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
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sources: employer contributions, employee contributions and investment returns on
CalPERS Investments.
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FI I E" I I C'.
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(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
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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
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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
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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
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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.
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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.
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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.
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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
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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
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RISK ANALYSIS
ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS
ANALYSIS OF DISCOUNT RATE SENSITIVITY
VOLATILITY RATIOS
HYPOTHETICAL TERMINATION LIABILITY
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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
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PLAN'S MAJOR BENEFIT OPTIONS
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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
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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
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