ATTACHMENT B:
Oakland Police and Fire System Actuarial
Valuation Report
Oakland Police and Fire
Retirement System
Actuarial Valuation Report
as of July 1, 2022
Produced by Cheiron
December 2022
TABLE OF CONTENTS
Section Page
Letter of Transmittal ........................................................................................................................ i
Foreword ........................................................................................................................................ iii
Section I Executive Summary .................................................................................................1
Section II Identification and Assessment of Risks ...................................................................9
Section III Assets .....................................................................................................................18
Section IV Liabilities ...............................................................................................................23
Section V Contributions..........................................................................................................28
Section VI Headcount and Benefit Payment Projections .........................................................30
Appendices
Appendix A Membership Information .......................................................................................32
Appendix B Statement of Actuarial Assumptions and Methods ................................................36
Appendix C Summary of Plan Provisions ..................................................................................40
Appendix D Glossary .................................................................................................................42
December 6, 2022
City of Oakland Police and Fire
Retirement System Board
150 Frank H. Ogawa Plaza
Oakland, CA 94612
Dear Members of the Board:
At your request, we have conducted an actuarial valuation of the Oakland Police and Fire Retirement System (PFRS, the Plan) as of July 1, 2022. This report contains information on the Plan’s assets and liabilities . This report also discloses the employer contributions in accordance with the funding agreement between the City of Oakland and PFRS, based on the current financial status of the Plan . Your attention is called to the Foreword in which we refer to the general approach employed in the preparation of this report.
The purpose of this report is to present the results of the annual actuarial valuation of the Plan. This report is for the use of the Retirement Board and the auditors in preparing financial reports in accordance with applicable law and accounting requirements. Other users of this report are not intended users as defined in the Actuarial Standards of Practice, and Cheiron assumes no duty or liability to such other users.
The assumptions used in this report were adopted by the Board of Administration with our input at the February 28, 2018 Board meeting based on recommendations from our experience study covering plan experience for the period from July 1, 2014 through June 30, 2017. We believe these assumptions are reasonable for the purpose of the valuation.
The funding ratios in this report are for the purpose of establishing contribution rates. These measures are not appropriate for assessing the sufficiency of plan assets to cover the estimated cost of settling the plan’s benefit obligations.
Cheiron utilizes ProVal actuarial valuation software leased from Winklevoss Technologies (WinTech) to calculat e liabilities and project benefit payments. We have relied on WinTech as the developer of ProVal. We have a basic understanding of ProVal and have used ProVal in accordance with its original intended purpose. We have not identified any material inconsistencies in assumptions or output of ProVal that would affect this valuation.
Deterministic projections in this valuation report were developed using P -scan, a proprietary tool used to illustrate the impact of changes in assumptions, methods, plan provisions, or actual experience (particularly investment experience) on the future financial status of the Plan. P -scan uses standard roll -forward techniques. Because P -scan does not automatically capture how changes in one variable affect all other variables, some scenarios may not be consistent.
Stochastic projections in this valuation report were developed using R -scan, our proprietary tool for assessing the probability of different outcomes based on a range of potential investment City of Oakland Police and Fire
Retirement System Board
December 6, 2022
Page ii
ii
returns. We relied on Cheiron colleagues for the development of the model. The stochastic projections of investment returns assume that each future year’s investment return is independent from all other years and is identically distributed according to a lognormal distributio n. The standard deviation used in the stochastic projection of investment returns was provided by the Plan’s investment consultant.
Future actuarial measurements may differ significantly from the current measurements due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; and changes in plan provisions or applicable law.
This report and its contents have been prepared in accordance wit h generally recognized and accepted actuarial principles and practices and our understanding of the Code of Professional Conduct and applicable Actuarial Standards of Practice set out by the Actuarial Standards Board as well as applicable laws and regulati ons. Furthermore, as credentialed actuaries, we meet the Qualification Standards of the American Academy of Actuaries to render the opinion contained in this report. This report does not address any contractual or legal issues . We are not attorneys , and our firm does not provide any legal services or advice.
Sincerely,
Cheiron
Graham A. Schmidt, ASA, EA, FCA, MAAA Timothy S. Doyle, ASA, EA, MAAA Consulting Actuary Associate Actuary
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
FOREWORD
iii
Cheiron has performed the actuarial valuation of the Oakland Police and Fire Retirement System (PFRS, the Plan) as of July 1, 2022. The valuation is organized as follows:
• In Section I, the Executive Summary, we describe the purpose of an actuarial valuation , summarize the key results found in this valuation, and disclose important trends.
• The Main Body of the report presents details on the Plan’s
o Section II – Identification and Assessment of Risks
o Section III – Assets
o Section IV – Liabilities
o Section V – Contributions
o Section VI – Head Count and Benefit Payment Projections
• In the Appendices, we conclude our report with detailed information describing plan membership (Appendix A), actuarial assumptions and methods employed in the valuation (Appendix B), a summary of pertinent plan provisions (Appendix C), and a glossary of key actuarial terms (Appendix D).
The results of this report rely on future experience conforming to the underlying assumptions. To the extent that actual plan experience deviates from the underlying assumptions, the results would vary accordingly.
In preparing our report, we relied on information (some oral and some written) supplied by the Plan’s staff. This information includes, but is not limited to, plan provisions, employee data, and financial information. We performed an informal examination of the obvious characteristics of the data for reasonableness and consistency in accordance with Actuarial Standard of Practice No. 23.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION I – EXECUTIVE SUMMARY
1 The primary purpose of the actuarial valuation and this report is to measure, describe , and identify the following as of the valuation date:
• The financial condition of the Plan,
• Past and expected trends in the financial progress of the Plan, • Calculation of the actuarially determined contributions for years beginning in Fiscal Year 2023-2024, and
• An assessment and disclosure of key risks.
In the balance of this Executive Summary, we present (A) the basis upon which this year’s valuation was completed, (B) the key findings of this valuation including a summary of all key financial results, (C) an examination of the historical trends, and (D) the projected financial outlook for the Plan.
A. Valuation Basis
This valuation estimates the p rojected employer contributions in accordance with the funding agreement dated July 1, 2012 between the City of Oakland and the PFRS. Based on that agreement, employer contributions were suspended until fiscal year 2017-2018, at which time they resumed at a level based upon the recommendation of the actuary. Section V of this report shows the development of the employer contribution for fiscal year 2023-2024.
The Plan’s funding policy is to contribute an amount equal to the sum of:
• The normal cost under the Entry Age Normal Cost Method (which is zero, as there are no active members),
• Amortization of the Unfunded Actuarial Liability, and • The Plan’s expected administrative expenses.
This valuation was prepared based on the plan provisions shown in Appendix C. There have been no changes in plan provisions since the prior valuation.
A summary of the assumptions and methods used in the current valuation is show n in Appendix B. There have been no changes to the actuarial assumptions or methods since the prior valuation, with the exception that we have modified the percentage of disabled deaths assumed to be duty related and the associated survivor benefit percentage.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION I – EXECUTIVE SUMMARY
2 B. Key Findings of this Valuation
The key results of the July 1, 2022 actuarial valuation are as follows:
• The actuarially determined employer contribution amount for Fiscal Year 2023-2024 is $40.8 million, based on projecting the Actuarial Liabilities and the Actuarial Value of Assets to the end of the 2022-2023 Fiscal Year. This represents an increase of $10.0 million from the estimated amount in the prior valuation for the same Fiscal Year.
The contribution is assumed to be paid in equal installments throughout the year, or on average at approximately January 1, 2024.
