th perce ntile 3 554 568 3 465 163 0 $ (3,402,670 In addition to the UAL Contribution amounts shown above the estimated employer normal cost of 21.3% of payroll will also be payable in each of the fiscal years shown above. The projected plan normal cost is expected to remain relatively stable over this time period. malysi s Discount Rates Sensitivity The following analysis looks at the 2015 -16 employer contributions under two different discount rate scenarios. Shown below are the employer contributions assuming discount rates that are 1 percent lower and 1 percent higher than the current valuation discount rate. This analysis gives an indication of the potential required employer contribution rates if the PERF were to realize investment returns of 6.50 percent or 8.50 percent over the long -term. This type of analysis gives the reader a sense of the long -term risk to the employer contributions. 2015 -16 Employer Contribution As of June 30, 2013 6.50% Discount Rate ( -1 %) 7.50% Discount Rate (assumed rate) 8.50% Discount Rate ( +1 %) Plan's Employer Normal Cost 27.6% 20.2% 14.6% Accrued Liability 154;74S-7G4— $ 137 960,807 Unfunded Accrued Liability 74,199,125 53,836,017 $ 37,051,140 7 Rate Plan belonging to the Safety Risk Pool Page 19 CALPERS ACTUARIAL VALUATION - June 30, 2013 SAFETY PLAN OF THE CITY OF SAN LUIS OBISPO CalPERS ID: 7574628515 �* of the Plan's Share of v" Uyinfunded Accrued Liability, It is the policy of the CalPERS to ensure equity within the risk pools by allocating the pool's unfunded accrued liability in a manner that treats each employer fairly and that maintains benefit security for the me t�bers of the System while minimizing substantial variations in employer contributions. Commencing with the-June 30, 2013 actuarial valuations and for purposes of allocating the pool's unfunded accrued liability to air the individual plans within the pool, an individual plan's total unfunded accrued liability (Preliminary Plan UAL) on a specific valuation date will be set equal to the sum of the outstanding unamortized balances on the valuation date for the following: a) Side Fund b) Plan's share of Pool UAL due to benefit changes (including golden handshakes) provided to the members of that plan c) Plan's share of the Pool UAL created before the valuation date for reasons other than benefit changes 1. Plan's Accrued Liability $ 154,745,704 2. Plan's Side Fund 24,618,639 11-- 3. Increase in Plan's AL for amendments in FY 2012 -13 0 4. Pool's Accrued Liability $ 12,307,135,447 5. Sum of Pool's Individual Plan Side Funds 461,094,417 6. Increase in Pool's AL for amendments in FY 2012 -13 817,039 7. Pre -2013 Pool's UAL $ 1,391,710,886 8. Plan's Share of Pre -2013 Pool's UAL [(1) -(2)- (3)]/[(4){5) -(6)] * (7) $ 15,288,799 9. Pool's 2013 Investment & Asset (Gain) /Loss 1,285,245,280 10. Pool's 2013 Other (Gain) /Loss (15,159,479) 11. Plan's Share of Pool's Asset (Gain) /Loss [(1)- (2)- (3)]/[(4)- {5) -(6)] * (9) 14,119,209 12. Plan's Share of Pool's Other (Gain) /Loss [(1)]/[(4)] * (10) (190,610) 13. Plan's UAL as of 6/30/2013 [(2) +(8) +(11) +(12)] $ 53,836,037 1. Plan's Accrued Liability $ 154,745,704 2. Plan's UAL $ 53,836,037 3. Plan's Share of Pool's MVA (1) -(2) $ 100,909,667 Rate Plan belonging to the Safety Risk Pool a Page 11 CALPERS ACTUARIAL VALUATION - June 30, 2013 SAFETY PLAN OF THE CrTY OF SAN LUIS OBISPO CalPERS ID: 7574628515 P'oc- Employer Contributions The estimated rate for 2016 -17 is based on a projection of the most recent information we have available, including an estimated 18.0 percent investment return for fiscal 2013 -14, the impact of the new smoothing methods adopted by the CalPERS Hoard in April 2013 that will impact employer rates for the first time in 2015- 16 and new actuarial assumptions adopted by the CaIPERS Board in February 2014. These new demographic assumptions include a 20 -year projected improvement in mortality. A complete listing of the new demographic assumptions to be implemented with the June 30, 2p14 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.gov /L-i o- docs /a bout/DU bs /em ployedactu arial- assn rnp_t ig ns. x Is The table below shows projected employer contribution rates (before cost sharing) for the next five Fiscal Years, assuming CaIPERS earns 18,0% 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. New Rate Projected Future Employer Contribution Rates 2015 -16 2016 -17 2017 -18 2018 -19 2019-20, 2020 -21 Normal Cost %: 20.230% 21.3% 21.3% 21.3% 21.3% 21.3% UAL 3,056,723 3,402,670 $ 3,766,621 $ 4,149,349 $ 4,551,651 $ 4,711.901 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 newly adopted asset allocation has a lower expected investment volatility that 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 