HomeMy WebLinkAboutStaff Report 5322
City of Palo Alto (ID # 5322)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/16/2014
City of Palo Alto Page 1
Summary Title: Fiscal Years 2016 to 2025 General Fund Long Range Financial
Forecast
Title: Fiscal Years 2016 to 2025 General Fund Long Range Financial Forecast
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee accept the Fiscal Year 2016 to 2025 General
Fund Long Range Financial Forecast and forward the Forecast to the City Council for
acceptance.
Executive Summary
The Fiscal Year (FY) 2016 to 2025 General Fund Long Range Financial Forecast (LRFF), which
marks the beginning of the FY 2016 budget planning process, projects a slight General Fund
surplus of $0.5 million in FY 2016. Although economic indicators and rebounding tax revenues
reveal that the City of Palo Alto has reached a turning point from the Great Recession, this
Forecast reflects financial obligations and rising benefits costs that diminish the positive outlook
over the next 10 years.
Despite improving revenue receipts as projected forward, the City continues to face challenges
related to the funding of infrastructure, rising benefits costs, and unfunded long -term liabilities.
The Infrastructure Plan was recently approved by the City Council and contains $125.8 million in
projects recommended by the Infrastructure Committee. However, even with the voter
approved increase in the Transient Occupancy Tax, a funding gap of $7.5 million still exists and
the plan does not include any contingencies for potentially higher land acquisition and
construction costs. Starting with FY 2016, this Forecast assumes an additional transfer of $4.7
million annually for the estimated annual debt service cost as assumed in the Infrastructure
Plan. Since it is not anticipated that debt will be issued until FY 2016 , with the first debt service
due in FY 2017, the additional transfer of $4.7 million to the Capital Fund will be allocated to
address the Infrastructure Plan funding gap.
Since the Great Recession, the City Council has approved various strategies to reduce the costs
of salaries and benefits. These strategies include: (1) employees paying their own CalPERS
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contribution (between 6 percent to 9 percent of salary) except for the members of the Fire
Chiefs’ Association; (2) sharing the cost of health plan costs at 90/10; (3) creating a second
pension tier (and the state implemented a third tier effective January 1, 2013); (4) reducing
professional development expenses; (5) eliminating minimum staffing requirements and
associated overtime costs in Fire services; (6) cost of living freezes for four years; and (7)
terminating the Variable Management Compensation Plan. Continuing with previous actions to
curtail the growth of benefits costs, in 2014, as part of approving the agreement with SEIU and
the compensation plan for Management and Professional employees, the City Council approved
the cost sharing of future health plan costs. Because of the implementation of these various
strategies, the growth in salary and benefits cost are not outpacing the growth in revenue;
however, over the Forecast period, salary and benefit costs gradually increase in comparison to
the total expenditure budget. In FY 2016, salary and benefit costs represent 62 percent of the
expenditure budget; in FY 2025, the salary and benefit costs represent 65 percent of the
budget. During the same period, however, benefit costs as a percentage of total salary and
benefit costs increase from 49 percent in FY 2016 to 55 percent in FY 2025.
As reported in the first quarter financial report for FY 2015, as of early November 2014, 28
percent of non-safety (Miscellaneous) employees received Tier 2 (2 percent at 60) and Tier 3 (2
percent at 62) pension benefits and 14 percent of Safety employees received Tier 2 and Tier 3
pension benefits. However, the impact of employees hired during the last five years has had
little impact on unfunded pension plan liabilities. Per the latest CalPERS valuations for the
Miscellaneous (Attachment A) and Safety (Attachment B) employees, the combined unfunded
pension liability amounts to $295.5 million. Adding on the unfunded liability for the retiree
healthcare plan in the amount of $143.6 million, the total unfunded liability for all three plans is
$439.1 million. In comparison to the most recent valuations available for all three plans, th e
total unfunded liability has remained approximately the same at $439.7 million. Changes in the
actuarial assumptions and policies, which have increased total liabilities, have offset recent
substantive market gains.
This Forecast provides a long-term view of the City’s General Fund to provide a strategic focus
for addressing future funding needs in the FY 2016 Proposed Budget and beyond. This Forecast
assumes FY 2015 service level remain the same and includes funding for the City Council’s
approved enhancements to the Shuttle Service and funding for the Transportation
Management Authority. As in past years, the Forecast has been updated based on current
information compiled from various sources, in addition to utilizing available tools to project
revenues and expenditures. This document facilitates City Council members and staff’s
understanding of the long-term impacts of past decisions, and identifies issues that must be
addressed in the near and long-term, including the availability of funds. The Forecast is not a
prediction or a commitment of resources; rather, it is a reasonable snapshot of the City’s future
financial condition based on various assumptions and currently available data.
A continuously improving economic climate is noted by the majority of national, state, regional,
and local economic indicators. This Forecast assumes a continued, gradual growth of the
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national economy with positive impacts to the local economy, which is reflective in the
estimates of economically sensitive revenue estimates. It is important to note that consistent
with previous forecasts, the methodology for calculating changes for out -years of the Forecast
(FY 2017 to FY 2025) are based on a historical analysis of increases using the Compounded
Annual Growth Rate (CAGR) with adjustments factored in for known items. By using the
historical average growth rate that incorporates the up and down cycles over the past 10 or 20
years, there is no single year in which a downturn is depicted. Instead, past downturns (e.g.
dot.com bust and Great Recession) have been factored into the compound growth rate used to
forecast future revenue streams. Staff performed a reasonableness test of the results and
made appropriate changes to the CAGR analysis.
As shown in the table below, the FY 2016 Forecast Budget anticipates a General Fund surplus of
approximately $0.5 million for FY 2016, and surpluses in all out -years of the Forecast except
Fiscal Year 2017. During the forecast period, surpluses range between $0.5 million and $3.4
million with an approximate cumulative one-time surplus of $17.2 million. Assuming that the
General Fund Budget Stabilization Reserve (BSR) is fully funded at the City Council approved
target level of 18.5 percent of General Fund operating expenditures, $11 .6 million would have
to set aside to maintain the target level. With these funds set aside, the one -time resources
projected in this Forecast would decrease by $11.6 million from $17.2 million to $5.6 million.
Fiscal Year 2016-2025 Long Range Financial Forecast
Adopted
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Total Revenue $171,084 $179,637 $186,962 $194,498 $201,233 $208,304 $214,408 $221,070 $228,864 $236,926 $245,129
Total Expenditures $171,084 $179,155 $187,142 $193,437 $199,825 $205,896 $212,624 $219,358 $226,567 $234,032 $241,765
Net One-Time Surplus/(Shortfall)$0 $482 ($180)$1,061 $1,408 $2,408 $1,784 $1,712 $2,297 $2,894 $3,364
Cumulative Net Operating Margin (One-Time)$17,231
Net Operating Margin $0 ($180)$1,061 $347 $1,000 ($625)($72)$585 $597 $470
Cumulative Net Operating Margin $3,185
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
The table includes a calculation for the net operating margin which reflects the year over year
change of surpluses and shortfalls. With the net operating margin, it is assumed that each
shortfall is addressed completely with ongoing solutions in the year it appears, and that each
surplus is completely expended with ongoing expenditures. Based on these assumptions, the
cumulative net operating margin, or ongoing surplus, during the forecast period is
approximately $3.2 million.
Although this Forecast presents a positive fiscal outlook for the City’s General Fund, it is
important to note that it does not include the following potential impacts, which can increase
or decrease the projected annual surpluses to the FY 2016 Projected Budget and the out-years
of the Forecast: (1) ongoing labor negotiations; (2) Cadillac Healthcare Federal Excise Tax; (3)
Foothills College Cubberley Lease; (4) potential acquisition of the downtown Palo Alto Post
Office; (5) potential termination of the Fire Services Contract with Stanford University; (6) radio
infrastructure investments with the Silicon Valley Regional Interoperability Authority; (7)
Remaining Infrastructure Plan approved projects and contingency for increased land acquisition
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and construction costs; (8) future changes to pension plan assumptions by CalPERS; (9)
Infrastructure Plan operating budget impacts; and (10) changes in the local, regional, and
national economy.
At this time, staff projects $4.3 million in excess revenues and expenditure saving s in the
General Fund for FY 2015. The FY 2015 projected surplus includes City Council approved budget
amendments to date and is driven by a $4.3 million, or 4.6 percent, increase in major tax
revenues from the Adopted Budget. This amount does not assume forthcoming
recommendations to adjust revenues and expenditures as part of the FY 2015 Midyear Budget
Review.
During the next few months, staff will continue to monitor revenues and expenditures based on
available information and include these updates in the FY 2016 Proposed Budget scheduled for
release late April/early May 2015.
Economic Outlook
In preparing the FY 2016 to 2025 General Fund Long Range Financial Forecast, key economic
indicators and measures available through various publications and reports were reviewed.
Overall, the economic outlook for 2016 calls for continued measured optimism even as global
economic conditions continue to produce uneven economic growth across regions and sectors.
Thinking Globally
Famed American mathematician and meteorologist Dr. Edward Lornez engineered the strange
attractor notion and coined the term, Butterfly Effect. According to Lorenz, on any given day a
butterfly can flap its wings in China and in New York you get rain instead of sunshine. In the
age of globalization, where the exotic and chaotic combine to produce 24 hour cable news
fodder, economic and political conditions in all corners of the world can have as much of an
impact on the local economy as similar factors here at home. As a world renowned hub of
technological innovation, and at the heart of the Silicon Valley, Palo Alto is connected to the
global economy in immeasurable ways. From Amazon® to Zimride®, the global innovation
economy helped drive global growth by 3 percent in 2013, and that mo mentum is expected to
continue through 2015 and beyond.i
According to the Silicon Valley Bank’s Innovation Economy Global Outlook (2014), “across
regions, 2 in 3 executives say their company met or beat 2013 revenue targets. UK executives
reported the strongest performance, with 77 percent saying they met or beat targets. US
executives came in second, with 65 percent, and other innovation economies came in strong
with 62 percent meeting or beating revenue targets.”ii Although the International Monetary
Fund (IMF) recently lowered 2014 global growth projections by 0.4 percent to 3.3 percent to
reflect a weak first quarter in the US and a less optimistic outlook for emerging markets,
stronger growth is expected in advanced economies next year. The IMFs global growth
projection for 2015 is 3.8 percent.iii
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The measured optimism expressed by the IMF is due, in part, to downside risks that include
geopolitical factors from Eastern Europe to the Middle East that may have a supply side impact
on global oil prices; however, the emerging shale oil boom in the US has been mitigating some
of these concerns. The softening of Eurozone economies, most notably Germany, has caused
concern that Europe’s leading economy is struggling with weakening demand for exports,
slowing growth in Asia, and the impacts of Russian trade sanctions. In the US, the Federal
Reserve has ended the central bank’s long-term bond buying program known as Quantitative
Easing which may have an impact on long-term interest rates that affect everything from
consumer credit cards to home mortgages while the Bank of Japan and the European Central
Bank have ramped up similar programs.
A National View
The beginning of 2014 was, as Shakespeare famously wrote in Richard III, “the winter of our
discontent.” In July 2014, the Bureau of Economic Analysis revised their Q1 2014 Gross
Domestic Product (GDP) contraction to -2.1 percent, relative to Q4 2013 when real GDP grew
by 2.6 percent, while posting a modest gain of 1.9 percent for all of 2013.iv Overall, Q1 2014
was the worst first quarter showing since Q1 2009, amidst the throws of the Great Recession.
Economists attributed the sharp decline in output and productivity to unusually cold weather in
much of the US in early 2014 that affected everything from auto sale s to home construction,
and became a significant drag on the economy. As bad as Q1 2014 was, Q2 2014 was, “made
glorious summer by this sun of York.” The output of goods and services in the US increased at a
robust annual rate of 4.6 percent in the second quarter of 2014, primarily driven by significant
increases in personal consumption expenditures, exports, private inventory investments, and
state and local government spending.v According to the UCLA Anderson Forecast, Q3 2014 GDP
growth is estimated at 3.5 percent and Q4 2014 growth is projected to be 2.9 percent. For
2015, GDP is projected to grow at annualized rate of 3.1 percent.vi The chart below provides a
quarterly view of GDP growth from 2009 to present.
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The UCLA Anderson Forecast cites several factors attributing to their favorable outlook for
2015. Leading the way is continued domestic job growth resulting in the precipitous decline of
the unemployment rate. As of September 2014, the national unemployment rate (U3) was 5.9
percent. The UCLA Anderson Forecast projects that by the end of 2016, the unemployment rate
(U3) will drop to 5.3 percent signaling that the economy is approaching full employment. The
following chart provides a multi-year view of the US unemployment rate. While a decrease in
the unemployment rate is very positive, it is important to note that the Federal Reserve’s highly
accommodative monetary policy may be driving job growth too far too fast. As the Dallas Fed
president recently noted in the Economic Letter, “Fed policymakers successfully ‘tapped the
breaks’ in the middle of three of our longest economic expansions (in the 1960s, 1980s, and
1990s), slowing—but not ending—the unemployment rate’s decline. By comparison, there are
no instances where the Fed has successfully eased the unemployment rate upward after having
overshot full employment: When the economy goes into reverse, it has a pronounced tendency
to lurch backward all the way into recession.”vii
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Other factors included in the UCLA Anderson Forecast that will drive growth in 2015 include
housing, non-residential construction, and investment in equipment and software. On the
housing front, despite the recovery being slower than anticipated, UCLA Anderson is
forecasting housing starts to rise from 1.025 million units in 2014 to 1.32 million units in 2015,
and 1.47 million units in 2016. According to the US Department of Housing and Urban
Development (HUD), privately-owned housing starts in September 2014 were at a seasonally
adjusted rate of 1.017 million, in line with the UCLA Anderson Forecast.viii However, according
to the National Association of Realtors (NAR), current market conditions weakened across all
property types in September 2014 compared to August 2014 at a time when the market
typically perks up. According to NAR, “confidence about the outlook for the next six months
also broadly weakened and is attributed to difficulties in obtaining a mortgage under tighter
underwriting standards and the decreased supply of ‘affordable’ homes.”ix Because of
continued investment in domestic energy production and a revival in commercial construction,
non-residential construction will start to rise rapidly in mid -2015. In 2016, investment in non-
residential construction is forecast to expand at a robust 8.2 percent. Persistent s trength in
equipment and software spending will continue to buoy the economy.x
Additional macroeconomic data suggests that inflation is on the rise which is good for the
broader economy, but is falling below the Federal Open Market Committee’s (FOMC) long-run
objective of 2 percent. According to the San Francisco Fed, “overall and core consumer prices,
as measured by the price index for Personal Consumption Expenditures (PCE), rose 1.5 percent
in August 2014 compared with a year earlier,” but is being driv en lower by falling commodity
prices, particularly those in the energy sector.xi Nevertheless, the FOMC is projecting PCE
inflation to increase by a range of 1.5 to 2.4 percent in 2015 and 1.6 to 2.1 percent in 2016.
Regarding interest rates, the FOMC has signaled that due to the improving labor market and
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rising inflation, the Fed will begin raising interest rates at its March 2015 FOMC meeting.
Thereafter, according to the UCLA Anderson Forecast, the Fed will continue to increase the
Federal Funds Rate to about 3 percent by the end of 2016.xii
California Dreaming
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of
foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of
Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we
had everything before us, we had nothing before us,” wrote Charles Dickens in his acclaimed
tome A Tale of Two Cities. Much can be said about the state of California’s economy as well—
depending upon where you live. As a whole, California’s economy has out -performed the
nation in terms of job growth and production. According to the Bureau of Labor Statistics (BLS),
California’s unemployment rate (U3) dropped from 9.0 percent in July 2013 to 7.4 percent in
July 2014, exceeding the UCLA Anderson Forecast (2013) by nearly a full percentage point (8.2
percent). California’s Gross State Product (GSP) grew at annualized rate of 2.0 percent in 2013 xiii
and is projected to grow by 2.1 percent for 2014. While the data suggests that a California
comeback is in the offing, the distribution of growth among the state’s regions remains uneven.
It is not by happenstance that the state’s two municipal bankruptcies, Stockton and San
Bernardino, are located in interior regions while California’s coastal communities are enjoying
an economic renaissance.
Although the economic outlook for California is generally positive, according to the UCLA
Anderson Forecast, even though the total number of jobs is now higher than ever before, the
state remains below its potential in output and employment. California’s personal income
growth, after adjusting for inflation, is expected to grow by 4.4 percent in 2015 and 4.6 percent
in 2016.xiv California’s new home permits, as shown in the following chart, continue to bounce
back from their 2009 recessionary lows, showing continued improvement in new home
construction, but are far below their pre-recession levels. For 2013, new residential permits
were roughly equal to 1995 levels. According to the Zillow Home Value Index, “the median
home value in California is $430,700. California home values have gone up 11.5 percent over
the past year (August 2013 to August 2014) and Zillow predicts they will rise 5.8 perc ent within
the next year. The median price of homes currently listed in California is $424,900 while the
median price of homes sold is $409,550. The median rent price in California is $1,895.”xv
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Looking forward, while there are many facets of California’s economy that are encouraging, it is
important to be cognizant of downside risks to California’s economy. The UCLA Anderson
Forecast cites a host of new labor, healthcare, and environmental related policies that could
become a drag on the state’s growth. In addition, the housing market, although showing
strength, has been slow to take-off despite rising occupancy and rental rates, and is largely
attributable to the lack of housing supply as previously mentioned. According to the UCLA
Anderson Forecast, “though these risks exist, the fundamentals of California [and the United
States] suggest that the most likely evolution of California’s economy is one of more of the
same—slow, steady, and unexceptional growth.”xvi
Palo Alto Possible
In 2010, the Knight Foundation, an organization dedicated to supporting transformational ideas
that promote quality journalism, advance media innovation, engage communities, and foster
the arts, teamed up with the Gallup polling to survey 43,000 people in 26 cities to find out two
very important questions: what makes a community a desirable place to live and what draws
people to stake their future in it?xvii “The study found that the most important factors that
create emotional bonds between people and their community were not jobs and the economy,
but rather ‘physical beauty, opportunities for socializing, and a city’s openness to all people”
that made the difference.xviii While many of Palo Alto’s traditional economic indicators of
growth and prosperity—which are highlighted below—continue to shine, the future for our City
should also take into consideration those factors that provide Palo Alto residents, businesses,
and visitors with a community of enduring value. To that end, the outlook for Palo Alto is
exceptional.
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This year, the City launched Our Palo Alto, a comprehensive outreach effort that is designed to
build civic capacity and community engagement. It is organized into three main areas:
Ideas: creating opportunities for community conversations beyond City Hall in new and
creative ways.
Action: continuing work on important issues that impact the community such as traffic
and parking.
Design: the update of our Comprehensive Plan, the land use blueprint for the City.
The outcome of Our Palo Alto is intended to have a long lasting impact by generating civic
conversations across our community, in neighborhoods, businesses, community centers, and
schools. Our hope is that these conversations will bring people together, to deepen
understanding, and to expand the voices that actively participate in our community life and
shape the civic decisions of the City.
In a more traditional sense, most economic indicators point to an improving business
environment in Palo Alto. The unemployment rate (U3) in Palo Alto ticked up slightly in July
2014 to 3.1 percent, up from 2.8 percent in June 2014, but down from the July 2013 rate of 3.8
percent and the recessionary high of 6.3 percent in July 2009.xix According to the California
Board of Equalization (BOE), total taxable retail and fo od service sales in Palo Alto totaled $1.47
billion in 2012, surpassing the pre-recession high of $1.28 billion in 2006.xx Adjusted for
inflation, the 2006 figure totals approximately $1.462 billion in 2012 dollars which is slightly
lower than BOEs total for that year suggesting that Palo Alto retail and service sales
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outperformed expectations, albeit slightly. Finally, home values in Palo Alto continue to reach
new highs. According to the Zillow Home Value Index, “the median home value in Palo Alto is
$2.02 million. Palo Alto home values have gone up 12.1 percent over the past year (August
2013 to August 2014) and Zillow predicts they will rise 5.9 percent within the next year. The
median rent price in Palo Alto is $3,671 which is higher than the San Jose Metro median of
$2,750.”xxi
Fiscal Year 2016-2025 General Fund Long Range Financial Forecast
The FY 2016-2025 General Fund LRFF projects a General Fund surplus of $0.5 million for FY
2016. During this forecast period, the operating margin (shortfalls and surpluses) ranges
between -$0.2 million in FY 2017 and $3.4 million in FY 2025 with an approximate cumulative
one-time net surplus of $15.9 million (see table below).
In accordance with City Council policy, the General Fund Budget Stabilization Reserve (BSR) is
maintained at the range of 15 to 20 percent of General Fund operating expenditures, with a
target of 18.5 percent. Based on the 18.5 percent target, the BSR would have to increase from
$33.1 million in FY 2016 to $44.7 million in FY 2025. Over the Forecast period, $11.6 million
would have to be set aside to achieve the 18.5 percent BSR target by FY 2025, reducing the net
one-time resources projected in this Forecast from $17.2 million to $5.6 million.
The operating margin reflects the variance bet ween the projected General Fund revenues and
expenditures for each year of the forecast or the annual surplus or deficit. With the operating
margin, the year over year change in surpluses and deficits, it is assumed that each shortfall is
addressed completely with ongoing solutions in the year it appears and that each surplus is
completely expended with ongoing expenditures. During the Forecast period, the net
operating margin fluctuates between negative $0.2 million and positive $1.1 million. Although
this Forecast projects healthy revenue growth, the revenue growth is barely keeping pace with
the projected expenditure growth. Further, the City Council approved Infrastructure Plan is not
yet fully funded and does not contain any contingency for higher l and acquisition or
construction costs; and based on the latest valuation reports, the City’s pension and retiree
healthcare trust funds have a combined unfunded liability in the amount of $439.1 million.
Fiscal Year 2016-2025 Base Long Range Financial Forecast
Adopted
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Total Revenue $171,084 $179,637 $186,962 $194,498 $201,233 $208,304 $214,408 $221,070 $228,864 $236,926 $245,129
Total Expenditures $171,084 $179,155 $187,142 $193,437 $199,825 $205,896 $212,624 $219,358 $226,567 $234,032 $241,765
Net One-Time Surplus/(Shortfall)$0 $482 ($180)$1,061 $1,408 $2,408 $1,784 $1,712 $2,297 $2,894 $3,364
Cumulative Net Operating Margin (One-Time)$17,231
Net Operating Margin $0 ($180)$1,061 $347 $1,000 ($625)($72)$585 $597 $470
Cumulative Net Operating Margin $3,185
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
The graph below provides a representation of the operating and net operating margin of the
base model as described above.
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It should be noted that this Forecast, as outlined in the following sections of this report, does
not include the following potential impacts to the FY 2016 Projected Budget and the out -years
of the Forecast:
(1) Labor negotiations: The City is currently in negotiations with the Palo Alto Police Officers
Association (PAPOA) and the International Fire Fighters Association (IAFF). Any agreements
reached between the City’s bargaining units and the City will be incorporated into future
budgets and forecasts, as applicable.
(2) Cadillac Healthcare Federal Excise Tax: Beginning 2018, a 40 percent excise tax will be
imposed on the value of health insurance benefits that exceed a certain threshold. It is
expected that this tax will be included in the cost of the health care premiums. CalPERS
plans to design healthcare premiums to stay below the threshold and discussions are in the
preliminary stage.
(3) Foothill College Cubberley Lease: In November 2014, the City Council authorized extension
of the lease between the City and the Palo Alto Unified School District (PAUSD) at the
Cubberley Community Center site for an additional five years and t o update the financial
terms to eliminate the Covenant Not to Develop (approximately $1.9 million annually) and
reallocate these funds to the capital investment of the Center’s aging infrastructure. Foothill
College represents a significant portion of the current tenant lease income (approximately
$1.0 million annually) of the site and the College is planning to move operations currently
housed at Cubberley to a new Sunnyvale campus. Although the forecast assumes the
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investment in the Center’s infrastructure, the Forecast does not assume lost revenue from
Foothill College relocating to a new campus. Per the lease agreement with the school
district, any loss in lease revenue from Foothill College will be equally shared between the
City and PAUSD.
(4) Acquisition of the downtown Palo Alto Post Office: The City may acquire the downtown Palo
Alto Post Office with the plan to relocate staff from leased facilities. The acquisition would
be financed through issuance of debt with the annual debt service paid through le ase cost
savings. If the Palo Alto Post Office is acquired, it would require substantial improvements
while the City pays the annual debt service, and during that time the City will also have to
continue paying for leasing existing facilities. Staff is r eviewing potential strategies, which
would reduce the impact to the General Fund in the short-term.
(5) Fire Services Contract with Stanford University: The term of the fire response service
contract between the City and Stanford is through September 30, 202 6; however, at
Stanford’s request, the two parties have been in negotiations over the past two years to
restructure the contract. On October 8, 2013, the City received a Notice of Termination
letter from Stanford with the intent to terminate the contract w ith the City no sooner than
one year and no later than two years from the date of the notice. In order to plan for a
possible termination of services, the City requested that Stanford inform the City of the final
termination date at least three months in advance to allow for a structured potential
reduction in force in the City's Fire Department. On November 20, 2013, Stanford issued a
Request for Proposal (RFP) for Delivery of Fire Department Services for the campus, which
the City responded to by the submission deadline of January 31, 2014. This Forecast
assumes the continuation of the contract, because staff believes that the City of Palo Alto is
best suited to provide Fire Protection Services to Stanford. For FY 2016 the City is budgeted
to receive approximately $8.4 million in revenue from Stanford for fire response services
and emergency dispatch services.
(6) Radio Infrastructure Investment with the Silicon Valley Regional Interoperability Authority
(SVRIA): The SVRIA oversees a number of initiatives to enhance radio and data
interoperability in Santa Clara County and the South Bay Region, and the most ambitious
project is the build-out of the Silicon Valley Regional Communications System (SVRCS) at an
estimated cost of $35.5 million. It is envisioned that both public safety and local
government users such as Public Works, City Utilities, and Park Rangers will migrate to this
700 MHz trunked radio system. In addition to a portion of the infrastructure costs, each
participating agency will be responsible for the purchase of portable and mobile radios to
replace their legacy UHF and VHF radios. If the City chooses to participate in the SVRCS
project, the City’s total proportional infrastructure costs are estimated to be $2.5 million, of
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which $1.65 million would be paid by the General Fund and the remainder by several
enterprise funds. The radio replacement costs are estimated to be $1.1 million, of which
$837,500 would be paid by the General Fund and the remainder by several enterprise
funds. The total implementation cost to the General Fund would be $2.5 million, and the
remaining $1.1 million would be paid by several Utilities and Public Works enterprise funds.
Participation in this county-wide investment will be evaluated as part of future budget
processes.
(7) In June 2014, the Infrastructure Plan was approved by the City Council and contains $125.8
million in projects recommended by the Infrastructure Committee. However, even with the
voter approved increase in the Transient Occupancy Tax, a funding g ap of $7.5 million still
exists and the plan does not include any contingencies for potentially higher land
acquisition and construction costs. Starting with FY 2016, this Forecast assumes an
additional transfer of $4.7 million annually for the estimated annual debt service cost as
assumed in the Infrastructure Plan. Since it is not anticipated that debt will be issued until
FY 2016 with the first debt service due in FY 2017, the additional transfer of $4.7 million to
the Capital Fund will be allocated to address the Infrastructure Plan funding gap.
(8) During the last two years, the CalPERS Board approved actuarial mortality assumptions
changes and lowered the assumed interest earnings assumption from 7.75% to 7.5%. This
Forecast does not include additional future changes to pension plan assumptions by
CalPERS. However, the Forecast does include continuous incremental pension cost
increases for the Forecast period.
(9) Infrastructure Plan operating budget impacts: In June 2014, the City Council approved the
Infrastructure Project Funding Proposal which includes $125.8 million in projects
recommended by the Infrastructure Committee. This Forecast does not assume ongoing
operating impacts as a result of the Infrastructure Plan. Future forecasts will include
operating cost impacts as the specific projects are designed.
(10) Changes in the local, regional, and national economy: This Forecast assumes a steadily
growing local economy. Any changes may have positive or negative impacts on
economically sensitive revenues such as Sales Tax and the Transient Occupancy Tax.
At this time, staff projects a $4.3 million General Fund budget surplus for FY 2015. This surplus
assumes City Council authorized budget amendments to date and includes higher revenue
estimates based on actual receipts in FY 2015 totaling $4.3 million, or a 4.7 percent increase
over the Adopted Budget. This amount does not assume forthcoming recommendations to
adjust revenues and does not include expenditure increase s that may be recommended as part
of the FY 2015 Midyear Budget Review.
City of Palo Alto Page 15
Compared to FY 2015 Projected Budget, in FY 2016, the upward revenue trend continues with a
$3.0 million, or 3.1 percent, tax revenue increase. This revenue increase, together with a $1.0
million contribution from the Golf Course Operating Loss Reserve, significantly offsets the $3.9
million, or 3.6 percent, increase in salary and benefits. Please note that the City Council
established the Golf Course Operating Loss Reserve in the amount of $0.6 million in August
2014. As part of the FY 2015 Midyear Budget Review, staff will bring forward a
recommendation to increase the reserve amount by approximately $0.4 million to $1.0 million.
It is anticipated that the one-time FY 2016 decrease in revenues due to the Golf Course closure
is $1.0 million.
A $0.2 million budget shortfall is expected in FY 2017. This shortfall is driven by lower estimates
for Utilities Users’ Tax as explained in the revenue section of this report and a net $1.2 million
increase in operating costs due to the reopening of the Golf Course.
The next section of the report discusses the analysis and assumptions of major revenue and
expenditure categories. Consistent with the 2015-2024 LRFF, the methodology for calculating
changes for out-years of the Forecast (FY 2017 to FY 2025) are based on a historical analysis of
increases using the Compounded Annual Growth Rate (CAGR) with adjustments factored in for
known items. Staff performed a reasonableness test of the results.
Revenues
City of Palo Alto tax revenues turned in another solid performance in FY 2014. This trend is
expected to continue into FY 2015 and FY 2016. The fundamental economic drivers of low
unemployment, robust business activity, demand for residential and commercial property, and
strong incomes in the Silicon Valley region are propelling tax receipts upward.
Fiscal Year 2016-2025 Long Range Revenue Forecast
Revenue
Adopted
2015
Projected
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Sales Taxes $25,957 $29,238 $27,454 $28,333 $29,245 $30,199 $31,201 $32,250 $33,256 $34,280 $35,308 $36,332
Property Taxes 31,927 32,556 34,343 36,270 38,313 40,479 42,783 45,149 47,577 50,051 52,614 55,245
Transient Occupancy Tax 14,156 15,901 17,640 18,526 19,505 20,136 20,799 21,464 22,166 22,921 23,710 24,471
Documentary Transfer Tax 7,514 6,500 6,852 7,233 7,657 8,104 8,583 9,192 9,848 10,568 11,351 12,151
Utility Users Tax 11,285 10,895 11,805 12,054 12,503 12,926 13,343 13,666 14,034 14,416 14,812 15,229
Other Taxes and Fines 2,164 2,164 2,165 2,222 2,279 2,339 2,399 2,462 2,526 2,591 2,659 2,728
Subtotal: Taxes 93,003 97,254 100,259 104,638 109,502 114,183 119,108 124,183 129,407 134,827 140,454 146,156
Charges for Services 14,814 15,931 15,356 17,793 18,957 19,462 19,978 20,507 21,042 21,590 22,153 22,730
Stanford Fire & Dispatch Services 8,199 8,199 8,402 8,621 8,845 9,075 9,311 9,553 9,801 10,056 10,318 10,586
Permits and Licenses 7,804 7,738 8,005 8,213 8,427 8,646 8,871 9,101 9,338 9,581 9,830 10,085
Return on Investments 685 877 894 912 931 952 973 996 1,020 1,049 1,081 1,115
Rental Income 14,254 14,230 14,288 14,528 14,746 14,972 15,242 14,348 13,819 14,169 14,528 14,896
From Other Agencies 453 453 333 337 341 345 349 354 358 363 367 372
Charges to Other Funds 10,647 10,647 10,997 11,282 11,575 11,876 12,184 12,500 12,824 13,157 13,498 13,849
Other Revenue 1,060 1,289 1,508 1,562 1,602 1,643 1,686 1,729 1,774 1,820 1,867 1,916
Total Non-Tax Revenue 57,916 59,364 59,783 63,248 65,424 66,971 68,594 69,088 69,976 71,785 73,642 75,549
Operating Transfers-In 18,433 18,528 18,592 19,076 19,572 20,080 20,602 21,138 21,688 22,252 22,830 23,424
BSR Contribution (One-Time)1,732 1,732
Golf Operating Loss Reserve Liquidation 1,004
Total Source of Funds $171,084 $176,878 $179,638 $186,961 $194,498 $201,234 $208,305 $214,409 $221,070 $228,864 $236,926 $245,129
City of Palo Alto Page 16
Revenue
Adopted
2015
Projected
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Sales Taxes -11.8%12.6%-6.1%3.2%3.2%3.3%3.3%3.4%3.1%3.1%3.0%2.9%
Property Taxes 4.4%2.0%5.5%5.6%5.6%5.7%5.7%5.5%5.4%5.2%5.1%5.0%
Transient Occupancy Tax 15.5%12.3%10.9%5.0%5.3%3.2%3.3%3.2%3.3%3.4%3.4%3.2%
Documentary Transfer Tax -7.7%-13.5%5.4%5.6%5.9%5.8%5.9%7.1%7.1%7.3%7.4%7.0%
Utility Users Tax 2.5%-3.5%8.4%2.1%3.7%3.4%3.2%2.4%2.7%2.7%2.7%2.8%
Other Taxes and Fines 1.4%0.0%0.1%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
Subtotal: Taxes -0.6%4.6%3.1%4.4%4.6%4.3%4.3%4.3%4.2%4.2%4.2%4.1%
Charges for Services -10.9%7.5%-3.6%15.9%6.5%2.7%2.7%2.6%2.6%2.6%2.6%2.6%
Stanford Fire & Dispatch Services 11.4%0.0%2.5%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
Permits and Licenses 13.4%-0.8%3.5%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
Return on Investments -44.1%28.0%1.9%2.0%2.1%2.3%2.2%2.4%2.4%2.8%3.1%3.1%
Rental Income 1.2%-0.2%0.4%1.7%1.5%1.5%1.8%-5.9%-3.7%2.5%2.5%2.5%
From Other Agencies -50.8%0.0%-26.6%1.2%1.2%1.2%1.3%1.3%1.3%1.3%1.3%1.3%
Charges to Other Funds -3.3%0.0%3.3%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
Other Revenue -11.1%21.6%17.0%3.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
Total Non-Tax Revenue -2.3%2.5%0.7%5.8%3.4%2.4%2.4%0.7%1.3%2.6%2.6%2.6%
Operating Transfers-In -7.5%0.5%0.3%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
BSR Contribution (One-Time)0.0%-100.0%
Golf Operating Loss Reserve Liquidation -100.0%
Total Source of Funds -1.0%3.4%1.6%4.1%4.0%3.5%3.5%2.9%3.1%3.5%3.5%3.5%
The tables above highlight the annual revenue estimates and year over year increases for this
Forecast. Compared to FY 2015 projected, FY 2016 revenues are estimated to increase by $2.8
million, or approximately 1.6 percent. This includes $1.0 million in one -time sources set aside
in FY 2015 for the Golf Course Operating Loss Reserve. Excluding one-time sources, ongoing
revenues in FY 2016 are estimated to increase by $3.5 million, or 2.0 percent, from FY 2015
yearend projections. Based on the economic analysis presented in the previous section of this
report, revenue estimates, which are primarily linked to the performance of th e regional and
local economy, are reflective of increased consumer spending, continued rise in home prices,
and the opening of hotels. The upward trend of the City’s tax revenues is expected to continue
over the next 10 years. These tax revenues have significantly improved since the beginning of
the Great Recession. The table above illustrates the steady growth projected for the General
Fund’s revenue streams, by percentage, from FY 2016 through FY 2025.
During the 2013 Finance Committee discussions, it was recommended that staff consider use of
a historical annual growth rate derived for each tax revenue source to project future revenue
streams. This methodology was used in the final forecast presented for FY 2015 to 2024 and
has been used in this forecast as well. The Compound Annual Growth Rates (CAGR) utilized in
this Forecast is cited in each revenue section.
It is worth noting that in past forecasts a recession and falloff in economically sensitive
revenues was assumed once every nine years. While it is not staffs’ intent to predict the exact
timing of the recession, its inclusion in the forecast is to send a signal that a cyclical event,
whereby revenues can drop dramatically, will inevitably occur. By using the historical average
growth rate that incorporates the up and down cycles over the past 10 or 20 years, there is no
single year in which a downturn is depicted. Instead, past downturns (e.g. dot -com bust and
Great Recession) are factored into the compound growth rate used to forecast futu re revenue
streams.
City of Palo Alto Page 17
The graph above depicts a historical and projected view of the five major General Fund tax
revenues. It includes 10 years of actual revenue history; the projections for the remainder of FY
2015 based on actual data available for the first five months of the fiscal year; as well as the
projections for FY 2016 and the subsequent years of the Forecast, based on current available
data and application of the CAGR methodology. The following section is a detailed discussion
of General Fund Tax revenue and other major revenue sources by category.
Sales Tax
Sales taxes have rebounded from a low of $17.9 million in FY 2010 to a new high of $29.4
million in FY 2014. Results in FY 2014 are a consequence of one-time, exceptional receipts from
a single vendor. The FY 2015 projected figure is due to a planned adjustment of the sales tax
accrual period, which was discussed with the Finance Committee as part of the approval of the
FY 2014 Comprehensive Annual Financial Report. The FY 2016 projection then returns the
General Fund to a more representative level.
T ABLE 1 : SALES T AX REVENUE BY FISCAL YEAR (MILLIONS)
Fiscal Year 2011 2012 2013 2014 20151 20162
Revenue $20.6 $22.0 $25.6 $29.4 $29.2 $27.5
1 Projections based on fiscal year-to-date results, expected growth, and potential risks.
2 Revenues are expected to drop in Fiscal Year 2016 as a consequence of one-time receipts and accrual changes
(per an outside audit recommendation) in Fiscal Year 2015.
City of Palo Alto Page 18
Sales tax revenue is showing continued positive growth. Restaurant and electronic sales are
trending higher and auto sales in key, older dealerships are rising. It’s important to note that
the State has terminated its “triple flip” program so the City will receive more timely payments
of its sales tax receipts. This primarily affects cash flow, but will result in slightly better interest
earnings for the General Fund.
While overall sales tax revenue growth is continuing a positive trend from recessionary lows,
there are some potential risks that could affect the current trend. First, the breakup of Hewlett
Packard (HP) into two companies could potentially eliminate tax generating segments of HP’s
business. The split is expected to occur next year and it is important to note that HP has been
one of the City’s top ten sales tax producers. Recent news also indicates that Internet retail
sales are anticipated to increase by over 15 percent (over prior year) during the critical holiday
sales season. This trend will continue to exert downward pressure on sales tax growth, a key
source that constitutes approximately 15 percent of General Fund revenue.
The CAGR applied to the period FY 2016 through FY 2025 is 2.8 percent which is in line with
historical growth rates.
Property Tax
Since the end of the Great Recession, property values and revenues have risen at a strong rate.
Beginning in FY 2013, receipts have risen by a robust $2.0 million each year. Contributing
factors to this exceptional rise in property tax revenue include: single family home sales that
have exceeded asking prices; a healthy commercial property market; and the unleashing of
latent property values from the sale of long held homes that were “shielded” from assessed
value appreciation by Proposition 13.
The following chart is taken from a realtor (Alain Pinel) web site. It depicts the astonishing
takeoff in median Palo Alto home prices since Calendar Year 2011.
City of Palo Alto Page 19
The City’s property tax estimate for FY 2015 is based on information received from quarter ly
meetings with the Santa Clara County Assessor’s Office. The estimate includes appeals on
record with the Assessor’s Office, additions to the roll, and movements in assessed values.
Projections beyond FY 2015 are based on historical growth rates. The CAGR used in this 10 year
forecast equals 5.4 percent.
As requested by the City Council, staff coordinates with the Palo Alto Unified School District
(PAUSD) for their assumptions in property tax growth. Typically, the initial growth assumptions
used by PAUSD in developing their budget are lower than the City’s. As the budget year
progresses, however, PAUSD will align their property tax revenue with actual increases that
tend to be closer to the City’s projections.
T ABLE 2 : PROPERTY T AX REVENUE BY FISCAL YEAR (MILLIONS)
Fiscal Year 2011 2012 2013 2014 20153 2016
Revenue $25.7 $26.5 $28.7 $30.6 $32.6 $34.3
In FY 2015, the Administrative Services Department contracted with a firm to produce detailed
reports on property taxes. The consultant’s reports have provided key insights into Palo Alto
real estate market that supports property taxes growing at around 5 percent per year include:
There are 8,600 residential properties in Palo Alto under $600,000 in Assessed Value.
These properties turn over at a rate of 570 annually;
Approximately 3 percent of residential parcels will increase in Assessed Value by an
average 63 percent. All other properties will increase by the historical average of 7
percent; and,
Per the 2013-201414 Assessor’s Roll, average Assessed Value of residential properties in
Palo Alto equal $944,000.
Transient Occupancy Tax (TOT)
As the table below shows, Transient Occupancy Taxes continue to perform exceptionally well.
As summarized in the table below, average daily room rates and occupancy levels continue to
demonstrate considerable strength since FY 2011. Generally, occupancy levels between 80 and
85 percent indicate full occupancy. Demand for Palo Alto rooms is strong, leading to
construction and planned construction of five new hotels. A vibrant business and tourist
environment has led to a surge in hotel bookings from San Francisco down through the
Peninsula to San Jose.
3 Projected revenue based on county year to date data and trends.
City of Palo Alto Page 20
T ABLE 3 : T RANSIENT OCCUPANCY T AX BY FISCAL YEAR (MILLIONS)
Fiscal Year 2011 2012 2013 2014 20154 2016
Revenue (millions) $8.1 $9.7 $10.8 $12.3 $15.9 $17.6
Average Daily Room Rate $147 $165 $182 $208 $198 n/a
Average Occupancy (percent) 73% 79% 80% 79% 84% n/a
This forecast includes estimated revenues for all of the new hotels built, being constructed, or
planned in the City. The Epiphany has opened and it is expected that two Hilton hotels will
open towards the end of FY 2015. The Westin Annex and a new hotel on the Ming’s restaurant
site are not expected to open until FY 2017. The voter approved TOT rate increase from 12 to
14 percent will take effect on January 1, 2015 and is expected to generate approximately $2.7
million in revenue in FY 2016. This forecast includes revenue from new hotels an d the 2
percent TOT rate increase and a corresponding $4.7 million transfer to infrastructure to support
the Infrastructure Plan that was recently adopted by Council.