• During the year ended June 30, 2022, the return on Plan assets was -10.56% on a market value basis net of investment expenses, as compared to the 6.00% assumption for the 2021-2022 Plan year . This resulted in a market value loss on investments of $75.2 million. The Actuarial Value of Assets (AVA) is calculated as the expected AVA plus 20% of the difference between the market value and the expected AVA, which is restricted to be between 90% and 110% of the MVA . This smoothed value of assets returned 4.70%, for an actuarial asset loss of $5.3 million.
• The Plan experienced a gain on the Actuarial Liability of $1.8 million, the net result of changes in the population and changes in benefits . The primary factor was an excess of deaths above the number expected. Combining the liability gain and asset loss, the Pla n experienced a total loss of $3.5 million.
• New Memorandums of Understanding (MOUs) went into effect for both Fire and Police members since the previous valuation, changing the retirees’ Cost-of-Living Adjustments (COLAs). This change in COLAs increased t he Fire Actuarial Liability by $ 6.8 million since the scheduled increases under the new MOUs were higher than the amounts originally assumed, in aggregate , while the Police Actuarial Liability decreased by $ 1.4 million due to the new MOUs increasing benefits less than originally assumed.
• The assumption that 30% of all disabled retiree deaths were duty -related was removed.
This change decreased the Actuarial Liability by $3.9 million.
• The Plan’s smoothed funded ratio, the ratio of A ctuarial Value of A ssets over Actuarial Liability, increased from 72.2% last year to 76.5% as of June 30, 2022.
• The Plan’s funded ratio de creased from 80.2% to 72.6% on a Market Value of Assets (MVA) basis.
• The Unfunded Actuarial Liability (UAL) is the excess of the Plan ’s Actuarial Liability over the A ctuarial Value of Assets. The Plan experienced a decrease in the UAL from $159.3 million to $130.2 million as of July 1, 2022.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION I – EXECUTIVE SUMMARY
3 • Overall participant membership decreased compared to last year. 29 members died, 10 of whom had their benefits continu e to a surviving spouse . In addition, 18 surviving beneficiaries died. There are no active members of the Plan.
• If the contribution were determined using a projected asset value based on the current market (i.e., non-smoothed) value of assets, the contribution for FY 2023-2024 would be $47.1 million. The contribution is larger than that determined using the projected AVA, because the current market value reflects the full amount of prior investment losses, while under the AVA projection, a portion of those losses are deferred until years after FY 2023-2024.
Below we present Table I -1 that summarizes all the key results of the valuation with respect to membership, assets and liabilities, and contributions . The results are presented and compared for both the current and prior plan year.
July 1, 2021 July 1, 2022 % Change
Participant Counts
Active Participants 0 0
Participants Receiving a Benefit 723 686 -5.1% Total 723 686 -5.1%
Total Annual Benefits $ 78,806 $ 81,463 3.4%
Assets and Liabilities
Actuarial Liability (AL) $ 571,942 $ 552,966 -3.3% Actuarial Value of Assets (AVA) 412,680 422,762 2.4% Unfunded Actuarial Liability (UAL) $ 159,262 $ 130,204 -18.2% Funded Ratio (AVA) 72.2% 76.5% 4.3%
Funded Ratio (MVA) 80.2% 72.6% -7.6%
Contributions
Employer Contribution (FY2022-23)$ 32,712 N/A
Employer Contribution (FY2023-24)$ 30,803 $ 40,763 32.3% Table I-1
Summary of Principal Plan Results
($ in thousands)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION I – EXECUTIVE SUMMARY
4 C. Historical Trends
Despite the fact that for most retirement plans the greatest attention is given to the current valuation results and in particular, the size of the current Unfunded Actuarial Liability and the employer contribution, it is important to remember that each valuation is merely a snapshot in the long-term progress of a pension fund. It is more important to judge a current year’s valuation results relative to historical trends, as well as trends expected into the future.
Assets and Liabilities
The chart below compares the Market Value of Assets (MVA) and Actuarial Value of Assets (AVA) to the Actuarial Liabilities . The percentages shown in the table below the chart are the ratios of the Actuarial Value of Assets to the Actuarial Liability (the funded ratio) . We note that for the GASB disclosure report, this ratio is disclosed using the MVA.
The funded ratio declined from 63.7% in 2007 to 37.5% in 2011 due to negative market returns and no contributions being made in that period ($417 million in proceeds from a POB were deposited in 1997 that acted as prepayments for 15 years of contributions). The funded ratio increased between 2012 and 2013 due to a $210 million contribution in July 2012 . The funded ratio decreased from 67.2% to 49.5% between 2013 and 2017 due to assumption changes , liability losses, new Police MOUs, and the lack of contributions since the July 2012 payment .
The funded rati o has increased from 49.5% to 76.5% over the pas t five years due to recommencement of contributions , the FYE 2021 asset gain, and to a lesser extent other asset and liability gains and assumption changes.
Valuation Year 2007 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2022 AVA Funded Ratio 63.7% 44.4% 37.6% 37.5% 39.1% 67.2% 64.6% 61.4% 54.0% 49.5% 53.7% 58.0% 62.2% 76.5% UAL (Millions) 322.1$ 435.3$ 494.4$ 426.8$ 401.1$ 215.0$ 230.2$ 247.5$ 309.4$ 340.1$ 299.8$ 261.8$ 225.5$ 130.2$ $0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2007 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Millions
Millions
Assets and Liabilities
Actuarial Liability Assets-Smoothed Assets at Market Value
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION I – EXECUTIVE SUMMARY
5 Cash Flows
The chart below shows the Plan’s cash flow, excluding investment returns (i.e., contributions less benefit payments and expenses). This is a critical measure, as it reflects the ability to have funds available to meet benefit payments without having to make difficult investment decisions, especially during volatile markets.
The contributions, benefit payments, investment returns , and Net Cash Flow (NCF) excluding investment returns and related investment expenses are represented by the scale on the left. The Plan’s net cash flow has been negative 14 of the last 15 fiscal years, primarily due to the lack of contributions except in 2013 and in the most recent four years. Even with the recommencing of contributions under the Plan’s funding policy, benefit payments exceeded contributions for the prior four years, with a negative cash flow rate of around 2-3% of plan assets per year.
A negative cash flow magnifies the losses during a market decline, hindering the Plan in its ability to absorb market fluctuations. The implications of a plan in negative cash flow are that the impact of market fluctuations can be more severe: as assets are being depleted to pay benefits in down markets, there is less principal available to be reinvested during favorable return periods.
The Plan is expected to have a growing negative cash flow position going forward, since the Plan is closed and the assets are expected to decline as the remaining benefits are paid out.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION I – EXECUTIVE SUMMARY
6 D. Future Expected Financial Trends
The analysis of projected financial trends is perhaps the most important component of this valuation . In this s ection, we present our assessment of the implications of the July 1, 2022 valuation results in terms of benefit security (assets over liabilities) and contribution levels. All the projections in this section are based on the assumption that the Plan will exactly achieve the assu med rate of return each year (6.0% per year until 2027, then trending down to an annual return of 3.25% over 10 years).
Projection of Employer Contributions
The above graph shows a projection of the City’s required contributions compared to the same projections from last year’s report. T he City’s required contribution increased from $32.7 million in fiscal year 2023 to $40.8 million in fiscal year 2024, and then is expected to increase by about $3 million next year and by almost $5 million the year after as the current unfunded liability is fully amortized and recent asset losses are recognized. This assumes that the annual payments by the City will equal the administrative expenses, plus
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION I – EXECUTIVE SUMMARY
7 an amount needed to amortize the remaining unfunded liability as a level percentage of overall Safety payroll by July 1, 2026, as is required under the City’s charter.
