TOWN OF MORAGA MISCELLANEOUS AND SAFETY PLANS

CalPERS Actuarial Analysis – 6/30/18 Valuation

Doug Pryor, Vice President Bianca Lin, Assistant Vice President Matt Childs, Actuarial Analyst Bartel Associates, LLC

October 23, 2019

o:\clients\town of moraga\projects\calpers\6-30-18\ba moragatn 19-10-23 calpers misc safety 18 council.docx

Contents Topic Background Plan Funded Status Projections Supplemental Pension Trust

Page 1

11 13 23

HOW WE GOT HERE

Investment Losses

CalPERS Contribution Policy

Enhanced Benefits

Demographics

October 23, 2019 1

HOW WE GOT HERE – INVESTMENT RETURN

Returns (after 2001) shown are gross returns, unreduced for administrative expenses. The discount rate is based on expected returns net of administrative expenses.

20-Year and 30-Year average return rates on 6/30/19 are 5.8% and 8.1%, respectively

October 23, 2019 2

HOW WE GOT HERE – OLD CONTRIBUTION POLICY

Effective with 2003 valuations:

Slow (15 year) recognition of investment losses into funded status Rolling 30 year amortization of all (primarily investment) losses

Designed to:

First smooth rates and Second pay off UAL

Mitigated contribution volatility

October 23, 2019 3

HOW WE GOT HERE – ENHANCED BENEFITS

At CalPERS, Enhanced Benefits implemented using all (future & prior) service Typically not negotiated with cost sharing Town of Moraga

October 23, 2019 4

Tier 1 Tier 2 PEPRA

Miscellaneous 2%@55 FAE3 N/A 2%@62 FAE3

Safety Police 2%@50 FAE3 N/A 2.7%@57 FAE3

Note: FAE1 is highest one year (typically final) average earnings FAE3 is highest three years (typically final three) average earnings

PEPRA tier implemented for new employees hired after 1/1/13 Employee pays half of total normal cost 2019 Compensation limit

Social Security participants: $124,180 Non-Social Security participants: $149,016

HOW WE GOT HERE – ENHANCED BENEFITS

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HOW WE GOT HERE – ENHANCED BENEFITS

October 23, 2019 6

HOW WE GOT HERE – DEMOGRAPHIC

Around the State

Large retiree liability compared to actives State average: 59% for Miscellaneous, 62% for Safety

Declining active population and increasing number of retirees Higher percentage of retiree liability increases contribution volatility

Town of Moraga percentage of liability belonging to retirees:

October 23, 2019 7

Miscellaneous Safety

60% 73%

CALPERS CHANGES

Recent contribution policy changes:

No asset smoothing No rolling amortization 5-year ramp up

February 2018: CalPERS adopted new amortization policy Applies only to newly established amortization bases Fixed dollar amortization rather than % pay Amortize gains/losses over 20 rather than 30 years 5-year ramp up (not down) for investment gains and losses No ramp up/down for other amortization bases

Minimizes total interest paid over time and pays off UAL faster Effective June 30, 2019 valuation for 2021/22 contributions

CalPERS Board changed the discount rate: Rate Initial Impact Full Impact

October 23, 2019 8

6/30/16 valuation 7.375% 18/19 22/23 6/30/17 valuation 7.25% 19/20 23/24 6/30/18 valuation 7.00% 20/21 24/25

CALPERS CHANGES

Risk Mitigation Strategy

Move to more conservative investments over time to reduce volatility Only when investment return is better than expected Lower discount rate in concert Essentially use ≈50% of investment gains to pay for cost increases Likely get to 6.0% discount rate over 20+ years Risk mitigation suspended from 6/30/16 to 6/30/18 valuation Did not trigger for 6/30/19 valuation

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CALPERS CHANGES

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PLAN FUNDED STATUS (MILLIONS)

