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CC SR 20170404 02 - CalPERS Actuarial ReportsRANCHO PALOS VERDES CITY COUNCIL AGENDA REPORT AGENDA DESCRIPTION: MEETING DATE: 04/04/2017 AGENDA HEADING: Regular Business Consideration and possible action to receive information regarding the CalPERS Actuarial Reports and other information related to the CalPERS Pension and Benefit Program for the City of Rancho Palos Verdes. RECOMMENDED COUNCIL ACTION: (1) Receive and file. FISCAL IMPACT: None Amount Budgeted: $0 Additional Appropriation: N/A Account Number(s): N/A ORIGINATED BY: Deborah Cullen, Director of Finance REVIEWED BY: Same as above APPROVED BY: Doug Willmore, City Manager"A'�Ilj ATTACHED SUPPORTING DOCUMENTS: A. Actuarial Valuation Report for Tier 1 (page A-1) B. Actuarial Valuation Report for Tier 2 (page B-1) C. Actuarial Valuation Report for Tier 3 (page C-1) BACKGROUND AND DISCUSSION: The purpose of this report is to provide information and analysis of the CalPERS Retirement Benefit Program, which covers the City employees. Staff will outline the current program benefits and costs, and will additionally provide information regarding recent changes implemented by CalPERS to address current funding levels and the unfunded liability. Annually, CalPERS prepares Actuarial Valuation Reports (AVR) for all member agencies. These reports are created by licensed actuaries whose role is to ensure that enough funds are accumulated to pay benefits. They are responsible for setting an annual contribution requirement with goals of fully finding benefits by employee retirement dates and maintaining inter -generational equity. CalPERS public agency plans are pre -funded, meaning the funds are accumulated as the employee earns the retirement benefit. Plan assets come from three different 1 sources: employer contributions, employee contributions and investment returns on CalPERS Investments. i . � w ,� u- o •P. FI I E" I I C'. . i (NOTE: Based on data as of October 2016) Employee Contributions Employee contribution rates are set by statute and vary by benefit level. The City currently has three benefit levels: Tier 1 — Employees hired prior to local pension reform action by City Council on September 20, 2011. These employees earn 2.5% of salary for each year employed with the City (based on the highest year's compensation) at the age of 55. The employee contribution rate for Tier 1 is 8.000% of their annual salary; Tier 2 — Employees hired after local pension reform, who previously worked for another governmental agency with a reciprocating pension plan. These employees earn 2% of salary for each year employed with the City (based on a three-year average) at the age of 60. The employee contribution rate for Tier 2 is 7.000% of their annual salary; Tier 3 — Employees hired after state-wide pension reform effective January 1, 2013, who have not previously worked for another governmental agency with a reciprocating pension plan, or have not worked for such an agency within six months of being hired by the City. These employees earn 2% salary for each year employed with the City (based on a three-year average) at the age of 62. The employee contribution rate for Tier 3 is 6.250% of their annual salary; 2 Employer Contributions The employer contribution is established to cover the remaining benefit after employee contributions and investment earnings are applied. Employer contributions are determined by annual actuarial valuations, whereas the employee rate is set by statute and not adjusted periodically. These valuations are based on the benefit formula the City provides and the employee groups covered. The annual contribution rate determines the payments that need to be made to CalPERS to fund the City's annual benefit costs (including the unfunded accrued liability) as determined in the Actuarial Valuation Report. The City includes this assumption in the annual budget process. Salaries are estimated during the budget process and the contribution rate is applied to the total salaries to determine the annual payment to be made to CalPERS. Actuarial Valuation System An annual valuation is performed by the CalPERS actuary and the City receives the results of this valuation, which determines the amount of contributions the City needs to make for the next fiscal year. It is important to remember that the valuation reports lag and the contribution rates that are used in a fiscal year are based on payroll data and employee census from the prior year. For example, the current 2015 Annual Valuation Report determined the pension rates used in the FY16-17 budget. There are three main categories that are used to create the actuarial valuation results: member information, benefit provisions, and actuarial assumptions and methods. To begin the process the actuary collects the current member information from our agency and the benefit provisions in the City's contract with CalPERS are built into the valuation. Lastly, the actuarial assumptions and methods are applied; this results in the actuarial valuation results. The key actuarial valuation results are the present value of benefits, normal cost, accrued liability and funded status, as described briefly in the following table. Actuarial Valuation Results Definition Example The present value of benefits Amount of money needed represents the total dollars today to fully fund service Present Value of needed today to fully fund all credits accrued to date AND Benefits expected benefits for current the expected future years of members in the plan (both past and future service). service. Normal cost is the annual cost The cost of one year of Normal Cost associated with one year of service by an employee. This service accrual. cost is also dependent on the City's plan provisions and 3 Funded Status The annual certified actuarial report issued by CalPERS determines the Funded Status for all plans administered by CalPERS. The funded status is calculated as follows: Market Value of Assets - Accrued Liability = Funded Status % Funded status is an indicator of how "on track" our plan is, and 100% is the desired target. Based on information from CalPERS, the "average plan" is about 73% funded as of the latest annual actuarial reporting. The City is funded at 76.5% for the Tier 1 employees (see page 11 of Attachment A), 96.6% for Tier 2 employees (see page 11 of Attachment B) and 95.7% for the Tier 3 employees (see page 11 of Attachment C). Overall, the City is 89.6% funded which is significantly above the average. Each year, every employer contribution requirement is adjusted based upon the Funded Status. If an employer reached the 100% Funded Status in a given year, the employer would still be required to make the Normal Cost contribution, which is the benefits earned by employees during that fiscal year. Employers that are less than 100% funded must make the Normal Cost Contribution and an annual payment toward the Unfunded Accrued Liability. Every employer makes contributions to CalPERS in two parts: A. Normal Cost - Pays for a year of benefit accrual (i.e., an employee works a full year of service for the City) B. Amortization of Unfunded Accrued Liability (UAL) - Pays for any deficit or surplus accrued over the prior years of service. C. Total Annual Contribution Rate = Normal Cost + UAL El assumptions including expected investment return and age member entered plan, among other items. Accrued liability is the portion of the Present Value of The portion of the Present Benefits related to service Value of Benefits related to Accrued Liability earned to date. This also the years of service accrued includes the target level of to date. assets on the given valuation date. Funded Status The annual certified actuarial report issued by CalPERS determines the Funded Status for all plans administered by CalPERS. The funded status is calculated as follows: Market Value of Assets - Accrued Liability = Funded Status % Funded status is an indicator of how "on track" our plan is, and 100% is the desired target. Based on information from CalPERS, the "average plan" is about 73% funded as of the latest annual actuarial reporting. The City is funded at 76.5% for the Tier 1 employees (see page 11 of Attachment A), 96.6% for Tier 2 employees (see page 11 of Attachment B) and 95.7% for the Tier 3 employees (see page 11 of Attachment C). Overall, the City is 89.6% funded which is significantly above the average. Each year, every employer contribution requirement is adjusted based upon the Funded Status. If an employer reached the 100% Funded Status in a given year, the employer would still be required to make the Normal Cost contribution, which is the benefits earned by employees during that fiscal year. Employers that are less than 100% funded must make the Normal Cost Contribution and an annual payment toward the Unfunded Accrued Liability. Every employer makes contributions to CalPERS in two parts: A. Normal Cost - Pays for a year of benefit accrual (i.e., an employee works a full year of service for the City) B. Amortization of Unfunded Accrued Liability (UAL) - Pays for any deficit or surplus accrued over the prior years of service. C. Total Annual Contribution Rate = Normal Cost + UAL El Moving Parts to Consider Assumptions used by CalPERS to create the annual contribution rate are always a moving target. Some of the items to consider are: The City hires a new employee The City must start pre -funding promised pension benefit Many unknowns: o Future salary increases o Years of service / age of retirement o Length of time benefits will be paid o Investment returns over time The actuary does track employees that leave our agency for another and incorporate salary changes up to the IRS limit into our annual valuations. This ensures that the City is recognizing the liability as it is being earned. Certified actuaries follow guidelines that assist them in handling the unknown. Below is a list of some of the tools that are used to handle the unknown elements: Demographic Assumptions include: o Mortality/Longevity o Retirement rates/ Service Termination rates o Disability incidence rates o Typical age, service and gender related o May vary based upon benefit formula and member category (i.e. Police, Fire or Miscellaneous) • Economic Assumptions include: o Salary growth rates o Annual inflation ■ Current assumption is 2.75% o Investment return / Discount Rate ■ Current assumption is 7.50% (will be reduced to 7.00% over the next three years) Actuarial assumptions are used for the long term and are rarely realized in a given year. Gains or losses occur when actual experience doesn't match these assumptions. CalPERS actuarial staff performs an Experience Study every four years and compares actual experience with the actuarial assumptions. An experience study measures actual plan demographic experience over a defined period of time. The results of the study are used to refine and improve actuarial assumptions used in future actuarial valuations. Based on that study, changes are recommended to the CaIPERS Board. The most recent and publicized changes were to the mortality rates to estimate life expectancy for members and the discount rate used for the investment return. �� CalPERS generally phases in significant changes in assumptions to enable employers to plan for the future increase in benefit costs. CaIPERS Risk Pools Based on information from CalPERS, when performing actuarial valuation, actuaries use assumptions to predict future employee behavior. The key for actuarial assumptions to work is to have large numbers. CalPERS administers over 2,000 separate pension plans for local agency employers. Of these 2,000 plans, over 700 are plans that cover fewer than 10 active employees. It became evident in the late 1990s that smaller employers could not bear the risk associated with their pension plans, primarily due to demographic changes. As a smaller agency, when a member exits the fund by withdrawing their assets or begins to draw down on their retirement, the impacts are felt much more immediately than that of a larger agency. For example, a City of ten employees with a standalone fund would be much more affected by two members exiting than an employer with 200 employees and corresponding assets. The small size of a city potentially drives the annual contributions upward to keep a fund funded at an acceptable level. In 2003, the CalPERS Board approved the implementation of risk pools, for miscellaneous members and safety (police and fire) members. To protect smaller agencies that have fewer than 100 active members in either group from being disproportionately impacted due to their size, they are required to be part of the risk pool. Being part of the risk pool helps to mitigate liability volatility while still keeping the assets contributed separated by agency. Risk pooling is the process of combining assets and liabilities across employers to produce a larger, risk -sharing pool. Risk -sharing pools dramatically reduces large fluctuations in an employer's retirement contribution rate caused by unexpected demographic events. Similar to mutual funds or investment trusts, pooling allows fund managers to invest and sell assets when the time is right, not when members join or leave a fund, or begin drawing down on assets. The employer's assets are tracked separately and they are not responsible for other employers' obligations, and the group benefits by creating insulation from shocks that occur. In essence, it creates more day- to-day contribution rate stability for employers when people retire or separate from CalPERS. Sections 20840, 20841 and 20842 of the California Government Code allow the CalPERS Board to create risk pools and mandate public agencies participation in the pools. Risk pools for public agencies went into effect in 2003. The first -pooled contribution rates became effective July 1, 2005. Pools were initially created according to their benefit formula and employee classification (miscellaneous or safety). Participation in either the miscellaneous or safety pool is mandatory for public agencies with fewer than 100 active members. The on City of Rancho Palos Verdes has fewer than 100 active members, so the City is required to be part of a risk pool based on the benefit provided to the employees. Initially, five miscellaneous risk pools were created and four safety risk pools were created aligned with benefits provided, i.e. 2% @ 55. In September 2012, Governor Brown signed AB 340, the Public Employee Pension Reform Act (PEPRA), which imposed sweeping reforms for pension provisions. The new law defined pensionable compensation and imposed specific caps and limits on compensation used in the defined benefit calculation. Additionally, PEPRA established equal sharing of pension costs with new employees and created new benefit formulas for employees joining CalPERS after 2012. The City also took steps to mitigate pension costs going forward by reducing the benefit for existing CalPERS members who joined the City after 2012. Over the past several years, CalPERS staff were monitoring the risk pools to ensure their effectiveness at protecting the small employers from large fluctuations in employer contribution. By late 2013, CalPERS staff brought information to the Board identifying some unintended consequences resulting from the interaction of PEPRA and existing Board policies on risk pools. They reported to the Board that changes to the risk pools were necessary to ensure proper funding of the pools and address some equity issues. Most of the unintended consequences resulted from the fact that existing classic pools were closed to new PEPRA hires, which result in a decline in covered payroll for the existing risk pools. Under existing policies, a decline in payroll or even a smaller payroll growth than assumed would result in a underfunding of the pools. Changes were necessary to avoid this potential underfunding. The key changes adopted by the Board June 5, 2014, to address the funding equity and contribution volatility are as follows: 1. All active and inactive risk pools were combined into two risk pools: one for all miscellaneous plans and one for all safety plans. 2. Each prior pool's unfunded accrued liability will be allocated proportionately to each individual plan based on each plan's total liability instead of plan payroll. 