CC SR 20240116 H - CalPERS 2022 Valuation Reports
CITY COUNCIL MEETING DATE: 01/16/2024
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to receive the annual valuations for City pension plans
from the California Public Employees’ Retirement System (CalPERS).
RECOMMENDED COUNCIL ACTION:
1) Receive and file the actuarial valuations as of June 30, 2022.
FISCAL IMPACT: N/A.
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Jason Loya, Senior Administrative Analyst
REVIEWED BY: Vina Ramos, Director of Finance VR
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A. Actuarial Valuation as of June 30, 2022 – Tier 1 (page A-1)
B. Actuarial Valuation as of June 30, 2022 – Tier 2 (page B-1)
C. Actuarial Valuation as of June 30, 2022 – Tier 3 (page C-1)
D. August 1, 2023 City Council Staff Report (page D-1)
BACKGROUND
Each year, CalPERS prepares Actuarial Valuation Reports (AVR) to determine the funded
status and employer contribution requirements for City pension plans. Results from the
June 30, 2022 AVR for the Miscellaneous Plan (Tier 1), Miscellaneous Second Tier Plan
(Tier 2), and Public Employees’ Pension Reform Act (PEPRA) Miscellaneous Plan (Tier
3) are summarized below and reported in accordance with the City’s Pension Plan
Guidelines. This item was also reviewed by the Finance Advisory Committee (FAC) on
December 14, 2023 as assigned in the FY 2023-24 FAC Work Plan.
The City typically receives the annual valuations in August, approximately one year after
the reported period. This timeline allows CalPERS actuaries to certify that the reports are
complete, accurate, and contain sufficient information to fully disclose t he financial
condition of each plan. Discussions about the 2022 AVR began shortly after CalPERS
1
RANCHO PALOS VERDES
announced its preliminary investment return of -6.1% on July 20, 2022. Due to its potential
implications, the ensuing discussions between Staff and the FAC led to a series of
analyses focused on mitigating the anticipated impact of a negative return.
On August 1, 2023, Staff presented the City Council with an overview of the actions that
took place beginning in September 2022 as well as key findings from the analyses
recommended by the FAC (Attachment D). These actions included among other things,
the FAC’s request to thoughtfully examine Staff’s projections and funding scenarios. The
most significant finding, based on projections and information available at that time,
indicated that the City’s Unfunded Accrued Liability (UAL) was expected to rise from $10
million to just over $15.1 million by June 30, 2022. Additional findings related to the
investment loss, which CalPERS later revised to -7.5%, revealed that the UAL could
potentially cost the City over $26.2 million in total payments and interest. Mor eover, the
projected impact was expected to reduce the City’s funded status from 81% to roughly
70%. This further implied that the City may not reach its 90% funding goal over the seven
to ten year period defined in the pension guidelines.
Based on the data above, Additional Discretionary Payments (ADP) were proposed to the
City Council as a strategy to help the City proactively manage the UAL. Five ADP
scenarios were presented to help illustrate cost-saving strategies intended to bring the
City within reach of its 90% goal at the August 1, 2023 meeting (Attachment D). Of the
five scenarios under consideration, the FAC ultimately recommended ADP Scenario 5
and an initial ADP of $1.6 million in FY 2023-24. Revisions to the pension guidelines were
also included in the recommendation to City Council.
In consideration of emerging priorities and citywide initiatives, the City Council withheld
from approving the FAC’s recommendation to implement ADP Scenario 5 and the initial
ADP of up to $1.6 million (limited to 50% of the General Fund’s prior year surplus). Rather,
Staff was asked to bring the item back to the FAC to reassess and take the totality of
circumstances regarding upcoming capital projects into consideration. However, the City
Council moved to approve the recommended revisions to the Pension Pl an Guidelines,
which included:
• Updating the Tier 3 contribution rate to 6.75% as stipulated by PEPRA legislation
and required as of the June 30, 2021 valuation,
• Adding or revising definitions and current terminology,
• Stating FY 2030-31 as the end date to achieve a 90% funded status, and
• Incorporating ADP contribution and usage options into the guidelines.
The information noted above is intended to provide background context, but the purpose
of this report is to disclose the financial condition of City pension plans. The following
sections highlight actual results and analysis from the 2022 AVR with respect to the City
Council’s goal of efficiency and transparency. Staff’s discussion will also reflect any
material differences between the actual and projected results communicated in advance
of this report.
2
DISCUSSION:
The latest valuations provide the financial status of each pension plan as of June 30,
2022, and determine the minimum required employer contributions for FY 2024 -25. A
two-year gap between the valuation date and contribution fiscal year is necessary to
ensure that the financial data is accurately reported. The reports also include projected
employer contributions to aid in future planning.
Changes in Actuarial Methods and Assumptions
There are no reportable changes in actuarial assumptions or policies in the 2022 AVR. In
general, actuarial valuations are based on assumptions regarding future experience
including investment return and payroll growth, eligibility for benefits, and longevity among
retirees. Each AVR captures differences between actual and assumed experience and
adjusts the contribution requirements as needed. The latest iterations are based on an
investment return assumption of 6.8%, which was adopted by the CalPERS Board of
Administration in November 2021. Results below are expressed by tier, or in aggregate,
to effectively illustrate the financial implications for the City.
Required Contributions
As noted, the 2022 valuations set the minimum required contributions for FY 2024 -25.
Contributions to fund the pension plans are comprised of two components:
• Normal Cost, expressed as a percentage of total active payroll; and
• Amortization of the UAL, expressed as a dollar amount.
More specifically, a plan’s Normal Cost Rate represents the total expected cost of
projected benefits allocated annually based on years of service for active members. The
UAL is determined based on the difference between a plan’s Accrued Liability (AL) and
Market Value of Assets (MVA) at the end of each valuation period. If an unfunded liability
is measurable, that is, a plan’s MVA is less than its AL, then the balance must be repaid
over time in accordance with the CalPERS amortization policy. Table 1 high lights the
details of each cost component by type and tier.
Table 1. Minimum Required Employer Contributions FY 2024-25
Benefit
Plan
Normal
Cost Rate
Estimated
Normal Cost
Minimum UAL
Payment
Total Estimated
Contribution
Tier 1 14.13% $203,933 $1,266,876 $1,470,809
Tier 2 10.15% $156,223 $14,644 $170,867
Tier 3 7.87% $335,589 $14,336 $349,925
Total $695,745 $1,295,856 $1,991,601
3
In total, the estimated normal cost of $0.7 million and UAL payment of $1.3 million add
up to an estimated contribution of $2 million in FY 2024 -25. The City’s required
contribution increased by $0.2 million, or 13.5%, over the previous AVR. This increase is
attributed to the higher UAL balance that resulted from the -7.5% investment return.
Relatedly, the City traditionally chooses to prepay the UAL portion of the employer
contribution in full to help minimize costs. Exercising this option would result in an
estimated savings of almost $42,000, or 3.2%. For a broader comparison, Chart 1
illustrates the year-over-year change in total required contributions since FY 2019-20.
Chart 1. Minimum Required Employer Contributions Since FY 2019-20
Change in CalPERS Valuation Projections: 2021 vs 2022
As stated, the valuations reflect prior differences between actual and assumed
experience. Adjusted for this change, the UAL payment in FY 2024 -25 rose by just over
$0.2 million, or 22%, more than the amount anticipated in the 2021 AVR. This type of
analysis emphasizes the year-over-year impact on pension plans due to differences in
the CalPERS assumption rate and actual investment return. Table 2 lays out the
variances by tier between the 2021 AVR projection and 2022 AVR actual results.
Table 2. 2021 AVR Projected vs 2022 AVR Actual UAL Payment
Benefit Plan
FY 2024-25
(Projected)
FY 2024-25
(Actual) Net Change
Tier 1 $1,064,000 $1,266,876 $202,876
Tier 2 $0 $14,644 $14,644
Tier 3 $0 $14,336 $14,336
Total $1,064,000 $1,295,856 $231,856
A major difference shown in Table 2 above is the presence of a UAL for both Tier 2 and
Tier 3. The 2021 AVR projected a UAL of $0 due to CalPERS 21% investment return in
4
., $2.5
C:
0
~ $2.0
$1.5
$1.0
$0.5
$0.0
MINIMUM REQUIRED EMPLOYER CONTRIBUTIONS
$2.0
2019 -20 2020-21 2021-22 2022 -23 2023-24 2024-25
UAL Payment -Est Normal Cost -Total Est. Contribution
FY 2020-21. Both tiers were considered fully funded at that point in time, and as such,
were projected to meet actuarial assumptions in future years. Instead, the investment
gains were essentially off set by CalPERS FY 2021 -22 investment return of -7.5%. As a
result, ongoing UAL payments are now projected for all three tiers.
Projected Future City Contributions
The projections below are determined by CalPERS and assume the investment return in
future years will be 6.8%. It’s also assumed that no further changes to assumptions,
contributions, benefits, or funding will occur during the projection period. To the ext ent the
investment return for FY 2022-23 differs from 6.8%, the actual contribution requirements
for FY 2025-26 and beyond will differ from those shown in Table 3.
Table 3. Projected UAL Payments (Assumes 6.8% Return)
Benefit
Plan
FY 2024-25
Required
FY 2025-26
Projected
FY 2026-27
Projected
FY 2027-28
Projected
FY 2028-29
Projected
FY 2029-30
Projected
Tier 1 $1,266,876 $1,362,000 $1,454,000 $1,528,000 $1,694,000 $1,730,000
Tier 2 $14,644 $24,000 $34,000 $44,000 $53,000 $53,000
Tier 3 $14,336 $24,000 $34,000 $44,000 $54,000 $54,000
Total $1,295,856 $1,410,000 $1,522,000 $1,616,000 $1,801,000 $1,837,000
Based on CalPERS assumptions, the 2022 valuations project total UAL payments to
increase by an average annual rate of 7.2% through FY 2029-30. Table 3 also reflects an
increase of about $0.5 million from the beginning to end of this period. Regardless, and
as the data has shown, actual long -term costs depend on the actual benefits and
expenses paid and the future investment experience of the fund.
Funded Status as of June 30, 2022
A plan’s funded status is based on the MVA relative to the value of projected benefits for
active members, otherwise known as the AL. The AL is considered a plan’s funding target
as of the valuation date. A funded ratio of 100% (UAL of $0) implies that the funding of
the plan is on target and that future contributions equal to the normal cost of the active
plan members. A funded ratio of less than 100% (positive UAL) implies that in addition to
normal costs, payments toward the UAL will be required. Table 4 breaks down each plan’s
funded status following the investment loss and as reported in the 2022 AVR.
Table 4. Funded Status as of June 30, 2022
in millions Tier 1 Tier 2 Tier 3 Totals
Accrued Liability (AL) $49.8 $3.5 $3.0 $56.3
Market Value of Assets (MVA) $34.0 $3.0 $2.6 $39.7
Unfunded Accrued Liability [(AL) - (MVA)] $15.8 $0.4 $0.4 $16.7
Funded Ratio [(MVA) / (AL)] 68.3% 87.3% 86.3% 70.4%
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Through June 30, 2022, the City’s total AL of $56.3 million and total MVA of $39.7 million
resulted in a total UAL of $16.7 million. All plans considered, the City’s overall funded
ratio fell to 70.4%, down 11% from the 2021 AVR. Most notably, the UAL now present in
Tier 2 and Tier 3 adds to the anticipated UAL reported and projected in Staff’s analysis.
In brief, City Staff anticipated a $15.1 million UAL as of June 30, 2022. This projection
was for Tier 1 only given that Tiers 2 and 3 did not have an existing UAL at that time. The
variance between Staff’s projection and actual UAL for Tier 1 was approxim ately $0.7
million, or 4%. According to CalPERS, the $0.7 million is non -investment related and
associated with retroactive cost-of-living-adjustments for retirees to account for inflation.
Funding History and Analysis
Chart 2 below illustrates the City’s actuarial accrued liability, market value of assets, UAL
balance, and funded ratio from a historical perspective. This data is presented in the
aggregate to demonstrate the overall values and trends for City pension pla ns.
Chart 2. Funding History
Over a 10-year period, the City’s AL and MVA have grown by an average annual rate of
7.1% and 6.2%, respectively. This analysis indicates that plan liabilities have grown faster
than plan assets as of June 30, 2022. The 2021 AVR indicated that the opposite was true,
which points to the year-over-year volatility in investment returns and outcomes.
Recognizing that markets tend to be more volatile in short-term gives credence to the
value of maintaining a long-term perspective.
That said, it’s important to point out that the City’s total UAL balance has increased by an
average annual rate of 9.7% since June 30, 2013. Consequently, the City’s average
funded status is at 74.7%, down slightly from 75.2% reported in last year’s AVR.
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$60 9 0%
8 0%
$50
7 0%
$40 6 0%
"' C: 5 0% ~ $30
~ 4 0%
$20 3 0%
2 0%
$10
10%
$0 0 %
6/30/2013 6/30/2014 6/30/2015 6/30/2016 6/30/2017 6/30/2018 6/30/2019 6/30/2020 6/30/2021 6/30/2022
-A cc rued Liabil ity -Market Va l ue of Assets (MVA) -Unfunded Accrued Li ability (UA L) ~Funded Rat io
Breakdown of Accrued Liability
For additional insight, Table 5 provides a breakdown of the City’s AL distributed across
members as reported in the 2022 AVR. In summary, Tier 1 members account for $49.8
million, or 88%, of the total AL. Tier 2 and Tier 3 members represent a combined tota l of
$6.5 million, or 12%, of the remaining portion of City’s AL. Table 5 also calls attention to
Tier 1 member/beneficiary payments of $31.4 million which is 56% of total AL.
Table 5. Breakdown of Accrued Liability as of June 30, 2022
in millions Tier 1 Tier 2 Tier 3 Totals
Active Members $11.1 $1.8 $2.0 $14.9
Transferred Members $4.6 $0.5 $1.0 $6.1
Terminated Members $2.7 $0.1 $0.1 $2.9
Member / Beneficiary Payments $31.4 $1.1 $0.0 $32.5
Total $49.8 $3.5 $3.0 $56.3
UAL Amortization Analysis
This section focuses on the long-term implications of a growing UAL. As stated, the City’s
total UAL balance has increased by an average annual rate of 9.7% since June 2013.
Chart 3 below depicts this growing trend in parallel to CalPERS annualized investm ent
returns. Despite year-over-year investment volatility, the long-term growth of the City’s
UAL is most apparent in review of the historic data.
Chart 3. Annual UAL and Investment Return History
Schedule of Amortization Bases
The UAL is made up of several gain and loss bases that collectively determine the total
balance at the end of each valuation period. Individual bases represent the City’s
allocated share of the risk pool’s experience and assumption change for each period a nd
are added to each plan’s amortization schedule. For example, an investment gain occurs
7
.,
C:
$20
$15
~ $10
~
$5
$0
~Investment Ret urn
when CalPERS experiences an investment return above the 6.8% discount rate. An
investment return below the discount rate, like in the 2022 AVR, results in a loss.
Differences in non-investment experience also result in either a gain or loss base. This
occurs when demographic assumptions, such as retirement or mortality rates, differ from
actuarial assumptions. For example, the cost of benefits increases for retirees living
longer than assumed, and in turn, raises contribution requirements. This scenario is
viewed as a non-investment loss. Ultimately, each gain or loss base is added and
amortized accordingly regardless of the plan specific reason.
Table 6 summarizes the ending UAL balances and expected payments based on the
schedule of amortization bases in the 2022 AVR. The ending UAL balance is rolled
forward each year by subtracting the expected payment and adjusting for interest.
Table 6. Summary of UAL Amortization Schedules
BENEFIT
PLAN
BALANCE
6/30/2022
EXPECTED
PAYMENT
2022-23
BALANCE
6/30/23
EXPECTED
PAYMENT
2023-24
BALANCE
6/30/24
REQUIRED
PAYMENT
2024-25
TIER 1 $15,793,634 $1,077,244 $15,754,333 $1,070,317 $15,719,518 $1,266,876
TIER 2 $440,352 ($2,104) $472,470 $0 $504,598 $14,644
TIER 3 $417,432 ($31,925) $478,810 $0 $511,369 $14,336
TOTAL $16,651,418 $1,077,244 $16,705,613 $1,070,317 $16,735,485 $1,295,856
The total UAL balance of $16.7 million as of June 30, 2022 is referenced earlier in this
report. However, because the 2022 AVR determine s the minimum required employer
contributions for FY 2024-25, the amortization schedules begin with the UAL balance as
of June 30, 2024. All future calculations in the AVR reflect CalPERS investment return
assumption of 6.8%, and thus, are subject to change based on actual experience.
Analysis of Amortization Schedules
The projected UAL balances as of June 30, 2024 are listed in Table 7 below. The default
amortization schedules provided in the 2022 AVR use a 20 -year funding horizon as the
default method. Repaying the UAL under the current schedule and assumptions is
projected to cost the City $16.7 million in total principal and $11.7 million in total interest,
for a total estimated cost of $28.4 million.
Table 7. 2022 Default Amortization Schedules
in millions Tier 1 Tier 2 Tier 3 Totals
Principal Paid $15.7 $0.5 $0.5 $16.7
Interest Paid $10.7 $0.5 $0.5 $11.7
Total Paid $26.4 $1.0 $1.0 $28.4
8
Additionally, the 2022 default schedules are based on the City making the minimum
contributions required in accordance with CalPERS amortization policy. Alternatively,
there are other methods available to help proactively manage the UAL and align with the
City’s Pension Plan Guidelines. The primary benefits of these alternatives include
stabilizing future contributions and reducing interest costs. CalPERS includes alternative
schedules in the AVR to help illustrate the potential savings from these methods.
CalPERS Alternative Amortization Schedules
The first alternative method provided by CalPERS is to employ a Fresh Start. A Fresh
Start is an adjustment to the amortization schedule that permanently reduces the funding
horizon and increases annual payments at a fixed amount. This method uses a level
dollar amortization strategy that enables agencies to budget consistently in future years.
Accordingly, the totals and estimated savings from each alternate example provided in
the 2022 valuations are aggregated and shown in Table 8 below.
Table 8. Alternate Amortization Schedules (Fresh Start)
in millions 2022 Default Alternate 1 Alternate 2
Total Paid $28.4 $26.6 $23.1
Interest Paid $11.7 $9.8 $6.3
Estimated Savings $0 $1.8 $5.3
Initiating a Fresh Start as prepared by CalPERS would require UAL contributions to
increase to an average of roughly $1.8 million for Alternate 1 or $2.3 million for Alternate
2. As suggested, Alternates 1 and 2 shorten the funding horizon to 15 or 10 years to
achieve an estimated savings of $1.8 million or $5.3 million, respectively. New unfunded
liabilities can and will emerge in future years and should be considered when
implementing a Fresh Start alternative.
A second alternative prepared by CalPERS considers ADPs, which is a method added
as a revision to the City’s Pension Plan Guidelines in August 2023. Similarly, these
optional payments serve to reduce the UAL and future required contributions and can
result in significant long-term savings. ADPs can also be utilized to mirror a Fresh Start
without permanently altering the current schedules. Table 9 aggregates data for all plans
to compare total contributions for the select ADP options provided in the 2022 AVR.
Table 9. Alternative Fiscal Year 2024-25 Employer Contributions (in millions)
Funding
Horizon
Estimated
Normal Cost
Minimum UAL
Payment
ADP
Amount
Total UAL
Contribution
Estimated Total
Contribution
Default $0.7 $1.3 $0 $1.3 $2.0
20 years $0.7 $1.3 $0.2 $1.5 $2.2
15 years $0.7 $1.3 $0.5 $1.8 $2.5
10 years $0.7 $1.3 $1.0 $2.3 $3.0
9
CalPERS does not provide the estimated savings for the ADP options in Table 9, though
results from the 15- and 10-year options can be assumed using the Fresh Start example.
Rather, this information was included to indicate that it may benefit the City to c onsider
ADPs under current circumstances. This is because the minimum required contributions
for the default schedules for Tiers 2 and 3 are less than the interest on the UAL.
Using the given assumptions, Tier 2 and Tier 3 contributions are not expected to exceed
interest until FY 2027-28. This situation is referred to as negative amortization and occurs
because investment gains and losses are amortized using 5 -year ramp. CalPERS uses
this method to incrementally phase in the impacts associated with significant changes in
the UAL. Projected payments and interest through FY 2029 -30 for both tiers are shown
in Table 10. For additional reference, nearly 81% of the Tier 1 payment in FY 2024-25 will
go towards interest rather than principal but does not negatively amortize.
Table 10. Negative Amortization
Tier 2 Tier 3
Fiscal
Year Payment Interest ($)
Interest/
Payment
Ratio
Payment Interest ($)
Interest/
Payment
Ratio
2024-25 $14,644 $33,823 231% $14,336 $34,293 239%
2025-26 $24,297 $34,804 143% $24,277 $35,318 145%
2026-27 $33,951 $35,196 104% $34,219 $35,737 104%
2027-28 $43,604 $34,957 80% $44,160 $35,507 80%
2028-29 $53,257 $34,047 64% $54,101 $34,586 64%
2029-30 $53,257 $32,740 61% $54,101 $33,260 61%
Contribution History and Analysis
To provide additional perspective, Chart 4 on the following page uses historic AVR data
to illustrate required UAL contributions from FY 2016 -17 to FY 2024-25. Collectively, the
City’s total UAL payments during this period have increased at an average annual rate of
15.3%. This exceeds the previous year’s average growth rate of 14.5%. Chart 4 also
includes a linear projection using nine years of historic data. This upward trend aligns with
the projected UAL payments reported by CalPERS in Table 3 of this report, further
validating the trajectory of future payments throu gh FY 2029-30.
10
Chart 4. UAL Contribution History and Trend Analysis
When considering the full UAL amortization period, the City is projected to reach a 90%
funded status in FY 2033-34, three years beyond the stated goal in the pension
guidelines. Moreover, UAL payments are expected to continue until FY 2044 -45 based
on the 2022 AVR schedules. Nonetheless, all projections and schedules reported in the
2022 AVR are subject to change based on actual experience in FY 2022 -23.
CalPERS 2023 Preliminary Investment Return
On July 19, 2023, CalPERS reported a preliminary net return of 5.8% on its investments
for the year ending June 30, 2023. The FY 2022-23 preliminary return exceeds the -7.5%
loss, which was first negative return since the Great Recession. Despite a relatively strong
performance, the 5.8% preliminary return fell short of CalPERS 6.8% discount rate and
is considered as a net investment loss. The funded status of the Public Employees’
Retirement Fund (PERF) is now estimated at 72%.
CalPERS annualized investment returns for the five-year period ending June 30, 2023
are listed below. While single year investment returns are notable, reviewing the long -
term return rates comprehensively demonstrate the PERF’s overall performance. Either
way, the final FY 2022-23 investment return will impact City pension plans and is expected
to increase the UAL based on the 5.8% return.
Table 13. CalPERS Investment Returns through June 30, 2023 1 Year 5 Year 10 Year 20 Year 30 Year
Annualized Returns 5.8% 6.1% 7.1% 7.0% 7.5%
ADDITIONAL INFORMATION:
Table 14 on the following page shows a summary of the plan’s member data upon which
this valuation is based.
11
"' C:
.!2
$2.5
~ $2.0
$1.5
$1.0
$0.5
$0.0
~ Required Contributions
$1.8 $1.8
2022 Projected UAL Payments -----Linear (Required Contributions)
Table 14. Employee Tier Distribution Tier 1 Tier 2 Tier 3 Total by Status
Active Members 20 11 59 90
Retirees 109 6 0 115
Total by Tier 129 17 59 205
Compared to the prior year, Tier 1 active members decreased from 23 to 20, while retirees
have increased from 105 to 109. Tier 2 actives and retirees has remained unchanged.
Active members in Tier 3 increased from 57 to 59.
Pension Guidelines
In accordance with the 2020-21 City Council Goals under “Government Efficiency and
Transparency,” the purpose of the pension guidelines is to proactively manage ongoing
contributions to the City’s pension plans and Unfunded Accrued Liabilities (UAL).
In addition to outlining available funding methods for consideration, the two primary goals
established by the pension guidelines are:
1. To stabilize annual contributions and mitigate long -term impacts from the City’s
UAL.
2. To achieve and maintain a 90% funding level for City pension plans over the next
seven to ten years ending in FY 2030-31.
The guidelines also established the Employee Pension Plan Service Fund (EPSF). To
address the rising UAL, the City may set aside funds in the EPSF to help relieve the
General Fund of payments exceeding $900,000. The City may consider contributing at
least 10%, but no more than 25%, of the prior year’s unallocated General Fund balance
following the year-end close.
The EPSF has an estimated fund balance of approximately $1 million ending FY 2022 -
23. Based FY 2022-23 year-end estimates, the City’s General Fund surplus (revenues
minus expenditures including transfers) was almost $1.2 million. As a result, the City
Council approved the maximum transfer of $291,300, or 25%, of the surplus to the EPSF
during the FY 2023-24 budget adoption.
Finance Advisory Committee
The 2022 valuations were presented to the FAC at the meeting on December 14, 2023.
Based on the results, the FAC intends to reiterate the arbitrage opportunity created by
paying down the UAL while taking into account the totality of circumstances for the City.
This item is also referenced in the FAC’s Biannual Report presented this evening , under
a separate agenda item, and will be prioritized within the FAC’s Work Plan to eventually
provide a recommendation to the City Council.
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CONCLUSION:
The 2022 AVR provides the financial status of City pension plans as of June 30, 2022,
and determines the minimum required contributions for FY 2024 -25. As a result of
CalPERS -7.5% investment return, the City’s total estimated required contribution in FY
2024-25 is $2 million, an increase of $0.2 million, or 13.5%, from the previous year.
Additional data from the report indicates that the City’s total AL of $56.3 million and total
MVA of $39.7 million resulted in a total UAL of $16.7 million. Overall, the City’s funded
ratio has fallen to 70.4%, down 11% from the previous year’s report.
Since 2013, the City’s UAL has increased by an average rate of 9.7% per year. By
continuing to make the minimum required payments, the UAL is currently projected to
cost $16.7 million in total principal and $11.7 million in total interest, for a total estimated
cost of $28.4 million by FY 2044-45. Based on these findings and the default amortization
schedule, City pension plans are not expected to reach a 90% funded status until FY
2033-34, three years beyond the stated goal. Nevertheless, valuation results are reported
annually to maintain transparency and provide an opportunity to formulate solutions for
the City Council’s future consideration.
13
California Public Employees’ Retirement System
Actuarial Office
400 Q Street, Sacramento, CA 95811 | Phone: (916) 795 -3000 | Fax: (916) 795 -2744
888 CalPERS (or 888-225-7377) | TTY: (877) 249 -7442 | www.calpers.ca.gov
July 2023
Miscellaneous Plan of the City of Rancho Palos Verdes (CalPERS ID: 3846845523)
Annual Valuation Report as of June 30, 2022
Dear Employer,
Attached to this letter is the June 30, 2022 actuarial valuation report for the rate plan noted above . Provided in this
report is the determination of the minimum required employer contributions for fiscal year (FY) 2024-25. In
addition, the report contains important information regarding the current financial status of the plan as well as
projections and risk measures to aid in planning for the future.
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, 2022.
Section 2 can be found on the CalPERS website (www.calpers.ca.gov). From the home page, go to “Forms &
Publications” and select “View All”. In the search box, enter “Risk Pool” and from the results list download the
Miscellaneous Risk Pool Actuarial Valuation Report for June 30, 2022.
Actuarial valuations are based on assumptions regarding future plan experience including investment return and payroll
growth, eligibility for the types of benefits provided, and longevity among retirees. The CalPERS Board of Administration
(board) adopts these assumptions after considering the advice of CalPERS actuarial and investment teams and other
professionals. Each actuarial valuation reflects all prior differences between actual and assumed experie nce and
adjusts the contribution requirements as needed. This valuation is based on an investment return assumption of 6.8%,
which was adopted by the board in November 2021. Other assumptions used in this report are those recommended in
the CalPERS Experie nce Study and Review of Actuarial Assumptions report from November 2021.
Required Contributions
The table below shows the minimum required employer contributions for FY 2024-25 along with estimates of the
required contributions for FY 2025-26. Employe e contributions other than cost sharing (whether paid by the employer
or the employee) are in addition to the results shown below. The required employer contributions in this report do
not reflect any cost sharing arrangement between the agency and the emp loyees.
Fiscal Year Employer Normal
Cost Rate
Employer Amortization of
Unfunded Accrued Liability
2024-25 14.13% $1,266,876
Projected Results
2025-26 14.1% $1,362,000
A-1
Miscellaneous Plan of the City of Rancho Palos Verdes
(CalPERS ID: 3846845523)
Annual Valuation Report as of June 30, 2022
Page 2
The actual investment return for FY 2022-23 was not known at the time this report was prepared. The projections above
assume the investment re turn for that year would be 6.8%. To the extent the actual investment return for FY 2022-
23 differs from 6.8%, the actual contribution requirements for FY 2025-26 will differ from those shown above.
For additional details regarding the assumptions and methods used for these projections , please refer to the “Projected
Employer Contributions” in the “Highlights and Executive Summary” section. This section also contains projected
required contributions through FY 2029-30.
Changes from Previous Year’s Valuations
There are no significant changes in actuarial assumptions or policies in the 2022 actuarial valuation. T here may be
changes specific to the plan such as contract amendments and funding changes.
Further descriptions of general changes are included in “Highlights and Executive Summ ary” and in Appendix A of the
Section 2 report in “Actuarial Methods and Assumptions .” The effects of any changes on the required contributions are
included in “Reconciliation of Required Employer Contributions ,” also in the Section 2 report.
Questions
A CalPERS actuary is available to answer questions about this report. Other questions may be directed to the Customer
Contact Center at (888)-CalPERS or (888-225-7377).
Sincerely,
SCOTT TERANDO, ASA, EA, MAAA, FCA, CFA
Chief Actuary, CalPERS
RANDALL DZIUBEK, ASA, MAAA
Deputy Chief Actuary, Valuation Services , CalPERS
A-2
Actuarial Valuation
as of June 30, 2022
for the
Miscellaneous Plan
of the
City of Rancho Palos Verdes
(CalPERS ID : 3846845523)
Required Contributions
for Fiscal Year
July 1, 2024 - June 30, 2025
A-3
Table of Contents
Section 1 – Plan Specific Information
Section 2 – Risk Pool Actuarial Valuation I nformation
A-4
Section 1
CALIFORNIA PUBLIC EM PLOYEES’ RETIREMENT SYSTEM
Plan Specific Information
for the
Miscellaneous Plan
of the
City of Rancho Palos Verdes
(CalPERS ID : 3846845523)
(Rate Plan ID: 1107)
A-5
Rate Plan belonging to the Miscellaneous Risk Pool
Table of Contents
Actuarial Certification 1
Highlights and Executive Summary
Introduction 3
Purpose of Section 1 3
Required Contribution s 4
Additional Discretionary Employer Contributions 5
Funded Status – Funding Policy Basis 6
Projected Employer Contributions 7
Other Pooled Miscellaneous Risk Pool Rate Plans 8
Cost 9
Changes Since the Prior Year’s Valuation 10
Subsequent Events 10
Assets and Liabilities
Breakdown of Entry Age Accrued Liability 12
Allocation of Plan’s Share of Pool’s Experience/Assumption Change 12
Development of Plan’s Share of Pool’s Market Value of Assets 12
Schedule of Amortization Bases 13
Amortization Schedule and Alternatives 15
Employer Contribution History 17
Funding History 17
Risk Analysis
Future Investment Return Scenarios 19
Discount Rate Sensitivity 20
Mortality Rate Sensitivity 20
Maturity Measures 21
Maturity Measures History 22
Funded Status – Termination Basis 23
Participant Data 24
List of Class 1 Benefit Provisions 24
Plan’s Major Benefit Options 25
A-6
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 1
Actuarial Certification
To the best of our knowledge, this report, compris ed of Sections 1 and 2, is complete and accurate and contains
sufficient information to disclose, fully and fairly, the funded condition of the Miscellaneous Plan of the City of
Rancho Palos Verdes and satisfies the actuarial valuation requirements of Government Code section 7504. This
valuation is based on the member and financial data as of June 30, 2022 provided by the various CalPERS
databases and the benefits under this plan with CalPERS as of the date this report was produced. Section 1 of
this report is based on the member and financial data for City of Rancho Palos Verdes , while Section 2 is based
on the corresponding information for all agencies participating in the Miscellaneous Risk Pool to which the plan
belongs.
