HomeMy WebLinkAbout2019-09-24 Finance Committee Agenda PacketFinance Committee
1
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.
Tuesday, September 24, 2019
Special Meeting
Community Meeting Room
5:30 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. Accept CalPERS Pension Annual Valuation Reports as of June 30, 2018
Future Meetings and Agendas
Adjournment
AMERICANS WITH DISABILITY ACT (ADA)
Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who
would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance.
City of Palo Alto (ID # 10641)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 9/24/2019
City of Palo Alto Page 1
Council Priority: Fiscal Sustainability
Summary Title: Accept CalPERS Pension Annual Valuation Reports as of June
30, 2018
Title: Accept CalPERS Pension Annual Valuation Reports as of June 30, 2018
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee: Review and discuss the June 30, 2018 CalPERS
Annual Valuation reports for the Miscellaneous and Safety Pension Plans
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.
This report does not contain recommendations regarding a proactive pension funding policy;
staff will bring forward analysis of potential policies and a separate report later this fall.
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 actuarially determined 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.
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, 2018.
City of Palo Alto Page 2
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 2019.
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 benefits, former employees who have vested but have not yet
retired, and retired employees as of June 30, 2018. The CalPERS actuarial analysis is completed
two years in arrears by practice. This means that the June 30, 2018 valuation report will be used
to inform the FY 2021 Budget development process.
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
beginning in FY 2019. These reports include CalPERS’ accounting for the FY 2018 ROR of 8.6
percent, as compared to the prior year’s ROR of 11.2 percent. These reports do not factor in the
preliminary estimate of the FY 2019 ROR of 6.7 percent. Exceeding the assumed rate of return
in FY 2018 is a positive short-term result that improved the City’s funding status, offset by the
lowered future 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.
City of Palo Alto Page 3
CalPERS Projected Contribution Levels
CalPERS has two components designated in the annual billing of employer contributions to
employee pension accounts. These two components are: 1) the Normal Cost (NC); and 2) the
Unfunded Accrued Liability (UAL) payment.
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. (CalPERS
will be shifting to a 20 year amortization schedule for new bases beginning with the
June 30, 2019 Actuarial report.) The liability grows when assumption goals, such as ROR,
are not met.
Per the latest actuarial valuation report, the ADC for FY 2021 is $33.4 million for the
Miscellaneous Plan and $16.7 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 2020 – FY 2030 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 35.6 percent of payroll in FY 2020 to 40.2 percent of payroll by FY 2026
for Miscellaneous and from 59.4 percent of payroll in FY 2020 to 75.6 percent of payroll by
2026 for Safety. This is based on the phased-in discount rate of 7.00 percent beginning in FY
2021 and continuing through the rest of CalPERS projections.
− 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 employee labor groups have agreed to “pick-up” percentages of this employer
contribution rate. These percentages are detailed below Table 2.
− Table 3 reflects the projected percentage of payroll for the NC employer contribution.
This rate increases from FY 2019 to FY 2020 as the phase-in of the lowered ROR is
realized and then levels out as the ROR is stabilized.
− 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, but contrary to the
trend of the NC, to increase throughout the forecast as different amortization bases
mature.
City of Palo Alto Page 4
TABLE 2: CalPERS Past and Projected Employer Contribution Rates
(blended both UAL and Normal Cost)*
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Miscellaneous 30.2% 35.6% 38.4% 40.3% 41.7% 42.3% 42.8% 40.2%
Safety 55.6% 59.4% 65.3% 69.4% 72.7% 74.4% 75.6% 75.6%
* 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 – In FY 2020
employees in the Miscellaneous group will pick-up 1% of the employer contribution and employees in the Safety group will
pick-up 3% to 3.5% of the employer contribution. Beginning in FY 2021, SEIU employees in the Miscellaneous group will pick-
up 2% of the employer contribution and employees in the Safety group will pick-up 3.5% to 4%.
TABLE 3: CalPERS Past and Projected Normal Cost Employer Rate*
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Miscellaneous 10.2% 10.7% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5%
Safety 19.4% 20.2% 21.6% 21.6% 21.6% 21.6% 21.6% 21.6%
* 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 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Miscellaneous 18,393 21,287 23,433 25,769 27,776 29,093 30,451 28,631
Safety 8,421 10,019 11,211 12,598 13,826 14,695 15,421 15,845
TOTAL $26,814 $31,306 $34,644 $38,367 $41,602 $43,788 $45,872 $44,476
% Change from Prior Yr 16.8% 10.7% 10.7% 8.4% 5.3% 4.8% -3.0%
CalPERS Projected Unfunded Accrued Pension Liability
Included in the Annual Valuation report is a status of both plans’ “funded status”. Overall,
CalPERS has about 70 percent of the funding it needs for its obligations. This is higher than the
City’s funded status of 62.2 percent for Safety and 65.8 percent for Miscellaneous. Table 5
details the City’s funded status for the Miscellaneous and Safety plans with an assumed future
ROR of 7.0 percent effective June 30, 2018. The total unfunded pension liability increased from
$414.9 million as of June 30, 2017 to $455.6 million as of June 30, 2018. This represents an
increase of $40.7 million, or 9.8 percent. This slower growth, reflected in Table 5 below,
represents an improvement over some of the larger increases seen in prior years.
City of Palo Alto Page 5
TABLE 5: CalPERS Projected Unfunded Accrued Liability for the City of Palo Alto
As of
June 30, 2015
As of
June 30, 2016
As of
June 30, 2017
As of
June 30, 2018
Miscellaneous 219,668,121 261,680,231 260,720,776 284,856,248
Miscellaneous Funded Status 68.5% 64.2% 66.3% 65.8%
Safety 118,764,933 143,025,193 154,190,990 170,712,183
Safety Funded Status 68.6% 63.6% 63.5% 62.20%
TOTAL UNFUNDED PENSION LIABILITY $338,433,054 $404,705,424 $414,911,766 $455,568,431
% Change from Prior Year 19.6% 2.5% 9.8%
Public Agency Retirement Services (PARS) Section 115 Trust Fund Contributions* $22,012,777
Adjusted TOTAL UNFUNDED PENSION LIABILITY $433,555,654
Adjusted % Change from Prior Year 4.5%
* In total, the City has contributed $22.0 million in proactive contributions to the City’s irrevocable Section 115 Pension Trust
Fund (amount excludes investment returns). CalPERS does not consider these amounts in valuation calculations. For illustrative
purposes, an adjusted unfunded liability is included and assumes that the PARS Trust is used to reduce the total unfunded
liability presented by CalPERS. More discussion of the PARS Trust Fund is included later in this report.
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, 2018 UAL’s discount rate sensitivity. For example, at 6.0 percent ROR, the total
UAL would increase to $621.5 million, representing a 58.3% funded status for Miscellaneous
and a 55.0% funded status for Safety. This analysis gives an indication of the potential impacts if
CalPERS were to realize investment returns ranging from 6.0% 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, 2018)
3.25% Discount
Rate
6% Discount
Rate
7% Discount
Rate
8% Discount
Rate
Miscellaneous $669,993,388 $391,994,669 $284,856,248 $195,916,217
Miscellaneous Funded Status 45.0% 58.30% 65.80% 73.60%
Safety $426,155,995 $229,477,715 $170,712,183 $122,266,684
Safety Funded Status 39.7% 55.00% 62.20% 69.60%
TOTAL UNFUNDED PENSION LIABILITY $1.0 billion $621 million $456 million $318 million
Proactive Pension Funding
Since 2017, the City has established and maintained an independent and irrevocable Internal
Revenue Services (IRS) section 115 pension trust fund administered by Public Agency
City of Palo Alto Page 6
Retirement Services (PARS). The purpose of the City’s PARS trust fund is to proactively set aside
funding that can be used to offset the City’s growing pension liability. The only way that PARS
funding can be spent is towards City’s pension costs; it cannot be used for any other purpose.
As seen in the Table 5, CalPERS does not recognize the assets contained in the PARS trust
against the City’s liability. Therefore, it is not included in their actuarial analysis and they do not
consider the implications of the City’s current proactive funding contributions. Per City Council
direction (through CMR #9740), the City currently budgets its pension contributions more
conservatively than CalPERS and transmits the additional funding to this pension trust fund. As
discussed in the report, CalPERS has transitioned from using a 7.5% Discount Rate to a 7.0%
Discount Rate over the past few years; beginning in FY 2020, the City uses a 6.2% Discount Rate
for the Normal Cost portion of the liability. The lower discount rate effectively recalculates the
City’ costs as though CalPERS were going to achieve the lower rate of return.
In FY 2020, that change in budgeting practice cost a total of $6.2 million across the
organization, of which $4.0 million was in the General Fund. (For reference, per the CalPERS
actuarial reports, the City’s annual UAL payments to CalPERS will grow by $3.3 million from FY
2020 to FY 2021.) Through FY 2020, $22.0 million will have been transmitted to the PARS
Section 115 Trust Fund.
Staff used a 3rd party software (GovInvest) to model the continued impact of the 6.2% Discount
Rate on these current valuation reports. GovInvest allows for comparisons against a baseline
scenario that is meant to align with CalPERS projections in order to model alternative
parameters. It should be explicitly stated that this analysis is meant to be informative and
representational; it is not a replacement for independent actuarial analysis but rather a
supplement to it. The use of the software allows the City to generate additional context to
CalPERS reporting. This is intended to provide a sense of the magnitude of the impacts that the
current City Council direction will have on the City’s pension costs beyond the CalPERS ADC.
Staff modeled the impact of lowering the discount rate to 6.2% on the Normal Cost in
GovInvest and applied the difference in basis points of percentage between the ‘CalPERS’
scenario and the 6.2% scenario to the City’s current budget estimates for pensionable payroll
for the miscellaneous and safety groups. As part of the development of the Long Range
Financial Forecast, staff will refine the salary and benefit expense costings through the next ten
years and will be working with GovInvest to refine the calculation methodology.
The table below shows the additional expenses incurred by each of the Miscellaneous and
Safety Groups, and the combined impact on the General Fund for each year beginning in FY
2021.
City of Palo Alto Page 7
Table 7: Additional Expenses for 6.2% DR for Miscellaneous and Safety FY 2020 - FY 2026 ($000s)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Misc. 4,290 3,714 3,819 3,890 3,950 3,873 3,800
Safety 1,932 1,826 1,836 1,846 1,844 1,765 1,681
Total General Fund 4,028 3,470 3,527 3,569 3,594 3,480 3,364
TOTAL ALL FUNDS $6,222 $5,540 $5,655 $5,736 $5,794 $5,638 $5,481
Note: Excludes 1x catch-up payment for Miscellaneous in FY 2020 in Non General Funds
The marginal cost associated with a 6.2% Discount Rate is lower in FY 2021 because CalPERS is
assuming a 7.0% discount rate in that year. Whereas, in FY 2020 CalPERS assumed a 7.25%
discount rate compared to the City’s assumed 6.2% discount rate. These marginal costs are only
comparing CalPERS assumptions to the City’s financial planning assumptions. This is not
representative of implications that will be seen in reports such as the City’s FY 2021-2030 Long
Range Financial Forecast.
GovInvest also allows the City to model the impact of Additional Discretionary Payments
(ADPs); these are payments above and beyond the CalPERS ADC or minimum required annual
payments to CalPERS. The system is limited in that it can only model the impact as though the
additional discretionary payments were contributed to CalPERS; whereas the City has chosen to
send additional contributions to a separate trust account with a more conservative investment
strategy. Nonetheless, the modeling does serve as an important point of context for the City as
it considers potential pension policy options.
Table 8 shows the GovInvest ‘CalPERS’ scenario market value of assets, net pension liability, and
funded status compared to an ADP scenario that models the additional contributions shown
above being transmitted to CalPERS to offset our liability.
