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eliminate open or rolling amortization periods. While the good news is that this new method is designed to pay off the unfunded liability, the city's contribution rates will have to increase. More recently, CaIPERS also adopted some assumption changes. The most notable is an expectation that mortality will continue to improve in the future, which will have a significant impact on contribution rates especially in Police Safety. Finally, CaIPERS will be making some changes to the risk pools that impact the Police Safety plan. Essentially, safety plans will now be combined into one risk pool and the contribution rates adjusted based on benefits provided in the risk pool. This is expected to have some stabilizing effect on the contribution rate over time and will mean that some agencies will no longer be paying in less than they arguably should. Mr. Bartel reviewed historical changes in the Fire Safety plan, noting that the number of active employees nearly doubled over 1994 largely because of the Pleasanton-Livermore merger. He also noted a change to the manner in which CaIPERS counted retirees in 2012, which would appear to indicate the number of retirees is decreasing when in fact the opposite is true. Specifically, through 2011 some retirees were counted twice based on the types of benefits received. The new MyCaIPERS data system creates only one record for each retiree. Councilmember Cook-Kallio asked if he had a sense of the extent to which the number of retirees is increasing. Mr. Bartel estimated a fairly stable rate of approximately ten per year. Councilmember Brown asked and Mr. Bartel confirmed that he believed the 2012 count to be correct. Mr. Bartel discussed how changes in the contribution policy will affect the Fire Safety plan. Under the previous actuarial basis, the city's contribution was based on an unfunded liability of $41 million. The June 30, 2013 valuation, however, used the new market value of assets policy and increased to unfunded liability to $62 million. Again, the increase in contribution rates will be phased in over a five year period but will be significant nonetheless. He reviewed the market value rate of return, which shows significant volatility when compared to CaIPERS most recent investment return of 7.5%. He noted that actuaries view the actual return as compared to the assumed rate of return when determining whether there was a gain or loss. As an example 2009 shows a -24% rate of return. However, when compared against the assumed rate of return of 7.75%, this really reflects a 32% loss. 2011 reflects a 21.7% gain, but when compared to what was expected this is really on 14%. He explained that while some will argue that recent investment returns have offset earlier losses, this is by and large only true if a zero rate of return were expected. He reviewed historical funded ratios and contribution rates, noting a sharp increase to the latter in the mid 2000s and then a steady increase over the last five to six years, as well as the basis for contribution projections. The latter includes the impact of the Public Employees Pension Reform Act and assumes that employees hired under that formula will increase from 50% to 100% over the next ten years. He reviewed the impact of contribution policy changes, which reflect a contribution rate that increases from 37% of employee pay in the 2014-15 Fiscal Year to the mid 40% range, assuming CaIPERS achieves its anticipated return of 7.5%. He noted that if the market value rate were instituted immediately instead of being phased in, the contribution rate of 37% would instead be 48%. However, good investment returns since 2012, changes to the second tier retirement formula and PEPRA will offset policy changes in future years and likely mean the city will not actually realize a 48% contribution rate. Mr. Bartel briefly reviewed the Police Safety plan, which is separated into three separate risk pools: 3% at 50, 3% at 55, and the PEPRA 2.7% at 57. His understanding is that upcoming changes to the risk pool will result in a blended contribution of all three pools as well as payment towards the unfunded liability which is not currently accounted for. He noted that projected contribution rates for Police Safety, which increase from about 27% in 2014-15FY to the mid 30s in 2019-20FY, are lower than for fire City Council Minutes Page 13 of 18 March 18,2014