The CAGR applied to the period FY 2016 through FY 2025 is 4.4 percent which is in line with
historical growth rates.
Documentary Transfer Tax (DTT)
The Documentary Transfer Tax continued to outperform expectations by reaching $8.1 million
in FY 2014 as compared to an average of $5.6 million over the prior three fiscal years. This
average was affected by the Great Recession and likely caused a burst of property transactions
(due to improving prices and low interest rates) in FY 2014. There were an unusually high
number of high value commercial property sales in FY 2014.
T ABLE 4 : DOCUMENTARY T RANSFER T AX BY FISCAL YEAR (MILLIONS)
Fiscal Year 2011 2012 2013 2014 20155 2016
Revenue $5.2 $4.8 $6.8 $8.1 $6.5 $6.9
Through October 2014, Documentary Transfer Tax receipts are running 40 percent below the
prior year period. As a result, the Forecast includes lower expectations for FY 2015. As stated
in prior forecasts, this revenue source is somewhat unpredictable given that the volume and
mix of commercial and residential transactions can vary significantly from year t o year. The
CAGR applied to the period FY 2016 through FY 2025 is 6.5 percent.
4 Projected revenue based on trend and Fiscal Year 2015 year to date data. Average Daily Room Rate and
Occupancy are year-to-date through October 2014.
5 Projected revenue based on county year to date data and trends.
City of Palo Alto Page 21
Utility Users Tax (UUT)
The Utility Users Tax forecast incorporates two changes approved by voters in November 2014.
The telephone UUT rate has been reduced from 5.0 percent to 4.75 percent and the large utility
user discount (which stepped down tax rates for water, gas, and electric usage) was eliminated.
These changes will be implemented in the next few months and according to state codes. On
an annual basis, the changes will reduce telephone revenues by an estimated $0.16 million
while ending the large utility user discount will raise utility related revenues by $0.55 million .
Receipts anticipated from the UUT are based on the Utilities Department’s five -year revenue
and rate projections. These estimates could change as the department discusses its proposed
rate plan with the Utilities Advisory Commission and the City Council during the annual budget
process.
Telephone receipts went down slightly from FY 2013 to FY 2014 and a lower level is expected in
FY 2015 based on the rate decrease. Unfortunately, there is little data available from
telecommunications providers to offer more informed projections.
Other Taxes & Fines
Staff anticipates that revenues in this category will remain flat in FY 2016 at $2.2 million. The
largest source of revenue in this category is derived from parking violations revenue, which
staff estimates will also hold flat in FY 2016 at $1.7 million. Additional revenue in this category,
such as traffic violations, administrative citations, and library fines and fees, are projected to
grow annually by 2.6 percent over the 10 year forecast.
Charges for Services
For FY 2016, total one-time revenues in this category will decrease by $0.6 million or 3.6
percent to $15.4 million from a FY 2015 projection of $16.0 million. The decline is largely
attributable to the Golf Course Reconfiguration Project (decrease of $1.0 million) which is
scheduled to begin in the spring of 2015 and continue through F Y 2016. It is important to note
that the one-time revenue decrease from the Golf Course closure is scheduled to be offset with
the liquidation of the Golf Course Operating Loss Reserve. In August 2014, the City Council
established the Golf Course Operating Loss Reserve in the amount of $0.6 million. As part of
the FY 2015 Midyear Budget Review, staff will bring forward a recommendation to increase the
reserve amount by approximately $0.4 million to $1 million.
Ongoing, this Forecast assumes a revenue increase of $0.3 million for Community Services
Department classes and camps to align with historical trends. In addition, charges for services
revenue was increased by 3.6 percent to account for general salary and benefit increase
included in the Forecast. These figures do not include Charges for Services revenue for Stanford
Fire & Dispatch which is explained in further detail below.
Stanford Fire & Dispatch Services
The City has two separate agreements with Stanford University to provide fire response
services and emergency dispatch services. As part of these agreements, Stanford is charged
City of Palo Alto Page 22
30.3 percent of the Fire Department’s net cost and 16 percent of the Police Department’s
Communication and Dispatch Division to reimburse the City for Stanford’s pro portional share of
these services. The FY 2016 Forecast assumes a reimbursement of $8.4 million, which is a 3.5
percent increase from the FY 2015 adopted amount of $8.1 million.
The term of the fire response service contract between the City and Stanfo rd is through
September 30, 2026; however, at Stanford’s request, the two parties have been in negotiations
over the past two years to restructure the contract. On October 8, 2013, the City received a
Notice of Termination letter from Stanford with the int ention to terminate the contract with
the City no sooner than one year and no later than two years from the date of the notice. In
order to plan for a possible termination of services, the City requested that Stanford inform the
City of the final termination date at least three months in advance to allow for a structured
potential reduction in force in the City's Fire Department. On November 20, 2013, Stanford
issued a Request for Proposal (RFP) for Delivery of Fire Department Services for the campus,
which the City responded to by the submission deadline of January 31, 2014. The FY 2016
Forecast assumes the continuation of the contract, because staff believes that the City of Palo
Alto is best suited to provide Fire Protection Services to Stanford. A mod est annual increase of
2.6 percent has been built into the outer years to account for increasing salary and benefit costs
based on currently available information.
Permits and Licenses
Revenue from permits and licenses has experienced consistent growth over the past several
years, primarily due to increased development activity around Palo Alto. Based on year -to-date
estimates, FY 2015 revenues are projected to decrease by 0.8 percent from the adopted budget
revenue estimate. Staff fully anticipates meeting or exceeding FY 2015 revenue estimates for
this category based upon current activity levels. In FY 2016, revenues in this category are
expected to increase by an additional $0.3 million, or 3.5 percent, from the FY 2015 projected
level. The Planning and Community Environment and Development Services department are
currently undertaking a fee study to review the appropriateness of planning and development
fees. Staff is expecting the study to be concluded in early 2015 and will evaluate changes in
planning and development fees and corresponding revenue estimates as part of the FY 2016
budget process.
Return on Investment
Interest earnings continue to be depressed as a consequence of the Federal Reserve’s loose
monetary and interest policies. Expectations for earnings from investments are around $0.9
million which is a 1.9 percent increase from FY 2015 yearend projections.
Rental Income
The largest source of rental income comes from the City’s Enterprise Funds and the Cubberley
Community Center. Compared to the FY 2015 Adopted Budget, rental income will remain flat at
$14.3 million. An appraisal of all General Fund properties that may result in additional rental
income will be completed in January 2015. For this forecast period, starting with FY 2017, a 2.6
City of Palo Alto Page 23
percent growth was assumed for all rental properties, except for the Refuse Fund rent which is
assumed until FY 2021 as approved by the City Council to account for the closing costs related
to the Middlefield Well landfill site.
Revenue from Other Agencies
Included in this category is funding from Community Services Outreach theatre programs,
reimbursements from the Palo Alto Unified School District (PAUSD) for School Resource
Officers, and state and federal grants, if received. Many of these revenue streams are difficult
to predict and are dedicated often to specific purposes. In this category revenues over the past
five fiscal years have ranged from $0.1 million to $0.4 million. This forecast assumes $0.3
million for FY 2016 with a growth rate of 1 percent in subsequent years due to the
unpredictability of this funding source.
Charges to Other Funds
Approximately 87 percent of this category is General Fund administrative cost plan charges to
the Enterprise and Internal Service Funds. The FY 2016 projected amount is $11.0 million, an
increase of 3.3 percent, from the FY 2015 Adopted Budget. The increase is primarily
attributable to increased salary and benefit costs in the internal support departments. The
forecast includes increases ranging between 2.6 to 3.6 percent each year based primarily on
assumed increases in salary and benefit costs.
Other Revenues
Major revenue sources in this category are reimbursements for the Shuttle program (e.g. City of
East Palo Alto), Animal Services charges to Los Altos and Los Altos Hills, reimbursements from
PAUSD for its share of Cubberley and athletic field maintenance, donations from non -profits to
City libraries, and miscellaneous revenues. Revenues for this category are estimated to increase
by 17 percent in FY 2016, mostly due to $0.4 million in increased revenue from partner agencies
for the Shuttle program. The FY 2016 projected revenue for this category is $1.5 million, with a
3.6 percent annual increase forecasted for FY 2017 and 2.6 percent annual increases through FY
2025.
Operating Transfers In
Operating Transfers include the equity transfer from the Electric and Gas funds as well as
transfers from the University Ave Parking Permit Fund. In accordance with a methodology
approved by Council in June 2009, the equity transfer is calculated by applying a rate of return
to the capital asset base of the Electric and Gas funds. This rate of return is based on PG&E's
rate of return on equity as approved by the California Public Utilities Commission (CPUC). The
equity transfer from the Electric and Gas funds are projected to increase from $17.1 million in
FY 2015 to $17.3 million in FY 2016. Using the Utility Department’s projections from the
Electric and Gas Five Year Financial Forecasts, as approved by the City Council in spring 2014,
the equity transfer is projected to increase slightly in FY 2016 (0.9 percent) and then increase
annually by 2.6 percent over the rest of the forecast period. Overall Operating Transfers are
City of Palo Alto Page 24
estimated to increase from a projected FY 2015 yearend estimate of $18.6 million to $19.1
million in FY 2016, a 0.5 percent increase year over year.
Expenditures
As part of developing the FY 2016 Forecast expenditure budget, the General Fund expenditure
categories have been adjusted with removing FY 2015 Adopted Budget one -time expenditures
and updating major cost elements such as salary and benefits costs. The tables below display
the General Fund expense forecast. Compared to FY 2015 projected, FY 2016 expenditures are
estimated to increase by $6.7 million, or 3.9 percent primarily due to increased salary and
benefits, an increased transfer to infrastructure, and allocated charges costs from Enterprise
Funds and Internal Service Funds.
Fiscal Year 2016-2025 Long Range Expenditure Forecast
Expenditure
Adopted
2015
Projected
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Salary $53,788 $53,692 $56,123 $57,892 $59,510 $61,017 $62,512 $64,034 $65,587 $67,180 $68,817 $70,497
Benefits 53,177 53,094 54,524 58,073 61,212 64,436 67,780 71,260 74,882 78,660 82,601 86,717
Subtotal: Salary & Benefits 106,965 106,786 110,647 115,965 120,723 125,453 130,292 135,294 140,469 145,840 151,417 157,214
Contract Services 16,028 17,496 14,261 15,338 15,660 16,061 16,449 16,846 17,282 17,731 18,191 18,662
Supplies & Material 3,433 3,475 3,464 3,554 3,646 3,740 3,837 3,936 4,038 4,143 4,251 4,362
General Expense 5,058 5,069 4,727 4,829 4,934 5,041 5,151 5,265 5,380 5,500 5,621 5,747
Cubberley Lease 6,446 6,446 5,736 5,908 6,085 6,268 6,446 6,649 6,849 7,054 7,266 7,484
Debt Service 428 428 431 432 432 431 - - - - - -
Rents & Leases 1,356 1,365 1,391 1,427 1,464 1,502 1,541 1,581 1,622 1,664 1,708 1,752
Facilities & Equipment 556 556 486 499 512 525 539 553 567 582 597 613
Allocated Charges 15,080 15,047 15,589 15,883 16,294 16,721 17,159 17,609 18,067 18,537 19,019 19,513
Total Non Sal/Ben Before Transfers 48,385 49,882 46,085 47,870 49,027 50,290 51,121 52,438 53,807 55,211 56,653 58,133
Operating Transfers-Out 2,076 2,276 3,735 4,281 4,315 4,355 4,390 4,425 4,232 4,272 4,312 4,354
Transfer to Infrastructure 13,659 13,659 18,688 19,026 19,372 19,728 20,093 20,467 20,851 21,245 21,649 22,063
Total Use of Funds $171,084 $172,603 $179,155 $187,142 $193,437 $199,825 $205,896 $212,624 $219,358 $226,567 $234,032 $241,765
Expenditure
Adopted
2015
Projected
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Salary 6.3%-0.2%4.5%3.2%2.8%2.5%2.5%2.4%2.4%2.4%2.4%2.4%
Benefits 10.0%-0.2%2.7%6.5%5.4%5.3%5.2%5.1%5.1%5.0%5.0%5.0%
Subtotal: Salary & Benefits 8.1%-0.2%3.6%4.8%4.1%3.9%3.9%3.8%3.8%3.8%3.8%3.8%
Contract Services 11.8%9.2%-18.5%7.6%2.1%2.6%2.4%2.4%2.6%2.6%2.6%2.6%
Supplies & Material -2.2%1.2%-0.3%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
General Expense 17.7%0.2%-6.8%2.2%2.2%2.2%2.2%2.2%2.2%2.2%2.2%2.2%
Cubberley Lease -11.3%0.0%-11.0%3.0%3.0%3.0%2.8%3.1%3.0%3.0%3.0%3.0%
Debt Service 84.5%0.0%0.7%0.3%0.0%-0.3%-100.0%0.0%0.0%0.0%0.0%0.0%
Rents & Leases 10.2%0.7%1.9%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
Facilities & Equipment 23.0%0.0%-12.5%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
Allocated Charges -1.8%-0.2%3.6%1.9%2.6%2.6%2.6%2.6%2.6%2.6%2.6%2.6%
Total Non Sal/Ben Before Transfers 3.6%3.1%-7.6%3.9%2.4%2.6%1.7%2.6%2.6%2.6%2.6%2.6%
Operating Transfers-Out 54.0%9.6%64.1%14.6%0.8%0.9%0.8%0.8%-4.4%0.9%1.0%1.0%
Transfer to Infrastructure -20.7%0.0%36.8%1.8%1.8%1.8%1.8%1.9%1.9%1.9%1.9%1.9%
Total Use of Funds 4.2%0.9%3.8%4.5%3.4%3.3%3.0%3.3%3.2%3.3%3.3%3.3%
Salary and Benefits
The table above depicts the salaries and benefits costs for the next ten years. Over the
Forecast period, the salaries and benefits cost gradually increase in comparison to the total
expenditure budget. In FY 2016, salaries and benefits costs represent 62 percent of the
expenditure budget; in FY 2025, the salaries and benefits cost represent 65 percent of the
budget. In the same period, though, the benefits cost as a percentage of total salaries and
benefits costs increase from 49 percent in FY 2016 to 55 percent in FY 2025. Over the Forecast
period, salaries compounded growth is 26 percent versus a compounded growth in benefits
City of Palo Alto Page 25
costs of 59 percent. The following sections describe the assumed increases in salary an d
benefits costs and depict the reasons for the faster increasing benefits versus salaries costs.
Salary
The Forecast is consistent with the City’s change in salary budget methodology that was
implemented as part of the FY 2015 Adopted Budget. As such, positions are budgeted at actual
rate of pay including benefits as of fall 2014. Then, by position, salary costs are updated in
accordance with applicable Memoranda of Understanding (MOU) between the City and its
labor groups and the Management and Professional Personnel and Council Appointees
Compensation Plan. The Forecast also assumes merit increases for Management and
Professional employees as well as general salary increases for all labor groups consistent with
the existing MOU. Any other assumed general salary increases are assumed for planning
purposes only and do not signify a commitment of future salary increases.
A majority of the programmed salary increases for FY 2016 were approved by the City Council,
as any changes to employees’ salaries and benefits are part of the meet and confer process
with the City’s labor groups. However, the City is currently in negotiations with the Palo Alto
Police Officers Association (PAPOA) and the International Association of Fire Fighters (IAFF),
Local 1319. Pending negotiations with PAPOA and IAFF may impact the salary costs for FY 2016
Budget. Any such impacts will be included, as necessary, in the development of the FY 2016
Proposed Budget, which is scheduled for release to the City Council late April/earl y May 2015.
Benefits
Pension
The forecast includes the pension rates from CalPERS as of the June 30, 2013 valuation for the
City’s Miscellaneous and Safety plans. As stated in these valuations (Attachments A and B),
these valuations include the CalPERS approved actuarial mortality assumption changes; the
smoothing and amortization policies as discussed with the Finance Committee in December
2013 (CMR 4310); as well as the initial set of employees who receive the Tier 3 or Public
Employees’ Pension Reform Act (PEPRA) pension benefit level. Further, per the valuations, the
FY 2016-2017 rates, and thereafter, reflect the 18 percent investment return for FY 2014.
As shown in the table below, the FY 2016 pension contribution rates for the Miscellaneous and
Safety plans increased from the current year. For the Miscellaneous Plan, the pension
contribution rate increased by 1.6 percentage points from the FY 2015 rate of 26.1 percent to a
FY 2016 rate of 27.7 percent. For the Safety Plan, the pension contribu tion rate increased by
2.4 percentage points from the FY 2015 rate of 39.5 percent to a FY 2016 rate of 41.9 percent.
Per the attached valuations, the table below shows the pension contribution rates from FY
2016 through FY 2020. Thereafter, for the purpose of this Forecast, the pension contribution
rates continue to be escalated by 1.4 percent for the Miscellaneous Plan and 2.4 percent for the
Safety Plan.
City of Palo Alto Page 26
T ABLE 5: PENSION R ATES BY P LAN (FISCAL YEAR)
Pension Plans 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Miscellaneous 26.1% 27.7% 29.9% 31.4% 33.0% 34.6% 36.2% 37.8% 39.4% 41.0% 42.6%
Safety 39.5% 41.9% 45.1% 47.5% 49.9% 52.3% 54.7% 57.1% 59.5% 61.9% 64.3%
As indicated in the table below, the unfunded pension liability and funding status for
Miscellaneous and Safety (see pg. 6 of Miscellaneous and Safety Valuations for further detail)
plans have improved slightly from the last valuation. For the Miscellaneous Plan, the unfunded
liability was reduced by $12.3 million from $202.6 million to $190.3 million, and the funded
ratio improved by 3.6 percentage points from 64.8 percent to 68.4 percent. Similarly, for the
Safety Plan, the unfunded liability was reduced by $6.8 million from $112.0 million to $105.2
million, and the funded ratio improved by 3.1 percentage points from 65.8 percent to 68.9
percent. Despite these improvements, the cumulative unfunded liability for both pension plans
amounts to $295.6 million and will require continuous higher pension payments to CalPERS
during this Forecast and beyond.
T ABLE 6 : U NFUNDED PENSION LIABILITY BY PLAN
Miscellaneous Plan Safety Plan
June 30, 2012 June 30, 2013 June 30, 2012 June 30, 2013
1. Present Value of Projected Benefits $662,770,685 $690,227,166 $382,313,961 $392,560,445
2. Normal Accrued Liability $576,182,013 $602,540,178 $327,608,300 $338,666,499
3. Market Value of Assets $373,592,926 $412,227,784 $215,605,457 $233,417,363
4. Unfunded Liability [(2) – (3)] $202,589,087 $190,312,394 $112,002,843 $105,249,136
5. Funded Ratio [(3) / (2)] 64.8% 68.4% 65.8% 68.9%
Retiree Healthcare
This Forecast includes the Annual Required Contribution (ARC) per the May 2014 actuarial
valuation based on information as of June 30, 2013, (accepted by the City Council on June 9,
2014) for the City’s retiree healthcare plan. The City’s total ARC is increasing approximately 3.4
percent annually; however, based on the valuation report, over the next 10 years the City’s
Retiree Healthcare fund is projected to move towards a “pay as you go” model instead of
continuing to pre-fund future retiree healthcare needs due to increasing healthcare benefit
payments to current and future retirees. As a result of this shift during the Forecast period, less
of the ARC pays towards pre-funding future benefits and rather for benefits of current and
future retirees.
The City’s Retiree Healthcare Trust fund is administered by the California Employers’ Retiree
Benefit Trust, a division of CalPERS. As of August 31, 2014, th e City’s Retiree Healthcare funded
ratio stands at 35.1% and the projected unfunded liability as of June 30, 2013 per the City’s
actuary is $143.6 million. Staff is evaluating an increase to the ARC with budget surpluses that
become available as part of the closing of the annual budget in order to prefund the healthcare
liability and increase the funded ratio.
City of Palo Alto Page 27
Healthcare
As a result of the new labor agreement between the City and the Service Employees
International Union (SEIU), the City’s contribution amount towards the medical costs for SEIU
employees changed from a 90 percent contribution from the City and a 10 percent contribution
from the employee to a flat contribution from the City and the employee contributing towards
the remaining medical plan premium. This change took effect in March 2014, and it will also be
implemented for Management and Professional employees effective January 1, 2015. All other
labor groups eligible for medical benefits will remain on the 90/10 contribution structure until
new labor agreements are reached with the City and the affected bargaining groups. This
Forecast assumes an annual health care cost inflator of 8 percent for the labor groups on the
90/10 medical benefit structure, and a 4 percent annual health care cost inflator for the labor
groups on the flat rate contribution structure. Consistent with the previous forecast and with
historical trends, the 2016-2025 LRFF assumes a 4 percent increase for dental and vision costs
for outer years.
Contract Services
The FY 2015 Adopted Budget included $16.0 million to fund contract services of which
approximately $2.8 million was for one-time items that include $1.0 million for a Cubberley
Reserve; $1.0 million for a Shuttle Reserve, $0.4 million for the Our Palo Alto community
engagement process; and $0.4 million for other activities such as a consultant led fee study for
the Planning & Community Environment and Development Services departments and data
analytic support for People Strategy & Operations. In addition, the FY 2015 Adopted Budget
assumed that the Golf Course would be closed during the fiscal year; however, due to the delay
in the Golf Course Reconfiguration project, the Golf Course is now scheduled to remain open
through February 2015 resulting in additional contract expenses of $0.6 million. Additional City
Council approved actions during the course of FY 2015 that are attributed to the 9.2 percent
increase in year-end Contract Services projections from the adopted budget include $0.1 million
for the Climate Action Plan and an additional $0.2 million for the East Palo Alto Shuttle Route,
which was offset with revenue from the City of East Palo Alto. For FY 2016, the Forecast
assumes that the Golf Course will be closed during the entire fiscal year and will resum e
operations in early FY 2017 adding an additional $0.8 million of contract services in FY 2017.
When adjusting for one-time expenditures included in the FY 2015 Adopted Budget, the FY
2016 base budget for Contract Services is $13.2 million. For the FY 2016 Forecast Budget year,
$0.8 million has been added for additional Shuttle service expenses offset with revenue from
the City of East Palo Alto as approved by the Council on June 23, 2014, in addition to $0.2
million for continued Transportation Management Authority development as approved by the
Council in August 2014.
In the out-years of the Forecast, 2.6 percent of annual growth for contract services is assumed.
This is aligned to the 20 year historical average of the San Francisco Metropolitan Stat istical
Area Consumer Price Index – All Urban Consumers of 2.6 percent.
City of Palo Alto Page 28
Supplies & Materials
The category for Supplies and Materials remains flat at $3.5 million in the FY 2016 Forecast
Budget from the current year projection. For the out-years of the Forecast, it is assumed that
costs will increase based on the 2.6 percent annual CPI increase.
General Expense
This category includes costs for travel and meetings, telephone and non -city utilities,
contingency accounts, subsidies and grants provided thro ugh the Human Resource Allocation
Process, and debt service payments for the Master Lease-Purchase Agreement related to the
Golf Course. In this category, the Forecast projects a 6.8 percent decrease from $5.0 million in
FY 2015 to $4.7 million in FY 2016. The decrease is due to a reduction of $0.3 million in one-
time election costs. For the remaining years of the forecast, this category assumes annual
increases between 2.5 and 2.7 percent. These figures do not include General Expenses for the
Cubberley Lease which is explained in further detail below.
Cubberley Lease
In the FY 2015 Adopted Budget, $6.4 million was appropriated for Cubberley Lease payments
with an additional $1.0 million set-aside in reserve pending the outcome of lease negotiations
with the Palo Alto Unified School District (PAUSD). As a result of negotiations with PAUSD, $1.9
million will be set-aside annually in a Cubberley Reserve Fund for future infrastructure
improvements. As part of the lease agreement, the City Council approved crea tion of a fund for
Cubberley infrastructure improvements. Therefore, the $1.9 million is classified as an
Operating Transfer Out which is discussed in further detail below. With the Cubberley reserve
funds set aside, the FY 2016 Forecast Budget includes $5.7 million for Cubberley Lease
payments, up $0.2 million or 3.0 percent from FY 2015, but in accordance with the new lease
agreement with PAUSD.
In accordance with the lease agreement, the Forecast assumes a 3.0 percent annual CPI
increase for the lease payments to the Palo Alto Unified School District (PAUSD) for the
Cubberley facility. Also, the lease agreement period is five years; however, for planning
purposes in this Forecast, it is assumed that the agreement will continue during the Forecast
period.
Rents & Leases
Rent and Lease expenses for FY 2016 are estimated to increase by $26,000 from the FY 2015
projected level of $1.3 million. The largest expense in this category is $1.0 million for the
Development Services Center. From FY 2017 onwards, this expense is expected to increase by
2.6 percent per year.
Facilities & Equipment
Facilities and equipment expenses for FY 2016 are projected to decrease by 12.5 percent , which
is attributable to decreased Golf Course operating expenses; however, project ed expenses in
City of Palo Alto Page 29
this category of $0.5 million will remain fairly consistent in FY 2016 and beyond. Consistent
with the 20-year CPI for the San Francisco San Jose Metropolitan Statistical Area, the forecast
assumes a 2.6 percent annual increase starting in FY 2017.
Allocated Charges
Allocated charges represent expense allocations by the City’s enterprise and internal services
funds for services and products they provide to General Fund departments. In FY 2016, these
charges are estimated at $15.6 million including utilities usage (25.8 percent or $4.0 million),
liability insurance (8.3 percent or $1.3 million), technology costs (36.5 percent, or $5.7 million),
vehicle equipment and replacement costs (23.7 percent or $3.7 million), and other costs (5.7
percent, or $0.9 million). The FY 2016 charges of the forecast updates the revenue and expense
for these cost plans based on the most current information available at the time of Forecast
development. Growth of 2.6 percent is anticipated in the outer years, which is based on the
average annual expense growth over the forecast period.
Operating Transfers Out
Operating Transfers Out include transfers from the General Fund to the Debt Service Fund,
Technology Fund, and Airport Fund. Fiscal Year 2015 yearend p rojected transfers out total $2.3
million which is an increase of $0.2 million compared to the FY 2015 Adopted Budget amount.
The one-time increase in the amount transferred to the Airport Fund is for legal services related
to the August 2014 takeover of the airport by the City from Santa Clara County. In FY 2016, an
increase in this expense category of $1.5 million is assumed due to operating transfers of $1.9
million for the Cubberley Infrastructure Fund offset with the elimination of one -time transfers.
In FY 2017, the anticipated issuance of debt related to the golf course reconfiguration will
increase the total amount for the FY 2017 Forecast Budget by $0.5 million to $4.2 million.
A $0.3 million transfer to the Airport Fund from the General Fund is i ncluded in FY 2016
projected amounts, which represents the same figure assumed in the FY 2015 LRFF. While the
City has taken over operations of the Airport from Santa Clara County, it is anticipated that the
Airport Fund will have to rely on General Fund transfers to cover its operating expenses for a
number of years. As such, this transfer continues throughout the Forecast.
Transfer to Infrastructure
In FY 2015, the adopted transfer to the Capital Project Fund is $13.7 million. The transfer for FY
2016 is significantly higher at $18.7 million. The increase is attributable to two factors. The
primary driver of the increase is transfers associated with the City Council approved
Infrastructure Plan. A significant portion of the plan was reliant upon in creased Transient
Occupancy Tax (TOT) receipts, both from the addition of new hotels in Palo Alto, as well as a
two percent increase in the tax (from twelve percent to fourteen percent), which was approved
by Palo Alto voters in November 2014. The Infrastructure Plan assumes that these new
revenues will be available to support debt service costs associated with the build -out of
infrastructure improvements included in the plan ($2.5 million related to the new hotels and
City of Palo Alto Page 30
$2.2 million from the tax increase for the Forecast period). Secondly, the annual transfer
amount is increased by the CPI, 2.6 percent for FY 2016. Increases of 2.6% are assumed for the
remaining years of the forecast as well.
Alternative Fiscal Year 2016-2025 Long Range Financial Forecast
CalPERS Investment Return Analysis
The attached CalPERS valuations (pages 26-27) provide a three year analysis of alternative
investment return scenarios. This alternative Forecast model builds on the information
provided by CalPERS assuming an annual investment return of 2.8 percent versus 7.5 percent
starting with FY 2018. At this time, the CalPERS Board approved an annual investment return
target of 7.5 percent. Based on the information provided by CalPERS, this alternative Forecast
model keeps the incremental annual increase of the City’s pension contribution of 2.9
percentage points for the Miscellaneous Plan and 4.7 percentage points for the Safety Plan
constant after Fiscal Year 2020 (see table below).
T ABLE 7: PENSION R ATES BY PLAN (F ISCAL YEAR ) WITH A LOWER ASSUMED INVESTMENT RETURN
Pension Plans 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Miscellaneous 26.1% 27.7% 29.9% 31.9% 34.5% 37.4% 40.3% 43.2% 46.1% 49.0% 51.9%
Safety 39.5% 41.9% 45.1% 48.3% 52.3% 57.0% 61.7% 66.4% 71.1% 75.8% 80.5%
Based on these higher annual pension rates, pension costs would increase by a total of $34 .0
million over the forecast period, compared to the base model. The General Fund annual
surplus in Fiscal Year 2018, the first year impacted by the highe r rates, would be reduced from
$1.1 million in the base model to $0.7 million, a 36 percent reduction. This trend would
continue through Fiscal Year 2025 as the projected General Fund surplus of $3.4 million in Fiscal
Year 2025 would become a General Fund deficit of $5.4 million. During the Forecast period, the
net operating margin fluctuates between positive $0.6 million and negative $5.4 million. This
model does not project any additional revenue growth compared to the base model, which is
the main reason expenditures begin to outpace revenue in Fiscal Year 2021 and this gap
continues to grow through Fiscal Year 2025.
Fiscal Year 2016-2025 Long Range Revenue Forecast – CalPERS Investment Return Alternate
Model
Projected
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Total Revenue $176,878 $179,637 $186,962 $194,498 $201,233 $208,304 $214,408 $221,070 $228,864 $236,926 $245,129
Total Expenditures $172,603 $179,155 $187,142 $193,816 $200,991 $208,179 $216,078 $224,039 $232,532 $241,342 $250,481
BSR $31,932 $33,144 $34,621 $35,856 $37,183 $38,513 $39,974 $41,447 $43,018 $44,648 $46,339
Net One-Time Surplus/(Shortfall)$4,275 $482 ($180)$682 $242 $125 ($1,670)($2,968)($3,669)($4,415)($5,352)
Cumulative Net Operating Margin (One-Time)($16,722)
Net Operating Margin $0 $0 ($180)$682 ($440)$565 ($1,670)($2,968)($3,669)($4,415)($5,352)
Cumulative Net Operating Margin ($17,447)
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
Major Tax Revenue Sensitivity Analysis
City of Palo Alto Page 31
As discussed in this Forecast, FY 2016 total tax receipts are estimated to generate
approximately $100.3 million. This assumes an average tax receipts annual growth of 3.1%
from FY 2015 yearend projections to FY 2016. The year over year a ssumed growth in total tax
revenues is between 3.1% and 4.6% for the Forecast period. All other assumptions remaining
the same, if tax revenue receipts growth falls short by one percentage point from 2.1% to 3.6%
in FY 2016, the loss in revenue would be approximately $1.0 million; however, a year over year
loss of one percentage point in annual revenue growth would result in a cumulative one -time
revenue loss of approximately $47.2 million through the forecast period.
Conclusion
This Forecast projects a slight General Fund surplus of $0.5 million for FY 2016 and, except for a
slight budget shortfall in FY 2017, reflects a generally positive outlook over the next 10 years.
Economic indicators demonstrate that the local business environment is rebounding; however,
substantial financial obligations and added uncertainties may diminish the General Fund surplus
over the next 10 years.
The City Council approved Infrastructure Plan needs to be fully funded and contingencies for
land acquisition and constructions costs need to be planned for. As the City’s unfunded
pension and retiree medical liabilities have increased to $439.1 million, the City could be well
positioned if additional funds were contributed to the pension and retiree healthcare trust
funds to reduce the unfunded liabilities. This Forecast assumes the Fiscal Year 2015 service
level and supports the City Council’s plans for enhancements to the Shuttle Service and funding
for the Transportation Management Authority.
While the City is addressing these short-term and long-term issues, the City needs to continue
reviewing its operations and service delivery options. Over the last few years, the City has
outsourced services to the private sector and entered into negotiations with the non -profit
sector for public-private partnerships. In November, the City Council approved a letter of intent
with the Friends of the Palo Alto Junior Museum and Zoo with the goal to rebuild the current
facility and to enter into a 40 year lease for the Friends to operate the Junior Mus eum and Zoo.
While the City further explores alternative service delivery models with the goal to reduce staff
levels and related unfunded pension and retiree healthcare liabilities, the City will also review
cost recovery levels of services currently provided to the community. In early 2015, staff
intends to bring forward a policy framework for City Council discussion and input, which will
guide staff in setting appropriate fees for various services based on the values of our
community.
The City is currently updating its Comprehensive Plan. During recent discussions with the City
Council, staff was directed to assess the fiscal impacts of the simplified planning scenarios that
will be used to analyze policy choices that will have to be made as part of the update. Once the
Council approves the Comprehensive Plan update with its inherent policy choices, revenue
assumptions for future Forecasts will be aligned with the new Comprehensive Plan.
City of Palo Alto Page 32
During the next two months, staff will continue to monitor r evenue sources as well as update
revenues and expenditures, as applicable, based on newly available information. This updated
information will be reflected in the FY 2016 Proposed Budget, which is scheduled to be released
to the City Council late April/early May 2015.
Attachments:
Attachment A - CalPERS June 30, 2013 Valuation for the Miscellaneous Plan (PDF)
Attachment B - CalPERS June 30, 2013 Valuation for the Safety Plan (PDF)
Endotes
i International Monetary Fund (IMF), World Economic Outlook, April 2014
ii Silicon Valley Bank, Innovation Economy Global Outlook, 2014
iii International Monetary Fund (IMF), World Economic Outlook, October 2014
iv Bureau of Economic Analysis (BEA), Third Quarter (Advance Estimate), October 2014
v BEA, Ibid.
vi UCLA Anderson Forecast, September 2014
vii Dallas Federal Reserve Bank, Economic Letter, Vol. 9, No. 13, October 2014
viii United States Department of Housing and Urban Development (HUD), New Residential Construction
in September 2014, October 2014
ix National Association of Realtors, Realtors Confidence Index (September 2014), October 2014
x UCLA Anderson Forecast, Op. Cit.
xi San Francisco Federal Reserve Bank, FedViews, October 2014
xii UCLA Anderson Forecast, Op. Cit.
xiii Bureau of Economic Analysis (BEA), Advance 2013 and Revised 1997 – 2012 Statistics of GDP by
State, June 2014
xiv UCLA Anderson Forecast, Op. Cit.
xv Zillow, California Home Prices & Values, Zillow Home Value Index, Accessed October 2014
xvi UCLA Anderson Forecast, Op. Cit.
xvii Knight Foundation, Soul of the Community, What Makes People Happy With Their Communities?,
Accessed October 2014
xviii Citylab, Character Is Key to an Economically Vibrant City, The Atlantic, Accessed October 2014
xix United States Bureau of Labor Statistics (BLS), Palo Alto Unemployment Rate, Accessed October
2014
xx California Board of Equalization (BOE), Taxable Retail Sales, Accessed October 2014
xxi Zillow, Palo Alto Home Prices & Values, Zillow Value Home Index, Accessed October 2014
California Public Employees’ Retirement System
Actuarial Office
P.O. Box 942701
Sacramento, CA 94229-2701
TTY: (916) 795-3240
(888) 225-7377 phone • (916) 795-2744 fax
www.calpers.ca.gov
October 2014
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2013
Dear Employer,
As an attachment to this letter, you will find a copy of the June 30, 2013 actuarial valuation
report of your pension plan. Your 2013 actuarial valuation report contains important actuarial
information about your pension plan at CalPERS. Your CalPERS staff actuary, whose signature
appears in the Actuarial Certification Section on page 1, is available to discuss the report with you
after October 31, 2014.
Future Contribution Rates
The exhibit below displays the Minimum Employer Contribution Rate for fiscal year 2015-16 and a
projected contribution rate for 2016-17, before any cost sharing. The projected rate for 2016-17
is based on the most recent information available, including an estimate of the investment return
for fiscal year 2013-14, namely 18 percent, and the impact of the actuarial assumptions adopted
by the CalPERS Board in February 2014 that will impact employer rates for the first time in fiscal
year 2016-17. For a projection of employer rates beyond 2016-17, please refer to the “Projected
Rates” in the “Risk Analysis” section, which includes rate projections through 2020-21 under a
variety of investment return scenarios. Please disregard any projections that we may have
provided you in the past.
Fiscal Year Employer Contribution Rate
2015-16 27.694%
2016-17 29.9% (projected)
Member contributions other than cost sharing (whether paid by the employer or the employee)
are in addition to the above rates. The employer contribution rates in this report do not
reflect any cost sharing arrangement you may have with your employees.
The estimate for 2016-17 also assumes that there are no future contract amendments and no
liability gains or losses (such as larger than expected pay increases, more retirements than
expected, etc.). This is a very important assumption because these gains and losses do occur and
can have a significant impact on your contribution rate. Even for the largest plans, such gains
and losses often cause a change in the employer’s contribution rate of one or two percent of
payroll and may be even larger in some less common instances. These gains and losses cannot
be predicted in advance so the projected employer contribution rates are just estimates. Your
actual rate for 2016-17 will be provided in next year’s report.
Attachment A
Page 1 of 96
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
(CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2013
Page 2
Changes since the Prior Year’s Valuation
On January 1, 2013, the Public Employees’ Pension Reform Act of 2013 (PEPRA) to ok effect. The
impact of the PEPRA changes are included in the rates and the benefit provision listings of the
June 30, 2013 valuation for the 2015-16 rates. For more information on PEPRA, please refer to
the CalPERS website.
On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change
the CalPERS amortization and rate smoothing policies. Beginning with the June 30, 2013
valuations that set the 2015-16 rates, CalPERS will no longer use an actuarial value of assets and
will employ an amortization and smoothing policy that will pay for all gains and losses over a
fixed 30-year period with the increases or decreases in the rate spread directly over a 5-year
period.
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial
assumptions and strategic asset allocation. On February 19, 2014 the CalPERS Board of
Administration adopted relatively modest changes to the current asset allocation that will reduce
the expected volatility of returns. The adopted asset allocation is expected to have a long- term
blended return that continues to support a discount rate assumption of 7.5 percent. The Board
also approved several changes to the demographic assumptions that more closely align with
actual experience. The most significant of these is mortality improvement to acknowledge the
greater life expectancies we are seeing in our membership and expected continued
improvements. The new actuarial assumptions will be used to set the FY 2016-17 contribution
rates for public agency employers. The increase in liability due to new actuarial assumptions will
be calculated in the 2014 actuarial valuation and will be amortized over a 20-year period with a
5-year ramp-up/ramp-down in accordance with Board policy.
Besides the above noted changes, there may also be changes specific to your plan such as
contract amendments and funding changes.
Further descriptions of general changes are included in the “Highlights and Executive Summary”
section and in Appendix A, “Actuarial Methods and Assumptions.” The effect of the changes on
your rate is included in the “Reconciliation of Required Employer Contributions.”
We understand that you might have a number of questions about these results. While we are
very interested in discussing these results with your agency, in the interest of allowing us to give
every public agency their results, we ask that you wait until after October 31 to contact us with
actuarial questions. If you have other questions, you may call the Customer Contact Center at
(888)-CalPERS or (888-225-7377).
Sincerely,
ALAN MILLIGAN
Chief Actuary
Attachment A
Page 2 of 96
ACTUARIAL VALUATION
as of June 30, 2013
for the
MISCELLANEOUS PLAN
of the
CITY OF PALO ALTO
(CalPERS ID: 6373437857)
REQUIRED CONTRIBUTIONS
FOR FISCAL YEAR
July 1, 2015 – June 30, 2016
Attachment A
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Attachment A
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TABLE OF CONTENTS
ACTUARIAL CERTIFICATION 1
HIGHLIGHTS AND EXECUTIVE SUMMARY
Introduction 5
Purpose of the Report 5
Required Employer Contribution 6
Plan’s Funded Status 6
Cost 7
Changes Since the Prior Year’s Valuation 8
Subsequent Events 8
ASSETS
Reconciliation of the Market Value of Assets 11
Asset Allocation 12
CalPERS History of Investment Returns 13
LIABILITIES AND RATES
Development of Accrued and Unfunded Liabilities 17
(Gain) / Loss Analysis 06/30/12 - 06/30/13 18
Schedule of Amortization Bases 19
Alternate Amortization Schedules 20
Reconciliation of Required Employer Contributions 21
Employer Contribution Rate History 22
Funding History 22
RISK ANALYSIS
Volatility Ratios 25
Projected Rates 26
Analysis of Future Investment Return Scenarios 26
Analysis of Discount Rate Sensitivity 27
Hypothetical Termination Liability 28
GASB STATEMENT NO. 27
Information for Compliance with GASB Statement No. 27 31
PLAN’S MAJOR BENEFIT PROVISIONS
Plan’s Major Benefit Options 35
APPENDIX A – ACTUARIAL METHODS AND ASSUMPTIONS
Actuarial Data A1
Actuarial Methods A1 – A2
Actuarial Assumptions A3 – A20
Miscellaneous A20 – A21
APPENDIX B – PRINCIPAL PLAN PROVISIONS B1 – B9
APPENDIX C – PARTICIPANT DATA
Summary of Valuation Data C1
Active Members C2
Transferred and Terminated Members C3
Retired Members and Beneficiaries C4 – C5
APPENDIX D – DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATE D1
APPENDIX E – GLOSSARY OF ACTUARIAL TERMS E1 – E3
(CY) FIN PROCESS CONTROL ID: 432056 (PY) FIN PROCESS CONTROL ID: 413234 REPORT ID: 76080
Attachment A
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CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 1
ACTUARIAL CERTIFICATION
To the best of our knowledge, this report is complete and accurate and contains sufficient information to
disclose, fully and fairly, the funded condition of the MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO.
This valuation is based on the member and financial data as of June 30, 2013 provided by the various
CalPERS databases and the benefits under this plan with CalPERS as of the date this report was produced.
It is our opinion that the valuation has been performed in accordance with generally accepted actuarial
principles, in accordance with standards of practice prescribed by the Actuarial Standards Board, and that
the assumptions and methods are internally consistent and reasonable for this plan, as prescribed by the
CalPERS Board of Administration according to provisions set forth in the California Public Employees’
Retirement Law.
The undersigned is an actuary for CalPERS, who is a member of the American Academy of Actuaries and the
Society of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render
the actuarial opinion contained herein.
