HomeMy WebLinkAbout2021-09-21 Finance Committee Agenda Packet1
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FINANCE COMMITTEE
Tuesday, September 21, 2021
Special Meeting
Virtual Meeting
6:00 PM
***BY VIRTUAL TELECONFERENCE ONLY***
Click to Join Zoom Meeting ID: 992-2730-7235 Phone: 1(669)900-6833
Pursuant to the provisions of California Governor’s Executive Order N-29-20, issued
on March 17, 2020, to prevent the spread of Covid-19, this meeting will be held by
virtual teleconference only, with no physical location. The meeting will be broadcast
on Midpen Media Center at https://midpenmedia.org. Members of the public who
wish to participate by computer or phone can find the instructions at the end of this
agenda. Members of the public may speak to agendized items; up to three minutes
per speaker, to be determined by the presiding officer. All requests to speak will be
taken until 5 minutes after the staff’s presentation. Public comment may be
addressed to the full Finance Committee via email at
City.Council@cityofpaloalto.org and available for inspection on the City’s
website. Please clearly indicate which agenda item you are referencing in your
email subject line.
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 Report as of June 30, 2020
2.Review and Recommend to the City Council a Fire Department
Ambulance Subscription Program: 1) Adopt Ordinance to Establish
Program and Fees, and 2) Approval of a Budget Amendment in the
General Fund
3.Discuss Updates and a Recommend Further Refinement of Potential
Revenue Generating Local Ballot Measure
*Written materials added to this item
Presentation
Presentation
Presentation
2
Finance Committee Special Meeting September 21, 2021
FUTURE MEETINGS AND AGENDAS
ADJOURNMENT
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City of Palo Alto (ID # 13440)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 9/21/2021
City of Palo Alto Page 1
Title: Accept CalPERS Pension Annual Valuation Report as of June 30, 2020
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee review and recommend that Council accept the
June 30, 2020 CalPERS Annual Valuation reports for the Miscellaneous and Safety Pension
Plans.
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. The
CalPERS program maintains two pension plans for the City: 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).
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 2021.
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)
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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
$153,671 in 2021 for both the Miscellaneous and Safety plans, therefore it is calculated based on service years but cannot
exceed the $151,549. The final salary calculation is based on the average of the highest three years.
The CalPERS Annual Valuation reports are included in Attachments B and C and provide an
actuarial analysis of the City of Palo Alto pension trust plans based on member and financial
data as of June 30, 2020. The purpose of these reports is to provide an update on the assets
and accrued liabilities of plans, determine employer contributions for the coming fiscal year,
and communicate significant changes in actuarial assumptions or policies. The valuation reports
included for review as part of this memo will be used to inform the FY 2023 budget. The
calculations for annual employer contributions are based on a set of actuarial assumptions for
demographic (e.g., mortality, retirement, termination, and disability rates) and economic
factors (e.g., future investment earnings, inflations, salary growth). These assumptions reflect
CalPERS’ best estimate for future experience of the plans and are long term in nature. Valuation
results will vary from one year to the next as a result of assumption or method changes,
changes in plan provisions, and actuarial experience that is different than anticipated.
There are no significant changes in actuarial assumptions or policies in the 2020 actuarial
valuation. In the period ending June 30, 2020, the plan experienced a 4.7 percent investment
return as compared to a 7.0 percent return assumed by CalPERS. Consistent with the current
amortization policy, the resulting investment loss will be amortized over 20 years with a 5-year
ramp-up period. This report does not factor the preliminary 21.3 percent return on investments
for the period ending June 30, 2021; it is estimated that the overall funded status of the pool
will be 82 percent, assuming a 7 percent discount rate. This investment gain will be included in
the report issued in fall 2022 and incorporated into the FY 2024 budget. A more detailed
discussion about near-term changes to pension plans and the timeline in which these actions
will materialize is included in a subsequent section of this report.
CalPERS FY 2023 & Projected Employer Contributions
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 and is billed as a percentage
of payroll.
2. The UAL represents the employer amortization of unfunded accrued liability and is
billed as a flat dollar rate. The CalPERS’s annual payment is calculated to pay down the
City’s unfunded accrued pension liability over the amortization timeline. If all actuarial
assumptions were realized through the amortization timeline, the City would eliminate
its unfunded pension liability after making these annual payments.
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The Actuarial Determined Contribution (ADC), also referred to as the blended rate, reflects the
total estimated employer contribution and includes the combined cost of NC and UAL. The ADC
for the Miscellaneous Plan is $39.5 million in FY 2023, an increase of $3.7 million (10.5 percent),
from an ADC of $35.7 million in FY 2022. The ADC for the Safety Plan is $20.9 million in FY 2023,
an increase of $1.7 million (8.7 percent), from an ADC of $19.2 in FY 2022. The ADC will inform
the development of the FY 2023 – FY 2032 Long Range Financial Forecast and FY 2023 Adopted
Budget.
Tables 2 summarizes the projected employer contributions required for each plan to fund the
ADC and the NC and UAL that make up this rate. Over the next six years, CALPERS estimates
that future ADCs will grow from 42.9 percent of payroll in FY 2023 to a peak of 44.1 percent in
FY 2025 before tapering to 37.2 percent of payroll by FY 2028 for the Miscellaneous plan. Over
the same six-year span, CalPERS estimates that the ADC will grow from 71.1 percent of payroll
in FY 2023 to a peak of 74.0 percent in FY 2025 before tapering to 73.1 percent of payroll in
2028 for Safety.
TABLE 2: CalPERS Current and Projected Employer Contributions*
Miscellaneous FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
NC (%)** 11.5 11.0 10.6 10.3 10.0 9.7 9.5 9.2
UAL (%) 26.9 30.8 32.3 33.2 34.1 31.8 28.1 28.0
Total ADC (% payroll) 38.4% 41.8% 42.9% 43.5% 44.1% 41.5% 37.6% 37.2%
NC ($) 10.0 9.4 9.7 9.7 9.7 9.7 9.8 9.7
UAL ($)** 23.4 26.4 29.7 31.4 33.2 31.8 28.8 29.5
Total ADC ($) $33.4M $35.7M $39.5M $41.2M $42.9M $41.5M $38.6M $39.2M
Safety FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
NC (%)** 21.6 21.5 20.6 20.1 19.6 19.1 18.6 18.0
UAL (%) 43.8 48.0 50.6 52.8 54.4 54.9 55.2 55.1
Total ADC (% payroll) 65.3% 69.6% 71.1% 72.9% 74.0% 74.0% 73.8% 73.1%
NC ($) 5.5 6.0 6.1 6.1 6.1 6.1 6.1 6.1
UAL ($)** 11.2 13.3 14.9 15.9 16.9 17.5 18.1 18.5
Total ADC ($) $16.7M $19.2M $20.9M $22.0M $23.0M $23.6M $24.2M $24.6M
* The City’s current Memoranda of Agreements (MOAs) with labor groups include provisions for employees to accept a
greater share of pension costs to curtail the City’s growing pension expense; Miscellaneous groups pick-up 1-2% and Safety
groups pick up 3-4%. CalPERS does not consider these amounts in valuation calculations.
** The City makes payments to CalPERS for NC as a percentage of payroll and for UAL as a flat dollar rate. For illustrative
purposes, this table uses CalPERS estimates to restate the total ADC (NC and UAL) in those terms.
Pension Plan’s Funded Status
The funded status is a measure of how well funded, or how “on track” a plan is with respect to
assets versus accrued liabilities. Overall, as of June 30, 2020, the CalPERS funded status was
70.8 percent, an increase from 70.2 percent in the previous year. This rate is higher than the
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City’s funded status of 65.1 percent for Miscellaneous and 60.3 percent for Safety. Table 3
details the City’s funded status for the Miscellaneous and Safety plans with an assumed rate of
return of 7.0 percent. The total unfunded pension liability increased from $477.0 million as of
June 30, 2019 to $510.4 million as of June 30, 2020. This represents an increase of $33.5
million, or 7.0 percent over the prior year.
TABLE 3: CalPERS Projected Unfunded Accrued Liability
As of
June 30, 2017
As of
June 30, 2018
As of
June 30, 2019
As of
June 30, 2020
Miscellaneous 260,720,776 284,856,248 294,703,569 317,116,346
Miscellaneous Funded Status 66.3% 65.8% 66.1% 65.1%
Safety 154,190,990 170,712,183 182,221,129 193,301,713
Safety Funded Status 63.5% 62.2% 61.3% 60.3%
TOTAL UNFUNDED PENSION LIABILITY $414,911,766 $455,568,431 $476,924,698 $510,418,059
% Change from Prior Year 9.8% 4.7% 7.0%
Long-term Financial Planning
The City Council adopted “Fiscal Sustainability” as one of four priorities in 2019, including
initiatives to develop a policy that addresses unfunded pension liability. During 2020, staff
returned to the Finance Committee and the City Council to review and discuss the options for a
Pension Funding Policy and elements to consider in the establishment of a Pension Funding
Policy. Four scenarios were presented that included different timelines, mechanisms, and
options available to reach a target funded status of 100 percent. Ultimately, the City Council
pursued a policy that strives to achieve a 90 percent funded level over fifteen years (CMR
11722). Included in this policy is direction to staff to continue budgeting the normal cost at a
discount rate of 6.2 percent, more conservative than the CalPERS rate of 7.0 percent.