As s et forth in Section 2 of this report, the pool ac tuaries have certified that, in their opinion, the valuation of the
Miscellaneous Risk Pool has been performed in accordance with generally accepted actuarial princip les , in
accordance 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 Boa rd 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 rate plan, it is my opinion as the plan actuary that the Unfunded Accrued Liability
amortization bases as of June 30, 2022 and employer contribution as of July 1, 2024 have been properly and
accurately determined in accordance with the principles and standards stated above.
The undersigned is an actuary who satisfies the Qualification Standards for Actuaries Issuing Statements of
Actuarial Opinion in the United States with regard to pensions.
IAN OSUGI, ASA , MAAA
Senior Actuary, CalPERS
A-7
Highlights and Executive Summary
• Introduction
• Purpose of Section 1
• Required Contributions
• Additional Discretionary Employer Contributions
• Funded S tatus – Funding Policy Basis
• Projected Employer Contributions
• Other Pooled Miscellaneous Risk Pool Rate Plans
• Cost
• Changes Since the Prior Year’s Valuation
• Subsequent Events
A-8
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 3
Introduction
This report presents the results of the June 30, 2022 actuarial valuation of the Miscellaneous Plan of the City of
Rancho Palos Verdes of the California Public Employees’ Retirement System (CalPERS). This actuarial
valuation sets the minimum required contributions for fiscal year (FY) 2024-25.
Purpose of Section 1
This Section 1 report for the Miscellaneous Plan of the City of Rancho Palos Verdes of CalPERS was prepared
by the Actuarial Office using data as of June 30, 2022. The purpose of the valuation is to:
• Set forth the assets and accrued liabilities of this rate plan as of June 30, 2022;
• Determine the minimum required employer contribution s for this rate plan for FY July 1, 2024 through
June 30, 2025;
• Determine the required member contribution rate for FY July 1, 2024 through June 30, 2025 for
employees subject to the California Public Employees' Pension Reform Act of 2013 (PEPRA); and
• Provide actuarial information as of June 30, 2022 to the CalPERS Board of Administration (board) and
other interested parties.
The pension funding information presented in this report should not be used in financial reports subject to
Governmental Accounting Standards Board (GASB) Statement No. 68 for a Cost Sharing Employer Defined
Benefit Pension Plan. A separate accounting valu ation report for such purposes is available on the CalPERS
website (www.calpers.ca.gov).
The measurements shown in this actuarial valuation may not be applicable for other purposes. The agency
should contact the plan actuary before disseminating any portio n of this report for any reason that is not explicitly
described above.
Future actuarial measurements may differ significantly from the current measurements presented in this report
due to such factors as the following: plan experience differing from that anticipated by the economic or
demographic assumptions; changes in economic or demographic assumptions; changes in actuarial policies;
changes in plan provisions or applicable law ; and differences between the required contributions determined by
the valuation and the actual contributions made by the agency.
Assessment and Disclosure of Risk
This report includes the following risk disclosures consistent with the guidance of Actuarial Standard of Practice
No. 51 and recommended by the California Actuarial Ad visory Panel (CAAP) in the Model Disclosure Elements
document:
• A “Scenario Test,” projecting future results under different investment income returns.
• A “Sensitivity Analysis,” showing the impact on current valuation results using alternative discount rates
of 5.8% and 7.8%.
• A “Sensitivity Analysis,” showing the impact on current valuation results assuming rates of mortality are
10% lower or 10% higher than our current post-retirement mortality assumptions adopted in 20 21.
• Plan maturity measures indicating how sensitive a plan may be to the risks noted above.
A-9
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 4
Required Contributions
Fiscal Year
Required Employer Contributions 2024-25
Employer Normal Cost Rate 14.13%
Plus
Required Payment on Amortization Bases 1 $1,266,876
Paid either as
1) Monthly Payment $105,573.00
Or
2) Annual Prepayment Option* $1,225,881
The total minimum required employer contribution is the sum of the Plan’s Employer Normal Cost Rate
(expressed as a percentage of payroll and paid as payroll is reported) plus the Employer Unfunded Accrued
Liability (UAL) Contribution Amount (billed monthly (1) or prepaid annually (2) in dollars).
* Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later
than July 31).
Fiscal Year Fiscal Year
2023-24 2024-25
Development of Normal Cost as a Percentage of Payroll
Base Total Normal Cost for Formula 21.30% 21.37%
Surcharge for Class 1 Benefits 2
a) FAC 1 0.72% 0.72%
Phase out of Normal Cost Difference 3 0.00% 0.00%
Plan’s Total Normal Cost 22.02% 22.09%
Offset Due to Employee Contributions 7.96% 7.96%
Employer Normal Cost Rate 14.06% 14.13%
1 The required payment on amortization bases does not take into account any additional discretionary payment made after
April 28, 2023.
2 Section 2 of this report contains a list of Class 1 benefits and corresponding surcharges.
3 When a rate plan joins the pool, the difference in normal cost between the pool and the rate plan is phased out over a five-
year period in accordance with the CalPERS contribution allocation policy.
A-10
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 5
Additional Discretionary Employer Contributions
The minimum required employer contribution towards the Unfunded Accrued Liability (UAL) for this rate plan for
FY 2024-25 is $1,266,876 . CalPERS allows agencies to make additional discretionary payments (ADPs) at any
time and in any amount. These optional payments serve to reduce the UAL and future required contributions
and can result in significant long -term savings. Agencies can also use ADPs to stabilize annual contributions as
a fixed dollar amount, percent of payroll or percent of revenue.
Provided below are select ADP options for consideration. Making such an ADP during FY 2024-25 does not
require an ADP be made in any future year, nor does it change the remaining amortization period of any portion
of unfunded liability. For information on permanent changes to amortization periods, see the “Amortization
Schedule and Alternatives” section of the report.
Agencies considering making an ADP should contact CalPERS for additional information.
Minimum Required Employer Contribution for Fiscal Year 20 24-25
Estimated
Normal Cost
Minimum UAL
Payment
ADP Total UAL
Contribution
Estimated Total
Contribution
$203,933 $1,266,876 $0 $1,266,876 $1,470,809
Alternative Fiscal Year 2024-25 Employer Contributions for Greater UAL Reduction
Funding
Horizon
Estimated
Normal Cost
Minimum UAL
Payment
ADP 1 Total UAL
Contribution
Estimated Total
Contribution
20 years $203,933 $1,266,876 $146,679 $1,413,555 $1,617,488
15 years $203,933 $1,266,876 $382,15 9 $1,649,035 $1,852,968
10 years $203,933 $1,266,876 $878,829 $2,145,705 $2,349,638
5 years $203,933 $1,266,876 $2,423,065 $3,689,941 $3,893,874
1 The ADP amounts are assumed to be made in the middle of the fiscal year. A payment made earlier or later in the fiscal
year would have to be less or more than the amount shown to have the same effect on the UAL amortization.
Note that the calculations above are based on the projected UAL as of June 30, 2024 as determined in the June
30, 2022 actuarial valuation. New unfunded liabilities can emerge in future years due to assumption or method
changes, changes in plan provisions , and actuarial experience different than assumed. Making an ADP
illustrated above for the indicated number of years will not result in a plan that is exactly 100 % funded in the
indicated number of years. Valuation results will vary from one year to the next and can diverge significantly
from projections over a period of several years .
A-11
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 6
Funded Status – Funding Policy Basis
The table below provides information on th e current funded status of the plan under the funding policy. The
funded status for this purpose is based on the market value of assets relative to the funding target produced by
the entry age actuarial cost method and actuarial assumptions adopted by the board. The actuarial cost method
allocates the total expected cost of a member’s projected benefit (Present Value of Benefits ) to individual years
of service (the Normal Cost). The value of the projected benefit that is not allocated to future service is r eferred
to as the Accrued Liability and is the plan’s funding target on the valuation date. The Unfunded Accrued
Liability (UAL) equals the funding target minus the assets. The UAL is an absolute measure of funded status
and can be viewed as employer debt. The funded ratio equals the assets divided by the funding target. The
funded ratio is a relative measure of the funded status and allows for comparisons between plans of different
sizes.
A funded ratio of 100% (UAL of $0) implies that the funding of the plan is on target and that future contributions
equal to the normal cost of the active plan members will be sufficient to fully fund all retirement benefits if future
experience matches the actuarial assumptions. A funded ratio of less than 100% (positive UAL) implies that in
addition to normal costs, payments toward the UAL will be required. Plans with a funded ratio greater than 100%
have a negative UAL (or surplus) but are requ ired under current law to continue contributing the normal cost in
most cases, preserving the surplus for future contingencies.
Calculations for the funding target reflect the expected long -term investment return of 6.8%. If it were known on
the valuation date that future investment returns will average something greater/less than the expected return,
calculated normal costs and accrued liabilities provided in this report would be less/greater than the results
shown. Therefore, for example, if actual avera ge future returns are less than the expected return, calculated
normal costs and UAL contributions will not be sufficient to fully fund all retirement benefits. Under this scenario,
required future normal cost contributions will need to increase from those provided in this report, and the plan
will develop unfunded liabilities that will also add to required future contributions. For illustrative purposes, funded
statuses based on a 1% lower and higher average future investment return (discount rate) are as follows:
The “Risk Analysis” section of the report provides additional information regarding the sensitivity of valuation
results to the expected investment return and other factors. Also provided in that section are measures of funded
status that are appropriate for assessing the sufficiency of plan assets to cover estimated termination liabilities.
June 30, 2021 June 30, 2022
1. Present Value of Benefits $49,885,862 $52,074,421
2. Entry Age Accrued Liability 47,593,129 49,824,152
3. Market Value of Assets (MVA) 37,561,570 34,030,518
4. Unfunded Accrued Liability (UAL) [(2) – (3)] $10,031,559 $15,793,634
5. Funded Ratio [(3) / (2)] 78.9% 68.3%
1% Lower
Average Return
Current
Assumption
1% Higher
Average Return
Discount Rate 5.8% 6.8% 7.8%
1. Entry Age Accrued Liability $56,279,103 $49,824,152 $44,507,417
2. Market Value of Assets (MVA) 34,030,518 34,030,518 34,030,518
3. Unfunded Accrued Liability (UAL) [(1) – (2)] $22,248,585 $15,793,634 $10,476,899
4. Funded Ratio [(2) / (1)] 60.5% 68.3% 76.5%
A-12
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 7
Projected Employer Contributions
The table below shows the required and projected employer contributions (before cost sharing) for the next six
fiscal years. The projection assumes that all actuarial assumptions will be realized and that no further changes
to assumptions, contributions, b enefits, or funding will occur during the projection period. In particular, the
investment return beginning with FY 2022-23 is assumed to be 6.80% per year, net of invest ment and
administrative expenses. Future contribution requirements may differ significantly from those shown below. The
actual long -term cost of the plan will depend on the actual benefits and expenses paid and the actual investment
experience of the fund.
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2022-23 and Beyond)
Fiscal Year 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30
Rate Plan 1107 Results
Normal Cost % 14.13% 14.1% 14.1% 14.1% 14.1% 14.1%
UAL Payment $1,266,876 $1,362,000 $1,454,000 $1,528,000 $1,694,000 $1,730,000
For ongoing plans, investment gains and losses are amortized using a 5 -year ramp up. For more information,
please see “Amortization of the Unfunded Actuarial Accrued Liability” under “Actuarial Methods” in Appendix A
of the Section 2 Report. This method phases in the impact of the change in UAL over a 5-year period in order to
reduce employer cost volatility from year to year. As a result of this methodology, dramatic changes in the
required employer contributions in any one year are less likely. However, required contributions can change
gradually and significantly over the next five years. In years when there is a large i nvestment loss, the relatively
small amortization payments during the ramp up period could result in contributions that are less than interest
on the UAL (i.e. negative amortization) while the contribution impact of the increase in the UAL is phased in.
For projected contributions under alternate investment return scenarios, please see the “Future Investment
Return Scenarios” in the “Risk Analysis” section . Our online pension plan projection tool, Pension Outlook, is
available in the Employers section of the CalPERS website. Pension Outlook can help plan and budget pension
costs under various scenarios .
A-13
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 8
Other Pooled Miscellaneous Risk Pool Rate Plans
All of the results presented in this Section 1 report, except those shown on this page , correspond to rate plan
1107. In many cases, employers have additional rate plans within the same risk pool. For cost analysis and
budgeting it is useful to consider contributions for these rate plans as a whole rather than individually. The
estimated contribution amounts and rates for a ll of the employer’s rate plans in the Miscellaneous Risk Pool are
shown below and assume that the total employer payroll within the Miscellaneous Risk Pool will grow according
to the overall payroll growth assumption of 2.80% per year for three years. In a refinement since the prior year’s
report, Classic members who are projected to terminate employment are assumed to be replaced by PEPRA
members.
Fiscal Year Fiscal Year
2023-24 2024-25
Estimated Combined Employer Contributions for all Pooled Miscellaneous Rate Plans
Projected Payroll for the Contribution Year $6,798,456 $7,246,562
Estimated Employer Normal Cost $684,854 $695,745
Required Payment on Amortization Bases $1,070,317 $1,295,856
Estimated Total Employer Contributions $1,755,171 $1,991,601
Estimated Total Employer Contribution Rate (illustrative only) 25.82% 27.48%
A-14
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 9
Cost
Actuarial Determination of Plan Cost
Contributions to fund the plan are comprised of two components:
• Normal Cost, expressed as a percentage of total active payroll
• Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount
For fiscal years prior to 2015-16, the Amortization of UAL component was expressed as a percentage of total
active payroll. Starting with FY 2015-16, the Amortization of UAL component was expressed as a dollar amount
and invoiced on a monthly basis. There is an option to prepay this amount during July of each fiscal year.
The Normal Cost component is expressed as a percentage of active payroll with e mployer and employee
contributions payable as part of the regular payroll reporting process.
The determination of both components requires complex actuarial calculations. The calculations are based on a
set of actuarial assumptions which can be divided into two categories:
• Demographic assumptions (e.g., mortality rates, retirement rates, employment termination rates,
disability rates)
• Economic assumptions (e.g., future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPE RS’ best estimate of future experience of the plan and are long term in nature.
We recognize that all assumptions will not be realized in any given year. For example, the investment earnings
at CalPERS have averaged 6.9% over the 20 years ending June 30, 2022 , yet individual fiscal year returns have
ranged from -23.6% to +21.3 %. In addition, CalPERS reviews all actuarial assumptions by conducting in -depth
experience studies every four years, with the most recent exp erience study completed in 2021.
A-15
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 10
Changes Since the Prior Year’s Valuation
Benefits
The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first
annual valuation following the effective date of the legislation. Voluntary benefit changes by plan amendment
are generally included in the first valuation that is prepared after the amendment becomes effective, even if the
valuation date is prior to the effective date of the amendment.
This valuation generally reflects plan amendments effective before the date of the report. Please refer to the
“Plan’s Major Benefit Options” in this report and Appendix B of the Section 2 Report for a summary of the plan
provisions used in this valuation.
In 2022, SB 1168 increased the standard retiree lump sum death benefit from $500 to $2,000 for any death
occurring on or after July 1, 2023. For pooled plans this is a Class 3 benefit and there is no normal cost surcharge.
The impact on the unfunded liability i s included in the pool’s (gain)/loss.
Actuarial Methods and Assumptions
There are no significant changes to the actuarial methods or assumptions for the June 30, 2022 actuarial
valuation.
Subsequent Events
This actuarial valuation report reflects fund investment return through June 30, 2022 and statutory/regulatory
changes and board actions through January 2023.
During the time period between the valuation date and the publication of this report, inflation has been
significantly higher than the expected inflation of 2.3% per annum. Since inflation influences cost -of-living
increases for retirees and beneficiaries and active member pay increases, higher inflation is likely to put at least
some upward pressure on contribution requirements and downward pressure on the funded status in the June
30, 2023 valuation. The actual impact of higher inflation on future valuation results will depend on, among other
factors , how long higher inflation persists. At this tim e, we continue to believe the long -term inflation assumption
of 2.3% is appropriate.
To the best of our knowledge, there have been no other subsequent events that could materially affect current
or future certifications rendered in this report.
A-16
Assets and Liabilities
• Breakdown of Entry Age Accrued Liability
• Allocation of Plan’s Share of Pool’s Experience/Assumption Change
• Development of Plan’s Share of Pool’s Market Value of Assets
• Schedule of Amortization Bases
• Amortization Schedule and Alternatives
• Employer Contribution History
• Funding History
A-17
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 12
Breakdown of Entry Age Accrued Liability
Active Members $11,123,085
Transferred Members 4,648,001
Separated Members 2,677,069
Members and Beneficiaries Receiving Payments 31,375,997
Total $49,824,152
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 mi nimizing 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 $49,824,152
2. Projected UAL Balance at 6/30/2022 9,738,322
3. Other UAL Adjustments (Golden Handshake, Prior Service Purchase, etc.) 0
4. Adjusted UAL Balance at 6/30/2022 for Asset Share 9,738,322
5. Pool’s Accrued Liability1 22,021,735,002
6. Sum of Pool’s Individual Plan UAL Balances at 6/30/20221 2,453,954,297
7. Pool’s 2021-22 Investment (Gain)/Loss1 2,614,071,182
8. Pool’s 2021-22 Non-Investment (Gain)/Loss1 309,490,972
9. Plan’s Share of Pool’s Investment (Gain)/Loss: [(1) - (4)] ÷ [(5) - (6)] × (7) 5,355,089
10. Plan’s Share of Pool’s Non -Investment (Gain)/Loss: (1) ÷ (5) × (8) 700,223
11. Plan’s New (Gain)/Loss as of 6/30/2022: (9) + (10) 6,055,31 2
12. Increase in Pool’s Accrued Liability due to Change in Assumptions1 0
13. Plan’s Share of Pool’s Change in Assumptions: (1) ÷ (5) × (12) 0
14. Increase in Pool’s Accrued Liabi lity due to Funding Risk Mitigation 1 0
15. Plan’s Share of Pool’s Change due to Funding Risk Mitigation: (1) ÷ (5) × (14) 0
16. Offset due to Funding Risk Mitigation 0
17. Plan’s Investment (Gain)/Loss: (9) – (16) 5,355,089
1 Does not include plans that transferred to Pool on the valuation date.
Development of the Plan’s Share of Pool’s Market Value
of Assets
18. Plan’s UAL: (2) + (3) + (11) + (13) + (15) $15,793,634
19. Plan’s Share of Pool’s MVA: (1) - (18) $34,030,518
A-18
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 13
Schedule of Amortization Bases
Below is the schedule of the plan’s amortization bases. Note that there is a two -year lag between the valuation date and the start of the contribution year.
• The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2022 .
• The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuati on date: FY 2024-25.
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
required 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 de termined. The UAL is rolled forward each year by subtracting the expected payment on the UAL for the fiscal year and
adjusting for interest. The expected payment for the first fiscal year is determined by the actuarial valuation two years ago and the contribution for the second year is from
the actuarial valuation one year ago. Additional discretionary payments are reflected in the Expected Payments column in the fiscal year they were made by the agency.
Reason for Base
Date
Est.
Ramp
Level
2024-25
Ramp
Shape
Escala-
tion
Rate
Amort.
Period
Balance
6/30/22
Expected
Payment
2022-23
Balance
6/30/23
Expected
Payment
2023-24
Balance
6/30/24
Minimum
Required
Payment
2024-25
Investment (Gain)/Loss 6/30/13 100% Up/Down 2.80% 21 4,072,428 292,900 4,046,658 293,716 4,018,293 301,940
Non-Investment (Gain)/Loss 6/30/13 100% Up/Down 2.80% 21 (37,562) (2,702) (37,324) (2,709) (37,062) (2,785)
Share of Pre-2013 Pool UAL 6/30/13 No Ramp 2.80% 12 3,837,573 364,841 3,721,486 368,220 3,594,013 378,530
Assumption Change 6/30/14 100% Up/Down 2.80% 12 1,759,853 188,605 1,684,611 190,695 1,602,093 196,034
Investment (Gain)/Loss 6/30/14 100% Up/Down 2.80% 22 (2,990,525) (208,887) (2,978,008) (209,290) (2,964,224) (215,150)
Non-Investment (Gain)/Loss 6/30/14 100% Up/Down 2.80% 22 3,416 239 3,401 239 3,385 246
Investment (Gain)/Loss 6/30/15 100% Up/Down 2.80% 23 1,928,597 131,084 1,924,274 131,226 1,919,510 134,900
Non-Investment (Gain)/Loss 6/30/15 100% Up/Down 2.80% 23 (163,029) (11,081) (162,663) (11,093) (162,260) (11,403)
Assumption Change 6/30/16 100% Up/Down 2.80% 14 721,186 68,710 699,219 69,341 675,106 71,283
Investment (Gain)/Loss 6/30/16 100% Up/Down 2.80% 24 2,391,013 158,414 2,389,890 158,457 2,388,647 162,894
Non-Investment (Gain)/Loss 6/30/16 100% Up/Down 2.80% 24 (307,756) (20,390) (307,612) (20,396) (307,452) (20,967)
Assumption Change 6/30/17 100% Up/Down 2.80% 15 860,071 63,408 853,027 79,918 828,442 82,156
Investment (Gain)/Loss 6/30/17 100% Up/Down 2.80% 25 (1,283,832) (67,278) (1,301,605) (84,056) (1,303,247) (86,409)
Non-Investment (Gain)/Loss 6/30/17 100% Up/Down 2.80% 25 (68,357) (3,582) (69,303) (4,475) (69,391) (4,601)
Assumption Change 6/30/18 100% Up/Down 2.80% 16 1,421,039 77,516 1,437,561 104,095 1,427,739 133,762
Investment (Gain)/Loss 6/30/18 100% Up/Down 2.80% 26 (400,985) (15,788) (411,936) (21,018) (418,227) (27,009)
Method Change 6/30/18 100% Up/Down 2.80% 16 395,988 21,601 400,592 29,007 397,855 37,274
Non-Investment (Gain)/Loss 6/30/18 100% Up/Down 2.80% 26 205,225 8,080 210,830 10,757 214,050 13,823
Investment (Gain)/Loss 6/30/19 80% Up Only 0.00% 17 188,309 7,877 192,974 11,603 194,105 15,470
Non-Investment (Gain)/Loss 6/30/19 No Ramp 0.00% 17 192,287 18,021 186,739 17,705 181,140 17,705
A-19
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 14
Schedule of Amortization Bases (continued)
Reason for Base
Date
Est.
Ramp
Level
2024-25
Ramp
Shape
Escala-
tion
Rate
Amort.
Period
Balance
6/30/22
Expected
Payment
2022-23
Balance
6/30/23
Expected
Payment
2023-24
Balance
6/30/24
Minimum
Required
Payment
2024-25
Investment (Gain)/Loss 6/30/20 60% Up Only 0.00% 18 873,432 19,132 913,054 37,533 936,354 56,300
Non-Investment (Gain)/Loss 6/30/20 No Ramp 0.00% 18 164,725 15,060 160,363 14,789 155,984 14,789
Assumption Change 6/30/21 No Ramp 0.00% 19 161,890 (14,155) 187,527 16,863 182,852 16,863
Net Investment (Gain) 6/30/21 40% Up Only 0.00% 19 (3,967,232) 0 (4,237,004) (91,073) (4,431,002) (182,146)
Non-Investment (Gain)/Loss 6/30/21 No Ramp 0.00% 19 (205,516) 0 (219,491) (19,737) (214,019) (19,737)
Risk Mitigation 6/30/21 No Ramp 0.00% 0 1,224,840 (14,381) 1,322,991 1,367,233 0 0
Risk Mitigation Offset 6/30/21 No Ramp 0.00% 0 (1,238,756) 0 (1,322,991) (1,367,233) 0 0
Investment (Gain)/Loss 6/30/22 20% Up Only 0.00% 20 5,355,089 0 5,719,235 0 6,108,143 131,293
Non-Investment (Gain)/Loss 6/30/22 No Ramp 0.00% 20 700,223 0 747,838 0 798,691 71,821
Total 15,793,634 1,077,244 15,754,333 1,070,317 15,719,518 1,266,876
The (gain)/loss bases are the plan’s allocated share of the risk pool’s (gain)/loss for the fiscal year as disclosed in “Allocation of Plan’s Share of Pool’s
Experience/Assumption Change” earlier in this section. These (gain)/loss bases will be amortized in accordance with the CalPERS amortization policy in effect at the time
the base was established .
A-20
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 15
Amortization Schedule and Alternatives
The amortization schedule on the previous page (s) shows the minimum contributions required according to the CalPERS
amortization policy. Many agencies have expressed a desire for a more stable pattern of payments or have indicated interest
in paying off the unfunded accrued liabilities more quickly than required. As such, we have provided alternative amortization
schedules to help analyze the current amortization schedule and illustrate the potential savings 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) alternative “fresh start” amortization schedule s
using two sample periods that would both result in interest savings relative to the current amortization schedule. To initiate a
fresh s tart, please contact the plan actuary.
The Current Amortization Schedule typically contains both positive and negative bases. Positive bases result from plan
changes, assumption changes, method changes or plan experience that increase unfunded liability. Negative bases result
from plan changes, assumption changes, method changes, or plan experience that decrease unfunded liabili ty. The
combination of positive and negative bases within an amortization schedule can result in unusual or problematic circumstances
in future years, such as:
• When a negative payment would be required on a positive unfunded actuarial liability; or
• When the payment would completely amortize the total unfunded liability in a very short time period, and results in a
large change in the employer contribution requirement.
In any year when 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 n appropriate period.
The Current Amortization Schedule on the following page may appear to show that, based on the current amortizat ion bases,
one of the above scenarios will occur at some point in the future. It is impossible to know today whether such a scenario wil l
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.
A-21
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 16
Amortization Schedule and Alternatives (continued)
Alternate Schedules
Current Amortization
Schedule 15 Year Amortization 10 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2024 15,719,518 1,266,876 15,719,518 1,649,035 15,719,518 2,145,705
6/30/2025 15,479,205 1,361,773 15,084,265 1,649,035 14,570,986 2,145,705
6/30/2026 15,124,478 1,453,707 14,405,815 1,649,035 13,344,354 2,145,705
6/30/2027 14,650,623 1,527,792 13,681,230 1,649,035 12,034,311 2,145,705
6/30/2028 14,067,986 1,693,898 12,907,374 1,649,035 10,635,185 2,145,705
6/30/2029 13,274,068 1,729,690 12,080,895 1,649,035 9,140,918 2,145,705
6/30/2030 12,389,171 1,766,478 11,198,216 1,649,035 7,545,041 2,145,705
6/30/2031 11,406,083 1,804,299 10,255,515 1,649,035 5,840,645 2,145,705
6/30/2032 10,317,062 1,794,280 9,248,710 1,649,035 4,020,350 2,145,706
6/30/2033 9,164,340 1,782,613 8,173,442 1,649,035 2,076,274 2,145,706
6/30/2034 7,945,288 1,750,414 7,025,056 1,649,036
6/30/2035 6,676,620 1,693,088 5,798,579 1,649,036
6/30/2036 5,380,924 1,056,602 4,488,701 1,649,035
6/30/2037 4,654,889 981,622 3,089,753 1,649,036
6/30/2038 3,956,974 901,944 1,595,675 1,649,036
6/30/2039 3,293,943 838,929
6/30/2040 2,650,948 797,570
6/30/2041 2,006,971 675,541
6/30/2042 1,445,315 547,537
6/30/2043 977,749 943,326
6/30/2044 69,364 71,684
6/30/2045
6/30/2046
6/30/2047
6/30/2048
6/30/2049
Total 26,439,663 24,735,529 21,457,052
Interest Paid 10,720,145 9,016,011 5,737,534
Estimated Savings 1,704,134 4,982,611
A-22
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 17
Employer Contribution History
The table below provides a recent history of the required and discretionary employer contributions for the plan.
The required amounts are based on the actuarial valuation from two years prior without subsequent adjustments,
if any. Additional discretionary payments before July 1, 2019 or after April 2 8, 2023 are not included.
[
Fiscal
Year
Employer
Normal Cost
Unfunded Liability
Payment ($)
Additional Discretionary
Payments
2016 - 17 10.069% $413,568 N/A
2017 - 18 10.110% 495,784 N/A
2018 - 19 10.609% 613,118 N/A
2019 - 20 11.432% 739,621 0
2020 - 21 12.361% 835,213 0
2021 - 22 12.20% 971,580 0
2022 - 23 12.21% 1,105,780 0
2023 - 24 14.06% 1,070,317
2024 - 25 14.13% 1,266,876
Funding History
The table below shows the recent history of the actuarial accrued liability, share of the pool’s market value of
assets, unfunded accrued liability, funded ratio, and annual covered payroll .
Valuation
Date
Accrued
Liability
(AL)
Share of Pool’s
Market Value of
Assets (MVA)
Unfunded
Accrued Liability
(UAL)
Funded
Ratio
Annual
Covered
Payroll
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
06/30/2016 36,088,996 25,521,188 10,567,808 70.7% 3,009,689
06/30/2017 39,354,331 28,819,602 10,534,729 73.2% 2,750,098
06/30/2018 42,896,179 30,796,160 12,100,019 71.8% 2,172,158
06/30/2019 44,696,421 32,015,078 12,681,343 71.6% 1,953,729
06/30/2020 46,073,081 32,343,280 13,729,801 70.2% 1,749,626
06/30/2021 47,593,129 37,561,570 10,031,559 78.9% 1,813,647
06/30/2022 49,824,152 34,030,518 15,793,634 68.3% 1,820,115
A-23
Risk Analysis
• Future Investment Return Scenarios
• Discount Rate Sensitivity
• Mortality Rate Sensitivity
• Maturity Measures
• Maturity Measures History
• Funded Status – Termination Basis
A-24
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 19
Future Investment Return Scenarios
Analysis using the investment return scenarios from the Asset Liability Management process completed in
2021 was performed to determine the effects of various future investment returns on required employer
contributions. The projections below reflect the i mpact of the CalPERS Funding Risk Mitigation policy. The
projections also assume that all other actuarial assumptions will be realized and that no further changes in
assumptions, contributions, benefits, or funding will occur.