After July 1, 2026, the UAL is expected to be fully amortized, and the contribution would generally be equal to the administrative expense, beginning in 2026-2027. However, under the current asset smoothing method there are still expected to be some deferred asset losses, which will not be recognized until after 2026; the deferred recognition of these losses is expected to result in a low level of additional contributions in addition to the administrative expenses in the final years of the graph on the previous page.
Note that the graph on the previous page does not forecast any future actuarial gains or losses or changes to the amortization policy.
Even relatively modest losses could push the employer contribution over $50 million in the next few years . We also note that the occurrence of any future gains or losses in the years leading up to or following the required full amortization date (July 1, 2026) may require a reconsideration of the funding policy for those gains or losses, as otherwise these changes would need to be recognized over an extremely short period.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION I – EXECUTIVE SUMMARY
8 Asset and Liability Projections:
The following graph shows the projection of assets and liabilities, assuming that assets will earn the assumed rate of return each year during the projection period.
Projection of Assets and Liabilities
The graph shows that the projected funded status increases as the current unfunded liability is fully amortized, assuming all actuarial assumptions are met. Once the Plan is projected to reach 100% funding, both the assets and liabilities are expected to decline as the Plan continues to pay out benefits to the remaining members.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISKS
9 Actuarial valuations are based on a set of assumptions about future economic and demographic experience. These assumptions represent a reasonable estimate of future experience, but actual future experience will undoubtedly be different and may be significantly different. This section of the report is intended to identify the primary risks to the plan, provide some background information about those risks, and provide an assessment of those risks.
Identification of Risks
The fundamental risk to a pension plan is that the contributions needed to pay the benefits become unaffordable. While the Plan cannot determine on its own what contribution level is unaffordable, we can project expected contributions and illustrate the potential impact of key sources of risk on those contribution rates so the City can assess affordability . While there are a number of factors that could lead to contribution amounts becoming unaffordable, we believe the primary sources are:
• Investment risk,
• COLA risk,
• Longevity risk, and
• Contribution risk.
Other risks that we have not identified may also turn out to be important.
Investment Risk is the potential for investment returns to be different than expected. Lower investment returns than anticipated will increase the U nfunded Actuarial Liability, necessitating higher contributions in the future unless there are other gains that offset these investment losses.
In contrast, higher investment returns than anticipated may create a potentially significant surplus that could be difficult to use until all benefits have been paid. Expected future investment returns and their potential volatility are determined by the Plan’s asset allocation.
COLA Risk is the potential for future COLAs to increase contributions. Retirement allowances are based on the pensionable compensation atta ched to the average rank held during the three years immediately preceding retirement. Cost-of-living adjustments are therefore based on salary increases for current employees with the retiree’s same rank at retirement. Salary increases less than or greater than those assumed cause gains or losses, respectively. COLA increases different from those expected over the last 10 years are reflected in the “MOU Changes” column in the chart on the next page.
Longevity risk is the potential for mortality experience to be different than expected. Generally, longevity risk emerges slowly over time and is often exceeded by other changes, particularly those due to investment returns. However, for a closed plan such as PFRS , the mortality experience will have a significant impact on future cash flows. The chart on the next page shows the liability gains and losses over the last 10 years compared to the total change in the UAL for each year, a portion of which is associated with mortality experience.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISKS
10 Contribution risk is the potential for actual future actuarially determined contributions to deviate from expected future contributions. The City Charter sets the Plan’s contribution policy. It requires the unfunded liability of the plan to be fully amortized by June 30, 2026. The Actuarially Determined Contribution (ADC) is based on a short remaining amortization period.
As a result, a significant loss or change in assumptions may cause a large increase in the ADC.
The table below shows a 10-year history of changes in the UAL by source.
The UAL was reduced by approximately $270.9 million over the last ten years. Contributions in excess of the “tread water” level (i.e. , interest on the UAL plus administrative expenses) reduced the UAL by $261.0 million, liability ex perience reduced the UAL by $ 32.4 million, and investment returns decreased the UAL by $64.7 million. Meanwhile changes to MOUs increased the UAL by $37.8 million and assumption changes increased the UAL by $49.4 million.
Plan Maturity Measures
The future financial condition of a mature pension plan is more sensitive to each of the risks identified above than a less mature plan. Before assessing each of these risks, it is important to understand the maturity of the plan.
Plan maturity can be measured in a variety of ways, but they all get at one basic dynamic – the larger the plan is compared to the contribution or revenue base that supports it; the more sensitive the plan will be to risk. Given that the Plan has been closed to new entrants since 1976 with no remaining active members , the Plan considered as a standalone entity is very mature , though because of the diminishing benefit cash flows it is expected to have a declining impact on overall City finances.
FYE
MOU
Changes
Assumption
Changes
Contributions
vs. Tread
Water Investments
Liability
Experience
Total UAL
Change
2013 4,091$ 0$ (188,922)$ (3,803)$ 2,592$ (186,042)$ 2014 0 30,598 15,146 (10,729) (19,869) 15,147 2015 0 0 17,023 (6,171) 6,522 17,374 2016 43,480 0 15,033 486 2,830 61,829 2017 0 22,730 22,888 (4,958) (9,959) 30,702 2018 (1,475) 0 (24,214) (7,128) (7,467) (40,284) 2019 (7,173) 0 (26,691) (5,919) 1,797 (37,986) 2020 (6,541) 0 (27,417) (1,877) (417) (36,252) 2021 0 0 (29,775) (29,872) (6,637) (66,284) 2022 5,389 (3,926) (34,056) 5,319 (1,784) (29,059) Total 37,771$ 49,402$ (260,983)$ (64,652)$ (32,392)$ (270,854)$ ($ in Thousands)
Table II-1
UAL Change by Source
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISKS
11 Net Cash Flow
The net cash flow of the plan as a percentage of the beginning of year assets indicates the sensitivity of the plan to short -term investment returns . Net cash flow is equal to contributions less benefit payments and administrative expenses. Mature plans can have large amounts of benefit payments compared to contributions, particularly if they are well funded.
The chart below shows the projected net cash flow for the next 10 fiscal years. The bars represent the dollar amounts of the different components of the projected net cash flow, and the line represents the net cash flow as a percentage of the assets as of the beginning of the fiscal year.
The Plan’s contributions are expected to drop significantly following the 2025-2026 Fiscal Year once the unfunded liability has been paid off, with the exception of some residual losses resulting from the current asset smoothing policy . Beyond that point, the negative net cash flow s are expected to continue until all benefits are paid.
The first issue this change presents to the Plan is a need for liquidity in the investments so that benefits can be paid. When the cash flow was positive or close to neutral, benefits could be paid out of contributions without liquidating investments. As net cash flow becomes increasingly negative, the benefit payments will require liquidation of some investments.
The other change of note is the sensitivity to short -term investment returns. Investment losses in the short term are compounded by the net withdrawal from the plan leaving a smaller asset base to try to recover from the investment losses. On the other hand, large investment gains in the short term also tend to have a longer beneficial effect as any future losses are relative to a smaller liability base due to the negative cash flow.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISKS
12 Assessing Costs and Risks
A closed pension plan will ultimately either end up with excess assets after all benefits have been paid or run out of assets before all benefits have been paid. The declining investment return assumption adopted by the Board implies an expectation the Plan will pursue a strategy of de-risking the Plan to minimize the impact of these scenarios, potentially by reducing the risk in its investment portfolio, immunizing investments, and/or purchas ing annuities to settle the remaining obligation.