Table 8: Market Value of Assets - GovInvest 'CalPERS' Scenario vs ADP Scenario ($000s)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Accrued Liability 1.39 B 1.45 B 1.51 B 1.57 B 1.63 B 1.69 B 1.75 B
CalPERS' Scenario
MVA 905,401 957,817 1,018,021 1,085,383 1,161,499 1,240,717 1,320,038
CalPERS' Scenario
Funded Status 65.0% 66.1% 67.4% 69.2% 71.3% 73.5% 75.6%
ADP Scenario MVA 937,101 996,956 1,064,494 1,137,975 1,219,845 1,297,932 1,375,312
ADP Scenario
Funded Status 67.3% 68.8% 70.5% 72.5% 74.9% 76.9% 78.8%
Staff will be returning to the Finance Committee later this fall to discuss potential pension
prefunding policy options that will include recommendations on the use of PARs funding on an
City of Palo Alto Page 8
ongoing basis. There are various elements to be considered and different outcomes can be
impacted by different uses. For example, the PARS trust could serve as an offset if the City were
to be given an unexpectedly large increase from CalPERS in a given year. Alternatively, money
set aside in PARS could be used to pay down certain especially costly amortization bases in
CalPERS. Any option could also have a parameter or necessary condition set on its use. The
advantages and disadvantages of the different uses of the PARS trust will be explained as part
of the subsequent report for discussion by the Finance Committee.
Resource Impact
The FY 2020 Adopted Operating Budget includes not only the actuarially determined
contribution as calculated by CalPERS but also the additional costs associated with using a
lower discount rate. Staff will return to the Finance Committee later this fall with
recommendations regarding a proactive pension funding policy and the potential impacts that
the policy may have on subsequent budgets.
Environmental Review
This report is not a project for the purposes of the California Environmental Quality Act.
Environmental review is not required.
Attachments:
• Attachment A: City of Palo Alto Pension Plan Benefit Levels Enrollment by Plan and
Employee Group
• Attachment B: CalPERS Safety Annual Valuation Report June 30, 2018
• Attachment C: CalPERS Miscellaneous Annual Valuation Report June 30,2018
Attachment A:
City of Palo Alto Pension Plan Benefit Levels Enrollment by Plan and Employee Group
Sept. 2019 Sept. 2018
Employee Count
Sept. 2019 Sept. 2018
City Council & Council Appointees 7 10 IAFF 85 81
Tier 1 14 Tier 1 54 59
Tier 2 22 Tier 2 77
Tier 3 44 Tier 3 24 15
Management and Professional 188 202 Fire Chief's Association 43
Tier 1 86 100 Tier 1 43
Tier 2 40 46 Tier 2 00
Tier 3 62 56 Tier 3 00
Service Employees' International 528 549 Fire Management 34
Tier 1 238 283 Tier 1 34
Tier 2 61 65 Tier 2 00
Tier 3*229 201 Tier 3 00
Utilities Management 48 44 PAPOA 68 69
Tier 1 44 41 Tier 1 40 42
Tier 2 2 Tier 2 55
Tier 3 2 2 Tier 3 23 22
Police Management Association 77
Tier 1 66
Tier 2 01
Tier 3 10
Police Management 11
Tier 1 11
Tier 2 00
Tier 3 00
Grand Total Miscellaneous Plans 774 805 Grand Total Safety Plans 168 165
Tier 1 371 428 Tier 1 107 115
Tier 2 105 114 Tier 2 12 12
Tier 3 298 263 Tier 3 49 38
Tiered Percentage Miscellaneous Plans Tiered Percentage Safety Plans
Tier 1 47.9%53.2%Tier 1 63.7%69.7%
Tier 2 13.57%14.2%Tier 2 7.1%7.3%
Tier 3 38.50%32.7%Tier 3 29.2%23.0%
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
*Includes Police Trainee
Safety Plans
Employee GroupEmployee CountEmployee Group
Miscellaneous Plans
1
California Public Employees’ Retirement System
Actuarial Office
400 Q Street, Sacramento, CA 95811 |Phone: (916) 795-3000 | Fax: (916) 795-2744
888 CalPERS (or 888-225-7377) | TTY: (877) 249-7442 | www.calpers.ca.gov
July 2019
Safety Plan of the City of Palo Alto (CalPERS ID: 6373437857) Annual Valuation Report as of June 30, 2018
Dear Employer,
Attached to this letter, you will find the June 30, 2018 actuarial valuation report of your CalPERS pension plan. Provided
in this report is the determination of the minimum required employer contributions for Fiscal Year 2020-
21.In addition, the report also contains important information regarding the current financial status of the plan as well
as projections and risk measures to aid in planning for the future.
Actuarial valuations are based on assumptions regarding future plan experience including investment return and payroll
growth, eligibility for the types of benefits provided, and longevity among retirees. The CalPERS Board of Administration
adopts these assumptions after considering the advice of CalPERS actuarial and investment teams and other
professionals. Each actuarial valuation reflects all prior differences between actual and assumed experience and adjusts
the contribution rates as needed. This valuation is based on an investment return assumption of 7.0% which was adopted
by the board in December 2016. Other assumptions used in this report are those recommended in the CalPERS Experience
Study and Review of Actuarial Assumptions report from December 2017.
Required Contributions
The exhibit below displays the minimum required employer contributions and the Employee PEPRA Rate for Fiscal Year
2020-21 along with an estimate of the required contribution for Fiscal Year 2021-22. 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
2020-21 21.566% $11,210,740 11.75%
Projected Results
2021-22 21.6% $12,598,000 TBD
The actual investment return for Fiscal Year 2018-19 was not known at the time this report was prepared. The projections
above assume the investment return for that year would be 7.00 percent. To the extent the actual investment
return for Fiscal Year 2018-19 differs from 7.00 percent, the actual contribution requirements for Fiscal
Year 2021-22 will differ from those shown above. 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. This section also contains projected required contributions through fiscal year 2025-26.
Changes from previous Year’s Valuations
CalPERS continues to strive to provide comprehensive risk assessments regarding plan funding and sustainability
consistent with the Board of Administration’s pension and investment beliefs. Your report this year includes new metrics
on plan maturity in recognition of the fact that most pension plans at CalPERS are maturing as anticipated. As plans
mature, they become much more sensitive to risks than plans that are less mature. The “Risk Analysis” section of your report will help you understand how your plan is affected by investment return volatility and other economic assumptions.
We have included plan sensitivity analysis with respect to longevity and inflation to further that discussion and encourage
you to review our most recent Annual Review of Funding Levels and Risks report on our website that takes a holistic
view of the system.
ATTACHMENT B
Safety Plan of the City of Palo Alto (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2018
Page 2
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.
Upcoming Change for June 30, 2019 Valuations
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.
Over the past few years, CalPERS adopted measures to strengthen the long-term future of the system. These measures
include lowering the discount rate from 7.5% to 7.0% and shortening the amortization period for future unexpected
changes in unfunded liability. While these changes can result in short-term increases to required employer contributions,
they are not expected to increase the long-term cost of the plan. We firmly believe these changes were necessary in
order to maintain the security of promised benefits and to equitably spread benefit costs over the current and future
generations.
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, 2019 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, 2018
for the
Safety Plan
of the
City of Palo Alto
(CalPERS ID: 6373437857)
(Valuation Rate Plan ID: 5080)
Required Contributions
for Fiscal Year
July 1, 2020 – June 30, 2021
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 9
Asset Allocation 10
CalPERS History of Investment Returns 11
Liabilities and Contributions
Development of Accrued and Unfunded Liabilities 13
(Gain) / Loss Analysis 06/30/17 - 06/30/18 14
Schedule of Amortization Bases 15
Amortization Schedule and Alternatives 17 Reconciliation of Required Employer Contributions 19
Employer Contribution History 20
Funding History 20
Risk Analysis
Future Investment Return Scenarios 22
Discount Rate Sensitivity 23
Mortality Rate Sensitivity 23
Inflation Rate Sensitivity 23 Maturity Measures 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 JOB INSTANCE ID: 135204 (PY) FIN JOB INSTANCE ID: 123959 REPORT ID: 135213
CalPERS Actuarial Valuation - June 30, 2018 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, 2018 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, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 3
Introduction
This report presents the results of the June 30, 2018 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 2020-21.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2018. The purpose of the report is to:
• Set forth the assets and accrued liabilities of this plan as of June 30, 2018;
• Determine the minimum required employer contributions for the fiscal year July 1, 2020 through June
30, 2021;
• Provide actuarial information as of June 30, 2018 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 and consistent with the recommendations of Actuarial Standards of
Practice No. 51:
• A “Scenario Test,” projecting future results under different investment income returns.
• A “Sensitivity Analysis,” showing the impact on current valuation results using alternative discount
rates of 6.0 percent and 8.0 percent.
• A “Sensitivity Analysis,” showing the impact on current valuation results using a 1.0 percent plus or
minus change in the inflation rate.
• A “Sensitivity Analysis,” showing the impact on current valuation results assuming rates of mortality
are 10 percent lower or 10 percent higher than our current mortality assumptions adopted in 2017.
This type of analysis highlights the impact on the plan of improving or worsening mortality over the
long-term.
• Plan maturity measures which indicate how sensitive a plan may be to the risks noted above.
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2020-21
Employer Normal Cost Rate 21.566%
Plus, Either
1) Monthly Employer Dollar UAL Payment $ 934,228
Or
2) Annual UAL Prepayment Option* $ 10,837,831
Required PEPRA Member Contribution Rate
11.75%
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). Any prepayment totaling over $5 million requires a 72-hour notice email to
FCSD_public_agency_wires@calpers.ca.gov. 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
2019-20 2020-21
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 29.465% 30.913%
Employee Contribution1 9.271% 9.347%
Employer Normal Cost2 20.194% 21.566%
Projected Annual Payroll for Contribution Year $ 25,569,930 $ 25,615,376
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $ 7,534,179 $ 7,918,482
Employee Contribution1 2,370,588 2,394,269
Employer Normal Cost2 5,163,591 5,524,213
Unfunded Liability Contribution 10,019,332 11,210,740
% of Projected Payroll (illustrative only) 39.184% 43.766%
Estimated Total Employer Contribution $ 15,182,923 $ 16,734,953
% of Projected Payroll (illustrative only) 59.378% 65.332%
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, 2018 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 7.00% Return for Fiscal Year 2018-19)
Fiscal Year 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26
Normal Cost % 21.566% 21.6% 21.6% 21.6% 21.6% 21.6%
UAL Payment 11,210,740 12,598,000 13,826,000 14,695,000 15,421,000 15,845,000
Total as a % of Payroll* 65.3% 69.4% 72.7% 74.4% 75.6% 75.6%
Projected Payroll 25,615,376 26,319,800 27,043,594 27,787,293 28,551,444 29,336,609
*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.
For projected contributions under alternate investment return scenarios, please see the “Future Investment
Return Scenarios” in the “Risk Analysis” section.
June 30, 2017 June 30, 2018
1. Present Value of Projected Benefits $ 483,613,941 $ 516,421,166
2. Entry Age Normal Accrued Liability 422,062,152 451,111,924
3. Market Value of Assets (MVA) $ 267,871,162 $ 280,399,741
4. Unfunded Accrued Liability (UAL) [(2) – (3)] $ 154,190,990 $ 170,712,183
5. Funded Ratio [(3) / (2)] 63.5% 62.2%
CalPERS Actuarial Valuation - June 30, 2018 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 Amortization 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 6.0 percent over the 20 years ending June 30, 2018, 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, 2018 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
In December of 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 contributions for Fiscal Year 2020-21 determined in this valuation were calculated using a discount
rate of 7.00 percent, payroll growth of 2.75 percent and an inflation rate of 2.50 percent. The projected
employer contributions on Page 5 are calculated under the assumption that the discount rate remains at 7.00
percent going forward and that furthermore the realized rate of return on assets for Fiscal Year 2018-19 is 7.00
percent.
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.
CalPERS has implemented a new actuarial valuation software system for the June 30, 2018 valuation. With this
new system we have refined and improved some of our calculation methodology. Any difference in liability between the old software and new software calculations is captured as a method change line item.
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.
The contribution requirements determined in this actuarial valuation report are based on demographic and
financial information as of June 30, 2018. Changes in the value of assets subsequent to that date are not
reflected. Investment returns below the assumed rate of return will increase the required contribution, while
investment returns above the assumed rate of return will decrease the required contribution.
