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BACKGROUND There are many factors contributing to the rising cost of maintaining and adequately funding CaIPERS such that the City (and other public employers) will be faced with increased pension costs. Most of these factors cannot be controlled directly by the City of Pleasanton, but rather are reflective of external market conditions, court rulings, past decisions and recently adopted CaIPERS policies. They include: o Great Recession - The Great Recession that began in 2008 resulted in significant losses for the CaIPERS pension fund as well as for all other similarly managed public defined pension funds. CaIPERS lost 27% of its investment pool assets by the end of FY 2007/08. The system has not fully recovered from this economic collapse. • Pension Benefit Enhancements - Pension benefit enhancements negotiated with employee organizations across the state during the late 1990s and early 2000s are presenting additional challenges as the employees who received that enhanced benefit are now comprising a larger percentage of the pension obligations. e Limited Fund Growth Despite Positive Market Trends —There has been seven years of positive economic growth, yet the CaIPERS Investment Fund has only improved 3% in terms of funded status (61% funded status in 2008 and 64% funded in 2016 statewide). Thus, the CaIPERS fund has been unable to grow out of the losses incurred during the Great Recession. • Revising Mortality Tables and Other Actuarial Assumptions — CaIPERS revised their mortality assumptions to reflect the fact that retirees are living longer. As a result, this has increased future annual required contributions (ARC) payments to CaIPERS while also increasing the unfunded liabilities within the system. • Lowering the Assumed Rate of Return (Discount Rate) on Assets held in CaIPERS Investment Pool from 7.5% to 7.0% - The new discount rate is more reflective of the agency's investment returns over the past several years. Furthermore, reasonable arguments continue to be made by experts to lower the discount rate to 6.5% to reflect more realistic assumptions regarding projected investment returns. Any reduction to the discount rate affects the CaIPERS portfolio by lowering the system's funded status which in turn increases unfunded liabilities and annual payments for all public employers. • Shrinking Ratio of Active vs. Retired Employees —There is now or soon will be more retired CaIPERS members receiving pension payments than there are active employees contributing into the fund. In 2016 Pleasanton's ratio of active employees to retirees receiving CaIPERS pension benefits is 0.8 (502 active employees to 621 retirees'). In 1996, that ratio was 4.1 (391 active employees to ' Includes all LPFD employees, which is shared equally with the City of Livermore. Page 2 of 6