3. Employer contributions toward the unfunded liability will be collected in dollar amounts instead of a contribution rate expressed as a percentage of payroll. It is important to note that the change to dollar amount versus percentage of payroll for the City's unfunded liability was done in order to address the equity issues that arose from employer payroll either increasing faster or slower than assumed in the actuarial valuation. For example, the actuarial assumption includes a salary growth rate of 2.00% for payroll. If the City's actual payroll grows at a slower or faster rate, it will affect the next valuation. Additionally, an annual reconciliation is performed to the risk pool assumptions and the variances are shared by the pool members. So there is a shared risk to the pool 7 members, but at a very diluted level and only on the deviations from the assumptions; for example, changes in the actual investment return from the assumption used. That variance is allocated back to the risk pool members and amortized based on the current CaIPERS smoothing methodology. Agency Default and Termination In the case where an agency that is a member of the risk pool defaults on their pension payments, CaIPERS can terminate the pension contract in accordance with Government Code section 20572. Furthermore, CalPERS will analyze the member's funding levels and, based on the funded status, has the authority to reduce benefits for active employees and reduce retiree pension payments under Government Code section 20577. The agency that contracted with CaIPERS is responsible for the promised benefit. City of Rancho Palos Verdes Actuarial Valuation Report (AVR) Staff has received the City's Annual Actuarial Valuation Report for 2015. As stated earlier in this report, the City's employee pension plan includes 3 tiers of benefits. Based on the current Actuarial Valuation Report, City's rates and unfunded liability payment are as follows: Tier Formula Employee Contribution 2015-2016 Employee Normal Cost 2015-2016 Employee Normal Cost 2016-2017 Increase Tier 1 2.5% @ 55 8.000% 9.617% 10.069% 0.398% Tier 2 2.0% @ 60 7.000% 6.709% 7.159% 0.450% Tier 3 1 2.0% @ 62 6.250% 6.237% 6.555% 0.318% Employer Payment of Tier Unfunded Liability 2015-2016 Employer Payment of Unfunded Liability 2016-2017 Increase Tier 1 $356,067 $413,568 $57,501 Tier 2 $0 $0 $0 Tier 3 $0 $90 $90 Budaet Works hop--CalPERS Items for Discussion At the upcoming budget workshop on April 10, 2017, the City will be discussing the FY17-18 estimated contribution rates (see below), the recently announced changes in the discount rate assumption used by the actuaries and the changes due to the implementation of GASB 68. Discount Rate Change CalPERS recently announced a change to the discount rate assumption and the impact these changes are expected to have on required employer and member contributions. The June 30, 2016, annual actuarial valuations will provide updated projections of expected future year pension contributions. These reports will be available this summer. On December 21, 2016, the CalPERS Board of Administration approved lowering the discount rate assumption, the long-term rate of return, from 7.50 percent to 7.00 percent over the next three years. This will increase our contribution costs beginning in FY18- 19. The phase-in of the discount rate change approved by the Board for the next three Fiscal Years is as follows: Valuation Date Fiscal Year for Required Contribution Discount Rate June 30, 2016 2018-19 7.375% June 30, 2017 2019-20 7.25% June 30, 2018 2020-21 7.00% Based on the current information and direction that Staff has received from CalPERS, we have estimated the expected future impact from this change as follows: Please keep in mind that the above table is a broad estimate based on a current set of assumptions and should only be used as a general guide. The annual actuarial valuation report that will be released this summer will provide updated projections for our specific plan. GASB 68 The Governmental Accounting Standards Board (GASB) approved a new standard that took effect in FY14-15. The objective of GASB 68 is to improve accounting and financial reporting by state and local governments for pensions. State and local agencies are now required to recognize applicable pension amounts as a liability in their financial statements (Balance Sheet) and also provide extensive footnote disclosures and additional supplementary schedules related to their pension plan. 9 FY 16-17 FY 17-18 FY 17-18 FY 18-19 FY 18-19 FY 19-20 FY 19-20 Rate @ Rate @ Rate @ Rate @ 7.5% Projections 7.375% Projections 7.25% Projections 7% Projections Tier 1 18.770% 368,804.85 19.211% 370,175.02 19.653% 371,545.19 20.535% 374,285.53 Tier 2 7.159% 138,882.41 8.427% 140,525.30 9.694% 142,168.19 12.230% 145,453.98 Tier 3 6.572% 97,101.40 7.713% 98,141.00 8.854% 99,180.60 11.136% 101,259.81 604,788.65 608,841.32 612,893.98 620,999.32 4,052.67 8,105.34 16,210.67 Please keep in mind that the above table is a broad estimate based on a current set of assumptions and should only be used as a general guide. The annual actuarial valuation report that will be released this summer will provide updated projections for our specific plan. GASB 68 The Governmental Accounting Standards Board (GASB) approved a new standard that took effect in FY14-15. The objective of GASB 68 is to improve accounting and financial reporting by state and local governments for pensions. State and local agencies are now required to recognize applicable pension amounts as a liability in their financial statements (Balance Sheet) and also provide extensive footnote disclosures and additional supplementary schedules related to their pension plan. 9 As of June 30, 2016, the City reported a liability of $7,637,567 for its proportionate share of the net pension liability. In comparison to the previous year, the reported liability increased by $1,923,247 due to the changes of assumptions using a discount rate of 7.65 percent. In the GASB 68, paragraph 68 states that the long-term expected rate of return should be determined net of pension plan investment expense, but without reduction of pension plan administrative expense. The discount rate of 7.50 percent used for the June 30, 2014, measurement date was net of administrative expenses. The discount rate of 7.65 percent used for the June 30, 2015, measurement date is without reduction of pension plan administrative expense. 10 California Public Employees' Retirement System Actuarial Office P.O. Box 942709 Al � Sacramento, CA 94229-2709 TTY: (916) 795-3240 CAPERS (888) 225-7377 phone — (916) 795-2744 fax www.calpers.ca.gov August 2016 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES (CaIPERS ID: 3846845523) Annual Valuation Report as of June 30, 2015 Dear Employer, As an attachment to this letter, you will find a copy of the June 30, 2015 actuarial valuation report of the pension plan. Because this plan is in a risk pool, the following valuation report has been separated into two sections: Section 1 contains specific information for the plan including the development of the current and projected employer contributions, and Section 2 contains the Risk Pool Actuarial Valuation appropriate to the plan as of June 30, 2015. Section 2 can be found on the CaIPERS website at (www.calpers.ca.gov). From the home page, go to "Forms & Publications" and select " View A//'. In the search box, enter "Risk Poo/ Report" and from the results list download the Miscellaneous or Safety Risk Pool Actuarial Valuation Report as appropriate. Your June 30, 2015 actuarial valuation report contains important actuarial information about your pension plan at CalPERS. Your assigned CaIPERS staff actuary, whose signature appears in the Actuarial Certification section on page 1, is available to discuss the report with you after August 31, 2016. Future Employer Contribution Fiscal Employer Normal Employer Payment of Year Cost Rate + Unfunded Liability 2017-18 10.110% $495,784 2018-19 (projected) 10.1% $614,807 The exhibit above displays the minimum employer contributions, before any cost sharing, for Fiscal Year 2017-18 along with estimates of the contributions for Fiscal Year 2018-19. The total employer contribution is the sum of a Normal Cost Rate applied to reported payroll plus an Unfunded Liability dollar payment. The estimated contributions for Fiscal Year 2018-19 are based on a projection of the most recent information we have available, including an estimated 0.0 percent investment return for Fiscal Year 2015-16 (based on the year to date return through April 30, 2016). A-1 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES (CaIPERS ID: 3846845523) Annual Valuation Report as of June 30, 2015 Page 2 For a projection of employer contributions beyond Fiscal Year 2018-19, please refer to the "Projected Employer Contributions" in the "Highlights and Executive Summary" section. This 5 - year projection of future employer contributions supersedes any previous projections we have provided. The "Risk Analysis" section of the valuation report also contains estimated employer contributions in future years under a variety of investment return scenarios. Member contributions, other than cost sharing, are in addition to the above amounts. The employer contributions in this report do not reflect any cost sharing arrangements you may have with your employees. The estimates for Fiscal Year 2018-19 also assume that there are no future contract amendments and no liability gains or losses (such as larger than expected pay increases, more retirements than expected, etc.) This is an important assumption because these gains and losses do occur and can have a significant effect on required contributions. Even for the largest plans or pools, such gains and losses can impact the employer's contributions. These gains and losses cannot be predicted in advance so the projected employer contributions are estimates. The actual required employer contribution for Fiscal Year 2018-19 will be provided in next year's valuation report. Changes since the Prior Year's Valuation The CaIPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CaIPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. The policy has no impact on the current year valuation results but is expected to have an impact in future years. More details on the Risk Mitigation Policy can be found on our website. Besides the above noted changes, there may also be changes specific to the plan such as contract amendments and funding changes. Further descriptions of general changes are included in the 'Highlights and Executive Summary" section and in Appendix A, 'Statement of Actuarial Data, Methods and Assumptions"' of the Section 2 report. We understand that you might have a number of questions about these results. While we are very interested in discussing these results with your agency, in the interest of allowing us to give every public agency their results, we ask that you wait until after August 31 to contact us with actuarial related questions. If you have other questions, please call our customer contact center at (888) CaIPERS or (888- 225-7377). Sincerely, ALAN MILLIGAN Chief Actuary A-2 ACTUARIAL VALUATION as of June 30, 2015 for the MISCELLANEOUS PLAN of the CITY OF RANCHO PALOS VERDES (CaIPERS ID: 3846845523) REQUIRED CONTRIBUTIONS FOR FISCAL YEAR July 1, 2017 - June 30, 2018 A-3 TABLE OF CONTENTS SECTION 1 - PLAN SPECIFIC INFORMATION SECTION 2 - RISK POOL ACTUARIAL VALUATION INFORMATION Section 1 CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Plan Specific Information for the MISCELLANEOUS PLAN of the CITY OF RANCHO PALOS VERDES (CalPERS ID: 3846845523) (Rate Plan: 1107) (CY) FIN PROCESS CONTROL ID: 483957 (PY) FIN PROCESS CONTROL ID: 466792 REPORT ID: 98426 A-5 TABLE OF CONTENTS ACTUARIAL CERTIFICATION 1 HIGHLIGHTS AND EXECUTIVE SUMMARY INTRODUCTION 3 PURPOSE OF SECTION 1 3 REQUIRED EMPLOYER CONTRIBUTION 4 PLAN'S FUNDED STATUS 5 PROJECTED EMPLOYER CONTRIBUTIONS 5 CHANGES SINCE THE PRIOR YEAR VALUATION 5 SUBSEQUENT EVENTS 5 ASSETS AND LIABILITIES ALLOCATION OF PLAN'S SHARE OF POOL'S EXPERIENCE/ASSUMPTION CHANGE 7 DEVELOPMENT OF PLAN'S SHARE OF POOL'S MVA 7 SCHEDULE OF PLAN'S SIDE FUND & OTHER AMORTIZATION BASES 8 30 -YEAR AMORTIZATION SCHEDULE AND ALTERNATIVES 9 EMPLOYER CONTRIBUTION HISTORY 11 FUNDING HISTORY 11 RISK ANALYSIS ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS 13 ANALYSIS OF DISCOUNT RATE SENSITIVITY 14 VOLATILITY RATIOS 15 HYPOTHETICAL TERMINATION LIABILITY 16 PARTICIPANT DATA 17 LIST OF CLASS 1 BENEFIT PROVISIONS 17 PLAN'S MAJOR BENEFIT OPTIONS 18 1 o CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 ACTUARIAL CERTIFICATION Section 1 of this report is based on the member and financial data contained in our records as of June 30, 2015 which was provided by your agency and the benefit provisions under your contract with CalPERS. Section 2 of this report is based on the member and financial data as of June 30, 2015 provided by employers participating in the Miscellaneous Risk Pool to which the plan belongs and benefit provisions under the CalPERS contracts for those agencies. As set forth in Section 2 of this report, the pool actuary has certified that, in their opinion, the valuation of the risk pool containing your MISCELLANEOUS PLAN has been performed in accordance with generally accepted actuarial principles consistent with standards of practice prescribed by the Actuarial Standards Board, and that the assumptions and methods are internally consistent and reasonable for the risk pool as of the date of this valuation and as prescribed by the CalPERS Board of Administration according to provisions set forth in the California Public Employees' Retirement Law. Having relied upon the information set forth in Section 2 of this report and based on the census and benefit provision information for the plan, it is my opinion as the plan actuary that the side fund and other Unfunded Accrued Liability bases as of June 30, 2015 and employer contribution as of July 1, 2017, have been properly and accurately determined in accordance with the principles and standards stated above. The undersigned is an actuary for CalPERS, who is a member of both the American Academy of Actuaries and Society of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. RANDALL DZIUBEK, ASA, EA, MAAA Senior Pension Actuary, CalPERS Plan Actuary Rate Plan belonging to the Miscellaneous Risk Pool Page 1 A-7 HIGHLIGHTS AND EXECUTIVE SUMMARY INTRODUCTION PURPOSE OF SECTION 1 REQUIRED EMPLOYER CONTRIBUTION PLAN'S FUNDED STATUS PROJECTED EMPLOYER CONTRIBUTIONS CHANGES SINCE THE PRIOR YEAR VALUATION SUBSEQUENT EVENTS 1 • • CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CaIPERS ID: 3846845523 Introduction This report presents the results of the June 30, 2015 actuarial valuation of the MISCELLANEOUS PLAN of the CITY OF RANCHO PALOS VERDES of the California Public Employees' Retirement System (CaIPERS). This actuarial valuation sets the required employer contributions for Fiscal Year 2017-18. The CaIPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CaIPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. The Risk Mitigation Policy does not have an impact on the current year actuarial valuation. More details on the Risk Mitigation Policy can be found on our website. Purpose of Section 1 This Section 1 report for the MISCELLANEOUS PLAN of the CITY OF RANCHO PALOS VERDES of the California Public Employees' Retirement System (CaIPERS) was prepared by the plan actuary in order to: Set forth the assets and accrued liabilities of this plan as of June 30, 2015; Determine the required employer contribution for this plan for the fiscal year July 1, 2017 through June 30, 2018; and Provide actuarial information as of June 30, 2015 to the CaIPERS Board of Administration and other interested parties. The pension funding information presented in this report should not be used in financial reports subject to GASB Statement No. 68 for a Cost Sharing Employer Defined Benefit Pension Plan. A separate accounting valuation report for such purposes is available from CaIPERS and details for ordering are available on our website. The use of this report for any other purposes may be inappropriate. In particular, this report does not contain information applicable to alternative benefit costs. The employer should contact their actuary before disseminating any portion of this report for any reason that is not explicitly described above. California Actuarial Advisory Panel Recommendations This report includes all the basic disclosure elements as described in the Model Disclosure Elements for Actuarial Valuation Reports recommended in 2011 by the California Actuarial Advisory Panel (CARP), with the exception of including the original base amounts of the various components of the unfunded liability in the Schedule of Amortization Bases shown on page 8. Additionally, this report includes the following "Enhanced Risk Disclosures" also recommended by the CAAP in the Model Disclosure Elements document: A "Deterministic Stress Test," projecting future results under different investment income scenarios A "Sensitivity Analysis," showing the impact on current valuation results using a 1 percent plus or minus change in the discount rate. Rate Plan belonging to the Miscellaneous Risk Pool Page 3 MR CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Required Employer Contribution Fiscal Year Fiscal Year Required Employer Contribution 2016-17 1 2017-18 Employer Normal Cost Rate 10.069% 10.110% Plus Either 1) Monthly Employer Dollar UAL Payment $ 34,463.98 $ 41,315.33 Or 2) Annual Lump Sum Prepayment Option $ 398,880 $ 478,176 The total minimum required employer contribution is the sum of the Plan's Employer Normal Cost Rate (expressed as a percentage of payroll) plus the Employer Unfunded Accrued Liability (UAL) Contribution Amount (billed monthly in dollars). Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later than July 31). Plan Normal Cost contributions will be made as part of the payroll reporting process. If there is contractual cost sharing or other change, this amount will change. § 20572 of the Public Employees' Retirement Law assesses interest at an annual rate of 10 percent if a contracting agency fails to remit the required contributions when due. Development of Normal Cost as a Percentage of Payroll Base Total Normal Cost for Formula Surcharge for Class 1 Benefits3 a) FAC 1 Phase out of Normal Cost Difference Plan's Total Normal Cost Formula's Expected Employee Contribution Rate Employer Normal Cost Rate Projected Payroll for the Contribution Fiscal Year Fiscal Year Fiscal Year 2016-171 2017-18 17.442% 17.485% 0.571% 0.571% 0.000% 0.000% 18.014% 18.056% 7.944% 7.946% 10.069% 10.110% $ 4,753,309 $ 3,932,929 Estimated Employer Contributions Based on Projected Payroll Plan's Estimated Employer Normal Cost $ 478,626 $ 397,619 Plan's Payment on Amortization Basest 413,568 495,784 Total Employer Contributions $ 892,194 $ 893,403 1 The results shown for Fiscal Year 2016-17 reflect the prior year valuation and do not take into account any lump sum payment, side fund payoff, or rate adjustment made after June 30, 2015. Z See page 8 for a breakdown of the Amortization Bases. 3 Section 2 of this report contains a list of Class 1 benefits and corresponding surcharges for each benefit. 4 The normal cost difference is phased out over a five year period. The phase out of normal cost difference is 100 percent for the first year of pooling, and is incrementally reduced by 20 percent of the original normal cost difference for each subsequent year. This is non -zero only for plans that joined a pool within the past 5 years. Most plans joined a pool June 30, 2003, when risk pooling was implemented. 