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CC SR 20251118 C - CalPERS Actuarial Valuation Report as of June 30, 2024 CITY COUNCIL MEETING DATE: 11/18/2025 AGENDA REPORT AGENDA HEADING: Consent Calendar AGENDA TITLE: Consider the California Public Employees’ Retirement System (CalPERS) Actuarial Valuation Report (AVR). RECOMMENDED COMMITTEE ACTION: (1) Receive and file the CalPERS Actuarial Valuation Report (AVR) as of June 30, 2024. FISCAL IMPACT: None Amount Budgeted: N/A Additional Appropriation: N/A Account Number(s): N/A ORIGINATED BY: James O’Neill, Senior Administrative Analyst JO REVIEWED BY: Robert Moya, Deputy Director of Finance RM Vina Ramos, Director of Finance VR APPROVED BY: Ara Mihranian, AICP, City Manager ATTACHED SUPPORTING DOCUMENTS: A. Actuarial Valuation Report as of June 30, 2024 (Page A-1) B. CalPERS press release on preliminary investment return (Page B-1) C. Pension Plan Guidelines (page C-1) EXECUTIVE SUMMARY Each year, CalPERS prepares an Actuarial Valuation Report (AVR) for the City to determine the funded status of and the employer contribution requirements for each of the City’s three CalPERS pension plans: Miscellaneous Plan (Tier 1), Miscellaneous Second Tier Plan (Tier 2), and Public Employees’ Pension Reform Act (PEPRA) Miscellaneous Plan (Tier 3). In July 2025, CalPERS issued a single AVR that provided such valuations for all three plans (Attachment A). The latest valuations determine the funded status for each pension plan as of June 30, 2024 and provide the minimum required employer contributions for FY 2026-27. This two- year gap between the valuation date and contribution fiscal year is necessary to ensure that the financial data is accurately reported and gives agencies sufficient time to budget accordingly. CalPERS also includes projected employer contributions within each report 1 to aid in future planning, along with historical data to provide additional context. Nevertheless, the information contained in this report is as of June 30, 2024, and all projections are subject to change based on actual investment experience in future years. The AVR is presented annually to the Finance Advisory Committee (FAC) and the City Council in accordance with the City’s Pension Plan Guidelines (Attachment C). The AVR was presented to the FAC for review on October 9, 2025, as part of its Fisal Year (FY) 2025-26 Work Plan. Following their review, the FAC received and filed the AVR. The summary of the report is as follows: • The 2024 AVR projects the City’s required pension contribution for FY 2026–27 at $2.4 million, an increase of $0.2 million, or 8.2%, from the current fiscal year. o The payment of $2.4 million includes $734,470 of estimated Normal Cost for current active employees and minimum of $1,680,864 Unfunded Accrued Liability (UAL) for active employees and retirees. • The estimated 2024 UAL is $17.7 million, a decrease from $17.9 million in 2023. • The City’s pension funded ratio improved from 69.8% to 71.6%, driven by higher- than-expected investment returns. • The funded ratio is projected to reach 90% in FY 2033–34, which is three years later than the FY 2030–31 target outlined in the City’s Pension Plan Guidelines, due to: o Lower-than-anticipated CalPERS investment returns in previous years (particularly following the COVID-19 pandemic). o Rising pension costs resulting from CalPERS’ updated actuarial assumptions. • To improve and stabilize future pension payments, Staff and the Finance Advisory Committee (FAC) continue to monitor CalPERS’ performance and evaluate options. In August 2023, the FAC recommended to pay additional $2.7 million in UAL, however, due to uncertainties related to landslide expenditures, the City Council opted not to make any additional payments at that time. • In FY 2025–26, the City Council approved the Staff and FAC recommendation to make the first additional $100,000 payment to CalPERS, to potentially increase the funded ratio. BACKGROUND CalPERS AVR Report June 30, 2024 This AVR presents actuarial valuations as of June 30, 2024, consistent with past AVRs that report valuations at the close of the prior fiscal year. The timeline allows CalPERS actuaries to certify that the reports are complete, accurate, and contain sufficient information to fully disclose the financial condition of each plan. The AVR continues to provide key information, such as the City’s minimum payment for the Unfunded Accrued Liability (UAL) in FY 2026-27. 2 Changes Since the Prior Year’s Valuation There are no significant changes to the actuarial methods or assumptions for the 2024 actuarial valuation. However, other changes are identified on page five of the AVR, including the recognition of mandated legislative changes in the first annual valuation following the effective date of legislation, and the CalPERS board modification of the Risk Mitigation Policy to remove the automatic change to the discount rate when the investment return exceeds various thresholds. Additionally, effective with the June 30, 2024 actuarial valuation, separate amortization schedules for each tier of benefits are no longer necessary. Basis of Actuarial Valuation The AVR reflects fund investments through June 30, 2024, as well as statutory changes, regulatory changes and board actions through January 2025. Subsequent Events CalPERS will be completing an Asset Liability Management (ALM) review process in November 2025 that will review the capital market assumptions and the CalPERS Total Fund Investment Policy and ascertain whether a change in the discount is warranted. In addition, the Actuarial Office will be presenting the findings of its Experience Study, which reviews economic assumptions other than the discount rate, as well as all demographic Assumptions, and makes recommendations to modify actuarial assumptions where appropriate. Any changes in actuarial assumptions will be reflected in the June 30, 2025 actuarial valuation. Key highlights to report: • The AVR includes valuations through June 30, 2024, as it takes approximately one year for reporting of investment returns and CalPERS’ analysis, while setting minimum payments for the following fiscal year to allow for municipalities to incorporate those payments into the following year’s adopted budget. • In July 2025, CalPERS announced that the actual investment return in FY 2024- 25 was 11.6%, which is 4.8% higher than their assumed rate of 6.8%. However, because this year’s report is based on data through June 30, 2024, the positive returns are not reflected and will be part of next year’s report. • With the 11.6% investment return, minimum UAL payments are expected to decrease in future valuations. • The report no longer provides a breakdown of the UAL by individual tiers. The FAC ad hoc subcommittee, formed in August 2023, continues to explore options to stabilize future costs and accelerate progress toward the 90% funding goal, consistent with the City Council’s Pension Plan Guidelines on efficiency, transparency, and proactive financial management. This staff report includes several key analyses and supplemental details related to the City’s CalPERS pension plans. It begins with the CalPERS AVR as of June 30, 2024, which provides background and analysis on the funded status of each pension plan and 3 establishes the minimum required employer contributions for FY 2026 -27. Following this, the report presents an analysis of the City’s Unfunded Accrued Liability (UAL) amortization schedules, including both default and alternative repayment options, to evaluate long-term cost impacts and potential savings. A detailed review of the City’s UAL contribution history is also included to illustrate trends over the past decade and assess future cost projections. Additional information is provided on the CalPERS FY 2024-25 preliminary investment return, which was reported at 11.6%, along with an updated employee tier distribution reflecting changes in active and retired membership. The section concludes with a summary of the Pension Plan Guidelines (Attachment C), which outline the City’s strategies for stabilizing contributions, managing the UAL, and achieving a 90% funded ratio by FY 2030-31. The following is a summary of the Discussion presented below: • CalPERS AVR Report June 30, 2024 for background and analysis • Analysis of CalPERS UAL Amortization Schedules • UAL Contribution History and Analysis • Additional Information: o CalPERS FY 2024-25 Preliminary Investment Return o Employee Tier Distribution o Pension Plan Guidelines DISCUSSION: CalPERS AVR Report June 30, 2024 - Required Contributions As noted, the 2024 valuations set the minimum required contributions for FY 2026-27. Contributions to fund the pension plans are comprised of two components: 1. Normal Cost, expressed as a percentage of total active payroll, and; 2. Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount. More specifically, the 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 by calculating the difference between a plan’s Accrued Liability (AL) and Market Value of Assets (MVA) at the end of each valuation period. If a plan’s AL is greater than its MVA, then an unfunded liability is measurable, and the amount must be repaid in accordance with the CalPERS amortization policy. Table 1 on the following page highlights the details of each cost component by type and tier. Since this year’s AVR provides only the collective data without a breakdown by individual tiers, the amounts shown below are estimates and calculated based on the available data. 4 Table 1. Minimum Required Employer Contributions FY 2026-27 Benefit Plan Normal Cost Rate Calculated Normal Cost Minimum UAL Payment Total Estimated Contribution Tier 1 14.16% $228,340* $1,611,922 $1,840,262 Tier 2 10.18% $152,203* $34,440 $186,643 Tier 3 7.93% $356,928* $34,502 $391,430 Total $737,470 $1,680,864 $2,418,333 *Calculated, based on the Normal Costs Rates listed on page 4 of the AVR and the “Payroll on 6/30/2024” listed on Page 28 of the AVR. In total, the estimated normal cost of $0.7 million and minimum UAL payment of $1.7 million add up to a required contribution of approximately $2.4 million in FY 2026-27. This reflects an increase of $0.2 million, or 8.2%, over the previous year. The rising cost is mostly attributed to a growing UAL balance resulting from CalPERS’ 2023 and 2024 investment returns falling short of the 6.8% discount rate . CalPERS’ investment returns for these two periods were 6.1% and 9.6% respectively, with the below-target 2023 return adding to the UAL and the above-target 2024 return only partially offsetting this due to CalPERS’ multi-year smoothing of gains and losses. The City traditionally chooses to prepay the UAL portion of the employer contribution in full to help minimize costs. Exercising this option would yield approximately $54,000, or 3.2%, in savings. To visualize the trend in required contributions, Chart 1 below illustrates the year-over-year changes since FY 2020-21. Chart 1. Minimum Required Employer Contributions Since FY 2020-21 Change in CalPERS Valuation Projections: 2023 vs 2024 Valuation changes reflect differences between projections and realized returns, and other changes encountered between valuations. Accounting for these differences, the City’s minimum UAL payment for FY 2026-27 rose by almost $0.2 million, or 11.3%, above the anticipated amount in the 2023 AVR. This type of analysis emphasizes the year-over- $1.5 $1.6 $1.7 $1.8 $2.0 $2.2 $2.4 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 2020 - 21 2021 - 22 2022 - 23 2023 - 24 2024 - 25 2025 - 26 2026 - 27 Mi l l i o n s MINIMUM REQUIRED EMPLOYER CONTRIBUTIONS Est Normal Cost UAL Payment Total Est. Contribution 5 year impact on pension plans due to differences in the CalPERS assumption rate of 6.8% and actual investment return. In this case, the actual costs were higher than projected based on the actual net return of 6.1%. Table 2 shows the projected and actual AVR results by tier for the next fiscal year. The newly consolidated report from CalPERS provides the minimum UAL payment amount of $1,680,864, resulting in an overall variance of $52,864. The tier breakdown presented below are Staff’s estimates based on available information. Table 2. 2023 AVR Projected vs 2024 AVR Actual UAL Required Payment Benefit Plan FY 2026-27 (Projected) FY 2026-27 (Actual) Net Change Tier 1 $1,546,000* $1,611,922** $65,922 Tier 2 $41,000* $34,440** -$6,560 Tier 3 $41,000* $34,502** -$6,498 Total $1,628,000 $1,680,864 $52,864 * Amounts were included in the 2023 actuarial valuation ** calculated, based on pro-rating the tier amounts since CalPERS did not provide this breakdown Projected Future City Contributions On July 15, 2025, CalPERS announced a preliminary investment return of 11.6% for the FY 2024-25. Due to the timing, Staff expects these positive returns would be reflected in next year’s projections. This is consistent with CalPERS’ past methodology when actual returns are different from their original projection. Traditionally, CalPERS projections assume a 6.8% investment return in future years. The latest AVR notes that the actual investment return for FY 2024-25 was not available at the time of preparation, and states that the projected UAL payment in the report assumes the investment return would only be 6.8%. As the investment returns differ from the presumed 6.8% annual return, the actual contribution requirements for FY 2027-28 and beyond will differ from those shown in Table 3. Table 3. Projected Minimum UAL Payments FY 2026-27 Projected FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2031-32 From 2022 AVR $1,454,000 $1,528,000 $1,694,000 $1,730,000 Not Included Not Included From 2023 AVR Projected $1,628,000 $1,729,000 $1,920,000 $1,964,000 $2,001,000 Not Included From 2024 AVR $1,680,864 $1,754,000 $1,918,000 $1,933,000 $1,943,000 $1,980,000 % Change from previous year 4.4% 9.4% 0.8% 0.5% 1.9% 6 Chart 2. Projected Minimum UAL Payments Based on CalPERS assumptions, the 2024 valuation projects total UAL payments to increase by an average annual rate of 3.3% through FY 2031-32. This amounts to an increase of about $0.3 million from the beginning to end of this period. 