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CITIZENS For

Sustainable Pension Plans


A Non-Partisan Group of Marin Residents
Email: contact@marincountypensions.com
Website: marincountypensions.com


Review of Your CalPERS
Pension Plan


Presentation to the Board of the Sanitary District #5
of Marin County




Presented by:
William E. Monnet
Citizens for Sustainable Pension Plans
January 21, 2014
Overview
W. E. Monnet 011914

How Defined Benefit pensions work
o Brief overview
o Risk and financial leverage
o Sponsors & Members Plans & Pools


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


CalPERS financial performance


Fixing CalPERS: 2 new policies
1. Accelerated Funding
2. New actuarial assumptions regarding mortality
o Net Result: much greater Employer Contributions


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


Public Employees Pension Reform Act [PEPRA]
o New, lower cost pension tiers
o More employee cost sharing


The Pension Reform Act of 2014 (Reed Initiative)


Conclusion: What Can You Do?

page 1
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 Earnings
o Employer Contributions defined as a % of Payroll
! District Employees also contribute 8% of their salaries
o Payroll Contributions are used to buy Investment Assets
o 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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Example: Employee works for the District for 20 years and retires
when 55 years old at $75,000 final salary annual pension is:

(20 years) X (2.7%) X ($75,000) = $40,500 per year + 2% annually

+ Social Security


CalPERS current
asset allocation mix.
page 2
$(800,000)
$(600,000)
$(400,000)
$(200,000)
$-
$200,000
$400,000
$600,000
$800,000
!"#$% '#()*+( '%$( ,$)- .%+/)
ConLrlbuuons lnvesLmenL Larnlngs 8eneLs ald
lnvesLmenL earnlngs are
relnvesLed and expecLed
Lo lncrease over ume.
ConLrlbuuons are level
over ume.
When Lhe lan ls maLure and
sLable conunued level
conLrlbuuons + lnvesLmenL
earnlngs should cover penslon
beneLs pald. ln Lhls example
aL maLurlLy ConLrlbuuons +
Larnlngs = 8eneLs ald =
$600,000 per year.
nC1L:
8eneLs are relauvely xed buL lnvesLmenL
Larnlngs are volaule. lf Larnlngs are less
Lhan expecLed Lhen ConLrlbuuons musL be
lncreased.
page 3
Sanitary District #5 Pension Plan: Leverage and Risk
W. E. Monnet 011914
4,605,215 $ 4,605,215 $
925,663 $ 925,663 $
5.0 5.0
297,533 $ 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 Payroll
Total Employer Contribution from Payroll FY2013-2014
Plan's Projected Investment Earnings @ 6.5% ROR
Total Additions to Pension Plan Total Additions to Pension Plan
Employer Payroll Contribution Rate Employer Payroll Contribution Rate
Scenario A: the Plan of Record - Returns on Assets
of 7.5% per year
Scenario B: Returns on Assets only 1 percentage
point below plan
Plan's Market Value of Assets (June 30, 2012)
Plan's Projected Payroll FY2013-2014
Ratio of Assets to Payroll
Total Employer Contribution from Payroll FY2013-2014
Plan'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 .............$345,391
From 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 .............$299,339
From Payroll .............$343,585
-------------
Total..........................$642,924
COMMENTARY: pensions are ultimately paid from 2 sources: Payroll contributions and investment
earnings from Assets. Due to the large leverage (Assets : Payroll) built into these pension plans even a
small 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 Payroll
contributions that we have seen in the last 20 years.
page 4
CalPERS: Members and Sponsors ... Plans and Pools
W. E. Monnet 011914
Employees are "Members" who
participate in the System.
Employers are "Sponsors" of a
pension plan.
You are not a "Client."
Starting in 2005, small
CalPERS Employers (< 100
active members) were
required to combine their
pension Plans into larger
Pools. SD #5 is one of 181
Sponsors belonging to the
"Miscellaneous 2.7% at 55"
Risk Pool.
page 5
Sanitary District #5 Compared to Marin County and Municipalities: Benefit Richness and Funded Ratio
W. E. Monnet 011914
Benefit Factor
Normal
Retirement Age
Final Salary
Calculation
COLA
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% no
Mill 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%
Entity
Benefit
Factor
Normal
Retirement
Age
Final Salary
Calculation
(months)
COLA
Sanitary District #5
Cumulative
Benefit
Richness
(NPV)
Compared to
PEPRA Plan
Social
Security
Participation
Employee 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 Parameter
PEPRA Parameter
Values
Commentary
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
Age
62
The NPV of a pension is +7% more valuable for
each extra year of retirement.
Final Salary
Calculation
36 months
The NPV of a pension is +3% more valuable
with a 12 vs a 36 month final salary calculation.
!""#
!%!# !%!# !%&# !%&# !%&#
'"!# '"(# '"(# '"(# '"(#
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'')# '')#
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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
!"#$%&# ("#")* +%,-#"$$ .&/012"3 *& (1$%, !4!+5 !61#
Calculated on Market
Value of Assets.
Includes Pension
Obligation Bonds.
Excludes Side Funds.
page 6
GASB 68 will require that
you report unfunded
pension liabilities on your
Statement of Net
Position.
GASB 68 also changes
the definition of Pension
Expense reported on your
Statement of Revenues,
Expenses & Changes in
Net Position.
The new definition of
"Pension Expense" is
(approximately) the
change in pension funded
status smoothed over 5
years.
GASB 68 is required
beginning FY 2014-2015.
page 7
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 18.5 290.8
1999 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
5.6
uaLa source: "CalL8S lacLs aL a Clance" !anuary 2914, SacramenLo
8ee news sLory, CalL8S AcLuarlal valuauon 8eporLs (Secuon 2) for
!une30, 2012.
page 8
Fixing CalPERS: 2 New Policies
W.E. Monnet 011914


