HomeMy WebLinkAbout2018-09-18 Finance Committee Agenda PacketFinance Committee
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Tuesday, September 18, 2018
Special Meeting
Community Meeting Room
6:00 PM
Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in
the Council Chambers on the Thursday 12 days preceding the meeting.
PUBLIC COMMENT
Members of the public may speak to agendized items. If you wish to address the Committee on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council
Chambers/Community Meeting Room, and deliver it to the Clerk prior to discussion of the item. You are not
required to give your name on the speaker card in order to speak to the Committee, but it is very helpful. Public
comment may be addressed to the full Finance Committee via email at City.Council@cityofpaloalto.org.
Call to Order
Oral Communications
Members of the public may speak to any item NOT on the agenda.
Action Items
1. Discuss and Confirm the Workplan to Address the City Council Fiscal
Year 2019 Adopted Budget Referral to Identify $4 Million in General
Fund Savings
2. Accept California Public Employees’ Retirement System (CalPERS)
Pension Annual Valuation Reports as of June 30, 2017 and Review and
Confirm Pension Funding and Reporting Policy Guidelines
Future Meetings and Agendas
Adjournment
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2 September 18, 2018
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE.
DURING NORMAL BUSINESS HOURS.
Finance Committee Items Tentatively Scheduled
Meeting
Date
Line No. Item Title Referral Date
10/2/2018 1 Meeting Tentatively Cancelled
10/16/2018 2 Muni Fees: Police, CSD, & Special Events Fees; Muni Fee Cost Recovery Policy
(ASD)
Reimbursement Resolution for Revenue Bonds for the Regional Water
Quality Control Plant (Public Works)
3 Electric Integrated Resource Plan (Utilities)
4 Staff and the Utilities Advisory Commission Recommend that Council Accept
the Utilities Smart Grid Assessment and Utilities Technology Implementation
Plan, Including Advanced Metering Infrastructure-Based Smart Grid Systems
to Serve Electricity, Water, and Natural Gas Utility Customers (Utilities)
11/6/2018 6 Meeting Cancelled (November date to be determined)
11/20/2018 7 Meeting Cancelled (November date to be determined)
12/4/2018 8 No agenda as of yet
Finance Committee Items to be Scheduled
Referral
Date
Line No. Item Title Status
9 HSRAP Allocation (CSD)
10 FY18 Comprehensive Annual Financial Report (CAFR)
11 FY2020 - FY2029 Long Range Financial Forecast (LRFF) (Administrative
Services Department)
City of Palo Alto (ID # 9553)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 9/18/2018
City of Palo Alto Page 1
Summary Title: Discuss FY 2019 Adopted Budget Referral to Identify $4
Million in General Fund Savings
Title: Discuss and Confirm the Workplan to Address the City Council FY 2019
Adopted Budget Referral to Identify $4 Million in General Fund Savings
From: City Manager
Lead Department: Administrative Services
Recommendation
Discuss and provide direction on the workplan to address City Council’s referral to identify $4
million in General Fund structural reductions including identification of implications in non-
general funds as well.
Background
As part of the adoption of the FY 2019 Budget, the City Council directed staff to:
Return to the Finance Committee with a work plan and timeline to discuss the $4 million
in structural reductions in the General Fund and the impacts of the reduction in expenses
when the City Council returns from break, including a discussion of optimizing library
hours. Also include discussion regarding the implications of closing the pension gap, at a
commensurate 50% level to the General Fund, accounting for rising costs in non-general
funds, specifically Enterprise and Other Funds.
In the FY 2019 Adopted Budget, a $4 million negative adjustment was recorded in the Non-
Departmental section of the General Fund expenses. These funds were added to the General
Fund Budget Stabilization Reserve (BSR). Prior to this action, the City Manager’s FY 2019
Proposed Budget was balanced with estimated revenue supporting the estimated levels of
expenditures and the BSR slightly above the Council recommended level of 18.5% of General
Fund operating expenditures. This additional $4 million in the BSR increased the BSR beyond
the City Council target of 18.5% of General Fund expenses to 21.4% of General Fund expenses.
The specific implications associated with the lower expense level in the General Fund were left
to be discussed during the FY 2019 budget year. Should the City Council choose not to reduce
FY 2019 expenses by this $4 million, an adjustment to reinstate this reduction would simply
drop the BSR to Council approved levels of 18.5 percent of General Fund expenses.
City of Palo Alto Page 2
Discussion
Staff has developed two workplans for Finance Committee review including rough timelines to
address this referral: 1) “immediate action” and/or 2) “strategic action”. When considering the
approach, it is important to take a step back and understand this referral in the landscape of
where the City is as an organization. This broader lens includes review and acknowledgement of
the current economic conditions, the knowledge depth and capacity in the organization,
desired capital investments, desire for service levels juxtaposed with the costs to provide those
services, etc. These largely opposing forces will make a comprehensive discussion of available
resources - and providing services within limited resources - very challenging. In short, growing
pension liabilities are not the only variable placing strain on the prioritization of City expenses.
As the economy in the valley prospers, the demand on resources for services increases, as well
as the cost to live in the Bay Area. This simple economic theory of supply and demand impacts
the City on multiple levels - the cost of services the City seeks as a consumer (capital project
construction costs, general day to day business such as janitorial services), and the cost to
provide service to the community (majority is staff costs). At the Finance Committee meeting,
staff will be prepared to review these additional fiscal demands on our current budget.
Ultimately, the City is faced with a few issues despite and because of the economic prosperity
that both the City and community are enjoying.
- Attracting and retaining a highly qualified workforce to provide services to the
community
- Safeguarding employee retirement benefits by proactively saving for the future
- Rising costs for services due to the hot economy and competition in the Bay Area
Every organization faces tough conversations at certain points, and the City is no exception. As
always, community input is welcomed and encouraged through open, public discussions
regarding the services purchased with taxpayer funds. City employees, those on the front lines
every day ensuring residents are safe, have learning centers in libraries and community centers,
and general utilities such as electricity and water, will also be encouraged to participate as their
work and expertise are valued contributions to the community. Even as the organization may
shift, it is the City’s commitment to be open and honest and manage the challenges that the
work ahead may present for employees.
Potential Approaches
As mentioned earlier, staff have two potential workplans for review and discussion to address
the prioritization of how the City spends its funding on services to the community.
Immediate Action
This approach would allow for potential resolution of this $4 million referral by December 2018,
with final budget adjustments completed during the FY 2019 Mid-Year Budget review,
considered by the Council in early February.
City of Palo Alto Page 3
Returning to the Finance Committee in November/December, staff would bring forward
recommended reductions based on a review of basic criteria. Examples of criteria in this review
may include but are not limited to:
- Statutory or legally mandated services, versus discretionary expenses/programs)
- Service levels that exceed other agencies or are replicated by other organizations
- Complexity of divestment of current service or service delivery model
- Ability to quickly realize reductions in expenses
This expedited review would focus on the General Fund. Staff would strive to identify
reductions across all funds including Enterprise Funds to identify a commensurate amount of
expense reductions: however, this may lag until the new calendar year given the timeframes.
After the Finance Committee review, staff’s recommended reductions would be brought
forward to the full Council for review and approval, including budget adjustments to
redistribute the $4 million adjustment in the General Fund.
Strategic Action
This approach would allow for a more comprehensive strategy to address the $4 million referral
with more lasting results. Setting the City up for future discussions this would could be
leveraged beyond just the immediate referral but provide a platform to proactively and
strategically address the competing priorities and polarities facing the City. Specifically, this
workplan would require an initial approximately six-month intensive citywide program review
effort, with budgetary actions occurring no earlier than the FY 2020 budget process.
Staff would begin a citywide review of all programs and services currently provided by the City
of Palo Alto resulting in a “catalogue of services.” Services are defined as discrete programs to
identifiable users and vary in size across the organization. Variables that this compilation of
programs and services may include:
- concise descriptions and outcomes,
- approximate costing and staffing resources,
- resources managed (i.e. vehicles),
- funding source(s) and cost recovery levels,
- Statutory or legal mandates (as opposed to discretionary expenses/programs),
- Service levels that exceed most other agencies or are replicated by other organizations.
Once the catalogue is complete it would provide a foundation to develop a more strategic basis
of prioritization of services across the organization. This catalogue would also establish a
common language and format for future discussions, agnostic of the department or division.
Although this comprehensive approach has the promise of actionable and valuable information,
the organizational effort to undertake such a project must not be underestimated. This work
would require a focused prioritization of this effort amid a very active workload and transition
cycle the City is currently moving through. An explicit commitment to ensure the capacity of
staff during this project would be key to its success, by restraining new initiatives and some
curtailment of existing work.
City of Palo Alto Page 4
Resource Impact
There are no immediate budget adjustments necessary; however, significant staffing resources
will need to be dedicated to address either approach. The City Council will need to ensure that
space and capacity are provided to execute the action plan. Both short term and long-term
impacts to services to the community as well as City staff may result from these evaluations. It
will take significant dedicated time to determine the impacts of recommended actions, and
communicate with and hear feedback from key stakeholders, community forums, and City staff
at large in a strategic manner. In addition, depending on the approach, consultant costs may be
necessary.
Environmental Impact
This report is not a project for the purposes of the California Environmental Quality Act.
Environmental review is not required.
City of Palo Alto (ID # 9604)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 9/18/2018
City of Palo Alto Page 1
Summary Title: Accept CalPERS Pension Annual Valuation Reports & Review
Pension Policy Guidelines
Title: Accept CalPERS Pension Annual Valuation Reports as of June 30, 2017
and Review and Confirm Pension Funding and Reporting Policy Guidelines
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff recommends that the Finance Committee:
1. Review and discuss the June 30, 2017 CalPERS Annual Valuation reports for the
Miscellaneous and Safety Pension Plans; and
2. Review, comment, and confirm further direction to City Staff regarding the
establishment of a Pension Funding and Reporting Policy.
EXECUTIVE SUMMARY
This report transmits the annual actuarial valuation reports for the City’s two pension plans
with the California Public Employees’ Retirement System (CalPERS) for review and discussion.
During the 2018 fiscal year, the City Council and Finance Committee spent significant time
understanding and evaluating the City’s pension benefit plans and the financial outlook for
them. As a result, staff is working to develop a Pension Funding and Reporting Policy and is
seeking confirmation from the Finance Committee regarding the terms and outcomes to be
included in that policy.
BACKGROUND
The City of Palo Alto offers its employees and retirees a defined pension benefit plan which is
managed and administered by CalPERS, a State of California Pension Trust Program. Staff
provides the CalPERS Annual Valuation reports, which are actuarial reports detailing the latest
status of the City of Palo Alto pension trust plans for employees and retirees. These reports
calculate the annual required contribution from the City to the pension plans. In addition,
updates on the rate of return, funding status, and changes to the trust based on various
impacts are detailed in each report.
City of Palo Alto Page 2
The CalPERS program maintains two pension plans, one for safety employees (sworn fire and
police personnel) and another for miscellaneous employees (all other non-safety personnel
employed by the City, including field personnel, administrative support, and managers). These
Annual Valuation reports provide updated actuarial information for both pension plans as of
June 30, 2017.
There are three tiers of benefits within the two plans described above. Table 1 below details
the current pension plans and the different benefit levels in each tier. It takes City employees
five (5) years of service to vest in any tier of the pension program. Attachment A outlines the
number of employees in each tier by pension plan and employee group as of September, 2018.
Table 1: City of Palo Alto Pension Benefit Plans and Tiers
Miscellaneous Safety: Fire Safety: Police
Tier 1 2.7%/service year worked;
eligibility starting at the
age of 55 (2.7% @ 55)
3.0%/service year worked;
eligibility starting at the age
of 50 (3.0% @ 50)
3.0%/service year worked;
eligibility starting at the
age of 50 (3.0% @ 50)
Tier 2 Effective July 16, 2010:
2.0%/service year worked,
eligibility starting at age
60 (2.0% @ 60)
Effective June 7, 2012:
3.0%/service year worked,
eligibility starting at age 55
(3.0% @ 55)
Effective December 6,
2012: 3.0%/service year
worked, eligibility starting
at age 55 (3.0% @ 55)
Tier 3
“PEPRA”*
Effective January 1, 2013:
2.0%/service year worked;
eligibility starting at age
62 (2.0% at 62)
Effective January 1, 2013:
2.7%/service year worked;
eligibility starting at age 57
(2.7% at 57)
Effective January 1, 2013:
2.7%/service year worked;
eligibility starting at age
57 (2.7% at 57)
* Under the California Public Employees’ Pension Reform Act (PEPRA), the benefit calculation is limited by a maximum salary of
$145,666 for both the Miscellaneous and Safety plans, therefore it is calculated based on service years but cannot exceed
$145,666. The final salary calculation is based on the average of the highest three years.
DISCUSSION
CalPERS prepares an Annual Valuation report, which is an actuarial analysis to determine the
City’s pension liability and annual required contribution for each of the two pension plans (one
for miscellaneous employees, one for safety employees). These reports provide an update on
the funding status, the results of assumption changes such as rate of return (ROR) which
impacts the discount rate assumption, the new fiscal year Actuarial Determined Contribution
(ADC) and the projected future ADC as a percentage of payroll. The actuarial analysis is based
on current employees’ accrued benefit, former employees who have vested but have not yet
retired, and retired employees as of June 30, 2017. The CalPERS actuarial analysis is completed
two years in arrears by practice.
On December 21, 2016 the CalPERS Board of Administration lowered the discount rate (which is
the anticipated rate of return) from 7.5 percent to 7.0 percent over a three-year phase-in
City of Palo Alto Page 3
beginning in FY 2019. These reports include CalPERS’ accounting for the FY 2017 ROR of 11.2
percent, which is a significant improvement over the prior year’s ROR of 0.61 percent. These
reports do not factor in the preliminary estimate of the FY 2018 ROR of 8.6 percent. Exceeding
the assumed rate of return is a positive short-term result that improved the City’s funding
status, offset by the decrease in the assumed rate of return as CalPERS transitions to the 7.0
percent discount rate. The City’s overall funded status is discussed later in this report and
detailed in Table 5.
CalPERS Projected Contribution Levels
As of 2017, CalPERS has designated two components to the annual billing of the employer
contributions to employee pension accounts. These two components are 1) the Normal Cost
(NC) and 2) the Unfunded Accrued Liability (UAL).
1. The NC reflects the employer contribution for the plan retirement benefits provided to
current employees based on the current set of assumptions.
2. The UAL represents the employer amortization of unfunded accrued liability. It is an
annual payment calculated by CalPERS that will pay down the City’s unfunded accrued
pension liability over the amortization timeline. If every assumption in the actuarial
valuation stayed valid through the amortization timeline, the City would eliminate its
unfunded pension liability after making these annual payments for 30 years. The liability
grows when assumption goals, such as ROR, are not met.
The ADC for FY 2020 is $30.4 million for the Miscellaneous Plan and $15.2 million for the Safety
Plan. These figures reflect the blended, or combined, cost of both the NC and the UAL and are
within the estimates used during the development of the FY 2019 – FY 2029 Long Range
Financial Forecast.
The tables below summarize the projected percentage of payroll required for each plan to fund
the ADC as well as the individual components that make up this rate. Future ADCs are
estimated to grow from 30.2 percent of payroll in FY 2019 to 42.5 percent of payroll by FY 2025
for Miscellaneous and from 55.6 percent of payroll in FY 2019 to 73.7 percent of payroll by
2025 for Safety. This is based on the phased-in discount rate of a 7.375 ROR for FY 2019, 7.25
percent for FY 2020, and 7.00 percent for future years starting in FY 2021.
− Table 2 reflects the estimated percentage of payroll that is necessary for the City of Palo
Alto to fund the employer costs, including both the NC and the UAL. It should be noted
that most employee labor groups have agreed to “pick-up” percentages of this
employer contribution rate.
− Table 3 reflects the projected percentage of payroll for the NC employer contribution.
This rate increases as the phase-in of the lowered ROR is realized.
− Table 4 reflects the estimated annual contribution necessary to pay down the UAL. This
cost also increases as the phase-in of the lowered ROR is realized.
City of Palo Alto Page 4
TABLE 2: CalPERS Past and Projected Employer Contribution Rates
(blended both UAL and Normal Cost)*
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Miscellaneous 28.9% 30.2% 35.6% 38.2% 40.0% 41.4% 41.9% 42.5%
Safety 45.4% 55.6% 59.4% 64.1% 68.0% 71.1% 72.7% 73.7%
* The City and the represented labor groups have agreed to Memoranda of Agreements (MOAs) that include provisions for
employees to accept a greater share of pension costs to assist in curtailing the City’s growing pension expense – for all
Miscellaneous employees, a 1% employee pick-up of the employer contribution (excluding the Utilities Management
Professional Association of Palo Alto) and for all Safety employees a 3% employee pick-up of the employer contribution.
TABLE 3: CalPERS Past and Projected Normal Cost Employer Rate*
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Miscellaneous 10.0% 10.2% 10.7% 11.5% 11.5% 11.5% 11.5% 11.5%
Safety 18.9% 19.4% 20.2% 21.4% 21.4% 21.4% 21.4% 21.4%
* In addition to the employer contributions, employees contribute the employee share of pension costs based on the plan and
benefit tier. Miscellaneous employees in Tier 1 contribute 8 percent, Tier 2 contribute 7 percent and Tier 3 are 50 percent of
the Normal Cost. Safety employees in Tiers 1 and 2 contribute 9 percent and Tier 3 contribute 50 percent of the Normal Cost.
TABLE 4: CalPERS Past and Projected Annual Employer Amortization of
Unfunded Accrued Liability ($’s in 000’s)
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Miscellaneous 15,765 18,393 21,287 23,401 25,704 27,676 28,957 30,276
Safety 7,128 8,421 10,019 11,182 12,539 13,734 14,568 15,259
TOTAL $22,893 $26,814 $31,306 $34,583 $38,243 $41,410 $43,525 $45,535
% Change from Prior Yr 17.1% 16.8% 10.5% 10.6% 8.3% 5.1% 4.6%
CalPERS Projected Unfunded Accrued Pension Liability
Included in the Annual Valuation report is a status of both plans’ “funded status”. Overall,
CalPERS has 68.3% of the funding it needs for its obligations. This is higher than the City’s
funded status of 63.5% for Safety and 66.3% for Miscellaneous. Table 5 details the City’s funded
status for the Miscellaneous and Safety plans with an assumed ROR as of 7.375 effective June
30, 2017. The total unfunded pension liability increased from $404.7 million as of June 30, 2016
to $414.9 million as of June 30, 2017. This represents an increase of $10.2 million, or 2.5%. This
much slower growth, reflected in Table 5 below, represents an improvement over prior years.
TABLE 5: CalPERS Projected Unfunded Accrued Liability for the City of Palo Alto
As of
June 30, 2014
As of
June 30, 2015
As of
June 30, 2016
As of
June 30, 2017
Miscellaneous 191,411,633 219,668,121 261,680,231 260,720,776
Miscellaneous Funded Status 71.3% 68.5% 64.2% 66.3%
Safety 103,333,634 118,764,933 143,025,193 154,190,990
Safety Funded Status 71.9% 68.6% 63.6% 63.5%
TOTAL UNFUNDED PENSION LIABILITY $249,745,267 $338,433,054 $404,705,424 $414,911,766
% Change from Prior Year 14.8% 19.6% 2.5%
City of Palo Alto Page 5
CalPERS recognizes the impacts that varying assumptions may have on a plan’s unfunded
accrued liability, and thereby the pension plan’s funding status, especially the implications of
the discount rate assumption. Therefore, in addition to the actuarial assumptions used to
develop this Annual Valuation, CalPERS includes an Analysis of Discount Rate Sensitivity section
in their reports to provide some level of sensitivity analysis of the pension plans. This analysis
can be found on page 22 of each respective plan report. Table 6 illustrates CalPERS’ analysis of
the June 30, 2017 UAL’s discount rate sensitivity. For example, at 6.0 percent ROR, the total
UAL would increase to $606.3 million, representing a 57.1% funded status for Miscellaneous
and a 54.6% funded status for Safety. This analysis gives an indication of the potential impacts if
CalPERS were to realize investment returns ranging from 3.0% to 8.0% over the long term. This
type of analysis provides a sense of the potential long-term rise of the employer contribution
rates.
TABLE 6: CalPERS Sensitivity Analysis (as of June 30, 2017)
3% Discount
Rate
6% Discount
Rate
7% Discount
Rate
8% Discount
Rate
Miscellaneous $756,645,591 $383,955,876 $281,317,374 $196,093,345
Miscellaneous Funded Status 40.3% 57.1% 64.5% 72.3%
Safety $459,242,456 $222,320,471 $165,710,828 $119,024,819
Safety Funded Status 36.8% 54.6% 61.8% 69.2%
TOTAL UNFUNDED PENSION LIABILITY $1.2 billion $606 million $447 million $315 million
Potential Policy and Financial Impacts of Establishing a Pensions Funding and Reporting Policy
and Amending the General Fund Reserves Policy
Throughout FY 2018, the Finance Committee held several meetings to discuss the pension
obligations for current employees and retirees. During those discussions, the Finance
Committee expressed an interest in developing a pension funding and reporting policy with the
goal of taking steps to safeguard employee retirement benefits by proactively saving for the
future. The City has taken steps to proactively address the UAL and partially mitigate the
potential impact of lower than anticipated CalPERS investment returns. The City took one such
step in 2017 by establishing an irrevocable IRS Section 115 Pension Trust Fund (PARS Pension
Trust). To date, the City has contributed approximately $7.5 million dollars to the trust, of
which $4.6 million is from the General Fund.
Several additional options are available to further address the City’s unfunded pension liability.
Staff is seeking confirmation from the Finance Committee regarding policy options to be
addressed as part of codifying a potential Pension Funding and Reporting Policy. At this stage,
nothing precludes the City from pursuing any of these options, even without formal adoption.
For example, even though there was not a formal policy, the City contributed $2.0 million in
remaining FY 2017 funding that had been budgeted for pensions to the PARS Pension Fund as
City of Palo Alto Page 6
part of the FY 2018 Mid-Year Report. However, feedback from the Finance Committee
confirming the options to pursue would ensure further staff resources on the policy and
financial implications associated with those options are used effectively and efficiently.
Staff recommends following the guidelines listed below in the development of a policy. A brief
explanation of each option, including the work necessary to fully explore the policy and
financial implications, is included after the list. This list is not in order of priority.
Recommended Pension Policy Guidelines:
1) Provide an alternative scenario for pension liabilities assuming a discount rate of 6.2%
for reporting in the City’s annual financial reports, however, maintain formal reporting
using the CalPERS provided rates.
2) Analyze the annual CalPERS actuarial valuations and evaluate opportunities to more
efficiently amortize the City’s UAL compared to the default minimum contribution
schedules proposed by CalPERS.
3) Amend the City Council’s General Fund Reserves Policy.
4) Transmit budgetary savings in employer contributions as an Additional Discretionary
Payment (ADP) to either CalPERS or PARS.
5) Establish funding level guidelines for the PARS Section 115 Pension Trust.
Descriptions of Pension Policy Guidelines:
1) Provide an alternative scenario for pension liabilities assuming a discount rate of 6.2%
for reporting in the City’s annual financial reports, however, maintain formal reporting
using the CalPERS provided rates.
In November, 2016 CalPERS outside actuarial consultant, Wilshire Associates, stated
that its estimated rate of return for CalPERS for the next ten years was 6.2 percent. The
City can continue to work to model the impacts of a 6.2 percent discount rate compared
to the 7.0 percent discount rate modeled by CalPERS consistent with last year. This
alternative costing can be used to help inform financial planning and prioritization such
as presenting it as an alternative scenario of the annual Long Range Financial Forecast.
The City can continue reporting alternative scenarios in its annual financial documents
such as the Comprehensive Annual Financial Report (CAFR) and the annual budget,
providing context for its continued financial prudency and the potential liabilities it
faces. While it is important to ensure the City addresses its unfunded pension liability, it
is also important to remain consistent with the financial community and the reporting
requirements of the financial community’s governing bodies. Staff recommends that
formal financial reporting remain consistent with the CalPERS assumptions and costs
City of Palo Alto Page 7
outlined in the annual actuarial valuation. This would be relatively minimal additional
work if the City chooses to continue its alternative discount rate calculations.
2) Analyze the annual CalPERS actuarial valuations and evaluate opportunities to more
efficiently amortize the City’s UAL compared to the default minimum contribution
schedules proposed by CalPERS.
As discussed earlier in this report, CalPERS provides an annual ADC calculation to the
City of Palo Alto for both the Miscellaneous and Safety plans. This ADC provides
sufficient funding for both the ‘pay-as-you-go’ portion (Normal Cost) as well as the cost
for a single year’s payment of the UAL amortized over a 30 year base. However, there
may be opportunities to proactively fund the City’s pension costs through Additional
Discretionary Payments (ADPs).
There are tradeoffs associated with transmitting payments directly to CalPERS or
remitting ADPs to the PARS Pension Trust. To make a comprehensive recommendation
regarding ADPs, staff would commit to evaluate the potential financial implications of
making an ADP to CalPERS or the PARS Pension Trust. For example, this review may
look at amortization schedules (pay off schedule) at varying lengths, 15 years, 20 years,
and 30 years and the potential savings over the long term that the City may achieve.
However, this analysis would also put in context of the implications on the annual
budget and the potential constraints or benefits alternative amortization periods would
provide.
3) Amend the City Council’s General Fund Reserves Policy.
The Budget Stabilization Reserve (BSR) policy within the General Fund Reserves Policy
could be amended to provide more options to proactively address the City’s pension
liability. The policy currently states that any BSR balance above 18.5 percent may be
transferred to the Infrastructure Reserve (IR) at the discretion of the City Manager. This
language could be amended to split BSR balance above 18.5 percent between the
Infrastructure Reserve and addressing the City’s pension obligations. Since the City pays
its pension ADC in full on an annual basis, this additional funding would constitute an
ADP that could be either to the PARS Pension Trust or a direct payment to CalPERS. This
would allow greater flexibility when the BSR exceeds the targeted level of 18.5 percent.
Alternatively, the City Council could also choose to lower the target for the BSR from
18.5 percent which could make more funding available for things like pension pre-
funding. This would not require significant additional staff work to achieve. This may
impact the City’s funding for the Infrastructure Reserve as the General Fund provided
$36.9 million to the Infrastructure fund between 2012 and 2016.
City of Palo Alto Page 8
4) Transmit budgetary savings in employer contributions as an Additional Discretionary
Payment (ADP) to either CalPERS or PARS.
Annually, the City’s budget plans for employer pension contributions at authorized
staffing levels for both the normal cost and the annual UAL. Because of fluctuations in
actual City employee pension demographics and vacancies throughout the organization,
there may be years where the City experiences savings in budgeted pension costs
compared to actual pension costs. Another option is to annually transmit any unspent
funds at year-end as an ADP. The City performed this action as part of the Mid-Year
2018 Report, when it transmitted $2.0 million (all funds) in remaining funding from FY
2017 to PARS. The continued transmittal of any remaining funds intended for pension as
an ADP to either the PARS Pension Trust or CalPERS would improve the City’s situation
with minimal impact on service delivery or staff time.
5) Establish funding level guidelines for the PARS Section 115 Pension Trust.
The City maintains two trust funds, one for pension that was established in 2017 and
one for Other Post-Employment Benefits (OPEB) that was established in 2008. The PARS
OPEB Trust was begun with funding of $33 million and has grown to $102 million as of
April 2018. The City Council has continued to approve the full funding of the ADC for
OPEB, helping to close the unfunded gap. As the City closes that unfunded gap, the
PARS OPEB trust can be used to pay healthcare benefits from deposits and earnings for
current and future retirees. Although the PARS Pension Trust has a lower funding level,
a clear policy regarding its desired funding level would help inform future decisions
regarding how much to contribute to PARS and when to do so. Staff would further
research appropriate funding levels for the PARS Pension Trust so a comprehensive
recommendation can be made including a review of the City’s overall funded ratio with
CalPERS.
Next Steps
Staff will use the feedback from the Finance Committee on the above options to inform the
drafting of a formal Pension Funding and Reporting Policy and anticipates returning to the
Finance Committee with that policy later in the fall.