5 As a percentage of projected payroll the UAL contribution is 12.606 percent for an estimated total employer contribution rate of 22.716 percent. Rate Plan belonging to the Miscellaneous Risk Pool Page 4 A-10 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Plan's Funded Status 1. Present Value of Projected Benefits (PVB) 2. Entry Age Normal Accrued Liability (AL) 3. Plan's Market Value of Assets (MVA) 4. Unfunded Accrued Liability (UAL) [(2) - (3)] 5. Funded Ratio [(3) / (2)] June 30, 2014 June 30, 2015 37,719,437 $ 38,785,649 32,822,157 34,740,823 26,128,062 26,564,734 6,694,095 8,176,089 79.6% 76.5% Projected Employer Contributions The estimate for Fiscal Year 2018-19 is based on a projection of the most recent information we have available, including an estimated 0.0 percent investment return for Fiscal Year 2015-16 (based on year to date return through April 30, 2016). The table below shows projected employer contributions (before cost sharing) for the next five fiscal years, assuming Ca/PERS earns O.O percent for Fiscal Year 2015-16 and Z50 percent every Rscai year thereafter, and assuming that all other actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur between now and the beginning of the projection period. Changes since the Prior Year's Valuation Benefits None. This valuation generally reflects plan changes by amendments effective before the date of the report. Please refer to the "Plan's Major Benefit Options" and Appendix B of Section 2 for a summary of the plan provisions used in this valuation. Actuarial Methods and Assumptions None. Subsequent Events Risk Mitigation The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CalPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. More details on the Risk Mitigation Policy can be found on our website. Rate Plan belonging to the Miscellaneous Risk Pool Page 5 A-11 Required Contribution Projected Future Employer Contributions Fiscal Year 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 Normal Cost % 10.110% 10.1% 10.1% 10.1% 10.1% 10.1% UAL $ $495,784 $614,807 $740,526 $816,311 $900,332 $963,636 Changes since the Prior Year's Valuation Benefits None. This valuation generally reflects plan changes by amendments effective before the date of the report. Please refer to the "Plan's Major Benefit Options" and Appendix B of Section 2 for a summary of the plan provisions used in this valuation. Actuarial Methods and Assumptions None. Subsequent Events Risk Mitigation The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CalPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. More details on the Risk Mitigation Policy can be found on our website. Rate Plan belonging to the Miscellaneous Risk Pool Page 5 A-11 ASSETS AND LIABILITIES ALLOCATION OF PLAN'S SHARE OF POOL'S EXPERIENCE/ASSUMPTION CHANGE DEVELOPMENT OF PLAN'S SHARE OF POOL'S MVA SCHEDULE OF PLAN'S SIDE FUND & OTHER AMORTIZATION BASES 30 -YEAR AMORTIZATION SCHEDULE AND ALTERNATIVES EMPLOYER CONTRIBUTION HISTORY FUNDING HISTORY A-12 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Allocation of Plan's Share of Pool's Experience/Assumption Change It is the policy of CalPERS to ensure equity within the risk pools by allocating the pool's experience gains/losses and assumption changes in a manner that treats each employer equitably and maintains benefit security for the members of the System while minimizing substantial variations in employer contributions. The Pool's experience gains/losses and impact of assumption/method changes is allocated to the plan as follows: 1. Plan's Accrued Liability $ 34,740,823 2. Projected UAL balance at 6/30/15 6,848,031 3. Pool's Accrued Liability $ 13,889,938,645 4. Sum of Pool's Individual Plan UAL Balances at 6/30/15 2,423,468,906 5. Pool's 2014/15 Investment & Asset (Gain)/Loss 596,365,421 6. Pool's 2014/15 Other (Gain)/Loss (49,030,273) 7. Plan's Share of Pool's Asset (Gain)/Loss [(1)-(2)]/[(3)-(4)] * (5) 1,450,690 8. Plan's Share of Pool's Other (Gain)/Loss [(1)]/[(3)] * (6) (122,632) 9. Plan's New (Gain)/Loss as of 6/30/2015 [(7)+(8)] $ 1,328,058 10. Increase in Pool's Accrued Liability due to Change in Assumptions 0 11. Plan's Share of Pool's Change in Assumptions [(1)]/[(3)] * (10) $ 0 Development of the Plan's Share of Pool's Market Value of Assets 1. Plan's Accrued Liability $ 34,740,823 2. Plan's UAL $ 8,176,089 3. Plan's Share of Pool's MVA [(1)-(2)] $ 26,564,734 Rate Plan belonging to the Miscellaneous Risk Pool Page 7 A-13 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Schedule of Plan's Side Fund and Other Amortization Bases There is a two-year lag between the valuation date and the start of the contribution fiscal year. The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2015. The employer contribution determined by the valuation is for the fiscal year beginning two years after the valuation date: Fiscal Year 2017-18. This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with their employer contribution well in advance of the start of the fiscal year. The Unfunded Accrued Liability (UAL) is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first day of the fiscal year for which the contribution is being determined. The UAL is rolled forward each year by subtracting the payment on the UAL for the fiscal year and adjusting for interest. The (gain)/loss bases are the plan's allocated share of the risk pool's (gain)/loss for the fiscal year as disclosed on the previous page. These (gain)/loss bases will be amortized according to Board policy over 30 years with a 5 -year ramp -up. If the total Unfunded Liability is negative (i.e., plan has a surplus), the scheduled payment is $0, because the minimum required contribution under PEPRA must be at least equal to the normal cost. Rate Plan belonging to the Miscellaneous Risk Pool Page 8 A-14 Amounts forFiscal 2017-18 Scheduled Date Amortization Balance Payment Balance Payment Balance Payment Reason for Base Established Period 6/30/15 2015-16 6/30/16 2016-17 6/30/17 for 2017-18 SHARE OF PRE -2013 POOL UAL ........................................................__......................................................_......................._....... 06/30/13 19 $4,191,341 $306,964 ...$4,187,425 .................................r..........._............._..... $316 173 $4 173,667 $325,659 (GAIN)/LOSS ASSET GAIN /LOSS 06/30/13 ........ .............. 28 .................._.......................................................................__ 3,523,634 49,560 ...................................... 3,736,522 $102 094 .._.................._............................................................................... $3 910,908 157 735 ...................................................................._............................._...................................................................................................................................................................._......................................................................_................................................................._.................................................._I..................._.................................................................._.....................................................r.................... NON -ASSET GAIN /LOSS 06/30/13 28 $ 32 500 $(457) $ 34 4I. 64 ...........................................................).._..........................................x.............).._................................................_(.1 $P4 2 $ 36 072 $ 1 455 �..........5 ) ASSET(GAIN)/LOSS ....................................................................................................................................._..............................................................................................................................................................................................)..............................................................................._..............................................................................................................(.........................).._...............................................................).._............................................................................... 06/30/14 29 $(2,409,907 $0 $(2,590,650) $ 36,438 $(2,747,169 $(75,061) ASSUMPTION CHANGE ..........................................................................................................................................._................................................................................................................................................................................................_....................................(.........................).._...............................i...................................._......................................................................_.............................................r...................._ 06/30/14 19 1 572,710 22,034 $1 713,509 32,638 $1 808 182 ........................................... $67,235 .................................... NON -ASSET GAIN /LOSS (...................)............................................................._........................................................................................................................................................................$.....�..................._...........................................................�..... 06/30/14 29 2 753 0 $2 959 $42 $3 137 86 ........... .......................................... ASSET GAIN /LOSS 06/30/15 30 $1,450,690 ..... _................................................<.............................................................................................._......................... $0 $1,559,492 $0 ............. ............................_...........................................................�................ $1,676,454 $23,579 .................................(...................)................................................................................._.........................................................._............................................................._............................................................................_........................................................................._....................................................................._........................................................................._...................................................................._............................................................................... NON -ASSET GAIN /LOSS 06/30/15 30 $ 122,632 $0 $ 131,829 $0 $ 141,717 $ 1,993 .....................................................(...................)............................................................._.........................................................._............................................................._.....................................(..............................)....._........................................................................._...............................(..............................)..._........................................................................._...............................(.............................)..._.............................................$(.................3)... TOTAL ..........................................................................................................................................._........................................................... ......... ......... $8,176,089 ..........- $334,033 ........ .............. _ ... $8,442,964 $413,567 ....._...... $8,647,390 $495,785 ..... ........._. ......... The (gain)/loss bases are the plan's allocated share of the risk pool's (gain)/loss for the fiscal year as disclosed on the previous page. These (gain)/loss bases will be amortized according to Board policy over 30 years with a 5 -year ramp -up. If the total Unfunded Liability is negative (i.e., plan has a surplus), the scheduled payment is $0, because the minimum required contribution under PEPRA must be at least equal to the normal cost. Rate Plan belonging to the Miscellaneous Risk Pool Page 8 A-14 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 30 -Year Amortization Schedule and Alternatives The amortization schedule on the previous page shows the minimum contributions required according to CalPERS amortization policy. There has been considerable interest from many agencies in paying off these unfunded accrued liabilities sooner and the possible savings in doing so. As a result, we have provided alternate amortization schedules to help analyze the current amortization schedule and illustrate the advantages of accelerating unfunded liability payments. Shown on the following page are future year amortization payments based on 1) the current amortization schedule reflecting the individual bases and remaining periods shown on the previous page, and 2) alternate "fresh start" amortization schedules using two sample periods that would both result in interest savings relative to the current amortization schedule. Note that the payments under each alternate scenario increase by 3 percent for each year into the future. The schedules do not attempt to reflect any experience after June 30, 2015 that may deviate from the actuarial assumptions. Therefore, future amortization payments displayed in the Current Amortization Schedule may not match projected amortization payments shown in connection with Projected Employer Contributions provided elsewhere in this report. The Current Amortization Schedule typically contains individual bases that are both positive and negative. Positive bases result from plan changes, assumption changes or plan experience that result in increases to unfunded liability. Negative bases result from plan changes, assumption changes or plan experience that result in decreases to unfunded liability. The combination of positive and negative bases within an amortization schedule can result in unusual or problematic circumstances in future years such as: A positive total unfunded liability with a negative total payment, A negative total unfunded liability with a positive total payment, or Total payments that completely amortize the unfunded liability over a very short period of time In any year where one of the above scenarios occurs, the actuary will consider corrective action such as replacing the existing unfunded liability bases with a single "fresh start" base and amortizing it over a reasonable period. The Current Amortization Schedule on the following page may appear to show that, based on the current amortization bases, one of the above scenarios will occur at some point in the future. It is impossible to know today whether such a scenario will in fact arise since there will be additional bases added to the amortization schedule in each future year. Should such a scenario arise in any future year, the actuary will take appropriate action based on guidelines in the CalPERS amortization policy. For purposes of this display, total payments include any negative payments. Therefore, the amount of estimated savings may be understated to the extent that negative payments appear in the current schedule. Rate Plan belonging to the Miscellaneous Risk Pool Page 9 A-15 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CaIPERS ID: 3846845523 30 -Year Amortization Schedule and Alternatives Alternate Schedules Current Amortization 20 Year Amortization 15 Year Amortization Schedule Date Balance Payment Balance Payment Balance Payment 6/30/2017 8,647,391 495,784 8,647,391 652,925 8,647,391 792,702 6/30/2018 8,781,905 582,561 8,618,978 672,513 8,474,054 816,483 6/30/2019 8,836,536 674,098 8,568,126 692,688 8,263,060 840,978 6/30/2020 8,800,357 713,680 8,492,541 713,469 8,010,845 866,207 6/30/2021 8,720,425 759,386 8,389,741 734,873 7,713,556 892,193 6/30/2022 8,587,109 782,167 8,257,039 756,919 7,367,027 918,959 6/30/2023 8,420,174 805,632 8,091,527 779,627 6,966,756 946,528 6/30/2024 8,216,390 829,801 7,890,058 803,015 6,507,882 974,924 6/30/2025 7,972,263 854,695 7,649,228 827,106 5,985,151 1,004,172 6/30/2026 7,684,016 880,336 7,365,358 851,919 5,392,890 1,034,297 6/30/2027 7,347,566 906,746 7,034,472 877,477 4,724,975 1,065,326 6/30/2028 6,958,499 933,948 6,652,270 903,801 3,974,795 1,097,285 6/30/2029 6,512,048 961,967 6,214,110 930,915 3,135,215 1,130,204 6/30/2030 6,003,063 990,826 5,714,975 958,842 2,198,535 1,164,110 6/30/2031 5,425,983 1,020,551 5,149,449 987,608 1,156,450 1,199,033 6/30/2032 4,774,802 998,792 4,511,685 1,017,236 6/30/2033 4,097,342 974,810 3,795,369 1,047,753 6/30/2034 3,393,939 948,489 2,993,688 1,079,185 6/30/2035 2,665,070 919,712 2,099,291 1,111,561 6/30/2036 1,911,372 317,311 1,104,247 1,144,908 6/30/2037 1,725,730 326,830 6/30/2038 1,516,295 336,635 6/30/2039 1,280,987 346,734 6/30/2040 1,017,559 357,136 6/30/2041 723,590 261,955 6/30/2042 506,258 239,233 6/30/2043 296,185 168,360 6/30/2044 143,839 93,019 6/30/2045 58,183 13,006 6/30/2046 49,063 50,869 Totals 18,545,069 17,544,338 14,743,402 Estimated Savings 1,000,730 3,801,666 Current CalPERS Board policy prioritizes the order for which lump sum contributions in excess of the required employer contribution shall be applied. Excess contributions shall first be applied toward payment on the plan's side fund, and any remainder shall then be applied toward the plan's share of the pool's unfunded accrued liability. Please contact the plan actuary before making such a payment to ensure that the payment is applied correctly. Rate Plan belonging to the Miscellaneous Risk Pool Page 10 A-16 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Employer Contribution History The table below provides a recent history of the required employer contributions for the plan, as determined by the annual actuarial valuation. It does not account for prepayments or benefit changes made during a fiscal year. Fiscal Employer Unfunded Liability Year Normal Cost Payment ($) 2016- 17 10.069% 413,568 2017- 18 10.110% 495,784 Funding History The funding history below shows the plan's actuarial accrued liability, share of the pool's market value of assets, share of the pool's unfunded