Since 2017, the City has made supplemental pension contributions to an irrevocable Internal
Revenue Services (IRS) section 115 pension trust fund administered by Public Agency
Retirement Services. PARS funding can only be spent towards the City’s pension costs; it cannot
be used for any other purpose. Consistent with City Council direction, the City uses a 6.2
percent discount rate for the normal cost portion of the liability. The lower discount rate
effectively recalculates the City’s costs as though CalPERS were going to achieve the lower rate
of return. This contribution is budgeted in all departments across the organization as part of the
annual budget process. It is anticipated that proactive pension contributions will range from 3
to 4 percent of pensionable payroll, or approximately $5.0 to $6.0 million per year. Additional
one-time contributions continue to be made each year if excess revenues or unspent savings
are available, subject to the pension Funding Policy and City Council approvals. In total, planned
contributions (principal) of $37.3 million to the pension Trust Fund will have been made since
inception in FY 2017 through FY 2022 ($24.1 million, or 65 percent of the total, is from the
General Fund). The Trust Fund is invested in a moderately conservative portfolio, earning 6.11
percent for the year ending June 30, 2020, a 0.21 percent increase over the prior year. These
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additional funds are not factored into the CalPERS reports funded status, when included the
City’s combined funded status is 66.1 percent.
Timeline and Next Steps
Staff anticipates several changes to the City’s pension plans that will materialize beginning in FY
2024. As we continue through FY 2022, staff is preparing to kick-off the FY 2023 budget
development process with the FY 2023–2032 Long Range Financial Forecast (LRFF) in December
2021.
CalPERS will be completing the Asset Liability Management (ALM) review process in November
2021 that will review the capital market assumptions and the strategic asset allocation and
ascertain whether a change in the discount rate and other economic assumptions is warranted.
Additionally, the Actuarial Office will be completing an Experience Study to review pension
demographics for potential modification. This comprehensive review is completed every four
years, and last resulted in a reduction in the rate of return to the current 7.0 percent
assumption. Notes expected to influence and result from this Include but are not limited to:
▪ Preliminary investment return of 21.3 percent for the period ending June 30, 2020.
▪ Reduction to the rate of return from 7.0 to 6.8 percent as triggered by the CalPERS Risk
Mitigation Policy; this may be adjusted further in final ALM decisions.
▪ Budget impact for public agencies beginning in FY 2024.
Below is a list of expected reports and City Council updates over the coming months. Staff will
continue to update the City Council and incorporate information as it becomes available.
Dec/January → FY 2023 to FY 2032 Long Range Financial Forecast (LRFF)
Annually, staff brings forward a LRFF that projects the City’s financial outlook over the next 10
years based on current City Council approved service levels and several alternative scenarios.
The financial implications of these reports and input from the Finance Committee are used to
inform the development of the annual budget. As part of the upcoming LRFF, staff anticipates
including a summary of CalPERS ALM changes and potential alternative scenario(s):
▪ Impact (gains) from investment return of 21.3 percent
▪ Impact for ALM changes to the rate of return and demographic/economic assumptions
May/June → FY 2023 Budget Deliberations and City Council Adoption
Consistent with current practice, staff will include the actuarially determined contributions as
calculated by CalPERS in the June 30, 2020 valuation reports and the additional contributions as
per the pension funding policy including use of a lower discount rate as part of the
development of the FY 2023 budget and City’s pension contributions.
Fall 2022 → Pension Policy Check-in
In accordance with the City’s Pension Policy, staff will consult with an actuary to inform the
progress the City has made towards the goal of meeting a 90 percent funding level by FY 2036
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(15 years). This policy is an evergreen policy, subject to modification at the City Council’s
discretion, and is intended to address pension obligations on an ongoing basis, ensure prudent
and proactive financial planning, and avoid service delivery crowd out. Additional actions to
modify the policy and/or financial planning may be included as a result of this discussion.
Resource Impact
This is an informational report and will be used to inform the development of the FY 2023–2032
Long Range Financial Forecast (LRFF), the FY 2023 Adopted Operating Budget, and other long-
term financial planning.
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 Miscellaneous Valuation Report as of June 30, 2020
• Attachment C: CalPERS Safety Valuation Report as of June 30, 2020
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Attachment A:
City of Palo Alto Pension Plan Benefit Levels Enrollment by Plan and Employee Group
City Council & Council Appointees 10 7 IAFF 79 84
Tier 1 21 Tier 1 45 48
Tier 2 32 Tier 2 88
Tier 3 54 Tier 3 26 28
Management and Professional 180 192 Fire Chief's Association 44
Tier 1 74 83 Tier 1 44
Tier 2 35 40 Tier 2 00
Tier 3 71 69 Tier 3 00
Service Employees' International 491 517 Fire Management 33
Tier 1 192 220 Tier 1 33
Tier 2 55 55 Tier 2 00
Tier 3*244 242 Tier 3 00
Utilities Management 44 44 PAPOA 68 69
Tier 1 35 37 Tier 1 33 36
Tier 2 4 Tier 2 44
Tier 3 5 5 Tier 3 31 29
Police Management Association 66
Tier 1 66
Tier 2 00
Tier 3 00
Police Management 22
Tier 1 11
Tier 2 11
Tier 3 00
Grand Total Miscellaneous Plans 727 760 Grand Total Safety Plans 162 168
Tier 1 302 341 Tier 1 91 98
Tier 2 96 99 Tier 2 13 13
Tier 3 329 320 Tier 3 58 57
Tiered Percentage Miscellaneous Plans Tiered Percentage Safety Plans
Tier 1 41.5%44.9%Tier 1 56.2%58.3%
Tier 2 13.2%13.0%Tier 2 8.0%7.7%
Tier 3 45.3%42.1%Tier 3 35.8%33.9%
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 and Limited Hourly FTE
Safety Plans
Employee GroupEmployee CountEmployee Group
Miscellaneous Plans
2
Employee Count
Sept 2021 Sept 2020Sept 2021 Sept 2020
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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 2021
Miscellaneous Plan of the City of Palo Alto (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2020
Dear Employer,
Attached to this letter, you will find the June 30, 2020 actuarial valuation report of your CalPERS pension plan. Provided
in this report is the determination of the minimum required employer contributions for fiscal year 2022-
23.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 requirements 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 table below shows the minimum required employer contributions and the Employee PEPRA Rate for fiscal year 2022-
23 along with an estimate of the required contribution for fiscal year 2023-24. Employee 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
2022-23 10.58% $29,715,229 6.25%
Projected Results
2023-24 10.3% $31,435,000 TBD
The actual investment return for fiscal year 2020-21 was not known at the time this report was prepared. The projections
above assume the investment return for that year would be 7.0%. To the extent the actual investment return for
fiscal year 2020-21 differs from 7.0%, the actual contribution requirements for fiscal year 2023-24 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 2027-28.
Changes from Previous Year’s Valuations
There are no significant changes in actuarial assumptions or policies in your 2020 actuarial valuation. Your annual
valuation report is an important tool for monitoring the health of your CalPERS pension Plan. Your report contains useful
information about future required contributions and ways to control your plan’s funding progress.
In addition to your annual actuarial report, my office has developed tools for employers to plan, project and protect the
retirement benefits of your employees. Pension Outlook is a tool to help plan and budget pension costs into the future
with easy to understand results and charts.
You will be able to view the projected funded status and required employer contributions for pension plans in different
potential scenarios for up to 30 years into the future — which will make budgeting more predictable. While
ATTACHMENT B 1.b
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Miscellaneous Plan of the City of Palo Alto (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2020
Page 2
Pension Outlook cannot predict the future, it can provide valuable planning information based on a variety of future
scenarios that you select.
Pension Outlook can help you answer specific questions about your plans, including:
• When is my plan’s funded status expected to increase?
• What happens to my required contributions in a down market?
• How does the discount rate assumption affect my contributions?
• What is the impact of making an additional discretionary payment to my plan?
To get started, visit our Pension Outlook page at www.calpers.ca.gov/page/employers/actuarial-resources/pension-
outlook-overview and take the steps to register online.
CalPERS will be completing an Asset Liability Management (ALM) review process in November 2021 that will review the
capital market assumptions and the strategic asset allocation and ascertain whether a change in the discount rate and
other economic assumptions is warranted. In addition, the Actuarial Office will be completing its Experience Study to
review the demographic experience within the pension system and make recommendations to modify future assumptions
where appropriate. Any assumption change stemming from these studies will be reflected in the June 30, 2021 actuarial
valuation.