DAVID CLEMENT, ASA, MAAA, EA
Senior Pension Actuary, CalPERS
Attachment A
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HIGHLIGHTS AND EXECUTIVE SUMMARY
INTRODUCTION
PURPOSE OF THE REPORT
REQUIRED EMPLOYER CONTRIBUTION
PLAN’S FUNDED STATUS
COST
CHANGES SINCE THE PRIOR YEAR’S VALUATION
SUBSEQUENT EVENTS
Attachment A
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CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 5
Introduction
This report presents the results of the June 30, 2013 actuarial valuation of the MISCELLANEOUS PLAN OF
THE CITY OF PALO ALTO of the California Public Employees’ Retirement System (CalPERS). This actuarial
valuation sets the fiscal year 2015-16 required employer contribution rates.
On January 1, 2013, the Public Employees’ Pension Reform Act of 2013 (PEPRA) took effect. The impact of
most of the PEPRA changes are included in the rates and the benefit provision listings of the June 30, 2013
valuation, which sets the 2015-16 contribution rates. For more information on PEPRA, please refer to the
CalPERS website.
On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS
amortization and smoothing policies. Prior to this change, CalPERS employed an amortization and smoothing
policy, which spread investment returns over a 15-year period while experience gains and losses were
amortized over a rolling 30-year period. Effective with the June 30, 2013 valuations, CalPERS will no longer
use an actuarial value of assets and will employ an amortization and smoothing policy that will spread rate
increases or decreases over a 5-year period, and will amortize all experience gains and losses over a fixed
30-year period. The new amortization and smoothing policy is used in this valuation.
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions
and strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively
modest changes to the current asset allocation that will reduce the expected volatility of returns. The
adopted asset allocation is expected to have a long-term blended return that continues to support a
discount rate assumption of 7.5 percent. The Board also approved several changes to the demographic
assumptions that more closely align with actual experience. The most significant of these is mortality
improvement to acknowledge the greater life expectancies we are seeing in our membership and expected
continued improvements. The new actuarial assumptions will be used to set the FY 2016-17 contribution
rates for public agency employers. The increase in liability due to new actuarial assumptions will be
calculated in the 2014 actuarial valuation and will be amortized over a 20-year period with a 5-year ramp-
up/ramp-down in accordance with Board policy.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2013. The
purpose of the report is to:
Set forth the assets and accrued liabilities of this plan as of June 30, 2013;
Determine the required employer contribution rate for the fiscal year July 1, 2015 through June 30,
2016;
Provide actuarial information as of June 30, 2013 to the CalPERS Board of Administration and other
interested parties; and to
Provide pension information as of June 30, 2013 to be used in financial reports subject to Governmental
Accounting Standards Board (GASB) Statement Number 27 for a Single Employer Defined Benefit
Pension Plan.
California Actuarial Advisory Panel Recommendations
This report includes all the basic disclosure elements as described in the Model Disclosure Elements for
Actuarial Valuation Reports recommended in 2011 by the California Actuarial Advisory Panel (CAAP), with
the exception of including the original base amounts of the various components of the unfunded liability in
the Schedule of Amortization Bases shown on page 19.
Additionally, this report includes the following “Enhanced Risk Disclosures” also recommended by the CAAP
in the Model Disclosure Elements document:
A “Deterministic Stress Test,” projecting future results under different investment income
scenarios
A “Sensitivity Analysis,” showing the impact on current valuation results using a 1 percent plus or
minus change in the discount rate.
Attachment A
Page 11 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 6
The use of this report for any other purposes may be inappropriate. In particular, this report does not
contain information applicable to alternative benefit costs. The employer should contact their actuary before
disseminating any portion of this report for any reason that is not explicitly described above.
Required Employer Contribution
Fiscal Year Fiscal Year
2014-15 2015-16
Actuarially Determined Employer Contributions
1. Contribution in Projected Dollars
a) Total Normal Cost $ 12,477,785 $ 12,782,431
b) Employee Contribution1 5,408,805 5,488,848
c) Employer Normal Cost [(1a) – (1b)] 7,068,980 7,293,583
d) Unfunded Liability Contribution 10,888,594 12,207,469
e) Required Employer Contribution [(1c) + (1d)] $ 17,957,574 $ 19,501,052
Projected Annual Payroll for Contribution Year $ 68,744,341 $ 70,414,978
2. Contribution as a Percentage of Payroll
a) Total Normal Cost 18.151% 18.153%
b) Employee Contribution1 7.868% 7.795%
c) Employer Normal Cost [(2a) – (2b)] 10.283% 10.358%
d) Unfunded Liability Rate 15.839% 17.336%
e) Required Employer Rate [(2c) + (2d)] 26.122% 27.694%
Minimum Employer Contribution Rate2 26.122% 27.694%
Annual Lump Sum Prepayment Option3 $ 17,319,822 $ 18,808,485
1For classic members this is the percentage specified in the Public Employees Retirement Law, net of any
reduction from the use of a modified formula or other factors. For PEPRA members the member contribution
rate is based on 50 percent of the normal cost. A development of PEPRA member contribution rates can be
found in Appendix D. Employee cost sharing is not shown in this report.
2The Minimum Employer Contribution Rate under PEPRA is the greater of the required employer rate or the
employer normal cost.
3Payment must be received by CalPERS before the first payroll reported to CalPERS of the new fiscal year
and after June 30. If there is contractual cost sharing or other change, this amount will change.
Plan’s Funded Status
June 30, 2012 June 30, 2013
1. Present Value of Projected Benefits $ 662,770,685 $ 690,227,166
2. Entry Age Normal Accrued Liability 576,182,013 602,540,178
3. Market Value of Assets (MVA) $ 373,592,926 $ 412,227,784
4. Unfunded Liability [(2) – (3)] $ 202,589,087 $ 190,312,394
5. Funded Ratio [(3) / (2)] 64.8% 68.4%
Superfunded Status No No
Attachment A
Page 12 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 7
Cost
Actuarial Cost Estimates in General
What will this pension plan cost? Unfortunately, there is no simple answer. There are two major reasons for
the complexity of the answer. First, actuarial calculations, including the ones in this report, are based on a
number of assumptions about the future. These assumptions can be divided into two categories.
Demographic assumptions include the percentage of employees that will terminate, die, become
disabled, and retire in each future year.
Economic assumptions include future salary increases for each active employee, and the
assumption with the greatest impact, future asset returns at CalPERS for each year into the future
until the last dollar is paid to current members of your plan.
While CalPERS has set these assumptions to reflect our best estimate of the real future of your plan, it must
be understood that these assumptions are very long-term predictors and will surely not be realized in any
one year. For example, while the asset earnings at CalPERS have averaged more than the assumed return of
7.5 percent for the past twenty year period ending June 30, 2013, returns for each fiscal year ranged from
negative -24 percent to +21.7 percent.
Second, the very nature of actuarial funding produces the answer to the question of plan cost as the sum of
two separate pieces.
The Normal Cost (i.e., the annual cost associated with one year of service accrual) expressed as a
percentage of total active payroll.
The Past Service Cost or Accrued Liability (i.e., the current value of the benefit for all credited past
service of current members) which is expressed as a lump sum dollar amount.
The cost is the sum of a percent of future pay and a lump sum dollar amount (the sum of an apple and an
orange if you will). To communicate the total cost, either the Normal Cost (i.e., future percent of payroll)
must be converted to a lump sum dollar amount (in which case the total cost is the present value o f
benefits), or the Past Service Cost (i.e., the lump sum) must be converted to a percent of payroll (in which
case the total cost is expressed as the employer’s rate, part of which is permanent and part temporary).
Converting the Past Service Cost lump sum to a percent of payroll requires a specific amortization period,
and the employer rate will vary depending on the amortization period chosen.
Attachment A
Page 13 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 8
Changes since the Prior Year’s Valuation
Benefits
The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first
annual valuation following the effective date of the legislation. Voluntary benefit changes by plan
amendment are generally included in the first valuation that is prepared after the amendment becomes
effective even if the valuation date is prior to the effective date of the amendment.
This valuation generally reflects plan changes by amendments effective before the date of the report. Please
refer to the “Plan’s Major Benefit Options” and Appendix B for a summary of the plan provisions used in this
valuation. The effect of any mandated benefit changes or plan amendments on the unfunded liability is
shown in the “(Gain)/Loss Analysis” and the effect on your employer contribution rate is shown in the
“Reconciliation of Required Employer Contributions.” It should be noted that no change in liability or rate is
shown for any plan changes, which were already included in the prior year’s valuation.
Actuarial Methods and Assumptions
On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS
amortization and smoothing policies. Beginning with the June 30, 2013 valuations that set the 2015-16
rates, CalPERS will no longer use an actuarial value of assets and will employ an amortization and rate
smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or
decreases in the rate phased in over a 5-year period.
A change in the calculation of termination with vested benefits liability for active members was made this
year to better reflect the retirement experience. After termination with vested benefits, a miscellaneous
member is assumed to retire at age 59 and a safety member at age 54 rather than at earliest retirement
age. The higher benefit factors at these ages results in a slightly higher liability and a modest increase in
normal cost.
Public Employees’ Pension Reform Act of 2013 (PEPRA)
On January 1, 2013, the Public Employees’ Pension Reform Act of 2013 (PEPRA) took effect, requiring that a
public employer’s contribution to a defined benefit plan, in combination with employee contributions to that
defined benefit plan, shall not be less than the normal cost rate. Beginning July 1, 2013, this means that
some plans with surplus will be paying more than they otherwise would. For more information on PEPRA,
please refer to the CalPERS website.
Subsequent Events
Actuarial Methods and Assumptions
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions
and strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively
modest changes to the current asset allocation that will reduce the expected volatility of returns (see Risk
Analysis section of report). The adopted asset allocation is expected to have a long- term blended return
that continues to support a discount rate assumption of 7.5 percent.
The Board also approved several changes to the demographic assumptions that more closely align with
actual experience. The most significant of these is mortality improvement to acknowledge the greater life
expectancies we are seeing in our membership and expected continued improvements. The new actuarial
assumptions will be used to set the FY 2016-17 contribution rates for public agency employers. The increase
in liability due to new actuarial assumptions will be calculated in the 2014 actuarial valuation and will be
amortized over a 20-year period with a 5-year ramp-up/ramp-down in accordance with Board policy. The
impact of assumption changes are included in the “Expected Rate Increases” subsection of the “Risk
Analysis” section.
Attachment A
Page 14 of 96
ASSETS
RECONCILIATION OF THE MARKET VALUE OF ASSETS
ASSET ALLOCATION
CALPERS HISTORY OF INVESTMENT RETURNS
Attachment A
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CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 11
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/12 Including Receivables $ 373,592,926
2. Receivables for Service Buybacks as of 6/30/12 2,460,789
3. Market Value of Assets as of 6/30/12 371,132,137
4. Employer Contributions 14,933,196
5. Employee Contributions 6,239,217
6. Benefit Payments to Retirees and Beneficiaries (29,655,129)
7. Refunds (315,736)
8. Lump Sum Payments 0
9. Transfers and Miscellaneous Adjustments (82,508)
10. Investment Return 47,126,719
11. Market Value of Assets as of 6/30/13 $ 409,377,896
12. Receivables for Service Buybacks as of 6/30/13 2,849,888
13. Market Value of Assets as of 6/30/13 Including Receivables $ 412,227,784
Attachment A
Page 17 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 12
Asset Allocation
CalPERS adheres to an Asset Allocation Strategy which establishes asset class allocation policy targets and
ranges, and manages those asset class allocations within their policy ranges. CalPERS recognizes that over
90 percent of the variation in investment returns of a well-diversified pool of assets can typically be
attributed to asset allocation decisions. On February 19, 2014 the CalPERS Board of Administration adopted
changes to the current asset allocation as shown in the Policy Target Allocation below expressed as
percentage of total assets. The asset allocation is has an expected long term blended rate of return of
7.5 percent.
The asset allocation and market value of assets shown below reflect the values of the Public Employees
Retirement Fund (PERF) in its entirety as of June 30, 2013. The assets for CITY OF PALO ALTO
MISCELLANEOUS PLAN are part of the Public Employees Retirement Fund (PERF) and are invested
accordingly.
(A)
Asset Class
(B)
Market Value
($ Billion)
(C)
Policy Target
Allocation
1) Global Equity 133.4 47.0%
2) Private Equity 31.4 12.0%
3) Global Fixed Income 43.9 19.0%
4) Liquidity 10.5 2.0%
5) Real Assets 25.2 14.0%
6) Inflation Sensitive Assets 9.4 6.0%
7) Absolute Return Strategy (ARS) 7.2 0.0%
Total Fund $261.0 100.0%
Public Equity
51.1%
Private Equity
12.0%
Income
16.8%
Liquidity
4.0%
Real Assets
9.6%
Inflation
3.6%
ARS
2.8%
Asset Allocation at 6/30/2013
Attachment A
Page 18 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 13
CalPERS History of Investment Returns
The following is a chart with the 20-year historical annual returns of the Public Employees Retirement Fund
for each fiscal year ending on June 30. Beginning in 2002, the figures are reported as gross of fees.
The table below shows historical geometric mean annual returns of the Public Employees Retirement Fund
for each fiscal year ending on June 30, 2013, (figures are reported as gross of fees). The geometric mean
rate of return is the average rate per period compounded over multiple periods. It should be recognized that
in any given year the rate of return is volatile. Although the expected rate of return on the recently adopted
new asset allocation is 7.5 percent the portfolio has an expected volatility of 11.76 percent per year.
Consequently when looking at investment returns it is more instructive to look at returns over longer time
horizons.
History of CalPERS Geometric Mean Rates of Return and Volatilities
1 year 5 year 10 year 20 year 30 year
Geometric Return 13.2% 3.5% 7.0% 7.6% 9.4%
Volatility – 17.9% 13.9% 11.8% 11.6%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
2.0
%
16
.
3
%
15
.
3
%
20
.
1
%
19
.
5
%
12
.
5
%
10
.
5
%
-7.2
%
-6.1
%
3.7
%
16
.
6
%
12
.
3
%
11
.
8
%
19
.
1
%
-5.1
%
-24
.
0
%
13
.
3
%
21
.
7
%
0.1
%
13
.
2
%
Attachment A
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LIABILITIES AND RATES
DEVELOPMENT OF ACCRUED AND UNFUNDED LIABILITIES
(GAIN) / LOSS ANALYSIS 06/30/12 - 06/30/13
SCHEDULE OF AMORTIZATION BASES
ALTERNATE AMORTIZATION SCHEDULES
RECONCILIATION OF REQUIRED EMPLOYER CONTRIBUTIONS
EMPLOYER CONTRIBUTION RATE HISTORY
FUNDING HISTORY
Attachment A
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CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 17
Development of Accrued and Unfunded Liabilities
1. Present Value of Projected Benefits
a) Active Members $ 297,642,775
b) Transferred Members 23,476,142
c) Terminated Members 13,166,269
d) Members and Beneficiaries Receiving Payments 355,941,980
e) Total $ 690,227,166
2. Present Value of Future Employer Normal Costs $ 48,567,418
3. Present Value of Future Employee Contributions $ 39,119,570
4. Entry Age Normal Accrued Liability
a) Active Members [(1a) - (2) - (3)] $ 209,955,787
b) Transferred Members (1b) 23,476,142
c) Terminated Members (1c) 13,166,269
d) Members and Beneficiaries Receiving Payments (1d) 355,941,980
e) Total $ 602,540,178
5. Market Value of Assets (MVA) $ 412,227,784
6. Unfunded Liability [(4e) - (5)] $ 190,312,394
7. Funded Ratio [(5) / (4e)] 68.4%
Attachment A
Page 23 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 18
(Gain) /Loss Analysis 6/30/12 – 6/30/13
To calculate the cost requirements of the plan, assumptions are made about future events that affect the
amount and timing of benefits to be paid and assets to be accumulated. Each year actual experience is
compared to the expected experience based on the actuarial assumptions. This results in actuarial gains or
losses, as shown below.
A Total (Gain)/Loss for the Year
1. Unfunded Accrued Liability (UAL) as of 6/30/12 $ 128,362,660
2. Expected Payment on the UAL during 2012/2013 8,305,825
3. Interest through 6/30/13 [.075 x (A1) - ((1.075)½ - 1) x (A2)] 9,321,362
4. Expected UAL before all other changes [(A1) - (A2) + (A3)] 129,378,197
5. Change due to plan changes 0
6. Change due to assumption change 0
7. Expected UAL after all other changes [(A4) + (A5) + (A6)] 129,378,197
8. Actual UAL as of 6/30/13 190,312,394
9. Total (Gain)/Loss for 2012/2013 [(A8) - (A7)] $ 60,934,197
B Contribution (Gain)/Loss for the Year
1. Expected Contribution (Employer and Employee) $ 19,982,449
2. Interest on Expected Contributions 735,795
3. Actual Contributions 21,172,413
4. Interest on Actual Contributions 779,612
5. Expected Contributions with Interest [(B1) + (B2)] 20,718,244
6. Actual Contributions with Interest [(B3) + (B4)] 21,952,025
7. Contribution (Gain)/Loss [(B5) - (B6)] $ (1,233,781)
C Asset (Gain)/Loss for the Year
1. Actuarial Value of Assets as of 6/30/12 Including Receivables $ 447,819,353
2. Receivables as of 6/30/12 2,460,789
3. Actuarial Value of Assets as of 6/30/12 445,358,564
4. Contributions Received 21,172,413
5. Benefits and Refunds Paid (29,970,865)
6. Transfers and miscellaneous adjustments (82,508)
7. Expected Int. [.075 x (C3) + ((1.075)½ - 1) x ((C4) + (C5) + (C6))] 33,074,877
8. Expected Assets as of 6/30/13 [(C3) + (C4) + (C5) + (C6) + (C7)] 469,552,481
9. Receivables as of 6/30/13 2,849,888
10. Expected Assets Including Receivables 472,402,369
11. Market Value of Assets as of 6/30/13 412,227,784
12. Asset (Gain)/Loss [(C10) - (C11)] $ 60,174,585
D Liability (Gain)/Loss for the Year
1. Total (Gain)/Loss (A9) $ 60,934,197
2. Contribution (Gain)/Loss (B7) (1,233,781)
3. Asset (Gain)/Loss (C12) 60,174,585
4. Liability (Gain)/Loss [(D1) - (D2) - (D3)] $ 1,993,393
Attachment A
Page 24 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 19
Schedule of Amortization Bases
There is a two-year lag between the Valuation Date and the Contribution Fiscal Year.
The assets, liabilities and funded status of the plan are measured as of the valuation date; June 30, 2013.
The employer contribution rate determined by the valuation is for the fiscal year beginning two years after the valuation date; fiscal year 2015-16.
This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and due to the need to provide public agencies
with their employer contribution rates well in advance of the start of the fiscal year.
The Unfunded Liability is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first day of the
fiscal year for which the contribution is being determined. The Unfunded Liability is rolled forward each year by subtracting the expected Payment on the Unfunded
Liability for the fiscal year and adjusting for interest. The Expected Payment on the Unfunded Liability for a fiscal year is equal to the Expected Employer Contribution for
the fiscal year minus the Expected Normal Cost for the year. The Employer Contribution Rate for the first fiscal year is determined by the actuarial valuation two years
ago and the rate for the second year is from the actuarial valuation one year ago. The Normal Cost Rate for each of the two fiscal years is assumed to be the same as
the rate determined by the current valuation. All expected dollar amounts are determined by multiplying the rate by the expected payroll for the applicable fiscal year,
based on payroll as of the valuation date.
Amounts for Fiscal 2015-16
Reason for Base
Date
Established
Amorti-
zation
Period
Balance
6/30/13
Expected
Payment
2013-14
Balance
6/30/14
Expected
Payment
2014-15
Balance
6/30/15
Scheduled
Payment for
2015-16
Payment as
Percentage of
Payroll
ASSUMPTION CHANGE 06/30/03 10 $17,798,481 $1,924,538 $17,137,963 $1,982,274 $16,368,045 $2,041,742 2.900%
METHOD CHANGE 06/30/04 11 $(1,330,937) $(135,457) $(1,290,313) $(139,521) $(1,242,428) $(143,706) (0.204%)
BENEFIT CHANGE 06/30/05 11 $29,486,365 $3,000,992 $28,586,348 $3,091,022 $27,525,484 $3,183,753 4.521%
ASSUMPTION CHANGE 06/30/09 16 $26,587,215 $2,149,437 $26,352,672 $2,213,920 $26,033,681 $2,280,338 3.238%
SPECIAL (GAIN)/LOSS 06/30/09 26 $16,199,911 $1,007,314 $16,370,499 $1,037,533 $16,522,550 $1,068,659 1.518%
SPECIAL (GAIN)/LOSS 06/30/10 27 $1,332,440 $81,378 $1,347,998 $83,819 $1,362,193 $86,333 0.123%
ASSUMPTION CHANGE 06/30/11 18 $12,250,695 $924,993 $12,210,444 $952,744 $12,138,402 $981,326 1.394%
SPECIAL (GAIN)/LOSS 06/30/11 28 $(55,828) $(3,353) $(56,539) $(3,453) $(57,199) $(3,557) (0.005%)
PAYMENT (GAIN)/LOSS 06/30/12 29 $3,162,978 $434,709 $2,949,486 $177,118 $2,987,057 $182,432 0.259%
(GAIN)/LOSS 06/30/12 29 $23,946,877 $847,010 $24,864,694 $1,493,138 $25,181,428 $1,537,932 2.184%
(GAIN)/LOSS 06/30/13 30 $60,934,197 $(57,264) $65,563,634 $(61,778) $70,544,959 $992,217 1.409%
TOTAL $190,312,394 $10,174,297 $194,036,886 $10,826,816 $197,364,172 $12,207,469 17.336%
Attachment A
Page 25 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 20 Page 20
Alternate Amortization Schedules
The amortization schedule shown on the previous page shows the minimum contributions required according to
CalPERS amortization policy. There has been considerable interest from many agencies in paying off these unfunded
accrued liabilities sooner and the passible savings in doing so. Therefore, we have provided alternate amortization
schedules to help analyze your current amortization schedule and illustrate the advantages of accelerating payments
towards your plan’s unfunded liability of $197,364,172 as of June 30, 2015, which under the minimum schedule, will
require total payments of $456,729,477. Shown below are the level rate payments required to amortize your plan’s
unfunded liability assuming a fresh start over the various periods noted. Note that the payments under each scenario
would increase by 3 percent for each year into the future.
If you are interested in changing your plan’s amortization schedule please contact your plan actuary to discuss further.
Level Rate of Payroll Amortization
Period 2015-16
Rate
2015-16
Payment
Total
Payments
Total
Interest
Difference from
Current Schedule
20 21.163% $ 14,902,066 $ 400,424,100 $ 203,059,928 $ 56,305,377
15 25.694% $ 18,092,282 $ 336,496,793 $ 139,132,621 $ 120,232,684
Attachment A
Page 26 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 21
Reconciliation of Required Employer Contributions
Percentage
of
Projected
Payroll
Estimated $
Based on
Projected
Payroll
1. Contribution for 7/1/14 – 6/30/15 26.122% $ 17,957,574
2. Effect of changes since the prior year annual valuation
a) Effect of unexpected changes in demographics and financial results 1.572% 1,107,074
b) Effect of plan changes 0.000% 0
c) Effect of changes in Assumptions 0.000% 0
d) Effect of change in payroll - 436,404
e) Effect of elimination of amortization base 0.000% 0
f) Effect of changes due to Fresh Start 0.000% 0
g) Net effect of the changes above [Sum of (a) through (f)] 1.572% 1,543,478
3. Contribution for 7/1/15 – 6/30/16 [(1)+(2g)] 27.694% 19,501,052
The contribution actually paid (item 1) may be different if a prepayment of unfunded actuarial liability is
made or a plan change became effective after the prior year’s actuarial valuation was performed.
Attachment A
Page 27 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 22
Employer Contribution Rate History
The table below provides a recent history of the employer contribution rates for your plan, as determined by the
annual actuarial valuation. It does not account for prepayments or benefit changes made in the middle of the
year.
Required By Valuation
Fiscal
Year
Employer
Normal Cost Unfunded Rate
Total Employer
Contribution Rate
2010 - 2011 10.087% 7.468% 17.555%
2011 - 2012 10.100% 11.625% 21.725%
2012 - 2013 10.171% 12.799% 22.970%
2013 - 2014 10.360% 14.240% 24.600%
2014 - 2015 10.283% 15.839% 26.122%
2015 - 2016 10.358% 17.336% 27.694%
Funding History
The Funding History below shows the recent history of the actuarial accrued liability, the market value of assets,
the funded ratio and the annual covered payroll.
Valuation
Date
Accrued
Liability
Market Value
of
Assets (MVA)
Funded
Ratio
Annual
Covered
Payroll
06/30/08 $ 443,337,130 $ 385,304,560 86.9% $ 63,933,506
06/30/09 499,199,907 288,524,538 57.8% 65,602,083
06/30/10 521,269,469 323,971,012 62.2% 62,496,037
06/30/11 552,715,631 384,056,704 69.5% 60,297,783
06/30/12 576,182,013 373,592,926 64.8% 62,910,810
06/30/13 602,540,178 412,227,784 68.4% 64,439,680
Attachment A
Page 28 of 96
RISK ANALYSIS
VOLATILITY RATIOS
PROJECTED RATES
ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS
ANALYSIS OF DISCOUNT RATE SENSITIVITY
HYPOTHETICAL TERMINATION LIABILITY
Attachment A
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CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 25
Volatility Ratios
The actuarial calculations supplied in this communication are based on a number of assumptions about very long-
term demographic and economic behavior. Unless these assumptions (terminations, deaths, disabilities,
retirements, salary growth, and investment return) are exactly realized each year, there will be differences on a
year-to-year basis. The year-to-year differences between actual experience and the assumptions are called
actuarial gains and losses and serve to lower or raise the employer’s rates from one year to the next. Therefore,
the rates will inevitably fluctuate, especially due to the ups and downs of investment returns.
Asset Volatility Ratio (AVR)
Plans that have higher asset to payroll ratios produce more volatile employer rates due to investment return. For
example, a plan with an asset to payroll ratio of 8 may experience twice the contribution volatility due to
investment return volatility, than a plan with an asset to payroll ratio of 4. Below we have shown your asset
volatility ratio, a measure of the plan’s current rate volatility. It should be noted that this ratio is a measure of the
current situation. It increases over time but generally tends to stabilize as the plan matures.
Liability Volatility Ratio (LVR)
Plans that have higher liability to payroll ratios produce more volatile employer rates due to investment return and
changes in liability. For example, a plan with a liability to payroll ratio of 8 is expected to have twice the
contribution volatility of a plan with a liability to payroll ratio of 4. The liability volatility ratio is also included in the
table below. It should be noted that this ratio indicates a longer-term potential for contribution volatility and the
asset volatility ratio, described above, will tend to move closer to this ratio as the plan matures.
Rate Volatility As of June 30, 2013
1. Market Value of Assets without Receivables $ 409,377,896
2. Payroll 64,439,680
3. Asset Volatility Ratio (AVR = 1. / 2.) 6.4
4. Accrued Liability $ 602,540,178
5. Liability Volatility Ratio (LVR = 4. / 2.) 9.4
Attachment A
Page 31 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 26
Projected Rates
The estimated rate for 2016-17 is based on a projection of the most recent information we have available,
including an estimated 18 percent investment return for fiscal 2013-14, the impact of the new smoothing methods
adopted by the CalPERS Board in April 2013 that will impact employer rates for the first time in 2015-16 and an
estimate of the impact of the new actuarial assumptions adopted by the CalPERS Board in February 2014. These
new demographic assumptions include a 20-year projection of on-going mortality improvement. A complete listing
of the new demographic assumptions to be implemented with the June 30, 2014 annual actuarial valuation and
incorporated in the projected rates for FY 2016-17 and beyond can be found on the CalPERS website at:
http://www.calpers.ca.gov/eip-docs/about/pubs/employer/actuarial-assumptions.xls
The table below shows projected employer contribution rates (before cost sharing) for the next five Fiscal Years,
assuming CalPERS earns 18 percent for fiscal year 2013-14 and 7.50 percent every fiscal year thereafter, and
assuming that all other actuarial assumptions will be realized and that no further changes to assumptions,
contributions, benefits, or funding will occur between now and the beginning of the fiscal year 2016-17.
New Rate Projected Future Employer Contribution Rates
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Contribution Rates: 27.694% 29.9% 31.4% 33.0% 34.6% 34.8%
Analysis of Future Investment Return Scenarios
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions and
strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively modest
changes to the current asset allocation that will reduce the expected volatility of returns. The adopted asset
allocation is expected to have a long- term blended return that continues to support a discount rate assumption of
7.5 percent. The newly adopted asset allocation has a lower expected investment volatility which will result in
better risk characteristics than an equivalent margin for adverse deviation. The current asset allocation has an
expected standard deviation of 12.45 percent while the newly adopted asset allocation has a lower expected
standard deviation of 11.76 percent.
The investment return for fiscal year 2013-14 was announced July 14, 2014. The investment return in fiscal year
2013-14 is 18.42 percent before administrative expenses. This year, there will be no adjustment for real estate
and private equities. For purposes of projecting future employer rates, we are assuming an 18.0 percent
investment return for fiscal year 2013-14.
The investment return realized during a fiscal year first affects the contribution rate for the fiscal year two years
later. Specifically, the investment return for 2013-14 will first be reflected in the June 30, 2014 actuarial valuation
that will be used to set the 2016-17 employer contribution rates, the 2014-15 investment return will first be
reflected in the June 30, 2015 actuarial valuation that will be used to set the 2017-18 employer contribution rates
and so forth.
Based on a 18 percent investment return for fiscal year 2013-14, the April 17, 2013 CalPERS Board-approved
amortization and rate smoothing method change, the February 18, 2014 new demographic assumptions including
20-year mortality improvement using Scale BB and assuming that all other actuarial assumptions will be realized,
and that no further changes to assumptions, contributions, benefits, or funding will occur between now and the
beginning of the fiscal year 2016-17, the effect on the 2016-17 Employer Rate is as follows:
Estimated 2016-17 Employer Rate Estimated Increase in Employer Rate between
2015-16 and 2016-17
29.9% 2.2%
Attachment A
Page 32 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 27
As part of this report, a sensitivity analysis was performed to determine the effects of various investment returns
during fiscal years 2014-15, 2015-16 and 2016-17 on the 2017-18, 2018-19 and 2019-20 employer rates. Once
again, the projected rate increases assume that all other actuarial assumptions will be realized and that no further
changes to assumptions, contributions, benefits, or funding will occur.
Five different investment return scenarios were selected.
The first scenario is what one would expect if the markets were to give us a 5th percentile return from
July 1, 2014 through June 30, 2017. The 5th percentile return corresponds to a -3.8 percent return for
each of the 2014-15, 2015-16 and 2016-17 fiscal years.
The second scenario is what one would expect if the markets were to give us a 25th percentile return
from July 1, 2014 through June 30, 2017. The 25th percentile return corresponds to a 2.8 percent return
for each of the 2014-15, 2015-16 and 2016-17 fiscal years.
The third scenario assumed the return for 2014-15, 2015-16, 2016-17 would be our assumed 7.5
percent investment return which represents about a 49th percentile event.
The fourth scenario is what one would expect if the markets were to give us a 75th percentile return from
July 1, 2014 through June 30, 2017. The 75th percentile return corresponds to a 12.0 percent return for
each of the 2014-15, 2015-16 and 2016-17 fiscal years.
Finally, the last scenario is what one would expect if the markets were to give us a 95th percentile return
from July 1, 2014 through June 30, 2017. The 95th percentile return corresponds to a 18.9 percent
return for each of the 2014-15, 2015-16 and 2016-17 fiscal years.
The table below shows the estimated projected contribution rates and the estimated increases for your plan under
the five different scenarios.
2014-17 Investment
Return Scenario
Estimated Employer Rate Estimated Change in
Employer Rate
between 2016-17
and 2019-20 2017-18 2018-19 2019-20
-3.8% (5th percentile) 32.6% 36.4% 41.2% 11.3%
2.8% (25th percentile) 31.9% 34.5% 37.4% 7.6%
7.5% 31.4% 33.0% 34.6% 4.7%
12.0%(75th percentile) 31.0% 31.6% 31.7% 1.8%
18.9%(95th percentile) 30.3% 29.4% 26.9% -2.9%
Analysis of Discount Rate Sensitivity
The following analysis looks at the 2015-16 employer contribution rates under two different discount rate
scenarios. Shown below are the employer contribution rates assuming discount rates that are 1 percent lower and
1 percent higher than the current valuation discount rate. This analysis gives an indication of the potential required
employer contribution rates if the PERF were to realize investment returns of 6.50 percent or 8.50 percent over the
long-term.
This type of analysis gives the reader a sense of the long-term risk to the employer contribution rates.
2015-16 Employer Contribution Rate
As of June 30, 2013 6.50% Discount Rate
(-1%) 7.50% Discount Rate
(assumed rate) 8.50% Discount Rate
(+1%)
Employer Normal Cost 14.667% 10.358% 7.051%
Accrued Liability $ 677,476,681 $ 602,540,178 $ 539,962,940
Unfunded Accrued Liability $ 265,248,897 $ 190,312,394 $ 127,735,156
Attachment A
Page 33 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 28
Hypothetical Termination Liability
Below is an estimate of the financial position of your plan if you had terminated your contract with CalPERS as of
June 30, 2013 using the discount rates shown below. Your plan liability on a termination basis is calculated
differently compared to the plan’s ongoing funding liability. For this hypothetical termination liability both
compensation and service is frozen as of the valuation date and no future pay increases or service accruals are
included. In December 2012, the CalPERS Board adopted a more conservative investment policy and asset
allocation strategy for the Terminated Agency Pool. Since the Terminated Agency Pool has limited funding sources,
expected benefit payments are secured by risk-free assets. With this change, CalPERS increased benefit security
for members while limiting its funding risk. This asset allocation has a lower expected rate of return than the PERF.
Consequently, the lower discount rate for the Terminated Agency pool results in higher liabilities for terminated
plans.
In order to terminate your plan, you must first contact our Retirement Services Contract Unit to initiate a
Resolution of Intent to Terminate. The completed Resolution will allow your plan actuary to give you a preliminary
termination valuation with a more up-to-date estimate of your plan liabilities. CalPERS strongly advises you to
consult with your plan actuary before beginning this process.
Valuation
Date
Hypothetical
Termination
Liability1
Market Value
of Assets
(MVA)
Unfunded
Termination
Liability
Termination
Funded
Ratio
Termination
Liability
Discount
Rate2
06/30/11 $ 770,280,910 $ 384,056,704 $ 386,224,206 49.9% 4.82%
06/30/12 1,018,052,435 373,592,926 644,459,509 36.7% 2.98%
06/30/13 950,094,236 412,227,784 537,866,452 43.4% 3.72%
1 The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with
Board policy. Other actuarial assumptions, such as wage and inflation assumptions, can be found in appendix A.
2 The discount rate assumption used for termination valuations is a weighted average of the 10 and 30-year US
Treasury yields in effect on the valuation date that equal the duration of the pension liabilities. For purposes of this
hypothetical termination liability estimate, the discount rate used, is the yield on the 30-year US Treasury Separate
Trading of Registered Interest and Principal of Securities (STRIPS). Note that as of June 30, 2014 the 30-year
STRIPS rate was 3.55 percent.
Attachment A
Page 34 of 96
GASB STATEMENT NO. 27
Attachment A
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CALPERS ACTUARIAL VALUATION - June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 31
MISCELLANEOUS PLAN of the CITY OF PALO ALTO
Information for Compliance with GASB Statement No. 27
Disclosure under GASB 27 follows. However, note that effective for financial statements for fiscal
years beginning after June 15, 2014, GASB 68 replaces GASB 27. This will be the last year that GASB
disclosure information will be included in your annual actuarial report. GASB 68 will require
additional reporting that CalPERS is intending to provide upon request for an additional fee. We
urge you to start discussions with your auditors on how to implement GASB 68.
Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required contribution
(ARC) plus an adjustment for the cumulative difference between the APC and the employer’s actual plan
contributions for the year. The cumulative difference is called the net pension obligation (NPO). Since GASB 68
replaces GASB 27, for fiscal year 2015-16, the APC is replaced by the Actuarially Determined Contribution (ADC).
The ADC for July 1, 2015 to June 30, 2016 is 27.694% percent of payroll. In order to calculate the dollar value of
the ADC for inclusion in financial statements prepared as of June 30, 2016, this contribution rate, less any
employee cost sharing, as modified by any amendments for the year, would be multiplied by the payroll of
covered employees that was actually paid during the period July 1, 2015 to June 30, 2016. The employer and the
employer’s auditor are responsible for determining the NPO, APC or ADC for a given fiscal year.
A summary of principal assumptions and methods used to determine the funded status is shown below.
Retirement Program
Valuation Date June 30, 2013
Actuarial Cost Method Entry Age Normal Cost Method
Amortization Method Level Percent of Payroll
Asset Valuation Method Market Value
Actuarial Assumptions
Discount Rate 7.50% (net of administrative expenses)
Projected Salary Increases 3.30% to 14.20% depending on Age, Service, and type of employment
Inflation 2.75%
Payroll Growth 3.00%
Individual Salary Growth A merit scale varying by duration of employment coupled with an assumed
annual inflation growth of 2.75% and an annual production growth of 0.25%.
Initial unfunded liabilities are amortized over a closed period that depends on the plan’s date of entry into
CalPERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period.
Gains and losses that occur in the operation of the plan are amortized over a 30-year period with Direct Rate
Smoothing with a 5-year ramp up/ramp down. If the plan’s accrued liability exceeds the actuarial value of plan
assets, then the amortization payment on the total unfunded liability may not be lower than the payment
calculated over a 30-year amortization period. More detailed information on assumptions and methods is provided
in Appendix A of this report. Appendix B contains a description of benefits included in the valuation.
The Schedule of Funding Progress below shows the recent history of the actuarial accrued liability, actuarial value
of assets, their relationship and the relationship of the unfunded actuarial accrued liability to payroll.
Valuation
Date
Accrued
Liability
(a)
Actuarial value
of Assets*
(b)
Unfunded
Liability (UL)
(a)-(b)
Funded Ratios
(b)/(a)
Annual
Covered Payroll
(c)
UL As a % of
Payroll
[(a)-(b)]/(c)
06/30/09 $ 499,199,907 $ 398,764,606 $ 100,435,301 79.9% $ 65,602,083 153.1%
06/30/10 521,269,469 416,810,087 104,459,382 80.0% 62,496,037 167.1%
06/30/11 552,715,631 434,985,547 117,730,084 78.7% 60,297,783 195.2%
06/30/12 576,182,013 447,819,353 128,362,660 77.7% 62,910,810 204.0%
06/30/13 602,540,178 412,227,784 190,312,394 68.4% 64,439,680 295.3%
* Beginning with the 6/30/2013 valuation Actuarial Value of Assets equals Market Value of Assets per CalPERS
Direct Rate Smoothing Policy.
Attachment A
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Attachment A
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PLAN’S MAJOR BENEFIT PROVISIONS
Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which your agency has contracted. A description of principal standard and optional plan provisions
is in the following section of this Appendix.
Contract Package
Receiving Active
Misc
Active
Misc
Active
Misc Inactive Inactive Active
Misc
Benefit Provision
Benefit Formula 2.0% @ 55 2.7% @ 55 2.0% @ 60 2.0% @ 62
Social Security Coverage No No No No No No
Full/Modified Full Full Full Full Full Full
Final Average Compensation Period 12 mos. 12 mos. 12 mos. 36 mos.
Sick Leave Credit No No No No No No
Non-Industrial Disability Standard Standard Standard Standard
Industrial Disability No No No No No No
Pre-Retirement Death Benefits
Optional Settlement 2W No No No No No No
1959 Survivor Benefit Level Level 1 Level 1 Level 1 No No Level 1
Special No No No No No No
Alternate (firefighters) No No No No No No
Post-Retirement Death Benefits
Lump Sum $500 $500 $500 $500 $500 $500 $500
Survivor Allowance (PRSA) No No No No No No No
COLA 2% 2% 2% 2% 2% 2% 2%
Contractual Employee Cost Sharing
Page 35
Attachment A
Page 41 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which your agency has contracted. A description of principal standard and optional plan provisions
is in the following section of this Appendix.
Contract Package
Benefit Provision
Benefit Formula
Social Security Coverage
Full/Modified
Final Average Compensation Period
Sick Leave Credit
Non-Industrial Disability
Industrial Disability
Pre-Retirement Death Benefits
Optional Settlement 2W
1959 Survivor Benefit Level
Special
Alternate (firefighters)
Post-Retirement Death Benefits
Lump Sum
Survivor Allowance (PRSA)
COLA
Page 36
Attachment A
Page 42 of 96
APPENDICES
APPENDIX A – ACTUARIAL METHODS AND ASSUMPTIONS
APPENDIX B – PRINCIPAL PLAN PROVISIONS
APPENDIX C – PARTICIPANT DATA
APPENDIX D – DEVELOPMENT OF PPERA MEMBER CONTRIBUTION RATES
APPENDIX E – GLOSSARY OF ACTUARIAL TERMS
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APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
ACTUARIAL DATA
ACTUARIAL METHODS
ACTUARIAL ASSUMPTIONS
MISCELLANEOUS
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-1
Actuarial Data
As stated in the Actuarial Certification, the data, which serves as the basis of this valuation, has been
obtained from the various CalPERS databases. We have reviewed the valuation data and believe that it is
reasonable and appropriate in aggregate. We are unaware of any potential data issues that would have a
material effect on the results of this valuation, except that data does not always contain the latest salary
information for former members now in reciprocal systems and does not recognize the potential for
unusually large salary deviation in certain cases such as elected officials. Therefore, salary information in
these cases may not be accurate. These situations are relatively infrequent, however, and when they do
occur, they generally do not have a material impact on the employer contribution rates.
Actuarial Methods
Funding Method
The actuarial funding method used for the Retirement Program is the Entry Age Normal Cost Method. Under
this method, projected benefits are determined for all members and the associated liabilities are spread in a
manner that produces level annual cost as a percent of pay in each year from the age of hire (entry age) to
the assumed retirement age. The cost allocated to the current fiscal year is called the normal cost.
The actuarial accrued liability for active members is then calculated as the portion of the total cost of the
plan allocated to prior years. The actuarial accrued liability for members currently receiving benefits, for
active members beyond the assumed retirement age, and for members entitled to deferred benefits, is
equal to the present value of the benefits expected to be paid. No normal costs are applicable for these
participants.
