Presentation — Alameda City Council, February 20, 2024

Pension Funding
Alameda
City Council Presentation
February 20, 2024

Pension Agenda
2 CalPERS
Pension Basics
Changes
to CalPERS &
Their Impact
Addressing
Unfunded
Liability
Comparison to
Other Agencies
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Pension Basics
3 © 2024 GovInvest Inc.

Money going into CalPERS is equal to
the Money coming out of CalPERS
Major Driver of
Plan Cost

CalPERS Projects Future Benefit Payments using
a Series of Assumptions
5 Economic
• Inflation
• Investment Return
• Salary Growth
Demographic
• Retirement
• Disability
• Death
• Termination

Alameda has 2 Safety Benefit Structures
within CalPERS
Classic Safety
Police & Fire
PEPRA Safety
Police & Fire
Hire Date On or Before
12/31/12 On or After 1/1/13
Formula 3% @ 50 2.7% @ 57
Final Pay Period 12 months 36 months
COLA 2% per year 2% per year
Employee
Contributions 9% of pay 12.25% of Pay
(50% of Normal Cost)
6 © 2024 GovInvest Inc.

Alameda has 2 Miscellaneous Benefit Structures within
CalPERS
Miscellaneous
Tier 1
Miscellaneous
PEPRA
Hire Date On or Before
12/31/12 On or After 1/1/13
Formula 2% @ 55 2% @ 62
Final Pay Period 12 months 36 months
COLA 2% per year 2% per year
Employee
Contributions 7% of pay 8.75% of Pay
(50% of Normal Cost)
7 © 2024 GovInvest Inc.

Over the Next Few Years,
More Employees will be in the PEPRA Tier
8 40.2%

61.1%

76.7%

88.5%

95.8% 98.5% 99.6%
0%
20%
40%
60%
80%
100%
120%
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050 Classic PEPRA % PEPRA
© 2024 GovInvest Inc.

Normal Cost will decrease as a Percent of Pay as the
Workforce shifts Toward PEPRA
9 © 2024 GovInvest Inc.

How is Alameda doing
Relative to Other Agencies?
10 © 2024 GovInvest Inc.

Comparison Metrics
• Funded Percentage
• Plan assets divided by Plan liabilities
• Calculated as of June 30, 2022
• Total Contribution Percentage
• Actuarially Determined Contribution divided by
Projected Pensionable Compensation
• Payable in Fiscal Year 2024/25
11 © 2024 GovInvest Inc.

Actuarially Determined Contribution
12 Normal Cost
Unfunded
Actuarial
Liability (UAL)
Amortization
Payment
Total
Employer
Contribution
Cost for current service -
Paid as a percent of payroll
Payment toward past
service - Paid as a dollar
amount each year
Minimum Payment City
can make to CalPERS
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Comparison Group
• City Miscellaneous results are compared against all the results for CalPERS Miscellaneous Plans that are not in the Risk Pool • City Safety results are compared against all the results for CalPERS Safety Plans that are not in the Risk Pool
13 © 2024 GovInvest Inc.

Miscellaneous Funded Percentage Comparison –

71.5%
14 © 2024 GovInvest Inc.

Miscellaneous Total Contribution Comparison – 33.6%
15 © 2024 GovInvest Inc.

Safety Funded Percentage Comparison – 59.1%
16 © 2024 GovInvest Inc.

Safety Total Contribution Comparison – 77.9%
17 © 2024 GovInvest Inc.

Changes Since Prior
Valuation
18 © 2024 GovInvest Inc.

CalPERS Investment Return:
-6.1% in 2021/22

5.8% in 2022/23
Weak return in 2021/22 followed by better return in 22/23 19 © 2024 GovInvest Inc.