The first table shows projected contribution requirements if the fund were to earn either 3.0% or 10.8%
annually. These alternate investment returns were chosen because 90% of long-term average returns are
expected to fall between them over the 20 -year period ending June 30, 2042.
Required contributions outside of this range are also possible. In particular, whereas it is unlikely that
investment returns will average less than 3.0% or greater than 10.8% over a 20 -year period, the likelihood of
a single investment return less than 3.0% or greater than 10.8% in any given year is much greater. The
following analysis illustrates the effect of an extreme, single year investment return.
The portfolio has an expected volatility (or standard deviation) of 12.0% per year. Accordingly, in any given
year there is a 16% probability that the annual return will be -5.2% or less and a 2.5% probability that the
annual return will be -17.2% or less. These returns represent one and two standard deviations below the
expected return of 6.8%.
The following table shows the effect of a one or two standard deviation investment loss in FY 2022-23 on the
FY 2025-26 contribution requirements. Note that a single -year investment gain or loss decreases or increases
the required UAL contribution amount incrementally for each of the next five years, not just one, due to the 5 -
year ramp in the amortization policy. However, the contribution requirements beyond the first year are also
impacted by investment returns beyond the first year. Historically, significant downturns in the market are often
followed by higher than average returns. Such investment gains would offset the impact of these single year
negative returns in years beyond FY 2025-26.
Assumed Annual Return for
Fiscal Year 2022-23
Required
Employer
Contributions
Projected
Employer
Contributions
2024-25 2025-26
(17.2)% (2 standard deviation loss)
Normal Cost Rate 14.13% 14.1%
UAL Contribution $1,266,876 $1,561,000
(5.2)% (1 standard deviation loss)
Normal Cost Rate 14.13% 14.1%
UAL Contribution $1,266,876 $1,461,000
• Without investment gains (returns higher than 6.8%) in FY 2023-24 or later, projected contributions
rates would continue to rise over the next four years due to the continued phase -in of the impact of
the illustrated investment loss in FY 2022-23.
• The Pension Outlook Tool can be used to model projected contributions for these scenarios beyond
FY 2025-26 as well as to model other investment return scenarios .
Assumed Annual Return
FY 2022-23
through 2041-42
Projected Employer Contributions
2025-26 2026-27 2027-28 2028-29 2029-30
3.0% (5 th percentile)
Normal Cost Rate 14.1% 14.1% 14.1% 14.1% 14.1%
UAL Contribution $1,393,000 $1,549,000 $1,720,000 $2,017,000 $2,218,000
10.8% (95 th percentile)
Normal Cost Rate 14.4% 14.7% 15.0% 15.3% 15.6%
UAL Contribution $1,331,000 $1,363,000 $1,345,000 $1,381,000 $1,247,000
A-25
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 20
Discount Rate Sensitivity
The discount rate assumption is calculated as the sum of the assumed real rate of return and the assumed
annual price inflation, currently 4.5% and 2.3%, respectively. Changing either the price inflation assumption or
the real rate of return assumption wil l change the discount rate. The sensitivity of the valuation results to the
discount rate assumption depends on which component of the discount rate is changed. Shown below are
various valuation results as of June 30, 2022 assuming alternate discount rates by changing the two components
independently. Results are shown using the current discount rate of 6.8% as well as alternate discount rates of
5.8% and 7.8%. The rates of 5.8% and 7.8% were selected since they illustrate t he impact of a 1.0% increase
or decrease to the 6.8% assumption.
Sensitivity to the Real Rate of Return Assumption
As of June 30, 2022 1% Lower
Real Return Rate
Current
Assumptions
1% Higher
Real Return Rate
Discount Rate 5.8% 6.8% 7.8%
Price Inflation 2.3% 2.3% 2.3%
Real Rate of Return 3.5% 4.5% 5.5%
a) Total Normal Cost 27.88% 22.09% 17.70%
b) Accrued Liability $56,279,103 $49,824,152 $44,507,417
c) Market Value of Asse ts $34,030,518 $34,030,518 $34,030,518
d) Unfunded Liability/(Surplus) [(b) - (c)] $22,248,585 $15,793,634 $10,476,899
e) Funded Ratio 60.5% 68.3% 76.5%
Sensitivity to the Price Inflation Assumption
As of June 30, 2022 1% Lower
Price Inflation
Current
Assumptions
1% Higher
Price Inflation
Discount Rate 5.8% 6.8% 7.8%
Price Inflation 1.3% 2.3% 3.3%
Real Rate of Return 4.5% 4.5% 4.5%
a) Total Normal Cost 23.21% 22.09% 20.10%
b) Accrued Liability $51,590,864 $49,824,152 $45,860,659
c) Market Value of Assets $34,030,518 $34,030,518 $34,030,518
d) Unfunded Liability/(Surplus) [(b) - (c)] $17,560,346 $15,793,634 $11,830,141
e) Funded Ratio 66.0% 68.3% 74.2%
Mortality Rate Sensitivity
The following table looks at the change in the June 30, 2022 plan costs and funded status under two different
longevity scenarios, namely assuming post-retirement rates of mortality are 10 % lower or 10% higher than our
current mortality assumptions adopted in 2021. This type of analysis highlights the impact on the plan of a
change in the mortality assumption .
As of June 30, 2022 10% Lower
Mortality Rates
Current
Assumptions
10% Higher
Mortality Rates
a) Total Normal Cost 22.45% 22.09% 21.76%
b) Accrued Liability $50,811,274 $49,824,152 $48,915,871
c) Market Value of Assets $34,030,518 $34,030,518 $34,030,518
d) Unfunded Liability/(Surplus) [(b) - (c)] $16,780,756 $15,793,634 $14,885,353
e) Funded Ratio 67.0% 68.3% 69.6%
A-26
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 21
Maturity Measures
As pension plans mature they become more sensitive to risks . Understanding plan maturity and how it affects
the ability of a pension plan sponsor to tolerate risk is important in understanding how the pension plan is
impacted by investment return volatility, other economic variables , and changes in longevity or other
demographic assumptions.
Since it is the employer that bears the risk, it is appropriate to perform this analysis on a pension plan level
considering all rate plans. The following measures are for one rate pla n only. One way to look at the maturity
level of CalPERS and its plans is to look at the ratio of a plan’s retiree liability to its total liability. A pension plan
in its infancy will have a very low ratio of retiree liability to total liability. As the pl an matures, the ratio starts
increasing. A mature plan will often have a ratio above 60%-65%.
Ratio of Retiree Accrued Liability to
Total Accrued Liability June 30, 2021 June 30, 2022
1. Retired Accrued Liability $29,475,062 $31,375,997
2. Total Accrued Liability 47,593,129 49,824,152
3. Ratio of Retiree AL to Total AL [(1) / (2)] 0.62 0.63
Another measure of maturity level of CalPERS and its plans is to look at the ratio of actives to retirees, also
called the support ratio. A pension plan in its infancy will have a very high ratio of active to retired members. As
the plan matures and members retire, the ratio declines. A mature plan will often have a ratio near or b elow one.
To calculate the support ratio for the rate plan, retirees and beneficiaries receiving a continuance are each
counted as one, even though they may have only worked a portion of their careers as an active member of this
rate plan. For this reason, the support ratio, while intuitive, may be less informative than the ratio of retiree liability
to total accrued liability above.
For comparison, the support ratio for all CalPERS public agency plans as of June 30, 2021, was 0.78 and was
calculated consistently with how it is for the individual rate plan. Note that to calculate the support ratio for all
public agency plans, a retiree with service from more than one CalPERS agency is counted as a retiree more
than once.
Support Ratio June 30, 2021 June 30, 2022
1. Number of Actives 23 20
2. Number of Retirees 105 109
3. Support Ratio [(1) / (2)] 0.22 0.18
A-27
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 22
Maturity Measures (continued)
The actuarial calculations supplied in this communication are based on various assumptions about long -term
demographic and economic behavior. Unless these assumptions (e.g., terminations, deaths, disabilities,
retirements, salary growth, 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
Shown in the table below is the asset volatility ratio (AVR), which is the ratio of market value of assets to payroll.
Plans that have higher AVR experience more volatile employer contributions (as a percentage of payroll) due
to investment return. For example, a plan with AVR of 8 may experience twice the contribution volatility due to
investment return volatility than a plan with AVR of 4. It should be noted that this ratio is a measure of the current
situation. It increases over time but generally tends to stabilize as a plan matures.
Liability Volatility Ratio
Also shown in the table below is the liability volatility ratio (LVR), which is the ratio of accrued liability to payroll.
Plans that have a higher LVR experience more volatile employer contributi ons (as a percentage of payroll) due
to changes in liability. For example, a plan with LVR of 8 is expected to have twice the contribution volatility of a
plan with LVR of 4. It should be noted that this ratio indicates a longer -term potential for contribu tion volatility,
since the AVR, described above, will tend to move closer to the LVR as the funded ratio approaches 100%.
Contribution Volatility June 30, 2021 June 30, 2022
1. Market Value of Assets $37,561,570 $34,030,518
2. Payroll 1,813,647 1,820,115
3. Asset Volatility Ratio (AVR) [(1) / (2)] 20.7 18.7
4. Accrued Liability $47,593,129 $49,824,152
5. Liability Volatility Ratio (LVR) [(4) / (2)] 26.2 27.4
Maturity Measures History
Valuation Date
Ratio of
Retiree Accrued Liability
to
Total Accrued Liability
Support Ratio
Asset
Volatility
Ratio
Liability
Volatility
Ratio
06/30/2017
0.48
0.57
10.5
14.3
06/30/2018
0.53
0.40
14.2
19.7
06/30/2019
0.58
0.31
16.4
22.9
06/30/2020
0.60
0.24
18.5
26.3
06/30/2021
0.62
0.22
20.7
26.2
06/30/2022
0.63
0.18
18.7
27.4
A-28
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 23
Funded Status – Termination Basis
The funded status measured on a termination basis is an estimate of the financial position of the plan had the
contract with CalPERS been terminated as of June 30, 2022. The accrued liability on a termination basis
(termination liability) is calculated differently compared to the plan’s ongoing funding liability. For the termination
liability calculation, both compensation and service are frozen as of the valu ation date and no future pay
increases or service accruals are assumed. This measure of funded status is not appropriate for assessing the
need for future employer contributions in the case of an ongoing plan, that is, for an employer that continues to
provide CalPERS retirement benefits to active employees. Unlike the actuarial cost method used for ongoing
plans, the termination liability is the present value of the benefits earned through the valuation date.
A more conservative investment policy and asse t allocation strategy was adopted by the 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 limiting the funding risk. 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 19 -month
period from 12 months before the valuation date to seven months after.
Discount Rate: 1.75%
Price Inflation: 2.50%
Discount Rate: 4.50%
Price Inflation: 2.75%
Market
Value of
Assets (MVA)
Termination
Liability1,2
Funded
Ratio
Unfunded
Termination
Liability
Termination
Liability1,2
Funded
Ratio
Unfunded
Termination
Liability
$34,030,518 $103,781,080 32.8% $69,750,562 $67,620,680 50.3% $33,590,162
1 The termination liabilities calculated above include a 5% contingency load. The contingency load and other actuarial
assumptions can be found in Appendix A of the Section 2 report.
2 The discount rate 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 3.38% on June 30, 2022, the valuation date.
In order to te rminate the plan, first contact our Pension Contract Services unit to initiate a Resolution of Intent to
Terminate. The completed Resolution will allow the plan actuary to provide a preliminary termination valuation
with a more up -to -date estimate of the p lan liabilities. Before beginning this process, please consult with the plan
actuary.
A-29
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 24
Participant Data
The table below shows a summary of the plan’s member data upon which this valuation is based:
June 30, 2021 June 30, 2022
Active Members
Counts 23 20
Average Attained Age 53.9 53.8
Average Entry Age to Rate Plan 34.4 34.7
Average Years of Credited Service 16.8 16.9
Average Annual Covered Pay $78,854 $91,006
Annual Covered Payroll $1,813,647 $1,820,115
Present Value of Future Payroll $10,888,508 $10,876,505
Transferred Members 33 31
Separated Members 96 94
Retired Members and Beneficiaries *
Counts 105 109
Average Annual Benefits $21,217 $22,190
Total Annual Benefits $2,227,798 $2,418,722
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple
records may exist for those who have service in more than one valuation group. This does not result in double
counting of liabilities.
* Values include community property settlements.
List of Class 1 Benefit Provisions
This plan has the additional Class 1 Benefit Provisions:
• One Year Final Compensation (FAC 1)
A-30
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 25
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which the agency has contracted. A description of principal standard and optional plan provisions is
in Section 2 .
Benefit Group
Member Category Misc Misc Misc
Demographics
Actives No Yes No
Transfers/Separated Yes Yes No
Receiving Yes Yes Yes
Benefit Group Key 103140 103141 207228
Benefit Provision
Benefit Formula 2% @ 55 2.5% @ 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 2 Yes Yes
1959 Survivor Benefit Level Level 4 Level 4
Special No No
Alternate (firefighters) No No
Post-Retirement Death Benefits
Lump Sum $2000 $2000 $2000
Survivor Allowance (PRSA) No No No
COLA 2% 2% 2%
A-31
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 26
Section 2
CALIFORNIA PUBLIC EMPLOYEES’ RETIREMEN T SYSTEM
Risk Pool Actuarial Valuation Information
Section 2 may be found on the
CalPERS website (www.calpers.ca.gov)
in the Forms and Publications section
A-32
California Public Employees’ Retirement System
Actuarial Office
400 Q Street, Sacramento, CA 95811 | Phone: (916) 795 -3000 | Fax: (916) 795 -2744
888 CalPERS (or 888-225-7377) | TTY: (877) 249 -7442 | www.calpers.ca.gov
July 2023
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes (CalPERS ID: 3846845523)
Annual Valuation Report as of June 30, 2022
Dear Employer,
Attached to this letter is the June 30, 2022 actuarial valuation report for the rate plan noted above . Provided in this
report is the determination of the minimum required employer contributions for fiscal year (FY) 2024-25. In
addition, the report contains important information regarding the current financial status of the plan as well as
projections and risk measures to aid in planning for the future.
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, 2022.
Section 2 can be found on the CalPERS website (www.calpers.ca.gov). From the home page, go to “Forms &
Publications” and select “View All”. In the search box, enter “Risk Pool” and from the results list download the
Miscellaneous Risk Pool Actuarial Valuation Report for June 30, 2022.
Actuarial valuations are based on assumptions regarding future plan experience including investment return and payroll
growth, eligibility for the types of benefits provided, and longevity among retirees. The CalPERS Board of Administration
(board) adopts these assumptions after considering the advice of CalPERS actuarial and investment teams and other
professionals. Each actuarial valuation reflects all prior differences between actual and assumed experie nce and
adjusts the contribution requirements as needed. This valuation is based on an investment return assumption of 6.8%,
which was adopted by the board in November 2021. Other assumptions used in this report are those recommended in
the CalPERS Experie nce Study and Review of Actuarial Assumptions report from November 2021.
Required Contributions
The table below shows the minimum required employer contributions for FY 2024-25 along with estimates of the
required contributions for FY 2025-26. Employe e contributions other than cost sharing (whether paid by the employer
or the employee) are in addition to the results shown below. The required employer contributions in this report do
not reflect any cost sharing arrangement between the agency and the emp loyees.
Fiscal Year Employer Normal
Cost Rate
Employer Amortization of
Unfunded Accrued Liability
2024-25 10.15% $14,644
Projected Results
2025-26 10.2% $24,000
B-1
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
(CalPERS ID: 3846845523)
Annual Valuation Report as of June 30, 2022
Page 2
The actual investment return for FY 2022-23 was not known at the time this report was prepared. The projections above
assume the investment re turn for that year would be 6.8%. To the extent the actual investment return for FY 2022-
23 differs from 6.8%, the actual contribution requirements for FY 2025-26 will differ from those shown above.
For additional details regarding the assumptions and methods used for these projections , please refer to the “Projected
Employer Contributions” in the “Highlights and Executive Summary” section. This section also contains projected
required contributions through FY 2029-30.
Changes from Previous Year’s Valuations
There are no significant changes in actuarial assumptions or policies in the 2022 actuarial valuation. T here may be
changes specific to the plan such as contract amendments and funding changes.
Further descriptions of general changes are included in “Highlights and Executive Summ ary” and in Appendix A of the
Section 2 report in “Actuarial Methods and Assumptions .” The effects of any changes on the required contributions are
included in “Reconciliation of Required Employer Contributions ,” also in the Section 2 report.
Questions
A CalPERS actuary is available to answer questions about this report. Other questions may be directed to the Customer
Contact Center at (888)-CalPERS or (888-225-7377).
Sincerely,
SCOTT TERANDO, ASA, EA, MAAA, FCA, CFA
Chief Actuary, CalPERS
RANDALL DZIUBEK, ASA, MAAA
Deputy Chief Actuary, Valuation Services , CalPERS
B-2
Actuarial Valuation
as of June 30, 2022
for the
Miscellaneous Second Tier Plan
of the
City of Rancho Palos Verdes
(CalPERS ID : 3846845523)
Required Contributions
for Fiscal Year
July 1, 2024 - June 30, 2025
B-3
Table of Contents
Section 1 – Plan Specific Information
Section 2 – Risk Pool Actuarial Valuation I nformation
B-4
Section 1
CALIFORNIA PUBLIC EM PLOYEES’ RETIREMENT SYSTEM
Plan Specific Information
for the
Miscellaneous Second Tier Plan
of the
City of Rancho Palos Verdes
(CalPERS ID : 3846845523)
(Rate Plan ID: 23274)
B-5
Rate Plan belonging to the Miscellaneous Risk Pool
Table of Contents
Actuarial Certification 1
Highlights and Executive Summary
Introduction 3
Purpose of Section 1 3
Required Contribution s 4
Additional Discretionary Employer Contributions 5
Funded Status – Funding Policy Basis 6
Projected Employer Contributions 7
Other Pooled Miscellaneous Risk Pool Rate Plans 8
Cost 9
Changes Since the Prior Year’s Valuation 10
Subsequent Events 10
Assets and Liabilities
Breakdown of Entry Age Accrued Liability 12
Allocation of Plan’s Share of Pool’s Experience/Assumption Change 12
Development of Plan’s Share of Pool’s Market Value of Assets 12
Schedule of Amortization Bases 13
Amortization Schedule and Alternatives 14
Employer Contribution History 16
Funding History 16
Risk Analysis
Future Investment Return Scenarios 18
Discount Rate Sensitivity 19
Mortality Rate Sensitivity 19
Maturity Measures 20
Maturity Measures History 21
Funded Status – Termination Basis 22
Participant Data 23
List of Class 1 Benefit Provisions 23
Plan’s Major Benefit Options 24
B-6
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 1
Actuarial Certification
To the best of our knowledge, this report, compris ed of Sections 1 and 2, is complete and accurate and contains
sufficient information to disclose, fully and fairly, the funded condition of the Miscellaneous Second Tier Plan of
the City of Rancho Palos Verdes and satisfies the actuarial valuation requirements of Government Code section
7504. This valuation is based on the member and financial data as of June 30, 2022 provided by the various
CalPERS databases and the benefits under this plan with CalPERS as of the date this report was produced.
Section 1 of this report is based on the member and financial data for City of Rancho Palos Verdes , while Section
2 is based on the corresponding information for all agencies participating in the Miscellaneous Risk Pool to which
the plan belongs.
As s et forth in Section 2 of this report, the pool ac tuaries have certified that, in their opinion, the valuation of the
Miscellaneous Risk Pool has been performed in accordance with generally accepted actuarial princip les , in
accordance 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 Boa rd 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 rate plan, it is my opinion as the plan actuary that the Unfunded Accrued Liability
amortization bases as of June 30, 2022 and employer contribution as of July 1, 2024 have been properly and
accurately determined in accordance with the principles and standards stated above.
The undersigned is an actuary who satisfies the Qualification Standards for Actuaries Issuing Statements of
Actuarial Opinion in the United States with regard to pensions.
IAN OSUGI, ASA , MAAA
Senior Actuary, CalPERS
B-7
Highlights and Executive Summary
• Introduction
• Purpose of Section 1
• Required Contributions
• Additional Discretionary Employer Contributions
• Funded S tatus – Funding Policy Basis
• Projected Employer Contributions
• Other Pooled Miscellaneous Risk Pool Rate Plans
• Cost
• Changes Since the Prior Year’s Valuation
• Subsequent Events
B-8
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 3
Introduction
This report presents the results of the June 30, 2022 actuarial valuation of the Miscellaneous Second Tier Plan
of the City of Rancho Palos Verdes of the California Public Employees’ Retirement System (CalPERS). This
actuarial valuation sets the minimum required contributions for fiscal year (FY) 2024-25.
Purpose of Section 1
This Section 1 report for the Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes of CalPERS
was prepared by the Actuarial Office using data as of June 30, 2022. The purpose of the valuation is to:
• Set forth the assets and accrued liabilities of this rate plan as of June 30, 2022;
• Determine the minimum required employer contribution s for this rate plan for FY July 1, 2024 through
June 30, 2025;
• Determine the required member contribution rate for FY July 1, 2024 through June 30, 2025 for
employees subject to the California Public Employees' Pension Reform Act of 2013 (PEPRA); and
• Provide actuarial information as of June 30, 2022 to the CalPERS Board of Administration (board) and
other interested parties.
The pension funding information presented in this report should not be used in financial reports subject to
Governmental Accounting Standards Board (GASB) Statement No. 68 for a Cost Sharing Employer Defined
Benefit Pension Plan. A separate accounting valu ation report for such purposes is available on the CalPERS
website (www.calpers.ca.gov).
The measurements shown in this actuarial valuation may not be applicable for other purposes. The agency
should contact the plan actuary before disseminating any portio n of this report for any reason that is not explicitly
described above.
Future actuarial measurements may differ significantly from the current measurements presented in this report
due to such factors as the following: plan experience differing from that anticipated by the economic or
demographic assumptions; changes in economic or demographic assumptions; changes in actuarial policies;
changes in plan provisions or applicable law ; and differences between the required contributions determined by
the valuation and the actual contributions made by the agency.
Assessment and Disclosure of Risk
This report includes the following risk disclosures consistent with the guidance of Actuarial Standard of Practice
No. 51 and recommended by the California Actuarial Ad visory Panel (CAAP) in the Model Disclosure Elements
document:
• A “Scenario Test,” projecting future results under different investment income returns.
• A “Sensitivity Analysis,” showing the impact on current valuation results using alternative discount rates
of 5.8% and 7.8%.
• A “Sensitivity Analysis,” showing the impact on current valuation results assuming rates of mortality are
10% lower or 10% higher than our current post-retirement mortality assumptions adopted in 20 21.
• Plan maturity measures indicating how sensitive a plan may be to the risks noted above.
B-9
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 4
Required Contributions
Fiscal Year
Required Employer Contributions 2024-25
Employer Normal Cost Rate 10.15%
Plus
Required Payment on Amortization Bases 1 $14,644
Paid either as
1) Monthly Payment $1,220.33
Or
2) Annual Prepayment Option* $14,170
The total minimum required employer contribution is the sum of the Plan’s Employer Normal Cost Rate
(expressed as a percentage of payroll and paid as payroll is reported) plus the Employer Unfunded Accrued
Liability (UAL) Contribution Amount (billed monthly (1) or prepaid annually (2) in dollars).
* Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later
than July 31).
Fiscal Year Fiscal Year
2023-24 2024-25
Development of Normal Cost as a Percentage of Payroll
Base Total Normal Cost for Formula 17.03% 17.08%
Surcharge for Class 1 Benefits 2
None 0.00% 0.00%
Phase out of Normal Cost Difference 3 0.00% 0.00%
Plan’s Total Normal Cost 17.03% 17.08%
Offset Due to Employee Contributions 6.93% 6.93%
Employer Normal Cost Rate 10.10% 10.15%
1 The required payment on amortization bases does not take into account any additional discretionary payment made after
April 28, 2023.
2 Section 2 of this report contains a list of Class 1 benefits and corresponding surcharges.
3 When a rate plan joins the pool, the difference in normal cost between the pool and the rate plan is phased out over a five-
year period in accordance with the CalPERS contribution allocation policy.
B-10
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 5
Additional Discretionary Employer Contributions
The minimum required employer contribution towards the Unfunded Accrued Liability (UAL) for this rate plan for
FY 2024-25 is $14,644. CalPERS allows agencies to make additional discretionary payments (ADPs) at any
time and in any amount. These optional payments serve to reduce the UAL and future required contributions
and can result in significant long -term savings. Agencies can also use ADPs to stabilize annual contributions as
a fixed dollar amount, percent of payroll or percent of revenue.
Provided below are select ADP options for consideration. Making such an ADP during FY 2024-25 does not
require an ADP be made in any future year, nor does it change the remaining amortization period of any portion
of unfunded liability. For information on permanent changes to amortization periods, see the “Amortization
Schedule and Alternatives” section of the report.
Agencies considering making an ADP should contact CalPERS for additional information.
Minimum Required Employer Contribution for Fiscal Year 20 24-25
Estimated
Normal Cost
Minimum UAL
Payment
ADP Total UAL
Contribution
Estimated Total
Contribution
$156,223 $14,644 $0 $14,644 $170,867
The minimum required contribution above is less than interest on the UAL. With no AD P the UAL is projected to
increase over the following year. If the minimum UAL payment were split between interest and principal, the
principal portion would be negative. This situation is referred to as negative amortization. If only the minimum
required contribution is made, contributions are not expected to exceed interest on the UAL until FY 2027-28,
as shown in the “Amortization Schedule and Alternatives” s ection of the report (s ee columns labeled “Current
Amortization Schedule”).
Fiscal Year 2024-25 Employer Contribution Necessary to Avoid Negative Amortization
Estimated
Normal Cost
Minimum UAL
Payment
ADP 1 Total UAL
Contribution
Estimated Total
Contribution
$156,223 $14,644 $18,558 $33,202 $189,425
Alternative Fiscal Year 2024-25 Employer Contributions for Greater UAL Reduction
Funding
Horizon
Estimated
Normal Cost
Minimum UAL
Payment
ADP 1 Total UAL
Contribution
Estimated Total
Contribution
20 years $156,223 $14,644 $30,731 $45,375 $201,598
15 years $156,223 $14,644 $38,290 $52,934 $209,157
10 years $156,223 $14,644 $54,233 $68,877 $225,100
5 years $156,223 $14,644 $103,803 $118,447 $274,670
1 The ADP amounts are assumed to be made in the middle of the fiscal year. A payment made earlier or later in the fiscal
year would have to be less or more than the amount shown to have the same effect on the UAL amortization.
Note that the calculations above are based on the projected UAL as of June 30, 2024 as determined in the June
30, 2022 actuarial valuation. New unfunded liabilities can emerge in future years due to assumption or method
changes, changes in plan provisions , and actuarial experience different than assumed. Making an ADP
illustrated above for the indicated number of years will not result in a plan that is exactly 100 % funded in the
indicated number of years. Valuation results will vary from one year to the next and can diverge significantly
from projections over a period of several years .
B-11
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 6
Funded Status – Funding Policy Basis
The table below provides information on th e current funded status of the plan under the funding policy. The
funded status for this purpose is based on the market value of assets relative to the funding target produced by
the entry age actuarial cost method and actuarial assumptions adopted by the board. The actuarial cost method
allocates the total expected cost of a member’s projected benefit (Present Value of Benefits ) to individual years
of service (the Normal Cost). The value of the projected benefit that is not allocated to future service is r eferred
to as the Accrued Liability and is the plan’s funding target on the valuation date. The Unfunded Accrued
Liability (UAL) equals the funding target minus the assets. The UAL is an absolute measure of funded status
and can be viewed as employer debt. The funded ratio equals the assets divided by the funding target. The
funded ratio is a relative measure of the funded status and allows for comparisons between plans of different
sizes.
A funded ratio of 100% (UAL of $0) implies that the funding of the plan is on target and that future contributions
equal to the normal cost of the active plan members will be sufficient to fully fund all retirement benefits if future
experience matches the actuarial assumptions. A funded ratio of less than 100% (positive UAL) implies that in
addition to normal costs, payments toward the UAL will be required. Plans with a funded ratio greater than 100%
have a negative UAL (or surplus) but are requ ired under current law to continue contributing the normal cost in
most cases, preserving the surplus for future contingencies.
Calculations for the funding target reflect the expected long -term investment return of 6.8%. If it were known on
the valuation date that future investment returns will average something greater/less than the expected return,
calculated normal costs and accrued liabilities provided in this report would be less/greater than the results
shown. Therefore, for example, if actual avera ge future returns are less than the expected return, calculated
normal costs and UAL contributions will not be sufficient to fully fund all retirement benefits. Under this scenario,
required future normal cost contributions will need to increase from those provided in this report, and the plan
will develop unfunded liabilities that will also add to required future contributions. For illustrative purposes, funded
statuses based on a 1% lower and higher average future investment return (discount rate) are as follows:
The “Risk Analysis” section of the report provides additional information regarding the sensitivity of valuation
results to the expected investment return and other factors. Also provided in that section are measures of funded
status that are appropriate for assessing the sufficiency of plan assets to cover estimated termination liabilities.
June 30, 2021 June 30, 2022
1. Present Value of Benefits $6,298,632 $6,735,342
2. Entry Age Accrued Liability 3,048,741 3,462,411
3. Market Value of Assets (MVA) 3,129,430 3,022,059
4. Unfunded Accrued Liability (UAL) [(2) – (3)] ($80,689) $440,352
5. Funded Ratio [(3) / (2)] 102.6% 87.3%
1% Lower
Average Return
Current
Assumption
1% Higher
Average Return
Discount Rate 5.8% 6.8% 7.8%
1. Entry Age Accrued Liability $4,124,977 $3,462,411 $2,936,415
2. Market Value of Assets (MVA) 3,022,059 3,022,059 3,022,059
3. Unfunded Accrued Liability (UAL) [(1) – (2)] $1,102,918 $440,352 ($85,644)
4. Funded Ratio [(2) / (1)] 73.3% 87.3% 102.9%
B-12
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 7
Projected Employer Contributions
The table below shows the required and projected employer contributions (before cost sharing) for the next six
fiscal years. The projection assumes that all actuarial assumptions will be realized and that no further changes
to assumptions, contributions, b enefits, or funding will occur during the projection period. In particular, the
investment return beginning with FY 2022-23 is assumed to be 6.80% per year, net of invest ment and
administrative expenses. Future contribution requirements may differ significantly from those shown below. The
actual long -term cost of the plan will depend on the actual benefits and expenses paid and the actual investment
experience of the fund.
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2022-23 and Beyond)
Fiscal Year 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30
Rate Plan 23274 Results
Normal Cost % 10.15% 10.2% 10.2% 10.2% 10.2% 10.2%
UAL Payment $14,644 $24,000 $34,000 $44,000 $53,000 $53,000
For ongoing plans, investment gains and losses are amortized using a 5 -year ramp up. For more information,
please see “Amortization of the Unfunded Actuarial Accrued Liability” under “Actuarial Methods” in Appendix A
of the Section 2 Report. This method phases in the impact of the change in UAL over a 5-year period in order to
reduce employer cost volatility from year to year. As a result of this methodology, dramatic changes in the
required employer contributions in any one year are less likely. However, required contributions can change
gradually and significantly over the next five years. In years when there is a large i nvestment loss, the relatively
small amortization payments during the ramp up period could result in contributions that are less than interest
on the UAL (i.e. negative amortization) while the contribution impact of the increase in the UAL is phased in.
