Staff Report - Fiscal Year (FY) 2020-21 Sacramento City Employees’ Retirement System Annual

Budget and Audit Committee Report
915 I Street, 1st Floor
Sacramento, CA 95814
www.cityofsacramento.org

File ID: 2022-01031 May 31, 2022 Consent Item 05

Title: Fiscal Year (FY) 2020/21 Sacramento City Employees’ Retirement System Annual Financial Report

Location: Citywide

Recommendation: 1) Pass a Motion accepting and forwarding to City Council the Fiscal Year (FY) 2020/21 Sacramento City Employees’ Retirement System Annual Financial Report.

Contact: Osvaldo Lopez, Finance Manager, (916) 808-4740, [email protected]; Emily Combs, Finance Director, (916) 808-7914, [email protected], Department of Finance.

Presenter: None.

Attachments:
1-Description/Analysis
2-FY2020/21 SCERS Annual Financial Report
3-FY2020/21 SCERS Report to AIFM Board and City Council 4-FY2020/21 SCERS Independent Auditor’s Report on Internal Control Over Financial Reporting

Description/Analysis

Issue Detail: The Sacramento City Employees’ Retirement System (SCERS) Annual Financial Report for the fiscal year (FY) that ended June 30, 2021 (FY2020/21) was prepared by the Accounting Division and audited by external auditors, to present the financial results of SCERS. The June 30, 2021, Auditor’s Report to the Administration, Investment, and Fiscal Management Board (AIFM Board) and Members of Council provides additional information about the FY2020/21 SCERS audit (Attachment 3).

Policy Considerations: This report is consistent with the City’s fiscal transparency and accountability principles and is required by the AIFM Board Policy Statement.

Economic Impacts: None.

Environmental Considerations:

California Environmental Quality Act (CEQA): This action is not a project subject to CEQA because it involves only organizational or administrative activities that will not result in direct or indirect physical changes in the environment (CEQA Guidelines §15378(b)(5)).

Sustainability: Not applicable.

Commission/Committee Action: None.

Rationale for Recommendation: It is in the best interest of the Council to review the FY2020/21 SCERS Annual Financial Report, Auditor's Report to the AIFM Board and Members of Council and the Independent Auditor’s Report on Internal Control Over Financial Reporting to understand the structure, obligations, and liabilities of the City’s SCERS retirement program:

• SCERS is a defined benefit plan in which retirement benefits for members (applicable City employees) are based upon age, final compensation, and length of service. In 1977, with the passage of Measure E, SCERS became a closed system.

Since that time, all the City’s full-time and eligible part-time employees participate in the California Public Employees’ Retirement System (PERS) rather than SCERS.

o As of June 30, 2021, the SCERS plan had 876 participants (3 active) with an average age of 66.5 and an average of 45.1 years of service with the City.

• Assets for SCERS are held in trust. Trust monies are used to pay benefits to plan participants and their beneficiaries. The trust is managed pursuant to the City Charter under the direction of the AIFM Board.

The public accounting firm of Macias Gini & O’Connell LLP audited the SCERSFY 2020/21 financial statements and rendered its unmodified opinion that the financial statements are fairly presented in accordance with generally accepted accounting principles. The Auditor’s Report to the AIFM Board and Members of Council provides communication required by audit standards and include statements specifying that there were no significant audit adjustments or disagreements with management in connection with this year’s audit.

Financial Considerations: The FY2021/22 Approved Budget included the City’s annual required contribution of $3.5 million to the SCERS plan.

Local Business Enterprise (LBE): No goods or services are being purchased under this report.

SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento, California

Annual Financial Report

Fiscal Year Ended June 30, 2021
(With Comparative Totals as of June 30, 2020)

SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento, California
Fiscal Year Ended June 30, 2021

TABLE OF CONTENTS

Page
Introductory Section:

Letter to the Members of the Sacramento City Employees’ Retirement System and the Sacramento City Council ......... ........................................................... 1-11

Financial Section:

Independent Auditor’s Report ................................. ........................................................................ 12-14

Management’s Discussion and Analysis (Unaudited)
(Required Supplementary Information) ......................... .................................................................. 15-18

Basic Financial Statements:

Statement of Fiduciary Net Position .......................... ........................................................................... 19

Statement of Changes in Fiduciary Net Position ............... ................................................................... 20

Notes to the Basic Financial Statements ...................... .................................................................... 21-31

Required Supplementary Information:

Schedule of Changes in Net Pen sion Liability (Asset) and Related Ratios ..................................... 32-33

Schedule of Employer Contributions ........................... .................................................................... 34-35

Schedule of Investment Returns ............................... ............................................................................ 36

Additional Information:

Listing of Investments ....................................... .............................................................................. 37-38

Actuarial Section:

Actuarial Valuation .......................................... ..................................................................... Appendix A GASB 67 & 68 Reporting ....................................... .............................................................. Appendix B

SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Letter to the Members of the Sacramento City Employees’ Retirement System and the Sacramento City Council
Fiscal Year Ended June 30, 2021

1 December 15, 2021

TO: Members of the Sacramento City Employees' Retirement System Members of the Sacramento City Council

Transmitted herewith is the annual report of the Admi nistration, Investment and Fiscal Management Board (Board) for the Sacramento City Employees' Retirement System (SCERS or System). This report addresses Board membership, history of the System, investment objectives, asset allocation, financial results, members' interest credit, fund performance, administration highlights, together with reports by an independent auditor and actuary, all as of the close of the 2021 Fiscal Year, or June 30, 2021.

The Annual Financial Report consists of three main sections: an Introductory Section represented by this letter of transmittal and the identification of the System’s financial governing body, and the administrative and consulting services utilized by SCERS; the Financial Section wh ich contains the Indepe ndent Auditor's Report, Management’s Discussion and Analysis (MD&A), the financial statements of SCERS, Required Supplementary Information (RSI), and Additional In formation; and the Actuarial Secti on which contains the independent consulting actuary's valuation along with related actuarial data and statements.

BOARD MEMBERSHIP

As set out in the Sacramento City (City) Charter, the Board is comprised of five members, three of whom are City officials (or their designees), and two of whom are pub lic citizen members appointed by the City Council. The Sacramento City Manager, City Treasurer and Director of Finance are the City officials designated to serve on this Board. By City Charter, the public citizen members must be residents of the City of Sacramento, not connected with City government, and at least one of these member s must be qualified by training and experience in the management and investment of funds.

The members of the Board as of the close of the fiscal year are as follows:

City Officials
Howard Chan, City Manager (Dawn Holm, Designee)
John Colville, City Treasurer
Dawn Holm, Director of Finance (Jason Bader Designee)

Public Citizen Members
Vacant Seat
Manuel Leon – State of California

Manuel Leon, an employee of the State of California, State Senate, was appointed to the Board in February 2016 as a public citizen Board member and served as the Vice-Chair from April 2016 to January 2018. In January 2018 he was elected as Chair.

2 John Colville, City Treasurer, was appointed to his current position in February 2016 and assumed his position on the Board in February 2016 upon his a ppointment as Interim City Treasurer. Prior to his appointment as City Treasurer, Mr. Colville served as Interim City Treasurer and prior to that, as Chief Investment Officer for the City.

As Chief Investment Officer, Mr. Co lville supervised the investment ac tivities of the City Treasurer’s Office, including the investment of City and SCERS funds. Mr. Colville has been a City employee since 2004.

Howard Chan, City Manager, was appointed to his cu rrent position in February 2017 and assumed the Board membership position at that time. Mr. Chan has appointed Dawn Holm, Director of Finance, to serve as his designee.

Dawn Holm, Finance Director, has designated Jason Bader to serve as her designee. Mr. Bader began his Board service in 2018. Mr. Bader is a Principal Management Anal yst and joined the City in 2005. Mr. Bader serves as Vice Chair of the Board having been elected in November 2019.

HISTORY

SCERS is a defined benefit plan in which retirement benefits for City member employees are based upon age, final compensation, and length of service. City employee members make contributions to the System and, until 1993, the City made a normal contribution which was a pe rcentage of total City payrolls. These cash payments are held in trust and invested to meet the retirement benefits of members. However, if these invested assets prove inadequate to meet the defined benefits, the City must contribute additional monies to pay benefits. Between fiscal year 1988/1989 and fiscal year 2006/2007, the System’s anticipated liabilities were fully funded or in an actuarial surplus condition, and the City was not required to make contributions to the System during that time period. The City has been required to make contributions from fiscal year 2007/2008 through the present.

In 1977, with the passage of Measure E, SCERS became a “closed” system, i.e., there would be no additional employees participating in the plan. Since that time, a ll full-time and eligible part-time employees of the City participate in the California Public Employees’ Retirement System (CalPERS) rather than SCERS. In 1977, the average age of SCERS active members was 36 years.

In June 1989, the voters of Sacramento approved the transfer of SCERS active safety members to CalPERS.

Effective December 30, 1989, SCERS active safety members were transferred to CalPERS with a cash transfer of $103.3 million in January 1990.

As of June 30, 2021, the average age of SCERS active me mbers is 66.5 years and the average years of service is

45.1 years. As of said date, there are 3 active miscellaneous members and a total of 876 plan participants.

Pursuant to the Sacramento City Char ter, the Board has exclusive authority to invest and manage the System’s funds. The Board, in turn, has selected the Sacramen to City Treasurer and Treasurer’s Office investment personnel to conduct daily investment activities consistent with Board-approved policies and direction. The City Treasurer’s office also serves as staff to the Board.

3 INVESTMENT OBJECTIVES

The overarching goal of the SCERS inve stment program is to utilize prudent investment practices to generate adequate long-term returns that, when combined with employer and employee contributions, will result in sufficient assets to pay the present and future obligations of the System. In furtherance of this goal, the Board has adopted an investment policy that, among other things, authorizes the investment in different asset classes to promote both long-term returns and short-term cash needs. The emphasis on cash income and fixed-income investments is intended to meet current benefit payments on a continuing basis, while equity investments are intended to grow the asset base with dividend income providing additional support for current benefit payments.

The emphasis on interest revenue and dividend income is particularly important for SCERS as there are no new entrants to the system to provide a continuing source of funds to help cover the liabilities of the System. Cash payments for benefits have exceeded contributions since 1989. Accordingly, the cash generation emphasis in SCERS investments is a critical feature required from SCERS status as a “closed” plan, that has negligible and declining numbers of active, contributing members. Equity investments are permitted to inject an element of growth within the investment portfolios to grow the System’s asset base.

The Board annually reviews and approves the SCERS investment policy and forwards the same to the City Council for its approval pursuant to City Charter requirements. All SCERS investments are held by a third-party custodian, except for the sole remaining real estate trust deed.

ASSET ALLOCATION

Pursuant to the SCERS investment policy, the Board annua lly reviews its asset allocation, i.e., the allocation of the System’s funds to different investment asset classes. On June 25, 2020, the Board established the asset allocation of the investment of SCERS funds during th e fiscal year beginning July 1, 2020, and ending June 30, 2021. The approved asset allocation is as follows:

Fixed Income
Fixed Bond 30.0%

Equity
Large Cap Growth 35.0%
Equity Income 27.5%
International 7.5%
100.0%

ACTUARIAL EARNING ASSUMPTION

During the fiscal year ended June 30, 2021, SCERS actuarial earnings assumption was reduced to 6.0% from 6.5% due to a funding percentage that exceeded 100% and staff’s goal to reduce risk within the portfolio.

4 FINANCIAL RESULTS

The plan net position of SCERS increased from $263.137 million to $311.133 million by the end of the fiscal year ended June 30, 2021. This $47.996 million increase is summarized as follows:

SCERS PLAN NET POSITION

$ in thousands
Plan net position 6/30/20 $263,137
Members Contributions 16
City Contributions 3,822
Total Investment Income 74,279
Benefit Payments and Expenses -30,121
Plan net position 6/30/21 311,133

SCERS’ Total Pension Liability (TPL) as of June 30, 2021, is approximately $282.359 million. TPL represents the present value of all future benefits that will be paid by SCERS. SCERS funding ratio using fair value of assets was 110.2 percent of TPL on June 30, 2021. The funding ratio is defined as that portion of the total TPL for which there are assets available for benefits. As such, the System’s actuary indicates that for every dollar of benefits due, SCERS has approximately $1.10 of assets available for payment. SCERS has a Net Pension Asset of $28.774 million.

TOTAL FUND PERFORMANCE

As required by the SCERS Investment Policy, the Board retained a third-party firm, namely Segal Marco Advisors (formerly Rogerscasey) to calculate total investment return and measure investment performance. Segal Marco Advisors is an independent fund evaluation and performance measurement service that calculates and reports the investment results of over 2,500 managed pension investment portfolios in the U.S. Segal Marco Advisors calculates the investment results of the managed portfolios and compares such results to the database of predetermined industry benchmarks.

Table 1 below shows investment return results of SCERS for the specified periods ended June 30, 2021:

Table 1
SCERS Total Rate of Return

TOTAL PLAN ASSETS
For the periods ended June 30, 2021
Annualized Compound Returns 1 Yr. 3 Yrs. 10 Yrs.

SCERS – All Funds 29.5% 12.8% 9.2%
Custom Index – Target* 26.0% 10.9% 7.7%
Actuarial Assumption** 6.0% 6.5% 6.5%

*The Custom Index is a blended return based on the actual market performance of Segal Marco Advisors benchmarks representing each of the investment asset classes utilized by the System pursuant to the Board’s established asset allocation. ** The Actuarial Assumption was changed to 6.0% in the fiscal year ending June 2021

5 For the fiscal year ended June 30, 2021, the total return of the System’s invested assets resulted in a 29.5% overall return. The System’s investment returns exceeded the market-based benchmarks utilized by Segal Marco Advisors for each of the 1-year, 3-year and 10-year time frames. Accordingly, System investments took advantage of the returns the various asset classes provided to the investing marketplace, plus added additional returns for each time- period. Additionally, the System outperformed the 1-year, 3-year and 10-year actuarial assumption rate of return of 6.0%. Consistent with the “prudent person” standard set forth in the SCERS investment policy, the Board and its investment staff does not attempt to boost performance to the actuarial rate of return by going into riskier investments that would inject more volatile, non-transparent and/or illiquid assets into the portfolio. Rather, driven by the System’s status as a “closed” fund virtually devoid of present and future member cash contributions, the System’s investment policy points to a relatively conservative investment strategy that stresses the importance of preservation of capital and generation of cash flows from such assets.

Preservation of the SCERS’ assets is challenged by the required cash payments of retiree benefits paid from such assets. As the number of active members and their contri butions have been in constant decline, the number of retirees and hence the amount of cash needed for benefits payments has stabilized and has been declining since 2015. The preservation of the System’s assets at the same time the liabilities of the plan decline (declining retiree benefits being paid) will facilitate improving funding ratios over time. Increasing the funding ratio over time will further decrease the need to incur risk in the portfolio as the System works towards an endgame of meeting the benefit payments of a dwindling retiree pool in an orderly, non-volatile manner.

To best manage the long-term competing factors of capital preservation and cash generation, the Board historically has placed emphasis on income-generating investments. Such investments include allocations to interest-bearing fixed income instruments as well as dividend-paying equity securities. The emphasis on interest-bearing fixed income investments reached as high as 70% of plan assets in 1995, all with the goal of generating cash yields close to the actuarial return assumption of 6.0%. Such fixed income investments are within the Fixed Fund maintained by the System.

Long-term interest rates continued to fall from their high levels in the early 1980’s, including consistent declines since then through the 2008-2009 financial crisis that resulted in historic low rates. As the yield on long maturity bonds fell below the actuarial return assumption, the Board started to allocate funds to dividend-paying equities.

At first, these dividend-paying equity holdings were lumped together with interest-bearing fixed income securities, all within the Fixed Fund. While the dividend-paying stocks have certain bond-like attributes, such as a consistent, steady stream of periodic income, they behave sufficiently different to warrant analyzing and managing such holdings separately from bond holdings. From and after 2008, such stocks were recorded in their own portfolio within the System known as the Equity Income Fund. The Equity Income Fund’s cash dividends, as well as the interest earned on Fixed Fund holdings, constitute an importa nt portion of the return on the System’s assets. In addition, Equity Income stock holdings may also contribute capital returns in the form of higher share values.

For the fiscal year, approximately 57.5% of the System’s assets were allocated to the Fixed Fund (30%) and Equity Income Fund (27.5%). The overweight to income-generating investments reflects the Board’s prudent approach to maintain the actuarial soundness of the System and the ability to pay retiree benefits. Moreover, the volatility of the Fixed Fund and Equity Income Fund has been less than what is experienced in the other growth equity portions of the SCERS portfolio. In overweighting th e portfolio to these two Funds, the Board seeks more consistent cashflow and total returns while minimizing undue volatility in City contributions which may take place as a result of wide swings in portfolio value from greater weightings to the more growth-oriented equity allocations.

6 Fixed Income Performance

Based on the Board’s asset allocation for FY2021, 30% of SCERS assets were allocated to fixed income investments within the Fixed Fund. During the year, such fixed income investments included corporate, municipal, and mortgage-backed bonds, short-term high yield ETFs, plus short-term, cash-equivalent investments. In addition, the Fund includes a real estate first trust deed funded by the System with a maturity date of 2024. All told, the Fixed Fund’s investments are debt securities whose primary source of portfolio return is interest income, with increases in value of the holdings a secondary source of return.

Table 2 reflects SCERS’ performance of the Fixed Fund for various periods ended June 30, 2021:

Table 2
SCERS Total Rate of Return

FIXED INCOME
For the periods ended June 30, 2021

Annualized Compound Returns

1 Yr.

3 Yrs.

10 Yrs.

SCERS Fixed Fund 3.1% 6.3% 5.7%
Fixed Portfolio Index* -.30% 5.3% 3.4%

*Fixed Portfolio Index = 100% Barclays US Aggregate Bond Index from March 2008 to present; prior to March 2008, 100% Barclays US Intermediate Aggregate Bond Index.

The Fixed Fund produced a total rate of return of 3.1% for the one-year period ended June 30, 2021, a rate over 300 basis points greater than the Fund’s market-based benchmark, the Barclays US Aggregate Bond Index that turned in a -.30% return. The fund has a long history of outperformance as reflected by the returns for the 3 and 10-year timeframes. Over the past 10 years, the Fixe d Fund has returned 5.7% annually which exceeds the benchmark return of 3.4% and, more importantly, nears the new assumed actuarial rate of return of 6.0%. Hence, the Fixed Fund has been a key contributor to the performance of the entire Plan. The Fixed Fund continues to generate significant cashflow to the fund, and is primarily invested in high-quality, high coupon corporate and municipal securities.

