FRAMEWORK FOR CONSIDERING CHANGES IN ACTUARIAL FUNDING METHODOLOGIES Presentation to the FCERA Board of Retirement and the Fresno County Board of Supervisors April 30, 2009 Concurrent Meetings Jeffrey R. Rieger

2 FUNDAMENTAL FIDUCIARY DUTIES  Retirement Board Independence  Exclusive Benefit Rule  Duty of Loyalty – best interests of all members and beneficiaries, today and tomorrow  Duty of Prudence – to provide sound actuarial funding of promised benefits Measure of prudence: “under the circumstances then prevailing”

3 A WORD ABOUT “ CONFLICTS ”  Interests are constitutionally “ baked in, ” but retirement board must act for the system as a whole and not for appointing or electing “ constituencies ”  It is not a crime to perform constitutional duties  So long as decisions  are within the scope of board’s duty to administer the system,  do not violate fiduciary duties,  do not involve a quid pro quo promise in exchange for a vote,  do not affect board member differently from similarly situated individuals who are a significant segment of the membership,  do not affect a contract between the system and a member’s employing department (or with the member personally!) and  all ‘interests” are disclosed on the record, then there is little risk of a disqualifying conflict of interest

4 RECENT EXTRAORDINARY ECONOMIC EVENTS  Impact on FCERA  Investment earnings  Assumed rate of return  Actuarial Smoothing  Gap between Actuarial and Market Value of Assets  Funded ratio – current and projected  Contribution rates  Retirement assumptions  No impact on retiree payroll

5 RECENT EXTRAORDINARY ECONOMIC EVENTS  Impact on the County and districts  Revenues  Workforce  Retirement assumptions  Employer contributions  Impact on members  Job security  Wage security  Retirement assumptions

6 FACTORS THAT RETIREMENT BOARD MAY CONSIDER  Actuarially sound methodologies  FCERA’s cash flow requirements and the ability to pay benefits timely  FCERA’s long-term funding obligations  Employers’ ability to meet future obligations  Volatility of employer retirement contribution rates

7 FACTORS THAT RETIREMENT BOARD MAY CONSIDER  Substantial employer hardship  Decline in revenue sources  Operational deficits  Reductions in force  County, district ability to make timely contributions

8 CHECKLIST FOR PRUDENT DECISION MAKING  Conduct open and public proceedings  Identify, disclose and act on any conflicts of interest  Provide notice to and obtain input from all members and member organizations  Provide notice to and obtain input from all employers  Avoid “negotiating” with employers

9 CHECKLIST FOR PRUDENT DECISION MAKING  Conduct independent and full due diligence  Obtain detailed actuarial “if/then” modeling  Obtain actuary’s recommendations and assurance of compliance with standards of practice  Determine if any material impact on members’ benefit security

10 CHECKLIST FOR PRUDENT DECISION MAKING  Acknowledge likely impact of “subsequent events” that have occurred after valuation date  Consider existing policies and identify reasons to keep or change them  Understand how this year’s decisions will impact system in future years  Establish complete record of deliberations, actions