This actuarial valuation report reflects statutory changes, regulatory changes and CalPERS Board actions
through January 2019. 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, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 9
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/17 including Receivables $ 267,871,162
2. Change in Receivables for Service Buybacks (77,337)
3. Employer Contributions 11,030,688
4. Employee Contributions 2,773,733
5. Benefit Payments to Retirees and Beneficiaries (23,629,735)
6. Refunds (6,752)
7. Transfers (653)
8. Service Credit Purchase (SCP) Payments and Interest 103,118
9. Miscellaneous Adjustments 1
10. Net Investment Return 22,335,516
11. Market Value of Assets as of 6/30/18 including Receivables $ 280,399,741
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 10
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, 2018. 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 171.8 49.0%
Private Equity 27.2 8.0%
Global Fixed Income 79.1 22.0%
Liquidity 11.8 3.0%
Real Assets 38.1 12.0%
Inflation Sensitive Assets 20.8 6.0%
Other 3.1 0.0%
Total Fund $351.9 100.0%
Public Equity
48.8%
Private Equity
7.7%
Global Fixed
Income
22.5%
Liquidity
3.4%
Real Assets
10.8%
Inflation
5.9%
Other
0.9%
Actual Asset Allocation at 6/30/2018
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 11
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, 2018 (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 8.6% 7.9% 5.7% 6.0% 8.3%
Volatility – 6.9% 12.9% 11.1% 10.1%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
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
%
8.
6
%
Liabilities and Contributions
• Development of Accrued and Unfunded Liabilities
• (Gain) / Loss Analysis 06/30/17 - 06/30/18
• Schedule of Amortization Bases
• Amortization Schedule and Alternatives
• Reconciliation of Required Employer Contributions
• Employer Contribution History
• Funding History
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 13
Development of Accrued and Unfunded Liabilities
June 30, 2017 June 30, 2018
1. Present Value of Projected Benefits
a) Active Members $ 169,749,504 171,136,068
b) Transferred Members 7,449,818 9,367,648
c) Terminated Members 3,670,519 3,140,488
d) Members and Beneficiaries Receiving Payments 302,744,100 332,776,962
e) Total $ 483,613,941 516,421,166
2. Present Value of Future Employer Normal Costs $ 41,143,658 44,061,667
3. Present Value of Future Employee Contributions $ 20,408,131 21,247,575
4. Entry Age Normal Accrued Liability
a) Active Members [(1a) - (2) - (3)] $ 108,197,715 105,826,826
b) Transferred Members (1b) 7,449,818 9,367,648
c) Terminated Members (1c) 3,670,519 3,140,488
d) Members and Beneficiaries Receiving Payments (1d) 302,744,100 332,776,962
e) Total $ 422,062,152 451,111,924
5. Market Value of Assets (MVA) $ 267,871,162 280,399,741
6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $ 154,190,990 170,712,183
7. Funded Ratio [(5) / (4e)] 63.5% 62.2%
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 14
(Gain)/Loss Analysis 6/30/17 – 6/30/18
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 6/30/17 $ 154,190,990
b) Expected Payment on the UAL during 2017-18 6,650,945
c) Interest through 6/30/18 [.0725 x (1a) - ((1.0725)½ - 1) x (1b)] 10,941,968 d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 158,482,013
e) Change due to plan changes 0
f) Change due to assumption change 12,018,366
g) Change due to method change 2,865,547
h) Expected UAL after all other changes [(1d) + (1e) + (1f) + (1g)] 173,365,926
i) Actual UAL as of 6/30/18 170,712,183
j) Total (Gain)/Loss for 2017-18 [(1i) - (1h)] $ (2,653,744)
2. Contribution (Gain)/Loss for the Year
a) Expected Contribution (Employer and Employee) $ 13,934,201
b) Interest on Expected Contributions 496,277 c) Actual Contributions 13,804,421
d) Interest on Actual Contributions 491,655
e) Expected Contributions with Interest [(2a) + (2b)] 14,430,478
f) Actual Contributions with Interest [(2c) + (2d)] 14,296,076
g) Contribution (Gain)/Loss [(2e) - (2f)] $ 134,402
3. Asset (Gain)/Loss for the Year
a) Market Value of Assets as of 6/30/17 $ 267,871,162
b) Prior Fiscal Year Receivables (568,100)
c) Current Fiscal Year Receivables 490,763
d) Contributions Received 13,804,421 e) Benefits and Refunds Paid (23,636,488)
f) Transfers, SCP Payments and Interest, and Miscellaneous Adjustments 102,466
g) Expected Int. [.0725 x (3a + 3b) + ((1.0725)½ - 1) x ((3d) + (3e) + (3f))] 19,032,945
h) Expected Assets as of 6/30/18 [(3a) + (3b) + (3c) + (3d) + (3e) + (3f) + (3g)] 277,097,169
i) Market Value of Assets as of 6/30/18 280,399,741
j) Asset (Gain)/Loss [(3h) - (3i)] $ (3,302,572)
4. Liability (Gain)/Loss for the Year
a) Total (Gain)/Loss (1j) $ (2,653,744)
b) Contribution (Gain)/Loss (2g) 134,402
c) Asset (Gain)/Loss (3j) (3,302,572)
d) Liability (Gain)/Loss [(4a) - (4b) - (4c)] $ 514,426
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 15
Schedule of Amortization Bases
On the next page is the schedule of the plan’s amortization bases. Note that 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,
2018.
• The required employer contributions determined by the valuation are for the fiscal year beginning two
years after the valuation date: Fiscal Year 2020-21.
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.
CalPERS Actuarial Valuation - June 30, 2018
Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 16
Schedule of Amortization Bases
Reason for Base
Date
Established
Ramp Up/Down
2020-21
Escalat-ion
Rate
Amorti-zation
Period
Balance
6/30/18
Expected Payment
2018-19
Balance
6/30/19
Expected Payment
2019-20
Balance
6/30/20
Scheduled Payment for
2020-21
FRESH START 06/30/04 No Ramp 2.750% 16 $(916,634) $(73,518) $(904,751) $(75,515) $(889,970) $(76,632)
BENEFIT CHANGE 06/30/05 No Ramp 2.750% 6 $124,674 $18,618 $114,143 $19,116 $102,359 $19,482
ASSUMPTION CHANGE 06/30/09 No Ramp 2.750% 11 $7,003,405 $708,757 $6,760,500 $727,891 $6,480,798 $740,246
SPECIAL (GAIN)/LOSS 06/30/09 No Ramp 2.750% 21 $8,971,135 $615,760 $8,962,167 $632,560 $8,935,193 $640,612
SPECIAL (GAIN)/LOSS 06/30/10 No Ramp 2.750% 22 $4,283,759 $286,741 $4,287,015 $294,570 $4,282,400 $298,204
ASSUMPTION CHANGE 06/30/11 No Ramp 2.750% 13 $5,981,095 $544,679 $5,836,352 $559,422 $5,666,226 $568,423
SPECIAL (GAIN)/LOSS 06/30/11 No Ramp 2.750% 23 $2,433,743 $159,124 $2,439,506 $163,472 $2,441,175 $165,425
PAYMENT (GAIN)/LOSS 06/30/12 No Ramp 2.750% 24 $1,574,335 $100,690 $1,580,384 $103,444 $1,584,007 $104,641
(GAIN)/LOSS 06/30/12 No Ramp 2.750% 24 $45,059,921 $2,881,919 $45,233,036 $2,960,732 $45,336,743 $2,994,983
(GAIN)/LOSS 06/30/13 100% 2.750% 25 $44,714,530 $2,370,921 $45,392,048 $3,044,761 $45,419,966 $3,081,154
ASSUMPTION CHANGE 06/30/14 100% 2.750% 16 $21,496,899 $1,182,639 $21,778,351 $1,619,749 $21,627,354 $2,056,528
(GAIN)/LOSS 06/30/14 100% 2.750% 26 $(29,106,381) $(1,160,282) $(29,943,623) $(1,589,471) $(30,395,514) $(2,009,961)
(GAIN)/LOSS 06/30/15 80% 2.750% 27 $15,420,311 $416,097 $16,069,319 $641,301 $16,530,804 $864,629
ASSUMPTION CHANGE 06/30/16 60% 2.750% 18 $6,823,263 $128,758 $7,167,703 $264,566 $7,395,773 $402,662
(GAIN)/LOSS 06/30/16 60% 2.750% 28 $17,315,957 $240,288 $18,279,518 $493,818 $19,048,275 $748,572
ASSUMPTION CHANGE 06/30/17 40% 2.750% 19 $8,295,677 $(308,206) $9,195,185 $173,688 $9,659,184 $352,226
(GAIN)/LOSS 06/30/17 40% 2.750% 29 $(993,677) $0 $(1,063,234) $(14,772) $(1,122,381) $(29,835)
METHOD CHANGE 06/30/18 20% 2.750% 20 $2,865,547 $(20,623) $3,087,468 $(21,190) $3,325,510 $62,003
ASSUMPTION CHANGE 06/30/18 20% 2.750% 20 $12,018,366 $(304,738) $13,174,875 $(313,118) $14,421,008 $268,874
(GAIN)/LOSS 06/30/18 20% 2.750% 30 $(2,653,743) $0 $(2,839,505) $0 $(3,038,270) $(41,496)
TOTAL $170,712,183 $7,787,624 $174,606,455 $9,685,024 $176,810,640 $11,210,740
CalPERS Actuarial Valuation - June 30, 2018 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 2.75
percent per year.
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, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 18
Amortization Schedule and Alternatives
Alternate Schedules
Current Amortization Schedule 20 Year Amortization 15 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2020 176,810,640 11,210,740 176,810,640 13,079,551 176,810,640 15,947,209
6/30/2021 177,590,903 12,598,401 175,657,792 13,439,239 172,691,464 16,385,757
6/30/2022 176,990,378 13,825,697 174,052,181 13,808,818 167,830,308 16,836,365
6/30/2023 175,078,292 14,694,686 171,951,881 14,188,560 162,162,758 17,299,365
6/30/2024 172,133,468 15,421,340 169,311,752 14,578,746 155,619,549 17,775,098
6/30/2025 168,230,853 15,845,427 166,083,203 14,979,661 148,126,213 18,263,913
6/30/2026 163,616,378 16,258,249 162,213,945 15,391,602 139,602,709 18,766,170
6/30/2027 158,251,858 16,705,350 157,647,725 15,814,871 129,963,021 19,282,240
6/30/2028 152,049,340 17,164,748 152,324,036 16,249,780 119,114,729 19,812,502
6/30/2029 144,937,439 17,636,782 146,177,815 16,696,649 106,958,548 20,357,346
6/30/2030 136,839,428 18,121,791 139,139,115 17,155,807 93,387,845 20,917,173
6/30/2031 127,672,863 17,622,496 131,132,748 17,627,591 78,288,102 21,492,395
6/30/2032 118,381,115 17,537,542 122,077,918 18,112,350 61,536,364 22,083,436
6/30/2033 108,526,816 16,625,803 111,887,812 18,610,440 43,000,626 22,690,730
6/30/2034 98,925,829 16,285,453 100,469,170 19,122,227 22,539,196 23,314,725
6/30/2035 89,004,832 15,649,262 87,721,827 19,648,088
6/30/2036 79,047,446 14,573,328 73,538,215 20,188,410
6/30/2037 69,505,998 13,957,164 57,802,836 20,743,592
6/30/2038 59,934,015 13,296,089 40,391,696 21,314,041
6/30/2039 50,375,812 12,812,833 21,171,700 21,900,177
6/30/2040 40,648,424 12,595,936
6/30/2041 30,464,477 10,720,552
6/30/2042 21,507,566 10,084,590
6/30/2043 12,581,512 9,249,935
6/30/2044 3,894,010 2,256,558
6/30/2045 1,832,389 1,008,317
6/30/2046 917,644 949,218
6/30/2047
6/30/2048
6/30/2049
Total 354,708,287 342,650,200 291,224,424
Interest Paid 177,897,647 165,839,560 114,413,784
Estimated Savings 12,058,087 63,483,863
CalPERS Actuarial Valuation - June 30, 2018 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 7/1/19 – 6/30/20
a) Employer Normal Cost 20.194%
b) Employee Contribution 9.271%
c) Total Normal Cost 29.465%
2. Changes since the prior year annual valuation
a) Effect of changes in demographics results 0.107%
b) Effect of plan changes 0.000%
c) Effect of changes in assumptions 1.256%
d) Effect of method changes 0.085%
e) Net effect of the changes above [sum of (a) through (d)] 1.448%
3. For Period 7/1/20 – 6/30/21
a) Employer Normal Cost 21.566%
b) Employee Contribution 9.347%
c) Total Normal Cost 30.913%
Employer Normal Cost Change [(3a) – (1a)] 1.372%
Employee Contribution Change [(3b) – (1b)] 0.076%
Unfunded Liability Contribution ($)
1. For Period 7/1/19 – 6/30/20 10,019,332
2. Changes since the prior year annual valuation
a) Effect of (gain)/loss during prior year1 (41,496)
b) Effect of plan changes 0
c) Effect of changes in assumptions2 268,874
d) Changes to prior year amortization payments3 902,027
e) Effect of changes due to Fresh Start 0
f) Effect of elimination of amortization base 0
g) Effect of method change2 62,003
h) Net effect of the changes above [sum of (a) through (g)] 1,191,408
3. For Period 7/1/20 – 6/30/21 [(1) + (2h)] 11,210,740
The amounts shown for the period 7/1/19 – 6/30/20 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.