Furthermore, this valuation does not reflect any impacts from the COVID-19 pandemic on your pension plan. The impact
of COVID-19 on retirement plans is not yet known and CalPERS actuaries will continue to monitor the effects and, where
necessary, make future adjustments to actuarial assumptions.
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.
Questions
We understand that you might have questions about these results, and your assigned CalPERS actuary whose signature
is on the valuation report is available to discuss. If you have other questions, you may call the Customer Contact Center
at (888)-CalPERS or (888-225-7377). Sincerely,
SCOTT TERANDO, ASA, EA, MAAA, FCA, CFA
Chief Actuary, CalPERS
ATTACHMENT B 1.b
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Actuarial Valuation
as of June 30, 2020
for the
Miscellaneous Plan
of the
City of Palo Alto
(CalPERS ID: 6373437857)
(Rate Plan ID: 8)
Required Contributions
for Fiscal Year
July 1, 2022 – June 30, 2023
ATTACHMENT B 1.b
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Table of Contents
Actuarial Certification 1
Highlights and Executive Summary
Introduction 3
Purpose of the Report 3
Required Contributions 4
Additional Discretionary Employer Contributions 5 Plan’s Funded Status 6
Projected Employer Contributions 6
Cost 7
Changes Since the Prior Year’s Valuation 8
Subsequent Events 8
Assets
Reconciliation of the Market Value of Assets 10 Asset Allocation 11
CalPERS History of Investment Returns 12
Liabilities and Contributions
Development of Accrued and Unfunded Liabilities 14
(Gain) / Loss Analysis 6/30/19 - 6/30/20 15 Schedule of Amortization Bases 16
Amortization Schedule and Alternatives 18
Reconciliation of Required Employer Contributions 20
Employer Contribution History 21
Funding History 21
Normal Cost by Benefit Group 22
PEPRA Member Contribution Rates 23
Risk Analysis
Future Investment Return Scenarios 25 Discount Rate Sensitivity 26
Mortality Rate Sensitivity 26
Maturity Measures 27
Maturity Measures History 28
Hypothetical Termination Liability 29
Plan’s Major Benefit Provisions
Plan’s Major Benefit Options 31
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 – Glossary of Actuarial Terms D-1
(CY) FIN JOB INSTANCE ID: 379719 (PY) FIN JOB INSTANCE ID: 350239 REPORT ID: 379732
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 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, 2020 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 who satisfies the Qualification Standards for Actuaries Issuing Statements of
Actuarial Opinion in the United States with regard to pensions.
DAVID CLEMENT, ASA, MAAA, EA
Senior Pension Actuary, CalPERS
ATTACHMENT B 1.b
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Highlights and Executive Summary
• Introduction
• Purpose of the Report
• Required Contributions
• Additional Discretionary Employer Contributions
• Plan’s Funded Status
• Projected Employer Contributions
• Cost
• Changes Since the Prior Year’s Valuation
• Subsequent Events
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 3
Introduction
This report presents the results of the June 30, 2020 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 2022-23.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2020. The purpose of the report is to:
• Set forth the assets and accrued liabilities of this plan as of June 30, 2020;
• Determine the minimum required employer contributions for the fiscal year July 1, 2022 through June
30, 2023;
• Provide actuarial information as of June 30, 2020 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 the CalPERS website (calpers.ca.gov).
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.
Assessment and Disclosure of Risk
This report includes the following risk disclosures consistent with the recommendations of Actuarial Standards
of Practice No. 51 and recommended by the California Actuarial Advisory Panel (CAAP) in the Model Disclosure
Elements document:
• 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% and 8.0%.
• A “Sensitivity Analysis,” showing the impact on current valuation results assuming rates of mortality
are 10% lower or 10% higher than our current mortality assumptions adopted in 2017.
• Plan maturity measures indicating how sensitive a plan may be to the risks noted above.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2022-23
Employer Normal Cost Rate 10.58%
Plus, Either
1) Monthly Employer Dollar UAL Payment $2,476,269
Or
2) Annual UAL Prepayment Option* $28,726,796
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) and 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
”PEPRA Member Contribution Rates” in the “Liabilities and Contributions” section. Required member
contributions for Classic members can be found in Appendix B.
Fiscal Year Fiscal Year
2021-22 2022-23
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 18.21% 17.78%
Employee Contribution1 7.26% 7.20%
Employer Normal Cost2 10.95% 10.58%
Projected Annual Payroll for Contribution Year $85,533,721 $92,090,103
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $15,575,691 $16,373,620
Employee Contribution1 6,209,748 6,630,487
Employer Normal Cost2 9,365,943 9,743,133
Unfunded Liability Contribution 26,358,094 29,715,229
% of Projected Payroll (illustrative only) 30.82% 32.27%
Estimated Total Employer Contribution $35,724,037 $39,458,362
% of Projected Payroll (illustrative only) 41.77% 42.85%
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% of
the normal cost. A development of PEPRA member contribution rates can be found in the “Liabilities and Contributions” section. 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. For a breakout of normal cost by benefit
group, see “Normal Cost by Benefit Group” in the “Liabilities and Contributions” section.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 5
Additional Discretionary Employer Contributions
The minimum required employer contribution towards the Unfunded Accrued Liability (UAL) for this rate plan
for the 2022-23 fiscal year is $29,715,229. CalPERS allows employers to make additional discretionary
payments (ADPs) at any time and in any amount. These optional payments serve to reduce the UAL and
future required contributions and can result in significant long-term savings. Employers can also use ADPs to stabilize annual contributions as a fixed dollar amount, percent of payroll or percent of revenue.
Provided below are select ADP options for consideration. Making such an ADP during fiscal year 2022-23 does
not require an ADP be made in any future year, nor does it change the remaining amortization period of any
portion of unfunded liability. For information on permanent changes to amortization periods, see the
“Amortization Schedule and Alternatives” section of the report.
If you are considering making an ADP, please contact your actuary for additional information.
Minimum Required Employer Contribution for Fiscal Year 2022-23
Estimated
Normal Cost
Minimum UAL
Payment
ADP Total UAL
Contribution
Estimated Total
Contribution
$9,743,133 $29,715,229 $0 $29,715,229 $39,458,362
Alternative Fiscal Year 2022-23 Employer Contributions for Greater UAL Reduction
Funding
Target
Estimated
Normal Cost
Minimum UAL
Payment ADP1 Total UAL
Contribution
Estimated Total
Contribution
15 years $9,743,133 $29,715,229 $3,174,671 $32,889,900 $42,633,033
10 years $9,743,133 $29,715,229 $12,935,146 $42,650,375 $52,393,508
5 years $9,743,133 $29,715,229 $43,344,274 $73,059,503 $82,802,636
1 The ADP amounts are assumed to be made in the middle of the fiscal year. A payment made earlier or later in the
fiscal year would have to be less or more than the amount shown to have the same effect on the UAL amortization.
Note that the calculations above are based on the projected Unfunded Accrued Liability as of June 30, 2022
as determined in the June 30, 2020 actuarial valuation. New unfunded liabilities can emerge in future years
due to assumption or method changes, changes in plan provisions and actuarial experience different than
assumed. Making an ADP illustrated above for the indicated number of years will not result in a plan that is
exactly 100% funded in the indicated number of years. Valuation results will vary from one year to the next
and can diverge significantly from projections over a period of several years.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 6
Plan’s Funded Status
This measure of funded status is an assessment of the need for future employer contributions based on the
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. The projection assumes that all actuarial assumptions will be realized and that no further
changes to assumptions, contributions, benefits, or funding will occur during the projection period. Actual
contribution rates during this projection period could be significantly higher or lower than the projection shown
below. The projected normal cost percentages in the projections below reflect that the normal cost will
continue to 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 2020-21)
Fiscal Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28
Normal Cost % 10.58% 10.3% 10.0% 9.7% 9.5% 9.2%
UAL Payment $29,715,229 $31,435,000 $33,194,000 $31,776,000 $28,848,000 $29,546,000
Total as a % of Payroll* 42.85% 43.5% 44.1% 41.5% 37.6% 37.2%
Projected Payroll $92,090,103 $94,622,581 $97,224,701 $99,898,381 $102,645,587 $105,468,340
*Illustrative only and based on the projected payroll shown.
For some sources of UAL, the change in UAL is 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 the change in UAL over a 5-year period in order to reduce 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 when 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.
Our online pension plan modeling and projection tool, Pension Outlook, is available in the Employers section
of the CalPERS website. Pension Outlook is a tool to help plan and budget pension costs into the future with results and charts that are easy to understand.