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. With CalPERS announcing a preliminary investment return of 11.6% for the FY 2024-25, it is anticipated that these minimum UAL payments will likely be reduced in future valuations. Funded Status as of June 30, 2024 As shown in Table 4 on the following page, the 2023 AVR included a breakdown of Accrued Liability (AL), Market Value of Assets (MVA), Unfunded Accrued Liability (UAL), and Funded Ratio by individual tiers. In contrast, the 2024 AVR provides only the combined totals for AL, MVA, UAL, and Funded Ra tio, based on the information made available by CalPERS. The 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 on the following page shows the breakdown from last year’s AVR, with the last column showing the amounts and Funded Ratio from the latest AVR. $1.7 $1.8 $1.9 $1.9 $1.9 $2.0 $1.5 $1.6 $1.6 $1.7 $1.7 $1.8 $1.8 $1.9 $1.9 $2.0 $2.0 $2.1 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 Mi l l i o n s PROJECTED UAL CONTRIBUTIONS 7 Table 4. Funded Status as of June 30, 2024 From 2023 AVR 2024 AVR in millions Tier 1 Tier 2 Tier 3 Totals Totals Accrued Liability (AL) $51.4 $3.9 $3.9 $59.2 $62.8 Market Value of Assets (MVA) $34.6 $3.3 $3.4 $41.3 $45.2 Unfunded Accrued Liability [(AL) - (MVA)] $16.8 $0.6 $0.6 $17.7 $17.6 Funded Ratio [(MVA) / (AL)] 67.4% 85.7% 85.7% 69.8% 71.6% Through June 30, 2024, the City’s total AL had grown to $62.8 million and total MVA of $45.2 million amounts to a UAL of $17.6 million. All plans considered, the City’s overall funded ratio rose to 71.6%, up from 69.8%, or roughly 2% from the 2023 AVR. Further analysis and discussion of these data points are included in the following sections of this report. Funding History and Analysis Chart 3 below illustrates the City’s actuarial AL, MVA, UAL, and funded ratio using 10 years of historical data provided by CalPERS. This data is presented in aggregate to demonstrate the overall values and trends for City pension plans. Chart 3. Funding History – Valuation Ending 6/30/2015 to 6/30/2024 Over a 10-year period, the City’s AL and MVA have grown by an average annual rate of 7% and 6%, respectively. This analysis indicates that plan liabilities have continued to exceed and outpace plan assets over the long run. The year-over-year volatility in investment returns can affect these outcomes; however, the long-term trends suggest that the gap between AL and MVA is widening. However, a higher rate of return on investments for the MVA appears to have resulted in the combined funded ratio climbing 80%77% 71%74%73%73%72% 81% 70%70%72% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% $0 $10 $20 $30 $40 $50 $60 $70 Mi l l i o n s Accrued Liability Market Value of Assets (MVA) Unfunded Accrued Liability (UAL)Funded Ratio 8 back above the 70% threshold, to 71.6%, after dipping below that threshold for the first time in the plan’s history last year. Maintaining a long-term perspective is critical to the evaluation of City pension plans. That said, the most significant indicator of the widening gap and change in funding status is the rising UAL balance. The City’s total UAL has notably increased by an average annual rate of 11% over 10 years. Additionally, the City’s average funded status fell slightly to 73.0% from an average of 74.3% as reported in last year’s AVR. Favorable investment returns in future years, as seen with the 2024 and 2025 preliminary returns indicate, can help offset these trends, but additional steps may be necessary to mitigate long -term costs associated with the UAL. Breakdown of Accrued Liability For additional insight, Table 5 provides a breakdown of the City’s AL distributed across members as reported in the 2024 AVR. Table 5. Breakdown of Accrued Liability as of June 30, 2024 in millions 2023 Totals 2024Totals Increase ($) Increase (%) Active Members $15.7 $16.0 $0.3 2% Transferred Members $6.7 $7.9 $1.2 18% Separated Members $3.0 $3.2 $0.2 7% Member / Beneficiary Payments $33.7 $35.7 $2.0 6% Total $59.2 $62.8 $3.6 6% Amortization of the UAL This section focuses on the long-term implications of a growing UAL. As stated, the City’s total UAL balance dipped slightly to $17.7 million, from last year’s $17.9 million balance, but overall has increased by an average annual rate of 6.3 % since June 2015. Chart 3 below depicts this growing trend in parallel to CalPERS’ annualized investment 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. 9 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 when CalPERS experiences an investment return above the 6.8% discount rate. An investment return below the discount rate, like in the 2023 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 2024 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 BALANCE 6/30/2024 EXPECTED PAYMENT 2024-25 BALANCE 6/30/25 EXPECTED PAYMENT 2025-26 BALANCE 6/30/26 REQUIRED PAYMENT 2026-27 $17,652,058 $1,295,856 $17,513,209 $1,510,617 $17,142,973 $1,680,864 The total UAL balance of $17.6 million as of June 30, 2024 is referenced earlier in this report. However, because the 2024 AVR determines the required employer contributions $6.7 $8.2 $10.7 $10.6 $12.3 $13.0 $14.2 $10.0 $16.7 $17.9 $17.7 18.4% 2.4%0.6% 11.2%8.6%6.7%4.7% 21.3% -7.5% 6.1%9.3% $0 $5 $10 $15 $20 Mi l l i o n s Unfunded Accrued Liability (UAL)Investment Return 10 for FY 2026-27, the amortization schedules are forward-looking and begin with the $17.1 million UAL as of June 30, 2026. All future payments reflect CalPERS’ investment return assumption of 6.8%, and thus, are subject to change based on actual experience. Analysis of CalPERS UAL Amortization Schedules Default Amortization Schedules The projected UAL balances as of June 30, 2026 are listed in Table 7 below. The default amortization schedules provided in the 2024 AVR use a 20-year funding horizon. Repaying the UAL under the default schedules and assumptions is projected to cost the City $17.1 million in total principal and $10.0 million in total interest, for a total estimated cost of $27.1 million. This is less than last year's projected total by $2.5 million, or 8%, and is projected to reach a 90% funded status in FY 2033-34, three years beyond the goal of FY 2030-31 stated in the pension guidelines, mainly due to the following: o Lower-than-anticipated CalPERS investment returns in previous years (particularly following the COVID-19 pandemic). o Rising pension costs resulting from CalPERS’ updated actuarial assumptions. Table 7. 2024 Estimated Default Amortization Schedules in millions Totals Principal $17.1 Interest $10.0 Total $27.1 Furthermore, the 2024 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. 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 for a specified number of years. Accordingly, the totals and estimated savings from alternate examples provided in the 2024 valuations are aggregated and shown in Table 8 below. Table 8. Alternate Amortization Schedules (Fresh Start) in millions 2024 Default Alternative 1 Alternative 2 Total $27.1 $27.0 $23.4 Interest $10.0 $9.8 $6.3 11 in millions 2024 Default Alternative 1 Alternative 2 Estimated Savings $0 $0.2 $3.8 Initiating a Fresh Start as prepared by CalPERS would require UAL contributions to increase to an average of roughly $1.8 million for Alternative 1 or $2.3 million for Alternative 2. Due to the higher average payments, Alternatives 1 and 2 are designed to shorten the funding horizon to 15 or 10 years to achieve an estimated savings of $0.2 million or $3.8 million, respectively. However, any new unfunded liabilities that emerge in future years would be amortized as a separate gain/loss base and must be factored into consideration if implementing a Fresh Start alternative. A second alternative prepared by CalPERS considers Additional Discretionary Payments (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 2024 AVR. Table 9. Alternative FY 2026-27 Employer Contributions (in millions) Funding Horizon Estimated Normal Cost Minimum UAL Payment ADP Amount Total UAL Contribution Estimated Total Contribution Default $0.7 $1.7 $0 $1.7 $2.4 15 years $0.7 $1.8 $0.1 $1.9 $2.6 10 years $0.7 $1.7 $0.7 $2.4 $3.1 5 years $0.7 $1.8 $2.3 $4.1 $4.8 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. This information is $2.4 million, an increase of $0.2 million, or 8.2% also included to indicate that it may benefit the City to consider ADPs under current circumstances. This is because the minimum contributions required on the default schedules for Tiers 2 and 3 are less than the interest on the UAL. UAL Contribution History and Analysis To provide additional perspective, Chart 4 on the next page uses historic AVR data to illustrate required UAL contributions from FY 2017-18 to FY 2026-27. Collectively, the City’s total UAL payments during this period have increased at an average annual rate of 13.7%. This is a reduction from the previous year’s average growth rate of 15.5%. Chart 4 also includes a linear projection using the 10 years of data. This upward trend aligns with the projected UAL payments reported by CalPERS in Table 3 of this report, further validating the expected trajectory of future payments through FY 2032-33. 12 Chart 4. UAL Contribution History and Trend Analysis UAL payments are expected to continue until FY 2043-44 based on the 2024 AVR schedules. Nonetheless, all projections and future payments reported are subject to change based on actual experience in the years to come. ADDITIONAL INFORMATION: CalPERS FY 2024-25 Preliminary Investment Return The preliminary investment return for the fiscal year ending June 30, 202 5, was announced on July 15, 2025, as 11.6% (11.5% net of the 0.1% administrative fee). This represents a 4.7% experience gain over the CalPERS discount rate assumption of 6.8%. In most cases, an investment experience gain will provide some relief to the peak years of the UAL payment schedule (FY 2030-31 through FY 2034-35) but may not significantly change the trajectory of the UAL payment schedule leading up to FY 2030-31. Most amortization schedules will still be impacted by the steep ascent associated with the 2022 investment loss of -7.5% (i.e., a 14.4% experience loss). The “Non-Investment” Gain/loss for 2025 is currently unknown but largely depends on the extent of COLAs and/or other payroll factors that exceed CalPERS’ assumed payroll growth assumption of 2.8%. When using the preliminary net return of 11.6%, the overall estimated funded status of the Public Employees’ Retirement Fund (PERF) stands at 79%. To that end, the updated preliminary total fund annualized returns are as follows: Table 11. Estimated CalPERS Investment Returns through June 30, 2025 1 Year 5 Year 10 Year 20 Year 30 Year Annualized Returns 11.6% 8.0% 7.1% 6.7% 7.6% $0.5 $0.6 $0.7 $0.9 $1.0 $1.1 $1.1 $1.3 $1.5 $1.7 $1.8 $1.9 $1.9 $1.9 $2.0 $2.0 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 Mi l l i o n s Required Contributions 2023 Projected UAL Payments Linear (Required Contributions) 13 Employee Tier Distribution Table 12 summarizes the plan’s member data upon which this valuation is based. Compared to the prior year, Tier 1 active members decreased from 19 to 16, while retirees have increased from 110 to 112. Tier 2 actives decreased by two while total retirees increased by one. Active members in Tier 3 increased from 59 to 63, and retirees increase from 2 to 4. Table 12. Employee Tier Distribution Tier 1 Tier 2 Tier 3 Total by Status Active Members 16 10 63 89 Retirees 112 7 4 123 Total by Tier 128 17 67 212 Pension Plan Guidelines In accordance with the 2020-21 City Council Goals under “Government Efficiency and Transparency,” the purpose of the pension guidelines (Attachment C) is to proactively manage ongoing contributions to the City’s pension plans and UAL. 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, and; 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 pension 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 contributions exceeding $0.9 million. 