This year’s Fixed Fund’s return at 3.1% is a decrease over the previous years’ return of 7.5%. This decrease in returns occurred in a changing interest rate environment. In the Fall of 2014, the Federal Reserve (Fed) terminated their bond purchase program. They continued with their first hike of the Federal Funds rate in December 2015.

The tightening strategy grew in momentum with six 0.25% Federal Fund rate hikes through FY2018 (bond prices move inversely to interest rates as higher rates result in lower bond values). Those rate hikes in the short-term Federal Funds rate, coupled with a strengthening labor market and economy, resulted in an upward shift in rates across all maturities on the yield curve. However, at the last hike in December 2018, the Fed faced great criticism that the last hike may not have been warranted due to softening economic data. While equity and bond markets suffered in the aftermath of the December 2018 hike, the Fed maintained their stance of being data dependent and made no changes to interest rates through June of 2019, citing stable unemployment and low inflation which stabilized fixed income markets. As the new fiscal year began in June of 2019, markets were stable, and the economy was expanding but inflation was stagnant. Increased rhetoric on the trade war front with China and flat GDP led the Fed to reduce interest rates 3 times by October 2019 down to 1.75%. In late 2019 and early 2020, rumors of an uncontrollable pandemic began to echo through global markets. In the first calendar quarter of 2020, SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Letter to the Members of the Sacramento City Employees’ Retirement System and the Sacramento City Council
Fiscal Year Ended June 30, 2021

7 the United States equity markets experienced a major downward shock and the Fed intervened twice within 2 weeks in March 2020 and took the Fed Funds rate down to .25% to support an economy that had all but come to a standstill. As the fiscal year ended in 2021 the Fed has communicated its intent to keep this .25% rate in effect for the next 12 months. In the 2020-2021 Fiscal Year, rates hit historic lows and began to bounce off of these levels. As the yields on bonds has increased, the underlying price decreases, creating a much lower return environment. The portfolio does contain many high coupon bonds that will be subject to call risk going forward.

We will be challenged to re-deploy these assets in high income producing vehicles if the low interest rate environment does not continue to trend upward. Also important, the coupons of the portfolio’s holdings continued to contribute approximately $3.0 million dollars in cash interest payments.

Equity Investment Performance

Equity investment is a broad term used to describe investments in ownership interests in the issuing corporation.

Common stocks represent corporate ownership interests. Stocks are typically purchased with the desire to capitalize on the growth of the issuing corporation. Al so, many corporations pay dividends to holders of their common stock which provides shareholders with cash income. Common stocks can be purchased individually so the shareholders can target specific companies for growth and/or income purposes. Common stocks may also be purchased in groups through exchange traded funds (ETFs). ETFs can hold stocks of companies included in indexes (e.g., S&P 500 and Russell 2000) or which participate in various economic sectors (e.g., technology, financial and energy sectors) or focus on different investment themes (e.g., growth and value stocks). ETFs provide investors with effective tools to provide exposure into broad swaths of the market or into specific sectors of the economy. This is as opposed to requiring investors to identify stocks of individual companies to achieve the same exposure, all while incurring the risk that such selected individual companies fail to perform in-line with the index or sector (known as “single company risk”). While an ETF represents a collection of stocks, each ETF trades like stocks of individual companies on the major exchanges. SCERS equity portfolios are invested in both single company stocks and ETFs.

By Board policy for the fiscal year ended June 30, 2021, 70% of SCERS assets were to be allocated to equity investments, both domestic and international and including both growth and income objectives.

8 Table 3 shows the performance of SCERS’ equity investments, both domestic and international:

*Domestic Equity Index=Jan 1983-Jan 2006 100% S&P 500(price), Feb 2006-present 100% Russell 3000 Index (price) **Large Cap Index = Dec 1992 – June 2007 = 100% Russell 1000 Growth, June 2007 to present = 100% S&P 500 ***Equity Income Index = Apr 1986 – Feb 1992 = 100% Fixed Portfolio, Mar 1992 to June 2016 = 100% Dow Jones Select Dividend Index, July 2016 to present Russell 1000 value (price)
*International Index = Feb 2006 – Jun 2007 = 33% Nikkei, 67% MSCI EAFE, Jul 2007 to present = 100% MSCI ACWI ex US

Per Table 3, the performance of the overall SCERS domestic equity portfolio was 42.6% for the one-year period as compared to the 42.1% return by the benchmark (Russell 3000 which represents the stocks of approximately 98% of US publicly traded corporations). These domestic portfolios (and the benchmark) significantly outperformed the Plan’s new actuarial rate of return of 6.0%. The far above average performance of the portfolios and the market benchmarks are commensurate with the surging Covid-19 pandemic recovery that began in earnest in late 2020 and continued through 2021. As the reopening of economies accelerated, the emergence of a Delta variant only slightly muted the markets on their charge higher.

Table 3
SCERS Total Rate of Return

DOMESTIC EQUITY INVESTMENTS
For the periods ended June 30, 2021

Annualized Compound Returns 1 Yr. 3 Yrs. 10 Yrs.

SCERS Domestic Equities

42.6%

16.0%

12.3%
Domestic Equity Index* 42.1% 16.7% 12.5%

Individual SCERS Domestic Equity Portfolios
Large Cap Growth Fund 44.1% 18.3% 13.3%
Large Cap Index** 38.6% 16.5% 12.5%

Equity Income Fund 40.4% 12.7% 11.0%
Equity Income Index*** 40.6% 9.6% 9.5%
Table 4
SCERS Total Rate of Return

INTERNATIONAL EQUITY INVESTMENTS
For the periods ended June 30, 2021

Annualized Compound Returns 1 Yr. 3 Yrs. 10 Yrs.

SCERS International Fund

36.2%

9.2%

2.7%
International Equity Index* 32.8% 6.7% 2.7%
SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Letter to the Members of the Sacramento City Employees’ Retirement System and the Sacramento City Council
Fiscal Year Ended June 30, 2021

9 The two domestic stock portfolios, Large Cap Growth F und and Equity Income Fund, showed highly correlated returns for the fiscal year as investors favored both growth-oriented stocks and income producing stocks at different stages over the fiscal year. Similar to these outstanding domestic returns, the international portfolio also recorded spectacular returns as the pandemic recovery spread worldwide

The Plan’s largest equity portfolio is the Large Cap Growth Fund which is benchmarked to the S&P 500 Index.

Not only did the 1 yr. returns far exceed historical domestic long-term returns in the 9% range, both the 3 yr. and 10 yr. returns also exceed these expected returns, with double digit returns over these longer periods. The S&P 500 turned in a negative 18.70% return in the first quarter of 2020, and the start of the fiscal year saw the recovery trade firmly take hold both domestically and internationally. The returns for the fiscal year were spread out fairly evenly throughout the year and were not the result of one small time period with excess returns. The fiscal year was truly a slow and steady trot higher in equities. Although the Large Cap Funds primary objective is growth, the portfolio also generated over $1.48 million in dividend payments to fund the System’s operating needs.

The second largest equity portfolio is the Equity Income Fund. As stated above, the purpose of this Fund is primarily to boost the dividend cash income of the Plan to provide a source of benefit payments. Just like the Large Cap Growth Fund, the Equity Income Fund bounced back dramatically from the Covid-19 induced selloff that roiled the markets in early 2020. For the fiscal ye ar, investors leaned heavily back into not only growth companies, but value-oriented dividend producers as well due to the low interest rates available to investors in fixed income. In these market situations, investors flock to dividend paying stocks as a substitute and replacement for fixed income. With a still historically low interest rate environment, these equities still provide a generous cash flow through dividends along with the potential for upside, as the world looks ahead to full emergence from the pandemic. The Equity Income Fund helps to fulfill the Board’s objective of enhancing cash income to help pay benefits. The Fund’s dollar contribution from di vidends was $1.63 million for the year, providing much needed cash into the System as intended.

The International Fund holds equities issued by foreign co rporations. It is the smallest of the three equity portfolios. While almost half of the world’s investable equities are issued by foreign companies, the Board has kept the portfolio’s weighting low (7.5% for the year ended June 30, 2021) due to global economic and political uncertainties as well as geo-political strife. The lower weighting to international stocks was reflective of the past ten years when international stocks were either in bear markets or otherwise vastly underperformed the domestic stock market by posting low single digit returns over the longer time periods. For the fiscal year ending 2021, not unlike our domestic markets, international markets were beneficiaries of a strong Covid-19 pandemic recovery.

Our international portfolio turned in a 36.2% return for the FY2021 vs the benchmark return of 32.8%. While the international component of the portfolio does not contribute significant cashflow into the System, it offers prudent diversification away from the domestic holdings which comprise the majority of the Fund’s assets. The International Fund generated almost $0.5 million in dividend payments over the fiscal year.

In 2014, the Board authorized an options program primarily involving the writing of call options on existing equity holdings. The purpose of the options program is to increase cash income to the Fund and provide a hedge against the decline in its investments. Since its inception, the call-write program has had a neutral impact on the returns and cash generation of the Fund. The options program has been temporarily halted as the Fund has struggled to find adequate specialist coverage for the program. We anticipate that the options program will be active once again in the near future, and is something that will be prudent to run in a market that has begun to experience more uncertainty and volatility, as we have seen since the end of Fiscal Year 2021

10 INDEPENDENT AUDIT

SCERS receives an independent audit of the basic fina ncial statements. Macias Gini & O’Connell LLP (MGO) conducted the audit for the fiscal year ended June 30, 2021 and issued an unmodified or “clean” opinion. The Independent Auditor’s Report can be found on page 12 of this report. The City is responsible for establishing and maintaining internal controls designed to ensure the protection of assets from loss, theft, or misuse, and for ensuring the accounting information generated is adequate to prepare financial statements in conformity with accounting principles generally accepted in the U.S. The design of the internal controls is to provide reasonable assurance, although not absolute assurance, of achieving these objectives. The accuracy and completeness of the data outlined in this report is the sole responsibility of the management of SCERS.

ACTUARIAL VALUATION

The actuarial valuation and GASB 67 & 68 reports for SCERS as of June 30, 2021, are presented in this document.

Very briefly, these reports identify a Net Pension Asset of $28.77 million as of June 30, 2021. This amount represents a 185.8% increase from a Net Pension Liability of $33.53 million as of June 30, 2020.

PROFESSIONAL SERVICES

SCERS engages the following consultants to assist in the management and investment of assets:

Firm Duties
Segal Marco Advisors Performance evaluation Bartel Associates Actuarial evaluation & asset allocation (since 6/30/06) JPMorgan Custody and master trust (since 8/1/17)

BOARD MEETINGS

For the fiscal year ended June 30, 2021, regular meetings of the Board were held via Zoom as a result of the Covid-19 pandemic. The meetings were held at 1: 30 pm on September 17, 2020; November 19, 2020, and May 20, 2021. The February 11, 2021, meeting was cancelled, and all items were moved and heard at the May meeting.

The Board’s meetings were open to the public and attendees were afforded the opportunity to provide input on any matter on the meeting agenda or not on the agenda that may be related to the Board’s activities.

_____________________________
John Colville, City Treasurer Manuel Leon, Chair,
Administration, Investment and Administration, Investment and Fiscal Management Board Fiscal Management Board

John Colville
Digitally signed by John Colville
Date: 2021.12.15 11:14:16 -08'00'
SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Letter to the Members of the Sacramento City Employees’ Retirement System and the Sacramento City Council
Fiscal Year Ended June 30, 2021

11 POLICY STATEMENT

As a matter of policy, the Administration, Investment and Fiscal Management Board has determined the following schedules shall be included as addenda to the Annual Financial Report of the Sacramento City Employees' Retirement System:

1. A letter of transmittal to the City Council from the Board Chair;

2. An independent auditor’s report;

3. A statement of the System's fiduciary net position;

4. A statement of changes in the fiduciary net position

5. A detailed listing of investments (by security) as of the end of the fiscal year;

6. A statement from the Actuary showing the estimated position of the Fund based on latest actuarial projections; and

7. The policy statement of the Board. The Board shall notify recognized employee organizations and the City Council of any changes in the policy statement that are to be made.

Adopted May 1978
www.mgocpa.com
Macias Gini & O’Connell LLP
500 Capitol Mall, Suite 2200
Sacramento, CA 95814
12 1
Independent Auditor’s Report
Admi
nistration, Investment, and Fiscal Honorable Mayor and City Council Management Board City of Sacramento
Sacramento City Employees’ Retirement System Sacramento, California Sacramento, California
Repo
rt on the Financial Statements
We have au
dited the accompanying financial statements of the Sacramento City Employees’ Retirement System (SCERS), a component unit of the City of Sacramento, California, as of and for the fiscal year ended June 30, 2021, and the related notes to the basic financial statements, which collectively comprise SCERS’ basic financial statements as listed in the table of contents.

Mana
gement’s Responsibility for the Financial Statements
SCERS’ m
anagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes 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.

Aud
itor’s Responsibility
Our r
esponsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards , issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audi
t involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparat ion and fair presentation of the financial statements 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 entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We bel
ieve that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
13 Opinion
I
n our opinion, the financial statements referred to above present fairly, in all material respects, the plan net position of SCERS as of June 30, 2021, and the changes in its plan net position for the fiscal year then ended in accordance with accounting principles generally accepted in the United States of America.

O
ther Matters
Pr
ior-Year Comparative Information
T
he financial statements include partial prior -year comparative information. Such information does not 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 SCERS’ financial statements for the fiscal year ended June 30, 2020, from which such partial information was derived.

W
e have previously audited SCERS’ 2020 financial statements, and we expressed an unmodified opinion on the financial statements in our report dated December 18, 2020. In our opinion, the partial comparative information presented herein as of and for the fiscal year ended June 30, 2020, is consistent, in all material respects, with the audited financial statements from which it has been derived.

R
equired Supplementary Information
A
ccounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the schedule of changes in net pension liability and related ratios, the schedule of employer contributions and the schedule of investment returns, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although 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 United States of America, which consisted of inquiries of management about the methods 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 express 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.

O
ther Information
O
ur audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the SCERS’ basic financial statements. The introductory section, listing of investments, and actuarial section are presented for purposes of additional analysis and are not a required part of the basic financial statements.

T
he listing of investments 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 s ubjected 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 opi nion, the listing of investments is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 14 The introductory and actuarial sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them.

O
ther Reporting Required by Government Auditing Standards I
n accordance with Government Auditing Standards, we have also issued our report dated December 15, 2021, on our consideration of SCERS’ 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 financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering SCERS’ internal control over financial reporting and compliance.

S
acramento, California
December 15, 2021

SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Management’s Discussion and Analysis (Unaudited)
Fiscal Year Ended June 30, 2021

15 The management of the Sacramento City Employees’ Retirement Sys tem (SCERS) is pleased to provide this overview and analysis of the financial activities of SCERS for the fiscal year ended June 30, 2021. We encourage readers to consider the information presented here in conjunction with the Financial Statements and Supplemental Schedules that follow this discussion.

Financial Highlights

 SCERS held $311.1 million of net position restricted for pensio n benefits as of June 30, 2021 and $263.1 million as of June 30, 2020. SCERS’ entire net position balance is restricted for its ongoing obligation to plan participants and their beneficiaries.  SCERS’ funding objective is to maintain sufficient net position through investments and contributions to meet long-term obligations for benefits. As of June 30, 2021, SCERS had a funded status of 110.2% which means for every dollar of total pension liability, SCERS had approximately $1.10 of assets available to pay those benefits. This figure is based on the m ost recent actuarial valuation as of June 30, 2021. As of June 30, 2020, SCERS had a funded status 88.7 %.  SCERS’ employer contributions were $3.8 million for the fiscal year ended June 30, 2021, a decrease from $4.4 million for 2020.
 For the fiscal year ended June 30, 2021, SCERS’ net income from investment activity was $73.2 million, compared to net investment income of $7.6 million in t he prior year. The increase in investment income was mainly due to an increase in appreciation in the fair value of investments, from $284 thousand in 2020 to $67.4 million in 2021.

Overview of Financial Statements

The following discussion and analysis are intended to serve as an introduction to SCERS’ financial statements, which are comprised of the following components:

1. Statement of Fiduciary Net Position is a snapshot of account balances as of June 30, 2021 with comparative amounts for 2020. It indicates the total assets and the total liabilities as well as the net position available for future payment of retirement benefits and investment expenses.

2. Statement of Changes in Fiduciary Net Position provides a view of additions and deductions to SCERS’ net position during each of the fiscal years.

3. Notes to the Basic Financial Statements and Required Supplementary Information provide additional information that is essential to a full understanding of the data provided in the basic financial statements.

The statement of fiduciary net position and the statement of ch anges in fiduciary net position report information about SCERS’ financ ial activities, prepared using t he accrual basis of accounting.

Contributions to SCERS are recognized when due, and benefits an d refunds are recognized when due and payable. Investments are reported at fair value, except mortgag e loans, which are reported at amortized cost. The estimated fair value of investments is based on available quoted market prices or other significant observable inputs. Purchases and sales of investments are recorded on a trade date basis.

SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Management’s Discussion and Analysis (Unaudited)
Fiscal Year Ended June 30, 2021

16 Financial Analysis

SCERS’ net position may serve as a useful indicator of SCERS’ financial position over time. As mentioned earlier, SCERS’ entire net position balance is restricted for SCERS’ ongoing obligation to plan participants and their beneficiaries. Net position as of June 30, 2021 and 2020 is as follows:

FIDUCIARY NET POSITION SUMMARY
As of June 30, 2021 and 2020
(in thousands)

2021 2020 Change Percent
Cash and cash equivalents 13,416$ 6,573 $ 6,843 $ 104% Receivables 849 974 ( 125) -13% Investments 299,186 258,055 41,131 16% Total assets 313,451 265,602 47,849 18%
Total liabilities 2,318 2,465 ( 147) -6%
Net position restricted for pensions 311,133 $ 263,137 $ 47,996 $ 18%

SCERS’ net position restricted for pension benefits increased i n 2021, as contributions and investment income exceeded benefit payments . Cash and investments increase d by $6.8 million and $41.1 million, respectively. The increase in cash and investments can be mainl y attributed to sale of investments and the net increase in plan net position. Total pension liability decr eased while fiduciary net position increased, which led to an increase in fiduciary net position as a percen tage of total pension liability from 88.7% to 110.2% in 2021.

SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Management’s Discussion and Analysis (Unaudited)
Fiscal Year Ended June 30, 2021

17 The following table summarizes additions and deductions for 2021 and 2020:

HIGHLIGHTS OF CHANGES IN FIDUCIARY NET POSITION
Fiscal years ended June 30, 2021 and 2020
(in thousands)

2021 2020 Change Percent
Additions:

Employer contributions 3,822 $ 4,410 $ (588) $ -13% Employee contributions 16 25 (9) -36% Net appreciation in the
fair value of investments 67,367 284 67,083 23621% Interest 3,238 3,939 (701) -18% Dividends 3,674 4,469 (795) -18% Investment expense (1,129) (1,101) (28) 3% Total net additions 76,988 12,026 64,962 540% Deductions:

Benefit payments 28,992 30,455 (1,463) -5% Refunds of employee contributions - 2 (2) -100% Total deductions 28,992 30,457 (1,465) -5% Net inc rease/(dec rease) in fiduc iary net position 47,996 (18,431) 66,427 360% Net position restricted for pensions:

Beginning of fiscal year 263,137 281,568 (18,431) -7% End of fiscal year 311,133 $ 263,137 $ 47,996 $ 18%

 Required employer contributions decreased for the fiscal year e nded June 30, 2021, due to improved performance of the investment portfolio over the past several years.  Employee contributions for the fiscal year ended June 30, 2021 decreased from 2020 due to retirement of active members. Contributions are expected to decline as the system is closed to new members and the number of active members decreases with each passing year.  Net appreciation in fair value of investments increased by $67. 1 million in 2021. The $67.4 million gain during the fiscal year ended June 30, 2021 consists of $52.5 million of unrealized gains and $14.9 million of realized gains, compared to $6.9 million of unrealiz ed losses and $7.2 million of realized gains for the fiscal year ended June 30, 2020.
 The increase in realized gains is mainly due to the performance of the Large Cap Growth Fund and Equity Income Fund, combined $15.3 million gain i n 2021 compare d to $4.4 million in 2020, offset partially by the performance of Fixed Bonds Fund, $372 thousand loss in 2021 compared to $3.0 million gain in 2020. The increase in unrealized gains is mainly due to a $25 million increase in fair value of the Large Cap Growth Fund and $22.2 million increase in fair value of the Equity Income Fund in 2021.  Benefit payments to plan participants decreased due to a decline in the number of participants receiving benefits. The decrease was slightly offset by the annual cost-o f-living adjustment made to the benefit amount. As the plan has been closed since 1977, the number of participants receiving benefits declines each year.
 Refunds of employee contributions decreased, as there were no withdrawals in 2021.

SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Management’s Discussion and Analysis (Unaudited)
Fiscal Year Ended June 30, 2021

18 Changes in Funded Ratio

SCERS funded ratios as of June 30, 2020 and 2021 were 88.7% and 110.2%, respectively. The increase in funded ratio between June 30, 2020 and June 30, 2021 is largely due to the increase in plan fiduciary net position of $48 million in 2021, as contributions and investment income exceeded benefit payments.

Currently Known Facts and Events

The overall risk profile of SCERS has remained unchanged since June 30, 2021, and the volatility of the investment portfolio remains in line with the overall financial markets. The global capital markets are highly dynamic and the value of SCERS investments changes every day.

Requests for Information

This financial report is designed to provide a general overview of SCERS’ finances and to demonstrate SCERS’ accountability for the money it receives and distributes . If you have questions about this report, or need additional financial information, contact the City of S acramento Department of Finance, Accounting Division, 915 I Street, 4
th floor, Sacramento, CA, 95814.

2021 2020
Assets
Cash and cash equivalents 13,416 $ 6,573 $ Receivables:

Interest and dividends 849 974
Total receivables 849 974
Investments:

Corporate bonds/notes 39,181 29,245
Equities 30,236 30,686
Exchange traded funds 187,545 156,156
Mortgage loans 824 1,074
Municipal bonds/notes 38,438 40,199
U.S. agencies 1,004 695
U.S. Treasury bonds 1,958 -
Total investments 299,186 258,055

Total assets 313,451 265,602
Liabilities
Benefits payable 2,312 2,460
Accounts payable 6 5
Total liabilities 2,318 2,465
311,133$ 263,137 $
(Amounts Expressed in Thousands)
Net position restricted for pensions

SACRAMENTO CITY EMPLOYEES' RETIREMENT SYSTEM
Statement of Fiduciary Net Position
June 30, 2021
With Comparative Totals as of June 30, 2020
See accompanying notes to basic financial statements.
19 2021 2020
Additions
Contributions:

Employer 3,822 $ 4,410 $
Employees 16 25
Total contributions 3,838 4,435
Investment income:

From investment activities:

Net appreciation in the fair value of investments 67,367 284 Interest 3,238 3,939
Dividends 3,674 4,469
Total investment income 74,279 8,692
Less investment expense:

Banking, interest, fiscal agent and other 26 24 Professional services 1,103 1,077
Total investment expense 1,129 1,101
Net investment income 73,150 7,591
Total net additions 76,988 12,026

Deductions
Benefit payments 28,992 30,455
Refunds of employee contributions - 2
Total deductions 28,992 30,457

Net increase/(decrease) in fiduciary net position 47,996 (18,431)

Net position restricted for pensions
Beginning of fiscal year 263,137 281,568
End of fiscal year 311,133 $ 263,137 $

SACRAMENTO CITY EMPLOYEES' RETIREMENT SYSTEM
Statement of Changes in Fiduciary Net Position
Fiscal Year Ended June 30, 2021
(Amounts Expressed in Thousands)
With Comparative Totals For the Fiscal Year Ended June 30, 2020 See accompanying notes to basic financial statements.
20 SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Notes to the Basic Financial Statements
Fiscal Year Ended June 30, 2021
(Dollars in thousands, except as otherwise noted)

21 Note A – Plan Description

The City of Sacramento, California, (City) sponsors and administers a defined benefit contributory pension system known as the Sacramento City Employees’ Retireme nt System (SCERS). The fiscal management of SCERS is vested in the five-member Adminis tration, Investment, and Fiscal Management Board (Board), consis ting of the City Manager, Direc tor of Finance, City Treasurer and two public members who are appointed by the City Council. B ecause of this relationship with the City, SCERS is reported as a component unit of the City.

SCERS is a single-employer system and an integral part of the C ity. The accompanying financial statements are included as a pension trust fund in the basic fi nancial statements of the City. The system covers all City employees hired before January 29, 1977 and is closed to new members.

Employee contribution rates are generally frozen (with minor ex ceptions) and the City is responsible for any actuarially determined unfunded obligation of the plan. SCERS is comprised of the individual plans listed below. The City Charter establishes plan membership, contributions, and benefit provisions. Any changes must be approved by the electorate of the City.

1. Charter Section 399 Plan – This defined benefit plan was established effective January 1, 1977 to provide retirement, disability and death benefits. Active members contribute at a rate based upon entry age and type of employment. Members of th is plan who have completed at least 5 years of service in the aggregate and atta ined the age of 50 are eligible for service retirement.

2. Equal Shares Plan – This defined benefit plan was established J uly 1, 1970 to provide retirement, disability and death benefits to all City employees electing coverage at that date and to all employees who were hired from that date through January 1, 1977.

Members of this plan who have completed at least 5 years of ser vice in the aggregate and attained the age of 55 for m iscellaneous members or age 50 for safety members are eligible for service retirement.

3. Charter Section 175 Plans – These defined benefits were established in 1953 and provide for retirement, disability and death benefits at a lower amount than the successor Equal Shares Plan. Members of this plan who have completed at least 2 0 years of service in the aggregate and attained the age of 55 are eligible for servi ce retirement.

For each of the plans above, ser vice retirement allowance as a percentage of average monthly compensation is calculated with set rates based on plan and age at retirement multiplied by the number of service years credited to the member at retirement. S ervice retirement allowance is capped at 75% of a member’s final compensation for the Charter Section 399 Plan and Equal Shares Plan.

22 Note A – Plan Description (Continued)

Plan membership at June 30, 2021 consisted of the following:

Section
399
Equal
Shares
Section
175 Total
Inactive members or beneficiaries receiving benefits 784 41 43 868 Inactive members entitled to but not yet receiving benefits 4 - 1 5 Active plan members 3 - - 3
Total plan members 791 41 44 876

Cost-of-Living Adjustment – This adjustment, established in 196 9, provides for annual retirement benefit increases of up to 3% of normal benefits based on a cor responding rise in the consumer price index. Cost-of-living benefits are payable to retirees an d beneficiaries of all of the above plans after one year of retirement. The cost-of-living adjustme nt was 3% for fiscal year 2021.

Members contribute to this adjustment at a rate of 1% of their normal retirement contributions.

The City is required to fund all costs in excess of members’ co ntributions and investment earnings.

SCERS reports the assets and activities of all plans in one trust fund. All assets accumulated for the payment of benefits may be used to pay benefits to any of the plan members or beneficiaries.

Benefits fully vest after five years of service. All accumulated benefits as of June 30, 2021 are fully vested.

As the plans included in SCERS are closed to new members, the n umber of active members in the system is declining. Member contributions have declined as memb ers retire. During the fiscal year ended June 30, 2021, active member contributions ranged from 7% t o 9% o f payroll. At June 30, 2021, active members’ accumula ted contributions, including interest, totaled approximately $1,251. For the fiscal year ended June 30, 2021, interest was credited to members’ contributions at the rate of 7.75%. Members have an option to withdraw their accumulated contributions, including interest, upon termination of their employment with the City.

23 Note B – Summary of Significant Accounting Policies

Basis of Accounting

SCERS’ financial statements are prepared using the accrual basi s of accounting. Member contributions are recognized in the period in which the contrib utions are due. Employer contributions to each plan are recognized when due pursuant to legal requirements. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan.

Investments

SCERS’ investments are recorded at fair value, except mortgage loans, which are recorded at amortized cost. Investments are reported at fair value based on available quoted market prices or other significant observable inputs. The mortgage loans are collateralized loans whose fair value is unknown. Purchases and sales of investments are recorded on a trade date basis.

Administrative Costs

The City charter requires all costs of administration, excludin g investment activity, to be paid by the City. These costs are, therefore, excluded from the accompanying financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.

Note C – Cash and Investments

Cash and Cash Equivalents

SCERS participates in the City of Sacramento’s investment pool, which is not rated by a nationally recognized statistical rating organization. The City Treasurer is granted authority for managing the pool by City Charter and City Council ordinances and resolution s. The City Treasurer reports investment activity monthly to the City Council and the investment policy is reaffirmed annually by the City Council. The pool is accounted for on an amortized cost basis during the year. The value of the pool shares that may be withdrawn at any time is determined on an amortized cost basis, which is different than the fair value of SCERS’ position in the pool. Information regarding the investments within the City’s pool, including the related risks, can be found in the City’s Annual Comprehensive Financial Report (ACFR). The City’s investment pool is not rate d and has a weighted average maturity of 3.14 years as of June 30, 2021.

24 Note C – Cash and Investments (Continued)

Investments

The City Charter vests the Board with the authority to administer and invest the funds of the System consistent with charter provisions. The Board is mandated to adopt general investment standards that the City Council shall either approve or disapprove. These stan dards are set forth in an Investment Policy document that is annually reviewed by the Board and appr oved by the City Council. The Investment Policy sets forth the type of investments the System may hold and directs the Board to determine how the System funds may be allocated to different ge neral asset classes. The Board sets the asset allocations by resolution effective for each fiscal y ear. The Board and its investment managers are required to conform their investment practices to the terms of the Investment Policy and related Board resolutions.

On June 25, 2020, the Board adopted the following asset allocation policy for fiscal year 2021:

Asset Class Target Allocation
Fixed Income 30.0%
Large Cap Growth 35.0%
Equity Income 27.5%
International 7.5%
T o t a l 100.0%

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that SCERS manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturing evenly over time as necessary to provide the cash flow and liquidity needed for operations.

Information about the sensitivity of the fair values of SCERS’ investments to market interest rate fluctuations is provided by the following table that shows the distribution of SCERS’ investments by maturity. The remaining maturity of the SCERS’ investments included in the tables below is based on the stated maturity dates of the individual investments, except in the case of variable rate investments where the maturity date below is the next reset date. Variable rate securities are investments with terms that provide for the adjustment of interest rates on specified dates based on predefined mathematical formulas. The fair value of such investments can reasonably be expected to be affected at each interest rate reset date.

25 Note C – Cash and Investments (Continued)

Interest Rate Risk (Continued)

At June 30, 2021, SCERS’ investments have maturities as follows:

Remaining Maturity in Years
Investm ent Type No Maturity Under 1 1-5
Over 5/
10 or less Over 10 Total
C ash and short-term i nvestm ents:

City of Sacramento Investment Pool - $ 13,416$ - $ - $ - $ 13,416$ Investm ents:

Corporate bonds/notes - - 1,034 22,678 15,469 39,181 Equities 30,236 - - - - 30,236 Exchange traded funds 187,545 - - - - 187,545 Mortgage loans - - 824 - - 824 Municipal bonds/notes - - - 29,178 9,260 38,438 U.S. agency securities - 2 2 12 988 1,004 U.S. Treasury bonds - - - - 1,958 1,958 Total Investments 217,781 2 1,860 51,868 27,675 299,186 Total Cash and Investm ents 217,781 $ 13,418 $ 1,860 $ 51,868 $ 27,675 $ 312,602 $

Investments in callable securities are investments that, althou gh having clearly defined maturities, allow for the issuer to redeem or call such securities earlier than their respective maturity dates. The investor must then replace the called securities with investments that may have lower yields than the original securities.

The fair values of the callable securities held at June 30, 2021 by investment type are as follows:

Investment Type Total
Corporate bonds/notes 15,304 $
Municipal bonds/notes 8,864
U.S. agency securities 478
24,646$

26 Note C – Cash and Investments (Continued)

Credit Risk

Generally, credit risk is the risk that an issuer of an investm ent will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. As of June 30, 2021, SCERS held a bond that is currently in default of the semi-annual interest payments. The bond issuer Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008. The bond has a maturity date of December 29, 2099 and a fair value of $18 as of June 30, 2021.

At June 30, 2021, SCERS’ investments and credit ratings are as follows:

Investment Type S & P Total
City of Sacramento Investment Pool not rated 13,416 $
Corporate bonds/notes A 7,734
AA 5,365
BBB 26,064
not rated 18
Municipal bonds/notes AA 26,005
BBB 5,796
not rated 6,637
U.S. agency securities AA 478
AAA 44
Total 91,557$

Concentration Risk

As of June 30, 2021, SCERS held the following investments in an individual issuer exceeding 5% of fiduciary net position (other than investments issued or explic itly guaranteed by the U.S. government):
iShares Russell 1000 Value EFT 41,987 $
Technology Select Sector SPDR Fund (ETF) 22,926
iShares MSCI ACWI ETF 17,828

27 Note C – Cash and Investments (Continued)

Money-weighted Rate of Return

For the fiscal year ended June 30, 2021, the annual money-weigh ted rate of return on pension plan investments, net of pension plan investment expense was 29.13%. The money-weighted rate of return expresses investment performance, net of investment expense, ad justed for the changing amounts actually invested.

Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the eve nt of the failure of a depository financial institution, SCERS will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. As o f June 30, 2021, all SCERS cash and cash equivalents are held with the City of Sacramento Investment Pool and SCERS is not exposed to custodial credit risk for deposits.

The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, SCERS will not be able to recover the value of its investment or collateral securities that are in the possession of another party. As of June 30, 2021, all SCERS investments held with the custodian were held in SCERS’ name and SCERS is not exposed to custodial credit risk for investments.

Fair Value Measurement and Application

SCERS categorizes its fair value measurements within the fair v alue hierarchy established by generally accepted accounting principles. The hierarchy is base d on the valuation inputs used to measure the fair value of the asset. The hierarchy gives the hi ghest priority to unadjusted quoted prices in active markets for identical assets or liabilities (L evel 1 measurements) and the lowest priority to unobservable inputs (L evel 3 measurements). The thr ee levels of the fair value hierarchy are described as follows:

Level 1 – Inputs to the valuati on methodology are unadjusted qu oted prices for identical assets or liabilities in active markets that the SCERS has the ability to access.

Level 2 – Inputs to the valuation methodology include:

 Quoted prices for similar assets or liabilities in active markets;  Quoted prices for identical or similar assets or liabilities in inactive markets;  Inputs other than quoted prices that are observable for the asset or liability; and  Inputs that are derived principally from or corroborated by obs ervable market data by correlation or other means.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs reflect the SCERS’ own assumpt ions about the inputs market participants would use in pricing the asset or liability (including assumptions about risk).

28 Note C – Cash and Investments (Continued)

Fair Value Measurement and Application (Continued)

Unobservable inputs are developed based on the best information available in the circumstances and may include SCERS’ own data.

The asset’s level within the hierarchy is based on the lowest l evel of input that is significant to the fair value measurement. Valuation techniques used, need to maxi mize the use of observable inputs and minimize the use of unobservable inputs. The determination of what constitutes observable requires judgment by the SCERS’ management. SCERS management co nsiders observable data to be that market data, which is readily available, regularly dist ributed or updated, reliable, and verifiable, not proprietary, and provided by multiple independe nt sources that are actively involved in the relevant market. The categorization of an investment wit hin the hierarchy is based upon the relative observability of the inputs to its fair value measurement and does not necessarily correspond to SCERS management’s perceived risk of that investment.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are catego rized based on the lowest level input that is significant to the valuation. The SCERS’ assessment of the significance of particular inputs to these fair value measurements requires judgment and considers f actors specific to each asset or liability.

SCERS’ treasury pools asset market prices are derived from clos ing bid prices as of the end of business day as supplied by ICE Data Services DBA ICE Data Pric ing & Reference Data, LLC.

Where prices are not available from generally recognized source s, the securities are priced using a yield-based matrix system to arrive at an estimated market value. Prices that fall between data points are interpolated.

