PASADENA FIRE & POLICE RETIREMENT SYSTEM
A PENSION TRUST FUND OF THE CITY OF
PASADENA, CALIFORNIA
INDEPENDENT AUDITOR’S REPORT AND
BASIC FINANCIAL STATEMENTS
WITH REQUIRED SUPPLEMENTARY INFORMATION AND
OTHER SUPPLEMENTARY INFORMATION
FOR THE YEAR ENDED JUNE 30, 2022
(WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2021)
P A S A D E N A
FIRE &
POLICE
RETIREMENT
S Y S T E M
ATTACHMENT F
PASADENA FIRE & POLICE RETIREMENT SYSTEM
FOR THE YEAR ENDED JUNE 30, 2022
(WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2021)
TABLE OF CONTENTS
Pa ge
I
ndependent Auditor’s Report ............................................................................................................ 1 Mana
gement’s Discussion and Analysis (Unaudited) ........................................................................ 5 BA
SIC FINANCIAL STATEMENTS:
S
tatement of Fiduciary Net Position ............................................................................................... 12 S
tatement of Changes in Fiduciary Net Position ............................................................................ 13 N
otes to Basic Financial Statements .............................................................................................. 14 R
EQUIRED SUPPLEMENTARY INFORMATION (Unaudited):
S
chedule of Changes in Employer’s Net Pension Liability/(Asset) ................................................ 36 S
chedule of Employer’s Net Pension Liability/(Asset) and Related Ratios .................................... 37 S
chedule of Employer Contributions .............................................................................................. 38 S
chedule of Investment Returns ..................................................................................................... 39 N
otes to Required Supplementary Information .............................................................................. 40 O
THER SUPPLEMENTARY INFORMATION:
A
dditions by Source and Deductions by Type ................................................................................ 46 O
THER INFORMATION:
Comparative Information from Prior Fiscal Years: Interest Rate Risk (Unaudited) ........................ 48 www.mgocpa.com
Macias Gini & O’Connell LLP
700 South Flower St., Suite 800
Los Angeles, CA 90017
1 Independent Auditor’s Report
T
o the Board of Retirement
Pasadena Fire & Police Retirement System
Pasadena, California
R
eport on the Audit of the Financial Statements
O
pinion
W
e have audited the financial statements of the Pasadena Fire & Police Retirement System (System), a pension trust fund of the City of Pasadena, California , as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the System’s basic financial statements as listed in the table of contents.
I
n our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the fiduciary net position of the System as of June 30, 2022, and the changes in fiduciary net position for the year then ended in accordance with accounting principles generally accepted in the United States of America
B
asis for Opinion
W
e conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the System and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe t hat the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
O
ther Matter
Pr
ior-Year Comparative Information
T
he financial statements include partial prior-year comparative information. Such information does include all of the information required to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the System’s financial statements for the year ended June 30, 2021, from which such partial information was derived.
W
e have previously audited the System’s 2021 financial statements, and we expressed an unmodified audit opinion on the financial statements in our report dated October 28, 2021. In our opinion, the partial comparative information presented herein as of and for the year ended June 30, 2021, is consistent, in all material respects, with the audited financial statements from which it was derived. 2 Responsibilities of Management for the Financial Statements T
he System ’s management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the System ’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter .
A
uditor’s Responsibilities for the Audit of the Financial Statements O
ur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that , individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
I
n performing an audit in accordance with GAAS and Government Auditing Standards, we:
• E
xercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due t o f
raud or error, and design and perform audit procedures responsive to those risks. Suc h pr
ocedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the System’s internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of th e
f
inancial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the System ’s ability to continue as a going concern for a
r
easonable period of time.
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e are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control –related matters that we identified during the audit.
R
equired Supplementary Information
A
ccounting principles generally accepted in the United States of America require that the management’s discussion and analysis, schedule of changes in employer’s net pension liability /(asset), schedule of employer’s net pension liability/(asset) and related ratios, schedule of employer contributions, schedule of investment returns, and notes to required supplementary information be presented to supplement the basic financial statements. Such information is the responsibility of management and, al though not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the 3 United States of America, which consisted of inquiries of management about the m ethods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not ex press an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the System’s basic financial statements. The schedule of additions by source and deductions by type is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of additions by source and deductions by type is fairly stated, in all material respects, in relation to the basic financial statements as a whole.
Other Information
Management is responsible for the other information included in the annual report. The other information comprises the comparative information from prior fiscal years: interest rate risk but does not include the basic financial statements and our auditor’s report thereon. Our opinion on the basic financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon.
In connection with our audit of the basic financial statements, our res ponsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work perfor med, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards , we have also issued our report dated October 17, 2022 on our consideration of the System’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of internal control over fi nancial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the System ’s internal control over financial reporting and compliance.
Los Angeles, California
October 17, 2022
4 This page is left blank intentionally.
Pasadena Fire & Police Retirement System
Management’s Discussion and Analysis (MD&A)
(Unaudited)
The Pasadena Fire & Police Retirement System (“System” or “Plan”) is a closed, single-employer defined benefit pension plan governed by a Board of Retirement (“Board”) under the provisions of the City of Pasadena (“City”) Charter that provides retirement, disability, and survivor benefits for eligible sworn safety employees of the City . Its operations are reported as a Pension Trust Fund in the City’s basic financial statements. The System was established on July 1, 1935 by a vote of the people to formalize retirement benefits for the City’s Fire and Police members, and is governed by the authority in Article XV of the City Charter, and by Chapter 2.250 of the City’s Municipal Code.
The System serves the City’s sworn employees hired prior to July 1, 1977, except those who elected to transfer to the California Public Employees ’ Retirement System (“CalPERS”) either when the System was closed to new members, or in June 2004. The System is governed by a Board of five members; one member of the City Council, two Pasadena residents appointed by the City Council, and two members of the System elected under the supervision of the System. Board members are elected to terms of four years with no restriction on reappointment. Board members receive no compensation.
The discussion and analysis of the System’s financial performance provides an overview of the financial activities for the fiscal year ended June 30, 2022. This discussion and analysis should be read in conjunction with and is qualified in its entirety by the accompanying audited financial statements and notes, which begin following this Management’s Discussion and Analysis. The financial statements, notes, and this discussion and analysis were prepared by management and are the responsibility of management.
Financial and Valuation Highlights
The Plan ended fiscal year 2022 with $111,661,738 in fiduciary net position compared to $134,732,586 in fiduciary net position as of June 30, 202 1. The decrease in net position by $23,070,848 from the prior period was attributed to investment losses and benefits paid to participants. Earnings in the portfolio were -8.6% net of fees, calculated on a money-weighted rate of return basis, (compared to 19.0% net of fees for the prior fiscal year) , and resulted in $ 10,655,776 in net investment losses. Investment losses were accompanied by $12,415,072 in deductions from the portfolio for benefits and administrative expenses .
Investment losses of -8.6% (net of fees) were higher than overall market conditions and the portfolio’s benchmark earnings rate of -8.3%.
A cash reserve within pooled cash at the City was maintained to meet the required monthly cost of benefits and administration. Rebalancing of investments serves as an ongoing process to maintain balance with the Board’s asset allocation goals, and when necessary, to fund the Plan’s benefit and administrative costs.
During fiscal year 202 2, a total of $1 3,525,000 was withdrawn from the portfolio with the custodian and transferred to the City’s pooled cash account for payment of pension benefits and administration.
The June 30, 2022 actuarial valuation determined that the Actuarial Value of Assets (“AVA”) decreased to $115 million, and the Actuarial Accrued Liability (“AAL”) decreased to $131 million. Accordingly, the AVA Funded Percentage (which is the actuarially determined funding level used to calculate the City’s required minimum contribution) de creased to 87.8% at June 30, 202 2. The minimum required AVA Funded Percentage on June 30, 2022 is 80.0%. Thus, there is no required contribution from the City for fiscal year 2023 (due January 1, 20 23) based on the June 30, 2022 actuarial valuation and Amended and Restated Contribution Agreement No. 20,823 (“Agreement No. 20,823”).
The City’s Net Pension Liability/(Asset) (“NPL”) for the Plan increased from ($7,881,000) on June 30, 2021 to $14,629,000 on June 30, 2022 primarily due to decreases in the Plan's Fiduciary Net Position ("FNP").
The FNP decreased by more than $23 million primarily due to increased investment losses. As a result, the Plan’s FNP as a percentage of the Total Pension Liability (“TPL”) decreased from 106.2% at June 30, 2021 to 88.4% at June 30, 2022.
Pasadena Fire & Police Retirement System
Management’s Discussion and Analysis (MD&A) (Continued) (Unaudited)
Investment Performance
The Board reviews the asset allocation in the Investment Policy Statement ( “IPS”) on an annual basis, including a 10-year return forecast (both geometric and arithmetic) analysis by asset class. The forecasts per asset class are discussed within the context of their individual standard deviation forecasts, the amount of risk each asset assumes for the for ecasted returns, and the relationship of that asset/risk within the overall portfolio. Portfolio mix options are discussed given the expected returns in comparison to the current allocations, and the investment advisor provides recommendations to the Board regarding potential changes in the asset allocation mix and for prospective new managers. In addition, fund and asset benchmarks are added and/or changed in the I PS to more accurately evaluate the portfolio and each asset’s performance or when a new asset is acquired.
The System’s IPS has evolved since the hiring of investment advisor, Verus Investments, in 2011. The June 2011 policy revision adjusted the strateg ic allocation ranges for equities and fixed income, added allocations to Treasury Inflation Protected Securities (“TIPS”) and Real Estate, and deleted the allocation to Real Estate Investment Trust ( “REIT”). In June 2013, the policy was revised to add an allocation for Liquid Alternative Investments through adjusting the strategic allocation ranges in equities. The IPS was revised in May 2014 to create a new fixed income asset class for Senior Bank Loans towards the goal of reducing risk. The IPS was revised in February 2015 to eliminate the allocation to Cash, and to move the assets held in Small/Mid Cap Domestic Equities to Small Cap Domestic Equities. Following the 10 -year performance assessment in March 2016, the Board reallocated 2.0% f rom Domestic Core Equities (decreasing the allocation from 22.0% to 20.0%) to Domestic Core Fixed Income (increasing the allocation from 33.0% to 35.0%) through adoption of the revised IPS on April 20, 2016. During the fiscal year ended June 30, 2017, t he IPS was further revised to add a new asset class for Index -Linked Investment-Grade Government Bonds to further prepare for and protect the portfolio from expected inflation.