The required contribution for FY 2024 -25 is less than interest on the UAL, a situation referred to as negative
amortization, as explained in the “Additional Discretionary Employer Contributions” section earlier in this report.
If only the minimum required contribution is made, contributions are not expected to exceed interest on the UAL
until FY 2027-28, as shown in the “Amortization Schedule and Alternatives” section of the report (see columns
labelled “Current Amortization Schedule ”).
For projected contributions under alternate investment return scenarios, please see the “Future Investment
Return Scenarios” in the “Risk Analysis” section . Our online pension plan projection tool, Pension Outlook, is
available in the Employers section of the CalPERS website. Pension Outlook can help plan and budget pension
costs under various scenarios .
B-13
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 8
Other Pooled Miscellaneous Risk Pool Rate Plans
All of the results presented in this Section 1 report, except those shown on this page , correspond to rate plan
23274. In many cases, employers have additional rate plans within the same risk pool. For cost analysis and
budgeting it is useful to consider contributions for these rate plans as a whole rather than individually. The
estimated contribution amounts and rates for a ll of the employer’s rate plans in the Miscellaneous Risk Pool are
shown below and assume that the total employer payroll within the Miscellaneous Risk Pool will grow according
to the overall payroll growth assumption of 2.80% per year for three years. In a refinement since the prior year’s
report, Classic members who are projected to terminate employment are assumed to be replaced by PEPRA
members.
Fiscal Year Fiscal Year
2023-24 2024-25
Estimated Combined Employer Contributions for all Pooled Miscellaneous Rate Plans
Projected Payroll for the Contribution Year $6,798,456 $7,246,562
Estimated Employer Normal Cost $684,854 $695,745
Required Payment on Amortization Bases $1,070,317 $1,295,856
Estimated Total Employer Contributions $1,755,171 $1,991,601
Estimated Total Employer Contribution Rate (illustrative only) 25.82% 27.48%
B-14
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 9
Cost
Actuarial Determination of Plan Cost
Contributions to fund the plan are comprised of two components:
• Normal Cost, expressed as a percentage of total active payroll
• Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount
For fiscal years prior to 2015-16, the Amortization of UAL component was expressed as a percentage of total
active payroll. Starting with FY 2015-16, the Amortization of UAL component was expressed as a dollar amount
and invoiced on a monthly basis. There is an option to prepay this amount during July of each fiscal year.
The Normal Cost component is expressed as a percentage of active payroll with e mployer and employee
contributions payable as part of the regular payroll reporting process.
The determination of both components requires complex actuarial calculations. The calculations are based on a
set of actuarial assumptions which can be divided into two categories:
• Demographic assumptions (e.g., mortality rates, retirement rates, employment termination rates,
disability rates)
• Economic assumptions (e.g., future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPE RS’ best estimate of future experience of the plan and are long term in nature.
We recognize that all assumptions will not be realized in any given year. For example, the investment earnings
at CalPERS have averaged 6.9% over the 20 years ending June 30, 2022 , yet individual fiscal year returns have
ranged from -23.6% to +21.3 %. In addition, CalPERS reviews all actuarial assumptions by conducting in -depth
experience studies every four years, with the most recent exp erience study completed in 2021.
B-15
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 10
Changes Since the Prior Year’s Valuation
Benefits
The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first
annual valuation following the effective date of the legislation. Voluntary benefit changes by plan amendment
are generally included in the first valuation that is prepared after the amendment becomes effective, even if the
valuation date is prior to the effective date of the amendment.
This valuation generally reflects plan amendments effective before the date of the report. Please refer to the
“Plan’s Major Benefit Options” in this report and Appendix B of the Section 2 Report for a summary of the plan
provisions used in this valuation.
In 2022, SB 1168 increased the standard retiree lump sum death benefit from $500 to $2,000 for any death
occurring on or after July 1, 2023. For pooled plans this is a Class 3 benefit and there is no normal cost surcharge.
The impact on the unfunded liability i s included in the pool’s (gain)/loss.
Actuarial Methods and Assumptions
There are no significant changes to the actuarial methods or assumptions for the June 30, 2022 actuarial
valuation.
Subsequent Events
This actuarial valuation report reflects fund investment return through June 30, 2022 and statutory/regulatory
changes and board actions through January 2023.
During the time period between the valuation date and the publication of this report, inflation has been
significantly higher than the expected inflation of 2.3% per annum. Since inflation influences cost -of-living
increases for retirees and beneficiaries and active member pay increases, higher inflation is likely to put at least
some upward pressure on contribution requirements and downward pressure on the funded status in the June
30, 2023 valuation. The actual impact of higher inflation on future valuation results will depend on, among other
factors , how long higher inflation persists. At this tim e, we continue to believe the long -term inflation assumption
of 2.3% is appropriate.
To the best of our knowledge, there have been no other subsequent events that could materially affect current
or future certifications rendered in this report.
B-16
Assets and Liabilities
• Breakdown of Entry Age Accrued Liability
• Allocation of Plan’s Share of Pool’s Experience/Assumption Change
• Development of Plan’s Share of Pool’s Market Value of Assets
• Schedule of Amortization Bases
• Amortization Schedule and Alternatives
• Employer Contribution History
• Funding History
B-17
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 12
Breakdown of Entry Age Accrued Liability
Active Members $1,783,646
Transferred Members 465,328
Separated Members 117,460
Members and Beneficiaries Receiving Payments 1,095,977
Total $3,462,411
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 mi nimizing 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 $3,462,411
2. Projected UAL Balance at 6/30/2022 (81,778)
3. Other UAL Adjustments (Golden Handshake, Prior Service Purchase, etc.) 0
4. Adjusted UAL Balance at 6/30/2022 for Asset Share (81,778)
5. Pool’s Accrued Liability1 22,021,735,002
6. Sum of Pool’s Individual Plan UAL Balances at 6/30/20221 2,453,954,297
7. Pool’s 2021-22 Investment (Gain)/Loss1 2,614,071,182
8. Pool’s 2021-22 Non-Investment (Gain)/Loss1 309,490,972
9. Plan’s Share of Pool’s Investment (Gain)/Loss: [(1) - (4)] ÷ [(5) - (6)] × (7) 473,470
10. Plan’s Share of Pool’s Non -Investment (Gain)/Loss: (1) ÷ (5) × (8) 48,660
11. Plan’s New (Gain)/Loss as of 6/30/2022: (9) + (10) 522,130
12. Increase in Pool’s Accrued Liability due to Change in Assumptions1 0
13. Plan’s Share of Pool’s Change in Assumptions: (1) ÷ (5) × (12) 0
14. Increase in Pool’s Accrued Liabi lity due to Funding Risk Mitigation 1 0
15. Plan’s Share of Pool’s Change due to Funding Risk Mitigation: (1) ÷ (5) × (14) 0
16. Offset due to Funding Risk Mitigation 0
17. Plan’s Investment (Gain)/Loss: (9) – (16) 473,470
18. Partial Fresh Start Base: (2) + (1 7) 391,692
1 Does not include plans that transferred to Pool on the valuation date.
Development of the Plan’s Share of Pool’s Market Value
of Assets
19. Plan’s UAL: (2) + (3) + (11) + (13) + (15) $440,352
20. Plan’s Share of Pool’s MVA: (1) - (19) $3,022,059
B-18
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 13
Schedule of Amortization Bases
Below is the schedule of the plan’s amortization bases. Note that there is a two -year lag between the valuation date and the start of the contribution year.
• The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2022 .
• The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuati on date: FY 2024-25.
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
required 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 de termined. The UAL is rolled forward each year by subtracting the expected payment on the UAL for the fiscal year and
adjusting for interest. The expected payment for the first fiscal year is determined by the actuarial valuation two years ago and the contribution for the second year is from
the actuarial valuation one year ago. Additional discretionary payments are reflected in the Expected Payments column in the fiscal year they were made by the agency.
Reason for Base
Date
Est.
Ramp
Level
2024-25
Ramp
Shape
Escala-
tion
Rate
Amort.
Period
Balance
6/30/22
Expected
Payment
2022-23
Balance
6/30/23
Expected
Payment
2023-24
Balance
6/30/24
Minimum
Required
Payment
2024-25
Non-Investment (Gain)/Loss 6/30/22 No Ramp 0.00% 20 48,660 0 51,969 0 55,503 4,991
Partial Fresh Start 6/30/22 20% Up Only 0.00% 20 391,692 (2,104) 420,501 0 449,095 9,653
Total 440,352 (2,104) 472,470 0 504,598 14,644
The (gain)/loss bases are the plan’s allocated share of the risk pool’s (gain)/loss for the fiscal year as disclosed in “Allo cation of Plan’s Share of Pool’s
Experience/Assumption Change” earlier in this section. These (gain)/loss bases will be amortized in accordance with the CalPERS amortization policy in effect at the time
the base was established.
The partial fresh start base established June 30, 2022 is the sum of the UAL balance from the June 30, 2021 valuati on (projected to June 30, 2022) and the June 30,
2022 investment loss, as shown on the previous page.
B-19
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 14
Amortization Schedule and Alternatives
The amortization schedule on the previous page (s) shows the minimum contributions required according to the CalPERS
amortization policy. Many agencies have expressed a desire for a more stable pattern of payments or have indicated interest
in paying off the unfunded accrued liabilities more quickly than required. As such, we have provided alternative amortization
schedules to help analyze the current amortization schedule and illustrate the potential savings 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) alternative “fresh start” amortization schedule s
using two sample periods that would both result in interest savings relative to the current amortization schedule. To initiate a
fresh s tart, please contact the plan actuary.
The Current Amortization Schedule typically contains both positive and negative bases. Positive bases result from plan
changes, assumption changes, method changes or plan experience that increase unfunded liability. Negative bases result
from plan changes, assumption changes, method changes, or plan experience that decrease unfunded liabili ty. The
combination of positive and negative bases within an amortization schedule can result in unusual or problematic circumstances
in future years, such as:
• When a negative payment would be required on a positive unfunded actuarial liability; or
• When the payment would completely amortize the total unfunded liability in a very short time period, and results in a
large change in the employer contribution requirement.
In any year when 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 n appropriate period.
The Current Amortization Schedule on the following page may appear to show that, based on the current amortizat ion bases,
one of the above scenarios will occur at some point in the future. It is impossible to know today whether such a scenario wil l
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.
B-20
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 15
Amortization Schedule and Alternatives (continued)
Alternate Schedules
Current Amortization
Schedule 20 Year Amortization 15 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2024 504,598 14,644 504,598 45,375 504,598 52,934
6/30/2025 523,777 24,297 492,018 45,375 484,207 52,934
6/30/2026 534,284 33,951 478,583 45,375 462,429 52,934
6/30/2027 535,529 43,604 464,234 45,375 439,170 52,934
6/30/2028 526,882 53,257 448,910 45,375 414,329 52,934
6/30/2029 507,672 53,257 432,544 45,375 387,799 52,934
6/30/2030 487,155 53,257 415,065 45,376 359,465 52,934
6/30/2031 465,244 53,257 396,396 45,375 329,204 52,934
6/30/2032 441,843 53,256 376,459 45,376 296,886 52,934
6/30/2033 416,852 53,257 355,165 45,376 262,370 52,935
6/30/2034 390,160 53,257 332,423 45,376 225,506 52,934
6/30/2035 361,653 53,256 308,134 45,375 186,136 52,935
6/30/2036 331,209 53,257 282,195 45,376 144,088 52,934
6/30/2037 298,693 53,256 254,491 45,375 99,182 52,935
6/30/2038 263,968 53,257 224,904 45,376 51,221 52,934
6/30/2039 226,879 53,256 193,304 45,375
6/30/2040 187,270 53,257 159,556 45,376
6/30/2041 144,967 53,258 123,512 45,375
6/30/2042 99,786 53,257 85,018 45,375
6/30/2043 51,533 53,256 43,907 45,375
6/30/2044
6/30/2045
6/30/2046
6/30/2047
6/30/2048
6/30/2049
Total 968,604 907,507 794,013
Interest Paid 464,006 402,909 289,415
Estimated Savings 61,097 174,591
B-21
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 16
Employer Contribution History
The table below provides a recent history of the required and discretionary employer contributions for the plan.
The required amounts are based on the actuarial valuation from two years prior without subsequent adjustments,
if any. Additional discretionary payments before July 1, 2019 or after April 2 8, 2023 are not included.
[
Fiscal
Year
Employer
Normal Cost
Unfunded Liability
Payment ($)
Additional Discretionary
Payments
2016 - 17 7.159% $0 N/A
2017 - 18 7.200% 198 N/A
2018 - 19 7.634% 1,413 N/A
2019 - 20 8.081% 3,107 0
2020 - 21 8.794% 15,889 0
2021 - 22 8.65% 17,301 0
2022 - 23 8.63% 20,057 0
2023 - 24 10.10% 0
2024 - 25 10.15% 14,644
Funding History
The table below shows the recent history of the actuarial accrued liability, share of the pool’s market value of
assets, unfunded accrued liability, funded ratio, and annual covered payroll .
Valuation
Date
Accrued
Liability
(AL)
Share of Pool’s
Market Value of
Assets (MVA)
Unfunded
Accrued Liability
(UAL)
Funded
Ratio
Annual
Covered
Payroll
06/30/2013 $10,846 $9,146 $1,700 84.3% $193,164
06/30/2014 112,112 117,095 (4,983) 104.4% 789,242
06/30/2015 267,196 258,118 9,078 96.6% 1,214,520
06/30/2016 557,863 503,485 54,378 90.3% 1,636,677
06/30/2017 945,109 895,554 49,555 94.8% 1,905,466
06/30/2018 1,446,497 1,330,795 115,702 92.0% 1,979,072
06/30/2019 1,892,664 1,724,042 168,622 91.1% 1,933,912
06/30/2020 2,444,917 2,192,472 252,445 89.7% 1,561,936
06/30/2021 3,048,741 3,129,430 (80,689) 102.6% 1,408,439
06/30/2022 3,462,411 3,022,059 440,352 87.3% 1,450,515
B-22
Risk Analysis
• Future Investment Return Scenarios
• Discount Rate Sensitivity
• Mortality Rate Sensitivity
• Maturity Measures
• Maturity Measures History
• Funded Status – Termination Basis
B-23
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 18
Future Investment Return Scenarios
Analysis using the investment return scenarios from the Asset Liability Management process completed in
2021 was performed to determine the effects of various future investment returns on required employer
contributions. The projections below reflect the i mpact of the CalPERS Funding Risk Mitigation policy. The
projections also assume that all other actuarial assumptions will be realized and that no further changes in
assumptions, contributions, benefits, or funding will occur.
The first table shows projected contribution requirements if the fund were to earn either 3.0% or 10.8%
annually. These alternate investment returns were chosen because 90% of long-term average returns are
expected to fall between them over the 20 -year period ending June 30, 2042.
Required contributions outside of this range are also possible. In particular, whereas it is unlikely that
investment returns will average less than 3.0% or greater than 10.8% over a 20 -year period, the likelihood of
a single investment return less than 3.0% or greater than 10.8% in any given year is much greater. The
following analysis illustrates the effect of an extreme, single year investment return.
The portfolio has an expected volatility (or standard deviation) of 12.0% per year. Accordingly, in any given
year there is a 16% probability that the annual return will be -5.2% or less and a 2.5% probability that the
annual return will be -17.2% or less. These returns represent one and two standard deviations below the
expected return of 6.8%.
The following table shows the effect of a one or two standard deviation investment loss in FY 2022-23 on the
FY 2025-26 contribution requirements. Note that a single -year investment gain or loss decreases or increases
the required UAL contribution amount incrementally for each of the next five years, not just one, due to the 5 -
year ramp in the amortization policy. However, the contribution requirements beyond the first year are also
impacted by investment returns beyond the first year. Historically, significant downturns in the market are often
followed by higher than average returns. Such investment gains would offset the impact of these single year
negative returns in years beyond FY 2025-26.
Assumed Annual Return for
Fiscal Year 2022-23
Required
Employer
Contributions
Projected
Employer
Contributions
2024-25 2025-26
(17.2)% (2 standard deviation loss)
Normal Cost Rate 10.15% 10.2%
UAL Contribution $14,644 $42,000
(5.2)% (1 standard deviation loss)
Normal Cost Rate 10.15% 10.2%
UAL Contribution $14,644 $33,000
• Without investment gains (returns higher than 6.8%) in FY 2023-24 or later, projected contributions
rates would continue to rise over the next four years due to the continued phase -in of the impact of
the illustrated investment loss in FY 2022-23.
• The Pension Outlook Tool can be used to model projected contributions for these scenarios beyond
FY 2025-26 as well as to model other investment return scenarios .
Assumed Annual Return
FY 2022-23
through 2041-42
Projected Employer Contributions
2025-26 2026-27 2027-28 2028-29 2029-30
3.0% (5 th percentile)
Normal Cost Rate 10.2% 10.2% 10.2% 10.2% 10.2%
UAL Contribution $27,000 $42,000 $61,000 $82,000 $97,000
10.8% (95 th percentile)
Normal Cost Rate 10.4% 10.6% 10.8% 11.0% 11.2%
UAL Contribution $22,000 $27,000 $28,000 $0 $0
B-24
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 19
Discount Rate Sensitivity
The discount rate assumption is calculated as the sum of the assumed real rate of return and the assumed
annual price inflation, currently 4.5% and 2.3%, respectively. Changing either the price inflation assumption or
the real rate of return assumption wil l change the discount rate. The sensitivity of the valuation results to the
discount rate assumption depends on which component of the discount rate is changed. Shown below are
various valuation results as of June 30, 2022 assuming alternate discount rates by changing the two components
independently. Results are shown using the current discount rate of 6.8% as well as alternate discount rates of
5.8% and 7.8%. The rates of 5.8% and 7.8% were selected since they illustrate t he impact of a 1.0% increase
or decrease to the 6.8% assumption.
Sensitivity to the Real Rate of Return Assumption
As of June 30, 2022 1% Lower
Real Return Rate
Current
Assumptions
1% Higher
Real Return Rate
Discount Rate 5.8% 6.8% 7.8%
Price Inflation 2.3% 2.3% 2.3%
Real Rate of Return 3.5% 4.5% 5.5%
a) Total Normal Cost 21.36% 17.08% 13.80%
b) Accrued Liability $4,124,977 $3,462,411 $2,936,415
c) Market Value of Asse ts $3,022,05 9 $3,022,059 $3,022,059
d) Unfunded Liability/(Surplus) [(b) - (c)] $1,102,918 $440,352 ($85,644)
e) Funded Ratio 73.3% 87.3% 102.9%
Sensitivity to the Price Inflation Assumption
As of June 30, 2022 1% Lower
Price Inflation
Current
Assumptions
1% Higher
Price Inflation
Discount Rate 5.8% 6.8% 7.8%
Price Inflation 1.3% 2.3% 3.3%
Real Rate of Return 4.5% 4.5% 4.5%
a) Total Normal Cost 17.96% 17.08% 15.54%
b) Accrued Liability $3,617,340 $3,462,411 $3,163,990
c) Market Value of Assets $3,022,059 $3,022,059 $3,022,059
d) Unfunded Liability/(Surplus) [(b) - (c)] $595,281 $440,352 $141,931
e) Funded Ratio 83.5% 87.3% 95.5%
Mortality Rate Sensitivity
The following table looks at the change in the June 30, 2022 plan costs and funded status under two different
longevity scenarios, namely assuming post-retirement rates of mortality are 10 % lower or 10% higher than our
current mortality assumptions adopted in 2021. This type of analysis highlights the impact on the plan of a
change in the mortality assumption .
As of June 30, 2022 10% Lower
Mortality Rates
Current
Assumptions
10% Higher
Mortality Rates
a) Total Normal Cost 17.40% 17.08% 16.78%
b) Accrued Liability $3,526,080 $3,462,411 $3,403,589
c) Market Value of Assets $3,022,059 $3,022,059 $3,022,059
d) Unfunded Liability/(Surplus) [(b) - (c)] $504,021 $440,352 $381,530
e) Funded Ratio 85.7% 87.3% 88.8%
B-25
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 20
Maturity Measures
As pension plans mature they become more sensitive to risks . Understanding plan maturity and how it affects
the ability of a pension plan sponsor to tolerate risk is important in understanding how the pension plan is
impacted by investment return volatility, other economic variables , and changes in longevity or other
demographic assumptions.
Since it is the employer that bears the risk, it is appropriate to perform this analysis on a pension plan level
considering all rate plans. The following measures are for one rate pla n only. One way to look at the maturity
level of CalPERS and its plans is to look at the ratio of a plan’s retiree liability to its total liability. A pension plan
in its infancy will have a very low ratio of retiree liability to total liability. As the pl an matures, the ratio starts
increasing. A mature plan will often have a ratio above 60%-65%.
Ratio of Retiree Accrued Liability to
Total Accrued Liability June 30, 2021 June 30, 2022
1. Retired Accrued Liability $1,087,825 $1,095,977
2. Total Accrued Liability 3,048,741 3,462,411
3. Ratio of Retiree AL to Total AL [(1) / (2)] 0.36 0.32
Another measure of maturity level of CalPERS and its plans is to look at the ratio of actives to retirees, also
called the support ratio. A pension plan in its infancy will have a very high ratio of active to retired members. As
the plan matures and members retire, the ratio declines. A mature plan will often have a ratio near or b elow one.
To calculate the support ratio for the rate plan, retirees and beneficiaries receiving a continuance are each
counted as one, even though they may have only worked a portion of their careers as an active member of this
rate plan. For this reason, the support ratio, while intuitive, may be less informative than the ratio of retiree liability
to total accrued liability above.
For comparison, the support ratio for all CalPERS public agency plans as of June 30, 2021, was 0.78 and was
calculated consistently with how it is for the individual rate plan. Note that to calculate the support ratio for all
public agency plans, a retiree with service from more than one CalPERS agency is counted as a retiree more
than once.
Support Ratio June 30, 2021 June 30, 2022
1. Number of Actives 11 11
2. Number of Retirees 6 6
3. Support Ratio [(1) / (2)] 1.83 1.83
B-26
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 21
Maturity Measures (continued)
The actuarial calculations supplied in this communication are based on various assumptions about long -term
demographic and economic behavior. Unless these assumptions (e.g., terminations, deaths, disabilities,
retirements, salary growth, 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
Shown in the table below is the asset volatility ratio (AVR), which is the ratio of market value of assets to payroll.
Plans that have higher AVR experience more volatile employer contributions (as a percentage of payroll) due
to investment return. For example, a plan with AVR of 8 may experience twice the contribution volatility due to
investment return volatility than a plan with AVR of 4. It should be noted that this ratio is a measure of the current
situation. It increases over time but generally tends to stabilize as a plan matures.
Liability Volatility Ratio
Also shown in the table below is the liability volatility ratio (LVR), which is the ratio of accrued liability to payroll.
Plans that have a higher LVR experience more volatile employer contributi ons (as a percentage of payroll) due
to changes in liability. For example, a plan with LVR of 8 is expected to have twice the contribution volatility of a
plan with LVR of 4. It should be noted that this ratio indicates a longer -term potential for contribu tion volatility,
since the AVR, described above, will tend to move closer to the LVR as the funded ratio approaches 100%.
Contribution Volatility June 30, 2021 June 30, 2022
1. Market Value of Assets $3,129,430 $3,022,059
2. Payroll 1,408,439 1,450,515
3. Asset Volatility Ratio (AVR) [(1) / (2)] 2.2 2.1
4. Accrued Liability $3,048,741 $3,462,411
5. Liability Volatility Ratio (LVR) [(4) / (2)] 2.2 2.4
Maturity Measures History
Valuation Date
Ratio of
Retiree Accrued Liability
to
Total Accrued Liability
Support Ratio
Asset
Volatility
Ratio
Liability
Volatility
Ratio
06/30/2017
0.00
N/A 0.5
0.5
06/30/2018
0.18
8.50
0.7
0.7
06/30/2019
0.13
8.00
0.9
1.0
06/30/2020
0.34
3.50
1.4
1.6
06/30/2021
0.36
1.83
2.2
2.2
06/30/2022
0.32
1.83
2.1
2.4
B-27
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 22
Funded Status – Termination Basis
The funded status measured on a termination basis is an estimate of the financial position of the plan had the
contract with CalPERS been terminated as of June 30, 2022. The accrued liability on a termination basis
(termination liability) is calculated differently compared to the plan’s ongoing funding liability. For the termination
liability calculation, both compensation and service are frozen as of the valu ation date and no future pay
increases or service accruals are assumed. This measure of funded status is not appropriate for assessing the
need for future employer contributions in the case of an ongoing plan, that is, for an employer that continues to
provide CalPERS retirement benefits to active employees. Unlike the actuarial cost method used for ongoing
plans, the termination liability is the present value of the benefits earned through the valuation date.
A more conservative investment policy and asse t allocation strategy was adopted by the 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 limiting the funding risk. 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 19 -month
period from 12 months before the valuation date to seven months after.
Discount Rate: 1.75%
Price Inflation: 2.50%
Discount Rate: 4.50%
Price Inflation: 2.75%
Market
Value of
Assets (MVA)
Termination
Liability1,2
Funded
Ratio
Unfunded
Termination
Liability
Termination
Liability1,2
Funded
Ratio
Unfunded
Termination
Liability
$3,022,059 $7,600,950 39.8% $4,578,891 $4,117,886 73.4% $1,095,827
1 The termination liabilities calculated above include a 5% contingency load. The contingency load and other actuarial
assumptions can be found in Appendix A of the Section 2 report.
2 The discount rate 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 3.38% on June 30, 2022, the valuation date.
In order to te rminate the plan, first contact our Pension Contract Services unit to initiate a Resolution of Intent to
Terminate. The completed Resolution will allow the plan actuary to provide a preliminary termination valuation
with a more up -to -date estimate of the p lan liabilities. Before beginning this process, please consult with the plan
actuary.
B-28
CalPERS Actuarial Valuation – June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 23
Participant Data
The table below shows a summary of the plan’s member data upon which this valuation is based:
June 30, 2021 June 30, 2022
Active Members
Counts 11 11
Average Attained Age 41.9 43.3
Average Entry Age to Rate Plan 37.3 37.9
Average Years of Credited Service 4.6 5.4
Average Annual Covered Pay $128,040 $131,865
Annual Covered Payroll $1,408,439 $1,450,515
Present Value of Future Payroll $18,266,274 $18,003,003
Transferred Members 8 9
Separated Members 3 3
Retired Members and Beneficiaries *
Counts 6 6
Average Annual Benefits $12,546 $12,829
Total Annual Benefits $75,276 $76,972
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple
records may exist for those who have service in more than one valuation group. This does not result in double
counting of liabilities.
* Values include community property settlements.
List of Class 1 Benefit Provisions
This plan has the additional Class 1 Benefit Provisions:
• None
B-29
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 24
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which the agency has contracted. A description of principal standard and optional plan provisions is
in Section 2 .
Benefit Group
Member Category Misc
Demographics
Actives Yes
Transfers/Separated Yes
Receiving Yes
Benefit Group Key 110655
Benefit Provision
Benefit Formula 2% @ 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 2 Yes
1959 Survivor Benefit Level Level 4
Special No
Alternate (firefighters) No
Post-Retirement Death Benefits
Lump Sum $2000
Survivor Allowance (PRSA) No
COLA 2%
B-30
CALPERS ACTUARIAL VALUATION - June 30, 2022
Miscellaneous Second Tier Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 25
Section 2
CALIFORNIA PUBLIC EMPLOYEES’ RETIREMEN T SYSTEM
Risk Pool Actuarial Valuation Information
Section 2 may be found on the
CalPERS website (www.calpers.ca.gov)
in the Forms and Publications section
B-31
California Public Employees’ Retirement System
Actuarial Office
400 Q Street, Sacramento, CA 95811 | Phone: (916) 795 -3000 | Fax: (916) 795 -2744
888 CalPERS (or 888-225-7377) | TTY: (877) 249 -7442 | www.calpers.ca.gov
July 2023
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes (CalPERS ID: 3846845523)
Annual Valuation Report as of June 30, 2022
Dear Employer,
Attached to this letter is the June 30, 2022 actuarial valuation report for the rate plan noted above . Provided in this
report is the determination of the minimum required employer contributions for fiscal year (FY) 2024-25. In
addition, the report contains important information regarding the current financial status of the plan as well as
projections and risk measures to aid in planning for the future.
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, 2022.
Section 2 can be found on the CalPERS website (www.calpers.ca.gov). From the home page, go to “Forms &
Publications” and select “View All”. In the search box, enter “Risk Pool” and from the results list download the
Miscellaneous Risk Pool Actuarial Valuation Report for June 30, 2022.
Actuarial valuations are based on assumptions regarding future plan experience including investment return and payroll
growth, eligibility for the types of benefits provided, and longevity among retirees. The CalPERS Board of Administration
(board) adopts these assumptions after considering the advice of CalPERS actuarial and investment teams and other
professionals. Each actuarial valuation reflects all prior differences between actual and assumed experie nce and
adjusts the contribution requirements as needed. This valuation is based on an investment return assumption of 6.8%,
which was adopted by the board in November 2021. Other assumptions used in this report are those recommended in
the CalPERS Experie nce Study and Review of Actuarial Assumptions report from November 2021.
Required Contributions
The table below shows the minimum required employer contributions and the PEPRA member contribution rate for FY
2024-25 along with estimates of the required contributions for FY 2025-26. Employee contributions other than cost
sharing (whether paid by the employer or the employee) are in addition to the results shown below. The required
employer contributions in this report do not reflect any cost sharing arrangement between the agency and the
employees.
Fiscal Year Employer Normal
Cost Rate
Employer Amortization of
Unfunded Accrued Liability
PEPRA Member
Contribution Rate
2024-25 7.87% $14,336 7.75%
Projected Results
2025-26 7.9% $24,000 TBD
C-1
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
(CalPERS ID: 3846845523)
Annual Valuation Report as of June 30, 2022
Page 2
The actual investment return for FY 2022-23 was not known at the time this report was prepared. The projections above
assume the investment re turn for that year would be 6.8%. To the extent the actual investment return for FY 2022-
23 differs from 6.8%, the actual contribution requirements for FY 2025-26 will differ from those shown above.
For additional details regarding the assumptions and methods used for these projections , please refer to the “Projected
Employer Contributions” in the “Highlights and Executive Summary” section. This section also contains projected
required contributions through FY 2029-30.
Changes from Previous Year’s Valuations
There are no significant changes in actuarial assumptions or policies in the 2022 actuarial valuation. T here may be
changes specific to the plan such as contract amendments and funding changes.
Further descriptions of general changes are included in “Highlights and Executive Summ ary” and in Appendix A of the
Section 2 report in “Actuarial Methods and Assumptions .” The effects of any changes on the required contributions are
included in “Reconciliation of Required Employer Contributions ,” also in the Section 2 report.
Questions
A CalPERS actuary is available to answer questions about this report. Other questions may be directed to the Customer
Contact Center at (888)-CalPERS or (888-225-7377).