The excess of the total actuarial accrued liability over the actuarial value of plan assets is called the
unfunded actuarial accrued liability. Funding requirements are determined by adding the normal cost and an
amortization of the unfunded liability as a level percentage of assumed future payrolls. Commencing with
the June 30, 2013 valuation all new gains or losses are tracked and amortized over a fixed 30-year period
with a 5 year ramp up at the beginning and a 5 year ramp down at the end of the amortization period. All
changes in liability due to plan amendments (other than golden handshakes), changes in actuarial
assumptions, or changes in actuarial methodology are amortized separately over a 20-year period with a 5
year ramp up at the beginning and a 5 year ramp down at the end of the amortization period. Changes in
unfunded accrued liability due to a Golden Handshake will be amortized over a period of 5 years. If a plan’s
accrued liability exceeds the market value of assets, the annual contribution with respect to the total
unfunded liability may not be less than the amount produced by a 30-year amortization of the unfunded
liability. An exception has been made for the change in asset value from actuarial to market value in this
valuation. The CalPERS Board approved a 30-year amortization with a 5-year ramp-up/ramp-down for only
this change in method.
Additional contributions will be required for any plan or pool if their cash flows hamper adequate funding
progress by preventing the expected funded status on a market value of assets basis to either:
Increase by at least 15 percent by June 30, 2043; or
Reach a level of 75 percent funded by June 30, 2043
The necessary additional contribution will be obtained by changing the amortization period of the gains and
losses, except for those occurring in the fiscal years 2008-2009, 2009-2010, and 2010-2011 to a period,
which will result in the satisfaction of the above criteria. CalPERS actuaries will reassess the criteria above
when performing each future valuation to determine whether or not additional contributions are necessary.
An exception to the funding rules above is used whenever the application of such rules results in
inconsistencies. In these cases, a “fresh start” approach is used. This simply means that the current
unfunded actuarial liability is projected and amortized over a set number of years. As mentioned above, if
the annual contribution on the total unfunded liability was less than the amount produced by a 30-year
amortization of the unfunded liability, the plan actuary would implement a 30-year fresh start. However, in
Attachment A
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A-2
the case of a 30-year fresh start, just the unfunded liability not already in the (gain)/loss base (which is
already amortized over 30 years), will go into the new fresh start base. In addition, a fresh start is needed
in the following situations:
1) When a positive payment would be required on a negative unfunded actuarial liability (or
conversely a negative payment on a positive unfunded actuarial liability); or
2) When there are excess assets, rather than an unfunded liability. In this situation, a 30-year fresh
start is used, unless a longer fresh start is needed to avoid a negative total rate.
It should be noted that the actuary may choose to use a fresh start under other circumstances. In all cases,
the fresh start period is set by the actuary at what is deemed appropriate; however, the period will not be
less than five years, nor greater than 30 years.
Asset Valuation Method
It is the policy of the CalPERS Board of Administration to use professionally accepted amortization methods
to eliminate unfunded accrued liabilities or surpluses in a manner that maintains benefit security for the
members of the System while minimizing substantial variations in employer contribution rates. On April 17,
2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS amortization
and rate smoothing policies. Beginning with the June 30, 2013 valuations that set the 2015-16 rates,
CalPERS will employ an amortization and smoothing policy that will pay for all gains and losses over a fixed
30-year period with the increases or decreases in the rate spread directly over a 5-year period. CalPERS will
no longer use an actuarial value of assets and will use the market value of assets. This direct rate
smoothing method is equivalent to a method using a 5 year asset smoothing period with no actuarial value
of asset corridor and a 25 year amortization period for gains and losses. The change in asset value will also
be amortized over 30 years with a 5-year ramp-up/ramp-down.
Attachment A
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Actuarial Assumptions
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions
and strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively
modest changes to the current asset allocation that will reduce the expected volatility of returns. The
adopted asset allocation is expected to have a long-term blended return that continues to support a
discount rate assumption of 7.5 percent. The Board also approved several changes to the demographic
assumptions that more closely align with actual experience. The most significant of these is mortality
improvement to acknowledge the greater life expectancies we are seeing in our membership and expected
continued improvements. The new actuarial assumptions will be used to set the FY 2016-17 contribution
rates for public agency employers. The increase in liability due to new actuarial assumptions will be
calculated in the 2014 actuarial valuation and will be amortized over a 20-year period with a 5-year ramp-
up/ramp-down in accordance with Board policy. For more details, please refer to the experience study
report that can be found at the following link: http://www.calpers.ca.gov/eip-docs/about/pubs/employer/
2014-experience-study.pdf
Economic Assumptions
Discount Rate
7.5 percent compounded annually (net of expenses). This assumption is used for all plans.
Termination Liability Discount Rate
The discount rate used for termination valuation is a weighted average of the 10 and 30-year US
Treasury yields in effect on the valuation date that equal the duration of the pension liabilities. For
purposes of this hypothetical termination liability estimate, the discount rate used, 3.72 percent, is
the yield on the 30-year US Treasury Separate Trading of Registered Interest and Principal of
Securities (STRIPS) as of June 30, 2013. Please note, as of June 30, 2014 the 30-year STRIPS yield
was 3.55 percent.
Salary Growth
Annual increases vary by category, entry age, and duration of service. A sample of assumed
increases are shown below.
Public Agency Miscellaneous
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1420 0.1240 0.0980
1 0.1190 0.1050 0.0850
2 0.1010 0.0910 0.0750
3 0.0880 0.0800 0.0670
4 0.0780 0.0710 0.0610
5 0.0700 0.0650 0.0560
10 0.0480 0.0460 0.0410
15 0.0430 0.0410 0.0360
20 0.0390 0.0370 0.0330
25 0.0360 0.0360 0.0330
30 0.0360 0.0360 0.0330
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Salary Growth (continued)
Public Agency Fire
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1050 0.1050 0.1020
1 0.0950 0.0940 0.0850
2 0.0870 0.0830 0.0700
3 0.0800 0.0750 0.0600
4 0.0740 0.0680 0.0510
5 0.0690 0.0620 0.0450
10 0.0510 0.0460 0.0350
15 0.0410 0.0390 0.0340
20 0.0370 0.0360 0.0330
25 0.0350 0.0350 0.0330
30 0.0350 0.0350 0.0330
Public Agency Police
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1090 0.1090 0.1090
1 0.0930 0.0930 0.0930
2 0.0810 0.0810 0.0780
3 0.0720 0.0700 0.0640
4 0.0650 0.0610 0.0550
5 0.0590 0.0550 0.0480
10 0.0450 0.0420 0.0340
15 0.0410 0.0390 0.0330
20 0.0370 0.0360 0.0330
25 0.0350 0.0340 0.0330
30 0.0350 0.0340 0.0330
Public Agency County Peace Officers
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1290 0.1290 0.1290
1 0.1090 0.1060 0.1030
2 0.0940 0.0890 0.0840
3 0.0820 0.0770 0.0710
4 0.0730 0.0670 0.0610
5 0.0660 0.0600 0.0530
10 0.0460 0.0420 0.0380
15 0.0410 0.0380 0.0360
20 0.0370 0.0360 0.0340
25 0.0350 0.0340 0.0330
30 0.0350 0.0340 0.0330
Attachment A
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Schools
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1080 0.0960 0.0820
1 0.0940 0.0850 0.0740
2 0.0840 0.0770 0.0670
3 0.0750 0.0700 0.0620
4 0.0690 0.0640 0.0570
5 0.0630 0.0600 0.0530
10 0.0450 0.0440 0.0410
15 0.0390 0.0380 0.0350
20 0.0360 0.0350 0.0320
25 0.0340 0.0340 0.0320
30 0.0340 0.0340 0.0320
The Miscellaneous salary scale is used for Local Prosecutors.
The Police salary scale is used for Other Safety, Local Sheriff, and School Police.
Overall Payroll Growth
3.00 percent compounded annually (used in projecting the payroll over which the unfunded liability
is amortized). This assumption is used for all plans.
Inflation
2.75 percent compounded annually. This assumption is used for all plans.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.75 percent inflation
assumption, and any potential liability loss from future member service purchases are not reflected
in the valuation.
Miscellaneous Loading Factors
Credit for Unused Sick Leave
Total years of service is increased by 1 percent for those plans that have accepted the provision
providing Credit for Unused Sick Leave.
Conversion of Employer Paid Member Contributions (EPMC)
Total years of service is increased by the Employee Contribution Rate for those plans with the
provision providing for the Conversion of Employer Paid Member Contributions (EPMC) during the
final compensation period.
Norris Decision (Best Factors)
Employees hired prior to July 1, 1982 have projected benefit amounts increased in order to reflect
the use of “Best Factors” in the calculation of optional benefit forms. This is due to a 1983
Supreme Court decision, known as the Norris decision, which required males and females to be
treated equally in the determination of benefit amounts. Consequently, anyone already employed
at that time is given the best possible conversion factor when optional benefits are determined. No
loading is necessary for employees hired after July 1, 1982.
Termination Liability
The termination liabilities include a 7 percent contingency load. This load is for unforeseen
improvements in mortality.
Demographic Assumptions
Pre-Retirement Mortality
Non-Industrial Death Rates vary by age and gender. Industrial Death rates vary by age. See
sample rates in table below. The non-industrial death rates are used for all plans. The industrial
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A-6
death rates are used for Safety Plans (except for Local Prosecutor safety members where the
corresponding Miscellaneous Plan does not have the Industrial Death Benefit).
Non-Industrial Death Industrial Death
(Not Job-Related) (Job-Related)
Age Male Female Male and Female
20 0.00047 0.00016 0.00003
25 0.00050 0.00026 0.00007
30 0.00053 0.00036 0.00010
35 0.00067 0.00046 0.00012
40 0.00087 0.00065 0.00013
45 0.00120 0.00093 0.00014
50 0.00176 0.00126 0.00015
55 0.00260 0.00176 0.00016
60 0.00395 0.00266 0.00017
65 0.00608 0.00419 0.00018
70 0.00914 0.00649 0.00019
75 0.01220 0.00878 0.00020
80 0.01527 0.01108 0.00021
Miscellaneous Plans usually have Industrial Death rates set to zero unless the agency has specifically
contracted for Industrial Death benefits. If so, each Non-Industrial Death rate shown above will be
split into two components; 99 percent will become the Non-Industrial Death rate and 1 percent will
become the Industrial Death rate.
Post-Retirement Mortality
Rates vary by age, type of retirement and gender. See sample rates in table below. These rates are
used for all plans.
Healthy Recipients
Non-Industrially Disabled Industrially Disabled
(Not Job-Related) (Job-Related)
Age Male Female Male Female Male Female
50 0.00239 0.00125 0.01632 0.01245 0.00443 0.00356
55 0.00474 0.00243 0.01936 0.01580 0.00563 0.00546
60 0.00720 0.00431 0.02293 0.01628 0.00777 0.00798
65 0.01069 0.00775 0.03174 0.01969 0.01388 0.01184
70 0.01675 0.01244 0.03870 0.03019 0.02236 0.01716
75 0.03080 0.02071 0.06001 0.03915 0.03585 0.02665
80 0.05270 0.03749 0.08388 0.05555 0.06926 0.04528
85 0.09775 0.07005 0.14035 0.09577 0.11799 0.08017
90 0.16747 0.12404 0.21554 0.14949 0.16575 0.13775
95 0.25659 0.21556 0.31025 0.23055 0.26108 0.23331
100 0.34551 0.31876 0.45905 0.37662 0.40918 0.35165
105 0.58527 0.56093 0.67923 0.61523 0.64127 0.60135
110 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000
The mortality assumptions are based on mortality rates resulting from the most recent CalPERS
Experience Study adopted by the CalPERS Board, first used in the June 30, 2009 valuation. For
purposes of the post-retirement mortality rates, those revised rates include 5 years of projected
on-going mortality improvement using Scale AA published by the Society of Actuaries until June 30,
2010. There is no margin for future mortality improvement beyond the valuation date.
On February 19, 2014 the CalPERS Board adopted new recommended demographic assumption
based on the most recent CalPERS Experience Study. These new actuarial assumptions will be
implemented for the first time in the June 30, 2014 valuation. For purposes of the post-retirement
mortality rates, the revised rates include 20 years of projected on-going mortality improvement
using Scale BB published by the Society of Actuaries.
Attachment A
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Marital Status
For active members, a percentage who are married upon retirement is assumed according to
member category as shown in the following table.
Member Category Percent Married
Miscellaneous Member 85%
Local Police 90%
Local Fire 90%
Other Local Safety 90%
School Police 90%
Age of Spouse
It is assumed that female spouses are 3 years younger than male spouses. This assumption is used
for all plans.
Terminated Members
It is assumed that terminated members refund immediately if non-vested. Terminated members
who are vested are assumed to follow the same service retirement pattern as active members but
with a load to reflect the expected higher rates of retirement, especially at lower ages. The
following table shows the load factors that are applied to the service retirement assumption for
active members to obtain the service retirement pattern for separated vested members:
Age Load Factor
50 450%
51 250%
52 through 56 200%
57 through 60 150%
61 through 64 125%
65 and above 100% (no change)
Termination with Refund
Rates vary by entry age and service for Miscellaneous Plans. Rates vary by service for Safety Plans.
See sample rates in tables below.
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1742 0.1674 0.1606 0.1537 0.1468 0.1400
1 0.1545 0.1477 0.1409 0.1339 0.1271 0.1203
2 0.1348 0.1280 0.1212 0.1142 0.1074 0.1006
3 0.1151 0.1083 0.1015 0.0945 0.0877 0.0809
4 0.0954 0.0886 0.0818 0.0748 0.0680 0.0612
5 0.0212 0.0193 0.0174 0.0155 0.0136 0.0116
10 0.0138 0.0121 0.0104 0.0088 0.0071 0.0055
15 0.0060 0.0051 0.0042 0.0032 0.0023 0.0014
20 0.0037 0.0029 0.0021 0.0013 0.0005 0.0001
25 0.0017 0.0011 0.0005 0.0001 0.0001 0.0001
30 0.0005 0.0001 0.0001 0.0001 0.0001 0.0001
35 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
Attachment A
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Public Agency Safety
Duration of Service Fire Police County Peace Officer
0 0.0710 0.1013 0.0997
1 0.0554 0.0636 0.0782
2 0.0398 0.0271 0.0566
3 0.0242 0.0258 0.0437
4 0.0218 0.0245 0.0414
5 0.0029 0.0086 0.0145
10 0.0009 0.0053 0.0089
15 0.0006 0.0027 0.0045
20 0.0005 0.0017 0.0020
25 0.0003 0.0012 0.0009
30 0.0003 0.0009 0.0006
35 0.0003 0.0009 0.0006
The Police Termination and Refund rates are also used for Public Agency Local Prosecutors, Other
Safety, Local Sheriff and School Police.
Schools
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1730 0.1627 0.1525 0.1422 0.1319 0.1217
1 0.1585 0.1482 0.1379 0.1277 0.1174 0.1071
2 0.1440 0.1336 0.1234 0.1131 0.1028 0.0926
3 0.1295 0.1192 0.1089 0.0987 0.0884 0.0781
4 0.1149 0.1046 0.0944 0.0841 0.0738 0.0636
5 0.0278 0.0249 0.0221 0.0192 0.0164 0.0135
10 0.0172 0.0147 0.0122 0.0098 0.0074 0.0049
15 0.0115 0.0094 0.0074 0.0053 0.0032 0.0011
20 0.0073 0.0055 0.0038 0.0020 0.0002 0.0002
25 0.0037 0.0023 0.0010 0.0002 0.0002 0.0002
30 0.0015 0.0003 0.0002 0.0002 0.0002 0.0002
35 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002
Termination with Vested Benefits
Rates vary by entry age and service for Miscellaneous Plans. Rates vary by service for Safety Plans.
See sample rates in tables below.
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40
5 0.0656 0.0597 0.0537 0.0477 0.0418
10 0.0530 0.0466 0.0403 0.0339 0.0000
15 0.0443 0.0373 0.0305 0.0000 0.0000
20 0.0333 0.0261 0.0000 0.0000 0.0000
25 0.0212 0.0000 0.0000 0.0000 0.0000
30 0.0000 0.0000 0.0000 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
Attachment A
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Public Agency Safety
Duration of
Service Fire Police
County Peace
Officer
5 0.0162 0.0163 0.0265
10 0.0061 0.0126 0.0204
15 0.0058 0.0082 0.0130
20 0.0053 0.0065 0.0074
25 0.0047 0.0058 0.0043
30 0.0045 0.0056 0.0030
35 0.0000 0.0000 0.0000
When a member is eligible to retire, the termination with vested benefits probability is set to
zero.
After termination with vested benefits, a miscellaneous member is assumed to retire at age 59
and a safety member at age 54.
The Police Termination with vested benefits rates are also used for Public Agency Local
Prosecutors, Other Safety, Local Sheriff and School Police.
Schools
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40
5 0.0816 0.0733 0.0649 0.0566 0.0482
10 0.0629 0.0540 0.0450 0.0359 0.0000
15 0.0537 0.0440 0.0344 0.0000 0.0000
20 0.0420 0.0317 0.0000 0.0000 0.0000
25 0.0291 0.0000 0.0000 0.0000 0.0000
30 0.0000 0.0000 0.0000 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
Non-Industrial (Not Job-Related) Disability
Rates vary by age and gender for Miscellaneous Plans. Rates vary by age and category for Safety
Plans.
Miscellaneous Fire Police County Peace Officer Schools
Age Male Female Male and Female Male and Female Male and Female Male Female
20 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
25 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
30 0.0002 0.0002 0.0001 0.0002 0.0001 0.0002 0.0001
35 0.0006 0.0009 0.0001 0.0003 0.0004 0.0006 0.0004
40 0.0015 0.0016 0.0001 0.0004 0.0007 0.0014 0.0009
45 0.0025 0.0024 0.0002 0.0005 0.0013 0.0028 0.0017
50 0.0033 0.0031 0.0005 0.0008 0.0018 0.0044 0.0030
55 0.0037 0.0031 0.0010 0.0013 0.0010 0.0049 0.0034
60 0.0038 0.0025 0.0015 0.0020 0.0006 0.0043 0.0024
The Miscellaneous Non-Industrial Disability rates are used for Local Prosecutors.
The Police Non-Industrial Disability rates are also used for Other Safety, Local Sheriff and
School Police.
Attachment A
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Industrial (Job-Related) Disability
Rates vary by age and category.
Age Fire Police County Peace Officer
20 0.0002 0.0007 0.0003
25 0.0012 0.0032 0.0015
30 0.0025 0.0064 0.0031
35 0.0037 0.0097 0.0046
40 0.0049 0.0129 0.0063
45 0.0061 0.0161 0.0078
50 0.0074 0.0192 0.0101
55 0.0721 0.0668 0.0173
60 0.0721 0.0668 0.0173
The Police Industrial Disability rates are also used for Local Sheriff and Other Safety.
Fifty Percent of the Police Industrial Disability rates are used for School Police.
One Percent of the Police Industrial Disability rates are used for Local Prosecutors.
Normally, rates are zero for Miscellaneous Plans unless the agency has specifically contracted
for Industrial Disability benefits. If so, each miscellaneous non-industrial disability rate will be
split into two components: 50 percent will become the Non-Industrial Disability rate and 50
percent will become the Industrial Disability rate.
Service Retirement
Retirement rates vary by age, service, and formula, except for the safety ½ @ 55 and 2% @ 55
formulas, where retirement rates vary by age only.
Attachment A
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Service Retirement
Public Agency Miscellaneous 1.5% @ 65
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.008 0.011 0.013 0.015 0.017 0.019
51 0.007 0.010 0.012 0.013 0.015 0.017
52 0.010 0.014 0.017 0.019 0.021 0.024
53 0.008 0.012 0.015 0.017 0.019 0.022
54 0.012 0.016 0.019 0.022 0.025 0.028
55 0.018 0.025 0.031 0.035 0.038 0.043
56 0.015 0.021 0.025 0.029 0.032 0.036
57 0.020 0.028 0.033 0.038 0.043 0.048
58 0.024 0.033 0.040 0.046 0.052 0.058
59 0.028 0.039 0.048 0.054 0.060 0.067
60 0.049 0.069 0.083 0.094 0.105 0.118
61 0.062 0.087 0.106 0.120 0.133 0.150
62 0.104 0.146 0.177 0.200 0.223 0.251
63 0.099 0.139 0.169 0.191 0.213 0.239
64 0.097 0.136 0.165 0.186 0.209 0.233
65 0.140 0.197 0.240 0.271 0.302 0.339
66 0.092 0.130 0.157 0.177 0.198 0.222
67 0.129 0.181 0.220 0.249 0.277 0.311
68 0.092 0.129 0.156 0.177 0.197 0.221
69 0.092 0.130 0.158 0.178 0.199 0.224
70 0.103 0.144 0.175 0.198 0.221 0.248
Public Agency Miscellaneous 2% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.011 0.015 0.018 0.021 0.023 0.026
51 0.009 0.013 0.016 0.018 0.020 0.023
52 0.013 0.018 0.022 0.025 0.028 0.031
53 0.011 0.016 0.019 0.022 0.025 0.028
54 0.015 0.021 0.025 0.028 0.032 0.036
55 0.023 0.032 0.039 0.044 0.049 0.055
56 0.019 0.027 0.032 0.037 0.041 0.046
57 0.025 0.035 0.042 0.048 0.054 0.060
58 0.030 0.042 0.051 0.058 0.065 0.073
59 0.035 0.049 0.060 0.068 0.076 0.085
60 0.062 0.087 0.105 0.119 0.133 0.149
61 0.079 0.110 0.134 0.152 0.169 0.190
62 0.132 0.186 0.225 0.255 0.284 0.319
63 0.126 0.178 0.216 0.244 0.272 0.305
64 0.122 0.171 0.207 0.234 0.262 0.293
65 0.173 0.243 0.296 0.334 0.373 0.418
66 0.114 0.160 0.194 0.219 0.245 0.274
67 0.159 0.223 0.271 0.307 0.342 0.384
68 0.113 0.159 0.193 0.218 0.243 0.273
69 0.114 0.161 0.195 0.220 0.246 0.276
70 0.127 0.178 0.216 0.244 0.273 0.306
Attachment A
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Service Retirement
Public Agency Miscellaneous 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.015 0.020 0.024 0.029 0.033 0.039
51 0.013 0.016 0.020 0.024 0.027 0.033
52 0.014 0.018 0.022 0.027 0.030 0.036
53 0.017 0.022 0.027 0.032 0.037 0.043
54 0.027 0.034 0.041 0.049 0.056 0.067
55 0.050 0.064 0.078 0.094 0.107 0.127
56 0.045 0.057 0.069 0.083 0.095 0.113
57 0.048 0.061 0.074 0.090 0.102 0.122
58 0.052 0.066 0.080 0.097 0.110 0.131
59 0.060 0.076 0.092 0.111 0.127 0.151
60 0.072 0.092 0.112 0.134 0.153 0.182
61 0.089 0.113 0.137 0.165 0.188 0.224
62 0.128 0.162 0.197 0.237 0.270 0.322
63 0.129 0.164 0.199 0.239 0.273 0.325
64 0.116 0.148 0.180 0.216 0.247 0.294
65 0.174 0.221 0.269 0.323 0.369 0.439
66 0.135 0.171 0.208 0.250 0.285 0.340
67 0.133 0.169 0.206 0.247 0.282 0.336
68 0.118 0.150 0.182 0.219 0.250 0.297
69 0.116 0.147 0.179 0.215 0.246 0.293
70 0.138 0.176 0.214 0.257 0.293 0.349
Public Agency Miscellaneous 2.5% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.026 0.033 0.040 0.048 0.055 0.062
51 0.021 0.026 0.032 0.038 0.043 0.049
52 0.021 0.026 0.032 0.038 0.043 0.049
53 0.026 0.033 0.040 0.048 0.055 0.062
54 0.043 0.054 0.066 0.078 0.089 0.101
55 0.088 0.112 0.136 0.160 0.184 0.208
56 0.055 0.070 0.085 0.100 0.115 0.130
57 0.061 0.077 0.094 0.110 0.127 0.143
58 0.072 0.091 0.111 0.130 0.150 0.169
59 0.083 0.105 0.128 0.150 0.173 0.195
60 0.088 0.112 0.136 0.160 0.184 0.208
61 0.083 0.105 0.128 0.150 0.173 0.195
62 0.121 0.154 0.187 0.220 0.253 0.286
63 0.105 0.133 0.162 0.190 0.219 0.247
64 0.105 0.133 0.162 0.190 0.219 0.247
65 0.143 0.182 0.221 0.260 0.299 0.338
66 0.105 0.133 0.162 0.190 0.219 0.247
67 0.105 0.133 0.162 0.190 0.219 0.247
68 0.105 0.133 0.162 0.190 0.219 0.247
69 0.105 0.133 0.162 0.190 0.219 0.247
70 0.125 0.160 0.194 0.228 0.262 0.296
Attachment A
Page 58 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-13
Service Retirement
Public Agency Miscellaneous 2.7% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.028 0.035 0.043 0.050 0.058 0.065
51 0.022 0.028 0.034 0.040 0.046 0.052
52 0.022 0.028 0.034 0.040 0.046 0.052
53 0.028 0.035 0.043 0.050 0.058 0.065
54 0.044 0.056 0.068 0.080 0.092 0.104
55 0.091 0.116 0.140 0.165 0.190 0.215
56 0.061 0.077 0.094 0.110 0.127 0.143
57 0.063 0.081 0.098 0.115 0.132 0.150
58 0.074 0.095 0.115 0.135 0.155 0.176
59 0.083 0.105 0.128 0.150 0.173 0.195
60 0.088 0.112 0.136 0.160 0.184 0.208
61 0.085 0.109 0.132 0.155 0.178 0.202
62 0.124 0.158 0.191 0.225 0.259 0.293
63 0.107 0.137 0.166 0.195 0.224 0.254
64 0.107 0.137 0.166 0.195 0.224 0.254
65 0.146 0.186 0.225 0.265 0.305 0.345
66 0.107 0.137 0.166 0.195 0.224 0.254
67 0.107 0.137 0.166 0.195 0.224 0.254
68 0.107 0.137 0.166 0.195 0.224 0.254
69 0.107 0.137 0.166 0.195 0.224 0.254
70 0.129 0.164 0.199 0.234 0.269 0.304
Public Agency Miscellaneous 3% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.026 0.033 0.040 0.048 0.055 0.062
51 0.021 0.026 0.032 0.038 0.043 0.049
52 0.019 0.025 0.030 0.035 0.040 0.046
53 0.025 0.032 0.038 0.045 0.052 0.059
54 0.039 0.049 0.060 0.070 0.081 0.091
55 0.083 0.105 0.128 0.150 0.173 0.195
56 0.055 0.070 0.085 0.100 0.115 0.130
57 0.061 0.077 0.094 0.110 0.127 0.143
58 0.072 0.091 0.111 0.130 0.150 0.169
59 0.080 0.102 0.123 0.145 0.167 0.189
60 0.094 0.119 0.145 0.170 0.196 0.221
61 0.088 0.112 0.136 0.160 0.184 0.208
62 0.127 0.161 0.196 0.230 0.265 0.299
63 0.110 0.140 0.170 0.200 0.230 0.260
64 0.110 0.140 0.170 0.200 0.230 0.260
65 0.149 0.189 0.230 0.270 0.311 0.351
66 0.110 0.140 0.170 0.200 0.230 0.260
67 0.110 0.140 0.170 0.200 0.230 0.260
68 0.110 0.140 0.170 0.200 0.230 0.260
69 0.110 0.140 0.170 0.200 0.230 0.260
70 0.132 0.168 0.204 0.240 0.276 0.312
Attachment A
Page 59 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-14
Service Retirement
Public Agency Miscellaneous 2% @ 62
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
51 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
52 0.0103 0.0132 0.0160 0.0188 0.0216 0.0244
53 0.0131 0.0167 0.0202 0.0238 0.0273 0.0309
54 0.0213 0.0272 0.0330 0.0388 0.0446 0.0504
55 0.0440 0.0560 0.0680 0.0800 0.0920 0.1040
56 0.0303 0.0385 0.0468 0.0550 0.0633 0.0715
57 0.0363 0.0462 0.0561 0.0660 0.0759 0.0858
58 0.00465 0.0592 0.0718 0.0845 0.0972 0.1099
59 0.0578 0.0735 0.0893 0.1050 0.1208 0.1365
60 0.0616 0.0784 0.0952 0.1120 0.1288 0.1456
61 0.0888 0.0788 0.0956 0.1125 0.1294 0.1463
62 0.0941 0.1232 0.1496 0.1760 0.2024 0.2288
63 0.1287 0.1131 0.1373 0.1615 0.1857 0.2100
64 0.1045 0.1197 0.1454 0.1710 0.1967 0.2223
65 0.1045 0.1638 0.1989 0.2340 0.2691 0.3042
66 0.1045 0.1330 0.1615 0.1900 0.2185 0.2470
67 0.1045 0.1330 0.1615 0.1900 0.2185 0.2470
68 0.1045 0.1330 0.1615 0.1900 0.2185 0.2470
69 0.1045 0.1330 0.1615 0.1900 0.2185 0.2470
70 0.1254 0.1596 0.1938 0.2280 0.2622 0.9640
Service Retirement
Public Agency Fire ½ @ 55 and 2% @ 55
Age
50
51
52
53
54
55
Rate
0.01588
0.00000
0.03442
0.01990
0.04132
0.07513
Age
56
57
58
59
60
Rate
0.11079
0.00000
0.09499
0.04409
1.00000
Public Agency Police ½ @ 55 and 2% @ 55
Age
50
51
52
53
54
55
Rate
0.02552
0.00000
0.01637
0.02717
0.00949
0.16674
Age
56
57
58
59
60
Rate
0.06921
0.05113
0.07241
0.07043
1.00000
Attachment A
Page 60 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-15
Service Retirement
Public Agency Police 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.014 0.014 0.014 0.014 0.025 0.045
51 0.012 0.012 0.012 0.012 0.023 0.040
52 0.026 0.026 0.026 0.026 0.048 0.086
53 0.052 0.052 0.052 0.052 0.096 0.171
54 0.070 0.070 0.070 0.070 0.128 0.227
55 0.090 0.090 0.090 0.090 0.165 0.293
56 0.064 0.064 0.064 0.064 0.117 0.208
57 0.071 0.071 0.071 0.071 0.130 0.232
58 0.063 0.063 0.063 0.063 0.115 0.205
59 0.140 0.140 0.140 0.140 0.174 0.254
60 0.140 0.140 0.140 0.140 0.172 0.251
61 0.140 0.140 0.140 0.140 0.172 0.251
62 0.140 0.140 0.140 0.140 0.172 0.251
63 0.140 0.140 0.140 0.140 0.172 0.251
64 0.140 0.140 0.140 0.140 0.172 0.251
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.007 0.007 0.007 0.007 0.010 0.015
51 0.008 0.008 0.008 0.008 0.013 0.019
52 0.017 0.017 0.017 0.017 0.027 0.040
53 0.047 0.047 0.047 0.047 0.072 0.107
54 0.064 0.064 0.064 0.064 0.098 0.147
55 0.087 0.087 0.087 0.087 0.134 0.200
56 0.078 0.078 0.078 0.078 0.120 0.180
57 0.090 0.090 0.090 0.090 0.139 0.208
58 0.079 0.079 0.079 0.079 0.122 0.182
59 0.073 0.073 0.073 0.073 0.112 0.168
60 0.114 0.114 0.114 0.114 0.175 0.262
61 0.114 0.114 0.114 0.114 0.175 0.262
62 0.114 0.114 0.114 0.114 0.175 0.262
63 0.114 0.114 0.114 0.114 0.175 0.262
64 0.114 0.114 0.114 0.114 0.175 0.262
65 1.000 1.000 1.000 1.000 1.000 1.000
Attachment A
Page 61 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-16
Service Retirement
Public Agency Police 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.019 0.019 0.019 0.019 0.040 0.060
51 0.024 0.024 0.024 0.024 0.049 0.074
52 0.024 0.024 0.024 0.024 0.051 0.077
53 0.059 0.059 0.059 0.059 0.121 0.183
54 0.069 0.069 0.069 0.069 0.142 0.215
55 0.116 0.116 0.116 0.116 0.240 0.363
56 0.076 0.076 0.076 0.076 0.156 0.236
57 0.058 0.058 0.058 0.058 0.120 0.181
58 0.076 0.076 0.076 0.076 0.157 0.237
59 0.094 0.094 0.094 0.094 0.193 0.292
60 0.141 0.141 0.141 0.141 0.290 0.438
61 0.094 0.094 0.094 0.094 0.193 0.292
62 0.118 0.118 0.118 0.118 0.241 0.365
63 0.094 0.094 0.094 0.094 0.193 0.292
64 0.094 0.094 0.094 0.094 0.193 0.292
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.012 0.012 0.012 0.018 0.028 0.033
51 0.008 0.008 0.008 0.012 0.019 0.022
52 0.018 0.018 0.018 0.027 0.042 0.050
53 0.043 0.043 0.043 0.062 0.098 0.114
54 0.057 0.057 0.057 0.083 0.131 0.152
55 0.092 0.092 0.092 0.134 0.211 0.246
56 0.081 0.081 0.081 0.118 0.187 0.218
57 0.100 0.100 0.100 0.146 0.230 0.268
58 0.081 0.081 0.081 0.119 0.187 0.219
59 0.078 0.078 0.078 0.113 0.178 0.208
60 0.117 0.117 0.117 0.170 0.267 0.312
61 0.078 0.078 0.078 0.113 0.178 0.208
62 0.098 0.098 0.098 0.141 0.223 0.260
63 0.078 0.078 0.078 0.113 0.178 0.208
64 0.078 0.078 0.078 0.113 0.178 0.208
65 1.000 1.000 1.000 1.000 1.000 1.000
Attachment A
Page 62 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-17
Service Retirement
Public Agency Police 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0110 0.0110 0.0110 0.0110 0.0202 0.0361
51 0.0086 0.0086 0.0086 0.0086 0.0158 0.0281
52 0.0183 0.0183 0.0183 0.0183 0.0336 0.0599
53 0.0366 0.0366 0.0366 0.0366 0.0670 0.1194
54 0.0488 0.0488 0.0488 0.0488 0.0893 0.1592
55 0.0629 0.0629 0.0629 0.0629 0.1152 0.2052
56 0.0447 0.0447 0.0447 0.0447 0.0816 0.1455
57 0.0640 0.0640 0.0640 0.0640 0.1170 0.2086
58 0.0471 0.0471 0.0471 0.0471 0.0862 0.1537
59 0.1047 0.1047 0.1047 0.1047 0.1301 0.1908
60 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
61 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
62 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
63 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
64 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0052 0.0052 0.0052 0.0052 0.0081 0.0121
51 0.0057 0.0057 0.0057 0.0057 0.0088 0.0131
52 0.0121 0.0121 0.0121 0.0121 0.0187 0.0280
53 0.0326 0.0326 0.0326 0.0326 0.0501 0.0750
54 0.0447 0.0447 0.0447 0.0447 0.0688 0.1030
55 0.0608 0.0608 0.0608 0.0608 0.0935 01400
56 0.0545 0.0545 0.0545 0.0545 0.0840 0.1257
57 0.0811 0.0811 0.0811 0.0811 0.01248 0.1869
58 0.0593 0.0593 0.0593 0.0593 0.0913 0.1366
59 0.0547 0.0547 0.0547 0.0547 0.0842 0.1261
60 0.0851 0.0851 0.0851 0.0851 0.1310 0.1961
61 0.0852 0.0852 0.0852 0.0852 0.1312 0.1964
62 0.0852 0.0852 0.0852 0.0852 0.1312 0.1964
63 0.0852 0.0852 0.0852 0.0852 0.1312 0.1964
64 0.0852 0.0852 0.0852 0.0852 0.1312 0.1964
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Attachment A
Page 63 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-18
Service Retirement
Public Agency Police 2.5% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0138 0.0138 0.0138 0.0138 0.0253 0.0451
51 0.0117 0.0117 0.0117 0.0117 0.0215 0.0382
52 0.0249 0.0249 0.0249 0.0249 0.0456 0.0812
53 0.0471 0.0471 0.0471 0.0471 0.0861 0.1535
54 0.0627 0.0627 0.0627 0.0627 0.1148 0.2047
55 0.0764 0.0764 0.0764 0.0764 0.1398 0.2492
56 0.0542 0.0542 0.0542 0.0542 0.0991 0.1767
57 0.0711 0.0711 0.0711 0.0711 0.1300 0.2318
58 0.0565 0.0565 0.0565 0.0565 0.1034 0.1844
59 0.1256 0.1256 0.1256 0.1256 0.1562 0.2290
60 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
61 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
62 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
63 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
64 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 2.5% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0065 0.0065 0.0065 0.0065 0.0101 0.0151
51 0.0077 0.0077 0.0077 0.0077 0.0119 0.0178
52 0.0164 0.0164 0.0164 0.0164 0.0254 0.0380
53 0.0419 0.0419 0.0419 0.0419 0.0644 0.0965
54 0.0574 0.0574 0.0574 0.0574 0.0885 0.1324
55 0.0738 0.0738 0.0738 0.0738 0.1136 01700
56 0.0662 0.0662 0.0662 0.0662 0.1020 0.2077
57 0.0901 0.0901 0.0901 0.0901 0.1387 0.1639
58 0.0711 0.0711 0.0711 0.0711 0.1095 0.1513
59 0.0656 0.0656 0.0656 0.0656 0.1011 0.2354
60 0.1022 0.1022 0.1022 0.1022 0.1572 0.2356
61 0.1022 0.1022 0.1022 0.1022 0.1574 0.2356
62 0.1022 0.1022 0.1022 0.1022 0.1574 0.2356
63 0.1022 0.1022 0.1022 0.1022 0.1574 0.2356
64 0.1022 0.1022 0.1022 0.1022 0.1574 0.2356
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Attachment A
Page 64 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-19
Service Retirement
Public Agency Police 2.7% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0138 0.0138 0.0138 0.0138 0.0253 0.0451
51 0.0123 0.0123 0.0123 0.0123 0.0226 0.0402
52 0.0249 0.0249 0.0249 0.0249 0.0456 0.0812
53 0.0497 0.0497 0.0497 0.0497 0.0909 0.1621
54 0.0662 0.0662 0.0662 0.0662 0.1211 0.2160
55 0.0854 0.0854 0.0854 0.0854 0.1563 0.2785
56 0.0606 0.0606 0.0606 0.0606 0.1108 0.1975
57 0.0711 0.0711 0.0711 0.0711 0.1300 0.2318
58 0.0628 0.0628 0.0628 0.0628 0.1149 0.2049
59 0.1396 0.1396 0.1396 0.1396 0.1735 0.2544
60 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
61 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
62 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
63 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
64 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 2.7% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0065 0.0065 0.0065 0.0065 0.0101 0.0151
51 0.0081 0.0081 0.0081 0.0081 0.0125 0.0187
52 0.0164 0.0164 0.0164 0.0164 0.0254 0.0380
53 0.0442 0.0442 0.0442 0.0442 0.0680 0.1018
54 0.0606 0.0606 0.0606 0.0606 0.0934 0.1397
55 0.0825 0.0825 0.0825 0.0825 0.1269 01900
56 0.0740 0.0740 0.0740 0.0740 0.1140 0.1706
57 0.0901 0.0901 0.0901 0.0901 0.1387 0.2077
58 0.0790 0.0790 0.0790 0.0790 0.1217 0.1821
59 0.0729 0.0729 0.0729 0.0729 0.1123 0.1681
60 0.1135 0.1135 0.1135 0.1135 0.1747 0.2615
61 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
62 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
63 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
64 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Attachment A
Page 65 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-20
Service Retirement
Schools 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.005 0.009 0.013 0.015 0.016 0.018
51 0.005 0.010 0.014 0.017 0.019 0.021
52 0.006 0.012 0.017 0.020 0.022 0.025
53 0.007 0.014 0.019 0.023 0.026 0.029
54 0.012 0.024 0.033 0.039 0.044 0.049
55 0.024 0.048 0.067 0.079 0.088 0.099
56 0.020 0.039 0.055 0.065 0.072 0.081
57 0.021 0.042 0.059 0.070 0.078 0.087
58 0.025 0.050 0.070 0.083 0.092 0.103
59 0.029 0.057 0.080 0.095 0.105 0.118
60 0.037 0.073 0.102 0.121 0.134 0.150
61 0.046 0.090 0.126 0.149 0.166 0.186
62 0.076 0.151 0.212 0.250 0.278 0.311
63 0.069 0.136 0.191 0.225 0.251 0.281
64 0.067 0.133 0.185 0.219 0.244 0.273
65 0.091 0.180 0.251 0.297 0.331 0.370
66 0.072 0.143 0.200 0.237 0.264 0.295
67 0.067 0.132 0.185 0.218 0.243 0.272
68 0.060 0.118 0.165 0.195 0.217 0.243
69 0.067 0.133 0.187 0.220 0.246 0.275
70 0.066 0.131 0.183 0.216 0.241 0.270
Miscellaneous
Superfunded Status
Prior to enactment of the Public Employees’ Pension Reform Act (PEPRA) that became effective January 1,
2013, a plan in superfunded status (actuarial value of assets exceeding present value of benefits) would
normally pay a zero employer contribution rate while also being permitted to use its superfunded assets to
pay its employees’ normal member contributions.
However, Section 7522.52(a) of PEPRA states, “In any fiscal year a public employer’s contribution to a
defined benefit plan, in combination with employee contributions to that defined benefit plan, shall not be
less than the total normal cost rate…” This means that not only must employers pay their employer normal
cost regardless of plan surplus, but also, employers may no longer use superfunded assets to pay employee
normal member contributions.
Internal Revenue Code Section 415
The limitations on benefits imposed by Internal Revenue Code Section 415 are taken into account in this
valuation. Each year the impact of any changes in this limitation since the prior valuation is included and
amortized as part of the actuarial gain or loss base. This results in lower contributions for those employers
contributing to the Replacement Benefit Fund and protects CalPERS from prefunding expected benefits in
excess of limits imposed by federal tax law.
Attachment A
Page 66 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-21
Internal Revenue Code Section 401(a)(17)
The limitations on compensation imposed by Internal Revenue Code Section 401(a)(17) are taken into
account in this valuation. Each year, the impact of any changes in the compensation limitation since the
prior valuation is included and amortized as part of the actuarial gain or loss base.
PEPRA Assumptions
The Public Employees’ Pension Reform Act of 2013 (PEPRA) mandated new benefit formulas and new
member contributions for new members (as defined by PEPRA) hired after January 1, 2013. For non-pooled
plans, these new members will first be reflected in the June 30, 2013 non-pooled plan valuations. New
members in pooled plans will first be reflected in the new Miscellaneous and Safety risk pools created by the
CalPERS Board in November 2012 in response to the passage of PEPRA, also beginning with the June 30,
2013 valuation. Different assumptions for these new PEPRA members are disclosed above.