The following is a description of the valuation methods and assumptions used by SCERS to estimate the fair value of its investments:

 When available, quoted process are used to determine fair value. When quoted prices in active markets are available, investments are classified within Level 1 of the fair value hierarchy.  For investments classified within Level 2 of the fair value hie rarchy, SCERS’ custodians generally use a multi-dimensional relational model. Inputs to their pricing models are based on observable market inputs in active markets. The inputs to the p ricing models are typically benchmark yields, reported trades, broker-dealer quotes, issuer spreads and benchmark securities, among others.
 SCERS held one type of investment that is measured using Level 3 inputs, Mortgage Loans.

The Mortgage Loan is reported using the income approach. The va lue of the Mortgage Loan on the books is materially close to the Discounted Cash Flow, t herefore the book value is reported.

29 Note C – Cash and Investments (Continued)

Fair Value Measurement and Application (Continued)

There have been no changes in the methods and assumptions used at June 30, 2021. The methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. SCERS management believes its valuation methods are appropriate and consistent with other market participants. The use of diffe rent methodologies or assumptions to determine the fair value of certain financial instruments could r e s u l t i n a d i f f e r e n t f a i r v a l u e measurement at the reporting date.

SCERS has the following recurring fair value measurements as of June 30, 2021:

Investments by Fair Value Level
Balance at
June 30, 2021
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Corporate bonds/notes $ 39,181 -$ 39,181 $ - $ Equities 30,236 30,236 - - Exchange traded funds 187,545 187,545 - - Mortgage loans 824 - - 824 Municipal bonds/notes 38,438 - 38,438 - U.S. agency securities 1,004 - 1,004 - U.S. Treasury bonds 1,958 1,958 - - Total Investments by Fair Value Level 299,186 $ 219,739 $ 78,623 $ 824 Investments at Fair Value not Subject to
Fair Value Hierarchy
City of Sacramento Investment Pool 13,416
Total Cash and Investments 312,602 $
Fair Value Measurements on a Recurring Basis Using

Deposits and withdrawals in the City of Sacramento Investment Pool are made on the basis of $1 and not fair value. Accordingly, the measurement of fair value of S CERS’ investment in the investment pool is based on uncategorized inputs not defined as Level 1, Level 2, or Level 3.

30 Note D – Related Party Transactions

At June 30, 2021, SCERS held revenue bonds issued by the Sacram ento City Financing Authority (SCFA) in the amount of $4,129. SCFA is a blended component unit of the City of Sacramento because its Board is comprised of all City Council members, and there is a financial benefit/burden relationship between the City and SCFA. These bonds are measured at fair value using level 2 inputs.

Note E – Funding Policy

The City’s funding policy provides for actuarially determined c ontributions under the entry a g e normal method, which are discounted and adjusted annually to en sure that sufficient assets will be available to pay benefits when due. The City Council establishe d and may amend the obligations of the plan members and the City to contribute to the plan. For th e fiscal year ended June 30, 2021, the City’s annual required and actual contribution was $3,822.

Note F – Net Pension Asset of the City

The components of the net pension asset of the City at June 30, 2021 is shown below. The total pension liability is based on an actuarial valuation as of June 30, 2021.

June 30, 2021
Total pension liability 282,359 $
Plan fiduciary net position 311,133
City's net pension asset (28,774) $
Plan fiduciary net position as a percentage of the total pension liability -110.2%

Actuarial assumptions

The total pension liability was de termined by an actuarial valu ation as of June 30, 2021, using the following actuarial assumptions, applied to all periods include d in the measurement.

I n f l a t i o n 2 . 5 %
Salary increases 2.5% CPI plus 0.5% merit, average
Discount rate 6.0%

Mortality rates for service retirements and beneficiaries were based on CalPERS 1997-2015 Mortality Table projected for future mortality improvement util izing Society of Actuaries Scale MP-2020. Mortality rat es for disability retirements were based on CalPERS 1997-2015 Mortality Table for non-work Disabled Reti rees for Miscellaneous and CalP ERS 1997-2015 Mortality Table for work-related Disabled Retirees for Safety. Both tables were projected for future mortality improvement utilizing Society of Actuaries Scale MP-2020.

The previous actuarial valuation as of June 30, 2020 used a dis count rate of 6.5%, an inflation rate of 2.75%, and the Society of Act uaries Scale MP-2 019 for mortal ity projections.

SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM
A Component Unit of the City of Sacramento
Notes to the Basic Financial Statements
Fiscal Year Ended June 30, 2021
(Dollars in thousands, except as otherwise noted)
31 Note F – Net Pension Asset of the City (Continued)
Discount rate
The Discount Rate was set equal to the long-term expected rate of return. The long-term expected rate of return was used since cu rrent assets, future City contr ibutions, and future member contributions are projected to be sufficient to cover all future benefit payments and expenses. This “crossover test” was performed in accordance with the requireme nts specified in GASB Statement 67, including a projection that Plan’s funding policy will remain unchanged.

The 6% long-term expected rate of return was derived based on the inflation assumption of 2.5% and a long-term asset allocation of 70% equities and 30% fixed income. The geometric real rates of return were assumed to be 3.87% for large cap equities, 4.29% for equities, 4.67% for international equities, and 0.78% for fixed income. The sensitivity of the discount rate to a 1% change is shown below.

Sensitivity of the net pension asset to changes in the discount rate The following presents the net pension asset of the City, calculated using the discount rate of 6%, as well as what the City’s net pension asset would be if it were calculated using a discount rate that is 1 percentage-point lower (5%) or 1 percentage-point higher (7%) than the current rate:
1% decrease
(5%)
Current
Discount Rate
(6%)
1% increase
(7%)
City net pension asset 6,446$ 28,774$ 48,279$
Actuarial valuations of an ongoing plan involve estimates of th e value of reported amounts and assumptions about the probability of occurrence of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial calculations ref lect a long- term perspective and are based on the benefits provided under the terms of the substanti ve plan in effect at the time of each valuation.

REQUIRE

D SUPPLEMENTARY INFORMATION
Sacramento City Employees' Retirement System
Schedule of Changes in Net Pension Liability (Asset) and Related Ratios Last Ten Fiscal Years
(in thousands)
2021 2020 2019 2018
Total pension liability
Service cost 18$ 49$ 66$ 92$
Interest 18,342 19,363 20,095 20,877
Differences between expected and actual experience (6,349) (3,768) 304 (2,457) Changes of assumptions 2,673 (1,593) (927) 862
Benefit payments, including refunds of member contributions (28,992) (30,457) (31,134) (31,583) Net change in total pension liability (14,308) (16,406) (11,596) (12,209) Total pension liability -- beginning 296,667 313,073 324,669 336,878 Total pension liability -- ending (a) 282,359$ 296,667$ 313,073$ 324,669$ Plan fiduciary net position
Contributions -- employer 3,822$ 4,410$ 7,507$ 8,645$ Contributions -- member 16 25 49 55
Net investment income 73,150 7,591 18,537 20,982
Benefits payments, including refunds of member contributions (28,992) (30,457) (31,134) (31,583) Net change in fiduciary net position 47,996 (18,431) (5,041) (1,901) Plan fiduciary net position -- beginning 263,137 281,568 286,609 288,510 Plan fiduciary net position -- ending (b) 311,133$ 263,137$ 281,568$ 286,609$ Net pension liability (asset) -- ending (a) - (b) (28,774)$ 33,530$ 31,505$ 38,060$ Plan fiduciary net position as a percentage of the total pension liability 110.19% 88.70% 89.94% 88.28% Covered payroll 270$ 362$ 678$ 921$
Net pension liability (asset) as a percentage of covered payroll -10657.04% 9262.43% 4646.76% 4132.46% Notes to Schedule:

The information in this schedule is prepared in accordance with GASB Statement No. 67, Financial Reporting for Pension Plans, which SCERS implemented for the fiscal year ended June 30, 2014. Data is not available for the years prior to implementation, so only eight fiscal years are presented.

For the fiscal year ended June 30, 2021, the calculation of the total pension liability was affected by the changes in assumptions in the discount rate from 6.50% to 6.00%, the inflation rate from 2.75% to 2.50%, the salary scale from 3.25% to 3.00%, and change in assumption of mortality improvement to use Society of Actuaries Scale MP-2020.

Fiscal Year
32 Sacramento City Employees' Retirement System
Schedule of Changes in Net Pension Liability (Asset) and Related Ratios Last Ten Fiscal Years
(in thousands)
2017 2016 2015 2014
Total pension liability
Service cost 96$ 103$ 131$ 176
Interest 22,759 23,416 23,134 23,779
Differences between expected and actual experience (3,701) (1,173) (8,783) - Changes of assumptions (16,246) - 23,117 -
Benefit payments, including refunds of member contributions (32,171) (32,683) (33,791) (33,688) Net change in total pension liability (29,263) (10,337) 3,808 (9,733) Total pension liability -- beginning 366,141 376,478 372,670 382,403 Total pension liability -- ending (a) 336,878$ 366,141$ 376,478$ 372,670 Plan fiduciary net position
Contributions -- employer 8,645$ 8,645$ 9,183$ 9,649 Contributions -- member 63 146 82 161
Net investment income 26,803 7,799 13,375 40,317
Benefits payments, including refunds of member contributions (32,171) (32,683) (33,791) (33,688) Net change in fiduciary net position 3,340 (16,093) (11,151) 16,439 Plan fiduciary net position -- beginning 285,170 301,263 312,414 295,975 Plan fiduciary net position -- ending (b) 288,510$ 285,170$ 301,263$ 312,414 Net pension liability -- ending (a) - (b) 48,368$ 80,971$ 75,215$ 60,256 Plan fiduciary net position as a percentage of the total pension liability 85.64% 77.89% 80.02% 83.83%
Covered-employee payroll 1,049$ 1,020$ 1,180$ 2,279$ Net pension liability as a percentage of covered-employee payroll 4610.87% 7938.33% 6374.15% 2643.97% Fiscal Year
33 Sacramento City Employees' Retirement System
Schedule of Employer Contributions
Last Ten Fiscal Years
(in thousands)
2021 2020 2019 2018 2017
Actuarially determined contributions 3,822$ 4,410$ 5,268$ 8,267$ 8,330$ Contributions in relation to the actuarially determined contribution 3,822$ 4,410$ 7,507$ 8,645$ 8,645$ Contribution deficiency (excess) -$ -$ (2,239)$ (378)$ (315)$ Covered payroll 270 362 678 921 1,049
Contributions as a percentage of covered payroll 1416% 1218% 1107% 939% 824% Notes to Schedule
Valuation date:

Actuarially determined contributions are calculated as of June 30, two years prior to the end of the fiscal year in which contributions are reported.

Methods and assumptions used to determine contribution rates above:

Actuarial cost method Entry age normal for fiscal years 2017 - 2021 Amortization method Level dollar payments over 12 years, open period for fiscal year 2021 Level dollar payments over 13 years, open period for fiscal years 2019 - 2020 Level dollar payments over 14 years, open period for fiscal years 2017 - 2018 Asset valuation method 3 year smoothed market value for fiscal years 2017 - 2021 Inflation 2.75% for fiscal years 2019 - 2021

3.00% for fiscal years 2017 - 2018
Salary increases 2.75% CPI plus 0.5% merit for fiscal years 2019 - 2021

3.00% CPI plus 0.5% merit for fiscal years 2017 - 2018
Investment rate of return 6.50% for fiscal years 2017 - 2021 Retirement age
Mortality CalPERS 1997-2015 Mortality Tables with Scale MP-2018 for fiscal year 2021 CalPERS 1997-2015 Mortality Tables with Scale MP-2017 for fiscal year 2020 CalPERS 1997-2011 Mortality Tables with Scale MP-2016 for fiscal year 2019 CalPERS 1997-2011 Mortality Tables with Scale MP-2014 for fiscal year 2018 CalPERS 1997-2007 Mortality Tables with Scale MP-2014 for fiscal year 2017 Fiscal Year
For fiscal years 2017 - 2021, deferred vested members covered under Section 399 are assumed to retire at age 62; those covered under 175 are assumed to retire at age 65. 34 Sacramento City Employees' Retirement System
Schedule of Employer Contributions
Last Ten Fiscal Years
(in thousands)
2016 2015 2014 2013 2012
Actuarially determined contributions 8,645$ 9,183$ 9,649$ 10,573$ 10,361$ Contributions in relation to the actuarially determined contribution 8,645$ 9,183 9,649 10,573 10,361 Contribution deficiency (excess) -$ -$ -$ -$ -$
Covered payroll 1,020 1,180$ 2,279$ 2,279$ 2,959$
Contributions as a percentage of covered payroll 848% 778% 423% 464% 350% Notes to Schedule
Valuation date:

Actuarially determined contributions are calculated as of June 30, two years prior to the end of the fiscal year in which contributions are reported.

Methods and assumptions used to determine contribution rates:

Actuarial cost method
Amortization method Entry age normal for fiscal years 2012 - 2016 Level dollar payments over 14 years, open period for fiscal years 2014 - 2016 Level dollar payments over 15 years, open period for fiscal years 2012 - 201 3 Asset valuation method 3 year smoothed market value for fiscal years 2012 - 2016 Inflation 3.00% for fiscal years 2012 - 2016
Salary increases 3.00% CPI plus 0.5% merit for fiscal years 2012 - 2016 Investment rate of return 6.50% for fiscal years 2012 - 2016 Retirement age
Mortality CalPERS 1997-2007 Mortality Tables with Scale AA for fiscal years 2013 - 2016 CalPERS 1997-2007 Mortality Tables for fiscal year 2012 Fiscal Year
The actuarial valuation was rolled forward from 6/30/2013 to 6/30/2014. As a result, the covered payroll used to calculate the contributions as a percentage of covered payroll is the same for both years.

For fiscal years 2012 - 2016, deferred vested members covered under Section 399 are assumed to retire at age 62; those covered under 175 are assumed to retire at age 65. 35 Sacramento City Employees' Retirement System
Schedule of Investment Returns
Last Ten Fiscal Years
(in thousands)
2021 2020 2019 2018 2017 2016 2015 2014
Annual money weighted rate of return, net of investment expense 29.13% 3.21% 7.08% 7.96% 10.22% 3.05% 4.86% 14.56% Notes to Schedule:

TIONAL INFORMATION

Investments
Maturity
Date Quantity Amortized Cost Fair Value

CORPORATE BONDS/NOTES
Amazon Com Inc 5/12/2031 2,000,000 2,013,214 $ 2,033,628$ Apple Inc 2/9/2027 3,000,000 3,000,000 3,331,358 Bank of America Corp 10/21/2027 1,000,000 1,006,665 1,084,740 Barclays Bank Plc 4/8/2025 1,000,000 1,000,000 1,034,325 Boeing Co 3/1/2045 1,500,000 1,536,774 1,459,629 Citigroup Inc 7/22/2036 5,000,000 5,000,000 4,999,213 CVS Health Corp 2/28/2031 1,000,000 1,008,599 969,958 Disney Walt Co 1/13/2031 3,000,000 3,243,749 3,148,779 Dow Chem Co 11/15/2030 1,000,000 1,017,182 987,549 Dow Chem Co 11/15/2042 1,500,000 1,643,580 1,787,802 Ebay Inc 7/15/2042 2,000,000 2,020,615 2,243,149 General Motors Financial Co Inc 1/8/2031 1,000,000 999,876 986,700 Goldman Sachs Group Inc 2/7/2030 1,500,000 1,524,928 1,556,521 HSBC Holdings PLC 8/18/2031 900,000 922,663 900,614
JP Morgan Chase & Co 4/22/2031 1,500,000 1,539,988 1,543,490 Lehman Bros Hldg Inc Escrow 12/29/2099 2,500,000 1,455,025 17,500 Lowes Cos Inc 10/15/2030 1,000,000 997,314 958,626 Mondelez Intl Inc 2/4/2031 1,000,000 990,453 945,121 Nasdaq Inc 1/15/2031 1,000,000 987,115 944,658 Starbucks Corp 12/1/2047 1,500,000 1,610,973 1,650,486 Sysco Corp 2/15/2030 1,000,000 1,033,623 1,015,402 United Parcel Service Inc 3/15/2029 1,000,000 1,037,373 1,123,285 Unitedhealth Group Inc 5/15/2031 2,000,000 2,025,815 2,048,171 Verizon Communications Inc 3/15/2034 2,000,000 2,188,062 2,410,491 Sub-total 39,803,584 39,181,195

EQUITIES - LARGE CAP GROWTH
Alphabet, Inc. Cl C Capital Stock 760 373,276 1,904,803 Amazon.com Inc. 570 282,034 1,960,891
Apple Inc. 10,900 249,732 1,492,864
Constellation Brands Cl A 4,240 660,625 991,694
Disney (Walt) Com 6,775 843,872 1,190,842
Facebook Inc Cl A 4,965 342,120 1,726,380
Home Depot Inc 4,065 435,490 1,296,288
Intel Corp 18,300 1,039,216 1,027,362
MasterCard Incorporated 4,000 581,240 1,460,360
Paypal Hldgs Inc Com 6,300 464,413 1,836,324
Starbucks Corp 10,900 673,069 1,218,729
Unitedhealth Group Inc 3,700 1,092,163 1,481,628
Sub-total 7,037,251 17,588,165

EQUITIES - FIXED ALTERNATIVE EQUITIES
Bank Of America Corp 22,650 345,857 933,860
Costco Whsl Corp New Com 3,150 919,164 1,246,361
Home Depot Inc 3,610 531,003 1,151,193
International Bus Mach 8,130 1,211,288 1,191,777
Jpmorgan Chase & Co 12,700 856,699 1,975,358
Lockheed Martin Corp 2,710 367,128 1,025,329
Merck & Co Inc (new) 13,550 675,117 1,053,784
Raytheon Technologies Com 14,170 935,444 1,208,843
Union Pac Corp Com 8,150 892,700 1,792,430
Wal Mart Stores Inc 7,580 887,587 1,068,932
Sub-total 7,621,987 12,647,863