June 30, 2019 June 30, 2020
1. Present Value of Projected Benefits $977,761,615 $1,023,471,916
2. Entry Age Accrued Liability 868,716,440 909,429,635
3. Market Value of Assets (MVA) 574,012,871 592,313,289
4. Unfunded Accrued Liability (UAL) [(2) – (3)] $294,703,569 $317,116,346
5. Funded Ratio [(3) / (2)] 66.1% 65.1%
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 7
Cost
Actuarial Determination of Pension Plan Cost
Contributions to fund the pension plan are comprised of two components:
• Normal Cost, expressed as a percentage of total active payroll
• Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount
For fiscal years prior to 2017-18, the Amortization of UAL component was expressed as percentage of total
active payroll. Starting with fiscal year 2017-18, the Amortization of UAL component is expressed as a dollar
amount and invoiced on a monthly basis. There is an option to prepay this amount during July of each fiscal year.
The Normal Cost component is 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 (e.g., mortality rates, retirement rates, employment termination rates,
disability rates)
• Economic assumptions (e.g., future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPERS’ best estimate of future experience of the plan and are long term in nature.
We recognize that all assumptions will not be realized in any given year. For example, the investment earnings
at CalPERS have averaged 5.5% over the 20 years ending June 30, 2020, yet individual fiscal year returns have ranged from -23.6% to +20.7%. In addition, CalPERS reviews all actuarial assumptions by conducting
in-depth experience studies every four years, with the most recent experience study completed in 2017.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 8
Changes Since the Prior Year’s Valuation
Benefits
The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first annual valuation following the effective date of the legislation. Voluntary benefit changes by plan amendment
are generally included in the first valuation that is prepared after the amendment becomes effective, even if
the valuation date is prior to the effective date of the amendment.
This valuation generally reflects plan changes by amendments effective before the date of the report. Please
refer to the “Plan’s Major Benefit Options” and Appendix B for a summary of the plan provisions used in this
valuation. The effect of any mandated benefit changes or plan amendments on the unfunded liability is shown
in the “(Gain)/Loss Analysis” and the effect on 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
The are no significant changes to the actuarial methods or assumptions for the 2020 actuarial valuation.
Subsequent Events
The contribution requirements determined in this actuarial valuation report are based on demographic and
financial information as of June 30, 2020. Changes in the value of assets subsequent to that date are not
reflected. Investment returns below the assumed rate of return will increase future required contributions while investment returns above the assumed rate of return will decrease future required contributions.
CalPERS will be completing an Asset Liability Management (ALM) review process in November 2021 that will
review the capital market assumptions and the strategic asset allocation and ascertain whether a change in
the discount rate and other economic assumptions is warranted. In addition, the Actuarial Office will be
completing its Experience Study to review the demographic experience within the pension system and make
recommendations to modify future assumptions where appropriate.
Furthermore, this valuation does not reflect any impacts from the COVID-19 pandemic on your pension plan.
The impact of COVID-19 on retirement plans is not yet known and CalPERS actuaries will continue to monitor
the effects and, where necessary, make future adjustments to actuarial assumptions.
The projected employer contributions on Page 6 are calculated under the assumption that the discount rate
remains at 7.0% going forward and that the realized rate of return on assets for fiscal year 2020-21 is 7.0%.
This actuarial valuation report reflects statutory changes, regulatory changes and CalPERS Board actions
through January 2021. Any subsequent changes or actions are not reflected.
ATTACHMENT B 1.b
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Assets
• Reconciliation of the Market Value of Assets
• Asset Allocation
• CalPERS History of Investment Returns
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 10
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/19 including Receivables $574,012,871
2. Change in Receivables for Service Buybacks (311,049)
3. Employer Contributions 28,888,849
4. Employee Contributions 7,037,298
5. Benefit Payments to Retirees and Beneficiaries (43,552,468)
6. Refunds (228,605)
7. Transfers 0
8. Service Credit Purchase (SCP) Payments and Interest 462,396
9. Administrative Expenses (444,800)
10. Miscellaneous Adjustments 0
11. Investment Return (Net of Investment Expenses) 26,448,797
12. Market Value of Assets as of 6/30/20 including Receivables $592,313,289
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 11
Asset Allocation
CalPERS adheres to an Asset Allocation Strategy which establishes asset class allocation policy targets and
ranges and manages those asset class allocations within their policy ranges. CalPERS Investment Belief No. 6
recognizes that strategic asset allocation is the dominant determinant of portfolio risk and return. On December 19, 2017, the CalPERS Board of Administration adopted changes to the current asset allocation as
shown in the Policy Target Allocation below expressed as a percentage of total assets.
The asset allocation shown below reflect the allocation of the Public Employees’ Retirement Fund (PERF) in
its entirety as of June 30, 2020. The assets for City of Palo Alto Miscellaneous Plan are part of the PERF and
are invested accordingly.
Asset Class
Actual
Allocation
Policy Target
Allocation
Public Equity 53.0% 50.0%
Private Equity 6.3% 8.0%
Global Fixed Income 28.3% 28.0%
Real Assets 11.3% 13.0%
Liquidity 0.9% 1.0%
Inflation Sensitive Assets 0.0% 0.0%
Trust Level1 0.2% 0.0%
Total Fund 100.0% 100.0%
1 Trust Level includes Multi-Asset Class, Completion Overlay, Risk Mitigation, Absolute
Return Strategies, Plan Level Transition and other Total Fund level portfolios.
Strategic Asset Allocation Policy Targets
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 12
CalPERS History of Investment Returns
The following is a chart with the 20-year historical annual returns of the PERF for each fiscal year ending on
June 30. Beginning in 2002, investment returns reported are net of investment expenses and gross of
administrative expenses.
The table below shows annualized investment returns of the PERF for various time periods ending on June
30, 2020 (figures reported are net of investment expenses and gross of administrative expenses). These
returns are the annual rates that if compounded over the indicated number of years would equate to the
actual performance of the PERF. It should be recognized that in any given year the rate of return is volatile.
The portfolio has an expected volatility of 11.4% per year based on the most recent Asset Liability Modeling study. The realized volatility is a measure of the risk of the portfolio expressed as the standard deviation of
the fund’s total monthly return distribution, expressed as an annual percentage. Due to their volatile nature,
when looking at investment returns, it is more instructive to look at returns over longer time horizons.
History of CalPERS Compound Annual Rates of Return and Volatilities
1 year 5 year 10 year 20 year 30 year
Compound Annual Return 4.7% 6.3% 8.5% 5.5% 8.0%
Realized Volatility – 7.3% 7.1% 8.6% 8.6%
ATTACHMENT B 1.b
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Liabilities and Contributions
• Development of Accrued and Unfunded Liabilities
• (Gain) / Loss Analysis 6/30/19 - 6/30/20
• Schedule of Amortization Bases
• Amortization Schedule and Alternatives
• Reconciliation of Required Employer Contributions
• Employer Contribution History
• Funding History
• Normal Cost by Benefit Group
• PEPRA Member Contribution Rates
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 14
Development of Accrued and Unfunded Liabilities
June 30, 2019 June 30, 2020
1. Present Value of Projected Benefits
a) Active Members $392,796,621 $415,029,592
b) Transferred Members 37,712,848 38,702,466
c) Terminated Members 18,441,931 19,811,280
d) Members and Beneficiaries Receiving Payments 528,810,215 549,928,578
e) Total $977,761,615 $1,023,471,916
2. Present Value of Future Employer Normal Costs $62,657,698 $64,609,385
3. Present Value of Future Employee Contributions $46,387,477 $49,432,896
4. Entry Age Accrued Liability
a) Active Members [(1a) - (2) - (3)] $283,751,446 $300,987,311
b) Transferred Members (1b) 37,712,848 38,702,466
c) Terminated Members (1c) 18,441,931 19,811,280
d) Members and Beneficiaries Receiving Payments (1d) 528,810,215 549,928,578
e) Total $868,716,440 $909,429,635
5. Market Value of Assets (MVA) $574,012,871 $592,313,289
6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $294,703,569 $317,116,346
7. Funded Ratio [(5) / (4e)] 66.1% 65.1%
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 15
(Gain)/Loss Analysis 6/30/19 – 6/30/20
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 6/30/19 $294,703,569
b) Expected Payment on the UAL during 2019-20 20,421,001
c) Interest through 6/30/20 [.07 x (1a) - ((1.07)½ - 1) x (1b)] 19,926,603 d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 294,209,171
e) Change due to plan changes 0
f) Change due to AL Significant Increase 0
g) Change due to assumption change 0
h) Change due to method change 0
i) Expected UAL after all other changes [(1d) + (1e) + (1f) + (1g) + (1h)] 294,209,171
j) Actual UAL as of 6/30/20 317,116,346
k) Total (Gain)/Loss for 2019-20 [(1j) - (1i)] $22,907,175
2. Contribution (Gain)/Loss for the Year
a) Expected Contribution (Employer and Employee) $35,918,847 b) Interest on Expected Contributions 1,235,897
c) Actual Contributions 35,926,148
d) Interest on Actual Contributions 1,236,148
e) Expected Contributions with Interest [(2a) + (2b)] 37,154,744
f) Actual Contributions with Interest [(2c) + (2d)] 37,162,296
g) Contribution (Gain)/Loss [(2e) - (2f)] ($7,552)
3. Investment (Gain)/Loss for the Year
a) Market Value of Assets as of 6/30/19 $574,012,871
b) Prior Fiscal Year Receivables (1,283,337)
c) Current Fiscal Year Receivables 972,288 d) Contributions Received 35,926,148
e) Benefits and Refunds Paid (43,781,074)
f) Transfers, SCP Payments and Interest, and Miscellaneous Adjustments 462,396
g) Expected Return [.07 x (3a + 3b) + ((1.07)½ - 1) x ((3d) + (3e) + (3f))] 39,836,705
h) Expected Assets as of 6/30/20 [(3a) + (3b) + (3c) + (3d) + (3e) + (3f) + (3g)] 606,145,997
i) Actual Market Value of Assets as of 6/30/20 592,313,289
j) Investment (Gain)/Loss [(3h) - (3i)] $13,832,708
4. Liability (Gain)/Loss for the Year
a) Total (Gain)/Loss (1j) $22,907,175
b) Contribution (Gain)/Loss (2g) (7,552) c) Investment (Gain)/Loss (3j) 13,832,708
d) Liability (Gain)/Loss [(4a) - (4b) - (4c)] $9,082,019
5. Non-Investment (Gain)/Loss for the Year
a) Contribution (Gain)/Loss (2g) ($7,552)
b) Liability (Gain)/Loss (4d) 9,082,019
c) Non-Investment (Gain)/Loss [(5a) + (5b)] $9,074,467
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 16
Schedule of Amortization Bases
Below 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, 2020.