Attachment A
Page 67 of 96
THIS PAGE
INTENTIONALLY
LEFT BLANK
Attachment A
Page 68 of 96
APPENDIX B
PRINCIPAL PLAN PROVISIONS
Attachment A
Page 69 of 96
THIS PAGE
INTENTIONALLY
LEFT BLANK
Attachment A
Page 70 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-1
The following is a description of the principal plan provisions used in calculating costs and liabilities. We have
indicated whether a plan provision is standard or optional. Standard benefits are applicable to all members while
optional benefits vary among employers. Optional benefits that apply to a single period of time, such as Golden
Handshakes, have not been included. Many of the statements in this summary are general in nature, and are
intended to provide an easily understood summary of the complex Public Employees’ Retirement Law. The law itself
governs in all situations.
PEPRA Benefit Changes
The Public Employees’ Pension Reform Act of 2013 (PEPRA) requires new benefits and member contributions for new
members as defined by PEPRA, that are hired after January 1, 2013. These PEPRA members are reflected in your
June 30, 2013 actuarial valuation. Members in pooled plans are reflected in the new Miscellaneous and Safety risk
pools created by the CalPERS Board in November 2012 in response to the passage of PEPRA, beginning with the
June 30, 2013 valuation.
Service Retirement
Eligibility
A classic CalPERS member or PEPRA Safety member becomes eligible for Service Retirement upon attainment of age
50 with at least 5 years of credited service (total service across all CalPERS employers, and with certain other
Retirement Systems with which CalPERS has reciprocity agreements). For employees hired into a plan with the 1.5%
at 65 formula, eligibility for service retirement is age 55 with at least 5 years of service. PEPRA miscellaneous
members become eligible for Service Retirement upon attainment of age 52 with at least 5 years of service.
Benefit
The Service Retirement benefit is a monthly allowance equal to the product of the benefit factor, years of service,
and final compensation.
The benefit factor depends on the benefit formula specified in your agency’s contract. The table below shows
the factors for each of the available formulas. Factors vary by the member’s age at retirement. Listed are the
factors for retirement at whole year ages:
Miscellaneous Plan Formulas
Retirement
Age
1.5% at
65 2% at 60 2% at 55 2.5% at
55
2.7% at
55 3% at 60
PEPRA
2% at 62
50 0.5000% 1.092% 1.426% 2.000% 2.000% 2.000% N/A
51 0.5667% 1.156% 1.522% 2.100% 2.140% 2.100% N/A
52 0.6334% 1.224% 1.628% 2.200% 2.280% 2.200% 1.000%
53 0.7000% 1.296% 1.742% 2.300% 2.420% 2.300% 1.100%
54 0.7667% 1.376% 1.866% 2.400% 2.560% 2.400% 1.200%
55 0.8334% 1.460% 2.000% 2.500% 2.700% 2.500% 1.300%
56 0.9000% 1.552% 2.052% 2.500% 2.700% 2.600% 1.400%
57 0.9667% 1.650% 2.104% 2.500% 2.700% 2.700% 1.500%
58 1.0334% 1.758% 2.156% 2.500% 2.700% 2.800% 1.600%
59 1.1000% 1.874% 2.210% 2.500% 2.700% 2.900% 1.700%
60 1.1667% 2.000% 2.262% 2.500% 2.700% 3.000% 1.800%
61 1.2334% 2.134% 2.314% 2.500% 2.700% 3.000% 1.900%
62 1.3000% 2.272% 2.366% 2.500% 2.700% 3.000% 2.000%
Attachment A
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B-2
63 1.3667% 2.418% 2.418% 2.500% 2.700% 3.000% 2.100%
64 1.4334% 2.418% 2.418% 2.500% 2.700% 3.000% 2.200%
65 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.300%
66 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.400%
67 & up 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.500%
Safety Plan Formulas
Retirement
Age ½ at 55 * 2% at 55 2% at 50 3% at 55 3% at 50
50 1.783% 1.426% 2.000% 2.400% 3.000%
51 1.903% 1.522% 2.140% 2.520% 3.000%
52 2.035% 1.628% 2.280% 2.640% 3.000%
53 2.178% 1.742% 2.420% 2.760% 3.000%
54 2.333% 1.866% 2.560% 2.880% 3.000%
55 & Up 2.500% 2.000% 2.700% 3.000% 3.000%
* For this formula, the benefit factor also varies by entry age. The factors shown are for members with an entry age
of 35 or greater. If entry age is less than 35, then the age 55 benefit factor is 50 percent divided by the difference
between age 55 and entry age. The benefit factor for ages prior to age 55 is the same proportion of the age 55
benefit factor as in the above table.
PEPRA Safety Plan Formulas
Retirement Age 2% at 57 2.5% at 57 2.7% at 57
50 1.426% 2.000% 2.000%
51 1.508% 2.071% 2.100%
52 1.590% 2.143% 2.200%
53 1.672% 2.214% 2.300%
54 1.754% 2.286% 2.400%
55 1.836% 2.357% 2.500%
56 1.918% 2.429% 2.600%
57 & Up 2.000% 2.500% 2.700%
The years of service is the amount credited by CalPERS to a member while he or she is employed in this group
(or for other periods that are recognized under the employer’s contract with CalPERS). For a member who has
earned service with multiple CalPERS employers, the benefit from each employer is calculated separately
according to each employer’s contract, and then added together for the total allowance. An agency may contract
for an optional benefit where any unused sick leave accumulated at the time of retirement will be converted to
credited service at a rate of 0.004 years of service for each day of sick leave.
The final compensation is the monthly average of the member’s highest 36 or 12 consecutive months’ full-time
equivalent monthly pay (no matter which CalPERS employer paid this compensation). The standard benefit is 36
months. Employers have the option of providing a final compensation equal to the highest 12 consecutive
months. Final compensation must be defined by the highest 36 consecutive months’ pay under the 1.5% at 65
formula. PEPRA members have a cap on the annual salary that can be used to calculate final compensation for
all new members based on the Social Security Contribution and Benefit Base. For employees that participate in
Attachment A
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B-3
Social Security this cap is $113,700 for 2013 and for those employees that do not participate in social security
the cap for 2013 is $136,440, the equivalent of 120 percent of the 2013 Contribution and Benefit Base.
Adjustments to the caps are permitted annually based on changes to the CPI for All Urban Consumers.
Employees must be covered by Social Security with the 1.5% at 65 formula. Social Security is optional for all
other benefit formulas. For employees covered by Social Security, the Modified formula is the standard benefit.
Under this type of formula, the final compensation is offset by $133.33 (or by one third if the final compensation
is less than $400). Employers may contract for the Full benefit with Social Security that will eliminate the offset
applicable to the final compensation. For employees not covered by Social Security, the Full benefit is paid with
no offsets. Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the
offset is $317 if members are not covered by Social Security or $513 if members are covered by Social Security.
The Miscellaneous Service Retirement benefit is not capped. The Safety Service Retirement benefit is capped at
90 percent of final compensation.
Vested Deferred Retirement
Eligibility for Deferred Status
A CalPERS member becomes eligible for a deferred vested retirement benefit when he or she leaves employment,
keeps his or her contribution account balance on deposit with CalPERS, and has earned at least 5 years of credited
service (total service across all CalPERS employers, and with certain other Retirement Systems with which CalPERS
has reciprocity agreements).
Eligibility to Start Receiving Benefits
The CalPERS classic members and Safety PEPRA members become eligible to receive the deferred retirement benefit
upon satisfying the eligibility requirements for Deferred Status and upon attainment of age 50 (55 for employees
hired into a 1.5% @ 65 plan). PEPRA Miscellaneous members become eligible to receive the deferred retirement
benefit upon satisfying the eligibility requirements for Deferred Status and upon attainment of age 52.
Benefit
The vested deferred retirement benefit is the same as the Service Retirement benefit, where the benefit factor is
based on the member’s age at allowance commencement. For members who have earned service with multiple
CalPERS employers, the benefit from each employer is calculated separately according to each employer’s contract,
and then added together for the total allowance.
Non-Industrial (Non-Job Related) Disability Retirement
Eligibility
A CalPERS member is eligible for Non-Industrial Disability Retirement if he or she becomes disabled and has at least
5 years of credited service (total service across all CalPERS employers, and with certain other Retirement Systems
with which CalPERS has reciprocity agreements). There is no special age requirement. Disabled means the member is
unable to perform his or her job because of an illness or injury, which is expected to be permanent or to last
indefinitely. The illness or injury does not have to be job related. A CalPERS member must be actively employed by
any CalPERS employer at the time of disability in order to be eligible for this benefit.
Standard Benefit
The standard Non-Industrial Disability Retirement benefit is a monthly allowance equal to 1.8 percent of final
compensation, multiplied by service, which is determined as follows:
Service is CalPERS credited service, for members with less than 10 years of service or greater than 18.518 years
of service; or
Service is CalPERS credited service plus the additional number of years that the member would have worked
until age 60, for members with at least 10 years but not more than 18.518 years of service. The maximum
benefit in this case is 33 1/3 percent of Final Compensation.
Attachment A
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B-4
Improved Benefit
Employers have the option of providing the improved Non-Industrial Disability Retirement benefit. This benefit
provides a monthly allowance equal to 30 percent of final compensation for the first 5 years of service, plus 1 percent
for each additional year of service to a maximum of 50 percent of final compensation.
Members who are eligible for a larger service retirement benefit may choose to receive that benefit in lieu of a
disability benefit. Members eligible to retire, and who have attained the normal retirement age determined by their
service retirement benefit formula, will receive the same dollar amount for disability retirement as that payable for
service retirement. For members who have earned service with multiple CalPERS employers, the benefit attributed to
each employer is the total disability allowance multiplied by the ratio of service with a particular employer to the total
CalPERS service.
Industrial (Job Related) Disability Retirement
All safety members have this benefit. For miscellaneous members, employers have the option of providing this
benefit. An employer may choose to provide the Increased benefit option or the Improved benefit option.
Eligibility
An employee is eligible for Industrial Disability Retirement if he or she becomes disabled while working, where
disabled means the member is unable to perform the duties of the job because of a work-related illness or injury,
which is, expected to be permanent or to last indefinitely. A CalPERS member who has left active employment within
this group is not eligible for this benefit, except to the extent described below.
Standard Benefit
The standard Industrial Disability Retirement benefit is a monthly allowance equal to 50 percent of final
compensation.
Increased Benefit (75 percent of Final Compensation)
The increased Industrial Disability Retirement benefit is a monthly allowance equal to 75 percent final compensation
for total disability.
Improved Benefit (50 percent to 90 percent of Final Compensation)
The improved Industrial Disability Retirement benefit is a monthly allowance equal to the Workman’s Compensation
Appeals Board permanent disability rate percentage (if 50 percent or greater, with a maximum of 90 percent) times
the final compensation.
For a CalPERS member not actively employed in this group who became disabled while employed by some other
CalPERS employer, the benefit is a return of accumulated member contributions with respect to employment in this
group. With the standard or increased benefit, a member may also choose to receive the annuitization of the
accumulated member contributions.
If a member is eligible for Service Retirement and if the Service Retirement benefit is more than the Industrial
Disability Retirement benefit, the member may choose to receive the larger benefit.
Post-Retirement Death Benefit
Standard Lump Sum Payment
Upon the death of a retiree, a one-time lump sum payment of $500 will be made to the retiree’s designated
survivor(s), or to the retiree’s estate.
Improved Lump Sum Payment
Employers have the option of providing an improved lump sum death benefit of $600, $2,000, $3,000, $4,000 or
$5,000.
Attachment A
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PRINCIPAL PLAN PROVISIONS
B-5
Form of Payment for Retirement Allowance
Standard Form of Payment
Generally, the retirement allowance is paid to the retiree in the form of an annuity for as long as he or she is alive.
The retiree may choose to provide for a portion of his or her allowance to be paid to any designated beneficiary after
the retiree’s death. CalPERS provides for a variety of such benefit options, which the retiree pays for by taking a
reduction in his or her retirement allowance. Such reduction takes into account the amount to be provided to the
beneficiary and the probable duration of payments (based on the ages of the member and beneficiary) made
subsequent to the member’s death.
Improved Form of Payment (Post Retirement Survivor Allowance)
Employers have the option to contract for the post retirement survivor allowance.
For retirement allowances with respect to service subject to the modified formula, 25 percent of the retirement
allowance will automatically be continued to certain statutory beneficiaries upon the death of the retiree, without a
reduction in the retiree’s allowance. For retirement allowances with respect to service subject to the full or
supplemental formula, 50 percent of the retirement allowance will automatically be continued to certain statutory
beneficiaries upon the death of the retiree, without a reduction in the retiree’s allowance. This additional benefit is
often referred to as post retirement survivor allowance (PRSA) or simply as survivor continuance.
In other words, 25 percent or 50 percent of the allowance, the continuance portion, is paid to the retiree for as long
as he or she is alive, and that same amount is continued to the retiree’s spouse (or if no eligible spouse, to
unmarried children until they attain age 18; or, if no eligible children, to a qualifying dependent parent) for the rest
of his or her lifetime. This benefit will not be discontinued in the event the spouse remarries.
The remaining 75 percent or 50 percent of the retirement allowance, which may be referred to as the option portion
of the benefit, is paid to the retiree as an annuity for as long as he or she is alive. Or, the retiree may choose to
provide for some of this option portion to be paid to any designated beneficiary after the retiree’s death. Benefit
options applicable to the option portion are the same as those offered with the standard form. The reduction is
calculated in the same manner but is applied only to the option portion.
Pre-Retirement Death Benefits
Basic Death Benefit
This is a standard benefit.
Eligibility
An employee’s beneficiary (or estate) may receive the Basic Death benefit if the member dies while actively
employed. A CalPERS member must be actively employed with the CalPERS employer providing this benefit to be
eligible for this benefit. A member’s survivor who is eligible for any other pre-retirement death benefit may choose to
receive that death benefit instead of this Basic Death benefit.
Benefit
The Basic Death Benefit is a lump sum in the amount of the member’s accumulated contributions, where interest is
currently credited at 7.5 percent per year, plus a lump sum in the amount of one month's salary for each completed
year of current service, up to a maximum of six months' salary. For purposes of this benefit, one month's salary is
defined as the member's average monthly full-time rate of compensation during the 12 months preceding death.
1957 Survivor Benefit
This is a standard benefit.
Attachment A
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B-6
Eligibility
An employee’s eligible survivor(s) may receive the 1957 Survivor benefit if the member dies while actively employed,
has attained at least age 50 for Classic and Safety PEPRA members and age 52 for Miscellaneous PEPRA members,
and has at least 5 years of credited service (total service across all CalPERS employers and with certain other
Retirement Systems with which CalPERS has reciprocity agreements). A CalPERS member must be actively employed
with the CalPERS employer providing this benefit to be eligible for this benefit. An eligible survivor means the
surviving spouse to whom the member was married at least one year before death or, if there is no eligible spouse,
to the member's unmarried children under age 18. A member’s survivor who is eligible for any other pre-retirement
death benefit may choose to receive that death benefit instead of this 1957 Survivor benefit.
Benefit
The 1957 Survivor benefit is a monthly allowance equal to one-half of the unmodified Service Retirement benefit that
the member would have been entitled to receive if the member had retired on the date of his or her death. If the
benefit is payable to the spouse, the benefit is discontinued upon the death of the spouse. If the benefit is payable to
a dependent child, the benefit will be discontinued upon death or attainment of age 18, unless the child is disabled.
The total amount paid will be at least equal to the Basic Death benefit.
Optional Settlement 2W Death Benefit
This is an optional benefit.
Eligibility
An employee’s eligible survivor may receive the Optional Settlement 2W Death benefit if the member dies while
actively employed, has attained at least age 50 for Classic and Safety PEPRA members and age 52 for Miscellaneous
PEPRA members, and has at least 5 years of credited service (total service across all CalPERS employers and with
certain other Retirement Systems with which CalPERS has reciprocity agreements). A CalPERS member who is no
longer actively employed with any CalPERS employer is not eligible for this benefit. An eligible survivor means the
surviving spouse to whom the member was married at least one year before death. A member’s survivor who is
eligible for any other pre-retirement death benefit may choose to receive that death benefit instead of this Optional
Settlement 2W Death benefit.
Benefit
The Optional Settlement 2W Death benefit is a monthly allowance equal to the Service Retirement benefit that the
member would have received had the member retired on the date of his or her death and elected Optional
Settlement 2W. (A retiree who elects Optional Settlement 2W receives an allowance that has been reduced so that it
will continue to be paid after his or her death to a surviving beneficiary.) The allowance is payable as long as the
surviving spouse lives, at which time it is continued to any unmarried children under age 18, if applicable. The total
amount paid will be at least equal to the Basic Death Benefit.
Special Death Benefit
This is a standard benefit for safety members. An employer may elect to provide this benefit for miscellaneous
members.
Eligibility
An employee’s eligible survivor(s) may receive the Special Death benefit if the member dies while actively employed
and the death is job-related. A CalPERS member who is no longer actively employed with any CalPERS employer is
not eligible for this benefit. An eligible survivor means the surviving spouse to whom the member was married prior
to the onset of the injury or illness that resulted in death. If there is no eligible spouse, an eligible survivor means the
member's unmarried children under age 22. An eligible survivor who chooses to receive this benefit will not receive
any other death benefit.
Benefit
The Special Death benefit is a monthly allowance equal to 50 percent of final compensation, and will be increased
whenever the compensation paid to active employees is increased but ceasing to increase when the member would
Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-7
have attained age 50. The allowance is payable to the surviving spouse until death at which time the allowance is
continued to any unmarried children under age 22. There is a guarantee that the total amount paid will at least equal
the Basic Death Benefit.
If the member’s death is the result of an accident or injury caused by external violence or physical force incurred in
the performance of the member’s duty, and there are eligible surviving children (eligible means unmarried children
under age 22) in addition to an eligible spouse, then an additional monthly allowance is paid equal to the
following:
if 1 eligible child: 12.5 percent of final compensation
if 2 eligible children: 20.0 percent of final compensation
if 3 or more eligible children: 25.0 percent of final compensation
Alternate Death Benefit for Local Fire Members
This is an optional benefit available only to local fire members.
Eligibility
An employee’s eligible survivor(s) may receive the Alternate Death benefit in lieu of the Basic Death Benefit or the
1957 Survivor Benefit if the member dies while actively employed and has at least 20 years of total CalPERS service.
A CalPERS member who is no longer actively employed with any CalPERS employer is not eligible for this benefit. An
eligible survivor means the surviving spouse to whom the member was married prior to the onset of the injury or
illness that resulted in death. If there is no eligible spouse, an eligible survivor means the member's unmarried
children under age 18.
Benefit
The Alternate Death benefit is a monthly allowance equal to the Service Retirement benefit that the member would
have received had the member retired on the date of his or her death and elected Optional Settlement 2W. (A retiree
who elects Optional Settlement 2W receives an allowance that has been reduced so that it will continue to be paid
after his or her death to a surviving beneficiary.) If the member has not yet attained age 50, the benefit is equal to
that which would be payable if the member had retired at age 50, based on service credited at the time of death.
The allowance is payable as long as the surviving spouse lives, at which time it is continued to any unmarried
children under age 18, if applicable. The total amount paid will be at least equal to the Basic Death Benefit.
Cost-of-Living Adjustments (COLA)
Standard Benefit
Beginning the second calendar year after the year of retirement, retirement and survivor allowances will be annually
adjusted on a compound basis by 2 percent.
Improved Benefit
Employers have the option of providing any of these improved cost-of-living adjustments by contracting for any one
of these Class 1 optional benefits. An improved COLA is not available in conjunction with the 1.5% at 65 formula.
Beginning the second calendar year after the year of retirement, retirement and survivor allowances will be annually
adjusted on a compound basis by either 3 percent, 4 percent or 5 percent. However, the cumulative adjustment may
not be greater than the cumulative change in the Consumer Price Index since the date of retirement.
Purchasing Power Protection Allowance (PPPA)
Retirement and survivor allowances are protected against inflation by PPPA. PPPA benefits are cost-of-living
adjustments that are intended to maintain an individual’s allowance at 80 percent of the initial allowance at
Attachment A
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PRINCIPAL PLAN PROVISIONS
B-8
retirement adjusted for inflation since retirement. The PPPA benefit will be coordinated with other cost-of-living
adjustments provided under the plan.
Employee Contributions
Each employee contributes toward his or her retirement based upon the retirement formula. The standard employee
contribution is as described below.
The percent contributed below the monthly compensation breakpoint is 0 percent.
The monthly compensation breakpoint is $0 for full and supplemental formula members and $133.33 for
employees covered by the modified formula.
The percent contributed above the monthly compensation breakpoint depends upon the benefit formula, as
shown in the table below.
Benefit Formula Percent Contributed above the
Breakpoint
Miscellaneous, 1.5% at 65 2%
Miscellaneous, 2% at 60 7%
Miscellaneous, 2% at 55 7%
Miscellaneous, 2.5% at 55 8%
Miscellaneous, 2.7% at 55 8%
Miscellaneous, 3% at 60 8%
Miscellaneous, 2% at 62 50% of the Total Normal Cost
Safety, 1/2 at 55 Varies by entry age
Safety, 2% at 55 7%
Safety, 2% at 50 9%
Safety, 3% at 55 9%
Safety, 3% at 50 9%
Safety, 2% at 57 50% of the Total Normal Cost
Safety, 2.5% at 57 50% of the Total Normal Cost
Safety, 2.7% at 57 50% of the Total Normal Cost
The employer may choose to “pick-up” these contributions for the employees (Employer Paid Member Contributions
or EPMC). EPMC is prohibited for new PEPRA members.
An employer may also include Employee Cost Sharing in the contract, where employees agree to share the cost of
the employer contribution with or without a change in benefit. These contributions are paid in addition to the
member contribution.
Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the offset is $317 and
the contribution rate is 6 percent if members are not covered by Social Security. If members are covered by Social
Security, the offset is $513 and the contribution rate is 5 percent.
Refund of Employee Contributions
If the member’s service with the employer ends, and if the member does not satisfy the eligibility conditions for any
of the retirement benefits above, the member may elect to receive a refund of his or her employee contributions,
which are credited annually with 6 percent interest.
Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
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B-9
1959 Survivor Benefit
This is a pre-retirement death benefit available only to members not covered by Social Security. Any agency joining
CalPERS subsequent to 1993 was required to provide this benefit if the members were not covered by Social
Security. The benefit is optional for agencies joining CalPERS prior to 1994. Levels 1, 2 and 3 are now closed. Any
new agency or any agency wishing to add this benefit or increase the current level must choose the 4th or Indexed
Level.
This benefit is not included in the results presented in this valuation. More information on this benefit is available on
the CalPERS website at www.calpers.ca.gov.
Attachment A
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APPENDIX C
PARTICIPANT DATA
SUMMARY OF VALUATION DATA
ACTIVE MEMBERS
TRANSFERRED AND TERMINATED MEMBERS
RETIRED MEMBERS AND BENEFICIARIES
Attachment A
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Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-1
Summary of Valuation Data
June 30, 2012 June 30, 2013
1. Active Members
a) Counts 794 789
b) Average Attained Age
45.88 46.31
c) Average Entry Age to Rate Plan 35.18 35.30
d) Average Years of Service 10.70 11.01
e) Average Annual Covered Pay $ 79,233 $ 81,673
f) Annual Covered Payroll 62,910,810 64,439,680
g) Projected Annual Payroll for Contribution Year 68,744,341 70,414,978
h) Present Value of Future Payroll 496,755,984 504,789,216
2. Transferred Members
a) Counts 288 295
b) Average Attained Age 46.23 45.76
c) Average Years of Service 3.49 3.48
d) Average Annual Covered Pay $ 105,875 $ 106,639
3. Terminated Members
a) Counts 321 334
b) Average Attained Age 46.83 47.27
c) Average Years of Service 3.47 3.43
d) Average Annual Covered Pay $ 62,330 $ 61,875
4. Retired Members and Beneficiaries
a) Counts 960 989
b) Average Attained Age 68.24 68.56
c) Average Annual Benefits $ 30,175 $ 30,968
5. Active to Retired Ratio [(1a) / (4a)] 0.83 0.80
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple
records may exist for those who have service in more than one valuation group. This does not result in
double counting of liabilities.
Average Annual Benefits represents benefit amounts payable by this plan only. Some members may have
service with another agency and would therefore have a larger total benefit than would be included as part
of the average shown here.
Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-2
Active Members
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple records
may exist for those who have service in more than one valuation group. This does not result in double counting of
liabilities.
Distribution of Active Members by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
15-24 12 0 0 0 0 0 12
25-29 33 6 1 0 0 0 40
30-34 44 26 13 2 0 0 85
35-39 43 25 25 9 0 0 102
40-44 32 21 27 14 7 0 101
45-49 32 18 29 22 15 6 122
50-54 32 21 31 28 31 19 162
55-59 22 21 13 18 7 15 96
60-64 6 8 11 13 10 3 51
65 and over 0 4 3 1 7 3 18
All Ages 256 150 153 107 77 46 789
Distribution of Average Annual Salaries by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Average
15-24 $55,778 $0 $0 $0 $0 $0 $55,778
25-29 68,999 71,174 70,393 0 0 0 69,360
30-34 66,225 73,055 78,041 67,762 0 0 70,157
35-39 71,848 74,273 83,848 81,745 0 0 76,257
40-44 86,209 89,671 89,214 95,538 95,353 0 89,659
45-49 87,483 83,726 80,090 90,931 91,113 90,346 86,380
50-54 77,649 91,029 81,853 83,085 84,877 103,376 85,528
55-59 80,998 79,330 85,869 87,349 92,423 93,680 85,298
60-64 82,227 72,191 80,771 88,205 101,177 90,161 86,045
65 and over 0 34,073 71,247 72,804 84,708 70,731 68,222
All Ages $75,265 $79,099 $82,800 $87,172 $89,832 $95,524 $81,673
Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-3
Transferred and Terminated Members
Distribution of Transfers to Other CalPERS Plans by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
Average
Salary
15-24 2 0 0 0 0 0 2 $69,016
25-29 16 0 0 0 0 0 16 92,232
30-34 29 2 1 0 0 0 32 94,725
35-39 32 5 0 0 0 0 37 102,814
40-44 36 6 0 2 0 0 44 101,438
45-49 41 14 1 1 1 0 58 113,290
50-54 36 10 5 1 0 0 52 116,807
55-59 24 7 4 2 1 0 38 116,977
60-64 6 5 1 0 0 0 12 91,367
65 and over 2 1 1 0 0 0 4 89,948
All Ages 224 50 13 6 2 0 295 106,639
Distribution of Terminated Participants with Funds on Deposit by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
Average
Salary
15-24 2 0 0 0 0 0 2 $62,303
25-29 6 1 0 0 0 0 7 56,381
30-34 33 4 0 0 0 0 37 59,849
35-39 39 3 0 0 0 0 42 58,165
40-44 35 9 1 0 0 0 45 67,296
45-49 36 15 6 1 0 0 58 61,848
50-54 47 9 5 5 1 0 67 66,794
55-59 27 8 2 0 0 1 38 63,755
60-64 19 4 2 2 0 0 27 53,603
65 and over 8 1 1 0 0 0 10 46,951
All Ages 252 54 17 8 1 1 333 61,882
Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-4
Retired Members and Beneficiaries
Distribution of Retirees and Beneficiaries by Age and Retirement Type*
Attained
Age
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Total
Under 30 0 0 0 0 0 3 3
30-34 0 0 1 0 0 1 2
35-39 0 0 2 0 0 0 2
40-44 0 1 1 0 0 0 2
45-49 1 4 2 0 0 0 7
50-54 32 12 2 0 0 2 48
55-59 114 7 1 0 0 5 127
60-64 169 10 1 0 0 14 194
65-69 196 11 2 0 0 8 217
70-74 126 6 2 0 0 17 151
75-79 70 7 1 0 0 6 84
80-84 51 4 0 0 0 19 74
85 and Over 52 2 0 0 0 24 78
All Ages 811 64 15 0 0 99 989
Distribution of Average Annual Amounts for Retirees and Beneficiaries by Age
and Retirement Type*
Attained
Age
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Average
Under 30 $0 $0 $0 $0 $0 $12,099 $12,099
30-34 0 0 242 0 0 10,903 5,573
35-39 0 0 249 0 0 0 249
40-44 0 8,644 239 0 0 0 4,442
45-49 17,094 12,540 618 0 0 0 9,784
50-54 32,222 12,206 885 0 0 6,888 24,857
55-59 42,841 13,975 10,894 0 0 13,610 39,848
60-64 38,551 15,189 2,031 0 0 33,285 36,779
65-69 35,459 16,858 8,908 0 0 14,121 33,485
70-74 28,386 20,616 1,759 0 0 23,916 27,222
75-79 31,204 15,461 4,014 0 0 24,240 29,071
80-84 23,966 15,178 0 0 0 20,766 22,670
85 and Over 20,996 16,768 0 0 0 20,471 20,726
All Ages $33,875 $15,103 $2,817 $0 $0 $21,675 $30,968
Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-5
Retired Members and Beneficiaries (continued)
Distribution of Retirees and Beneficiaries by Years Retired and Retirement Type*
Years
Retired
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Total
Under 5 Yrs 289 8 6 0 0 34 337
5-9 210 13 3 0 0 22 248
10-14 142 8 2 0 0 19 171
15-19 71 14 4 0 0 8 97
20-24 59 15 0 0 0 9 83
25-29 23 3 0 0 0 5 31
30 and Over 17 3 0 0 0 2 22
All Years 811 64 15 0 0 99 989
Distribution of Average Annual Amounts for Retirees and Beneficiaries by Years Retired and
Retirement Type*
Years
Retired
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Average
Under 5 Yrs $43,750 $8,668 $253 $0 $0 $27,645 $40,518
5-9 35,330 16,209 9,567 0 0 19,275 32,592
10-14 28,708 19,972 1,614 0 0 21,676 27,201
15-19 20,000 19,428 2,203 0 0 12,910 18,599
20-24 18,981 12,901 0 0 0 17,896 17,764
25-29 21,459 7,012 0 0 0 15,802 19,148
30 and Over 17,603 13,406 0 0 0 13,331 16,642
All Years $33,875 $15,103 $2,817 $0 $0 $21,675 $30,968
* Counts of members do not include alternate payees receiving benefits while the member is still working.
Therefore, the total counts may not match information on page 25 of the report. Multiple records may exist for
those who have service in more than one coverage group. This does not result in double counting of liabilities.
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APPENDIX D
DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATE
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX D
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
D-1
DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATE
The table below shows the determination of the Member contribution rates based on 50 percent of the Total Normal
Cost for each respective plan on June 30, 2013.
Assembly Bill (AB) 340 created PEPRA that implemented new benefit formulas and a final compensation period as
well as new contribution requirements for new employees. In accordance with Section Code 7522.30(b), “new
members … shall have an initial contribution rate of at least 50 percent of the normal cost rate.” The normal cost for
the plan is dependent on the benefit levels, actuarial assumptions and demographics of the plan particularly the entry
age into the plan. Since the actual demographics of new members was not known during the implementation of
PEPRA in December 2012, the normal cost rate was determined based on the average demographics of the members
in the current 2 percent at age 55 miscellaneous risk pool and the 3 percent at age 50 safety risk pool.
In analyzing the first set of PEPRA data, CalPERS staff has become concerned that, for most employers, there is
insufficient data to produce stable normal costs and member contribution rates. Further, this situation is likely to
persist for a number of years as employers gradually bring on more PEPRA members. The larger employers may
have sufficient PEPRA members in the first few years but other employers may not have stable rates for a number of
years. Staff has concluded that the best approach is to repeat the process – using the normal costs based on the
demographics of the risk pools – for the current valuation and work with stakeholders over the next year to
determine the best long-term approach to the issue of calculating PEPRA normal costs and member contribution
rates. For more information on this topic please refer to the CalPERS Board of Administration agenda item 9a of the
May 20th, 2014 meeting which is available on the CalPERS website.
Basis for Current Rate Rates Effective July 1, 2015
Rate Plan
Identifier Plan
Total
Normal
Cost
Member
Rate
Total
Normal
Cost
Change Change
Needed
Member
Rate
26004 Miscellaneous PEPRA 12.50% 6.250% 12.50% 0.00% No 6.250%
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APPENDIX E
GLOSSARY OF ACTUARIAL TERMS
Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX E
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
GLOSSARY OF ACTUARIAL TERMS
E-1
Glossary of Actuarial Terms
Accrued Liability (also called Actuarial Accrued Liability or Entry Age Normal Accrued Liability)
The total dollars needed as of the valuation date to fund all benefits earned in the past for current members.
Actuarial Assumptions
Assumptions made about certain events that will affect pension costs. Assumptions generally can be broken
down into two categories: demographic and economic. Demographic assumptions include such things as
mortality, disability and retirement rates. Economic assumptions include discount rate, salary growth and
inflation.
Actuarial Methods
Procedures employed by actuaries to achieve certain funding goals of a pension plan. Actuarial methods include
funding method, setting the length of time to fund the Accrued Liability and determining the Actuarial Value of
Assets.
Actuarial Valuation
The determination, as of a valuation date, of the Normal Cost, Accrued liability, Actuarial Value of Assets and
related actuarial present values for a pension plan. These valuations are performed annually or when an
employer is contemplating a change to their plan provisions.
Actuarial Value of Assets
The Actuarial Value of Assets used for funding purposes is obtained through an asset smoothing technique
where investment gains and losses are partially recognized in the year they are incurred, with the remainder
recognized in subsequent years.
This method helps to dampen large fluctuations in the employer contribution rate.
Amortization Bases
Separate payment schedules for different portions of the Unfunded Liability. The total Unfunded Liability of a
Risk Pool or non-pooled plan can be segregated by "cause,” creating “bases” and each such base will be
separately amortized and paid for over a specific period of time. However, all bases are amortized using
investment and payroll assumptions from the current valuation. This can be likened to a home having a first
mortgage of 24 years remaining payments and a second mortgage that has 10 years remaining payments. Each
base or each mortgage note has its own terms (payment period, principal, etc.)
Generally, in an actuarial valuation, the separate bases consist of changes in unfunded liability due to contract
amendments, actuarial assumption changes, actuarial methodology changes, and or gains and losses. Payment
periods are determined by Board policy and vary based on the cause of the change.
Amortization Period
The number of years required to pay off an Amortization Base.
Annual Required Contributions (ARC)
The employer's periodic required annual contributions to a defined benefit pension plan as set forth in GASB
Statement No. 27, calculated in accordance with the plan assumptions. The ARC is determined by multiplying the
employer contribution rate by the payroll reported to CalPERS for the applicable fiscal year. However, if this
contribution is fully prepaid in a lump sum, then the dollar value of the ARC is equal to the Lump Sum
Prepayment.
Classic Member (under PEPRA)
A classic member is a member who joined CalPERS prior to January, 1, 2013 and who is not defined as a new
member under PEPRA. (See definition of new member below)
Discount Rate Assumption
The actuarial assumption that was called “investment return” in earlier CalPERS reports or “actuarial interest
rate” in Section 20014 of the California Public Employees’ Retirement Law (PERL).
Attachment A
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX E
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
GLOSSARY OF ACTUARIAL TERMS
E-2
Entry Age
The earliest age at which a plan member begins to accrue benefits under a defined benefit pension plan. In
most cases, this is the age of the member on their date of hire.
Entry Age Normal Cost Method
An actuarial cost method designed to fund a member's total plan benefit over the course of his or her career.
This method is designed to yield a rate expressed as a level percentage of payroll.
(The assumed retirement age less the entry age is the amount of time required to fund a member’s total benefit.
Generally, the older a member on the date of hire, the greater the entry age normal cost. This is mainly because
there is less time to earn investment income to fund the future benefits.)
Fresh Start
A Fresh Start is when multiple amortization bases are collapsed to one base and amortized together over a new
funding period.
Funded Status
A measure of how well funded, or how "on track" a plan or risk pool is with respect to assets verses accrued
liabilities. A ratio greater than 100% means the plan or risk pool has more assets than liabilities and a ratio less
than 100% means liabilities are greater than assets. A funded ratio based on the Actuarial Value of Assets
indicates the progress toward fully funding the plan using the actuarial cost methods and assumptions. A funded
ratio based on the Market Value of Assets indicates the short-term solvency of the plan.
GASB 27
Statement No. 27 of the Governmental Accounting Standards Board. The accounting standard governing a state
or local governmental employer’s accounting for pensions.
GASB 68
Statement No. 68 of the Governmental Accounting Standards Board. The accounting standard governing a state
or local governmental employer’s accounting and financial reporting for pensions. GASB 68 replaces GASB 27
effective the first fiscal year beginning after June 15, 2014.
New Member (under PEPRA)
A new member includes an individual who becomes a member of a public retirement system for the first time on
or after January 1, 2013, and who was not a member of another public retirement system prior to that date, and
who is not subject to reciprocity with another public retirement system.
Normal Cost
The annual cost of service accrual for the upcoming fiscal year for active employees. The normal cost should be
viewed as the long term contribution rate.
Pension Actuary
A business professional that is authorized by the Society of Actuaries, and the American Academy of Actuaries to
perform the calculations necessary to properly fund a pension plan.
PEPRA
The California Public Employees’ Pension Reform Act of 2013
Prepayment Contribution
A payment made by the employer to reduce or eliminate the year’s required employer contribution.
Present Value of Benefits (PVB)
The total dollars needed as of the valuation date to fund all benefits earned in the past or expected to be earned
in the future for current members.
Rolling Amortization Period
An amortization period that remains the same each year, rather than declining.
Attachment A
Page 95 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX E
MISCELLANEOUS PLAN OF THE CITY OF PALO ALTO
GLOSSARY OF ACTUARIAL TERMS
E-3
Superfunded
A condition existing when a plan’s Actuarial Value of Assets exceeds its Present Value of Benefits. Prior to the
passage of PEPRA, when this condition existed on a given valuation date for a given plan, employee
contributions for the rate year covered by that valuation could be waived.
Unfunded Liability
When a plan or pool’s Actuarial Value of Assets is less than its Accrued Liability, the difference is the plan or
pool’s Unfunded Liability. If the Unfunded Liability is positive, the plan or pool will have to pay contributions
exceeding the Normal Cost.
Attachment A
Page 96 of 96
California Public Employees’ Retirement System
Actuarial Office
P.O. Box 942701
Sacramento, CA 94229-2701
TTY: (916) 795-3240
(888) 225-7377 phone • (916) 795-2744 fax
www.calpers.ca.gov
October 2014
SAFETY PLAN OF THE CITY OF PALO ALTO (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2013
Dear Employer,
As an attachment to this letter, you will find a copy of the June 30, 2013 actuarial valuation
report of your pension plan. Your 2013 actuarial valuation report contains important actuarial
information about your pension plan at CalPERS. Your CalPERS staff actuary, whose signature
appears in the Actuarial Certification Section on page 1, is available to discuss the report with you
after October 31, 2014.
Future Contribution Rates
The exhibit below displays the Minimum Employer Contribution Rate for fiscal year 2015-16 and a
projected contribution rate for 2016-17, before any cost sharing. The projected rate for 2016-17
is based on the most recent information available, including an estimate of the investment return
for fiscal year 2013-14, namely 18 percent, and the impact of the actuarial assumptions adopted
by the CalPERS Board in February 2014 that will impact employer rates for the first time in fiscal
year 2016-17. For a projection of employer rates beyond 2016-17, please refer to the “Projected
Rates” in the “Risk Analysis” section, which includes rate projections through 2020-21 under a
variety of investment return scenarios. Please disregard any projections that we may have
provided you in the past.
Fiscal Year Employer Contribution Rate
2015-16 41.932%
2016-17 45.1% (projected)
Member contributions other than cost sharing (whether paid by the employer or the employee)
are in addition to the above rates. The employer contribution rates in this report do not
reflect any cost sharing arrangement you may have with your employees.
The estimate for 2016-17 also assumes that there are no future contract amendments and no
liability gains or losses (such as larger than expected pay increases, more retirements than
expected, etc.). This is a very important assumption because these gains and losses do occur and
can have a significant impact on your contribution rate. Even for the largest plans, such gains
and losses often cause a change in the employer’s contribution rate of one or two percent of
payroll and may be even larger in some less common instances. These gains and losses cannot
be predicted in advance so the projected employer contribution rates are just estimates. Your
actual rate for 2016-17 will be provided in next year’s report.
Attachment B
Page 1 of 96
SAFETY PLAN OF THE CITY OF PALO ALTO
(CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2013
Page 2
Changes since the Prior Year’s Valuation
On January 1, 2013, the Public Employees’ Pension Reform Act of 2013 (PEPRA) to ok effect. The
impact of the PEPRA changes are included in the rates and the benefit provision listings of the
June 30, 2013 valuation for the 2015-16 rates. For more information on PEPRA, please refer to
the CalPERS website.
On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change
the CalPERS amortization and rate smoothing policies. Beginning with the June 30, 2013
valuations that set the 2015-16 rates, CalPERS will no longer use an actuarial value of assets and
will employ an amortization and smoothing policy that will pay for all gains and losses over a
fixed 30-year period with the increases or decreases in the rate spread directly over a 5-year
period.
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial
assumptions and strategic asset allocation. On February 19, 2014 the CalPERS Board of
Administration adopted relatively modest changes to the current asset allocation that will reduce
the expected volatility of returns. The adopted asset allocation is expected to have a long- term
blended return that continues to support a discount rate assumption of 7.5 percent. The Board
also approved several changes to the demographic assumptions that more closely align with
actual experience. The most significant of these is mortality improvement to acknowledge the
greater life expectancies we are seeing in our membership and expected continued
improvements. The new actuarial assumptions will be used to set the FY 2016-17 contribution
rates for public agency employers. The increase in liability due to new actuarial assumptions will
be calculated in the 2014 actuarial valuation and will be amortized over a 20-year period with a
5-year ramp-up/ramp-down in accordance with Board policy.
Besides the above noted changes, there may also be changes specific to your plan such as
contract amendments and funding changes.
Further descriptions of general changes are included in the “Highlights and Executive Summary”
section and in Appendix A, “Actuarial Methods and Assumptions.” The effect of the changes on
your rate is included in the “Reconciliation of Required Employer Contributions.”
We understand that you might have a number of questions about these results. While we are
very interested in discussing these results with your agency, in the interest of allowing us to give
every public agency their results, we ask that you wait until after October 31 to contact us with
actuarial questions. If you have other questions, you may call the Customer Contact Center at
(888)-CalPERS or (888-225-7377).
