1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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