However, even if the Plan were to run out of assets, PFRS would be forced to pay benefits directly on a pay-as -you-go basis. As long as PFRS (and the City) can afford the pay-as -you-go costs, benefits would remain secure. The chart below shows a projection of expected benefit payments for the closed plan.
Sensitivity to Investment Returns
The chart on the next page compares assets to the present value of all projected future benefits discounted at the current expected rates of return – starting at 6.00% through 2026 and trending down to 3.25% over the following 10 years – and at investment returns 100 basis points above and below the expected rates of return for all years. The present value of future benefits is shown as a teal bar and the Market Value of Assets is shown by the gold line.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISKS
13 If actual investment return s meet the expected return s annually, the Plan would need approximately $ 553 million in assets today to p ay all projected benefits compared to current assets of $401 million. If investment returns are 100 basis points lower each year, the Plan would need approximately $601 million in assets today, and if investment returns are 100 basis points higher, the Plan would need approximately $512 million in assets today.
Sensitivity to COLA Changes
The present value of future benefits shown above assumes annual COLA increases of 3.25% per year once the current MOUs have expired . If COLA inflation is higher (because of higher-than- expected increases in the salaries of active employees) ; more assets would be needed to pay the benefits, and if COLA inflation is lower; fewer assets would be needed to pay benefits.
The chart on the next page shows the present value of all projected future benefits (discounted using the current expected rates of return ) based on annual COLA increases of 3.25% per year once the current MOUs have expired – and at COLA increases 100 basis points above and below the current COLA assumptions.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISKS
14 Sensitivity to Mortality Assumption Changes
The following chart on the next page shows the sensitivity of the Plan to longevity / mortality experience. In the first bar, we have shown the present value of benefits using the Plan’s current mortality assumptions (i.e., using the 2017 CalPERS mortality assumptions, with projections for generational improvements using the Society of Actuary’s MP -2017 improvement scales). In the second bar, we have shown the impact on the present value of benefits if actual longevity experience follows an alternative set of assumptions, reflecting more recent tables that have been developed using the experience of Public Safety employees of U.S. public employers. In the third bar, we have shown an additional alternative, using the Public Sector table described above, but also reflecting a slower rate of future improvements in longevity, as reflected by the Society of Actuary’s latest improvement scale (MP -2021). As always, actual experience will drive costs, but this exhibit provides an example of the level of sensitivity of the Plan’s liabilities to recent changes in outlooks on mortality.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISKS
15 Stochastic Projections
The stochastic projections of contributions through the full funded date (June 30, 2026) in the chart on the following page shows a very wide range in future ADC’s. This range is driven both by the volatility of investment returns (assumed to be 10.2% in these projections, based on previous information provided by Meketa) and by the short amortization period used to calculate the ADC. We note that if the Plan is required to remain fully funded after 2026, the contributions required will also vary widely.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISKS
16 Stochastic Projection of Actuarially Determined Contribution (ADC)
The chart below shows the projection of the UAL through the full funding date. While the UAL is projected in the baseline to be essentially eliminated by 2026, because of the statutory requirement to fully fund the Plan by that time, there is still a wide range of potential outcomes.
Stochastic Projection of UAL/(Surplus)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISKS
17 More Detailed Assessment
A detailed assessment of risk would be valuable in understanding the risks identified above, especially given the closed nature of the plan . We encourage the Board to consider a more detailed analysis of some of the risks identified above, particularly for developing a funding strategy to deal with changes in the UAL after the required full funding date.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION III – ASSETS
18 Pension Plan assets play a key role in the financial operation of the Plan and in the decisions the Board may make with respect to future deployment of those assets . The level of assets, the allocation of assets among asset classes, and the methodology used to measure assets will likely impact benefit levels, employer contributions, and the ultimate security of participants’ benefits.
In this section, we present detailed information on Plan assets including:
• Disclosure of Plan assets as of June 30, 2021 and June 30, 2022, • Statement of the changes in market values during the year, and • Development of the Actuarial Value of Assets.
Disclosure
There are two types of asset values disclosed in the valuation, the Market Value of Assets and the Actuarial Value of Assets. The market value represents “snapshot” or “cash out” values , which provide the principal basis for measuring financial performance from one year to the next .
Market values, however, can fluctuate widely with corresponding swings in the marketplace . As a result, market values are sometimes not as suitable for long-range planning as the Actuarial Value of Assets, which reflects smoothing of annual investment returns.
Table III-1 discloses and compares each component of the market asset value as of June 30, 2021 and June 30, 2022.
2021 2022
$ 6,324 $ 7,495
2,462 6,219
Investments, at Fair Value 503,781 448,338 Total Assets $ 512,567 $ 462,051 Liabilities 54,034 60,564
$ 458,533 $ 401,487
Table III-1
Statement of Assets at Market Value
June 30,
(in thousands)
Cash and Cash Equivalents
Receivables
Mar ket Value of Assets
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION III – ASSETS
19 2021 2022
$ 6,324 $ 7,495
Interest Receivable $ 759 $ 813 Dividends Receivable 272 280 Investments Receivable 1,221 4,912 Retired Members and Beneficiaries 104 103 Miscellaneous 107 111 Total Receivables 2,462 6,219 Investments, at Fair Value:
Short-term Investments 7,787 7,474 Bonds 134,381 130,127
Domestic Equities and Mutual Funds 210,506 158,145 International Equities and Mutual Funds 58,540 47,911 Alternative Investments 44,016 56,335 Securities Lending Collateral 48,551 48,346 Total Investments 503,781 448,338 Total Assets 512,567 462,051
Liabilities:
Accounts Payable 1 3 Benefits Payable 4,295 4,184 Investments Payable 423 7,701 Accrued Investment Management Fees 361 301 Securities Lending Liabilities 48,954 48,376 Total Liabilities 54,034 60,564 $ 458,533 $ 401,487
Table III-1
Statement of Assets at Market Value
June 30,
(in thousands)
Mar ket Value of Assets
Receivables:
Cash and Cash Equivalents:
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION III – ASSETS
20 Changes in Market Value
The components of asset change are:
• Contributions (employer and employee),
• Benefit payments,
• Administrative Expenses, and
• Investment income (realized and unrealized, net of investment expenses).
Table III-2 below shows the components of a change in the Market Value of Assets during 2021 and 2022.
2021 2022
Contributions
Contributions of Plan Members $ 0 $ 0 Contributions from the City 43,648 43,820 Total Contributions 43,648 43,820 Investment Income
Miscellaneous Income 1 0 Investment Income 90,191 (47,955) Total Investment Income 90,192 (47,955)
Disbursements
Benefit Payments (52,697) (51,450) Administrative Expenses (1,585) (1,461) Total Disbursements (54,282) (52,911) Net incr ease (Decr ease) 79,558 (57,045) Net Assets Held in Trust for Benefits:
Beginning of Year 378,975 458,533 End of Year $ 458,533 $ 401,487
Approximate Return 24.14% -10.56%
Table III-2
Changes in Market Values
June 30,
(in thousands)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION III – ASSETS
21 Actuarial Value of Assets (AVA)
The Actuarial Value of Assets represents a “smoothed” value developed by the actuary to reduce the volatile results, which could develop due to short -term fluctuations in the Market Value of Assets. For this Plan , the Actuarial Value of Assets is calculated on a modified market -related value. The Actuarial Value of Assets recognizes one-fifth of the difference between the expected asset value (based on the 6.00% return assumption from 2021-2022) and the actual market value each year. The actuarial value is restricted to fall between 90% and 110% of the market value.
