1. California Public Employees’ Retirement System (CalPERS)
City of Livingston
California Public Employees’ Retirement System (CalPERS)
Discount Rate Change

2. Who Is CalPERS ?
The California Public Employees' Retirement System (CalPERS), established in 1932, is an agency in the California executive branch that manages pension and health benefits for public employees, retirees, and their families.
As of 6/30/ $ Billion in assets – In the top ten in the U.S.
As of 6/30/ ,007 contracted agencies and 1.8 million employees

3. Why Is City of Livingston Involved With CalPERS ?
City contracted in October 1975 with California State Employees’ Retirement System – now California Public Employees’ Retirement System (CalPERS) - to manage funds and administer retirement benefits

4. CalPERS Funding Model – 6/30/2016

5. The Problem More cash is going out than coming in
Actual Investment Returns Have Not Matched Projected (Discount Rate)
Estimated return over the next ten years is 5.8% to 6.2%

6. The Problem - Continued
Fixed income returns have declined – investments shifted to equities and real estate – more volatility and risk
Overall funded status of plan is 73% ( As of June 30, 2015) Funded status at 6/30/2007 was 101% ( Market asset value – benefits earned by employees)
Actual rate of return and discount rate should match in order to reach 100% funded status

7. What Did The CalPERS Board Do?
On December 21, 2016 CalPERS board voted to lower the discount rate from 7.5% to 7% over the next three years.
This incremental lowering of the discount rate will give employers more time to prepare the changes in the employer contribution costs.

8. What Is A Discount Rate ?
The assumed rate of future investment returns used to calculate future benefit liabilities and current contribution levels
Higher assumed discount rate - lower future liabilities and contributions
Lower assumed discount rate - higher future liabilities and contributions

9. Why Is This Issue Important ?
It affects cost of retirement benefits
Core cost of the City’s budget
It is a key component of negotiated salary and benefit packages

10. CalPERS Actual and Discount Rates
Actual Investment Returns 6/30/2016
1-Year Return
3 – Year Return
5 – Year Return
10 – Year Return
0.6%
6.9%
6.8%
5.1%
Discount Rate (Assumed Investment Return)
6/30/2012
6/30/2010
6/30/2002
7.50% Net
7.75% Net
8.25% Net

11. Fiscal Year for Required Contribution
CalPERS Solution
Lower the assumed rate of return in 2018/19 – which increases contributions – and amortize increase over 20 years
Fiscal Year for Required Contribution
Discount Rate
2016/17
7.50%
2017/18
7.375%
7.25%
7.00%

12. Phase-In Schedule Year Impact Year % of Ultimate Payment 1 2018-19 20%
40% 3
60% 4
80%
5 - 16
thru
100% 17 18 19 20

13. Impact On City Of Livingston
Discount Rate
Unfunded Liability
Funded Ratio
Amortiz-ation Period
Public Safety
Miscellan-eous
Total
7.50%
$1.34 M
$2.78 M
$4.12 M
78.2% %
8 – 30 Years
7.00%
$1.91 M
$3.72 M
$5.63 M
72.9% %
Increase
$ .57 M
$ .94 M
$1.51 M
5.4% to 5.8%
20 Years

14. Impact On City of Livingston
Fiscal Year
Citywide Cost
General Fund Cost
2017/18 - Current
$595,000
$352,000
2018/19 – First Year
Low
High
$676,500
$693,000
$401,000
$411,100
2022/23 – Full Phase-In
$1,002,500
$1,082,000
$596,500
$645,200
% Increase 17/18 to 22/23
68%
82%
69%
83%

15. Impact on General Fund
In 2018/19 CalPERS cost will require about a 1% increase in General Fund revenue
In 2022/23 CalPERS cost will require about a 5% increase in General Fund revenue
Average increase in General Fund revenue over last five years is 6%

16. Does This Solve The Problem ?
CalPERS staff have stated this will help lessen the gap but not close it
CalPERS and their outside experts estimate a 5.8% - 6.2% average return over the coming decade
This issue will be revisited in a year and CalPERS has indicated the discount rate will probably need to go lower

17. Questions