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. To date, EPSF has an estimated fund balance of approximately $0.9 million, net of the proposed transfer of $0.4 million and the ADP of $0.1 million in FY 2025-26 and required UAL payment. Based on the guidelines, the EPSF also helped jumpstart the process, and in FY 2025 - 26 the City paid its first ADP of $0.1 million. The impact of this payment is not reflected in the June 30, 2024 report issued by CalPERS but will be reflected in future reporting periods. CONCLUSION: The 2024 AVR displays the funded status for each pension plan as of June 30, 2024, and provides the minimum required employer contributions for FY 2026-27. As a result of CalPERS’ 9.6% investment return, the City’s total estimated required contribution in FY 2026-27 is $2.4 million, an increase of $0.2 million, or 8.2%, from the previous year. While this year’s investment return of 9.6% provided some relief, the long -term trajectory of pension costs continues to be shaped by prior years’ below -target returns and the City’s 14 growing UAL. At current assumptions, the UAL is projected to cost approximately $27.1 million in principal and interest over the next 20 years, with the City expected to reach a 90% funded ratio in FY 2033-34, which is three years beyond the stated goal. Additional data indicates that the City’s total AL of $62.8 million and total MVA of $45.2 million resulted in a total UAL of $17.6 million. Overall, the City’s funded ratio has risen to 71.6%, up roughly 1.8% from the prior year. These findings indicate continued progress toward improved funding levels while emphasizing the importance of ongoing monitoring and long-term financial planning. This information is provided for transparency and future budget planning purposes. Staff recommends that the City Council receive and file the CalPERS Actuarial Valuation Report as of June 30, 2024. ALTERNATIVES: In addition to the Staff recommendation, the following alternative action is available for the City Council’s consideration: 1. Take no further action and/or direct staff accordingly. 15 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 2025 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool (CalPERS ID: 3846845523) Annual Valuation Report as of June 30, 2024 Dear Employer, Attached to this letter is Section 1 of the June 30, 2024, actuarial valuation report for the plan noted above . Provided in this report is the determination of the minimum required employer contributions for fiscal year (FY) 2026-27. 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 following rate plan(s) including the development of the current and projected employer contributions . o 1107, Miscellaneous First Tier Plan o 23274, Miscellaneous Second Tier Plan o 26567, PEPRA Miscellaneous Plan • Section 2 contains the Miscellaneous Risk Pool information as of June 30, 2024. 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, 2024. Required Contributions The table below shows the minimum required employer contributions and member contribution rates for FY 2026-27 along with an estimate of the required employer UAL contribution for FY 2027-28. The required employer contributions in this report do not reflect any cost sharing arrangement between the agency and the employees. Fiscal Year Rate Plan Employer Normal Cost Rate Member Contribution Rate Fiscal Year Employer Amortization of Unfunded Accrued Liability 2026-27 1107 14.16% 8.00% 2026-27 $1,680,864 23274 10.18% 7.00% 26567 7.93% 7.75% Projected (Estimated) 2027-28 $1,754,000 The actual investment return for FY 2024-25 was not known at the time this report was prepared. The project ed UAL payment above assumes the investment return for that year would be 6.8 %. To the extent the a ctual investment return for FY 2024-25 differs from 6.8%, the actual UAL contribution requirement for FY 2027-28 will differ from that shown above. For additional information on future contribution requirements , please refer to Projected Employer Contributions . This section also contains projected required contributions through FY 2031-32. PEPRA Member Contribution Rate The employee contribution rate for PEPRA members can cha nge based on the results of the actuarial valuation. See Member Contribution Rates for more information. A-1 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Page 2 Report Navigation Features The valuation report has a number of features to ease navigation and allow the reader to find specific information more quickly. The tables of contents are “clickable.” This is true for the main table of contents that follows the title page and the intermediate tables of contents at the beginning of sections. The Adobe navigation pane on th e left can also be used to skip to specific exhibits. There are a number of links throughout the document in blue text. Links that are internal to the document are not underlined, while underlined links will take you to the CalPERS website. Examples are s hown below. Internal Bookmarks CalPERS Website Links Required Employer Contributions Required Employer Contribution Search Tool Member Contribution Rates Public Agency PEPRA Member Contribution Rates Summary of Key Valuation Results Pension Outlook Overview Funded Status – Funding Policy Basis Interactive Summary of Public Agency Valuation Results Projected Employer Contributions Public Agency Actuarial Valuation Reports Report Enhancements Effective with the June 30, 2024, actuarial valuation, separate amortization schedules for each tier of benefits are no longer necessary. Multiple amortization schedules, and thus multiple Section 1 reports, have been combined. We believe this gives the employer a clearer picture of the pension plan’s financial health and long -term costs. Further descriptions of general changes are included in the Highlights and Executive Summary section and in Appendix A - Actuarial Methods and Assumptions in Section 2 . 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, Alex Grunder, ASA, MAAA Senior Actuary, CalPERS Randall D ziubek, ASA, MAAA Deputy Chief Actuary, Valuation Services , CalPERS Scott Terando, ASA, EA, MAAA, FCA, CFA Chief Actuary, CalPERS A-2 California Public Employees’ Retirement System Actuarial Valuation for the Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool as of June 30, 2024 (CalPERS ID: 3846845523) (Rate Plan IDs : 1107, 23274, 26567 ) Required Contributions for Fiscal Year July 1, 2026 — June 30, 2027 A-3 Table of Contents Section 1 – Employer Specific Information Section 2 – Miscellaneous Risk Pool Actuarial Information A-4 Section 1 California Public Employees ’ Retirement System Employer Specific Information for the Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool (CalPERS ID: 38468455 23) (Rate Plan IDs: 1107, 23274, 26567) A-5 Rate Plans belonging to the Miscellaneous Risk Pool Table of Contents — Section 1 Actuarial Certification ....................................................................................................................................................................................1 Highlights and Executive Summary ..........................................................................................................................................................2 Introduction ....................................................................................................................................................................................................3 Purpose of Section 1 ....................................................................................................................................................................................3 Summary of Key Valuation Results ...........................................................................................................................................................4 Changes Since the Prior Year’s Valuation................................................................................................................................................5 Subsequent Events.......................................................................................................................................................................................5 Liabilities and Contributions .......................................................................................................................................................................6 Determination of Required Contributions ..................................................................................................................................................7 Required Employer Contributions ..............................................................................................................................................................8 Member Contribution Rates ..................................................................................................................................................................... 10 Breakdown of Entry Age Accrued Liability ............................................................................................................................................. 11 Allocation of Plan’s Share of Pool’s Experience ................................................................................................................................... 11 Development of the Plan’s Share of Pool’s Assets .............................................................................................................................. 11 Funded Status – Funding Policy Basis................................................................................................................................................... 12 Additional Employer Contributions .......................................................................................................................................................... 13 Projected Employer Contributions........................................................................................................................................................... 14 Schedule of Amortization Bases .............................................................................................................................................................. 15 Amortization Schedule and Alternatives ................................................................................................................................................ 17 Employer Contribution History ................................................................................................................................................................. 19 Funding History .......................................................................................................................................................................................... 19 Risk Analysis ................................................................................................................................................................................................ 20 Future Investment Return Scenarios ...................................................................................................................................................... 21 Discount Rate Sensitivity .......................................................................................................................................................................... 22 Mortality Rate Sensitivity........................................................................................................................................................................... 23 Maturity Measures ..................................................................................................................................................................................... 23 Maturity Measures History ........................................................................................................................................................................ 24 Funded Status – Termination Basis........................................................................................................................................................ 25 Funded Status – Low-Default-Risk Basis .............................................................................................................................................. 26 Supplementary I nformation ...................................................................................................................................................................... 27 Normal Cost by Benefit Group ................................................................................................................................................................. 28 Summary of Valuation Data ..................................................................................................................................................................... 29 Status of PEPRA Transition ..................................................................................................................................................................... 30 Surcharge for Class 1 Benefits ................................................................................................................................................................ 30 Plan's Major Benefit Options .................................................................................................................................................................... 