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Allocating the combined $16.7 million (the proposed $14.2 million plus the $3.5 million included in the FY 2015/16 and 2016/17 budget)to pre-fund the City's pension and OPEB liabilities through the CaIPERS trusts will reduce the City's unfunded liabilities of $157.8 million to $141 million or a 10.6% reduction. As a result, the City's annual payments to CaIPERS will be reduced by approximately $1.5 million annually and $37.9 million over the next 30 years. BACKGROUND Unfunded Pension Related Liabilities The following is a summary of the City's non-Fire2 estimated unfunded pension and retiree health liabilities as of 6/30/2015: Miscellaneous Police Total Pension (CaIPERS) $74,787,541 $27,643,418 $102,430,959 Retiree Health (OPEB) 55,270,000 Total $157,750,959 The City's goal is to reduce this liability by at least 10% by FY 2018/19. The City has been working towards this goal by allocating a portion of year-end General Fund surpluses to additional payments to CaIPERS. The City currently makes payments to CaIPERS to cover the unfunded liabilities on a 30-year amortization schedule at a 7.5% annual interest rate. CaIPERS updates its calculations of the City's unfunded liabilities and amortization schedule every year based on CaIPERS investment earnings as well as any other assumption changes such as expected mortality rates of the City's retirees. The CaIPERS pension funds have experienced geometric mean rates3 of return of 9.4% over a 30-year period (1983 through 2013) to as low as 3.5% over the a 5-year period (2009 through 2013). Given the City's conservative investments of its pooled funds, the City is not able to achieve the level of returns CaIPERS is able to achieve. In fact, the City's geometric mean rate of return over the past five-years is less than 1%. Thus, during the period of the worst investment returns that CaIPERS has experienced, they still exceeded the City's investment returns by 250 basis points4. The City makes payments to CaIPERS's OPEB Trust Fund to cover the OPEB unfunded accrued liability on an amortization schedule at 7.61% annual interest rate through FY 2037-38. The OPEB unfunded accrued liability calculation is updated every two-years to include Trust Fund investment earnings from the prior two-years, changes 2 The Livermore-Pleasanton Fire Department(LPFD)pension related liabilities are$62.3 million for pension and $22.9 million for OPEB for a total of$85.2 million. Pleasanton is responsible for half of that liability or$42.6 million. This proposal;excludes LPFD's liabilities because the City of Livermore would need to allocate a similar amount towards prefunding LPFD's liabilities.The City of Livermore has not expressed an interest in prefunding LPFD's pension related liabilities to this extent. 3 Geometric mean rate of return is the average per period compounded over multiple periods. °3.5%=350 basis points(bps)and 1%= 100 bps. 350 bps-100 bps=250 bps. Page 2 of 4