HomeMy WebLinkAboutCalifornia Public Employees Retirement System - CalPERS - st RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEAC
URGING ORANGE COUNTY MUNICPALITIES DEVELOP A REGIONAL PENSION
STANDARD AND SUPPORTING DISUCSSION BY CITIES AND COUNTIES
THROUGHOUT CALIFORNIA REGARDING PENSION MODIFICATION
WHEREAS, Ca1PERS is responsible for retirement, health, and related financial
programs for more than 1.6 million public employees, retirees, and their families for more than
2,500 public agencies; and
WHEREAS, Ca1PERS operated successfully and profitably for decades based on market
conditions, enabling cities and counties to provide these benefits at low or no cost to contracting
agencies; and,
WHEREAS, the current economic conditions and market instability have resulted in
multi-billion dollar losses within the CalPERS system; and
WHEREAS, cities and counties will be expected to make up the market losses through
years of increasing higher employer rates into the Ca1PERS system; and
WHEREAS, local governments throughout California are facing severe financial
challenges due to the worst economic downturn since the Great Depression; and
WHEREAS, it is the fiscal responsibility of agencies and their employees to address
these financial challenges together;
WHEREAS, the City of Huntington Beach has determined that cities within a region
must collaborate to the extent allowed by the law and the collective bargaining process in order
to remain competitive in the labor market to attract and retain qualified and experience public
employees; and
WHEREAS, CaIPERS has multiple pension tiers available to contracting cities and
counties, that can help stabilize rates in the future;
WHEREAS, developing consistent employee contributions among regional entities
would help ensure market competitiveness;
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of
Huntington Beach supports discussion on a statewide level by cities and counties to develop a
regional and statewide plan to modify the existing pension system to address cost issues and
their impacts.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the day of , 2010.
Mayor
REVIEWED AND APPROVED: INITIATED AND APPROVED:
City Administrator City Administrator
APPROVED AS TO FORM:
City Attorney
"The Impact of the Current
Economic Environment,!, .M
I
City of Huntington Beach
January 1 , 201O
A
Rick Santos, ,CFA, ASA, MAA=A'-
n
Senior Pension Actuary, ,CaIPRS
Summary
Slowly build the 08-09 losses into rate over over 3 years inste,d- of"�all at once
Rates will probably remain at highs levels
for several years fi
■ Market funded ratios/will probablyremain:f
low for sometime '
® Short-term risk is sustained investrn;ent
losses £^
® Long-term risk is unaffected
— sus / A)
Why we're where we are?
Asset Gains and Losses
20%
,5% e ti v
Asset,
5% 2 XT t I
V 0 Expected
O Asset:Loss
f "'n...:.� r. '.
-10%
-,s% r
a n ?�
Expected Return and Pension
Costs
• Higher expected return means-more .
volatility (gains and losses)—
i '•.
■ Challenge: Minimize volatility wh!i e
achieving high returns
• Solution: Asset smoothing and long
amortization periods
i
Asset Smoothing: Deferring the
Gains and Losses
Advantages
® Works well as long as markets trend totheir long
run expectations
Handles most short-term market aberrations
Problem
The more losses you defer, the riskier at;gets
I §
1
Solution x :}
• Cap the % the smoothed value can move away v
from market values r i
Asset Smoothing — Using a
Smoothed Value
Current Method Advantaae u
Credit at 7.75% then -A `, `;'
■ a-�As long as value stays�;
recognize around 7% below 120%0 of
of the actual loss ; market, rates won't
move muc
® Cap the smoothed .
value at 120% of
market value Disadvantage
Losses above 20'/o are
• So essentially we'll fully�incorporated�iro
ignore losses up to rates
20 /o
Asset Smoothing — New Method
® Still credit at 7.75% and recognize 7,
the loss, but initially increas,(t- ev ap
Fiscal Year Cad
2011-2012 Aq
2012-2013 1304
2013-2014+
® A higher cap means more riskq
i
P4
New Method — Reducing the Risk
• Currently all recognizedrgainsa and losses
are amortized over a roiling 30 year period `',
• New method pays for this marke�tloss
over a declining 30-year, period`
I
Advanuge
• Immediately starts to pay down"the loss
x�
• Slightly reduces the long-term risk, below_ _ g
that of the current���rneth�o
Asset Smoothing — Change
Summary
Curren -7Proposed
Upper Cap 12 0 6/. 1404'130/120%
(2011/2012/2013)
Amortization 30 Year Rolling 30 Year /
6eclining'
Long-Term Risk Typical t$jl 1ghMy Lower
'Im vnf
i
Short-Term Risk Low: Investment LowlInve-s
Return Returns '
Rate Projections*
Fiscal Year Non-Sworn ------Swo.-n,---,
2010-2011 10.22:6/o--- 19.20%
2011-2012 105, �0.16
2012-2013 12.57 331 .09
2013-2014 16.16 37
.96
2014-2015 16.64 39:44 f.
2015-2016 17.11 8.9 0!:
Funded Ratios
■ Non-Sworn Funded ratios — 67_?/q,��Cmg
■ Sworn Funded ratios q5570%
■ All projections assume?7e75% returns
indefinitely
1Z �,:
Recent PERS Investment
etu rn
■ Between 10-11% (not annualzedsofa -
■ It would take extremely-good returns
before we start to see rates trend,"."`down
o
■ No current plans to materially alter the
s
portfolio mix
t
■ This means that the same risk that 'got us
where we are, still;�exists
■ There are plans to look at scenarios that
r
a
s
could impact thetisystem in the short term ,
et
2nd Tiers
■ First issue to consider is employee cost
share �r-----� t
■ Many are considering 2nd tiers, not many
have done so ;
■ CFFR Ballot Initiative "
- in the signature gathering stage
- will probably be ;on the November ballot
- proposed implementation June 30, 20i:"
CaIPERS 2nd Tiers
■ Will be no significant initial cost savings
---ram
■ Savings will grade in over 20-30 year�s
Q
■ Rate volatility will be greatly reducedJ.a �1
Long-Term Non-Sworn Sworn
Savings
Savings Range .750% to 20/ , 2.5z16' 5%
■ There is a 1.5 /o @ 65 for non-sworn V T ut o
one currently contracts:.:.-.for,it
CFFR Proposal
Sworn Non-Sworn Non-Sworn
w SSwo SS
Formula 2.3%@58 fr:i2 @67 1.65@67
Yrs for Max 32.6 �, 60 45.5
Benefit `
■ 75% Maximum Benefit,
® 3-Yr Final Average Comp ;
® 5 Year Vesting '
® 5 Year early retirement reduction '
3% COLA .