1. Actuarial Information / Valuations 101
Kerry Worgan, FSA, FCIA, MAAA, Supervising Pension Actuary
Julian Robinson, FSA, EA, MAAA, Senior Pension Actuary
February 2018

2. Today’s Topics Actuarial Report Highlights
Non pooled plans
Pooled plans
Paying down the Unfunded Accrued Liability
Amortization Policy Update
Experience Study Impact on Valuation Results
Mention that they should have gotten their report from the link Don sent out

3. Actuarial Report Highlights
Non Pooled Plans

4. Non-Pooled Report – Common Questions
What are my required contributions?
Is my plan in good shape?
Why did my required contributions change?
Where are my required contributions headed?
Where are my PEPRA members?
What additional information is available in the reports?

5. Non-Pooled Plans What are my required contributions? - Cover page
Rates do not reflect any cost sharing information
FY and FY projections reflect
Phase in of discount rate to 7.25% and ultimately 7.00%
Don’t reflect the FY asset gain of 4%
We took out all cost sharing information. Too hard since you can cost share by bargaining group.
This rate is the same for PEPRA and classic members. Although the employee rate changes

6. Non-Pooled Plans What are my required contributions? – Page 4
Blue box – components of your employer rate
Important to note Normal cost is employer normal cost only. PEPRA people are blended in and will drive the normal cost down as the years go by
Red box – “new” PEPRA minimum will be the same as employer rate for most agencies
Green – prepayment number calculated by multiplying projected payroll by rate and discounting ½ year
Orange box – The rate is based on your projected payroll, talk about shorting the plan if your payroll is off.

7. Non-Pooled Plans Employer Contribution comprised of 2 components
Normal Cost Rate (% of Payroll)
UAL $ Amount
Annual UAL Prepayment Option
Only for UAL $ Amount component
Normal Cost Rate must be paid regularly throughout the year

8. Non-Pooled Plans Is my plan in good shape? – Page 5
Unfunded Liability = UAL = Unfunded Accrued Liability
Funded Ratio is one indicator of the plan’s health
Information as of June 30, 2016
There is no more AVA. MVA numbers are what to focus on
UAL payments made after 6/30/13 will affect future funded ratios, not this year
Answers “is my plan in good shape?”

9. Non-Pooled Plans Why did my required contributions change? Page 14
Expected liability and asset values compared with actual values
Explains changes to the UAL amount
The short answer is because things did not go according to plan
The big influence is the asset loss this year
Total difference in experience is total Gain loss, asset the big one this year

10. Non-Pooled Plans Why did my required contributions change? – Page 15
Bases comprising the plan’s UAL
6/30/13 GL is residual balance from loss. Up until this point, you have not paid anything but interest. The new smoothing will get you to pay for prinicpal and interest which is why rates are going up

11. Non-Pooled Plans Where are my required contributions headed? – Page 5
Assumes expected return for FY and thereafter
No demographic gains or losses after 6/30/16 included
Total as % of Payroll for illustration purposes only
This table is our best guess of where your rate is headed in the future

12. Discount Rate Change
On December 21, 2016 the CalPERS Board adopted a 7% discount rate with a 3-year phase-in
7.375% to be used 6/30/2016
7.25% to be used 6/30/2017
7.00% to be used 6/30/2018
Affects all non-pooled and pooled actuarial valuations
Lower discount rates result in higher accrued liabilities and normal costs
Full impact of 7.00% discount rate will take 7 years due to phase-in procedures

13. Other Assumption Changes
Effective for June 30, 2017 valuation
Inflation assumption 2.625% (2.50% for 6/30/18)
Payroll growth 2.875% (2.75% for 6/30/18)
Updated demographic assumptions
Mortality rates
Early Retirement rates

14. Non-Pooled Plans Where are my PEPRA members?
Non pooled plans include PEPRA members
Non pooled plans require the same employer rate for all members in the plan
Non pooled plans require differing employee rates
Classic member rate is set by statute
PEPRA member rate can be found in Appendix D