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. This line item also captures the impact of any additional discretionary payment during the fiscal
year.
2 The unfunded liability contribution for the change in assumptions or method 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.
CalPERS Actuarial Valuation - June 30, 2018 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
2020 - 21 21.566% N/A 11,210,740
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
06/30/18 451,111,924 280,399,741 170,712,183 62.2% 23,613,222
Risk Analysis
• Future Investment Return Scenarios
• Discount Rate Sensitivity
• Mortality Rate Sensitivity
• Inflation Rate Sensitivity
• Maturity Measures
• Hypothetical Termination Liability
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 22
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 (2018-19, 2019-20, 2020-21 and 2021-22). 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.
For fiscal years 2018-19, 2019-20, 2020-21, and 2021-22 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.
These alternate investment returns were chosen based on stochastic analysis of possible future investment
returns over the four-year period ending June 30, 2022. 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 2021-22
Projected Employer Contributions
2021-22 2022-23 2023-24 2024-25
1.0%
Normal Cost 21.6% 21.6% 21.6% 21.6%
UAL Contribution $13,012,000 $15,059,000 $17,147,000 $19,488,000
4.0%
Normal Cost 21.6% 21.6% 21.6% 21.6%
UAL Contribution $12,805,000 $14,449,000 $15,946,000 $17,518,000
7.0%
Normal Cost 21.6% 21.6% 21.6% 21.6%
UAL Contribution $12,598,000 $13,826,000 $14,695,000 $15,421,000
9.0%
Normal Cost 22.0% 22.3% 22.7% 23.1%
UAL Contribution $12,475,000 $13,496,000 $14,071,000 $14,402,000
12.0%
Normal Cost 22.0% 22.3% 22.7% 23.1%
UAL Contribution $12,269,000 $12,858,000 $12,752,000 $12,126,000
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 reflect
the recent changes to the amortization policy effective with the June 30, 2019 valuation. The projections
above do incorporate the impact of the CalPERS risk mitigation policy which reduces the discount when
investment returns are above specified trigger points.
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 23
Discount Rate Sensitivity
Shown below are various valuation results as of June 30, 2018 assuming alternate discount rates. Results are
shown using the current discount rate of 7.0 percent as well as alternate discount rates of 6.0 percent and
8.0 percent. 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 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, 2018 Plan’s
Normal Cost
Accrued
Liability Unfunded
Accrued Liability Funded
Status
7.0% (current discount rate) 30.913% $451,111,924 $170,712,183 62.2%
6.0% 38.659% $509,877,456 $229,477,715 55.0%
8.0% 24.964% $402,666,425 $122,266,684 69.6%
Mortality Rate Sensitivity
The following table looks at the change in the June 30, 2018 plan costs and funded ratio under two different
longevity scenarios, namely assuming rates of mortality are 10 percent lower or 10 percent higher than our
current mortality assumptions adopted in 2017. This type of analysis highlights the impact on the plan of
improving or worsening mortality over the long-term.
As of June 30, 2018 Current
Mortality
10% Lower
Mortality Rates 10% Higher
Mortality Rates
a) Accrued Liability $451,111,924 $459,309,848 $443,542,218
b) Market Value of Assets $280,399,741 $280,399,741 $280,399,741
c) Unfunded Liability (Surplus) [(a)-(b)] $170,712,183 $178,910,107 $163,142,477
d) Funded Status 62.2% 61.0% 63.2%
A 10 percent increase (decrease) in assumed mortality rates over the long-term would result in approximately
a 1.0 percentage point increase (decrease) to the funded ratio.
Inflation Rate Sensitivity
The following analysis looks at the change in the June 30, 2018 plan costs and funded ratio under two different
inflation rate scenarios, namely assuming the inflation rate is 1 percent lower or 1 percent higher than our
current valuation inflation rate assumption of 2.50%, while holding the discount rate fixed at 7.0%. This type
of analysis highlights the impact on the plan of increased or decreased inflation over the long-term.
As of June 30, 2018 Current
Inflation Rate
-1% Inflation
Rate +1% Inflation
Rate
a) Accrued Liability $451,111,924 $422,717,236 $474,181,012
b) Market Value of Assets $280,399,741 $280,399,741 $280,399,741
c) Unfunded Liability (Surplus) [(a)-(b)] $170,712,183 $142,317,495 $193,781,271
d) Funded Status 62.2% 66.3% 59.1%
A decrease of 1 percent in the inflation rate assumption (2.50 percent to 1.50 percent) reduces the Accrued
Liability by 6.3 percent. However, a 1 percent increase in the inflation rate (2.50 percent to 3.50 percent)
increases the Accrued Liability by 5.1 percent.
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 24
Maturity Measures
As pension plans mature they become much more sensitive to risks than plans that are less mature.
Understanding plan maturity and how it affects the ability of a pension plan to tolerate risk is important in
understanding how the plan is impacted by investment return volatility, other economic variables and changes
in longevity or other demographic assumptions. One way to look at the maturity level of CalPERS and its plans is to look at the ratio of a plan’s retiree liability to its total liability. A pension plan in its infancy will have a
very low ratio of retiree liability to total liability. As the plan matures, the ratio starts increasing. A mature plan
will often have a ratio above 60-65 percent. For both CalPERS and other retirement systems in the United
States, these ratios have been steadily increasing in recent years.
Ratio of Retiree Accrued Liability to
Total Accrued Liability June 30, 2017 June 30, 2018
1. Retiree Accrued Liability 302,744,100 332,776,962
2. Total Accrued Liability 422,062,152 451,111,924
3. Ratio of Retiree AL to Total AL [(1) / (2)] 72% 74%
Another way to look at the maturity level of CalPERS and its plans is to look at the ratio of actives to retirees.
A pension plan in its infancy will have a very high ratio of active to retired members. As the plan matures, and
members retire, the ratio starts declining. A mature plan will often have a ratio near or below one. The average
support ratio for CalPERS public agency plans is 1.25.
Support Ratio June 30, 2017 June 30, 2018
1. Number of Actives 172 167
2. Number of Retirees 427 430
3. Support Ratio [(1) / (2)] 0.40 0.39
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.
CalPERS Actuarial Valuation - June 30, 2018 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 25
Contribution Volatility June 30, 2017 June 30, 2018
1. Market Value of Assets without Receivables $ 267,303,062 $ 279,908,979
2. Payroll 23,485,510 23,613,222
3. Asset Volatility Ratio (AVR) [(1) / (2)] 11.4 11.9
4. Accrued Liability $ 422,062,152 $ 451,111,924
5. Liability Volatility Ratio (LVR) [(4) / (2)] 18.0 19.1
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, 2018. 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
@ 2.50%
Funded Status
Unfunded
Termination Liability
@ 2.50%
Hypothetical
Termination Liability1,2
@ 3.25%
Funded Status
Unfunded
Termination Liability
@ 3.25%
$280,399,741 $772,121,728 36.3% $491,721,987 $706,555,736 39.7% $426,155,995
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 2.91 percent on June 30, 2018, and was 2.83 percent on January 31, 2019.
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, 2018
Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 27
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.
Benefit Group
Member Category Police Fire Fire Police Fire Fire Police
Demographics Actives Yes Yes Yes Yes No Yes Yes
Transfers/Separated Yes Yes Yes Yes No Yes Yes
Receiving Yes No Yes No Yes No No
Benefit Group Key 105397 105398 105400 111263 111265 111268 111269
Benefit Provision
Benefit Formula 3% @ 50 3% @ 50 3% @ 50 2.7% @ 57 3% @ 50 3% @ 55 3% @ 55 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% 9.00%
Final Average Compensation Period One Year One Year One Year Three Year One 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 Standard Standard Standard Standard Standard Standard Standard
Pre-Retirement Death Benefits Optional Settlement 2 No Yes Yes No Yes Yes No
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%
CalPERS Actuarial Valuation - June 30, 2018
Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 28
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.
Benefit Group
Member Category Police Police Fire Fire Fire Police Police
Demographics Actives No No No No No No No
Transfers/Separated No No No No No No No
Receiving Yes Yes Yes Yes Yes Yes Yes
Benefit Group Key 217235 217236 217224 217225 217226 217231 217234
Benefit Provision
Benefit Formula 2% @ 50 2% @ 50 2% @ 50 2% @ 50 2% @ 50 1/2 @ 55 2% @ 50 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% 9.00% 9.00% N/A 9.00%
Final Average Compensation Period One Year Three Year One Year One Year Three Year Three Year One Year
Sick Leave Credit No No No No No No No
Non-Industrial Disability Standard Standard Standard Standard Standard Standard Standard
Industrial Disability Standard Standard Standard Standard Standard Standard Standard
Pre-Retirement Death Benefits Optional Settlement 2 No No No No No No No
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%
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, 2018 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
2.75% 0%
2.75% 0%
2.75% 0%
2.75% 0%
2.75% 0%
Ramp Up 5 5 5 0 0
Ramp Down 5 5 5 0 0
CalPERS Actuarial Valuation – June 30, 2018 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, 2018 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, 2018 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.
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 2020-21 determined in this valuation were calculated using a discount
rate of 7.00 percent. 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 7.00
percent compounded annually (net of investment and administrative expenses) as of June 30, 2018.
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 2.83 percent on June 30, 2018.
CalPERS Actuarial Valuation – June 30, 2018 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 (2.75% for 2018) 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, 2018 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
2.75 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.
Inflation
2.50 percent compounded annually.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.50 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, 2018 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, 2018 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.
CalPERS Actuarial Valuation – June 30, 2018 Appendix A Actuarial Methods and Assumptions
A-9
Termination with Refund
Rates vary by entry age and service for miscellaneous plans. Rates vary by service for safety plans.
See sample rates in tables below.
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1742 0.1674 0.1606 0.1537 0.1468 0.1400
1 0.1545 0.1477 0.1409 0.1339 0.1271 0.1203
2 0.1348 0.1280 0.1212 0.1142 0.1074 0.1006
3 0.1151 0.1083 0.1015 0.0945 0.0877 0.0809
4 0.0954 0.0886 0.0818 0.0748 0.0680 0.0612
5 0.0212 0.0193 0.0174 0.0155 0.0136 0.0116
10 0.0138 0.0121 0.0104 0.0088 0.0071 0.0055
15 0.0060 0.0051 0.0042 0.0032 0.0023 0.0014
20 0.0037 0.0029 0.0021 0.0013 0.0005 0.0001
25 0.0017 0.0011 0.0005 0.0001 0.0001 0.0001
30 0.0005 0.0001 0.0001 0.0001 0.0001 0.0001
35 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
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, 2018 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, 2018 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.
CalPERS Actuarial Valuation – June 30, 2018 Appendix A Actuarial Methods and Assumptions
A-12
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.