liability, funded ratio, and annual covered payroll. Rate Plan belonging to the Miscellaneous Risk Pool Page 11 A-17 Accrued Share of Pool's Plan's Share of Annual Valuation Liability Market Value of Pool's Unfunded Funded Covered Date (AL) Assets (MVA) Liability Ratio Payroll 06/30/2011 $ 25,552,394 $ 19,543,745 $ 6,008,649 76.5% $ 5,093,868 06/30/2012 28,080,069 20,206,710 7,873,359 72.0% 5,447,523 06/30/2013 30,369,005 23,138,924 7,230,081 76.2% 5,026,814 06/30/2014 32,822,157 26,128,062 6,694,095 79.6% 4,349,951 06/30/2015 34,740,823 26,564,734 8,176,089 76.5% 3,599,187 Rate Plan belonging to the Miscellaneous Risk Pool Page 11 A-17 RISK ANALYSIS ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS ANALYSIS OF DISCOUNT RATE SENSITIVITY VOLATILITY RATIOS HYPOTHETICAL TERMINATION LIABILITY • CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Analysis of Future Investment Return Scenarios The investment return for Fiscal Year 2015-16 was not known at the time this report was produced. The investment return in Fiscal Year 2015-16 as of April 30, 2016 is 0.0 percent before administrative expenses. For purposes of projecting future employer contributions, we are assuming a 0.0 percent investment return for Fiscal Year 2015-16. The investment return realized during a fiscal year first affects the contribution for the fiscal year two years later. For example, the investment return for Fiscal Year 2015-16 will first be reflected in the June 30, 2016 actuarial valuation that will be used to set the Fiscal Year 2018-19 employer contributions, the Fiscal Year 2016-17 investment return will first be reflected in the June 30, 2017 actuarial valuation that will be used to set the Fiscal Year 2019-20 employer contributions, and so forth. A sensitivity analysis was performed to determine the effects of various investment returns during fiscal years 2016-17, 2017-18, and 2018-19 on the employer contributions for fiscal years 2019-20, 2020-21, and 2021-22. The projected contributions assume that all other actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur. Five different investment return scenarios were selected. The first scenario is a -3.8 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 5th percentile return from July 1, 2016 through June 30, 2019. The second scenario is a 2.8 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 25th percentile return from July 1, 2016 through June 30, 2019. The third scenario is a 7.5 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 49th percentile return from July 1, 2016 through June 30, 2019. The fourth scenario is a 12.0 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 75th percentile return from July 1, 2016 through June 30, 2019. Finally, the last scenario is an 18.9 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 95th percentile return from July 1, 2016 through June 30, 2019. The table below shows the estimated projected contributions and the estimated increases for the plan under the five different scenarios. 2016-19 Investment Return Scenario 2019-20 Fiscal Year 2020-21 2021-22 Estimated Change Between 2018-19 and 2021-22 3.8% Normal Cost 10.1% 10.1% 10.1% 0.0% UAL Contribution $788,904 $962,269 $1,194,095 $579,288 2.8% Normal Cost 10.1% 10.1% 10.1% 0.0% UAL Contribution $760,649 $878,350 $1,027,893 $413,086 7.5% Normal Cost 10.1% 10.1% 10.1% 0.0% UAL Contribution $740,526 $816,311 $900,332 $285,525 12.0% Normal Cost 10.3% 10.5% 10.8% 0.7% UAL Contribution $721,771 $760,128 $784,381 $169,574 18.9% Normal Cost 10.8% 11.4% 12.0% 1.9% UAL Contribution $693,718 $675,907 $607,878 $ 6,929 Rate Plan belonging to the Miscellaneous Risk Pool Page 13 A-19 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 For the last two scenarios in the table above the results incorporate the impact of CalPERS Risk Mitigation Policy. A 12.0% return would result in a reduction of the discount rate by 0.05% and a return of 18.9% would reduce the discount rate by 0.15%. Reducing the discount rate increases both the plan's accrued liability and normal cost. More details about Risk Mitigation policy can be found on our website. Analysis of Discount Rate Sensitivity The following analysis looks at the Fiscal Year 2017-18 total normal cost rates and liabilities under two different discount rate scenarios. Shown below are the total normal cost rates assuming discount rates that are 1 percent lower and 1 percent higher than the current valuation discount rate. This analysis shows the potential plan impacts if the Public Employees' Retirement Fund (PERF) were to realize investment returns of 6.50 percent or 8.50 percent over the long-term. This analysis is intended to illustrate the long-term risk to the contribution rates. Sensitivity Analysis As of June 30, 2015 6.50% Discount Rate (-10/0) 7.50% Discount Rate (assumed rate) 8.50% Discount Rate (+ia/o) Plan's Total Normal Cost 22.4% 18.1% 14.8% Accrued Liability $39,655,802 $34,740,823 $30,694,167 Unfunded Accrued Liability $13,091,068 $8,176,089 $4,129,433 Rate Plan belonging to the Miscellaneous Risk Pool Page 14 A-20 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Volatility Ratios Actuarial calculations are based on a number of assumptions about long-term demographic and economic behavior. Unless these assumptions (terminations, deaths, disabilities, retirements, salary growth, and investment return) are exactly realized each year, there will be differences on a year-to-year basis. The year-to-year differences between actual experience and the assumptions are called actuarial gains and losses and serve to lower or raise required employer contributions from one year to the next. Therefore, employer contributions will inevitably fluctuate, especially due to the ups and downs of investment returns. Asset Volatility Ratio (AVR) Plans that have higher asset -to -payroll ratios experience more volatile employer contributions (as a percentage of payroll) due to investment return. For example, a plan with an asset -to -payroll ratio of 8 may experience twice the contribution volatility due to investment return volatility, than a plan with an asset -to - payroll ratio of 4. Shown below is the asset volatility ratio, a measure of the plan's current contribution volatility. It should be noted that this ratio is a measure of the current situation. It increases over time but generally tends to stabilize as the plan matures. Liability Volatility Ratio (LVR) Plans that have higher liability -to -payroll ratios experience more volatile employer contributions (as a percentage of payroll) due to investment return and changes in liability. For example, a plan with a liability - to -payroll ratio of 8 is expected to have twice the contribution volatility of a plan with a liability -to -payroll ratio of 4. The liability volatility ratio is also shown in the table below. It should be noted that this ratio indicates a longer-term potential for contribution volatility. The asset volatility ratio, described above, will tend to move closer to the liability volatility ratio as the plan matures. Rate Volatil 1. Market Value of Assets 2. Payroll 3. Asset Volatility Ratio (AVR) [(1) / (2)] 4. Accrued Liability 5. Liability Volatility Ratio (LVR) [(4) / (2)] As of June 30, 2015 26, 564, 734 3,599,187 7.4 34,740,823 9.7 Rate Plan belonging to the Miscellaneous Risk Pool Page 15 A-21 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Hypothetical Termination Liability The hypothetical termination liability is an estimate of the financial position of the plan had the contract with CalPERS been terminated as of June 30, 2015. The plan liability on a termination basis is calculated differently compared to the plan's ongoing funding liability. For the hypothetical termination liability calculation, both compensation and service are frozen as of the valuation date and no future pay increases or service accruals are assumed. A more conservative investment policy and asset allocation strategy was adopted by the CalPERS Board for the Terminated Agency Pool. The Terminated Agency Pool has limited funding sources since no future employer contributions will be made. Therefore, expected benefit payments are secured by risk-free assets and benefit security for members is increased while funding risk is limited. However, this asset allocation has a lower expected rate of return than the PERF and consequently, a lower discount rate is assumed. The lower discount rate for the Terminated Agency Pool results in higher liabilities for terminated plans. The effective termination discount rate will depend on actual market rates of return for risk-free securities on the date of termination. As market discount rates are variable, the table below shows a range for the hypothetical termination liability based on the lowest and highest interest rates observed during an approximate 2 -year period centered around the valuation date. ' The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with Board policy. Other actuarial assumptions, such as wage and inflation assumptions, can be found in Appendix A. Z The current discount rate assumption used for termination valuations is a weighted average of the 10 -year and 30 -year U.S. Treasury yields where the weights are based on matching asset and liability durations as of the termination date. The discount rates used in the table are based on 20 -year Treasury bonds, rounded to the nearest quarter percentage point, which is a good proxy for most plans. The 20 -year Treasury yield was 2.75 percent on June 30, 2015. In order to terminate the plan, you must first contact our Retirement Services Contract Unit to initiate a Resolution of Intent to terminate. The completed Resolution will allow the plan actuary to give you a preliminary termination valuation with a more up-to-date estimate of the plan liabilities. CalPERS advises you to consult with the plan actuary before beginning this process. Rate Plan belonging to the Miscellaneous Risk Pool Page 16 A-22 Hypothetical Unfunded Hypothetical Unfunded Market Termination Funded Termination Termination Funded Termination Value of Liabilityl,Z Status Liability Liabilityl,Z Status Liability Assets (MVA) @ 2.00% @ 2.00% @ 3.25% @ 3.25% $26,564,734 $72,580,510 36.6% $46,015,776 $59,795,198 44.4% $33,230,465 ' The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with Board policy. Other actuarial assumptions, such as wage and inflation assumptions, can be found in Appendix A. Z The current discount rate assumption used for termination valuations is a weighted average of the 10 -year and 30 -year U.S. Treasury yields where the weights are based on matching asset and liability durations as of the termination date. The discount rates used in the table are based on 20 -year Treasury bonds, rounded to the nearest quarter percentage point, which is a good proxy for most plans. The 20 -year Treasury yield was 2.75 percent on June 30, 2015. In order to terminate the plan, you must first contact our Retirement Services Contract Unit to initiate a Resolution of Intent to terminate. The completed Resolution will allow the plan actuary to give you a preliminary termination valuation with a more up-to-date estimate of the plan liabilities. CalPERS advises you to consult with the plan actuary before beginning this process. Rate Plan belonging to the Miscellaneous Risk Pool Page 16 A-22 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Participant Data The table below shows a summary of your plan's member data upon which this valuation is based: June 30, 2014 Reported Payroll $ 4,349,951 Projected Payroll for Contribution Purposes $ 4,753,309 Number of Members Active 69 Transferred 51 Separated 98 Retired 52 List of Class 1 Benefit Provisions This plan has the additional Class 1 Benefit Provisions: One Year Final Compensation (FAC 1) Rate Plan belonging to the Miscellaneous Risk Pool June 30, 2015 $ 3,599,187 $ 3,932,929 60 54 100 57 Page 17 A-23 PLAN'S MAJOR BENEFIT OPTIONS A-24 SECTION 1 — PLAN SPECIFIC INFORMATION FOR THE MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES Plan's Major Benefit Options Shown below is a summary of the major optional benefits for which your agency has contracted. A description of principal standard and optional plan provisions is in Appendix B within Section 2 of this report. CalPERS Actuarial Valuation — June 30, 2015 Page 19 Rate Plan belonging to the Miscellaneous Risk Pool A-25 Contract package Active Inactive Receiving Misc Misc Misc Benefit Provision Benefit Formula 2.5% @ 55 2.0% @ 55 Social Security Coverage No No Full/Modified Full Full Employee Contribution Rate 8.00% Final Average Compensation Period One Year One Year Sick Leave Credit Yes Yes Non -Industrial Disability Standard Standard Industrial Disability No No Pre -Retirement Death Benefits Optional Settlement 2W Yes Yes 1959 Survivor Benefit Level level 4 level 4 Special No No Alternate (firefighters) No No No Post -Retirement Death Benefits Lump Sum $500 $500 $500 Survivor Allowance (PRSA) No No No COLA 2% 2% 2% CalPERS Actuarial Valuation — June 30, 2015 Page 19 Rate Plan belonging to the Miscellaneous Risk Pool A-25 Section 2 CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Section 2 may be found on the CalPERS website (www.calpers.ca.gov) in the Forms and Publications section A-26 California Public Employees' Retirement System Actuarial Office P.O. Box 942709 Al � Sacramento, CA 94229-2709 TTY: (916) 795-3240 CAPERS (888) 225-7377 phone — (916) 795-2744 fax www.calpers.ca.gov August 2016 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES (CaIPERS ID: 3846845523) Annual Valuation Report as of June 30, 2015 Dear Employer, As an attachment to this letter, you will find a copy of the June 30, 2015 actuarial valuation report of the pension plan. Because this plan is in a risk pool, the following valuation report has been separated into two sections: Section 1 contains specific information for the plan including the development of the current and projected employer contributions, and Section 2 contains the Risk Pool Actuarial Valuation appropriate to the plan as of June 30, 2015. Section 2 can be found on the CaIPERS website at (www.calpers.ca.gov). From the home page, go to "Forms & Publications" and select " View A//'. In the search box, enter "Risk Poo/ Report" and from the results list download the Miscellaneous or Safety Risk Pool Actuarial Valuation Report as appropriate. Your June 30, 2015 actuarial valuation report contains important actuarial information about your pension plan at CalPERS. Your assigned CaIPERS staff actuary, whose signature appears in the Actuarial Certification section on page 1, is available to discuss the report with you after August 31, 2016. Future Employer Contribution Fiscal Employer Normal Employer Payment of Year Cost Rate + Unfunded Liability 2017-18 7.200% $198 2018-19 (projected) 7.2% $738 The exhibit above displays the minimum employer contributions, before any cost sharing, for Fiscal Year 2017-18 along with estimates of the contributions for Fiscal Year 2018-19. The total employer contribution is the sum of a Normal Cost Rate applied to reported payroll plus an Unfunded Liability dollar payment. The estimated contributions for Fiscal Year 2018-19 are based on a projection of the most recent information we have available, including an estimated 0.0 percent investment return for Fiscal Year 2015-16 (based on the year to date return through April 30, 2016). As MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES (CaIPERS ID: 3846845523) Annual Valuation Report as of June 30, 2015 Page 2 For a projection of employer contributions beyond Fiscal Year 2018-19, please refer to the "Projected Employer Contributions" in the "Highlights and Executive Summary" section. This 5 - year projection of future employer contributions supersedes any previous projections we have provided. The "Risk Analysis" section of the valuation report also contains estimated employer contributions in future years under a variety of investment return scenarios. Member contributions, other than cost sharing, are in addition to the above amounts. The employer contributions in this report do not reflect any cost sharing arrangements you may have with your employees. The estimates for Fiscal Year 2018-19 also assume that there are no future contract amendments and no liability gains or losses (such as larger than expected pay increases, more retirements than expected, etc.) This is an important assumption because these gains and losses do occur and can have a significant effect on required contributions. Even for the largest plans or pools, such gains and losses can impact the employer's contributions. These gains and losses cannot be predicted in advance so the projected employer contributions are estimates. The actual required employer contribution for Fiscal Year 2018-19 will be provided in next year's valuation report. Changes since the Prior Year's Valuation The CaIPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CaIPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. The policy has no impact on the current year valuation results but is expected to have an impact in future years. More details on the Risk Mitigation Policy can be found on our website. Besides the above noted changes, there may also be changes specific to the plan such as contract amendments and funding changes. Further descriptions of general changes are included in the 'Highlights and Executive Summary" section and in Appendix A, 'Statement of Actuarial Data, Methods and Assumptions"' of the Section 2 report. We understand that you might have a number of questions about these results. While we are very interested in discussing these results with your agency, in the interest of allowing us to give every public agency their results, we ask that you wait until after August 31 to contact us with actuarial related questions. If you have other questions, please call our customer contact center at (888) CaIPERS or (888- 225-7377). Sincerely, ALAN MILLIGAN Chief Actuary ACTUARIAL VALUATION as of June 30, 2015 for the MISCELLANEOUS SECOND TIER PLAN of the CITY OF RANCHO PALOS VERDES (CaIPERS