Table III-3
Development of Actuarial Value of Assets
1. Calculate Expected Actuarial Value of Assets
a. Value of Actuarial Value of Assets - July 1, 2021 412,680$ b. Total Contributions and Misc Income 43,820
c. Administrative Expense (1,461)
d. Benefit Payments (51,450)
e. Expected Investment Earnings 24,492
f. Expected Actuarial Value of Assets - July 1, 2022 428,081$ [1a + 1b + 1c + 1d + 1e]
2. Calculate Final Actuarial Value of Assets
a. Value of Market Value of Assets - July 1, 2022 401,487$ b. Excess of MVA over Expected AVA [2a - 1f] (26,594)
c. Preliminary AVA [1f + 0.2 * 2b] 422,762
d. 90% of MVA [90% * 2a] 361,339
e. 110% of MVA [110% * 2a] 441,636
3. Final Actuarial Value of Assets 422,762$
[2c, not less than 2d or greater than 2e]
(in thousands)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION III – ASSETS
22 Investment Performance
The following table calculates the investment related gain/loss for the plan year on both a m arket value and an actuarial value basis . The market value gain/loss is an appropriate measure for comparing the actual asset performance to the previous valuation’s 6.00% assumption.
Asset Gain/(Loss)
(in thousands)
Market Value Actuarial Value
July 1, 2021 value $ 458,533 $ 412,680 Contributions of Plan Members 0 0
Contributions from the City 43,820 43,820
Benefit Payments (51,450) (51,450) Administrative Expenses (1,461) (1,461) Expected Investment Earnings (6.00%) 27,243 24,492 Expected Value June 30, 2022 $ 476,685 $ 428,081 Investment Gain / (Loss) (75,198) (5,319)
July 1, 2022 value 401,487 $ 422,762 Return -10.56% 4.70%
Table III-4
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION IV – LIABILITIES
23 In this section, we present detailed information on Plan liabilities including:
• Disclosure of Plan liabilities on July 1, 2021 and July 1, 2022 • Statement of changes in these liabilities during the year
Disclosure
Several types of liabilities are typically shown in an actuarial valuation report . Each type is distinguished by the people ultimately using the figures and the purpose for which they are using them. Note that these liabilities are not applicable for settlement purposes, including the purchase of annuities and the payment of lump sums.
• Present Value of Future Benefits : Used for measuring all future Plan obligations, the obligations of the Plan e arned as of the valuation date and those to be earned in the future by current plan participants under the current Plan provisions, if all assumptions are met.
• Actuarial Liability: Used for funding calculations, this liability is calculated taking the present value of future benefits and subtracting the present value of future normal costs under an acceptable actuarial funding method. Because the Plan has no active members, the Actuarial Liability is equal to the present value of future benefits (i.e., all benefits are fully accrued).
• Unfunded Actuarial Liability: The excess of the Actuarial Liability over the Actuarial Value of Assets.
Table IV-1 on the next page discloses each of these liabilities for the current and prior valuations.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION IV – LIABILITIES
24 July 1, 2021 July 1, 2022
Pr esent Value of Futur e Benefits
Active Participant Benefits $ 0 $ 0
Retiree and Inactive Benefits 571,942 552,966 Pr esent Value of Futur e Benefits (PVB) $ 571,942 $ 552,966 Actuarial Liability
Present Value of Future Benefits (PVB) $ 571,942 $ 552,966 Present Value of Future Normal Costs (PVFNC) 0 0 Actuarial Liability (AL = PVB – PVFNC) $ 571,942 $ 552,966 Actuarial Value of Assets (AV A) 412,680 422,762 Net (Surplus)/Unfunded (AL – AVA) $ 159,262 $ 130,204 Table IV-1
Liabilities/Net (Surplus)/Unfunded
(in thousands)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION IV – LIABILITIES
25 Changes in Liabilities
Each of the l iabilities disclosed in the prior table is expected to change at each valuation . The components of that change, depending upon which liability is analyzed, can include:
• New hires since the last valuation (not applicable for this Plan) • Benefits accrued since the last valuation (not applicable for this Plan) • Plan amendments
• Passage of time which adds interest to the prior liability • Benefits paid to retirees since the last valuation
• Participants retiring, terminating, dying , or receiving COLA adjustments at rates different than expected
• A change in actuarial or investment assumptions
• A change in the actuarial funding method or software
Unfunded liabilities will change because of all of the above and also due to changes in Plan assets resulting from:
• Employer contributions different than expected
• Investment earnings different than expected
• A change in the method used to measure plan assets
Actuarial Liability at July 1, 2021 $ 571,942
Actuarial Liability at July 1, 2022 $ 552,966
Liability Increase (Decrease) $ (18,976)
Change due to:
Plan Design Changes (MOU) $ 5,389
Assumption Change (3,926)
Accrual of Benefits 0
Actual Benefit Payments (51,450)
Interest 32,796
Data Corrections 0
Actuarial Liability (Gain)/Loss $ (1,785)
Table IV-2
Changes in Actuarial Liability
(in thousands)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION IV – LIABILITIES
26 Police Fire Total
Actuarial Accrued Liability
Active $ 0 $ 0 $ 0
Service Retirees 207,816 68,097 275,913
Disabled Retirees 75,297 74,886 150,183
Beneficiaries 72,859 54,011 126,870
Total Accrued Liability $ 355,972 $ 196,994 $ 552,966
Table IV-3
Liabilities by Group as of July 1, 2022
(in thousands)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION IV – LIABILITIES
27 1. Unfunded Actuarial Liability at Start of Year (not less than zero) $ 159,262
2. Employer Normal Cost at Start of Year 0
3. Interest on 1. and 2. to End of Year 9,556
4. Contributions and Miscellaneous Income for Prior Year 43,820
5. Administrative Expenses (1,461)
6. Interest on 4. and 5. to End of Year 1,252
7. Change in Unfunded Actuarial Liability Due to Changes in Assumptions (3,926)
8. Change in Unfunded Actuarial Liability Due to Changes in Actuarial Methods 0
9. Change in Unfunded Actuarial Liability Due to Changes in Plan Design 5,389
10. Change in Unfunded Actuarial Liability Due to Data Corrections 0
11. Expected Unfunded Actuarial Liability at End of Year [1. + 2. + 3. - 4. - 5. - 6. + 7. + 8. + 9. + 10.] $ 126,669
12. Actual Unfunded Actuarial Liability at End of Year (not less than zero) 130,204
13. Unfunded Actuarial Liability Gain / (Loss) [11. – 12.] $ (3,535) Table IV-4
Development of Actuarial Gain / (Loss)
(in thousands)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION V – CONTRIBUTIONS
28 In the process of evaluating the financial condition of any pension plan, the actuary analyzes the assets and liabilities to determine what level (if any) of contributions is needed to properly maintain the funding status of the Plan . Typically, the actuar ial process will use a funding technique that will result in a pattern of contributions that are both stable and predictable.
For this Plan, the actuarial funding method used to determine the normal cost and the Unfunded Actuarial Liability is the Entry Age Normal Cost Method.
The normal cost rate is determined with the normal cost percentage equal to the total projected value of benefits at entry age, divided by present value of future salary at entry age . Since there are no longer any active employees, the normal cost for this plan is $0.
The Unfunded Actuarial Liability is the difference between the EA N Actuarial Liability and the Actuarial Value of Assets. For the contribution projections, t he UAL payment is based on the unfunded liability of the Plan being fully amortized by June 30, 2026, in accordance with the City Charter. Amortization payment s are determined based on an assumption that payments will increase by 3.25% each year, reflecting the assumed ultimate rate of increase in overall City Safety member salaries.