RESOURCE IMPACT
The FY 2019 Adopted Operating Budget includes the annual contribution as calculated by
CalPERS. As directed by the City Council, staff will return to the Finance Committee to discuss
the implications of an additional $4.0 million reduction in the General Fund separately.
City of Palo Alto Page 9
ENVIRONMENTAL IMPACT
This report is not a project for the purposes of the California Environmental Quality Act.
Environmental review is not required.
Attachments:
• Attachment A: Pension Tiers Table September 2018
• Attachment B: CalPERS Safety Annual Valuation Report June 30, 2017
• Attachment C: CalPERS Misc. Annual Valuation June 30. 2017
Attachment A:
City of Palo Alto Pension Plan Benefit Levels Enrollment by Plan and Employee Group
Sept. 2018 Mar. 2017 Sept. 2018 Mar. 2017
City Council & Council Appointees 10 10 IAFF 81 84
Tier 1 44 Tier 1 59 67
Tier 2 22 Tier 2 76
Tier 3 44 Tier 3 15 11
Management and Professional 202 195 Fire Chief's Association 35
Tier 1 100 102 Tier 1 35
Tier 2 46 48 Tier 2 00
Tier 3 56 45 Tier 3 00
Service Employees' International 549 557 Fire Management 44
Tier 1 283 321 Tier 1 44
Tier 2 65 66 Tier 2 00
Tier 3 201 170 Tier 3 00
Utilities Management 44 45 PAPOA*69 77
Tier 1 41 43 Tier 1 42 50
Tier 2 1 Tier 2 53
Tier 3 2 2 Tier 3 22 24
Police Management Association 78
Tier 1 67
Tier 2 01
Tier 3 10
Police Management 10
Tier 1 10
Tier 2 00
Tier 3 00
Grand Total Miscellaneous Plans 805 807 Grand Total Safety Plans 165 178
Tier 1 428 470 Tier 1 115 133
Tier 2 114 116 Tier 2 12 10
Tier 3 263 221 Tier 3 38 35
Tiered Percentage Miscellaneous Plans Tiered Percentage Safety Plans
Tier 1 53.2% 58.2%Tier 1 69.7% 74.7%
Tier 2 14.2% 14.4% Tier 2 7.3% 5.6%
Tier 3 32.7% 27.4% Tier 3 23.0% 19.7%
Tier Definitions Tier Definitions
Tier 1 2.7% @ 55 Tier 1 3.0% @ 50
Tier 2 2% @ 60 Tier 2 3% @ 55
Tier 3 2% @ 62 Tier 3 2.7% @ 57
* Excludes Police Trainees
Safety Plans
Employee Group Employee CountEmployee CountEmployee Group
Miscellaneous Plans
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
July 2018
Safety Plan of the City of Palo Alto (CalPERS ID: 6373437857) Annual Valuation Report as of June 30, 2017
Dear Employer,
As an attachment to this letter, you will find a copy of the June 30, 2017 actuarial valuation report of your pension
plan. Your 2017 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 August 1, 2018.
Required Contributions
The exhibit below displays the minimum required employer contributions and the Employee PEPRA Rate for Fiscal Year
2019-20 along with an estimate of the required contribution for Fiscal Year 2020-21. Member contributions other than
cost sharing (whether paid by the employer or the employee) are in addition to the results shown below. The
required employer contributions in this report do not reflect any cost sharing arrangement you may have
with your employees.
Fiscal Year Employer Normal
Cost Rate
Employer Amortization of
Unfunded Accrued Liability
Employee
PEPRA Rate
2019-20 20.194% $10,019,332 10.75%
Projected Results
2020-21 21.4% $11,182,000 TBD
The actual investment return for Fiscal Year 2017-18 was not known at the time this report was prepared. The
projections above assume the investment return for that year would be 7.25 percent. If the actual investment
return for Fiscal Year 2017-18 differs from 7.25 percent, the actual contribution requirements for the
projected years will differ from those shown above.
Moreover, the projected results for Fiscal Year 2020-21 assume that there are no future Plan changes, no further
changes in assumptions other than those recently approved and no liability gains or losses. Such changes can have a
significant impact on required contributions. Since they cannot be predicted in advance, the projected employer results
shown above are estimates. The actual required employer contributions for Fiscal Year 2020-21 will be provided in next
year’s report.
For additional details regarding the assumptions and methods used for these projections please refer to the “Projected
Employer Contributions” in the “Highlights and Executive Summary” section.
The required contributions shown above include a Normal Cost component expressed as a percentage of payroll and a
payment toward Unfunded Accrued Liability expressed as a dollar amount. For illustrative total contribution
requirements expressed as percentages of payroll, please see pages 4 and 5 of the report.
The “Risk Analysis” section of the valuation report starting on page 22 also contains estimated employer contributions
in future years under a variety of investment return scenarios.
ATTACHMENT B
Safety Plan of the City of Palo Alto (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2017
Page 2
Changes since the Prior Year’s Valuation
At its December 2016 meeting, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to 7.00 percent using a three-year phase-in beginning with the June 30, 2016 actuarial valuation. The minimum employer
contributions for Fiscal Year 2019-20 determined in this valuation were calculated using a discount rate of 7.25
percent. The projected employer contributions on Page 5 are calculated under the assumption that the discount rate
will be lowered to 7.00 percent next year, as adopted by the Board.
On December 19, 2017, the CalPERS Board of Administration adopted new actuarial assumptions based on the
recommendations in the December 2017 CalPERS Experience Study and Review of Actuarial Assumptions. This study
reviewed the retirement rates, termination rates, mortality rates, rates of salary increases and inflation assumption for Public Agencies. These new assumptions are incorporated in your actuarial valuations and will impact the required
contribution for FY 2019-20. In addition, the Board adopted a new asset portfolio as part of its Asset Liability
Management. The new asset mix supports a 7.00 percent discount rate. The reduction of the inflation assumption will
be implemented in two steps in conjunction with the decreases in the discount rate. For the June 30, 2017 valuation an
inflation rate of 2.625 percent will be used and a rate of 2.50 percent will be used in the following valuation.
The CalPERS Board of Administration has adopted a new amortization policy effective with the June 30, 2019 actuarial valuation. The new policy shortens the period over which actuarial gains and losses are amortized from 30 years to 20
years with the payments computed using a level dollar amount. In addition, the new policy removes the 5-year ramp-
up and ramp-down on UAL bases attributable to assumption changes and non-investment gains/losses. The new policy
removes the 5-year ramp-down on investment gains/losses. These changes will apply only to new UAL bases
established on or after June 30, 2019.
For inactive employers the new amortization policy imposes a maximum amortization period of 15 years for all
unfunded accrued liabilities effective June 30, 2017. Furthermore, the plan actuary has the ability to shorten the amortization period on any valuation date based on the life expectancy of plan members and projected cash flow
needs to the plan. The impact of this has been reflected in the current valuation results.
Beginning with Fiscal Year 2017-18 CalPERS began collecting employer contributions toward the plan’s unfunded
liability as dollar amounts instead of the prior method of a contribution rate. This change addressed potential funding
issues that could arise from a declining payroll or reduction in the number of active members in the plan. Funding the
unfunded liability as a percentage of payroll could lead to the underfunding of the plans. Due to stakeholder feedback regarding internal needs for total contributions expressed as a percentage of payroll, the reports include such results in
the contribution projection on page 5. These results are provided for information purposes only. Contributions toward
the unfunded liability will continue to be collected as dollar amounts.
The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over
time. This Policy has been temporarily suspended during the period over which the discount rate is being lowered.
More details on the Risk Mitigation Policy can be found on our website.
Besides the above noted changes, there may also be changes specific to the 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 effects of the changes on the required contributions are
included in the “Reconciliation of Required Employer Contributions” section.
We understand that you might have some 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 August 1, 2018 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,
SCOTT TERANDO
Chief Actuary
Actuarial Valuation
as of June 30, 2017
for the
Safety Plan
of the
City of Palo Alto
(CalPERS ID: 6373437857)
(Rate Plan ID: 5080)
Required Contributions
for Fiscal Year
July 1, 2019 – June 30, 2020
Table of Contents
Actuarial Certification 1
Highlights and Executive Summary
Introduction 3
Purpose of the Report 3
Required Contributions 4
Plan’s Funded Status 5 Projected Employer Contributions 5
Cost 6
Changes Since the Prior Year’s Valuation 7
Subsequent Events 7
Assets
Reconciliation of the Market Value of Assets 10
Asset Allocation 11
CalPERS History of Investment Returns 12
Liabilities and Contributions
Development of Accrued and Unfunded Liabilities 14 (Gain) / Loss Analysis 06/30/16 - 06/30/17 15
Schedule of Amortization Bases 16
Amortization Schedule and Alternatives 17
Reconciliation of Required Employer Contributions 19
Employer Contribution History 20
Funding History 20
Risk Analysis
Analysis of Future Investment Return Scenarios 22
Analysis of Discount Rate Sensitivity 23 Volatility Ratios 24
Hypothetical Termination Liability 25
Plan’s Major Benefit Provisions
Plan’s Major Benefit Options 27
Appendix A – Actuarial Methods and Assumptions
Actuarial Data A-1
Actuarial Methods A-1
Actuarial Assumptions A-4
Miscellaneous A-22
Appendix B – Principal Plan Provisions B-1
Appendix C – Participant Data
Summary of Valuation Data C-1
Active Members C-2
Transferred and Terminated Members C-3
Retired Members and Beneficiaries C-4
Appendix D – Normal Cost Information by Group
Normal Cost by Benefit Group D-1
PEPRA Member Contribution Rates D-2
Appendix E – Glossary of Actuarial Terms E-1
(CY) FIN PROCESS CONTROL ID: 516104 (PY) FIN PROCESS CONTROL ID: 496858 REPORT ID: 111746
CalPERS Actuarial Valuation - June 30, 2017 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, 2017 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, 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 opinions contained herein.
DAVID CLEMENT, ASA, MAAA, EA Senior Pension Actuary, CalPERS
Highlights and Executive Summary
• Introduction
• Purpose of the Report
• Required Contributions
• Plan’s Funded Status
• Projected Employer Contributions
• Cost
• Changes Since the Prior Year’s Valuation
• Subsequent Events
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 3
Introduction
This report presents the results of the June 30, 2017 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
minimum required employer contributions for Fiscal Year 2019-20.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2017. The purpose of the report is to:
• Set forth the assets and accrued liabilities of this plan as of June 30, 2017;
• Determine the minimum required employer contributions for the fiscal year July 1, 2019 through June
30, 2020;
• Provide actuarial information as of June 30, 2017 to the CalPERS Board of Administration and other
interested parties.
The pension funding information presented in this report should not be used in financial reports subject to Governmental Accounting Standards Board (GASB) Statement No. 68 for an Agent Employer Defined Benefit
Pension Plan. A separate accounting valuation report for such purposes is available from CalPERS and
details for ordering are available on our website.
The measurements shown in this actuarial valuation may not be applicable for other purposes. The
employer should contact their actuary before disseminating any portion of this report for any reason that is
not explicitly described above.
Future actuarial measurements may differ significantly from the current measurements presented in this
report due to such factors as the following: plan experience differing from that anticipated by the economic
or demographic assumptions; changes in economic or demographic assumptions; changes in actuarial
policies; and changes in plan provisions or applicable law.
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 16.
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 alternative discount
rates of 6.0 percent, 7.0 percent and 8.0 percent.
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2019-20
Employer Normal Cost Rate 20.194%
Plus, Either
1) Monthly Employer Dollar UAL Payment $ 834,944
Or
2) Annual UAL Prepayment Option $ 9,674,758
Required PEPRA Member Contribution Rate
10.75%
The total minimum required employer contribution is the sum of the Plan’s Employer Normal Cost Rate
(expressed as a percentage of payroll) plus the Employer Unfunded Accrued Liability (UAL) Contribution
Amount (billed monthly in dollars).
Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later than July 31). Plan Normal Cost contributions will be made as part of the payroll reporting
process. If there is contractual cost sharing or other change, this amount will change.
In accordance with Sections 20537 and 20572 of the Public Employees’ Retirement Law, if a contracting
agency fails to remit the required contributions when due, interest and penalties may apply.
For additional detail regarding the determination of the required contribution for PEPRA members, see
Appendix D. Required member contributions for Classic members can be found in Appendix B.
Fiscal Year Fiscal Year
2018-19 2019-20
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 28.571% 29.465%
Employee Contribution1 9.174% 9.271%
Employer Normal Cost2 19.397% 20.194%
Projected Annual Payroll for Contribution Year $ 23,240,148 $ 25,569,930
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $ 6,639,943 $ 7,534,179
Employee Contribution1 2,132,051 2,370,588
Employer Normal Cost2 4,507,892 5,163,591
Unfunded Liability Contribution 8,421,191 10,019,332
% of Projected Payroll (illustrative only) 36.236% 39.184%
Estimated Total Employer Contribution $ 12,929,083 $ 15,182,923
% of Projected Payroll (illustrative only) 55.633% 59.378%
1 For 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.
2 The Employer Normal Cost is a blended rate for all benefit groups in the plan. A breakout of normal cost by benefit
group is shown in Appendix D.
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 5
Plan’s Funded Status
This measure of funded status is an assessment of the need for future employer contributions based on the
selected actuarial cost method used to fund the plan. The UAL is the present value of future employer
contributions for service that has already been earned and is in addition to future normal cost contributions
for active members. For a measure of funded status that is appropriate for assessing the sufficiency of plan
assets to cover estimated termination liabilities, please see “Hypothetical Termination Liability” in the “Risk
Analysis” section.
Projected Employer Contributions
The table below shows the required and projected employer contributions (before cost sharing) for the next
six fiscal years. Projected results reflect the adopted changes to the discount rate described in Appendix A,
“Actuarial Methods and Assumptions.” The projections also assume that all actuarial assumptions will be
realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the
projection period. The projected normal cost percentages in the projections below do not reflect that the
normal cost will decline over time as new employees are hired into PEPRA or other lower cost benefit tiers.
Required
Contribution
Projected Future Employer Contributions
(Assumes 7.25% Return for Fiscal Year 2017-18)
Fiscal Year 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25
Normal Cost % 20.194% 21.4% 21.4% 21.4% 21.4% 21.4%
UAL Payment 10,019,332 11,182,000 12,539,000 13,734,000 14,568,000 15,259,000
Total as a % of Payroll* 59.4% 64.1% 68.0% 71.1% 72.7% 73.7%
Projected Payroll 25,569,930 26,209,294 26,930,050 27,670,626 28,431,568 29,213,437
*Illustrative only and based on the projected payroll shown.
Changes in the UAL due to actuarial gains or losses as well as changes in actuarial assumptions or methods
are amortized using a 5-year ramp up. For more information, please see “Amortization of the Unfunded
Actuarial Accrued Liability” under “Actuarial Methods” in Appendix A. This method phases in the impact of
changes in UAL over a 5-year period and attempts to minimize employer cost volatility from year to year. As
a result of this methodology, dramatic changes in the required employer contributions in any one year are
less likely. However, required contributions can change gradually and significantly over the next five years. In years where there is a large increase in UAL the relatively small amortization payments during the ramp
up period could result in a funded ratio that is projected to decrease initially while the contribution impact of
the increase in the UAL is phased in.
Due to the adopted change in the discount rate for the next valuation in combination with the 5-year phase-
in ramp, the increases in the required contributions are expected to continue for six years from Fiscal Year
2019-20 through Fiscal Year 2024-25.
For projected contributions under alternate investment return scenarios, please see the “Analysis of Future
Investment Return Scenarios” in the “Risk Analysis” section.
June 30, 2016 June 30, 2017
1. Present Value of Projected Benefits $ 448,048,891 $ 483,613,941
2. Entry Age Normal Accrued Liability 392,911,774 422,062,152
3. Market Value of Assets (MVA) $ 249,886,581 $ 267,871,162
4. Unfunded Accrued Liability (UAL) [(2) – (3)] $ 143,025,193 $ 154,190,990
5. Funded Ratio [(3) / (2)] 63.6% 63.5%
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 6
Cost
Actuarial Cost Estimates in General
What is the cost of the pension plan?
Contributions to fund the pension plan are comprised of two components:
• The Normal Cost, expressed as a percentage of total active payroll.
• The Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount.
For fiscal years prior to FY 2017-18, the Amortizations of UAL component was expressed as percentage of
total active payroll. Starting with FY 2017-18, the Amortization of UAL component was expressed as a dollar amount and invoiced on a monthly basis. There continues to be an option to prepay this amount during July
of each fiscal year.
The Normal Cost component will continue to be expressed as a percentage of active payroll with employer
and employee contributions payable as part of the regular payroll reporting process.
The determination of both components requires complex actuarial calculations. The calculations are based
on a set of actuarial assumptions which can be divided into two categories:
• Demographic assumptions (which includes mortality rates, retirement rates, employment
termination rates and disability rates)
• Economic assumptions (which includes future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPERS best estimate of the future experience of the plan and are long term in
nature. We recognize that all the assumptions will not be realized in any given year. For example, the investment earnings at CalPERS have averaged 6.6 percent over the 20 years ending June 30, 2017, yet
individual fiscal year returns have ranged from -24.0 percent to +21.7 percent. In addition, CalPERS reviews
all the actuarial assumptions on an ongoing basis by conducting in-depth experience studies every four
years, with the most recent experience study completed in 2017.
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 7
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 the employer contribution is shown in the “Reconciliation of Required Employer Contributions.” It should be noted that no change in liability or
contribution is shown for any plan changes which were already included in the prior year’s valuation.
Actuarial Methods and Assumptions
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to
7.00 percent using a three-year phase-in beginning with the June 30, 2016 actuarial valuation. The minimum employer contribution for Fiscal Year 2019-20 determined in this valuation was calculated using a discount
rate of 7.25 percent. The projected employer contributions on Page 5 are calculated assuming that the
discount rate will be lowered to 7.00 percent next year as adopted by the Board. The decision to reduce the
discount rate was primarily based on reduced capital market assumptions provided by external investment
consultants and CalPERS investment staff. The specific decision adopted by the Board reflected
recommendations from CalPERS staff and additional input from employer and employee stakeholder groups.
Based on the investment allocation adopted by the Board and capital market assumptions, the reduced
discount rate assumption provides a more realistic assumption for the long-term investment return of the fund.
On December 19, 2017, the CalPERS Board of Administration adopted new actuarial assumptions based on
the recommendations in the December 2017 CalPERS Experience Study and Review of Actuarial Assumptions.
This study reviewed the retirement rates, termination rates, mortality rates, rates of salary increases and
inflation assumption for Public Agencies. These new assumptions are incorporated in this actuarial valuation and will impact the required contribution for FY 2019-20. In addition, the Board adopted a new asset
portfolio as part of its Asset Liability Management. The new asset mix supports a 7.00 percent discount rate.
The reduction of the inflation assumption will be implemented in two steps in conjunction with the decreases
in the discount rate. For the June 30, 2017 valuation an inflation rate of 2.625 percent will be used and a rate
of 2.50 percent will be used in the following valuation.
Notwithstanding the Board’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the
expected investment return of CalPERS assets or changes to the investment allocation may result in a change to this discount rate schedule.
Subsequent Events
The CalPERS Board of Administration has adopted a new amortization policy effective with the June 30, 2019 actuarial valuation. The new policy shortens the period over which actuarial gains and losses are amortized
from 30 years to 20 years with the payments computed using a level dollar amount. In addition, the new
policy removes the 5-year ramp-up and ramp-down on UAL bases attributable to assumption changes and
non-investment gains/losses. The new policy removes the 5-year ramp-down on investment gains/losses.
These changes will apply only to new UAL bases established on or after June 30, 2019.
For inactive employers the new amortization policy imposes a maximum amortization period of 15 years for all unfunded accrued liabilities effective June 30, 2017. Furthermore, the plan actuary has the ability to
shorten the amortization period on any valuation date based on the life expectancy of plan members and
projected cash flow needs to the plan. The impact of this has been reflected in the current valuation results.
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 8
The contribution requirements determined in this actuarial valuation report are based on demographic and
financial information as of June 30, 2017. Changes in the value of assets subsequent to that date are not
reflected. Investment returns below the assumed rate of return will increase the retired contribution, while
investment returns above the assumed rate of return will decrease the retired contribution.
This actuarial valuation report reflects statutory changes, regulatory changes and CalPERS Board actions
through January 2018. Any subsequent changes or actions are not reflected.
Assets
• Reconciliation of the Market Value of Assets
• Asset Allocation
• CalPERS History of Investment Returns
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 10
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/16 including Receivables $ 249,886,581
2. Change in Receivables for Service Buybacks (77,354)
3. Employer Contributions 10,220,173
4. Employee Contributions 2,219,751
5. Benefit Payments to Retirees and Beneficiaries (22,412,609)
6. Refunds 0
7. Lump Sum Payments 0
8. Transfers and Miscellaneous Adjustments 302,380
9. Net Investment Return 27,732,240
10. Market Value of Assets as of 6/30/17 including Receivables $ 267,871,162
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 11
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 Investment Belief No.
6 recognizes that strategic asset allocation is the dominant determinant of portfolio risk and return. On December 19, 2017, the CalPERS Board of Administration adopted changes to the current asset allocation as
shown in the Policy Target Allocation below expressed as a percentage of total assets.
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, 2017. The assets for City of Palo Alto Safety Plan are
part of the PERF and are invested accordingly.
(A)
Asset Class
(B)
Market Value
($ Billion)
(C)
Policy Target
Allocation
Public Equity 156.2 50.0%
Private Equity 25.9 8.0%
Global Fixed Income 62.9 28.0%
Liquidity 15.5 1.0%
Real Assets 36.3 13.0%
Inflation Sensitive Assets 25.3 0.0%
Other 1.6 0.0%
Total Fund $323.7 100.0%
Public Equity
48.3%
Private Equity
8.0%
Global Fixed
Income
19.4%
Liquidity
4.8%
Real Assets
11.2%
Inflation
7.8%
Other
0.5%
Actual Asset Allocation at 6/30/2017
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 12
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 various time periods ending on June 30, 2017 (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. The portfolio has an expected volatility of
11.4 percent per year based on the most recent Asset Liability Modelling study. The volatility is a measure of the risk of the portfolio expressed in the standard deviation of the fund’s total return distribution, expressed
as a percentage. 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 11.2% 8.8% 4.3% 6.6% 8.2%
Volatility – 7.3% 13.4% 11.5% 10.1%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
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.
2
%
13
.
2
%
17
.
7
%
2.
4
%
0.
6
%
11
.
2
%
Liabilities and Contributions
• Development of Accrued and Unfunded Liabilities
• (Gain) / Loss Analysis 06/30/16 - 06/30/17
• Schedule of Amortization Bases
• Amortization Schedule and Alternatives
• Reconciliation of Required Employer Contributions
• Employer Contribution History
• Funding History
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 14
Development of Accrued and Unfunded Liabilities
June 30, 2016 June 30, 2017
1. Present Value of Projected Benefits
a) Active Members $ 151,548,026 169,749,504
b) Transferred Members 7,805,314 7,449,818
c) Terminated Members 2,453,933 3,670,519
d) Members and Beneficiaries Receiving Payments 286,241,618 302,744,100
e) Total $ 448,048,891 483,613,941
2. Present Value of Future Employer Normal Costs $ 36,656,902 41,143,658
3. Present Value of Future Employee Contributions $ 18,480,215 20,408,131
4. Entry Age Normal Accrued Liability
a) Active Members [(1a) - (2) - (3)] $ 96,410,909 108,197,715
b) Transferred Members (1b) 7,805,314 7,449,818
c) Terminated Members (1c) 2,453,933 3,670,519
d) Members and Beneficiaries Receiving Payments (1d) 286,241,618 302,744,100
e) Total $ 392,911,774 422,062,152
5. Market Value of Assets (MVA) $ 249,886,581 267,871,162
6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $ 143,025,193 154,190,990
7. Funded Ratio [(5) / (4e)] 63.6% 63.5%
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 15
(Gain)/Loss Analysis 6/30/16 – 6/30/17
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.
1. Total (Gain)/Loss for the Year
a) Unfunded Accrued Liability (UAL) as of 6/30/16 $ 143,025,193
b) Expected Payment on the UAL during 2016-17 5,695,140
c) Interest through 6/30/17 [.07375 x (1a) - ((1.07375)½ - 1) x (1b)] 10,341,835 d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 147,671,888
e) Change due to plan changes 0
f) Change due to assumption change 7,445,607
g) Expected UAL after all other changes [(1d) + (1e) + (1f)] 155,117,495
h) Actual UAL as of 6/30/17 154,190,990
i) Total (Gain)/Loss for 2016-17 [(1h) - (1g)] $ (926,505)
2. Contribution (Gain)/Loss for the Year
a) Expected Contribution (Employer and Employee) $ 11,960,714
b) Interest on Expected Contributions 433,206
c) Actual Contributions 12,439,924 d) Interest on Actual Contributions 450,563
e) Expected Contributions with Interest [(2a) + (2b)] 12,393,920
f) Actual Contributions with Interest [(2c) + (2d)] 12,890,487
g) Contribution (Gain)/Loss [(2e) - (2f)] $ (496,567)
3. Asset (Gain)/Loss for the Year
a) Market Value of Assets as of 6/30/16 $ 249,886,581
b) Prior Fiscal Year Receivables (645,454)
c) Current Fiscal Year Receivables 568,100
d) Contributions Received 12,439,924
e) Benefits and Refunds Paid (22,412,609) f) Transfers and Miscellaneous Adjustments 302,380
g) Expected Int. [.07375 x (3a + 3b) + ((1.07375)½ - 1) x ((3d) + (3e) + (3f))] 18,031,283
h) Expected Assets as of 6/30/17 [(3a) + (3b) + (3c) + (3d) + (3e) + (3f) + (3g)] 258,170,205
i) Market Value of Assets as of 6/30/17 267,871,162
j) Asset (Gain)/Loss [(3h) - (3i)] $ (9,700,957)
4. Liability (Gain)/Loss for the Year
a) Total (Gain)/Loss (1i) $ (926,505)
b) Contribution (Gain)/Loss (2g) (496,567)
c) Asset (Gain)/Loss (3j) (9,700,957)
d) Liability (Gain)/Loss [(4a) - (4b) - (4c)] $ 9,271,019
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 16
Schedule of Amortization Bases
There is a two-year lag between the valuation date and the start of the contribution fiscal year.
• The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2017.
• The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuation date: Fiscal Year 2019-20.
This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with their required employer contribution well in advance of the start of the fiscal year.
The Unfunded Accrued Liability (UAL) 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 UAL is rolled forward each year by subtracting the expected payment on the UAL for the
fiscal year and adjusting for interest. The expected payment on the UAL 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 for the first fiscal year is determined by the actuarial valuation two years ago and the contribution for the second year is from the actuarial valuation one year ago. Additional discretionary payments are reflected in the Expected Payments column in the fiscal year they
were made by the agency.