SACRAMENTO CITY EMPLOYEES' RETIREMENT SYSTEM

LISTING OF INVESTMENTS
JUNE 30, 2021
37 EXCHANGE TRADED FUNDS
Ishares Inc Core Msci Emkt 43,000 2,392,330$ 2,880,570$ Ishares Msci Acwi Us Etf 310,000 13,656,692 17,828,100 Ishares MSCI Eafe ETF 29,100 2,087,274 2,295,408
Ishares Preferred & Income Securities ET 65,800 2,511,740 2,588,243 Ishares Russell 2000 ETF 7,675 853,002 1,760,415
Ishares Tr Russell 1000 Val 264,700 30,457,726 41,986,714 Ishares Tr U.S. Real Es Etf 9,050 711,634 922,557
Ishares Tr Us Telecom Etf 36,100 1,087,498 1,199,242
Ishares U.S. Transportation ETF 18,220 2,746,037 4,736,471 Ishares Us Home Cons Etf 9,000 240,190 622,980
Select Sector Spdr Tr Communication 111,075 5,603,454 8,993,743 Select Sector Spdr Tr Rl Est Sel Sec 26,000 832,659 1,152,580 Select Sector Spdr Tr Sbi Cons Discr 39,230 2,990,943 7,004,517 Select Sector Spdr Tr Sbi Cons Stpls 119,540 6,090,376 8,364,214 Select Sector Spdr Tr Sbi Healthcare 122,960 9,918,824 15,486,812 Select Sector Spdr Tr Sbi Int-Energy 79,950 5,216,742 4,306,907 Select Sector Spdr Tr Sbi Int-Finl 213,950 4,411,569 7,849,826 Select Sector Spdr Tr Sbi Int-Inds 60,775 3,752,593 6,223,360 Select Sector Spdr Tr Sbi Int-Utils 39,325 1,762,167 2,486,520 Select Sector Spdr Tr Sbi Materials 42,450 2,435,497 3,494,060 Select Sector Spdr Tr Technology 155,263 8,470,838 22,926,135 Spdr Bbg Barc ST High Yield Bond ETF 60,500 1,638,056 1,668,590 Spdr Series Trust Kbw Regn Bk Etf 65,760 2,759,182 4,309,253 Spdr Series Trust S&p Bk Etf 47,190 1,576,861 2,421,791 Spdr Tr Unit Ser 1 21,700 5,218,408 9,288,902
Vaneck Vectors Semiconductor Etf 18,100 962,816 4,746,544 Sub-total 120,385,109 187,544,450

MORTGAGE LOANS
Walgreens Drugs/Adahi, Inc 5/1/2024 824,265 824,265 824,265 Sub-total 824,265 824,265

MUNICIPAL BONDS/NOTES
Bay Area Toll Auth Calif Toll 4/1/2030 2,350,000 2,341,543 2,572,142 California St 11/1/2030 1,500,000 1,472,069 1,492,665 California St Go Bds 11/1/2026 2,000,000 2,000,000 2,585,440 Houston Tex Arpt Sys Rev Arpt Sys 1/1/2028 5,000,000 4,813,033 5,796,200 Moreland Calif Sch Dist 8/1/2030 1,235,000 1,235,000 1,396,019 New York St Urban Dev Corp Sales Tax Rev 3/15/2031 2,000,000 2,050,398 2,134,940 Pasadena Calif Wtr Rev 6/1/2031 3,000,000 2,973,249 3,029,010 Pasadena Calif Wtr Rev 6/1/2033 2,000,000 1,981,122 2,025,440 Pennsylvania Economic Dev Fing 6/15/2034 3,000,000 3,087,009 3,105,660 Sacramento Calif Pub Fing Auth 4/1/2050 3,000,000 3,162,606 4,128,930 Union City Calif Cmnty Redev A 10/1/2030 250,000 246,645 278,268 Univ Calif Regts Med Ctr Poole 5/15/2031 2,350,000 2,431,639 3,066,562 University Calif Revs For Prev 5/15/2031 5,755,000 6,220,549 6,826,639 Sub-total 34,014,863 38,437,914

US GOVERNMENT OBLIGATIONS
Fannie Mae Pool #256393 9/1/2036
37,367 37,244 44,299 Federal Farm Credit Bank 7/23/2035 500,000 499,714 478,409 Gnma Pool #320296 3/15/2022 1,744 1,713 1,751
Gnma Pool #329837 11/15/2022 2,387 2,351 2,413
Gnma Pool #439515 3/15/2027 11,145 10,930 11,564
Gnma Pool #450066 12/15/2026 358 356 359
Gnma Pool #550718 11/15/2035 250,183 243,459 288,659
Gnma Pool #648348 10/15/2035 150,363 149,846 176,712
Sub-total 945,612 1,004,167

US TREASURY BONDS
U.S. Treasury Bond 2/15/2041 2,000,000 1,860,194 1,957,813 Sub-total 1,860,194 1,957,813
Total 212,492,867$ 299,185,833$
38 APPE
NDIX A

City of Sacramento

Sacramento City Employees’ Retirement System

June 30, 2021
Actuarial Valuation

December 7, 2021

411 Borel Avenue, Suite 620  San Mateo, California 94402 main: 650/377-1600  web: www.bartel-associates.com

ACTUARIAL VALUATION

CITY OF SACRAMENTO
SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM (SCERS)

DEFINED BENEFIT PLAN

We are pleased to present the results of our June 30, 2021 actuarial valuation of the Sacramento City Employees’ Retirement System (SCERS).

The purpose of this valuation is to:
 Determine the System’s June 30, 2021 Funded Status, and  Calculate the fiscal year 2022/23 Actuarially Determined Contribution (ADC).

The information in this report may not be appropriate for purposes other than System funding but may be useful to the City for the System’s financial management. Future valuations may differ significantly if the System’s experience differs from our assumptions or if there are changes in plan design, actuarial methods or actuarial assumptions. The project scope did not include an analysis of this potential variation.

The valuation is based on the System’s benefit provisions summarized in Section 9, employee data, and on the System’s financial information, all furnished by the City. We reviewed the financial and employee data for reasonableness, including comparing to prior year data , but did not perform an
audit.

To the best of our knowledge, this report is complete and accurate and has been conducted using generally accepted actuarial principles and practices. As members of the American Academy of Actuaries, meeting Academy Qualification Standards, we certify the actuarial results and opinions herein.

Respectfully submitted,

Mary Elizabeth Redding, FSA, MAAA, EA
Vice President

Deanna Van Valer, ASA, MAAA, EA
Assistant Vice President

Katherine Moore, ASA, MAAA
Associate Actuary

TABLE OF CONTENTS

SECTION P AGE

1. Executive Summary 1

2. Liability Information & Funded Status 5

3. Asset Information 8

4. Contribution Development 12

5. Schedule of Future Contributions 13

6. Actuarial Gain/Loss Analysis 14

7. Sensitivity Analysis 15

8. Headcount & Benefit Payment Projection 16

9. Plan Provisions 18

10. Methods and Assumptions 21

11. Participant Data 25

O:\Clients\SaCiERS\Projects\SCERS\6-30-21 Pension Val\Reports\BA SacCiSCERS 21-12-07 Pension 6-30-2021 funding report.docx SECTION 1

EXECUTIVE SUMMARY

Page 1 ends

Following are the valuation results. See notes following the table for a description of terms.

Results from the June 30, 2020 valuation are provided for comparative purposes. --------amounts in $000’s---------
June 30,
2020 June 30,
2021
%
change
 Participant Counts
• Actives 5 3 -40.0%
• Terminated Vesteds & Reciprocals 5 5 0.0%
• Service Retirees 506 473 -6.5%
• Disableds 96 89 -7.3%
• Beneficiaries 312 306 -1.9%
• Total 924 876 -5.2%
 Actuarial Liabilities
• Present Value of Projected Benefits $ 296,709 $ 282,371 -4.8% • Actuarial Accrued Liability 296,667 282,359 -4.8%
 Assets
• Market Value of Assets 263,137 311,133 18.2%
• Approximate Annual Rate of Return 2.8% 29.2%
• Actuarial Value of Assets 266,646 275, 724 3.4%
• Approximate Annual Rate of Return 5.8% 13.5%
 Plan Funded Status
• Actuarial Accrued Liability 296,667 282,359 -4.8%
• Actuarial Value of Plan Assets 266,646 275, 724 3.4% • Unfunded Actuarial Accrued Liability 30,021 6,635 -77.9% • Funded Ratio 89.9% 97.7% 8.7%
• Funded Ratio, Market Value Basis 88.7% 110.2% 24.2%

2021/22 2022/23 %
change
 Annual Cost1 $ 3,479 $ 0 N/A
 Annual Cost (% Proj. Plan Payroll)1 1998.3% 0.0%
 Annual Cost (% Proj. City Payroll) 0.9% 0.0%

1 See page 12 for details.

SECTION 1

EXECUTIVE SUMMARY

Page 2 ends

Purpose of Actuarial Valuation
The actual costs of a defined benefit plan are determined entirely by the amount of the benefit promise, the actual salaries and service of the plan participants, and how long they and their beneficiaries live to receive payments. An actuarial valuation is a mathematical model which attempts to quantify this actual cost by setting assumptions that, it is hoped, duplicate reality as closely as possible. In addition, the actuarial methodology provides a reasonable plan, or method, towards funding the expected plan costs. This information assists the plan trustees so they can make informed decisions regarding plan investments and how much in contributions will be required from the employer to eventually fully pay the plan’s costs.

Summary Information & Results
The Sacramento City Employees’ Retirement System (SCERS) is a closed defined benefit pension plan. It has not accepted new members since January 28, 1977, and only 3 active members (out of a total plan membership of 876) remain.

Since the last valuation, the plan experienced overall gains on liabilities and market assets. Plan liabilities increased less than expected, by $5.9 million. This was mostly due to retirees and beneficiaries not living as long as expected ($3.9 million), and also due to a smaller COLA than expected
2 ($2.0 million). Market value return on assets was greater than expected, about 29.2% for the year which resulted in a gain of $17.7 million on the actuarial (smoothed) value of assets.

Lower benefit payments than expected resulted in an additional $0.5 million gain to the assets.

Several assumptions were changed since the prior valuation.  The mortality improvement projection was updated to a more recent Society of Actuaries’ table, MP-2020. This decreased liabilities by $2.6 million.  The inflation assumption was reduced from 2.75% to 2.50%. The resulting decreased discount rate increased plan liabilities, but the decrease in the future expected cost of living adjustments to retirees almost completely offset those increased liabilities. The net increase in plan liabilities was just $0.2 million.
 In addition to the 0.25% reduction in the discount rate due to the inflation assumption change, the discount rate was further reduced based upon our expectation of a lower real rate of return in the long term. Bartel Associates completed a review of our capital market assumptions in 2021. Based on a stochastic analysis using those new assumptions and assumed future inflation of 2.50%, we calculated the expected rate of return after expenses to be 5.88%, at the 50th percentile confidence level. Based on this result, and current guidance recommending use of the 50th percentile confidence level, we recommend 6.00% as the discount rate. The prior valuation used 6.50% discount rate. The change in discount rate due to updated capital market assumptions increased plan liabilities $5.1 million.

After these assumption changes, the July 1, 2021 total plan unfunded actuarial accrued liability (UAAL) is $6.6 million, as compared to an expected UAAL of $28.0 million.

2 The CPI used for COLA increases was 1.7%. Alth ough the full 3% COLA was paid for retirements prior to fiscal year 2017/18, COLA banks were decreased. The prior valuation assumed CPI of 2.75%. (Index used is CPI-U for San Francisco/Oakland/Hayward area.) SECTION 1

EXECUTIVE SUMMARY

Page 3 ends

The plan’s funded ratio on an actuarial value of assets basis is 97.7%, an increase from 89.9% in the prior valuation. The plan’s funded ratio using market value of assets basis is 110.2%, an increase from 88.7% in the prior valuation.

The City’s contribution was $3.479 million for fiscal year 2021/22. The prior valuation projected a 2022/23 contribution of $3.383 million. Due to the experience gains discussed above, the plan is projected to be overfunded on June 30, 2022 on an actuarial value of assets basis and the recommended City contribution is $0 for fiscal year 2022/23.

The average life expectancy of the plan’s retirees is now 11.1 years, down from 11.6 years as of June 30, 2020. Although it does not impact the results, we recommend dropping the amortization period from a rolling 12-year period to a rolling 11-year period for the 2022/23 recommended contribution.

SECTION 1

EXECUTIVE SUMMARY

Page 4 ends

Discussion of Plan Risks
Actuarial Standard of Practice No. 51, Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions, requires the actuary to assess and disclose the risk that actual future measurements may differ significantly from expected future measurements.

This plan is considered a very mature pension plan since almost all of its liabilities are for retirees, and there are almost no remaining active employees with very little associated payroll.

The following table presents various measures illustrating the plan’s maturity:

June 30, 2020 June 30, 2021
 Maturity Ratios
• Inactive AAL/total AAL 99.4% 99.7%
• Inactive participant count/total count 99.5% 99.7%
• Benefit payments/market value of assets 11.2% 9.1%
• Benefit payments/employer contributions 834.6% N/A
A very mature pension plan presents unique risks. The plan has negative cash flow (benefit payments exceed contributions), and benefit payments are relatively large compared to the asset value. The plan’s investment manager must carefully manage the plan’s liquidity needs as the plan “winds down” over the next 50 or more years. In addition to investment risk (investment returns being different than expected), asset/liability mismatch risk (changes in asset values not matched by changes in liabilities) could be significant for this plan. The plan is also subject to longevity risk (the potential that participants will live longer than projected) but we believe this risk is less significant than investment and asset/liability mismatch risk.

The scope of this valuation did not include a risk assessment - an evaluation of the potential impacts of these factors on the plan’s funded status or projected employer contributions.

However, we have included the following to assist in the plan’s management:
• Table of expected benefit payments for the next 50 years • Sensitivity analysis: Contributions calculated under different discount rates

Definitions
The Present Value of Projected Benefits (PVPB) is the present value of all future benefits for current plan participants. The Actuarial Accrued Liability (AAL) represents the portion of the PVPB attributable to past service. The AAL is recognized over service through the date a participant is expected to commence benefits. Therefore, the AAL is equal to the PVPB for current retirees. The Normal Cost is the portion of the PVPB allocated or earned during the year following the valuation date.

PVPB
AAL
Normal Cost
Future Normal Costs
SECTION 2

LIABILITY INFORMATION & FUNDED STATUS

Page 5 ends

A comparison of the Present Value of Benefits, Actuarial Accrued Liability, Employer Normal Cost, and the Funded Ratio for the current and prior valuations follows. (Note that numbers throughout the report may not add due to rounding.)
(amounts in $000’s)
June 30, 2020 June 30, 2021
Present Value of Projected Benefits
 Active Employees $ 1,722 $ 986
 Vested Terminated & Reciprocals 536 430
 Service Retirees 212,531 201,090
 Disabled Participants 28,435 26,645
 Beneficiaries 53,486 53,221
 Total 296,709 282,371
Actuarial Accrued Liability
 Active Employees $ 1,680 $ 974
 Vested Terminated & Reciprocals 536 430
 Service Retirees 212,531 201,090
 Disabled Participants 28,435 26,645
 Beneficiaries 53,486 53,221
 Total 296,667 282,359

2020/21 2021/22
Normal Cost
 Employer Normal Cost (beginning of
year)
$ 3 $ 0

June 30, 2020 June 30, 2021
Plan Funded Status
 Total Actuarial Accrued Liability $ 296,667 $ 282,359  Actuarial Value of Plan Assets 266,646 275,724
 Unfunded Actuarial Accrued Liability 30,021 6,635
 Funded Ratio 89.9% 97.7%

 Market Value of Assets $ 263,137 311,133
 Funded Ratio – Market Value Basis 88.7% 110.2%
SECTION 2

LIABILITY INFORMATION & FUNDED STATUS

Page 6 ends

Details of the June 30, 2021 Present Value of Benefits, Actuarial Accrued Liability and Employer Normal Cost by employee category:
(amounts in $000’s)
Safety Miscellaneous Total
Present Value of Projected Benefits
 Active Employees $ 0 $ 986 $ 986  Vested Terminated & Reciprocals 0 430 430
 Service Retirees 10,085 191,005 201,090
 Disabled Participants 10,795 15,850 26,645
 Beneficiaries 15,150 38,070 53,221
 Total 36,030 246,341 282,371
Actuarial Accrued Liability
 Active Employees 0 974 974
 Vested Terminated & Reciprocals 0 430 430
 Service Retirees 10,085 191,005 201,090
 Disabled Participants 10,795 15,850 26,645
 Beneficiaries 15,150 38,070 53,221
 Total 36,030 246,329 282,359

Safety Miscellaneous Total
Normal Cost
 Employer Normal Cost (on
June 30, 2021) $ 0 $ 0 $ 0

SECTION 2

LIABILITY INFORMATION & FUNDED STATUS

Page 7 ends

Details of the June 30, 2021 Present Value of Benefits, Actuarial Accrued Liability and Employer Normal Cost by benefit section:
(amounts in $000’s)

Section 175
Sections
302 & 399

Total
Present Value of Projected Benefits
 Active Employees $ 0 $ 986 $ 986  Vested Terminated & Reciprocals 54 376 430
 Service Retirees 4,486 196,604 201,090
 Disabled Participants 719 25,926 26,645
 Beneficiaries 4,268 48,953 53,221
 Total 9,526 272,845 282,371
Actuarial Accrued Liability
 Active Employees - 974 974
 Vested Terminated & Reciprocals 54 376 430
 Service Retirees 4,486 196,604 201,090
 Disabled Participants 719 25,926 26,645
 Beneficiaries 4,268 48,953 53,221
 Total 9,526 272,833 282,359

Section 175
Sections
302 & 399

Total
Normal Cost
 Employer Normal Cost (on
6/30/21) $ 0 $ 0 $ 0

SECTION 3

ASSET INFORMATION

Page 8 ends

Assets for SCERS are held in trust. Trust monies may be used to pay benefits to plan participants and their beneficiaries. The trust is managed under the direction of the Administration, Investment, and Fiscal Management Board. Asset information is provided by the City of Sacramento, and has not yet been audited.