Sincerely,
ALAN MILLIGAN
Chief Actuary
Attachment B
Page 2 of 96
ACTUARIAL VALUATION
as of June 30, 2013
for the
SAFETY PLAN
of the
CITY OF PALO ALTO
(CalPERS ID: 6373437857)
REQUIRED CONTRIBUTIONS
FOR FISCAL YEAR
July 1, 2015 – June 30, 2016
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Attachment B
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TABLE OF CONTENTS
ACTUARIAL CERTIFICATION 1
HIGHLIGHTS AND EXECUTIVE SUMMARY
Introduction 5
Purpose of the Report 5
Required Employer Contribution 6
Plan’s Funded Status 6
Cost 7
Changes Since the Prior Year’s Valuation 8
Subsequent Events 8
ASSETS
Reconciliation of the Market Value of Assets 11
Asset Allocation 12
CalPERS History of Investment Returns 13
LIABILITIES AND RATES
Development of Accrued and Unfunded Liabilities 17
(Gain) / Loss Analysis 06/30/12 - 06/30/13 18
Schedule of Amortization Bases 19
Alternate Amortization Schedules 20
Reconciliation of Required Employer Contributions 21
Employer Contribution Rate History 22
Funding History 22
RISK ANALYSIS
Volatility Ratios 25
Projected Rates 26
Analysis of Future Investment Return Scenarios 26
Analysis of Discount Rate Sensitivity 27
Hypothetical Termination Liability 28
GASB STATEMENT NO. 27
Information for Compliance with GASB Statement No. 27 31
PLAN’S MAJOR BENEFIT PROVISIONS
Plan’s Major Benefit Options 35
APPENDIX A – ACTUARIAL METHODS AND ASSUMPTIONS
Actuarial Data A1
Actuarial Methods A1 – A2
Actuarial Assumptions A3 – A20
Miscellaneous A20 – A21
APPENDIX B – PRINCIPAL PLAN PROVISIONS B1 – B9
APPENDIX C – PARTICIPANT DATA
Summary of Valuation Data C1
Active Members C2
Transferred and Terminated Members C3
Retired Members and Beneficiaries C4 – C5
APPENDIX D – DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATE D1
APPENDIX E – GLOSSARY OF ACTUARIAL TERMS E1 – E3
(CY) FIN PROCESS CONTROL ID: 432668 (PY) FIN PROCESS CONTROL ID: 413892 REPORT ID: 76454
Attachment B
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CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 1
ACTUARIAL CERTIFICATION
To the best of our knowledge, this report is complete and accurate and contains sufficient information to
disclose, fully and fairly, the funded condition of the SAFETY PLAN OF THE CITY OF PALO ALTO. This
valuation is based on the member and financial data as of June 30, 2013 provided by the various CalPERS
databases and the benefits under this plan with CalPERS as of the date this report was produced. It is our
opinion that the valuation has been performed in accordance with generally accepted actuarial principles, in
accordance with standards of practice prescribed by the Actuarial Standards Board, and that the
assumptions and methods are internally consistent and reasonable for this plan, as prescribed by the
CalPERS Board of Administration according to provisions set forth in the California Public Employees’
Retirement Law.
The undersigned is an actuary for CalPERS, who is a member of the American Academy of Actuaries and the
Society of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render
the actuarial opinion contained herein.
DAVID CLEMENT, ASA, MAAA, EA
Senior Pension Actuary, CalPERS
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Attachment B
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HIGHLIGHTS AND EXECUTIVE SUMMARY
INTRODUCTION
PURPOSE OF THE REPORT
REQUIRED EMPLOYER CONTRIBUTION
PLAN’S FUNDED STATUS
COST
CHANGES SINCE THE PRIOR YEAR’S VALUATION
SUBSEQUENT EVENTS
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CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 5
Introduction
This report presents the results of the June 30, 2013 actuarial valuation of the SAFETY PLAN OF THE CITY
OF PALO ALTO of the California Public Employees’ Retirement System (CalPERS). This actuarial valuation
sets the fiscal year 2015-16 required employer contribution rates.
On January 1, 2013, the Public Employees’ Pension Reform Act of 2013 (PEPRA) took effect. The impact of
most of the PEPRA changes are included in the rates and the benefit provision listings of the June 30, 2013
valuation, which sets the 2015-16 contribution rates. For more information on PEPRA, please refer to the
CalPERS website.
On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS
amortization and smoothing policies. Prior to this change, CalPERS employed an amortization and smoothing
policy, which spread investment returns over a 15-year period while experience gains and losses were
amortized over a rolling 30-year period. Effective with the June 30, 2013 valuations, CalPERS will no longer
use an actuarial value of assets and will employ an amortization and smoothing policy that will spread rate
increases or decreases over a 5-year period, and will amortize all experience gains and losses over a fixed
30-year period. The new amortization and smoothing policy is used in this valuation.
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions
and strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively
modest changes to the current asset allocation that will reduce the expected volatility of returns. The
adopted asset allocation is expected to have a long-term blended return that continues to support a
discount rate assumption of 7.5 percent. The Board also approved several changes to the demographic
assumptions that more closely align with actual experience. The most significant of these is mortality
improvement to acknowledge the greater life expectancies we are seeing in our membership and expected
continued improvements. The new actuarial assumptions will be used to set the FY 2016-17 contribution
rates for public agency employers. The increase in liability due to new actuarial assumptions will be
calculated in the 2014 actuarial valuation and will be amortized over a 20-year period with a 5-year ramp-
up/ramp-down in accordance with Board policy.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2013. The
purpose of the report is to:
Set forth the assets and accrued liabilities of this plan as of June 30, 2013;
Determine the required employer contribution rate for the fiscal year July 1, 2015 through June 30,
2016;
Provide actuarial information as of June 30, 2013 to the CalPERS Board of Administration and other
interested parties; and to
Provide pension information as of June 30, 2013 to be used in financial reports subject to Governmental
Accounting Standards Board (GASB) Statement Number 27 for a Single Employer Defined Benefit
Pension Plan.
California Actuarial Advisory Panel Recommendations
This report includes all the basic disclosure elements as described in the Model Disclosure Elements for
Actuarial Valuation Reports recommended in 2011 by the California Actuarial Advisory Panel (CAAP), with
the exception of including the original base amounts of the various components of the unfunded liability in
the Schedule of Amortization Bases shown on page 19.
Additionally, this report includes the following “Enhanced Risk Disclosures” also recommended by the CAAP
in the Model Disclosure Elements document:
A “Deterministic Stress Test,” projecting future results under different investment income
scenarios
A “Sensitivity Analysis,” showing the impact on current valuation results using a 1 percent plus or
minus change in the discount rate.
Attachment B
Page 11 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 6
The use of this report for any other purposes may be inappropriate. In particular, this report does not
contain information applicable to alternative benefit costs. The employer should contact their actuary before
disseminating any portion of this report for any reason that is not explicitly described above.
Required Employer Contribution
Fiscal Year Fiscal Year
2014-15 2015-16
Actuarially Determined Employer Contributions
1. Contribution in Projected Dollars
a) Total Normal Cost $ 6,371,908 $ 6,424,290
b) Employee Contribution1 2,057,371 2,097,372
c) Employer Normal Cost [(1a) – (1b)] 4,314,537 4,326,918
d) Unfunded Liability Contribution 4,721,544 5,413,603
e) Required Employer Contribution [(1c) + (1d)] $ 9,036,081 $ 9,740,521
Projected Annual Payroll for Contribution Year $ 22,859,681 $ 23,229,280
2. Contribution as a Percentage of Payroll
a) Total Normal Cost 27.874% 27.656%
b) Employee Contribution1 9.000% 9.029%
c) Employer Normal Cost [(2a) – (2b)] 18.874% 18.627%
d) Unfunded Liability Rate 20.654% 23.305%
e) Required Employer Rate [(2c) + (2d)] 39.528% 41.932%
Minimum Employer Contribution Rate2 39.528% 41.932%
Annual Lump Sum Prepayment Option3 $ 8,715,170 $ 9,394,593
1For classic members this is the percentage specified in the Public Employees Retirement Law, net of any
reduction from the use of a modified formula or other factors. For PEPRA members the member contribution
rate is based on 50 percent of the normal cost. A development of PEPRA member contribution rates can be
found in Appendix D. Employee cost sharing is not shown in this report.
2The Minimum Employer Contribution Rate under PEPRA is the greater of the required employer rate or the
employer normal cost.
3Payment must be received by CalPERS before the first payroll reported to CalPERS of the new fiscal year
and after June 30. If there is contractual cost sharing or other change, this amount will change.
Plan’s Funded Status
June 30, 2012 June 30, 2013
1. Present Value of Projected Benefits $ 382,313,961 $ 392,560,445
2. Entry Age Normal Accrued Liability 327,608,300 338,666,499
3. Market Value of Assets (MVA) $ 215,605,457 $ 233,417,363
4. Unfunded Liability [(2) – (3)] $ 112,002,843 $ 105,249,136
5. Funded Ratio [(3) / (2)] 65.8% 68.9%
Superfunded Status No No
Attachment B
Page 12 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 7
Cost
Actuarial Cost Estimates in General
What will this pension plan cost? Unfortunately, there is no simple answer. There are two major reasons for
the complexity of the answer. First, actuarial calculations, including the ones in this report, are based on a
number of assumptions about the future. These assumptions can be divided into two categories.
Demographic assumptions include the percentage of employees that will terminate, die, become
disabled, and retire in each future year.
Economic assumptions include future salary increases for each active employee, and the
assumption with the greatest impact, future asset returns at CalPERS for each year into the future
until the last dollar is paid to current members of your plan.
While CalPERS has set these assumptions to reflect our best estimate of the real future of your plan, it must
be understood that these assumptions are very long-term predictors and will surely not be realized in any
one year. For example, while the asset earnings at CalPERS have averaged more than the assumed return of
7.5 percent for the past twenty year period ending June 30, 2013, returns for each fiscal year ranged from
negative -24 percent to +21.7 percent.
Second, the very nature of actuarial funding produces the answer to the question of plan cost as the sum of
two separate pieces.
The Normal Cost (i.e., the annual cost associated with one year of service accrual) expressed as a
percentage of total active payroll.
The Past Service Cost or Accrued Liability (i.e., the current value of the benefit for all credited past
service of current members) which is expressed as a lump sum dollar amount.
The cost is the sum of a percent of future pay and a lump sum dollar amount (the sum of an apple and an
orange if you will). To communicate the total cost, either the Normal Cost (i.e., future percent of payroll)
must be converted to a lump sum dollar amount (in which case the total cost is the present value o f
benefits), or the Past Service Cost (i.e., the lump sum) must be converted to a percent of payroll (in which
case the total cost is expressed as the employer’s rate, part of which is permanent and part temporary).
Converting the Past Service Cost lump sum to a percent of payroll requires a specific amortization period,
and the employer rate will vary depending on the amortization period chosen.
Attachment B
Page 13 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 8
Changes since the Prior Year’s Valuation
Benefits
The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first
annual valuation following the effective date of the legislation. Voluntary benefit changes by plan
amendment are generally included in the first valuation that is prepared after the amendment becomes
effective even if the valuation date is prior to the effective date of the amendment.
This valuation generally reflects plan changes by amendments effective before the date of the report. Please
refer to the “Plan’s Major Benefit Options” and Appendix B for a summary of the plan provisions used in this
valuation. The effect of any mandated benefit changes or plan amendments on the unfunded liability is
shown in the “(Gain)/Loss Analysis” and the effect on your employer contribution rate is shown in the
“Reconciliation of Required Employer Contributions.” It should be noted that no change in liability or rate is
shown for any plan changes, which were already included in the prior year’s valuation.
Actuarial Methods and Assumptions
On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS
amortization and smoothing policies. Beginning with the June 30, 2013 valuations that set the 2015-16
rates, CalPERS will no longer use an actuarial value of assets and will employ an amortization and rate
smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or
decreases in the rate phased in over a 5-year period.
A change in the calculation of termination with vested benefits liability for active members was made this
year to better reflect the retirement experience. After termination with vested benefits, a miscellaneous
member is assumed to retire at age 59 and a safety member at age 54 rather than at earliest retirement
age. The higher benefit factors at these ages results in a slightly higher liability and a modest increase in
normal cost.
Public Employees’ Pension Reform Act of 2013 (PEPRA)
On January 1, 2013, the Public Employees’ Pension Reform Act of 2013 (PEPRA) took effect, requiring that a
public employer’s contribution to a defined benefit plan, in combination with employee contributions to that
defined benefit plan, shall not be less than the normal cost rate. Beginning July 1, 2013, this means that
some plans with surplus will be paying more than they otherwise would. For more information on PEPRA,
please refer to the CalPERS website.
Subsequent Events
Actuarial Methods and Assumptions
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions
and strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively
modest changes to the current asset allocation that will reduce the expected volatility of returns (see Risk
Analysis section of report). The adopted asset allocation is expected to have a long- term blended return
that continues to support a discount rate assumption of 7.5 percent.
The Board also approved several changes to the demographic assumptions that more closely align with
actual experience. The most significant of these is mortality improvement to acknowledge the greater life
expectancies we are seeing in our membership and expected continued improvements. The new actuarial
assumptions will be used to set the FY 2016-17 contribution rates for public agency employers. The increase
in liability due to new actuarial assumptions will be calculated in the 2014 actuarial valuation and will be
amortized over a 20-year period with a 5-year ramp-up/ramp-down in accordance with Board policy. The
impact of assumption changes are included in the “Expected Rate Increases” subsection of the “Risk
Analysis” section.
Attachment B
Page 14 of 96
ASSETS
RECONCILIATION OF THE MARKET VALUE OF ASSETS
ASSET ALLOCATION
CALPERS HISTORY OF INVESTMENT RETURNS
Attachment B
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Attachment B
Page 16 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 11
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/12 Including Receivables $ 215,605,457
2. Receivables for Service Buybacks as of 6/30/12 327,039
3. Market Value of Assets as of 6/30/12 215,278,418
4. Employer Contributions 6,414,351
5. Employee Contributions 3,340,206
6. Benefit Payments to Retirees and Beneficiaries (19,259,784)
7. Refunds (3,702)
8. Lump Sum Payments 0
9. Transfers and Miscellaneous Adjustments 13,898
10. Investment Return 26,935,504
11. Market Value of Assets as of 6/30/13 $ 232,718,891
12. Receivables for Service Buybacks as of 6/30/13 698,472
13. Market Value of Assets as of 6/30/13 Including Receivables $ 233,417,363
Attachment B
Page 17 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 12
Asset Allocation
CalPERS adheres to an Asset Allocation Strategy which establishes asset class allocation policy targets and
ranges, and manages those asset class allocations within their policy ranges. CalPERS recognizes that over
90 percent of the variation in investment returns of a well-diversified pool of assets can typically be
attributed to asset allocation decisions. On February 19, 2014 the CalPERS Board of Administration adopted
changes to the current asset allocation as shown in the Policy Target Allocation below expressed as
percentage of total assets. The asset allocation is has an expected long term blended rate of return of
7.5 percent.
The asset allocation and market value of assets shown below reflect the values of the Public Employees
Retirement Fund (PERF) in its entirety as of June 30, 2013. The assets for CITY OF PALO ALTO SAFETY
PLAN are part of the Public Employees Retirement Fund (PERF) and are invested accordingly.
(A)
Asset Class
(B)
Market Value
($ Billion)
(C)
Policy Target
Allocation
1) Global Equity 133.4 47.0%
2) Private Equity 31.4 12.0%
3) Global Fixed Income 43.9 19.0%
4) Liquidity 10.5 2.0%
5) Real Assets 25.2 14.0%
6) Inflation Sensitive Assets 9.4 6.0%
7) Absolute Return Strategy (ARS) 7.2 0.0%
Total Fund $261.0 100.0%
Public Equity
51.1%
Private Equity
12.0%
Income
16.8%
Liquidity
4.0%
Real Assets
9.6%
Inflation
3.6%
ARS
2.8%
Asset Allocation at 6/30/2013
Attachment B
Page 18 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 13
CalPERS History of Investment Returns
The following is a chart with the 20-year historical annual returns of the Public Employees Retirement Fund
for each fiscal year ending on June 30. Beginning in 2002, the figures are reported as gross of fees.
The table below shows historical geometric mean annual returns of the Public Employees Retirement Fund
for each fiscal year ending on June 30, 2013, (figures are reported as gross of fees). The geometric mean
rate of return is the average rate per period compounded over multiple periods. It should be recognized that
in any given year the rate of return is volatile. Although the expected rate of return on the recently adopted
new asset allocation is 7.5 percent the portfolio has an expected volatility of 11.76 percent per year.
Consequently when looking at investment returns it is more instructive to look at returns over longer time
horizons.
History of CalPERS Geometric Mean Rates of Return and Volatilities
1 year 5 year 10 year 20 year 30 year
Geometric Return 13.2% 3.5% 7.0% 7.6% 9.4%
Volatility – 17.9% 13.9% 11.8% 11.6%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
2.0
%
16
.
3
%
15
.
3
%
20
.
1
%
19
.
5
%
12
.
5
%
10
.
5
%
-7.2
%
-6.1
%
3.7
%
16
.
6
%
12
.
3
%
11
.
8
%
19
.
1
%
-5.1
%
-24
.
0
%
13
.
3
%
21
.
7
%
0.1
%
13
.
2
%
Attachment B
Page 19 of 96
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Attachment B
Page 20 of 96
LIABILITIES AND RATES
DEVELOPMENT OF ACCRUED AND UNFUNDED LIABILITIES
(GAIN) / LOSS ANALYSIS 06/30/12 - 06/30/13
SCHEDULE OF AMORTIZATION BASES
ALTERNATE AMORTIZATION SCHEDULES
RECONCILIATION OF REQUIRED EMPLOYER CONTRIBUTIONS
EMPLOYER CONTRIBUTION RATE HISTORY
FUNDING HISTORY
Attachment B
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Attachment B
Page 22 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 17
Development of Accrued and Unfunded Liabilities
1. Present Value of Projected Benefits
a) Active Members $ 136,627,084
b) Transferred Members 7,130,683
c) Terminated Members 1,166,821
d) Members and Beneficiaries Receiving Payments 247,635,857
e) Total $ 392,560,445
2. Present Value of Future Employer Normal Costs $ 36,022,369
3. Present Value of Future Employee Contributions $ 17,871,577
4. Entry Age Normal Accrued Liability
a) Active Members [(1a) - (2) - (3)] $ 82,733,138
b) Transferred Members (1b) 7,130,683
c) Terminated Members (1c) 1,166,821
d) Members and Beneficiaries Receiving Payments (1d) 247,635,857
e) Total $ 338,666,499
5. Market Value of Assets (MVA) $ 233,417,363
6. Unfunded Liability [(4e) - (5)] $ 105,249,136
7. Funded Ratio [(5) / (4e)] 68.9%
Attachment B
Page 23 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 18
(Gain) /Loss Analysis 6/30/12 – 6/30/13
To calculate the cost requirements of the plan, assumptions are made about future events that affect the
amount and timing of benefits to be paid and assets to be accumulated. Each year actual experience is
compared to the expected experience based on the actuarial assumptions. This results in actuarial gains or
losses, as shown below.
A Total (Gain)/Loss for the Year
1. Unfunded Accrued Liability (UAL) as of 6/30/12 $ 68,947,159
2. Expected Payment on the UAL during 2012/2013 2,623,616
3. Interest through 6/30/13 [.075 x (A1) - ((1.075)½ - 1) x (A2)] 5,074,430
4. Expected UAL before all other changes [(A1) - (A2) + (A3)] 71,397,973
5. Change due to plan changes 0
6. Change due to assumption change 0
7. Expected UAL after all other changes [(A4) + (A5) + (A6)] 71,397,973
8. Actual UAL as of 6/30/13 105,249,136
9. Total (Gain)/Loss for 2012/2013 [(A8) - (A7)] $ 33,851,163
B Contribution (Gain)/Loss for the Year
1. Expected Contribution (Employer and Employee) $ 8,629,750
2. Interest on Expected Contributions 317,765
3. Actual Contributions 9,754,557
4. Interest on Actual Contributions 359,183
5. Expected Contributions with Interest [(B1) + (B2)] 8,947,515
6. Actual Contributions with Interest [(B3) + (B4)] 10,113,740
7. Contribution (Gain)/Loss [(B5) - (B6)] $ (1,166,225)
C Asset (Gain)/Loss for the Year
1. Actuarial Value of Assets as of 6/30/12 Including Receivables $ 258,661,141
2. Receivables as of 6/30/12 327,039
3. Actuarial Value of Assets as of 6/30/12 258,334,102
4. Contributions Received 9,754,557
5. Benefits and Refunds Paid (19,263,486)
6. Transfers and miscellaneous adjustments 13,898
7. Expected Int. [.075 x (C3) + ((1.075)½ - 1) x ((C4) + (C5) + (C6))] 19,025,431
8. Expected Assets as of 6/30/13 [(C3) + (C4) + (C5) + (C6) + (C7)] 267,864,502
9. Receivables as of 6/30/13 698,472
10. Expected Assets Including Receivables 268,562,974
11. Market Value of Assets as of 6/30/13 233,417,363
12. Asset (Gain)/Loss [(C10) - (C11)] $ 35,145,611
D Liability (Gain)/Loss for the Year
1. Total (Gain)/Loss (A9) $ 33,851,163
2. Contribution (Gain)/Loss (B7) (1,166,225)
3. Asset (Gain)/Loss (C12) 35,145,611
4. Liability (Gain)/Loss [(D1) - (D2) - (D3)] $ (128,223)
Attachment B
Page 24 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 19
Schedule of Amortization Bases
There is a two-year lag between the Valuation Date and the Contribution Fiscal Year.
The assets, liabilities and funded status of the plan are measured as of the valuation date; June 30, 2013.
The employer contribution rate determined by the valuation is for the fiscal year beginning two years after the valuation date; fiscal year 2015-16.
This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and due to the need to provide public agencies
with their employer contribution rates well in advance of the start of the fiscal year.
The Unfunded Liability is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first day of the
fiscal year for which the contribution is being determined. The Unfunded Liability is rolled forward each year by subtracting the expected Payment on the Unfunded
Liability for the fiscal year and adjusting for interest. The Expected Payment on the Unfunded Liability for a fiscal year is equal to the Expected Employer Contribution for
the fiscal year minus the Expected Normal Cost for the year. The Employer Contribution Rate for the first fiscal year is determined by the actuarial valuation two years
ago and the rate for the second year is from the actuarial valuation one year ago. The Normal Cost Rate for each of the two fiscal years is assumed to be the same as
the rate determined by the current valuation. All expected dollar amounts are determined by multiplying the rate by the expected payroll for the applicable fiscal year,
based on payroll as of the valuation date.
Amounts for Fiscal 2015-16
Reason for Base
Date
Established
Amorti-
zation
Period
Balance
6/30/13
Expected
Payment
2013-14
Balance
6/30/14
Expected
Payment
2014-15
Balance
6/30/15
Scheduled
Payment for
2015-16
Payment as
Percentage of
Payroll
FRESH START 06/30/04 21 $(925,453) $(64,163) $(928,336) $(66,087) $(929,441) $(68,070) (0.293%)
BENEFIT CHANGE 06/30/05 11 $158,922 $16,174 $154,072 $16,660 $148,354 $17,159 0.074%
ASSUMPTION CHANGE 06/30/09 16 $7,634,175 $617,183 $7,566,829 $635,699 $7,475,235 $654,769 2.819%
SPECIAL (GAIN)/LOSS 06/30/09 26 $8,660,491 $538,511 $8,751,688 $554,666 $8,832,974 $571,306 2.459%
SPECIAL (GAIN)/LOSS 06/30/10 27 $4,107,580 $250,867 $4,155,544 $258,393 $4,199,302 $266,144 1.146%
ASSUMPTION CHANGE 06/30/11 18 $6,287,467 $474,738 $6,266,808 $488,980 $6,229,833 $503,649 2.168%
SPECIAL (GAIN)/LOSS 06/30/11 28 $2,319,200 $139,269 $2,348,742 $143,447 $2,376,169 $147,751 0.636%
PAYMENT (GAIN)/LOSS 06/30/12 29 $977,891 $(444,542) $1,512,144 $90,805 $1,531,406 $93,529 0.403%
(GAIN)/LOSS 06/30/12 29 $42,177,701 $1,987,915 $43,279,914 $2,598,982 $43,831,226 $2,676,951 11.524%
(GAIN)/LOSS 06/30/13 30 $33,851,162 $517 $36,389,463 $(14,346) $39,133,547 $550,415 2.369%
TOTAL $105,249,136 $3,516,469 $109,496,868 $4,707,199 $112,828,605 $5,413,603 23.305%
Attachment B
Page 25 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 20 Page 20
Alternate Amortization Schedules
The amortization schedule shown on the previous page shows the minimum contributions required according to
CalPERS amortization policy. There has been considerable interest from many agencies in paying off these unfunded
accrued liabilities sooner and the passible savings in doing so. Therefore, we have provided alternate amortization
schedules to help analyze your current amortization schedule and illustrate the advantages of accelerating payments
towards your plan’s unfunded liability of $112,828,605 as of June 30, 2015, which under the minimum schedule, will
require total payments of $300,400,504. Shown below are the level rate payments required to amortize your plan’s
unfunded liability assuming a fresh start over the various periods noted. Note that the payments under each scenario
would increase by 3 percent for each year into the future.
If you are interested in changing your plan’s amortization schedule please contact your plan actuary to discuss further.
Level Rate of Payroll Amortization
Period 2015-16
Rate
2015-16
Payment
Total
Payments
Total
Interest
Difference from
Current Schedule
25 32.103% $ 7,457,343 $ 271,889,238 $ 159,060,633 $ 28,511,266
20 36.674% $ 8,519,172 $ 228,913,342 $ 116,084,737 $ 71,487,162
Attachment B
Page 26 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 21
Reconciliation of Required Employer Contributions
Percentage
of
Projected
Payroll
Estimated $
Based on
Projected
Payroll
1. Contribution for 7/1/14 – 6/30/15 39.528% $ 9,036,081
2. Effect of changes since the prior year annual valuation
a) Effect of unexpected changes in demographics and financial results 2.404% 558,345
b) Effect of plan changes 0.000% 0
c) Effect of changes in Assumptions 0.000% 0
d) Effect of change in payroll - 146,095
e) Effect of elimination of amortization base 0.000% 0
f) Effect of changes due to Fresh Start 0.000% 0
g) Net effect of the changes above [Sum of (a) through (f)] 2.404% 704,440
3. Contribution for 7/1/15 – 6/30/16 [(1)+(2g)] 41.932% 9,740,521
The contribution actually paid (item 1) may be different if a prepayment of unfunded actuarial liability is
made or a plan change became effective after the prior year’s actuarial valuation was performed.
Attachment B
Page 27 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 22
Employer Contribution Rate History
The table below provides a recent history of the employer contribution rates for your plan, as determined by the
annual actuarial valuation. It does not account for prepayments or benefit changes made in the middle of the
year.
Required By Valuation
Fiscal
Year
Employer
Normal Cost Unfunded Rate
Total Employer
Contribution Rate
2010 - 2011 16.996% 7.699% 24.695%
2011 - 2012 17.813% 12.312% 30.125%
2012 - 2013 18.015% 13.035% 31.050%
2013 - 2014 18.658% 14.786% 33.444%
2014 - 2015 18.874% 20.654% 39.528%
2015 - 2016 18.627% 23.305% 41.932%
Funding History
The Funding History below shows the recent history of the actuarial accrued liability, the market value of assets,
the funded ratio and the annual covered payroll.
Valuation
Date
Accrued
Liability
Market Value
of
Assets (MVA)
Funded
Ratio
Annual
Covered
Payroll
06/30/08 $ 258,963,682 $ 235,054,144 90.8% $ 22,181,324
06/30/09 280,292,862 172,078,263 61.4% 22,086,992
06/30/10 293,895,452 190,527,731 64.8% 23,030,400
06/30/11 313,183,690 225,015,089 71.8% 22,774,462
06/30/12 327,608,300 215,605,457 65.8% 20,919,846
06/30/13 338,666,499 233,417,363 68.9% 21,258,082
Attachment B
Page 28 of 96
RISK ANALYSIS
VOLATILITY RATIOS
PROJECTED RATES
ANALYSIS OF FUTURE INVESTMENT RETURN SCENARIOS
ANALYSIS OF DISCOUNT RATE SENSITIVITY
HYPOTHETICAL TERMINATION LIABILITY
Attachment B
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Attachment B
Page 30 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 25
Volatility Ratios
The actuarial calculations supplied in this communication are based on a number of assumptions about very long-
term demographic and economic behavior. Unless these assumptions (terminations, deaths, disabilities,
retirements, salary growth, and investment return) are exactly realized each year, there will be differences on a
year-to-year basis. The year-to-year differences between actual experience and the assumptions are called
actuarial gains and losses and serve to lower or raise the employer’s rates from one year to the next. Therefore,
the rates will inevitably fluctuate, especially due to the ups and downs of investment returns.
Asset Volatility Ratio (AVR)
Plans that have higher asset to payroll ratios produce more volatile employer rates due to investment return. For
example, a plan with an asset to payroll ratio of 8 may experience twice the contribution volatility due to
investment return volatility, than a plan with an asset to payroll ratio of 4. Below we have shown your asset
volatility ratio, a measure of the plan’s current rate volatility. It should be noted that this ratio is a measure of the
current situation. It increases over time but generally tends to stabilize as the plan matures.
Liability Volatility Ratio (LVR)
Plans that have higher liability to payroll ratios produce more volatile employer rates due to investment return and
changes in liability. For example, a plan with a liability to payroll ratio of 8 is expected to have twice the
contribution volatility of a plan with a liability to payroll ratio of 4. The liability volatility ratio is also included in the
table below. It should be noted that this ratio indicates a longer-term potential for contribution volatility and the
asset volatility ratio, described above, will tend to move closer to this ratio as the plan matures.
Rate Volatility As of June 30, 2013
1. Market Value of Assets without Receivables $ 232,718,891
2. Payroll 21,258,082
3. Asset Volatility Ratio (AVR = 1. / 2.) 10.9
4. Accrued Liability $ 338,666,499
5. Liability Volatility Ratio (LVR = 4. / 2.) 15.9
Attachment B
Page 31 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 26
Projected Rates
The estimated rate for 2016-17 is based on a projection of the most recent information we have available,
including an estimated 18 percent investment return for fiscal 2013-14, the impact of the new smoothing methods
adopted by the CalPERS Board in April 2013 that will impact employer rates for the first time in 2015-16 and an
estimate of the impact of the new actuarial assumptions adopted by the CalPERS Board in February 2014. These
new demographic assumptions include a 20-year projection of on-going mortality improvement. A complete listing
of the new demographic assumptions to be implemented with the June 30, 2014 annual actuarial valuation and
incorporated in the projected rates for FY 2016-17 and beyond can be found on the CalPERS website at:
http://www.calpers.ca.gov/eip-docs/about/pubs/employer/actuarial-assumptions.xls
The table below shows projected employer contribution rates (before cost sharing) for the next five Fiscal Years,
assuming CalPERS earns 18 percent for fiscal year 2013-14 and 7.50 percent every fiscal year thereafter, and
assuming that all other actuarial assumptions will be realized and that no further changes to assumptions,
contributions, benefits, or funding will occur between now and the beginning of the fiscal year 2016-17.
New Rate Projected Future Employer Contribution Rates
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Contribution Rates: 41.932% 45.1% 47.5% 49.9% 52.3% 52.4%
Analysis of Future Investment Return Scenarios
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions and
strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively modest
changes to the current asset allocation that will reduce the expected volatility of returns. The adopted asset
allocation is expected to have a long- term blended return that continues to support a discount rate assumption of
7.5 percent. The newly adopted asset allocation has a lower expected investment volatility which will result in
better risk characteristics than an equivalent margin for adverse deviation. The current asset allocation has an
expected standard deviation of 12.45 percent while the newly adopted asset allocation has a lower expected
standard deviation of 11.76 percent.
The investment return for fiscal year 2013-14 was announced July 14, 2014. The investment return in fiscal year
2013-14 is 18.42 percent before administrative expenses. This year, there will be no adjustment for real estate
and private equities. For purposes of projecting future employer rates, we are assuming an 18.0 percent
investment return for fiscal year 2013-14.
The investment return realized during a fiscal year first affects the contribution rate for the fiscal year two years
later. Specifically, the investment return for 2013-14 will first be reflected in the June 30, 2014 actuarial valuation
that will be used to set the 2016-17 employer contribution rates, the 2014-15 investment return will first be
reflected in the June 30, 2015 actuarial valuation that will be used to set the 2017-18 employer contribution rates
and so forth.
Based on a 18 percent investment return for fiscal year 2013-14, the April 17, 2013 CalPERS Board-approved
amortization and rate smoothing method change, the February 18, 2014 new demographic assumptions including
20-year mortality improvement using Scale BB and assuming that all other actuarial assumptions will be realized,
and that no further changes to assumptions, contributions, benefits, or funding will occur between now and the
beginning of the fiscal year 2016-17, the effect on the 2016-17 Employer Rate is as follows:
Estimated 2016-17 Employer Rate Estimated Increase in Employer Rate between
2015-16 and 2016-17
45.1% 3.2%
Attachment B
Page 32 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 27
As part of this report, a sensitivity analysis was performed to determine the effects of various investment returns
during fiscal years 2014-15, 2015-16 and 2016-17 on the 2017-18, 2018-19 and 2019-20 employer rates. Once
again, the projected rate increases assume that all other actuarial assumptions will be realized and that no further
changes to assumptions, contributions, benefits, or funding will occur.
Five different investment return scenarios were selected.
The first scenario is what one would expect if the markets were to give us a 5th percentile return from
July 1, 2014 through June 30, 2017. The 5th percentile return corresponds to a -3.8 percent return for
each of the 2014-15, 2015-16 and 2016-17 fiscal years.
The second scenario is what one would expect if the markets were to give us a 25th percentile return
from July 1, 2014 through June 30, 2017. The 25th percentile return corresponds to a 2.8 percent return
for each of the 2014-15, 2015-16 and 2016-17 fiscal years.
The third scenario assumed the return for 2014-15, 2015-16, 2016-17 would be our assumed 7.5
percent investment return which represents about a 49th percentile event.
The fourth scenario is what one would expect if the markets were to give us a 75th percentile return from
July 1, 2014 through June 30, 2017. The 75th percentile return corresponds to a 12.0 percent return for
each of the 2014-15, 2015-16 and 2016-17 fiscal years.
Finally, the last scenario is what one would expect if the markets were to give us a 95th percentile return
from July 1, 2014 through June 30, 2017. The 95th percentile return corresponds to a 18.9 percent
return for each of the 2014-15, 2015-16 and 2016-17 fiscal years.
The table below shows the estimated projected contribution rates and the estimated increases for your plan under
the five different scenarios.
2014-17 Investment
Return Scenario
Estimated Employer Rate Estimated Change in
Employer Rate
between 2016-17
and 2019-20 2017-18 2018-19 2019-20
-3.8% (5th percentile) 49.4% 55.5% 63.1% 18.0%
2.8% (25th percentile) 48.3% 52.3% 57.0% 11.9%
7.5% 47.5% 49.9% 52.3% 7.2%
12.0%(75th percentile) 46.7% 47.6% 47.5% 2.4%
18.9%(95th percentile) 45.6% 43.8% 39.7% -5.4%
Analysis of Discount Rate Sensitivity
The following analysis looks at the 2015-16 employer contribution rates under two different discount rate
scenarios. Shown below are the employer contribution rates assuming discount rates that are 1 percent lower and
1 percent higher than the current valuation discount rate. This analysis gives an indication of the potential required
employer contribution rates if the PERF were to realize investment returns of 6.50 percent or 8.50 percent over the
long-term.
This type of analysis gives the reader a sense of the long-term risk to the employer contribution rates.
2015-16 Employer Contribution Rate
As of June 30, 2013 6.50% Discount Rate
(-1%) 7.50% Discount Rate
(assumed rate) 8.50% Discount Rate
(+1%)
Employer Normal Cost 25.365% 18.627% 13.423%
Accrued Liability $ 380,696,166 $ 338,666,499 $ 303,751,850
Unfunded Accrued Liability $ 147,278,803 $ 105,249,136 $ 70,334,487
Attachment B
Page 33 of 96
CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 28
Hypothetical Termination Liability
Below is an estimate of the financial position of your plan if you had terminated your contract with CalPERS as of
June 30, 2013 using the discount rates shown below. Your plan liability on a termination basis is calculated
differently compared to the plan’s ongoing funding liability. For this hypothetical termination liability both
compensation and service is frozen as of the valuation date and no future pay increases or service accruals are
included. In December 2012, the CalPERS Board adopted a more conservative investment policy and asset
allocation strategy for the Terminated Agency Pool. Since the Terminated Agency Pool has limited funding sources,
expected benefit payments are secured by risk-free assets. With this change, CalPERS increased benefit security
for members while limiting its funding risk. This asset allocation has a lower expected rate of return than the PERF.
Consequently, the lower discount rate for the Terminated Agency pool results in higher liabilities for terminated
plans.
In order to terminate your plan, you must first contact our Retirement Services Contract Unit to initiate a
Resolution of Intent to Terminate. The completed Resolution will allow your plan actuary to give you a preliminary
termination valuation with a more up-to-date estimate of your plan liabilities. CalPERS strongly advises you to
consult with your plan actuary before beginning this process.
Valuation
Date
Hypothetical
Termination
Liability1
Market Value
of Assets
(MVA)
Unfunded
Termination
Liability
Termination
Funded
Ratio
Termination
Liability
Discount
Rate2
06/30/11 $ 458,637,906 $ 225,015,089 $ 233,622,817 49.1% 4.82%
06/30/12 610,760,250 215,605,457 395,154,793 35.3% 2.98%
06/30/13 560,471,618 233,417,363 327,054,255 41.6% 3.72%
1 The hypothetical liabilities calculated above include a 7 percent mortality contingency load in accordance with
Board policy. Other actuarial assumptions, such as wage and inflation assumptions, can be found in appendix A.
2 The discount rate assumption used for termination valuations is a weighted average of the 10 and 30-year US
Treasury yields in effect on the valuation date that equal the duration of the pension liabilities. For purposes of this
hypothetical termination liability estimate, the discount rate used, is the yield on the 30-year US Treasury Separate
Trading of Registered Interest and Principal of Securities (STRIPS). Note that as of June 30, 2014 the 30-year
STRIPS rate was 3.55 percent.
Attachment B
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GASB STATEMENT NO. 27
Attachment B
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Attachment B
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CALPERS ACTUARIAL VALUATION - June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Page 31
SAFETY PLAN of the CITY OF PALO ALTO
Information for Compliance with GASB Statement No. 27
Disclosure under GASB 27 follows. However, note that effective for financial statements for fiscal
years beginning after June 15, 2014, GASB 68 replaces GASB 27. This will be the last year that GASB
disclosure information will be included in your annual actuarial report. GASB 68 will require
additional reporting that CalPERS is intending to provide upon request for an additional fee. We
urge you to start discussions with your auditors on how to implement GASB 68.
Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required contribution
(ARC) plus an adjustment for the cumulative difference between the APC and the employer’s actual plan
contributions for the year. The cumulative difference is called the net pension obligation (NPO). Since GASB 68
replaces GASB 27, for fiscal year 2015-16, the APC is replaced by the Actuarially Determined Contribution (ADC).
The ADC for July 1, 2015 to June 30, 2016 is 41.932% percent of payroll. In order to calculate the dollar value of
the ADC for inclusion in financial statements prepared as of June 30, 2016, this contribution rate, less any
employee cost sharing, as modified by any amendments for the year, would be multiplied by the payroll of
covered employees that was actually paid during the period July 1, 2015 to June 30, 2016. The employer and the
employer’s auditor are responsible for determining the NPO, APC or ADC for a given fiscal year.
A summary of principal assumptions and methods used to determine the funded status is shown below.
Retirement Program
Valuation Date June 30, 2013
Actuarial Cost Method Entry Age Normal Cost Method
Amortization Method Level Percent of Payroll
Asset Valuation Method Market Value
Actuarial Assumptions
Discount Rate 7.50% (net of administrative expenses)
Projected Salary Increases 3.30% to 14.20% depending on Age, Service, and type of employment
Inflation 2.75%
Payroll Growth 3.00%
Individual Salary Growth A merit scale varying by duration of employment coupled with an assumed
annual inflation growth of 2.75% and an annual production growth of 0.25%.
Initial unfunded liabilities are amortized over a closed period that depends on the plan’s date of entry into
CalPERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period.
Gains and losses that occur in the operation of the plan are amortized over a 30-year period with Direct Rate
Smoothing with a 5-year ramp up/ramp down. If the plan’s accrued liability exceeds the actuarial value of plan
assets, then the amortization payment on the total unfunded liability may not be lower than the payment
calculated over a 30-year amortization period. More detailed information on assumptions and methods is provided
in Appendix A of this report. Appendix B contains a description of benefits included in the valuation.
The Schedule of Funding Progress below shows the recent history of the actuarial accrued liability, actuarial value
of assets, their relationship and the relationship of the unfunded actuarial accrued liability to payroll.
Valuation
Date
Accrued
Liability
(a)
Actuarial value
of Assets*
(b)
Unfunded
Liability (UL)
(a)-(b)
Funded Ratios
(b)/(a)
Annual
Covered Payroll
(c)
UL As a % of
Payroll
[(a)-(b)]/(c)
06/30/09 $ 280,292,862 $ 236,274,455 $ 44,018,407 84.3% $ 22,086,992 199.3%
06/30/10 293,895,452 244,413,456 49,481,996 83.2% 23,030,400 214.9%
06/30/11 313,183,690 254,304,173 58,879,517 81.2% 22,774,462 258.5%
06/30/12 327,608,300 258,661,141 68,947,159 79.0% 20,919,846 329.6%
06/30/13 338,666,499 233,417,363 105,249,136 68.9% 21,258,082 495.1%
* Beginning with the 6/30/2013 valuation Actuarial Value of Assets equals Market Value of Assets per CalPERS
Direct Rate Smoothing Policy.
Attachment B
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Attachment B
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PLAN’S MAJOR BENEFIT PROVISIONS
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which your agency has contracted. A description of principal standard and optional plan provisions
is in the following section of this Appendix.
Contract Package
Receiving Receiving Active
Police
Active
Fire
Active
Fire
Active
Police
Active
Fire
Benefit Provision
Benefit Formula 3.0% @ 50 3.0% @ 50 3.0% @ 50 2.7% @ 57 3.0% @ 50
Social Security Coverage No No No No No
Full/Modified Full Full Full Full Full
Final Average Compensation Period 12 mos. 12 mos. 12 mos. 36 mos. 12 mos.
Sick Leave Credit No No No No No
Non-Industrial Disability Standard Standard Standard Standard Standard
Industrial Disability Yes Yes Yes Yes Yes
Pre-Retirement Death Benefits
Optional Settlement 2W No Yes Yes No Yes
1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1 Level 1
Special Yes Yes Yes Yes Yes
Alternate (firefighters) No No No No No
Post-Retirement Death Benefits
Lump Sum $500 $500 $500 $500 $500 $500 $500
Survivor Allowance (PRSA) No No No No No No No
COLA 2% 2% 2% 2% 2% 2% 2%
Contractual Employee Cost Sharing
Page 35
Attachment B
Page 41 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013
SAFETY PLAN OF THE CITY OF PALO ALTO
CalPERS ID: 6373437857
Plan’s Major Benefit Options
Shown below is a summary of the major optional benefits for which your agency has contracted. A description of principal standard and optional plan provisions
is in the following section of this Appendix.