June 30, 2018 Funded Status 7% Discount Rate

October 23, 2019 11

Miscellaneous Safety Total Actuarial Accrued

Liability $16.1 $12.1 $28.2

Assets 12.0 8.9 20.9 Unfunded Liability 4.1 3.2 7.3 Funded Ratio 74.3% 73.7% 74.0% Funded Ratio for all

CalPERS agencies 71.7% 68.3% 70.4%

PLAN FUNDED STATUS (MILLIONS)

June 30, 2018 Funded Status 6.5% Discount Rate

October 23, 2019 12

Miscellaneous Safety Total Actuarial Accrued

Liability $17.2 $13.0 $30.2

Assets 12.0 8.9 20.9 Unfunded Liability 5.2 4.1 9.3 Funded Ratio 69.8% 68.5% 69.2%

PROJECTIONS

Market Value Investment Return:

6.7%1 June 30, 2019 Future returns based on stochastic analysis using 1,000 trials

25th Percentile 50th Percentile 75th Percentile Single Year Returns at2

Current Investment Mix Ultimate Investment Mix

0.1% 0.8%

7.0% 6.0%

14.8% 11.4%

Assumes investment returns will, generally be 6.5% (as compared to 7.0%) over the next 9 years and higher beyond that.

Discount Rate decreases due to Risk Mitigation policy No Other: Gains/Losses, Method/Assumption Changes, Benefit Improvements Different from CalPERS projection

1

2

October 23, 2019 13

Gross return based on July 2019 CalPERS press release Nth percentile means N percentage of our trials result in returns lower than the indicated rates.

PROJECTIONS

New hire assumptions:

92.5% of 2019/20 new hires are PEPRA members and 7.5% are Classic members

Percentage of PEPRA member future hires to increase from 92.5% to 100% over 3 years

Employee Cost Sharing: Classic employees pay 2% of pay before 7/9/17 Classic employees pay 3% of pay effective 7/9/17 Classic employees pay 4% of pay effective 7/8/18

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PROJECTIONS

Miscellaneous

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PROJECTIONS

Safety

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PROJECTIONS

Miscellaneous

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PROJECTIONS

Safety

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PROJECTIONS

Miscellaneous

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PROJECTIONS

Safety

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PROJECTIONS

Miscellaneous

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PROJECTIONS

Safety

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SUPPLEMENTAL PENSION TRUST

Miscellaneous

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Scenario 1 Scenario 2 Scenario 3 Additional contribution above

current budget • 20/21 $500,000 $135,000 $50,000 • 21/22 through 29/30 n/a $135,000 / $50,000 /

per year per year Target Rate 26.0% 26.0% 26.0%

• 1st year 26/27 30/31 30/31 • Last year 36/37 36/37 36/37 Trust Return 5% 5% 5%

Contributions CalPERS Less than CalPERS

CalPERS

SUPPLEMENTAL PENSION TRUST

Safety

October 23, 2019 24

Scenario 1 Scenario 2 Scenario 3 Additional contribution above

current budget • 20/21 $500,000 $115,000 $50,000 • 21/22 through 29/30 n/a $115,000 / $50,000 / per

per year year Target Rate 37.0% 37.0% 36.0%

• 1st year 26/27 30/31 30/31 • Last year 35/36 34/35 34/35 Trust Return 5% 5% 5% Contributions CalPERS Less than

CalPERS CalPERS

SUPPLEMENTAL PENSION TRUST

Scenario 1

Miscellaneous

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SUPPLEMENTAL PENSION TRUST

Scenario 1

Safety

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SUPPLEMENTAL PENSION TRUST

Scenario 2

Miscellaneous

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SUPPLEMENTAL PENSION TRUST

Scenario 2

Safety

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SUPPLEMENTAL PENSION TRUST

Scenario 3

Miscellaneous

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SUPPLEMENTAL PENSION TRUST

Scenario 3

Safety

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SUPPLEMENTAL PENSION TRUST

Combined Miscellaneous and Safety

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SUPPLEMENTAL PENSION TRUST

Combined Miscellaneous and Safety

October 23, 2019 32