Asset Reconciliation – Market Value of Assets
Following reconciles the June 30, 2019 through June 30, 2020 and the June 30, 2020 through June 30, 2021 market value of assets. Numbers may not add due to rounding. (amounts in $000’s)
2019/20 2020/21
 Beginning of Year Balance: $ 281,568 $ 263,137
• Member Contributions $ 25 $ 16
• City Contributions 4,410 3,822
• Investment Income 8,692 74,279
 Total Additions 13,127 78,117
• Benefit Payments 30,455 28,992
• Member Refunds 2 -
• Investment Expenses 1,101 1,129
 Total Deductions 31,558 30,121
 Net Assets at End of Year 263,137 311,133

 Approximate Return on Assets 2.8% 29.2%

SECTION 3

ASSET INFORMATION

Page 9 ends

Asset Allocation – Market Value of Assets
The July 1, 2021 trust asset allocation is provided by the City of Sacramento and based on an allocation strategy of 30% fixed income and 70% equity. Details are shown below. (amounts in $000’s)
Market Value Percentage
 Cash & Short Term Investments $ 13,416 4.3%
 Receivables 849 0.3%
 Investments
• US Agencies $ 1,004 0.3%
• US Treasury Bonds 1,958 0.6%
• Corporate Bonds 39,181 12.6%
• Equities 30,236 9.7%
• Exchange Traded Funds 187,545 60.3%
• Mortgage Loans 824 0.3%
• Municipal Bonds 38,438 12.4%
 Total Investments 299,186
 Total Assets 313,451
 Other Liabilities Payable (2,318) -0.7%
 Net Pension Benefit Trust Assets 311,133 100.0%

Target Allocation by Asset Class
The Administration, Investment and Fiscal Management Board of the Sacramento City Employees’ Retirement System has not changed the asset allocation since May 3, 2018, as shown below. The fund is rebalanced each year.

Current Allocation
 Fixed Bonds/Real Estate 30.0%
Total Fixed 30.0%
 Large Cap Growth 35.0%
 Equity Income 27.5%
 International Equities 7.5%
Total Equity 70.0%
Total Fixed & Equity 100.0%

SECTION 3

ASSET INFORMATION

Page 10 ends

Discount Rate Development
Bartel Associates modeled the nominal rate of return for the fund, based upon our 2021 capital market assumptions, which include mean returns, standard deviation of returns, and correlation coefficients, as well as our assumed inflation rate of 2.50%. Our modeling showed a 50% likelihood that returns would average (geometric average) at least 6.03% per year. After adjusting for expenses and rounding, we recommend a 6.00% discount rate for the valuation. The prior valuation used 6.50% based on our prior capital market assumptions and 2.75% inflation assumption.

Confidence Level
50% 55% 60%
 Inflation Adjusted Return 6.03% 5.63% 5.32%
 Investment Expenses3 0.15% 0.15% 0.15%
 Net Return after Expenses 5.88% 5.48% 5.17%
 Discount Rate Assumption 6.00%

3 Based on average investment expenses for a typical passive investment strategy. This is not plan specific.

SECTION 3

ASSET INFORMATION

Page 11 ends

Development of Actuarial Value of Assets
The Actuarial Value of Assets is based upon a three year smoothing of market assets. This method reduces volatility in contribution rates, and also reduces volatility in the size of the actuarial gains and losses due to asset returns. Because the plan is frozen to new membership and the membership is primarily composed of retirees and beneficiaries, it is important from a cash flow perspective that asset values used in calculating contribution rates not stray too far from market value. For this reason, a corridor of 15% around the market value is imposed upon the actuarial value.

(amounts in $000’s)

2020/21
 Actuarial Value of Assets, Beginning of Year $ 266,646 • Contributions 3,838
• Expected Earnings 16,527
• Benefit Payments (28,992)
 Expected Actuarial Value of Assets, End of Year

258,019
 Market Value of Assets, End of Year 311,133
 Difference between MVA & Expected AVA 53,114

 Preliminary Actuarial Value of Assets, End of
Year
(Expected AVA+ 1/3 Difference)

 Actuarial Value of Assets Corridor 275,724
• Cap: 115% of Market Value 357,803
• Min: 85% of Market Value 264,463
 Actuarial Value of Assets, End of Year
(No greater than Cap, not less than Min)

275,724

 Approximate Annual Rate of Return 13.5%

SECTION 4

CONTRIBUTION DEVELOPMENT

Page 12 ends

Actuarially Determined Contribution
Following is the development of the 2022/23 Actuarially Determined Contribution. The 2021/22 Actuarially Determined Contribution was calculated in the June 30, 2020 actuarial valuation and is shown for comparison.
(amounts in $000’s)
Contribution Year 2021/22 2022/23

 Actuarially Determined Contribution
• Employer Normal Cost $ 2 $ 0
• UAAL Amortization4 3,477 (1,116)
• Total Cost (not less than zero) 3,479 0
 Projected Plan Payroll 174 145
 Actuarially Determined Contribution
(as a percent of plan payroll)
• Employer Normal Cost 1.0% 0.0%
• UAAL Amortization 1997.3% 0.0%
• Total Contribution 1998.3% 0.0%

 Projected Total City Payroll 407,290 398,930
 Actuarially Determined Contribution
(as a percent of total City payroll)

• Employer Normal Cost 0.0% 0.0%
• UAAL Amortization 0.9% 0.0%
• Total Contribution 0.9% 0.0%

4 The Unfunded Actuarial Accrued Liability (UAAL) as of the beginning of the contribution year is being amortized as a level dollar amount over a rolling 12-year period for 2021/22 and a rolling 11- year period for 2022/23. As the plan continues to mature, this amortization period will be monitored.

SECTION 5

SCHEDULE OF FUTURE CONTRIBUTIONS

Page 13 ends

Below are the historic and projected contributions and benefit payments. City contributions for years ending 6/30/2024 and later are estimated assuming 6/30/22 and subsequent market value of assets earn 6.00% and assuming the Actuarially Determined Contribution is contributed each year. These contributions are designed to achieve 100% funding of the system.

Year Ending5
Member
Contributions

City Contributions

Benefit Payments
6/30/1995 $1,320,000 $0 $24,565,000
6/30/1996 1,228,000 0 25,027,000
6/30/1997 1,080,000 0 23,274,000
6/30/1998 1,090,000 0 23,825,000
6/30/1999 1,136,000 0 24,249,000
6/30/2000 1,079,000 06 24,901,000
6/30/2001 989,000 0 25,087,000
6/30/2002 1,011,000 0 25,588,000
6/30/2003 978,000 0 26,619,000
6/30/2004 1,056,000 0 26,772,000
6/30/2005 809,000 0 27,524,000
6/30/2006 789,000 0 28,749,000
6/30/2007 699,000 0 29,604,000
6/30/2008 596,000 3,534,000 29,896,000
6/30/2009 607,000 3,159,000 30,707,000
6/30/2010 377,000 3,431,000 31,719,000
6/30/2011 342,000 10,547,000 33,003,000
6/30/2012 332,000 10,361,000 33,057,000
6/30/2013 219,000 10,573,000 33,237,000
6/30/2014 161,000 9,649,000 33,688,000
6/30/2015 82,000 9,183,000 33,791,000
6/30/2016 69,000 8,645,000 32,683,000
6/30/2017 63,000 8,645,000 32,171,000
6/30/2018 55,000 8,645,000 31,583,000
6/30/2019 49,000 7,507,000 31,134,000
6/30/2020 25,000 4,410,000 30,457,000
6/30/2021 16,000 3,822,000 28,992,000
6/30/2022 11,000 3,479,000 28,401,000
6/30/2023 7,000 0 27,916,000
6/30/2024 5,000 0 27,322,000
6/30/2025 2,000 0 26,653,000
6/30/2026 2,000 0 25,928,000

5 Information prior to 6/30/2006 valuation is taken from prior actuary’s valuation report. Member contributions and benefit payments for years ending 6/30/2022 and later are estimated. 6 Shown as a negative 1.367 million by prior actuary.

SECTION 6

ACTUARIAL (GAIN)/LOSS ANALYSIS

Page 14 ends

The gain/loss analysis of plan assets, actuarial liability, and unfunded actuarial liability for the one year period between valuation dates:

(amounts in $000’s)

Actuarial
Accrued
Liability
(Gain)/Loss

Actuarial
Value of
Assets
Gain/(Loss)
Unfunded
Actuarial
Accrued
Liability
(Gain)/Loss
 June 30, 2020 Actual Value $ 296,667 $ 266,646 $ 30,021  June 30, 2021 Expected Value 285,541 257,509 28,032  COLA less than expected (1,961)
 Demographic (Gain)/Loss7 (3,894)
 Investment Gain 17,705
 Benefit payments less than expected 509
 Contributions greater than expected 1
 Total (Gain)/Loss (24,070)
 June 30, 2021 Prior to Changes in
Assumptions 279,686 275,724 3,962
 Change in Mortality Improvement
Assumption (2,630)
 Change in Inflation Assumption 181
 Change in discount rate due to
updated Capital Market Assumptions 5,122
 Total (Gain)/Loss from Assumption
Changes 2,673 2,673
 June 30, 2021 Actual Value 282,359 275,724 6,635

7 Primarily due to more retiree an d beneficiary deaths than expected.

SECTION 7

SENSITIVITY ANALYSIS

Page 15 ends

The Plan’s June 30, 2021 funded status and 2022/23 fiscal year contribution are shown below at

5.00%, 6.00%, and 7.00% discount rates.
(amounts in $000’s)
Discount Rate

5.00%
Current

6.00%

7.00%

 Present Value of Projected Benefits $ 304,706 $ 282,371 $ 262,862  Funded Status
• Actuarial Accrued Liability 304,687 282,359 262,854 • Actuarial Value of Assets 275,724 275, 724 275,724
• Unfunded Actuarial Accrued
Liability 28,963 6,635 (12,870)
 Funded Ratio 90.5% 97.7% 104.9%
 2022/23 Actuarially Determined Contribution
• Employer Normal Cost 0 0 0
• UAAL Amortization (11 years) 1,698 (1,116) (3,868)
• Total Contribution 1,698 - -
• Total Employer Contribution (as a
percent of Plan payroll) 1172.5% 0.0% 0.0%
• Total Employer Contribution (as a
percent of total City payroll) 0.4% 0.0% 0.0%

SECTION 8

HEADCOUNT AND BENEFIT PAYMENT PROJECTION

Page 16 ends

Headcount and Benefit Payment Projection

Fiscal Year
Ending June 30,
Active
Count

Term Vested
Count
Retiree
Count
Annual Benefit
Payments
(000's)
2022 3 5 868 $ 28,401
2023 2 5 840 27,916
2024 1 5 808 27,322
2025 1 5 776 26,653
2026 0 5 741 25,928
2027 0 5 706 25,153
2028 0 5 671 24,331
2029 0 5 636 23,473
2030 0 5 601 22,584
2031 0 5 566 21,663

2032 0 5 531 20,712
2033 0 5 497 19,730
2034 0 4 464 18,719
2035 0 4 431 17,681
2036 0 4 399 16,618
2037 0 4 367 15,535
2038 0 4 336 14,437
2039 0 4 307 13,331
2040 0 3 278 12,226
2041 0 3 250 11,129

2042 0 3 223 10,051
2043 0 3 198 9,002
2044 0 2 174 7,993
2045 0 2 152 7,032
2046 0 2 132 6,128
2047 0 1 113 5,289
2048 0 1 96 4,520
2049 0 1 81 3,824
2050 0 1 68 3,202
2051 0 1 56 2,654

SECTION 8

HEADCOUNT AND BENEFIT PAYMENT PROJECTION

Page 17 ends

Fiscal Year
Ending June 30,
Active
Count

Term Vested
Count
Retiree
Count
Annual Benefit
Payments
(000's)
2052 0 0 46 $ 2,179
2053 0 0 38 1,772
2054 0 0 31 1,429
2055 0 0 25 1,145
2056 0 0 20 912
2057 0 0 16 726
2058 0 0 13 577
2059 0 0 10 461
2060 0 0 8 371
2061 0 0 7 301

2062 0 0 5 248
2063 0 0 4 207
2064 0 0 4 176
2065 0 0 3 152
2066 0 0 3 133
2067 0 0 2 118
2068 0 0 2 106
2069 0 0 2 96
2070 0 0 2 88
2071 0 0 1 80
SECTION 9

PLAN PROVISIONS

Page 18 ends

A. Plan Effective Date
Originally established effective April 1, 1935.

B. Plan Year
July 1 to June 30.

C. Participation
The plan is closed with no new members since January 28, 1977.

D. Eligibility to Retire
Section 175: Age 70, or age 55 and 20 years of service.

Sections 302 and 399: Age 70, or age 50 and 5 years of service.

E. Vesting
100% vesting with five years of participation.

F. Average Monthly Compensation
Average monthly salary for the 36 months prior to termination.

G. Employee Contributions
Each participant contributes a certain percentage based on his or her age at entry into the plan.

H. Service Retirement Benefit
Section 175:

Average Monthly Compensation times years of service times Benefit Factor. For retirement after age 65 with 20 years of service, benefit is a minimum of $60 per month.

Sections 302 and 399:

Average Monthly Compensation times years of service times Benefit Factor, but no larger than 75% of final average earnings.

Benefit Factors at sample ages:

Retirement Age Section 175 Sections 302 and 399
50 n/a 1.10%
55 1.10% 1.75%
60 1.67% 2.40%
65 2.44% 2.40%

SECTION 9

PLAN PROVISIONS

Page 19 ends

I. Vested Termination Benefit
Return of employee contributions with interest, or if the value is greater than $500, the member may choose to leave the contributions in the system. The member may become eligible in the future for retirement, disability or death benefits.

J. Non-Industrial (Ordinary) Disability Benefit
Eligibility is ten years of service.

Section 175:

With 16 2/3 years of service: 1½% of final average salary times years of service to disability.

Less than 16 2/3 years of service: Minimum of 1½% of final average salary times years of service would have earned to age 60, or 25% of final average earnings.

Sections 302 and 399:

Not Eligible for Retirement: Lesser of 1½% of Final Average Earnings times years of service or final average earnings times benefit factor at age 50 times years of service at age 50, minimum of 25% of final average earnings.

Eligible for Retirement: Maximum of retirement allowance or 25% of final average earnings.

K. Industrial Disability Benefit
Sections 302 and 399:

Not Eligible for Retirement: 50% of final average earnings.

Eligible for retirement: Maximum of retirement allowance or 50% of final average earnings.

L. Death Benefit – Pre Retirement Eligibility
Return of employee contributions with interest, plus 1/12 of salary in the year preceding death multiplied by the smaller of 6 or years of service.

M. Death Benefit – Post Retirement Eligibility
50% of the member’s benefit as if the member retired at the time of death, paid as a lifetime benefit to the spouse.

N. Death Benefit – Post Retirement Death
$500 paid to the member’s estate upon death.

SECTION 9

PLAN PROVISIONS

Page 20 ends

O. Social Security Reduction at age 62

For members participating in Social Security, their benefit will be reduced at the later of age 62 or actual retirement age. The amount of the reduction is one half of the PIA from Social Security, multiplied by the ratio of the sum of salary earned from the City to the sum of salary from all sources used in the calculation of the Social Security amount. The member’s benefit under the System plus the amount received from Social Security cannot be less than the member’s benefit under the System calculated with no reductions as of his retirement age. The City applies this offset to service retirees, not to disabled retirees.

P. Reduction Account

A member can choose to reduce his normal contributions to the System by an amount equal to the taxes paid for Social Security coverage. At the time of retirement, the regular retirement benefit will be reduced by the actuarial equivalent of the accumulated value of the reduction of contributions.

Q. Cost of Living
Benefits will be increased each July 1 by the change in the CPI for the San Francisco/Oakland area for the preceding calendar year limited to 3% (with COLA bank).

R. Benefit Forms
Section 175:

Lifetime benefit to the member, which may be actuarially reduced to provide a continuance to a beneficiary.

Section 302 and 399:

Lifetime benefit to the member, with an automatic 50% continuance to the spouse.

SECTION 10

METHODS AND ASSUMPTIONS

Page 21 ends

Actuarial Methods
The actuarial cost method used for this valuation is the Entry Age Normal (EAN) method. The Present Value of Projected Benefits (PVPB) is the present value of all future benefits for current plan participants. The Actuarial Accrued Liability (AAL) represents the portion of the PVPB attributable to past service. The AAL is recognized over service through the date a participant is expected to commence benefits.

We recommend amortizing the current unfunded AAL over a 11-year rolling period as a level dollar amount. Because the plan is closed, the amortization period should be regularly reviewed.

The Board has regularly reduced the amortization period in the recent past. Under current Board policy, when the average future life expectancy of the plan participants drops below 5 years, the amortization period will be reduced to no more than 5 years.

Plan funded status based on excess of
1) Value of Normal Retirement Benefit in excess of employee contributions over 2) Actuarial Value of Assets

The contribution generated by the current valuation will be payable for the City’s fiscal year beginning one year later (2022/23). The June 30, 2020 valuation generated a contribution for fiscal year 2021/22.

The Actuarial Value of Assets is a 3-year smoothed market value. Gains and losses will be recognized over a three year period. For June 30, 2006, the first year of this method, the Actuarial Asset Value was set equal to the Market Value. The Actuarial Value of Assets will be limited by a 15% corridor. The Actuarial Value of Assets will be no greater than 115% of Market Value of Assets and no less than 85% of Market Value of Assets.

Data
The City provided participant data as of 7/1/2021. We reviewed the data for reasonableness and resolved any questions with the City. We believe the resulting data can be relied on for all purposes of this valuation without limitation.

Basis for Assumptions
Mortality assumptions are based on CalPERS 1997-2015 experience study, since that study is based on populations similar to this plan. Mortality improvement is the Society of Actuaries Scale MP-2020. Inflation is based on our estimate for the plan’s very long time horizon. The salary merit assumption is based on our expectation of overall payroll growth, due to the current age of remaining employees.

Retirement and disablement rates are insignificant due to the age of the remaining participants and are based on rates used historically.

The Social Security offset, marriage, retirement age for deferred vesteds, and reciprocal assumptions are based in part on plan experience. Due to the small number and age of remaining employees and deferred vested, these assumptions are not significant.

SECTION 10

METHODS AND ASSUMPTIONS

Page 22 ends

Actuarial Assumptions
Assumptions used in the valuation are as follows:

 Discount Rate

6.00% net of investment expenses8. See page 10 for derivation.

Prior valuation used 6.50% net of investment expenses.
 Inflation

2.5%
Prior valuation used 2.75%
 Salary Scale

2.5% CPI

0.50% Merit
Prior valuation used 2.75% CPI
 Social Security Wage Base

2.75%
Prior valuation used 3.00%
 Termination
None assumed. All active employees are retirement-eligible.