Contract Package
Active
Fire
Active
Fire
Active
Fire
Active
Police
Benefit Provision
Benefit Formula 3.0% @ 50 3.0% @ 50 3.0% @ 55 3.0% @ 55
Social Security Coverage No No No No
Full/Modified Full Full Full Full
Final Average Compensation Period 12 mos. 12 mos. 36 mos. 36 mos.
Sick Leave Credit No No No No
Non-Industrial Disability Standard Standard Standard Standard
Industrial Disability Yes Yes Yes Yes
Pre-Retirement Death Benefits
Optional Settlement 2W Yes Yes Yes No
1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1
Special Yes Yes Yes Yes
Alternate (firefighters) No No No No
Post-Retirement Death Benefits
Lump Sum $500 $500 $500 $500
Survivor Allowance (PRSA) No No No No
COLA 2% 2% 2% 2%
Page 36
Attachment B
Page 42 of 96
APPENDICES
APPENDIX A – ACTUARIAL METHODS AND ASSUMPTIONS
APPENDIX B – PRINCIPAL PLAN PROVISIONS
APPENDIX C – PARTICIPANT DATA
APPENDIX D – DEVELOPMENT OF PPERA MEMBER CONTRIBUTION RATES
APPENDIX E – GLOSSARY OF ACTUARIAL TERMS
Attachment B
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APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
ACTUARIAL DATA
ACTUARIAL METHODS
ACTUARIAL ASSUMPTIONS
MISCELLANEOUS
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-1
Actuarial Data
As stated in the Actuarial Certification, the data, which serves as the basis of this valuation, has been
obtained from the various CalPERS databases. We have reviewed the valuation data and believe that it is
reasonable and appropriate in aggregate. We are unaware of any potential data issues that would have a
material effect on the results of this valuation, except that data does not always contain the latest salary
information for former members now in reciprocal systems and does not recognize the potential for
unusually large salary deviation in certain cases such as elected officials. Therefore, salary information in
these cases may not be accurate. These situations are relatively infrequent, however, and when they do
occur, they generally do not have a material impact on the employer contribution rates.
Actuarial Methods
Funding Method
The actuarial funding method used for the Retirement Program is the Entry Age Normal Cost Method. Under
this method, projected benefits are determined for all members and the associated liabilities are spread in a
manner that produces level annual cost as a percent of pay in each year from the age of hire (entry age) to
the assumed retirement age. The cost allocated to the current fiscal year is called the normal cost.
The actuarial accrued liability for active members is then calculated as the portion of the total cost of the
plan allocated to prior years. The actuarial accrued liability for members currently receiving benefits, for
active members beyond the assumed retirement age, and for members entitled to deferred benefits, is
equal to the present value of the benefits expected to be paid. No normal costs are applicable for these
participants.
The excess of the total actuarial accrued liability over the actuarial value of plan assets is called the
unfunded actuarial accrued liability. Funding requirements are determined by adding the normal cost and an
amortization of the unfunded liability as a level percentage of assumed future payrolls. Commencing with
the June 30, 2013 valuation all new gains or losses are tracked and amortized over a fixed 30-year period
with a 5 year ramp up at the beginning and a 5 year ramp down at the end of the amortization period. All
changes in liability due to plan amendments (other than golden handshakes), changes in actuarial
assumptions, or changes in actuarial methodology are amortized separately over a 20-year period with a 5
year ramp up at the beginning and a 5 year ramp down at the end of the amortization period. Changes in
unfunded accrued liability due to a Golden Handshake will be amortized over a period of 5 years. If a plan’s
accrued liability exceeds the market value of assets, the annual contribution with respect to the total
unfunded liability may not be less than the amount produced by a 30-year amortization of the unfunded
liability. An exception has been made for the change in asset value from actuarial to market value in this
valuation. The CalPERS Board approved a 30-year amortization with a 5-year ramp-up/ramp-down for only
this change in method.
Additional contributions will be required for any plan or pool if their cash flows hamper adequate funding
progress by preventing the expected funded status on a market value of assets basis to either:
Increase by at least 15 percent by June 30, 2043; or
Reach a level of 75 percent funded by June 30, 2043
The necessary additional contribution will be obtained by changing the amortization period of the gains and
losses, except for those occurring in the fiscal years 2008-2009, 2009-2010, and 2010-2011 to a period,
which will result in the satisfaction of the above criteria. CalPERS actuaries will reassess the criteria above
when performing each future valuation to determine whether or not additional contributions are necessary.
An exception to the funding rules above is used whenever the application of such rules results in
inconsistencies. In these cases, a “fresh start” approach is used. This simply means that the current
unfunded actuarial liability is projected and amortized over a set number of years. As mentioned above, if
the annual contribution on the total unfunded liability was less than the amount produced by a 30-year
amortization of the unfunded liability, the plan actuary would implement a 30-year fresh start. However, in
Attachment B
Page 47 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-2
the case of a 30-year fresh start, just the unfunded liability not already in the (gain)/loss base (which is
already amortized over 30 years), will go into the new fresh start base. In addition, a fresh start is needed
in the following situations:
1) When a positive payment would be required on a negative unfunded actuarial liability (or
conversely a negative payment on a positive unfunded actuarial liability); or
2) When there are excess assets, rather than an unfunded liability. In this situation, a 30-year fresh
start is used, unless a longer fresh start is needed to avoid a negative total rate.
It should be noted that the actuary may choose to use a fresh start under other circumstances. In all cases,
the fresh start period is set by the actuary at what is deemed appropriate; however, the period will not be
less than five years, nor greater than 30 years.
Asset Valuation Method
It is the policy of the CalPERS Board of Administration to use professionally accepted amortization methods
to eliminate unfunded accrued liabilities or surpluses in a manner that maintains benefit security for the
members of the System while minimizing substantial variations in employer contribution rates. On April 17,
2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS amortization
and rate smoothing policies. Beginning with the June 30, 2013 valuations that set the 2015-16 rates,
CalPERS will employ an amortization and smoothing policy that will pay for all gains and losses over a fixed
30-year period with the increases or decreases in the rate spread directly over a 5-year period. CalPERS will
no longer use an actuarial value of assets and will use the market value of assets. This direct rate
smoothing method is equivalent to a method using a 5 year asset smoothing period with no actuarial value
of asset corridor and a 25 year amortization period for gains and losses. The change in asset value will also
be amortized over 30 years with a 5-year ramp-up/ramp-down.
Attachment B
Page 48 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-3
Actuarial Assumptions
In 2014 CalPERS completed a 2-year asset liability management study incorporating actuarial assumptions
and strategic asset allocation. On February 19, 2014 the CalPERS Board of Administration adopted relatively
modest changes to the current asset allocation that will reduce the expected volatility of returns. The
adopted asset allocation is expected to have a long-term blended return that continues to support a
discount rate assumption of 7.5 percent. The Board also approved several changes to the demographic
assumptions that more closely align with actual experience. The most significant of these is mortality
improvement to acknowledge the greater life expectancies we are seeing in our membership and expected
continued improvements. The new actuarial assumptions will be used to set the FY 2016-17 contribution
rates for public agency employers. The increase in liability due to new actuarial assumptions will be
calculated in the 2014 actuarial valuation and will be amortized over a 20-year period with a 5-year ramp-
up/ramp-down in accordance with Board policy. For more details, please refer to the experience study
report that can be found at the following link: http://www.calpers.ca.gov/eip-docs/about/pubs/employer/
2014-experience-study.pdf
Economic Assumptions
Discount Rate
7.5 percent compounded annually (net of expenses). This assumption is used for all plans.
Termination Liability Discount Rate
The discount rate used for termination valuation is a weighted average of the 10 and 30-year US
Treasury yields in effect on the valuation date that equal the duration of the pension liabilities. For
purposes of this hypothetical termination liability estimate, the discount rate used, 3.72 percent, is
the yield on the 30-year US Treasury Separate Trading of Registered Interest and Principal of
Securities (STRIPS) as of June 30, 2013. Please note, as of June 30, 2014 the 30-year STRIPS yield
was 3.55 percent.
Salary Growth
Annual increases vary by category, entry age, and duration of service. A sample of assumed
increases are shown below.
Public Agency Miscellaneous
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1420 0.1240 0.0980
1 0.1190 0.1050 0.0850
2 0.1010 0.0910 0.0750
3 0.0880 0.0800 0.0670
4 0.0780 0.0710 0.0610
5 0.0700 0.0650 0.0560
10 0.0480 0.0460 0.0410
15 0.0430 0.0410 0.0360
20 0.0390 0.0370 0.0330
25 0.0360 0.0360 0.0330
30 0.0360 0.0360 0.0330
Attachment B
Page 49 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-4
Salary Growth (continued)
Public Agency Fire
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1050 0.1050 0.1020
1 0.0950 0.0940 0.0850
2 0.0870 0.0830 0.0700
3 0.0800 0.0750 0.0600
4 0.0740 0.0680 0.0510
5 0.0690 0.0620 0.0450
10 0.0510 0.0460 0.0350
15 0.0410 0.0390 0.0340
20 0.0370 0.0360 0.0330
25 0.0350 0.0350 0.0330
30 0.0350 0.0350 0.0330
Public Agency Police
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1090 0.1090 0.1090
1 0.0930 0.0930 0.0930
2 0.0810 0.0810 0.0780
3 0.0720 0.0700 0.0640
4 0.0650 0.0610 0.0550
5 0.0590 0.0550 0.0480
10 0.0450 0.0420 0.0340
15 0.0410 0.0390 0.0330
20 0.0370 0.0360 0.0330
25 0.0350 0.0340 0.0330
30 0.0350 0.0340 0.0330
Public Agency County Peace Officers
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1290 0.1290 0.1290
1 0.1090 0.1060 0.1030
2 0.0940 0.0890 0.0840
3 0.0820 0.0770 0.0710
4 0.0730 0.0670 0.0610
5 0.0660 0.0600 0.0530
10 0.0460 0.0420 0.0380
15 0.0410 0.0380 0.0360
20 0.0370 0.0360 0.0340
25 0.0350 0.0340 0.0330
30 0.0350 0.0340 0.0330
Attachment B
Page 50 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-5
Schools
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1080 0.0960 0.0820
1 0.0940 0.0850 0.0740
2 0.0840 0.0770 0.0670
3 0.0750 0.0700 0.0620
4 0.0690 0.0640 0.0570
5 0.0630 0.0600 0.0530
10 0.0450 0.0440 0.0410
15 0.0390 0.0380 0.0350
20 0.0360 0.0350 0.0320
25 0.0340 0.0340 0.0320
30 0.0340 0.0340 0.0320
The Miscellaneous salary scale is used for Local Prosecutors.
The Police salary scale is used for Other Safety, Local Sheriff, and School Police.
Overall Payroll Growth
3.00 percent compounded annually (used in projecting the payroll over which the unfunded liability
is amortized). This assumption is used for all plans.
Inflation
2.75 percent compounded annually. This assumption is used for all plans.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.75 percent inflation
assumption, and any potential liability loss from future member service purchases are not reflected
in the valuation.
Miscellaneous Loading Factors
Credit for Unused Sick Leave
Total years of service is increased by 1 percent for those plans that have accepted the provision
providing Credit for Unused Sick Leave.
Conversion of Employer Paid Member Contributions (EPMC)
Total years of service is increased by the Employee Contribution Rate for those plans with the
provision providing for the Conversion of Employer Paid Member Contributions (EPMC) during the
final compensation period.
Norris Decision (Best Factors)
Employees hired prior to July 1, 1982 have projected benefit amounts increased in order to reflect
the use of “Best Factors” in the calculation of optional benefit forms. This is due to a 1983
Supreme Court decision, known as the Norris decision, which required males and females to be
treated equally in the determination of benefit amounts. Consequently, anyone already employed
at that time is given the best possible conversion factor when optional benefits are determined. No
loading is necessary for employees hired after July 1, 1982.
Termination Liability
The termination liabilities include a 7 percent contingency load. This load is for unforeseen
improvements in mortality.
Demographic Assumptions
Pre-Retirement Mortality
Non-Industrial Death Rates vary by age and gender. Industrial Death rates vary by age. See
sample rates in table below. The non-industrial death rates are used for all plans. The industrial
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-6
death rates are used for Safety Plans (except for Local Prosecutor safety members where the
corresponding Miscellaneous Plan does not have the Industrial Death Benefit).
Non-Industrial Death Industrial Death
(Not Job-Related) (Job-Related)
Age Male Female Male and Female
20 0.00047 0.00016 0.00003
25 0.00050 0.00026 0.00007
30 0.00053 0.00036 0.00010
35 0.00067 0.00046 0.00012
40 0.00087 0.00065 0.00013
45 0.00120 0.00093 0.00014
50 0.00176 0.00126 0.00015
55 0.00260 0.00176 0.00016
60 0.00395 0.00266 0.00017
65 0.00608 0.00419 0.00018
70 0.00914 0.00649 0.00019
75 0.01220 0.00878 0.00020
80 0.01527 0.01108 0.00021
Miscellaneous Plans usually have Industrial Death rates set to zero unless the agency has specifically
contracted for Industrial Death benefits. If so, each Non-Industrial Death rate shown above will be
split into two components; 99 percent will become the Non-Industrial Death rate and 1 percent will
become the Industrial Death rate.
Post-Retirement Mortality
Rates vary by age, type of retirement and gender. See sample rates in table below. These rates are
used for all plans.
Healthy Recipients
Non-Industrially Disabled Industrially Disabled
(Not Job-Related) (Job-Related)
Age Male Female Male Female Male Female
50 0.00239 0.00125 0.01632 0.01245 0.00443 0.00356
55 0.00474 0.00243 0.01936 0.01580 0.00563 0.00546
60 0.00720 0.00431 0.02293 0.01628 0.00777 0.00798
65 0.01069 0.00775 0.03174 0.01969 0.01388 0.01184
70 0.01675 0.01244 0.03870 0.03019 0.02236 0.01716
75 0.03080 0.02071 0.06001 0.03915 0.03585 0.02665
80 0.05270 0.03749 0.08388 0.05555 0.06926 0.04528
85 0.09775 0.07005 0.14035 0.09577 0.11799 0.08017
90 0.16747 0.12404 0.21554 0.14949 0.16575 0.13775
95 0.25659 0.21556 0.31025 0.23055 0.26108 0.23331
100 0.34551 0.31876 0.45905 0.37662 0.40918 0.35165
105 0.58527 0.56093 0.67923 0.61523 0.64127 0.60135
110 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000
The mortality assumptions are based on mortality rates resulting from the most recent CalPERS
Experience Study adopted by the CalPERS Board, first used in the June 30, 2009 valuation. For
purposes of the post-retirement mortality rates, those revised rates include 5 years of projected
on-going mortality improvement using Scale AA published by the Society of Actuaries until June 30,
2010. There is no margin for future mortality improvement beyond the valuation date.
On February 19, 2014 the CalPERS Board adopted new recommended demographic assumption
based on the most recent CalPERS Experience Study. These new actuarial assumptions will be
implemented for the first time in the June 30, 2014 valuation. For purposes of the post-retirement
mortality rates, the revised rates include 20 years of projected on-going mortality improvement
using Scale BB published by the Society of Actuaries.
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-7
Marital Status
For active members, a percentage who are married upon retirement is assumed according to
member category as shown in the following table.
Member Category Percent Married
Miscellaneous Member 85%
Local Police 90%
Local Fire 90%
Other Local Safety 90%
School Police 90%
Age of Spouse
It is assumed that female spouses are 3 years younger than male spouses. This assumption is used
for all plans.
Terminated Members
It is assumed that terminated members refund immediately if non-vested. Terminated members
who are vested are assumed to follow the same service retirement pattern as active members but
with a load to reflect the expected higher rates of retirement, especially at lower ages. The
following table shows the load factors that are applied to the service retirement assumption for
active members to obtain the service retirement pattern for separated vested members:
Age Load Factor
50 450%
51 250%
52 through 56 200%
57 through 60 150%
61 through 64 125%
65 and above 100% (no change)
Termination with Refund
Rates vary by entry age and service for Miscellaneous Plans. Rates vary by service for Safety Plans.
See sample rates in tables below.
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1742 0.1674 0.1606 0.1537 0.1468 0.1400
1 0.1545 0.1477 0.1409 0.1339 0.1271 0.1203
2 0.1348 0.1280 0.1212 0.1142 0.1074 0.1006
3 0.1151 0.1083 0.1015 0.0945 0.0877 0.0809
4 0.0954 0.0886 0.0818 0.0748 0.0680 0.0612
5 0.0212 0.0193 0.0174 0.0155 0.0136 0.0116
10 0.0138 0.0121 0.0104 0.0088 0.0071 0.0055
15 0.0060 0.0051 0.0042 0.0032 0.0023 0.0014
20 0.0037 0.0029 0.0021 0.0013 0.0005 0.0001
25 0.0017 0.0011 0.0005 0.0001 0.0001 0.0001
30 0.0005 0.0001 0.0001 0.0001 0.0001 0.0001
35 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
Attachment B
Page 53 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-8
Public Agency Safety
Duration of Service Fire Police County Peace Officer
0 0.0710 0.1013 0.0997
1 0.0554 0.0636 0.0782
2 0.0398 0.0271 0.0566
3 0.0242 0.0258 0.0437
4 0.0218 0.0245 0.0414
5 0.0029 0.0086 0.0145
10 0.0009 0.0053 0.0089
15 0.0006 0.0027 0.0045
20 0.0005 0.0017 0.0020
25 0.0003 0.0012 0.0009
30 0.0003 0.0009 0.0006
35 0.0003 0.0009 0.0006
The Police Termination and Refund rates are also used for Public Agency Local Prosecutors, Other
Safety, Local Sheriff and School Police.
Schools
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1730 0.1627 0.1525 0.1422 0.1319 0.1217
1 0.1585 0.1482 0.1379 0.1277 0.1174 0.1071
2 0.1440 0.1336 0.1234 0.1131 0.1028 0.0926
3 0.1295 0.1192 0.1089 0.0987 0.0884 0.0781
4 0.1149 0.1046 0.0944 0.0841 0.0738 0.0636
5 0.0278 0.0249 0.0221 0.0192 0.0164 0.0135
10 0.0172 0.0147 0.0122 0.0098 0.0074 0.0049
15 0.0115 0.0094 0.0074 0.0053 0.0032 0.0011
20 0.0073 0.0055 0.0038 0.0020 0.0002 0.0002
25 0.0037 0.0023 0.0010 0.0002 0.0002 0.0002
30 0.0015 0.0003 0.0002 0.0002 0.0002 0.0002
35 0.0002 0.0002 0.0002 0.0002 0.0002 0.0002
Termination with Vested Benefits
Rates vary by entry age and service for Miscellaneous Plans. Rates vary by service for Safety Plans.
See sample rates in tables below.
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40
5 0.0656 0.0597 0.0537 0.0477 0.0418
10 0.0530 0.0466 0.0403 0.0339 0.0000
15 0.0443 0.0373 0.0305 0.0000 0.0000
20 0.0333 0.0261 0.0000 0.0000 0.0000
25 0.0212 0.0000 0.0000 0.0000 0.0000
30 0.0000 0.0000 0.0000 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
Attachment B
Page 54 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-9
Public Agency Safety
Duration of
Service Fire Police
County Peace
Officer
5 0.0162 0.0163 0.0265
10 0.0061 0.0126 0.0204
15 0.0058 0.0082 0.0130
20 0.0053 0.0065 0.0074
25 0.0047 0.0058 0.0043
30 0.0045 0.0056 0.0030
35 0.0000 0.0000 0.0000
When a member is eligible to retire, the termination with vested benefits probability is set to
zero.
After termination with vested benefits, a miscellaneous member is assumed to retire at age 59
and a safety member at age 54.
The Police Termination with vested benefits rates are also used for Public Agency Local
Prosecutors, Other Safety, Local Sheriff and School Police.
Schools
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40
5 0.0816 0.0733 0.0649 0.0566 0.0482
10 0.0629 0.0540 0.0450 0.0359 0.0000
15 0.0537 0.0440 0.0344 0.0000 0.0000
20 0.0420 0.0317 0.0000 0.0000 0.0000
25 0.0291 0.0000 0.0000 0.0000 0.0000
30 0.0000 0.0000 0.0000 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
Non-Industrial (Not Job-Related) Disability
Rates vary by age and gender for Miscellaneous Plans. Rates vary by age and category for Safety
Plans.
Miscellaneous Fire Police County Peace Officer Schools
Age Male Female Male and Female Male and Female Male and Female Male Female
20 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
25 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
30 0.0002 0.0002 0.0001 0.0002 0.0001 0.0002 0.0001
35 0.0006 0.0009 0.0001 0.0003 0.0004 0.0006 0.0004
40 0.0015 0.0016 0.0001 0.0004 0.0007 0.0014 0.0009
45 0.0025 0.0024 0.0002 0.0005 0.0013 0.0028 0.0017
50 0.0033 0.0031 0.0005 0.0008 0.0018 0.0044 0.0030
55 0.0037 0.0031 0.0010 0.0013 0.0010 0.0049 0.0034
60 0.0038 0.0025 0.0015 0.0020 0.0006 0.0043 0.0024
The Miscellaneous Non-Industrial Disability rates are used for Local Prosecutors.
The Police Non-Industrial Disability rates are also used for Other Safety, Local Sheriff and
School Police.
Attachment B
Page 55 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-10
Industrial (Job-Related) Disability
Rates vary by age and category.
Age Fire Police County Peace Officer
20 0.0002 0.0007 0.0003
25 0.0012 0.0032 0.0015
30 0.0025 0.0064 0.0031
35 0.0037 0.0097 0.0046
40 0.0049 0.0129 0.0063
45 0.0061 0.0161 0.0078
50 0.0074 0.0192 0.0101
55 0.0721 0.0668 0.0173
60 0.0721 0.0668 0.0173
The Police Industrial Disability rates are also used for Local Sheriff and Other Safety.
Fifty Percent of the Police Industrial Disability rates are used for School Police.
One Percent of the Police Industrial Disability rates are used for Local Prosecutors.
Normally, rates are zero for Miscellaneous Plans unless the agency has specifically contracted
for Industrial Disability benefits. If so, each miscellaneous non-industrial disability rate will be
split into two components: 50 percent will become the Non-Industrial Disability rate and 50
percent will become the Industrial Disability rate.
Service Retirement
Retirement rates vary by age, service, and formula, except for the safety ½ @ 55 and 2% @ 55
formulas, where retirement rates vary by age only.
Attachment B
Page 56 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-11
Service Retirement
Public Agency Miscellaneous 1.5% @ 65
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.008 0.011 0.013 0.015 0.017 0.019
51 0.007 0.010 0.012 0.013 0.015 0.017
52 0.010 0.014 0.017 0.019 0.021 0.024
53 0.008 0.012 0.015 0.017 0.019 0.022
54 0.012 0.016 0.019 0.022 0.025 0.028
55 0.018 0.025 0.031 0.035 0.038 0.043
56 0.015 0.021 0.025 0.029 0.032 0.036
57 0.020 0.028 0.033 0.038 0.043 0.048
58 0.024 0.033 0.040 0.046 0.052 0.058
59 0.028 0.039 0.048 0.054 0.060 0.067
60 0.049 0.069 0.083 0.094 0.105 0.118
61 0.062 0.087 0.106 0.120 0.133 0.150
62 0.104 0.146 0.177 0.200 0.223 0.251
63 0.099 0.139 0.169 0.191 0.213 0.239
64 0.097 0.136 0.165 0.186 0.209 0.233
65 0.140 0.197 0.240 0.271 0.302 0.339
66 0.092 0.130 0.157 0.177 0.198 0.222
67 0.129 0.181 0.220 0.249 0.277 0.311
68 0.092 0.129 0.156 0.177 0.197 0.221
69 0.092 0.130 0.158 0.178 0.199 0.224
70 0.103 0.144 0.175 0.198 0.221 0.248
Public Agency Miscellaneous 2% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.011 0.015 0.018 0.021 0.023 0.026
51 0.009 0.013 0.016 0.018 0.020 0.023
52 0.013 0.018 0.022 0.025 0.028 0.031
53 0.011 0.016 0.019 0.022 0.025 0.028
54 0.015 0.021 0.025 0.028 0.032 0.036
55 0.023 0.032 0.039 0.044 0.049 0.055
56 0.019 0.027 0.032 0.037 0.041 0.046
57 0.025 0.035 0.042 0.048 0.054 0.060
58 0.030 0.042 0.051 0.058 0.065 0.073
59 0.035 0.049 0.060 0.068 0.076 0.085
60 0.062 0.087 0.105 0.119 0.133 0.149
61 0.079 0.110 0.134 0.152 0.169 0.190
62 0.132 0.186 0.225 0.255 0.284 0.319
63 0.126 0.178 0.216 0.244 0.272 0.305
64 0.122 0.171 0.207 0.234 0.262 0.293
65 0.173 0.243 0.296 0.334 0.373 0.418
66 0.114 0.160 0.194 0.219 0.245 0.274
67 0.159 0.223 0.271 0.307 0.342 0.384
68 0.113 0.159 0.193 0.218 0.243 0.273
69 0.114 0.161 0.195 0.220 0.246 0.276
70 0.127 0.178 0.216 0.244 0.273 0.306
Attachment B
Page 57 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-12
Service Retirement
Public Agency Miscellaneous 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.015 0.020 0.024 0.029 0.033 0.039
51 0.013 0.016 0.020 0.024 0.027 0.033
52 0.014 0.018 0.022 0.027 0.030 0.036
53 0.017 0.022 0.027 0.032 0.037 0.043
54 0.027 0.034 0.041 0.049 0.056 0.067
55 0.050 0.064 0.078 0.094 0.107 0.127
56 0.045 0.057 0.069 0.083 0.095 0.113
57 0.048 0.061 0.074 0.090 0.102 0.122
58 0.052 0.066 0.080 0.097 0.110 0.131
59 0.060 0.076 0.092 0.111 0.127 0.151
60 0.072 0.092 0.112 0.134 0.153 0.182
61 0.089 0.113 0.137 0.165 0.188 0.224
62 0.128 0.162 0.197 0.237 0.270 0.322
63 0.129 0.164 0.199 0.239 0.273 0.325
64 0.116 0.148 0.180 0.216 0.247 0.294
65 0.174 0.221 0.269 0.323 0.369 0.439
66 0.135 0.171 0.208 0.250 0.285 0.340
67 0.133 0.169 0.206 0.247 0.282 0.336
68 0.118 0.150 0.182 0.219 0.250 0.297
69 0.116 0.147 0.179 0.215 0.246 0.293
70 0.138 0.176 0.214 0.257 0.293 0.349
Public Agency Miscellaneous 2.5% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.026 0.033 0.040 0.048 0.055 0.062
51 0.021 0.026 0.032 0.038 0.043 0.049
52 0.021 0.026 0.032 0.038 0.043 0.049
53 0.026 0.033 0.040 0.048 0.055 0.062
54 0.043 0.054 0.066 0.078 0.089 0.101
55 0.088 0.112 0.136 0.160 0.184 0.208
56 0.055 0.070 0.085 0.100 0.115 0.130
57 0.061 0.077 0.094 0.110 0.127 0.143
58 0.072 0.091 0.111 0.130 0.150 0.169
59 0.083 0.105 0.128 0.150 0.173 0.195
60 0.088 0.112 0.136 0.160 0.184 0.208
61 0.083 0.105 0.128 0.150 0.173 0.195
62 0.121 0.154 0.187 0.220 0.253 0.286
63 0.105 0.133 0.162 0.190 0.219 0.247
64 0.105 0.133 0.162 0.190 0.219 0.247
65 0.143 0.182 0.221 0.260 0.299 0.338
66 0.105 0.133 0.162 0.190 0.219 0.247
67 0.105 0.133 0.162 0.190 0.219 0.247
68 0.105 0.133 0.162 0.190 0.219 0.247
69 0.105 0.133 0.162 0.190 0.219 0.247
70 0.125 0.160 0.194 0.228 0.262 0.296
Attachment B
Page 58 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-13
Service Retirement
Public Agency Miscellaneous 2.7% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.028 0.035 0.043 0.050 0.058 0.065
51 0.022 0.028 0.034 0.040 0.046 0.052
52 0.022 0.028 0.034 0.040 0.046 0.052
53 0.028 0.035 0.043 0.050 0.058 0.065
54 0.044 0.056 0.068 0.080 0.092 0.104
55 0.091 0.116 0.140 0.165 0.190 0.215
56 0.061 0.077 0.094 0.110 0.127 0.143
57 0.063 0.081 0.098 0.115 0.132 0.150
58 0.074 0.095 0.115 0.135 0.155 0.176
59 0.083 0.105 0.128 0.150 0.173 0.195
60 0.088 0.112 0.136 0.160 0.184 0.208
61 0.085 0.109 0.132 0.155 0.178 0.202
62 0.124 0.158 0.191 0.225 0.259 0.293
63 0.107 0.137 0.166 0.195 0.224 0.254
64 0.107 0.137 0.166 0.195 0.224 0.254
65 0.146 0.186 0.225 0.265 0.305 0.345
66 0.107 0.137 0.166 0.195 0.224 0.254
67 0.107 0.137 0.166 0.195 0.224 0.254
68 0.107 0.137 0.166 0.195 0.224 0.254
69 0.107 0.137 0.166 0.195 0.224 0.254
70 0.129 0.164 0.199 0.234 0.269 0.304
Public Agency Miscellaneous 3% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.026 0.033 0.040 0.048 0.055 0.062
51 0.021 0.026 0.032 0.038 0.043 0.049
52 0.019 0.025 0.030 0.035 0.040 0.046
53 0.025 0.032 0.038 0.045 0.052 0.059
54 0.039 0.049 0.060 0.070 0.081 0.091
55 0.083 0.105 0.128 0.150 0.173 0.195
56 0.055 0.070 0.085 0.100 0.115 0.130
57 0.061 0.077 0.094 0.110 0.127 0.143
58 0.072 0.091 0.111 0.130 0.150 0.169
59 0.080 0.102 0.123 0.145 0.167 0.189
60 0.094 0.119 0.145 0.170 0.196 0.221
61 0.088 0.112 0.136 0.160 0.184 0.208
62 0.127 0.161 0.196 0.230 0.265 0.299
63 0.110 0.140 0.170 0.200 0.230 0.260
64 0.110 0.140 0.170 0.200 0.230 0.260
65 0.149 0.189 0.230 0.270 0.311 0.351
66 0.110 0.140 0.170 0.200 0.230 0.260
67 0.110 0.140 0.170 0.200 0.230 0.260
68 0.110 0.140 0.170 0.200 0.230 0.260
69 0.110 0.140 0.170 0.200 0.230 0.260
70 0.132 0.168 0.204 0.240 0.276 0.312
Attachment B
Page 59 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-14
Service Retirement
Public Agency Miscellaneous 2% @ 62
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
51 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
52 0.0103 0.0132 0.0160 0.0188 0.0216 0.0244
53 0.0131 0.0167 0.0202 0.0238 0.0273 0.0309
54 0.0213 0.0272 0.0330 0.0388 0.0446 0.0504
55 0.0440 0.0560 0.0680 0.0800 0.0920 0.1040
56 0.0303 0.0385 0.0468 0.0550 0.0633 0.0715
57 0.0363 0.0462 0.0561 0.0660 0.0759 0.0858
58 0.00465 0.0592 0.0718 0.0845 0.0972 0.1099
59 0.0578 0.0735 0.0893 0.1050 0.1208 0.1365
60 0.0616 0.0784 0.0952 0.1120 0.1288 0.1456
61 0.0888 0.0788 0.0956 0.1125 0.1294 0.1463
62 0.0941 0.1232 0.1496 0.1760 0.2024 0.2288
63 0.1287 0.1131 0.1373 0.1615 0.1857 0.2100
64 0.1045 0.1197 0.1454 0.1710 0.1967 0.2223
65 0.1045 0.1638 0.1989 0.2340 0.2691 0.3042
66 0.1045 0.1330 0.1615 0.1900 0.2185 0.2470
67 0.1045 0.1330 0.1615 0.1900 0.2185 0.2470
68 0.1045 0.1330 0.1615 0.1900 0.2185 0.2470
69 0.1045 0.1330 0.1615 0.1900 0.2185 0.2470
70 0.1254 0.1596 0.1938 0.2280 0.2622 0.9640
Service Retirement
Public Agency Fire ½ @ 55 and 2% @ 55
Age
50
51
52
53
54
55
Rate
0.01588
0.00000
0.03442
0.01990
0.04132
0.07513
Age
56
57
58
59
60
Rate
0.11079
0.00000
0.09499
0.04409
1.00000
Public Agency Police ½ @ 55 and 2% @ 55
Age
50
51
52
53
54
55
Rate
0.02552
0.00000
0.01637
0.02717
0.00949
0.16674
Age
56
57
58
59
60
Rate
0.06921
0.05113
0.07241
0.07043
1.00000
Attachment B
Page 60 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-15
Service Retirement
Public Agency Police 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.014 0.014 0.014 0.014 0.025 0.045
51 0.012 0.012 0.012 0.012 0.023 0.040
52 0.026 0.026 0.026 0.026 0.048 0.086
53 0.052 0.052 0.052 0.052 0.096 0.171
54 0.070 0.070 0.070 0.070 0.128 0.227
55 0.090 0.090 0.090 0.090 0.165 0.293
56 0.064 0.064 0.064 0.064 0.117 0.208
57 0.071 0.071 0.071 0.071 0.130 0.232
58 0.063 0.063 0.063 0.063 0.115 0.205
59 0.140 0.140 0.140 0.140 0.174 0.254
60 0.140 0.140 0.140 0.140 0.172 0.251
61 0.140 0.140 0.140 0.140 0.172 0.251
62 0.140 0.140 0.140 0.140 0.172 0.251
63 0.140 0.140 0.140 0.140 0.172 0.251
64 0.140 0.140 0.140 0.140 0.172 0.251
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.007 0.007 0.007 0.007 0.010 0.015
51 0.008 0.008 0.008 0.008 0.013 0.019
52 0.017 0.017 0.017 0.017 0.027 0.040
53 0.047 0.047 0.047 0.047 0.072 0.107
54 0.064 0.064 0.064 0.064 0.098 0.147
55 0.087 0.087 0.087 0.087 0.134 0.200
56 0.078 0.078 0.078 0.078 0.120 0.180
57 0.090 0.090 0.090 0.090 0.139 0.208
58 0.079 0.079 0.079 0.079 0.122 0.182
59 0.073 0.073 0.073 0.073 0.112 0.168
60 0.114 0.114 0.114 0.114 0.175 0.262
61 0.114 0.114 0.114 0.114 0.175 0.262
62 0.114 0.114 0.114 0.114 0.175 0.262
63 0.114 0.114 0.114 0.114 0.175 0.262
64 0.114 0.114 0.114 0.114 0.175 0.262
65 1.000 1.000 1.000 1.000 1.000 1.000
Attachment B
Page 61 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-16
Service Retirement
Public Agency Police 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.019 0.019 0.019 0.019 0.040 0.060
51 0.024 0.024 0.024 0.024 0.049 0.074
52 0.024 0.024 0.024 0.024 0.051 0.077
53 0.059 0.059 0.059 0.059 0.121 0.183
54 0.069 0.069 0.069 0.069 0.142 0.215
55 0.116 0.116 0.116 0.116 0.240 0.363
56 0.076 0.076 0.076 0.076 0.156 0.236
57 0.058 0.058 0.058 0.058 0.120 0.181
58 0.076 0.076 0.076 0.076 0.157 0.237
59 0.094 0.094 0.094 0.094 0.193 0.292
60 0.141 0.141 0.141 0.141 0.290 0.438
61 0.094 0.094 0.094 0.094 0.193 0.292
62 0.118 0.118 0.118 0.118 0.241 0.365
63 0.094 0.094 0.094 0.094 0.193 0.292
64 0.094 0.094 0.094 0.094 0.193 0.292
65 1.000 1.000 1.000 1.000 1.000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.012 0.012 0.012 0.018 0.028 0.033
51 0.008 0.008 0.008 0.012 0.019 0.022
52 0.018 0.018 0.018 0.027 0.042 0.050
53 0.043 0.043 0.043 0.062 0.098 0.114
54 0.057 0.057 0.057 0.083 0.131 0.152
55 0.092 0.092 0.092 0.134 0.211 0.246
56 0.081 0.081 0.081 0.118 0.187 0.218
57 0.100 0.100 0.100 0.146 0.230 0.268
58 0.081 0.081 0.081 0.119 0.187 0.219
59 0.078 0.078 0.078 0.113 0.178 0.208
60 0.117 0.117 0.117 0.170 0.267 0.312
61 0.078 0.078 0.078 0.113 0.178 0.208
62 0.098 0.098 0.098 0.141 0.223 0.260
63 0.078 0.078 0.078 0.113 0.178 0.208
64 0.078 0.078 0.078 0.113 0.178 0.208
65 1.000 1.000 1.000 1.000 1.000 1.000
Attachment B
Page 62 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-17
Service Retirement
Public Agency Police 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0110 0.0110 0.0110 0.0110 0.0202 0.0361
51 0.0086 0.0086 0.0086 0.0086 0.0158 0.0281
52 0.0183 0.0183 0.0183 0.0183 0.0336 0.0599
53 0.0366 0.0366 0.0366 0.0366 0.0670 0.1194
54 0.0488 0.0488 0.0488 0.0488 0.0893 0.1592
55 0.0629 0.0629 0.0629 0.0629 0.1152 0.2052
56 0.0447 0.0447 0.0447 0.0447 0.0816 0.1455
57 0.0640 0.0640 0.0640 0.0640 0.1170 0.2086
58 0.0471 0.0471 0.0471 0.0471 0.0862 0.1537
59 0.1047 0.1047 0.1047 0.1047 0.1301 0.1908
60 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
61 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
62 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
63 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
64 0.1047 0.1047 0.1047 0.1047 0.1289 0.1880
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0052 0.0052 0.0052 0.0052 0.0081 0.0121
51 0.0057 0.0057 0.0057 0.0057 0.0088 0.0131
52 0.0121 0.0121 0.0121 0.0121 0.0187 0.0280
53 0.0326 0.0326 0.0326 0.0326 0.0501 0.0750
54 0.0447 0.0447 0.0447 0.0447 0.0688 0.1030
55 0.0608 0.0608 0.0608 0.0608 0.0935 01400
56 0.0545 0.0545 0.0545 0.0545 0.0840 0.1257
57 0.0811 0.0811 0.0811 0.0811 0.01248 0.1869
58 0.0593 0.0593 0.0593 0.0593 0.0913 0.1366
59 0.0547 0.0547 0.0547 0.0547 0.0842 0.1261
60 0.0851 0.0851 0.0851 0.0851 0.1310 0.1961
61 0.0852 0.0852 0.0852 0.0852 0.1312 0.1964
62 0.0852 0.0852 0.0852 0.0852 0.1312 0.1964
63 0.0852 0.0852 0.0852 0.0852 0.1312 0.1964
64 0.0852 0.0852 0.0852 0.0852 0.1312 0.1964
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Attachment B
Page 63 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-18
Service Retirement
Public Agency Police 2.5% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0138 0.0138 0.0138 0.0138 0.0253 0.0451
51 0.0117 0.0117 0.0117 0.0117 0.0215 0.0382
52 0.0249 0.0249 0.0249 0.0249 0.0456 0.0812
53 0.0471 0.0471 0.0471 0.0471 0.0861 0.1535
54 0.0627 0.0627 0.0627 0.0627 0.1148 0.2047
55 0.0764 0.0764 0.0764 0.0764 0.1398 0.2492
56 0.0542 0.0542 0.0542 0.0542 0.0991 0.1767
57 0.0711 0.0711 0.0711 0.0711 0.1300 0.2318
58 0.0565 0.0565 0.0565 0.0565 0.1034 0.1844
59 0.1256 0.1256 0.1256 0.1256 0.1562 0.2290
60 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
61 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
62 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
63 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
64 0.1256 0.1256 0.1256 0.1256 0.1547 0.2255
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 2.5% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0065 0.0065 0.0065 0.0065 0.0101 0.0151
51 0.0077 0.0077 0.0077 0.0077 0.0119 0.0178
52 0.0164 0.0164 0.0164 0.0164 0.0254 0.0380
53 0.0419 0.0419 0.0419 0.0419 0.0644 0.0965
54 0.0574 0.0574 0.0574 0.0574 0.0885 0.1324
55 0.0738 0.0738 0.0738 0.0738 0.1136 01700
56 0.0662 0.0662 0.0662 0.0662 0.1020 0.2077
57 0.0901 0.0901 0.0901 0.0901 0.1387 0.1639
58 0.0711 0.0711 0.0711 0.0711 0.1095 0.1513
59 0.0656 0.0656 0.0656 0.0656 0.1011 0.2354
60 0.1022 0.1022 0.1022 0.1022 0.1572 0.2356
61 0.1022 0.1022 0.1022 0.1022 0.1574 0.2356
62 0.1022 0.1022 0.1022 0.1022 0.1574 0.2356
63 0.1022 0.1022 0.1022 0.1022 0.1574 0.2356
64 0.1022 0.1022 0.1022 0.1022 0.1574 0.2356
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Attachment B
Page 64 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-19
Service Retirement
Public Agency Police 2.7% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0138 0.0138 0.0138 0.0138 0.0253 0.0451
51 0.0123 0.0123 0.0123 0.0123 0.0226 0.0402
52 0.0249 0.0249 0.0249 0.0249 0.0456 0.0812
53 0.0497 0.0497 0.0497 0.0497 0.0909 0.1621
54 0.0662 0.0662 0.0662 0.0662 0.1211 0.2160
55 0.0854 0.0854 0.0854 0.0854 0.1563 0.2785
56 0.0606 0.0606 0.0606 0.0606 0.1108 0.1975
57 0.0711 0.0711 0.0711 0.0711 0.1300 0.2318
58 0.0628 0.0628 0.0628 0.0628 0.1149 0.2049
59 0.1396 0.1396 0.1396 0.1396 0.1735 0.2544
60 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
61 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
62 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
63 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
64 0.1396 0.1396 0.1396 0.1396 0.1719 0.2506
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
These rates also apply to Local Prosecutors, Local Sheriff, School Police and Other Safety.