An amount equal to the expected administrative expenses for the Plan is added directly to the actuarial cost calculation.
Table V-1 on the next page shows the employer contribution amount for the 2023-2024 Fiscal Year. The projected assets and liabilities assume that all actuarial assumptions are met and that contributions are made as expected between now and June 30, 2023.
For this calculation, we h ave shown the contribution amount using both the projected actuarial and Market Value of Assets. The current funding policy uses the AVA to determine the UAL and the associated amortization payment. We have included the contribution amount as determined us ing the current Market Value of Assets to demonstrate what the actuarial cost would be if all deferred asset gains were fully recognized at the time the contributions commence. In both cases, the contribution is based on an assumption that the investment r eturns will exactly equal the assumed rate of return during the 2022-2023 Fiscal Year.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION V – CONTRIBUTIONS
29 Actuarial
Value of
Assets
Marke t
Value of
Assets
1. Value of Assets at June 30, 2022: $ 422,762 $ 401,487 a. Expected Contributions and Misc Income $ 32,712 $ 32,712 b. Expected Administrative Expense $ (1,741) $ (1,741) c. Expected Benefit Payments $ (51,056) $ (51,056) d. Expected Investment Earnings $ 24,772 $ 23,495
2. Expected Value of Assets at June 30, 2023: $ 427,450 $ 404,898 a. Excess of Expected MVA over Expected AVA $ (22,551) b. Preliminary AVA [ Expected AVA + 20% * 2a] $ 422,939 c. 90% of Expected MVA $ 364,409
d. 110% of Expected MVA $ 445,388
3. Final Expected AVA [2b, not less than 2c or greater than 2d] $ 422,939
4. Entry Age Liability at June 30, 2022 $ 552,966 $ 552,966
5. Expected Benefit Payments $ (51,056) $ (51,056)
6. Expected Interest $ 31,669 $ 31,669
7. Expected Entry Age Liability at June 30, 2023 $ 533,579 $ 533,579
8. Projected Unfunded Actuarial Liability: (7) - (3) $ 110,639 $ 128,680
9. Funded Ratio: (3) / (7) 79.3% 75.9%
10. Unfunded Actuarial Liability Amortization at Middle of Year as a Level Percentage of Payroll (3 Years Remaining)
as of June 30, 2023
$ 38,972 $ 45,327
11. Expected Administrative Expenses for Fiscal 2023-2024 $ 1,790 $ 1,790
12. Total Contribution: (10) + (11) $ 40,763 $ 47,118 Table V-1
Development of Projected 2023-2024 Employer Contribution Amount (in thousands)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION VI – HEADCOUNT AND BENEFIT PAYMENT PROJECTIONS
30 Fiscal Y ear
Ending Benefits Benefits Benefits
June 30, Count (in thousands) Count (in thousands) Count (in thousands) 2023 422.0 31,316$ 264.0 19,740$ 686.0 51,056$ 2024 407.8 31,170$ 251.9 19,367$ 659.8 50,537$ 2025 393.7 30,824$ 239.6 18,851$ 633.3 49,675$ 2026 379.5 30,421$ 227.2 18,293$ 606.7 48,714$ 2027 365.1 30,027$ 214.9 17,740$ 580.0 47,766$ 2028 350.5 29,557$ 202.7 17,148$ 553.1 46,705$ 2029 335.6 29,005$ 190.6 16,522$ 526.2 45,527$ 2030 320.3 28,363$ 178.7 15,862$ 499.0 44,225$ 2031 304.7 27,625$ 167.0 15,170$ 471.7 42,795$ 2032 288.6 26,785$ 155.5 14,446$ 444.1 41,231$ 2033 272.1 25,842$ 144.2 13,692$ 416.4 39,534$ 2034 255.3 24,795$ 133.1 12,911$ 388.4 37,706$ 2035 238.1 23,649$ 122.3 12,105$ 360.4 35,754$ 2036 220.8 22,411$ 111.7 11,279$ 332.4 33,690$ 2037 203.3 21,089$ 101.4 10,440$ 304.7 31,530$ 2038 185.9 19,699$ 91.4 9,595$ 277.2 29,295$ 2039 168.6 18,256$ 81.8 8,753$ 250.4 27,008$ 2040 151.8 16,778$ 72.6 7,921$ 224.4 24,699$ 2041 135.4 15,285$ 63.9 7,110$ 199.4 22,395$ 2042 119.7 13,801$ 55.8 6,328$ 175.6 20,128$ 2043 104.9 12,344$ 48.3 5,583$ 153.2 17,927$ 2044 91.0 10,935$ 41.5 4,884$ 132.5 15,819$ 2045 78.2 9,591$ 35.3 4,234$ 113.5 13,825$ 2046 66.5 8,326$ 29.7 3,639$ 96.2 11,966$ 2047 56.0 7,153$ 24.8 3,101$ 80.8 10,254$ 2048 46.6 6,081$ 20.5 2,620$ 67.2 8,701$ 2049 38.4 5,115$ 16.8 2,195$ 55.2 7,310$ 2050 31.3 4,259$ 13.7 1,823$ 45.0 6,082$ 2051 25.3 3,509$ 11.0 1,503$ 36.3 5,013$ 2052 20.2 2,863$ 8.8 1,231$ 29.0 4,094$ Table VI-1
Police Fire Total
Benefit Payment and Headcount Projection
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
SECTION VI – HEADCOUNT AND BENEFIT PAYMENT PROJECTIONS
31 Fiscal Y ear
Ending Benefits Benefits Benefits
June 30, Count (in thousands) Count (in thousands) Count (in thousands) 2053 15.9 2,313$ 7.0 1,001$ 22.9 3,314$ 2054 12.5 1,850$ 5.5 809$ 18.0 2,660$ 2055 9.7 1,467$ 4.3 650$ 14.0 2,117$ 2056 7.4 1,153$ 3.4 520$ 10.8 1,673$ 2057 5.7 899$ 2.6 413$ 8.3 1,312$ 2058 4.3 697$ 2.0 326$ 6.3 1,023$ 2059 3.2 536$ 1.5 257$ 4.7 793$ 2060 2.4 410$ 1.2 201$ 3.6 611$ 2061 1.8 312$ 0.9 157$ 2.7 468$ 2062 1.3 235$ 0.7 121$ 2.0 356$ 2063 1.0 176$ 0.5 92$ 1.4 268$ 2064 0.7 130$ 0.4 70$ 1.1 200$ 2065 0.5 96$ 0.3 52$ 0.8 148$ 2066 0.4 69$ 0.2 38$ 0.5 107$ 2067 0.2 49$ 0.1 27$ 0.4 77$ 2068 0.2 34$ 0.1 19$ 0.3 53$ 2069 0.1 23$ 0.1 13$ 0.2 36$ 2070 0.1 14$ 0.0 8$ 0.1 23$ 2071 0.0 9$ 0.0 5$ 0.1 14$ 2072 0.0 5$ 0.0 3$ 0.0 8$ 2073 0.0 2$ 0.0 2$ 0.0 4$ 2074 0.0 1$ 0.0 1$ 0.0 2$ 2075 0.0 0$ 0.0 0$ 0.0 1$ 2076 0.0 0$ 0.0 0$ 0.0 0$ 2077 0.0 0$ 0.0 0$ 0.0 0$ 2078 0.0 0$ 0.0 0$ 0.0 0$ 2079 0.0 0$ 0.0 0$ 0.0 0$ 2080 0.0 0$ 0.0 0$ 0.0 0$ 2081 0.0 0$ 0.0 0$ 0.0 0$ Benefit Payment and Headcount Projection (Continued)
Police Fire Total
Table VI-1
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX A – MEMBERSHIP INFORMATION
32 Data pertaining to active and inactive Members and their beneficiaries as of the valuation date was supplied by the Plan Administrator.