Fiduciary Net Position and Total Pension Liability
Funds are accumulated to meet future obligations in the net position restricted for members’ pension benefits in the Statement of Fiduciary Net Position. TPL is not reported in the basic financial statements, but is disclosed in Note 5 to the basic financial statements and in the required supplementary information.
The TPL is determined by the actuary and is a measure of the present value of actuarial accrued liabilities estimated to be payable in the future to current retirees and beneficiaries. The NPL is measured as the TPL less the amount of the pension plan’s FNP. The System has engaged Bartel Associates , LLC since July 2010 to serve as its independent actuary and to prepare the annual actuarial valuation. On July 1, 2022, Bartel Associates, LLC was acquired by Foster & Foster Consulting Actuaries, Inc. The most recent actuarial valuation was prepared as of June 30, 2022 , and incorporated the requirements to comply with Governmental Accounting Standards Board (“GASB”) Statement No. 67.
Actuarial Valuation and City Contributions
The System’s funding objective is to meet long- term benefit promises by maintaining a well -funded plan and obtaining optimum returns consistent with the assumptions of prudent risk.
Pasadena Fire & Police Retirement System
Management’s Discussion and Analysis (MD&A) (Continued) (Unaudited)
The June 30, 2022 funding actuarial valuation determined the AVA Funded Percentage, calculated in accordance with Agreement No. 20,823 and Contribution Agreement No. 16,900, to be 87.8% as compared to 92.1% in the prior year. The AVA Funded Percentage decreased by 6.02% under what was originally projected for 2022 in the June 30, 20 21 valuation (93.85%), and was primarily attributed to the following actuarial changes: 2.3% investment loss of $3,472,000 (investment return was lower than expected), COLA loss of $1,579,000 (COLA was higher than anticipated), demographic gains of $1,283,000 (more deaths than actuarially estimated) , and benefit payments gain of $86,000 (higher than anticipated). As required by Contribution Agreement No. 16,900, if the AVA Funded Percentage was below the mi nimum funding percentage of 80% for fiscal year 2022, the City would have been required to reimburse the System in the following fiscal year subject to certain reimbursement limits. Based on the June 30, 2022 funding actuarial valuation, the funding deficiency was $0, or 0.0%, below the funding requirement of 80%. A required supplemental contribution is not owed to the System for the fiscal year ending June 30, 2023.
For funding purposes, the Plan had an approximate market value asset rate of return of - 8.5% net of investment and administrative expenses for the year ended June 30, 2022 , compared to 18.5% in the previous year. The assumed rate of return for actuarial purposes is 4.75%. The rate of return as estimated by the actuary is net of investment and administrative expenses, and is different than the long -term expected rate of return used to determine the discount rate in accordance with GASB Statement No. 67.
Financial Statement Overview
This discussion and analysis serves as an introduction to the System’s basic financial statements. These include the following three components:
• Statement of Fiduciary Net Position
• Statement of Changes in Fiduciary Net Position
• Notes to Basic Financial Statements
In addition to the financial statements, this report also contains required supplementary informati on and other supplementary information that offers comparative data on prior years.
6/30/2022 6/30/2021
Funding Discount Rate 4.75% 5.25%
Actuarial Accrued Liability (AAL) 131,139$ 131,926$ Actuarial Value of Assets (AVA) 115,181 121,488 AVA Unfunded Actuarial Accrued Liability 15,958 10,438 AVA Funded Percentage 87.8% 92.1%
Minimum Funding Percentage* 80.0% 80.0%
Contribution Due from the City at 1/1 -$ -$ Funding Valuation Summary
(In Thousands)
Fis cal Year Ended
Source is the June 30, 2022 actuarial valuation prepared by System Actuary, Foster & Foster and June 30, 2021 actuarial valuation prepared by System Actuary, Bartel Associates.
* Minimum Funding Percentage is calculated in accordance with Agreements No. 20,823 and No. 16,900 between the City and System.
Pasadena Fire & Police Retirement System
Management’s Discussion and Analysis (MD&A) (Continued) (Unaudited)
The Statement of Fiduciary Net Position provides a snapshot of account balances at year -end. It also indicates the assets available for future benefit payments and administration of the Plan as well as current liabilities outstanding at year -end. The assets less liabilities give the reader a clear picture of what funds are available for future payments.
The Statement of Changes in Fiduciary Net Position, in contrast, provides a summary view of the additions to and the deductions from the plan net position that occurred over the course of the year.
Together these two statements report the System’s plan net position – the difference between assets and liabilities – as one way to measure the System’s financial situation. Over time, increases and decreases in plan net position are one indicator of whether the System’s financial situation is improving or deteriorating.
Additional factors, such as market conditions, also need to be considered in assessing the System’s overall financial situation.
The financial statements and required disclosures are in compliance with the accounting principles and reporting guidelines as set forth by the GASB, using the accrual basis of accounting. Investments are reported at fair value. Both realized and unrealized investment gains and losses are recognized using trade date accounting.
The Notes to Basic Financial Statements (Notes) provide additional information and explanations that are essential to a full understanding of the data provided in the financial statements.
The Required Supplementary Information (RSI) that follows the Notes shows the City’s net pension liability/(asset), as well as information reflecting how much the City has contributed in relation to its annual required contributions and other information to comply with GASB Statement No. 67.
The Other Supplement ary Information (OSI) that follows the RSI provides additional comparative information from prior years.
GASB Statement No. 67
The System’s basic financial statements, notes to the basic financial statements, required supplementary information, and notes to the required supplementary information were prepared in accordance with the reporting requirements of GASB Statement No. 67. The most recent ac tuarial valuation as of June 30, 2022, was used to determine the total pension liability.
Net Pension Liability/(Asset) 6/30/2022 6/30/2021
Total Pension Liability 126,291$ 126,852$
Plan Fiduciary Net Position 111,662 134,733
Net Pension Liability/(Asset) 14,629$ (7,881)$ FNP as a % of TPL 88.4% 106.2%
Schedule of Net Pension Liability/(Asset)
(In Thousands)
Source for pension liability is the June 30, 2022 GASB 67 plan actuarial information prepared by System Actuary, Foster & Foster and June 30, 2021 GASBS 67 plan actuarial information prepared by System Actuary, Bartel Associates.
Fis cal Year Ended
Pasadena Fire & Police Retirement System
Management’s Discussion and Analysis (MD&A) (Continued) (Unaudited)
TPL for the Plan decreased from $126.9 million at June 30, 2021, to $126.3 million at June 30, 2022. The FNP at June 30, 2021 decreased from $134.7 million to $111.7 million at June 30, 2022. The changes in both TPL and FNP resulted in a significant net increase of NPL from -$7.9 million at June 30, 2021 to $14.6 million at June 30, 2022.
The Notes to Basic Financial Statements provide additional disclosures to comply with GASB Statement No. 67 Implementation, as follows:
• Plan Membership,
• Investments (allocation by asset class, expected long- term rate of return by asset class, and the annual money-weighted rate of return),
• Investments greater than 5% of the Plan’s Fiduciary Net Position, • Net Pension Liability/(Asset) (and the components of Net Pension Liability/(Asset)), and • Significant actuarial assumptions used to measure Total Pension Liability.
The information reported in the Required Supplementary Information (RSI) section is required to be reported for 10 years; additional years will be reported as they become available :
• Schedule of Changes in Employer’s Net Pension Liability/(Asset), • Schedule of Employer’s Net Pension Liability/(Asset) and Related Ratios, • Schedule of Employer Contributions,
• Schedule of Investment Returns, and
• Notes to the Required Supplementary Information, which includes additional information regarding total pension liability.
The Other Supplementary Information section includes the following two schedules:
• Additions by Source and Deductions by Type, and
• Comparative Information from Prior Fiscal Years for Interest Rate Risk .
Condensed Statement of Fiduciary Net Position
As of June 30, 2022 and 202 1, the System had $111,661,738 and $134,732,586, respectively, in net position. The net position represents funds restricted for members’ pension benefits. The net pension liability is not reported in the basic financial statements, but is disclosed in the Notes and in the RSI.
2022 2021 $ Change % Change
Current Assets 6,296$ 13,260$ (6,964)$ -52.5% Investments 113,657 135,540 (21,883) -16.1%
Total Assets 119,953 148,800 (28,847) -19.4%
Total Liabilities 8,291 14,067 (5,776) -41.1% Net Position Restricted for Pensions 111,662$ 134,733$ (23,071)$ -17.1% June 30,
(In Thousands)
Condensed Statement of Fiduciary Net Position
Pasadena Fire & Police Retirement System
Management’s Discussion and Analysis (MD&A) (Continued) (Unaudited)
Condensed Statement of Changes in Fiduciary Net Position
During the year ended June 30, 2022, the Plan’s net position decreased by $23,070,848. Earnings for the year in the portfolio were -8.6% net of fees, compared to 19.0% net of fees in the prior year.
Earnings for the year by asset class were as follows: International Equity ( -19.4% net of fees), Domestic Equity (-13.0% net of fees), Real Estate (25.9% net of fees) Alternatives (-15.7% net of fees), and Domestic Fixed Income (-8.2% net of fees on 44.1% of the total portfolio). There was a decrease of $33,111,125 in investment earnings from 2021 . This is reflective of the dramatic decline in equity performance this year compared to the prior year with -19.4% in 2022 vs. 40.5% in 2021 for International Equities and -13.1% in 2022 vs. 44.8% in 2021 for Domestic Equities. Real estate improved from 6.7% in 2021 to 25.9% in 2022.
Deductions from plan net position consisted of benefits payments to beneficiaries and the plan’s administration costs. Total deductions were $12,415,072 and $12,832,514 in fiscal year 202 2 and 2021, respectively. Total deductions for the year ended June 30, 2022, reflect a decrease of $417,442 compared to the prior year due to decreasing membership.
Fiduciary Responsibilities
The System is a fiduciary for the public safety pension plan of the City of Pasadena. Accordingly, the System is responsible for ensuring that the assets reported in the statements are used for the intended purpose of paying expenses and providing retirement benefits to retirees and beneficiaries of th e System.