Service Retirement
Public Agency Fire 2.7% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.0065 0.0065 0.0065 0.0065 0.0101 0.0151
51 0.0081 0.0081 0.0081 0.0081 0.0125 0.0187
52 0.0164 0.0164 0.0164 0.0164 0.0254 0.0380
53 0.0442 0.0442 0.0442 0.0442 0.0680 0.1018
54 0.0606 0.0606 0.0606 0.0606 0.0934 0.1397
55 0.0825 0.0825 0.0825 0.0825 0.1269 01900
56 0.0740 0.0740 0.0740 0.0740 0.1140 0.1706
57 0.0901 0.0901 0.0901 0.0901 0.1387 0.2077
58 0.0790 0.0790 0.0790 0.0790 0.1217 0.1821
59 0.0729 0.0729 0.0729 0.0729 0.1123 0.1681
60 0.1135 0.1135 0.1135 0.1135 0.1747 0.2615
61 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
62 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
63 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
64 0.1136 0.1136 0.1136 0.1136 0.1749 0.2618
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Attachment B
Page 65 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-20
Service Retirement
Schools 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.005 0.009 0.013 0.015 0.016 0.018
51 0.005 0.010 0.014 0.017 0.019 0.021
52 0.006 0.012 0.017 0.020 0.022 0.025
53 0.007 0.014 0.019 0.023 0.026 0.029
54 0.012 0.024 0.033 0.039 0.044 0.049
55 0.024 0.048 0.067 0.079 0.088 0.099
56 0.020 0.039 0.055 0.065 0.072 0.081
57 0.021 0.042 0.059 0.070 0.078 0.087
58 0.025 0.050 0.070 0.083 0.092 0.103
59 0.029 0.057 0.080 0.095 0.105 0.118
60 0.037 0.073 0.102 0.121 0.134 0.150
61 0.046 0.090 0.126 0.149 0.166 0.186
62 0.076 0.151 0.212 0.250 0.278 0.311
63 0.069 0.136 0.191 0.225 0.251 0.281
64 0.067 0.133 0.185 0.219 0.244 0.273
65 0.091 0.180 0.251 0.297 0.331 0.370
66 0.072 0.143 0.200 0.237 0.264 0.295
67 0.067 0.132 0.185 0.218 0.243 0.272
68 0.060 0.118 0.165 0.195 0.217 0.243
69 0.067 0.133 0.187 0.220 0.246 0.275
70 0.066 0.131 0.183 0.216 0.241 0.270
Miscellaneous
Superfunded Status
Prior to enactment of the Public Employees’ Pension Reform Act (PEPRA) that became effective January 1,
2013, a plan in superfunded status (actuarial value of assets exceeding present value of benefits) would
normally pay a zero employer contribution rate while also being permitted to use its superfunded assets to
pay its employees’ normal member contributions.
However, Section 7522.52(a) of PEPRA states, “In any fiscal year a public employer’s contribution to a
defined benefit plan, in combination with employee contributions to that defined benefit plan, shall not be
less than the total normal cost rate…” This means that not only must employers pay their employer normal
cost regardless of plan surplus, but also, employers may no longer use superfunded assets to pay employee
normal member contributions.
Internal Revenue Code Section 415
The limitations on benefits imposed by Internal Revenue Code Section 415 are taken into account in this
valuation. Each year the impact of any changes in this limitation since the prior valuation is included and
amortized as part of the actuarial gain or loss base. This results in lower contributions for those employers
contributing to the Replacement Benefit Fund and protects CalPERS from prefunding expected benefits in
excess of limits imposed by federal tax law.
Attachment B
Page 66 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX A
ACTUARIAL METHODS AND ASSUMPTIONS
A-21
Internal Revenue Code Section 401(a)(17)
The limitations on compensation imposed by Internal Revenue Code Section 401(a)(17) are taken into
account in this valuation. Each year, the impact of any changes in the compensation limitation since the
prior valuation is included and amortized as part of the actuarial gain or loss base.
PEPRA Assumptions
The Public Employees’ Pension Reform Act of 2013 (PEPRA) mandated new benefit formulas and new
member contributions for new members (as defined by PEPRA) hired after January 1, 2013. For non-pooled
plans, these new members will first be reflected in the June 30, 2013 non-pooled plan valuations. New
members in pooled plans will first be reflected in the new Miscellaneous and Safety risk pools created by the
CalPERS Board in November 2012 in response to the passage of PEPRA, also beginning with the June 30,
2013 valuation. Different assumptions for these new PEPRA members are disclosed above.
Attachment B
Page 67 of 96
THIS PAGE
INTENTIONALLY
LEFT BLANK
Attachment B
Page 68 of 96
APPENDIX B
PRINCIPAL PLAN PROVISIONS
Attachment B
Page 69 of 96
THIS PAGE
INTENTIONALLY
LEFT BLANK
Attachment B
Page 70 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-1
The following is a description of the principal plan provisions used in calculating costs and liabilities. We have
indicated whether a plan provision is standard or optional. Standard benefits are applicable to all members while
optional benefits vary among employers. Optional benefits that apply to a single period of time, such as Golden
Handshakes, have not been included. Many of the statements in this summary are general in nature, and are
intended to provide an easily understood summary of the complex Public Employees’ Retirement Law. The law itself
governs in all situations.
PEPRA Benefit Changes
The Public Employees’ Pension Reform Act of 2013 (PEPRA) requires new benefits and member contributions for new
members as defined by PEPRA, that are hired after January 1, 2013. These PEPRA members are reflected in your
June 30, 2013 actuarial valuation. Members in pooled plans are reflected in the new Miscellaneous and Safety risk
pools created by the CalPERS Board in November 2012 in response to the passage of PEPRA, beginning with the
June 30, 2013 valuation.
Service Retirement
Eligibility
A classic CalPERS member or PEPRA Safety member becomes eligible for Service Retirement upon attainment of age
50 with at least 5 years of credited service (total service across all CalPERS employers, and with certain other
Retirement Systems with which CalPERS has reciprocity agreements). For employees hired into a plan with the 1.5%
at 65 formula, eligibility for service retirement is age 55 with at least 5 years of service. PEPRA miscellaneous
members become eligible for Service Retirement upon attainment of age 52 with at least 5 years of service.
Benefit
The Service Retirement benefit is a monthly allowance equal to the product of the benefit factor, years of service,
and final compensation.
The benefit factor depends on the benefit formula specified in your agency’s contract. The table below shows
the factors for each of the available formulas. Factors vary by the member’s age at retirement. Listed are the
factors for retirement at whole year ages:
Miscellaneous Plan Formulas
Retirement
Age
1.5% at
65 2% at 60 2% at 55 2.5% at
55
2.7% at
55 3% at 60
PEPRA
2% at 62
50 0.5000% 1.092% 1.426% 2.000% 2.000% 2.000% N/A
51 0.5667% 1.156% 1.522% 2.100% 2.140% 2.100% N/A
52 0.6334% 1.224% 1.628% 2.200% 2.280% 2.200% 1.000%
53 0.7000% 1.296% 1.742% 2.300% 2.420% 2.300% 1.100%
54 0.7667% 1.376% 1.866% 2.400% 2.560% 2.400% 1.200%
55 0.8334% 1.460% 2.000% 2.500% 2.700% 2.500% 1.300%
56 0.9000% 1.552% 2.052% 2.500% 2.700% 2.600% 1.400%
57 0.9667% 1.650% 2.104% 2.500% 2.700% 2.700% 1.500%
58 1.0334% 1.758% 2.156% 2.500% 2.700% 2.800% 1.600%
59 1.1000% 1.874% 2.210% 2.500% 2.700% 2.900% 1.700%
60 1.1667% 2.000% 2.262% 2.500% 2.700% 3.000% 1.800%
61 1.2334% 2.134% 2.314% 2.500% 2.700% 3.000% 1.900%
62 1.3000% 2.272% 2.366% 2.500% 2.700% 3.000% 2.000%
Attachment B
Page 71 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-2
63 1.3667% 2.418% 2.418% 2.500% 2.700% 3.000% 2.100%
64 1.4334% 2.418% 2.418% 2.500% 2.700% 3.000% 2.200%
65 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.300%
66 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.400%
67 & up 1.5000% 2.418% 2.418% 2.500% 2.700% 3.000% 2.500%
Safety Plan Formulas
Retirement
Age ½ at 55 * 2% at 55 2% at 50 3% at 55 3% at 50
50 1.783% 1.426% 2.000% 2.400% 3.000%
51 1.903% 1.522% 2.140% 2.520% 3.000%
52 2.035% 1.628% 2.280% 2.640% 3.000%
53 2.178% 1.742% 2.420% 2.760% 3.000%
54 2.333% 1.866% 2.560% 2.880% 3.000%
55 & Up 2.500% 2.000% 2.700% 3.000% 3.000%
* For this formula, the benefit factor also varies by entry age. The factors shown are for members with an entry age
of 35 or greater. If entry age is less than 35, then the age 55 benefit factor is 50 percent divided by the difference
between age 55 and entry age. The benefit factor for ages prior to age 55 is the same proportion of the age 55
benefit factor as in the above table.
PEPRA Safety Plan Formulas
Retirement Age 2% at 57 2.5% at 57 2.7% at 57
50 1.426% 2.000% 2.000%
51 1.508% 2.071% 2.100%
52 1.590% 2.143% 2.200%
53 1.672% 2.214% 2.300%
54 1.754% 2.286% 2.400%
55 1.836% 2.357% 2.500%
56 1.918% 2.429% 2.600%
57 & Up 2.000% 2.500% 2.700%
The years of service is the amount credited by CalPERS to a member while he or she is employed in this group
(or for other periods that are recognized under the employer’s contract with CalPERS). For a member who has
earned service with multiple CalPERS employers, the benefit from each employer is calculated separately
according to each employer’s contract, and then added together for the total allowance. An agency may contract
for an optional benefit where any unused sick leave accumulated at the time of retirement will be converted to
credited service at a rate of 0.004 years of service for each day of sick leave.
The final compensation is the monthly average of the member’s highest 36 or 12 consecutive months’ full-time
equivalent monthly pay (no matter which CalPERS employer paid this compensation). The standard benefit is 36
months. Employers have the option of providing a final compensation equal to the highest 12 consecutive
months. Final compensation must be defined by the highest 36 consecutive months’ pay under the 1.5% at 65
formula. PEPRA members have a cap on the annual salary that can be used to calculate final compensation for
all new members based on the Social Security Contribution and Benefit Base. For employees that participate in
Attachment B
Page 72 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-3
Social Security this cap is $113,700 for 2013 and for those employees that do not participate in social security
the cap for 2013 is $136,440, the equivalent of 120 percent of the 2013 Contribution and Benefit Base.
Adjustments to the caps are permitted annually based on changes to the CPI for All Urban Consumers.
Employees must be covered by Social Security with the 1.5% at 65 formula. Social Security is optional for all
other benefit formulas. For employees covered by Social Security, the Modified formula is the standard benefit.
Under this type of formula, the final compensation is offset by $133.33 (or by one third if the final compensation
is less than $400). Employers may contract for the Full benefit with Social Security that will eliminate the offset
applicable to the final compensation. For employees not covered by Social Security, the Full benefit is paid with
no offsets. Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the
offset is $317 if members are not covered by Social Security or $513 if members are covered by Social Security.
The Miscellaneous Service Retirement benefit is not capped. The Safety Service Retirement benefit is capped at
90 percent of final compensation.
Vested Deferred Retirement
Eligibility for Deferred Status
A CalPERS member becomes eligible for a deferred vested retirement benefit when he or she leaves employment,
keeps his or her contribution account balance on deposit with CalPERS, and has earned at least 5 years of credited
service (total service across all CalPERS employers, and with certain other Retirement Systems with which CalPERS
has reciprocity agreements).
Eligibility to Start Receiving Benefits
The CalPERS classic members and Safety PEPRA members become eligible to receive the deferred retirement benefit
upon satisfying the eligibility requirements for Deferred Status and upon attainment of age 50 (55 for employees
hired into a 1.5% @ 65 plan). PEPRA Miscellaneous members become eligible to receive the deferred retirement
benefit upon satisfying the eligibility requirements for Deferred Status and upon attainment of age 52.
Benefit
The vested deferred retirement benefit is the same as the Service Retirement benefit, where the benefit factor is
based on the member’s age at allowance commencement. For members who have earned service with multiple
CalPERS employers, the benefit from each employer is calculated separately according to each employer’s contract,
and then added together for the total allowance.
Non-Industrial (Non-Job Related) Disability Retirement
Eligibility
A CalPERS member is eligible for Non-Industrial Disability Retirement if he or she becomes disabled and has at least
5 years of credited service (total service across all CalPERS employers, and with certain other Retirement Systems
with which CalPERS has reciprocity agreements). There is no special age requirement. Disabled means the member is
unable to perform his or her job because of an illness or injury, which is expected to be permanent or to last
indefinitely. The illness or injury does not have to be job related. A CalPERS member must be actively employed by
any CalPERS employer at the time of disability in order to be eligible for this benefit.
Standard Benefit
The standard Non-Industrial Disability Retirement benefit is a monthly allowance equal to 1.8 percent of final
compensation, multiplied by service, which is determined as follows:
Service is CalPERS credited service, for members with less than 10 years of service or greater than 18.518 years
of service; or
Service is CalPERS credited service plus the additional number of years that the member would have worked
until age 60, for members with at least 10 years but not more than 18.518 years of service. The maximum
benefit in this case is 33 1/3 percent of Final Compensation.
Attachment B
Page 73 of 96
CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-4
Improved Benefit
Employers have the option of providing the improved Non-Industrial Disability Retirement benefit. This benefit
provides a monthly allowance equal to 30 percent of final compensation for the first 5 years of service, plus 1 percent
for each additional year of service to a maximum of 50 percent of final compensation.
Members who are eligible for a larger service retirement benefit may choose to receive that benefit in lieu of a
disability benefit. Members eligible to retire, and who have attained the normal retirement age determined by their
service retirement benefit formula, will receive the same dollar amount for disability retirement as that payable for
service retirement. For members who have earned service with multiple CalPERS employers, the benefit attributed to
each employer is the total disability allowance multiplied by the ratio of service with a particular employer to the total
CalPERS service.
Industrial (Job Related) Disability Retirement
All safety members have this benefit. For miscellaneous members, employers have the option of providing this
benefit. An employer may choose to provide the Increased benefit option or the Improved benefit option.
Eligibility
An employee is eligible for Industrial Disability Retirement if he or she becomes disabled while working, where
disabled means the member is unable to perform the duties of the job because of a work-related illness or injury,
which is, expected to be permanent or to last indefinitely. A CalPERS member who has left active employment within
this group is not eligible for this benefit, except to the extent described below.
Standard Benefit
The standard Industrial Disability Retirement benefit is a monthly allowance equal to 50 percent of final
compensation.
Increased Benefit (75 percent of Final Compensation)
The increased Industrial Disability Retirement benefit is a monthly allowance equal to 75 percent final compensation
for total disability.
Improved Benefit (50 percent to 90 percent of Final Compensation)
The improved Industrial Disability Retirement benefit is a monthly allowance equal to the Workman’s Compensation
Appeals Board permanent disability rate percentage (if 50 percent or greater, with a maximum of 90 percent) times
the final compensation.
For a CalPERS member not actively employed in this group who became disabled while employed by some other
CalPERS employer, the benefit is a return of accumulated member contributions with respect to employment in this
group. With the standard or increased benefit, a member may also choose to receive the annuitization of the
accumulated member contributions.
If a member is eligible for Service Retirement and if the Service Retirement benefit is more than the Industrial
Disability Retirement benefit, the member may choose to receive the larger benefit.
Post-Retirement Death Benefit
Standard Lump Sum Payment
Upon the death of a retiree, a one-time lump sum payment of $500 will be made to the retiree’s designated
survivor(s), or to the retiree’s estate.
Improved Lump Sum Payment
Employers have the option of providing an improved lump sum death benefit of $600, $2,000, $3,000, $4,000 or
$5,000.
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-5
Form of Payment for Retirement Allowance
Standard Form of Payment
Generally, the retirement allowance is paid to the retiree in the form of an annuity for as long as he or she is alive.
The retiree may choose to provide for a portion of his or her allowance to be paid to any designated beneficiary after
the retiree’s death. CalPERS provides for a variety of such benefit options, which the retiree pays for by taking a
reduction in his or her retirement allowance. Such reduction takes into account the amount to be provided to the
beneficiary and the probable duration of payments (based on the ages of the member and beneficiary) made
subsequent to the member’s death.
Improved Form of Payment (Post Retirement Survivor Allowance)
Employers have the option to contract for the post retirement survivor allowance.
For retirement allowances with respect to service subject to the modified formula, 25 percent of the retirement
allowance will automatically be continued to certain statutory beneficiaries upon the death of the retiree, without a
reduction in the retiree’s allowance. For retirement allowances with respect to service subject to the full or
supplemental formula, 50 percent of the retirement allowance will automatically be continued to certain statutory
beneficiaries upon the death of the retiree, without a reduction in the retiree’s allowance. This additional benefit is
often referred to as post retirement survivor allowance (PRSA) or simply as survivor continuance.
In other words, 25 percent or 50 percent of the allowance, the continuance portion, is paid to the retiree for as long
as he or she is alive, and that same amount is continued to the retiree’s spouse (or if no eligible spouse, to
unmarried children until they attain age 18; or, if no eligible children, to a qualifying dependent parent) for the rest
of his or her lifetime. This benefit will not be discontinued in the event the spouse remarries.
The remaining 75 percent or 50 percent of the retirement allowance, which may be referred to as the option portion
of the benefit, is paid to the retiree as an annuity for as long as he or she is alive. Or, the retiree may choose to
provide for some of this option portion to be paid to any designated beneficiary after the retiree’s death. Benefit
options applicable to the option portion are the same as those offered with the standard form. The reduction is
calculated in the same manner but is applied only to the option portion.
Pre-Retirement Death Benefits
Basic Death Benefit
This is a standard benefit.
Eligibility
An employee’s beneficiary (or estate) may receive the Basic Death benefit if the member dies while actively
employed. A CalPERS member must be actively employed with the CalPERS employer providing this benefit to be
eligible for this benefit. A member’s survivor who is eligible for any other pre-retirement death benefit may choose to
receive that death benefit instead of this Basic Death benefit.
Benefit
The Basic Death Benefit is a lump sum in the amount of the member’s accumulated contributions, where interest is
currently credited at 7.5 percent per year, plus a lump sum in the amount of one month's salary for each completed
year of current service, up to a maximum of six months' salary. For purposes of this benefit, one month's salary is
defined as the member's average monthly full-time rate of compensation during the 12 months preceding death.
1957 Survivor Benefit
This is a standard benefit.
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-6
Eligibility
An employee’s eligible survivor(s) may receive the 1957 Survivor benefit if the member dies while actively employed,
has attained at least age 50 for Classic and Safety PEPRA members and age 52 for Miscellaneous PEPRA members,
and has at least 5 years of credited service (total service across all CalPERS employers and with certain other
Retirement Systems with which CalPERS has reciprocity agreements). A CalPERS member must be actively employed
with the CalPERS employer providing this benefit to be eligible for this benefit. An eligible survivor means the
surviving spouse to whom the member was married at least one year before death or, if there is no eligible spouse,
to the member's unmarried children under age 18. A member’s survivor who is eligible for any other pre-retirement
death benefit may choose to receive that death benefit instead of this 1957 Survivor benefit.
Benefit
The 1957 Survivor benefit is a monthly allowance equal to one-half of the unmodified Service Retirement benefit that
the member would have been entitled to receive if the member had retired on the date of his or her death. If the
benefit is payable to the spouse, the benefit is discontinued upon the death of the spouse. If the benefit is payable to
a dependent child, the benefit will be discontinued upon death or attainment of age 18, unless the child is disabled.
The total amount paid will be at least equal to the Basic Death benefit.
Optional Settlement 2W Death Benefit
This is an optional benefit.
Eligibility
An employee’s eligible survivor may receive the Optional Settlement 2W Death benefit if the member dies while
actively employed, has attained at least age 50 for Classic and Safety PEPRA members and age 52 for Miscellaneous
PEPRA members, and has at least 5 years of credited service (total service across all CalPERS employers and with
certain other Retirement Systems with which CalPERS has reciprocity agreements). A CalPERS member who is no
longer actively employed with any CalPERS employer is not eligible for this benefit. An eligible survivor means the
surviving spouse to whom the member was married at least one year before death. A member’s survivor who is
eligible for any other pre-retirement death benefit may choose to receive that death benefit instead of this Optional
Settlement 2W Death benefit.
Benefit
The Optional Settlement 2W Death benefit is a monthly allowance equal to the Service Retirement benefit that the
member would have received had the member retired on the date of his or her death and elected Optional
Settlement 2W. (A retiree who elects Optional Settlement 2W receives an allowance that has been reduced so that it
will continue to be paid after his or her death to a surviving beneficiary.) The allowance is payable as long as the
surviving spouse lives, at which time it is continued to any unmarried children under age 18, if applicable. The total
amount paid will be at least equal to the Basic Death Benefit.
Special Death Benefit
This is a standard benefit for safety members. An employer may elect to provide this benefit for miscellaneous
members.
Eligibility
An employee’s eligible survivor(s) may receive the Special Death benefit if the member dies while actively employed
and the death is job-related. A CalPERS member who is no longer actively employed with any CalPERS employer is
not eligible for this benefit. An eligible survivor means the surviving spouse to whom the member was married prior
to the onset of the injury or illness that resulted in death. If there is no eligible spouse, an eligible survivor means the
member's unmarried children under age 22. An eligible survivor who chooses to receive this benefit will not receive
any other death benefit.
Benefit
The Special Death benefit is a monthly allowance equal to 50 percent of final compensation, and will be increased
whenever the compensation paid to active employees is increased but ceasing to increase when the member would
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-7
have attained age 50. The allowance is payable to the surviving spouse until death at which time the allowance is
continued to any unmarried children under age 22. There is a guarantee that the total amount paid will at least equal
the Basic Death Benefit.
If the member’s death is the result of an accident or injury caused by external violence or physical force incurred in
the performance of the member’s duty, and there are eligible surviving children (eligible means unmarried children
under age 22) in addition to an eligible spouse, then an additional monthly allowance is paid equal to the
following:
if 1 eligible child: 12.5 percent of final compensation
if 2 eligible children: 20.0 percent of final compensation
if 3 or more eligible children: 25.0 percent of final compensation
Alternate Death Benefit for Local Fire Members
This is an optional benefit available only to local fire members.
Eligibility
An employee’s eligible survivor(s) may receive the Alternate Death benefit in lieu of the Basic Death Benefit or the
1957 Survivor Benefit if the member dies while actively employed and has at least 20 years of total CalPERS service.
A CalPERS member who is no longer actively employed with any CalPERS employer is not eligible for this benefit. An
eligible survivor means the surviving spouse to whom the member was married prior to the onset of the injury or
illness that resulted in death. If there is no eligible spouse, an eligible survivor means the member's unmarried
children under age 18.
Benefit
The Alternate Death benefit is a monthly allowance equal to the Service Retirement benefit that the member would
have received had the member retired on the date of his or her death and elected Optional Settlement 2W. (A retiree
who elects Optional Settlement 2W receives an allowance that has been reduced so that it will continue to be paid
after his or her death to a surviving beneficiary.) If the member has not yet attained age 50, the benefit is equal to
that which would be payable if the member had retired at age 50, based on service credited at the time of death.
The allowance is payable as long as the surviving spouse lives, at which time it is continued to any unmarried
children under age 18, if applicable. The total amount paid will be at least equal to the Basic Death Benefit.
Cost-of-Living Adjustments (COLA)
Standard Benefit
Beginning the second calendar year after the year of retirement, retirement and survivor allowances will be annually
adjusted on a compound basis by 2 percent.
Improved Benefit
Employers have the option of providing any of these improved cost-of-living adjustments by contracting for any one
of these Class 1 optional benefits. An improved COLA is not available in conjunction with the 1.5% at 65 formula.
Beginning the second calendar year after the year of retirement, retirement and survivor allowances will be annually
adjusted on a compound basis by either 3 percent, 4 percent or 5 percent. However, the cumulative adjustment may
not be greater than the cumulative change in the Consumer Price Index since the date of retirement.
Purchasing Power Protection Allowance (PPPA)
Retirement and survivor allowances are protected against inflation by PPPA. PPPA benefits are cost-of-living
adjustments that are intended to maintain an individual’s allowance at 80 percent of the initial allowance at
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-8
retirement adjusted for inflation since retirement. The PPPA benefit will be coordinated with other cost-of-living
adjustments provided under the plan.
Employee Contributions
Each employee contributes toward his or her retirement based upon the retirement formula. The standard employee
contribution is as described below.
The percent contributed below the monthly compensation breakpoint is 0 percent.
The monthly compensation breakpoint is $0 for full and supplemental formula members and $133.33 for
employees covered by the modified formula.
The percent contributed above the monthly compensation breakpoint depends upon the benefit formula, as
shown in the table below.
Benefit Formula Percent Contributed above the
Breakpoint
Miscellaneous, 1.5% at 65 2%
Miscellaneous, 2% at 60 7%
Miscellaneous, 2% at 55 7%
Miscellaneous, 2.5% at 55 8%
Miscellaneous, 2.7% at 55 8%
Miscellaneous, 3% at 60 8%
Miscellaneous, 2% at 62 50% of the Total Normal Cost
Safety, 1/2 at 55 Varies by entry age
Safety, 2% at 55 7%
Safety, 2% at 50 9%
Safety, 3% at 55 9%
Safety, 3% at 50 9%
Safety, 2% at 57 50% of the Total Normal Cost
Safety, 2.5% at 57 50% of the Total Normal Cost
Safety, 2.7% at 57 50% of the Total Normal Cost
The employer may choose to “pick-up” these contributions for the employees (Employer Paid Member Contributions
or EPMC). EPMC is prohibited for new PEPRA members.
An employer may also include Employee Cost Sharing in the contract, where employees agree to share the cost of
the employer contribution with or without a change in benefit. These contributions are paid in addition to the
member contribution.
Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the offset is $317 and
the contribution rate is 6 percent if members are not covered by Social Security. If members are covered by Social
Security, the offset is $513 and the contribution rate is 5 percent.
Refund of Employee Contributions
If the member’s service with the employer ends, and if the member does not satisfy the eligibility conditions for any
of the retirement benefits above, the member may elect to receive a refund of his or her employee contributions,
which are credited annually with 6 percent interest.
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX B
SAFETY PLAN OF THE CITY OF PALO ALTO
PRINCIPAL PLAN PROVISIONS
B-9
1959 Survivor Benefit
This is a pre-retirement death benefit available only to members not covered by Social Security. Any agency joining
CalPERS subsequent to 1993 was required to provide this benefit if the members were not covered by Social
Security. The benefit is optional for agencies joining CalPERS prior to 1994. Levels 1, 2 and 3 are now closed. Any
new agency or any agency wishing to add this benefit or increase the current level must choose the 4th or Indexed
Level.
This benefit is not included in the results presented in this valuation. More information on this benefit is available on
the CalPERS website at www.calpers.ca.gov.
Attachment B
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APPENDIX C
PARTICIPANT DATA
SUMMARY OF VALUATION DATA
ACTIVE MEMBERS
TRANSFERRED AND TERMINATED MEMBERS
RETIRED MEMBERS AND BENEFICIARIES
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-1
Summary of Valuation Data
June 30, 2012 June 30, 2013
1. Active Members
a) Counts 180 184
b) Average Attained Age
40.16 40.56
c) Average Entry Age to Rate Plan 29.10 29.20
d) Average Years of Service 11.06 11.36
e) Average Annual Covered Pay $ 116,221 $ 115,533
f) Annual Covered Payroll 20,919,846 21,258,082
g) Projected Annual Payroll for Contribution Year 22,859,681 23,229,280
h) Present Value of Future Payroll 197,739,373 197,632,871
2. Transferred Members
a) Counts 59 59
b) Average Attained Age 43.67 42.98
c) Average Years of Service 4.16 3.77
d) Average Annual Covered Pay $ 108,463 $ 103,052
3. Terminated Members
a) Counts 31 29
b) Average Attained Age 42.78 42.21
c) Average Years of Service 3.69 2.68
d) Average Annual Covered Pay $ 73,686 $ 75,591
4. Retired Members and Beneficiaries
a) Counts 398 404
b) Average Attained Age 66.74 66.93
c) Average Annual Benefits $ 46,860 $ 48,491
5. Active to Retired Ratio [(1a) / (4a)] 0.45 0.46
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple
records may exist for those who have service in more than one valuation group. This does not result in
double counting of liabilities.
Average Annual Benefits represents benefit amounts payable by this plan only. Some members may have
service with another agency and would therefore have a larger total benefit than would be included as part
of the average shown here.
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-2
Active Members
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple records
may exist for those who have service in more than one valuation group. This does not result in double counting of
liabilities.
Distribution of Active Members by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
15-24 1 0 0 0 0 0 1
25-29 12 4 0 0 0 0 16
30-34 20 20 1 0 0 0 41
35-39 5 5 12 1 0 0 23
40-44 7 7 17 8 1 0 40
45-49 1 4 6 15 10 7 43
50-54 1 1 4 2 5 2 15
55-59 0 0 1 0 0 2 3
60-64 0 0 0 0 1 1 2
65 and over 0 0 0 0 0 0 0
All Ages 47 41 41 26 17 12 184
Distribution of Average Annual Salaries by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Average
15-24 $88,524 $0 $0 $0 $0 $0 $88,524
25-29 91,581 109,450 0 0 0 0 96,048
30-34 101,893 115,604 116,235 0 0 0 108,931
35-39 95,071 108,102 130,488 160,784 0 0 119,239
40-44 92,479 112,025 116,911 124,615 161,660 0 114,440
45-49 184,829 104,981 107,135 123,633 127,480 139,324 124,468
50-54 110,275 115,887 112,471 101,639 131,231 131,131 119,849
55-59 0 0 141,098 0 0 161,433 154,654
60-64 0 0 0 0 115,776 116,912 116,344
65 and over 0 0 0 0 0 0 0
All Ages $98,791 $112,448 $119,594 $123,672 $129,905 $139,775 $115,533
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-3
Transferred and Terminated Members
Distribution of Transfers to Other CalPERS Plans by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
Average
Salary
15-24 0 0 0 0 0 0 0 $0
25-29 4 0 0 0 0 0 4 94,431
30-34 10 0 0 0 0 0 10 89,509
35-39 7 0 0 0 0 0 7 103,158
40-44 6 2 1 0 0 0 9 122,339
45-49 10 6 3 0 0 0 19 98,083
50-54 2 2 0 1 0 0 5 106,983
55-59 1 2 1 0 0 0 4 124,444
60-64 0 0 1 0 0 0 1 87,824
65 and over 0 0 0 0 0 0 0 0
All Ages 40 12 6 1 0 0 59 103,052
Distribution of Terminated Participants with Funds on Deposit by Age and Service
Years of Service at Valuation Date
Attained
Age 0-4 5-9 10-14 15-19 20-25 25+ Total
Average
Salary
15-24 0 0 0 0 0 0 0 $0
25-29 0 0 0 0 0 0 0 0
30-34 6 1 0 0 0 0 7 74,881
35-39 2 3 0 0 0 0 5 98,554
40-44 5 3 0 0 0 0 8 81,795
45-49 4 0 0 0 0 0 4 48,607
50-54 4 0 0 0 0 0 4 54,988
55-59 0 0 0 0 0 0 0 0
60-64 0 1 0 0 0 0 1 106,475
65 and over 0 0 0 0 0 0 0 0
All Ages 21 8 0 0 0 0 29 75,591
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-4
Retired Members and Beneficiaries
Distribution of Retirees and Beneficiaries by Age and Retirement Type*
Attained
Age
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Total
Under 30 0 0 0 0 0 0 0
30-34 0 0 1 0 0 0 1
35-39 0 0 2 0 0 0 2
40-44 0 0 6 0 0 0 6
45-49 0 1 4 0 0 0 5
50-54 34 1 19 0 2 0 56
55-59 36 0 15 0 1 2 54
60-64 27 0 18 0 0 3 48
65-69 34 1 19 0 0 7 61
70-74 33 1 25 0 0 5 64
75-79 28 1 21 0 0 4 54
80-84 14 0 14 0 0 7 35
85 and Over 11 0 3 0 0 4 18
All Ages 217 5 147 0 3 32 404
Distribution of Average Annual Amounts for Retirees and Beneficiaries by Age
and Retirement Type*
Attained
Age
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Average
Under 30 $0 $0 $0 $0 $0 $0 $0
30-34 0 0 50,015 0 0 0 50,015
35-39 0 0 59,693 0 0 0 59,693
40-44 0 0 53,706 0 0 0 53,706
45-49 0 80 36,520 0 0 0 29,232
50-54 79,807 31,030 59,018 0 46,762 0 70,702
55-59 70,335 0 68,425 0 26,044 57,408 68,506
60-64 76,132 0 43,849 0 0 29,846 61,133
65-69 47,138 16,350 38,531 0 0 41,217 43,273
70-74 47,039 14,012 32,953 0 0 29,749 39,670
75-79 40,619 8,676 26,936 0 0 16,830 32,944
80-84 30,248 0 24,070 0 0 32,960 28,319
85 and Over 26,597 0 24,747 0 0 11,006 22,824
All Ages $56,725 $14,030 $41,548 $0 $39,856 $30,740 $48,491
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX C
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
C-5
Retired Members and Beneficiaries (continued)
Distribution of Retirees and Beneficiaries by Years Retired and Retirement Type*
Years
Retired
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Total
Under 5 Yrs 63 1 19 0 0 4 87
5-9 37 0 17 0 1 7 62
10-14 33 0 17 0 0 14 64
15-19 29 1 21 0 1 1 53
20-24 29 1 16 0 0 4 50
25-29 14 0 17 0 0 1 32
30 and Over 12 2 40 0 1 1 56
All Years 217 5 147 0 3 32 404
Distribution of Average Annual Amounts for Retirees and Beneficiaries by Years Retired and
Retirement Type*
Years
Retired
Service
Retirement
Non-
Industrial
Disability
Industrial
Disability
Non-
Industrial
Death
Industrial
Death
Death
After
Retirement Average
Under 5 Yrs $79,595 $80 $79,325 $0 $0 $16,281 $75,711
5-9 56,906 0 59,077 0 49,608 42,602 55,768
10-14 56,805 0 51,831 0 0 34,272 50,555
15-19 44,383 31,030 40,522 0 43,915 291 41,760
20-24 41,382 16,350 34,616 0 0 29,766 37,787
25-29 33,440 0 27,308 0 0 19,800 29,757
30 and Over 29,960 11,344 21,146 0 26,044 1,390 22,419
All Years $56,725 $14,030 $41,548 $0 $39,856 $30,740 $48,491
* Counts of members do not include alternate payees receiving benefits while the member is still working.
Therefore, the total counts may not match information on page 25 of the report. Multiple records may exist for
those who have service in more than one coverage group. This does not result in double counting of liabilities.
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APPENDIX D
DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATE
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX D
SAFETY PLAN OF THE CITY OF PALO ALTO
PARTICIPANT DATA
D-1
DEVELOPMENT OF PEPRA MEMBER CONTRIBUTION RATE
The table below shows the determination of the Member contribution rates based on 50 percent of the Total Normal
Cost for each respective plan on June 30, 2013.
Assembly Bill (AB) 340 created PEPRA that implemented new benefit formulas and a final compensation period as
well as new contribution requirements for new employees. In accordance with Section Code 7522.30(b), “new
members … shall have an initial contribution rate of at least 50 percent of the normal cost rate.” The normal cost for
the plan is dependent on the benefit levels, actuarial assumptions and demographics of the plan particularly the entry
age into the plan. Since the actual demographics of new members was not known during the implementation of
PEPRA in December 2012, the normal cost rate was determined based on the average demographics of the members
in the current 2 percent at age 55 miscellaneous risk pool and the 3 percent at age 50 safety risk pool.
In analyzing the first set of PEPRA data, CalPERS staff has become concerned that, for most employers, there is
insufficient data to produce stable normal costs and member contribution rates. Further, this situation is likely to
persist for a number of years as employers gradually bring on more PEPRA members. The larger employers may
have sufficient PEPRA members in the first few years but other employers may not have stable rates for a number of
years. Staff has concluded that the best approach is to repeat the process – using the normal costs based on the
demographics of the risk pools – for the current valuation and work with stakeholders over the next year to
determine the best long-term approach to the issue of calculating PEPRA normal costs and member contribution
rates. For more information on this topic please refer to the CalPERS Board of Administration agenda item 9a of the
May 20th, 2014 meeting which is available on the CalPERS website.
Basis for Current Rate Rates Effective July 1, 2015
Rate Plan
Identifier Plan
Total
Normal
Cost
Member
Rate
Total
Normal
Cost
Change Change
Needed
Member
Rate
25006 Safety Fire PEPRA 22.40% 11.250% 22.40% 0.00% No 11.250%
25007 Safety Police PEPRA 22.40% 11.250% 22.40% 0.00% No 11.250%
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APPENDIX E
GLOSSARY OF ACTUARIAL TERMS
Attachment B
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CALPERS ACTUARIAL VALUATION – June 30, 2013 APPENDIX E
SAFETY PLAN OF THE CITY OF PALO ALTO
GLOSSARY OF ACTUARIAL TERMS
E-1
Glossary of Actuarial Terms
Accrued Liability (also called Actuarial Accrued Liability or Entry Age Normal Accrued Liability)
The total dollars needed as of the valuation date to fund all benefits earned in the past for current members.
Actuarial Assumptions
Assumptions made about certain events that will affect pension costs. Assumptions generally can be broken
down into two categories: demographic and economic. Demographic assumptions include such things as
mortality, disability and retirement rates. Economic assumptions include discount rate, salary growth and
inflation.
Actuarial Methods
Procedures employed by actuaries to achieve certain funding goals of a pension plan. Actuarial methods include
funding method, setting the length of time to fund the Accrued Liability and determining the Actuarial Value of
Assets.
Actuarial Valuation
The determination, as of a valuation date, of the Normal Cost, Accrued liability, Actuarial Value of Assets and
related actuarial present values for a pension plan. These valuations are performed annually or when an
employer is contemplating a change to their plan provisions.
Actuarial Value of Assets
The Actuarial Value of Assets used for funding purposes is obtained through an asset smoothing technique
where investment gains and losses are partially recognized in the year they are incurred, with the remainder
recognized in subsequent years.
This method helps to dampen large fluctuations in the employer contribution rate.
Amortization Bases
Separate payment schedules for different portions of the Unfunded Liability. The total Unfunded Liability of a
Risk Pool or non-pooled plan can be segregated by "cause,” creating “bases” and each such base will be
separately amortized and paid for over a specific period of time. However, all bases are amortized using
investment and payroll assumptions from the current valuation. This can be likened to a home having a first
mortgage of 24 years remaining payments and a second mortgage that has 10 years remaining payments. Each
base or each mortgage note has its own terms (payment period, principal, etc.)
Generally, in an actuarial valuation, the separate bases consist of changes in unfunded liability due to contract
amendments, actuarial assumption changes, actuarial methodology changes, and or gains and losses. Payment
periods are determined by Board policy and vary based on the cause of the change.
Amortization Period
The number of years required to pay off an Amortization Base.
Annual Required Contributions (ARC)
The employer's periodic required annual contributions to a defined benefit pension plan as set forth in GASB
Statement No. 27, calculated in accordance with the plan assumptions. The ARC is determined by multiplying the
employer contribution rate by the payroll reported to CalPERS for the applicable fiscal year. However, if this
contribution is fully prepaid in a lump sum, then the dollar value of the ARC is equal to the Lump Sum
Prepayment.
Classic Member (under PEPRA)
A classic member is a member who joined CalPERS prior to January, 1, 2013 and who is not defined as a new
member under PEPRA. (See definition of new member below)
Discount Rate Assumption
The actuarial assumption that was called “investment return” in earlier CalPERS reports or “actuarial interest
rate” in Section 20014 of the California Public Employees’ Retirement Law (PERL).
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Entry Age
The earliest age at which a plan member begins to accrue benefits under a defined benefit pension plan. In
most cases, this is the age of the member on their date of hire.
Entry Age Normal Cost Method
An actuarial cost method designed to fund a member's total plan benefit over the course of his or her career.
This method is designed to yield a rate expressed as a level percentage of payroll.
(The assumed retirement age less the entry age is the amount of time required to fund a member’s total benefit.
Generally, the older a member on the date of hire, the greater the entry age normal cost. This is mainly because
there is less time to earn investment income to fund the future benefits.)
Fresh Start
A Fresh Start is when multiple amortization bases are collapsed to one base and amortized together over a new
funding period.
Funded Status
A measure of how well funded, or how "on track" a plan or risk pool is with respect to assets verses accrued
liabilities. A ratio greater than 100% means the plan or risk pool has more assets than liabilities and a ratio less
than 100% means liabilities are greater than assets. A funded ratio based on the Actuarial Value of Assets
indicates the progress toward fully funding the plan using the actuarial cost methods and assumptions. A funded
ratio based on the Market Value of Assets indicates the short-term solvency of the plan.
GASB 27
Statement No. 27 of the Governmental Accounting Standards Board. The accounting standard governing a state
or local governmental employer’s accounting for pensions.
GASB 68
Statement No. 68 of the Governmental Accounting Standards Board. The accounting standard governing a state
or local governmental employer’s accounting and financial reporting for pensions. GASB 68 replaces GASB 27
effective the first fiscal year beginning after June 15, 2014.
New Member (under PEPRA)
A new member includes an individual who becomes a member of a public retirement system for the first time on
or after January 1, 2013, and who was not a member of another public retirement system prior to that date, and
who is not subject to reciprocity with another public retirement system.
Normal Cost
The annual cost of service accrual for the upcoming fiscal year for active employees. The normal cost should be
viewed as the long term contribution rate.
Pension Actuary
A business professional that is authorized by the Society of Actuaries, and the American Academy of Actuaries to
perform the calculations necessary to properly fund a pension plan.
PEPRA
The California Public Employees’ Pension Reform Act of 2013
Prepayment Contribution
A payment made by the employer to reduce or eliminate the year’s required employer contribution.
Present Value of Benefits (PVB)
The total dollars needed as of the valuation date to fund all benefits earned in the past or expected to be earned
in the future for current members.
Rolling Amortization Period
An amortization period that remains the same each year, rather than declining.
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SAFETY PLAN OF THE CITY OF PALO ALTO
GLOSSARY OF ACTUARIAL TERMS
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Superfunded
A condition existing when a plan’s Actuarial Value of Assets exceeds its Present Value of Benefits. Prior to the
passage of PEPRA, when this condition existed on a given valuation date for a given plan, employee
contributions for the rate year covered by that valuation could be waived.
Unfunded Liability
When a plan or pool’s Actuarial Value of Assets is less than its Accrued Liability, the difference is the plan or
pool’s Unfunded Liability. If the Unfunded Liability is positive, the plan or pool will have to pay contributions
exceeding the Normal Cost.
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