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23. Introduce upcoming negotiations between City of Pleasanton and the Pleasanton Police Officers' Association (PPOA) and receive public input Julie Yuan-Miu introduced the item, stating the presentation will be divided into three parts; she will introduce the topic, John Bartel, President of John Bartel Actuary Services will cover the Police pension program in detail, and the City Manager will discuss the roadmap for pension sustainability. Ms. Yuan-Miu stated the MOU was negotiated in 2008 and it expired in May of 2011. The PPOA covers Police Officers and Sergeants, and the ranks of Lieutenant, Captain and Chief are unrepresented. Under the Meyers-Milius Brown Act, the two parties are required to meet and confer in good faith over items covered under the scope of representation. Major areas of discussion for negotiations include the term of the agreement, wage adjustments where the management team prepares a salary survey with similar sized and full service cities, the Consumer Price Index (CPI), benefits including retirement, health and non-health benefits, and operational issues. John Bartel gave a PowerPoint presentation of the Police pension plan, stating that the plan is in a risk pool meaning that the definition of terms does not matter much because it is the contribution rate provided by CaIPERS that determines everything. He said he would discuss contribution rates and what options the City has relative to putting in a second tier definition, which means a different benefit for people being hired after a certain date. Mr. Bartel presented a comparison of the contribution rate from the June 30, 2008 valuation which determines the City's 10/11 FY contribution to the June 30, 2009 valuation, which is the most recent valuation available from CaIPERS. Notable is that the contribution rate for 10/11 is dropping from 29.2% to 24.1%. When CaIPERS established the risk pools, they included in each agency's contribution a contribution for the unfunded liability that agencies brought with them. The City had the flexibility of paying that side fund or initial unfunded liability off. It was, in his opinion, a wise business decision to pay it off, as the City saved significant money. Fascinating is that the contribution rate for doing this is 10 percentage points lower than it otherwise would be. Having said this, the contribution rate increased during that period of time by about 5 percentage points. Significant is the fact that CaIPERS modified the assumptions they used primarily for mortality or longevity and retirement rates. Secondly, assumptions were exceeded by experience in two areas for the risk pool by investment losses in 2009 (1/3), and the industrial disability experience was quite adverse(2/3). Mr. Bartel presented the actuarial background of what contribution rates were projected. He stated they have taken into account in the projection of the rates CaIPERS investment rate return of June 30, 2010 of 13.3% which is compared to a 7%% assumption. On June 30, 2011, CaIPERS issued a press release stating they earned 20.7% for that June 30, 2011 fiscal year. Mr. Bartel said in trying to set a confidence level for contribution rates, they look at the CaIPERS investment mix and what they refer to as a poor investment return falls into a 75% confidence level, meaning they expect that 75% of the time, investment return will be better than that, and 25% of the time it will be worse. Similarly, the good investment return is a 25% confidence, meaning 25% of the time one might expect the return to be better, and 75% is expected to be worse. Therefore, they try to provide a range of reasonableness around the expected return to illustrate what the impact might be. Mr. Bartel displayed and explained the contribution rates which will gradually increase because they are not enough to offset the prior poor investment returns. He then explained how CaIPERS modified their assets and deferred contributions. In this regard, the City is investing in the contribution rate far less of the investment losses than would have otherwise been recognized. Further, the 2011/12 contribution is based on a 30-year amortization, with payments less than interest, which is a significant factor in the increased contribution rates. There are 4 formulas the City could contract for: 2% at 55; 2% at 50; 3% at 55; and 3% at 50. He briefly explained each, along with a series of options that retirees can select upon retirement. The City currently has 3% at 50, which provides a benefit which is a 3% multiplier times every year of service. It has the highest year or final year average earnings, does not provide a post retirement survivor allowance, has a 2% COLA and the City pays the 9% employer contribution. In the 2011/12 budget, there City Council Minutes Page 8 of 18 August 16,2011