2022 2021 $ Change % Change
Employer Contributions -$ -$ -$ n/a Net Investment Earnings (Losses) (10,656) 22,354 (33,010) -147.7% Total Additions (Losses) (10,656) 22,354 (33,010) -147.7% Benefit Payments 12,072 12,506 (434) -3.5% Administrative Expenses 343 327 16 4.9% Total Deductions 12,415 12,833 (418) -3.3% Net Increase (Decrease) (23,071) 9,521 (32,592) 342.3% Net Position Restricted for Pensions
Beginning of Year 134,733 125,212 9,521 -7.6% End of Year 111,662$ 134,733$ (23,071) 17.1% (In Thousands)
Condensed Statement of Changes in Fiduciary Net Position Year Ended June 30,
The notes to the basic financial statements are an integral part of this statement.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
STATEMENT OF FIDUCIARY NET POSITION
JUNE 30, 2022
(WITH COMPARATIVE TOTALS FOR JUNE 30, 2021)
2022 2021
Asse ts
Cash and cash equivalents 2,769,310$ 2,178,627$ Short-term investments 608,561 4,124,710 Receivables:
Pending trade sales 2,634,599 6,786,349
Interest 283,993 169,918
Total receivables 2,918,592 6,956,267
Investments, at fair value:
Government and agencies 19,255,353 24,232,920
Fixed income mutual funds 15,676,777 20,169,940 Domestic corporate obligations 21,541,729 23,274,707 International corporate obligations 1,428,993 1,587,182 Real estate 15,029,667 11,931,126
Equity - Domestic 20,377,674 27,382,351
Equity - International 20,346,394 26,962,063
Total investments 113,656,587 135,540,289
Total assets 119,953,050 148,799,893
Liabilities
Accounts payable and accrued liabilities 60,343 61,286 Pending trade purchases 8,230,969 14,006,021
Total liabilities 8,291,312 14,067,307
Net position restricted for pensions 111,661,738$ 134,732,586$
The notes to the basic financial statements are an integral part of this statement.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
FOR THE YEAR ENDED JUNE 30, 2022
(WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2021)
2022 2021
Additions:
Contributions:
Employer -$ -$
Net investment earnings (loss):
Interest 654,560 603,309
Dividends 1,786,426 1,363,394
Net increase (decrease) in fair value of investments (12,759,021) 20,826,387 Total investment earnings (loss) (10,318,035) 22,793,090 Less investment expenses (337,741) (439,243)
Net investment earnings (loss) (10,655,776) 22,353,847 Total additions (10,655,776) 22,353,847
Deductions:
Benefits paid to participants 12,072,173 12,505,972 Administrative expenses 342,899 326,542
Total deductions 12,415,072 12,832,514
Net increase (decrease) in net position (23,070,848) 9,521,333 Net position restricted for pensions:
Beginning of year 134,732,586 125,211,253
End of year 111,661,738$ 134,732,586$
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
NOTE 1 – PENSION PLAN DESCRIPTION
General
The Pasadena Fire & Police Retirement System (“System”) is a single-employer defined benefit pension plan governed by a Board of Retirement (“Board”) under provisions of the City of Pasadena (“City”) Charter.
The Board has sole and exclusive responsibility over the assets of the System and the responsibility to administer the System to assure prompt delivery of benefits and related services as provided in Article XV of the City Charter.
The System is governed by a Board of five members; one member of the City Council, two Pasadena residents appointed by the City Council, and two members of the System elected under the supervision of the System. Board members are elected to terms of four years with no restriction on reappointment. Board members receive no compensation. The Board consists of five members, whom on June 30, 2022, were as follows:
Keith Jones, Chair
Peter Boyle, Vice Chair
John H. Brinsley, Board Member
Gene Masuda, Board Member
Joe Milligan, Board Member
The System covers all sworn fire and police personnel who were employed by the City prior to July 1, 1977, except for those who elected to transfer to the California Public Employees’ Retirement System (“CalPERS”) when the System closed to new members. In June 2004, active members were provided a one-time opportunity to transfer from the System to CalPERS as provided by an agreement with the City.
CalPERS administers the retirement benefits for all fire and police members that elected to be transferred to CalPERS.
The System is included as a pension trust fund in the financial statements of the City of Pasadena, California. The System provides basic lifetime retirement, disability , and death benefits to members who meet the minimum age and length-of-service requirements.
As of June 30, 2022, System membership consisted of 193 retirees and beneficiaries who receive benefits including Domestic Relations Order (DRO) agreements. The average age was 80.4 years and the average monthly benefit was $5,306. Since June 30, 2021, the plan experienced 15 deaths: 9 deaths without a beneficiary for a net reduction of 9 participants. On June 30, 2022, total membership in the plan consisted of:
• 61 Service Retirees (average age 80.4, average monthly benefit $7,325) • 57 Disability Retirees (average age 79.8, average monthly benefit $5,447) • 75 Beneficiaries and DROs (average age 80.9, average monthly benefit $3,557)
There are no longer any active employ ees participating in the System, and the System is closed to new entrants. Benefit provisions are established and, subject to any constitutional limitations, may be amended by the City Charter.
Pension Plan Benefits
Members are entitled to annual pension benefits beginning at normal retirement age (50) equal to 1/50 of final compensation, times the member’s number of years of service, times an actuarial equivalent based on the actual retirement age. The System permits service retirement at age 50, provided at least 15 years of service have been rendered, or retirement after 25 years of service, regardless of age.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 1 – PENSION PLAN DESCRIPTION (Continued)
Disability Benefits
Generally, active members who become totally disabled receive annual disability benefits that are equal to 50% of final compensation. Members who receive a service disability retirement receive a portion of their benefit tax-free (as determined by the percent disabled at retirement), and 100% lifetime continuance of all benefits to their surviving spouse. In contrast, members who receive a non- service disability retirement receive a 60% lifetime continuance of the benefits payable to their surviving spouse, and the member does not receive tax-free benefits.
Death Benefits
In the case of a death before a member is eligible to retire, there is a refund of the employee contributions, with interest, plus six months’ salary. If the member is eligible to retire, 60% of the earned benefit is payable to the eligible surviving spouse for their lifetime.
Survivor Benefits
Upon the death of a retiree, the qualified surviving spouse is entitled to receive retirement benefits equal to 60% continuance for a service retirement and 100% continuance for a service- connected disability retirement.
Cost of Living Adjustment (“COLA”)
Monthly pension benefits are eligible for an annual cost of living adjustment based on the increase/decrease of the annual average in the Consumer Price Index (“CPI”) for the Los Angeles-Riverside-Orange County, California area for the previous year, January to December, and the change is rounded to the nearest whole percentage. The adjustments are calculated by the actuary, adopted by the Board, and become effective on July 1 of each year. The COLA for fiscal year 2021 was an increase of 2%.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The System follows the accounting principles and reporting guidelines as set forth in Governmental Accounting Standards Board ( “GASB”) Statement No. 67, Financial Reporting for Pension Plans - an amendment of GASB Statement No. 25 . The financial statements are prepared and presented using the accrual basis of accounting. Employer contributions are recognized in the period in which the contributions are due pursuant to legal requirements . Benefits are recognized when currently due and payable , in accordance with the terms of the System.
Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ( “GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash and Investments
The System’s cash and short-term investments are managed by the City Treasurer and U.S. Bank (master custodian for investment securities).
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Investments (Continued)
Cash necessary for the System’s daily operations is pooled with other City funds for short-term investment by the City Treasurer in the City’s Investment Pool (“Pool”). The City is responsible for the control and safekeeping of all instruments of title and for all investments in the Pool. The Pool is an internal investment pool and is not registered with the Securities and Exchange Commission. At June 30, 2022, the Pool had a weighted average maturity of 2.15 years. The Pool is not rated. For further information regarding the Pool, refer to the City's Annual Comprehensive Financial Report which can be found on the following website:
https://www.cityofpasadena.net/finance/financial-statements/#annual-comprehensive- financial-report.
Investment transactions are accounted for on the date the securities are purchased or sold (trade date).
Unsettled investment trades as of fiscal year -end are reported in the financial statements on an accrual basis. The corresponding proceeds due from sales are reported on the Statement of Fiduciary Net Position under receivables and labeled as pending trade sales, and amounts payable for purchases are reported under liabilities and labeled as pending trade purchases. Dividend income is recorded on ex-dividend date, and interest income is accrued as earned. The calculati on of realized gains and losses is independent of the calculation of the net change in the fair value of System’s investments. Changes in fair value include both realized and unrealized gains and losses on investments.
The System has designated $1,250,000 in cash reserves to be invested by the City Treasurer in the P ool.
The funds equal one month of benefits and administrative expenses and are reserved for use in the event of a major emergency or disaster.
Income Taxes
The Internal Revenue Service (“IRS”) has ruled that plans such as the System qualify under Section 414(d) of the Internal Revenue Code (“IRC”) and are not subject to tax under present income tax laws. On May 11, 2012, the IRS issued a favorable Tax Determination Letter to the System. Working in conjunction with the City Attorney to fulfill the conditions of the favorable determination letter, the System revised the Pasadena Municipal Code and the changes became effective December 6, 2012. Accordingly, no provision for income taxes has been made in the accompanying basic financial statements, as the System is exempt from federal income and state franchise taxes under provisions of the IRC , Section 414(d), and the California Revenue and Taxation Code, Section 23701, respectively. As allowed, the System filed to renew its tax determination status on October 23, 2015. Upon completing an analysis of the p lan document relative to the current IRC, the IRS found that the p lan is in compliance with the provisions of the IRC (no plan document failures exist). The System received a favorable determination letter on September 30, 2016.
Method Used to Value Investments
Investments are reported at fair value. Fair value for investments of publicly traded stocks and bonds and issues of the U.S. Government and its agencies is based on the last reported s ale price as of the fiscal year-end. Fair value of securi ties denominated in a foreign currency reflects exchange rates in effect at fiscal year-end. Fair value of investments in commingled funds in real estate is based on the fund share price provided by the fund manager, which is based on the net asset value “NAV”).
Fair value of investments in commingled funds in bank loans is the fund share price provided by the fund manager, which is based on the market value of the fund. Valuation for PanAgora’s Risk Parity Multi Asset Group Trust is the fund itself, which is reported at NAV and provided by Mellon Global Securities Services under contract to provide these valuation services twice monthly and more frequently, if requested. The real property asset manager (Invesco) has 100% of the properties appraised on a quarterly basis by independent third-party appraisers.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Method Used to Value Investments (Continued)
Use of discounted cash flow models and comparable sales analysis are the primary means of valuing real estate assets with the preponderance of weight given to the discounted cash flow method. Additionally, all valuations are consistent with Uniform Standards of Professional Appraisal Practice (USPAP), the Appraisal Standards Board and the Appraisal Foundation.