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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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. The Section 415 dollar limit for the 2018 calendar year is $220,000.
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 2018 calendar year is $275,000.
Appendix B
Principal Plan Provisions
CalPERS Actuarial Valuation – June 30, 2018 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, 2018 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 $121,388 for 2018 and for those employees that do not participate in Social
Security the cap for 2018 is $145,666. Adjustments to the caps are permitted annually based on changes to the
CPI for all urban consumers.
• Employees must be covered by Social Security with the 1.5% at 65 formula. Social Security is optional for all other
benefit formulas. For employees covered by Social Security, the modified formula is the standard benefit. Under
this type of formula, the final compensation is offset by $133.33 (or by one third if the final compensation is less
than $400). Employers may contract for the full benefit with Social Security that will eliminate the offset applicable
to the final compensation. For employees not covered by Social Security, the full benefit is paid with no offsets.
CalPERS Actuarial Valuation – June 30, 2018 Appendix B Safety Plan of the City of Palo Alto
Principal Plan Provisions
B-3
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, 2018 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, 2018 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, 2018 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 6 percent per year through the date of death, 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 Appendix C Safety Plan of the City of Palo Alto
Participant Data
C-1
Summary of Valuation Data
June 30, 2017 June 30, 2018
1. Active Members
a) Counts 172 167
b) Average Attained Age
42.00 41.89
c) Average Entry Age to Rate Plan 29.81 30.65
d) Average Years of Credited Service 12.19 11.44
e) Average Annual Covered Pay $ 136,544 $ 141,397
f) Annual Covered Payroll 23,485,510 23,613,222
g) Projected Annual Payroll for Contribution Year 25,569,930 25,615,376
h) Present Value of Future Payroll 218,036,500 223,983,606
2. Transferred Members
a) Counts 60 61
b) Average Attained Age 42.71 42.92
c) Average Years of Credited Service 3.35 3.74
d) Average Annual Covered Pay $ 117,113 $ 124,058
3. Terminated Members
a) Counts 43 48
b) Average Attained Age 43.17 41.94
c) Average Years of Credited Service 3.53 2.84
d) Average Annual Covered Pay $ 90,476 $ 89,042
4. Retired Members and Beneficiaries
a) Counts 427 430
b) Average Attained Age 68.42 68.22
c) Average Annual Benefits $ 54,215 $ 57,369
5. Active to Retired Ratio [(1a) / (4a)] 0.40 0.39
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, 2018 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 20-24 25+ Total
15-24 1 0 0 0 0 0 1
25-29 14 0 0 0 0 0 14
30-34 14 9 3 0 0 0 26
35-39 6 13 14 1 0 0 34
40-44 5 5 4 10 1 0 25
45-49 0 5 4 17 8 1 35
50-54 1 1 3 5 8 4 22
55-59 2 1 0 3 0 2 8
60-64 0 0 0 1 0 0 1
65 and over 0 0 0 0 0 1 1
All Ages 43 34 28 37 17 8 167
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 20-24 25+ Average
15-24 $102,339 $0 $0 $0 $0 $0 $102,339
25-29 114,360 0 0 0 0 0 114,360
30-34 114,118 135,453 148,576 0 0 0 125,479
35-39 113,896 137,933 154,343 184,957 0 0 141,831
40-44 139,521 141,420 145,101 168,502 213,469 0 155,344
45-49 0 136,577 162,424 140,841 154,484 237,104 148,567
50-54 129,208 243,838 116,949 138,962 149,642 148,958 145,985
55-59 129,944 136,823 0 149,258 0 183,950 151,548
60-64 0 0 0 168,407 0 0 168,407
65 and over 0 0 0 0 0 149,226 149,226
All Ages $117,933 $140,672 $149,553 $150,683 $155,675 $168,758 $141,397
CalPERS Actuarial Valuation – June 30, 2018 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 20-24 25+ Total Average Salary
15-24 0 0 0 0 0 0 0 $0
25-29 3 0 0 0 0 0 3 119,298
30-34 6 0 0 0 0 0 6 131,908
35-39 12 5 1 0 0 0 18 112,691
40-44 6 1 0 0 0 0 7 119,801
45-49 9 4 1 1 0 0 15 135,623
50-54 7 2 1 0 0 0 10 126,817
55-59 1 1 0 0 0 0 2 124,318
60-64 0 0 0 0 0 0 0 0
65 and over 0 0 0 0 0 0 0 0
All Ages 44 13 3 1 0 0 61 124,058
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 20-24 25+ Total Average Salary
15-24 0 0 0 0 0 0 0 $0
25-29 4 0 0 0 0 0 4 101,152
30-34 6 1 0 0 0 0 7 89,858
35-39 9 2 2 0 0 0 13 89,970
40-44 6 2 0 0 0 0 8 102,088
45-49 3 2 1 0 0 0 6 97,755
50-54 4 1 0 0 0 0 5 63,068
55-59 3 0 0 0 0 0 3 49,640
60-64 0 1 0 0 0 0 1 129,374
65 and over 0 1 0 0 0 0 1 73,938
All Ages 35 10 3 0 0 0 48 89,042
CalPERS Actuarial Valuation – June 30, 2018 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 0 7 0 0 0 7
50-54 28 1 9 0 0 0 38
55-59 41 1 23 0 2 0 67
60-64 42 1 16 0 1 2 62
65-69 29 0 16 0 0 3 48
70-74 32 1 19 0 0 10 62
75-79 34 1 19 0 0 10 64
80-84 19 0 16 0 0 6 41
85 and Over 14 0 11 0 0 8 33
All Ages 239 5 144 0 3 39 430
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 56,369 0 0 0 56,369
40-44 0 0 49,894 0 0 0 49,894
45-49 0 0 50,137 0 0 0 50,137
50-54 78,110 86 67,915 0 0 0 73,642
55-59 85,775 34,260 65,094 0 51,626 0 76,887
60-64 74,270 2,120 76,903 0 27,318 63,384 72,677
65-69 83,966 0 48,912 0 0 32,807 69,084
70-74 52,800 18,052 41,416 0 0 33,090 45,572
75-79 53,235 14,686 42,735 0 0 33,632 46,452
80-84 45,021 0 30,214 0 0 14,895 34,834
85 and Over 27,516 0 24,791 0 0 30,362 27,298
All Ages $66,939 $13,841 $50,319 $0 $43,523 $31,402 $57,369
CalPERS Actuarial Valuation – June 30, 2018 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 45 1 15 0 0 11 72
5-9 62 1 20 0 0 4 87
10-14 36 0 17 0 1 7 61
15-19 32 0 17 0 0 12 61
20-24 28 1 19 0 1 1 50
25-29 22 1 14 0 0 3 40
30 and Over 14 1 42 0 1 1 59
All Years 239 5 144 0 3 39 430
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 $77,580 $2,120 $64,015 $0 $0 $19,339 $64,808
5-9 85,203 86 87,512 0 0 17,207 81,629
10-14 63,237 0 63,822 0 54,769 46,603 61,352
15-19 64,537 0 57,192 0 0 40,512 57,764
20-24 48,239 34,260 46,592 0 48,483 310 46,380
25-29 47,184 18,052 38,741 0 0 36,336 42,687
30 and Over 35,302 14,686 25,015 0 27,318 21,428 27,259
All Years $66,939 $13,841 $50,319 $0 $43,523 $31,402 $57,369
* 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, 2018 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 2020-21. 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 2020-21
Number of
Actives
Payroll on
6/30/2018
5080 Safety Police First Level 35.567% 49 7,774,556
25006 Safety Fire PEPRA Level 20.199% 16 1,801,716
25007 Safety Police PEPRA Level 27.704% 23 2,792,064
30705 Safety Fire First Level 29.216% 64 9,097,450
30706 Safety Fire Second Level 28.882% 1 212,285
30707 Safety Fire Third Level 31.706% 8 1,154,910
30708 Safety Police Second Level 40.453% 6 859,497
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 Level Benefit Group amended to the same benefit formula as a 1st Level 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, 2018 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, 2018. 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, 2020
Rate Plan
Identifier Benefit Group Name Total Normal
Cost
Member
Rate
Total Normal
Cost
Change Change
Needed
Member
Rate
25006 Safety Fire PEPRA Level 21.276% 10.750% 23.540% 2.264% Yes 11.750%
25007 Safety Police PEPRA
Level 21.276% 10.750% 23.540% 2.264% Yes 11.750%
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, 2018 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, 2018 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
400 Q Street, Sacramento, CA 95811 |Phone: (916) 795-3000 | Fax: (916) 795-2744
888 CalPERS (or 888-225-7377) | TTY: (877) 249-7442 | www.calpers.ca.gov
July 2019
Miscellaneous Plan of the City of Palo Alto (CalPERS ID: 6373437857) Annual Valuation Report as of June 30, 2018
Dear Employer,
Attached to this letter, you will find the June 30, 2018 actuarial valuation report of your CalPERS pension plan.
Provided in this report is the determination of the minimum required employer contributions for Fiscal
Year 2020-21. In addition, the report also contains important information regarding the current financial status of
the plan as well as projections and risk measures to aid in planning for the future.
Actuarial valuations are based on assumptions regarding future plan experience including investment return and payroll
growth, eligibility for the types of benefits provided, and longevity among retirees. The CalPERS Board of
Administration adopts these assumptions after considering the advice of CalPERS actuarial and investment teams and
other professionals. Each actuarial valuation reflects all prior differences between actual and assumed experience and
adjusts the contribution rates as needed. This valuation is based on an investment return assumption of 7.0% which
was adopted by the board in December 2016. Other assumptions used in this report are those recommended in the
CalPERS Experience Study and Review of Actuarial Assumptions report from December 2017.
Required Contributions
The exhibit below displays the minimum required employer contributions and the Employee PEPRA Rate for Fiscal Year
2020-21 along with an estimate of the required contribution for Fiscal Year 2021-22. 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
2020-21 11.487% $23,432,860 6.25%
Projected Results
2021-22 11.5% $25,769,000 TBD
The actual investment return for Fiscal Year 2018-19 was not known at the time this report was prepared. The
projections above assume the investment return for that year would be 7.00 percent. To the extent the actual
investment return for Fiscal Year 2018-19 differs from 7.00 percent, the actual contribution
requirements for Fiscal Year 2021-22 will differ from those shown above. 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. This section also contains projected required contributions through fiscal
year 2025-26.
Changes from previous Year’s Valuations
CalPERS continues to strive to provide comprehensive risk assessments regarding plan funding and sustainability
consistent with the Board of Administration’s pension and investment beliefs. Your report this year includes new
metrics on plan maturity in recognition of the fact that most pension plans at CalPERS are maturing as anticipated. As plans mature, they become much more sensitive to risks than plans that are less mature. The “Risk Analysis” section of
your report will help you understand how your plan is affected by investment return volatility and other economic
assumptions. We have included plan sensitivity analysis with respect to longevity and inflation to further that discussion
and encourage you to review our most recent Annual Review of Funding Levels and Risks report on our website that
takes a holistic view of the system.
ATTACHMENT C
Miscellaneous Plan of the City of Palo Alto (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2018
Page 2
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.
Upcoming Change for June 30, 2019 Valuations
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.
Over the past few years, CalPERS adopted measures to strengthen the long-term future of the system. These
measures include lowering the discount rate from 7.5% to 7.0% and shortening the amortization period for future
unexpected changes in unfunded liability. While these changes can result in short-term increases to required employer
contributions, they are not expected to increase the long-term cost of the plan. We firmly believe these changes were
necessary in order to maintain the security of promised benefits and to equitably spread benefit costs over the current and future generations.