Reason for Base
Date
Established
Ramp
Up/Down
2019-20
Amorti-
zation
Period
Balance
6/30/17
Expected
Payment
2017-18
Balance
6/30/18
Expected
Payment
2018-19
Balance
6/30/19
Scheduled
Payment for
2019-20
FRESH START 06/30/04 No Ramp 17 $(924,403) $(72,216) $(916,634) $(73,518) $(906,954) $(75,515)
BENEFIT CHANGE 06/30/05 No Ramp 7 $133,824 $18,204 $124,674 $18,618 $114,432 $19,116
ASSUMPTION CHANGE 06/30/09 No Ramp 12 $7,200,737 $694,645 $7,003,405 $708,757 $6,777,152 $727,891
SPECIAL (GAIN)/LOSS 06/30/09 No Ramp 22 $8,949,949 $606,099 $8,971,135 $615,760 $8,983,851 $632,560
SPECIAL (GAIN)/LOSS 06/30/10 No Ramp 23 $4,266,823 $282,353 $4,283,759 $286,741 $4,297,378 $294,570
ASSUMPTION CHANGE 06/30/11 No Ramp 14 $6,092,725 $534,322 $5,981,095 $544,679 $5,850,647 $559,422
SPECIAL (GAIN)/LOSS 06/30/11 No Ramp 24 $2,420,583 $156,749 $2,433,743 $159,124 $2,445,398 $163,472
PAYMENT (GAIN)/LOSS 06/30/12 No Ramp 25 $1,563,724 $99,225 $1,574,335 $100,690 $1,584,198 $103,444
(GAIN)/LOSS 06/30/12 No Ramp 25 $44,756,220 $2,839,977 $45,059,921 $2,881,919 $45,342,205 $2,960,732
(GAIN)/LOSS 06/30/13 100% 26 $43,383,429 $1,751,805 $44,714,530 $2,370,921 $45,500,971 $3,044,761
ASSUMPTION CHANGE 06/30/14 80% 17 $20,791,111 $774,001 $21,496,899 $1,182,639 $21,830,665 $1,619,749
(GAIN)/LOSS 06/30/14 80% 27 $(27,875,123) $(762,530) $(29,106,381) $(1,160,282) $(30,014,987) $(1,589,471)
(GAIN)/LOSS 06/30/15 60% 28 $14,576,105 $205,251 $15,420,311 $416,097 $16,107,367 $641,301
ASSUMPTION CHANGE 06/30/16 40% 19 $6,190,769 $(177,347) $6,823,263 $128,758 $7,184,606 $264,566
(GAIN)/LOSS 06/30/16 40% 29 $16,145,414 $0 $17,315,957 $240,288 $18,322,517 $493,818
ASSUMPTION CHANGE 06/30/17 20% 20 $7,445,607 $(299,593) $8,295,677 $(308,206) $9,216,297 $173,688
(GAIN)/LOSS 06/30/17 20% 30 $(926,505) $0 $(993,677) $0 $(1,065,719) $(14,772)
TOTAL $154,190,990 $6,650,945 $158,482,013 $8,112,985 $161,570,024 $10,019,332
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 20 Page 17
Amortization Schedule and Alternatives
The amortization schedule 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 possible savings in doing so. As a result, we have provided
alternate amortization schedules to help analyze the current amortization schedule and illustrate the
advantages of accelerating unfunded liability payments.
Shown on the following page are future year amortization payments based on 1) the current amortization
schedule reflecting the individual bases and remaining periods shown on the previous page, and 2) alternate
“fresh start” amortization schedules using two sample periods that would both result in interest savings relative to the current amortization schedule. Note that the payments under each alternate scenario
increase by 2.875 percent per year. The schedules do not reflect the impact of adopted discount
rate changes that will become effective beyond June 30, 2017. Therefore, future amortization
payments displayed in the Current Amortization Schedule on the following page will not match
projected amortization payments shown in connection with Projected Employer Contributions
provided elsewhere in this report.
The Current Amortization Schedule typically contains individual bases that are both positive and negative. Positive bases result from plan changes, assumption changes or plan experience that result in increases to
unfunded liability. Negative bases result from plan changes, assumption changes or plan experience that
result in decreases to unfunded liability. The combination of positive and negative bases within an
amortization schedule can result in unusual or problematic circumstances in future years such as:
• A positive total unfunded liability with a negative total payment,
• A negative total unfunded liability with a positive total payment, or • Total payments that completely amortize the unfunded liability over a very short period of time
In any year where one of the above scenarios occurs, the actuary will consider corrective action such as
replacing the existing unfunded liability bases with a single “fresh start” base and amortizing it over a
reasonable period.
The Current Amortization Schedule on the following page may appear to show that, based on the current
amortization bases, one of the above scenarios will occur at some point in the future. It is impossible to
know today whether such a scenario will in fact arise since there will be additional bases added to the amortization schedule in each future year. Should such a scenario arise in any future year, the actuary will
take appropriate action based on guidelines in the CalPERS amortization policy.
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 18
Amortization Schedule and Alternatives
* This schedule does not reflect the impact of adopted discount rate changes that will become effective
beyond June 30, 2017. For Projected Employer Contributions, please see Page 5.
Alternate Schedules
Current Amortization Schedule* 20 Year Amortization 15 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2019 161,570,024 10,019,332 161,570,024 12,075,590 161,570,024 14,691,710
6/30/2020 162,907,673 11,088,666 160,778,179 12,422,763 158,068,885 15,114,096
6/30/2021 163,234,882 12,203,194 159,569,388 12,779,918 153,876,483 15,548,627
6/30/2022 162,431,591 13,139,901 157,903,084 13,147,340 148,930,125 15,995,650
6/30/2023 160,599,993 13,695,669 155,735,465 13,525,326 143,162,212 16,455,524
6/30/2024 158,060,041 14,089,419 153,019,245 13,914,179 136,499,872 16,928,621
6/30/2025 154,928,168 14,494,489 149,703,397 14,314,212 128,864,567 17,415,319
6/30/2026 151,149,737 14,887,892 145,732,870 14,725,746 120,171,669 17,916,009
6/30/2027 146,689,957 15,315,921 141,048,288 15,149,111 110,330,014 18,431,094
6/30/2028 141,463,569 15,756,253 135,585,631 15,584,648 99,241,408 18,960,988
6/30/2029 135,402,252 16,209,247 129,275,883 16,032,707 86,800,112 19,506,117
6/30/2030 128,432,365 16,675,261 122,044,661 16,493,647 72,892,279 20,066,918
6/30/2031 120,474,545 16,131,889 113,811,818 16,967,839 57,395,353 20,643,841
6/30/2032 112,502,512 16,010,332 104,491,013 17,455,665 40,177,429 21,237,352
6/30/2033 104,078,393 15,036,537 93,989,250 17,957,515 21,096,556 21,847,926
6/30/2034 96,052,001 14,646,974 82,206,386 18,473,793
6/30/2035 87,847,135 13,949,223 69,034,597 19,004,915
6/30/2036 79,770,016 13,321,518 54,357,816 19,551,306
6/30/2037 71,757,371 13,194,880 38,051,116 20,113,406
6/30/2038 63,294,954 13,049,947 19,980,062 20,691,667
6/30/2039 54,369,107 13,118,961
6/30/2040 44,724,665 13,496,132
6/30/2041 33,990,397 11,567,990
6/30/2042 24,474,706 10,929,148
6/30/2043 14,930,726 10,080,785
6/30/2044 5,573,384 2,781,269
6/30/2045 3,097,129 1,487,366
6/30/2046 1,781,331 1,425,793
6/30/2047 433,904 449,358
6/30/2048
Totals 348,253,346 320,381,293 270,759,792
Interest Paid 186,683,322 158,811,269 109,189,768
Estimated Savings 27,872,053 77,493,554
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 19
Reconciliation of Required Employer
Contributions
Normal Cost (% of Payroll)
1. For Period 7/1/18 – 6/30/19
a) Employer Normal Cost 19.397%
b) Employee Contribution 9.174%
c) Total Normal Cost 28.571%
2. Changes since the prior year annual valuation
a) Effect of changes in demographics results (0.346%)
b) Effect of plan changes 0.000%
c) Effect of changes in assumptions 1.240%
d) Net effect of the changes above [sum of (a) through (c)] 0.894%
3. For Period 7/1/19 – 6/30/20
a) Employer Normal Cost 20.194%
b) Employee Contribution 9.271%
c) Total Normal Cost 29.465%
Employer Normal Cost Change [(3a) – (1a)] 0.797%
Employee Contribution Change [(3b) – (1b)] 0.097%
Unfunded Liability Contribution ($)
1. For Period 7/1/18 – 6/30/19 8,421,191
2. Changes since the prior year annual valuation
a) Effect of (gain)/loss during prior year1 (14,772)
b) Effect of plan changes 0
c) Effect of changes in assumptions2 173,688
d) Changes to prior year amortization payments3 1,439,225
e) Effect of changes due to Fresh Start 0
f) Effect of elimination of amortization base 0
g) Net effect of the changes above [sum of (a) through (f)] 1,598,141
3. For Period 7/1/19 – 6/30/20 [(1) + (2g)] 10,019,332
1 The unfunded liability contribution for the (gain)/loss during the year prior to the valuation date is 20 percent of the
“full” annual requirement due to the 5-year ramp. Increases to this amount that occur during the ramp period will be
included in line d) in future years.
2 The unfunded liability contribution for the change in assumptions is 20 percent of the “full” annual requirement due to
the 5-year ramp. Increases to this amount that occur during the ramp period will be included in line d) in future years.
3 Includes changes due to 5-year ramp, payroll growth assumption, and re-amortization under new discount rate.
The amounts shown for the period 7/1/18 – 6/30/19 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.
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 20
Employer Contribution History
The table below provides a recent history of the required employer contributions for the plan, as determined
by the annual actuarial valuation. It does not account for prepayments or benefit changes made during a fiscal year.
Fiscal
Year
Employer
Normal Cost
Unfunded Rate
Unfunded Liability
Payment ($)
2013 - 14 18.658% 14.786% N/A
2014 - 15 18.874% 20.654% N/A
2015 - 16 18.627% 23.305% N/A
2016 - 17 18.977% 26.449% N/A
2017 - 18 18.900% N/A 7,127,885
2018 - 19 19.397% N/A 8,421,191
2019 - 20 20.194% N/A 10,019,332
Funding History
The table 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)
Unfunded Liability
Funded Ratio
Annual
Covered Payroll
06/30/11 $ 313,183,690 $ 225,015,089 $ 88,168,601 71.8% $ 22,774,462
06/30/12 327,608,300 215,605,457 112,002,843 65.8% 20,919,846
06/30/13 338,666,499 233,417,363 105,249,136 68.9% 21,258,082
06/30/14 367,478,634 264,145,000 103,333,634 71.9% 21,274,021
06/30/15 377,934,524 259,169,591 118,764,933 68.6% 21,186,275
06/30/16 392,911,774 249,886,581 143,025,193 63.6% 21,268,028
06/30/17 422,062,152 267,871,162 154,190,990 63.5% 23,485,510
Risk Analysis
• Analysis of Future Investment Return Scenarios
• Analysis of Discount Rate Sensitivity
• Volatility Ratios
• Hypothetical Termination Liability
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 22
Analysis of Future Investment Return Scenarios
Analysis was performed to determine the effects of various future investment returns on required employer
contributions. The projections below provide a range of results based on five investment return scenarios assumed to occur during the next four fiscal years (2017-18, 2018-19, 2019-20 and 2020-21). The
projections also assume that all other actuarial assumptions will be realized and that no further changes to
assumptions, contributions, benefits, or funding will occur.
Each of the five investment return scenarios assumes a return of 7.25 percent for fiscal year 2017-18. For
fiscal years 2018-19, 2019-20, and 2020-21 each scenario assumes an alternate fixed annual return. The
fixed return assumptions for the five scenarios are 1.0 percent, 4.0 percent, 7.0 percent, 9.0 percent and 12.0 percent.
The alternate investment returns were chosen based on stochastic analysis of possible future investment
returns over the four-year period ending June 30, 2021. Using the expected returns and volatility of the
asset classes in which the funds are invested, we produced five thousand stochastic outcomes for this
period based on the recently completed Asset Liability Management process. We then selected annual
returns that approximate the 5th, 25th, 50th, 75th, and 95th percentiles for these outcomes. For example, of
all the 4-year outcomes generated in the stochastic analysis, approximately 25 percent of them had an average annual return of 4.0 percent or less.
Required contributions outside of this range are also possible. In particular, whereas it is unlikely that
investment returns will average less than 1.0 percent or greater than 12.0 percent over this four-year
period, the possibility of a single investment return less than 1.0 percent or greater than 12.0 percent in any
given year is much greater.
Assumed Annual Return From
2018-19 through 2020-21
Projected Employer Contributions
2020-21 2021-22 2022-23 2023-24
1.0%
Normal Cost 21.4% 21.4% 21.4% 21.4%
UAL Contribution $11,182,000 $12,796,000 $14,515,000 $16,152,000
4.0%
Normal Cost 21.4% 21.4% 21.4% 21.4%
UAL Contribution $11,182,000 $12,667,000 $14,128,000 $15,376,000
7.0%
Normal Cost 21.4% 21.4% 21.4% 21.4%
UAL Contribution $11,182,000 $12,539,000 $13,734,000 $14,568,000
9.0%
Normal Cost 21.4% 21.8% 22.2% 22.6%
UAL Contribution $11,182,000 $12,438,000 $13,476,000 $14,093,000
12.0%
Normal Cost 21.4% 21.8% 22.2% 22.6%
UAL Contribution $11,182,000 $12,311,000 $13,074,000 $13,247,000
Given the temporary suspension of the Risk Mitigation Policy during the period over which the discount rate
assumption is being phased down to 7.0 percent, the projections above were performed without reflection
of any possible impact of this Policy for Fiscal Year 2020-21.
The projected normal cost percentages do not reflect that the normal cost will decline over time as new
employees are hired into PEPRA or other lower cost benefit tiers. In addition, the projections above do not
reflect the recent changes to the amortization policy effective with the June 30, 2019 valuation but the impact on the results above is expected to be minimal.
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 23
Analysis of Discount Rate Sensitivity
Shown below are various valuation results as of June 30, 2017 assuming alternate discount rates. Results
are shown using the current discount rate of 7.25 percent as well as alternate discount rates of 6.0 percent,
7.0 percent, and 8.0 percent. The alternate rate of 7.0 percent was selected since the Board has adopted this rate as the final discount rate at the end of the three-year phase-in of the reduction in this assumption.
The rates of 6.0 percent and 8.0 percent were selected since they illustrate the impact of a 1 percent
increase or decrease to the 7.0 percent assumption. This analysis shows the potential plan impacts if the
PERF were to realize investment returns of 6.0 percent, 7.0 percent, or 8.0 percent over the long-term.
This type of analysis gives the reader a sense of the long-term risk to required contributions. For a measure
of funded status that is appropriate for assessing the sufficiency of plan assets to cover estimated
termination liabilities, please see “Hypothetical Termination Liability” at the end of this section.
Sensitivity Analysis
As of June 30, 2017 Plan’s
Normal Cost
Accrued
Liability Unfunded
Accrued Liability Funded
Status
7.25% (current discount rate) 29.465% $422,062,152 $154,190,990 63.5%
6.0% 38.614% $490,191,633 $222,320,471 54.6%
7.0% 30.718% $433,581,990 $165,710,828 61.8%
8.0% 24.673% $386,895,981 $119,024,819 69.2%
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 24
Volatility Ratios
The actuarial calculations supplied in this communication are based on various assumptions about 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 required employer contributions from one year
to the next. Therefore, employer contributions 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 experience more volatile employer contributions (as a percentage of payroll) 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. Shown below is the asset volatility ratio, a measure of the plan’s current 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 experience more volatile employer contributions (as a
percentage of payroll) 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. The asset volatility ratio, described above, will
tend to move closer to the liability volatility ratio as the plan matures. Since the liability volatility ratio is a
long-term measure, it is shown below at the current discount rate (7.25 percent) as well as the discount rate the Board has adopted to determine the contribution requirement in the June 30, 2018 actuarial
valuation (7.00 percent).
Contribution Volatility As of June 30, 2017
1. Market Value of Assets without Receivables $ 267,303,062
2. Payroll 23,485,510
3. Asset Volatility Ratio (AVR) [(1) / (2)] 11.4
4. Accrued Liability (7.25% discount rate) $ 422,062,152
5. Liability Volatility Ratio (LVR) [(4) / (2)] 18.0
6. Accrued Liability (7.00% discount rate) 433,581,990
7. Projected Liability Volatility Ratio [(6) / (2)] 18.5
CalPERS Actuarial Valuation - June 30, 2017 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 25
Hypothetical Termination Liability
The hypothetical termination liability is an estimate of the financial position of the plan had the contract with
CalPERS been terminated as of June 30, 2017. The plan liability on a termination basis is calculated
differently from the plan’s ongoing funding liability. For this hypothetical termination liability calculation, both compensation and service are frozen as of the valuation date and no future pay increases or service
accruals are assumed. This measure of funded status is not appropriate for assessing the need for future
employer contributions in the case of an ongoing plan, that is, for an employer that continues to provide
CalPERS retirement benefits to active employees.
A more conservative investment policy and asset allocation strategy was adopted by the CalPERS Board for
the Terminated Agency Pool. The Terminated Agency Pool has limited funding sources since no future
employer contributions will be made. Therefore, expected benefit payments are secured by risk-free assets and benefit security for members is increased while limiting the funding risk. However, this asset allocation
has a lower expected rate of return than the PERF and consequently, a lower discount rate assumption. The
lower discount rate for the Terminated Agency Pool results in higher liabilities for terminated plans.
The effective termination discount rate will depend on actual market rates of return for risk-free securities
on the date of termination. As market discount rates are variable the table below shows a range for the
hypothetical termination liability based on the lowest and highest interest rates observed during an approximate 2-year period centered around the valuation date.
Market
Value of
Assets (MVA)
Hypothetical
Termination
Liability1,2
@ 1.75%
Funded
Status
Unfunded
Termination
Liability
@ 1.75%
Hypothetical
Termination
Liability1,2
@ 3.00%
Funded
Status
Unfunded
Termination
Liability
@ 3.00%
$267,871,162 $810,373,628 33.1% $542,502,466 $727,113,618 36.8% $459,242,456
1 The hypothetical liabilities calculated above include a 5 percent contingency load in accordance with Board policy.
Other actuarial assumptions can be found in Appendix A. 2 The current discount rate assumption used for termination valuations is a weighted average of the 10-year and 30-year
U.S. Treasury yields where the weights are based on matching asset and liability durations as of the termination date.
The discount rates used in the table are based on 20-year Treasury bonds, rounded to the nearest quarter percentage point, which is a good proxy for most plans. The 20-year Treasury yield was 2.61 percent on June 30, 2017, and was
2.83 percent on January 31, 2018.
In order to terminate the plan, you must first contact our Retirement Services Contract Unit to initiate a Resolution of Intent to Terminate. The completed Resolution will allow the plan actuary to give you a
preliminary termination valuation with a more up-to-date estimate of the plan liabilities. CalPERS advises
you to consult with the plan actuary before beginning this process.
Plan’s Major Benefit Provisions
CalPERS Actuarial Valuation – June 30, 2017
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 for this plan. A description of principal standard and optional
plan provisions is in Appendix B of this report.
Contract Package
Active
Police
Active
Fire
Active
Fire
Active
Police
Active
Fire
Active
Police
Active
Fire
Benefit Provision
Benefit Formula 3.0% @ 50 3.0% @ 50 3.0% @ 50 2.7% @ 57 3.0% @ 55 3.0% @ 55 2.7% @ 57
Social Security Coverage No No No No No No No Full/Modified Full Full Full Full Full Full Full
Employee Contribution Rate 9.00% 9.00% 9.00% 10.75% 9.00% 9.00% 10.75%
Final Average Compensation Period One Year One Year One Year Three Year Three Year Three Year Three Year
Sick Leave Credit No No No No No No No
Non-Industrial Disability Standard Standard Standard Standard Standard Standard Standard
Industrial Disability Yes Yes Yes Yes Yes Yes Yes
Pre-Retirement Death Benefits
Optional Settlement 2 No Yes Yes No Yes No Yes
1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1 Level 1 Level 1 Level 1 Special Yes Yes Yes Yes Yes Yes Yes
Alternate (firefighters) No 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%
Page 27
CalPERS Actuarial Valuation – June 30, 2017 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
Fire
Receiving
Police
Benefit Provision
Benefit Formula
Social Security Coverage
Full/Modified
Employee Contribution Rate
Final Average Compensation Period
Sick Leave Credit
Non-Industrial Disability
Industrial Disability
Pre-Retirement Death Benefits
Optional Settlement 2
1959 Survivor Benefit Level
Special
Alternate (firefighters)
Post-Retirement Death Benefits Lump Sum $500 $500
Survivor Allowance (PRSA) No No
COLA 2% 2%
Page 28
Appendices
• Appendix A – Actuarial Methods and Assumptions
• Appendix B – Principal Plan Provisions
• Appendix C – Participant Data
• Appendix D – Normal Cost by Benefit Group and PEPRA Member
Contribution Rates
• Appendix E – Glossary of Actuarial Terms
Appendix A
Actuarial Methods and Assumptions
• Actuarial Data
• Actuarial Methods
• Actuarial Assumptions
• Miscellaneous
CalPERS Actuarial Valuation – June 30, 2017 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 required employer contributions.
Actuarial Methods
Actuarial Cost Method
The actuarial cost method used 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 percentage of pay in each year from the member’s entry age to their assumed retirement
age on the valuation date. 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 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.
Amortization of Unfunded Actuarial Accrued Liability
The excess of the total actuarial accrued liability over the market value of plan assets is called the unfunded
actuarial accrued liability (UAL). Funding requirements are determined by adding the normal cost and an
amortization payment toward the unfunded liability. The unfunded liability is amortized as a “level percent of pay”. Commencing with the June 30, 2013 valuation, all new gains or losses are 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) are
amortized over a 20-year period with no ramp. Changes in actuarial assumptions or changes in actuarial
methodology are amortized 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 five years. A summary of the current policy is provided in the
table below:
Driver
Source
(Gain)/Loss
Assumption/Method
Change
Benefit
Change
Golden
Handshake Investment
Non-
investment
Amortization
Period 30 Years 30 Years 20 Years 20 Years 5 Years
Escalation Rate
- Active Plans - Inactive Plans
2.875% 0%
2.875% 0%
2.875% 0%
2.875% 0%
2.875% 0%
Ramp Up 5 5 5 0 0
Ramp Down 5 5 5 0 0
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-2
The 5-year ramp up means that the payments in the first four years of the amortization period are 20
percent, 40 percent, 60 percent and 80 percent of the “full” payment which begins in year five. The 5-year
ramp down means that the reverse is true in the final four years of the amortization period.
Exceptions for Inconsistencies:
An exception to the amortization rules above is used whenever their application results in inconsistencies. In
these cases, a “fresh start” approach is used. This means that the current unfunded actuarial liability is
projected and amortized over a set number of years. For example, a fresh start is needed in the following
situations:
• 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
• When there are excess assets, rather than an unfunded liability. In this situation, a 30-year fresh
start is used.
It should be noted that the actuary may determine that a fresh start is necessary under other
circumstances. In all cases of a fresh start, the period is set by the actuary at what is deemed appropriate;
however, the period will not be greater than 30 years.
Exceptions for Inactive Plans:
The following exceptions apply to plans classified as Inactive. These plans have no active members and no
expectation to have active members in the future.
• Amortization of the unfunded liability is on a “level dollar” basis rather than a “level percent of pay”
basis. For amortization layers, which utilize a ramp up and ramp down, the “ultimate” payment is constant.
• Actuarial judgment will be used to shorten amortization periods for Inactive plans with existing
periods that are deemed too long given the duration of the liability. The specific demographics of
the plan will be used to determine if shorter periods may be more appropriate.
Asset Valuation Method
It is the policy of the CalPERS Board of Administration to use professionally accepted amortization methods
to eliminate a surplus or an unfunded accrued liability in a manner that maintains benefit security for the
members of the System while minimizing substantial variations in required employer contributions. 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 employer
contribution for Fiscal Year 2015-16, CalPERS employs a policy that amortizes all gains and losses over a fixed 30-year period. The increase or decrease in the rate is then spread directly over a 5-year period. This
method is referred to as “direct rate smoothing.” CalPERS no longer uses an actuarial value of assets and
only uses the market value of assets. The 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.
PEPRA Normal Cost Rate Methodology
Per Government Code Section 7522.30(b) the “normal cost rate” shall mean the annual actuarially
determined normal cost for the plan of retirement benefits provided to the new member and shall be
established based on actuarial assumptions used to determine the liabilities and costs as part of the annual
actuarial valuation. The plan of retirement benefits shall include any elements that would impact the
actuarial determination of the normal cost, including, but not limited to, the retirement formula, eligibility
and vesting criteria, ancillary benefit provisions, and any automatic cost-of-living adjustments as determined by the public retirement system.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-3
Each non-pooled plan is stable with a sufficiently large demographic representation of active employees. It
is preferable to determine normal cost using a large active population ongoing so that this rate remains
relatively stable. The total PEPRA normal cost will be calculated using all active members within a non-
pooled plan until the number of members covered under the PEPRA formula meets either:
1. 50 percent of the active population, or
2. 25 percent of the active population and 100 or more PEPRA members
Once either of the conditions above is met for a non-pooled plan, the total PEPRA normal cost will be based
on the active PEPRA population in the plan.
Accordingly, the total normal cost will be funded equally between employer and employee based on the
demographics of the employees of that employer.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-4
Actuarial Assumptions
In 2017, CalPERS completed its most recent asset liability management study incorporating actuarial
assumptions and strategic asset allocation. In December 2017, the CalPERS Board of Administration
adopted relatively modest changes to the asset allocation that reduced the expected volatility of returns.
The adopted asset allocation was expected to have a long-term blended return that continued to support a
discount rate assumption of 7.00 percent. The Board also approved several changes to the demographic
assumptions that more closely aligned with actual experience. These new actuarial assumptions were first used in this, the June 30, 2017 valuation to set the Fiscal Year 2019-20 contribution for public agency
employers.
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to
7.00 percent using a three-year phase-in beginning with the June 30, 2016 actuarial valuations. The
minimum employer contributions for Fiscal Year 2019-20 determined in this valuation were calculated using
a discount rate of 7.25 percent. The projected employer contributions on Page 5 are calculated assuming
that the discount rate will be lowered to 7.00 percent next year as adopted by the Board. The decision to reduce the discount rate was primarily based on reduced capital market assumptions provided by external
investment consultants and CalPERS investment staff. The specific decision adopted by the Board reflected
recommendations from CalPERS staff and additional input from employer and employee stakeholder groups.
Based on the investment allocation adopted by the Board and capital market assumptions, the reduced
discount rate schedule provides a more realistic assumption for the long-term investment return of the fund.
Notwithstanding the Board’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the expected investment return of CalPERS assets or changes to the investment allocation may result in a
change to this discount rate schedule.
For more details and additional rationale for the selection of the actuarial assumptions, please refer to the
CalPERS Experience Study and Review of Actuarial Assumptions report from December 2017 that can be
found on the CalPERS website under: “Forms and Publications”. Click on “View All” and search for
Experience Study.
All actuarial assumptions (except the discount rates used for the hypothetical termination liability) represent
an estimate of future experience rather than observations of the estimates inherent in market data.
Economic Assumptions
Discount Rate
The prescribed discount rate assumption adopted by the Board on December 21, 2016 is 7.25 percent compounded annually (net of investment and administrative expenses) as of 6/30/2017.
The Board also prescribed that the assumed discount rate will reduce to 7.0 percent compounded
annually (net of expenses) as of 6/30/2018. This change to the discount rate assumption is not
reflected in the determination of required contributions determined in this report for Fiscal Year
2019-20.
Termination Liability Discount Rate
The current discount rate assumption used for termination valuations is a weighted average of the
10-year and 30-year U.S. Treasury yields where the weights are based on matching asset and
liability durations as of the termination date.
The hypothetical termination liabilities in this report are calculated using an observed range of
market interest rates. This range is based on the lowest and highest 20-year Treasury bond observed during an approximate 2-year period centered around the valuation date. The 20-year
Treasury bond has a similar duration to most plan liabilities and serves as a good proxy for the
termination discount rate. The 20-year Treasury yield was 2.61 percent on June 30, 2017.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-5
Salary Growth
Annual increases vary by category, entry age, and duration of service. A sample of assumed
increases are shown below. Wage inflation assumption in the valuation year (2.875% for 2017) is
added to these factors for total salary growth.