Comparative Data
The basic financial statements , including the notes thereto, include certain prior year summarized comparative information in total but not at the level of detail required for a presentation in conformity with accounting principles generally accepted in the United States. Accordingly, such information should be read in conjunction with the System's basic financial statements for the year ended June 30, 2021, from which the summarized information was derived.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS
Cash and Investments
Cash and investments on June 30, 2022, were held as follows:
Authorized Investments
The City Charter, Article XV Section 1502, confers the authority and fiduciary responsibility for investing the System’s funds on the Board. As set forth below, Board members are subject to carry out their duties in the manner of a prudent person familiar with such retirement and investment matters acting under similar circumstances. Investments shall be subject to the same terms, limitations, and restrictions as are imposed by the Constitution and laws of the State upon the investment of the CalPERS funds, as now enacted or hereafter amended.
The Board is required by statute to use care, skill, prudence and diligence to diversify the investments of the System so as to minimize the risk of loss and to maximize the rate of return, unless under the circumstances it is clearly not prudent to do so. The Board also has the authority to establish an investment policy based on professional advice and counsel, and all ows for the delegation of investment authority to professional investment managers.
June 30, 2022
Unrestricted Pooled Cash 971,372$
Designated Pooled Cash 1,250,000
Money Market Funds 547,938
Cash and Cash Equivalents 2,769,310
Short-term Investments 608,561
Investments 113,656,587
Total Investments 116,760,068
Total Cash and Investments 119,529,378$
Cash and Investments
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Authorized Investments (Continued)
The System’s investment policy outlines the responsibility for the investment of the funds and the degree of risk deemed appropriate for the System’s investments. Investment managers are contractually required to carry out their responsibilities in accordance with the Board’s investment policy and to follow specific contractual guidelines.
The Board oversees and guides the System subject to the following basic fiduciary responsibilities:
• Solely in the interest of, and for the exclusive purpose of, providing economic benefits to participants and their beneficiaries.
• With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matter s would use in the conduct of an enterprise of a like character with like objectives.
• Diversify the investments of the System so as to minimize the risk of loss and to maximize the rate of return, unless under the circumstances, it is clearly prudent not to do so. Diversification is applicable to the deployment of the assets as a whole.
Pursuant to this authority, the Board has authorized investment in the following securities:
• Securities of the U.S. Government or its
agencies
• Certificates of Deposit, or Time
Deposits, placed with commercial
banks and savings and loan
associations
• Negotiable Certificates of Deposit
• Bankers’ Acceptances
• Commercial Paper (rated A -1/P-1 or
better)
• Medium-Term Corporate Notes
• Corporate and Municipal Bonds
• Preferred Stock
• Common Stock
• Fixed-Income Funds
• Senior Bank Loans
• Foreign Stock and Corporate Bonds
• Mutual Funds
• Liquid Alternative Investments
• Real Estate Investment Trust (“REIT”)
• Real Estate
• Treasury Inflation Protected Securities
• Short-Term Investment-Grade Bonds
The Board established an Investment Policy Statement (“IPS”) in accordance with applicable local, state, and federal laws. The Board exercises authority and control over the management of the System’s assets by setting policy which the Board executes through the use of external prudent experts. During the fiscal year ended June 30, 2021, the alternative investment was changed from PIMCO All Asset Institutional to PanAgora Risk Parity Fund in November 2020. The IPS was revised to reflect the latest changes to the asset allocation which were approved by the Board.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Authorized Investments (Continued)
The IPS encompasses the following asset classes and asset allocation targets:
The System requires approximately $1,250,000 per month to cover benefit payments and administrative costs. On a quarterly basis, the Board and the investment consultant evaluate the assets against their allocation targets and determine the appropriate asset class/classes from which to with draw for payment of benefits and administration. This process also serves as a regular rebalance process to ensure that the portfolio stays within the Board’s adopted allocation goals.
Fair Value and Fair Value Hierarchy of Investments
Investments are reported in the Statement of Fiduciary Net Position at fair value. The System categorizes its fair value measurements within the fair value hierarchy established by GAAP. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets. Level 2 inputs are quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model -derived from valuation techniques in which all significant inputs are observable. Level 3 inputs are significant unobservable inputs.
Target As s et
Allocation
Domestic Equity
Large Cap Value 4%
Large Cap Growth 4%
Large Cap Core 8%
Small Cap Core 4%
Total Domestic Equity 20%
Foreign Equity 20%
Real Estate 10%
Fixed Income
Domestic Core Fixed Income 25%
Short-Term Investment-Grade Bonds 10%
Senior Bank Loans 5%
Treasury Inflation Protected Securities (TIPS) 5%
Total Fixed Income 45%
Risk Parity 5%
Total Portfolio 100%
Asse t Cla ss
Inves tment Performance Statement
As s et Clas s es and Targets
As of June 30, 2022
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Fair Value and Fair Value Hierarchy of Investments (Continued)
The following table presents a summary of the fair value hierarchy of the recurring fair value measurements of the System as of June 30, 2022:
Debt and equity securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Debt securities classified in level 2 of the fair value hierarchy are valued using a matrix pricing technique or based on quoted prices that are not in active markets . Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices.
Quoted Prices in
Active Markets
for Identical
Assets
Significant Other
Observable
Inputs
Significant
Unobservable
Inputs
Net Asset
Value
Inves tments by fair value level June 30, 2022 (Level 1) (Level 2) (Level 3) (NAV) Debt Securities
U.S. Treasury Securities (Government Bonds) 9,368,917$ -$ 9,368,917$ -$ -$ U.S. Treasury Securities (Short-Term Investments) 608,561 - 608,561 - - Government Mortgage-Backed Securities 9,349,625 - 9,349,625 - - Commercial Mortgage-Backed Securities 1,473,008 - 1,473,008 - - Government Issued Commercial Mortgage-Backed Securities 269,799 - 269,799 - - Asset Backed Securities 1,360,598 - 1,360,598 - - Non-Government Backed CMOs 1,015,099 - 1,015,099 - - Corporate Bonds 7,994,259 - 7,994,259 - - Municipal Bonds 267,012 - 267,012 - - Mutual Funds Fixed Income 15,676,777 15,676,777 - - - Total Debt Securities 47,383,655 15,676,777 31,706,878 - - Equity Securities
Consumer Discretionary 443,921 443,921 - - - Consumer Staples 378,479 378,479 - - - Financial Services 771,399 771,399 - - - Health Care Services 294,935 294,935 - - - Industrial Services 1,190,010 1,190,010 - - - Information Technology Services 1,044,136 1,044,136 - - - Materials 211,696 211,696 - - - Mutual Funds Equity 36,389,492 36,389,492 - - - Total Equity Securities 40,724,068 40,724,068 - - - Investments Measured at NAV
Senior Secured Bank Loans 5,974,412 - - - 5,974,412 Risk Parity Group Trust 5,153,346 - - - 5,153,346 Real Estate Funds 15,029,667 - - - 15,029,667 Total Measured at NAV 26,157,425 - - - 26,157,425 Total Investments Measured at Fair Value 114,265,148$ 56,400,845$ 31,706,878$ -$ 26,157,425$ Fair Value Meas urement Us ing
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Fair Value and Fair Value Hierarchy of Investments (Continued)
Real estate funds include investment in the Invesco Core Real Estate – U.S.A Limited Partnership (“Fund”).
The fair value of the investment in this type have been determined using the NAV per share (or its equivalent) of the System’s ownership interest in partners’ capital. The System may request redemption of some or all of its interest by delivering a redemption notice at least 45 days in advance to the Fund.
Redemption requests are honored pro rata based on the ratio of the ownership interest held by each individual investor making a redemption request to the total ownership of interest held by all investors requesting redemptions.
The Fund will use best efforts to honor redemption requests as quickly as possible; however, capital availability wi ll dictate the ultimate redemption date and amount. The Fund’s portfolio manager is not required to liquidate, encumber assets, or defer investments in order to pay any redemption.
The System’s investment in the Senior Bank Loans Secured Subscription Agre ement ( “Trust Fund”) is valued using the NAV per share (or its equivalent) of the System’s ownership interest in the Trust Fund.
The Trust Fund has imposed restrictions on the amount and timing of withdrawals . Withdrawals of participation shall be permitted only on a withdrawal date, which is 15 th of each month. A written notice of withdrawal request is required to be provided to the Trust Fund no later than the 15th of the month preceding the requested withdrawal date. If withdrawal requests for any given withdrawal date exceed limitations set forth in the Trust Fund’s agreement, all such withdrawal requests shall be processed pro rata. Withdrawal amounts requested but not paid on any given withdrawal date will not be carried over to the following withdrawal date and a new withdrawal request must be timely submitted.
The System’s investment in the PanAgora Risk Parity Group Trust is also valued using the NAV per share (or its equivalent) of the System’s ownership interest in the Risk Parity Group Trust. PanAgora Risk Parity Group Trust redemptions are beginning and mid-month with a two-day notice.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Asset Allocation Policy and Expected Long-term Rate of Return by Asset Class
The investments of the System are allocated by the IPS as approved by the Board and noted in the following table. The long- term geometric expected real rates of return are reported by asset class, and are based on CalPERS’ Capital Markets Assumptions studies.
Asset Class
Target Asset
Allocation
Expected
Geometric
Real Return*
Domestic Equity - Large Cap 16% 3.77%
Domestic Equity - Small Cap 4% 4.45%
Foreign Equity 20% 4.41%
Domestic Core Fixed Income 25% 0.53%
TIPS 5% -0.24%
Short-Term Investment-Grade Bonds 10% 0.05%
Senior Bank Loans 5% 1.64%
Alternative (Risk Parity) 5% 3.38%
Real Estate 10% 3.81%
100%
Inflation 2.50%
Expected Long-Term Rates of Return
Source is the June 30, 2022 GASB 67 actuarial information prepared by System Actuary, Foster & Foster, Inc. The rate for Alternative (Risk Parity) is used for Liquid Alternative Investments.
* 10-year geometric expected real rates of return from Bartel Associates 2021 Capital Market Assumptions study.
6/30/2022
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Rate of Return
For the year ended June 30, 2022, the annual money-weighted rate of return on the System’s investments, net of investment expenses, was -8.6%. The money -weighted rate of return expresses investment performance, net of investment expenses, adjusted for the changing amounts actually invested.
Deposit and Investment Risks
The System follows GASB Statement No. 40, Deposit and Investment Risk Dis closures – an amendment to GASB Statement No. 3 (“GASB Statement No. 40”). GASB Statement No. 40 is designed to inform financial statement users about deposit and investment risks that could affect the ability to provide services and meet obligations as they become due. The disclosures required by this statement provide information to assess common risks inherent in deposit and investment transactions.