ID: 3846845523) REQUIRED CONTRIBUTIONS FOR FISCAL YEAR July 1, 2017 - June 30, 2018 TABLE OF CONTENTS SECTION 1 - PLAN SPECIFIC INFORMATION SECTION 2 - RISK POOL ACTUARIAL VALUATION INFORMATION Section 1 CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Plan Specific Information for the MISCELLANEOUS SECOND TIER PLAN of the CITY OF RANCHO PALOS VERDES (CalPERS ID: 3846845523) (Rate Plan: 23274) (CY) FIN PROCESS CONTROL ID: 483169 (PY) FIN PROCESS CONTROL ID: 466600 REPORT ID: 98340 B-5 TABLE OF CONTENTS ACTUARIAL CERTIFICATION 1 HIGHLIGHTS AND EXECUTIVE SUMMARY INTRODUCTION 3 PURPOSE OF SECTION 1 3 REQUIRED EMPLOYER CONTRIBUTION 4 PLAN'S FUNDED STATUS 5 PROJECTED EMPLOYER CONTRIBUTIONS 5 CHANGES SINCE THE PRIOR YEAR VALUATION 5 SUBSEQUENT EVENTS 5 ASSETS AND LIABILITIES ALLOCATION OF PLAN'S SHARE OF POOL'S EXPERIENCE/ASSUMPTION CHANGE 7 DEVELOPMENT OF PLAN'S SHARE OF POOL'S MVA 7 SCHEDULE OF PLAN'S SIDE FUND & OTHER AMORTIZATION BASES 8 30 -YEAR AMORTIZATION SCHEDULE AND ALTERNATIVES 9 EMPLOYER CONTRIBUTION HISTORY 11 FUNDING HISTORY 11 RISK ANALYSIS ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS 13 ANALYSIS OF DISCOUNT RATE SENSITIVITY 14 VOLATILITY RATIOS 15 HYPOTHETICAL TERMINATION LIABILITY 16 PARTICIPANT DATA 17 LIST OF CLASS 1 BENEFIT PROVISIONS 17 PLAN'S MAJOR BENEFIT OPTIONS 18 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 ACTUARIAL CERTIFICATION Section 1 of this report is based on the member and financial data contained in our records as of June 30, 2015 which was provided by your agency and the benefit provisions under your contract with CalPERS. Section 2 of this report is based on the member and financial data as of June 30, 2015 provided by employers participating in the Miscellaneous Risk Pool to which the plan belongs and benefit provisions under the CalPERS contracts for those agencies. As set forth in Section 2 of this report, the pool actuary has certified that, in their opinion, the valuation of the risk pool containing your MISCELLANEOUS SECOND TIER PLAN has been performed in accordance with generally accepted actuarial principles consistent with standards of practice prescribed by the Actuarial Standards Board, and that the assumptions and methods are internally consistent and reasonable for the risk pool as of the date of this valuation and as prescribed by the CalPERS Board of Administration according to provisions set forth in the California Public Employees' Retirement Law. Having relied upon the information set forth in Section 2 of this report and based on the census and benefit provision information for the plan, it is my opinion as the plan actuary that the side fund and other Unfunded Accrued Liability bases as of June 30, 2015 and employer contribution as of July 1, 2017, have been properly and accurately determined in accordance with the principles and standards stated above. The undersigned is an actuary for CalPERS, who is a member of both the American Academy of Actuaries and Society of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. RANDALL DZIUBEK, ASA, EA, MAAA Senior Pension Actuary, CalPERS Plan Actuary Rate Plan belonging to the Miscellaneous Risk Pool Page 1 AM HIGHLIGHTS AND EXECUTIVE SUMMARY INTRODUCTION PURPOSE OF SECTION 1 REQUIRED EMPLOYER CONTRIBUTION PLAN'S FUNDED STATUS PROJECTED EMPLOYER CONTRIBUTIONS CHANGES SINCE THE PRIOR YEAR VALUATION SUBSEQUENT EVENTS CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CaIPERS ID: 3846845523 Introduction This report presents the results of the June 30, 2015 actuarial valuation of the MISCELLANEOUS SECOND TIER PLAN of the CITY OF RANCHO PALOS VERDES of the California Public Employees' Retirement System (CaIPERS). This actuarial valuation sets the required employer contributions for Fiscal Year 2017-18. The CaIPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CaIPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. The Risk Mitigation Policy does not have an impact on the current year actuarial valuation. More details on the Risk Mitigation Policy can be found on our website. Purpose of Section 1 This Section 1 report for the MISCELLANEOUS SECOND TIER PLAN of the CITY OF RANCHO PALOS VERDES of the California Public Employees' Retirement System (CaIPERS) was prepared by the plan actuary in order to: Set forth the assets and accrued liabilities of this plan as of June 30, 2015; Determine the required employer contribution for this plan for the fiscal year July 1, 2017 through June 30, 2018; and Provide actuarial information as of June 30, 2015 to the CaIPERS Board of Administration and other interested parties. The pension funding information presented in this report should not be used in financial reports subject to GASB Statement No. 68 for a Cost Sharing Employer Defined Benefit Pension Plan. A separate accounting valuation report for such purposes is available from CaIPERS and details for ordering are available on our website. The use of this report for any other purposes may be inappropriate. In particular, this report does not contain information applicable to alternative benefit costs. The employer should contact their actuary before disseminating any portion of this report for any reason that is not explicitly described above. California Actuarial Advisory Panel Recommendations This report includes all the basic disclosure elements as described in the Model Disclosure Elements for Actuarial Valuation Reports recommended in 2011 by the California Actuarial Advisory Panel (CARP), with the exception of including the original base amounts of the various components of the unfunded liability in the Schedule of Amortization Bases shown on page 8. Additionally, this report includes the following "Enhanced Risk Disclosures" also recommended by the CAAP in the Model Disclosure Elements document: A "Deterministic Stress Test," projecting future results under different investment income scenarios A "Sensitivity Analysis," showing the impact on current valuation results using a 1 percent plus or minus change in the discount rate. Rate Plan belonging to the Miscellaneous Risk Pool Page 3 F • CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Required Employer Contribution Fiscal Year Fiscal Year Required Employer Contribution 2016-17 1 2017-18 Employer Normal Cost Rate 7.159% 7.200% Plus Either 1) Monthly Employer Dollar UAL Payment $ 0.00 $ 16.47 Or 2) Annual Lump Sum Prepayment Option $ 0 $ 191 The total minimum required employer contribution is the sum of the Plan's Employer Normal Cost Rate (expressed as a percentage of payroll) plus the Employer Unfunded Accrued Liability (UAL) Contribution Amount (billed monthly in dollars). Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later than July 31). Plan Normal Cost contributions will be made as part of the payroll reporting process. If there is contractual cost sharing or other change, this amount will change. § 20572 of the Public Employees' Retirement Law assesses interest at an annual rate of 10 percent if a contracting agency fails to remit the required contributions when due. Development of Normal Cost as a Percentage of Payroll Base Total Normal Cost for Formula Surcharge for Class 1 Benefits3 None Phase out of Normal Cost Difference Plan's Total Normal Cost Formula's Expected Employee Contribution Rate Employer Normal Cost Rate Projected Payroll for the Contribution Fiscal Year Fiscal Year Fiscal Year 2016-171 2017-18 14.045% 14.100% 0.000% 0.000% 0.000% 0.000% 14.045% 14.100% 6.886% 6.900% 7.159% 7.200% $ 862,427 $ 1,327,139 Estimated Employer Contributions Based on Projected Payroll Plan's Estimated Employer Normal Cost $ 61,741 $ 95,554 Plan's Payment on Amortization Basest 0 198 Total Employer Contributions $ 61,741 $ 95,752 1 The results shown for Fiscal Year 2016-17 reflect the prior year valuation and do not take into account any lump sum payment, side fund payoff, or rate adjustment made after June 30, 2015. Z See page 8 for a breakdown of the Amortization Bases. 3 Section 2 of this report contains a list of Class 1 benefits and corresponding surcharges for each benefit. 4 The normal cost difference is phased out over a five year period. The phase out of normal cost difference is 100 percent for the first year of pooling, and is incrementally reduced by 20 percent of the original normal cost difference for each subsequent year. This is non -zero only for plans that joined a pool within the past 5 years. Most plans joined a pool June 30, 2003, when risk pooling was implemented. 5 As a percentage of projected payroll the UAL contribution is 0.015 percent for an estimated total employer contribution rate of 7.215 percent. Rate Plan belonging to the Miscellaneous Risk Pool Page 4 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Plan's Funded Status June 30, 2014 June 30, 2015 1. Present Value of Projected Benefits (PVB) $ 1,352,715 $ 2,080,223 2. Entry Age Normal Accrued Liability (AL) 112,112 267,196 3. Plan's Market Value of Assets (MVA) 117,095 258,118 4. Unfunded Accrued Liability (UAL) [(2) - (3)] (4,983) 9,078 5. Funded Ratio [(3) / (2)] 104.4% 96.6% Projected Employer Contributions The estimate for Fiscal Year 2018-19 is based on a projection of the most recent information we have available, including an estimated 0.0 percent investment return for Fiscal Year 2015-16 (based on year to date return through April 30, 2016). The table below shows projected employer contributions (before cost sharing) for the next five fiscal years, assuming Ca/PERS earns 0.0 percent for Fiscal Year 2015-16 and Z50 percent every Rscai year thereafter, and assuming that all other actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur between now and the beginning of the projection period. Changes since the Prior Year's Valuation Benefits None. This valuation generally reflects plan changes by amendments effective before the date of the report. Please refer to the "Plan's Major Benefit Options" and Appendix B of Section 2 for a summary of the plan provisions used in this valuation. Actuarial Methods and Assumptions None. Subsequent Events Risk Mitigation The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CalPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. More details on the Risk Mitigation Policy can be found on our website. Rate Plan belonging to the Miscellaneous Risk Pool Page 5 B-11 Required Contribution Projected Future Employer Contributions Fiscal Year 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 Normal Cost % 7.200% 7.2% 7.2% 7.2% 7.2% 7.2% UAL $ $198 $738 $1,310 $1,916 $2,557 $2,986 Changes since the Prior Year's Valuation Benefits None. This valuation generally reflects plan changes by amendments effective before the date of the report. Please refer to the "Plan's Major Benefit Options" and Appendix B of Section 2 for a summary of the plan provisions used in this valuation. Actuarial Methods and Assumptions None. Subsequent Events Risk Mitigation The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CalPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. More details on the Risk Mitigation Policy can be found on our website. Rate Plan belonging to the Miscellaneous Risk Pool Page 5 B-11 ASSETS AND LIABILITIES ALLOCATION OF PLAN'S SHARE OF POOL'S EXPERIENCE/ASSUMPTION CHANGE DEVELOPMENT OF PLAN'S SHARE OF POOL'S MVA SCHEDULE OF PLAN'S SIDE FUND & OTHER AMORTIZATION BASES 30 -YEAR AMORTIZATION SCHEDULE AND ALTERNATIVES EMPLOYER CONTRIBUTION HISTORY FUNDING HISTORY B-12 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Allocation of Plan's Share of Pool's Experience/Assumption Change It is the policy of CalPERS to ensure equity within the risk pools by allocating the pool's experience gains/losses and assumption changes in a manner that treats each employer equitably and maintains benefit security for the members of the System while minimizing substantial variations in employer contributions. The Pool's experience gains/losses and impact of assumption/method changes is allocated to the plan as follows: 1. Plan's Accrued Liability $ 267,196 2. Projected UAL balance at 6/30/15 (4,088) 3. Pool's Accrued Liability $ 13,889,938,645 4. Sum of Pool's Individual Plan UAL Balances at 6/30/15 2,423,468,906 5. Pool's 2014/15 Investment & Asset (Gain)/Loss 596,365,421 6. Pool's 2014/15 Other (Gain)/Loss (49,030,273) 7. Plan's Share of Pool's Asset (Gain)/Loss [(1)-(2)]/[(3)-(4)] * (5) 14,109 8. Plan's Share of Pool's Other (Gain)/Loss [(1)]/[(3)] * (6) (943) 9. Plan's New (Gain)/Loss as of 6/30/2015 [(7)+(8)] $ 13,166 10. Increase in Pool's Accrued Liability due to Change in Assumptions 0 11. Plan's Share of Pool's Change in Assumptions [(1)]/[(3)] * (10) $ 0 Development of the Plan's Share of Pool's Market Value of Assets 1. Plan's Accrued Liability $ 267,196 2. Plan's UAL $ 9,078 3. Plan's Share of Pool's MVA [(1)-(2)] $ 258,118 Rate Plan belonging to the Miscellaneous Risk Pool Page 7 B-13 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Schedule of Plan's Side Fund and Other Amortization Bases There is a two-year lag between the valuation date and the start of the contribution fiscal year. The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2015. The employer contribution determined by the valuation is for the fiscal year beginning two years after the valuation date: Fiscal Year 2017-18. This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with their employer contribution well in advance of the start of the fiscal year. The Unfunded Accrued Liability (UAL) is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first day of the fiscal year for which the contribution is being determined. The UAL is rolled forward each year by subtracting the payment on the UAL for the fiscal year and adjusting for interest. The (gain)/loss bases are the plan's allocated share of the risk pool's (gain)/loss for the fiscal year as disclosed on the previous page. These (gain)/loss bases will be amortized according to Board policy over 30 years with a 5 -year ramp -up. If the total Unfunded Liability is negative (i.e., plan has a surplus), the scheduled payment is $0, because the minimum required contribution under PEPRA must be at least equal to the normal cost. Rate Plan belonging to the Miscellaneous Risk Pool Page 8 Amounts for Fiscal 2017-18 ................. Scheduled Date Amortization Balance Payment Balance Payment Balance Payment Reason for Base Established Period 6/30/15 2015-16 6/30/16 2016-17 6/30/17 for 2017-18 FRESH START 06/30/14 .... ......... ......... 29 .......... ......... $(4,088) ......... ......... ......... $(3,998) ......... .......-. $(249) .-._.. ............... ..................... $0 ......... $(268) $(16) NON -ASSET (GAIN)/LOSS ......... ......... 06/30/1530 ......... ......... ......... ......... $(943) ......... ......... ......... $0 ......... $(1,014) ... .................. $0 ......... ........ $(1,090) $(15) ASSET (GAIN)/LOSS 06/30/15 .... ......... ......... 30 ......... ......... $14 109 .. ......... ......... $0 ...... 15 168 0 ......... ...... $16,305 $229 ------ TOTAL $9,078 $(3,998) $13,905 $0 $14,947 $198 The (gain)/loss bases are the plan's allocated share of the risk pool's (gain)/loss for the fiscal year as disclosed on the previous page. These (gain)/loss bases will be amortized according to Board policy over 30 years with a 5 -year ramp -up. If the total Unfunded Liability is negative (i.e., plan has a surplus), the scheduled payment is $0, because the minimum required contribution under PEPRA must be at least equal to the normal cost. Rate Plan belonging to the Miscellaneous Risk Pool Page 8 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 30 -Year Amortization Schedule and Alternatives The amortization schedule on the previous page shows the minimum contributions required according to CalPERS amortization policy. There has been considerable interest from many agencies in paying off these unfunded accrued liabilities sooner and the possible savings in doing so. As a result, we have provided alternate amortization schedules to help analyze the current amortization schedule and illustrate the advantages of accelerating unfunded liability payments. Shown on the following page are future year amortization payments based on 1) the current amortization schedule reflecting the individual bases and remaining periods shown on the previous page, and 2) alternate "fresh start" amortization schedules using two sample periods that would both result in interest savings relative to the current amortization schedule. Note that the payments under each alternate scenario increase by 3 percent for each year into the future. The schedules do not attempt to reflect any experience after June 30, 2015 that may deviate from the actuarial assumptions. Therefore, future amortization payments displayed in the Current Amortization Schedule may not match projected amortization payments shown in connection with Projected Employer Contributions provided elsewhere in this report. The Current Amortization Schedule typically contains individual bases that are both positive and negative. Positive bases result from plan changes, assumption changes or plan experience that result in increases to unfunded liability. Negative bases result from plan changes, assumption changes or plan experience that result in decreases to unfunded liability. The combination of positive and negative bases within an amortization schedule can result in unusual or problematic circumstances in future years such as: A positive total unfunded liability with a negative total payment, A negative total unfunded liability with a positive total payment, or Total payments that completely amortize the unfunded liability over a very short period of time In any year where one of the above scenarios occurs, the actuary will consider corrective action such as replacing the existing unfunded liability bases with a single "fresh start" base and amortizing it over a reasonable period. The Current Amortization Schedule on the following page may appear to show that, based on the current amortization bases, one of the above scenarios will occur at some point in the future. It is impossible to know today whether such a scenario