15. Normal Cost Additional Information
Normal Cost Rate for Each Group/Tier
Available in June 30, 2017 report
Classic formulas
PEPRA formulas

16. Non-Pooled Plans Additional information – Page 22
Highly sensitive to the discount rate

17. Non-Pooled Plans Additional Information – Page 24
Highly sensitive to the discount rate
Next discount rate evaluation is in 2017

18. Non-Pooled Plans Additional Information – Appendices Appendix A
Assumptions and methods used in rate setting
Appendix B
Descriptions of all benefit provisions offered
Appendix C
Participant Data
Demographic information for the plan as of valuation date

19. Non-Pooled Plans Additional Information – Appendices Appendix D
Normal Cost by Group
PEPRA Member Rate Information
Appendix E
Glossary of Actuarial Terms

20. Actuarial Report Highlights
Pooled Plans

21. Pooled Report – Common Questions
What is the difference between “pooled” and “non-pooled” plans?
What are my required contributions?
What is my UAL?
Where are my required contributions headed?
Where are my PEPRA members?
What additional information is available in the reports?

22. Pooled Plans Difference between pooled and non-pooled plans
Plans with less than 100 active members are combined into Risk Pools
Miscellaneous Risk Pool
Safety Risk Pool
Risk Pools aggregate experience of all plans for setting normal cost and actuarial gains/losses
Plans are allocated pieces of the pool’s gains/losses each year
Allocation based on plan’s proportionate share of the pool’s total liability

23. Pooled Plans Difference between pooled and non-pooled plans
Actuarial Valuation Reports
Section 1 - Plan specific information
Contribution rate
Unfunded liability
Plan specific projections
Section 2 – Risk Pool information
UAL of Risk Pool
Normal Cost Rates for different benefit levels
Surcharges for optional benefits
New report structure

24. Pooled Plans – Section 1
What are my required contributions? - Cover page
Rates do not reflect any cost sharing arrangements
FY and FY projections reflect
Phase in of discount rate to 7.25% and ultimately 7.00%
Don’t reflect the FY asset gain due to 11.2% return
Expiring side funds (if applicable)
We took out all cost sharing information. Too hard since you can cost share by bargaining group.
This rate is the same for PEPRA and classic members. Although the employee rate changes

25. Pooled Plans – Section 1 What are my required contributions? – Page 4
Blue box – components of your employer rate
Red box – “new” required contribution, normal cost is a percentage of pay UAL payment is a monthly payment due as a dollar amount
For your convenience the rate is still quoted based on an inflated payroll (orange box)
Green – prepayment number calculated by multiplying projected payroll by rate and discounting ½ year only can prepay the UAL contribution by August 1
Orange box – The rate is based on your projected payroll, talk about shorting the plan if your payroll is off.

26. Pooled Plans – Section 1 Is my plan in good shape? – Page 5
Unfunded Liability = UAL = Unfunded Accrued Liability
Funded Ratio is one indicator of the plan’s health
Information as of June 30, 2016
There is no more AVA. MVA numbers are what to focus on
UAL payments made after 6/30/13 will affect future funded ratios, not this year
Answers “is my plan in good shape?”

27. Pooled Plans – Section 1 What is my UAL? – Page 8
Side Fund has been incorporated
Share of pre-2013 Pool UAL is the allocation of the pool’s UAL
Employers can pay off any portion of the UAL
6/30/13 GL is residual balance from loss. Up until this point, you have not paid anything but interest. The new smoothing will get you to pay for principal and interest which is why rates are going up
Order of what to pay

28. Pooled Plans – Section 1 Where are my contributions headed? – Page 5
Assumes expected investment returns
No demographic gains or losses after 6/30/16 included

29. Pooled Plans – Section 1 Where are my PEPRA members?
Separate Classic and PEPRA pooled plan reports produced
Pooled plans require different employer contributions for Classic and PEPRA members
Pooled plans also require different employee rates
Normal cost rate for the group is on page 4