31 A-6 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 1 Actuarial Certification It is our opinion that the valuation has been performed in accordance with generally accepted actuarial principles as well as the applicable Standards of Practice promulgated by the Actuarial Standards Board . While this report, consisting of Section 1 and Section 2, is intended to be complete, our office is available to answer questions as needed. All of t he undersign ed are actuaries who satisfy the Qualification Standards for Actuaries Issuing Statements of Actuarial Opinion in the United States of the American Academy of Actuaries with regard to pensions. Actuarial Methods and Assumptions It is our opinion that the assumptions and methods, as recommended by the Chief Actuary and adopted by the CalPERS Board of Administration, are internally consistent and reasonable for this plan. Randall Dziubek, ASA, MAAA Deputy Chief Actuary, Valuation Services , CalPERS Scott Terando , ASA, EA, MAAA, FCA, CFA Chief Actuary, CalPERS Actuarial Data and Rate Plan Results To the best of my knowledge and having relied upon the attestation above that the actuarial methods and assumptions are reasonable as well as the information in Section 2 of this report, this report is complete and accurate and contains sufficient information to disclose, fully and fairly, the funded condition of the rate plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool and satisfies the actuarial valuation requirements of Government Code section 7504. This valuation and related validation work was performed by the CalPERS Actuarial Office . The valuation was based on the member and financial data as of June 30, 2024, 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 . Alex Grunder, ASA, MAAA Senior Actuary, CalPERS A-7 Highlights and Executive Summary • Introduction 3 • Purpose of Section 1 3 • Summary of Key Valuation Results 4 • Changes Since the Prior Year’s Valuation 5 • Subsequent Events 5 A-8 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 3 Introduction This report presents the results of the June 30, 2024 , actuarial valuation of the rate plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool of the California Public Employees’ Retirement System (CalPERS). This actuarial valuation sets the minimum required contributions for fiscal year (FY) 2026-27. Purpose of Section 1 This Section 1 report for the rate plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool of CalPERS was prepared by the Actuarial Office using data as o f June 30, 2024. This report contains actuarial information for the following rate plan(s). • 1107, Miscellaneous First Tier Plan • 23274, Miscellaneous Second Tier Plan • 26567, PEPRA Miscellaneous Plan The purpose of the valuation is to: • Set forth the assets and accrued liabilities of these rate plans as of June 30, 2024; • Determine the minimum required employer contributions for th ese rate plans for FY July 1, 2026, through June 30, 2027; • Determine the required member contribution rate for FY July 1, 2026, through June 30, 2027, for employees subject to the California Public Employees' Pension Reform Act of 2013 (PEPRA); and • Provide actuarial information as of June 30, 2024, 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 valuation report for such purposes is available on the CalPERS website (www.calpers.ca.gov). The measurements shown in this actuarial valuation may not be ap plicable for other purposes. The agency should contact a CalPERS actuary before disseminating any portion of this report for any reason that is not explicitly described above. Future actuarial measurements may differ significantly from the current measure ments 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 the Actuarial Standards of Practice: • 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 2021. • Plan maturity measures indicating ho w sensitive a plan may be to the risks noted above. • The funded status on a termination basis. • A low-default-risk obligation measure (LDROM) of benefit costs accrued as of the valuation date. A-9 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 4 Summary of Key Valuation Results Below is a brief summary of key valuation results along with page references where more detailed information can be found . Required Employer Contributions — page 8 Fiscal Year 2025-26 Fiscal Year 2026-27 Employer Normal Cost Rate s Rate Plan 1107 14.18% 14.16% Rate Plan 23274 10.19% 10.18% Rate Plan 26567 7.96% 7.93% Unfunded Accrued Liability (UAL) Contribution Amount $1,510,617 $1,680,864 Paid either as Option 1) 12 Monthly Payments of $125,884.75 $140,072.00 Option 2) Annual Prepayment in July $1,461,735 $1,626,473 Member Contribution Rates — page 10 Fiscal Year 2025-26 Fiscal Year 2026-27 Rate Plan 1107 8.00% 8.00% Rate Plan 23274 7.00% 7.00% Rate Plan 26567 7.75% 7.75% Projected Employer Contributions — page 14 Normal Cost (% of payroll) Annual Fiscal Year Rate Plan 1107 Rate Plan 23274 Rate Plan 26567 UAL Payment 2027-28 14.2% 10.2% 7.9% $1,754,000 2028-29 14.2% 10.2% 7.9% $1,918,000 2029-30 14.2% 10.2% 7.9% $1,933,000 2030-31 14.2% 10.2% 7.9% $1,943,000 2031-32 14.2% 10.2% 7.9% $1,980,000 Funded Status — Funding Policy Basis — page 12 June 30, 2023 June 30, 2024 Entry Age Accrued Liability (AL) $59,211,296 $62,848,046 Market Value of Assets (MVA) 41,323,098 45,195,988 Unfunded Accrued Liability (UAL) [AL – MVA] $17,888,198 $17,652,058 Funded Ratio [MVA ÷ AL ] $59,211,296.00 69.8% 71.9% Summary of Valuation Data — Page 29 June 30, 2023 June 30, 2024 Active Member Count 90 89 Annual Covered Payroll $6,953,481 $7,608,660 Transferred Member Count 75 86 Separated Member Count 139 136 Retired Members and Beneficiaries Count 118 123 A-10 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 5 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. For pooled rate plans, voluntary benefit changes by plan amendment are generally included in the first valuation with a valuation date on or after the effective date of the amendment. 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. Board Policy On April 16, 2024, the board took action to modify the Funding Risk Mitigation Policy to remove the automatic change to the discount rate when the investment return exceeds various thresholds. Rather than an automatic change to the discount rate, a board discussion would be placed on the calendar. The 95 th percentile return in the Future Investment Return Scenarios exhibit in this report, which includes returns high enough to trigger a board discussion , does not reflect any change in the discount rate. Actuarial Methods and Assumptions Th ere are no significant changes to the actuarial methods or assumptions for the June 30, 2024, actuarial valuation. Report Enhancements Effective with the June 30, 2024, Actuarial Valuation, separate amortizat ion schedules for each tier of benefits are no longer necessary. Multiple amortization schedules, and thus multiple Section 1 reports, will be combined. We believe this gives the employer a clearer picture of the pension plan’s financial health and long -te rm costs. Subsequent Events This actuarial valuation report reflects fund investment return through June 30, 2024, as well as statutory changes, regulatory changes and board actions through January 202 5. CalPERS will be completing an Asset Liability Management (ALM) review process in November 2025 that will review the capital market assumptions and the CalPERS Total Fund Investment Policy and ascertain whether a change in the discount is warranted. In addition, the Actuarial Office will be presenting the findings of its Experience Study which reviews economic assumptions other than the discount rate as well as all demographic assumptions and makes recommendations to modify actuarial assumptions where appropriate. Any changes in actuarial assumptions will be reflected in the June 30, 2025, actuari al valuations. The 2024 annual benefit limit under Internal Revenue Code (IRC) section 415(b) and annual compensation li mits under IRC section 401(a)(17) and Government Code section 7522.10 were used for this valuation and are assumed to increase 2.3% per year based on the price inflation assumption. The actual 2025 limits, determined in October 2024, are not reflected. 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-11 Liabilities and Contributions • Determination of Required Contributions 7 • Required Employer Contributions 8 • Member Contribution Rates 10 • Breakdown of Entry Age Accrued Liability 11 • Allocation of Plan’s Share of Pool’s Experience 11 • Development of the Plan’s Share of Pool’s Assets 11 • Funded Status – Funding Policy Basis 12 • Additional Employer Contributions 13 • Projected Employer Contributions 14 • Schedule of Amortization Bases 15 • Amortization Schedule and Alternatives 17 • Employer Contribution History 19 • Funding History 19 A-12 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 7 Determination of Required Contributions Contributions to fund the plan are determined by an actuarial valuation performed each year. The valuation employs complex calculations based on a set of actuarial assumptions and methods. See Appendix A in Section 2 for information on the assumptions and methods used in this valuation. The valuation incorporates all plan experience through the valuation date and sets required contributions for the fiscal year that begins two years after the valuation date. Contribution Components Two components comprise required contributions: • Normal Cost — expressed as a percentage of pensionable payroll • Unfunded Accrued Liability (UAL) Contribution — expressed as a dollar amount Normal Cost represents the value of benefits allocated to the upcoming year for active employees. If all plan experience exactly matched the actuarial assumptions, normal cost would be sufficient to fully fund all benefits. The em ployer and employee s each pay a share of the normal cost with contributions payable as part of the regular payroll reporting process. The contribution rate for Classic members is set by statute based on benefit formula whereas for PEPRA members it is based on 50% of the total normal cost. When plan experience differs from the actuarial assumptions, UAL emerges. The new UAL may be positive or negative. If the total UAL is positive (i.e., accrued liability exceeds assets), the employer is required to make contributions to pay off the UAL over time. This is called the UAL Contribution component. There is an option to prepay this amount during July of ea ch fiscal year, otherwise it is paid monthly. In measuring the UAL each year, plan experience is split by source. Common sources of UAL include investment experience different than expected , non-investment experience different than expected , assumption changes and benefit changes. Each source of UAL (positive or negative) forms a base that is amortized, or paid off, over a specified period of time in accordan ce with the CalPERS Actuarial Amortization Policy. The UAL Contribution is the sum of the payments on all bases. See the Schedule of Amortization Bases section of this report for an inventory of existing bases and Appendix A in Section 2 for more information on the amortization policy. A-13 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 8 Required Employer Contributions The required employer contributions in this report do not reflect any cost sharing arrangement between the agency and the employees. For employee contribution rates, see Member Contribution Rates . Fiscal Year Required Employer Contributions 2026-27 Employer Normal Cost Rate Classic Rate Plan 1107 14.16% Classic Rate Plan 23274 10.18% PEPRA Rate Plan 26567 7.93% Plus Unfunded Accrued Liability (UAL) Contribution Amount † $1,680,864 Paid either as 1) Monthly Payment $140,072.00 Or 2) Annual Prepayment Option‡ $1,626,473 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) and the Unfunded Accrued Liability (UAL) Contribution Amount (billed monthly (1) or p repaid annually (2) in dollars). †The required payment on amortization bases does not take into account any additional discretionary payment made after April 30, 2025. ‡Only the UAL portion of the employer contribution can be prepaid (which mus t be received in full no later than July 31). Development of Normal Cost as a Percentage of Payroll Fiscal Year Fiscal Year 2025-26 2026-27 Classic Rate Plan 1107 Base Total Normal Cost for Formula 21.43% 21.41% Surcharge for Class 1 Benefits 1 0.72% 0.72% Plan's Total Normal Cost 22.15% 22.13% Offset Due to Employee Contributions 2 (7.97%) (7.97%) Employer Normal Cost for Rate Plan 1107 14.18% 14.16% Classic Rate Plan 23274 Base Total Normal Cost for Formula 17.13% 17.12% Surcharge for Class 1 Benefits 1 0.00% 0.00% Plan's Total Normal Cost 17.13% 17.12% Offset Due to Employee Contributions 2 (6.94%) (6.94%) Employer Normal Cost for Rate Plan 23274 10.19% 10.18% 1 See Surcharge for Class 1 Benefits in the supplementary information section of this report. 2 This is the expected employee contributions, taking into account individual benefit formula and any offset from the use of a modified formula, divided by projected annual payroll. For member contribution rates above the breakpoint for each benefit formula, see Member Contribution Rates . A-14 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 9 Required Employer Contributions (continued) Development of Normal Cost as a Percentage of Payroll (continued) Fiscal Year Fiscal Year 2025-26 2026-27 PEPRA Rate Plan 26567 Base Total Normal Cost for Formula 15.71% 15.68% Surcharge for Class 1 Benefits 1 0.00% 0.00% Plan's Total Normal Cost 15.71% 15.68% Offset Due to Employee Contributions 2 (7.75%) (7.75%) Employer Normal Cost for Rate Plan 26567 7.96% 7.93% 1 See Surcharge for Class 1 Benefits in the supplementary information section of this report. 