Review of your CalPERS Pension Plan

8/13/2019 Review of your CalPERS Pension Plan

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CITIZENS For

Sustainable Pension Plans

A Non-Partisan Group of Marin Residents

Email: [email protected]

Website: marincountypensions.com

Review of Your CalPERS

Pension PlanPresentation to the Board of the Sanitary District #5

of Marin County

Presented by:William E. Monnet

Citizens for Sustainable Pension Plans

January 21, 2014


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Overview

W. E. Monnet 011914

How Defined Benefit pensions worko Brief overviewo Risk and financial leverageo Sponsors & Members Plans & Pools

Status of the SD #5 Pension plano SD #5 benefits compared to other Marin townso Funded status of the plano GASB 68: pension debt can no longer be hidden

CalPERS financial performance

Fixing CalPERS: 2 new policies1. Accelerated Funding2. New actuarial assumptions regarding mortalityo Net Result: much greater Employer Contributions

How new CalPERS policies will affect SD #5o Historical & forecast CalPERS contribution rateso FY2012-13 Budget with new CalPERS policies

Public Employees Pension Reform Act [PEPRA]o New, lower cost pension tierso

More employee cost sharing

The Pension Reform Act of 2014 (Reed Initiative)

Conclusion: What Can You Do?

page 1


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How Defined Benefit Pensions Work

CalPERS Pension benefit formula

o Pension = (Years of Service) X (Pension Factor) X (Final Salary)o COLA added

o Sometimes (rarely) Social Security membership is added

o SD#5 Employees: 2.7% @ 55 years old + 2% COLA + SS

2 Sources for the money: Payroll Contributions & Investment Earningso Employer Contributions defined as a % of Payroll

! District Employees also contribute 8% of their salarieso Payroll Contributions are used to buy Investment Assetso Earnings on Assets pay Pension Benefits

Contributions begin at start of employment and continue until retirement

Investment earnings (net of benefits paid) are reinvested into the asset pool

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5/15

Sanitary District #5 Pension Plan: Leverage and Risk

W. E. Monnet 011914

4,605,215$ 4,605,215$925,663$ 925,663$

5.0 5.0297,533$ 343,585$345,391$ 299,339$642,924$ 642,924$

32.1% 37.1%

Plan's Market Value of Assets (June 30, 2012)Plan's Projected Payroll FY2013-2014

Ratio of Assets to PayrollTotal Employer Contribution from Payroll FY2013-2014Plan's Projected Investment Earnings @ 6.5% RORTotal Additions to Pension PlanTotal Additions to Pension Plan

Employer Payroll Contribution Rate Employer Payroll Contribution Rate

Scenario A: the Plan of Record - Returns on Assetsof 7.5% per year

Scenario B: Returns on Assets only 1 percentagepoint below plan

Plan's Market Value of Assets (June 30, 2012)Plan's Projected Payroll FY2013-2014

Ratio of Assets to PayrollTotal Employer Contribution from Payroll FY2013-2014Plan's Projected Investment Earnings @ 7.5% ROR

Assets = $4,605,215

Earning 7.5% per year

Payroll =$925,663

Total Additions to Pension Plan:From Assets .............$345,391From Payroll .............$297,533

-------------Total..........................$642,924

Assets = $4,605,215

Earning 6.5% per year

Payroll =$925,663

Total Additions to Pension Plan:From Assets .............$299,339From Payroll .............$343,585

-------------Total..........................$642,924

COMMENTARY: pensions are ultimately paid from 2 sources: Payroll contributions and investmentearnings from Assets. Due to the large leverage (Assets : Payroll) built into these pension plans even asmall reduction in investment earnings results in a large increase in Payroll contributions. CalPERS invests

in risky assets with volativel returns. This explains the extraordinary decreases then increases in Payrollcontributions that we have seen in the last 20 years.

page 4


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CalPERS: Members and Sponsors ... Plans and Pools

W. E. Monnet 011914

Employees are "Members" who

participate in the System.

Employers are "Sponsors" of apension plan.

You are not a "Client."

Starting in 2005, small

CalPERS Employers (< 100active members) were

required to combine theirpension Plans into larger

Pools. SD #5 is one of 181

Sponsors belonging to the"Miscellaneous 2.7% at 55"

Risk Pool.

page 5


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Sanitary District #5 Compared to Marin County and Municipalities: Benefit Richness and Funded Ratio