Public Agency Miscellaneous
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.0850 0.0775 0.0650
1 0.0690 0.0635 0.0525
2 0.0560 0.0510 0.0410
3 0.0470 0.0425 0.0335
4 0.0400 0.0355 0.0270
5 0.0340 0.0295 0.0215
10 0.0160 0.0135 0.0090
15 0.0120 0.0100 0.0060
20 0.0090 0.0075 0.0045
25 0.0080 0.0065 0.0040
30 0.0080 0.0065 0.0040
Public Agency Fire
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1700 0.1700 0.1700
1 0.1100 0.1100 0.1100
2 0.0700 0.0700 0.0700
3 0.0580 0.0580 0.0580
4 0.0473 0.0473 0.0473
5 0.0372 0.0372 0.0372
10 0.0165 0.0165 0.0165
15 0.0144 0.0144 0.0144
20 0.0126 0.0126 0.0126
25 0.0111 0.0111 0.0111
30 0.0097 0.0097 0.0097
Public Agency Police
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1027 0.1027 0.1027
1 0.0803 0.0803 0.0803
2 0.0628 0.0628 0.0628
3 0.0491 0.0491 0.0491
4 0.0384 0.0384 0.0384
5 0.0300 0.0300 0.0300
10 0.0145 0.0145 0.0145
15 0.0150 0.0150 0.0150
20 0.0155 0.0155 0.0155
25 0.0160 0.0160 0.0160
30 0.0165 0.0165 0.0165
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-6
Salary Growth (continued)
Public Agency County Peace Officers
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1320 0.1320 0.1320
1 0.0960 0.0960 0.0960
2 0.0657 0.0657 0.0657
3 0.0525 0.0525 0.0525
4 0.0419 0.0419 0.0419
5 0.0335 0.0335 0.0335
10 0.0170 0.0170 0.0170
15 0.0150 0.0150 0.0150
20 0.0150 0.0150 0.0150
25 0.0175 0.0175 0.0175
30 0.0200 0.0200 0.0200
Schools
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.0428 0.0419 0.0380
1 0.0428 0.0419 0.0380
2 0.0428 0.0419 0.0380
3 0.0354 0.0332 0.0280
4 0.0305 0.0279 0.0224
5 0.0262 0.0234 0.0180
10 0.0171 0.0154 0.0112
15 0.0152 0.0134 0.0098
20 0.0135 0.0117 0.0086
25 0.0120 0.0103 0.0076
30 0.0087 0.0071 0.0048
• 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
2.875 percent compounded annually (used in projecting the payroll over which the unfunded
liability is amortized). This assumption is used for all plans with active members. For the June 30,
2018 valuation the payroll growth assumption will be 2.75 percent.
Inflation
2.625 percent compounded annually. For the June 30, 2018 valuation the inflation assumption will
be 2.50 percent.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.625 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 adopted the provision of
providing Credit for Unused Sick Leave.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-7
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 5 percent contingency load. This load is for unforeseen negative
experience.
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 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 0.00022 0.00007 0.00004
25 0.00029 0.00011 0.00006
30 0.00038 0.00015 0.00007
35 0.00049 0.00027 0.00009
40 0.00064 0.00037 0.00010
45 0.00080 0.00054 0.00012 50 0.00116 0.00079 0.00013
55 0.00172 0.00120 0.00015
60 0.00255 0.00166 0.00016
65 0.00363 0.00233 0.00018
70 0.00623 0.00388 0.00019
75 0.01057 0.00623 0.00021
80 0.01659 0.00939 0.00022
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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-8
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 0.00372 0.00346 0.01183 0.01083 0.00372 0.00346
55 0.00437 0.00410 0.01613 0.01178 0.00437 0.00410
60 0.00671 0.00476 0.02166 0.01404 0.00671 0.00476
65 0.00928 0.00637 0.02733 0.01757 0.01113 0.00765
70 0.01339 0.00926 0.03358 0.02183 0.01607 0.01111 75 0.02316 0.01635 0.04277 0.02969 0.02779 0.01962
80 0.03977 0.03007 0.06272 0.04641 0.04773 0.03609
85 0.07122 0.05418 0.09793 0.07847 0.08547 0.06501
90 0.13044 0.10089 0.14616 0.13220 0.14348 0.11098
95 0.21658 0.17698 0.21658 0.21015 0.21658 0.17698
100 0.32222 0.28151 0.32222 0.32226 0.32222 0.28151
105 0.46691 0.43491 0.46691 0.43491 0.46691 0.43491 110 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000
The post-retirement mortality rates above include 15 years of projected on-going mortality
improvement using 90 percent of Scale MP 2016 published by the Society of Actuaries.
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 70%
Local Police 85% Local Fire 90%
Other Local Safety 70%
School Police 85%
Local County Peace Officers 75%
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 retire at age 59 for Miscellaneous members and age 54 for safety
members.
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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-9
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
Public Agency Safety
Duration of Service Fire Police County Peace Officer
0 0.1298 0.1013 0.1188
1 0.0674 0.0636 0.0856
2 0.0320 0.0271 0.0617
3 0.0237 0.0258 0.0445
4 0.0087 0.0245 0.0321
5 0.0052 0.0086 0.0121
10 0.0005 0.0053 0.0053
15 0.0004 0.0027 0.0025
20 0.0003 0.0017 0.0012
25 0.0002 0.0012 0.0005
30 0.0002 0.0009 0.0003
35 0.0001 0.0009 0.0002
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 0.2107 0.2107 0.1827 0.1546 0.1375 0.1203
1 0.1807 0.1807 0.1526 0.1246 0.1105 0.0963
2 0.1526 0.1526 0.1259 0.0992 0.0878 0.0765
3 0.1266 0.1266 0.1023 0.0780 0.0691 0.0603
4 0.1026 0.1026 0.0815 0.0605 0.0537 0.0469
5 0.0808 0.0808 0.0634 0.0461 0.0409 0.0358
10 0.0202 0.0202 0.0157 0.0112 0.0087 0.0063
15 0.0107 0.0107 0.0077 0.0048 0.0034 0.0021
20 0.0056 0.0056 0.0037 0.0017 0.0016 0.0016
25 0.0026 0.0026 0.0018 0.0009 0.0012 0.0015
30 0.0013 0.0013 0.0011 0.0009 0.0012 0.0015
35 0.0008 0.0008 0.0009 0.0009 0.0012 0.0015
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-10
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 0.0422 0.0422 0.0393 0.0364 0.0344
10 0.0278 0.0278 0.0271 0.0263 0.0215
15 0.0192 0.0192 0.0174 0.0156 0.0120
20 0.0139 0.0139 0.0109 0.0079 0.0047
25 0.0083 0.0083 0.0048 0.0014 0.0007
30 0.0015 0.0015 0.0007 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
Public Agency Safety
Duration of
Service Fire Police
County Peace
Officer
5 0.0094 0.0163 0.0187
10 0.0064 0.0126 0.0134
15 0.0048 0.0082 0.0092
20 0.0038 0.0065 0.0064
25 0.0026 0.0058 0.0042
30 0.0014 0.0056 0.0022
35 0.0000 0.0000 0.0000
• 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 0.0405 0.0405 0.0346 0.0288 0.0264
10 0.0324 0.0324 0.0280 0.0235 0.0211
15 0.0202 0.0202 0.0179 0.0155 0.0126
20 0.0144 0.0144 0.0114 0.0083 0.0042
25 0.0091 0.0091 0.0046 0.0000 0.0000
30 0.0015 0.0015 0.0007 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-11
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 0.0002 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
25 0.0002 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
30 0.0002 0.0002 0.0001 0.0002 0.0001 0.0001 0.0002
35 0.0004 0.0007 0.0001 0.0003 0.0004 0.0005 0.0004
40 0.0010 0.0014 0.0001 0.0004 0.0007 0.0012 0.0008
45 0.0015 0.0019 0.0002 0.0005 0.0013 0.0020 0.0017
50 0.0016 0.0020 0.0005 0.0008 0.0018 0.0026 0.0022
55 0.0016 0.0015 0.0007 0.0013 0.0010 0.0025 0.0018
60 0.0015 0.0011 0.0007 0.0020 0.0006 0.0022 0.0011
• 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.
Industrial (Job-Related) Disability Rates vary by age and category.
Age Fire Police County Peace Officer
20 0.0001 0.0000 0.0004
25 0.0002 0.0017 0.0013
30 0.0006 0.0048 0.0025
35 0.0012 0.0079 0.0037
40 0.0023 0.0110 0.0051
45 0.0040 0.0141 0.0067
50 0.0208 0.0185 0.0092
55 0.0307 0.0479 0.0151
60 0.0438 0.0602 0.0174
• 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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-12
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 0.020 0.020 0.020 0.020 0.020 0.150
51 0.006 0.019 0.027 0.031 0.035 0.038
52 0.011 0.024 0.031 0.034 0.037 0.040
53 0.010 0.015 0.021 0.027 0.033 0.040
54 0.025 0.025 0.029 0.035 0.041 0.048
55 0.019 0.026 0.033 0.092 0.136 0.146
56 0.030 0.034 0.038 0.060 0.093 0.127
57 0.030 0.046 0.061 0.076 0.090 0.104
58 0.040 0.044 0.059 0.080 0.101 0.122
59 0.024 0.044 0.063 0.083 0.103 0.122
60 0.070 0.074 0.089 0.113 0.137 0.161
61 0.080 0.086 0.093 0.118 0.156 0.195
62 0.100 0.117 0.133 0.190 0.273 0.357
63 0.140 0.157 0.173 0.208 0.255 0.301
64 0.140 0.153 0.165 0.196 0.239 0.283
65 0.140 0.178 0.215 0.264 0.321 0.377
66 0.140 0.178 0.215 0.264 0.321 0.377
67 0.140 0.178 0.215 0.264 0.321 0.377
68 0.112 0.142 0.172 0.211 0.257 0.302
69 0.112 0.142 0.172 0.211 0.257 0.302
70 0.140 0.178 0.215 0.264 0.321 0.377
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-13
Service Retirement
Public Agency Miscellaneous 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.008 0.013 0.018 0.021 0.022 0.033
51 0.009 0.016 0.020 0.023 0.026 0.036
52 0.015 0.018 0.020 0.021 0.025 0.030
53 0.016 0.020 0.024 0.028 0.031 0.035
54 0.018 0.022 0.026 0.030 0.034 0.038
55 0.040 0.040 0.056 0.093 0.109 0.154
56 0.034 0.050 0.066 0.092 0.107 0.138
57 0.042 0.048 0.058 0.082 0.096 0.127
58 0.046 0.054 0.062 0.090 0.106 0.131
59 0.045 0.055 0.066 0.097 0.115 0.144
60 0.058 0.075 0.093 0.126 0.143 0.169
61 0.065 0.088 0.111 0.146 0.163 0.189
62 0.136 0.118 0.148 0.190 0.213 0.247
63 0.130 0.133 0.174 0.212 0.249 0.285
64 0.113 0.129 0.165 0.196 0.223 0.249
65 0.145 0.173 0.201 0.233 0.266 0.289
66 0.170 0.199 0.229 0.258 0.284 0.306
67 0.250 0.204 0.233 0.250 0.257 0.287
68 0.227 0.175 0.193 0.215 0.240 0.262
69 0.200 0.180 0.180 0.198 0.228 0.246
70 0.150 0.171 0.192 0.239 0.304 0.330
Public Agency Miscellaneous 2.5% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.008 0.014 0.020 0.026 0.033 0.050
51 0.008 0.015 0.023 0.030 0.037 0.059
52 0.009 0.016 0.023 0.030 0.037 0.061
53 0.014 0.021 0.028 0.035 0.042 0.063
54 0.014 0.022 0.030 0.039 0.047 0.068
55 0.020 0.038 0.055 0.073 0.122 0.192
56 0.025 0.047 0.069 0.091 0.136 0.196
57 0.030 0.048 0.065 0.083 0.123 0.178
58 0.035 0.054 0.073 0.093 0.112 0.153
59 0.035 0.054 0.073 0.092 0.131 0.183
60 0.044 0.072 0.101 0.130 0.158 0.197
61 0.050 0.078 0.105 0.133 0.161 0.223
62 0.055 0.093 0.130 0.168 0.205 0.268
63 0.090 0.124 0.158 0.192 0.226 0.279
64 0.080 0.112 0.144 0.175 0.207 0.268
65 0.120 0.156 0.193 0.229 0.265 0.333
66 0.132 0.172 0.212 0.252 0.292 0.366
67 0.132 0.172 0.212 0.252 0.292 0.366
68 0.120 0.156 0.193 0.229 0.265 0.333
69 0.120 0.156 0.193 0.229 0.265 0.333
70 0.120 0.156 0.193 0.229 0.265 0.333
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-14
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 0.003 0.010 0.016 0.034 0.033 0.045
51 0.009 0.016 0.023 0.042 0.038 0.047
52 0.015 0.019 0.024 0.040 0.036 0.046
53 0.012 0.020 0.028 0.047 0.046 0.060
54 0.020 0.027 0.035 0.054 0.056 0.073
55 0.033 0.055 0.078 0.113 0.156 0.234
56 0.039 0.067 0.095 0.135 0.169 0.227
57 0.050 0.067 0.084 0.113 0.142 0.198
58 0.043 0.066 0.089 0.124 0.151 0.201
59 0.050 0.070 0.090 0.122 0.158 0.224
60 0.060 0.086 0.112 0.150 0.182 0.238
61 0.071 0.094 0.117 0.153 0.184 0.241
62 0.091 0.122 0.152 0.194 0.226 0.279
63 0.143 0.161 0.179 0.209 0.222 0.250
64 0.116 0.147 0.178 0.221 0.254 0.308
65 0.140 0.174 0.208 0.254 0.306 0.389
66 0.170 0.209 0.247 0.298 0.310 0.324
67 0.170 0.199 0.228 0.269 0.296 0.342
68 0.150 0.181 0.212 0.255 0.287 0.339
69 0.150 0.181 0.212 0.255 0.287 0.339
70 0.150 0.181 0.212 0.243 0.291 0.350
Public Agency Miscellaneous 3% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.013 0.019 0.026 0.042 0.038 0.064
51 0.035 0.037 0.039 0.052 0.047 0.062
52 0.023 0.030 0.038 0.055 0.051 0.056
53 0.025 0.032 0.040 0.057 0.056 0.066
54 0.035 0.042 0.050 0.067 0.066 0.076
55 0.040 0.052 0.064 0.085 0.095 0.120
56 0.043 0.056 0.070 0.094 0.102 0.150
57 0.045 0.060 0.074 0.099 0.109 0.131
58 0.053 0.056 0.059 0.099 0.126 0.185
59 0.050 0.068 0.085 0.113 0.144 0.202
60 0.089 0.106 0.123 0.180 0.226 0.316
61 0.100 0.117 0.133 0.212 0.230 0.298
62 0.130 0.155 0.180 0.248 0.282 0.335
63 0.120 0.163 0.206 0.270 0.268 0.352
64 0.150 0.150 0.150 0.215 0.277 0.300
65 0.200 0.242 0.283 0.330 0.300 0.342
66 0.220 0.264 0.308 0.352 0.379 0.394
67 0.250 0.279 0.309 0.338 0.371 0.406
68 0.170 0.196 0.223 0.249 0.290 0.340
69 0.220 0.261 0.302 0.344 0.378 0.408
70 0.220 0.255 0.291 0.326 0.358 0.388
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-15
Service Retirement
Public Agency Miscellaneous 2% @ 62
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.000 0.000 0.000 0.000 0.000 0.000
51 0.000 0.000 0.000 0.000 0.000 0.000
52 0.005 0.008 0.012 0.015 0.019 0.031
53 0.007 0.011 0.014 0.018 0.021 0.032
54 0.007 0.011 0.015 0.019 0.023 0.034
55 0.010 0.019 0.028 0.036 0.061 0.096
56 0.014 0.026 0.038 0.050 0.075 0.108
57 0.018 0.029 0.039 0.050 0.074 0.107
58 0.023 0.035 0.048 0.060 0.073 0.099
59 0.025 0.038 0.051 0.065 0.092 0.128
60 0.031 0.051 0.071 0.091 0.111 0.138
61 0.038 0.058 0.079 0.100 0.121 0.167
62 0.044 0.074 0.104 0.134 0.164 0.214
63 0.077 0.105 0.134 0.163 0.192 0.237
64 0.072 0.101 0.129 0.158 0.187 0.242
65 0.108 0.141 0.173 0.206 0.239 0.300
66 0.132 0.172 0.212 0.252 0.292 0.366
67 0.132 0.172 0.212 0.252 0.292 0.366
68 0.120 0.156 0.193 0.229 0.265 0.333
69 0.120 0.156 0.193 0.229 0.265 0.333
70 0.120 0.156 0.193 0.229 0.265 0.333
Service Retirement
Public Agency Fire ½ @ 55 and 2% @ 55
Age Rate
Age Rate
50 0.0159 56 0.1108
51 0.0000 57 0.0000
52 0.0344 58 0.0950
53 0.0199 59 0.0441
54 0.0413 60 1.00000
55 0.0751
Public Agency Police ½ @ 55 and 2% @ 55
Age Rate
Age Rate
50 0.0255 56 0.0692
51 0.0000 57 0.0511
52 0.0164 58 0.0724
53 0.0272 59 0.0704
54 0.0095 60 0.3000
55 0.1667
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-16
Service Retirement
Public Agency Police 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.050 0.050 0.050 0.050 0.050 0.100
51 0.040 0.040 0.040 0.040 0.058 0.094
52 0.040 0.040 0.040 0.040 0.061 0.087
53 0.040 0.040 0.040 0.040 0.082 0.123
54 0.040 0.040 0.040 0.046 0.098 0.158
55 0.072 0.072 0.072 0.096 0.141 0.255
56 0.066 0.066 0.066 0.088 0.129 0.228
57 0.060 0.060 0.060 0.080 0.118 0.213
58 0.080 0.080 0.080 0.088 0.138 0.228
59 0.080 0.080 0.080 0.092 0.140 0.228
60 0.150 0.150 0.150 0.150 0.150 0.228
61 0.144 0.144 0.144 0.144 0.144 0.170
62 0.150 0.150 0.150 0.150 0.150 0.213
63 0.150 0.150 0.150 0.150 0.150 0.213
64 0.150 0.150 0.150 0.150 0.150 0.319
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, 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 0.009 0.009 0.009 0.009 0.013 0.020
51 0.013 0.013 0.013 0.013 0.020 0.029
52 0.018 0.018 0.018 0.018 0.028 0.042
53 0.052 0.052 0.052 0.052 0.079 0.119
54 0.067 0.067 0.067 0.067 0.103 0.154
55 0.089 0.089 0.089 0.089 0.136 0.204
56 0.083 0.083 0.083 0.083 0.127 0.190
57 0.082 0.082 0.082 0.082 0.126 0.189
58 0.088 0.088 0.088 0.088 0.136 0.204
59 0.074 0.074 0.074 0.074 0.113 0.170
60 0.100 0.100 0.100 0.100 0.154 0.230
61 0.072 0.072 0.072 0.072 0.110 0.165
62 0.099 0.099 0.099 0.099 0.152 0.228
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
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-17
Service Retirement
Public Agency Police 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.035 0.035 0.035 0.035 0.070 0.090
51 0.028 0.028 0.028 0.029 0.065 0.101
52 0.032 0.032 0.032 0.039 0.066 0.109
53 0.028 0.028 0.028 0.043 0.075 0.132
54 0.038 0.038 0.038 0.074 0.118 0.333
55 0.070 0.070 0.070 0.120 0.175 0.340
56 0.060 0.060 0.060 0.110 0.165 0.330
57 0.060 0.060 0.060 0.110 0.165 0.320
58 0.080 0.080 0.080 0.100 0.185 0.350
59 0.090 0.090 0.095 0.130 0.185 0.350
60 0.150 0.150 0.150 0.150 0.185 0.350
61 0.120 0.120 0.120 0.120 0.160 0.350
62 0.150 0.150 0.150 0.150 0.200 0.350
63 0.150 0.150 0.150 0.150 0.200 0.400
64 0.150 0.150 0.150 0.150 0.175 0.350
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, 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 0.001 0.001 0.001 0.006 0.016 0.069
51 0.002 0.002 0.002 0.006 0.018 0.071
52 0.012 0.012 0.012 0.021 0.040 0.098
53 0.032 0.032 0.032 0.049 0.085 0.149
54 0.057 0.057 0.057 0.087 0.144 0.217
55 0.073 0.073 0.073 0.109 0.179 0.259
56 0.064 0.064 0.064 0.097 0.161 0.238
57 0.063 0.063 0.063 0.095 0.157 0.233
58 0.065 0.065 0.065 0.099 0.163 0.241
59 0.088 0.088 0.088 0.131 0.213 0.299
60 0.105 0.105 0.105 0.155 0.251 0.344
61 0.118 0.118 0.118 0.175 0.282 0.380
62 0.087 0.087 0.087 0.128 0.210 0.295
63 0.067 0.067 0.067 0.100 0.165 0.243
64 0.067 0.067 0.067 0.100 0.165 0.243
65 1.000 1.000 1.000 1.000 1.000 1.000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-18
Service Retirement
Public Agency Police 3% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.050 0.050 0.050 0.100 0.155 0.400
51 0.040 0.040 0.040 0.090 0.140 0.380
52 0.040 0.040 0.040 0.070 0.115 0.350
53 0.040 0.040 0.040 0.080 0.135 0.350
54 0.040 0.040 0.040 0.090 0.145 0.350
55 0.070 0.070 0.070 0.120 0.175 0.340
56 0.060 0.060 0.060 0.110 0.165 0.330
57 0.060 0.060 0.060 0.110 0.165 0.320
58 0.080 0.080 0.080 0.100 0.185 0.350
59 0.090 0.090 0.095 0.130 0.185 0.350
60 0.150 0.150 0.150 0.150 0.185 0.350
61 0.120 0.120 0.120 0.120 0.160 0.350
62 0.150 0.150 0.150 0.150 0.200 0.350
63 0.150 0.150 0.150 0.150 0.200 0.400
64 0.150 0.150 0.150 0.150 0.175 0.350
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, Local Prosecutors, Local Sheriff, School Police,
and Other Safety.
Service Retirement
Public Agency Fire 3% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.020 0.020 0.020 0.040 0.130 0.192
51 0.008 0.008 0.008 0.023 0.107 0.164
52 0.023 0.023 0.023 0.043 0.136 0.198
53 0.023 0.023 0.023 0.043 0.135 0.198
54 0.027 0.027 0.027 0.048 0.143 0.207
55 0.043 0.043 0.043 0.070 0.174 0.244
56 0.053 0.053 0.053 0.085 0.196 0.269
57 0.054 0.054 0.054 0.086 0.197 0.271
58 0.052 0.052 0.052 0.084 0.193 0.268
59 0.075 0.075 0.075 0.116 0.239 0.321
60 0.065 0.065 0.065 0.102 0.219 0.298
61 0.076 0.076 0.076 0.117 0.241 0.324
62 0.068 0.068 0.068 0.106 0.224 0.304
63 0.027 0.027 0.027 0.049 0.143 0.208
64 0.094 0.094 0.094 0.143 0.277 0.366
65 1.000 1.000 1.000 1.000 1.000 1.000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-19
Service Retirement
Public Agency Police 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.040 0.040 0.040 0.040 0.040 0.080
51 0.028 0.028 0.028 0.028 0.040 0.066
52 0.028 0.028 0.028 0.028 0.043 0.061
53 0.028 0.028 0.028 0.028 0.057 0.086
54 0.028 0.028 0.028 0.032 0.069 0.110
55 0.050 0.050 0.050 0.067 0.099 0.179
56 0.046 0.046 0.046 0.062 0.090 0.160
57 0.054 0.054 0.054 0.072 0.106 0.191
58 0.060 0.060 0.060 0.066 0.103 0.171
59 0.060 0.060 0.060 0.069 0.105 0.171
60 0.113 0.113 0.113 0.113 0.113 0.171
61 0.108 0.108 0.108 0.108 0.108 0.128
62 0.113 0.113 0.113 0.113 0.113 0.159
63 0.113 0.113 0.113 0.113 0.113 0.159
64 0.113 0.113 0.113 0.113 0.113 0.239
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, 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 0.005 0.005 0.005 0.005 0.008 0.012
51 0.006 0.006 0.006 0.006 0.009 0.013
52 0.012 0.012 0.012 0.012 0.019 0.028
53 0.033 0.033 0.033 0.033 0.050 0.075
54 0.045 0.045 0.045 0.045 0.069 0.103
55 0.061 0.061 0.061 0.061 0.094 0.140
56 0.055 0.055 0.055 0.055 0.084 0.126
57 0.081 0.081 0.081 0.081 0.125 0.187
58 0.059 0.059 0.059 0.059 0.091 0.137
59 0.055 0.055 0.055 0.055 0.084 0.126
60 0.085 0.085 0.085 0.085 0.131 0.196
61 0.085 0.085 0.085 0.085 0.131 0.196
62 0.085 0.085 0.085 0.085 0.131 0.196
63 0.085 0.085 0.085 0.085 0.131 0.196
64 0.085 0.085 0.085 0.085 0.131 0.196
65 1.000 1.000 1.000 1.000 1.000 1.000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-20
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 0.050 0.050 0.050 0.050 0.050 0.100
51 0.038 0.038 0.038 0.038 0.055 0.089
52 0.038 0.038 0.038 0.038 0.058 0.082
53 0.036 0.036 0.036 0.036 0.073 0.111
54 0.036 0.036 0.036 0.041 0.088 0.142
55 0.061 0.061 0.061 0.082 0.120 0.217
56 0.056 0.056 0.056 0.075 0.110 0.194
57 0.060 0.060 0.060 0.080 0.118 0.213
58 0.072 0.072 0.072 0.079 0.124 0.205
59 0.072 0.072 0.072 0.083 0.126 0.205
60 0.135 0.135 0.135 0.135 0.135 0.205
61 0.130 0.130 0.130 0.130 0.130 0.153
62 0.135 0.135 0.135 0.135 0.135 0.191
63 0.135 0.135 0.135 0.135 0.135 0.191
64 0.135 0.135 0.135 0.135 0.135 0.287
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, 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 0.007 0.007 0.007 0.007 0.010 0.015
51 0.008 0.008 0.008 0.008 0.012 0.018
52 0.016 0.016 0.016 0.016 0.025 0.038
53 0.042 0.042 0.042 0.042 0.064 0.096
54 0.057 0.057 0.057 0.057 0.088 0.132
55 0.074 0.074 0.074 0.074 0.114 0.170
56 0.066 0.066 0.066 0.066 0.102 0.153
57 0.090 0.090 0.090 0.090 0.139 0.208
58 0.071 0.071 0.071 0.071 0.110 0.164
59 0.066 0.066 0.066 0.066 0.101 0.151
60 0.102 0.102 0.102 0.102 0.157 0.235
61 0.102 0.102 0.102 0.102 0.157 0.236
62 0.102 0.102 0.102 0.102 0.157 0.236
63 0.102 0.102 0.102 0.102 0.157 0.236
64 0.102 0.102 0.102 0.102 0.157 0.236
65 1.000 1.000 1.000 1.000 1.000 1.000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-21
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 0.0500 0.0500 0.0500 0.0500 0.0500 0.1000
51 0.0400 0.0400 0.0400 0.0400 0.0575 0.0942
52 0.0380 0.0380 0.0380 0.0380 0.0580 0.0825
53 0.0380 0.0380 0.0380 0.0380 0.0774 0.1169
54 0.0380 0.0380 0.0380 0.0437 0.0931 0.1497
55 0.0684 0.0684 0.0684 0.0912 0.1340 0.2423
56 0.0627 0.0627 0.0627 0.0836 0.1228 0.2168
57 0.0600 0.0600 0.0600 0.0800 0.1175 0.2125
58 0.0800 0.0800 0.0800 0.0880 0.1375 0.2275
59 0.0800 0.0800 0.0800 0.0920 0.1400 0.2275
60 0.1500 0.1500 0.1500 0.1500 0.1500 0.2275
61 0.1440 0.1440 0.1440 0.1440 0.1440 0.1700
62 0.1500 0.1500 0.1500 0.1500 0.1500 0.2125
63 0.1500 0.1500 0.1500 0.1500 0.1500 0.2125
64 0.1500 0.1500 0.1500 0.1500 0.1500 0.3188
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
• These rates also apply to County Peace officers, 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 0.1900
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
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-22
Service Retirement
Schools 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.004 0.007 0.011 0.012 0.013 0.015
51 0.004 0.008 0.011 0.014 0.016 0.017
52 0.005 0.010 0.014 0.016 0.018 0.021
53 0.006 0.012 0.016 0.020 0.022 0.025
54 0.008 0.017 0.023 0.027 0.031 0.034
55 0.021 0.042 0.058 0.069 0.077 0.086
56 0.019 0.037 0.053 0.062 0.069 0.078
57 0.019 0.038 0.054 0.064 0.071 0.079
58 0.022 0.045 0.062 0.074 0.082 0.092
59 0.025 0.049 0.069 0.082 0.090 0.101
60 0.033 0.066 0.092 0.109 0.121 0.135
61 0.037 0.072 0.101 0.119 0.133 0.149
62 0.066 0.131 0.184 0.218 0.242 0.271
63 0.064 0.126 0.178 0.209 0.233 0.261
64 0.059 0.117 0.163 0.193 0.215 0.240
65 0.080 0.158 0.221 0.261 0.291 0.326
66 0.081 0.160 0.224 0.265 0.296 0.330
67 0.070 0.139 0.194 0.229 0.255 0.286
68 0.063 0.124 0.173 0.205 0.228 0.255
69 0.066 0.130 0.183 0.216 0.241 0.270
70 0.071 0.140 0.196 0.231 0.258 0.289
Miscellaneous
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.