2 This is the expected employee contributions, taking into account individual benefit formula and any offset from the use of a modified formula, divided by projected annual payroll. For member contribution rates above the breakpoint for each benefit formula, see Member Contribution Rates . A-15 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 10 Member Contribution Rates The required member contributions in this report do not reflect any cost sharing arrangement between the agency and the employees. Classic Members Each member contributes toward their retirement based upon the retirement formula. The standard Classic member contribution rate above the breakpoint, if any, is as described below. Benefit Formula Percent Contributed above the Breakpoint Miscellaneous, 1.5% at age 65 2% Miscellaneous, 2% at age 60 7% Miscellaneous, 2% at age 55 7% Miscellaneous, 2.5% at age 55 8% Miscellaneous, 2.7% at age 55 8% Miscellaneous, 3% at age 60 8% Auxiliary organizations of the CSU system may elect reduced contribution rates for Miscellaneous members, in which case the contribution rate above the breakpoint is 6% if members are not covered by Social Security and 5% if they are. PEPRA Members 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 rate 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 of the plan change by more than 1% from the base total normal cost rate established for the plan , the new member rate shall be 50% of the new normal cost rate rounded to the nearest quarter percent. The table below shows the determination of the PEPRA member contribution rates effective July 1, 2026, based on 50% of the total normal cost rate as of the June 30, 2024, valuation. Basis for Current Rate Rates Effective July 1, 2026 Rate Plan Identifier Benefit Group Name Total Normal Cost Member Rate Total Normal Cost Change in Normal Cost Adj. Needed Member Rate 26567 PEPRA Miscellaneous Plan 15.43% 7.75% 15.68% 0.25% No 7.75% A-16 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 11 Breakdown of Entry Age Accrued Liability Active Members $15,993,954 Transferred Members 7,935,664 Separated Members 3,205,819 Members and Beneficiaries Receiving Payments 35,712,609 Total $62,848,046 Allocation of Plan’s Share of Pool’s Experience It is the policy of CalPERS to ensure equity within the risk pools by allocating the pool’s experience gains/losses and assum ption changes in a manner that treats each employer equitably and maintains benefit security for the members of the System while minimizing substantial variations in employer contributions. The pool’s experience gains/losses and impact of assumption/method changes is allocated to the plan as follows: 1. Plan’s Accrued Liability $62,848,046 2. Projected UAL Balance at 6/30/2024 17,998,486 3. Other UAL Adjustments (Golden Handshake, Prior Service Purchase, etc.) 0 4. Adjusted UAL Balance at 6/30/2024 for Asset Share 17,998,486 5. Pool’s Accrued Liability1 24,701,567,178 6. Sum of Pool’s Individual Plan UAL Balances at 6/30/20241 5,686,499,631 7. Pool’s 2023-24 Investment (Gain)/Loss1 (476,088,386) 8. Pool’s 2023-24 Non-Investment (Gain)/Loss1 305,188,638 9. Plan’s Share of Pool’s Investment (Gain)/Loss: [(1) - (4)] ÷ [(5) - (6)] × (7) (1,122,918) 10. Plan’s Share of Pool’s Non -Investment (Gain)/Loss: (1) ÷ (5) × (8) 776,490 11. Plan’s New (Gain)/Loss as of 6/30/2024: (9) + (10) (346,428) 12. Increase in Pool’s Accrued Liability due to Change in Assumptions 1 0 13. Plan’s Share of Pool’s Change in Assumptions: (1) ÷ (5) × (12) 0 14. Increase in Pool’s Accrued Liability 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) (1,122,918) 1 Does not include plans that transferred to the pool on the valuation date. Development of the Plan’s Share of Pool’s Assets 18. Plan’s UAL: (2) + (3) + (11) + (13) + (15) $17,652,058 19. Plan’s Share of Pool’s Market Value of Assets (MVA): (1) - (18) $45,195,988 For a reconciliation of the pool’s Market Value of Assets (MVA), information on the fund’s asset allocation and a history of CalPERS investment returns, see Section 2, which can be found on the CalPERS website (www.calpers.ca.gov). A-17 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 12 Funded Status – Funding Policy Basis The table below provides information on the 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 metho d 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 referred to as the Accrued Liabi lity 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 as sets divided by the funding target. The funded ratio is a relative measure of the funded status and allows for comparisons between plans of different siz es. June 30, 2023 June 30, 2024 1. Present Value of Benefits $71,157,399 $75,665,121 2. Entry Age Accrued Liability 59,211,296 62,848,046 3. Market Value of Assets (MVA) 41,323,098 45,195,988 4. Unfunded Accrued Liability (UAL) [(2) – (3)] $17,888,198 $17,652,058 5. Funded Ratio [(3) ÷ (2)] 69.8% 71.9 % A funded ratio of 100% (UAL of $0) implies that the funding of the plan is on target and that future contributions equal to t he 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 tow ard the UAL will be requ ired. Plans with a funded ratio greater than 100% have a negative UAL (or surplus) but are required 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 th is report would be less/greater than the results shown. Therefore, for example, if actual average future returns are less than the expected return, calculated normal costs and UAL contributions will not be sufficient to ful ly 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 illustra tive purposes, funded s tatuses based on a 1% lower and higher average future investment return (discount rate) are as follows: 1% Lower Average Return Current Assumption 1% Higher Average Return Discount Rate 5.8% 6.8% 7.8% 1. Entry Age Accrued Liability $71,567,538 $62,848,046 $55,734,806 2. Market Value of Assets (MVA) 45,195,988 45,195,988 45,195,988 3. Unfunded Accrued Liability (UAL) [(1) – (2)] $26,371,550 $17,652,058 $10,538,818 4. Funded Ratio [(2) ÷ (1)] 63.2 % 71.9% 81.1% The Risk Analysis section of the report provides additional information regarding the sensitivity of valuatio n results to the expected investment return and other factors. Also provided in that section are measures of funded status that are appropriat e for assessing the sufficiency of plan assets to cover estimated termination liabilities. A-18 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 13 Additional Employer Contributions The CalPERS amortization policy provides a systematic methodology for paying down a plan’s unfunded accrued liability (UAL) over a reasonable period of years. The projected schedule of required payments for this plan under the amortization policy is provided in Amortization Schedule and Alternatives . Certain aspects of the policy such as 1) layered amortization bases (positive and negative) w ith different remaining payoff periods, and 2) the phase -in of required payments toward investment gains and losses, can result in volatility in year -to -year projected UAL payments. Provided below is information on how an Additional Discretionary Payment (ADP), together with your required UAL payment of $1,680,864 for FY 2026-27, may better accomplish your agency’s specific objectives with regard to either smoothing out projected future payments or achieving a greater reduction in UAL than would otherwise occur when making only the minimum required payment. Such ad ditional payments are allowed at any time and can also result in significant long -term savings. Fiscal Year 2026-27 Employer Contribution Versus Agency Funding Objectives The interest-to -payment ratio for the FY 2026-27 minimum required UAL payment is 66%, which means the required payment of $1,680,864 includes $1,109,513 of interest cost and results in a $571,351 reduction in the UAL , as can be seen in Amortization Schedule and Alternatives (see columns labelled Current Amo rtization Schedule). If th e interest-to -payment ratio is close to 100%, and the reduction in the UAL is small, it may indicate that required contributions will be increasing in the coming years, which would be shown in Projected Employer Contributions . Another measure that can be used to evaluate how well the FY 2026-27 required UAL payment meets the agency’s specific fundin g objectives is the number of years required to pay off the existing UAL if the annual payment were held constant in future years. With an annual payment of $1,680,864 it would take 16.9 years to pay off the current UAL. A result that is longer than the agency’s target funding period suggests that the option of supplementing the minimum payment with an ADP should be weighed against the agency’s budget constraints. Provided below are select ADP options for consideration. Making such an ADP during FY 2026-27 does not require an ADP be made in any future year, nor does it chan ge the remaining amortization period of any portion of unfunded liability. For information on permanent changes to amortization periods, see Amortization Schedule and Alternatives . Agencies considering making a n ADP should contact CalPERS for additional information. Fiscal Year 2026-27 Employer Contributions — Illustrative Scenarios If the Annual UAL Payment Each Year Were… The Current UAL Would be Paid Off in… This Would Require an ADP1 in FY 2026-27 of… Plus the Estimated Normal Cost of… Estimated Total Contribution $1,680,864 16.9 years $0 $768,634 $2,449,498 1,798,361 15 years 117,497 768,634 2,566,995 2,340,006 10 years 659,142 768,634 3,108,640 4,024,078 5 years 2,343,214 768,634 4,792,712 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 w ould have to be less or more than the amount shown to have the same effect on the UAL amortization. The calculatio ns above are based on the projected UAL as of June 30, 2026, as determined in the June 30, 2024, 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 year s 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. Additional Discretionary Payment History The following table provides a recent history of actual ADPs made to the p lan through April 30, 2025. Fiscal Year ADP Fiscal Year ADP 2019-20 $0 2022-23 $0 2020-21 0 2023-24 0 2021-22 0 2024-25 0 A-19 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 14 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, benefits, or funding will occur during the projection period. In particular, the investment return beginning with FY 2024-25 is assumed to be 6.80% per year, net of investment 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. The normal cost rates for each rate plan are assumed to remain constant . However, the employer contribution amounts will vary due to changes in payroll. The actuarial valuation does not include payroll beyond the valuation date. For the most realistic projections, the employer should apply projected payroll amounts to the rates below based on the most recent information available, such as current payroll as well as any plans to fill vacancies or add or remove positions. Covered Payroll June 30, 2024 Required Contribution Projected Future Employer Contributions (Assumes 6.80% Return for Fiscal Year 2024-25 and Beyond) Rate Plan Identifier 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 Normal Cost Rates (Percentage of Payroll) 1107 $1,612,569 14.16% 14.2% 14.2% 14.2% 14.2% 14.2% 23274 1,495,113 10.18% 10.2% 10.2% 10.2% 10.2% 10.2% 26567 4,500,978 7.93% 7.9% 7.9% 7.9% 7.9% 7.9% UAL Payment $1,680,864 $1,754,000 $1,918,000 $1,933,000 $1,943,000 $1,980,000 Unlike the normal cost rates, the required UAL payments are expected to vary significantly from the projections above due to experience, particularly investment experience. For projected contributions under alternate investment return scenarios, please see the Future Investment Return Scenarios exhibit. 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. For ongoing plans, investment gains and losses are amortized using an initial 5-year ramp. For more information, please see Amortization of Unfunded Actuarial Accrued Liability 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 th ere is a large i nvestment loss, the relatively small amortization payments during the initial ramp 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. A-20 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 15 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, 2024 . • The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuati on date: FY 2026-27. 