Deposit and investment resources represent considerable assets of the System, and these resources are necessary to carry out fiduciary responsibilities. GASB Statement No. 40 requires the disclosure of the following specific risks that apply to the System’s investments:
• Credit Risk and Fair Value of Investments
• Custodial Credit Risk – Deposits and
Investments
• Concentration of Credit Risk
• Interest Rate Risk
• Highly Sensitive Investments
• Foreign Currency Risk
GASB Statement No. 40 also requires the disclosure of deposit or investment policies (or the lack thereof) that relate to the investment and custodial risks that are req uired to be disclosed. The Board has chosen to manage the inv estment risks described by GASB Statement No. 40 by contractually requiring each portfolio investment manager to abide by the IPS, specifically tailored to that individual manager, rather than adopting across -the-board investment policies with respect to these investment risks. The fixed income policy stipulates the strategy and investments, investment process, quality constraints, duration constraints, diversification, cash reserves, derivatives, and rate of return expectation. At June 30, 2022 , the System had nine (9) external investment managers.
Credit Risk
Credit risk is the risk that the issuer of a debt security or other counterparty to an investment will not fulfill its obligations. The individual investment guidelines for the fixed income investment manager describe applicable restrictions on credit risk. The Syst em seeks to maintain a diversified portfolio of fixed income instruments in order to obtain the highest total return for the fund at an acceptable level of risk within this asset class. The credit quality ratings of investments in fixed income securities by a nationally recognized statistical rating organization, S&P Global Ratings (“S&P”), as of June 30, 2022, are as follows:
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Credit Risk (Continued)
Custodial Credit Risk – Deposits
Custodial credit risk for deposits is the risk that, in the event of a financial institution’s failure, the System will not be able to recover the value of deposits nor be able to recover collateral securities that are in the possession of an outside party. Deposit s are exposed to custodial credit risk if they are not insured or not collateralized. As of June 30, 2022, the System was not exposed to such risk. The System does not have a formal policy for custodial credit risk.
Quality Ratings - S & P Fair Value Percentage
AAA 611,776$ 1.04%
AA 803,235 1.37%
A 2,373,043 4.06%
BBB 5,661,510 9.68%
BB 192,623 0.33%
B 116,793 0.20%
CCC 494,064 0.84%
Total Securities with S&P Ratings 10,253,044$ 17.52% Not Rated/Quality Rating N/A* 28,661,467$ 48.98%
Not Rated/U.S. Government Guaranteed Securities** 9,101,194 15.55% Not Rated/U.S. Government Bonds*** 10,495,708 17.94% Total Securities Not Rated/Quality Rating N/A 48,258,369$ 82.48% Total Fixed Income Securities 58,511,413$ 100.00% ** U.S. Government Guaranteed Securities are Government Mortgage-Backed Securities and Government-issued Commercial Mortgage-Backed Securities. These U.S. Government Guaranteed Securities issued by Government Sponsored Enterprises (GSEs) are not rated by the rating agencies, but they are implicitly guaranteed by the U.S. Government. *** U.S. Government Bonds, more commonly disclosed as U.S. Treasury Bonds and Notes, are assets held in Treasury Bonds and Index Linked Government Bonds. These U.S. Government Guaranteed Securities issued are not rated by the rating agencies, but they are explicitly guaranteed by the U.S. Government.
Credit Quality Ratings of Investments in Fixed Income Securities * Includes Corporate MBSs rated "N/A" totaling $1,345,993. This category also includes securities held in the TIPS, Risk Parity, Senior Bank Loans, and Short-Term Investment-Grade Bonds asset classes.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Custodial Credit Risk – Investments
Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the System will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The individual investment guidelines for each investment manager require that managed investments be held and maintained with the master custodian in the name of the System. Investment securities are exposed to custodial credit risk if the securities are uninsured, or are not registered in the System’s name, and held by the counterparty. The System’s investments are not exposed to custodial credit risk if they are insured or registered in the System’s name. The System’s investments are not exposed t o custodial credit risk because all securities are held by the System’s custodial bank in the System’s name.
Concentration of Credit Risk – Investments
Concentration of credit risk is the risk of potential loss attributed to the magnitude of the System’s investment in a single issuer of securities. The Board’s investment policies and guidelines permit investments in numerous specified asset classes to take advantage of professional investment management advice and a well-diversified portfolio. The active core fixed income asset manager develops and applies diversification standards as deemed prudent, and is expected to maintain diversification by sector and issue. Allocations to any one issuer in fixed income ( excluding issues issued by or explicitly guaranteed by the U.S. government) should not exceed 5% of the total portfolio fair value.
As of June 30, 2022, there were no organizations or issuers that represent 5% or more of the total investments or the fiduciary net position.
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Duration is a measure of the price sensitivity of a fixed income portfolio to changes in interest rates. It uses the present values of cash flows, weighted for those cash flows as a percentage of the investment’s full price. The longer the duration of a portfolio, the greater its price sensitivity i s to changes in interest rates.
While no specific ranges are required, one of the ways the System manages its exposure to interest rate risk is by requiring the fixed income investment manager to maintain its portfolio effective duration within +/- 20% of the benchmark, the Barclays Capital U.S. Aggregate Bond Index. See Other Information, page 46 for the Core Fixed Income asset manager’s historic effective duration. The effective duration is a measure, in years, of interest -rate sensitivity in debt investments. The longer the effective duration, the greater the sensitivity to interest rate changes.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Interest Rate Risk (Continued)
Information about the sensitivity of the fair values of the System’s investments to market interest rate fluctuations is provided in the table below that reports the average effective duration of the System’s fixed income investments by asset type as of June 30, 2022:
Asse t Type Fair Value
Effective
Weighted
Duration
(years)
Government Bonds 9,977,478$ 5.51
Municipal Bonds 267,012 10.52
Corporate Bonds 7,994,259 11.33
Government Mortgage-Backed Securities 9,349,625 8.09 Government Issued Commercial Mortgage-Backed 269,799 10.94 Commercial Mortgage-Backed 1,473,008 3.86
Asset Backed Securities 1,360,598 0.14
Non-Government Backed CMOs 1,015,099 0.20
No Effective Duration:
Mutual Funds Fixed Income 15,676,777 N/A
Risk Parity Group Trust 5,153,346 N/A
Senior Bank Loans 5,974,412 N/A
Total Fixed Income 58,511,413$
As of June 30, 2022
Fixed Income
Effective Duration by Asset Type
Highly Sensitive Investments
Highly sensitive investments are certain debt investments whose terms may cause their fair value to be highly sensitive to market interest rate changes. Terms include such information as embedded options, coupon multipliers, benchmark indexes, and reset dates. The System’s asset backed investments have embedded prepayment options that will typically cause prepayments by the obligees of the underlying investments when interest rates fall. Prepay ments eliminate the stream of future interest payments and, therefore, diminish the fair value of the asset -backed investment. The table on the following page reports the fair value of the System’s investments that are highly sensitive to changes in interest rates:
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 3 – CASH AND INVESTMENTS (Continued)
Highly Sensitive Investments (Continued)
Foreign Currency Risk
Foreign currency risk is the risk that changes in foreign exchange rates will adversely affect the fair value of an investment or deposit . The System’s authorized investment managers are permitted to invest in approved countries or regions, as stated in their respective investment guidelines. Currency hedging will be permitted as part of a defensive strategy to protect the portfolio’s underlying assets.
The System’s foreign investment holdings on June 30, 2022 has no foreign currency risk as the securiti es trade and settle in US Dollars as domestic trades.
Investment Type Fair Value
Government Mortgage-Backed Securities 9,349,625$
Government Issued Commercial Mortgage-Backed Securities 269,799 Asset Backed Securities 1,360,598
Commercial Mortgage-Backed Securities 1,473,008
Non-Government Backed Commercial Mortgage Obligations 1,015,099 Total Highly Sensitive Investments 13,468,129$
Highly Sensitive Investments
As of June 30, 2022
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 4 – CONTRIBUTION INFORMATION
Contribution requirements are established by the City Charter and by contract, and, subject to any constitutional limitations, may be amended by the City Charter or further agreement between the City and the System.
General
Historically, the City has made monthly contributions to the System based on actuarially determined employer contribution rates which, together with employee contributions, were expected to provide sufficient assets to pay funded basic benefits when due. However, the City Charter did not require actuarially determined funding for unfunded basic, 1919 benefits, and COLA benefits, which are funded under Contribution Agreement No. 16,900, dated March 18, 1999, between the City and the System. Per the terms negotiated through their respective recognized Associations , employee contributions of 9% for both F ire and Police Department personnel base earnings were made by the City on behalf of the employees and credited to their individual accounts.
Member Contributions
As a condition of participation, members were required to contribute a percentage of their annual salary to the System. Currently there are no active members in the System, and hence no further member contributions are due to the System.
The City Charter required members’ contributions to be credited to the individual account of the member from whose compensation the contribution was deducted. Such contributions accrued interest at a rate determined by the Board and were either to be refunded to members or their beneficiaries upon separation from City service for reasons other than retirement, or applied towards providing members’ retirement or death allowances. Amendments to the City Charter cannot prevent the refund of such contributions plus accrued interest. Because there were no active members, accumulated contributions for 2022 were $0 with no interest credited.
City Contributions
The System’s funding mechanism was updated on March 18, 1999, when the System entered into Contribution Agreement No. 16,900 (“Agreement No. 16,900”) with the City. As a result of this agreement, the City made a contribution of $100,000,000 to the System on August 5, 1999, and agreed to make supplemental contributions to the System when needed. Per Agreement No. 16,900, the System was considered to meet minimum funding requirements for the year ended June 30, 2001, if the funded percentage exceeded 70%. As per the agreement, the required minimum funded percentage increases by 1/2% each year until it reaches 80% in the year ended June 30, 2021. Thereafter it may, but need not, be changed by the System.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 4 – CONTRIBUTION INFORMATION (Continued)
City Contributions (Continued)
On October 20, 2011, the Board approved Amended and Restated Agreement No. 20,823 ( “Agreement No. 20,823” ). Under this new agreement, the City’s minimum funding percentage schedule and reimbursement cap in Agreement No. 16,900 carried forward, and the City agreed to provide a contribution of $46,600,000 to the System through the issuance of pension obligation bonds. Agreement No. 20,823 provided that the annual required supplemental contribution would be actuarially calculated using an interest assumption of 6% and an inflation rate of 3% beginning with the June 30, 2012 valuation. Pursuant to this agreement, future annual valuations after June 30, 2012, shall adopt an assumed interest rate and inflation assumption based on analysis performed by the System’s actuary and after seeking input from the City and Syst em’s professional consultant. Agreements No. 16,900 and No. 20,823 state that if the minimum funding deficit is greater than $3,000,000 in a year, the City will pay $3,000,000 to the System. Any remaining amount necessary to reach the minimum funding percentage will be phased in over a five- year period; however, no annual supplemental payment may exceed a reimbursement cap measured by the prior year’s payments for benefits other than the funded basic benefits.