W. E. Monnet 011914

Benefit FactorNormal

Retirement Age

Final Salary

CalculationCOLA

PEPRA Miscellaneous 2.0% 62 36 months 2% 100% 100% 100% 100% 100% no

Marin County Miscellaneous 2.0% 55 36 months 2% 100% 161% 100% 100% 161% no

Ross Miscellaneous 2.0% 55 36 months 2% 100% 161% 100% 100% 161% yes

Belevedere Miscellaneous 2.0% 55 12 months 2% 100% 161% 103% 100% 165% no

Novato Miscellaneous 2.0% 55 12 months 2% 100% 161% 103% 100% 165% no

Tiburon Miscellaneous 2.0% 55 12 months 2% 100% 161% 103% 100% 165% no

Fairfax Miscellaneous 2.5% 55 36 months 2% 125% 161% 100% 100% 201% no

Corte Madera Miscellaneous 2.5% 55 12 months 2% 125% 161% 103% 100% 207% no

Larkspur Miscellaneous 2.5% 55 12 months 2% 125% 161% 103% 100% 207% noMill Valley Miscellaneous 2.5% 55 12 months 2% 125% 161% 103% 100% 207% no

Sausalito Miscellaneous 2.5% 55 12 months 2% 125% 161% 103% 100% 207% no

San Anselmo Miscellaneous 2.6% 55 12 months 2% 130% 161% 103% 100% 215% yes

San Rafael Miscellaneous 2.7% 55 12 months 2% 135% 161% 103% 100% 223% no

Sanitary District #5 Miscellaneous 2.7% 55 12 months 2% 135% 161% 103% 100% 223% yes

Funded Ratio

79%

75%

74%

74%

73%

73%

72%

71%

70%

70%

65%

63%

59%

EntityBenefitFactor

NormalRetirement

Age

Final SalaryCalculation(months)

COLA

Sanitary District #5

CumulativeBenefit

Richness(NPV)

Compared toPEPRA Plan

SocialSecurity

ParticipationEmployee Type

Benefit Richness Compared to PEPRA Misc. Plan

Sausalito

Corte Madera

Larkspur

Ross

Entity

Tiburon

Belvedere

Mill Valley

Novato

Marin County

Fairfax

San Anselmo

San Rafael

Pension ParameterPEPRA Parameter

ValuesCommentary

Benefit Factor 2.0%The relative NPVs of 2 pensions are directly

proportional to their Benefit Factors.

COLA 2%The NPV of a pension is +9% more valuable for

each extra point of COLA.

Normal Retirement

Age62

The NPV of a pension is +7% more valuable foreach extra year of retirement.

Final Salary

Calculation36 months

The NPV of a pension is +3% more valuable

with a 12 vs a 36 month final salary calculation.

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PEPRA Marin County Ross Belevedere Novato Tiburon Fairfax Corte Madera Larkspur Mill Valley Sausalito San Anselmo San Rafael Sanitary

District #5

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Calculated on Market

Value of Assets.

Includes PensionObligation Bonds.

Excludes Side Funds.

page 6


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GASB 68 will requ

you report unfu

pension liabilities o

Statement of

Position.

GASB 68 also ch

the definition of P

Expense reported

Statement of Rev

Expenses & Chan

Net Position

The new definiti

"Pension Expens

(approximately)

change in pension

status smoothed

years.

GASB 68 is req

beginning FY 2014

page 7


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CalPERS Cumulative Returns.xlsx

W. E. Monnet 011914

Year End

6/30 (%)

Cumulative

Value of $100

at End of Year

Cumulative

Return 1990

to 2013 (24

years;%)

Cumulative

Return 2004

to 2013 (10

years; %)

Cumulative

Return 1990

to 2000 (11

years;%)

Cumulative

Return 2001 to

2013 (13

years;%)

Year End

12/31 (%)

Cumulative

Value of $100

at End of Year

Cumulative

Return 1990

to 2013 (24

years;%)

Cumulative

Return 2004

to 2013 (10

years; %)

Cumulative

Return 1990

to 2000 (11

years;%)

Cumulative

Return 2001

to 2013 (13

years;%)

1989 100.0 100.0

1990 8.9 108.9 -0.8 99.2

1991 6.7 116.2 23.0 122.0

1992 13.9 132.3 6.5 129.9

1993 14.6 151.7 13.4 147.4

1994 2.0 154.7 -1.0 145.9

1995 16.4 180.1 25.3 182.8

1996 15.4 207.8 12.8 206.2

1997 20.2 249.8 19.0 245.4

1998 19.6 298.7 18.5 290.81999 12.6 336.4 16.0 337.3

2000 10.8 372.7 -1.4 332.6

2001 -7.1 346.2 -6.2 311.9

2002 -6.0 325.5 -9.5 282.3

2003 3.9 338.2 23.3 348.1

2004 16.7 394.6 13.4 394.7

2005 12.6 444.4 11.1 438.5

2006 12.3 499.0 15.7 507.4

2007 19.1 594.3 10.2 559.2

2008 -4.9 565.2 -27.8 403.7

2009 -23.4 433.0 12.1 452.6

2010 11.6 483.2 12.6 509.6

2011 20.9 584.2 1.1 515.2

2012 1.0 590.0 13.3 583.7

2013 13.2 667.9 16.2 678.3

Year

Historical Returns for Year Ending 6/30

8.2 8.3

6.9

Historical Returns for Year Ending 12/31

7.0

4.6

12.70 11.54

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page 8


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Fixing CalPERS: 2 New Policies