• The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuation date: fiscal year 2022-23.
This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with
their required employer contribution well in advance of the start of the fiscal year.
The Unfunded Accrued Liability (UAL) is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first
day of the fiscal year for which the contribution is being determined. The UAL is rolled forward each year by subtracting the expected payment on the UAL for the fiscal
year and adjusting for interest. The expected payment on the UAL for a fiscal year is equal to the Expected Employer Contribution for the fiscal year minus the Expected
Normal Cost for the year. The Employer Contribution for the first fiscal year is determined by the actuarial valuation two years ago and the contribution for the second
year is from the actuarial valuation one year ago. Additional discretionary payments are reflected in the Expected Payments column in the fiscal year they were made by
the agency.
Reason for Base Date Est.
Ramp
Level 2022-23 Ramp Shape
Escala-
tion Rate Amort. Period Balance 6/30/20
Expected
Payment 2020-21 Balance 6/30/21
Expected
Payment 2021-22 Balance 6/30/22
Minimum
Required
Payment 2022-23
Assumption Change 6/30/03 No Ramp 2.75% 3 10,357,145 2,319,811 8,682,514 2,383,606 6,824,669 2,449,156
Method Change 6/30/04 No Ramp 2.75% 4 (857,223) (163,155) (748,460) (167,641) (627,443) (172,252)
Benefit Change 6/30/05 No Ramp 2.75% 4 18,991,429 3,614,625 16,581,832 3,714,028 13,900,740 3,816,163
Assumption Change 6/30/09 No Ramp 2.75% 9 22,570,400 2,578,025 21,483,598 2,648,920 20,247,386 2,721,766
Special (Gain)/Loss 6/30/09 No Ramp 2.75% 19 16,713,757 1,198,299 16,644,190 1,231,252 16,535,666 1,265,112
Special (Gain)/Loss 6/30/10 No Ramp 2.75% 20 1,389,149 96,733 1,386,328 99,393 1,380,558 102,127
Assumption Change 6/30/11 No Ramp 2.75% 11 11,040,250 1,107,534 10,667,425 1,137,991 10,236,998 1,169,285
Special (Gain)/Loss 6/30/11 No Ramp 2.75% 21 (58,764) (3,982) (58,758) (4,092) (58,638) (4,204)
Payment (Gain)/Loss 6/30/12 No Ramp 2.75% 22 3,089,656 204,105 3,094,804 209,718 3,094,506 215,485
(Gain)/Loss 6/30/12 No Ramp 2.75% 22 26,046,361 1,720,644 26,089,758 1,767,962 26,087,247 1,816,581
(Gain)/Loss 6/30/13 100% Up/Down 2.75% 23 81,877,311 5,554,310 81,863,300 5,707,054 81,690,308 5,863,997
Assumption Change 6/30/14 100% Up/Down 2.75% 14 45,218,642 4,299,805 43,936,194 4,418,049 42,441,662 4,539,546
(Gain)/Loss 6/30/14 100% Up/Down 2.75% 24 (51,996,283) (3,438,352) (52,079,364) (3,532,907) (52,070,452) (3,630,062)
(Gain)/Loss 6/30/15 100% Up/Down 2.75% 25 31,830,327 1,664,856 32,336,309 2,138,299 32,387,977 2,197,103
Assumption Change 6/30/16 100% Up/Down 2.75% 16 13,950,538 759,535 14,141,407 1,040,563 14,054,939 1,336,473
(Gain)/Loss 6/30/16 100% Up/Down 2.75% 26 35,602,653 1,399,137 36,647,560 1,916,817 37,230,118 2,461,912
Assumption Change 6/30/17 80% Up/Down 2.75% 17 14,660,811 534,613 15,134,060 823,972 15,341,121 1,128,841
(Gain)/Loss 6/30/17 80% Up/Down 2.75% 27 (19,318,533) (513,519) (20,139,642) (791,461) (20,730,723) (1,084,301)
Method Change 6/30/18 60% Up/Down 2.75% 18 5,040,268 93,974 5,295,879 193,116 5,466,830 297,641
Assumption Change 6/30/18 60% Up/Down 2.75% 18 26,020,376 485,140 27,339,970 996,963 28,222,501 1,536,570
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 17
Schedule of Amortization Bases (continued)
Reason for Base
Date
Est.
Ramp Level
2022-23
Ramp
Shape
Escala-tion
Rate
Amort.
Period
Balance
6/30/20
Expected Payment
2020-21
Balance
6/30/21
Expected Payment
2021-22
Balance
6/30/22
Minimum
Required Payment
2022-23
(Gain)/Loss 6/30/18 60% Up/Down 2.75% 28 (5,804,603) (79,278) (6,128,919) (162,917) (6,389,421) (251,096)
Non-Investment (Gain)/Loss 6/30/19 No Ramp 0.00% 19 5,466,491 0 5,849,145 533,753 5,706,467 533,753
Investment (Gain)/Loss 6/30/19 40% Up Only 0.00% 19 2,379,013 0 2,545,544 55,656 2,666,161 111,311
Non-Investment (Gain)/Loss 6/30/20 No Ramp 0.00% 20 9,074,467 0 9,709,680 0 10,389,358 948,061
Investment (Gain)/Loss 6/30/20 20% Up Only 0.00% 20 13,832,708 0 14,800,998 0 15,837,068 346,261
Total 317,116,346 23,432,860 315,075,352 26,358,094 309,865,603 29,715,229
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 20 Page 18
Amortization Schedule and Alternatives
The amortization schedule on the previous page shows the minimum contributions required according to the
CalPERS amortization policy. Many agencies have expressed a desire for a more stable pattern of payments or have indicated interest in paying off the unfunded accrued liabilities more quickly than required. As such,
we have provided alternative amortization schedules to help analyze the current amortization schedule and
illustrate the potential savings 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) alternative
“fresh start” amortization schedules using two sample periods that would both result in interest savings relative to the current amortization schedule. To initiate a Fresh Start, please consult with your plan actuary.
The Current Amortization Schedule typically contains both positive and negative bases. Positive bases result
from plan changes, assumption changes, method changes or plan experience that increase unfunded liability.
Negative bases result from plan changes, assumption changes, method changes, or plan experience that
decrease 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:
• When a negative payment would be required on a positive unfunded actuarial liability; or
• When the payment would completely amortize the total unfunded liability in a very short time period,
and results in a large change in the employer contribution requirement.
In any year when 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.