July 1, 2021 July 1, 2022
Active Participants Police Fire Total Police Fire Total Number 0 0 0 0 0 0
Number Vested 0 0 0 0 0 0
Average Age 0.0 0.0 0.0 0.0 0.0 0.0
Average Service 0.0 0.0 0.0 0.0 0.0 0.0
Average Pay $0 $0 $0 $0 $0 $0
Ser vice Retir ees
Number 220 90 310 209 81 290
Average Age 77.5 81.8 78.7 78.2 82.0 79.2
Average Annual Benefit $81,398 $84,427 $82,277 $83,999 $87,236 $84,903 Disabled Retir ees
Number 88 92 180 85 86 171
Average Age 76.7 78.0 77.4 77.6 78.5 78.1
Average Annual Benefit $77,184 $78,644 $77,931 $80,234 $82,135 $81,190 Beneficiaries
Number 131 102 233 128 97 225
Average Age 80.2 82.7 81.3 80.8 82.9 81.7
Average Annual Benefit $55,989 $58,723 $57,186 $58,518 $62,679 $60,312 All Inactives
Number 439 284 723 422 264 686
Average Age 78.1 80.9 79.2 78.8 81.2 79.8
Average Annual Benefit $72,971 $73,322 $73,109 $75,512 $76,552 $75,912 Summary of Participant Data as of
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX A – MEMBERSHIP INFORMATION
33 Changes in Plan Membership: Police
Actives Ser vice
Retir ees
Disabled
Retir ees Beneficiaries Total
July 1, 2021 0 220 88 131 439
Retired 0 0 0 0 0
Disabled 0 0 0 0 0
Deceased 0 (11) (3) (9) (23)
New Beneficiary 0 0 0 6 6
July 1, 2022 0 209 85 128 422
Changes in Plan Membership: Fire
Actives Ser vice
Retir ees
Disabled
Retir ees Beneficiaries Total
July 1, 2021 0 90 92 102 284
Retired 0 0 0 0 0
Disabled 0 0 0 0 0
Deceased 0 (9) (6) (9) (24)
New Beneficiary 0 0 0 4 4
July 1, 2022 0 81 86 97 264
Changes in Plan Membership: All
Actives Ser vice
Retir ees
Disabled
Retir ees Beneficiaries Total
July 1, 2021 0 310 180 233 723
Retired 0 0 0 0 0
Disabled 0 0 0 0 0
Deceased 0 (20) (9) (18) (47)
New Beneficiary 0 0 0 10 10
July 1, 2022 0 290 171 225 686
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX A – MEMBERSHIP INFORMATION
34 Age Number Total Annual
Benefit Number
Total
Annual
Benefit
Number Total Annual
Benefit
< 50 0 $0 0 $0 0 $0
50-54 0 $0 0 $0 0 $0
55-59 0 $0 0 $0 0 $0
60-64 0 $0 0 $0 0 $0
65-69 10 $828,375 0 $0 10 $828,375
70-74 47 $4,199,209 8 $607,418 55 $4,806,627
75-79 91 $7,142,202 34 $2,985,590 125 $10,127,793
80-84 43 $3,604,990 16 $1,377,508 59 $4,982,499
85-89 10 $1,067,084 11 $1,079,456 21 $2,146,539
90-94 7 $610,810 8 $700,516 15 $1,311,326
95-99 0 $0 3 $248,231 3 $248,231
100+ 1 $103,088 1 $67,402 2 $170,490
Total 209 $17,555,759 81 $7,066,121 290 $24,621,880
Serv ice Retired Participants
Police Fire Total
Age Number Total Annual
Benefit Number
Total
Annual
Benefit
Number Total Annual
Benefit
< 50 0 $0 0 $0 0 $0
50-54 0 $0 0 $0 0 $0
55-59 0 $0 0 $0 0 $0
60-64 0 $0 0 $0 0 $0
65-69 0 $0 0 $0 0 $0
70-74 25 $2,098,696 24 $1,834,759 49 $3,933,455
75-79 40 $3,046,081 31 $2,502,282 71 $5,548,364
80-84 13 $1,078,059 22 $1,928,506 35 $3,006,565
85-89 5 $397,807 7 $614,779 12 $1,012,587
90-94 2 $199,239 2 $183,278 4 $382,517
95-99 0 $0 0 $0 0 $0
100+ 0 $0 0 $0 0 $0
Total 85 $6,819,882 86 $7,063,605 171 $13,883,487
Disab ility Retired Particip ants
TotalPolice Fire
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX A – MEMBERSHIP INFORMATION
35 Age Number Total Annual
Benefit Number
Total
Annual
Benefit
Number Total Annual
Benefit
< 50 0 $0 0 $0 0 $0
50-54 0 $0 0 $0 0 $0
55-59 1 $54,175 0 $0 1 $54,175
60-64 2 $127,560 2 $155,679 4 $283,239
65-69 7 $463,906 7 $468,590 14 $932,496
70-74 25 $1,334,943 13 $850,382 38 $2,185,325
75-79 32 $1,815,652 14 $861,685 46 $2,677,337
80-84 24 $1,369,104 17 $1,057,484 41 $2,426,589
85-89 13 $822,468 22 $1,327,729 35 $2,150,197
90-94 13 $873,190 16 $977,380 29 $1,850,570
95-99 9 $494,129 4 $257,715 13 $751,844
100+ 2 $135,171 2 $123,255 4 $258,427
Total 128 $7,490,299 97 $6,079,900 225 $13,570,200
Beneficiaries
Police Fire Total
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX B – STATEMENT OF ACTUARIAL ASSUMPTIONS AND METHODS
36 The assumptions and methods used in the actuarial valuation as of July 1, 2022 are:
Actuarial Method
The Entry Age Normal Actuarial Cost Method is used. Under this method, the Plan’s Actuarial Liability (AL) is determined as the Present Value of Future Benefits (PVFB) less the Present Value of Future Normal Costs (PVFNC). Since all of the Plan’s members are retired, the AL and the PVFB are the same.
The excess of th e AL over the Actuarial Value of Assets (AVA) is the Unfunded Actuarial Liability (UAL). In accordance with the Plan’s funding agreement with the City of Oakland, the UAL must be amortized by July 1, 2026, with contributions resuming in the 2017-2018 fisca l year. The projected fiscal year 2023-2024 contribution has been calculated using level percent of pay amortization, based on total projected City payroll for all Safety employees.
Actuarial Value of Plan Assets
In determining the recommended employer contribution to the PFRS, we use a smoothed Actuarial Value of Assets. The asset smoothing method dampens the volatility in asset values that could occur because of the fluctuations in market conditions. Use of an asset smoothing method is consistent with t he long- term nature of the actuarial valuation process. Assets are assumed to be used exclusively for the provision of retirement benefits and expenses.
The Actuarial Value of Assets is equal to 100% of the expected Actuarial Value of Assets plus 20% of t he difference between the current Market Value of Assets and the expected Actuarial Value of Assets. In no event will the Actuarial Value of Assets ever be less than 90% of the Market Value of Assets or greater than 110% of the Market Value of Assets.