Sincerely,
SCOTT TERANDO, ASA, EA, MAAA, FCA, CFA
Chief Actuary, CalPERS
RANDALL DZIUBEK, ASA, MAAA
Deputy Chief Actuary, Valuation Services , CalPERS
C-2
Actuarial Valuation
as of June 30, 2022
for the
PEPRA Miscellaneous Plan
of the
City of Rancho Palos Verdes
(CalPERS ID : 3846845523)
Required Contributions
for Fiscal Year
July 1, 2024 - June 30, 2025
C-3
Table of Contents
Section 1 – Plan Specific Information
Section 2 – Risk Pool Actuarial Valuation I nformation
C-4
Section 1
CALIFORNIA PUBLIC EM PLOYEES’ RETIREMENT SYSTEM
Plan Specific Information
for the
PEPRA Miscellaneous Plan
of the
City of Rancho Palos Verdes
(CalPERS ID : 3846845523)
(Rate Plan ID: 26567)
C-5
Rate Plan belonging to the Miscellaneous Risk Pool
Table of Contents
Actuarial Certification 1
Highlights and Executive Summary
Introduction 3
Purpose of Section 1 3
Required Contribution s 4
Additional Discretionary Employer Contributions 5
Funded Status – Funding Policy Basis 6
Projected Employer Contributions 7
Other Pooled Miscellaneous Risk Pool Rate Plans 8
Cost 9
Changes Since the Prior Year’s Valuation 10
Subsequent Events 10
Assets and Liabilities
Breakdown of Entry Age Accrued Liability 12
Allocation of Plan’s Share of Pool’s Experience/Assumption Change 12
Development of Plan’s Share of Pool’s Market Value of Assets 12
Schedule of Amortization Bases 13
Amortization Schedule and Alternatives 14
Employer Contribution History 16
Funding History 16
Risk Analysis
Future Investment Return Scenarios 18
Discount Rate Sensitivity 19
Mortality Rate Sensitivity 19
Maturity Measures 20
Maturity Measures History 21
Funded Status – Termination Basis 22
Participant Data 23
List of Class 1 Benefit Provisions 23
Plan’s Major Benefit Options 24
PEPRA Member Contribution Rates 25
C-6
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 1
Actuarial Certification
To the best of our knowledge, this report, compris ed of Sections 1 and 2, is complete and accurate and contains
sufficient information to disclose, fully and fairly, the funded condition of the PEPRA Miscellaneous Plan of the
City of Rancho Palos Verdes and satisfies the actuarial valuation requirements of Government Code section
7504. This valuation is based on the member and financial data as of June 30, 2022 provided by the various
CalPERS databases and the benefits under this plan with CalPERS as of the date this report was produced.
Section 1 of this report is based on the member and financial data for City of Rancho Palos Verdes , while Section
2 is based on the corresponding information for all agencies participating in the Miscellaneous Risk Pool to which
the plan belongs.
As s et forth in Section 2 of this report, the pool ac tuaries have certified that, in their opinion, the valuation of the
Miscellaneous Risk Pool has been performed in accordance with generally accepted actuarial princip les , in
accordance 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 Boa rd 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 rate plan, it is my opinion as the plan actuary that the Unfunded Accrued Liability
amortization bases as of June 30, 2022 and employer contribution as of July 1, 2024 have been properly and
accurately determined in accordance with the principles and standards stated above.
The undersigned is an actuary who satisfies the Qualification Standards for Actuaries Issuing Statements of
Actuarial Opinion in the United States with regard to pensions.
IAN OSUGI, ASA , MAAA
Senior Actuary, CalPERS
C-7
Highlights and Executive Summary
• Introduction
• Purpose of Section 1
• Required Contributions
• Additional Discretionary Employer Contributions
• Funded S tatus – Funding Policy Basis
• Projected Employer Contributions
• Other Pooled Miscellaneous Risk Pool Rate Plans
• Cost
• Changes Since the Prior Year’s Valuation
• Subsequent Events
C-8
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 3
Introduction
This report presents the results of the June 30, 2022 actuarial valuation of the PEPRA Miscellaneous Plan of
the City of Rancho Palos Verdes of the California Public Employees’ Retirement System (CalPERS). This
actuarial valuation sets the minimum required contributions for fiscal year (FY) 2024-25.
Purpose of Section 1
This Section 1 report for the PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes of CalPERS was
prepared by the Actuarial Office using data as of June 30, 2022. The purpose of the valuation is to:
• Set forth the assets and accrued liabilities of this rate plan as of June 30, 2022;
• Determine the minimum required employer contribution s for this rate plan for FY July 1, 2024 through
June 30, 2025;
• Determine the required member contribution rate for FY July 1, 2024 through June 30, 2025 for
employees subject to the California Public Employees' Pension Reform Act of 2013 (PEPRA); and
• Provide actuarial information as of June 30, 2022 to the CalPERS Board of Administration (board) and
other interested parties.
The pension funding information presented in this report should not be used in financial reports subject to
Governmental Accounting Standards Board (GASB) Statement No. 68 for a Cost Sharing Employer Defined
Benefit Pension Plan. A separate accounting valu ation report for such purposes is available on the CalPERS
website (www.calpers.ca.gov).
The measurements shown in this actuarial valuation may not be applicable for other purposes. The agency
should contact the plan actuary before disseminating any portio n of this report for any reason that is not explicitly
described above.
Future actuarial measurements may differ significantly from the current measurements presented in this report
due to such factors as the following: plan experience differing from that anticipated by the economic or
demographic assumptions; changes in economic or demographic assumptions; changes in actuarial policies;
changes in plan provisions or applicable law ; and differences between the required contributions determined by
the valuation and the actual contributions made by the agency.
Assessment and Disclosure of Risk
This report includes the following risk disclosures consistent with the guidance of Actuarial Standard of Practice
No. 51 and recommended by the California Actuarial Ad visory Panel (CAAP) in the Model Disclosure Elements
document:
• A “Scenario Test,” projecting future results under different investment income returns.
• A “Sensitivity Analysis,” showing the impact on current valuation results using alternative discount rates
of 5.8% and 7.8%.
• A “Sensitivity Analysis,” showing the impact on current valuation results assuming rates of mortality are
10% lower or 10% higher than our current post-retirement mortality assumptions adopted in 20 21.
• Plan maturity measures indicating how sensitive a plan may be to the risks noted above.
C-9
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 4
Required Contributions
Fiscal Year
Required Employer Contributions 2024-25
Employer Normal Cost Rate 7.87%
Plus
Required Payment on Amortization Bases 1 $14,336
Paid either as
1) Monthly Payment $1,194.67
Or
2) Annual Prepayment Option* $13,872
Required PEPRA Member Contribution Rate 7.75%
The total minimum required employer contribution is the sum of the Plan’s Employer Normal Cost Rate
(expressed as a percentage of payroll and paid as payroll is reported) plus the Employer Unfunded Accrued
Liability (UAL) Contribution Amount (billed monthly (1) or prepaid annually (2) in dollars).
* Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later
than July 31).
For additional detail regarding the determination of the required contribution rate for PEPRA members, see
“PEPRA Member Contribution Rates” section.
Fiscal Year Fiscal Year
2023-24 2024-25
Development of Normal Cost as a Percentage of Payroll
Base Total Normal Cost for Formula 15.43% 15.62%
Surcharge for Class 1 Benefits 2
None 0.00% 0.00%
Phase out of Normal Cost Difference 3 0.00% 0.00%
Plan’s Total Normal Cost 15.43% 15.62%
Offset Due to Employee Contributions 7.75% 7.75%
Employer Normal Cost Rate 7.68% 7.87%
1 The required payment on amortization bases does not take into account any additional discretionary payment made after
April 28, 2023.
2 Section 2 of this report contains a list of Class 1 benefits and corresponding surcharges.
3 When a rate plan joins the pool, the difference in normal cost between the pool and the rate plan is phased out over a five-
year period in accordance with the CalPERS contribution allocation policy.
C-10
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 5
Additional Discretionary Employer Contributions
The minimum required employer contribution towards the Unfunded Accrued Liability (UAL) for this rate plan for
FY 2024-25 is $14,336. CalPERS allows agencies to make additional discretionary payments (ADPs) at any
time and in any amount. These optional payments serve to reduce the UAL and future required contributions
and can result in significant long -term savings. Agencies can also use ADPs to stabilize annual contributions as
a fixed dollar amount, percent of payroll or percent of revenue.
Provided below are select ADP options for consideration. Making such an ADP during FY 2024-25 does not
require an ADP be made in any future year, nor does it change the remaining amortization period of any portion
of unfunded liability. For information on permanent changes to amortization periods, see the “Amortization
Schedule and Alternatives” section of the report.
Agencies considering making an ADP should contact CalPERS for additional information.
Minimum Required Employer Contribution for Fiscal Year 20 24-25
Estimated
Normal Cost
Minimum UAL
Payment
ADP Total UAL
Contribution
Estimated Total
Contribution
$335,589 $14,336 $0 $14,336 $349,925
The minimum required contribution above is less than interest on the UAL. With no AD P the UAL is projected to
increase over the following year. If the minimum UAL payment were split between interest and principal, the
principal portion would be negative. This situation is referred to as negative amortization. If only the minimum
required contribution is made, contributions are not expected to exceed interest on the UAL until FY 2027-28,
as shown in the “Amortization Schedule and Alternatives” s ection of the report (s ee columns labeled “Current
Amortization Schedule”).
Fiscal Year 2024-25 Employer Contribution Necessary to Avoid Negative Amortization
Estimated
Normal Cost
Minimum UAL
Payment
ADP 1 Total UAL
Contribution
Estimated Total
Contribution
$335,589 $14,336 $19,312 $33,648 $369,237
Alternative Fiscal Year 2024-25 Employer Contributions for Greater UAL Reduction
Funding
Horizon
Estimated
Normal Cost
Minimum UAL
Payment
ADP 1 Total UAL
Contribution
Estimated Total
Contribution
20 years $335,589 $14,336 $31,648 $45,984 $381,573
15 years $335,589 $14,336 $39,308 $53,644 $389,233
10 years $335,589 $14,336 $55,466 $69,802 $405,391
5 years $335,589 $14,336 $105,701 $120,037 $455,626
1 The ADP amounts are assumed to be made in the middle of the fiscal year. A payment made earlier or later in the fiscal
year would have to be less or more than the amount shown to have the same effect on the UAL amortization.
Note that the calculations above are based on the projected UAL as of June 30, 2024 as determined in the June
30, 2022 actuarial valuation. New unfunded liabilities can emerge in future years due to assumption or method
changes, changes in plan provisions , and actuarial experience different than assumed. Making an ADP
illustrated above for the indicated number of years will not result in a plan that is exactly 100 % funded in the
indicated number of years. Valuation results will vary from one year to the next and can diverge significantly
from projections over a period of several years .
C-11
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 6
Funded Status – Funding Policy Basis
The table below provides information on th e current funded status of the plan under the funding policy. The
funded status for this purpose is based on the market value of assets relative to the funding target produced by
the entry age actuarial cost method and actuarial assumptions adopted by the board. The actuarial cost method
allocates the total expected cost of a member’s projected benefit (Present Value of Benefits ) to individual years
of service (the Normal Cost). The value of the projected benefit that is not allocated to future service is r eferred
to as the Accrued Liability and is the plan’s funding target on the valuation date. The Unfunded Accrued
Liability (UAL) equals the funding target minus the assets. The UAL is an absolute measure of funded status
and can be viewed as employer debt. The funded ratio equals the assets divided by the funding target. The
funded ratio is a relative measure of the funded status and allows for comparisons between plans of different
sizes.
A funded ratio of 100% (UAL of $0) implies that the funding of the plan is on target and that future contributions
equal to the normal cost of the active plan members will be sufficient to fully fund all retirement benefits if future
experience matches the actuarial assumptions. A funded ratio of less than 100% (positive UAL) implies that in
addition to normal costs, payments toward the UAL will be required. Plans with a funded ratio greater than 100%
have a negative UAL (or surplus) but are requ ired under current law to continue contributing the normal cost in
most cases, preserving the surplus for future contingencies.
Calculations for the funding target reflect the expected long -term investment return of 6.8%. If it were known on
the valuation date that future investment returns will average something greater/less than the expected return,
calculated normal costs and accrued liabilities provided in this report would be less/greater than the results
shown. Therefore, for example, if actual avera ge future returns are less than the expected return, calculated
normal costs and UAL contributions will not be sufficient to fully fund all retirement benefits. Under this scenario,
required future normal cost contributions will need to increase from those provided in this report, and the plan
will develop unfunded liabilities that will also add to required future contributions. For illustrative purposes, funded
statuses based on a 1% lower and higher average future investment return (discount rate) are as follows:
The “Risk Analysis” section of the report provides additional information regarding the sensitivity of valuation
results to the expected investment return and other factors. Also provided in that section are measures of funded
status that are appropriate for assessing the sufficiency of plan assets to cover estimated termination liabilities.
June 30, 2021 June 30, 2022
1. Present Value of Benefits $7,303,767 $8,700,192
2. Entry Age Accrued Liability 2,391,157 3,048,772
3. Market Value of Assets (MVA) 2,458,040 2,631,340
4. Unfunded Accrued Liability (UAL) [(2) – (3)] ($66,883) $417,432
5. Funded Ratio [(3) / (2)] 102.8% 86.3%
1% Lower
Average Return
Current
Assumption
1% Higher
Average Return
Discount Rate 5.8% 6.8% 7.8%
1. Entry Age Accrued Liability $3,750,132 $3,048,772 $2,511,546
2. Market Value of Assets (MVA) 2,631,340 2,631,340 2,631,340
3. Unfunded Accrued Liability (UAL) [(1) – (2)] $1,118,792 $417,432 ($119,794)
4. Funded Ratio [(2) / (1)] 70.2% 86.3% 104.8%
C-12
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 7
Projected Employer Contributions
The table below shows the required and projected employer contributions (before cost sharing) for the next six
fiscal years. The projection assumes that all actuarial assumptions will be realized and that no further changes
to assumptions, contributions, b enefits, or funding will occur during the projection period. In particular, the
investment return beginning with FY 2022-23 is assumed to be 6.80% per year, net of invest ment and
administrative expenses. Future contribution requirements may differ significantly from those shown below. The
actual long -term cost of the plan will depend on the actual benefits and expenses paid and the actual investment
experience of the fund.
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2022-23 and Beyond)
Fiscal Year 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30
Rate Plan 26567 Results
Normal Cost % 7.87% 7.9% 7.9% 7.9% 7.9% 7.9%
UAL Payment $14,336 $24,000 $34,000 $44,000 $54,000 $54,000
For ongoing plans, investment gains and losses are amortized using a 5 -year ramp up. For more information,
please see “Amortization of the Unfunded Actuarial Accrued Liability” under “Actuarial Methods” in Appendix A
of the Section 2 Report. This method phases in the impact of the change in UAL over a 5-year period in order to
reduce employer cost volatility from year to year. As a result of this methodology, dramatic changes in the
required employer contributions in any one year are less likely. However, required contributions can change
gradually and significantly over the next five years. In years when there is a large i nvestment loss, the relatively
small amortization payments during the ramp up period could result in contributions that are less than interest
on the UAL (i.e. negative amortization) while the contribution impact of the increase in the UAL is phased in.
The required contribution for FY 2024 -25 is less than interest on the UAL, a situation referred to as negative
amortization, as explained in the “Additional Discretionary Employer Contributions” section earlier in this report.
If only the minimum required contribution is made, contributions are not expected to exceed interest on the UAL
until FY 2027-28, as shown in the “Amortization Schedule and Alternatives” section of the report (see columns
labelled “Current Amortization Schedule ”).
For projected contributions under alternate investment return scenarios, please see the “Future Investment
Return Scenarios” in the “Risk Analysis” section . Our online pension plan projection tool, Pension Outlook, is
available in the Employers section of the CalPERS website. Pension Outlook can help plan and budget pension
costs under various scenarios .
C-13
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 8
Other Pooled Miscellaneous Risk Pool Rate Plans
All of the results presented in this Section 1 report, except those shown on this page , correspond to rate plan
26567. In many cases, employers have additional rate plans within the same risk pool. For cost analysis and
budgeting it is useful to consider contributions for these rate plans as a whole rather than individually. The
estimated contribution amounts and rates for a ll of the employer’s rate plans in the Miscellaneous Risk Pool are
shown below and assume that the total employer payroll within the Miscellaneous Risk Pool will grow according
to the overall payroll growth assumption of 2.80% per year for three years. In a refinement since the prior year’s
report, Classic members who are projected to terminate employment are assumed to be replaced by PEPRA
members.
Fiscal Year Fiscal Year
2023-24 2024-25
Estimated Combined Employer Contributions for all Pooled Miscellaneous Rate Plans
Projected Payroll for the Contribution Year $6,798,456 $7,246,562
Estimated Employer Normal Cost $684,854 $695,745
Required Payment on Amortization Bases $1,070,317 $1,295,856
Estimated Total Employer Contributions $1,755,171 $1,991,601
Estimated Total Employer Contribution Rate (illustrative only) 25.82% 27.48%
C-14
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 9
Cost
Actuarial Determination of Plan Cost
Contributions to fund the plan are comprised of two components:
• Normal Cost, expressed as a percentage of total active payroll
• Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount
For fiscal years prior to 2015-16, the Amortization of UAL component was expressed as a percentage of total
active payroll. Starting with FY 2015-16, the Amortization of UAL component was expressed as a dollar amount
and invoiced on a monthly basis. There is an option to prepay this amount during July of each fiscal year.
The Normal Cost component is expressed as a percentage of active payroll with e mployer and employee
contributions payable as part of the regular payroll reporting process.
The determination of both components requires complex actuarial calculations. The calculations are based on a
set of actuarial assumptions which can be divided into two categories:
• Demographic assumptions (e.g., mortality rates, retirement rates, employment termination rates,
disability rates)
• Economic assumptions (e.g., future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPE RS’ best estimate of future experience of the plan and are long term in nature.
We recognize that all assumptions will not be realized in any given year. For example, the investment earnings
at CalPERS have averaged 6.9% over the 20 years ending June 30, 2022 , yet individual fiscal year returns have
ranged from -23.6% to +21.3 %. In addition, CalPERS reviews all actuarial assumptions by conducting in -depth
experience studies every four years, with the most recent exp erience study completed in 2021.
C-15
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 10
Changes Since the Prior Year’s Valuation
Benefits
The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first
annual valuation following the effective date of the legislation. Voluntary benefit changes by plan amendment
are generally included in the first valuation that is prepared after the amendment becomes effective, even if the
valuation date is prior to the effective date of the amendment.
This valuation generally reflects plan amendments effective before the date of the report. Please refer to the
“Plan’s Major Benefit Options” in this report and Appendix B of the Section 2 Report for a summary of the plan
provisions used in this valuation.
In 2022, SB 1168 increased the standard retiree lump sum death benefit from $500 to $2,000 for any death
occurring on or after July 1, 2023. For pooled plans this is a Class 3 benefit and there is no normal cost surcharge.
The impact on the unfunded liability i s included in the pool’s (gain)/loss.
Actuarial Methods and Assumptions
There are no significant changes to the actuarial methods or assumptions for the June 30, 2022 actuarial
valuation.
Subsequent Events
This actuarial valuation report reflects fund investment return through June 30, 2022 and statutory/regulatory
changes and board actions through January 2023.
During the time period between the valuation date and the publication of this report, inflation has been
significantly higher than the expected inflation of 2.3% per annum. Since inflation influences cost -of-living
increases for retirees and beneficiaries and active member pay increases, higher inflation is likely to put at least
some upward pressure on contribution requirements and downward pressure on the funded status in the June
30, 2023 valuation. The actual impact of higher inflation on future valuation results will depend on, among other
factors , how long higher inflation persists. At this tim e, we continue to believe the long -term inflation assumption
of 2.3% is appropriate.
To the best of our knowledge, there have been no other subsequent events that could materially affect current
or future certifications rendered in this report.
C-16
Assets and Liabilities
• Breakdown of Entry Age Accrued Liability
• Allocation of Plan’s Share of Pool’s Experience/Assumption Change
• Development of Plan’s Share of Pool’s Market Value of Assets
• Schedule of Amortization Bases
• Amortization Schedule and Alternatives
• Employer Contribution History
• Funding History
C-17
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 12
Breakdown of Entry Age Accrued Liability
Active Members $1,955,583
Transferred Members 957,005
Separated Members 136,184
Members and Beneficiaries Receiving Payments 0
Total $3,048,772
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 mi nimizing 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 $3,048,772
2. Projected UAL Balance at 6/30/2022 (37,744)
3. Other UAL Adjustments (Golden Handshake, Prior Service Purchase, etc.) 0
4. Adjusted UAL Balance at 6/30/2022 for Asset Share (37,744)
5. Pool’s Accrued Liability1 22,021,735,002
6. Sum of Pool’s Individual Plan UAL Balances at 6/30/20221 2,453,954,297
7. Pool’s 2021-22 Investment (Gain)/Loss1 2,614,071,182
8. Pool’s 2021-22 Non-Investment (Gain)/Loss1 309,490,972
9. Plan’s Share of Pool’s Investment (Gain)/Loss: [(1) - (4)] ÷ [(5) - (6)] × (7) 412,329
10. Plan’s Share of Pool’s Non -Investment (Gain)/Loss: (1) ÷ (5) × (8) 42,847
11. Plan’s New (Gain)/Loss as of 6/30/2022: (9) + (10) 455,176
12. Increase in Pool’s Accrued Liability due to Change in Assumptions1 0
13. Plan’s Share of Pool’s Change in Assumptions: (1) ÷ (5) × (12) 0
14. Increase in Pool’s Accrued Liabi lity due to Funding Risk Mitigation 1 0
15. Plan’s Share of Pool’s Change due to Funding Risk Mitigation: (1) ÷ (5) × (14) 0
16. Offset due to Funding Risk Mitigation 0
17. Plan’s Investment (Gain)/Loss: (9) – (16) 412,329
18. Partial Fresh Start Base: (2) + (1 7) 374,585
1 Does not include plans that transferred to Pool on the valuation date.
Development of the Plan’s Share of Pool’s Market Value
of Assets
19. Plan’s UAL: (2) + (3) + (11) + (13) + (15) $417,432
20. Plan’s Share of Pool’s MVA: (1) - (19) $2,631,340
C-18
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 13
Schedule of Amortization Bases
Below is the schedule of the plan’s amortization bases. Note that there is a two -year lag between the valuation date and the start of the contribution year.
• The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2022 .
• The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuati on date: FY 2024-25.
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
required 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 de termined. The UAL is rolled forward each year by subtracting the expected payment on the UAL for the fiscal year and
adjusting for interest. The expected payment for the first fiscal year is determined by the actuarial valuation two years ago and the contribution for the second year is from
the actuarial valuation one year ago. Additional discretionary payments are reflected in the Expected Payments column in the fiscal year they were made by the agency.
Reason for Base
Date
Est.
Ramp
Level
2024-25
Ramp
Shape
Escala-
tion
Rate
Amort.
Period
Balance
6/30/22
Expected
Payment
2022-23
Balance
6/30/23
Expected
Payment
2023-24
Balance
6/30/24
Minimum
Required
Payment
2024-25
Non-Investment (Gain)/Loss 6/30/22 No Ramp 0.00% 20 42,847 0 45,761 0 48,873 4,395
Partial Fresh Start 6/30/22 20% Up Only 0.00% 20 374,585 (31,925) 433,049 0 462,496 9,941
Total 417,432 (31,925) 478,810 0 511,369 14,336
The (gain)/loss bases are the plan’s allocated share of the risk pool’s (gain)/loss for the fiscal year as disclosed in “Allo cation of Plan’s Share of Pool’s
Experience/Assumption Change” earlier in this section. These (gain)/loss bases will be amortized in accordance with the CalPERS amortization policy in effect at the time
the base was established.
The partial fresh start base established June 30, 2022 is the sum of the UAL balance from the June 30, 2021 valuati on (projected to June 30, 2022) and the June 30,
2022 investment loss, as shown on the previous page.
C-19
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 14
Amortization Schedule and Alternatives
The amortization schedule on the previous page (s) shows the minimum contributions required according to the CalPERS
amortization policy. Many agencies have expressed a desire for a more stable pattern of payments or have indicated interest
in paying off the unfunded accrued liabilities more quickly than required. As such, we have provided alternative amortization
schedules to help analyze the current amortization schedule and illustrate the potential savings 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) alternative “fresh start” amortization schedule s
using two sample periods that would both result in interest savings relative to the current amortization schedule. To initiate a
fresh s tart, please contact the plan actuary.
The Current Amortization Schedule typically contains both positive and negative bases. Positive bases result from plan
changes, assumption changes, method changes or plan experience that increase unfunded liability. Negative bases result
from plan changes, assumption changes, method changes, or plan experience that decrease unfunded liabili ty. The
combination of positive and negative bases within an amortization schedule can result in unusual or problematic circumstances
in future years, such as:
• When a negative payment would be required on a positive unfunded actuarial liability; or
• When the payment would completely amortize the total unfunded liability in a very short time period, and results in a
large change in the employer contribution requirement.
In any year when 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 n appropriate period.
The Current Amortization Schedule on the following page may appear to show that, based on the current amortizat ion bases,
one of the above scenarios will occur at some point in the future. It is impossible to know today whether such a scenario wil l
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.
C-20
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 15
Amortization Schedule and Alternatives (continued)
Alternate Schedules
Current Amortization
Schedule 20 Year Amortization 15 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2024 511,369 14,336 511,369 45,984 511,369 53,644
6/30/2025 531,326 24,277 498,620 45,984 490,704 53,645
6/30/2026 542,367 34,219 485,004 45,984 468,633 53,644
6/30/2027 543,885 44,160 470,463 45,984 445,062 53,645
6/30/2028 535,232 54,101 454,933 45,984 419,887 53,644
6/30/2029 515,717 54,101 438,347 45,984 393,001 53,644
6/30/2030 494,876 54,101 420,633 45,984 364,287 53,644
6/30/2031 472,617 54,100 401,714 45,984 333,621 53,645
6/30/2032 448,846 54,101 381,509 45,984 300,868 53,644
6/30/2033 423,457 54,100 359,930 45,984 265,889 53,645
6/30/2034 396,343 54,100 336,883 45,984 228,531 53,645
6/30/2035 367,385 54,100 312,269 45,984 188,632 53,644
6/30/2036 336,458 54,101 285,982 45,984 146,021 53,644
6/30/2037 303,426 54,100 257,907 45,985 100,513 53,645
6/30/2038 268,150 54,100 227,922 45,984 51,909 53,645
6/30/2039 230,475 54,100 195,899 45,985
6/30/2040 190,238 54,101 161,697 45,984
6/30/2041 147,264 54,102 125,171 45,985
6/30/2042 101,366 54,100 86,160 45,985
6/30/2043 52,350 54,100 44,496 45,984
6/30/2044
6/30/2045
6/30/2046
6/30/2047
6/30/2048
6/30/2049
Total 982,600 919,684 804,667
Interest Paid 471,231 408,315 293,298
Estimated Savings 62,916 177,933
C-21
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 16
Employer Contribution History
The table below provides a recent history of the required and discretionary employer contributions for the plan.
The required amounts are based on the actuarial valuation from two years prior without subsequent adjustments,
if any. Additional discretionary payments before July 1, 2019 or after April 2 8, 2023 are not included.
[
Fiscal
Year
Employer
Normal Cost
Unfunded Liability
Payment ($)
Additional Discretionary
Payments
2016 - 17 6.555% $90 N/A
2017 - 18 6.533% 214 N/A
2018 - 19 6.842% 1,011 N/A
2019 - 20 6.985% 2,239 0
2020 - 21 7.732% 12,837 0
2021 - 22 7.59% 13,868 0
2022 - 23 7.47% 15,841 0
2023 - 24 7.68% 0
2024 - 25 7.87% 14,336
Funding History
The table below shows the recent history of the actuarial accrued liability, share of the pool’s market value of
assets, unfunded accrued liability, funded ratio, and annual covered payroll .
Valuation
Date
Accrued
Liability
(AL)
Share of Pool’s
Market Value of
Assets (MVA)
Unfunded
Accrued Liability
(UAL)
Funded
Ratio
Annual
Covered
Payroll
06/30/2013 $3,810 $5,112 ($1,302) 134.2% $128,274
06/30/2014 34,829 37,902 (3,073) 108.8% 469,813
06/30/2015 153,966 147,363 6,603 95.7% 859,764
06/30/2016 339,576 305,445 34,131 89.9% 1,351,084
06/30/2017 616,259 584,158 32,101 94.8% 1,628,257
06/30/2018 987,801 907,088 80,713 91.8% 2,422,034
06/30/2019 1,320,076 1,192,048 128,028 90.3% 2,422,912
06/30/2020 1,720,001 1,524,582 195,419 88.6% 2,764,928
06/30/2021 2,391,157 2,458,040 (66,883) 102.8% 3,035,848
06/30/2022 3,048,772 2,631,340 417,432 86.3% 3,399,782
C-22
Risk Analysis
• Future Investment Return Scenarios
• Discount Rate Sensitivity
• Mortality Rate Sensitivity
• Maturity Measures
• Maturity Measures History
• Funded Status – Termination Basis
C-23
CalPERS Actuarial Valuation – June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 18
Future Investment Return Scenarios
Analysis using the investment return scenarios from the Asset Liability Management process completed in
2021 was performed to determine the effects of various future investment returns on required employer
contributions. The projections below reflect the i mpact of the CalPERS Funding Risk Mitigation policy. The
projections also assume that all other actuarial assumptions will be realized and that no further changes in
assumptions, contributions, benefits, or funding will occur.
The first table shows projected contribution requirements if the fund were to earn either 3.0% or 10.8%
annually. These alternate investment returns were chosen because 90% of long-term average returns are
expected to fall between them over the 20 -year period ending June 30, 2042.
Required contributions outside of this range are also possible. In particular, whereas it is unlikely that
investment returns will average less than 3.0% or greater than 10.8% over a 20 -year period, the likelihood of
a single investment return less than 3.0% or greater than 10.8% in any given year is much greater. The
following analysis illustrates the effect of an extreme, single year investment return.
The portfolio has an expected volatility (or standard deviation) of 12.0% per year. Accordingly, in any given
year there is a 16% probability that the annual return will be -5.2% or less and a 2.5% probability that the
annual return will be -17.2% or less. These returns represent one and two standard deviations below the
expected return of 6.8%.
The following table shows the effect of a one or two standard deviation investment loss in FY 2022-23 on the
FY 2025-26 contribution requirements. Note that a single -year investment gain or loss decreases or increases
the required UAL contribution amount incrementally for each of the next five years, not just one, due to the 5 -
year ramp in the amortization policy. However, the contribution requirements beyond the first year are also
impacted by investment returns beyond the first year. Historically, significant downturns in the market are often
followed by higher than average returns. Such investment gains would offset the impact of these single year
negative returns in years beyond FY 2025-26.
Assumed Annual Return for
Fiscal Year 2022-23
Required
Employer
Contributions
Projected
Employer
Contributions
2024-25 2025-26
(17.2)% (2 standard deviation loss)
Normal Cost Rate 7.87% 7.9%
UAL Contribution $14,336 $40,000
(5.2)% (1 standard deviation loss)
Normal Cost Rate 7.87% 7.9%
UAL Contribution $14,3 36 $32,000
• Without investment gains (returns higher than 6.8%) in FY 2023-24 or later, projected contributions
rates would continue to rise over the next four years due to the continued phase -in of the impact of
the illustrated investment loss in FY 2022-23.