a 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 2 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 18.0 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 Estimated Increase in Employer Contribution Employer Contribution between 2015 -16 and 2016 -17 Normal Cost W 21.3% 1.1% UAL $ $ 3,402,670 $ 345,947 Rate Plan belonging to the Safety Risk Pool Page 18 V CALPERS ACTUARIAL VALUATION - June 30, 2013 SAFETY 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 compensation and service is frozen as of the valuation date and no future pay increases or sgwice 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 advises you to consult with your plan actuary before beginning this process. Valuation Hypothetical Market Value Unfunded Termination Termination Date Termination of Assets Termination Funded Liability Liability' (MVA) Liability Ratio Discount Rate' 06/30/2011 $ 215,149,475 $ 94,068,210 $ 121,081,265 43.7% $ 4.82% 06/30/2012 289,656,302 92,263,961 197,392,341 31.9% 2.98% 06/30/2013 263,263,781 100,909,667 162,354,114 ✓ 38.3% 3.72% ' The hypothetical liabilities calculated above include a 7 percent mortality load contingency 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 is 3.55 percent. Rate Plan belonging to the Safety Risk Pool Page 20 CALPERS ACTUARIAL VALUATION - June 30, 2013 SAFETY PLAN OF THE CITY OF SAN LUIS OBISPO CalPERS ID: 7574628515 ' ft'Wer for Compfia G ; r,' No. Disclosure under GASS 27 follows. However, note that effective for financial statements for fiscal years beginning after June 15, 2014, GASB 68 replaces GASS 27. Disclosure required up.der GASB 68 will require additional reporting. CalPERS is intending to provide GASB 68 disclosure information upon request for an additional fee. We urge you to start discussions with your auditors on how to implement GASB 68. Your plan is part of the Safety Risk Pool, a cost - sharing multiple - employer defined benefit plan. Under GASB 27, an employer should recognize annual pension expenditures /expense equal to its contractually required contributions to the plan. Pension liabilities and assets result from the difference between contributions required and contributions made. The contractually required contribution for the period July 1, 2015 to June 30, 2016 has been determined by an actuarial valuation of the plan as of June 30, 2013. Your unadjusted contribution for the indicated period is a normal cost contribution of 20.230 percent of payroll and an unfunded accrued liability dollar amount of $3,056,723. In order to calculate the dollar value of the contractually required contributions for inclusion in financial statements prepared as of June 30, 2016, this normal cost contribution rate, less any employee cost sharing, and as modified by any subsequent financing changes or contract 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 combined with the UAL amount of $3,056,723. However, if this contribution is fully prepaid in a lump sum, then the dollar value of contractually required contributions is equal to the lump sum prepayment. The employer and the employer's auditor are responsible for determining the contractually required contributions. Further, the required contributions in dollars and the percentage of that amount contributed for the current year and each of the two preceding years is to be disclosed under GASB 27. A summary of principal assumptions and methods used to determine the contractually required contributions is shown below for the cost- sharing multiple - employer defined benefit plan. 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 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 annual inflation growth of 2.75% and an annual production growth of 0.25 %. Complete information on assumptions and methods is provided in Appendix A of the Section 2 report. Appendix B of the Section 2 report contains a description of benefits included in the Risk Pool Actuarial Valuation. A Schedule of Funding for the Risk Pool's actuarial value of assets, accrued liability, their relationship, and the relationship of the unfunded liability (UL) to payroll for the risk pool(s) to which your plan belongs can be found in Section 2 of the report. Rate Plan belonging to the Safety Risk Pool Page 22 CALPERS ACTUARIAL VALUATION - June 30, 2013 SAFETY PLAN OF THE CITY OF SAN LUIS OBISPO CalPERS 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 year - to-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 As of June 30, 2013 1. Market Value of Assets 2. Payroll 3. Asset Volatility Ratio (AVR = 1. / 2.) 4. Accrued Liability 5. Liability Volatility Ratio (LVR = 4. / 2.) Rate Plan belonging to the Safety Risk Pool 100,909,667 9,981,329 10.1 154,745,704 15.5 V Page 17