CalPERS Actual Investment Returns versus
Assumed Investment Return
20 -3.1%

35.4%

24.6%

13.8%

3.9%

15.7%

9.7%

6.5%

12.5%

14.5%

2.0%

16.3%

15.3%

20.1%

19.5%

12.5%

10.5%
-7.2% -6.1%

3.7%

16.6%

12.3%

11.8%

19.1%
-5.1%
-24.0%

13.3%

21.7%

0.1%

13.2%

18.4%

2.4%

0.6%

11.2%

8.6%

6.7%

4.7%

21.3%
-6.1%

5.8%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Plan Year Ending June 30
Investment Return Discount Rate 5 per. Mov. Avg. (Investment Return) Dot Com Crash
Great Recession
Discount Rate = Assumed Investment Return Rate
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Less Money from Investment Return means
More Money Required from Contributions
21 Investment
Return
Contributions
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What is the Impact of those
Changes?
How did the above change impact the City’s Funded Percentage and Contribution? Now and in the future?
23 © 2024 GovInvest Inc.

Section 115 Pension Trust
• Assets invested in PARS
• Contributions
• Fiscal Year 2021-22: $1,919,000.00
• Fiscal Year 2022-23 : $2,903,224.00
• Rate of Return (Gross of Fees)
• Fiscal Year 2021-22: -11.41%
• Fiscal Year 2022-23 : 8.16%
• Balance
• June 30, 2022: $12,019,783.57
• June 30, 2023: $15,937,624.10
30 © 2024 GovInvest Inc.

Unfunded Accrued Liability (With Trust)
31 -$150
-$100
-$50
$0
$50
$100
$150
$200
$250
$300
$350
$400
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
Millions
As of July 1
2023 Without Trust 2023 With Trust
© 2024 GovInvest Inc.

Funded Percentage (With Trust)
32 60%
70%
80%
90%
100%
110%
120%
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
As of July 1
2023 Without Trust 2023 With Trust
© 2024 GovInvest Inc.

Why Address Unfunded Liability?
• Most of current Required Contribution is due to payment toward Unfunded Actuarial Liability
• City is effective paying interest to CalPERS for Unfunded Actuarial Liability
• Current interest rate is 6.8%
34 © 2024 GovInvest Inc.

What is Unfunded Actuarial Liability?
• When actual plan experience is different than the plan’s assumptions, new Unfunded Actuarial Liability (UAL) is created.
• UAL is also created when assumptions are changed.
• UAL increases when experience is worse for the plan than what was assumed. For example, when the Investment Return assumption was lowered to 6.8%.
• UAL decreases when experience is better for the plan than what was assumed. For example, when the Investment Return is greater than the assumed Interest Rate.
• It can also happen for salary increases, or demographic changes, such as high levels of turnover, or increasing life expectancy. 35 © 2024 GovInvest Inc.

Unfunded Actuarial Liability
should be Monitored Regularly
• Paying off the current UAL does not mean there will be no Unfunded Actuarial Liability in the future.
• Each year, new Unfunded Actuarial Liability (both positive and negative) will be created based on plan assumptions and experience.

These are referred to as Amortization Bases.
• Payments toward the new UAL Amortization Bases are generally amortized over a 20-year period.
36 © 2024 GovInvest Inc.

Each Year, UAL is Adjusted due to the Previous Year’s
Experience, and paid off over a 20-Year Period
37 $0
$5
$10
$15
$20
$25
$30
$35
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
Millions
UAL Payments
2021 Bases 2022 Bases 2023 Bases
© 2024 GovInvest Inc.

Potential Approaches to Addressing UAL
• One-time Additional Contribution
• Additional Annual Contributions
• Budgeted
• Based on Budget Surplus or Other Savings
38 © 2024 GovInvest Inc.

Where Does the Money Go?
• Direct to CalPERS
• Which amortization bases will you pay off?
• 115 Trust
• Internal Reserve
39 © 2024 GovInvest Inc.

While tested against actuarial valuation results, the software results will not necessarily match actuarial valuation results, as no two actuarial models are identical. The software offers financially sound projections and analysis; however, outputs do not guarantee compliance with standards under the Government Accounting Standards Board or Generally Accepted Accounting Principles. The software and this presentation are not prepared in accordance with standards as promulgated by the American Academy of Actuaries, nor do outputs or this presentation constitute Statements of Actuarial Opinion. GovInvest has used census data, plan provisions, and actuarial assumptions provided by Customer and/or Customer’s actuary to develop the software for Customer. GovInvest has relied on this information without audit.

Disclaimer
41

Alameda City CouncilFebruary 20, 2024

Alameda City Council
February 20, 2024