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 sta rt of the fiscal year. The Unfunded Accrued Liability (UAL) is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first day of the fiscal year for which the contribution is being determined. The UAL is rolled forward each year by subtracting the expected payment on the UAL for the fiscal year and adjusting for interest. The expected payment on the UAL for FY 2024-25 is based on the actuarial valuation two years ago , adjusted for additional discretionary payments made on or before April 30, 2025, if necessary, and the expected payment for FY 2025-26 is based on the actuarial valuation one year ago. Reason for Base Date Est. Ramp Level 2026-27 Ramp Shape Escala- tion Rate Amort. Period Balance 6/30/24 Expected Payment 2024-25 Balance 6/30/25 Expected Payment 2025-26 Balance 6/30/26 Minimum Required Payment 2026-27 Investment (Gain)/Loss 6/30/13 100% Up/Dn 2.80% 19 4,018,293 301,940 3,979,500 310,394 3,929,332 319,085 Non-Investment (Gain)/Loss 6/30/13 100% Up/Dn 2.80% 19 (37,062) (2,785) (36,704) (2,863) (36,241) (2,943) Share of Pre-2013 Pool UAL 6/30/13 No Ramp 2.80% 10 3,594,013 378,530 3,447,218 389,128 3,279,488 400,024 Assumption Change 6/30/14 100% Up/Dn 2.80% 10 1,602,093 196,034 1,508,446 201,523 1,402,758 207,166 Investment (Gain)/Loss 6/30/14 100% Up/Dn 2.80% 20 (2,964,224) (215,150) (2,943,446) (221,174) (2,915,030) (227,367) Non-Investment (Gain)/Loss 6/30/14 100% Up/Dn 2.80% 20 3,385 246 3,361 253 3,328 260 Investment (Gain)/Loss 6/30/15 100% Up/Dn 2.80% 21 1,919,510 134,900 1,910,626 138,678 1,897,233 142,561 Non-Investment (Gain)/Loss 6/30/15 100% Up/Dn 2.80% 21 (162,260) (11,403) (161,509) (11,723) (160,377) (12,051) Assumption Change 6/30/16 100% Up/Dn 2.80% 12 675,106 71,283 647,346 73,278 615,637 75,330 Investment (Gain)/Loss 6/30/16 100% Up/Dn 2.80% 22 2,388,647 162,894 2,382,734 167,455 2,371,705 172,144 Non-Investment (Gain)/Loss 6/30/16 100% Up/Dn 2.80% 22 (307,452) (20,967) (306,691) (21,554) (305,271) (22,157) Assumption Change 6/30/17 100% Up/Dn 2.80% 13 828,442 82,156 799,873 84,456 766,984 86,821 Investment (Gain)/Loss 6/30/17 100% Up/Dn 2.80% 23 (1,303,247) (86,409) (1,302,569) (88,829) (1,299,344) (91,316) Non-Investment (Gain)/Loss 6/30/17 100% Up/Dn 2.80% 23 (69,391) (4,601) (69,355) (4,730) (69,183) (4,862) Assumption Change 6/30/18 100% Up/Dn 2.80% 14 1,427,739 133,762 1,386,590 137,507 1,338,773 141,357 Investment (Gain)/Loss 6/30/18 100% Up/Dn 2.80% 24 (418,227) (27,009) (418,754) (27,765) (418,536) (28,542) Method Change 6/30/18 100% Up/Dn 2.80% 14 397,855 37,274 386,389 38,318 373,064 39,391 Non-Investment (Gain)/Loss 6/30/18 100% Up/Dn 2.80% 24 214,050 13,823 214,320 14,210 214,209 14,608 Investment (Gain)/Loss 6/30/19 100% Up Only 0.00% 15 194,105 15,470 191,317 19,338 184,342 19,338 Non-Investment (Gain)/Loss 6/30/19 No Ramp 0.00% 15 181,140 17,705 175,160 17,705 168,774 17,705 A-21 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 16 Schedule of Amortization Bases (continued) Reason for Base Date Est. Ramp Level 2026-27 Ramp Shape Escala- tion Rate Amort. Period Balance 6/30/24 Expected Payment 2024-25 Balance 6/30/25 Expected Payment 2025-26 Balance 6/30/26 Minimum Required Payment 2026-27 Investment (Gain)/Loss 6/30/20 100% Up Only 0.00% 16 936,354 56,300 941,843 75,066 928,312 93,833 Non-Investment (Gain)/Loss 6/30/20 No Ramp 0.00% 16 155,984 14,789 151,307 14,789 146,312 14,789 Assumption Change 6/30/21 No Ramp 0.00% 17 182,852 16,863 177,859 16,863 172,526 16,863 Net Investment (Gain) 6/30/21 80% Up Only 0.00% 17 (4,431,002) (182,146) (4,544,073) (273,219) (4,570,714) (364,292) Non-Investment (Gain)/Loss 6/30/21 No Ramp 0.00% 17 (214,019) (19,737) (208,175) (19,737) (201,934) (19,737) Investment (Gain)/Loss 6/30/22 60% Up Only 0.00% 18 6,108,143 131,293 6,387,813 262,585 6,550,818 393,878 Non-Investment (Gain)/Loss 6/30/22 No Ramp 0.00% 18 903,067 81,207 880,553 81,207 856,508 81,207 Partial Fresh Start 6/30/22 60% Up Only 0.00% 18 911,591 19,594 953,330 39,188 977,658 58,783 Investment (Gain)/Loss 6/30/23 40% Up Only 0.00% 19 287,712 0 307,276 6,604 321,346 13,210 Non-Investment (Gain)/Loss 6/30/23 No Ramp 0.00% 19 975,289 0 1,041,609 93,666 1,015,640 93,665 Investment (Gain)/Loss 6/30/24 20% Up Only 0.00% 20 (1,122,918) 0 (1,199,276) 0 (1,280,827) (27,531) Non-Investment (Gain)/Loss 6/30/24 No Ramp 0.00% 20 776,490 0 829,291 0 885,683 79,644 Total 17,652,058 1,295,856 17,513,209 1,510,617 17,142,973 1,680,864 The (gain)/loss bases are the plan’s allocated share of the risk pool’s (gain)/los s for the fiscal year as disclosed in Allocation of Plan’s Share of Pool’s Experience earlier in this report. These (gain)/loss bases will be amortized in accordance with the CalPERS amortization policy in effect at the time the base was established . A-22 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 17 Amortization Schedule and Alternatives The amortization schedule on the previous page (s) shows the minimum contributions required according to the CalPERS amortization policy. Each year, m any agencies express a desire for a more stable pattern of payments or indicate 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 amo rtization 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 th e individual bases and remaining periods shown on the previous page, and 2) alternative “fresh start” amortization schedules 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 a CalPERS actuary. The current amortization s chedule 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 liability. The combination of positive and negative bases within an amortization schedule can result in unusual or problematic circumstances in future year s, 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 contributi on requirement. In any year when one of the above scenarios occurs, the actuary will consider corrective action such as replacing the existin g unfunded liability bases with a single “fresh start” base and amortizing it over a n appropriate period. The current amortization s chedule on the following page may appear to show that, based on the current amortization bases, one of the above scenarios will occur at some point in the future. It is impossible to know today whether such a scenario will in fact arise since there will be additional bases added to the amortization schedule in each future year. Should such a scenario arise in any future year, the actuary will take appropriate action based on guidelines in the CalPERS Actuarial Amortization Policy. A-23 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 18 Amortization Schedule and Alternatives (continued) Alternative Schedules Current Amortization Schedule 15 Year Amortization 10 Year Amortization Date Balance Payment Balance Payment Balance Payment 6/30/2026 17,142,973 1,680,864 17,142,973 1,798,361 17,142,973 2,340,006 6/30/2027 16,571,622 1,753,617 16,450 ,195 1,798,361 15,890,437 2,340,006 6/30/2028 15,886,236 1,918,391 15,710,309 1,798,361 14,552,729 2,340,006 6/30/2029 14,983,959 1,933,257 14,920,110 1,798,361 13,124,057 2,340,006 6/30/2030 14,004,959 1,942,514 14,076,178 1,798,361 11,598,235 2,340,006 6/30/2031 12,949,822 1,980,335 13,174,858 1,798,360 9,968,657 2,340,006 6/30/2032 11,783,852 1,970,316 12,212,250 1,798,361 8,228,268 2,340,006 6/30/2033 10,548,948 1,958,648 11,184,183 1,798,360 6,369,532 2,340,005 6/30/2034 9,242,128 1,926,450 10,086,209 1,798,361 4,384,403 2,340,005 6/30/2035 7,879,723 1,869,124 8,913,571 1,798,360 2,264,286 2,340,006 6/30/2036 6,483,915 1,232,636 7,661,195 1,798,361 6/30/2037 5,650,964 1,157,658 6,323,657 1,798,361 6/30/2038 4,838,859 1,077,979 4,895,166 1,798,360 6/30/2039 4,053,875 1,014,964 3,369,539 1,798,361 6/30/2040 3,280,633 973,607 1,740,168 1,798,361 6/30/2041 2,497,550 851,574 6/30/2042 1,787,334 723,572 6/30/2043 1,161,103 1,119,364 6/30/2044 83,261 86,045 6/30/2045 6/30/2046 6/30/2047 6/30/2048 6/30/2049 Total 27,170,915 26,975,411 23,400,058 Interest Paid 10,027,942 9,832,438 6,257,085 Estimated Savings 195,504 3,770,857 A-24 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 19 Employer Contribution History The table below provides a recent history of the employer contribution requirements for the plan , as determined by the annual actuarial valuation . Changes due to prepayments or plan amendments after the valuation report was finalized are not reflected. Employer Normal Cost Rate Valuation Date Contribution Year Rate Plan 1107 Rate Plan 23274 Rate Plan 26567 Unfunded Liability Payment 06/30/2015 2017-18 10.110% 7.200% 6.533% $496,196 06/30/2016 2018-19 10.609% 7.634% 6.842% 615,542 06/30/2017 2019-20 11.432% 8.081% 6.985% 744,967 06/30/2018 2020-21 12.361% 8.794% 7.732% 863,939 06/30/2019 2021-22 12.20% 8.65% 7.59% 1,002,749 06/30/2020 2022-23 12.21% 8.63% 7.47% 1,141,678 06/30/2021 2023-24 14.06% 10.10% 7.68% 1,070,317 06/30/2022 2024-25 14.13% 10.15% 7.87% 1,295,856 06/30/2023 2025-26 14.18% 10.19% 7.96% 1,510,617 06/30/2024 2026-27 14.16% 10.18% 7.93% 1,680,864 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 06/30/2015 $35,161,985 $26,970,215 $8,191,770 76.7% $5,673,471 06/30/2016 36,986,435 26,330,118 10,656,317 71.2% 5,997,450 06/30/2017 40,915,699 30,299,314 10,616,385 74.1% 6,283,821 06/30/2018 45,330,477 33,034,043 12,296,434 72.9% 6,573,264 06/30/2019 47,909,161 34,931,168 12,977,993 72.9% 6,310,553 06/30/2020 50,237,999 36,060,334 14,177,665 71.8% 6,076,490 06/30/2021 53,033,027 43,149,040 9,883,987 81.4% 6,257,934 06/30/2022 56,335,335 39,683,917 16,651,418 70.4% 6,670,412 06/30/2023 59,211,296 41,323,098 17,888,198 69.8% 6,953,481 06/30/2024 62,848,046 45,195,988 17,652,058 71.9% 7,608,660 A-25 Risk Analysis • Future Investment Return Scenarios 21 • Discount Rate Sensitivity 22 • Mortality Rate Sensitivity 23 • Maturity Measures 23 • Maturity Measures History 24 • Funded Status – Termination Basis 25 • Funded Status – Low-Default-Risk Basis 26 A-26 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 21 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 UAL contributions. The CalPERS Funding Risk Mitigation Policy stipulates that when the investment return exceeds the discount rate by at least 2% the board will consider adjustments to the discount rate. The projections below use a discount rate of 6.8% for all scenarios even though an annual return of 10.8% is high enough to trigger a board discussion on the discount rate . 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 employer normal cost rates are not affected by Investment returns, and since no future assumption changes are being reflected, the projected employer normal cost rates for every future investment return scenario are the same as those shown earlier in this report. See Projected Employer Contributions for more information on projecting the employer normal cost. The first table shows projected UAL 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, 2044. Assumed Annual Return FY 2024-25 through FY 2043-44 Projected Employer UAL Contributions 2027-28 2028-29 2029-30 2030-31 2031-32 3.0% (5th percentile) $1,796,000 $2,046,000 $2,190,000 $2,374,000 $2,634,000 10.8% (95th percentile) $1,709,000 $1,781,000 $1,649,000 $1,451,000 $0 Required UAL 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, si ngle 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 one and two standard deviation investment loss es in FY 2024-25 on the FY 2027-28 contribution requirements. Note that a single -year investment gain or loss decreases or increases the required U AL 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 yea r. 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 2027-28. Assumed Annual Return for Fiscal Year 2024-25 Required Employer UAL Contributions Projected Employer UAL Contributions 2026-27 2027-28 (17.2%) (2 standard deviation loss) $1,680,864 $2,019,000 (5.2%) (1 standard deviation loss) $1,680,864 $1,886,000 • Without investment gains (returns higher than 6.8%) in FY 2025-26 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 2024-25. • The Pension Outlook Tool can be used to model projected contributions for these scenarios beyond FY 2027-28 as well as to model other investment return scenarios . A-27 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 22 Discount Rate Sensitivity The discount rate assumption is calcul ated 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 will 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, 2024, 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 Discount Rate Due to Varying the Real Rate of Return Assumption As of June 30, 2024 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 Rate Plan 1107 27.95% 22.13% 17.72% Rate Plan 23274 21.40% 17.12% 13.84% Rate Plan 26567 19.63% 15.68% 12.68% b) Accrued Liability $71,567,538 $62,848,046 $55,734,806 c) Market Value of Assets $45,195,988 $45,195,988 $45,195,988 d) Unfunded Liability/(Surplus) [(b) - (c)] $26,371,550 $17,652,058 $10,538,818 e) Funded Ratio 63.2% 71.9% 81.1% Sensitivity to the Discount Rate Due to Varying the Price Inflation Assumption As of June 30, 2024 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 Rate Plan 1107 23.23% 22.13% 20.16% Rate Plan 23274 17.98% 17.12% 15.59% Rate Plan 26567 16.54% 15.68% 14.26% b) Accrued Liability $65,115,190 $62,848,046 $58,421,587 c) Market Value of Assets $45,195,988 $45,195,988 $45,195,988 d) Unfunded Liability/(Surplus) [(b) - (c)] $19,91 9,202 $17,652,058 $13,225,599 e) Funded Ratio 69.4% 71.9% 77.4% A-28 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 23 Mortality Rate Sensitivity The following table looks at the change in the June 30, 2024, plan costs and funded status under two different longevity scenarios, namely assuming rates of post-retirement 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, 2024 10% Lower Mortality Rates Current Assumptions 10% Higher Mortality Rates a) Total Normal Cost Rate Plan 1107 22.48% 22.13% 21.80% Rate Plan 23274 17.44% 17.12% 16.83% Rate Plan 26567 15.95% 15.68% 15.43% b) Accrued Liability $64,099,059 $62,848,046 $61,697,025 c) Market Value of Assets $45,195,988 $45,195,988 $45,195,988 d) Unfunded Liability/(Surplus) [(b) - (c)] $18,903,071 $17,652,058 $16,501,037 e) Funded Ratio 70.5% 71.9% 73.3% 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 include only the rate plans covered in this report. 