ATTACHMENT B 1.b
Packet Pg. 31
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 19
Amortization Schedule and Alternatives
(continued)
Alternative Schedules
Current Amortization
Schedule 15 Year Amortization 10 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2022 309,865,603 29,715,229 309,865,603 32,889,900 309,865,603 42,650,375
6/30/2023 300,818,522 31,434,637 297,534,618 32,889,901 287,438,304 42,650,375
6/30/2024 289,359,577 33,193,753 284,340,463 32,889,900 263,441,094 42,650,375
6/30/2025 275,278,861 31,776,236 270,222,718 32,889,900 237,764,080 42,650,375
6/30/2026 261,678,787 28,848,274 255,116,731 32,889,900 210,289,675 42,650,375
6/30/2027 250,155,417 29,545,589 238,953,325 32,889,901 180,892,061 42,650,374
6/30/2028 237,104,100 30,262,079 221,658,480 32,889,901 149,436,615 42,650,374
6/30/2029 222,398,050 30,998,271 203,152,995 32,889,900 115,779,288 42,650,375
6/30/2030 205,901,054 31,754,714 183,352,128 32,889,901 79,765,947 42,650,374
6/30/2031 187,466,798 29,057,492 162,165,199 32,889,900 41,231,673 42,650,374
6/30/2032 170,532,170 28,569,699 139,495,186 32,889,901
6/30/2033 152,916,696 26,459,874 115,238,271 32,889,901
6/30/2034 136,250,557 25,464,104 89,283,372 32,889,900
6/30/2035 119,447,823 23,994,649 61,511,631 32,889,901
6/30/2036 102,988,914 21,533,891 31,795,867 32,889,901
6/30/2037 87,923,308 20,286,146
6/30/2038 73,093,786 18,956,123
6/30/2039 58,601,985 17,964,170
6/30/2040 44,121,841 17,365,851
6/30/2041 29,246,995 12,853,371
6/30/2042 17,998,655 9,509,421
6/30/2043 9,421,939 8,211,777
6/30/2044 1,587,146 1,641,757
6/30/2045
6/30/2046
6/30/2047
6/30/2048
6/30/2049
6/30/2050
6/30/2051
Total 539,397,107 493,348,508 426,503,746
Interest Paid 229,531,504 183,482,905 116,638,143
Estimated Savings 46,048,599 112,893,361
ATTACHMENT B 1.b
Packet Pg. 32
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 20
Reconciliation of Required Employer
Contributions
Normal Cost (% of Payroll)
1. For Period 7/1/21 – 6/30/22
a) Employer Normal Cost 10.95%
b) Employee Contribution 7.26%
c) Total Normal Cost 18.21%
2. Changes since the prior year annual valuation
a) Effect of demographic experience (0.43%)
b) Effect of plan changes 0.00%
c) Effect of assumption changes 0.00%
d) Effect of method changes 0.00%
e) Net effect of the changes above [sum of (a) through (d)] (0.43%)
3. For Period 7/1/22 – 6/30/23
a) Employer Normal Cost 10.58%
b) Employee Contribution 7.20%
c) Total Normal Cost 17.78%
Employer Normal Cost Change [(3a) – (1a)] (0.37%)
Employee Contribution Change [(3b) – (1b)] (0.06%)
Unfunded Liability Contribution ($)
1. For Period 7/1/21 – 6/30/22 26,358,094
2. Changes since the prior year annual valuation
a) Effect of adjustments to prior year’s amortization schedule 0
b) Effect of investment (gain)/loss during prior year1 346,261
c) Effect of non-investment (gain)/loss during prior year 948,061
d) Effect of plan changes 0
e) Effect of AL Significant Increase 0
f) Effect of assumption changes 0
g) Changes to prior year amortization payments2
2,062,813
h) Effect of changes due to Fresh Start or immediate recognition of small balances 0
i) Effect of elimination of amortization base 0
j) Effect of method change 0
k) Net effect of the changes above [sum of (a) through (j)] 3,357,135
3. For Period 7/1/22 – 6/30/23 [(1) + (2k)] 29,715,229
The amounts shown for the period 7/1/21 – 6/30/22 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 investment (gain)/loss during the year prior to the valuation date is 20% 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 g) in future years.
2 Includes scheduled escalation in individual amortization base payments due to the 5-year ramp and payroll growth assumption used in the pre-2019 amortization policy.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 21
Employer Contribution History
The table below provides a recent history of the required employer contributions for the plan. The amounts
are based on the actuarial valuation from two years prior and does not account for prepayments or benefit changes made during a fiscal year. Additional discretionary payments before July 1, 2018 or after June 30,
2020 are not included.
Fiscal
Year
Employer
Normal Cost
Unfunded Rate
Unfunded Liability
Payment ($)
Additional Discretionary
Payments
2013 - 14 10.360% 14.240% N/A N/A
2014 - 15 10.283% 15.839% N/A N/A
2015 - 16 10.358% 17.336% N/A N/A
2016 - 17 10.334% 18.556% N/A N/A
2017 - 18 10.039% N/A 15,765,273 N/A
2018 - 19 10.217% N/A 18,392,618 0
2019 - 20 10.716% N/A 21,287,260 0
2020 - 21 11.487% N/A 23,432,860
2021 - 22 10.95% N/A 26,358,094
2022 - 23 10.58% N/A 29,715,229
Funding History
The table below shows the recent history of actuarial accrued liability, market value of assets, unfunded
accrued liability, funded ratio and annual covered payroll.
[]
Valuation
Date
Accrued
Liability
(AL)
Market Value
of Assets
(MVA)
Unfunded
Accrued
Liability (UAL)
Funded
Ratio
Annual
Covered
Payroll
6/30/2011 $552,715,631 $384,056,704 $168,658,927 69.5% $60,297,783
6/30/2012 576,182,013 373,592,926 202,589,087 64.8% 62,910,810
6/30/2013 602,540,178 412,227,784 190,312,394 68.4% 64,439,680
6/30/2014 666,978,627 475,566,994 191,411,633 71.3% 67,802,942
6/30/2015 696,699,220 477,031,099 219,668,121 68.5% 71,574,823
6/30/2016 730,382,476 468,702,245 261,680,231 64.2% 75,345,962
6/30/2017 772,526,669 511,805,893 260,720,776 66.3% 78,476,098
6/30/2018 831,958,865 547,102,617 284,856,248 65.8% 80,363,405
6/30/2019 868,716,440 574,012,871 294,703,569 66.1% 78,848,216
6/30/2020 909,429,635 592,313,289 317,116,346 65.1% 84,892,137
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 22
Normal Cost by Benefit Group
The table below displays the Total Normal Cost broken out by benefit group for fiscal year 2022-23. 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 2022-23
Number of
Actives
Payroll on
6/30/2020
8 Miscellaneous First Level 21.40% 348 $40,771,446
26004 Miscellaneous PEPRA Level 13.20% 327 $30,758,659
30157 Miscellaneous Second Level 17.64% 102 $13,362,032
Plan Total 17.78% 777 $84,892,137
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 Second Level Benefit Group amended to the same benefit formula as a
First Level Benefit Group, their Normal Costs may be dissimilar due to demographic or other population
differences. If you have questions in these situations, please consult with your plan actuary.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 23
PEPRA Member Contribution Rates
The California Public Employees’ Pension Reform Act of 2013 (“PEPRA”) established new benefit formulas,
final compensation period, and contribution requirements for “new” employees (generally those first hired
into a CalPERS-covered position on or after January 1, 2013). In accordance with Government Code section
7522.30(b), “new members … shall have an initial contribution rate of at least 50% 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 members’ entry age into the plan. Should the total normal cost of the plan change by more than 1% from the base total normal cost established for the plan, the new member rate shall be 50%
of the new normal cost rounded to the nearest quarter percent.
The table below shows the determination of the PEPRA member contribution rates effective July 1, 2022,
based on 50% of the Total Normal Cost for each respective plan as of the June 30, 2020 valuation.
Basis for Current Rate Rates Effective July 1, 2022
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% 6.25% 13.20% 0.700% No 6.25%
For purposes of setting member rates, it is preferable to determine total normal cost using a large active
population so that the rate remains relatively stable. While each CalPERS non-pooled plan has a sufficiently
large active population for this purpose, the PEPRA active population by itself may not be sufficiently large.
The total PEPRA normal cost will be determined based on the plan’s PEPRA membership only if the number
of members covered under the PEPRA formula meets either:
1. 50% of the active population, or
2. 25% of the active population and 100 or more PEPRA members
Until one of these conditions is met, the plan’s total PEPRA normal cost will be determined using the entire
active plan population (both PEPRA and Classic) based on the PEPRA benefit provisions. For this reason, the
PEPRA member contribution rate determined in the table above may not equal 50% of the total normal cost of the PEPRA group shown on the “Normal Cost by Benefit Group” page.
ATTACHMENT B 1.b
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Risk Analysis
• Future Investment Return Scenarios
• Discount Rate Sensitivity
• Mortality Rate Sensitivity
• Maturity Measures
• Maturity Measures History
• Hypothetical Termination Liability
ATTACHMENT B 1.b
Packet Pg. 37
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 25
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 (2020-21, 2021-22, 2022-23 and 2023-24). 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 2020-21, 2021-22, 2022-23, and 2023-24 each scenario assumes an alternate fixed annual
return. The fixed return assumptions for the five scenarios are 1.0%, 4.0%, 7.0%, 9.0% and 12.0%.
