California Employers’ Retiree Benefit Trust OPEB Pre-funding through CalPERS Rand Anderson, Manager Constituent Relations Office

Discussion Overview New Law Trust Fund Elements Year End Reporting Why Pre-fund? Summary 11/28/2018

New Law AB 554 allows ALL California government agencies to participate in the California Employers’ Retiree Benefit Trust (CERBT) Fund Became law on January 1, 2008 Permissive legislation – agencies elect to join 11/28/2018

California Employers’ Retiree Benefit Trust Fund Governing Board 13-member board of elected and appointed officials, composition is mandated by law Investment policy CalPERS managed portfolio Expected rate of return (net) 7.75% Total annual cost Expected to be about 50 basis points Minimum contribution The lesser of $5,000 or ARC Maximum contribution Present value of future benefits Disbursement frequency Monthly (prefer less often – lower cost) Investment return allocation Monthly Account activity report Quarterly Termination After 3 years, trustee to trustee transfer; no penalty 11/28/2018

California Employers’ Retiree Benefit Trust Fund CERBT Meets IRS Section 115 Yes Meets GC Sect 53620-22 Yes Currently Offered by CalPERS? Yes Irrevocable? Yes Actuarial Valuations required to establish Trust Acct? Yes Disbursements made from Fund Assets to: Employer, for reimbursement of documented OPEB expenses Use higher discount rate under GASB 45? Yes Assets reduce NOO and ARC under GASB 45? Yes 11/28/2018

Contracting Processing Time To complete typical OPEB actuarial valuation. 6-12 weeks after actuary starts the work To approve contract (must be signed by presiding officer of governing body) Depends on local agency decision making process. CalPERS reviews and accepts contract documents and actuarial valuation report. About 2 weeks To make earliest initial contribution. 1 week after CalPERS acceptance of contract 11/28/2018

The Agreement Package Two signed copies of the Participation Agreement Actuarial Valuation Report Summary of Actuarial Information Certification of OPEB Actuarial Information Certification Funding Policy and GASB Reporting Compliance Delegation of Authority to Request Disbursement 11/28/2018

On Our Website List of Actuaries Assumption Model Investment Policy Frequently Asked Questions email to CORE4U@calpers.ca.gov for a link to the website 11/28/2018

Financial Reporting CalPERS will … report to each employer the audited asset balances, contributions, disbursements, plan expense, and investment return of their CERBT asset account. This report after each fiscal year ending 6/30. … report GASB 43 CERBT fund results in aggregate (i.e., the sum of all plans) in the CalPERS Comprehensive Annual Financial Report (CAFR): 11/28/2018

Financial Reporting GASB staff told us …get updates from participating CERBT agencies at the end of the fiscal year (6/30/XX), about OPEB costs, if GASB 45 disclosures include amounts paid outside of the CERBT, e.g., * OPEB payments made directly to service providers * OPEB related administrative expenses ARC, if GASB 45 disclosure reports ARC on a basis different from that originally reported to CalPERS, e.g., budgeted or actual payroll rather than projected payroll. We will issue requests for updates by June 1 each year. 11/28/2018

Financial Reporting GASB staff told us … participating CERBT employers ought to obtain actuarial valuations on a biennial cycle. Other … GASB 45 requires that all contributions not transferred from an irrevocable OPEB trust (i.e., reserve account, County treasury account, etc.) must be reported as contributions, not as transferred OPEB assets. 11/28/2018

Why Pre-fund OPEB Liabilities? Pre-funding minimizes future cost impacts Agencies that pre-fund use higher discount rate: - lower liabilities and ARC Investment returns pay 75% of CalPERS pension benefits Bond rating agencies expect an OPEB plan 11/28/2018

State of California Valuation Results* Fiscal Year Ending June 30, 2008 ($ in billions) Full ARC ½ ARC Pay-As-You-Go Discount Rate 7.75% 6.125% 4.5% Assets needed to fund Accrued Liability as of July 1, 2007 $31.3 $38.2 $47.9 ARC for FY 2008 $2.6 $3 $3.6 Employer Contributions for FY 2008 $2 $1.4 Net OPEB obligation for FY 2008 $0 $1 $2.2 * Relies on CalPERS OPEB Actuarial Assumption Model ARC based on 30 year amortization 11/28/2018

PERF Investment Performance 11/28/2018

Contact the CalPERS CERBT Program: Questions? Contact the CalPERS CERBT Program: Email to: core4u@calpers.ca.gov 11/28/2018