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

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





2
nd
Change: new demographic assumptions regarding
mortality.

o Retirees are living longer ! pension costs are rising
o Will be phased-in over 5 years starting FY2016-2017
o 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 change
o Remains at 7.5% per year for now
o Controversial will probably be reduced in the future
o If reduced then will cause another increase in Employer
Contribution rates


Net Result for SD#5: your Employer Contribution Rates will
be increasing by ! 50% (ceteris paribus)
page 9
l?2010-20
11
l?2011-20
12
l?2012-20
13
l?2013-20
14
l?2014-20
13
l?2013-20
16
l?2016-20
17
l?2017-20
18
l?2018-20
19
l?2019-20
20
new Amoruzauon ollcy 27.6 28.3 30.0 32.1 33.6 36.3 37.3 38.4 39.3 40.3
+ new Llfe LxpecLancy Assumpuons 27.6 28.3 30.0 32.1 33.6 36.3 39.9 41.3 42.8 44.4
ClLy of uanvllle 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0
10
13
20
23
30
33
40
43
30
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92+-,2(& :-3,(-;, <=> *2$7!19 *%+,(-./0%+ 12,'3
new Amoruzauon ollcy + new Llfe LxpecLancy Assumpuons ClLy of uanvllle
<------ acLual pro[ecLed ------>
Assumpuons: CalL8S achleves
lnvesLmenL 8C8 LargeL and Su#3
payroll grows +3 each year.
page 10
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 $ 80,000
Main Plant $ 223,959 $ 236,300 $ 223,959 $ 236,300
Paradise Cove Plant $ 18,376 $ 21,400 $ 18,376 $ 21,400
Trucks $ 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
ACTUAL
HYPOTHETICAL: with CalPERS FY2019-20
forecast rates
Salaries & Benefits
Uniforms
Telephone
Utilities
Belvedere Loan
Administrative
Monitoring
Permits/Fees
page 11
W. E. Monnet 011914







Summary

1. New PEPRA plan (2% @ 62) is much lower cost than
existing 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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1. To make sure employees get paid what they have earned.
2. To make sure residents and taxpayers receive the essential public services they deserve.

!"'& =488(/ >#4&7+#?

PROTECTS WHAT IS EARNED
The initiative protects all pension and retiree healthcare benefits that government employees earn as
work is performed.

CLARIFIES THAT FUTURE BENEFITS ARE NEGOTIABLE
The initiative allows changes to pension and retiree healthcare benefits for current employees future
years of service, either through collective bargaining or by the voters.

RESPECTS COLLECTIVE BARGAINING
Changes to employee retirement benefits must comply with applicable collective bargaining laws and
could not be enacted until labor contracts expire.

DOES NOT DICTATE BENEFIT LEVELS
This initiative does not dictate a particular level of retirement benefits, nor does it require any
government agency to modify its employee retirement benefits.

PROTECTS LOCAL REFORMS
State agencies would be prohibited from interfering with local governments authority to prospectively
amend retirement benefits for future years of service. This includes prohibiting CalPERS from
charging exorbitant termination fees to employers who modify their retirement plans.

REQUIRES REPORTING OF UNDERFUNDED PLANS
Government agencies with plans whose funding level fall below 80% will be required to annually
publish a report detailing the funding status of the plan and outlining specific actions that would allow
the plan to achieve 100% funding.

COVERS ALL GOVERNMENT AGENCIES
This initiative would apply to the State of California and all of its political subdivisions, including cities,
counties, school districts, special districts, the University of California, and California State University.

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page 13
Conclusion: What Can You Do?
W.E. Monnet 011914



You Should:

o inform yourselves, employees & customers about
pension 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 new
employees/members;
o more employee cost sharing;
o lay-off staff;
o reduce salaries;
o use contract employees;
o increase fees to Customers;
o support the Reed Initiative.




page 14

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