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 inf ancy will have a very low ratio of retiree liability to total liability. As the plan matures, the ratio increas es . A mature plan will often have a ratio above 60%-65%. Ratio of Retiree Accrued Liability to Total Accrued Liability June 30, 2023 June 30, 2024 1. Retiree Accrued Liability $33,726,864 $35,712,609 2. Total Accrued Liability $59,211,296 $62,848,046 3. Ratio of Retiree AL to Total AL [(1) ÷ (2)] 57% 57% Another measure of the maturity level of CalPERS and its plans is 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 below one. To calculate the support ratio for the rate plan, retirees and beneficiaries receiving a continuance ar e 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 suppo rt 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, 202 3, 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 agen cy plans, a retiree with service from more than one CalPERS agency is counted as a retiree more than once. Support Ratio June 30, 2023 June 30, 2024 1. Number of Actives 90 89 2. Number of Retirees 118 123 3. Support Ratio [(1) ÷ (2)] 0.76 0.72 A-29 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 24 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 increases, 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 contributi ons 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 o f market value of assets to payroll. Plans that have a higher AVR experience more volatile employer contributions (as a percentage of payroll) due to investment return. For example, a plan with an AVR of 8 may experience twice the contribution volatility d ue to investment return volatility than a plan with an 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 contributions (as a percentage of payroll) due to changes in liability. For example, a plan with an LVR of 8 is expected to have twice the contribution volatility of a plan with an LVR of 4 when there is a change in accrued liability, such as when there is a change in actuarial assumptions . It should be noted that this ratio indicates a longer-term potential for contribution volatility, since the AVR, described above, will tend to move closer to the LVR as the funded ratio approaches 100%. Contribution Volatility June 30, 2023 June 30, 2024 1. Market Value of Assets $41,323,098 $45,195,988 2. Payroll $6,953,481 $7,608,660 3. Asset Volatility Ratio (AVR) [(1) ÷ (2)] 5.9 5.9 4. Accrued Liability $59,211,296 $62,848,046 5. Liability Volatility Ratio (LVR) [(4) ÷ (2)] 8.5 8.3 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 46% 1.25 4.8 6.5 06/30/2018 50% 1.24 5.0 6.9 06/30/2019 55% 1.03 5.5 7.6 06/30/2020 56% 0.92 5.9 8.3 06/30/2021 58% 0.82 6.9 8.5 06/30/2022 58% 0.78 5.9 8.4 06/30/2023 57% 0.76 5.9 8.5 06/30/2024 57% 0.72 5.9 8.3 A-30 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 25 Funded Status – Termination Basis The funded status measured on a termination basis is an estimate d range for the financial position of the plan had the contract with CalPERS been terminated as of June 30, 2024. The accrued liability on a termination basis (termination liability) is calculated differently from the plan ’s ongoing funding liability. For the termination liability calculation, both compensation and service are frozen as of the valuation date and no future pay increases or service accruals are assumed. This measure of funded status is not appropriate for asses sing 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 lia bility is the present value of the benefits earned through the valuation date. A more conservative investment policy and asset allocation strategy was adopted by the board for the Terminated Agency Pool. The Terminated Agency Pool has limited funding sour ces 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 remainder of the PERF and consequently, a lower discount rate assumption. The lower discount rate for the Terminated Agency Pool results in higher liabilities for terminated plans. The discount rate used for actual termination va luations is a weighted average of the 10 -year and 30 -year Treasury yields where the weights are based on matching asset and liability durations as of the termination date. The discount rates used in the following analysis is based on 20 -year Treasury bonds , which is a good proxy for most plans. The discount rate upon contract termination will depend on actual Treasury rates on the date of termination , which varies over time, as demonstrated below. Valuation 20-Year Valuation 20-Year Date Treasury Rate Date Treasury Rate 06/30/2015 2.83% 06/30/2020 1.18% 06/30/2016 1.86% 06/30/2021 2.00% 06/30/2017 2.61% 06/30/2022 3.38% 06/30/2018 2.91% 06/30/2023 4.06% 06/30/2019 2.31% 06/30/2024 4.61% As Treasury rates are variable, the table below shows a range for the termination liability using discount rates 1% below and above the 20 -year Treasury rate on the valuation date. The price inflation assumption is the 20 -year Treasury breakeven inflation rate, that is, the difference between the 20 -year inflation indexed bond and the 20 -year fixed -rate bond. The Market Value of Assets (MVA) also varies with interest rates and will fluctuate depending on other market conditions on t he date of termination. Since it is not possible to approximate how the MVA will change in different interest rate environments, the results below use the MVA as of the valuation date. Discount Rate: 3.61% Price Inflation: 2.45% Discount Rate: 5 .61% Price Inflation: 2.45% 1. Termination Liability1 $94,365,615 $70,903,558 2. Market Value of Assets (MVA) 45,195,988 45,195,988 3. Unfunded Termination Liability [(1) – (2)] $49,169,627 $25,707,570 4. Funded Ratio [(2) ÷ (1)] 47.9% 63.7% 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. In order to terminate, first contact our Pension Contract Services unit to initiate a Resolution of Intent to Terminate. The completed Resolution will allow a CalPERS actuary to provide a preliminary termination valuation with a more up -to -date estimate of the plan’s assets and liabilities. Before beginning this process, please c onsult with a CalPERS actuary. A-31 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 26 Funded Status – Low-Default-Risk Basis Actuarial Standard of Practice (ASOP) No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributio ns, requires the disclosure of a low -default-risk obligation measure (LDROM) of benefit costs accrued as of the valuation date using a discount rate based on the yields of high quality fixed income securities with cash flows that replica te expected benefit payments. Conceptually, this measure represents the level at which financial markets would value the accrued plan costs, and would be approximately equal to the cost of a portfolio of low -default-risk bonds with similar financial characteristics to accrue d plan costs. As permitted in ASOP No. 4, the Actuarial Office uses the Entry Age Actuarial Cost Method to calculate the LDROM. This methodology is in line with the measure of “benefit entitlements” calculated by the Bureau of Economic Analysis and used b y the Federal Reserve to report the indebtedness due to pensions of plan sponsors and, conversely, the household wealth due to pensions of plan members. As shown below, the discount rate used for the LDROM is 5.35%, which is the Standard FTSE Pension Liab ility Index1 discount rate as of June 30, 2024 . Selected Measures on a Low -Default-Risk Basis June 30, 2024 Discount Rate 5.35% 1. Accrued Liability – Low-Default-Risk Basis (LDROM) a) Active Members $20,296,158 b) Transferred Members 10,611,982 c) Separated Members 3,915,763 d) Members and Beneficiaries Receiving Payments 41,313,232 e) Total $76,137,135 2. Market Value of Assets (MVA) 45,195,988 3. Unfunded Accrued Liability – Low-Default-Risk Basis [(1e) – (2)] $30,941,147 4. Unfunded Accrued Liability – Funding Policy Basis 17,652,058 5. Present Value of Unearned Investment Risk Premium [(3) – (4)] $13,289,089 The difference between the unfunded liabilities on a low -default-risk basis and on the funding policy basis represents the present value of the inves tment risk premium that must be earned in future years to keep future contributions for currently accrued plan costs at the levels anticipated by the funding policy. Benefit security for members of the plan relies on a combination of the assets in the pla n, the investment income generated from those assets, and the ability of the plan sponsor to make necessary future contributions. If future returns fall short of 6.8%, benefit security could be at risk without higher than currently anticipated future contr ibutions. The funded status on a low -default-risk basis is not appropriate for assessing the sufficiency of plan assets to cover the cost of settling the plan’s benefit obligations (see Funded Status – Termination Basis), nor is it appropriate for assessing the need for future contributions (see Funded Status – Funding Policy Basis ). 1 This index is based on a yield curve of hypothetical AA -rated zero-coupon corporate bonds whose maturities range from 6 months to 30 years. The index represents the single discount rate that would produce the same present value as discounting a standardized set of liability cash flows for a fully open pension plan using the yield curve. The liabilit y cash flows are reasonably consistent with the pattern of benefits expected to be paid from the entire Public Employees’ Retirement Fund for current and former plan members. A different index, hence a different discount rate, may be needed to measure the LDROM for a subset of the fund, such as a single rate plan or a group of retirees. A-32 Supplementary Information • Normal Cost by Benefit Group 28 • Summary of Valuation Data 29 • Status of PEPRA Transition 30 • Surcharge for Class 1 Benefits 30 • Plan's Major Benefit Options 31 A-33 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Mis cellaneous Risk Pool Page 28 Normal Cost by Benefit Group The table below displays the Total Normal Cost broken out by benefit group as of the valuation date, June 30, 2024 . The Total Normal Cost is the annual cost of service accrual for the fiscal year for active employees and can be viewed as the long -term contribution rate for the benefits contracted. Generally, the normal cost for a benefit group subject to more generous benefi t provisions will exceed the normal cost for a group with less generous benefit s. Future measurements of the Total Normal Cost for each group may differ significantly from the current values due to such factors as: changes in economic and demographic assumptions, changes in plan benefits or applicable law. Rate Plan Identifier Benefit Group Name Total Normal Cost as of June 30, 2024 Offset due to Employee Contributions as of June 30, 2024 Employer Normal Cost as of June 30, 2024 Number of Actives Payroll on 6/30/2024 1107 Miscellaneous First Tier Plan 22.13% 7.97% 14.16% 16 $1,612,569 23274 Miscellaneous Second Tier Plan 17.12% 6.94% 10.18% 10 1,495,113 26567 PEPRA Miscellaneous Plan 15.68% 7.75% 7.93% 63 4,500,978 Hypothetical Plan Totals1 17.33% 7.64% 9.69% 89 $7,608,660 1 The hypothetical employer normal cost and contribution rates for the total plan are provided for illustrative purposes only and are based on the payroll as of the valuation date. This snapshot of the cost of providing benefits can be compared from one valuation date to the next as members retire from older tiers and are replaced by members in new tiers. The employer normal cost rate for contribution purposes varies by rate plan and applies to the covered payroll of members in each respective rate plan. Note that if a Benefit Group above has multiple bargaining uni ts, each of which has separately contracted for different benefits such as Employer Paid Member Contributions, then the Normal Cost shown for the respective benefit level does not reflect those differences . A-34 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Mis cellaneous Risk Pool Page 29 Summary of Valuation Data The table below shows a summary of the plan’s member data upon which this valuation is based: June 30, 2023 June 30, 2024 Active Members Counts 90 89 Average Attained Age N/A 44.2 Average Entry Age to Rate Plan N/A 37.3 Average Years of Credited Service N/A 6.1 Average Annual Covered Pay $77,261 $85,491 Annual Covered Payroll $6,953,481 $7,608,660 Present Value of Future Payroll $69,828,768 $76,362,565 Transferred Members Counts 75 86 Separated Members Counts 139 136 Retired Members and Beneficiaries* Counts 118 123 Average Annual Benefits $22,056 $22,647 Total Annual Benefits $2,602,590 $2,785,579 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. A-35 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Mis cellaneous Risk Pool Page 30 Status of PEPRA Transition The California Public Employees' Pension Reform Act of 2013 (PEPRA), which took effect in January 2013, changed CalPERS retirement benefits and placed compensation limits on new members joining CalPERS on or after January 1, 2013. One of the objectives of PEPRA was