CCMIN12192017 - Laserfiche WebLink

John Bartell displayed a PowerPoint presentation addressing reasons for the current situation including Investment Losses, Enhanced Benefits, Contribution Policy at CALPERS, and Demographics. He reported many clients think of this as an unfunded liability, but he sees it as a cashflow problem; a contribution problem. Mr. Bartell noted high expectations that the City's unfunded pension liabilities will be paid off, but it will be painful, will have a serious impact on the City's budget and on the City's ability to provide other services. He addressed CALPERS changes including contribution policy changes, assumption changes, and changes to the discount rate. Councilmember Brown indicated CALPERS is returning 6.1% but they are stating 7% and stated she read an article stating CALPERS is looking 50 years into the future and asked for clarification. Mr. Bartell reported CALPERS has information from their outside advisors that investment returns, over the next decade, will be approximately 6.1%. He addressed the actuary approach compared with the CALPERS approach and they believe, after the next decade, investment return will be more than 8%. They combine the information and generate an average expected return of 7%. He opined the expectation may be more optimistic than it should be and worried there is not enough conservatism. In response to Councilmember Olson's question. Mr. Bartell reported CALPERS staff expects a 6.1% return for the next decade and recommends the Board adopt a 7% discount rate. Mr. Bartell reported his company makes projections using return assumptions over the next decade, that are not quite as low as 6.1%. Councilmember Narum asked whether the City will see a bit of a surplus and Mr. Bartell explained the City will see a range in terms of contribution projections if the expected happens, and if the returns are worse than expected. He noted there is a difference between actual return and expected future return. Councilmember Pentin confirmed the City will anticipate losses, thereby paying more, but will set its numbers based on what is anticipated in losses. Mr. Bartell agreed and suggested the City could set its budget rates, higher, or put money aside, pay the rates CALPERS is asking and use the money in case rates are higher. Mr. Bartell continued with the report addressing Risk Pool Changes and Risk Mitigation Strategy and the Discount Rate used as of Actuarial Valuation Date. CALPERS is recognizing the system is loaded with a high percentage of retirees and have a Risk Mitigation Policy designed to make investments more conservative. He provided a summary of miscellaneous demographic information, members included in valuation, and plan funded status. Councilmember Narum observed the Market Asset Value from 2013 to 2016 went down and asked whether the market was going up. Mr. Bartell reported in June 30, 2016, the market did not do well and listed items that drive up asset value including returns, contributions, and benefit payments coming out of the trust. Mr. Bartell addressed the Funded Ratio and changes because of the .com bubble and the recession and reported the 2016, 2017 and 2018 funded ratio will be impacted by the decrease in the discount rate. He presented the Funded Status, and Contribution Projections. Councilmember Brown noted the report states CALPERS will work towards a 6% discount rate and asked for clarification. Mr. Bartell explained the reduction has been built into the contribution projections. Councilmember Narum asked whether PEPRA employees are considered as well and Mr. Bartell reported as time goes by, the City will hire more and more PEPRA employees and eventually, classic employees will retire or leave. He reported that has been factored into the projections. City Council Minutes Page 6 of 10 December 19, 2017