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. The compensation limit
for classic members for the 2017 calendar year is $270,000.
Appendix B
Principal Plan Provisions
CalPERS Actuarial Valuation – June 30, 2017 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 Public Employees’ Retirement Law. The law itself governs in all situations.
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
percent 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%
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%
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Safety Plan of the City of Palo Alto
Principal Plan Provisions
B-2
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 had the option of providing a final compensation equal to the highest 12 consecutive months
for classic plans only. 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 Social Security this cap is $118,775 for 2017 and for those employees that do not participate
in Social Security the cap for 2017 is $142,530. 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
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Safety Plan of the City of Palo Alto
Principal Plan Provisions
B-3
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 and PEPRA safety service retirement benefit is not capped. The classic 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 PEPRA safety 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.
CalPERS Actuarial Valuation – June 30, 2017 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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Safety Plan of the City of Palo Alto
Principal Plan Provisions
B-5
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.
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
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 child(ren) until they attain age 18; or, if no eligible child(ren), 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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Safety Plan of the City of Palo Alto
Principal Plan Provisions
B-6
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.
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 child(ren) 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
dependent child(ren), the benefit will be discontinued upon death or attainment of age 18, unless the child(ren) is
disabled. The total amount paid will be at least equal to the basic death benefit.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Safety Plan of the City of Palo Alto
Principal Plan Provisions
B-7
Optional Settlement 2 Death Benefit
This is an optional benefit.
Eligibility
An employee’s eligible survivor may receive the Optional Settlement 2 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 2
Death benefit.
Benefit
The Optional Settlement 2 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 100 percent to
continue to the eligible survivor after the member’s death. The allowance is payable as long as the surviving spouse
lives, at which time it is continued to any unmarried child(ren) 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 child(ren) 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
have attained age 50. The allowance is payable to the surviving spouse until death at which time the allowance is
continued to any unmarried child(ren) 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 child(ren) (eligible means unmarried
child(ren) 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
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Safety Plan of the City of Palo Alto
Principal Plan Provisions
B-8
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
child(ren) 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 2. (A retiree
who elects Optional Settlement 2 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 child(ren)
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
Retirement and survivor allowances are adjusted each year in May for cost of living, beginning the second calendar year after the year of retirement. The standard cost-of-living adjustment (COLA) is 2 percent. Annual adjustments
are calculated by first determining the lesser of 1) 2 percent compounded from the end of the year of retirement or
2) actual rate of inflation. The resulting increase is divided by the total increase provided in prior years. For any given
year, the COLA adjustment may be less than 2 percent (when the rate of inflation is low), may be greater than the
rate of inflation (when the rate of inflation is low after several years of high inflation) or may even be greater than 2
percent (when inflation is high after several years of low inflation).
Improved Benefit
Employers have the option of providing a COLA of 3 percent, 4 percent, or 5 percent, determined in the same
manner as described above for the standard 2 percent COLA. An improved COLA is not available with the 1.5% at 65
formula.
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 retirement adjusted for inflation since retirement. The PPPA benefit will be coordinated with other cost-of-living
adjustments provided under the plan.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Safety Plan of the City of Palo Alto
Principal Plan Provisions
B-9
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
Miscellaneous, 1.5% at 65 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 classic members (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. These contributions are paid in addition to the member contribution.
Auxiliary organizations of the CSU 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 with 6 percent interest compounded annually.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Safety Plan of the City of Palo Alto
Principal Plan Provisions
B-10
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 is required to provide this benefit if the members are 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 may only 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.
Appendix C
Participant Data
• Summary of Valuation Data
• Active Members
• Transferred and Terminated Members
• Retired Members and Beneficiaries
CalPERS Actuarial Valuation – June 30, 2017 Appendix C Safety Plan of the City of Palo Alto
Participant Data
C-1
Summary of Valuation Data
June 30, 2016 June 30, 2017
1. Active Members
a) Counts 174 172
b) Average Attained Age
41.61 42.00
c) Average Entry Age to Rate Plan 29.31 29.81
d) Average Years of Service 12.30 12.19
e) Average Annual Covered Pay $ 122,230 $ 136,544
f) Annual Covered Payroll 21,268,028 23,485,510
g) Projected Annual Payroll for Contribution Year 23,240,148 25,569,930
h) Present Value of Future Payroll 199,470,322 218,036,500
2. Transferred Members
a) Counts 63 60
b) Average Attained Age 42.96 42.71
c) Average Years of Service 3.34 3.35
d) Average Annual Covered Pay $ 114,053 $ 117,113
3. Terminated Members
a) Counts 38 43
b) Average Attained Age 43.22 43.17
c) Average Years of Service 3.61 3.53
d) Average Annual Covered Pay $ 87,206 $ 90,476
4. Retired Members and Beneficiaries
a) Counts 417 427
b) Average Attained Age 68.24 68.42
c) Average Annual Benefits $ 52,760 $ 54,215
5. Active to Retired Ratio [(1a) / (4a)] 0.42 0.40
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.
CalPERS Actuarial Valuation – June 30, 2017 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 0 0 0 0 0 0 0
25-29 13 2 0 0 0 0 15
30-34 16 8 4 0 0 0 28
35-39 8 12 12 3 0 0 35
40-44 5 4 3 17 1 0 30
45-49 2 1 6 12 6 1 28
50-54 1 0 4 8 6 7 26
55-59 1 1 1 2 0 3 8
60-64 0 0 0 0 0 1 1
65 and over 0 0 0 0 0 1 1
All Ages 46 28 30 42 13 13 172
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 $0 $0 $0 $0 $0 $0 $0
25-29 112,706 128,132 0 0 0 0 114,763
30-34 108,738 131,340 136,014 0 0 0 119,092
35-39 116,122 134,080 148,458 158,968 0 0 137,038
40-44 133,784 136,178 157,037 157,219 176,592 0 151,135
45-49 130,816 110,864 134,346 138,037 143,050 215,779 139,611
50-54 237,889 0 131,103 130,185 144,717 153,996 144,233
55-59 107,259 130,890 117,225 148,685 0 166,175 143,909
60-64 0 0 0 0 0 142,443 142,443
65 and over 0 0 0 0 0 146,215 146,215
All Ages $117,602 $132,229 $141,479 $146,308 $146,399 $160,072 $136,544
CalPERS Actuarial Valuation – June 30, 2017 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, Service, and average Salary
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 3 0 0 0 0 0 3 119,948
30-34 5 0 0 0 0 0 5 111,399
35-39 14 4 0 0 0 0 18 108,323
40-44 7 1 0 0 0 0 8 107,672
45-49 10 4 2 0 0 0 16 129,525
50-54 6 1 1 0 0 0 8 125,491
55-59 0 1 0 0 0 0 1 115,452
60-64 0 1 0 0 0 0 1 106,968
65 and over 0 0 0 0 0 0 0 0
All Ages 45 12 3 0 0 0 60 117,113
Distribution of Terminated Participants with Funds on Deposit by Age, Service, and average Salary
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 1 0 0 0 0 0 1 94,933
30-34 3 1 0 0 0 0 4 105,192
35-39 13 2 1 0 0 0 16 88,882
40-44 1 4 1 1 0 0 7 116,726
45-49 5 1 1 0 0 0 7 83,303
50-54 4 0 0 0 0 0 4 55,820
55-59 2 1 0 0 0 0 3 74,227
60-64 0 1 0 0 0 0 1 106,475
65 and over 0 0 0 0 0 0 0 0
All Ages 29 10 3 1 0 0 43 90,476
CalPERS Actuarial Valuation – June 30, 2017 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 0 0 0 0 0
35-39 0 0 3 0 0 0 3
40-44 0 0 5 0 0 0 5
45-49 0 1 8 0 0 0 9
50-54 21 1 8 0 0 0 30
55-59 45 1 23 0 2 0 71
60-64 37 1 20 0 1 3 62
65-69 26 1 19 0 0 7 53
70-74 31 0 14 0 0 6 51
75-79 31 1 26 0 0 10 68
80-84 20 0 15 0 0 8 43
85 and Over 15 0 9 0 0 8 32
All Ages 226 6 150 0 3 42 427
Distribution of Average Annual Disbursements to 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 0 0 0 0 0
35-39 0 0 55,217 0 0 0 55,217
40-44 0 0 59,737 0 0 0 59,737
45-49 0 84 42,485 0 0 0 37,774
50-54 73,247 107,530 62,478 0 0 0 71,518
55-59 86,676 33,586 68,453 0 50,614 0 79,009
60-64 65,260 2,076 70,488 0 26,741 53,055 64,715
65-69 76,021 17,698 43,431 0 0 24,763 56,467
70-74 57,570 0 34,420 0 0 36,090 48,688
75-79 48,216 14,380 38,340 0 0 34,926 41,988
80-84 40,891 0 33,010 0 0 20,674 34,381
85 and Over 28,332 0 18,164 0 0 22,493 24,013
All Ages $63,504 $29,226 $48,338 $0 $42,656 $29,611 $54,215
CalPERS Actuarial Valuation – June 30, 2017 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 40 2 15 0 0 12 69
5-9 55 1 25 0 0 5 86
10-14 37 0 15 0 1 7 60
15-19 31 0 16 0 1 11 59
20-24 29 1 18 0 0 2 50
25-29 19 1 16 0 0 3 39
30 and Over 15 1 45 0 1 2 64
All Years 226 6 150 0 3 42 427
Distribution of Average Annual Disbursements to 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 $66,840 $54,803 $59,929 $0 $0 $17,782 $56,457
5-9 86,536 84 82,280 0 0 25,771 80,761
10-14 66,148 0 63,988 0 53,694 46,532 63,112
15-19 57,909 0 48,640 0 47,534 38,969 51,688
20-24 47,041 33,586 49,701 0 0 13,235 46,377
25-29 44,288 17,698 34,862 0 0 32,703 38,848
30 and Over 31,367 14,380 24,541 0 26,741 11,222 25,600
All Years $63,504 $29,226 $48,338 $0 $42,656 $29,611 $54,215
* 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 C-1 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.
Appendix D
Normal Cost Information by Group
• Normal Cost by Benefit Group
• PEPRA Member Contribution Rates
CalPERS Actuarial Valuation – June 30, 2017 Appendix D Safety Plan of the City of Palo Alto
Participant Data
D-1
Normal Cost by Benefit Group
The table below displays the Total Normal Cost broken out by benefit group for Fiscal Year 2019-20. The Total Normal Cost is the annual cost of service accrual for the fiscal year for active employees and can be viewed as the
long-term contribution rate for the benefits contracted. Generally, the normal cost for a benefit group subject to
more generous benefit provisions will exceed the normal cost for a group with less generous benefits. However,
based on the characteristics of the members (particularly when the number of actives is small), this may not be the
case. Future measurements of the Total Normal Cost for each group may differ significantly from the current values
due to such factors as: changes in the demographics of the group, changes in economic and demographic
assumptions, changes in plan benefits or applicable law.
Rate Plan
Identifier Benefit Group Name
Total Normal
Cost
FY 2019-20
Number of
Actives
Payroll on
6/30/2017
5080 Safety Police First Tier 33.678% 55 8,253,984
25006 Safety Fire PEPRA 18.327% 11 1,226,561
25007 Safety Police PEPRA 25.562% 21 2,241,219
30705 Safety Fire First Tier 27.917% 73 9,989,634
30706 Safety Fire Second Tier 27.198% 1 208,988
30707 Safety Fire Third Tier 31.233% 7 993,311
30708 Safety Police Second Tier 34.429% 4 571,814
Note that if a Benefit Group above has multiple bargaining units, each of which has separately contracted for
different benefits such as Employer Paid Member Contributions, then the Normal Cost split does not reflect those differences. Additionally, if a 2nd Tier Benefit Group amended to the same benefit formula as a 1st Tier Benefit Group
their Normal Costs may be dissimilar due to demographic or other population differences. In these situations you
should consult with your plan actuary.
CalPERS Actuarial Valuation – June 30, 2017 Appendix D Safety Plan of the City of Palo Alto
Participant Data
D-2
PEPRA Member Contribution Rates
The table below shows the determination of the PEPRA Member contribution rates based on 50 percent of the Total Normal Cost for each respective plan on June 30, 2017. 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. Should the total normal cost of
the plan change by one percent or more from the base total normal cost established for the plan, the new member
rate shall be 50 percent of the new normal cost rounded to the nearest quarter percent.
Basis for Current Rate Rates Effective July 1, 2019
Rate Plan
Identifier Benefit Group Name Total Normal
Cost
Member
Rate
Total Normal
Cost
Change Change
Needed
Member
Rate
25007 Safety Police PEPRA 21.276% 10.750% 22.114% 0.838% No 10.750%
25006 Safety Fire PEPRA 21.276% 10.750% 22.114% 0.838% No 10.750%
The PEPRA employee contribution rate determined in the table above may not necessarily be 50 percent of the Total Normal Cost by Group based on the PEPRA Normal Cost calculation methodology. Each non-pooled plan is stable with
a sufficiently large demographic representation of active employees. It is preferable to determine normal cost using a
large active population ongoing so that this rate remains relatively stable. The total PEPRA normal cost will be
calculated using all active members within a non-pooled plan until the number of members covered under the PEPRA
formula meets either:
1. 50 percent of the active population, or
2. 25 percent of the active population and 100 or more PEPRA members
Once either of the conditions above is met for a non-pooled plan, the total PEPRA normal cost will be based on the
active PEPRA population in the plan.
Accordingly, the total normal cost will be funded equally between employer and employee based on the
demographics of the employees of that employer.
Appendix E
Glossary of Actuarial Terms
CalPERS Actuarial Valuation – June 30, 2017 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 Value of Assets.
Actuarial Valuation
The determination, as of a valuation date of the Normal Cost, Accrued liability, 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.
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.
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).
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.)
CalPERS Actuarial Valuation – June 30, 2017 Appendix E Safety Plan of the City of Palo Alto
Glossary of Actuarial Terms
E-2
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 versus accrued
liabilities. A ratio greater than 100 percent means the plan or risk pool has more assets than liabilities and a ratio
less than 100 percent means liabilities are greater than assets.
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 towards the
UAL.
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.
Unfunded Accrued Liability (UAL)
When a plan or pool’s Value of Assets is less than its Accrued Liability, the difference is the plan or pool’s
Unfunded Accrued Liability (or unfunded liability). If the unfunded liability is positive, the plan or pool will have
to pay contributions exceeding the Normal Cost.
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
July 2018
Miscellaneous Plan of the City of Palo Alto (CalPERS ID: 6373437857) Annual Valuation Report as of June 30, 2017
Dear Employer,
As an attachment to this letter, you will find a copy of the June 30, 2017 actuarial valuation report of your pension
plan. Your 2017 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 August 1, 2018.
Required Contributions
The exhibit below displays the minimum required employer contributions and the Employee PEPRA Rate for Fiscal Year
2019-20 along with an estimate of the required contribution for Fiscal Year 2020-21. Member contributions other than
cost sharing (whether paid by the employer or the employee) are in addition to the results shown below. The
required employer contributions in this report do not reflect any cost sharing arrangement you may have
with your employees.
Fiscal Year Employer Normal
Cost Rate
Employer Amortization of
Unfunded Accrued Liability
Employee
PEPRA Rate
2019-20 10.716% $21,287,260 6.25%
Projected Results
2020-21 11.5% $23,401,000 TBD
The actual investment return for Fiscal Year 2017-18 was not known at the time this report was prepared. The
projections above assume the investment return for that year would be 7.25 percent. If the actual investment
return for Fiscal Year 2017-18 differs from 7.25 percent, the actual contribution requirements for the
projected years will differ from those shown above.
Moreover, the projected results for Fiscal Year 2020-21 assume that there are no future Plan changes, no further
changes in assumptions other than those recently approved and no liability gains or losses. Such changes can have a
significant impact on required contributions. Since they cannot be predicted in advance, the projected employer results
shown above are estimates. The actual required employer contributions for Fiscal Year 2020-21 will be provided in next
year’s report.
For additional details regarding the assumptions and methods used for these projections please refer to the “Projected
Employer Contributions” in the “Highlights and Executive Summary” section.
The required contributions shown above include a Normal Cost component expressed as a percentage of payroll and a
payment toward Unfunded Accrued Liability expressed as a dollar amount. For illustrative total contribution
requirements expressed as percentages of payroll, please see pages 4 and 5 of the report.
The “Risk Analysis” section of the valuation report starting on page 22 also contains estimated employer contributions
in future years under a variety of investment return scenarios.
ATTACHMENT C
Miscellaneous Plan of the City of Palo Alto (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2017
Page 2
Changes since the Prior Year’s Valuation
At its December 2016 meeting, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to 7.00 percent using a three-year phase-in beginning with the June 30, 2016 actuarial valuation. The minimum employer
contributions for Fiscal Year 2019-20 determined in this valuation were calculated using a discount rate of 7.25
percent. The projected employer contributions on Page 5 are calculated under the assumption that the discount rate
will be lowered to 7.00 percent next year, as adopted by the Board.
On December 19, 2017, the CalPERS Board of Administration adopted new actuarial assumptions based on the
recommendations in the December 2017 CalPERS Experience Study and Review of Actuarial Assumptions. This study
reviewed the retirement rates, termination rates, mortality rates, rates of salary increases and inflation assumption for Public Agencies. These new assumptions are incorporated in your actuarial valuations and will impact the required
contribution for FY 2019-20. In addition, the Board adopted a new asset portfolio as part of its Asset Liability
Management. The new asset mix supports a 7.00 percent discount rate. The reduction of the inflation assumption will
be implemented in two steps in conjunction with the decreases in the discount rate. For the June 30, 2017 valuation an
inflation rate of 2.625 percent will be used and a rate of 2.50 percent will be used in the following valuation.
The CalPERS Board of Administration has adopted a new amortization policy effective with the June 30, 2019 actuarial valuation. The new policy shortens the period over which actuarial gains and losses are amortized from 30 years to 20
years with the payments computed using a level dollar amount. In addition, the new policy removes the 5-year ramp-
up and ramp-down on UAL bases attributable to assumption changes and non-investment gains/losses. The new policy
removes the 5-year ramp-down on investment gains/losses. These changes will apply only to new UAL bases
established on or after June 30, 2019.
For inactive employers the new amortization policy imposes a maximum amortization period of 15 years for all
unfunded accrued liabilities effective June 30, 2017. Furthermore, the plan actuary has the ability to shorten the amortization period on any valuation date based on the life expectancy of plan members and projected cash flow
needs to the plan. The impact of this has been reflected in the current valuation results.
Beginning with Fiscal Year 2017-18 CalPERS began collecting employer contributions toward the plan’s unfunded
liability as dollar amounts instead of the prior method of a contribution rate. This change addressed potential funding
issues that could arise from a declining payroll or reduction in the number of active members in the plan. Funding the
unfunded liability as a percentage of payroll could lead to the underfunding of the plans. Due to stakeholder feedback regarding internal needs for total contributions expressed as a percentage of payroll, the reports include such results in
the contribution projection on page 5. These results are provided for information purposes only. Contributions toward
the unfunded liability will continue to be collected as dollar amounts.
The CalPERS Board of Administration adopted a Risk Mitigation Policy which is designed to reduce funding risk over
time. This Policy has been temporarily suspended during the period over which the discount rate is being lowered.
More details on the Risk Mitigation Policy can be found on our website.
Besides the above noted changes, there may also be changes specific to the 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 effects of the changes on the required contributions are
included in the “Reconciliation of Required Employer Contributions” section.
We understand that you might have some 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 August 1, 2018 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,
SCOTT TERANDO
Chief Actuary
Actuarial Valuation
as of June 30, 2017
for the
Miscellaneous Plan
of the
City of Palo Alto
(CalPERS ID: 6373437857)
(Rate Plan ID: 8)
Required Contributions
for Fiscal Year
July 1, 2019 – June 30, 2020
Table of Contents
Actuarial Certification 1
Highlights and Executive Summary
Introduction 3
Purpose of the Report 3
Required Contributions 4
Plan’s Funded Status 5 Projected Employer Contributions 5
Cost 6
Changes Since the Prior Year’s Valuation 7
Subsequent Events 7
Assets
Reconciliation of the Market Value of Assets 10
Asset Allocation 11
CalPERS History of Investment Returns 12
Liabilities and Contributions
Development of Accrued and Unfunded Liabilities 14 (Gain) / Loss Analysis 06/30/16 - 06/30/17 15
Schedule of Amortization Bases 16
Amortization Schedule and Alternatives 17
Reconciliation of Required Employer Contributions 19
Employer Contribution History 20
Funding History 20
Risk Analysis
Analysis of Future Investment Return Scenarios 22
Analysis of Discount Rate Sensitivity 23 Volatility Ratios 24
Hypothetical Termination Liability 25
Plan’s Major Benefit Provisions
Plan’s Major Benefit Options 27
Appendix A – Actuarial Methods and Assumptions
Actuarial Data A-1
Actuarial Methods A-1
Actuarial Assumptions A-4
Miscellaneous A-22
Appendix B – Principal Plan Provisions B-1
Appendix C – Participant Data
Summary of Valuation Data C-1
Active Members C-2
Transferred and Terminated Members C-3
Retired Members and Beneficiaries C-4
Appendix D – Normal Cost Information by Group
Normal Cost by Benefit Group D-1
PEPRA Member Contribution Rates D-2
Appendix E – Glossary of Actuarial Terms E-1
(CY) FIN PROCESS CONTROL ID: 514708 (PY) FIN PROCESS CONTROL ID: 494678 REPORT ID: 111573
CalPERS Actuarial Valuation - June 30, 2017 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, 2017 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, 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 opinions contained herein.
DAVID CLEMENT, ASA, MAAA, EA
Senior Pension Actuary, CalPERS
Highlights and Executive Summary
• Introduction
• Purpose of the Report
• Required Contributions
• Plan’s Funded Status
• Projected Employer Contributions
• Cost
• Changes Since the Prior Year’s Valuation
• Subsequent Events
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 3
Introduction
This report presents the results of the June 30, 2017 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 minimum required employer contributions for Fiscal Year 2019-20.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2017. The purpose of the report is to:
• Set forth the assets and accrued liabilities of this plan as of June 30, 2017;
• Determine the minimum required employer contributions for the fiscal year July 1, 2019 through June
30, 2020;
• Provide actuarial information as of June 30, 2017 to the CalPERS Board of Administration and other
interested parties.
The pension funding information presented in this report should not be used in financial reports subject to Governmental Accounting Standards Board (GASB) Statement No. 68 for an Agent Employer Defined Benefit
Pension Plan. A separate accounting valuation report for such purposes is available from CalPERS and
details for ordering are available on our website.
The measurements shown in this actuarial valuation may not be applicable for other purposes. The
employer should contact their actuary before disseminating any portion of this report for any reason that is
not explicitly described above.
Future actuarial measurements may differ significantly from the current measurements presented in this
report due to such factors as the following: plan experience differing from that anticipated by the economic
or demographic assumptions; changes in economic or demographic assumptions; changes in actuarial
policies; and changes in plan provisions or applicable law.
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 16.
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 alternative discount
rates of 6.0 percent, 7.0 percent and 8.0 percent.
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2019-20
Employer Normal Cost Rate 10.716%
Plus, Either
1) Monthly Employer Dollar UAL Payment $ 1,773,938
Or
2) Annual UAL Prepayment Option $ 20,555,172
Required PEPRA Member Contribution Rate
6.25%
The total minimum required employer contribution is the sum of the Plan’s Employer Normal Cost Rate
(expressed as a percentage of payroll) plus the Employer Unfunded Accrued Liability (UAL) Contribution
Amount (billed monthly in dollars).
Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later than July 31). Plan Normal Cost contributions will be made as part of the payroll reporting
process. If there is contractual cost sharing or other change, this amount will change.
In accordance with Sections 20537 and 20572 of the Public Employees’ Retirement Law, if a contracting
agency fails to remit the required contributions when due, interest and penalties may apply.
For additional detail regarding the determination of the required contribution for PEPRA members, see
Appendix D. Required member contributions for Classic members can be found in Appendix B.
Fiscal Year Fiscal Year
2018-19 2019-20
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 17.697% 18.122%
Employee Contribution1 7.480% 7.406%
Employer Normal Cost2 10.217% 10.716%
Projected Annual Payroll for Contribution Year $ 82,332,567 $ 85,441,123
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $ 14,570,395 $ 15,483,641
Employee Contribution1 6,158,476 6,327,770
Employer Normal Cost2 8,411,919 9,155,871
Unfunded Liability Contribution 18,392,618 21,287,260
% of Projected Payroll (illustrative only) 22.339% 24.915%
Estimated Total Employer Contribution $ 26,804,537 $ 30,443,131
% of Projected Payroll (illustrative only) 32.556% 35.631%
1 For 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.
2 The Employer Normal Cost is a blended rate for all benefit groups in the plan. A breakout of normal cost by benefit
group is shown in Appendix D.
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 5
Plan’s Funded Status
This measure of funded status is an assessment of the need for future employer contributions based on the
selected actuarial cost method used to fund the plan. The UAL is the present value of future employer
contributions for service that has already been earned and is in addition to future normal cost contributions
for active members. For a measure of funded status that is appropriate for assessing the sufficiency of plan
assets to cover estimated termination liabilities, please see “Hypothetical Termination Liability” in the “Risk
Analysis” section.
Projected Employer Contributions
The table below shows the required and projected employer contributions (before cost sharing) for the next
six fiscal years. Projected results reflect the adopted changes to the discount rate described in Appendix A,
“Actuarial Methods and Assumptions.” The projections also assume that all actuarial assumptions will be
realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the
projection period. The projected normal cost percentages in the projections below do not reflect that the
normal cost will decline over time as new employees are hired into PEPRA or other lower cost benefit tiers.
Required
Contribution
Projected Future Employer Contributions
(Assumes 7.25% Return for Fiscal Year 2017-18)
Fiscal Year 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25
Normal Cost % 10.716% 11.5% 11.5% 11.5% 11.5% 11.5%
UAL Payment 21,287,260 23,401,000 25,704,000 27,676,000 28,957,000 30,276,000
Total as a % of Payroll* 35.6% 38.2% 40.0% 41.4% 41.9% 42.5%
Projected Payroll 85,441,123 87,577,540 89,985,922 92,460,536 95,003,200 97,615,788
*Illustrative only and based on the projected payroll shown.
Changes in the UAL due to actuarial gains or losses as well as changes in actuarial assumptions or methods
are amortized using a 5-year ramp up. For more information, please see “Amortization of the Unfunded
Actuarial Accrued Liability” under “Actuarial Methods” in Appendix A. This method phases in the impact of
changes in UAL over a 5-year period and attempts to minimize employer cost volatility from year to year. As
a result of this methodology, dramatic changes in the required employer contributions in any one year are
less likely. However, required contributions can change gradually and significantly over the next five years. In years where there is a large increase in UAL the relatively small amortization payments during the ramp
up period could result in a funded ratio that is projected to decrease initially while the contribution impact of
the increase in the UAL is phased in.