These alternate investment returns were chosen based on stochastic analysis of possible future investment
returns over the four-year period ending June 30, 2024. 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 four-year
outcomes generated in the stochastic analysis, approximately 25% had an average annual return of 4.0% 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% or greater than 12.0% over a four-year period, the likelihood
of a single investment return less than 1.0% or greater than 12.0% in any given year is much greater.
Assumed Annual Return From
2020-21 through 2023-24
Projected Employer Contributions
2023-24 2024-25 2025-26 2026-27
1.0%
Normal Cost 10.3% 10.0% 9.7% 9.5%
UAL Contribution $32,319,000 $35,849,000 $37,094,000 $37,729,000
4.0%
Normal Cost 10.3% 10.0% 9.7% 9.5%
UAL Contribution $31,877,000 $34,535,000 $34,489,000 $33,424,000
7.0%
Normal Cost 10.3% 10.0% 9.7% 9.5%
UAL Contribution $31,435,000 $33,194,000 $31,776,000 $28,848,000
9.0%
Normal Cost 10.5% 10.5% 10.6% 10.7%
UAL Contribution $31,171,000 $32,489,000 $30,450,000 $26,702,000
12.0%
Normal Cost 10.5% 10.5% 10.6% 10.7%
UAL Contribution $30,731,000 $31,117,000 $27,595,000 $21,741,000
These projections reflect changes to the amortization policy effective with the June 30, 2019 valuation as well
as the impact of the CalPERS risk mitigation policy (which reduces the discount rate when investment returns exceed specified trigger points). The projected normal cost percentages reflect that normal cost is anticipated
to decline over time as new employees are hired into PEPRA or other lower-cost benefit tiers.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 26
Discount Rate Sensitivity
The discount rate assumption is calculated as the sum of the assumed real rate of return and the assumed
annual price inflation, currently 4.50% and 2.50%, respectively. Changing either the price inflation assumption
or the real rate of return assumption will change the discount rate. The sensitivity of the valuation results to
the discount rate assumption depends on which component of the discount rate is changed. Shown below are various valuation results as of June 30, 2020 assuming alternate discount rates by changing the two
components independently. Results are shown using the current discount rate of 7.0% as well as alternate
discount rates of 6.0% and 8.0%. The rates of 6.0% and 8.0% were selected since they illustrate the impact
of a 1.0% increase or decrease to the 7.0% assumption.
Sensitivity to the Real Rate of Return Assumption
As of June 30, 2020 1% Lower
Real Return Rate
Current
Assumptions
1% Higher
Real Return Rate
Discount Rate 6.0% 7.0% 8.0%
Inflation 2.5% 2.5% 2.5%
Real Rate of Return 3.5% 4.5% 5.5%
a) Total Normal Cost 22.37% 17.78% 14.29%
b) Accrued Liability $1,024,625,276 $909,429,635 $813,739,258
c) Market Value of Assets $592,313,289 $592,313,289 $592,313,289
d) Unfunded Liability/(Surplus) [(b) - (c)] $432,311,987 $317,116,346 $221,425,969
e) Funded Status 57.8% 65.1% 72.8%
Sensitivity to the Price Inflation Assumption
As of June 30, 2020 1% Lower
Inflation Rate
Current
Assumptions
1% Higher
Inflation Rate
Discount Rate 6.0% 7.0% 8.0%
Inflation 1.5% 2.5% 3.5%
Real Rate of Return 4.5% 4.5% 4.5%
a) Total Normal Cost 19.01% 17.78% 16.35%
b) Accrued Liability $956,181,093 $909,429,635 $847,993,148
c) Market Value of Assets $592,313,289 $592,313,289 $592,313,289
d) Unfunded Liability/(Surplus) [(b) - (c)] $363,867,804 $317,116,346 $255,679,859
e) Funded Status 61.9% 65.1% 69.8%
Mortality Rate Sensitivity
The following table looks at the change in the June 30, 2020 plan costs and funded status under two different
longevity scenarios, namely assuming rates of mortality are 10% lower or 10% higher than our current
mortality assumptions. This type of analysis highlights the impact on the plan of improving or worsening
mortality over the long term.
As of June 30, 2020 10% Lower
Mortality Rates
Current
Assumptions
10% Higher
Mortality Rates
a) Total Normal Cost 18.10% 17.78% 17.49%
b) Accrued Liability $928,774,278 $909,429,635 $891,628,285
c) Market Value of Assets $592,313,289 $592,313,289 $592,313,289
d) Unfunded Liability/(Surplus) [(b) - (c)] $336,460,989 $317,116,346 $299,314,996
e) Funded Status 63.8% 65.1% 66.4%
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 27
Maturity Measures
As pension plans mature they become more sensitive to risks. Understanding plan maturity and how it affects
the ability of a pension plan sponsor 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 increases. A mature plan will often have a ratio above 60%-65%.
Ratio of Retiree Accrued Liability to
Total Accrued Liability June 30, 2019 June 30, 2020
1. Retiree Accrued Liability 528,810,215 549,928,578
2. Total Accrued Liability 868,716,440 909,429,635
3. Ratio of Retiree AL to Total AL [(1) / (2)] 61% 60%
Another measure of the maturity level of CalPERS and its plans is the ratio of actives to retirees, also called
Support Ratio. 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 declines. 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, 2019 June 30, 2020
1. Number of Actives 773 777
2. Number of Retirees 1,194 1,223
3. Support Ratio [(1) / (2)] 0.65 0.64
The actuarial calculations supplied in this communication are based on various assumptions about long-term
demographic and economic behavior. Unless these assumptions (e.g., terminations, deaths, disabilities,
retirements, salary growth, 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
Shown in the table below is the asset volatility ratio (AVR), which is the ratio of market value of assets to
payroll. Plans that have a higher AVR experience more volatile employer contributions (as a percentage of
payroll) due to investment return. For example, a plan with AVR of 8 may experience twice the contribution
volatility due to investment return volatility than a plan with AVR of 4. It should be noted that this ratio is a measure of the current situation. It increases over time but generally tends to stabilize as a plan matures.
Liability Volatility Ratio
Also shown in the table below is the liability volatility ratio (LVR), which is the ratio of accrued liability to
payroll. Plans that have a higher LVR experience more volatile employer contributions (as a percentage of
payroll) due to changes in liability. For example, a plan with LVR of 8 is expected to have twice the contribution
volatility of a plan with LVR of 4 when there is a change in accrued liability, such as when there is a change in actuarial assumptions. It should be noted that this ratio indicates a longer-term potential for contribution
volatility, since the AVR, described above, will tend to move closer to the LVR as the funded status approaches
100%.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 28
Maturity Measures (continued)
Contribution Volatility June 30, 2019 June 30, 2020
1. Market Value of Assets without Receivables $572,729,533 $591,341,001
2. Payroll 78,848,216 84,892,137
3. Asset Volatility Ratio (AVR) [(1) / (2)] 7.3 7.0
4. Accrued Liability $868,716,440 $909,429,635
5. Liability Volatility Ratio (LVR) [(4) / (2)] 11.0 10.7
Maturity Measures History
Valuation Date
Ratio of
Retiree Accrued Liability
to
Total Accrued Liability
Support
Ratio
Asset
Volatility Ratio
Liability
Volatility Ratio
6/30/2017
57%
0.74
6.5
9.8
6/30/2018
57%
0.72
6.8
10.4
6/30/2019
61%
0.65
7.3
11.0
6/30/2020
60%
0.64
7.0
10.7
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020 Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 29
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, 2020. 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 19-month period from 12 months before the valuation date to 7 months after.
[
Market Value of
Assets (MVA)
Hypothetical Termination
Liability1,2
at 0.75%
Funded
Status
Unfunded Termination
Liability
at 0.75%
Hypothetical Termination
Liability1,2
at 2.50%
Funded
Status
Unfunded Termination
Liability
at 2.50%
$592,313,289 $1,987,907,943 29.8% $1,395,594,654 $1,523,562,195 38.9% $931,248,906
1 The hypothetical liabilities calculated above include a 5% 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 1.18% on June 30, 2020, and was 1.68% on January 31, 2021.
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.
ATTACHMENT B 1.b
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Plan’s Major Benefit Provisions
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020
Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 31
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 Appendix B.
Benefit Group
Member Category Misc Misc Misc Misc Misc Misc Misc
Demographics Actives No Yes Yes No Yes No No
Transfers/Separated Yes Yes Yes No Yes No No
Receiving Yes Yes Yes Yes Yes Yes Yes
Benefit Group Key 105391 105393 107485 111261 111264 200044 200045
Benefit Provision
Benefit Formula 2% @ 55 2.7% @ 55 2% @ 60 2% @ 62
Social Security Coverage No No No No
Full/Modified Full Full Full Full
Employee Contribution Rate 8.00% 7.00% 6.25%
Final Average Compensation Period One Year One Year One Year Three Year
Sick Leave Credit No No No No
Non-Industrial Disability Standard Standard Standard Standard
Industrial Disability No No No No
Pre-Retirement Death Benefits
Optional Settlement 2 No No No No 1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1
Special No No No No
Alternate (firefighters) No No No No
Post-Retirement Death Benefits
Lump Sum $500 $500 $500 $500 $500 $500 $500
Survivor Allowance (PRSA) No No No No No No No
COLA 2% 2% 2% 2% 2% 2% 2%
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation - June 30, 2020
Miscellaneous Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 32
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 Appendix B.