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, 2019 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, 2018
for the
Miscellaneous Plan
of the
City of Palo Alto
(CalPERS ID: 6373437857)
(Valuation Rate Plan ID: 8)
Required Contributions
for Fiscal Year
July 1, 2020 – June 30, 2021
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 9
Asset Allocation 10
CalPERS History of Investment Returns 11
Liabilities and Contributions
Development of Accrued and Unfunded Liabilities 13
(Gain) / Loss Analysis 06/30/17 - 06/30/18 14
Schedule of Amortization Bases 15
Amortization Schedule and Alternatives 17 Reconciliation of Required Employer Contributions 19
Employer Contribution History 20
Funding History 20
Risk Analysis
Future Investment Return Scenarios 22
Discount Rate Sensitivity 23
Mortality Rate Sensitivity 23
Inflation Rate Sensitivity 23 Maturity Measures 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 JOB INSTANCE ID: 133939 (PY) FIN JOB INSTANCE ID: 123785 REPORT ID: 134165
CalPERS Actuarial Valuation - June 30, 2018 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, 2018 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, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 3
Introduction
This report presents the results of the June 30, 2018 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 2020-21.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2018. The purpose of the report is to:
• Set forth the assets and accrued liabilities of this plan as of June 30, 2018;
• Determine the minimum required employer contributions for the fiscal year July 1, 2020 through June
30, 2021;
• Provide actuarial information as of June 30, 2018 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 and consistent with the recommendations of Actuarial
Standards of Practice No. 51:
• A “Scenario Test,” projecting future results under different investment income returns.
• A “Sensitivity Analysis,” showing the impact on current valuation results using alternative discount
rates of 6.0 percent and 8.0 percent.
• A “Sensitivity Analysis,” showing the impact on current valuation results using a 1.0 percent plus or
minus change in the inflation rate.
• A “Sensitivity Analysis,” showing the impact on current valuation results assuming rates of mortality
are 10 percent lower or 10 percent higher than our current mortality assumptions adopted in 2017.
This type of analysis highlights the impact on the plan of improving or worsening mortality over the
long-term.
• Plan maturity measures which indicate how sensitive a plan may be to the risks noted above.
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2020-21
Employer Normal Cost Rate 11.487%
Plus, Either
1) Monthly Employer Dollar UAL Payment $ 1,952,738
Or
2) Annual UAL Prepayment Option* $ 22,653,401
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). Any prepayment totaling over $5 million requires a 72-hour notice email to
FCSD_public_agency_wires@calpers.ca.gov. 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
2019-20 2020-21
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 18.122% 18.831%
Employee Contribution1 7.406% 7.344%
Employer Normal Cost2 10.716% 11.487%
Projected Annual Payroll for Contribution Year $ 85,441,123 $ 87,177,382
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $ 15,483,641 $ 16,416,373
Employee Contribution1 6,327,770 6,402,307
Employer Normal Cost2 9,155,871 10,014,066
Unfunded Liability Contribution 21,287,260 23,432,860
% of Projected Payroll (illustrative only) 24.915% 26.880%
Estimated Total Employer Contribution $ 30,443,131 $ 33,446,926
% of Projected Payroll (illustrative only) 35.631% 38.367%
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, 2018 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 7.00% Return for Fiscal Year 2018-19)
Fiscal Year 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26
Normal Cost % 11.487% 11.5% 11.5% 11.5% 11.5% 11.5%
UAL Payment 23,432,860 25,769,000 27,776,000 29,093,000 30,451,000 28,631,000
Total as a % of Payroll* 38.4% 40.3% 41.7% 42.3% 42.8% 40.2%
Projected Payroll 87,177,382 89,574,760 92,038,065 94,569,113 97,169,763 99,841,932
*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.
For projected contributions under alternate investment return scenarios, please see the “Future Investment
Return Scenarios” in the “Risk Analysis” section.
June 30, 2017 June 30, 2018
1. Present Value of Projected Benefits $ 877,802,454 $ 943,874,610
2. Entry Age Normal Accrued Liability 772,526,669 831,958,865
3. Market Value of Assets (MVA) $ 511,805,893 $ 547,102,617
4. Unfunded Accrued Liability (UAL) [(2) – (3)] $ 260,720,776 $ 284,856,248
5. Funded Ratio [(3) / (2)] 66.3% 65.8%
CalPERS Actuarial Valuation - June 30, 2018 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 Amortization 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 6.0 percent over the 20 years ending June 30, 2018, 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, 2018 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
In December of 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 contributions for Fiscal Year 2020-21 determined in this valuation were calculated using a discount
rate of 7.00 percent, payroll growth of 2.75 percent and an inflation rate of 2.50 percent. The projected
employer contributions on Page 5 are calculated under the assumption that the discount rate remains at 7.00
percent going forward and that furthermore the realized rate of return on assets for Fiscal Year 2018-19 is
7.00 percent.
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.
CalPERS has implemented a new actuarial valuation software system for the June 30, 2018 valuation. With this new system we have refined and improved some of our calculation methodology. Any difference in
liability between the old software and new software calculations is captured as a method change line item.
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.
The contribution requirements determined in this actuarial valuation report are based on demographic and
financial information as of June 30, 2018. Changes in the value of assets subsequent to that date are not
reflected. Investment returns below the assumed rate of return will increase the required contribution, while
investment returns above the assumed rate of return will decrease the required contribution.
This actuarial valuation report reflects statutory changes, regulatory changes and CalPERS Board actions
through January 2019. 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, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 9
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/17 including Receivables $ 511,805,893
2. Change in Receivables for Service Buybacks (298,511)
3. Employer Contributions 23,341,716
4. Employee Contributions 6,200,275
5. Benefit Payments to Retirees and Beneficiaries (37,429,576)
6. Refunds (194,298)
7. Transfers (1,270)
8. Service Credit Purchase (SCP) Payments and Interest 752,213
9. Miscellaneous Adjustments 1
10. Net Investment Return 42,926,169
11. Market Value of Assets as of 6/30/18 including Receivables $ 547,102,617
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 10
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, 2018. 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 171.8 49.0%
Private Equity 27.2 8.0%
Global Fixed Income 79.1 22.0%
Liquidity 11.8 3.0%
Real Assets 38.1 12.0%
Inflation Sensitive Assets 20.8 6.0%
Other 3.1 0.0%
Total Fund $351.9 100.0%
Public Equity
48.8%
Private Equity
7.7%
Global Fixed
Income
22.5%
Liquidity
3.4%
Real Assets
10.8%
Inflation
5.9%
Other
0.9%
Actual Asset Allocation at 6/30/2018
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 11
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, 2018 (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 8.6% 7.9% 5.7% 6.0% 8.3%
Volatility – 6.9% 12.9% 11.1% 10.1%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
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
%
8.
6
%
Liabilities and Contributions
• Development of Accrued and Unfunded Liabilities
• (Gain) / Loss Analysis 06/30/17 - 06/30/18
• Schedule of Amortization Bases
• Amortization Schedule and Alternatives
• Reconciliation of Required Employer Contributions
• Employer Contribution History
• Funding History
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 13
Development of Accrued and Unfunded Liabilities
June 30, 2017 June 30, 2018
1. Present Value of Projected Benefits
a) Active Members $ 384,280,294 408,701,538
b) Transferred Members 35,391,763 39,086,313
c) Terminated Members 16,428,525 18,698,038
d) Members and Beneficiaries Receiving Payments 441,701,872 477,388,721
e) Total $ 877,802,454 943,874,610
2. Present Value of Future Employer Normal Costs $ 59,995,441 65,501,935
3. Present Value of Future Employee Contributions $ 45,280,344 46,413,810
4. Entry Age Normal Accrued Liability
a) Active Members [(1a) - (2) - (3)] $ 279,004,509 296,785,793
b) Transferred Members (1b) 35,391,763 39,086,313
c) Terminated Members (1c) 16,428,525 18,698,038
d) Members and Beneficiaries Receiving Payments (1d) 441,701,872 477,388,721
e) Total $ 772,526,669 831,958,865
5. Market Value of Assets (MVA) $ 511,805,893 547,102,617
6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $ 260,720,776 284,856,248
7. Funded Ratio [(5) / (4e)] 66.3% 65.8%
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 14
(Gain)/Loss Analysis 6/30/17 – 6/30/18
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 6/30/17 $ 260,720,776
b) Expected Payment on the UAL during 2017-18 14,704,971
c) Interest through 6/30/18 [.0725 x (1a) - ((1.0725)½ - 1) x (1b)] 18,378,528 d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 264,394,333
e) Change due to plan changes 0
f) Change due to assumption change 21,548,889
g) Change due to method change 3,982,991
h) Expected UAL after all other changes [(1d) + (1e) + (1f) + (1g)] 289,926,213
i) Actual UAL as of 6/30/18 284,856,248
j) Total (Gain)/Loss for 2017-18 [(1i) - (1h)] $ (5,069,964)
2. Contribution (Gain)/Loss for the Year
a) Expected Contribution (Employer and Employee) $ 29,849,020
b) Interest on Expected Contributions 1,063,095 c) Actual Contributions 29,541,991
d) Interest on Actual Contributions 1,052,160
e) Expected Contributions with Interest [(2a) + (2b)] 30,912,115
f) Actual Contributions with Interest [(2c) + (2d)] 30,594,151
g) Contribution (Gain)/Loss [(2e) - (2f)] $ 317,964
3. Asset (Gain)/Loss for the Year
a) Market Value of Assets as of 6/30/17 $ 511,805,893
b) Prior Fiscal Year Receivables (1,913,582)
c) Current Fiscal Year Receivables 1,615,071
d) Contributions Received 29,541,991 e) Benefits and Refunds Paid (37,623,874)
f) Transfers, SCP Payments and Interest, and Miscellaneous Adjustments 750,945
g) Expected Int. [.0725 x (3a + 3b) + ((1.0725)½ - 1) x ((3d) + (3e) + (3f))] 36,706,096
h) Expected Assets as of 6/30/18 [(3a) + (3b) + (3c) + (3d) + (3e) + (3f) + (3g)] 540,882,540
i) Market Value of Assets as of 6/30/18 547,102,617
j) Asset (Gain)/Loss [(3h) - (3i)] $ (6,220,077)
4. Liability (Gain)/Loss for the Year
a) Total (Gain)/Loss (1j) $ (5,069,964)
b) Contribution (Gain)/Loss (2g) 317,964
c) Asset (Gain)/Loss (3j) (6,220,077)
d) Liability (Gain)/Loss [(4a) - (4b) - (4c)] $ 832,149
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 15
Schedule of Amortization Bases
On the next page is the schedule of the plan’s amortization bases. Note that 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,
2018.
• The required employer contributions determined by the valuation are for the fiscal year beginning two
years after the valuation date: Fiscal Year 2020-21.
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.