Due to the adopted change in the discount rate for the next valuation in combination with the 5-year phase-
in ramp, the increases in the required contributions are expected to continue for six years from Fiscal Year
2019-20 through Fiscal Year 2024-25.
For projected contributions under alternate investment return scenarios, please see the “Analysis of Future
Investment Return Scenarios” in the “Risk Analysis” section.
June 30, 2016 June 30, 2017
1. Present Value of Projected Benefits $ 827,688,407 $ 877,802,454
2. Entry Age Normal Accrued Liability 730,382,476 772,526,669
3. Market Value of Assets (MVA) $ 468,702,245 $ 511,805,893
4. Unfunded Accrued Liability (UAL) [(2) – (3)] $ 261,680,231 $ 260,720,776
5. Funded Ratio [(3) / (2)] 64.2% 66.3%
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 6
Cost
Actuarial Cost Estimates in General
What is the cost of the pension plan?
Contributions to fund the pension plan are comprised of two components:
• The Normal Cost, expressed as a percentage of total active payroll.
• The Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount.
For fiscal years prior to FY 2017-18, the Amortizations of UAL component was expressed as percentage of
total active payroll. Starting with FY 2017-18, the Amortization of UAL component was expressed as a dollar amount and invoiced on a monthly basis. There continues to be an option to prepay this amount during July
of each fiscal year.
The Normal Cost component will continue to be expressed as a percentage of active payroll with employer
and employee contributions payable as part of the regular payroll reporting process.
The determination of both components requires complex actuarial calculations. The calculations are based
on a set of actuarial assumptions which can be divided into two categories:
• Demographic assumptions (which includes mortality rates, retirement rates, employment
termination rates and disability rates)
• Economic assumptions (which includes future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPERS best estimate of the future experience of the plan and are long term in
nature. We recognize that all the assumptions will not be realized in any given year. For example, the investment earnings at CalPERS have averaged 6.6 percent over the 20 years ending June 30, 2017, yet
individual fiscal year returns have ranged from -24.0 percent to +21.7 percent. In addition, CalPERS reviews
all the actuarial assumptions on an ongoing basis by conducting in-depth experience studies every four
years, with the most recent experience study completed in 2017.
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 7
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 the employer contribution is shown in the “Reconciliation of Required Employer Contributions.” It should be noted that no change in liability or
contribution is shown for any plan changes which were already included in the prior year’s valuation.
Actuarial Methods and Assumptions
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to
7.00 percent using a three-year phase-in beginning with the June 30, 2016 actuarial valuation. The minimum employer contribution for Fiscal Year 2019-20 determined in this valuation was calculated using a discount
rate of 7.25 percent. The projected employer contributions on Page 5 are calculated assuming that the
discount rate will be lowered to 7.00 percent next year as adopted by the Board. The decision to reduce the
discount rate was primarily based on reduced capital market assumptions provided by external investment
consultants and CalPERS investment staff. The specific decision adopted by the Board reflected
recommendations from CalPERS staff and additional input from employer and employee stakeholder groups.
Based on the investment allocation adopted by the Board and capital market assumptions, the reduced
discount rate assumption provides a more realistic assumption for the long-term investment return of the fund.
On December 19, 2017, the CalPERS Board of Administration adopted new actuarial assumptions based on
the recommendations in the December 2017 CalPERS Experience Study and Review of Actuarial Assumptions.
This study reviewed the retirement rates, termination rates, mortality rates, rates of salary increases and
inflation assumption for Public Agencies. These new assumptions are incorporated in this actuarial valuation and will impact the required contribution for FY 2019-20. In addition, the Board adopted a new asset
portfolio as part of its Asset Liability Management. The new asset mix supports a 7.00 percent discount rate.
The reduction of the inflation assumption will be implemented in two steps in conjunction with the decreases
in the discount rate. For the June 30, 2017 valuation an inflation rate of 2.625 percent will be used and a rate
of 2.50 percent will be used in the following valuation.
Notwithstanding the Board’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the
expected investment return of CalPERS assets or changes to the investment allocation may result in a change to this discount rate schedule.
Subsequent Events
The CalPERS Board of Administration has adopted a new amortization policy effective with the June 30, 2019 actuarial valuation. The new policy shortens the period over which actuarial gains and losses are amortized
from 30 years to 20 years with the payments computed using a level dollar amount. In addition, the new
policy removes the 5-year ramp-up and ramp-down on UAL bases attributable to assumption changes and
non-investment gains/losses. The new policy removes the 5-year ramp-down on investment gains/losses.
These changes will apply only to new UAL bases established on or after June 30, 2019.
For inactive employers the new amortization policy imposes a maximum amortization period of 15 years for all unfunded accrued liabilities effective June 30, 2017. Furthermore, the plan actuary has the ability to
shorten the amortization period on any valuation date based on the life expectancy of plan members and
projected cash flow needs to the plan. The impact of this has been reflected in the current valuation results.
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 8
The contribution requirements determined in this actuarial valuation report are based on demographic and
financial information as of June 30, 2017. Changes in the value of assets subsequent to that date are not
reflected. Investment returns below the assumed rate of return will increase the retired contribution, while
investment returns above the assumed rate of return will decrease the retired contribution.
This actuarial valuation report reflects statutory changes, regulatory changes and CalPERS Board actions
through January 2018. Any subsequent changes or actions are not reflected.
Assets
• Reconciliation of the Market Value of Assets
• Asset Allocation
• CalPERS History of Investment Returns
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 10
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/16 including Receivables $ 468,702,245
2. Change in Receivables for Service Buybacks (256,137)
3. Employer Contributions 20,638,307
4. Employee Contributions 5,894,067
5. Benefit Payments to Retirees and Beneficiaries (35,856,582)
6. Refunds (548,737)
7. Lump Sum Payments 0
8. Transfers and Miscellaneous Adjustments 706,647
9. Net Investment Return 52,526,083
10. Market Value of Assets as of 6/30/17 including Receivables $ 511,805,893
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 11
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 Investment Belief No.
6 recognizes that strategic asset allocation is the dominant determinant of portfolio risk and return. On December 19, 2017, the CalPERS Board of Administration adopted changes to the current asset allocation as
shown in the Policy Target Allocation below expressed as a percentage of total assets.
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, 2017. The assets for City of Palo Alto Miscellaneous
Plan are part of the PERF and are invested accordingly.
(A)
Asset Class
(B)
Market Value
($ Billion)
(C)
Policy Target
Allocation
Public Equity 156.2 50.0%
Private Equity 25.9 8.0%
Global Fixed Income 62.9 28.0%
Liquidity 15.5 1.0%
Real Assets 36.3 13.0%
Inflation Sensitive Assets 25.3 0.0%
Other 1.6 0.0%
Total Fund $323.7 100.0%
Public Equity
48.3%
Private Equity
8.0%
Global Fixed
Income
19.4%
Liquidity
4.8%
Real Assets
11.2%
Inflation
7.8%
Other
0.5%
Actual Asset Allocation at 6/30/2017
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 12
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 various time periods ending on June 30, 2017 (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. The portfolio has an expected volatility of
11.4 percent per year based on the most recent Asset Liability Modelling study. The volatility is a measure of the risk of the portfolio expressed in the standard deviation of the fund’s total return distribution, expressed
as a percentage. 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 11.2% 8.8% 4.3% 6.6% 8.2%
Volatility – 7.3% 13.4% 11.5% 10.1%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
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.
2
%
13
.
2
%
17
.
7
%
2.
4
%
0.
6
%
11
.
2
%
Liabilities and Contributions
• Development of Accrued and Unfunded Liabilities
• (Gain) / Loss Analysis 06/30/16 - 06/30/17
• Schedule of Amortization Bases
• Amortization Schedule and Alternatives
• Reconciliation of Required Employer Contributions
• Employer Contribution History
• Funding History
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 14
Development of Accrued and Unfunded Liabilities
June 30, 2016 June 30, 2017
1. Present Value of Projected Benefits
a) Active Members $ 362,450,800 384,280,294
b) Transferred Members 33,583,165 35,391,763
c) Terminated Members 13,595,787 16,428,525
d) Members and Beneficiaries Receiving Payments 418,058,655 441,701,872
e) Total $ 827,688,407 877,802,454
2. Present Value of Future Employer Normal Costs $ 54,419,083 59,995,441
3. Present Value of Future Employee Contributions $ 42,886,848 45,280,344
4. Entry Age Normal Accrued Liability
a) Active Members [(1a) - (2) - (3)] $ 265,144,869 279,004,509
b) Transferred Members (1b) 33,583,165 35,391,763
c) Terminated Members (1c) 13,595,787 16,428,525
d) Members and Beneficiaries Receiving Payments (1d) 418,058,655 441,701,872
e) Total $ 730,382,476 772,526,669
5. Market Value of Assets (MVA) $ 468,702,245 511,805,893
6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $ 261,680,231 260,720,776
7. Funded Ratio [(5) / (4e)] 64.2% 66.3%
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 15
(Gain)/Loss Analysis 6/30/16 – 6/30/17
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.
1. Total (Gain)/Loss for the Year
a) Unfunded Accrued Liability (UAL) as of 6/30/16 $ 261,680,231
b) Expected Payment on the UAL during 2016-17 14,646,645
c) Interest through 6/30/17 [.07375 x (1a) - ((1.07375)½ - 1) x (1b)] 18,768,429 d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 265,802,015
e) Change due to plan changes 0
f) Change due to assumption change 10,865,865
g) Expected UAL after all other changes [(1d) + (1e) + (1f)] 276,667,880
h) Actual UAL as of 6/30/17 260,720,776
i) Total (Gain)/Loss for 2016-17 [(1h) - (1g)] $ (15,947,104)
2. Contribution (Gain)/Loss for the Year
a) Expected Contribution (Employer and Employee) $ 28,225,426
b) Interest on Expected Contributions 1,022,299
c) Actual Contributions 26,532,374 d) Interest on Actual Contributions 960,978
e) Expected Contributions with Interest [(2a) + (2b)] 29,247,725
f) Actual Contributions with Interest [(2c) + (2d)] 27,493,352
g) Contribution (Gain)/Loss [(2e) - (2f)] $ 1,754,373
3. Asset (Gain)/Loss for the Year
a) Market Value of Assets as of 6/30/16 $ 468,702,245
b) Prior Fiscal Year Receivables (2,169,719)
c) Current Fiscal Year Receivables 1,913,582
d) Contributions Received 26,532,374
e) Benefits and Refunds Paid (36,405,319) f) Transfers and Miscellaneous Adjustments 706,647
g) Expected Int. [.07375 x (3a + 3b) + ((1.07375)½ - 1) x ((3d) + (3e) + (3f))] 34,074,779
h) Expected Assets as of 6/30/17 [(3a) + (3b) + (3c) + (3d) + (3e) + (3f) + (3g)] 493,354,589
i) Market Value of Assets as of 6/30/17 511,805,893
j) Asset (Gain)/Loss [(3h) - (3i)] $ (18,451,304)
4. Liability (Gain)/Loss for the Year
a) Total (Gain)/Loss (1i) $ (15,947,104)
b) Contribution (Gain)/Loss (2g) 1,754,373
c) Asset (Gain)/Loss (3j) (18,451,304)
d) Liability (Gain)/Loss [(4a) - (4b) - (4c)] $ 749,827
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 16
Schedule of Amortization Bases
There is a two-year lag between the valuation date and the start of the contribution fiscal year.
• The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2017.
• The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuation date: Fiscal Year 2019-20.
This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with their required employer contribution well in advance of the start of the fiscal year.
The Unfunded Accrued Liability (UAL) 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 UAL is rolled forward each year by subtracting the expected payment on the UAL for the
fiscal year and adjusting for interest. The expected payment on the UAL 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 for the first fiscal year is determined by the actuarial valuation two years ago and the contribution for the second year is from the actuarial valuation one year ago. Additional discretionary payments are reflected in the Expected Payments column in the fiscal year they
were made by the agency.
Reason for Base
Date
Established
Ramp
Up/Down
2019-20
Amorti-
zation
Period
Balance
6/30/17
Expected
Payment
2017-18
Balance
6/30/18
Expected
Payment
2018-19
Balance
6/30/19
Scheduled
Payment for
2019-20
ASSUMPTION CHANGE 06/30/03 No Ramp 6 $14,441,120 $2,166,084 $13,244,870 $2,216,388 $11,909,797 $2,275,477
METHOD CHANGE 06/30/04 No Ramp 7 $(1,120,747) $(152,458) $(1,044,113) $(155,924) $(958,334) $(160,094)
BENEFIT CHANGE 06/30/05 No Ramp 7 $24,829,679 $3,377,643 $23,131,891 $3,454,433 $21,231,487 $3,546,810
ASSUMPTION CHANGE 06/30/09 No Ramp 12 $25,077,701 $2,419,210 $24,390,462 $2,468,358 $23,602,500 $2,534,996
SPECIAL (GAIN)/LOSS 06/30/09 No Ramp 22 $16,741,358 $1,133,741 $16,780,986 $1,151,812 $16,804,773 $1,183,236
SPECIAL (GAIN)/LOSS 06/30/10 No Ramp 23 $1,384,096 $91,591 $1,389,590 $93,015 $1,394,007 $95,554
ASSUMPTION CHANGE 06/30/11 No Ramp 14 $11,871,256 $1,041,089 $11,653,754 $1,061,270 $11,399,583 $1,089,996
SPECIAL (GAIN)/LOSS 06/30/11 No Ramp 24 $(58,268) $(3,773) $(58,585) $(3,830) $(58,866) $(3,935)
PAYMENT (GAIN)/LOSS 06/30/12 No Ramp 25 $3,050,094 $193,542 $3,070,791 $196,400 $3,090,028 $201,771
(GAIN)/LOSS 06/30/12 No Ramp 25 $25,712,846 $1,631,592 $25,887,324 $1,655,688 $26,049,499 $1,700,967
(GAIN)/LOSS 06/30/13 100% 26 $78,206,101 $3,157,930 $80,605,642 $4,273,993 $82,023,336 $5,488,706
ASSUMPTION CHANGE 06/30/14 80% 17 $43,470,217 $1,618,287 $44,945,884 $2,472,670 $45,643,725 $3,386,584
(GAIN)/LOSS 06/30/14 80% 27 $(47,684,760) $(1,304,427) $(49,791,019) $(1,984,845) $(51,345,332) $(2,719,039)
(GAIN)/LOSS 06/30/15 60% 28 $28,066,528 $395,222 $29,692,054 $801,201 $31,014,991 $1,234,835
ASSUMPTION CHANGE 06/30/16 40% 19 $11,637,805 $(375,692) $12,870,618 $242,873 $13,552,215 $499,046
(GAIN)/LOSS 06/30/16 40% 29 $30,176,989 $0 $32,364,821 $449,116 $34,246,159 $922,983
ASSUMPTION CHANGE 06/30/17 20% 20 $10,865,865 $(684,610) $12,362,633 $(704,292) $13,988,300 $263,619
(GAIN)/LOSS 06/30/17 20% 30 $(15,947,104) $0 $(17,103,269) $0 $(18,343,256) $(254,252)
TOTAL $260,720,776 $14,704,971 $264,394,333 $17,688,326 $265,244,612 $21,287,260
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 20 Page 17
Amortization Schedule and Alternatives
The amortization schedule 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 possible savings in doing so. As a result, we have provided
alternate amortization schedules to help analyze the current amortization schedule and illustrate the
advantages of accelerating unfunded liability payments.
Shown on the following page are future year amortization payments based on 1) the current amortization
schedule reflecting the individual bases and remaining periods shown on the previous page, and 2) alternate
“fresh start” amortization schedules using two sample periods that would both result in interest savings relative to the current amortization schedule. Note that the payments under each alternate scenario
increase by 2.875 percent per year. The schedules do not reflect the impact of adopted discount
rate changes that will become effective beyond June 30, 2017. Therefore, future amortization
payments displayed in the Current Amortization Schedule on the following page will not match
projected amortization payments shown in connection with Projected Employer Contributions
provided elsewhere in this report.
The Current Amortization Schedule typically contains individual bases that are both positive and negative. Positive bases result from plan changes, assumption changes or plan experience that result in increases to
unfunded liability. Negative bases result from plan changes, assumption changes or plan experience that
result in decreases to unfunded liability. The combination of positive and negative bases within an
amortization schedule can result in unusual or problematic circumstances in future years such as:
• A positive total unfunded liability with a negative total payment,
• A negative total unfunded liability with a positive total payment, or • Total payments that completely amortize the unfunded liability over a very short period of time
In any year where one of the above scenarios occurs, the actuary will consider corrective action such as
replacing the existing unfunded liability bases with a single “fresh start” base and amortizing it over a
reasonable period.
The Current Amortization Schedule on the following page may appear to show that, based on the current
amortization bases, one of the above scenarios will occur at some point in the future. It is impossible to
know today whether such a scenario will in fact arise since there will be additional bases added to the amortization schedule in each future year. Should such a scenario arise in any future year, the actuary will
take appropriate action based on guidelines in the CalPERS amortization policy.
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 18
Amortization Schedule and Alternatives
* This schedule does not reflect the impact of adopted discount rate changes that will become effective
beyond June 30, 2017. For Projected Employer Contributions, please see Page 5.
Alternate Schedules
Current Amortization Schedule* 15 Year Amortization 10 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2019 265,244,612 21,287,260 265,244,612 24,118,934 265,244,612 32,895,455
6/30/2020 262,429,422 23,235,491 259,496,898 24,812,354 250,407,794 33,841,200
6/30/2021 257,392,516 25,101,532 252,614,358 25,525,709 233,515,880 34,814,134
6/30/2022 250,057,928 26,607,519 244,494,073 26,259,573 214,391,715 35,815,040
6/30/2023 240,631,961 27,382,976 235,025,066 27,014,536 192,844,494 36,844,723
6/30/2024 229,719,538 28,170,240 224,087,704 27,791,204 168,668,745 37,904,009
6/30/2025 217,200,660 26,282,818 211,553,054 28,590,201 141,643,240 38,993,749
6/30/2026 205,728,806 22,908,470 197,282,188 29,412,169 111,529,834 40,114,819
6/30/2027 196,919,769 23,567,088 181,125,441 30,257,769 78,072,208 41,268,120
6/30/2028 186,790,004 24,244,643 162,921,613 31,127,680 40,994,527 42,454,579
6/30/2029 175,224,146 24,941,678 142,497,114 32,022,601
6/30/2030 162,097,903 25,658,752 119,665,045 32,943,250
6/30/2031 147,277,394 22,834,429 94,224,211 33,890,369
6/30/2032 134,307,310 22,267,062 65,958,067 34,864,717
6/30/2033 120,984,469 20,027,274 34,633,576 35,867,077
6/30/2034 109,015,283 18,926,090
6/30/2035 97,318,734 17,330,139
6/30/2036 86,426,976 15,626,780
6/30/2037 76,509,594 15,221,348
6/30/2038 66,293,072 14,779,688
6/30/2039 55,793,243 14,739,901
6/30/2040 44,573,379 15,163,672
6/30/2041 32,101,210 11,344,252
6/30/2042 22,680,263 10,684,810
6/30/2043 13,259,225 9,361,814
6/30/2044 4,525,277 3,143,773
6/30/2045 1,597,619 1,067,625
6/30/2046 607,797 629,444
6/30/2047
6/30/2048
Totals 512,536,568 444,498,143 374,945,828
Interest Paid 247,291,956 179,253,531 109,701,216
Estimated Savings 68,038,425 137,590,740
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 19
Reconciliation of Required Employer
Contributions
Normal Cost (% of Payroll)
1. For Period 7/1/18 – 6/30/19
a) Employer Normal Cost 10.217%
b) Employee Contribution 7.480%
c) Total Normal Cost 17.697%
2. Changes since the prior year annual valuation
a) Effect of changes in demographics results (0.423%)
b) Effect of plan changes 0.000%
c) Effect of changes in assumptions 0.848%
d) Net effect of the changes above [sum of (a) through (c)] 0.425%
3. For Period 7/1/19 – 6/30/20
a) Employer Normal Cost 10.716%
b) Employee Contribution 7.406%
c) Total Normal Cost 18.122%
Employer Normal Cost Change [(3a) – (1a)] 0.499%
Employee Contribution Change [(3b) – (1b)] (0.074%)
Unfunded Liability Contribution ($)
1. For Period 7/1/18 – 6/30/19 18,392,618
2. Changes since the prior year annual valuation
a) Effect of (gain)/loss during prior year1 (254,252)
b) Effect of plan changes 0
c) Effect of changes in assumptions2 263,619
d) Changes to prior year amortization payments3 2,885,275
e) Effect of changes due to Fresh Start 0
f) Effect of elimination of amortization base 0
g) Net effect of the changes above [sum of (a) through (f)] 2,894,642
3. For Period 7/1/19 – 6/30/20 [(1) + (2g)] 21,287,260
1 The unfunded liability contribution for the (gain)/loss during the year prior to the valuation date is 20 percent of the
“full” annual requirement due to the 5-year ramp. Increases to this amount that occur during the ramp period will be
included in line d) in future years.
2 The unfunded liability contribution for the change in assumptions is 20 percent of the “full” annual requirement due to
the 5-year ramp. Increases to this amount that occur during the ramp period will be included in line d) in future years.
3 Includes changes due to 5-year ramp, payroll growth assumption, and re-amortization under new discount rate.
The amounts shown for the period 7/1/18 – 6/30/19 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.
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 20
Employer Contribution History
The table below provides a recent history of the required employer contributions for the plan, as determined
by the annual actuarial valuation. It does not account for prepayments or benefit changes made during a fiscal year.
Fiscal
Year
Employer
Normal Cost
Unfunded Rate
Unfunded Liability
Payment ($)
2013 - 14 10.360% 14.240% N/A
2014 - 15 10.283% 15.839% N/A
2015 - 16 10.358% 17.336% N/A
2016 - 17 10.334% 18.556% N/A
2017 - 18 10.039% N/A 15,765,273
2018 - 19 10.217% N/A 18,392,618
2019 - 20 10.716% N/A 21,287,260
Funding History
The table 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)
Unfunded Liability
Funded Ratio
Annual
Covered Payroll
06/30/11 $ 552,715,631 $ 384,056,704 $ 168,658,927 69.5% $ 60,297,783
06/30/12 576,182,013 373,592,926 202,589,087 64.8% 62,910,810
06/30/13 602,540,178 412,227,784 190,312,394 68.4% 64,439,680
06/30/14 666,978,627 475,566,994 191,411,633 71.3% 67,802,942
06/30/15 696,699,220 477,031,099 219,668,121 68.5% 71,574,823
06/30/16 730,382,476 468,702,245 261,680,231 64.2% 75,345,962
06/30/17 772,526,669 511,805,893 260,720,776 66.3% 78,476,098
Risk Analysis
• Analysis of Future Investment Return Scenarios
• Analysis of Discount Rate Sensitivity
• Volatility Ratios
• Hypothetical Termination Liability
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 22
Analysis of Future Investment Return Scenarios
Analysis was performed to determine the effects of various future investment returns on required employer
contributions. The projections below provide a range of results based on five investment return scenarios assumed to occur during the next four fiscal years (2017-18, 2018-19, 2019-20 and 2020-21). The
projections also assume that all other actuarial assumptions will be realized and that no further changes to
assumptions, contributions, benefits, or funding will occur.
Each of the five investment return scenarios assumes a return of 7.25 percent for fiscal year 2017-18. For
fiscal years 2018-19, 2019-20, and 2020-21 each scenario assumes an alternate fixed annual return. The
fixed return assumptions for the five scenarios are 1.0 percent, 4.0 percent, 7.0 percent, 9.0 percent and 12.0 percent.
The alternate investment returns were chosen based on stochastic analysis of possible future investment
returns over the four-year period ending June 30, 2021. Using the expected returns and volatility of the
asset classes in which the funds are invested, we produced five thousand stochastic outcomes for this
period based on the recently completed Asset Liability Management process. We then selected annual
returns that approximate the 5th, 25th, 50th, 75th, and 95th percentiles for these outcomes. For example, of
all the 4-year outcomes generated in the stochastic analysis, approximately 25 percent of them had an average annual return of 4.0 percent or less.
Required contributions outside of this range are also possible. In particular, whereas it is unlikely that
investment returns will average less than 1.0 percent or greater than 12.0 percent over this four-year
period, the possibility of a single investment return less than 1.0 percent or greater than 12.0 percent in any
given year is much greater.
Assumed Annual Return From
2018-19 through 2020-21
Projected Employer Contributions
2020-21 2021-22 2022-23 2023-24
1.0%
Normal Cost 11.5% 11.5% 11.5% 11.5%
UAL Contribution $23,401,000 $26,208,000 $29,217,000 $32,100,000
4.0%
Normal Cost 11.5% 11.5% 11.5% 11.5%
UAL Contribution $23,401,000 $25,956,000 $28,454,000 $30,560,000
7.0%
Normal Cost 11.5% 11.5% 11.5% 11.5%
UAL Contribution $23,401,000 $25,704,000 $27,676,000 $28,957,000
9.0%
Normal Cost 11.5% 11.7% 11.9% 12.2%
UAL Contribution $23,401,000 $25,518,000 $27,188,000 $28,038,000
12.0%
Normal Cost 11.5% 11.7% 11.9% 12.2%
UAL Contribution $23,401,000 $25,268,000 $26,395,000 $26,362,000
Given the temporary suspension of the Risk Mitigation Policy during the period over which the discount rate
assumption is being phased down to 7.0 percent, the projections above were performed without reflection
of any possible impact of this Policy for Fiscal Year 2020-21.
The projected normal cost percentages do not reflect that the normal cost will decline over time as new
employees are hired into PEPRA or other lower cost benefit tiers. In addition, the projections above do not
reflect the recent changes to the amortization policy effective with the June 30, 2019 valuation but the impact on the results above is expected to be minimal.
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 23
Analysis of Discount Rate Sensitivity
Shown below are various valuation results as of June 30, 2017 assuming alternate discount rates. Results
are shown using the current discount rate of 7.25 percent as well as alternate discount rates of 6.0 percent,
7.0 percent, and 8.0 percent. The alternate rate of 7.0 percent was selected since the Board has adopted this rate as the final discount rate at the end of the three-year phase-in of the reduction in this assumption.
The rates of 6.0 percent and 8.0 percent were selected since they illustrate the impact of a 1 percent
increase or decrease to the 7.0 percent assumption. This analysis shows the potential plan impacts if the
PERF were to realize investment returns of 6.0 percent, 7.0 percent, or 8.0 percent over the long-term.
This type of analysis gives the reader a sense of the long-term risk to required contributions. For a measure
of funded status that is appropriate for assessing the sufficiency of plan assets to cover estimated
termination liabilities, please see “Hypothetical Termination Liability” at the end of this section.
Sensitivity Analysis
As of June 30, 2017 Plan’s
Normal Cost
Accrued
Liability Unfunded
Accrued Liability Funded
Status
7.25% (current discount rate) 18.122% $772,526,669 $260,720,776 66.3%
6.0% 23.680% $895,761,769 $383,955,876 57.1%
7.0% 18.874% $793,123,267 $281,317,374 64.5%
8.0% 15.216% $707,899,238 $196,093,345 72.3%
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 24
Volatility Ratios
The actuarial calculations supplied in this communication are based on various assumptions about 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 required employer contributions from one year
to the next. Therefore, employer contributions 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 experience more volatile employer contributions (as a percentage of payroll) 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. Shown below is the asset volatility ratio, a measure of the plan’s current 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 experience more volatile employer contributions (as a
percentage of payroll) 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. The asset volatility ratio, described above, will
tend to move closer to the liability volatility ratio as the plan matures. Since the liability volatility ratio is a
long-term measure, it is shown below at the current discount rate (7.25 percent) as well as the discount rate the Board has adopted to determine the contribution requirement in the June 30, 2018 actuarial
valuation (7.00 percent).