will in fact arise since there will be additional bases added to the amortization schedule in each future year. Should such a scenario arise in any future year, the actuary will take appropriate action based on guidelines in the CalPERS amortization policy. For purposes of this display, total payments include any negative payments. Therefore, the amount of estimated savings may be understated to the extent that negative payments appear in the current schedule. Rate Plan belonging to the Miscellaneous Risk Pool Page 9 B-15 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 30 -Year Amortization Schedule and Alternatives Alternate Schedules Current Amortization 25 Year Amortization 20 Year Amortization Schedule Date Balance Payment Balance Payment Balance Payment 6/30/2017 14,948 198 14,948 988 14,948 1,129 6/30/2018 15,864 424 15,045 1,018 14,899 1,163 6/30/2019 16,614 664 15,118 1,048 14,811 1,197 6/30/2020 17,172 918 15,165 1,080 14,680 1,233 6/30/2021 17,509 1,186 15,183 1,112 14,503 1,270 6/30/2022 17,592 1,222 15,169 1,145 14,273 1,308 6/30/2023 17,645 1,258 15,119 1,180 13,987 1,348 6/30/2024 17,664 1,296 15,030 1,215 13,639 1,388 6/30/2025 17,645 1,335 14,897 1,252 13,222 1,430 6/30/2026 17,585 1,375 14,717 1,289 12,732 1,473 6/30/2027 17,478 1,416 14,484 1,328 12,160 1,517 6/30/2028 17,321 1,459 14,194 1,368 11,499 1,562 6/30/2029 17,107 1,502 13,840 1,409 10,742 1,609 6/30/2030 16,833 1,547 13,418 1,451 9,879 1,657 6/30/2031 16,491 1,594 12,920 1,494 8,901 1,707 6/30/2032 16,075 1,642 12,340 1,539 7,799 1,758 6/30/2033 15,579 1,691 11,669 1,585 6,561 1,811 6/30/2034 14,994 1,742 10,900 1,633 5,175 1,865 6/30/2035 14,313 1,794 10,025 1,682 3,629 1,921 6/30/2036 13,527 1,848 9,033 1,732 1,909 1,979 6/30/2037 12,625 1,903 7,914 1,784 6/30/2038 11,599 1,960 6,658 1,838 6/30/2039 10,437 2,019 5,251 1,893 6/30/2040 9,126 2,080 3,682 1,950 6/30/2041 7,655 2,142 1,937 2,008 6/30/2042 6,008 2,206 6/30/2043 4,171 1,811 6/30/2044 2,606 1,390 6/30/2045 1,361 942 6/30/2046 486 504 Totals 43,064 36,021 30,327 Estimated Savings 7,044 12,737 Current CalPERS Board policy prioritizes the order for which lump sum contributions in excess of the required employer contribution shall be applied. Excess contributions shall first be applied toward payment on the plan's side fund, and any remainder shall then be applied toward the plan's share of the pool's unfunded accrued liability. Please contact the plan actuary before making such a payment to ensure that the payment is applied correctly. Rate Plan belonging to the Miscellaneous Risk Pool Page 10 i � CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Employer Contribution History The table below provides a recent history of the required employer contributions for the plan, as determined by the annual actuarial valuation. It does not account for prepayments or benefit changes made during a fiscal year. Fiscal Employer Unfunded Liability Year Normal Cost Payment ($) 2016- 17 7.159% 0 2017- 18 7.200% 198 Funding History The funding history below shows the plan's actuarial accrued liability, share of the pool's market value of assets, share of the pool's unfunded liability, funded ratio, and annual covered payroll. Accrued Share of Pool's Valuation Liability Market Value of Date (AL) Assets (MVA) Plan's Share of Annual Pool's Unfunded Funded Covered Liability Ratio Payroll 06/30/2013 $ 10,846 $ 9,146 $ 1,700 06/30/2014 112,112 117,095 (4,983) 06/30/2015 267,196 258,118 9,078 Rate Plan belonging to the Miscellaneous Risk Pool 84.3% $ 193,164 104.4% 789,242 96.6% 1,214,520 Page 11 B-17 RISK ANALYSIS ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS ANALYSIS OF DISCOUNT RATE SENSITIVITY VOLATILITY RATIOS HYPOTHETICAL TERMINATION LIABILITY CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Analysis of Future Investment Return Scenarios The investment return for Fiscal Year 2015-16 was not known at the time this report was produced. The investment return in Fiscal Year 2015-16 as of April 30, 2016 is 0.0 percent before administrative expenses. For purposes of projecting future employer contributions, we are assuming a 0.0 percent investment return for Fiscal Year 2015-16. The investment return realized during a fiscal year first affects the contribution for the fiscal year two years later. For example, the investment return for Fiscal Year 2015-16 will first be reflected in the June 30, 2016 actuarial valuation that will be used to set the Fiscal Year 2018-19 employer contributions, the Fiscal Year 2016-17 investment return will first be reflected in the June 30, 2017 actuarial valuation that will be used to set the Fiscal Year 2019-20 employer contributions, and so forth. A sensitivity analysis was performed to determine the effects of various investment returns during fiscal years 2016-17, 2017-18, and 2018-19 on the employer contributions for fiscal years 2019-20, 2020-21, and 2021-22. The projected contributions assume that all other actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur. Five different investment return scenarios were selected. The first scenario is a -3.8 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 5th percentile return from July 1, 2016 through June 30, 2019. The second scenario is a 2.8 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 25th percentile return from July 1, 2016 through June 30, 2019. The third scenario is a 7.5 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 49th percentile return from July 1, 2016 through June 30, 2019. The fourth scenario is a 12.0 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 75th percentile return from July 1, 2016 through June 30, 2019. Finally, the last scenario is an 18.9 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 95th percentile return from July 1, 2016 through June 30, 2019. The table below shows the estimated projected contributions and the estimated increases for the plan under the five different scenarios. 2016-19 Investment Return Scenario 2019-20 Fiscal Year 2020-21 2021-22 Estimated Change Between 2018-19 and 2021-22 3.8% Normal Cost 7.2% 7.2% 7.2% 0.0% UAL Contribution $1,780 $3,335 $5,414 $4,676 2.8% Normal Cost 7.2% 7.2% 7.2% 0.0% UAL Contribution $1,506 $2,519 $3,797 $3,059 7.5% Normal Cost 7.2% 7.2% 7.2% 0.0% UAL Contribution $1,310 $1,916 $2,557 $1,819 12.0% Normal Cost 7.4% 7.5% 7.7% 0.5% UAL Contribution $1,154 $1,422 $1,509 $771 18.9% Normal Cost 7.7% 8.2% 8.7% 1.5% UAL Contribution $935 $0 $0 $ 738 Rate Plan belonging to the Miscellaneous Risk Pool Page 13 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 For the last two scenarios in the table above the results incorporate the impact of CalPERS Risk Mitigation Policy. A 12.0% return would result in a reduction of the discount rate by 0.05% and a return of 18.9% would reduce the discount rate by 0.15%. Reducing the discount rate increases both the plan's accrued liability and normal cost. More details about Risk Mitigation policy can be found on our website. Analysis of Discount Rate Sensitivity The following analysis looks at the Fiscal Year 2017-18 total normal cost rates and liabilities under two different discount rate scenarios. Shown below are the total normal cost rates assuming discount rates that are 1 percent lower and 1 percent higher than the current valuation discount rate. This analysis shows the potential plan impacts if the Public Employees' Retirement Fund (PERF) were to realize investment returns of 6.50 percent or 8.50 percent over the long-term. This analysis is intended to illustrate the long-term risk to the contribution rates. Sensitivity Analysis As of June 30, 2015 6.50% Discount Rate (-10/0) 7.50% Discount Rate (assumed rate) 8.50% Discount Rate (+ia/o) Plan's Total Normal Cost 17.4% 14.1% 11.6% Accrued Liability $315,586 $267,196 $227,903 Unfunded Accrued Liability $57,468 $9,078 $(30,215) Rate Plan belonging to the Miscellaneous Risk Pool Page 14 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Volatility Ratios Actuarial calculations are based on a number of assumptions about long-term demographic and economic behavior. Unless these assumptions (terminations, deaths, disabilities, retirements, salary growth, and investment return) are exactly realized each year, there will be differences on a year-to-year basis. The year-to-year differences between actual experience and the assumptions are called actuarial gains and losses and serve to lower or raise required employer contributions from one year to the next. Therefore, employer contributions will inevitably fluctuate, especially due to the ups and downs of investment returns. Asset Volatility Ratio (AVR) Plans that have higher asset -to -payroll ratios experience more volatile employer contributions (as a percentage of payroll) due to investment return. For example, a plan with an asset -to -payroll ratio of 8 may experience twice the contribution volatility due to investment return volatility, than a plan with an asset -to - payroll ratio of 4. Shown below is the asset volatility ratio, a measure of the plan's current contribution volatility. It should be noted that this ratio is a measure of the current situation. It increases over time but generally tends to stabilize as the plan matures. Liability Volatility Ratio (LVR) Plans that have higher liability -to -payroll ratios experience more volatile employer contributions (as a percentage of payroll) due to investment return and changes in liability. For example, a plan with a liability - to -payroll ratio of 8 is expected to have twice the contribution volatility of a plan with a liability -to -payroll ratio of 4. The liability volatility ratio is also shown in the table below. It should be noted that this ratio indicates a longer-term potential for contribution volatility. The asset volatility ratio, described above, will tend to move closer to the liability volatility ratio as the plan matures. Rate Volatil As of June 30, 2015 1. Market Value of Assets $ 258,118 2. Payroll 1,214,520 3. Asset Volatility Ratio (AVR) [(1) / (2)] 0.2 4. Accrued Liability $ 267,196 5. Liability Volatility Ratio (LVR) [(4) / (2)] 0.2 Rate Plan belonging to the Miscellaneous Risk Pool Page 15 B-21 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Hypothetical Termination Liability The hypothetical termination liability is an estimate of the financial position of the plan had the contract with CalPERS been terminated as of June 30, 2015. The plan liability on a termination basis is calculated differently compared to the plan's ongoing funding liability. For the hypothetical termination liability calculation, both compensation and service are frozen as of the valuation date and no future pay increases or service accruals are assumed. A more conservative investment policy and asset allocation strategy was adopted by the CalPERS Board for the Terminated Agency Pool. The Terminated Agency Pool has limited funding sources since no future employer contributions will be made. Therefore, expected benefit payments are secured by risk-free assets and benefit security for members is increased while funding risk is limited. However, this asset allocation has a lower expected rate of return than the PERF and consequently, a lower discount rate is assumed. The lower discount rate for the Terminated Agency Pool results in higher liabilities for terminated plans. The effective termination discount rate will depend on actual market rates of return for risk-free securities on the date of termination. As market discount rates are variable, the table below shows a range for the hypothetical termination liability based on the lowest and highest interest rates observed during an approximate 2 -year period centered around the valuation date. ' The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with Board policy. Other actuarial assumptions, such as wage and inflation assumptions, can be found in Appendix A. Z The current discount rate assumption used for termination valuations is a weighted average of the 10 -year and 30 -year U.S. Treasury yields where the weights are based on matching asset and liability durations as of the termination date. The discount rates used in the table are based on 20 -year Treasury bonds, rounded to the nearest quarter percentage point, which is a good proxy for most plans. The 20 -year Treasury yield was 2.75 percent on June 30, 2015. In order to terminate the plan, you must first contact our Retirement Services Contract Unit to initiate a Resolution of Intent to terminate. The completed Resolution will allow the plan actuary to give you a preliminary termination valuation with a more up-to-date estimate of the plan liabilities. CalPERS advises you to consult with the plan actuary before beginning this process. Rate Plan belonging to the Miscellaneous Risk Pool Page 16 B-22 Hypothetical Unfunded Hypothetical Unfunded Market Termination Funded Termination Termination Funded Termination Value of Liabilityl,Z Status Liability Liabilityl,Z Status Liability Assets (MVA) @ 2.00% @ 2.00% @ 3.25% @ 3.25% $258,118 $384,870 67.1% $126,753 $311,228 82.9% $53,110 ' The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with Board policy. Other actuarial assumptions, such as wage and inflation assumptions, can be found in Appendix A. Z The current discount rate assumption used for termination valuations is a weighted average of the 10 -year and 30 -year U.S. Treasury yields where the weights are based on matching asset and liability durations as of the termination date. The discount rates used in the table are based on 20 -year Treasury bonds, rounded to the nearest quarter percentage point, which is a good proxy for most plans. The 20 -year Treasury yield was 2.75 percent on June 30, 2015. In order to terminate the plan, you must first contact our Retirement Services Contract Unit to initiate a Resolution of Intent to terminate. The completed Resolution will allow the plan actuary to give you a preliminary termination valuation with a more up-to-date estimate of the plan liabilities. CalPERS advises you to consult with the plan actuary before beginning this process. Rate Plan belonging to the Miscellaneous Risk Pool Page 16 B-22 CALPERS ACTUARIAL VALUATION - June 30, 2015 MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Participant Data The table below shows a summary of your plan's member data upon which this valuation is based: June 30, 2014 Reported Payroll $ 789,242 Projected Payroll for Contribution Purposes $ 862,427 Number of Members Active 9 Transferred 0 Separated 0 Retired 0 List of Class 1 Benefit Provisions This plan has the additional Class 1 Benefit Provisions: ILIreW Rate Plan belonging to the Miscellaneous Risk Pool June 30, 2015 $ 1,214,520 $ 1,327,139 11 2 0 0 Page 17 B-23 PLAN'S MAJOR BENEFIT OPTIONS SECTION 1 — PLAN SPECIFIC INFORMATION FOR THE MISCELLANEOUS SECOND TIER PLAN OF THE CITY OF RANCHO PALOS VERDES Plan's Major Benefit Options Shown below is a summary of the major optional benefits for which your agency has contracted. A description of principal standard and optional plan provisions is in Appendix B within Section 2 of this report. CalPERS Actuarial Valuation — June 30, 2015 Page 19 Rate Plan belonging to the Miscellaneous Risk Pool B-25 Contract package Active Misc Benefit Provision Benefit Formula 2.0% @ 60 Social Security Coverage No Full/Modified Full Employee Contribution Rate 7.00% Final Average Compensation Period Three Year Sick Leave Credit Yes Non -Industrial Disability Standard Industrial Disability No Pre -Retirement Death Benefits Optional Settlement 2W Yes 1959 Survivor Benefit Level level 4 Special No Alternate (firefighters) No Post -Retirement Death Benefits Lump Sum $500 Survivor Allowance (PRSA) No COLA 2% CalPERS Actuarial Valuation — June 30, 2015 Page 19 Rate Plan belonging to the Miscellaneous Risk Pool B-25 Section 2 CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Section 2 may be found on the CalPERS website (www.calpers.ca.gov) in the Forms and Publications section California Public Employees' Retirement System JfActuarial Office P.O. Box 942709 Sacramento, CA 94229-2709 )kk-- TTY: (916) 795-3240 CAPERS (888) 225-7377 phone — (916) 795-2744 fax www.calpers.ca.gov August 2016 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES (CaIPERS ID: 3846845523) Annual Valuation Report as of June 30, 2015 Dear Employer, As an attachment to this letter, you will find a copy of the June 30, 2015 actuarial valuation report of the pension plan. Because this plan is in a risk pool, the following valuation report has been separated into two sections: Section 1 contains specific information for the plan including the development of the current and projected employer contributions, and Section 2 contains the Risk Pool Actuarial Valuation appropriate to the plan as of June 30, 2015. Section 2 can be found on the CaIPERS website at (www.calpers.ca.gov). From the home page, go to "Forms & Publications" and select " View Ai/'. In the search box, enter "Risk Poo/ Report' and from the results list download the Miscellaneous or Safety Risk Pool Actuarial Valuation Report as appropriate. Your June 30, 2015 actuarial valuation report contains important actuarial information about your pension plan at CaIPERS. Your assigned CaIPERS staff actuary, whose signature appears in the Actuarial Certification section on page 1, is available to discuss the report with you after August 31, 2016. Future Employer Contribution Fiscal Employer Normal Employer Payment of Year Cost Rate + Unfunded Liability 2017-18 6.533% $214 2018-19 (projected) 6.5% $526 The exhibit above displays the minimum employer contributions, before any cost sharing, for Fiscal Year 2017-18 along with estimates of the contributions for Fiscal Year 2018-19. The total employer contribution is the sum of a Normal Cost Rate applied to reported payroll plus an Unfunded Liability dollar payment. The estimated contributions for Fiscal Year 2018-19 are based on a projection of the most recent information we have available, including an estimated 0.0 percent investment return for Fiscal Year 2015-16 (based on the year to date return through April 30, 2016). C-1 