to improve the ability of employers to manage the costs of retirement benefits for their members. While such changes can reduce future benefit costs in a meaningful way, the full impact on employer contributions will not occur until all active members are subject to the rules and provisions of PEPRA. The table below illustrates the status of this tra nsition as of June 30, 2024 . Classic PEPRA PEPRA as a Percent of Total Active Members Count 26 63 70.8% Average Attained Age 50.5 41.6 Average Entry Age 35.4 38.2 Average Years of Credited Service 13.6 3.0 Average Annual Covered Payroll $119,526 $71,444 Annual Covered Payroll $3,107,682 $4,500,978 59.2% Present Value of Future Payroll $26,627,625 $49,734,940 65.1% Transferred Members Count 43 43 50.0% Separated Members Count 94 42 30.9% Retired Members and Beneficiaries Receiving Payments Count 119 4 3.3% Average Annual Benefit $23,150 $7,671 Total Annual Benefits $2,754,894 $30,685 1.1% Accrued Liabilities Active Members $13,028,053 $2,965,901 18.5% Transferred Members 6,477,559 1,458,105 18.4% Separated Members 2,897,882 307,937 9.6% Retired Members and Beneficiaries 35,313,333 399,276 1.1% Total $57,716,827 $5,131,219 8.2% Surcharge for Class 1 Benefits This plan has the following Class 1 benefit provisions which result in the surcharges indicated : Class 1 benefit provisions Rate Plan 1107 Rate Plan 23274 Rate Plan 26567 One Year Final Compensation (FAC 1) 0.72% N/A N/A Surcharge for Class 1 Benefits 0.72% 0.00% 0.00% A-36 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 31 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. Rate Plan 1107 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 $2,000 $2,000 $2,000 Survivor Allowance (PRSA) No No No COLA 2% 2% 2% A-37 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 32 Plan's Major Benefit Options (Continued) Shown below is a summary of the major optional benefits for which the agency has contracted. A description of principal stand ard and optional plan provisions is in Section 2. Rate Plan 23274 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 $2,000 Survivor Allowance (PRSA) No COLA 2% A-38 CalPERS Actuarial Valuation - June 30, 2024 All Rate Plans of the City of Rancho Palos Verdes in the Miscellaneous Risk Pool CalPERS ID: 3846845523 Rate Plans belonging to the Miscellaneous Risk Pool Page 33 Plan's Major Benefit Options (Continued) Shown below is a summary of the major optional benefits for which the agency has contracted. A description of principal st andard and optional plan provisions is in Section 2. Rate Plan 26567 Benefit Group Member Category Misc Demographics Actives Yes Transfers/Separated Yes Receiving Yes 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 $2,000 Survivor Allowance (PRSA) No COLA 2% A-39 Section 2 California Public Employees ’ Retirement System Risk Pool Actuarial Valuation Information Section 2 may be found on the CalPERS website (www.calpers.ca.gov) in the Forms & Publications section A-40 Home Newsroom CalPERS News CalPERS Reports Preliminary 9.3% Investment Return for 2023-24 Fiscal Year CalPERS Reports Preliminary 9.3% Investment Return for 2023-24 Fiscal Year July 15, 2024 Communications & Stakeholder Relations Contact: Office of Public Affairs (916) 795-3991 -newsroom@calpers.ca.gov SACRAMENTO, Calif. – CalPERS today reported a preliminary net return of 9.3% on its investments for the 12-month period ending June 30, 2024. Assets as of that date were valued at $502.9 billion. The investment return outpaced the discount rate of 6.8%, comparable to an assumed rate of return and a policy marker established by the CalPERS Board of Administration. It was also a notable improvement from the two most recent fiscal years, where investment returns were influenced by a variety of economic and geopolitical challenges. When using the preliminary net return of 9.3% to assess long-term obligations, the overall estimated funded status of the Public Employees’ Retirement Fund (PERF) stands at 75%. "Our investing strategy was well positioned to take advantage of improving economic conditions over the past 12 months," said CalPERS Chief Executive Officer Marcie Frost. "Meeting or exceeding our long-term investing goals is crucial for providing the retirement Menu B-1 benefits that our 2 million members and their families are counting on." Public equity investments, comprising 41.9% of the PERF, led the way among asset classes with an estimated 17.5% return. The private debt asset class, established in 2022, also performed strongly. Its estimated return was 17%. Fixed income and private equity reported returns of 3.7% and 10.9%, respectively. Real assets reported a negative return for FY 2023-24. "Our team remains focused on executing on our long-term investment strategy, building a diversified portfolio to navigate markets and mitigate volatility over our multi-generational investment horizon," said Interim Chief Investment Officer Dan Bienvenue. 1 Year Return of June 30, 2024 Asset Class Net Rate of Return (in percent) PERF 9.3 Public Equity 17.5 Income 3.7 Private Equity*10.9 Real Assets*-7.1 Private Debt*17.0 *Private market asset valuations lag one quarter and are as of March 31, 2024. Updated long-term return rates reflect the addition of recent lower investment returns in the calculation. Preliminary total fund annualized returns for the five-year period ending June 30, 2024, B-2 stood at 6.6%; the 10-year period at 6.2%; and the 20-year period at 6.7%. The 30-year return rate rose slightly to 7.7%. Preliminary net returns are an early snapshot of the CalPERS portfolio. CalPERS investment and finance staff and outside experts will review the portfolio's performance in the next few months to determine the final fiscal year returns for 2023-24. The ending value of the PERF for FY 2023-24 will be based on additional factors beyond investment returns, including employer and employee contributions, monthly payments to retirees, and various investment fees. Once finalized, fiscal year performance returns are used to set contribution levels for the State of California and school districts in the 2025-26 fiscal year and for contracting counties, cities, and special districts in the 2026-27 fiscal year. Under the current provisions of the CalPERS Asset Liability Management process, investment returns that exceed the established 6.8% discount rate require the Board of Administration to review whether to lower the rate for future years. This process is included in the CalPERS Funding Risk Mitigation Policy. Media Advisory A news media availability via Zoom to discuss fiscal year investment returns with CalPERS senior leaders will be held Monday, July 15 at 12:45 p.m. PDT. Credentialed media can send an email to newsroom@calpers.ca.gov for login information. About CalPERS For more than nine decades, CalPERS has built retirement and health security for state, school, and public agency members who invest their lifework in public service. Our pension fund serves more than 2 million members in the CalPERS retirement system and administers benefits for more than 1.5 million members and their families in our B-3 health program, making us the largest defined-benefit public pension in the U.S. For more information, visit www.calpers.ca.gov. Updated: July 15, 2024 We serve those who serve California. Copyright © 2025 California Public Employees' Retirement System (CalPERS) | State of California  |||| ||| | Contact Job Opportunities Subscribe Privacy Policy Conditions of Use Accessibility Bilingual Services Judges' Retirement System Site Map B-4 City of Rancho Palos Verdes Pension Plan Guidelines Revised: 8/1/2023 Page 1 of 6 Overview The Rancho Palos Verdes Pension Plan Guidelines provide a framework to enable the City to develop sound funding policies and provide Staff with 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 purpose of the pension guidelines is to proactively manage ongoing contributions to the City’s pension plans and Unfunded Accrued Liabilities (UAL). The Pension Plan Guidelines document the methods the City will use to determine its annual pension contributions. Annual pension contributions fund the long-term cost of benefits to the plan’s participants and annuitants. Nothing within these guidelines shall constitute an obligation upon the City, nor an implied contract. The City Council, with recommendations from the City’s Finance Advisory Committee (FAC), 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 to decision-makers during the annual budget process, • Demonstrate prudent financial management practices, and • Promote fiscal transparency to the public and employees on how pensions will be funded. Definitions Defined Benefit Plan – a pension plan where retirement benefits are based on a formula. The City has three benefit levels currently 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 8.00% 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 7.00% of their annual salary. • Tier 3 (PEPRA) – Employees subject to the California Public Employees' Pension Reform Act of 2013 (PEPRA); 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 C-1 City of Rancho Palos Verdes Pension Plan Guidelines Revised: 8/1/2023 Page 2 of 6 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, the Tier 3 rate is 6.75% 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 report prepared by CalPERS that contains actuarial information about City pension plans and determines the required contribution rates for the fiscal year beginning two years after the valuation date. Normal Costs – the annual cost of service accrual expressed as a percentage of total active payroll and viewed as the long-term contribution rate. Unfunded Accrued Liability (UAL) – an unfunded accrued liability, or UAL, is present when the Market Value of Assets for a pension plan is less than the plan’s Accrued Liabilities. The UAL balance is amortized in accordance with CalPERS’ amortization policy and included in the total minimum required employer contribution. 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. 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 C-2 City of Rancho Palos Verdes Pension Plan Guidelines Revised: 8/1/2023 Page 3 of 6 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 actuari al 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. C-3 City of Rancho Palos Verdes Pension Plan Guidelines Revised: 8/1/2023 Page 4 of 6 Guidelines A. Goals 1. To stabilize annual contributions and mitigate long-term impacts from the City’s UAL. Required contribution rates are determined by CalPERS and reported in the actuarial valuation report for each pension plan. 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. A plan’s funded status is determined by CalPERS and reported in the actuarial valuation report. B. Actuarial Determination of Plan Cost The actuarial determination of plan contributions are prepared by CalPERS and include the normal cost for current service and amortization of the UAL. Both components are calculated based on a set of actuarial assumptions approved and reviewed by the CalPERS Board of Administration. This set of assumptions can be categorized as demographic assumptions and economic assumptions. • Total minimum required employer contributions will be paid in accordance with the actuarial determination of plan costs. Additionally, t he City will review actuarial valuations annually to assess changes since the prior year’s valuation and actuarial methods and assumptions. 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 payments exceeding $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. 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. C-4 City of Rancho Palos Verdes Pension Plan Guidelines Revised: 8/1/2023 Page 5 of 6 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 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 FAC, may adopt an internal funding plan to proactively manage the City’s UAL. Given this occurrence, ADPs will be considered during the annual budget process in accordance with the funding strategy or as determined by the City Council. 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 Pension Trust is to achieve and maintain the 90% funding level for City pension plans over the next seven to ten years ending in FY 2030-31. 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. C-5 City of Rancho Palos Verdes Pension Plan Guidelines Revised: 8/1/2023 Page 6 of 6 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. 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. To promote transparency, the following information shall be made 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 Annual Comprehensive Financial Report (ACFR) shall be published on the website. This report includes information on the City’s annual contributions to the pension systems and funding status. • The City’s operating budget shall include the contributions to CalPERS. • The City’s annual contribution, usage, and balance of the Employee Pension Plan Service Fund and 115 Pension Trust (if established) shall be included in the year-end financial report to the City Council. • The City’s Pension Plan Guidelines and actuarial valuation reports shall be published on the City website. 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 are warranted and to ensure adequate resources are being accumulated. C-6