Contribution Volatility As of June 30, 2017
1. Market Value of Assets without Receivables $ 509,892,311
2. Payroll 78,476,098
3. Asset Volatility Ratio (AVR) [(1) / (2)] 6.5
4. Accrued Liability (7.25% discount rate) $ 772,526,669
5. Liability Volatility Ratio (LVR) [(4) / (2)] 9.8
6. Accrued Liability (7.00% discount rate) 793,123,267
7. Projected Liability Volatility Ratio [(6) / (2)] 10.1
CalPERS Actuarial Valuation - June 30, 2017 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 25
Hypothetical Termination Liability
The hypothetical termination liability is an estimate of the financial position of the plan had the contract with
CalPERS been terminated as of June 30, 2017. The plan liability on a termination basis is calculated
differently from the plan’s ongoing funding liability. For this hypothetical termination liability calculation, both compensation and service are frozen as of the valuation date and no future pay increases or service
accruals are assumed. This measure of funded status is not appropriate for assessing the need for future
employer contributions in the case of an ongoing plan, that is, for an employer that continues to provide
CalPERS retirement benefits to active employees.
A more conservative investment policy and asset allocation strategy was adopted by the CalPERS Board for
the Terminated Agency Pool. The Terminated Agency Pool has limited funding sources since no future
employer contributions will be made. Therefore, expected benefit payments are secured by risk-free assets and benefit security for members is increased while limiting the funding risk. However, this asset allocation
has a lower expected rate of return than the PERF and consequently, a lower discount rate assumption. The
lower discount rate for the Terminated Agency Pool results in higher liabilities for terminated plans.
The effective termination discount rate will depend on actual market rates of return for risk-free securities
on the date of termination. As market discount rates are variable the table below shows a range for the
hypothetical termination liability based on the lowest and highest interest rates observed during an approximate 2-year period centered around the valuation date.
Market
Value of
Assets (MVA)
Hypothetical
Termination
Liability1,2
@ 1.75%
Funded
Status
Unfunded
Termination
Liability
@ 1.75%
Hypothetical
Termination
Liability1,2
@ 3.00%
Funded
Status
Unfunded
Termination
Liability
@ 3.00%
$511,805,893 $1,421,359,655 36.0% $909,553,762 $1,268,451,484 40.3% $756,645,591
1 The hypothetical liabilities calculated above include a 5 percent contingency load in accordance with Board policy.
Other actuarial assumptions can be found in Appendix A. 2 The current discount rate assumption used for termination valuations is a weighted average of the 10-year and 30-year
U.S. Treasury yields where the weights are based on matching asset and liability durations as of the termination date.
The discount rates used in the table are based on 20-year Treasury bonds, rounded to the nearest quarter percentage point, which is a good proxy for most plans. The 20-year Treasury yield was 2.61 percent on June 30, 2017, and was
2.83 percent on January 31, 2018.
In order to terminate the plan, you must first contact our Retirement Services Contract Unit to initiate a Resolution of Intent to Terminate. The completed Resolution will allow the plan actuary to give you a
preliminary termination valuation with a more up-to-date estimate of the plan liabilities. CalPERS advises
you to consult with the plan actuary before beginning this process.
Plan’s Major Benefit Provisions
CalPERS Actuarial Valuation – June 30, 2017
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 for this plan. A description of principal standard and optional
plan provisions is in Appendix B of this report.
Contract Package
Active
Misc
Active
Misc
Active
Misc
Inactive
Misc
Receiving
Misc
Benefit Provision
Benefit Formula 2.7% @ 55 2.0% @ 60 2.0% @ 62 2.0% @ 55
Social Security Coverage No No No No Full/Modified Full Full Full Full
Employee Contribution Rate 8.00% 7.00% 6.25%
Final Average Compensation Period One Year One Year Three Year One Year
Sick Leave Credit No No No No
Non-Industrial Disability Standard Standard Standard Standard
Industrial Disability No No No No
Pre-Retirement Death Benefits
Optional Settlement 2 No No No No
1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1 Special No No No No
Alternate (firefighters) No No No No
Post-Retirement Death Benefits
Lump Sum $500 $500 $500 $500 $500
Survivor Allowance (PRSA) No No No No No
COLA 2% 2% 2% 2% 2%
Page 27
Appendices
• Appendix A – Actuarial Methods and Assumptions
• Appendix B – Principal Plan Provisions
• Appendix C – Participant Data
• Appendix D – Normal Cost by Benefit Group and PEPRA Member
Contribution Rates
• Appendix E – Glossary of Actuarial Terms
Appendix A
Actuarial Methods and Assumptions
• Actuarial Data
• Actuarial Methods
• Actuarial Assumptions
• Miscellaneous
CalPERS Actuarial Valuation – June 30, 2017 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 required employer contributions.
Actuarial Methods
Actuarial Cost Method
The actuarial cost method used 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 percentage of pay in each year from the member’s entry age to their assumed retirement
age on the valuation date. 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 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.
Amortization of Unfunded Actuarial Accrued Liability
The excess of the total actuarial accrued liability over the market value of plan assets is called the unfunded
actuarial accrued liability (UAL). Funding requirements are determined by adding the normal cost and an
amortization payment toward the unfunded liability. The unfunded liability is amortized as a “level percent of pay”. Commencing with the June 30, 2013 valuation, all new gains or losses are 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) are
amortized over a 20-year period with no ramp. Changes in actuarial assumptions or changes in actuarial
methodology are amortized 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 five years. A summary of the current policy is provided in the
table below:
Driver
Source
(Gain)/Loss
Assumption/Method
Change
Benefit
Change
Golden
Handshake Investment
Non-
investment
Amortization
Period 30 Years 30 Years 20 Years 20 Years 5 Years
Escalation Rate
- Active Plans - Inactive Plans
2.875% 0%
2.875% 0%
2.875% 0%
2.875% 0%
2.875% 0%
Ramp Up 5 5 5 0 0
Ramp Down 5 5 5 0 0
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-2
The 5-year ramp up means that the payments in the first four years of the amortization period are 20
percent, 40 percent, 60 percent and 80 percent of the “full” payment which begins in year five. The 5-year
ramp down means that the reverse is true in the final four years of the amortization period.
Exceptions for Inconsistencies:
An exception to the amortization rules above is used whenever their application results in inconsistencies. In
these cases, a “fresh start” approach is used. This means that the current unfunded actuarial liability is
projected and amortized over a set number of years. For example, a fresh start is needed in the following
situations:
• 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
• When there are excess assets, rather than an unfunded liability. In this situation, a 30-year fresh
start is used.
It should be noted that the actuary may determine that a fresh start is necessary under other
circumstances. In all cases of a fresh start, the period is set by the actuary at what is deemed appropriate;
however, the period will not be greater than 30 years.
Exceptions for Inactive Plans:
The following exceptions apply to plans classified as Inactive. These plans have no active members and no
expectation to have active members in the future.
• Amortization of the unfunded liability is on a “level dollar” basis rather than a “level percent of pay”
basis. For amortization layers, which utilize a ramp up and ramp down, the “ultimate” payment is constant.
• Actuarial judgment will be used to shorten amortization periods for Inactive plans with existing
periods that are deemed too long given the duration of the liability. The specific demographics of
the plan will be used to determine if shorter periods may be more appropriate.
Asset Valuation Method
It is the policy of the CalPERS Board of Administration to use professionally accepted amortization methods
to eliminate a surplus or an unfunded accrued liability in a manner that maintains benefit security for the
members of the System while minimizing substantial variations in required employer contributions. 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 employer
contribution for Fiscal Year 2015-16, CalPERS employs a policy that amortizes all gains and losses over a fixed 30-year period. The increase or decrease in the rate is then spread directly over a 5-year period. This
method is referred to as “direct rate smoothing.” CalPERS no longer uses an actuarial value of assets and
only uses the market value of assets. The 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.
PEPRA Normal Cost Rate Methodology
Per Government Code Section 7522.30(b) the “normal cost rate” shall mean the annual actuarially
determined normal cost for the plan of retirement benefits provided to the new member and shall be
established based on actuarial assumptions used to determine the liabilities and costs as part of the annual
actuarial valuation. The plan of retirement benefits shall include any elements that would impact the
actuarial determination of the normal cost, including, but not limited to, the retirement formula, eligibility
and vesting criteria, ancillary benefit provisions, and any automatic cost-of-living adjustments as determined by the public retirement system.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-3
Each non-pooled plan is stable with a sufficiently large demographic representation of active employees. It
is preferable to determine normal cost using a large active population ongoing so that this rate remains
relatively stable. The total PEPRA normal cost will be calculated using all active members within a non-
pooled plan until the number of members covered under the PEPRA formula meets either:
1. 50 percent of the active population, or
2. 25 percent of the active population and 100 or more PEPRA members
Once either of the conditions above is met for a non-pooled plan, the total PEPRA normal cost will be based
on the active PEPRA population in the plan.
Accordingly, the total normal cost will be funded equally between employer and employee based on the
demographics of the employees of that employer.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
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Actuarial Assumptions
In 2017, CalPERS completed its most recent asset liability management study incorporating actuarial
assumptions and strategic asset allocation. In December 2017, the CalPERS Board of Administration
adopted relatively modest changes to the asset allocation that reduced the expected volatility of returns.
The adopted asset allocation was expected to have a long-term blended return that continued to support a
discount rate assumption of 7.00 percent. The Board also approved several changes to the demographic
assumptions that more closely aligned with actual experience. These new actuarial assumptions were first used in this, the June 30, 2017 valuation to set the Fiscal Year 2019-20 contribution for public agency
employers.
On December 21, 2016, the CalPERS Board of Administration lowered the discount rate from 7.50 percent to
7.00 percent using a three-year phase-in beginning with the June 30, 2016 actuarial valuations. The
minimum employer contributions for Fiscal Year 2019-20 determined in this valuation were calculated using
a discount rate of 7.25 percent. The projected employer contributions on Page 5 are calculated assuming
that the discount rate will be lowered to 7.00 percent next year as adopted by the Board. The decision to reduce the discount rate was primarily based on reduced capital market assumptions provided by external
investment consultants and CalPERS investment staff. The specific decision adopted by the Board reflected
recommendations from CalPERS staff and additional input from employer and employee stakeholder groups.
Based on the investment allocation adopted by the Board and capital market assumptions, the reduced
discount rate schedule provides a more realistic assumption for the long-term investment return of the fund.
Notwithstanding the Board’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the expected investment return of CalPERS assets or changes to the investment allocation may result in a
change to this discount rate schedule.
For more details and additional rationale for the selection of the actuarial assumptions, please refer to the
CalPERS Experience Study and Review of Actuarial Assumptions report from December 2017 that can be
found on the CalPERS website under: “Forms and Publications”. Click on “View All” and search for
Experience Study.
All actuarial assumptions (except the discount rates used for the hypothetical termination liability) represent
an estimate of future experience rather than observations of the estimates inherent in market data.
Economic Assumptions
Discount Rate
The prescribed discount rate assumption adopted by the Board on December 21, 2016 is 7.25 percent compounded annually (net of investment and administrative expenses) as of 6/30/2017.
The Board also prescribed that the assumed discount rate will reduce to 7.0 percent compounded
annually (net of expenses) as of 6/30/2018. This change to the discount rate assumption is not
reflected in the determination of required contributions determined in this report for Fiscal Year
2019-20.
Termination Liability Discount Rate
The current discount rate assumption used for termination valuations is a weighted average of the
10-year and 30-year U.S. Treasury yields where the weights are based on matching asset and
liability durations as of the termination date.
The hypothetical termination liabilities in this report are calculated using an observed range of
market interest rates. This range is based on the lowest and highest 20-year Treasury bond observed during an approximate 2-year period centered around the valuation date. The 20-year
Treasury bond has a similar duration to most plan liabilities and serves as a good proxy for the
termination discount rate. The 20-year Treasury yield was 2.61 percent on June 30, 2017.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
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Salary Growth
Annual increases vary by category, entry age, and duration of service. A sample of assumed
increases are shown below. Wage inflation assumption in the valuation year (2.875% for 2017) is
added to these factors for total salary growth.
Public Agency Miscellaneous
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.0850 0.0775 0.0650
1 0.0690 0.0635 0.0525
2 0.0560 0.0510 0.0410
3 0.0470 0.0425 0.0335
4 0.0400 0.0355 0.0270
5 0.0340 0.0295 0.0215
10 0.0160 0.0135 0.0090
15 0.0120 0.0100 0.0060
20 0.0090 0.0075 0.0045
25 0.0080 0.0065 0.0040
30 0.0080 0.0065 0.0040
Public Agency Fire
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1700 0.1700 0.1700
1 0.1100 0.1100 0.1100
2 0.0700 0.0700 0.0700
3 0.0580 0.0580 0.0580
4 0.0473 0.0473 0.0473
5 0.0372 0.0372 0.0372
10 0.0165 0.0165 0.0165
15 0.0144 0.0144 0.0144
20 0.0126 0.0126 0.0126
25 0.0111 0.0111 0.0111
30 0.0097 0.0097 0.0097
Public Agency Police
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1027 0.1027 0.1027
1 0.0803 0.0803 0.0803
2 0.0628 0.0628 0.0628
3 0.0491 0.0491 0.0491
4 0.0384 0.0384 0.0384
5 0.0300 0.0300 0.0300
10 0.0145 0.0145 0.0145
15 0.0150 0.0150 0.0150
20 0.0155 0.0155 0.0155
25 0.0160 0.0160 0.0160
30 0.0165 0.0165 0.0165
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
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Salary Growth (continued)
Public Agency County Peace Officers
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.1320 0.1320 0.1320
1 0.0960 0.0960 0.0960
2 0.0657 0.0657 0.0657
3 0.0525 0.0525 0.0525
4 0.0419 0.0419 0.0419
5 0.0335 0.0335 0.0335
10 0.0170 0.0170 0.0170
15 0.0150 0.0150 0.0150
20 0.0150 0.0150 0.0150
25 0.0175 0.0175 0.0175
30 0.0200 0.0200 0.0200
Schools
Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40)
0 0.0428 0.0419 0.0380
1 0.0428 0.0419 0.0380
2 0.0428 0.0419 0.0380
3 0.0354 0.0332 0.0280
4 0.0305 0.0279 0.0224
5 0.0262 0.0234 0.0180
10 0.0171 0.0154 0.0112
15 0.0152 0.0134 0.0098
20 0.0135 0.0117 0.0086
25 0.0120 0.0103 0.0076
30 0.0087 0.0071 0.0048
• 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
2.875 percent compounded annually (used in projecting the payroll over which the unfunded
liability is amortized). This assumption is used for all plans with active members. For the June 30,
2018 valuation the payroll growth assumption will be 2.75 percent.
Inflation
2.625 percent compounded annually. For the June 30, 2018 valuation the inflation assumption will
be 2.50 percent.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.625 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 adopted the provision of
providing Credit for Unused Sick Leave.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-7
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 5 percent contingency load. This load is for unforeseen negative
experience.
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 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 0.00022 0.00007 0.00004
25 0.00029 0.00011 0.00006
30 0.00038 0.00015 0.00007
35 0.00049 0.00027 0.00009
40 0.00064 0.00037 0.00010
45 0.00080 0.00054 0.00012 50 0.00116 0.00079 0.00013
55 0.00172 0.00120 0.00015
60 0.00255 0.00166 0.00016
65 0.00363 0.00233 0.00018
70 0.00623 0.00388 0.00019
75 0.01057 0.00623 0.00021
80 0.01659 0.00939 0.00022
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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
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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 0.00372 0.00346 0.01183 0.01083 0.00372 0.00346
55 0.00437 0.00410 0.01613 0.01178 0.00437 0.00410
60 0.00671 0.00476 0.02166 0.01404 0.00671 0.00476
65 0.00928 0.00637 0.02733 0.01757 0.01113 0.00765
70 0.01339 0.00926 0.03358 0.02183 0.01607 0.01111 75 0.02316 0.01635 0.04277 0.02969 0.02779 0.01962
80 0.03977 0.03007 0.06272 0.04641 0.04773 0.03609
85 0.07122 0.05418 0.09793 0.07847 0.08547 0.06501
90 0.13044 0.10089 0.14616 0.13220 0.14348 0.11098
95 0.21658 0.17698 0.21658 0.21015 0.21658 0.17698
100 0.32222 0.28151 0.32222 0.32226 0.32222 0.28151
105 0.46691 0.43491 0.46691 0.43491 0.46691 0.43491 110 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000
The post-retirement mortality rates above include 15 years of projected on-going mortality
improvement using 90 percent of Scale MP 2016 published by the Society of Actuaries.
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 70%
Local Police 85% Local Fire 90%
Other Local Safety 70%
School Police 85%
Local County Peace Officers 75%
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 retire at age 59 for Miscellaneous members and age 54 for safety
members.
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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
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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
Public Agency Safety
Duration of Service Fire Police County Peace Officer
0 0.1298 0.1013 0.1188
1 0.0674 0.0636 0.0856
2 0.0320 0.0271 0.0617
3 0.0237 0.0258 0.0445
4 0.0087 0.0245 0.0321
5 0.0052 0.0086 0.0121
10 0.0005 0.0053 0.0053
15 0.0004 0.0027 0.0025
20 0.0003 0.0017 0.0012
25 0.0002 0.0012 0.0005
30 0.0002 0.0009 0.0003
35 0.0001 0.0009 0.0002
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 0.2107 0.2107 0.1827 0.1546 0.1375 0.1203
1 0.1807 0.1807 0.1526 0.1246 0.1105 0.0963
2 0.1526 0.1526 0.1259 0.0992 0.0878 0.0765
3 0.1266 0.1266 0.1023 0.0780 0.0691 0.0603
4 0.1026 0.1026 0.0815 0.0605 0.0537 0.0469
5 0.0808 0.0808 0.0634 0.0461 0.0409 0.0358
10 0.0202 0.0202 0.0157 0.0112 0.0087 0.0063
15 0.0107 0.0107 0.0077 0.0048 0.0034 0.0021
20 0.0056 0.0056 0.0037 0.0017 0.0016 0.0016
25 0.0026 0.0026 0.0018 0.0009 0.0012 0.0015
30 0.0013 0.0013 0.0011 0.0009 0.0012 0.0015
35 0.0008 0.0008 0.0009 0.0009 0.0012 0.0015
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
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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 0.0422 0.0422 0.0393 0.0364 0.0344
10 0.0278 0.0278 0.0271 0.0263 0.0215
15 0.0192 0.0192 0.0174 0.0156 0.0120
20 0.0139 0.0139 0.0109 0.0079 0.0047
25 0.0083 0.0083 0.0048 0.0014 0.0007
30 0.0015 0.0015 0.0007 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
Public Agency Safety
Duration of
Service Fire Police
County Peace
Officer
5 0.0094 0.0163 0.0187
10 0.0064 0.0126 0.0134
15 0.0048 0.0082 0.0092
20 0.0038 0.0065 0.0064
25 0.0026 0.0058 0.0042
30 0.0014 0.0056 0.0022
35 0.0000 0.0000 0.0000
• 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 0.0405 0.0405 0.0346 0.0288 0.0264
10 0.0324 0.0324 0.0280 0.0235 0.0211
15 0.0202 0.0202 0.0179 0.0155 0.0126
20 0.0144 0.0144 0.0114 0.0083 0.0042
25 0.0091 0.0091 0.0046 0.0000 0.0000
30 0.0015 0.0015 0.0007 0.0000 0.0000
35 0.0000 0.0000 0.0000 0.0000 0.0000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
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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 0.0002 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
25 0.0002 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
30 0.0002 0.0002 0.0001 0.0002 0.0001 0.0001 0.0002
35 0.0004 0.0007 0.0001 0.0003 0.0004 0.0005 0.0004
40 0.0010 0.0014 0.0001 0.0004 0.0007 0.0012 0.0008
45 0.0015 0.0019 0.0002 0.0005 0.0013 0.0020 0.0017
50 0.0016 0.0020 0.0005 0.0008 0.0018 0.0026 0.0022
55 0.0016 0.0015 0.0007 0.0013 0.0010 0.0025 0.0018
60 0.0015 0.0011 0.0007 0.0020 0.0006 0.0022 0.0011
• 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.
Industrial (Job-Related) Disability Rates vary by age and category.
Age Fire Police County Peace Officer
20 0.0001 0.0000 0.0004
25 0.0002 0.0017 0.0013
30 0.0006 0.0048 0.0025
35 0.0012 0.0079 0.0037
40 0.0023 0.0110 0.0051
45 0.0040 0.0141 0.0067
50 0.0208 0.0185 0.0092
55 0.0307 0.0479 0.0151
60 0.0438 0.0602 0.0174
• 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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
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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 0.020 0.020 0.020 0.020 0.020 0.150
51 0.006 0.019 0.027 0.031 0.035 0.038
52 0.011 0.024 0.031 0.034 0.037 0.040
53 0.010 0.015 0.021 0.027 0.033 0.040
54 0.025 0.025 0.029 0.035 0.041 0.048
55 0.019 0.026 0.033 0.092 0.136 0.146
56 0.030 0.034 0.038 0.060 0.093 0.127
57 0.030 0.046 0.061 0.076 0.090 0.104
58 0.040 0.044 0.059 0.080 0.101 0.122
59 0.024 0.044 0.063 0.083 0.103 0.122
60 0.070 0.074 0.089 0.113 0.137 0.161
61 0.080 0.086 0.093 0.118 0.156 0.195
62 0.100 0.117 0.133 0.190 0.273 0.357
63 0.140 0.157 0.173 0.208 0.255 0.301
64 0.140 0.153 0.165 0.196 0.239 0.283
65 0.140 0.178 0.215 0.264 0.321 0.377
66 0.140 0.178 0.215 0.264 0.321 0.377
67 0.140 0.178 0.215 0.264 0.321 0.377
68 0.112 0.142 0.172 0.211 0.257 0.302
69 0.112 0.142 0.172 0.211 0.257 0.302
70 0.140 0.178 0.215 0.264 0.321 0.377
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-13
Service Retirement
Public Agency Miscellaneous 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.008 0.013 0.018 0.021 0.022 0.033
51 0.009 0.016 0.020 0.023 0.026 0.036
52 0.015 0.018 0.020 0.021 0.025 0.030
53 0.016 0.020 0.024 0.028 0.031 0.035
54 0.018 0.022 0.026 0.030 0.034 0.038
55 0.040 0.040 0.056 0.093 0.109 0.154
56 0.034 0.050 0.066 0.092 0.107 0.138
57 0.042 0.048 0.058 0.082 0.096 0.127
58 0.046 0.054 0.062 0.090 0.106 0.131
59 0.045 0.055 0.066 0.097 0.115 0.144
60 0.058 0.075 0.093 0.126 0.143 0.169
61 0.065 0.088 0.111 0.146 0.163 0.189
62 0.136 0.118 0.148 0.190 0.213 0.247
63 0.130 0.133 0.174 0.212 0.249 0.285
64 0.113 0.129 0.165 0.196 0.223 0.249
65 0.145 0.173 0.201 0.233 0.266 0.289
66 0.170 0.199 0.229 0.258 0.284 0.306
67 0.250 0.204 0.233 0.250 0.257 0.287
68 0.227 0.175 0.193 0.215 0.240 0.262
69 0.200 0.180 0.180 0.198 0.228 0.246
70 0.150 0.171 0.192 0.239 0.304 0.330
Public Agency Miscellaneous 2.5% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.008 0.014 0.020 0.026 0.033 0.050
51 0.008 0.015 0.023 0.030 0.037 0.059
52 0.009 0.016 0.023 0.030 0.037 0.061
53 0.014 0.021 0.028 0.035 0.042 0.063
54 0.014 0.022 0.030 0.039 0.047 0.068
55 0.020 0.038 0.055 0.073 0.122 0.192
56 0.025 0.047 0.069 0.091 0.136 0.196
57 0.030 0.048 0.065 0.083 0.123 0.178
58 0.035 0.054 0.073 0.093 0.112 0.153
59 0.035 0.054 0.073 0.092 0.131 0.183
60 0.044 0.072 0.101 0.130 0.158 0.197
61 0.050 0.078 0.105 0.133 0.161 0.223
62 0.055 0.093 0.130 0.168 0.205 0.268
63 0.090 0.124 0.158 0.192 0.226 0.279
64 0.080 0.112 0.144 0.175 0.207 0.268
65 0.120 0.156 0.193 0.229 0.265 0.333
66 0.132 0.172 0.212 0.252 0.292 0.366
67 0.132 0.172 0.212 0.252 0.292 0.366
68 0.120 0.156 0.193 0.229 0.265 0.333
69 0.120 0.156 0.193 0.229 0.265 0.333
70 0.120 0.156 0.193 0.229 0.265 0.333
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
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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 0.003 0.010 0.016 0.034 0.033 0.045
51 0.009 0.016 0.023 0.042 0.038 0.047
52 0.015 0.019 0.024 0.040 0.036 0.046
53 0.012 0.020 0.028 0.047 0.046 0.060
54 0.020 0.027 0.035 0.054 0.056 0.073
55 0.033 0.055 0.078 0.113 0.156 0.234
56 0.039 0.067 0.095 0.135 0.169 0.227
57 0.050 0.067 0.084 0.113 0.142 0.198
58 0.043 0.066 0.089 0.124 0.151 0.201
59 0.050 0.070 0.090 0.122 0.158 0.224
60 0.060 0.086 0.112 0.150 0.182 0.238
61 0.071 0.094 0.117 0.153 0.184 0.241
62 0.091 0.122 0.152 0.194 0.226 0.279
63 0.143 0.161 0.179 0.209 0.222 0.250
64 0.116 0.147 0.178 0.221 0.254 0.308
65 0.140 0.174 0.208 0.254 0.306 0.389
66 0.170 0.209 0.247 0.298 0.310 0.324
67 0.170 0.199 0.228 0.269 0.296 0.342
68 0.150 0.181 0.212 0.255 0.287 0.339
69 0.150 0.181 0.212 0.255 0.287 0.339
70 0.150 0.181 0.212 0.243 0.291 0.350
Public Agency Miscellaneous 3% @ 60
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.013 0.019 0.026 0.042 0.038 0.064
51 0.035 0.037 0.039 0.052 0.047 0.062
52 0.023 0.030 0.038 0.055 0.051 0.056
53 0.025 0.032 0.040 0.057 0.056 0.066
54 0.035 0.042 0.050 0.067 0.066 0.076
55 0.040 0.052 0.064 0.085 0.095 0.120
56 0.043 0.056 0.070 0.094 0.102 0.150
57 0.045 0.060 0.074 0.099 0.109 0.131
58 0.053 0.056 0.059 0.099 0.126 0.185
59 0.050 0.068 0.085 0.113 0.144 0.202
60 0.089 0.106 0.123 0.180 0.226 0.316
61 0.100 0.117 0.133 0.212 0.230 0.298
62 0.130 0.155 0.180 0.248 0.282 0.335
63 0.120 0.163 0.206 0.270 0.268 0.352
64 0.150 0.150 0.150 0.215 0.277 0.300
65 0.200 0.242 0.283 0.330 0.300 0.342
66 0.220 0.264 0.308 0.352 0.379 0.394
67 0.250 0.279 0.309 0.338 0.371 0.406
68 0.170 0.196 0.223 0.249 0.290 0.340
69 0.220 0.261 0.302 0.344 0.378 0.408
70 0.220 0.255 0.291 0.326 0.358 0.388
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-15
Service Retirement
Public Agency Miscellaneous 2% @ 62
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.000 0.000 0.000 0.000 0.000 0.000
51 0.000 0.000 0.000 0.000 0.000 0.000
52 0.005 0.008 0.012 0.015 0.019 0.031
53 0.007 0.011 0.014 0.018 0.021 0.032
54 0.007 0.011 0.015 0.019 0.023 0.034
55 0.010 0.019 0.028 0.036 0.061 0.096
56 0.014 0.026 0.038 0.050 0.075 0.108
57 0.018 0.029 0.039 0.050 0.074 0.107
58 0.023 0.035 0.048 0.060 0.073 0.099
59 0.025 0.038 0.051 0.065 0.092 0.128
60 0.031 0.051 0.071 0.091 0.111 0.138
61 0.038 0.058 0.079 0.100 0.121 0.167
62 0.044 0.074 0.104 0.134 0.164 0.214
63 0.077 0.105 0.134 0.163 0.192 0.237
64 0.072 0.101 0.129 0.158 0.187 0.242
65 0.108 0.141 0.173 0.206 0.239 0.300
66 0.132 0.172 0.212 0.252 0.292 0.366
67 0.132 0.172 0.212 0.252 0.292 0.366
68 0.120 0.156 0.193 0.229 0.265 0.333
69 0.120 0.156 0.193 0.229 0.265 0.333
70 0.120 0.156 0.193 0.229 0.265 0.333
Service Retirement
Public Agency Fire ½ @ 55 and 2% @ 55
Age Rate
Age Rate
50 0.0159 56 0.1108
51 0.0000 57 0.0000
52 0.0344 58 0.0950
53 0.0199 59 0.0441
54 0.0413 60 1.00000
55 0.0751
Public Agency Police ½ @ 55 and 2% @ 55
Age Rate
Age Rate
50 0.0255 56 0.0692
51 0.0000 57 0.0511
52 0.0164 58 0.0724
53 0.0272 59 0.0704
54 0.0095 60 0.3000
55 0.1667
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-16
Service Retirement
Public Agency Police 2% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.050 0.050 0.050 0.050 0.050 0.100
51 0.040 0.040 0.040 0.040 0.058 0.094
52 0.040 0.040 0.040 0.040 0.061 0.087
53 0.040 0.040 0.040 0.040 0.082 0.123
54 0.040 0.040 0.040 0.046 0.098 0.158
55 0.072 0.072 0.072 0.096 0.141 0.255
56 0.066 0.066 0.066 0.088 0.129 0.228
57 0.060 0.060 0.060 0.080 0.118 0.213
58 0.080 0.080 0.080 0.088 0.138 0.228
59 0.080 0.080 0.080 0.092 0.140 0.228
60 0.150 0.150 0.150 0.150 0.150 0.228
61 0.144 0.144 0.144 0.144 0.144 0.170
62 0.150 0.150 0.150 0.150 0.150 0.213
63 0.150 0.150 0.150 0.150 0.150 0.213
64 0.150 0.150 0.150 0.150 0.150 0.319
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, 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 0.009 0.009 0.009 0.009 0.013 0.020
51 0.013 0.013 0.013 0.013 0.020 0.029
52 0.018 0.018 0.018 0.018 0.028 0.042
53 0.052 0.052 0.052 0.052 0.079 0.119
54 0.067 0.067 0.067 0.067 0.103 0.154
55 0.089 0.089 0.089 0.089 0.136 0.204
56 0.083 0.083 0.083 0.083 0.127 0.190
57 0.082 0.082 0.082 0.082 0.126 0.189
58 0.088 0.088 0.088 0.088 0.136 0.204
59 0.074 0.074 0.074 0.074 0.113 0.170
60 0.100 0.100 0.100 0.100 0.154 0.230
61 0.072 0.072 0.072 0.072 0.110 0.165
62 0.099 0.099 0.099 0.099 0.152 0.228
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
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-17
Service Retirement
Public Agency Police 3% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.035 0.035 0.035 0.035 0.070 0.090
51 0.028 0.028 0.028 0.029 0.065 0.101
52 0.032 0.032 0.032 0.039 0.066 0.109
53 0.028 0.028 0.028 0.043 0.075 0.132
54 0.038 0.038 0.038 0.074 0.118 0.333
55 0.070 0.070 0.070 0.120 0.175 0.340
56 0.060 0.060 0.060 0.110 0.165 0.330
57 0.060 0.060 0.060 0.110 0.165 0.320
58 0.080 0.080 0.080 0.100 0.185 0.350
59 0.090 0.090 0.095 0.130 0.185 0.350
60 0.150 0.150 0.150 0.150 0.185 0.350
61 0.120 0.120 0.120 0.120 0.160 0.350
62 0.150 0.150 0.150 0.150 0.200 0.350
63 0.150 0.150 0.150 0.150 0.200 0.400
64 0.150 0.150 0.150 0.150 0.175 0.350
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, 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 0.001 0.001 0.001 0.006 0.016 0.069
51 0.002 0.002 0.002 0.006 0.018 0.071
52 0.012 0.012 0.012 0.021 0.040 0.098
53 0.032 0.032 0.032 0.049 0.085 0.149
54 0.057 0.057 0.057 0.087 0.144 0.217
55 0.073 0.073 0.073 0.109 0.179 0.259
56 0.064 0.064 0.064 0.097 0.161 0.238
57 0.063 0.063 0.063 0.095 0.157 0.233
58 0.065 0.065 0.065 0.099 0.163 0.241
59 0.088 0.088 0.088 0.131 0.213 0.299
60 0.105 0.105 0.105 0.155 0.251 0.344
61 0.118 0.118 0.118 0.175 0.282 0.380
62 0.087 0.087 0.087 0.128 0.210 0.295
63 0.067 0.067 0.067 0.100 0.165 0.243
64 0.067 0.067 0.067 0.100 0.165 0.243
65 1.000 1.000 1.000 1.000 1.000 1.000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-18
Service Retirement
Public Agency Police 3% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.050 0.050 0.050 0.100 0.155 0.400
51 0.040 0.040 0.040 0.090 0.140 0.380
52 0.040 0.040 0.040 0.070 0.115 0.350
53 0.040 0.040 0.040 0.080 0.135 0.350
54 0.040 0.040 0.040 0.090 0.145 0.350
55 0.070 0.070 0.070 0.120 0.175 0.340
56 0.060 0.060 0.060 0.110 0.165 0.330
57 0.060 0.060 0.060 0.110 0.165 0.320
58 0.080 0.080 0.080 0.100 0.185 0.350
59 0.090 0.090 0.095 0.130 0.185 0.350
60 0.150 0.150 0.150 0.150 0.185 0.350
61 0.120 0.120 0.120 0.120 0.160 0.350
62 0.150 0.150 0.150 0.150 0.200 0.350
63 0.150 0.150 0.150 0.150 0.200 0.400
64 0.150 0.150 0.150 0.150 0.175 0.350
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, Local Prosecutors, Local Sheriff, School Police,
and Other Safety.