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES (CaIPERS ID: 3846845523) Annual Valuation Report as of June 30, 2015 Page 2 For a projection of employer contributions beyond Fiscal Year 2018-19, please refer to the "Projected Employer Contributions" in the "Highlights and Executive Summary" section. This 5 - year projection of future employer contributions supersedes any previous projections we have provided. The "Risk Analysis" section of the valuation report also contains estimated employer contributions in future years under a variety of investment return scenarios. Member contributions, other than cost sharing, are in addition to the above amounts. The employer contributions in this report do not reflect any cost sharing arrangements you may have with your employees. The estimates for Fiscal Year 2018-19 also assume that there are no future contract amendments and no liability gains or losses (such as larger than expected pay increases, more retirements than expected, etc.) This is an important assumption because these gains and losses do occur and can have a significant effect on required contributions. Even for the largest plans or pools, such gains and losses can impact the employer's contributions. These gains and losses cannot be predicted in advance so the projected employer contributions are estimates. The actual required employer contribution for Fiscal Year 2018-19 will be provided in next year's valuation report. Changes since the Prior Year's Valuation The CaIPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CaIPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. The policy has no impact on the current year valuation results but is expected to have an impact in future years. More details on the Risk Mitigation Policy can be found on our website. Besides the above noted changes, there may also be changes specific to the plan such as contract amendments and funding changes. Further descriptions of general changes are included in the 'Highlights and Executive Summary" section and in Appendix A, 'Statement of Actuarial Data, Methods and Assumptions"' of the Section 2 report. We understand that you might have a number of questions about these results. While we are very interested in discussing these results with your agency, in the interest of allowing us to give every public agency their results, we ask that you wait until after August 31 to contact us with actuarial related questions. If you have other questions, please call our customer contact center at (888) CaIPERS or (888- 225-7377). Sincerely, ALAN MILLIGAN Chief Actuary C-2 ACTUARIAL VALUATION as of June 30, 2015 for the PEPRA MISCELLANEOUS PLAN of the CITY OF RANCHO PALOS VERDES (CaIPERS ID: 3846845523) REQUIRED CONTRIBUTIONS FOR FISCAL YEAR July 1, 2017 - June 30, 2018 C-3 TABLE OF CONTENTS SECTION 1 - PLAN SPECIFIC INFORMATION SECTION 2 - RISK POOL ACTUARIAL VALUATION INFORMATION C-4 Section 1 CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Plan Specific Information for the PEPRA MISCELLANEOUS PLAN of the CITY OF RANCHO PALOS VERDES (CalPERS ID: 3846845523) (Rate Plan: 26567) (CY) FIN PROCESS CONTROL ID: 484688 (PY) FIN PROCESS CONTROL ID: 467740 REPORT ID: 100388 C-5 TABLE OF CONTENTS ACTUARIAL CERTIFICATION 1 HIGHLIGHTS AND EXECUTIVE SUMMARY INTRODUCTION 3 PURPOSE OF SECTION 1 3 REQUIRED EMPLOYER CONTRIBUTION 4 PLAN'S FUNDED STATUS 5 PROJECTED EMPLOYER CONTRIBUTIONS 5 CHANGES SINCE THE PRIOR YEAR VALUATION 5 SUBSEQUENT EVENTS 5 ASSETS AND LIABILITIES ALLOCATION OF PLAN'S SHARE OF POOL'S EXPERIENCE/ASSUMPTION CHANGE 7 DEVELOPMENT OF PLAN'S SHARE OF POOL'S MVA 7 SCHEDULE OF PLAN'S SIDE FUND & OTHER AMORTIZATION BASES 8 30 -YEAR AMORTIZATION SCHEDULE AND ALTERNATIVES 9 EMPLOYER CONTRIBUTION HISTORY 11 FUNDING HISTORY 11 RISK ANALYSIS ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS 13 ANALYSIS OF DISCOUNT RATE SENSITIVITY 14 VOLATILITY RATIOS 15 HYPOTHETICAL TERMINATION LIABILITY 16 PARTICIPANT DATA 17 LIST OF CLASS 1 BENEFIT PROVISIONS 17 PLAN'S MAJOR BENEFIT OPTIONS 18 C-6 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 ACTUARIAL CERTIFICATION Section 1 of this report is based on the member and financial data contained in our records as of June 30, 2015 which was provided by your agency and the benefit provisions under your contract with CalPERS. Section 2 of this report is based on the member and financial data as of June 30, 2015 provided by employers participating in the Miscellaneous Risk Pool to which the plan belongs and benefit provisions under the CalPERS contracts for those agencies. As set forth in Section 2 of this report, the pool actuary has certified that, in their opinion, the valuation of the risk pool containing your PEPRA MISCELLANEOUS PLAN has been performed in accordance with generally accepted actuarial principles consistent with standards of practice prescribed by the Actuarial Standards Board, and that the assumptions and methods are internally consistent and reasonable for the risk pool as of the date of this valuation and as prescribed by the CalPERS Board of Administration according to provisions set forth in the California Public Employees' Retirement Law. Having relied upon the information set forth in Section 2 of this report and based on the census and benefit provision information for the plan, it is my opinion as the plan actuary that the side fund and other Unfunded Accrued Liability bases as of June 30, 2015 and employer contribution as of July 1, 2017, have been properly and accurately determined in accordance with the principles and standards stated above. The undersigned is an actuary for CalPERS, who is a member of both the American Academy of Actuaries and Society of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. RANDALL DZIUBEK, ASA, EA, MAAA Senior Pension Actuary, CalPERS Plan Actuary Rate Plan belonging to the Miscellaneous Risk Pool Page 1 C-7 HIGHLIGHTS AND EXECUTIVE SUMMARY INTRODUCTION PURPOSE OF SECTION 1 REQUIRED EMPLOYER CONTRIBUTION PLAN'S FUNDED STATUS PROJECTED EMPLOYER CONTRIBUTIONS CHANGES SINCE THE PRIOR YEAR VALUATION SUBSEQUENT EVENTS CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CaIPERS ID: 3846845523 Introduction This report presents the results of the June 30, 2015 actuarial valuation of the PEPRA MISCELLANEOUS PLAN of the CITY OF RANCHO PALOS VERDES of the California Public Employees' Retirement System (CaIPERS). This actuarial valuation sets the required employer contributions for Fiscal Year 2017-18. The CaIPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CaIPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. The Risk Mitigation Policy does not have an impact on the current year actuarial valuation. More details on the Risk Mitigation Policy can be found on our website. Purpose of Section 1 This Section 1 report for the PEPRA MISCELLANEOUS PLAN of the CITY OF RANCHO PALOS VERDES of the California Public Employees' Retirement System (CaIPERS) was prepared by the plan actuary in order to: Set forth the assets and accrued liabilities of this plan as of June 30, 2015; Determine the required employer contribution for this plan for the fiscal year July 1, 2017 through June 30, 2018; and Provide actuarial information as of June 30, 2015 to the CaIPERS Board of Administration and other interested parties. The pension funding information presented in this report should not be used in financial reports subject to GASB Statement No. 68 for a Cost Sharing Employer Defined Benefit Pension Plan. A separate accounting valuation report for such purposes is available from CaIPERS and details for ordering are available on our website. The use of this report for any other purposes may be inappropriate. In particular, this report does not contain information applicable to alternative benefit costs. The employer should contact their actuary before disseminating any portion of this report for any reason that is not explicitly described above. California Actuarial Advisory Panel Recommendations This report includes all the basic disclosure elements as described in the Model Disclosure Elements for Actuarial Valuation Reports recommended in 2011 by the California Actuarial Advisory Panel (CARP), with the exception of including the original base amounts of the various components of the unfunded liability in the Schedule of Amortization Bases shown on page 8. Additionally, this report includes the following "Enhanced Risk Disclosures" also recommended by the CAAP in the Model Disclosure Elements document: A "Deterministic Stress Test," projecting future results under different investment income scenarios A "Sensitivity Analysis," showing the impact on current valuation results using a 1 percent plus or minus change in the discount rate. Rate Plan belonging to the Miscellaneous Risk Pool Page 3 C-9 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Required Employer Contribution Fiscal Year Fiscal Year Required Employer Contribution 2016-17 1 2017-18 Employer Normal Cost Rate 6.555% 6.533% Plus Either 1) Monthly Employer Dollar UAL Payment $ 7.46 $ 17.86 Or 2) Annual Lump Sum Prepayment Option $ 86 $ 207 The total minimum required employer contribution is the sum of the Plan's Employer Normal Cost Rate (expressed as a percentage of payroll) plus the Employer Unfunded Accrued Liability (UAL) Contribution Amount (billed monthly in dollars). Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later than July 31). Plan Normal Cost contributions will be made as part of the payroll reporting process. If there is contractual cost sharing or other change, this amount will change. § 20572 of the Public Employees' Retirement Law assesses interest at an annual rate of 10 percent if a contracting agency fails to remit the required contributions when due. Development of Normal Cost as a Percentage of Payroll Base Total Normal Cost for Formula Surcharge for Class 1 Benefits3 None Phase out of Normal Cost Difference Plan's Total Normal Cost Plan's Employee Contribution Rate Employer Normal Cost Rate Projected Payroll for the Contribution Fiscal Year Fiscal Year Fiscal Year 2016-171 2017-18 12.805% 12.783% 0.000% 0.000% 0.000% 0.000% 12.805% 12.783% 6.250% 6.250% 6.555% 6.533% $ 513,378 $ 939,487 Estimated Employer Contributions Based on Projected Payroll Plan's Estimated Employer Normal Cost $ 33,650 $ 61,377 Plan's Payment on Amortization Basest 90 214 Total Employer Contributions $ 33,740 $ 61,591 1 The results shown for Fiscal Year 2016-17 reflect the prior year valuation and do not take into account any lump sum payment, side fund payoff, or rate adjustment made after June 30, 2015. Z See page 8 for a breakdown of the Amortization Bases. 3 Section 2 of this report contains a list of Class 1 benefits and corresponding surcharges for each benefit. 4 The normal cost difference is phased out over a five year period. The phase out of normal cost difference is 100 percent for the first year of pooling, and is incrementally reduced by 20 percent of the original normal cost difference for each subsequent year. This is non -zero only for plans that joined a pool within the past 5 years. Most plans joined a pool June 30, 2003, when risk pooling was implemented. 5 As a percentage of projected payroll the UAL contribution is 0.023 percent for an estimated total employer contribution rate of 6.556 percent. Rate Plan belonging to the Miscellaneous Risk Pool Page 4 C-10 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Plan's Funded Status June 30, 2014 1. Present Value of Projected Benefits (PVB) $ 657,420 2. Entry Age Normal Accrued Liability (AL) 34,829 3. Plan's Market Value of Assets (MVA) 37,902 4. Unfunded Accrued Liability (UAL) [(2) - (3)] (3,073) 5. Funded Ratio [(3) / (2)] 108.8% Projected Employer Contributions June 30, 2015 1,284,458 153,966 147,363 6,603 95.7% The estimate for Fiscal Year 2018-19 is based on a projection of the most recent information we have available, including an estimated 0.0 percent investment return for Fiscal Year 2015-16 (based on year to date return through April 30, 2016). The table below shows projected employer contributions (before cost sharing) for the next five fiscal years, assuming Ca/PERS earns 0.0 percent for Fiscal Year 2015-16 and Z50 percent every Rscai year thereafter, and assuming that all other actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur between now and the beginning of the projection period. Changes since the Prior Year's Valuation Benefits None. This valuation generally reflects plan changes by amendments effective before the date of the report. Please refer to the "Plan's Major Benefit Options" and Appendix B of Section 2 for a summary of the plan provisions used in this valuation. Actuarial Methods and Assumptions None. Subsequent Events Risk Mitigation The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CalPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. More details on the Risk Mitigation Policy can be found on our website. Rate Plan belonging to the Miscellaneous Risk Pool Page 5 C-11 Required Contribution Projected Future Employer Contributions Fiscal Year 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 Normal Cost % 6.533% 6.5% 6.5% 6.5% 6.5% 6.5% UAL $ $214 $526 $855 $1,204 $1,574 $1,822 Changes since the Prior Year's Valuation Benefits None. This valuation generally reflects plan changes by amendments effective before the date of the report. Please refer to the "Plan's Major Benefit Options" and Appendix B of Section 2 for a summary of the plan provisions used in this valuation. Actuarial Methods and Assumptions None. Subsequent Events Risk Mitigation The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over time. The policy establishes a mechanism whereby CalPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return and strategic asset allocation targets. A minimum excess investment return of 4% above the existing discount rate is necessary to cause a funding risk mitigation event. More details on the Risk Mitigation Policy can be found on our website. Rate Plan belonging to the Miscellaneous Risk Pool Page 5 C-11 ASSETS AND LIABILITIES ALLOCATION OF PLAN'S SHARE OF POOL'S EXPERIENCE/ASSUMPTION CHANGE DEVELOPMENT OF PLAN'S SHARE OF POOL'S MVA SCHEDULE OF PLAN'S SIDE FUND & OTHER AMORTIZATION BASES 30 -YEAR AMORTIZATION SCHEDULE AND ALTERNATIVES EMPLOYER CONTRIBUTION HISTORY FUNDING HISTORY C-12 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Allocation of Plan's Share of Pool's Experience/Assumption Change It is the policy of CalPERS to ensure equity within the risk pools by allocating the pool's experience gains/losses and assumption changes in a manner that treats each employer equitably and maintains benefit security for the members of the System while minimizing substantial variations in employer contributions. The Pool's experience gains/losses and impact of assumption/method changes is allocated to the plan as follows: 1. Plan's Accrued Liability $ 153,966 2. Projected UAL balance at 6/30/15 (908) 3. Pool's Accrued Liability $ 13,889,938,645 4. Sum of Pool's Individual Plan UAL Balances at 6/30/15 2,423,468,906 5. Pool's 2014/15 Investment & Asset (Gain)/Loss 596,365,421 6. Pool's 2014/15 Other (Gain)/Loss (49,030,273) 7. Plan's Share of Pool's Asset (Gain)/Loss [(1)-(2)]/[(3)-(4)] * (5) 8,055 8. Plan's Share of Pool's Other (Gain)/Loss [(1)]/[(3)] * (6) (543) 9. Plan's New (Gain)/Loss as of 6/30/2015 [(7)+(8)] $ 7,511 10. Increase in Pool's Accrued Liability due to Change in Assumptions 0 11. Plan's Share of Pool's Change in Assumptions [(1)]/[(3)] * (10) $ 0 Development of the Plan's Share of Pool's Market Value of Assets 1. Plan's Accrued Liability $ 153,966 2. Plan's UAL $ 6,603 3. Plan's Share of Pool's MVA [(1)-(2)] $ 147,363 Rate Plan belonging to the Miscellaneous Risk Pool Page 7 C-13 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Schedule of Plan's Side Fund and Other Amortization Bases There is a two-year lag between the valuation date and the start of the contribution fiscal year. The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2015. The employer contribution determined by the valuation is for the fiscal year beginning two years after the valuation date: Fiscal Year 2017-18. This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with their employer contribution well in advance of the start of the fiscal year. The Unfunded Accrued Liability (UAL) is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first day of the fiscal year for which the contribution is being determined. The UAL is rolled forward each year by subtracting the payment on the UAL for the fiscal year and adjusting for interest. The (gain)/loss bases are the plan's allocated share of the risk pool's (gain)/loss for the fiscal year as disclosed on the previous page. These (gain)/loss bases will be amortized according to Board policy over 30 years with a 5 -year ramp -up. If the total Unfunded Liability is negative (i.e., plan has a surplus), the scheduled payment is $0, because the minimum required contribution under PEPRA must be at least equal to the normal cost. Rate Plan belonging to the Miscellaneous Risk Pool Page 8 C-14 Amounts for Fiscal 2017-18 ................. Scheduled Date Amortization Balance Payment Balance Payment Balance Payment Reason for Base Established Period 6/30/15 2015-16 6/30/16 2016-17 6/30/17 for 2017-18 FRESH START 06/30/14 .... ......... ......... 29 .......... ......... $(908) ......... ......... ......... $(2,380) ......... .......-. $1,492 .-._.. ............... $90 ......... $1,511 $92 NON -ASSET (GAIN)/LOSS ......... ......... 06/30/15 ......... ......... 30 ......... ......... $(543) ......... ......... ......... $0 ......... ............................... $(584) ... .................. $0 ......... ........ $(628) $(9) ASSET (GAIN)/LOSS 06/30/15 ......... ......... 30 ......... ......... $8,055 ......... ......... $0 ...... 