As of June 30, 2022, the funded percentage of the System, calculated in accordance with Agreement No. 20,823 and Agreement No. 16,900, was 87.8% . As provided by Agreement No. 16,900, if the funded percentage is below the minimum funding percentage of 80% for fisca l year 2022, the City will reimburse the System in the following fiscal year subject to certain reimbursement limits. Based on the June 30, 2022 actuarial valuation, the funding deficiency was $0, or 0%, below the funding requirement of 80% as of June 30, 2022. Thus, no required supplemental contribution is owed to the System by the City for the fiscal year ended June 30, 2022.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 5 – NET PENSION LIABILITY
Net Pension Liability
The City’s Net Pension Liability (“NPL”) at June 30, 2022, was $14,629,000. Fiduciary Net Position (“FNP”) as a percentage of total pension liability is 88.4%. At June 30, 2022, the components of the NPL were as follows:
Key Methods and Assumptions Used in Valuation of Total Pension Liability
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about mortality and cost trends. Actuarially determined amounts are subject to continual review or modification as actual results are compared with past expectations and new estimates are made about the future.
Projections of benefits for financial reporting purposes are based on the substantive plan ( the plan as understood by the employers and plan members) and include the types of benefits provided at the time of each valuation. Following the recommendation provided by the System ’s Actuary on May 26, 2022, the Board later accepted the recommended assumptions for use in the preparation of the actuarial valuation for the year ended June 30, 2022.
Net Pension Liability 6/30/2022
Discount Rate 5.25%
Total Pension Liability (TPL)* 126,291$
Fiduciary Net Position (FNP) 111,662
Net Pension Liability (NPL) 14,629$
FNP as a Percentage of TPL 88.4%
_______________________________________________________ *Source for the TPL is the June 30, 2022 GASBS 67 plan actuarial information report prepared by System Actuary, Foster & Foster, Inc. (In Thousands)
Net Pension Liability
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 5 – NET PENSION LIABILITY (Continued)
Key Methods and Assumptions Used in Valuation of Total Pension Liability (Continued)
The Total Pension Liability (“TPL”) was determined by the actuarial valuation performed as of June 30, 2022, using the following actuarial assumptions:
Valuation Date/Measurement Date June 30, 2022
Expected Geometric Real Rate of Return
Domestic Equity - Large Cap 3.77%
Domestic Equity - Small Cap 4.45%
Foreign Equity 4.41%
Domestic Core Fixed Income 0.53%
Senior Bank Loans 1.64%
Short-Term Investment Grade Bonds 0.05% TIPS -0.24% Risk Parity 3.38%
Real Estate 3.81%
Number of Participants Retirees & Beneficiaries* 193 Vested Terminations -
Activ es - Total Participants 193 Actuarial Assumptions **Discount Rate: 5.25%
Salary Scale: No active employees
Inflation Rate: 2.50%
Mortality CalPERS 2000-2019 Experience Study,
Mortality Improvement Scale 80% Scale MP-2020
Key Methods and Assumptions Used in Valuation of
Total Pension Liability
Source is the June 30, 2022 GASBS 67 plan actuarial information prepared by System Actuary, Foster & Foster, Inc.
**Discount Rate reflects assumed investment expenses of 15 basis points. *Alternative payee data for 23 Domestic Relations Order agreements provided separately from employee- retiree for first time in 6/30/22 valuation. Benefits for these alternative payees previously included in the corresponding retiree’s benefits. All DRO agreements provide benefits to the alternative payees for the lifetime of the System’s retiree.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 5 – NET PENSION LIABILITY (Continued)
Discount Rate
The discount rate of 5.25% was selected by the System actuary and approved by the Board to measure the June 30, 2022 TPL for accounting purposes. The discount rate is the expected real long- term rate of return, plus the inflation assumption of 2.50%, less assumed investment expenses of 15 basis points. The expected long-term real rate of return is compared at the 50% and 55% confidence levels of capital market assumptions. Based on the assumptions, the System 's Fiduciary Net P osition was projected to be available to make all projected future benefit payments. The discount rate used as of June 30, 2022 is lower than the discount rate of 5.75% used as of June 30, 2021.
Sensitivity of the NPL to Changes in the Discount Rate
Examining the sensitivity of the NPL to changes in the discount rate by a 1% decrease, from 5.25% to
4.25%, revealed an increase in the NPL by $10, 041,000 to a t otal NPL of $24,670,000. Conversely, increasing the discount rate by 1%, from 5 .25% to 6.25%, revealed a corresponding decrease in the NPL of $8,782,000 to total NPL of $5,847,000 as of June 30, 2022.
6/30/2022
Discount Rate 5.25%
Net Pension Liability 14,629$
Discount Rate (-1%) 4.25%
Net Pension Liability 24,670
Net Increase in NPL 10,041
Discount Rate (+1%) 6.25%
Net Pension Liability 5,847
Net Decrease in NPL (8,782)
Sensitivity of Net Pension Liability (NPL) to
Changes in the Discount Rate
(In Thousands)
NOTE 6 – ADMINISTRATIVE COSTS
The costs to administer the System are paid by the System. Administrative expenses were $ 342,899 for the year ended June 30, 2022 . Administrative expenses increased by a net amount of $1 6,357 in fiscal year 2022 over the fiscal year 2021 amount of $326,542.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO BASIC FINANCIAL STATEMENTS (Continued)
JUNE 30, 2022
NOTE 7 – CONCORD SENIOR HOUSING PROPERTY AGREEMENT
The City Council adopted Resolution No. 6179 at its July 18, 1989, meeting assigning a 93% beneficial interest in the Concord Senior Housing property at 275 E. Cordova, Pasadena (Concord Property), to the System, and 100% of the cash flow received by the City from the property for ground lease rent payments through 2031. The property was previously used for federally subsidized housing and was subject to federal restrictions on its use through August 2016. Resolution No. 6179 also declared the City’s formal intent to continue to utilize the property for federally subsidized housing through 2031.
The System’s Board reviewed and approved an amendment to Agreement No. 20,823 (Amended Agreement) at its meeting on February 20, 2019, which was later approved by City Council at its meeting on March 11, 2019. The amendment memorializes the accrued rent and interest owed to the City as of July 31, 2018, in the amount of $6,435,116. Further, the amendment assigns the System 100% of the past due amount and all future rents and income from operations through the term of the ground lease agreement, which expires on August 1, 2031, or until the City sells the Concord Property, whichever occurs first.
The sale of the Concord Property closed on May 28, 2020. The total proceeds received by the System was $23,137,382 as of June 30, 2020, which are comprised of the ground lease due through May 27, 2020, of $3,180,180, accrued interest on ground lease rent of $3,950,613, and the System's 93% beneficial interest of $16,006,589. The total proceeds transferred to the System were reduced by the amount of the City’s mandatory contribution of $3,478,000 for a total remittance of $19,659,382., which was reported in fiscal year 2020.
At June 30, 2022, the City has an outstanding note receivable related to the sale in the amount of $18,350,000 of which $17,065,500 is expected to be contributed to the System upon receipt based on the System’s 93% beneficial interest in accordance with the Amended Agreement. Approximately $13,505,395 of the outstanding note receivable balance is to be paid upon completion of construction. The System’s portion of the second installment of Sale Proceeds will be due upon the Permanent Financing Closing date of the Concord Property, which entitles the System to receive from the City its 93% beneficial interest of approximately $12,560,017.
According to the Disposition, Development and Loan Agreement (DDLA), the Permanent Financing Closing date is scheduled to occur no later than March 31, 2022, but due to delays in obtaining an electrical permit the closing date has been extended to spring of 2023 . The remaining note receivable balance of $4,844,605 will be due 55 years after the project completion date and bears interest at a fixed rate of 2.5% per year. If and when there are payments received by the City, 93% of the payment will be remitted to the System as additional contributions for a total of $4,505,483.
REQUIRED SUPPLEMENTARY INFORMATION
P A S A D E N A
FIRE &
POLICE
RETIREMENT
S Y S T E M
PASADENA FIRE & POLICE RETIREMENT SYSTEM
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
SCHEDULE OF CHANGES IN EMPLOYER’S NET PENSION LIABILITY/(ASSET)
2022 2021 2020 2019 2018 2017 2016 2015 2014
Discount Rate 5.25% 5.75% 5.75% 5.75% 5.75% 6.50% 6.50% 6.50% 6.00% Total Pension Libility (TPL):
Service Cost -$ -$ -$ -$ -$ -$ -$ -$ -$ Interest 6,947 7,335 7,600 7,781 8,832 9,272 9,644 9,162 10,185 Benefit Payments (12,072) (12,506) (12,773) (12,824) (12,815) (13,118) (13,448) (13,645) (14,140) Experience Losses (Gains) 164 (1,799) 438 1,862 1,261 (3,081) (2,098) (3,075) (5,310) Assumption Changes* 4,400 - - - 2,189 - - 3,141 - Benefit Changes - - - - - - - - - Net Change (560) (6,969) (4,735) (3,181) (533) (6,927) (5,902) (4,417) (9,265) Total Pension Liability at Beginning of Year 126,852 133,821 138,556 141,737 142,270 149,197 155,099 159,516 168,781 Total Pension Liability at End of Year (a) 126,291$ 126,852$ 133,821$ 138,556$ 141,737$ 142,270$ 149,197$ 155,099$ 159,516$ 2022 2021 2020 2019 2018 2017 2016 2015 2014
Fiduciary Net Position:
Employer contributions -$ -$ 23,137$ -$ -$ -$ -$ -$ 1,164$ Member Contributions - - - - - - - - - Net Investment Income (10,656) 22,354 3,394 5,923 6,656 12,514 49 5,683 21,303 Benefit Payments (12,072) (12,506) (12,773) (12,824) (12,815) (13,118) (13,448) (13,645) (14,140) Administrative Expenses (343) (327) (321) (257) (274) (300) (301) (273) (296) Net Change (23,071) 9,521 13,437 (7,158) (6,433) (904) (13,700) (8,235) 8,031 Fiduciary Net Position at Beginning of Year 134,733 125,211 111,774 118,932 125,365 126,269 139,969 148,204 140,173 Fiduciary Net Position at End of Year (b) 111,662$ 134,733$ 125,211$ 111,774$ 118,932$ 125,365$ 126,269$ 139,969$ 148,204$ Net Pension Liability/(Asset) (a) - (b) 14,629$ (7,881)$ 8,610$ 26,782$ 22,805$ 16,905$ 22,928$ 15,130$ 11,312$ * Assumption Changes for June 30, 2015, June 30, 2018 and June 30, 2022. (In Thousands)
Source for pension liability is the June 30, 2022 GASBS 67 plan actuarial information prepared by System Actuary, Foster & Foster, Inc. GASB Statement No. 67 requires this information be reported for 10 years, or as many years as are available upon implementation.