 Retirement
Rates vary based on age. Sample rates follow:

Age Non Sec 175
55 6%
60 26%
65 40%
70 100%

 Disability
Rates vary based on age, gender and if the disability is job-related or not. Sample rates follow:

Job Related Ordinary
Male Female Male Female
59 .00612 .00336 .01683 .00924
60 .00639 .00351 .01761 .00969
61 .00000 .00000 .00000 .00000

8 Administrative expenses are not paid from plan assets.

SECTION 10

METHODS AND ASSUMPTIONS

Page 23 ends

 Healthy Mortality
CalPERS 1997-2015 Pre-Retirement Mortality table for males and females and CalPERS 1997- 2015 Post-Retirement Mortality table for males and females. Sample rates are as follows:

Pre-Retirement Post-Retirement
Age Male Female Male Female
50 0.12% 0.08% 0.44% 0.39%
60 0.26% 0.17% 0.75% 0.52%
70 0.62% 0.39% 1.50% 1.06%
80 1.66% 0.94% 4.64% 3.49%
90 n/a n/a 14.94% 11.38%
100 n/a n/a 35.37% 30.62%

 Post-Retirement Disabled Mortality
For Miscellaneous retirees, CalPERS 1997-2015 Non-Work-Related Disability table for males and females. For Safety retirees, CalPERS 1997-2015 Work-Related Disability table for males and females. Sample rates are as follows:

Non-Work-Related Work-Related
Age Male Female Male Female
50 1.40% 1.23% 0.44% 0.39%
60 2.42% 1.52% 0.75% 0.52%
70 3.77% 2.50% 1.80% 1.27%
80 7.32% 5.38% 5.57% 4.18%
90 16.74% 14.92% 16.43% 12.52%
100 35.37% 35.05% 35.37% 30.62%

 Mortality Improvement Projection
Post-retirement mortality projected fully generational with Society of Actuaries Scale MP-2020.

Prior valuation used mortality projected fully generational with Society of Actuaries Scale MP- 2019.

 Social Security Offset
Monthly benefits for current retirees and vested terminated assumed to decrease at the later of age 62 or actual retirement, based on the average expected offset of future retirees.

 Marriage
85% of male employees and 60% of female employees are assumed to be married. Wives are assumed to be four years younger than husbands.

SECTION 10

METHODS AND ASSUMPTIONS

Page 24 ends

 Retirement Age
Deferred vested members covered under Section 399 are assumed to retire at age 62; those covered under Section 175 are assumed to retire at age 65.

 Reciprocal Members
All remaining deferred vested members are assumed to have reciprocity with other retirement systems, and their pay is assumed to increase with salary scale after separation from the City.

 Actuarial Modeling
Our valuation was performed using and relying on ProVal, an actuarial model leased from WinTech. Our use of ProVal is consistent with its intended purpose. We have reviewed and understand ProVal and its operation, sensitivities and dependencies.  COVID-19
No adjustments to the assumptions have been made for COVID-19 since the future impacts are unknown.

SECTION 11

PARTICIPANT DATA

Page 25 ends

Data Summary
Following summarizes participant demographic information for the June 30, 2020 and June 30, 2021 actuarial valuations.

June 30, 2020 June 30, 2021
 Participant Counts
• Actives 5 3
• Terminated Vesteds 4 4
• Reciprocals 1 1
• Service Retirees 506 473
• Disableds 96 89
• Beneficiaries9 312 306
• Total 924 876
 Actives
• Average Age 66.3 66.5
• Average Service 37.0 45.1
• Salary
 Total $ 330,244 $ 218,098
 Average 66,049 72,699
• Overall City Payroll 382,053,000 376,030,000
 Terminated Vesteds & Reciprocals
• Average Age 69.7 70.7
 Retirees, Disableds & Beneficiaries
• Average Age 79.0 79.5
• Average Monthly Benefit 2,725 2,772
• Life expectancy 11.6 11.1

9 The June 30, 2021 valuation in cludes 4 former spouses of deceased retirees whom the City has not been able to contact and are not yet receiving benefits.

SECTION 11

PARTICIPANT DATA

Page 26 ends

June 30, 2021 Participant Data

Following summarizes participant demographic information for the June 30, 2021 actuarial valuation, broken out by employee category and benefit section.

 Safety Miscellaneous

Section
175
Section
302 & 399
Section
175
Section
302 & 399

Total
 Actives
• Count - - - 3 3
• Average Age n/a n/a n/a 66.5 66.5
• Average Service n/a n/a n/a 45.1 45.1
• Projected Salary
 Average  $ - $ - $ - 72,699 72,699
 Total (000's) - - - 218 218

 Vested Terms & Reciprocals
• Count - - 1 4 5
• Average Age n/a n/a 70.6 70.7 70.7

 All Inactives
• Count 16 124 27 701 868
• Average Age 86.0 83.7 82.5 78.5 79.5
• Avg. Monthly Benefit $2,371 $3,077 $2,058 $2,755 $2,772  Service Retirees
• Count 5 26 12 430 473
• Average Age 90.4 89.4 83.3 77.4 78.4
• Average Retirement Age 54.1 54.2 63.0 59.6 59.3
• Avg. Monthly Benefit $3,003 $5,107 $2,436 $3,376 $3,443  Disabled Retirees
• Count 1 32 4 52 89
• Average Age 92.9 79.3 85.3 75.9 77.7
• Average Retirement Age 48.7 41.4 50.0 48.8 46.2
• Avg. Monthly Benefit $2,734 $2,952 $1,453 $2,340 $2,524  Beneficiaries
• Count 10 66 11 219 306
• Average Age 83.0 83.5 80.6 81.1 81.7
• Avg. Monthly Benefit $2,018 $2,338 $1,866 $1,634 $1,807 SECTION 11

PARTICIPANT DATA

Page 27 ends

Data Reconciliation
6/30/2020 to 6/30/2021

Terminated Receiving Payments
Actives Vested Reciprocal Disabled Benefic. Retirees Total  June 30, 2020 5 4 1 96 312 506 924
• New Hires - - - - - - -
• Disabled - - - - - - -
• Terminated - - - - - - -
• Deceased - - - (7) (24) (35) (66)
• New Beneficiaries - - - - 18 - 18
• Retired (2) - - - - 2 -
• Adjustment/Cash Out - - - - -10 - -  June 30, 2021 3 4 1 89 306 473 876

10 Includes the addition of 1 beneficiary missing from the June 20, 2020 valuation and the exclusion of 1 beneficiary no longer eligible for benefits.

Page 28 ends

Active Age/Service
Following are active counts by age and service groups:

Service
Age 0-4 5-9 10-14 15-19 20-24 25-29 30 &
Over Total
Under 25 - - - - - - - -
25-29 - - - - - - - -
30-34 - - - - - - - -
35-39 - - - - - - - -
40-44 - - - - - - - -
45-49 - - - - - - - -
50-54 - - - - - - - -
55-59 - - - - - - - -
60-64 - - - - - - 1 1
65 &
Over - - - - - - 2 2
Total - - - - - - 3 3

Page 29 ends

Inactives Age/Status/Monthly Benefit
Following are inactive counts and monthly benefit by age and status.

Safety

Age Service
Retirees
Disability
Retirees Beneficiaries Total
Under 50 Count - - - -
Avg. Benefit - - - -
50-54 Count - - - -
Avg. Benefit - - - -
55-59 Count - - - -
Avg. Benefit - - - -
60-64 Count - - 1 1
Avg. Benefit - - 1,923 1,923
65-69 Count - - 2 2
Avg. Benefit - - 2,078 2,078
70-74 Count - 6 12 18
Avg. Benefit - 3,490 1,644 2,259
75-79 Count 5 15 12 32
Avg. Benefit 3,813 2,607 2,494 2,753
80-84 Count 2 4 14 20
Avg. Benefit 5,496 2,113 2,511 2,730
85 & Over Count 24 8 35 67
Avg. Benefit 4,906 3,587 2,388 3,433
Total Count 31 33 76 140
Avg. Benefit 4,768 2,945 2,296 2,996

Page 30 ends

Miscellaneous

Age Service
Retirees
Disability
Retirees Beneficiaries Total
Under 50 Count - - - -
Avg. Benefit - - - -
50-54 Count - - - -
Avg. Benefit - - - -
55-59 Count - - 3 3
Avg. Benefit - - 1,611 1,611
60-64 Count 4 1 8 13
Avg. Benefit 4,338 3,371 1,258 2,368
65-69 Count 64 14 18 96
Avg. Benefit 3,499 2,352 1,315 2,922
70-74 Count 120 14 39 173
Avg. Benefit 3,269 2,778 1,750 2,887
75-79 Count 102 6 34 142
Avg. Benefit 3,464 1,873 1,719 2,979
80-84 Count 76 10 38 124
Avg. Benefit 3,138 2,541 1,887 2,707
85 & Over Count 76 11 90 177
Avg. Benefit 3,362 1,422 1,571 2,331
Total Count 442 56 230 728
Avg. Benefit 3,350 2,276 1,645 2,729

APPENDIX B

City of Sacramento

Sacramento City Employees’ Retirement System

June 30, 2021
GASBS 67 & 68 Reporting

December 7, 2021

411 Borel Avenue, Suite 620  San Mateo, California 94402 main: 650/377-1600  web: www.bartel-associates.com

GASBS 67 & 68 REPORTING

CITY OF SACRAMENTO
SACRAMENTO CITY EMPLOYEES’ RETIREMENT SYSTEM (SCERS)

DEFINED BENEFIT PLAN

This report presents reporting and disclosure information for the Sacramento City Employees’ Retirement System (SCERS) for the fiscal year ending June 30, 2021 to assist the City in preparing financial statement information in accordance with Governmental Accounting Standards Board Statements No. 67 and 68 (GASBS 67 and 68).

The report provides information intended for reporting under GASBS 67 and 68, but may not be appropriate for other purposes. Information provided in this report may be useful to the City for the System’s financial management. Future results may differ significantly if the System’s experience differs from our assumptions or if there are changes in plan design, actuarial methods, or actuarial assumptions.

The project scope did not include an analysis of this potential variation.

This report is based on our June 30, 2021 actuarial valuation of the System and our report dated October 2021 which contains complete details of that valuation and is to be considered a part of this report.

To the best of our knowledge, this report is complete and accurate and has been conducted using generally accepted actuarial principles and practices. Additionally, in our opinion, actuarial methods and assumptions comply with GASBS 67 and 68. As members of the American Academy of Actuaries meeting the Academy Qualification Standards, we certify the actuarial results and opinions herein.

Respectfully submitted,

Mary Elizabeth Redding, FSA, MAAA, EA
Vice President

Deanna Van Valer, ASA, MAAA, EA
Assistant Vice President

Katherine Moore, ASA, MAAA
Associate Actuary

TABLE OF CONTENTS

SECTION P AGE

1. GASBS 67 & 68 Applicable Dates 1

2. GASBS 67 and 68 Note Disclosures 2

3. GASBS 67 and 68 Required Supplementary Information 4

4. GASBS 68 Additional Note Disclosures 6

5. GASBS 68 Supporting Calculations 8

O:\Clients\SaCiERS\Projects\SCERS\6-30-21 Pension Val\Reports\BA SacCiSCERS 21-12-07 SCERS 6-30-2021 GASBS 67&68 report.docx SECTION 1
GASBS 67 & 68 APPLICABLE DATES

Page 1 ends

Applicable Dates and Periods

Fiscal Year End June 30, 2021
Reporting Standard GASBS 67 GASBS 68
 Reporting date1 June 30, 2021 June 30, 2021
 Reporting period FY 2021 FY 2021
 Measurement date2 N/A June 30, 2021
 Measurement period N/A July 1, 2020 to
June 30, 2021
 Actuarial valuation date
3 June 30, 2021 June 30, 2021

1 Employer’s or plan’s fiscal year-end.
2 No earlier than employer’s prior fiscal year end.
3 Within 30 months of fiscal year end.

SECTION 2
GASBS 67 AND 68 NOTE DISCLOSURES

Page 2 ends

Exhibit 1: Notes to Financial Statements ($000’s)

Significant Assumptions and Other Inputs Used to Measure Total Pension Liability at 6/30/21:
 Discount Rate  6.00%, net of investment expenses
 Inflation Rate  2.50%
 Salary Scale  3.00%
 Mortality Assumption for Service
retirements & beneficiaries
 CalPERS 1997-2015 Post-Retirement Mortality
Table projected fully generational with Society of
Actuaries Scale MP-2020.
 Mortality Assumption for Disability
retirements
 CalPERS 1997-2015 Mortality Table for non-work
Disabled Retirees for Miscellaneous and CalPERS
1997-2015 Mortality Table for work-related
Disabled Retirees for Safety. Both tables were
projected fully generational with Society of
Actuaries Scale MP-2020.

Changes of assumptions and changes in experience affecting the measurement of the Total Pension Liability since the prior measurement date
The discount rate was changed from 6.50% to 6.00%.

The inflation rate was changed from 2.75% to 2.50%.

Mortality improvement was changed from fully generational projection with Society of Actuaries Scale MP-2019 to fully generational projection with Society of Actuaries Scale MP-2020.

The overall experience gain was primarily due to more retiree and beneficiary deaths than expected and CPI being less than expected, leading to decreased cost of living increases.

Discount rate
The discount rate was set equal to the long-term expected rate of return. The long-term expected rate of return was used since current assets, future City contributions, and future member contributions are projected to be sufficient to cover all future benefit payments and expenses.

This “crossover test” was performed in accordance with the requirements specified in GASB Statement 67, including a projection that the Plan’s funding policy will remain unchanged4. No administrative expenses were assumed to be paid from Trust assets since the City Charter requires the City to pay all administrative expenses.

4 The current recommended policy includes a change in the amortization period from 11 years to 5 years when the average future life expectancy of plan participants is below 5 years.

Net Pension Liability/(Asset)
(Amounts in 000’s)
Fiscal Year Ending
6/30/21 6/30/20
 Total pension liability (TPL) $282,359 $ 296,667
 Fiduciary net position (FNP) 311,133 263,137
 Net pension liability (NPL) (28,774) 33,530
 Funded status (FNP/TPL) 110.2% 88.7%
SECTION 2
GASBS 67 AND 68 NOTE DISCLOSURES

Page 3 ends

The 6.00% long-term expected rate of return was derived based on the inflation assumption of

2.50% and a long-term asset allocation of 70% equities and 30% fixed income. The geometric real rates of return were assumed to be 3.87% for US large cap equities, 4.29% for US equities,

4.67% for international equities, and 0.78% for fixed income.

Date of actuarial valuation
The June 30, 2021 Total Pension Liability is based on an actuarial valuation as of June 30, 2021.

Sensitivity of the net pension liability to a 1% change in the discount rate

1% Decrease

5.00%
Discount Rate

6.00%
1% Increase

7.00%
Net Pension Liability (NPL) $( 6,446) $(28,774) $(48,279)

SECTION 3
GASBS 67 AND 68 REQUIRED SUPPLEMENTARY INFORMATION

Page 4 ends

Schedule of Changes in Net Pe nsion Liability & Related Ratios 5 (Amounts in $000’s)
Fiscal Year 2020/21
Total Pension Liability
Service cost $ 18
Interest 18,342
Changes of benefit terms 0
Differences between expected and actual experience (6,349) Changes of assumptions 2,673
Benefit payments (28,992)
Net change in Total Pension Liability (14,308)
Total Pension Liability at beginning of year 296,667
Total Pension Liability at end of year 282,359
Fiduciary Net Position
Contributions - employer 3,822
Contributions - member 16
Net investment income 73,150
Benefit payments (28,992)
Administrative expenses 0
Other income 0
Net change in Fiduciary Net Position 47,996
Fiduciary Net Position at beginning of year 263,137
Fiduciary Net Position at end of year 311,133
Net Pension Liability (Asset) at end of year (28,774)
Fiduciary Net Position as percentage of Total Pension
Liability 110.2%
Covered-employee payroll 270
Net Pension Liability (Asset) as percentage of Covered- employee Payroll -10657.0%

Notes to Schedule of Changes in Net Pension Liability & Related Ratios The Total Pension Liability as of June 30, 2021 is based on an actuarial valuation as of June 30, 2021.

Changes of Assumptions. In 2020/21, the discount rate was changed from 6.50% to 6.00%, the inflation rate was changed from 2.75% to 2.50%, and mortality improvement was changed to use Society of Actuaries Scale MP-2020.

Differences between actual and expected experi ence. The largest component for 2020/21 was more deaths than expected.

5 GASBS 67 and 68 require this information be repo rted in the Required Supplementary Information for 10 years or as many years are available upon implementation. Only the current year is shown in this report.

SECTION 3
GASBS 67 AND 68 REQUIRED SUPPLEMENTARY INFORMATION

Page 5 ends

Employer Actuarially De termined Contribution 6
(Amounts in $000’s)

Fiscal
Year
(1)
Actuarially
Determined
Contribution
(ADC)
(2)
Employer
Contributions in
relation to the
Actuarially
Determined
Contribution
(3)
Contribution
Deficiency
(Excess)
(1)-(2)
(4)
Covered-
Employee
Payroll
(5)
Employer
Contribution
/ Covered-
Employee
Payroll
(2)/(4)
2020/21 $ 3,822 $ 3,822 $ 0 $270 1415.6%

Significant Methods and Assumptions U sed in Calculation of ADC for 2020/21

6 GASBS 67 and 68 require this information be repo rted in the Required Supplementary Information for 10 years or as many years are available upon implementation. Only the current year is shown in this report.

Actuarial Assumption FY 2020/21
 Actuarial valuation date  June 30, 2019
 Actuarial cost method  Entry Age Normal, level percent of payroll  Amortization method  Level dollar amount
 Amortization period  12 years open
 Asset method  Actuarial value of assets
 Gains/losses recognized over 3 years
 Corridor of 85% - 115% of market value of assets
 Inflation  2.75%
 Discount rate  6.50%, net of investment expenses
 Salary scale  3.25%
 Mortality rate table  CalPERS’ 1997-2015 Experience Study  Mortality projected fully generational with Scale MP-2018  All other  Same as used in determining total pension liability for 2020/21
SECTION 4
GASBS 68 ADDITIONAL NOTE DISCLOSURES

Page 6 ends

7 No administrative expenses are paid from the trust. As required by City Charter, the City pays all administrative expenses of the plan.

