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CITIZENS For Sustainable Pension Plans
A Non-Partisan Group of Marin Residents
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
CITIZENS For Sustainable Pension Plans
A Non-Partisan Group of Marin Residents
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
Hak Cipta:
Attribution Non-Commercial (BY-NC)
Format Tersedia
Unduh sebagai PDF, TXT atau baca online dari Scribd
CITIZENS For Sustainable Pension Plans
A Non-Partisan Group of Marin Residents
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
Hak Cipta:
Attribution Non-Commercial (BY-NC)
Format Tersedia
Unduh sebagai PDF, TXT atau baca online dari Scribd
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
!"#$ &' ()*+",-.) /0.,12,1 3 &' 4,.25# 67' 8.)3# 97' :1"+ ;#,",1 99' <+,10)", -=1 ()=1#,> 1),# 9?' 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. !""# !%!# !%!# !%&# !%&# !%&# '"!# '"(# '"(# '"(# '"(# '!&# '')# '')# "# &"# !""# !&"# '""# '&"# 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 ! " # $ % & ' (
!"# $#%&'(% )#*(+, -./ (* 0123 "4& /5( #674889',:(+/4%/ ;(48&< 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.
<=0 0'&%)0 &0>& "( &=0 ?'%&%#&%@0 &0>& 3".&0+ #& AAABC0(")D10'.%"'.7:8EB6"D 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.