Changes in Total Pension Liability
(In Thousands)
Changes in Fiduciary Net Position
Fis cal Year Ended
Fis cal Year Ended
PASADENA FIRE & POLICE RETIREMENT SYSTEM
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) (Continued)
SCHEDULE OF EMPLOYER’S NET PENSION LIABILITY/(ASSET) AND RELATED RATIOS
Date
Discount
Rate
Total
Pension
Liability
(TPL)
Fiduciary
Net Position
(FNP)
Net Pension
Liability
(NPL)
FNP as a
Percentage
of TPL
(FNP/TPL)
Covered
Payroll NPL % Pay
6/30/2022 5.25% 126,291$ 111,662$ 14,629$ 88.4% n/a n/a 6/30/2021 5.75% 126,852$ 134,733$ (7,881)$ 106.2% n/a n/a 6/30/2020 5.75% 133,821$ 125,211$ 8,610$ 93.6% n/a n/a 6/30/2019 5.75% 138,556$ 111,774$ 26,782$ 80.7% n/a n/a 6/30/2018 5.75% 141,737$ 118,932$ 22,805$ 83.9% n/a n/a 6/30/2017 6.50% 142,270$ 125,365$ 16,905$ 88.1% n/a n/a 6/30/2016 6.50% 149,197$ 126,269$ 22,928$ 84.6% n/a n/a 6/30/2015 6.50% 155,099$ 139,969$ 15,130$ 90.2% n/a n/a 6/30/2014 6.00% 159,516$ 148,204$ 11,312$ 92.9% n/a n/a 6/30/2013 6.00% 168,781$ 140,173$ 28,608$ 83.1% n/a n/a Net Pension Liability/(Asset)
(In Thousands)
Source for pension liability is the June 30, 2022 GASBS 67 plan actuarial information prepared by System Actuary, Foster & Foster, Inc.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) (Continued)
SCHEDULE OF EMPLOYER CONTRIBUTIONS
Fis cal Year
Ended
Contractually
Required
Contribution*
Actual Fiscal
Year
Contribution
Deficiency
(Ex ce ss)
Covered
Payroll
Contribution
a s % of
Payroll
6/30/2022 -$ -$ -$ n/a n/a 6/30/2021 -$ -$ -$ n/a n/a 6/30/2020 3,478$ 23,137$ (19,659)$ n/a n/a 6/30/2019 -$ -$ -$ n/a n/a 6/30/2018 -$ -$ -$ n/a n/a 6/30/2017 -$ -$ -$ n/a n/a 6/30/2016 -$ -$ -$ n/a n/a 6/30/2015 -$ -$ -$ n/a n/a 6/30/2014 1,164$ 1,164$ -$ n/a n/a 6/30/2013 -$ -$ -$ n/a n/a (In Thousands)
*Contractually required contributions are based on Board-adopted assumptions for use in preparing the valuation, and as required by applicable Contribution Agreements with the City.
Source is the June 30, 2022 GASBS 67 plan actuarial information prepared by System Actuary, Foster & Foster, Inc. GASB Statement No. 67 requires this information be reported Employer Contributions
PASADENA FIRE & POLICE RETIREMENT SYSTEM
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) (Continued)
SCHEDULE OF INVESTMENT RETURNS
2022 2021 2020 2019 2018 2017 2016 2015 2014
Annual money-weighted rate of return,
net of investment expense -8.60% 19.00% 2.80% 5.50% 5.60% 10.70% 0.40% 3.70% 15.40% Money-Weighted Rate of Return
Source is the June 30, 2022 Investment Performance Review provided by System investment advisor, Verus Investments.
GASB Statement No. 67 requires this information be reported for 10 years. Additional years will be displayed as information becomes available.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
NOTE 1 – SCHEDULE OF CHANGES IN THE EMPLOYER NET PENSION LIABILITY /(ASSET)
The total pension liability contained in this section was provided by the System’s actuary, Foster & Foster, Inc. (Bartel Associates , LLC prior to 2022) . The Net Pension L iability/(Asset) is measured as the Total Pension Liability less the amount of the Fiduciary Net Position of the System.
NOTE 2 – SCHEDULE OF EMPLOYER CONTRIBUTIONS
The required employer contribution and percent of those contributions actually made are presented in this section.
The System’s funding mechanism was updated on March 18, 1999, when the System entered into Contribution Agreement No. 16,900 (“Agreement No. 16,900”) with the City. As a result of this agreement, the City made a contribution of $100,000,000 to the System on August 5, 1999 and agreed to make supplemental contributions to the System when needed. Per Agreement No. 16,900, the System was considered to meet minimum funding requirements for the year ended June 30, 2001, if the funded percentage exceeded 70%. As per the agreement, the required minimum funded percentage increases by 1/2% each year until it reaches 80% in the year ended June 30, 2021. Thereafter it may, but need not, be changed by the System.
On October 20, 2011, the Board approved Amended and Restated Agreement No. 20,823 ( “Agreement No. 20,823” ). Under this new agreement, the City’s minimum funding percentage schedule and reimbursement cap in Agreement No. 16,900 carried forward, and the City agreed to provide a contribution of $46,600,000 to the System through the issuance of pension obligation bonds. Agreement No. 20,823 provided that the annual required supplemental contribution would be actuarially calculated using an interest assumption of 6% and an inflation rate of 3% beginning with the June 30, 2012 valuation. Pursuant to this agreement, future annual valuations after June 30, 2012, shall adopt an assumed interest rate and inflation assumption based on analysis performed by the System’s actuary and after seeking input from the City and Syst em’s professional consultant. Agreements No. 16,900 and No. 20,823 state that if the minimum fun ding deficit is greater than $3,000,000 in a year, the City will pay $3,000,000 to the System. Any remaining amount necessary to reach the minimum funding percentage will be phased in over a five- year period; however, no annual supplemental payment may ex ceed a reimbursement cap measured by the prior year’s payments for benefits other than the funded basic benefits.
The June 30, 2013 actuarial valuation determined there was a funding deficiency of $1,164,000 or 0.67% to meet the minimum funding requirement of 76.5%. The June 30, 2019 actuarial valuation determined there was a funding deficiency of $3,478,000 or 3.4% to meet the minimum funding requirement of 79.5%.
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) (Continued)
NOTE 2 – SCHEDULE OF EMPLOYER CONTRIBUTIONS (Continued)
The June 30, 202 2 funding actuarial valuation determined the AVA Funded Percentage, calculated in accordance with Agreement No. 20,823 and Contribution Agreement No. 16,900, to be 87.8% as compared to 92.1% in the prior year. The AVA Funded Percentage decreased by 6.02% over what was originally projected for 2022 in the June 30, 20 21 valuation (93.85%), and was primarily attributed to the following actuarial changes: 2.3% investment loss of $3,472,000 (investment return was lower than expected), COLA loss of $1,579,000 (COLA was higher than anticipated), demographic gains of $1,283,000 (more deaths than actuarially estimated) , and benefit payments gain of $86,000 (higher than anticipated). As required by Contribution Agreement No. 16,900, if the AVA Funded Percentage was below the mi nimum funding percentage of 80% for fiscal year 2022, the City would have been required to reimburse the System in the following fiscal year subject to certain reimbursement limits. Based on the June 30, 2022 funding actuarial valuation, the funding deficiency was $0, or 0.0%, below the funding requirement of 80%. A required supplemental contribution is not owed to the System for the fiscal year ending June 30, 2023.
NOTE 3 – ACTUARIAL ASSUMPTIONS
The information presented in the required supplementary schedules was used in the June 30, 202 2 actuarial valuation for purposes of determining the Actuarially Determined Contribution (“ADC”). The assumptions and methods used for the June 30, 2022, and all prior actuarial valuations were recommended by the System’s actuary and adopted by the Board. Consistent with the requirements of GASB Statement No. 67, the factors impacting the ADC and any changes to the factors that significantly affect trends in the reported schedules must be disclosed for 10 years.
Actuarial Demographic Assumptions
Year Ended
June 30 Mortality Mortality Improvement
2022 CalPERS 2000-2019
Experience Study
Mortality Improvement Scale
80% Scale MP-2020
2018-2021 CalPERS 1997-2015
Experience Study
Mortality Improvement Scale
MP-2017
2015-2017 CalPERS 1997-2011
Experience Study
Modified MP-2014, to converge to
ultimate mortality improvement rates in
2022
2013-2014 CalPERS 1997-2007
Experience Study
Scale AA
Schedule of Changes to Actuarial Demographic Assumptions For the Years Ended June 30, 2013 - 2022
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) (Continued)
NOTE 3 – ACTUARIAL ASSUMPTIONS (Continued)
Actuarial Demographic Assumptions (Continued)
Actuarial Methods
Year
Ended
June 30 Service Disability Beneficiaries *
Subtotal
Retirees &
Beneficiaries
Active
Members
Total
Members
2022 61 57 75 193 - 193
2021 67 63 49 179 - 179
2020 72 67 55 194 - 194
2019 74 71 59 204 - 204
2018 79 75 58 212 - 212
2017 82 79 56 217 - 217
2016 90 84 59 233 - 233
2015 96 86 55 237 - 237
2014 98 90 59 247 - 247
2013 106 92 59 257 - 257
*Alternative payee data for 23 Domestic Relations Order agreements provided separately from employee-retiree for first time in 6/30/22 valuation. Benefits for these alternative payees previously included in the corresponding retiree’s benefits. All DRO agreements provide benefits to the alternative payees for the lifetime of the System’s retiree.