8,659 0 ......... ...... ......... $9 308 $131 ------ TOTAL $6,604 $(2,380) $9,567 $90 $10,191 $214 The (gain)/loss bases are the plan's allocated share of the risk pool's (gain)/loss for the fiscal year as disclosed on the previous page. These (gain)/loss bases will be amortized according to Board policy over 30 years with a 5 -year ramp -up. If the total Unfunded Liability is negative (i.e., plan has a surplus), the scheduled payment is $0, because the minimum required contribution under PEPRA must be at least equal to the normal cost. Rate Plan belonging to the Miscellaneous Risk Pool Page 8 C-14 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 30 -Year Amortization Schedule and Alternatives The amortization schedule on the previous page shows the minimum contributions required according to CalPERS amortization policy. There has been considerable interest from many agencies in paying off these unfunded accrued liabilities sooner and the possible savings in doing so. As a result, we have provided alternate amortization schedules to help analyze the current amortization schedule and illustrate the advantages of accelerating unfunded liability payments. Shown on the following page are future year amortization payments based on 1) the current amortization schedule reflecting the individual bases and remaining periods shown on the previous page, and 2) alternate "fresh start" amortization schedules using two sample periods that would both result in interest savings relative to the current amortization schedule. Note that the payments under each alternate scenario increase by 3 percent for each year into the future. The schedules do not attempt to reflect any experience after June 30, 2015 that may deviate from the actuarial assumptions. Therefore, future amortization payments displayed in the Current Amortization Schedule may not match projected amortization payments shown in connection with Projected Employer Contributions provided elsewhere in this report. The Current Amortization Schedule typically contains individual bases that are both positive and negative. Positive bases result from plan changes, assumption changes or plan experience that result in increases to unfunded liability. Negative bases result from plan changes, assumption changes or plan experience that result in decreases to unfunded liability. The combination of positive and negative bases within an amortization schedule can result in unusual or problematic circumstances in future years such as: A positive total unfunded liability with a negative total payment, A negative total unfunded liability with a positive total payment, or Total payments that completely amortize the unfunded liability over a very short period of time In any year where one of the above scenarios occurs, the actuary will consider corrective action such as replacing the existing unfunded liability bases with a single "fresh start" base and amortizing it over a reasonable period. The Current Amortization Schedule on the following page may appear to show that, based on the current amortization bases, one of the above scenarios will occur at some point in the future. It is impossible to know today whether such a scenario will in fact arise since there will be additional bases added to the amortization schedule in each future year. Should such a scenario arise in any future year, the actuary will take appropriate action based on guidelines in the CalPERS amortization policy. For purposes of this display, total payments include any negative payments. Therefore, the amount of estimated savings may be understated to the extent that negative payments appear in the current schedule. Rate Plan belonging to the Miscellaneous Risk Pool Page 9 C-15 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CaIPERS ID: 3846845523 30 -Year Amortization Schedule and Alternatives Alternate Schedules Current Amortization 25 Year Amortization 20 Year Amortization Schedule Date Balance Payment Balance Payment Balance Payment 6/30/2017 10,191 214 10,191 674 10,191 769 6/30/2018 10,733 347 10,257 694 10,158 793 6/30/2019 11,179 486 10,307 715 10,098 816 6/30/2020 11,513 634 10,339 736 10,009 841 6/30/2021 11,719 791 10,352 758 9,888 866 6/30/2022 11,778 815 10,342 781 9,731 892 6/30/2023 11,816 839 10,308 804 9,536 919 6/30/2024 11,832 864 10,247 828 9,299 946 6/30/2025 11,824 890 10,157 853 9,015 975 6/30/2026 11,788 917 10,034 879 8,680 1,004 6/30/2027 11,721 944 9,875 905 8,290 1,034 6/30/2028 11,621 973 9,677 932 7,840 1,065 6/30/2029 11,484 1,002 9,436 960 7,324 1,097 6/30/2030 11,306 1,032 9,148 989 6,735 1,130 6/30/2031 11,084 1,063 8,809 1,019 6,069 1,164 6/30/2032 10,814 1,095 8,413 1,049 5,317 1,199 6/30/2033 10,490 1,128 7,956 1,081 4,473 1,235 6/30/2034 10,107 1,162 7,432 1,113 3,528 1,272 6/30/2035 9,661 1,196 6,835 1,147 2,474 1,310 6/30/2036 9,145 1,232 6,158 1,181 1,301 1,349 6/30/2037 8,553 1,269 5,396 1,217 6/30/2038 7,879 1,307 4,539 1,253 6/30/2039 7,114 1,346 3,580 1,291 6/30/2040 6,252 1,387 2,511 1,329 6/30/2041 5,283 1,428 1,321 1,369 6/30/2042 4,198 1,471 6/30/2043 2,987 1,252 6/30/2044 1,913 1,019 6/30/2045 1,001 770 6/30/2046 278 288 Totals 29,162 24,558 20,677 Estimated Savings 4,604 8,486 Current CalPERS Board policy prioritizes the order for which lump sum contributions in excess of the required employer contribution shall be applied. Excess contributions shall first be applied toward payment on the plan's side fund, and any remainder shall then be applied toward the plan's share of the pool's unfunded accrued liability. Please contact the plan actuary before making such a payment to ensure that the payment is applied correctly. Rate Plan belonging to the Miscellaneous Risk Pool Page 10 C-16 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Employer Contribution History The table below provides a recent history of the required employer contributions for the plan, as determined by the annual actuarial valuation. It does not account for prepayments or benefit changes made during a fiscal year. Fiscal Employer Unfunded Liability Year Normal Cost Payment ($) 2016- 17 6.555% 90 2017- 18 6.533% 214 Funding History The funding history below shows the plan's actuarial accrued liability, share of the pool's market value of assets, share of the pool's unfunded liability, funded ratio, and annual covered payroll. Accrued Share of Pool's Valuation Liability Market Value of Date (AL) Assets (MVA) Plan's Share of Annual Pool's Unfunded Funded Covered Liability Ratio Payroll 06/30/2013 $ 3,810 $ 5,112 $ (1,302) 06/30/2014 34,829 37,902 (3,073) 06/30/2015 153,966 147,363 6,603 Rate Plan belonging to the Miscellaneous Risk Pool 134.2% $ 128,274 108.8% 469,813 95.7% 859,764 Page 11 C-17 RISK ANALYSIS ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS ANALYSIS OF DISCOUNT RATE SENSITIVITY VOLATILITY RATIOS HYPOTHETICAL TERMINATION LIABILITY C-18 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Analysis of Future Investment Return Scenarios The investment return for Fiscal Year 2015-16 was not known at the time this report was produced. The investment return in Fiscal Year 2015-16 as of April 30, 2016 is 0.0 percent before administrative expenses. For purposes of projecting future employer contributions, we are assuming a 0.0 percent investment return for Fiscal Year 2015-16. The investment return realized during a fiscal year first affects the contribution for the fiscal year two years later. For example, the investment return for Fiscal Year 2015-16 will first be reflected in the June 30, 2016 actuarial valuation that will be used to set the Fiscal Year 2018-19 employer contributions, the Fiscal Year 2016-17 investment return will first be reflected in the June 30, 2017 actuarial valuation that will be used to set the Fiscal Year 2019-20 employer contributions, and so forth. A sensitivity analysis was performed to determine the effects of various investment returns during fiscal years 2016-17, 2017-18, and 2018-19 on the employer contributions for fiscal years 2019-20, 2020-21, and 2021-22. The projected contributions assume that all other actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur. Five different investment return scenarios were selected. The first scenario is a -3.8 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 5th percentile return from July 1, 2016 through June 30, 2019. The second scenario is a 2.8 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 25th percentile return from July 1, 2016 through June 30, 2019. The third scenario is a 7.5 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 49th percentile return from July 1, 2016 through June 30, 2019. The fourth scenario is a 12.0 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 75th percentile return from July 1, 2016 through June 30, 2019. Finally, the last scenario is an 18.9 percent return for each of the 2016-17, 2017-18, and 2018-19 fiscal years. Based on the current investment allocation, this is what one would expect if the markets were to give us about a 95th percentile return from July 1, 2016 through June 30, 2019. The table below shows the estimated projected contributions and the estimated increases for the plan under the five different scenarios. 2016-19 Investment Return Scenario 2019-20 Fiscal Year 2020-21 2021-22 Estimated Change Between 2018-19 and 2021-22 3.8% Normal Cost 6.5% 6.5% 6.5% 0.0% UAL Contribution $1,124 $2,015 $3,205 $2,679 2.8% Normal Cost 6.5% 6.5% 6.5% 0.0% UAL Contribution $967 $1,549 $2,282 $1,756 7.5% Normal Cost 6.5% 6.5% 6.5% 0.0% UAL Contribution $855 $1,204 $1,574 $1,048 12.0% Normal Cost 6.5% 6.5% 6.6% 0.1% UAL Contribution $766 $921 $973 $447 18.9% Normal Cost 6.6% 6.8% 7.1% 0.6% UAL Contribution $640 $0 $0 $ 526 Rate Plan belonging to the Miscellaneous Risk Pool Page 13 C-19 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 For the last two scenarios in the table above the results incorporate the impact of CalPERS Risk Mitigation Policy. A 12.0% return would result in a reduction of the discount rate by 0.05% and a return of 18.9% would reduce the discount rate by 0.15%. Reducing the discount rate increases both the plan's accrued liability and normal cost. More details about Risk Mitigation policy can be found on our website. Analysis of Discount Rate Sensitivity The following analysis looks at the Fiscal Year 2017-18 total normal cost rates and liabilities under two different discount rate scenarios. Shown below are the total normal cost rates assuming discount rates that are 1 percent lower and 1 percent higher than the current valuation discount rate. This analysis shows the potential plan impacts if the Public Employees' Retirement Fund (PERF) were to realize investment returns of 6.50 percent or 8.50 percent over the long-term. This analysis is intended to illustrate the long-term risk to the contribution rates. Sensitivity Analysis As of June 30, 2015 6.50% Discount Rate (-10/0) 7.50% Discount Rate (assumed rate) 8.50% Discount Rate (+ia/o) Plan's Total Normal Cost 15.7% 12.8% 10.5% Accrued Liability $187,308 $153,966 $127,570 Unfunded Accrued Liability $39,945 $6,603 $(19,793) Rate Plan belonging to the Miscellaneous Risk Pool Page 14 C-20 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Volatility Ratios Actuarial calculations are based on a number of assumptions about long-term demographic and economic behavior. Unless these assumptions (terminations, deaths, disabilities, retirements, salary growth, and investment return) are exactly realized each year, there will be differences on a year-to-year basis. The year-to-year differences between actual experience and the assumptions are called actuarial gains and losses and serve to lower or raise required employer contributions from one year to the next. Therefore, employer contributions will inevitably fluctuate, especially due to the ups and downs of investment returns. Asset Volatility Ratio (AVR) Plans that have higher asset -to -payroll ratios experience more volatile employer contributions (as a percentage of payroll) due to investment return. For example, a plan with an asset -to -payroll ratio of 8 may experience twice the contribution volatility due to investment return volatility, than a plan with an asset -to - payroll ratio of 4. Shown below is the asset volatility ratio, a measure of the plan's current contribution volatility. It should be noted that this ratio is a measure of the current situation. It increases over time but generally tends to stabilize as the plan matures. Liability Volatility Ratio (LVR) Plans that have higher liability -to -payroll ratios experience more volatile employer contributions (as a percentage of payroll) due to investment return and changes in liability. For example, a plan with a liability - to -payroll ratio of 8 is expected to have twice the contribution volatility of a plan with a liability -to -payroll ratio of 4. The liability volatility ratio is also shown in the table below. It should be noted that this ratio indicates a longer-term potential for contribution volatility. The asset volatility ratio, described above, will tend to move closer to the liability volatility ratio as the plan matures. Rate Volatil As of June 30, 2015 1. Market Value of Assets $ 147,363 2. Payroll 859,764 3. Asset Volatility Ratio (AVR) [(1) / (2)] 0.2 4. Accrued Liability $ 153,966 5. Liability Volatility Ratio (LVR) [(4) / (2)] 0.2 Rate Plan belonging to the Miscellaneous Risk Pool Page 15 C-21 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Hypothetical Termination Liability The hypothetical termination liability is an estimate of the financial position of the plan had the contract with CalPERS been terminated as of June 30, 2015. The plan liability on a termination basis is calculated differently compared to the plan's ongoing funding liability. For the hypothetical termination liability calculation, both compensation and service are frozen as of the valuation date and no future pay increases or service accruals are assumed. A more conservative investment policy and asset allocation strategy was adopted by the CalPERS Board for the Terminated Agency Pool. The Terminated Agency Pool has limited funding sources since no future employer contributions will be made. Therefore, expected benefit payments are secured by risk-free assets and benefit security for members is increased while funding risk is limited. However, this asset allocation has a lower expected rate of return than the PERF and consequently, a lower discount rate is assumed. The lower discount rate for the Terminated Agency Pool results in higher liabilities for terminated plans. The effective termination discount rate will depend on actual market rates of return for risk-free securities on the date of termination. As market discount rates are variable, the table below shows a range for the hypothetical termination liability based on the lowest and highest interest rates observed during an approximate 2 -year period centered around the valuation date. Hypothetical Unfunded Hypothetical Unfunded Market Termination Funded Termination Termination Funded Termination Value of Liabilityl,Z Status Liability Liabilityl,Z Status Liability Assets (MVA) @ 2.00% @ 2.00% @ 3.25% @ 3.25% $147,363 $166,788 88.4% $19,426 $135,463 108.8% $(11,899) For plans where active members have little service the hypothetical termination liability methodology used does not fully vest active members upon termination. In these cases the hypothetical termination liability is understated. ' The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with Board policy. Other actuarial assumptions, such as wage and inflation assumptions, can be found in Appendix A. Z The current discount rate assumption used for termination valuations is a weighted average of the 10 -year and 30 -year U.S. Treasury yields where the weights are based on matching asset and liability durations as of the termination date. The discount rates used in the table are based on 20 -year Treasury bonds, rounded to the nearest quarter percentage point, which is a good proxy for most plans. The 20 -year Treasury yield was 2.75 percent on June 30, 2015. In order to terminate the plan, you must first contact our Retirement Services Contract Unit to initiate a Resolution of Intent to terminate. The completed Resolution will allow the plan actuary to give you a preliminary termination valuation with a more up-to-date estimate of the plan liabilities. CalPERS advises you to consult with the plan actuary before beginning this process. Rate Plan belonging to the Miscellaneous Risk Pool Page 16 C-22 CALPERS ACTUARIAL VALUATION - June 30, 2015 PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES CalPERS ID: 3846845523 Participant Data The table below shows a summary of your plan's member data upon which this valuation is based: June 30, 2014 Reported Payroll $ 469,813 Projected Payroll for Contribution Purposes $ 513,378 Number of Members Active 7 Transferred 0 Separated 1 Retired 0 List of Class 1 Benefit Provisions This plan has the additional Class 1 Benefit Provisions: ILIreW Rate Plan belonging to the Miscellaneous Risk Pool June 30, 2015 $ 859,764 $ 939,487 17 0 1 0 Page 17 C-23 PLAN'S MAJOR BENEFIT OPTIONS C-24 SECTION 1 — PLAN SPECIFIC INFORMATION FOR THE PEPRA MISCELLANEOUS PLAN OF THE CITY OF RANCHO PALOS VERDES Plan's Major Benefit Options Shown below is a summary of the major optional benefits for which your agency has contracted. A description of principal standard and optional plan provisions is in Appendix B within Section 2 of this report. CalPERS Actuarial Valuation — June 30, 2015 Page 19 Rate Plan belonging to the Miscellaneous Risk Pool C-25 Contract package Active Misc Benefit Provision Benefit Formula 2.0% @ 62 Social Security Coverage No Full/Modified Full Employee Contribution Rate 6.25% Final Average Compensation Period Three Year Sick Leave Credit Yes Non -Industrial Disability Standard Industrial Disability No Pre -Retirement Death Benefits Optional Settlement 2W Yes 1959 Survivor Benefit Level level 4 Special No Alternate (firefighters) No Post -Retirement Death Benefits Lump Sum $500 Survivor Allowance (PRSA) No COLA 2% CalPERS Actuarial Valuation — June 30, 2015 Page 19 Rate Plan belonging to the Miscellaneous Risk Pool C-25 Section 2 CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Section 2 may be found on the CalPERS website (www.calpers.ca.gov) in the Forms and Publications section C-26