Changes in Net Pension Liability/(Asset)
(Amounts in 000’s)
Total Pension
Liability
(a)
Plan
Fiduciary
Net Position
(b)
Net Pension
Liability/
(Asset)
(a) – (b)
 Balances at FYE 6/30/2020 $296,667 $263,137 $33,530
 Changes for the year:
• Service cost 18 18
• Interest 18,342 18,342
• Change of assumptions 2,673 2,673
• Change of benefit terms 0 0
• Differences between expected
and actual experience (6,349) (6,349)
• Contributions—employer 3,822 (3,822)
• Contributions—member 16 (16)
• Net investment income 73,150 (73,150)
• Benefit payments, including
refunds of member contributions (28,992) (28,992) 0
• Administrative expense7 0 0 0  Net changes (14,308) 47,996 (62,304)
 Balances at FYE 6/30/2021 282,359 311,133 (28,774)
Pension Expense/(Income) for Fiscal Year
(Amounts in 000’s)
2020/21
 Pension Expense/(Income) $(13,553)
SECTION 4
GASBS 68 ADDITIONAL NOTE DISCLOSURES

Page 7 ends

Balance of Deferred Outflows of Resources and Inflows of Resources as of June 30, 2021
(Amounts in 000’s)

Deferred
Outflows
of Resources
Deferred
Inflows
of Resources
 Differences between expected and actual experience $0 $0  Changes of assumptions and other inputs 0 0
 Net difference between actual and projected earnings
on investments 0 40,432
 Employer contributions made subsequent to the
Measurement Date N/A N/A
 Total 0 40,432

Recognition of Deferred Outflows of Resources and Inflows of Resources in Future Pension Expense/(Income)
(Amounts in 000’s)
Measurement Period
Ended June 30:

Net Deferred
Outflows/(Inflows) of
Resources
2022 ($10,128)
2023 (9,533)
2024 (9,400)
2025 (11,371)
2026 0
Thereafter 0
SECTION 5
GASBS 68 SUPPORTING CALCULATIONS

Page 8 ends

Recognition of Deferred Outflows and Inflows of Resources

Differences between Actual and Expected Experience
Changes in Assumptions and Other Inputs

The average expected remaining service lifetime (AERSL) for the plan is calculated as 4.3 years of total expected future service divided by 876 plan participants, resulting in 0.005 years. Since the AERSL is less than 1.0, a recognition period of 1.0 year is used. Therefore all deferred outflows and inflows of resources for differences between actual and expected experience, and for changes in assumptions and other inputs, are fully recognized immediately. No recognition schedules are maintained for these amounts.

SECTION 5
GASBS 68 SUPPORTING CALCULATIONS

Page 9 ends

Recognition of Deferred Outflows and Inflows of Resources (cont.) (Amounts in 000’s)

Projected Versus Actual Earnings on Investments
Measurement Period 2016/17 2017/18 2018/19 2019/20 2020/21 Total  Initial amount* $(9,028) $(2,97 3) $(673) $9,865 $(56,863)  Initial recognition period 5 5 5 5 5
 Amount recognized in pension
expense for current fiscal year:

• 2020/21 (1,804) (595) (135) 1,973 (11,373) (11,934)
 Amount recognized in pension
expense for future fiscal years:
• 2021/22 0 (593) (135) 1,973 (11,373) (10,128)
• 2022/23 0 0 (133) 1,973 (11,373) (9,533)
• 2023/24 0 0 0 1,973 (11,373) (9,400)
• 2024/25 0 0 0 0 (11,371) (11,371)
• 2025/26 0 0
 Deferred Outflows/(Inflows) as
of FYE 6/30/21 0 (593) (268) 5,919 (45,490)
 Net Deferred Outflows/(Inflows)
as of FYE 6/30/21 (40,432)

* For 2020/21 Projected earnings = $16,287, actual earnings = $73,150. Difference = $(56,863)

SECTION 5
GASBS 68 SUPPORTING CALCULATIONS

Page 10 ends

Components of GASBS 68 Pension Expense/(Income) for Fiscal Year (Amounts in 000’s)

FY 2020/21
 Service cost $ 18
 Interest on the total pension liability including service cost 18,342  Projected earnings on plan investments (16,287)
 Member contributions (16)
 Administrative expense 0
 Recognition of deferred outflows and inflows of resources:
• Difference between expected and actual experience (6,349) • Changes in assumptions and other inputs 2,673
• Difference between actual and projected earnings on investments (11,934)  Total Pension Expense/(Income) (13,553)

Calculation of Interest on the Total Pension Liability
(Amounts in 000’s)

Dollar
Amount
Expected
Return
Portion
of Year Interest
 Beginning Total Pension Liability $296,667 6.5% 1.0 $19,283  Service Cost 18 6.5% 1.0 1
 Benefit Payments (28,992) 6.5% 0.5 (942)
 Difference between expected and
actual experience (6,349) 6.5% 0.0 0
 Changes of assumptions 2,673 6.5% 0.0 0
 Interest on Total Pension Liability 18,342

SECTION 5
GASBS 68 SUPPORTING CALCULATIONS

Page 11 ends

Calculation of Projected Earnings on Pension Plan Investments (Amounts in 000’s)

Dollar
Amount
Expected
Return
Portion
of Year
Projected
Earnings
 Beginning Fiduciary Net Position $263,137 6.5% 1.0 $17,104  Employer Contributions 3,822 6.5% 0.5 124
 Member Contributions 16 6.5% 0.5 1
 Benefit Payments (28,992) 6.5% 0.5 (942)
 Administrative Expenses 0 6.5% 0.5 0
 Projected Earnings on Investments 16,287

GASBS 68 Balance Equation
(Amounts in 000’s)

6/30/20 6/30/21 Change
 Total Pension Liability $296,667 $282,359 $(14,308)
 Fiduciary Net Position 263,137 311,133 47,996
 Net Pension Liability/(Asset) 33,530 (28,774) (62,304)

 Deferred inflows of resources 0 40,432 40,432
 Deferred outflows of resources (4,497) 0 4,497
 Employer contributions N/A 3,822 3,822
 Net impact on balance sheet 29,033 15,480 (13,553)

Check:
 Pension expense/(income) for year $(13,553)

SECTION 5
GASBS 68 SUPPORTING CALCULATIONS

Page 12 ends

Discount Rate “Crossover” Test
Projection of Contributions – amounts in $000’s

Year Payroll
Employer
Contributions
for Current
Employees
Employee
Contributions
for Current
Employees
Contributions
from Payroll
of Future
Employees
Total
Contributions
1 $218 $3,479 $11 $0 $3,490
2 145 0 7 0 7
3 100 0 5 0 5
4 48 0 2 0 2
5 33 0 2 0 2
6 10 0 0 0 0
7 0 0 0 0 0
8 0 0 0 0 0
9 0 0 0 0 0
10 0 0 0 0 0
11 0 0 0 0 0
12 0 0 0 0 0
13 0 0 0 0 0
14 0 0 0 0 0
15 0 0 0 0 0
16 0 0 0 0 0
17 0 0 0 0 0
18 0 0 0 0 0
19 0 0 0 0 0
20 0 0 0 0 0
21 0 0 0 0 0
22 0 0 0 0 0
23 0 0 0 0 0
24 0 0 0 0 0
25 0 0 0 0 0
* * * * * *
45 0 0 0 0 0
46 0 0 0 0 0
47 0 0 0 0 0
48 0 0 0 0 0
49 0 0 0 0 0
50 0 0 0 0 0
51 0 0 0 0 0
52 0 0 0 0 0
* * * * * *
76 0 0 0 0 0
77 0 0 0 0 0
78 0 0 0 0 0
79 0 0 0 0 0
Note: Years 26 to 44, and 53 to 75 omitted.

SECTION 5
GASBS 68 SUPPORTING CALCULATIONS

Page 13 ends

Discount Rate “Crossover” Test
Projection of Fiduciary Net Position – amounts in $000’s

Year
Projected
Beginning
Fiduciary Net
Position
Projected
Total
Contributions
Projected
Benefit
Payments
Projected
Administrative
Expense
Projected
Investment
Earnings
Projected
Ending
Fiduciary Net
Position
1 $311,133 $3,490 $28,401 $0 $17,921 $304,143
2 304,143 7 27,916 0 17,411 293,645
3 293,645 5 27,322 0 16,799 283,127
4 283,127 2 26,653 0 16,188 272,665
5 272,665 2 25,928 0 15,582 262,321
6 262,321 0 25,153 0 14,985 252,154
7 252,154 0 24,331 0 14,399 242,222
8 242,222 0 23,473 0 13,829 232,578
9 232,578 0 22,584 0 13,277 223,271
10 223,271 0 21,663 0 12,746 214,354
11 214,354 0 20,712 0 12,240 205,882
12 205,882 0 19,730 0 11,761 197,913
13 197,913 0 18,719 0 11,313 190,507
14 190,507 0 17,681 0 10,900 183,726
15 183,726 0 16,618 0 10,525 177,633
16 177,633 0 15,535 0 10,192 172,290
17 172,290 0 14,437 0 9,904 167,757
18 167,757 0 13,331 0 9,665 164,091
19 164,091 0 12,226 0 9,479 161,344
20 161,344 0 11,129 0 9,347 159,562
21 159,562 0 10,051 0 9,272 158,783
22 158,783 0 9,002 0 9,257 159,038
23 159,038 0 7,993 0 9,303 160,348
24 160,348 0 7,032 0 9,410 162,726
25 162,726 0 6,128 0 9,580 166,178
* * * * * * *
45 431,102 0 133 0 25,862 456,831
46 456,831 0 118 0 27,406 484,119
47 484,119 0 106 0 29,044 513,057
48 513,057 0 96 0 30,781 543,742
49 543,742 0 88 0 32,622 576,276
50 576,276 0 80 0 34,574 610,770
51 610,770 0 74 0 36,644 647,340
52 647,340 0 69 0 38,838 686,109
* * * * * * *
76 2,618,961 0 1 0 157,138 2,776,098
77 2,776,098 0 1 0 166,566 2,942,663
78 2,942,663 0 1 0 176,560 3,119,222
79 3,119,222 0 0 0 187,153 3,306,375
Note: Years 26 to 44, and 53 to 75 omitted.

SECTION 5
GASBS 68 SUPPORTING CALCULATIONS

Page 14 ends

Discount Rate “Crossover” Test
Present Values of Projected Benefit Payments – amounts in $000’s

Year
Projected
Beginning
Fiduciary
Net Position
Projected
Benefit
Payments
"Funded"
Portion of
Benefit
Payments
"Unfunded"
Portion of
Benefit
Payments
PV of
"Funded"
Benefit
Payments
PV of
"Unfunded"
Benefit
Payments
PV of Benefit
Payments
using 6.00%
Discount Rate
1 $311,133 $28,401 $28,401 $0 $26,793 $0 $26,793
2 304,143 27,916 27,916 0 24,845 0 24,845
3 293,645 27,322 27,322 0 22,940 0 22,940
4 283,127 26,653 26,653 0 21,111 0 21,111
5 272,665 25,928 25,928 0 19,375 0 19,375
6 262,321 25,153 25,153 0 17,732 0 17,732
7 252,154 24,331 24,331 0 16,181 0 16,181
8 242,222 23,473 23,473 0 14,727 0 14,727
9 232,578 22,584 22,584 0 13,367 0 13,367
10 223,271 21,663 21,663 0 12,097 0 12,097
11 214,354 20,712 20,712 0 10,911 0 10,911
12 205,882 19,730 19,730 0 9,805 0 9,805
13 197,913 18,719 18,719 0 8,776 0 8,776
14 190,507 17,681 17,681 0 7,820 0 7,820
15 183,726 16,618 16,618 0 6,934 0 6,934
16 177,633 15,535 15,535 0 6,115 0 6,115
17 172,290 14,437 14,437 0 5,361 0 5,361
18 167,757 13,331 13,331 0 4,671 0 4,671
19 164,091 12,226 12,226 0 4,041 0 4,041
20 161,344 11,129 11,129 0 3,470 0 3,470
21 159,562 10,051 10,051 0 2,957 0 2,957
22 158,783 9,002 9,002 0 2,498 0 2,498
23 159,038 7,993 7,993 0 2,092 0 2,092
24 160,348 7,032 7,032 0 1,737 0 1,737
25 162,726 6,128 6,128 0 1,428 0 1,428
* * * * * * * *
45 431,102 133 133 0 10 0 10
46 456,831 118 118 0 8 0 8
47 484,119 106 106 0 7 0 7
48 513,057 96 96 0 6 0 6
49 543,742 88 88 0 5 0 5
50 576,276 80 80 0 4 0 4
51 610,770 74 74 0 4 0 4
52 647,340 69 69 0 3 0 3
* * * * * * * *
76 2,618,961 1 1 0 0 0 0
77 2,776,098 1 1 0 0 0 0
78 2,942,663 1 1 0 0 0 0
79 3,119,222 0 0 0 0 0 0
Total 273,212 0 273,212
Note: Years 26 to 44, and 53 to 75 omitted.
www.mgocpa.com
Macias Gini & O’Connell LLP
500 Capitol Mall, Suite 2200
Sacramento, CA 95814

1 December 15, 2021

Administration, Investment and Fiscal
Management Board
Sacramento City Employees’ Retirement System
Sacramento, California
Honorable Major and City Council
City of Sacramento
Sacramento, California

We have audited the financial statements of the Sacramento City Employees’ Retirement System (SCERS), a component unit of the City of Sacramento, Califor nia (City) as of and for the fiscal year ended June 30, 2021, and have issued our report thereon dated December 15, 2021. Professional standards require that we advise you of the following matters relating to our audit.

Our Responsibility in Relation to the Financial Statement Audit

As communicated in our engagement letter dated November 1 , 2021, our responsibility, as described by professional standards, is to form and express an opinion about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities.

Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effective ness of the entity’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of SCERS solely for the purpose of determining our audit procedures and not to provide any assurance concerning such inter nal control.

We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process.

However, we are not required to design procedures for the purpose of identifying other matters to communicate to you.

We have provided our report on internal control over financial reporting and compliance in a separate letter to you dated December 15, 2021.

Planned Scope and Timing of the Audit

We conducted our audit consistent with the planned scope and timing we previously communicated to you. 2 Compliance with All Ethics Requirements Regarding Independence T
he engagement team, others in our firm, as appropriate, our firm, and our network firms have complied with all relevant ethical requirements regarding independence.

Q
ualitative Aspects of the Entity’s Significant Accounting Practices Si
gnificant Accounting Policies
Man
agement has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by SCERS is included in Note B to the financial statements. There have been no initial selection of accounting policies and no changes in significant accounting policies or their application during the fiscal year ended June 30, 2021. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.

Si
gnificant Accounting Estimates
A
ccounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments.

T
he most sensitive accounting estimates affecting the financial statements are actuarial valuations of the total pension liability and actuarially determined contributions.

Man
agement’s estimate of the total pension liability and actuarially determined contributions is based on actuarial measurements performed by SCERS ’ third-party actuary in accordance with the parameters set forth in Governmental Accounting Standards Board (GASB) Statement No. 67, Financial Reporting for Pension Plans – an amendment of GASB Statement No. 25, and actuarial standards of practice. The actuarial valuations are very sensitive to the underlying assumptions, including the discount rate. We evaluated the key factors and assumptions used to develop the se estimates and determined t hat they are reasonable in relation to the basic financial statements taken as a whole.

F
inancial Statement Disclosures
C
ertain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting SCERS ’s financial statements relate to the net pension asset of the City, which is based on the total pension liability determined in the actuarial valuation as of June 30, 2021, less the plan’s fiduciary net position as of June 30, 2021.

Si
gnificant Difficulties Encountered during the Audit
We en
countered no significant difficulties in dealing with management relating to the performance of the audit.

3 Uncorrected and Corrected Misstatements

For purposes of this communication, professional standards also require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. There are no uncorrected or corrected misstatements.

Disagreements with Management

For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to SCERS’ financial statements or the auditor’s report. No such disagreements arose during the course of the audit.

Representations Requested from Management

We have requested certain written representations from management, which are included in the attached letter dated December 15, 2021.

Management’s Consultations with Other Accountants

In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.

Other Significant Matters, Findings, or Issues

In the normal course of our professional association with SCERS, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, significant events or transactions that occurred during the year, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as SCERS’ auditors.

Other Information in Documents Containing Audited Financial Statements

Pursuant to professional standards, our responsi bility as auditors for other information, whether financial or nonfinancial, included in SCERS’ annual reports, does not extend beyond the information identified in the audit report, and we are not required to perform any procedures to corroborate such other information.

However, in accordance with such standards, we have:

We applied certain limited procedures to the following required supplementary information (RSI) that supplements the financial statements:

1. Management’s Discussion and Analysis

2. Schedule of Changes in Net Pension Liability and Related Ratios

3. Schedule of Employer Contributions

4. Schedule of Investment Returns

4 Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.

We were engaged to report on the listing of investments, which accompanies the financial statements but is not RSI. With respect to the supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves.

We were not engaged to report on the introductory and actuarial sections, which accompany the financial statements but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the financial statements.

Restriction on Use

This report is intended solely for the information and use of the Administration, Investment, and Fiscal Management Board, the Honorable Mayor and City Council, and management of the City and SCERS and is not intended to be and should not be used by anyone other than these specified parties.

December 15, 2021

www.mgocpa.com
Macias Gini & O’Connell LLP
500 Capitol Mall, Suite 2200
Sacramento, CA 95814

1 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Administration, Investment, and Fiscal
Management Board
Sacramento City Employees’ Retirement System
Sacramento, California
Honorable Mayor and City Council
City of Sacramento
Sacramento, California
We h
ave audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, th e financial statements of the Sacramento City Employees’ Retirement System (SCERS), a component unit of the City of Sacramento, California, as of and for the fiscal year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise SCERS’ basic financial statements, and have issued our report thereon dated December 15, 2021.

I
nternal Control over Financial Reporting
I
n planning and performing our audit of the financial statements, we considered SCERS’ internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of SCERS’ internal control. Accordingly, we do not express an opinion on the effectiveness of SCERS’ internal control.

A de
ficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be pr evented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged wit h governance.

O
ur consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

2 Compliance and Other Matters

As part of obtaining reasonable assurance about whether SCERS ’ financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statement s. However, providing an opinion on compliance with those provisions was not an objective of our audit , and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters t hat are required to be reported under Government Auditing Standards.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an aud it performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Sacramento, California
December 15, 2021

Budget and Audit CommitteeMay 31, 2022

Budget and Audit Committee
May 31, 2022