30. Pooled Plans – Section 1 Additional Information – Page 15
Highly sensitive to the discount rate

31. Pooled Plans – Section 1 Additional Information – Page 17
Highly sensitive to the discount rate

32. Pooled Plans – Section 2 Available on CalPERS online
in the Forms and Publications section
Has pool specific information
Normal Cost Rates by formula
Funded status
Asset information
Gain/Loss Analysis

33. Pooled Plans – Section 2 Appendices
Appendix A - Actuarial Methods and Assumptions
Appendix B - Principal Plan Provision
Appendix C - Optional Benefit Information
Appendix D - Participant Data
Appendix E - Glossary

34. Unfunded Accrued Liability (UAL)
Paying Down the
Unfunded Accrued Liability (UAL)

35. What is the Unfunded Accrued Liability (UAL)
Paying Down the UAL
What is the Unfunded Accrued Liability (UAL)
UAL = Accrued Liability – Market Value of Plan Assets
Agencies required to make minimum annual payments on the UAL
Many Agencies are electing to make additional discretionary payments to save interest

36. Additional Discretionary Payments
Paying Down the UAL
Additional Discretionary Payments
Fiscal Year
Number
Amount
202
$143,763,000
243
$228,445,000
YTD (~6 mth)
213
$223,367,000

37. Paying Down the UAL Accelerated Funding Multiple ways to do it
Fresh start over a reduced period
Additional Discretionary Payment (ADP) on an ad hoc basis

38. Accelerated Funding (cont’d)
Paying Down the UAL
Accelerated Funding (cont’d)
Fresh Start
Must pay off bases faster than existing schedule
Creates new higher Minimum UAL payment
Significant long-term savings
Inflexible

39. Accelerated Funding (cont’d)
Paying Down the UAL
Accelerated Funding (cont’d)
Ad hoc basis – Employer Option
Short-term Savings : Apply to Shortest Base
Long-term Savings : Apply to Longest Base
Flexible

40. Amortization Schedules
Paying Down the UAL
Amortization Schedules
Page 11 of Report for Pooled
Page 17 for Non-Pooled

41. Paying Down the UAL Total Payments $2,837,000 Total Payments
$2,653,300
Net Savings
$183,700

42. Paying Down the UAL Total Payments $2,017,100 Total Payments
$1,915,400
Net Savings
$101,700

43. Paying Down the UAL Total Payments $1,696,500 Total Payments
$1,626,800
Net Savings
$69,700

44. Paying Down the UAL Total Payments $1,875,300 Total Payments
$1,787,800
Net Savings
$87,500

45. Amortization Policy Update

46. Current Amortization Policy
Driver
Source
(Gain)/Loss
Assumption/Method Change
Benefit Change
Golden Handshake
Investment
Non-investment
Amortization Period
30 Years
20 Years
5 Years
Escalation Rate
- Active Plans * - Inactive Plans
Payroll (3%) 0% 3%
Ramp Up 5
Ramp Down
* Reducing to 2.875% for the 6/30/2017 actuarial valuations and 2.75% for the 6/30/2018 reports.

47. Amortization Policy Effective June 30, 2019
Driver
Source
(Gain)/Loss
Assumption/Method Change
Benefit Change
Golden Handshake
Investment
Non-investment
Amortization Period
20 Years
5 Years
Escalation Rate
Active Plans & Inactive Plans
Level Dollar
Ramp Up
5 yrs
Ramp Down
Adopted by CalPERS Board in February 2018

48. New Amortization Policy – Asset G/L

49. New Amortization Policy - Asset G/L

50. New Amortization Policy – Asset G/L

51. New Amortization Policy – Non-Asset G/L

52. New Amortization Policy – Non-Asset G/L

53. New Amortization Policy – Non-Asset G/L
For copy of spreadsheet, send to

54. Impact on Valuation Results
Experience Study
Impact on Valuation Results

55. Questions & Discussion