Service Retirement
Public Agency Fire 3% @ 50
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.020 0.020 0.020 0.040 0.130 0.192
51 0.008 0.008 0.008 0.023 0.107 0.164
52 0.023 0.023 0.023 0.043 0.136 0.198
53 0.023 0.023 0.023 0.043 0.135 0.198
54 0.027 0.027 0.027 0.048 0.143 0.207
55 0.043 0.043 0.043 0.070 0.174 0.244
56 0.053 0.053 0.053 0.085 0.196 0.269
57 0.054 0.054 0.054 0.086 0.197 0.271
58 0.052 0.052 0.052 0.084 0.193 0.268
59 0.075 0.075 0.075 0.116 0.239 0.321
60 0.065 0.065 0.065 0.102 0.219 0.298
61 0.076 0.076 0.076 0.117 0.241 0.324
62 0.068 0.068 0.068 0.106 0.224 0.304
63 0.027 0.027 0.027 0.049 0.143 0.208
64 0.094 0.094 0.094 0.143 0.277 0.366
65 1.000 1.000 1.000 1.000 1.000 1.000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-19
Service Retirement
Public Agency Police 2% @ 57
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.040 0.040 0.040 0.040 0.040 0.080
51 0.028 0.028 0.028 0.028 0.040 0.066
52 0.028 0.028 0.028 0.028 0.043 0.061
53 0.028 0.028 0.028 0.028 0.057 0.086
54 0.028 0.028 0.028 0.032 0.069 0.110
55 0.050 0.050 0.050 0.067 0.099 0.179
56 0.046 0.046 0.046 0.062 0.090 0.160
57 0.054 0.054 0.054 0.072 0.106 0.191
58 0.060 0.060 0.060 0.066 0.103 0.171
59 0.060 0.060 0.060 0.069 0.105 0.171
60 0.113 0.113 0.113 0.113 0.113 0.171
61 0.108 0.108 0.108 0.108 0.108 0.128
62 0.113 0.113 0.113 0.113 0.113 0.159
63 0.113 0.113 0.113 0.113 0.113 0.159
64 0.113 0.113 0.113 0.113 0.113 0.239
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, 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 0.005 0.005 0.005 0.005 0.008 0.012
51 0.006 0.006 0.006 0.006 0.009 0.013
52 0.012 0.012 0.012 0.012 0.019 0.028
53 0.033 0.033 0.033 0.033 0.050 0.075
54 0.045 0.045 0.045 0.045 0.069 0.103
55 0.061 0.061 0.061 0.061 0.094 0.140
56 0.055 0.055 0.055 0.055 0.084 0.126
57 0.081 0.081 0.081 0.081 0.125 0.187
58 0.059 0.059 0.059 0.059 0.091 0.137
59 0.055 0.055 0.055 0.055 0.084 0.126
60 0.085 0.085 0.085 0.085 0.131 0.196
61 0.085 0.085 0.085 0.085 0.131 0.196
62 0.085 0.085 0.085 0.085 0.131 0.196
63 0.085 0.085 0.085 0.085 0.131 0.196
64 0.085 0.085 0.085 0.085 0.131 0.196
65 1.000 1.000 1.000 1.000 1.000 1.000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-20
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 0.050 0.050 0.050 0.050 0.050 0.100
51 0.038 0.038 0.038 0.038 0.055 0.089
52 0.038 0.038 0.038 0.038 0.058 0.082
53 0.036 0.036 0.036 0.036 0.073 0.111
54 0.036 0.036 0.036 0.041 0.088 0.142
55 0.061 0.061 0.061 0.082 0.120 0.217
56 0.056 0.056 0.056 0.075 0.110 0.194
57 0.060 0.060 0.060 0.080 0.118 0.213
58 0.072 0.072 0.072 0.079 0.124 0.205
59 0.072 0.072 0.072 0.083 0.126 0.205
60 0.135 0.135 0.135 0.135 0.135 0.205
61 0.130 0.130 0.130 0.130 0.130 0.153
62 0.135 0.135 0.135 0.135 0.135 0.191
63 0.135 0.135 0.135 0.135 0.135 0.191
64 0.135 0.135 0.135 0.135 0.135 0.287
65 1.000 1.000 1.000 1.000 1.000 1.000
• These rates also apply to County Peace officers, 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 0.007 0.007 0.007 0.007 0.010 0.015
51 0.008 0.008 0.008 0.008 0.012 0.018
52 0.016 0.016 0.016 0.016 0.025 0.038
53 0.042 0.042 0.042 0.042 0.064 0.096
54 0.057 0.057 0.057 0.057 0.088 0.132
55 0.074 0.074 0.074 0.074 0.114 0.170
56 0.066 0.066 0.066 0.066 0.102 0.153
57 0.090 0.090 0.090 0.090 0.139 0.208
58 0.071 0.071 0.071 0.071 0.110 0.164
59 0.066 0.066 0.066 0.066 0.101 0.151
60 0.102 0.102 0.102 0.102 0.157 0.235
61 0.102 0.102 0.102 0.102 0.157 0.236
62 0.102 0.102 0.102 0.102 0.157 0.236
63 0.102 0.102 0.102 0.102 0.157 0.236
64 0.102 0.102 0.102 0.102 0.157 0.236
65 1.000 1.000 1.000 1.000 1.000 1.000
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-21
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 0.0500 0.0500 0.0500 0.0500 0.0500 0.1000
51 0.0400 0.0400 0.0400 0.0400 0.0575 0.0942
52 0.0380 0.0380 0.0380 0.0380 0.0580 0.0825
53 0.0380 0.0380 0.0380 0.0380 0.0774 0.1169
54 0.0380 0.0380 0.0380 0.0437 0.0931 0.1497
55 0.0684 0.0684 0.0684 0.0912 0.1340 0.2423
56 0.0627 0.0627 0.0627 0.0836 0.1228 0.2168
57 0.0600 0.0600 0.0600 0.0800 0.1175 0.2125
58 0.0800 0.0800 0.0800 0.0880 0.1375 0.2275
59 0.0800 0.0800 0.0800 0.0920 0.1400 0.2275
60 0.1500 0.1500 0.1500 0.1500 0.1500 0.2275
61 0.1440 0.1440 0.1440 0.1440 0.1440 0.1700
62 0.1500 0.1500 0.1500 0.1500 0.1500 0.2125
63 0.1500 0.1500 0.1500 0.1500 0.1500 0.2125
64 0.1500 0.1500 0.1500 0.1500 0.1500 0.3188
65 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
• These rates also apply to County Peace officers, 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 0.1900
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
CalPERS Actuarial Valuation – June 30, 2017 Appendix A Actuarial Methods and Assumptions
A-22
Service Retirement
Schools 2% @ 55
Duration of Service
Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
50 0.004 0.007 0.011 0.012 0.013 0.015
51 0.004 0.008 0.011 0.014 0.016 0.017
52 0.005 0.010 0.014 0.016 0.018 0.021
53 0.006 0.012 0.016 0.020 0.022 0.025
54 0.008 0.017 0.023 0.027 0.031 0.034
55 0.021 0.042 0.058 0.069 0.077 0.086
56 0.019 0.037 0.053 0.062 0.069 0.078
57 0.019 0.038 0.054 0.064 0.071 0.079
58 0.022 0.045 0.062 0.074 0.082 0.092
59 0.025 0.049 0.069 0.082 0.090 0.101
60 0.033 0.066 0.092 0.109 0.121 0.135
61 0.037 0.072 0.101 0.119 0.133 0.149
62 0.066 0.131 0.184 0.218 0.242 0.271
63 0.064 0.126 0.178 0.209 0.233 0.261
64 0.059 0.117 0.163 0.193 0.215 0.240
65 0.080 0.158 0.221 0.261 0.291 0.326
66 0.081 0.160 0.224 0.265 0.296 0.330
67 0.070 0.139 0.194 0.229 0.255 0.286
68 0.063 0.124 0.173 0.205 0.228 0.255
69 0.066 0.130 0.183 0.216 0.241 0.270
70 0.071 0.140 0.196 0.231 0.258 0.289
Miscellaneous
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.
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. The compensation limit
for classic members for the 2017 calendar year is $270,000.
Appendix B
Principal Plan Provisions
CalPERS Actuarial Valuation – June 30, 2017 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 Public Employees’ Retirement Law. The law itself governs in all situations.
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
percent 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%
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%
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Miscellaneous Plan of the City of Palo Alto
Principal Plan Provisions
B-2
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 had the option of providing a final compensation equal to the highest 12 consecutive months
for classic plans only. 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 Social Security this cap is $118,775 for 2017 and for those employees that do not participate
in Social Security the cap for 2017 is $142,530. 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
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Miscellaneous Plan of the City of Palo Alto
Principal Plan Provisions
B-3
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 and PEPRA safety service retirement benefit is not capped. The classic 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 PEPRA safety 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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Miscellaneous Plan of the City of Palo Alto
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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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Miscellaneous Plan of the City of Palo Alto
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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.
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
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 child(ren) until they attain age 18; or, if no eligible child(ren), 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.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Miscellaneous Plan of the City of Palo Alto
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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.
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 child(ren) 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
dependent child(ren), the benefit will be discontinued upon death or attainment of age 18, unless the child(ren) is
disabled. The total amount paid will be at least equal to the basic death benefit.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Miscellaneous Plan of the City of Palo Alto
Principal Plan Provisions
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Optional Settlement 2 Death Benefit
This is an optional benefit.
Eligibility
An employee’s eligible survivor may receive the Optional Settlement 2 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 2
Death benefit.
Benefit
The Optional Settlement 2 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 100 percent to
continue to the eligible survivor after the member’s death. The allowance is payable as long as the surviving spouse
lives, at which time it is continued to any unmarried child(ren) 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 child(ren) 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
have attained age 50. The allowance is payable to the surviving spouse until death at which time the allowance is
continued to any unmarried child(ren) 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 child(ren) (eligible means unmarried
child(ren) 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
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Miscellaneous Plan of the City of Palo Alto
Principal Plan Provisions
B-8
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
child(ren) 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 2. (A retiree
who elects Optional Settlement 2 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 child(ren)
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
Retirement and survivor allowances are adjusted each year in May for cost of living, beginning the second calendar year after the year of retirement. The standard cost-of-living adjustment (COLA) is 2 percent. Annual adjustments
are calculated by first determining the lesser of 1) 2 percent compounded from the end of the year of retirement or
2) actual rate of inflation. The resulting increase is divided by the total increase provided in prior years. For any given
year, the COLA adjustment may be less than 2 percent (when the rate of inflation is low), may be greater than the
rate of inflation (when the rate of inflation is low after several years of high inflation) or may even be greater than 2
percent (when inflation is high after several years of low inflation).
Improved Benefit
Employers have the option of providing a COLA of 3 percent, 4 percent, or 5 percent, determined in the same
manner as described above for the standard 2 percent COLA. An improved COLA is not available with the 1.5% at 65
formula.
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 retirement adjusted for inflation since retirement. The PPPA benefit will be coordinated with other cost-of-living
adjustments provided under the plan.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Miscellaneous Plan of the City of Palo Alto
Principal Plan Provisions
B-9
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
Miscellaneous, 1.5% at 65 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 classic members (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. These contributions are paid in addition to the member contribution.
Auxiliary organizations of the CSU 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 with 6 percent interest compounded annually.
CalPERS Actuarial Valuation – June 30, 2017 Appendix B Miscellaneous Plan of the City of Palo Alto
Principal Plan Provisions
B-10
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 is required to provide this benefit if the members are 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 may only 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.
Appendix C
Participant Data
• Summary of Valuation Data
• Active Members
• Transferred and Terminated Members
• Retired Members and Beneficiaries
CalPERS Actuarial Valuation – June 30, 2017 Appendix C Miscellaneous Plan of the City of Palo Alto
Participant Data
C-1
Summary of Valuation Data
June 30, 2016 June 30, 2017
1. Active Members
a) Counts 821 818
b) Average Attained Age
46.17 46.30
c) Average Entry Age to Rate Plan 35.05 35.05
d) Average Years of Service 11.12 11.25
e) Average Annual Covered Pay $ 91,773 $ 95,937
f) Annual Covered Payroll 75,345,962 78,476,098
g) Projected Annual Payroll for Contribution Year 82,332,567 85,441,123
h) Present Value of Future Payroll 583,437,155 624,164,899
2. Transferred Members
a) Counts 361 375
b) Average Attained Age 45.98 45.70
c) Average Years of Service 3.46 3.38
d) Average Annual Covered Pay $ 113,704 $ 115,882
3. Terminated Members
a) Counts 383 399
b) Average Attained Age 48.05 47.86
c) Average Years of Service 3.19 3.24
d) Average Annual Covered Pay $ 66,844 $ 69,073
4. Retired Members and Beneficiaries
a) Counts 1,061 1,098
b) Average Attained Age 69.64 69.78
c) Average Annual Benefits $ 32,763 $ 33,253
5. Active to Retired Ratio [(1a) / (4a)] 0.77 0.74
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.
CalPERS Actuarial Valuation – June 30, 2017 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 9 0 0 0 0 0 9
25-29 58 4 0 0 0 0 62
30-34 52 22 1 2 0 0 77
35-39 46 31 23 10 4 0 114
40-44 39 25 14 20 6 1 105
45-49 34 20 16 28 10 6 114
50-54 22 25 15 20 24 28 134
55-59 13 20 16 24 16 25 114
60-64 8 13 10 6 13 10 60
65 and over 2 4 3 8 4 8 29
All Ages 283 164 98 118 77 78 818
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 $59,374 $0 $0 $0 $0 $0 $59,374
25-29 70,259 82,842 0 0 0 0 71,071
30-34 82,695 90,115 105,580 71,881 0 0 84,831
35-39 89,707 95,653 90,267 100,441 101,814 0 92,803
40-44 91,477 97,164 92,365 93,993 109,500 90,379 94,448
45-49 98,440 115,693 107,774 108,124 117,278 110,679 107,452
50-54 114,607 103,282 98,406 98,602 102,099 109,543 104,993
55-59 105,592 105,057 107,202 94,829 92,957 108,957 102,423
60-64 99,567 99,197 75,779 78,898 98,171 97,306 92,776
65 and over 116,442 122,729 102,704 100,211 94,773 91,578 101,563
All Ages $87,894 $100,523 $96,494 $98,123 $101,689 $105,785 $95,937
CalPERS Actuarial Valuation – June 30, 2017 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, Service, and average Salary
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 19 0 0 0 0 0 19 93,056
30-34 39 2 0 0 0 0 41 105,400
35-39 52 10 3 0 0 0 65 109,965
40-44 38 8 0 1 0 0 47 115,246
45-49 52 12 1 4 0 0 69 117,288
50-54 40 16 2 2 1 0 61 121,311
55-59 34 5 5 2 1 0 47 132,458
60-64 14 2 1 1 1 0 19 129,830
65 and over 4 2 1 0 0 0 7 88,141
All Ages 292 57 13 10 3 0 375 115,882
Distribution of Terminated Participants with Funds on Deposit by Age, Service, and average Salary
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 16 0 0 0 0 0 16 74,150
30-34 34 5 0 0 0 0 39 75,442
35-39 46 4 0 0 0 0 50 64,369
40-44 50 5 5 0 0 0 60 77,051
45-49 45 13 1 2 1 0 62 76,576
50-54 45 13 4 1 1 0 64 62,173
55-59 33 10 5 4 0 0 52 69,407
60-64 25 5 1 0 0 0 31 61,086
65 and over 18 6 1 0 0 0 25 54,416
All Ages 312 61 17 7 2 0 399 69,073
CalPERS Actuarial Valuation – June 30, 2017 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 1 1
30-34 0 0 0 0 0 2 2
35-39 0 0 2 0 0 1 3
40-44 0 0 2 0 0 0 2
45-49 0 2 1 0 0 0 3
50-54 26 8 2 1 0 2 39
55-59 102 10 2 0 0 3 117
60-64 176 9 1 0 0 7 193
65-69 189 10 1 0 0 21 221
70-74 199 10 2 0 0 15 226
75-79 106 7 2 0 0 13 128
80-84 54 2 0 0 0 12 68
85 and Over 58 4 0 0 0 33 95
All Ages 910 62 15 1 0 110 1,098
Distribution of Average Annual Disbursements to 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 $13,273 $13,273
30-34 0 0 0 0 0 12,537 12,537
35-39 0 0 277 0 0 11,801 4,118
40-44 0 0 258 0 0 0 258
45-49 0 12,010 250 0 0 0 8,090
50-54 21,744 15,266 658 16,541 0 22,198 19,224
55-59 37,487 13,208 954 0 0 20,074 34,341
60-64 44,029 12,383 11,655 0 0 16,019 41,370
65-69 40,518 17,601 2,198 0 0 26,533 37,979
70-74 34,078 18,145 9,429 0 0 23,274 32,438
75-79 32,407 19,345 1,904 0 0 25,892 30,555
80-84 31,417 32,963 0 0 0 17,612 29,026
85 and Over 22,652 16,796 0 0 0 21,023 21,839
All Ages $36,289 $16,382 $2,737 $16,541 $0 $21,953 $33,253
CalPERS Actuarial Valuation – June 30, 2017 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 205 3 2 1 0 33 244
5-9 288 11 5 0 0 27 331
10-14 184 12 3 0 0 21 220
15-19 120 10 3 0 0 13 146
20-24 59 13 2 0 0 8 82
25-29 35 9 0 0 0 6 50
30 and Over 19 4 0 0 0 2 25
All Years 910 62 15 1 0 110 1,098
Distribution of Average Annual Disbursements to 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 $33,475 $15,607 $266 $16,541 $0 $17,277 $30,723
5-9 47,521 11,320 271 0 0 31,319 44,282
10-14 35,731 17,691 10,164 0 0 22,289 33,116
15-19 31,320 20,784 1,508 0 0 22,627 29,212
20-24 19,379 22,124 2,079 0 0 12,520 18,723
25-29 19,125 10,263 0 0 0 20,235 17,663
30 and Over 17,327 11,053 0 0 0 7,673 15,551
All Years $36,289 $16,382 $2,737 $16,541 $0 $21,953 $33,253
* 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 C-1 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.
Appendix D
Normal Cost Information by Group
• Normal Cost by Benefit Group
• PEPRA Member Contribution Rates
CalPERS Actuarial Valuation – June 30, 2017 Appendix D Miscellaneous Plan of the City of Palo Alto
Participant Data
D-1
Normal Cost by Benefit Group
The table below displays the Total Normal Cost broken out by benefit group for Fiscal Year 2019-20. The Total Normal Cost is the annual cost of service accrual for the fiscal year for active employees and can be viewed as the
long-term contribution rate for the benefits contracted. Generally, the normal cost for a benefit group subject to
more generous benefit provisions will exceed the normal cost for a group with less generous benefits. However,
based on the characteristics of the members (particularly when the number of actives is small), this may not be the
case. Future measurements of the Total Normal Cost for each group may differ significantly from the current values
due to such factors as: changes in the demographics of the group, changes in economic and demographic
assumptions, changes in plan benefits or applicable law.
Rate Plan
Identifier Benefit Group Name
Total Normal
Cost
FY 2019-20
Number of
Actives
Payroll on
6/30/2017
8 Miscellaneous First Tier 20.338% 472 46,968,287
26004 Miscellaneous PEPRA 13.154% 232 18,696,016
30157 Miscellaneous Second Tier 17.477% 114 12,811,795
Note that if a Benefit Group above has multiple bargaining units, each of which has separately contracted for
different benefits such as Employer Paid Member Contributions, then the Normal Cost split does not reflect those
differences. Additionally, if a 2nd Tier Benefit Group amended to the same benefit formula as a 1st Tier Benefit Group
their Normal Costs may be dissimilar due to demographic or other population differences. In these situations you
should consult with your plan actuary.
CalPERS Actuarial Valuation – June 30, 2017 Appendix D Miscellaneous Plan of the City of Palo Alto
Participant Data
D-2
PEPRA Member Contribution Rates
The table below shows the determination of the PEPRA Member contribution rates based on 50 percent of the Total Normal Cost for each respective plan on June 30, 2017. 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. Should the total normal cost of
the plan change by one percent or more from the base total normal cost established for the plan, the new member
rate shall be 50 percent of the new normal cost rounded to the nearest quarter percent.
Basis for Current Rate Rates Effective July 1, 2019
Rate Plan
Identifier Benefit Group Name Total Normal
Cost
Member
Rate
Total Normal
Cost
Change Change
Needed
Member
Rate
26004 Miscellaneous PEPRA 12.500% 6.250% 13.154% 0.654% No 6.250%
The PEPRA employee contribution rate determined in the table above may not necessarily be 50 percent of the Total
Normal Cost by Group based on the PEPRA Normal Cost calculation methodology. Each non-pooled plan is stable with
a sufficiently large demographic representation of active employees. It is preferable to determine normal cost using a
large active population ongoing so that this rate remains relatively stable. The total PEPRA normal cost will be calculated using all active members within a non-pooled plan until the number of members covered under the PEPRA
formula meets either:
1. 50 percent of the active population, or
2. 25 percent of the active population and 100 or more PEPRA members
Once either of the conditions above is met for a non-pooled plan, the total PEPRA normal cost will be based on the
active PEPRA population in the plan.
Accordingly, the total normal cost will be funded equally between employer and employee based on the
demographics of the employees of that employer.
Appendix E
Glossary of Actuarial Terms
CalPERS Actuarial Valuation – June 30, 2017 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 Value of Assets.
Actuarial Valuation
The determination, as of a valuation date of the Normal Cost, Accrued liability, 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.
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.
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).
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.)
CalPERS Actuarial Valuation – June 30, 2017 Appendix E Miscellaneous Plan of the City of Palo Alto
Glossary of Actuarial Terms
E-2
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 versus accrued
liabilities. A ratio greater than 100 percent means the plan or risk pool has more assets than liabilities and a ratio
less than 100 percent means liabilities are greater than assets.
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 towards the
UAL.
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.
Unfunded Accrued Liability (UAL)
When a plan or pool’s Value of Assets is less than its Accrued Liability, the difference is the plan or pool’s
Unfunded Accrued Liability (or unfunded liability). If the unfunded liability is positive, the plan or pool will have
to pay contributions exceeding the Normal Cost.