• The Pension Outlook Tool can be used to model projected contributions for these scenarios beyond
FY 2025-26 as well as to model other investment return scenarios .
Assumed Annual Return
FY 2022-23
through 2041-42
Projected Employer Contributions
2025-26 2026-27 2027-28 2028-29 2029-30
3.0% (5 th percentile)
Normal Cost Rate 7.9% 7.9% 7.9% 7.9% 7.9%
UAL Contribution $27,000 $42,000 $59,000 $79,000 $92,000
10.8% (95 th percentile)
Normal Cost Rate 8.1% 8.3% 8.5% 8.7% 8.4%
UAL Contribution $22,000 $28,000 $31,000 $31,000 $0
C-24
CalPERS Actuarial Valuation – June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 19
Discount Rate Sensitivity
The discount rate assumption is calculated as the sum of the assumed real rate of return and the assumed
annual price inflation, currently 4.5% and 2.3%, respectively. Changing either the price inflation assumption or
the real rate of return assumption wil l change the discount rate. The sensitivity of the valuation results to the
discount rate assumption depends on which component of the discount rate is changed. Shown below are
various valuation results as of June 30, 2022 assuming alternate discount rates by changing the two components
independently. Results are shown using the current discount rate of 6.8% as well as alternate discount rates of
5.8% and 7.8%. The rates of 5.8% and 7.8% were selected since they illustrate t he impact of a 1.0% increase
or decrease to the 6.8% assumption.
Sensitivity to the Real Rate of Return Assumption
As of June 30, 2022 1% Lower
Real Return Rate
Current
Assumptions
1% Higher
Real Return Rate
Discount Rate 5.8% 6.8% 7.8%
Price Inflation 2.3% 2.3% 2.3%
Real Rate of Return 3.5% 4.5% 5.5%
a) Total Normal Cost 19.53% 15.62% 12.65%
b) Accrued Liability $3,750,132 $3,048,772 $2,511,546
c) Market Value of Asse ts $2,631,340 $2,631,340 $2,631,340
d) Unfunded Liability/(Surplus) [(b) - (c)] $1,118,792 $417,432 ($119,794)
e) Funded Ratio 70.2% 86.3% 104.8%
Sensitivity to the Price Inflation Assumption
As of June 30, 2022 1% Lower
Price Inflation
Current
Assumptions
1% Higher
Price Inflation
Discount Rate 5.8% 6.8% 7.8%
Price Inflation 1.3% 2.3% 3.3%
Real Rate of Return 4.5% 4.5% 4.5%
a) Total Normal Cost 16.48% 15.62% 14.20%
b) Accrued Liability $3,210,542 $3,048,772 $2,769,190
c) Market Value of Assets $2,631,340 $2,631,340 $2,631,340
d) Unfunded Liability/(Surplus) [(b) - (c)] $579,202 $417,432 $137,850
e) Funded Ratio 82.0% 86.3% 95.0%
Mortality Rate Sensitivity
The following table looks at the change in the June 30, 2022 plan costs and funded status under two different
longevity scenarios, namely assuming post-retirement rates of mortality are 10 % lower or 10% higher than our
current mortality assumptions adopted in 2021. This type of analysis highlights the impact on the plan of a
change in the mortality assumption .
As of June 30, 2022 10% Lower
Mortality Rates
Current
Assumptions
10% Higher
Mortality Rates
a) Total Normal Cost 15.89% 15.62% 15.37%
b) Accrued Liability $3,108,971 $3,048,772 $2,993,340
c) Market Value of Assets $2,631,340 $2,631,340 $2,631,340
d) Unfunded Liability/(Surplus) [(b) - (c)] $477,631 $417,432 $362,000
e) Funded Ratio 84.6% 86.3% 87.9%
C-25
CalPERS Actuarial Valuation – June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 20
Maturity Measures
As pension plans mature they become more sensitive to risks . Understanding plan maturity and how it affects
the ability of a pension plan sponsor to tolerate risk is important in understanding how the pension plan is
impacted by investment return volatility, other economic variables , and changes in longevity or other
demographic assumptions.
Since it is the employer that bears the risk, it is appropriate to perform this analysis on a pension plan level
considering all rate plans. The following measures are for one rate pla n only. One way to look at the maturity
level of CalPERS and its plans is to look at the ratio of a plan’s retiree liability to its total liability. A pension plan
in its infancy will have a very low ratio of retiree liability to total liability. As the pl an matures, the ratio starts
increasing. A mature plan will often have a ratio above 60%-65%.
Ratio of Retiree Accrued Liability to
Total Accrued Liability June 30, 2021 June 30, 2022
1. Retired Accrued Liability $0 $0
2. Total Accrued Liability 2,391,157 3,048,772
3. Ratio of Retiree AL to Total AL [(1) / (2)] 0.00 0.00
Another measure of maturity level of CalPERS and its plans is to look at the ratio of actives to retirees, also
called the support ratio. A pension plan in its infancy will have a very high ratio of active to retired members. As
the plan matures and members retire, the ratio declines. A mature plan will often have a ratio near or b elow one.
To calculate the support ratio for the rate plan, retirees and beneficiaries receiving a continuance are each
counted as one, even though they may have only worked a portion of their careers as an active member of this
rate plan. For this reason, the support ratio, while intuitive, may be less informative than the ratio of retiree liability
to total accrued liability above.
For comparison, the support ratio for all CalPERS public agency plans as of June 30, 2021, was 0.78 and was
calculated consistently with how it is for the individual rate plan. Note that to calculate the support ratio for all
public agency plans, a retiree with service from more than one CalPERS agency is counted as a retiree more
than once.
Support Ratio June 30, 2021 June 30, 2022
1. Number of Actives 57 59
2. Number of Retirees 0 0
3. Support Ratio [(1) / (2)] N/A N/A
C-26
CalPERS Actuarial Valuation – June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 21
Maturity Measures (continued)
The actuarial calculations supplied in this communication are based on various assumptions about long -term
demographic and economic behavior. Unless these assumptions (e.g., terminations, deaths, disabilities,
retirements, salary growth, 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
Shown in the table below is the asset volatility ratio (AVR), which is the ratio of market value of assets to payroll.
Plans that have higher AVR experience more volatile employer contributions (as a percentage of payroll) due
to investment return. For example, a plan with AVR of 8 may experience twice the contribution volatility due to
investment return volatility than a plan with AVR of 4. It should be noted that this ratio is a measure of the current
situation. It increases over time but generally tends to stabilize as a plan matures.
Liability Volatility Ratio
Also shown in the table below is the liability volatility ratio (LVR), which is the ratio of accrued liability to payroll.
Plans that have a higher LVR experience more volatile employer contributi ons (as a percentage of payroll) due
to changes in liability. For example, a plan with LVR of 8 is expected to have twice the contribution volatility of a
plan with LVR of 4. It should be noted that this ratio indicates a longer -term potential for contribu tion volatility,
since the AVR, described above, will tend to move closer to the LVR as the funded ratio approaches 100%.
Contribution Volatility June 30, 2021 June 30, 2022
1. Market Value of Assets $2,458,040 $2,631,340
2. Payroll 3,035,848 3,399,7 82
3. Asset Volatility Ratio (AVR) [(1) / (2)] 0.8 0.8
4. Accrued Liability $2,391,157 $3,048,772
5. Liability Volatility Ratio (LVR) [(4) / (2)] 0.8 0.9
Maturity Measures History
Valuation Date
Ratio of
Retiree Accrued Liability
to
Total Accrued Liability
Support Ratio
Asset
Volatility
Ratio
Liability
Volatility
Ratio
06/30/2017
0.00
N/A 0.4
0.4
06/30/2018
0.00
N/A 0.4
0.4
06/30/2019
0.00
N/A 0.5
0.5
06/30/2020
0.00
N/A 0.6
0.6
06/30/2021
0.00
N/A 0.8
0.8
06/30/2022
0.00
N/A 0.8
0.9
C-27
CalPERS Actuarial Valuation – June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 22
Funded Status – Termination Basis
The funded status measured on a termination basis is an estimate of the financial position of the plan had the
contract with CalPERS been terminated as of June 30, 2022. The accrued liability on a termination basis
(termination liability) is calculated differently compared to the plan’s ongoing funding liability. For the termination
liability calculation, both compensation and service are frozen as of the valu ation date and no future pay
increases or service accruals are assumed. This measure of funded status is not appropriate for assessing the
need for future employer contributions in the case of an ongoing plan, that is, for an employer that continues to
provide CalPERS retirement benefits to active employees. Unlike the actuarial cost method used for ongoing
plans, the termination liability is the present value of the benefits earned through the valuation date.
A more conservative investment policy and asse t allocation strategy was adopted by the 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 limiting the funding risk. 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 19 -month
period from 12 months before the valuation date to seven months after.
Discount Rate: 1.75%
Price Inflation: 2.50%
Discount Rate: 4.50%
Price Inflation: 2.75%
Market
Value of
Assets (MVA)
Termination
Liability1,2
Funded
Ratio
Unfunded
Termination
Liability
Termination
Liability1,2
Funded
Ratio
Unfunded
Termination
Liability
$2,631,340 $7,308,040 36.0% $4,676,700 $3,666,472 71.8% $1,035,132
1 The termination liabilities calculated above include a 5% contingency load. The contingency load and other actuarial
assumptions can be found in Appendix A of the Section 2 report.
2 The discount rate 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 3.38% on June 30, 2022, the valuation date.
In order to te rminate the plan, first contact our Pension Contract Services unit to initiate a Resolution of Intent to
Terminate. The completed Resolution will allow the plan actuary to provide a preliminary termination valuation
with a more up -to -date estimate of the p lan liabilities. Before beginning this process, please consult with the plan
actuary.
C-28
CalPERS Actuarial Valuation – June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool
Page 23
Participant Data
The table below shows a summary of the plan’s member data upon which this valuation is based:
June 30, 2021 June 30, 2022
Active Members
Counts 57 59
Average Attained Age 40.6 41.2
Average Entry Age to Rate Plan 37.8 38.3
Average Years of Credited Service 2.4 2.5
Average Annual Covered Pay $53,260 $57,623
Annual Covered Payroll $3,035,848 $3,399,782
Present Value of Future Payroll $32,552,770 $36,677,825
Transferred Members 23 30
Separated Members 27 34
Retired Members and Beneficiaries *
Counts 0 0
Average Annual Benefits $0 $0
Total Annual Benefits $0 $0
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple
records may exist for those who have service in more than one valuation group. This does not result in double
counting of liabilities.
* Values include community property settlements.
List of Class 1 Benefit Provisions
This plan has the additional Class 1 Benefit Provisions:
• None
C-29
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 24
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which the agency has contracted. A description of principal standard and optional plan provisions is
in Section 2 .
Benefit Group
Member Category Misc
Demographics
Actives Yes
Transfers/Separated Yes
Receiving No
Benefit Group Key 110656
Benefit Provision
Benefit Formula 2% @ 62
Social Security Coverage No
Full/Modified Full
Employee Contribution Rate 7.75%
Final Average Compensation Period Three Year
Sick Leave Credit Yes
Non-Industrial Disability Standard
Industrial Disability No
Pre-Retirement Death Benefits
Optional Settlement 2 Yes
1959 Survivor Benefit Level Level 4
Special No
Alternate (firefighters) No
Post-Retirement Death Benefits
Lump Sum $2000
Survivor Allowance (PRSA) No
COLA 2%
C-30
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 25
PEPRA Member Contribution Rates
The California Public Employees’ Pension Reform Act of 2013 (PEPRA) established new benefit formulas, final compensation
period, and contribution requirements for “new” employees (generally those first hired into a CalPERS -covered position on or
after January 1, 2013). In accordance with Government Code Section 7522.30(b), “new members … shall have an initial
contribution rate of at least 50% of the normal cost rate.” The normal cost for the plan is dependent on the benefit levels,
actuarial assumptions, and demographics of the risk pool, particularly members’ entry age. Should the total normal cost rate
change by more than 1% from the base total normal cost rate, the new member rate shall be 50% of the new normal cost rate
rounded to the nearest quarter p ercent.
The table below shows the determination of the PEPRA member contribution rates effective July 1, 2024, based on 50% of the
total normal cost rate as of the June 30, 2022 valuation.
Basis for Current Rate Rates Effective July 1, 2024
Rate Plan
Identifier Benefit Group Name
Total
Normal
Cost
Member
Rate
Total
Normal
Cost
Change Change
Needed
Member
Rate
26567 Miscellaneous PEPRA Level 15.43% 7.75% 15.62% 0.19% No 7.75%
C-31
CALPERS ACTUARIAL VALUATION - June 30, 2022
PEPRA Miscellaneous Plan of the City of Rancho Palos Verdes
CalPERS ID: 3846845523
Rate Plan belonging to the Miscellaneous Risk Pool Page 26
Section 2
CALIFORNIA PUBLIC EMPLOYEES’ RETIREMEN T SYSTEM
Risk Pool Actuarial Valuation Information
Section 2 may be found on the
CalPERS website (www.calpers.ca.gov)
in the Forms and Publications section
C-32
CITY COUNCIL MEETING DATE: 08/01/2023
AGENDA REPORT AGENDA HEADING: Regular Business
AGENDA TITLE:
Consideration and possible action to review Additional Discretionary Payments (ADPs)
toward the City’s Unfunded Accrued Liability (UAL) and revisions to the Pension Plan
Guidelines.
RECOMMENDED COUNCIL ACTION:
(1)Review and, if acceptable, adopt the Finance Advisory Committee’s (FAC)
recommendation to:
a.Implement ADP Scenario 5 as a funding strategy with all conditions as
specified by the FAC to mitigate costs associated with the City’s UAL; and
b.Direct Staff to return to the City Council following the year -end closing
process with a recommended ADP amount limited to 50% of the FY 2022-
23 General Fund unallocated balance.
(2)Review and, if acceptable, approve the FAC’s following recommended revisions
to the Pension Plan Guidelines:
a.Updating the employee contribution rate for Tier 3;
b.Adding “schedule of amortization bases” to definitions;
c.Clarifying the ending fiscal year for the 10-year goal;
d.Incorporating ADP contributions and usage options; and
e.Updating the term for Annual Comprehensive Financial Report (ACFR).
FISCAL IMPACT: To be determined based on Recommendation Item No. 1-b, if
adopted.
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Jason Loya, Senior Administrative Analyst
REVIEWED BY: Vina Ramos, Deputy Director of Finance
Brittany Ruiz, Interim Director of Finance
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A.Revised Draft Pension Plan Guidelines (page A-1)
B.April 13, 2023 FAC staff report (page B-1)
C.February 9, 2023 FAC staff report (page C-1)
D.December 19, 2022 FAC staff report (page D-1)
RANCHO PALOS VERDES
D-1
BACKGROUND:
The California Public Employees’ Retirement System (CalPERS) prepares actuarial
valuations for all City pension plans on an annual basis. Consistent with transparency
and reporting requirements, results from the Annual Valuation Reports (AVR) are
presented to the City’s Finance Advisory Committee (FAC) and City Cou ncil within the
timeframe established by the City’s Pension Plan Guidelines. Findings from the most
recent AVR ending June 30, 2021 were presented to the FAC on September 8, 2022 as
specified under Item No. 3 of the FY 2022-23 Work Plan. Shortly thereafter, the 2021
AVR was presented to the City Council on October 4, 2022.
An additional discussion took place at the FAC meeting held in September 2022 despite
the positive outcomes reported at each meeting . Commensurate with the FAC’s mission
statement to review the City’s short- and long-term financial condition, members of the
FAC raised concerns regarding news about CalPERS’ FY 2021-22 preliminary
investment loss of -6.1%. This discussion ultimately led to a request for Staff to further
examine the implications of a negative investment return on the City’s UAL and strategies
to mitigate its future impact.
As requested, Staff utilized pension management tools to estimate the long-term cost of
the negative return. These tools included a contribution management spreadsheet
provided by a CalPERS actuary, and pension liability software from GovInvest. The
estimated results were presented at the FAC meeting on December 19, 2022. As
indicated in the attached report (page D-1), the City’s UAL balance is projected to
increase by approximately 50% from $10 million to $15 million ending June 30, 2022.
Consequently, required UAL contributions are also expected to rise according to the
projected 2022 amortization schedule. Around this time, it was announced that CalPERS’
had an actual investment loss of -7.5%, which was used to conduct the final analysis.
Projections were used in place of actual 2022 AVR results due to its pending release at
the end of summer 2023. Data derived from the pension tools were used to validate
projections and to conduct the cost-benefit analysis associated with making additional
payments to CalPERS. Additional discretionary payments, or ADPs, can be used to
preliminarily fund and proactively manage the City’s UAL. This particular strategy is
beneficial to the City based on its ability to stabilize pension contributions and mitigate
long-term impacts by effectively reducing the total UAL balance. As an added benefit,
ADPs are elective and can be applied at any time and in any amount.
The 2022 projection is referred to as the default option throughout the analysis and
represents a scenario where no additional action is taken by the City. Using this as the
baseline, Staff created five ADP scenarios for comparison and presented each to the FAC
as alternative options. All ADP scenarios were measured against the baseline and
designed to reach a 90% funded status within 10 years to ensure adherence to the
Pension Plan Guidelines. Additional details regarding these scenarios are provided in the
discussion section of this report.
D-2
FAC’s ensuing deliberation led to the formation of an ad hoc subcommittee tasked with
selecting and evaluating the final ADP scenarios for recommendation to the City Council.
The FAC Subcommittee members included Krista Johnson, (former Member) John
MacAllister, and Kevin Yourman. Overall, the Subcommittee and Staff held three
meetings that resulted in a supplemental analysis and refined evaluation criteria for three
selected scenarios.
Additionally, these actions led to the FAC’s determination that revisions to the Pension
Plan Guidelines were also warranted. On February 9, 2023, the supplemental analysis
and evaluation summary was provided to the FAC with the ad hoc subcommittee’s ADP
recommendation and proposed revisions to the pension guidelines . Details from the full
report are attached for reference (Attachment C).
Tonight, Staff presents this report to the City Council to appropriately illustrate the
anticipated impact of CalPERS’ 2022 investment loss on the City’s UAL and articulate
actions taken by the FAC to explore various solutions for the City Council’s consideration.
Furthermore, the remaining discussion section will highlight essential findings from the
various analyses, briefly elaborate on the scenarios mentioned above, and convey the
FAC’s recommendation regarding ADPs and revisions to City’s Pension Plan Guidelines.
DISCUSSION:
2021 AVR Results
According to the 2021 AVR, and as previously reported to the FAC and City Council, the
City’s UAL balance of $10 million was initially anticipated to decrease to $9.3 million by
June 30, 2023. The underlying presumption in this case was that CalPERS would meet
its target rate of return, or discount rate, of 6.8%. The 6.8% discount rate is also used by
CalPERS to determine the UAL amortization schedule and estimate future payments.
Accordingly, the $9.3 million UAL balance, amortized over 19 years, was estimated to
cost $14.2 million in total payments after accounting for $4.9 million in interest.
continued on the next page
D-3
Chart 1. 2021 Amortization Schedule – UAL Balance
The UAL balance illustrated in Chart 1 above corresponds with UAL payments outlined
in the 2021 AVR’s amortization schedule. Chart 2 provides a visual to reflect these
payments. However, since future pension contributions are primarily speculative, Staff
included historic UAL payments to provide further insight. Using 2021 AVR data, Chart 2
represents the City’s past required contributions to the UAL combined with projected UAL
payments based on the 2021 amortization schedule.
Most notably, required contributions from FY 2016-17 to FY 2023-24 revealed that
aggregate City UAL payments have increased at an average annual rate of 14.5%.
Looking forward, the UAL payments projected from FY 2024-25 and beyond assume a
6.8% return rate. Therefore, UAL payments appeared stable and suggested the City’s
funded status will reach 90% by FY 2029-30 and be paid in full by FY 2041-42.
Chart 2. Contribution History and 2021 Amortization Schedule
Given the -7.5% invest loss, however, it’s fair to conclude that the UAL payment trajectory
in Chart 2 may not come to fruition. This expectation is further supported when
vi $12.0
2
§ $10.0 ....
~ $8.0
$6.0
$4.0
$2.0
$0.0
V, $1.2
2 g $1.0 ....
~ $0.8
$0.6
$0.4
$0.2
$0.0
-2021 UAL Balance
-Required Contributions ~2021 UAL Payments
D-4
considering the unfavorable trend observed using historic actuals. These assumptions
were tested and explored as described in the next section.
2022 Projected AVR Results
Per the FAC’s request, Staff next examined the potential significance of CalPERS’ FY
2021-22 investment loss. As mentioned, the City’s UAL balance is projected to increase
from approximately $10 million to $15 million in the AVR ending June 30, 2022. The extent
of this change in UAL balance is highlighted in Chart 3 on the following page.
As a reminder, all projections were determined using data from CalPERS and GovInvest
pension management tools and are subject to change based on final 2022 AVR results.
Chart 3. 2021 Amortization Schedule vs. 2022 Projected Schedule – UAL Balance
Chart 4 below expands on the anticipated impact and compares the change in UAL
payments for each corresponding amortization schedule. UAL payments from the 2021
AVR and projected 2022 AVR results are depicted below. For reference, the 2022 AVR
results will determine the required contributions in FY 2024-25 due to the two-year lag
imposed by CalPERS. Thus, the FY 2024-25 UAL payment is estimated to increase by
approximately $132,000 for Tier 1 compared to previous assumptions and resume its
upward trend.
VI $16.0
2
0 $14.0
~
~ $12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
-2021 UAL Balance --2022 Projected Balance
D-5
Chart 4. 2021 Amortization Schedule vs. 2022 Projected Schedule – UAL Payments
Results also indicated that the $15 million UAL balance projected in the 2022 AVR, or
baseline scenario, will likely lower the City’s funded status from 81% to roughly 70%. Over
the long-term, data derived from the pension management tools found that the impact
from CalPERS’ investment loss is estimated to cost the City $26.2 million in total UAL
payments. This exceeds the previous estimate of $14.2 million in total payments by $12
million. Nevertheless, changes to pension costs over time are subject to future investment
gains/losses, additional contributions, or adjustments to the UAL amortization schedule.
ADP Cost Benefit Analysis
Given the financial implications above, the FAC was presented with the default scenario
and the five ADP scenarios that Staff created to determine the costs and benefits
associated with making additional payments to CalPERS. It’s worth noting that all
schedules and figures shown below are for illustrative purposes and should not be
considered as exact representations of future experience.
For starters, the 2022 projected results point out that the City may not reach its 90%
funded status goal by FY 2030-31 as defined in the Pension Plan Guidelines. This 10-
year period began in FY 2021-22 pursuant to the guideline’s adoption. Once again, to
ensure compliance with the guidelines, each ADP scenario was evaluated against the
baseline and designed to reach a 90% funded status by FY 2030-31. The information
summarized in Table 1 on the following page focuses on the total estimated costs, as well
as the number of years it will take each scenario to reach 90% beginning in FY 2021-22.
If no action is taken, the default scenario is likely to miss this goal by three years under
the current assumptions.
VI $2.00
~ $1.80
3 $1.60
~ $1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
Required Contributions --2021 UAL Payments --2022 Projected Payments
D-6
Table 1. Default and ADP Scenario Overview
(In millions)
Default
Scenario
Scenario
1
Scenario
2
Scenario
3
Scenario
4
Scenario
5
Total Est. Cost $26.2 $21.2 $22.3 $20.9 $20.5 $18.5
Years to 90% FS 13 10 10 9 8 7
Table 1 also demonstrates that total estimated costs are likely to decrease as the years
to reach 90% are minimized. In other words, total payments toward the UAL balance
decrease when the amortization period is shortened using an expedited approach. The
strategies used in each ADP scenario to accomplish this are briefly explained below.
Lastly, it’s important to keep in mind that ADPs as described are in addition to the City’s
annual required UAL payments determined by CalPERS annual valuations.
Scenario 1 – One-time payment
• Scenario 1 considers a one-time ADP of $4.5 million to CalPERS to reach the 90%
funded status goal by FY 2030-31.
• This approach immediately reduces the UAL balance and is likely to lower future
payments compared to the default scenario.
• Substantial one-time payments are inherently risky due to market volatility.
Scenario 2 – Apportioned allocation
• Scenario 2 considers a total ADP amount of $4.5 million and distributes payments
of $0.5 million over nine years.
• Distributing the $4.5 million proportionally over time reduces investment risk and
reaches the 90% funded status goal by FY 2030-31.
• UAL payments would be greater than the default scenario up front and fall below
the default payments after the last ADP in year nine.
Scenario 3 – Level-Dollar (Soft Fresh Start)
• Scenario 3 considers total ADPs amounting to $8 million and reflects a self-
imposed level dollar payment plan, or “soft fresh start” across 12 years.
• Level-dollar payments are typically required after initiating a “fresh start” through
CalPERS, which allows the City to re-amortize its UAL over a shorter horizon.
• However, initiating this process through CalPERS would result in required annual
payments that increase and remain level over most of the amortization period.
• Instead, scenario 3 uses ADPs to mirror this approach without permanently altering
the amortization schedule and increasing required annual payments.
• The level-dollar amount, which includes required UAL payments and ADPs, rises
to $1.9 million annually and reaches the 90% funded status goal by FY 2029 -30.
Scenario 4 – Annual Allocation
• Scenario 4 considers total ADPs amounting to $6.5 million and allocates $1 million
over six years, and $0.5 million in year seven.
• Annual payments would rise to nearly $2 million through FY 2027-28, and
ultimately fall below the default payment by almost $0.6 million from there on.
• Scenario 4 reaches the 90% funded status goal by FY 2028 -29.
D-7
Scenario 5 – Level-Dollar (Soft Fresh Start)
• Scenario 5 considers total ADPs amounting to $11.7 million and reflects a self-
imposed level dollar payment plan, or “soft fresh start” across eight years.
• The level-dollar amount rises to $2.7 million annually in total and reaches the 90%
funded status goal by FY 2027-28.
The five ADP scenarios discussed above provided alternatives to the default scenario
and were intended to achieve the City’s 90% funded status goal by, or prior to, FY 2030-
31. Staff’s analysis illustrated costs and benefits associated with each alternative and
described various strategies considered using ADPs. Available cash flow, investment risk,
and long-term outlook are other vital factors in need of consideration. As such, the FAC
established an ad hoc subcommittee to further evaluate and recommend three final
scenarios for consideration in advance of a formal recommendation to the City Council.
Supplemental Analysis and Scenario Evaluation
The FAC Subcommittee selected the default scenario, scenario 3 and scenario 5 for
additional review. To reiterate, both alternative scenarios use a self-imposed approach
that would enable the City to create a unique payment structure based on a level-dollar
amount that can be budgeted to ensure fiscal sustainability. Also known as a “soft fresh
start,” this strategy provides an alternative to initiating a “fresh start” through CalPERS
which permanently re-amortizes the UAL balance and creates a required level-dollar
payment. Fresh starts are typically implemented to achieve cost savings by paying off the
UAL over a shorter timeline. Instead, scenarios 3 and 5 reflect a soft fresh start and use
ADPs to supplement annual required contributions and emulate the payment structure of
an actual fresh start. Doing so reduces the amortization period and lowers costs over the
long-term.
In the default scenario, it’s assumed that only required annual UAL payments will be made
over a 22-year amortization period. This approach is fully dependent on CalPERS’ annual
investment performance and potentially exposes the City higher interest costs and
payment volatility. The $26.2 million estimate calculates total payments made based on
the projected amortization schedule and includes the interest accrued over time. In
contrast, electing to make ADPs as proposed in scenarios 3 and 5 will likely shorten the
UAL amortization period and reduce the overall cost.
The total estimated costs for scenarios 3 and 5 are projected at $20.9 million and $18.5
million, respectively. These totals are less than the default scenario by roughly $5.2
million in scenario 3, and $7.7 million in scenario 5. Scenario 3 considers making $8
million in ADPs over 12 years and is projected to lower the total required payments to
$12.9 million. Lastly, scenario 5 proposes almost $11.7 million in ADPs over eight years
and is estimated to decrease the total required payments to $6.8 million.
Chart 5 below compares all three scenarios and provides a breakdown between the total
estimated required UAL payments and proposed ADPs.
D-8
Chart 5. Estimated Total Contribution Comparison
To gain more insight, charts 6 and 7 detail the level-dollar strategies for each alternative
in comparison with the default scenario. Scenarios 3 and 5 are displayed as an overlay
on the default amortization schedule and show the breakdown between required UAL
payments and ADPs on an annual basis. Moreover, the proposed payment schedules
also outline the maximum contribution amounts each year under current assumptions and
begin in FY 2022-23 as originally designed.
Chart 6. 2022 Projected Schedule - Required UAL Payments (Scenario 3)
V)
$30
z
0 ::::;
:: $25 ~
-ADP
-Req. UAL Payment
~Total Req. Payment+ADP
c::::::::J Default Req. Payment
Scenario 3 ADP
$20
$15
$10
$5
$0
26.2
18.5
. .
Default Scenario 3 Scenario 5
c::::::::J Scenario 3 Req. Payment
~Scenario 3 Total Req. Payment+ ADP
Vl $2.0
6 $1.8
1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
~ $1.6
~ $1.4
$1.2
$1.0
$0.8
$0.6
$0.4
$0.2
$0.0
1.6 1.7
0.2
ii 0.0
◊
D-9
Chart 7. 2022 Projected Schedule - Required UAL Payments (Scenario 5)
Results from the supplemental analysis and evaluation are summarized using the criteria
in Table 2 below. The additional criteria were selected by the FAC Subcommittee and
used to validate and support earlier findings. These new measures included the Net
Present Value (NPV), interest to principal ratio and payment efficiency. A cash flow
analysis was also performed and can be viewed in the attached reports (Attachment C).
Table 2. Evaluation Summary – Selected Scenarios
Default Scenario Scenario 3 Scenario 5
Est. Total Payments 26,168,317 20,939,200 18,494,515
NPV @ 4.0% 18,925,764 16,770,965 16,006,362
Interest % of Total 42% 28% 19%
Payment Efficiency 174% 139% 123%
NPV calculations were applied to the estimated total payments and represent the present
value of future costs. A 4% discount rate was used to reflect the potential investment
returns available to the City on safe alternatives such as certificates of deposit (CDs) and
treasury bonds. This can also be viewed as the opportunity cost associated with investing
into CalPERS versus other available instruments. In any case, the NPV validated that
both alternatives are less costly and would yield a positive return on the investment. NPVs
for scenarios 3 and 5 are estimated to cost $2.2 million and $2.9 million less than the
default, respectively.
$3.0
c:::J Default Req. Payment
Scenario 5 ADP
2.7 2.7 2.7 2.7 2.7 2.7
c:::J Scenario 5 Req. Payment
-:-Scenario 5 Total Req. Payment+ ADP
VI z
0 :J $2.S
...J
~
$2.0
$1.S
$1.0
$0.S
0.0
$0.0 ◊
~~$~~~~~~~~✓~~$~~~~~~✓~~ ########~~~#~#~~###~~###
D-10
The interest-to-principal ratio revealed the proportion of total payments applied to the UAL
balance. This measure determined that 42% of total payments made under the default
scenario would go toward interest. On the other hand, approximately 28% and 19% of
total payments in scenarios 3 and 5 would go toward interest. The interest-to-principal
ratios are provided in Chart 8.