W.E. Monnet 011914

1st Change: new amortization and smoothing policiesdesigned to accelerate funding of unfunded liabilities.

o Will be phased-in over 5 years starting FY2015-16:

2ndChange: new demographic assumptions regardingmortality.

o Retirees are living longer!pension costs are risingo Will be phased-in over 5 years starting FY2016-2017o For 2.7% @ 55 Pool expected to increase Employer

Contribution rates by 3.1% - 6.5%!

4.75% assumed for this analysis

Not yet changed: Target Rate of Return (discount rate)

o CalPERS Chief Actuary recommended no changeo Remains at 7.5% per year for nowo Controversial will probably be reduced in the futureo If reduced then will cause another increase in Employer

Contribution rates

Net Result for SD#5: your Employer Contribution Rates willbe increasing by !50% (ceteris paribus)

page 9


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12/15

Sanitary District #5 Operating Budget for FY2012-2013

W. E. Monnet 011914

2011-12

Estimated to

Close

2012-13

Operations

Budget

Difference

from Prior

Year

2011-12

Estimated to

Close

2012-13

Operations

Budget

Difference

from Prior

Year

$ 2,530,235 $ 3,018,200 $ 487,965 $ 2,530,235 $ 3,018,200 $ 487,965

$ 218,059 $ 283,600 $ 65,541 $ 218,059 $ 283,600 $ 65,541

Pumps & Lines $ 105,879 $ 80,000 $ 105,879 $ 80,000Main Plant $ 223,959 $ 236,300 $ 223,959 $ 236,300Paradise Cove Plant $ 18,376 $ 21,400 $ 18,376 $ 21,400Trucks $ 12,326 $ 13,500 $ 12,326 $ 13,500

Subtotal: Maintenance $ 360,540 $ 351,200 $ (9,340) $ 360,540 $ 351,200 $ (9,340)

$ 47,298 $ 71,500 $ 24,202 $ 47,298 $ 71,500 $ 24,202

$ 29,033 $ 80,000 $ 50,967 $ 29,033 $ 80,000 $ 50,967

PERS $ 348,030 $ 315,800 $ 348,030 $ 473,700

All other $ 1,309,028 $ 1,335,500 $ 1,309,028 $ 1,335,500

Subtotal: Salaries & Benefits $ 1,657,058 $ 1,651,300 $ (5,758) $ 1,657,058 $ 1,809,200 $ 157,900

$ 9,114 $ 10,000 $ 886 $ 9,114 $ 10,000 $ 886

$ 20,703 $ 22,500 $ 1,797 $ 20,703 $ 22,500 $ 1,797

$ 221,362 $ 243,000 $ 21,638 $ 221,362 $ 243,000 $ 21,638

$ 28,736 $ 23,300 $ (5,436) $ 28,736 $ 23,300 $ (5,436)

$ 2,591,903 $ 2,736,400 $ 144,497 $ 2,591,903 $ 2,894,300 $ 302,397

$ (61,668) $ 281,800 $ (61,668) $ 123,900

$ 2,798,068 $ 2,736,400 $ 2,798,068 $ 2,736,400

$ 2,736,400 $ 3,018,200 $ 2,736,400 $ 2,860,300

Maintenance

Total Income

Total Expense

Change in Operating Fund

Operating Fund Beginning Balance

Operating Fund Ending Balance

ACTUALHYPOTHETICAL: with CalPERS FY2019-20

forecast rates

Salaries & Benefits

Uniforms

Telephone

Utilities

Belvedere Loan

Administrative

Monitoring

Permits/Fees

page 11


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W. E. Monnet 011914

Summary

1. New PEPRA plan (2% @ 62) is much lower cost thanexisting plan (2.7% @ 55).

2. Applies only to New Members [not Employees]

3. Normal Cost Sharing will save much $ in the long term.

a. Normal Cost excludes costs of Side Funds &Unfunded Liabilities.

page 12


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page 13
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Conclusion: What Can You Do?

W.E. Monnet 011914

You Should:

o inform yourselves, employees & customers aboutpension plan status;

o identify risks: do a 10 year financial forecast.

You Cannot:

o reduce pension benefits for current employees[California Rule];

o terminate your CalPERS pension plan.

You Can:

o use lower cost pension tiers for newemployees/members;

omore employee cost sharing;olay-off staff;oreduce salaries;o use contract employees;o increase fees to Customers;o support the Reed Initiative.

page 14

Documents

Review of your CalPERS Pension Plan