CalPERS Actuarial Valuation - June 30, 2018
Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 16
Schedule of Amortization Bases
Reason for Base
Date
Established
Ramp Up/Down
2020-21
Escalat-ion
Rate
Amorti-zation
Period
Balance
6/30/18
Expected Payment
2018-19
Balance
6/30/19
Expected Payment
2019-20
Balance
6/30/20
Scheduled Payment for
2020-21
ASSUMPTION CHANGE 06/30/03 No Ramp 2.750% 5 $13,244,870 $2,216,388 $11,879,361 $2,275,477 $10,357,145 $2,319,811
METHOD CHANGE 06/30/04 No Ramp 2.750% 6 $(1,044,113) $(155,924) $(955,912) $(160,094) $(857,223) $(163,155)
BENEFIT CHANGE 06/30/05 No Ramp 2.750% 6 $23,131,891 $3,454,433 $21,177,830 $3,546,810 $18,991,429 $3,614,625
ASSUMPTION CHANGE 06/30/09 No Ramp 2.750% 11 $24,390,462 $2,468,358 $23,544,505 $2,534,996 $22,570,400 $2,578,025
SPECIAL (GAIN)/LOSS 06/30/09 No Ramp 2.750% 21 $16,780,986 $1,151,812 $16,764,211 $1,183,236 $16,713,757 $1,198,299
SPECIAL (GAIN)/LOSS 06/30/10 No Ramp 2.750% 22 $1,389,590 $93,015 $1,390,646 $95,554 $1,389,149 $96,733
ASSUMPTION CHANGE 06/30/11 No Ramp 2.750% 13 $11,653,754 $1,061,270 $11,371,730 $1,089,996 $11,040,251 $1,107,534
SPECIAL (GAIN)/LOSS 06/30/11 No Ramp 2.750% 23 $(58,585) $(3,830) $(58,724) $(3,935) $(58,765) $(3,982)
PAYMENT (GAIN)/LOSS 06/30/12 No Ramp 2.750% 24 $3,070,791 $196,400 $3,082,588 $201,771 $3,089,656 $204,105
(GAIN)/LOSS 06/30/12 No Ramp 2.750% 24 $25,887,324 $1,655,688 $25,986,780 $1,700,967 $26,046,361 $1,720,644
(GAIN)/LOSS 06/30/13 100% 2.750% 25 $80,605,642 $4,273,993 $81,826,984 $5,488,706 $81,877,311 $5,554,310
ASSUMPTION CHANGE 06/30/14 100% 2.750% 16 $44,945,884 $2,472,670 $45,534,347 $3,386,584 $45,218,641 $4,299,805
(GAIN)/LOSS 06/30/14 100% 2.750% 26 $(49,791,019) $(1,984,845) $(51,223,251) $(2,719,039) $(51,996,283) $(3,438,352)
(GAIN)/LOSS 06/30/15 80% 2.750% 27 $29,692,054 $801,201 $30,941,729 $1,234,835 $31,830,326 $1,664,856
ASSUMPTION CHANGE 06/30/16 60% 2.750% 18 $12,870,618 $242,873 $13,520,332 $499,046 $13,950,538 $759,535
(GAIN)/LOSS 06/30/16 60% 2.750% 28 $32,364,821 $449,116 $34,165,789 $922,983 $35,602,653 $1,399,137
ASSUMPTION CHANGE 06/30/17 40% 2.750% 19 $12,362,633 $(704,292) $13,956,543 $263,619 $14,660,811 $534,613
(GAIN)/LOSS 06/30/17 40% 2.750% 29 $(17,103,269) $0 $(18,300,498) $(254,252) $(19,318,532) $(513,519)
METHOD CHANGE 06/30/18 20% 2.750% 20 $3,982,991 $(221,297) $4,490,712 $(227,382) $5,040,268 $93,974
ASSUMPTION CHANGE 06/30/18 20% 2.750% 20 $21,548,889 $(621,778) $23,700,483 $(638,877) $26,020,376 $485,140
(GAIN)/LOSS 06/30/18 20% 2.750% 30 $(5,069,965) $0 $(5,424,863) $0 $(5,804,603) $(79,278)
TOTAL $284,856,248 $16,845,251 $287,371,322 $20,421,001 $286,363,666 $23,432,860
CalPERS Actuarial Valuation - June 30, 2018 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 2.75 percent per year.
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, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 18
Amortization Schedule and Alternatives
Alternate Schedules
Current Amortization Schedule 15 Year Amortization 10 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2020 286,363,666 23,432,860 286,363,666 25,828,203 286,363,666 35,308,545
6/30/2021 282,169,983 25,768,686 279,692,222 26,538,479 269,885,680 36,279,530
6/30/2022 275,266,546 27,775,842 271,819,062 27,268,287 251,249,840 37,277,217
6/30/2023 265,803,649 29,093,334 262,639,861 28,018,165 230,277,476 38,302,340
6/30/2024 254,315,525 30,450,533 252,042,436 28,788,664 206,776,650 39,355,655
6/30/2025 240,619,337 28,631,100 239,906,181 29,580,352 180,541,209 40,437,935
6/30/2026 227,846,449 25,356,875 226,101,459 30,393,812 151,349,768 41,549,979
6/30/2027 217,566,346 26,054,188 210,488,957 31,229,642 118,964,620 42,692,603
6/30/2028 205,845,327 26,770,680 192,918,992 32,088,457 83,130,572 43,866,650
6/30/2029 192,562,693 27,506,872 173,230,763 32,970,890 43,573,697 45,072,982
6/30/2030 177,588,753 28,263,313 151,251,563 33,877,589
6/30/2031 160,784,169 25,566,093 126,795,922 34,809,223
6/30/2032 145,593,290 25,078,301 99,664,696 35,766,476
6/30/2033 129,843,622 22,968,475 69,644,094 36,750,055
6/30/2034 115,173,901 21,972,705 36,504,628 37,760,681
6/30/2035 100,507,333 20,503,251
6/30/2036 86,334,117 18,042,492
6/30/2037 73,714,206 16,794,746
6/30/2038 61,501,581 15,464,725
6/30/2039 49,809,855 14,472,775
6/30/2040 38,325,790 13,874,452
6/30/2041 26,656,752 10,174,002
6/30/2042 17,998,655 9,509,422
6/30/2043 9,421,939 8,211,777
6/30/2044 1,587,145 1,641,756
6/30/2045
6/30/2046
6/30/2047
6/30/2048
6/30/2049
Total 523,379,255 471,668,975 400,143,436
Interest Paid 237,015,589 185,305,309 113,779,770
Estimated Savings 51,710,280 123,235,819
CalPERS Actuarial Valuation - June 30, 2018 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 7/1/19 – 6/30/20
a) Employer Normal Cost 10.716%
b) Employee Contribution 7.406%
c) Total Normal Cost 18.122%
2. Changes since the prior year annual valuation
a) Effect of changes in demographics results (0.312%)
b) Effect of plan changes 0.000%
c) Effect of changes in assumptions 0.753%
d) Effect of method changes 0.268%
e) Net effect of the changes above [sum of (a) through (d)] 0.709%
3. For Period 7/1/20 – 6/30/21
a) Employer Normal Cost 11.487%
b) Employee Contribution 7.344%
c) Total Normal Cost 18.831%
Employer Normal Cost Change [(3a) – (1a)] 0.771%
Employee Contribution Change [(3b) – (1b)] (0.062%)
Unfunded Liability Contribution ($)
1. For Period 7/1/19 – 6/30/20 21,287,260
2. Changes since the prior year annual valuation
a) Effect of (gain)/loss during prior year1 (79,278)
b) Effect of plan changes 0
c) Effect of changes in assumptions2 485,140
d) Changes to prior year amortization payments3 1,645,764
e) Effect of changes due to Fresh Start 0
f) Effect of elimination of amortization base 0
g) Effect of method change2 93,974
h) Net effect of the changes above [sum of (a) through (g)] 2,145,600
3. For Period 7/1/20 – 6/30/21 [(1) + (2h)] 23,432,860
The amounts shown for the period 7/1/19 – 6/30/20 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.
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. This line item also captures the impact of any additional discretionary payment during
the fiscal year.
2 The unfunded liability contribution for the change in assumptions or method 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.
CalPERS Actuarial Valuation - June 30, 2018 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
2020 - 21 11.487% N/A 23,432,860
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
06/30/18 831,958,865 547,102,617 284,856,248 65.8% 80,363,405
Risk Analysis
• Future Investment Return Scenarios
• Discount Rate Sensitivity
• Mortality Rate Sensitivity
• Inflation Rate Sensitivity
• Maturity Measures
• Hypothetical Termination Liability
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 22
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 (2018-19, 2019-20, 2020-21 and 2021-22). 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.
For fiscal years 2018-19, 2019-20, 2020-21, and 2021-22 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.
These alternate investment returns were chosen based on stochastic analysis of possible future investment
returns over the four-year period ending June 30, 2022. 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 2021-22
Projected Employer Contributions
2021-22 2022-23 2023-24 2024-25
1.0%
Normal Cost 11.5% 11.5% 11.5% 11.5%
UAL Contribution $26,584,000 $30,223,000 $33,994,000 $38,637,000
4.0%
Normal Cost 11.5% 11.5% 11.5% 11.5%
UAL Contribution $26,176,000 $29,012,000 $31,593,000 $34,669,000
7.0%
Normal Cost 11.5% 11.5% 11.5% 11.5%
UAL Contribution $25,769,000 $27,776,000 $29,093,000 $30,451,000
9.0%
Normal Cost 11.7% 12.0% 12.2% 12.4%
UAL Contribution $25,532,000 $27,130,000 $27,848,000 $28,374,000
12.0%
Normal Cost 11.7% 12.0% 12.2% 12.4%
UAL Contribution $25,126,000 $25,866,000 $25,216,000 $23,801,000
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 reflect
the recent changes to the amortization policy effective with the June 30, 2019 valuation. The projections
above do incorporate the impact of the CalPERS risk mitigation policy which reduces the discount when
investment returns are above specified trigger points.
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 23
Discount Rate Sensitivity
Shown below are various valuation results as of June 30, 2018 assuming alternate discount rates. Results
are shown using the current discount rate of 7.0 percent as well as alternate discount rates of 6.0 percent
and 8.0 percent. 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 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, 2018 Plan’s
Normal Cost
Accrued
Liability Unfunded
Accrued Liability Funded
Status
7.0% (current discount rate) 18.831% $831,958,865 $284,856,248 65.8%
6.0% 23.613% $939,097,286 $391,994,669 58.3%
8.0% 15.183% $743,018,834 $195,916,217 73.6%
Mortality Rate Sensitivity
The following table looks at the change in the June 30, 2018 plan costs and funded ratio under two different
longevity scenarios, namely assuming rates of mortality are 10 percent lower or 10 percent higher than our
current mortality assumptions adopted in 2017. This type of analysis highlights the impact on the plan of
improving or worsening mortality over the long-term.
As of June 30, 2018 Current
Mortality
10% Lower
Mortality Rates 10% Higher
Mortality Rates
a) Accrued Liability $831,958,865 $849,381,849 $815,911,731
b) Market Value of Assets $547,102,617 $547,102,617 $547,102,617
c) Unfunded Liability (Surplus) [(a)-(b)] $284,856,248 $302,279,232 $268,809,114
d) Funded Status 65.8% 64.4% 67.1%
A 10 percent increase (decrease) in assumed mortality rates over the long-term would result in
approximately a 1.3 percentage point increase (decrease) to the funded ratio.
Inflation Rate Sensitivity
The following analysis looks at the change in the June 30, 2018 plan costs and funded ratio under two
different inflation rate scenarios, namely assuming the inflation rate is 1 percent lower or 1 percent higher
than our current valuation inflation rate assumption of 2.50%, while holding the discount rate fixed at 7.0%.
This type of analysis highlights the impact on the plan of increased or decreased inflation over the long-
term.
As of June 30, 2018 Current
Inflation Rate
-1% Inflation
Rate +1% Inflation
Rate
a) Accrued Liability $831,958,865 $778,299,626 $870,525,734
b) Market Value of Assets $547,102,617 $547,102,617 $547,102,617
c) Unfunded Liability (Surplus) [(a)-(b)] $284,856,248 $231,197,009 $323,423,117
d) Funded Status 65.8% 70.3% 62.8%
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 24
A decrease of 1 percent in the inflation rate assumption (2.50 percent to 1.50 percent) reduces the Accrued Liability by 6.4 percent. However, a 1 percent increase in the inflation rate (2.50 percent to 3.50 percent)
increases the Accrued Liability by 4.6 percent.
Maturity Measures
As pension plans mature they become much more sensitive to risks than plans that are less mature. Understanding plan maturity and how it affects the ability of a pension plan to tolerate risk is important in
understanding how the plan is impacted by investment return volatility, other economic variables and
changes in longevity or other demographic assumptions. One way to look at the maturity level of CalPERS
and its plans is to look at the ratio of a plan’s retiree liability to its total liability. A pension plan in its infancy
will have a very low ratio of retiree liability to total liability. As the plan matures, the ratio starts increasing.
A mature plan will often have a ratio above 60-65 percent. For both CalPERS and other retirement systems
in the United States, these ratios have been steadily increasing in recent years.
Ratio of Retiree Accrued Liability to
Total Accrued Liability June 30, 2017 June 30, 2018
1. Retiree Accrued Liability 441,701,872 477,388,721
2. Total Accrued Liability 772,526,669 831,958,865
3. Ratio of Retiree AL to Total AL [(1) / (2)] 57% 57%
Another way to look at the maturity level of CalPERS and its plans is to look at the ratio of actives to
retirees. A pension plan in its infancy will have a very high ratio of active to retired members. As the plan matures, and members retire, the ratio starts declining. A mature plan will often have a ratio near or below
one. The average support ratio for CalPERS public agency plans is 1.25.
