1. CalPERS Update: A Solid Foundation for the Future
California State Association of Counties Government Finance & Administration Policy Committee
Marcie Frost, CalPERS CEO
May 17, 2018
Thank you for having me here
Good to be back with you again
When we last met at your Annual Meeting, I talked to you about our financial challenges and the work we’ve been doing to strengthen the fund
Understand our decisions have made things challenging for you
Thank you for your additional contributions
We’re a stronger fund today
And … we’re going to be here to pay the benefits you’ve promised your employees and that they’ve earned
A year from now if I’m invited back, we’ll be an even stronger fund
Going to tell you how we’ve strengthened the fund and why we had to make these tough decisions

2. Our Members Are Our Focus
Members At the Heart of All We Do
Every decision we make is focused on serving our members
CalPERS is about people
1.9 million members
2,945 employer partners
Schools
Public agencies
State agencies
Largest pension system in the U.S.
Second largest purchaser of public health benefits – behind federal government

3. Partnering with California's Counties37
Counties
76,904
Employees/Members
CSAC Stats – (animated slide)
Maintaining healthy relationships with our employer partners is essential to serving our members
Recognize that not all CSAC members are CalPERS members
37 counties contract with us
Represents nearly 77,000 members
21 counties have their own retirement system
Like most pension systems around the U.S., they will also face similar challenges

4. Our Members Tell Our Story
$2,876
Average allowance for all retirees
64%
$21.4 billion
Receive less than $3,000
Paid in pension benefits annually 3%
Earn pensions greater than $100,000
We Believe In …
Retirement security and the role defined benefit plans play in providing reasonable financial security
Story of Grandparents
Aligned to our mission
Benefits are critical to attracting, retaining skilled employees
Of the $21 billion we paid last fiscal year in benefits:
64 % receive less than $3,000 per month
Approx. 3% receive more than $100K—the exception; they’ve made their contributions
Will rise for years until PEPRA fully takes effect

5. Funded Status Funded Status FY 2015–16 Calendar Year 2017
Challenges of Funded Status
Limits our ability to take risks
Puts greater pressure on your budgets
Maturing fund
Retiree population is growing
People are living longer
Factors we plan for … ensure we’re on the right path
Low-return environment predicted for the next decade

6. Market Volatility Prompts Key Decisions
70%
71%
70%
76%
73%
68%
2012
PEPRA law
Discount rate lowered from 7.75% to 7.5%
2013
2014
2015
2016
2017
Additional $6 billion from State
Steps to strengthen the fund:
Discount rate
Amortization policy
2018
Market Volatility Prompts Key Decisions
Important to remember we have faced challenges over the decades and paid benefits consistently
Market volatility primary driver of risk
Three key decisions helped turn the corner since 2012
Lowering of discount rate
$6 billion State UAL payment
Amortization policy
Goal is 80%; 90% will be even better
It will take time
(Note: All figures listed are FY, except 71%, which is calendar year)

7. Addressing Financial Challenges
7.5% 7%
Lower Discount Rate
30 yrs.
20 yrs. =
significant long-term savings
Shorter Amortization
Discount Rate Reduction
Infuses the system with additional cash
Gradual reduction from 7.5% to 7% over three years
Starting in Fiscal Year for counties
We’re keenly aware of impact on your budgets
A tough decision that had to be made
Doing all we can to help you understand valuations and the costs of the benefits you provide
Amortization Policy
Shortens the period to pay down future unfunded liabilities
Will save significant amounts of money in the long run

8. Operating As Efficiently As Possible
1.5–2% reduction
70% in-house
$170 mil. savings
Doing Our Part—Savings & Efficiencies
If we’re going to ask employers to contribute to the long-term success of the fund, then we need to do our part to run the system as efficiently and effectively as possible
Realized significant savings:
Striving for 1.5 to 2% reduction in expenses in each of the next 5 fiscal years
No new staff positions for past two years
Managing 70% of funds in-house
Working strategically with the right external managers
Saving $170 million in investment expenses
Every dollar we save goes back to paying benefits

9. The Big Decisions Have Been Made Necessary Prudent
Meet our fiduciary duty
The result is an improving cash flow
Thank you for facing the challenges head on
Prior to discount rate and amortization policy, cash flow projections were negative
$6 billion payment from State made significant impact

10. $350 billion assets 15.7% investment returns $47 billion increase
Investment Earnings
Calendar year 2017
$350 billion assets
15.7% investment returns
$47 billion increase
Where We Stand Today
These decisions put us in a good place to focus on the investments - the one piece that we have complete control over
Significant asset growth –calendar year $350 billion: currently about $355 billion
Improving returns – market remains volatile
Always invest with our 7% assumed rate of return of in mind
(Note: these are calendar year figures – December 31, 2017)

11. Campaigns Focused on Total Fund Return
Engagement vs. Divestment
CalPERS Role Clarity
ESG
Campaigns Focused on Total Fund Return
Next five years will be one of focus on what we call “total fund return and total fund performance”
Campaigns
CalPERS role clarity
Engagement/Divestment
ESG– about risk and how we see it with focus on 7% return

12. Shared Responsibility
We Have to Work Together
Pensions are a shared responsibility between you, our employer partners, the employees, and CalPERS
Have a solid foundation to grow; positioned to pay benefits for decades to come
Want to continue these conversations about our future together
Come before our board on issues that matter to you
Talk to me, me, reach out to our actuaries
We may not always agree
I always want to be able to have a conversation with you

13. Focused on Total Return
Where Do We Go from Here?
Focused on Total Return
115 Trust
Education
Where Do We Go from Here?
Support 115 Trust
Providing education and resources you want
Significant effort to work with local elected officials
Employer Education
Special education track at Educational Forum – October 22-24
(Registration opens June 4)
Prefunding webinar
How to read actuarial valuations webinar
Note: Compliment Dorothy- has done a good job representing you

14. Thank You Thank you again for having me here today
I’m happy to take your questions