Chart 8. Interest-to-Principal Ratios
Lastly, determining payment efficiency for each scenario revealed the amount paid on top
of the principal UAL balance. The closer this rate is to 100%, the more efficient a payment
plan is. For instance, the efficiency rate of the default scenario is 174% and implies that
the City would pay 74% more than the original UAL balance. Each alternative scenario is
more efficient than the default as indicated by the lower percentages in Table 2.
FAC Recommendation
The FAC’s proposed recommendation resulted from a series of meetings and discussions
regarding the anticipated increase to the City’s UAL. Given the expected outlook, the FAC
selected ADP scenario 5 as the recommended option for City Council’s consideration.
Scenario 5 was found to be the most efficient option and provides a framework to
vigorously reduce long-term costs related to the City’s unfunded liabilities. This selection
also coincides with the FAC’s viewpoint on eliminating unfavorable debt with a variable
interest rate and sustaining the City’s strong financial position.
However, the FAC also took the City’s competing priorities and limited resources into
consideration. This thought was factored into the final recommendation and placed a limit
on the proposed funding source. In brief, the FAC, in agreement with Staff, unanimously
supported the following recommendation:
• Reduce the City’s UAL according to scenario 5 as laid out by staff using General
Fund unallocated balance, when available, each year beginning with the prior
closed year.
• Annual payments under scenario 5 should not exceed 50% of the prior year’s
General Fund unallocated balance.
• Consider ADPs during annual budget process.
DEFAULT SCENARIO SCENARIO 3 SCENARIO 5
Interest
42% Principal
58%
D-11
• Consider making the scheduled payment in scenario 5 of up to $1.6 million in FY
2023-24 (limited to 50% of the prior year unallocated fund balance).
• Update Pension Guidelines to include language for the optional ADPs and the
language of not exceeding 50% of the prior year’s unallocated balance.
The proposed ADPs for scenario 5 are included in Table 3. As shown, annual ADPs and
estimated UAL payments total approximately $2.7 million over most of the amortization
period. It’s critical to note that the payment schedule below, specifically with respect to
the estimated UAL payments, is contingent upon the full ADP amounts originally
proposed in scenario 5. In other words, ADPs based on 50% of the unallocated fund
balance will likely be less than the original amounts proposed.
Table 3. Proposed ADP Payment Schedule:
(In millions) 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30
Est. Payment $1.1 $1.1 $1.1 $1.0 $0.9 $0.9 $0.7
ADP $1.6 $1.6 $1.7 $1.7 $1.8 $1.7 $0.9
Total $2.7 $2.7 $2.7 $2.7 $2.7 $2.6 $1.7
The original framework of scenario 5 was ultimately intended to help the City reach its
90% funded status goal efficiently and at the lowest cost. Nevertheless, all future required
UAL payments will be subject to actual ADP amounts and CalPERS actual investment
performance.
Taking the FAC’s recommended contingencies into consideration, Staff anticipates an
ongoing review of the UAL to monitor significant changes in expected payments and to
recommend ADP amounts each fiscal year to remain consistent with desired outcome of
scenario 5, if adopted. This evening, Staff recommends the City Council approve FAC’s
recommendation regarding ADP scenario 5. The FAC’s additional recommendation for
revisions to the City’s pension guidelines are reviewed in the following section.
Pension Plan Guideline Revisions
As approved by the City Council on February 2, 2021, the pension guidelines are
designed to address and manage the costs associated with City pension plans and the
UAL. The City Council, with recommendations from the FAC, may revoke or amend the
guidelines at any time when in the best interest of the City. According to the adopted
guidelines, this document shall be reviewed every three years or as needed to determine
if changes are warranted and to ensure resources accumulate adequately.
Findings from the pension analysis revealed that standalone ADPs are not listed as an
option in the guidelines. Additionally, the FAC’s recommendation to select ADP scenario
5 would specify additional conditions for the proposed funding source, if affirmed. Other
information originally incorporated into the guidelines was also reviewed for potential
revisions. Resulting from this review, the following revisions are recommended for the
City Council’s consideration:
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• Increase employee contribution rate for Tier 3 to 6.75% of annual salary.
The determination of California Public Employees' Pension Reform Act (PEPRA)
member contribution rates is based on 50% of the total normal cost rate from the
AVR. In FY 2023-24, the PEPRA member contribution rate will increase from
6.25% to 6.75% based on the June 30, 2021 valuation. In accordance with state
law, if the total normal cost rate changes by more than 1% from the base total
normal cost rate, the new member rate shall be 50% of the new normal cost rate
rounded to the nearest quarter percent. Thus, Staff recommends revising the
pension guidelines to include the required increase.
• Add “schedule of amortization bases” to definitions.
The schedule of amortization bases has been defined to specify the differences in
each individual gain or loss base. Positive or negative bases result from a plan’s
experience or change and either increase or decrease the UAL balance on an
annual basis. Each individual base is amortized in accordance with the CalPERS
amortization policy. Staff recommends adding this definition to the guidelines.
• Add FY 2030-31 as the ending fiscal year for the 10-year goal.
The second goal of the pension guidelines is “to achieve and maintain a 90%
funding level of the City’s UAL over the next seven to ten years.” For clarity, FY
2030-31 has been added as the end date for this timeline. Staff recommends
revising the pension guidelines to include the specific timeline to clarify the 90%
funded status goal.
• Incorporate ADP contributions and usage options.
ADPs have been included as an option to stabilize contributions and mitigate long-
term impacts from the UAL. The City can elect to make ADPs at any time and in
any amount to reduce the UAL. Usage and contribution options have been defined
and added to the guidelines. Staff recommends the City Council incorporate the
option of including ADPs into the pension guidelines.
• Update term for Annual Comprehensive Financial Report (ACFR).
Reference to the Comprehensive Annual Financial Report (CAFR) has been
updated to reflect current terminology. Staff recommends the City Council approve
this revision to update the current terminology in reference to the City’s annual
financial report.
To ensure consistency and updated guidance, Staff recommends the City Council
approve the proposed revisions to the Pension Plan Guidelines (Attachment A).
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ADDITIONAL INFORMATION:
The 2022 AVR
The 2022 AVR provided by CalPERS is expected to become available in August 2023. A
summary of results and analysis will be incorporated into the AVR report presented to the
FAC and City Council in September/October 2023.
Employee Pension Service Fund
Since the inception of the pension guidelines, the Employee Pension Service Fund
(EPSF) has an estimated fund balance of approximately $1 million ending FY 2023 -24.
This includes FY 2023-24 transfers-in of $291,300 from General Fund, $9,700 of interest
earning, and expenditures of $135,700 for the increases in the benefits category
approved by the City Council at the Budget Workshop on April 6. However, the 2022
projected amortization schedule estimates that required UAL payments will exceed $0.9
million through FY 2036-37. UAL payments above this threshold covered by the EPSF
are expected to average roughly $0.5 million over 15 years under current assumptions.
Consequently, without future transfers from the General Fund, projected UAL payments
will deplete the EPSF by FY 2027-28.
CONCLUSION:
With respect to the City’s approach to fiscal resiliency, the FAC worked closely with Staff
to forecast and analyze the future implications of CalPERS’ FY 2021-22 investment loss.
Details from the requested analyses revealed that the City’s UAL balance is estimated to
increase from $10 million to $15 million ending June 30, 2022. Additional payment
strategies to mitigate long-term impacts were also examined and presented as potential
alternatives to the default scenario. To advance these efforts, a subcommittee was
formed by the FAC to select and evaluate three final scenarios and to return to the full
Committee with a proposed recommendation for City Council consideration.
The City’s Pension Plan Guidelines were also reviewed during this process. Following the
FAC’s approval, proposed revisions to the Pension Plan Guidelines include increasing
the member contribution rate for Tier 3 employees based on the 2021 AVR, clarifying
definitions and timelines, incorporating optional ADPs, and updating terminology.
Actions taken by the FAC culminated in the final recommendations presented for City
Council consideration. In support of this effort, Staff recommends the City Council
approve the FAC’s recommendations as proposed. Namely, affirming the adoption of
ADP scenario 5 with all contingencies as a funding strategy to mitigate increasing pension
liabilities, and affirming the proposed revisions to the City’s pension guidelines.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative action s are available for
the City Council’s consideration:
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1. Approve Recommendation Item No. 2 only, adopting the updated pension
guideline revisions, which incorporates the proposed changes and adds ADPs as
an option for managing unfunded pension liabilities , and direct staff to continue
working with the FAC on ADP scenarios with Council input.
2. Direct Staff to evaluate pension obligations alongside other current and future
citywide priorities.
3. Take both of the above alternative actions.
4. Take other action, as deemed appropriate.
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City of Rancho Palos Verdes Pension Plan Guidelines
Overview
The Rancho Palos Verdes Pension Plan Guidelines provide a framework to enable the
City to develop sound funding policies and provide Staff a direction to adequately and
appropriately monitor the City’s pension plans and obligations.
Purpose and Objectives
In accordance with the 2020-21 City Council Goals under “Government Efficiency and
Transparency,” the goal of these Pension Guidelines is to address and manage the
liability related to the City’s pension and accrued liability.
The Pension Plan Guidelines document the methods the City will use to determine its
annual pension contributions. The City’s annual pension contributions fund the long-term
cost of benefits to the plan’s participants and annuitants. Nothing in this guideline shall
constitute an obligation upon the City, nor an implied contract. The City Council, with
recommendations from the City’s Finance Advisory Committee, may revoke or amend the
guidelines at any time when in the best interest of the City.
The objectives of the Pension Plan Guidelines are as follows:
•Provide guidance in making annual budget decisions;
•Demonstrate prudent financial management practices; and
•Demonstrate transparency to the public and employees on how pensions will be
funded.
Definitions
Defined Benefit – benefit plan where retirement benefits are based on a formula.
The City currently has three benefit levels offered to eligible employees:
•Tier 1 – Employees hired prior to local pension reform action by City Council on
September 20, 2011; earn 2.5% of salary for each year employed with the City
(single highest year) 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 on September 20, 2011, who
previously worked for another governmental agency with a reciprocating pension
plan; 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; and
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• 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% of salary for each
year employed with the City (based on a three-year average) at the age of 62. The
determination of PEPRA member contribution rates is based on 50% of the
total normal cost rate from the AVR. Effective July 1, 2023,for the Tier 3 rate
is 6.750250% of their annual salary.
Full-time Employee – a competitive service employee that is regularly scheduled to work
at least 40 hours a week.
Part-time Employee – an employee that is scheduled to work on an irregular basis not
more than an average of 32 hours a week and worked at least 1,000 hours in a fiscal year
(July 1 – June 30).
Actuarial Valuation Report (AVR) – an annual valuation performed by the CalPERS
actuary which determines the amount the City needs to contribute for the next fiscal year.
Normal Costs – the annual cost of service accrual for the upcoming fiscal year for active
employees. The normal cost should be viewed as the long-term contribution rate.
Unfunded Accrued Liabilities (UAL) – when a plan's Market Value of Assets is less
than its Accrued Liability, the difference is the plan's Unfunded Accrued Liability (or
unfunded liability). If the unfunded liability is positive, the plan will have to pay
contributions exceeding the Normal Cost.
Market Value of Assets (MVA) – the value of a plan's assets in the open marketplace
on a specific date.
Accrued Liability (AL) – the total dollars needed as of the valuation date to fund all
benefits earned in the past for current members.
Amortization of UAL – a separate payment schedule for different portions of the
Unfunded Liability. Payment periods are determined by Board policy and vary based on
the cause of the change.
Schedule of Amortization Bases – gain or loss bases are the plan’s allocated share of
the risk pool’s experience and assumption change. Positive or negative bases result from
a plan’s experience or change that either increases or decreases the UAL balance and
are amortized in accordance with the CalPERS amortization policy.
Background
The City of Rancho Palos Verdes provides its employees a defined benefit retirement
plan through the California Public Employees’ Retirement System (CalPERS) per a City
Council-approved contract dated December 1, 1974. CalPERS is a multiple-employer
public employee defined benefit pension plan.
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All full-time and part-time employees, if they worked more than 1,000 hours per fiscal
year, are eligible to participate in CalPERS. CalPERS provides retirement, disability, and
death benefits and annual cost of living adjustments to plan members and their
beneficiaries. CalPERS acts as a common investment and administrative agent for
participating public entities with the State of California. Benefit provisions and all other
requirements are established by state statute.
The financial objective of a defined benefit pension plan is to fund the long -term cost of
benefits provided to the plan members. To assure that the plan is financially sustainable,
the plan should accumulate adequate resources in a systematic and disciplined manner
over the active service life of benefitting employees. This funding guideline outlines the
method the City will utilize to determine its Actuarially Determined Contributions to fund
the long-term cost of benefits to the plan members and annuitants.
Pension Funding: A Guide for Elected Officials, issued by eleven national groups
including the U.S. Conference of Mayors, the International Agency/County Management
Association, and the Government Finance Officers Association, established the following
five general policy objectives for a pension funding policy:
• Actuarially Determined Contributions - a pension funding plan should be based
upon an actuarially determined contribution (ADC) that incorporates both the cost
of benefits in the current year and the amortization of the plan’s unfunded actuarial
accrued liability.
• Fund Discipline - a commitment to make timely, actuarially determined
contributions to the retirement system is needed to ensure that sufficient assets
are available for all current and future retirees.
• Intergenerational equity - annual contributions should be reasonably related to the
expected and actual cost of each year of service so that the cost of employee
benefits is paid by the generation of taxpayers who receives from those
employees.
• Contributions as a stable percentage of payroll - contributions should be managed
so that employer costs remain consistent as a percentage of payroll over time.
• Accountability and transparency - clear reporting of pension funding should include
an assessment of whether, how, and when the plan sponsor will ensure sufficient
assets are available for all current and future retirees.
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Guidelines
A. Goals
1. To stabilize the annual unfunded accrued liability contribution (required normal
cost). The City’s required contribution is determined by CalPERS, as reported
in the annual Actuarial Valuation Report.
2. To achieve and maintain a 90% funding level of the City’s UAL over the next
seven to ten years ending in FY 2030-31. The City’s UAL amount is determined
by CalPERS, as reported in the annual AVR.
B. Actuarially Determined Contribution (ADC)
CalPERS actuaries will determine the City’s ADC to CalPERS based on annual
actuarial valuations. The ADC will include the normal cost for the current service
and amortization of any under-funded amount. The normal cost will be calculated
using the entry age normal cost method using economic and n on-economic
assumptions approved by the CalPERS Board of Administration.
• The City will review the CalPERS annual actuarial valuations to validate the
completeness and accuracy of the member census data and the
reasonableness of the actuarial assumptions.
• The City will contribute the ADC as required by CalPERS.
C. Employee Pension Plan Service Fund
To address the increasing annual payment of the UAL, the City may set aside
funding in an Employee’s Pension Plan Service Fund, as an Internal Service Fund,
to relieve the General Fund of payment in excess of $900,000.
1. Employee Pension Plan Service Fund Contribution Options:
• Initial contribution - the City may consider an initial contribution equivalent
to at least two years but no more than three years of the incremental
increases to the annual UAL payment from the General Fund Unrestricted
Excess Reserve to the Employee Pension Plan Service Fund.
• Annual contributions - the City may consider, on an annual basis, to
contribute at least 10% but no more than 25% of the annual General Fund
surplus (revenues minus expenditures, including transfers) to the Employee
Pension Plan Service Fund.
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o The surplus is to be calculated after closing the fiscal year and will
be included in the staff report to the City Council during the budget
meetings.
2. Employee Pension Plan Service Fund Usage Options:
• The City may use the accumulated funds in the fund to stabilize
contributions to CalPERS when the annual UAL lump-sum payment
exceeds $900,000 rather than utilizing the General Fund.
D. Additional Discretionary Payments (ADPs)
To stabilize contributions and mitigate long-term impacts from the UAL, the City
can elect to make ADPs at any time and in any amount to reduce the UAL.
Additional contributions may be considered either on an ad hoc basis or in
accordance with an internal funding plan during the annual budget process. ADPs
are nonobligatory and do not commit the City to any additional payment schedules.
1. ADP Contribution Options:
• The City may consider, on an annual basis, to contribute no more than 50%
of the prior year General Fund surplus (revenues minus expenditures,
including transfers) towards ADPs in accordance with ADP scenario 5.
o The surplus is to be calculated after closing the fiscal year and will
be included in the staff report to the City Council during the budget
meetings.
2. ADP Usage Options:
• Ad hoc basis – ADPs can increase a plan’s funded status, stabilize future
contributions, and reduce long-term debt. As a supplement to minimum
required contributions, the City may consider making an ADP at any time
and in any amount.
• Internal funding plan– the City Council, with recommendations from the
City’s Finance Advisory Committee, may adopt an internal funding plan to
proactively manage the UAL. Given this occurrence, ADPs will be
considered during the annual budget process in accordance with the
adopted funding strategy as determined by the City Council.
D.E. Section 115 Pension Trust Contribution
To address the City’s rising UAL, the City Council may consider establishing a
Section 115 Trust to pre-fund pension obligations. The objective of the Section 115
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Pension Trust is to achieve and maintain the 90% funded level of the City’s UAL
over the next seven to ten years.
115 Trust Contribution Options:
• Initial contribution - the City may consider an initial contribution of at least
$500,000 but no more than 25% of the General Fund Unrestricted Excess
Reserve to the 115 Pension Trust.
• Annual contributions - the City may consider, on an annual basis,
contributing equivalent to the savings from making a lump-sum payment of
the UAL or the annual positive variances between the projected year-end
revenues and the actual revenues in the General Fund, whichever is more,
to the 115 Pension Trust.
o The variance is to be calculated after closing of the fiscal year and
will be included in the staff report to the City Council.
115 Trust Usage Options:
The City shall maintain the balance in the Section 115 Trust to achieve the 90%
funded level, unless:
• The Employee Pension Plan Service Fund does not have sufficient funding
to cover the excess of $900,000 in the annual lump-sum payment. The City
may use the accumulated funds from the Section 115 Trust to stabilize the
annual UAL contributions to CalPERS.
• The General Fund experience a loss in revenue of 10% or more. The City
may use accumulated funds from the Section 115 Trust to make ADC
contributions.
E.F. Transparency and Reporting
The City’s pension plans should be transparent to vested parties , including plan
members, annuitants, the City Council, and the Rancho Palos Verdes residents.
In order to achieve this transparency, the following information shall be available:
• An annual actuarial valuation will be presented to the City Council within 60
days but no later than 90 days after its release by CalPERS.
• The City’s Comprehensive Annual Comprehensive Financial Report
(CACFR) shall be published on the website. This report includes information
on the City’s annual contributions to the pension systems, the 115 Pension
Trust, and the funded status.
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• The City’s annual operating budget shall include the City’s contributions to
CalPERS.
• The City’s annual contribution, usage, and balance of the Employee
Pension Plan Service Fund and the 115 Pension Trust shall be included in
the City’s year-end financial report to the City Council.
• The City’s Pension Plan Guidelines and actuarial valuation report shall be
published on the City website.
F.G. Review of Funding Guidelines
Funding a defined benefit pension plan requires a long-term horizon. As such, the
City will review the guidelines every three years or as needed to determine if
changes to the guidelines are warranted to ensure adequate resources are being
accumulated.
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FINANCE ADVISORY COMMITTEE MEETING DATE: 04/13/2023
AGENDA REPORT
AGENDA TITLE:
Consideration and possible action to review the first revision to the City’s Pension Plan
Guidelines.
RECOMMENDED FINANCE ADVISORY COMMITTEE ACTION:
(1)Direct staff to forward the revised pension guidelines to the City Council.
FISCAL IMPACT: N/A
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Jason Loya, Senior Administrative Analyst
REVIEWED BY: Vina Ramos, Deputy Director of Finance
APPROVED BY: Trang Nguyen, Director of Finance
ATTACHED SUPPORTING DOCUMENTS:
A.Attachment A – Pension Plan Guidelines_Revised Draft
B.Attachment B – 2023-02-09 FAC Subcommittee ADP Recommendation
C.Attachment C – 2022-12-19 Impact of ADPs on CalPERS UAL
BACKGROUND:
In September 2022, the Finance Advisory Committee (FAC) discussed the financial
implications of CalPERS’ FY 2021-22 preliminary investment loss. The result of this
discussion led to the committee’s initial recommendation to examine additional payment
strategies and mitigate future increases to the City’s Unfunded Accrued Liability (UAL).
As requested, a cost-benefit analysis associated with making Additional Discretionary
Payments (ADPs) to reduce the UAL was conducted and presented for review.
Findings from the analysis were presented at the FAC meeting on December 19, 2022
(attachment C). As indicated in the report, the total UAL balance is projected to increase
from $10 million to $15 million, or by 50%, ending June 30, 2022. Annual required UAL
contributions are also expected to rise according to the projected 2022 amortization
schedule. In addition to these findings, five ADP options were examined and presented
as alternatives to the baseline scenario.
Following the presentation, FAC members formed an ad hoc subcommittee tasked to
further review and select the final ADP options for recommendation to the City Council.
RANCHO PALOS VERDES
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The options selected for evaluation included the baseline scenario, ADP option 3, and
ADP option 5. Volunteers for the ad hoc subcommittee included Member Krista Johnson,
Member John MacAllister, and Member Kevin Yourman. Three meetings were held
between the subcommittee and Staff to develop a supplemental analysis and refine the
evaluation criteria. The overall findings supported the viability of scenarios 3 and 5 as
potential alternatives and noted necessary revisions to the City’s pension guidelines.
On February 9, 2023 (attachment B), the ad hoc subcommittee’s recommendation was
proposed to the FAC and approved as modified during the meeting. More specifically, the
final recommendation was adjusted to align the proposed payment schedule with the
City’s current budget cycle. Staff were also asked to return to the committee with revised
pension guidelines in support of the recommendation to City Council. This report
summarizes the first revisions to the City’s Pension Plan Guidelines.
DISCUSSION:
As approved by the City Council on February 2, 2021, the pension guidelines are
designed to address and manage the costs associated with City pension plans and the
UAL. The City Council, with recommendations from the FAC, may revoke or amend the
guidelines at any time when in the best interest of the City. Additionally, and as stated,
the guidelines shall be reviewed every three years or as needed to determine if changes
are warranted and to ensure that resources accumulate adequately.
Resulting from the committees review and proposed recommendations, the revisions
detailed below have been incorporated into the Pension Plan Guidelines:
• The employee contribution rate for Tier 3 is 6.750% of their annual salary
The determination of PEPRA member contribution rates is based on 50% of the
total normal cost rate from the AVR. In FY 2023-24, the PEPRA member
contribution rate will increase from 6.25% to 6.75% based on the June 30, 2021,
valuation. In accordance with state law, if the total normal cost rate changes by
more than 1% from the base total normal cost rate, the new member rate shall be
50% of the new normal cost rate rounded to the nearest quarter percent.
• Adding “schedule of amortization bases” to definitions
The schedule of amortization bases has been defined to specify the differences in
each individual gain or loss base. Positive or negative bases result from a plan’s
experience or change and either increase or decrease the UAL balance on an
annual basis. Each individual base is amortized in accordance with the CalPERS
amortization policy.
• Including the ending fiscal year for the 10-year goal
The second goal of the pension guidelines is “to achieve and maintain a 90%
funding level of the City’s UAL over the next seven to ten years.” For clarity, FY
2030-31 has been added as the end date for this timeline.
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• Incorporating ADP contributions and usage options
ADPs have been included as an option to stabilize contributions and mitigate long-
term impacts from the UAL. The City can elect to make ADPs at any time and in
any amount in order to reduce the UAL. Usage and contribution options have been
defined and added to the guidelines.
• Updating term for Annual Comprehensive Financial Report (ACFR)
Reference to the Comprehensive Annual Financial Report (CAFR) has been
updated to reflect current terminology.
Based on the information provided, Staff is seeking the Committee’s feedback on the
revised Pension Plan Guidelines (attachment A). Any recommendations received tonight
from FAC will be incorporated into the staff report presented to the City Council in May.
CONCLUSION:
Following the formation of an ad hoc subcommittee, three meetings were held to
deliberate and propose a recommendation to the FAC at the February meeting. Actions
taken by members of the ad hoc subcommittee led to a supplemental analysis of the
selected scenarios and the recommendations presented for review and consideration. In
response to the Committee’s request, Staff has conducted a thorough review of the City’s
Pension Plan Guidelines and provided the necessary revisions to support the final ADP
recommendation to the City Council. Updates include an increase to the Tier 3 member
contribution rate based on AVR, clarifying definitions and timelines, ADP usage and
contribution options, and updated terminology. Pursuant to this discussion, the final
recommendation and draft revisions to the pension guidelines will be brought to the City
Council for consideration.
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City of Rancho Palos Verdes
FINANCE ADVISORY COMMITTEE MEETING DATE: 02/09/2023
AGENDA REPORT
AGENDA TITLE:
Consideration and possible action to review and discuss the proposed recommended
options for Additional Discretionary Payments (ADPs) towards the City’s Unfunded
Accrued Liability (UAL).
RECOMMENDED FINANCE ADVISORY COMMITTEE ACTION:
(1)Receive and file the report and provide feedback on the ad hoc subcommittee’s
recommendation, and
(2)Direct staff to revise the Pension Guidelines to include the recommended option
and return at a future meeting for review.
FISCAL IMPACT: N/A
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Jason Loya, Senior Administrative Analyst
REVIEWED BY: Krista Johnson, Member
John MacAllister, Member
Kevin Yourman, Member
APPROVED BY: Trang Nguyen, Director of Finance
ATTACHED SUPPORTING DOCUMENTS:
A.Attachment A – 2022-12-19 SR Impact of ADPs on CalPERS UAL
BACKGROUND:
Each year, the Finance Advisory Committee (FAC) reviews the Annual Valuation Reports
(AVR) from CalPERS to determine the financial condition of City pension plans. Results
from the 2021 valuations released in August 2022 were positive. However, around the
same time, CalPERS announced a preliminary net investment return of -6.1% for the
2021-22 Fiscal Year.
In September 2022, members of the FAC reviewed and discussed the financial
implications of CalPERS’ FY 2021-22 preliminary investment loss. This discussion led to
an initial recommendation by the committee to examine additional payment strategies
given the likely increase to the City’s UAL balance. The recommendation requested an
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analysis specific to the costs and benefits associated with making ADPs to reduce the
total unfunded liability.
Findings from the recommended analysis were presented to FAC at the December
meeting. By this time, CalPERS also reported a revised net investment return of -7.5%
for FY 2021-22 which was included in the analysis. As indicated in the report, the total
UAL balance was projected to increase from $10 million to $15 million, or 50%, ending
June 30, 2022. The results also revealed a rise in annual required UAL contributions
based on the projected 2022 amortization schedule. Additionally, five ADP options were
presented as alternatives to the baseline scenario.
At the conclusion of this discussion, the FAC proposed the creation of an ad hoc
subcommittee tasked to review and recommend three options for the FAC to consider at
a future meeting before the committee makes a recommendation to the City Council. The
three options, which referenced ADP scenarios 3 and 5, were intended to provide the City
Council with an assortment of payment strategies ranging from moderate to aggressive.
The voluntary ad hoc subcommittee included Member Krista Johnson, Member John
MacAllister, and Member Kevin Yourman. This report summarizes the actions and
outcomes from the ad hoc subcommittee meetings and includes additional criteria to
further evaluate the selected scenarios.
DISCUSSION:
Summary of Subcommittee Meetings
The first meeting held on January 11 began with a discussion of the goal to select three
ADP scenarios for consideration at the February FAC meeting. As presumed, the ad hoc
subcommittee reaffirmed the selection of ADP scenarios 3 and 5 for further consideration.
Moreover, it was agreed that the 2022 projected results, or default scenario, should be
included as one of the three options.
To better evaluate each scenario and justify the final recommendation, members of the
ad hoc subcommittee requested a supplemental analysis. The requested measures
provide additional criteria to validate and compare each of the selected scenarios. As
such, Staff performed the following calculations and analysis:
• Time value of money
o Concept accounting for the value of future cash inflows and outflows
• Discounted Cash Flow (DCF)
o Calculates the present value of future cash flows based on discount rate
• Net Present Value (NPV)
o Calculates the difference between the present value of cash flows
• Efficiency / Interest Rates
o Analyzing efficiency helps reduce costs and manage resources
Results of the supplemental analysis were presented at the second meeting held on
January 25. Following the presentation, members in attendance (Johnson and Yourman)
continued to discuss the financial implications posed by the projected outlook in addition
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to interest in paying-off the UAL balance expeditiously based on feasibility. At the third
and final meeting held on February 1, all three members of the subcommittee (Johnson,
Yourman, and MacAllister) discussed and supported the following recommendations:
• Council should approve to pay off Pension UAL according to scenario 5 as laid out
by staff from the General Funds Surplus each year beginning with the previous
closed year.
o The proposed ADP schedule is as follows:
2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 TOTAL
500,000 1,644,469 1,637,752 1,668,753 1,719,752 1,806,753 1,741,753 934,000 11,653,232
• The annual payment under scenario 5 shall not exceed 50% of the prior year’s
surplus.
• Recommend ADPs during annual budget process.
• Recommend making the second scheduled payment in scenario 5 of $1.6 million
in place of the $0.5 million proposed in year 1 of FY 22-23.
• Update Pension Guidelines to include language for the optional ADPs and the
language of not exceeding 50% of the prior year’s surplus.
All ADPs considered in these scenarios are optional and do not obligate the City to make
such payments in accordance with the schedule above. The City can choose to forego
optional payments at any time and is only obligated to make the annual required UAL
payment. Staff will annually assess changes to the amortization schedule based on the
AVR results and the actual impact from making ADPs. This information will be reported
on an annual basis and incorporated into the annual budget cycle.
Scenario Overview
The supplementary analysis focuses on three scenarios selected by the subcommittee.
All projections are based on current assumptions and subject to change based on actua l
results. In review of the key data, the first chart breaks down the total estimated costs by
required UAL payment and ADP.
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Chart 1. Estimated Total Contributions
According to current projections, the default amortization schedule is estimated to cost
approximately $26.2 million in total payments. Scenarios 3 and 5 fall short of this total by
roughly $5.2 million and $7.7 million. Scenario 3 is comprised of about $8 million in ADPs
and is projected to lower total required payments to $12.9 million. Lastly, scenario 5
proposes almost $11.7 million in ADPs and is estimated to reduce total required payments
to $6.8 million over the amortization period.
To recall other key points, the table below summarizes the anticipated number of years it
will take to reach a 90% funded status. The funded status of City pension plans is
expected to fall from 81% in 2021 to roughly 70% in 2022. As stated in the City’s Pension
Plan Guidelines, one of the primary goals is to achieve a 90% funded status within seven
to 10 years. This period began in FY 2021-22 and ends in FY 2030-31.