Support Ratio June 30, 2017 June 30, 2018
1. Number of Actives 818 808
2. Number of Retirees 1,098 1,129
3. Support Ratio [(1) / (2)] 0.74 0.72
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.
CalPERS Actuarial Valuation - June 30, 2018 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 25
Contribution Volatility June 30, 2017 June 30, 2018
1. Market Value of Assets without Receivables $ 509,892,311 $ 545,487,546
2. Payroll 78,476,098 80,363,405
3. Asset Volatility Ratio (AVR) [(1) / (2)] 6.5 6.8
4. Accrued Liability $ 772,526,669 $ 831,958,865
5. Liability Volatility Ratio (LVR) [(4) / (2)] 9.8 10.4
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, 2018. 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
@ 2.50%
Funded Status
Unfunded
Termination Liability
@ 2.50%
Hypothetical
Termination Liability1,2
@ 3.25%
Funded Status
Unfunded
Termination Liability
@ 3.25%
$547,102,617 $1,327,792,050 41.2% $780,689,433 $1,217,096,005 45.0% $669,993,388
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 2.91 percent on June 30, 2018, and was 2.83 percent on January 31, 2019.
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, 2018
Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 27
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.
Benefit Group
Member Category Misc Misc Misc Misc Misc Misc Misc
Demographics Actives No Yes Yes Yes No No No
Transfers/Separated Yes Yes Yes Yes No No No
Receiving Yes Yes Yes Yes Yes Yes Yes
Benefit Provision
Benefit Formula 2% @ 55 2.7% @ 55 2% @ 60 2% @ 62 2% @ 60 2% @ 60 2% @ 60 Social Security Coverage No No No No No No No
Full/Modified Full Full Full Full Full Full Full
Employee Contribution Rate 8.00% 8.00% 7.00% 6.25% 8.00% 8.00% 8.00%
Final Average Compensation Period One Year One Year One Year Three Year One Year One 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 No No No No No No No
Pre-Retirement Death Benefits Optional Settlement 2 No No No No No No No
1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1 Level 1 Level 1 Level 1
Special No No No No No No No
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%
CalPERS Actuarial Valuation - June 30, 2018
Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 28
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.
Benefit Group
Member Category
Demographics Actives
Transfers/Separated
Receiving
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
Survivor Allowance (PRSA)
COLA
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, 2018 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
2.75%
0%
2.75%
0%
2.75%
0%
2.75%
0%
2.75%
0%
Ramp Up 5 5 5 0 0
Ramp Down 5 5 5 0 0
CalPERS Actuarial Valuation – June 30, 2018 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, 2018 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, 2018 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.
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 2020-21 determined in this valuation were calculated using
a discount rate of 7.00 percent. 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 7.00
percent compounded annually (net of investment and administrative expenses) as of June 30,
2018.
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 2.83 percent on June 30, 2018.
CalPERS Actuarial Valuation – June 30, 2018 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 (2.75% for 2018) 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, 2018 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
2.75 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.
Inflation
2.50 percent compounded annually.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.50 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, 2018 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, 2018 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.
CalPERS Actuarial Valuation – June 30, 2018 Appendix A Actuarial Methods and Assumptions
A-9
Termination with Refund
Rates vary by entry age and service for miscellaneous plans. Rates vary by service for safety plans.
See sample rates in tables below.
Public Agency Miscellaneous
Duration of
Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45
0 0.1742 0.1674 0.1606 0.1537 0.1468 0.1400
1 0.1545 0.1477 0.1409 0.1339 0.1271 0.1203
2 0.1348 0.1280 0.1212 0.1142 0.1074 0.1006
3 0.1151 0.1083 0.1015 0.0945 0.0877 0.0809
4 0.0954 0.0886 0.0818 0.0748 0.0680 0.0612
5 0.0212 0.0193 0.0174 0.0155 0.0136 0.0116
10 0.0138 0.0121 0.0104 0.0088 0.0071 0.0055
15 0.0060 0.0051 0.0042 0.0032 0.0023 0.0014
20 0.0037 0.0029 0.0021 0.0013 0.0005 0.0001
25 0.0017 0.0011 0.0005 0.0001 0.0001 0.0001
30 0.0005 0.0001 0.0001 0.0001 0.0001 0.0001
35 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001
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, 2018 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, 2018 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.
CalPERS Actuarial Valuation – June 30, 2018 Appendix A Actuarial Methods and Assumptions
A-12
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.
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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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, 2018 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. The Section 415 dollar limit for the 2018 calendar year is
$220,000.
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 2018 calendar year is $275,000.
Appendix B
Principal Plan Provisions
CalPERS Actuarial Valuation – June 30, 2018 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, 2018 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 $121,388 for 2018 and for those employees that do not participate
in Social Security the cap for 2018 is $145,666. 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, 2018 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, 2018 Appendix B Miscellaneous 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, 2018 Appendix B Miscellaneous 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, 2018 Appendix B Miscellaneous 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 6 percent per year through the date of death, 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, 2018 Appendix B Miscellaneous 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, 2018 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, 2018 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, 2018 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, 2018 Appendix C Miscellaneous Plan of the City of Palo Alto
Participant Data
C-1
Summary of Valuation Data
June 30, 2017 June 30, 2018
1. Active Members
a) Counts 818 808
b) Average Attained Age
46.30 46.16
c) Average Entry Age to Rate Plan 35.05 35.31
d) Average Years of Credited Service 11.25 11.05
e) Average Annual Covered Pay $ 95,937 $ 99,460
f) Annual Covered Payroll 78,476,098 80,363,405
g) Projected Annual Payroll for Contribution Year 85,441,123 87,177,382
h) Present Value of Future Payroll 624,164,899 647,044,574
2. Transferred Members
a) Counts 375 382
b) Average Attained Age 45.70 45.77
c) Average Years of Credited Service 3.38 3.44
d) Average Annual Covered Pay $ 115,882 $ 121,467
3. Terminated Members
a) Counts 399 414
b) Average Attained Age 47.86 47.71
c) Average Years of Credited Service 3.24 3.15
d) Average Annual Covered Pay $ 69,073 $ 70,599
4. Retired Members and Beneficiaries
a) Counts 1,098 1,129
b) Average Attained Age 69.78 70.15
c) Average Annual Benefits $ 33,253 $ 34,217
5. Active to Retired Ratio [(1a) / (4a)] 0.74 0.72
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, 2018 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 20-24 25+ Total
15-24 8 0 0 0 0 0 8
25-29 66 5 0 0 0 0 71
30-34 57 20 4 1 0 0 82
35-39 48 28 14 13 2 0 105
40-44 40 25 20 19 9 0 113
45-49 25 16 13 25 12 7 98
50-54 20 21 16 23 19 18 117
55-59 16 21 17 19 20 35 128
60-64 8 11 17 5 8 9 58
65 and over 1 4 3 7 5 8 28
All Ages 289 151 104 112 75 77 808
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 20-24 25+ Average
15-24 $67,408 $0 $0 $0 $0 $0 $67,408
25-29 72,536 95,429 0 0 0 0 74,149
30-34 87,251 96,942 93,343 87,712 0 0 89,918
35-39 90,806 98,925 85,988 98,409 91,165 0 93,277
40-44 97,029 99,719 98,556 107,993 104,262 0 100,314
45-49 110,014 105,733 110,650 115,320 127,251 117,452 113,395
50-54 97,808 118,174 103,412 104,219 110,333 114,182 108,043
55-59 110,941 110,084 107,142 97,000 102,550 107,422 105,953
60-64 89,086 109,013 94,792 91,626 87,284 116,911 98,826
65 and over 145,666 132,684 106,880 85,757 120,041 101,455 107,471
All Ages $89,549 $105,258 $99,951 $103,575 $107,913 $110,403 $99,460
CalPERS Actuarial Valuation – June 30, 2018 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 20-24 25+ Total Average Salary
15-24 1 0 0 0 0 0 1 $102,339
25-29 19 0 0 0 0 0 19 95,657
30-34 35 1 0 0 0 0 36 111,475
35-39 48 9 7 0 0 0 64 110,653
40-44 44 9 1 2 0 0 56 123,066
45-49 58 11 0 5 0 0 74 125,108
50-54 41 12 2 1 1 0 57 132,328
55-59 31 9 5 1 1 0 47 131,067
60-64 13 3 2 1 1 0 20 138,382
65 and over 6 1 0 1 0 0 8 95,667
All Ages 296 55 17 11 3 0 382 121,467
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 20-24 25+ Total Average Salary
15-24 0 0 0 0 0 0 0 $0
25-29 19 0 0 0 0 0 19 75,007
30-34 33 4 0 0 0 0 37 77,995
35-39 48 5 1 0 0 0 54 69,856
40-44 55 6 3 0 0 0 64 72,104
45-49 43 12 2 1 1 0 59 76,375
50-54 43 16 4 3 1 0 67 71,352
55-59 45 6 4 3 0 0 58 71,507
60-64 23 7 1 0 0 0 31 59,884
65 and over 20 3 2 0 0 0 25 49,580
All Ages 329 59 17 7 2 0 414 70,599
CalPERS Actuarial Valuation – June 30, 2018 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 1 1 0 0 0 2
50-54 23 6 2 1 0 0 32
55-59 99 12 2 0 0 5 118
60-64 178 8 1 0 0 7 194
65-69 198 10 0 0 0 19 227
70-74 210 9 2 0 0 11 232
75-79 120 5 2 0 0 18 145
80-84 57 6 0 0 0 13 76
85 and Over 57 4 0 0 0 34 95
All Ages 942 61 14 1 0 111 1,129
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 $13,556 $13,556
30-34 0 0 0 0 0 12,797 12,797
35-39 0 0 282 0 0 12,038 4,201
40-44 0 0 264 0 0 0 264
45-49 0 9,235 255 0 0 0 4,745
50-54 17,421 15,540 671 16,872 0 0 16,004
55-59 36,691 13,316 973 0 0 24,558 33,195
60-64 43,230 13,690 11,904 0 0 14,830 40,826
65-69 40,822 16,666 0 0 0 28,300 38,710
70-74 38,510 18,945 9,629 0 0 21,195 36,681
75-79 31,414 25,668 1,942 0 0 28,380 30,433
80-84 35,347 18,129 0 0 0 18,519 31,109
85 and Over 24,695 17,136 0 0 0 19,692 22,586
All Ages $37,251 $16,633 $2,834 $16,872 $0 $22,250 $34,217
CalPERS Actuarial Valuation – June 30, 2018 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 217 2 1 1 0 29 250
5-9 281 9 6 0 0 32 328
10-14 198 13 3 0 0 19 233
15-19 131 8 2 0 0 16 157
20-24 58 13 2 0 0 5 78
25-29 41 11 0 0 0 8 60
30 and Over 16 5 0 0 0 2 23
All Years 942 61 14 1 0 111 1,129
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 $34,924 $13,014 $306 $16,872 $0 $19,146 $32,707
5-9 47,096 9,916 270 0 0 29,364 43,490
10-14 38,626 17,670 10,381 0 0 20,913 35,649
15-19 33,124 22,051 1,781 0 0 21,587 30,985
20-24 21,571 22,486 1,526 0 0 7,364 20,299
25-29 17,477 13,775 0 0 0 18,043 16,874
30 and Over 20,161 9,878 0 0 0 25,482 18,388
All Years $37,251 $16,633 $2,834 $16,872 $0 $22,250 $34,217
* 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, 2018 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 2020-21. 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 2020-21
Number of
Actives
Payroll on
6/30/2018
8 Miscellaneous First Level 21.808% 433 45,091,338
26004 Miscellaneous PEPRA Level 13.428% 260 22,196,294
30157 Miscellaneous Second Level 17.987% 115 13,344,768
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 Level Benefit Group amended to the same benefit formula as a 1st Level 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, 2018 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, 2018. 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, 2020
Rate Plan
Identifier Benefit Group Name Total Normal
Cost
Member
Rate
Total Normal
Cost
Change Change
Needed
Member
Rate
26004 Miscellaneous PEPRA
Level 12.500% 6.250% 13.428% 0.928% 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, 2018 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, 2018 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.