Retirees & Beneficiaries
Schedule of Changes to Actuarial Demographic Assumptions For the Years Ended June 30, 2013 - 2022
Year
Ended
June 30
Actuarial Cost
Method
Amortization
Method
Remaining
Amortization
Period
Asset Valuation
Method
2013-2022 Entry Age
Normal Cost
Level Dollar
Open Period
5-year Investment gains and
losses smoothed over 5-
year fixed period
Schedule of Actuarial Cost and Amortization Methods
For the Years Ended June 30, 2013 - 2022
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) (Continued)
NOTE 3 – ACTUARIAL ASSUMPTIONS (Continued)
Actuarial Economic Assumptions
Year
Ended
June 30
Discount
Rate
Invest.
Expens es
Admin.
Expens es Inflation
Cost of
Living
Salary
Increas e
Employee
Contrib.
Rate Notes
2022 4.75% 15 bp 50 bp 2.50% 4.00% N/A N/A
The funding discount rate was decreased to 4.75%,
investment expenses to 15 bp, inflation to 2.50%,
expected rate of return to 5.25% and 2% increase in the cost of living adjustment.
2021 5.25% 40 bp 50 bp 2.75% 2.00% N/A N/A
No changes made from 6-30-20 assumptions, with the
exception of the 1% decrease in the cost of living
adjustment.
2020 5.25% 40 bp 50 bp 2.75% 3.00% N/A N/A
No changes made from 6-30-19 assumptions, with the
exception of the 1% decrease in the cost of living
adjustment.
2019 5.25% 40 bp 50 bp 2.75% 4.00% N/A N/A
No changes made from 6-30-18 assumptions, with the
exception of the 1% increase in the cost of living
adjustment.
2018 5.25% 40 bp 50 bp 2.75% 3.00% N/A N/A
The funding discount rate was decreased to 5.25%,
inflation to 2.75%, expected rate of return to 5.75% and 1% increase in the cost of living adjustment. The
expected return changed due to change in Capital Market Assumptions. The model predicts that the Expected Long- Term Nominal Net Rate of Return (Rate of Return before
factoring in inflation but after subtracting investment fees) is only estimated to be between 5.61% and 5.83%.
2017 6.00% 40 bp 50 bp 3.00% 2.00% N/A N/A
No changes made from 6-30-15 assumptions, with the
exception of the 1% increase in the cost of living
adjustment.
2016 6.00% 40 bp 50 bp 3.00% 1.00% N/A N/A No changes made from 6-30-15 assumptions 2015 6.00% 40 bp 50 bp 3.00% 1.00% N/A N/A Discount rate assumes no cash reserve and is net of Investment Expenses; Administrative Expenses are
included in the City's contribution
2014 6.00% 40 bp 60 bp 3.00% 1.00% N/A N/A The Discount Rate of 6.0% was evaluated and recommended by the actuary using the 6-30-14 target
asset allocation, future asset allocation rebalanced to maintain cash reserve equal to expected benefits plus
Admin Expenses less City Contribution, CalPERS
investment advisors' 2013 capital market assumptions,
and Investment Expenses of 40 bps (Admin Expenses
are excluded from the Discount Rate)
2013 6.00% 40 bp 60 bp 3.00% 2.00% N/A N/A The discount rate assumed the Trust would maintain a cash reserve equal to one year's benefit payments;
Investment and Administrative Expenses are included in
the Discount Rate
Schedule of Changes to Actuarial Economic Assumptions
For the Years Ended June 30, 2013 - 2022
Sources are the Board-approved valuations, as prepared by Bartel Associates, LLC (June 30, 2013-2021) and Foster & Foster, Inc (June 30, 2022).
PASADENA FIRE & POLICE RETIREMENT SYSTEM
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) (Continued)
NOTE 3 – ACTUARIAL ASSUMPTIONS (Continued)
Actuarial Economic Assumptions
Asse t Cla ss 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Domestic Equity - Large Cap N/A N/A N/A N/A 16% 16% 16% 16% 16% 16% Domestic Equity - Small Cap N/A N/A N/A N/A 4% 4% 4% 4% 4% 4% Total Domestic Equity 27% 22% 22% 20% 20% 20% 20% 20% 20% 20% Foreign Equity 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
Fixed Income 30% 30% 33% 35% 20% 20% 25% 25% 25% 25%
TIPS 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%
Short-Term Investment-Grade Bonds N/A N/A N/A N/A 10% 10% 10% 10% 10% 10% Bank Loans N/A 5% 5% 5% 10% 10% 5% 5% 5% 5%
Alternative (Hedge Fund) 0.05 5% 5% 5% 5% 5% 5% 5% N/A N/A Alternative (Risk Parity) N/A N/A N/A N/A N/A N/A N/A N/A 5% 5% Real Estate 0.1 10% 10% 10% 10% 10% 10% 10% 10% 10%
Cash Equivalents 3% 3% 0% 0% 0% 0% 0% 0% 0% 0%
Total Portfolio 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Asse t Cla ss 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Domestic Equity - Large Cap N/A N/A N/A N/A N/A 4% 4.36% 4.36% 4.36% 3.77% Domestic Equity - Small Cap N/A N/A N/A N/A N/A 5% 5.18% 5.18% 5.18% 4.45% Total Domestic Equity 5.35% 5.00% 5.00% 5.00% 5.00% N/A N/A N/A N/A N/A Foreign Equity 5.35% 5.00% 5.00% 5.00% 5.00% 4.60% 4.60% 4.60% 4.60% 4.41% Fixed Income 1.55% 0.74% 0.74% 0.74% 0.74% 1.47% 1.47% 1.47% 1.47% 0.53% TIPS 1.53% 0.20% 0.20% 0.20% 0.20% 1.29% 1.29% 1.29% 1.29% -0.24% Short-Term Investment-Grade Bonds N/A N/A N/A N/A 0.74% 1.26% 1.26% 1.26% 1.26% 0.05% Bank Loans N/A 0.74% 0.74% 0.74% 0.74% 3.10% 3.10% 3.10% 3.10% 1.64% Alternative (Hedge Fund) 5.35% 3.14% 3.14% 3.14% 3.14% 2.79% 2.79% 2.79% N/A N/A Alternative (Risk Parity) N/A N/A N/A N/A N/A N/A N/A N/A 2.79% 3.38% Real Estate 0.0383 4.25% 4.25% 4.25% 4.25% 3.04% 3.04% 3.04% 3.04% 3.81% Cash Equivalents 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Inflation 3.00% 3.00% 3.00% 3.00% 3.00% 2.75% 2.75% 2.75% 2.75% 2.50% Discount Rate 6.00% 6.00% 6.50% 6.50% 6.50% 5.75% 5.75% 5.75% 5.75% 5.25% Sources are the Board-approved actuarial valuations, as prepared by Bartel Associates, LLC (June 30, 2013-2021) & Foster & Foster, Inc. (June 30, 2022).
For Domestic Equity, Bartel Associates, LLC started break ing out large and small cap for the target asset allocation in 2017 and for the expected long-term geometric real rates of return in 2018.
For the June 30, 2013 valuation, Expected Rates of Return are adjusted capital mark et assumptions from CalPERS investment advisors' 2010 capital mark et assumptions study.o t e Ju e 30, 0 5 0 a uat o s, scou t ate assu es o cas ese e a d s et o est e t expenses; the expected rates of return are based on CalPERS investment advisors' 2013 capital mark et assumptions.
For the June 30, 2018-2021 valuations, the expected rates of return are based on CalPERS investment advisors' 2017 capital mark et assumptions.
Expected Long-Term Geometric Real Rates of Return
For the Years Ended June 30, 2013 - 2022
Target Asset Allocation & Expected Long-Term Geometric Real Rates of Return Schedule of Changes to Actuarial Economic Assumptions
Target Asset Allocation, Year Ended June 30
OTHER SUPPLEMENTARY INFORMATION
P A S A D E N A
FIRE &
POLICE
RETIREMENT
S Y S T E M
PASADENA FIRE & POLICE RETIREMENT SYSTEM
OTHER SUPPLEMENTARY INFORMATION
ADDITIONS BY SOURCE AND DEDUCTIONS BY TYPE
Net
Fisca l Employer Investment
Year Contributions Income (Loss) Total
2022 -$ (10,656)$ (10,656)$
2021 - 22,354 22,354
2020 23,137 3,394 26,531
2019 - 5,923 5,923
2018 - 6,656 6,656
2017 - 12,514 12,514
2016 - 49 49
2015 - 5,683 5,683
2014 1,164 21,303 22,467
2013 - 15,630 15,630
ADDITIONS BY SOURCE
(In Thousands)
Fisca l Administrative
Year Benefits Expens es Total
2022 12,072$ 343$ 12,415$
2021 12,506 327 12,833
2020 12,773 321 13,094
2019 12,824 257 13,081
2018 12,815 274 13,089
2017 13,118 300 13,418
2016 13,448 301 13,749
2015 13,645 273 13,918
2014 14,140 296 14,436
2013 14,322 271 14,593
DEDUCTIONS BY TYPE
(In Thousands)
OTHER INFORMATION
P A S A D E N A
FIRE &
POLICE
RETIREMENT
S Y S T E M
PASADENA FIRE & POLICE RETIREMENT SYSTEM
OTHER INFORMATION
C
OMPARATIVE INFORMATION FROM PRIOR FISCAL YEARS
INTEREST RATE RISK EFFECTIVE DURATION BY ASSET MANAGER (UNAUDITED) Market Value Duration Benchmark % Under/Over
$26,646,579 6.52 Years 6.44 Years 1.2%
Market Value Duration Benchmark % Under/Over
$33,325,246 6.06 Years 6.58 Years -7.9%
Market Value Duration Benchmark % Under/Over
$28,338,102 5.41 Years 6.04 Years -10.4%
Market Value Duration Benchmark % Under/Over
$27,496,065 5.72 Years 5.73 Years -0.2%
Market Value Duration Benchmark % Under/Over
$23,701,251 6.12 Years 6.01 Years 2%
Market Value Duration Benchmark % Under/Over
$24,131,769 5.62 Years 6.01 Years -6%
Market Value Duration Benchmark % Under/Over
$43,100,920 4.82 Years 5.47 Years -12%
Market Value Duration Benchmark % Under/Over
$45,285,057 4.99 Years 5.63 Years -11%
Market Value Duration Benchmark % Under/Over
$45,858,083 4.63 Years 5.60 Years -17%
Market Value Duration Benchmark % Under/Over
$43,690,404 4.57 Years 5.49 Years -17%
Source is the June 30, 2013-2022 Investment Performance Reviews by asset manager MetWest.
MetWes t Fixed Income As s et Manager
Effective Duration
June 30, 2017
June 30, 2015
June 30, 2014
June 30, 2013
June 30, 2016
June 30, 2018
June 30, 2019
June 30, 2020
June 30, 2021
June 30, 2022