Table 1. Projected Number of Years to Reach 90% Funded Status
Default Scenario Scenario 3 Scenario 5
Years to 90% Funded 13 9 7
Fiscal Year 2033-34 2029-30 2027-28
Charts 2 and 3 expand on the first chart by illustrating annual payments from the projected
amortization schedules. Scenarios 3 and 5 are shown as an overlay on the default
schedule and distinguish between required UAL payments and ADPs. Moreover, the
proposed level dollar strategies in scenarios 3 and 5 outline the maximum contribution
amounts each year under current assumptions.
26.2
12.9
6.8
8.0
11.7
26.2
20.9
18.5
$0
$5
$10
$15
$20
$25
$30
Default Scenario 3 Scenario 5
MI
L
L
I
O
N
S
ADP
Req. UAL Payment
Total Req. Payment + ADP
D-29
Chart 2. 2022 Projected Schedule - Required UAL Payments (Scenario 3)
Chart 3. 2022 Projected Schedule - Required UAL Payments (Scenario 5)
Supplemental Analysis and Evaluation
Each scenario is next assessed using an interest to principal ratio in terms of total
estimated contributions. Chart 4 provides a side-by-side look at the percentages and
demonstrates how interest and principal are allocated. The default scenario is projected
to pay 42% interest, the highest amount of all options. On the other hand, almost 81% of
total contributions are applied to the principal balance in scenario 5. The proportions in
Scenario 3 fall between the two other options with 28% of payments going towards
interest and 72% going towards principal.
Default Req. Payment -opt 3 Req. Payment -opt 3 ADP -opt 3 Total Req. Payment+ ADP
Vl $2.0 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
2
0 $1.8 1.7 .6 1 ~ :j 1
~ $1.6
$1.4
$1.2
$1.0
$0.8
$0.6
$0.4
$0.2
$0.0
.
,~
I.,.....
l,"
I/
--1..--I/ _.
0 .2
I o.o
Default Req. Payment -Opt 5 Req. Payment -Opt 5 ADP -Opt 5 Total Req. Payment+ ADP
Vl $3.0
2
0
~ $2.5
~
$2.0
$1.5
$1.0
$0.5
$0.0
2 .7 2 .7 2.7 2 .7 2 .7 2 .7
0.0
D-30
Chart 4. Percentage of Interest to Principal
A cash flow analysis was performed to determine the effects of ADPs on required UAL
payments. As ADPs are made each year, the analysis suggests that doing so reduce s
the annual amounts required by CalPERS and seen in scenarios 3 and 5. The projected
amortization schedules for scenarios 3 and 5 in table 2 are contingent upon the City
making ADPs. The projected default schedule assumes no ADPs are made.
Table 2. Estimated Required UAL Payments – All Scenarios
FY Default Req. UAL
Payment
Option 3 Req. UAL
Payment
Option 5 Req. UAL
Payment
2022-23 1,077,244 1,077,244 1,077,244
2023-24 1,070,317 1,039,283 1,039,283
2024-25 1,196,000 1,104,000 1,046,000
2025-26 1,292,000 1,142,000 1,015,000
2026-27 1,385,000 1,177,000 964,000
2027-28 1,460,000 1,191,000 877,000
2028-29 1,627,000 1,295,000 942,000
2029-30 1,663,000 1,269,000 958,000
2030-31 1,700,000 1,234,000 -
2031-32 1,738,000 1,191,000 -
2032-33 1,728,000 1,088,000 -
2033-34 1,716,000 961,000 -
2034-35 1,684,000 208,000 -
2035-36 1,627,000 - -
2036-37 990,000 - -
2037-38 915,000 - -
2038-39 835,000 - -
2039-40 772,000 - -
2040-41 731,000 - -
2041-42 609,000 - -
2042-43 481,000 - -
2043-44 877,000 - -
2044-45 72,000 - -
Total Est. Payments 26,168,317 12,899,283 6,841,283
DEFAULT SCENARIO SCENARIO 3 SCENARIO 5
Interest
42% Principal
58%
D-31
When compared to the default option, scenarios 3 and 5 are estimated to increase
projected savings by a total of $13.3 million and $19.3 million, respectively. However,
after accounting for the total proposed ADPs, projected net savings are about $5.2 million
and $7.7 million. ADPs must be applied in order to achieve the estimated results.
Table 3. Projected Net Savings – Required UAL Payment Schedule with ADPs
Default Scenario 3 Scenario 5
Projected Savings 0 13,269,034 19,327,034
Proposed ADPs 0 (8,039,917) (11,653,232)
Projected Net Savings 0 5,229,117 7,673,802
Table 4 adds to the cash flow analysis by recognizing total net outflows and inflows
according to projections. Expected cash flows represent the net amount of dollars coming
in and going out across the full amortization period. This is determined by finding the
difference between ADPs and gross cash flow on an annual basis.
Table 4. Projected Net Cash Flows – Scenarios 3 & 5
Scenario 3 Scenario 5 Difference
Total Est. Outflow (4,210,883) (8,801,198) (4,590,315)
Total Est. Inflow 9,440,000 16,475,000 7,035,000
Projected Net Savings 5,229,117 7,673,802 2,444,685
Scenario 3, for example, potentially results in $4.2 million flowing out over the first 11
years of the amortization schedule. Just over $9.4 million would flow into the City over the
final 12 years and results in an estimated net savings of $5.2 million. In scenario 5,
approximately $8.8 million flows out over 8 years and nearly $16.5 million flow s in over
15 years. Without factoring in the discount rate and calculating NPV, there is a difference
of $2.4 million between these two scenarios. Net cash flow is illustrated in chart 5.
D-32
Chart 5. Net Cash Flows
NPV or DCF is the difference between the present value of cash inflows and present
value of cash outflows over time. A dollar today is worth more than a dollar in the future
because inflation erodes the value of money over time . However, growth opportunities
such as investing in a safe asset helps to off-set the erosion. In reference to cash flows,
NPV calculates the current value of future inflows using a particular discount rate. The
selected rate for this analysis is based on the current two-year treasury yield.
A 4% discount rate reflects the potential returns available on alternative investments. In
other words, its assumed that the City could earn at least 4% by investing in a safe asset
like CDs and treasury bonds. More importantly, a positive NPV suggests that the rate of
return will be above the discount rate and is a viable option. Taking this into account, the
NPV of $1.4 million and $2.2 million in each scenario indicate that projected earnings
exceed anticipated costs.
Table 5. Net Present Value of Projected Savings – Scenarios 3 & 5
Scenario 3 Scenario 5 Difference
Projected Net Savings 5,229,117 7,673,802 2,444,685
Net Present Value 1,426,885 2,191,488 764,603
Based on the time value of money, table 5 reveals that the present value of $5.2 million
and $7.7 million (future savings) is worth more today than in the future. Another notable
observation is the difference between each scenario when calculating NPV. The
difference between the two options of $0.76 million shows us that the net benefit is much
smaller than the $2.4 million initially leads us to believe.
Results from the supplemental analysis and evaluation are summarized using the criteria
in table 6. The difference in estimated total payments is mostly attributable to shortened
amortization periods. NPV is applied to the estimated totals as well and is used to show
■ Scenario 3 ■ Scenario 5
"' -$2.0
C:
.!:! -$1.5
~ -$1.0
-$0.5
$0.0
$0.5
$1.0
$1.5
D-33
the present value of future costs. In this case, the NPV validates that both alternatives
are less than the default option when discounted at 4%. Scenarios 3 and 5 are estimated
to cost around $2.2 million and $2.9 million less than the default, respectively. Similar to
above, the difference between either alternative is roughly $0.76 million.
Table 6. Evaluation Summary – All Scenarios
Default Scenario Scenario 3 Scenario 5
Est. Total Payments 26,168,317 20,939,200 18,494,515
NPV @ 4.0% 18,925,764 16,770,965 16,006,362
Interest % of Total 42% 28% 19%
Payment Efficiency 174% 139% 123%
Once again, the interest to principal ratio measures the proportion of total payments
applied to the UAL balance. A lower percentage of interest reflects a higher percentage
of principal. Separately, payment efficiency points to the amount of interest paid above
the principal balance. Under the default scenario, a 174% efficiency rate implies that
accumulated interest exceeds the principal UAL balance by 74%. A lower percentage
equates to more efficiency and less accumulated interest.
ADDITIONAL INFORMATION:
Managing Employer Contributions
According to CalPERS, every dollar that is set aside earlier than necessary is expected
to increase the amount of investment earnings available to pay benefits and reduce total
contributions. Whether on an ad hoc basis or as an ongoing plan, the benefits of making
additional payments include reducing the City’s UAL and increasing the total assets
available to earn an investment return on. At the same time, exposing more assets to the
market can also come at a cost during economic downturns.
Historical General Fund Surplus FY 2018 – 2022
For historical reference, table 7 highlights the previous 5 years of general fund surplus,
net of transfers. This information can be taken into consideration as it relates to the
recommended changes and use of general fund surplus to fund ADPs.
Table 7. Five-Year Historical GF Surplus Totals
FY 2017-18
Actual
2018-19
Actual
2019-20
Actual
2020-21
Actual
2021-22
Unaudited
Total Surplus 1,253,557 2,709,587 960,162 4,050,064 4,593,127
50% 626,779 1,354,794 480,081 2,025,032 2,296,564
D-34
CONCLUSION:
Following the formation of an ad hoc subcommittee, three meetings were held to
deliberate and propose a recommendation to the FAC at the February meeting. Actions
taken by members of the ad hoc subcommittee led to a supplemental analysis of the
selected scenarios and the recommendations presented for review and consideration.
The overall findings from the analysis help support the viability of scenarios 3 and 5 as
potential alternatives to the default option. Pursuant to this discussion, a final
recommendation and revisions to the pension guidelines will be brought back to the
Committee for final approval and recommendation to the City Council.
D-35
FINANCE ADVISORY COMMITTEE MEETING DATE: 12/19/2022
AGENDA REPORT
AGENDA TITLE:
Consideration and possible action regarding the impact of making Additional
Discretionary Payments (ADPs) toward the City’s Unfunded Accrued Liability (UAL).
RECOMMENDED FINANCE ADVISORY COMMITTEE ACTION:
(1)Receive and file the report and provide Staff with direction on the optional ADPs.
FISCAL IMPACT: N/A
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Jason Loya, Senior Administrative Analyst
REVIEWED BY: Vina Ramos, Deputy Director of Finance
APPROVED BY: Trang Nguyen, Director of Finance
ATTACHED SUPPORTING DOCUMENTS:
A.N/A
BACKGROUND:
Each year, actuaries from the California Public Employees' Retirement System
(CalPERS) prepare Annual Valuation Reports (AVR) to disclose the financial condition of
City pension plans. On September 8, 2022, the most recent valuations were presented to
the City’s Finance Advisory Committee (FAC) as part of the FY 2022-23 Work Plan. The
ensuing discussion led to a request made by the Committee for staff to conduct an
analysis on the impact of making one-time or ongoing ADPs toward the City’s UAL. This
report presents the findings from this analysis and potential strategies for consideration.
As determined in the June 2021 AVR, the estimated required contribution for all
miscellaneous plans in FY 2023-24 totals $1.8 million. This total includes the normal cost
of $0.7 million and UAL payment of $1.1 million. Through June 30, 2021, the city
maintained a total UAL balance of $10 million, which is expected to decrease to $9.3
million by June 30, 2023, based on actuarial assumptions. CalPERS also determined that
the City’s overall funded status increased from 71.8% in 2020 to 81.4% in 2021.
The latest valuations further reveal that the City’s funded status is projected to reach 90%
by FY 2029-30 when applying the assumptions and discount rate of 6.8% recently
adopted by CalPERS. One of the primary goals defined in the City’s Pension Plan
yt--
V(L
{Vl
D-36
Guidelines is to achieve a 90% funded status within seven to 10 years. This 10-year
period began in FY 2021-22 and ends in FY 2030-31 following implementation of the
guidelines in February 2021. As of the 2021 AVR, the City is on target to meet this goal.
Considering the City’s approach to fiscal resiliency, the committee members also
discussed CalPERS’ FY 2021-22 investment loss of -6.1% at the September meeting.
The actual impact from a negative return has yet to be determined, however, the FAC
found it prudent to examine additional payment strategies that may help manage probable
increases to the City’s UAL balance. The committee’s recommendations include:
• Perform an analysis to determine the costs and benefits of an ADP toward the
City’s UAL balance.
• Present findings from the analysis to FAC at a future meeting.
This report adheres to the primary goals of stabilizing annual contributions and increasing
the funded ratio to 90% within seven to 10 years, consistent with the pension guidelines.
With respect to the stated goals and committee’s request, the subsequent discussion is
summarized to include:
• An analysis of current and projected amortization schedules;
• ADP scenario evaluations and strategies;
• Amortization payoff priority options; and
• Impacts to the Employee Pension Service Fund.
Staff will return to the City Council with any recommendations from FAC resulting from
these findings. As technical note, the scenarios evaluated in this report do not include
future UAL costs for the City’s Tier 2 and Tier 3 pension plans. This is mainly due to each
plan’s current UAL balance of $0, and the City’s focus on Tier 1 liabilities. Future impacts
to Tier 2 and Tier 3 will be assessed when new information becomes available.
DISCUSSION:
Analysis of Amortization Schedules
Due to the two-year lag, this analysis starts by examining the 2021 amortization schedule
for the UAL balance of $9.3 million as of June 30, 2023. The 2021 AVR uses a discount
rate of 6.8% per year to forecast the amortization period and annual UAL payments. Table
1 references the required UAL payment of $1.1 million in FY 2023-24 and projects the
next five years of payments through FY 2028-29 as determined by CalPERS.
Table 1. Projected UAL Payments (Assumes 6.8% Return)
Required
Contribution Projected Future Employer Contributions
Fiscal Year 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29
2021 Schedule (Tier 1) $1,070,317 $1,064,000 $1,027,000 $988,000 $931,000 $966,000
D-37
Under these assumptions, the UAL balance of $9.3 million is amortized over 19 years
and estimated to cost $14.2 million in total payments, which includes $4.9 million in
interest. Additionally, and as mentioned, the City’s funded status is anticipated to reach
90% by FY 2029-30 and be paid in full by FY 2041-42 according to the current schedule.
Using data from the 2021 AVR, chart 1 illustrates the City’s historical trend in annual UAL
payments combined with the current amortization schedule. From FY 2016-17 to FY
2023-24, aggregate UAL payments have grown at an average annual rate of 14.5%. This
is partly due to the 5-year ramp up in the CalPERS Amortization Policy whereas a single-
year investment gain or loss increases or decreases the required UAL contribution
incrementally over each of the next five years. The second segment of the line chart
represents the remaining payments according to the 2021 amortization schedule.
Chart 1. Contribution History and 2021 Amortization Schedule
While the chart above illustrates where the City is now, it does not reflect where the City
is heading. To account for the -6.1% loss, Staff utilized pension management tools to
estimate the financial implications of a negative return and evaluate potential payment
strategies. These tools included a contribution management spreadsheet provided by a
CalPERS actuary, and pension liability software from GovInvest.
The next table compares the expected UAL payments from the 2021 amortization
schedule to the projected results for 2022. Projections are necessary because the AVR
ending June 30, 2022, will not be released until August 2023. Table 2 considers the -6.1%
loss and projects future payments through FY 2028-29.
Table 2. Projected UAL Payments (Assumes -6.1% Return)
Required
Contribution Projected Future Employer Contributions
Fiscal Year 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29
2021 Schedule $1,070,317 $1,064,000 $1,027,000 $988,000 $931,000 $966,000
2022 Projection $1,070,317 $1,183,000 $1,266,000 $1,346,000 $1,408,000 $1,563,000
Variance $0 $119,000 $239,000 $358,000 $477,000 $597,000
Vl z
$1.20
§ $1.00
....I
~ $0.80
$0.60
$0.40
$0.20
$0.00
c:=J Required Contributions ~2021 UAL Payments
D-38
Required contributions are estimated to initially increase by $119,000 in FY 2024-25 and
continue to rise through FY 2028-29. The 2022 projected schedule does not affect
required contributions until FY 2024-25 because of the two-year lag.
Chart 2 expands on the projected impact by comparing each amortization schedule in full.
As observed, a -6.1% investment loss increases the required UAL contributions and
extends the amortization schedule by three years to FY 2044-45.
Chart 2. 2021 Amortization Schedule vs 2022 Projected Schedule (UAL Payments)
Consequently, the UAL balance of $10 million ending June 30, 2021, is now estimated to
increase rather than decrease to $9.3 million as previously anticipated. The UAL balance
projected in 2022 is estimated to increase by $4.9 million, or 50%, to $14.6 million ending
June 30, 2022. For additional reference, table 3 highlights the estimated short-term
impacts as it relates to the change in UAL balance from June 2021 to June 2023.
Table 3. Estimated Change in UAL Balance
Valuation Date Balance 6/30/21 Balance 6/30/22 Balance 6/30/23
6/30/2021 10,031,559 9,738,322 9,287,260
(Projected) 6/30/2022 10,031,559 14,608,000 14,488,000
Net Change ($) 0 4,869,678 5,200,740
Net Change (%) 0% 50% 56%
With a new UAL balance of $14.6 million, the City’s funded status is estimated to drop
from 81% in 2021 to roughly 70% in 2022 based on the given outlook. Another short-term
impact includes the potential rise in annual UAL contributions over the 5-year ramp-up
period. This rise in costs can be offset by future investment gains, additional contributions,
or adjustments to the amortization schedule.
In totality, CalPERS’ investment loss may cost an estimated $25 million in total payments
towards the new UAL balance. This exceeds the current estimate of $14.2 million in total
payments by $10.8 million. For broader perspective, chart 3 on the following page
compares the anticipated change in total UAL balance based on 2022 projections.
Vl
$1.80
z $1.60 0 ::::;
$1.40 ::!
~ $1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
Required Contributions --2021 UAL Payments --2022 Projected Payments
D-39
Chart 3. 2021 Amortization Schedule vs 2022 Projected Schedule (UAL Balance)
ADP Scenarios
Given the financial implications above, ADP scenarios were created to help determine
the costs and benefits of making additional payments to CalPERS. The 2022 projected
schedule is considered as the default option and sets the baseline for comparison. Each
ADP scenario considered is measured against the default option and is intended to arrive
at a 90% funded status within a 10-year period.
In connection with this analysis, the following information is also worth noting:
• This analysis uses a -6.1% return rate in 2022 and a 6.8% return rate for 2023 and
beyond.
• ADPs made during FY 2022-23 will not be applied to the projected June 30, 2022,
and 2023 investment gain or loss bases.
• ADPs made prior to FY 2023-24 will be applied to existing UAL bases as of the
2021 AVR.
• Schedules and figures below are for illustrative use and should not be considered
as an exact representation of actual future experience.
Lastly, actual contribution requirements may increase to the extent future CalPERS
investment returns are lower than the discount rate. Similarly, invest returns higher than
the discount rate may reduce future contributions. The net change between rates can be
used to help indicate the extent of a gain or loss. Table 4 recaps the net change in 2021
and 2022 and includes the investment return assumptions used for this analysis.
Table 4. Net Change in CalPERS Investment Return Assumptions
Valuation Date 6/30/2021 6/30/2022 6/30/2023 +
Investment Return 21.3% -6.1% 6.8%
Discount Rate 6.8% 6.8% 6.8%
Net Change 14.5% -12.9%
<I') $16.0
z
0 $14.0
:::i
~ $12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
-2.02.1 UAL Balance -2.02.2. Projected Balance
D-40
As stated, the UAL balance of $14.6 million is estimated to cost $25 million in total
payments over the full amortization period. The 2022 projected schedule also indicates
that it may now take 13 years to reach a 90% funded status, three years after the target
deadline. Alternatively, the ADP scenarios below use various strategies to reduce the
number of years it will take to reach 90%. A high-level overview of the estimated total
payments and timelines are shown in Table 5.
Table 5. 2022 Default Schedule and ADP Option Summary
Default
Scenario
Scenario
1
Scenario
2
Scenario
3
Scenario
4
Scenario
5
Total Payments 25,001,317 20,545,589 21,430,283 20,141,759 19,704,026 17,935,621
Yrs. to 90% FS 13 10 10 9 8 7
Correspondingly, estimated total payments decrease as the years to reach 90% are
reduced. Estimated total payments listed above, which include interest paid and ADPs,
represent the potential costs of each alternative over the full amortization period.
Alternative amortization schedules for each ADP scenario are estimated to cost less and
help the City reach it’s funded status goal.
To breakdown each scenario further, table 6 lays out a proposed payment schedule
exclusive to ADPs. This schedule considers making additional payments in FY 2022-23
and extends into future fiscal years depending on the methodology. Once again, total
ADP amounts are included in the estimated total payments.
Table 6. Proposed ADP Payment Schedule
FY Default
Schedule
Scenario
1
Scenario
2
Scenario
3
Scenario
4
Scenario
5
2022-23 $0 $4,000,000 $500,000 $500,000 $1,000,000 $500,000
2023-24 0 0 500,000 745,693 1,000,000 1,451,806
2024-25 0 0 500,000 688,976 1,000,000 1,445,089
2025-26 0 0 500,000 658,976 1,000,000 1,473,089
2026-27 0 0 500,000 631,976 1,000,000 1,517,089
2027-28 0 0 500,000 625,976 1,000,000 1,599,089
2028-29 0 0 500,000 531,976 0 1,606,089
2029-30 0 0 500,000 551,976 0 1,760,089
2030-31 0 0 0 581,976 0 0
2031-32 0 0 0 619,976 0 0
2032-33 0 0 0 715,976 0 0
2033-34 0 0 0 700,000 0 0
Totals $0 $4,000,000 $4,000,000 $7,553,477 $6,000,000 $11,352,339
The next section summarizes the strategies used within each ADP scenario. Charts
included combine the required UAL contributions with ADPs scheduled above and
illustrate differences between the default option and other alternatives.
D-41
Scenarios 1 and 2
Both ADP scenarios 1 and 2 have a total ADP of $4 million where scenario 1 represents
a one-time lump-sum payment made in FY 2022-23 and scenario 2 apportions the
payment across multiple years. Scenario 1, lump-sum payment, results in an immediate
reduction to the total UAL balance and future required payments compared to the 2022
default schedule. However, a substantial lump-sum payment carries greater investment
risk due to market volatility. No other ADPs are considered beyond the initial payment.
Scenario 2 apportions the $4 million across multiple years. Spreading payments out
lowers the investment risk and is an alternative to scenario 1. This scenario would allocate
$0.5 million in ADPs over an eight-year period from FY 2022-23 to FY 2029-30. Annual
UAL payments would be greater than the 2022 default schedule to start and would drop
below the default in FY 2030-31. Both ADP options are expected to achieve a 90% funded
status by year 10.
Chart 4. ADP Scenarios 1 and 2: Lump-Sum vs Installment
Scenarios 3, 4, and 5
Scenario 3 exemplifies a “level dollar” payment strategy and begins with an initial ADP of
$0.5 million in FY 2022-23. A level dollar payment structure is typically implemented after
initiating a “Fresh Start” and re-amortizing the UAL over a shorter horizon. This method
is exhibited in the CalPERS amortization policy and often implemented to minimize
variations in contribution rates. However, this scenario reflects a self-imposed level dollar
payment plan which is viewed as a “Soft Fresh Start” strategy.
A soft fresh start does not permanently alter the amortization period or required payments.
Staff does not recommend a “Fresh Start” at this time because doing so increases
required contributions to a fixed amount, rather than allowing for the City to use its
discretion. Nonetheless, scenario 3 entails a higher optional UAL payment compared to
the default schedule but is projected to reach a 90% funded status within 9 years.
VI $6.0
z
0 $5.0 ::::;
:::!
~ $4.0
$3.0
$2.0
$1.0
$0.0
-2022 Projected Payments -:-ADP 1 -<r-ADP 2
D-42
Scenario 4 considers additional payments of $1 million per year between FY 2022-23 and
FY 2027-28, six years total. The total annual payments would rise to just over $2 million
through FY 2027-28, averaging close to $0.8 million above the required payments in the
default schedule. Nevertheless, remaining payments would fall below the 2022 schedule
by an average of $0.5 million beginning in FY 2028-29. This scenario is projected to
achieve the 90% funded status within 8 years.
Scenario 5 also creates a self-imposed level dollar payment structure or “Soft Fresh
Start.” This scenario shortens the amortization period to seven years beginning in FY
2023-24 and hypothetically eliminates the UAL balance by FY 2029-30. Yet, annual
payments would exceed the default schedule by an average of $1.43 million each year
following an initial ADP of $0.5 million in FY 2022-23. Lastly, this scenario is projected to
arrive at a 90% funded status within 7 years.
Chart 5. ADP Scenarios: Level Dollar vs Annual Allocation
In summary, the scenarios above demonstrate potential outcomes and multiple strategies
available for consideration. Example scenarios demonstrating similar approaches were
provided in the 2021 AVR and discussed in the annual Staff report. The intended outcome
of all strategies reviewed is consistent with goals of the pension guidelines; however, they
are considered as supplementary options. Table 7 presents the projected total annual
UAL payments for all scenarios to provide a short-term comparison.
Table 7. Projected Change in Future Contributions (UAL + ADP)
Fiscal Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 Totals
2022
Projection $1,077,244 $1,070,317 $1,183,000 $1,266,000 $1,346,000 $1,408,000 $7,350,561
Scenario 1 5,077,244 796,589 899,000 974,000 1,046,000 1,100,000 9,892,833
Scenario 2 1,577,244 1,539,283 1,613,000 1,658,000 1,697,000 1,717,000 9,801,527
Scenario 3 1,577,244 1,784,976 1,784,976 1,784,976 1,784,976 1,784,976 10,502,124
Scenario 4 2,077,244 2,005,026 2,043,000 2,048,000 2,044,000 2,013,000 12,230,270
Scenario 5 $1,577,244 $2,491,089 $2,491,089 $2,491,089 $2,491,089 $2,491,089 $14,032,689
Vl $3.0
z
§ $2.5
...J
~
$2.0
$1.5
$1.0
$0.5
$0.0
x-x-x-x-x-x-x
2022 Projected Payments -:-ADP 3 ~ADP 4 -x-ADP 5
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Amortization Payoff Priority Option
The City may also prioritize the order in which to pay down the UAL schedule. As an
additional strategy, ADPs can be applied to a specific amortization base depending on
the goal of the funding plan. There are three payoff strategies available: Longest to
Shortest, Shortest to Longest, or Custom.
To maximize greater cash savings, i.e., interest, the City can use ADPs to pay down the
UAL by prioritizing bases from longest to shortest. The schedule and amounts referenced
in the analysis above reflect this strategy. Payments are generally higher as a result.
To maximize initial savings, i.e., reduce annual payments, the City could opt to prioritize
bases from shortest to longest when making an ADP. As such, the advantage of lower
payments in this schedule is offset by longer amortization periods and less savings. The
last option is to specify the order of payoff. ADPs can be applied to a single base, or to
multiple basis, depending on the desired outcome. Results are unique and will vary. Chart
6 uses ADP Option 3 as an example to illustrate amortization payoff priority.
Chart 6. Amortization Payoff Priority
v, $2.0
15 $1.8
;l $1.6
~ $1.4
$1.2
$1.0
$0.8
$0.6
$0.4
$0.2
$0.0
-202.2 Projected Payments ~ Long-Term Priority ~Short-Term Priority
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ADDITIONAL INFORMATION:
Historical Investment Returns
CalPERS’ annualized investment returns as of June 30, 2022, are listed in Table 8. As
indicated below, the Public Employees’ Retirement Fund (PERF) has realized investment
gains above the discount rate of 6.8% when viewed over 10 years and beyond. This long-
term perspective can be useful when contemplating future investments in the PERF.
Table 8. Net Investment Returns as of June 30, 2022
CalPERS Annualized Investment Returns
1 Year -6.1%
5 Year 6.7%
10 Year 7.7%
20 Year 6.9%
30 Year 7.7%
According to CalPERS, every dollar that is set aside earlier than necessary is expected
to increase the amount of investment earnings available to pay benefits and reduce total
contributions. Whether on an ad hoc basis or as an ongoing plan, the benefits of making
additional payments include reducing the City’s UAL and increasing the total assets
available to earn an investment return on. At the same time, exposing more assets to the
market can also come at a cost during economic downturns.
Pension Plan Guidelines
The ADP scenarios included in this analysis identify some, but not all, available options
related to management of the UAL. Despite any limitations, all options reviewed adhere
to the current pension guidelines with respect to the primary goals. In addition, no option
is intended to impede on the City’s existing obligations as required by CalPERS.
The pension guidelines do not explicitly list ADPs as a usage option. Under the current
Employee Pension Service Fund (EPSF) usage options, available funding may be used
to stabilize contributions. Although a nexus exists between the usage options and
strategy, this factor may also need to be considered. A review of the guidelines will occur
every three years or as needed to determine if changes are warranted.
Employee Pension Service Fund (EPSF)
The City’s pension guidelines state that available funding in the EPSF may be applied
toward UAL payments greater than $0.90 million to offset costs to the General Fund (GF).
By way of this strategy, the 2022 amortization schedule projects ongoing payments to
remain above $0.9 million through FY 2036-37. UAL payments funded by the EPSF are
expected to average roughly $0.5 million over 14 years under current assumptions.
EPSF Fund Balance as of June 30, 2023, totals $0.8 million. Without future transfers from
the GF, projected UAL payments shown in chart 7 will deplete this fund by FY 2026-27.
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Chart 7. Future UAL Payments from EPSF
CONCLUSION:
Based on results from the 2021 AVR, the City is on target to reach a 90% funded status
within a 9-year period. In light of a -6.1% investment loss by CalPERS, this goal is now
expected to take 13 years due to the increase to the UAL balance. Staff performed an
analysis to determine the pros and cons of making ADPs based on a request made by
the City’s FAC.
Initial findings indicated that the UAL balance is projected to increase to $14.6 million
ending June 30, 2022. While impacts to the UAL balance are more immediate, the
required contribution in FY 2024-25 is estimated to increase by $119,000 due to the two-
year lag. The investment loss is estimated to cost $25 million in total payments according
to the projected 2022 amortization schedule and will likely raise annual UAL payments
incrementally over a 5-year period. This rise in costs can be offset by future investment
gains, additional contributions, or adjustments to the amortization schedule. The 2022
amortization schedule also projects UAL payments to remain above $0.90 million through
FY 2036-37. This implies that payments from the EPSF towards the UAL balance could
average $0.5 million over the next 14 years under current assumptions.
The ADP scenarios reviewed provide alternative strategies that are intended to achieve
a 90% funded status over a 10-year, 9-year, 8-year, and 7-year period. This analysis
illustrates the costs and benefits for each option. Available cashflow, investment risk, and
long-term outlook are vital factors to consider when choosing an option. In addition,
amortization payoff priority can also be considered if seeking a lower payment over larger
interest savings. All things considered, the impending economic slowdown will play a
significant role in the upcoming decision, as well as CalPERS 2023 return.
<I') $1.80
z
0 :J $1.50
'.2:
$1.20
$0.90
$0.60
$0.30
$0.00
$0.70 $0.74 $0.77 $0.76 $0.75 $0.72
23-24 24-25 25-26 26-27 27-28 28-29 29-30 30-31 31-32 32-33 33-34 34-35 35-36 36-37
c::::J GF Limit ~2022 Projected Payments ~Payments From EPSF
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