The expected Actuarial Value of Assets is equal to the prior year’s Actuarial Value of Assets increased with actual contributions made, decreased with actual disbursements made, all items (prior assets, contributions, and disbursements) further adjusted with expected investment returns for the year.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX B – STATEMENT OF ACTUARIAL ASSUMPTIONS AND METHODS
37 Actuarial Assumptions
The assumptions used in this report reflect the results of an e xperience study performed by Cheiron covering the period from July 1, 2014 through June 30, 2017 and adopted by the Board.
More details on the rationale for the demographic and economic assumptions can be found in th e experience analysis presented to the Board on February 28, 2018.
1. Rate of Return
The expected annual rate s of return, net of investment expenses, on all P lan assets are shown in the table below . The equivalent single discount rate for these returns using the Plan’s expected projected benefit payments is 5.19%.
2. Inflation
The assumed rate of general inflation is 2.75% (entire US) and local inflation is 2.85% (Bay Area). The general inflation rate is used in the determination of the investment return assumptions. The local inflation rate is used in the determination of the growth in expenses and salaries (which determine the COLA increases).
3. Administrative Expenses
Administrative expenses for the Fiscal Year Ending June 30, 2023 are assumed to be $1,740,736, growing at 2.85% per year.
4. Cost-of-Living Adjustments and Long-Term Salary Increases
Cost-of-living adjustments are based on salary increases for a retiree’s rank at retirement.
Benefit Payment
Ye ar
Expected
Re turn
2022-2026 6.000%
2027 5.725%
2028 5.450%
2029 5.175%
2030 4.900%
2031 4.625%
2032 4.350%
2033 4.075%
2034 3.800%
2035 3.525%
2036+ 3.250%
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX B – STATEMENT OF ACTUARIAL ASSUMPTIONS AND METHODS
38 The long-term rate of salary increase is assumed to be 3.25% (2.85% inflation plus 0.4% productivity). This rate is used to project cost of living increases after the expiration of the current contracts, as well as representing the expected level of overall Safety payroll growth used to calculate the unfunded liability amortization payment. The following schedule shows salary increases based on the current Police and Fire contracts that expire on June 30, 2026. All increases shown after that date are assumptions.
5. Rates of Termination
None.
6. Rates of Disability
None.
7. Rates of Retirement
None.
8. Rates of Mortality for Healthy Lives
CalPERS Healthy Annuitant Table from the 2012-2015 experience s tudy, excluding the 15-year projection using 90% of Scale MP-2016.
9. Rates of Mortality for Disabled Retirees
CalPERS Industrial Disability Mortality Table from the 2012-2015 experience study, excluding the 15-year projection using 90% of Scale MP-2016.
Date of Increase Police Fire
July 1, 2022 3.50% 3.50%
July 1, 2023 3.50% 3.50%
July 1, 2024 3.00% 3.00%
July 1, 2025 3.00% 3.00%
Annual Increases
Starting
July 1, 2026
3.25% 3.25%
Post-Retir em ent Benefit Incr eases
(Based on Salary Increases for Rank at Retirement)
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX B – STATEMENT OF ACTUARIAL ASSUMPTIONS AND METHODS
39 10. Mortality Improvement
The mortality tables are projected to improve with MP-2017 generational mortality improvement tables, with improvements projected from a base year of 2014 (the mid-point of the CalPERS base tables).
11. Survivor Continuance
All retirees with a Benefit Form of “J&S” in the raw data are assumed to receive a 66 - 2/3% continuance.
12. Changes in Assumptions Since the Last Valuation
The assumption that 30% of all disabled retiree deaths are duty -related and the associated survivors would receive a 100% continuance was removed ; all future beneficiaries are now assumed to receive a 66-2/3% continuance.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX C – SUMMARY OF PLAN PROVISIONS
40 1. Plan Year
July 1 to June 30.
2. Membership
The Plan has been closed to new members since June 30, 1976.
3. Salary
Retirement allowances are based on the pens ionable compensation attached t o the average rank held during the three years immediately preceding retirement.
4. Employee Contributions
There are no active employees in the Plan, and thus no employee contributions.
5. Service Retirement
Eligibility
25 years of service, or 20 years of service and age 55, or age 65. A reduced early retirement is available with 20 years of service.
Benefit Amount
50% of Salary plus 1.67% for each additional year of service beyond that required for service retirement eligibility, to a maximum of 10 years. For retirements with less than 20 years of service, benefits are pro-rated.
6. Duty-Related Disability Retirement
Equivalent to service retirement benefit if 25 or more years of service.
7. Non-Duty Related Disability Retirement
Equivalent to service retirement benefit if age 55 is attained.
8. Post-Retirement Death Benefit
For retirees without a spouse at death, a $1,000 lump sum is paid to designated beneficiary.
9. Cost-of-Living Adjustments
Benefit increases are based on increases in salary for rank at retirement (see above definition of Salary).
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX C – SUMMARY OF PLAN PROVISIONS
41 10. Benefit Forms
Benefit is paid for the lifetime of the member. For deaths following a service retirement or non-duty disability , a 66-2/3% cont inuance is paid for the lifetime of the spouse . If the member retired under a duty-related disability, a continuance of 100% is paid.
11. Changes in Plan Provisions Since the Last Valuation
None.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX D – GLOSSARY
42 1. Actuarial Assumptions
Assumptions as to the occurrence of future events affecting pension costs such as mortality, withdrawal, disability, retirement, changes in compensation, and rates of investment return.
2. Actuarial Cost Method
A procedure for determining the a ctuarial present value of pension plan benefits and expenses and for developing an allocation of such value to each year of service, usually in the form of a normal cost and an Actuarial Liability.
3. Actuarial Gain (Loss)
The difference between actual experience and that expected based upon a set of a ctuarial assumptions during the period between two a ctuarial valuation dates, as determined in accordance with a particular actuarial cost method.
4. Actuarial Liability
The portion of the actuarial present value of projected benefits that will not be paid by future normal costs. It represents the value of the past normal costs with interest to the valuation date.
5. Actuarial Present Value (Present Value)
The value as of a given date of a future amount or series of payments . The actuarial present value discounts the payments to the given date at the assumed investment return and includes the probability of the payment being made.
6. Actuarial Valuation
The determination, as of a specified date, of the normal cost , Actuarial Liability, Actuarial Value of Assets, and related actuarial present values for a pension plan.
7. Actuarial Value of Assets
The value of cash, investments, and other property belonging to a pension plan as used by the actuary for the purpose of an actuarial valuation. The purpose of an Actuarial Value of Assets is to smooth out fluctuations in market values.
8. Actuarially Equivalent
Of equal actuarial present value, determined as of a given date, with each value based on the same set of actuarial assumptions.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT AS OF JULY 1, 2022
APPENDIX D – GLOSSARY
43 9. Amortization Payment
The portion of the pension plan contribution that is designed to pay interest and principal on the Unfunded Actuarial Liability in order to pay for that liability in a given number of years.
10. Entry Age Normal Actuarial Cost Method
A method under which the actuarial present value of the projected benefits of each individual included in an actuarial valuation is allocated on a level b asis over the earnings of the individual between entry age and assumed exit ages.
11. Funded Ratio
The ratio of the Actuarial Value of Assets to the Actuarial Liabilities.
12. Normal Cost
That portion of the actuarial present value of pension plan be nefits and expenses that is allocated to a valuation year by the actuarial cost method.
13. Projected Benefits
Those pension plan benefit amounts which are expected to be paid in the future under a particular set of actuarial assumptions , taking into account such items as increases in future compensation and service credits.
14. Unfunded Actuarial Liability
The excess of the Actuarial Liability over the Actuarial Value of Assets.