Benefit Group
Member Category Misc
Demographics Actives No
Transfers/Separated No
Receiving Yes
Benefit Group Key 200046
Benefit Provision
Benefit Formula Social Security Coverage
Full/Modified
Employee Contribution Rate
Final Average Compensation Period
Sick Leave Credit
Non-Industrial Disability
Industrial Disability
Pre-Retirement Death Benefits
Optional Settlement 2
1959 Survivor Benefit Level
Special
Alternate (firefighters)
Post-Retirement Death Benefits
Lump Sum $500
Survivor Allowance (PRSA) No
COLA 2%
ATTACHMENT B 1.b
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Appendices
• Appendix A – Actuarial Methods and Assumptions
• Appendix B – Principal Plan Provisions
• Appendix C – Participant Data
• Appendix D – Glossary of Actuarial Terms
ATTACHMENT B 1.b
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Appendix A
Actuarial Methods and Assumptions
• Actuarial Data
• Actuarial Methods
• Actuarial Assumptions
• Miscellaneous
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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 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 Actuarial 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.
CalPERS uses an in-house proprietary actuarial model for calculating pension plan costs. We believe this model is fit for its intended purpose and meets all applicable Actuarial Standards of Practice. Furthermore, the
actuarial results of our model are independently confirmed periodically by outside auditing actuaries. The
actuarial assumptions used are internally consistent and the generated results reasonable. A further
refinement to the actuarial model will be the introduction of generational mortality in the June 30, 2021
actuarial valuation.
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 a
payment toward the UAL. The UAL payment is equal to the sum of individual amortization payments, each
representing a different source of UAL for a given measurement period.
Amortization payments are determined according to the CalPERS amortization policy. The CalPERS Board
adopted a new policy effective for the June 30, 2019 actuarial valuation. The new policy applies prospectively only; amortization bases (sources of UAL) established prior to the June 30, 2019 valuation will continue to be
amortized according to the prior policy.
Prior Policy (Bases Established prior to June 30, 2019)
Amortization payments are determined as a level percentage of payroll whereby the payment increases each
year at an escalation rate. 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. Bases
established prior to June 30, 2013 may be amortized differently. A summary is provided in the following table:
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 Appendix A Actuarial Methods and Assumptions
A-2
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
The 5-year ramp up means that the payments in the first four years of the amortization period are 20%, 40%,
60% and 80% 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.
Current Policy (Bases Established on or after June 30, 2019)
Amortization payments are determined as a level dollar amount. Investment gains or losses are amortized
over a fixed 20-year period with a 5-year ramp up at the beginning of the amortization period. Non-investment
gains or losses are amortized over a fixed 20-year period with no ramps. All changes in liability due to plan amendments (other than golden handshakes) are amortized over a 20-year period with no ramps. Changes
in actuarial assumptions or changes in actuarial methodology are amortized over a 20-year period with no
ramps. Changes in unfunded accrued liability due to a Golden Handshake are amortized over a period of five
years. A summary is provided in the table below:
Source
(Gain)/Loss Assumption/Method
Change
Benefit
Change
Golden
Handshake Investment
Non-
investment
Amortization Period 20 Years 20 Years 20 Years 20 Years 5 Years
Escalation Rate 0% 0% 0% 0% 0%
Ramp Up 5 0 0 0 0
Ramp Down 0 0 0 0 0
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 negative payment would be required on a positive unfunded actuarial liability; or
• When the payment would completely amortize the total unfunded liability in a very short time period,
and results in a large change in the employer contribution requirement.
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 20 years.
ATTACHMENT B 1.b
Packet Pg. 49
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CalPERS Actuarial Valuation – June 30, 2020 Appendix A Actuarial Methods and Assumptions
A-3
Exceptions for Plans in Surplus
If a surplus exists (i.e. the Market Value of Assets exceeds the plan’s accrued liability) any prior amortization layers shall be considered fully amortized, and the surplus shall not be amortized.
In the event of any subsequent unfunded liability, a Fresh Start shall be used with an amortization period of
20 years or less.
Exceptions for Small Amounts
Where small unfunded liabilities are identified in annual valuations which result in small payment amounts,
the actuary may shorten the remaining period for these bases.
• When the balance of a single amortization base has an absolute value less than $250, the
amortization period is reduced to one year.
• When the entire unfunded liability is a small amount the actuary may perform a Fresh Start and
use an appropriate amortization period.
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.
Exceptions for Inactive Agencies
For a public agency with no active members in any CalPERS rate plan, the unfunded liability shall be amortized over a closed amortization period of no more than 15 years.
Asset Valuation Method
The Actuarial Value of Assets is set equal to the market value of assets. Asset values include accounts
receivable.
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.
For purposes of setting member rates, it is preferable to determine total normal cost using a large active
population so that the rate remains relatively stable. While each CalPERS non-pooled plan has a sufficiently large active population for this purpose, the PEPRA active population by itself may not be sufficiently large.
The total PEPRA normal cost will be determined based on the plan’s PEPRA membership only if the number
of members covered under the PEPRA formula meets either:
1. 50% of the active population, or 2. 25% of the active population and 100 or more PEPRA members
Until one of these conditions is met, the plan’s total PEPRA normal cost will be determined using the entire
active plan population (both PEPRA and Classic) based on the PEPRA benefit provisions.
ATTACHMENT B 1.b
Packet Pg. 50
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CalPERS Actuarial Valuation – June 30, 2020 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%. 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% to 7.00%
using a three-year phase-in beginning with the June 30, 2016 actuarial valuations. The minimum employer
contributions for fiscal year 2022-23 determined in this valuation were calculated using a discount rate of
7.00%. 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 7.00% 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%
compounded annually (net of investment and administrative expenses) as of June 30, 2020.
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 19-month period from 12 months before the valuation date to 7 months after. 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 1.18% on June 30, 2020.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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 2020) 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
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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% 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% compounded annually.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.50% 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% for those plans that have adopted the provision of providing
Credit for Unused Sick Leave.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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% 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% will become the non-industrial death rate and 1% will become the
industrial death rate.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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% 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.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 57
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CalPERS Actuarial Valuation – June 30, 2020 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.
• 50% of the police industrial disability rates are used for School Police.
• 1% 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% will become the non-industrial disability rate and 50% will become the industrial disability rate.
ATTACHMENT B 1.b
Packet Pg. 58
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 59
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 60
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 61
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 62
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 63
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 64
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 65
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 66
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 67
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT B 1.b
Packet Pg. 68
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CalPERS Actuarial Valuation – June 30, 2020 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(b) dollar limit for the 2020 calendar year is
$230,000.
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 2020 calendar year is $285,000.
ATTACHMENT B 1.b
Packet Pg. 69
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Appendix B
Principal Plan Provisions
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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% at age 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%
ATTACHMENT B 1.b
Packet Pg. 71
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CalPERS Actuarial Valuation – June 30, 2020 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% 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 $126,291 for 2020 and for those employees that do not participate in Social
Security the cap for 2020 is $151,549. 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.
ATTACHMENT B 1.b
Packet Pg. 72
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CalPERS Actuarial Valuation – June 30, 2020 Appendix B Miscellaneous 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% 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% 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 33⅓% of final compensation.
ATTACHMENT B 1.b
Packet Pg. 73
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CalPERS Actuarial Valuation – June 30, 2020 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% of final compensation for the first 5 years of service, plus 1% for each additional
year of service to a maximum of 50% 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% of final compensation.
Increased Benefit (75% 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% to 90% 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% or greater, with a maximum of 90%) 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.
ATTACHMENT B 1.b
Packet Pg. 74
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CalPERS Actuarial Valuation – June 30, 2020 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% 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% 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% or 50% 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% or 50% 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.
ATTACHMENT B 1.b
Packet Pg. 75
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CalPERS Actuarial Valuation – June 30, 2020 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
credited annually at the greater of 6% or the prevailing discount rate 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.
ATTACHMENT B 1.b
Packet Pg. 76
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CalPERS Actuarial Valuation – June 30, 2020 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% 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% 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% of final compensation
• if 2 eligible children: 20.0% of final compensation
• if 3 or more eligible children: 25.0% of final compensation
ATTACHMENT B 1.b
Packet Pg. 77
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CalPERS Actuarial Valuation – June 30, 2020 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%. Annual adjustments are
calculated by first determining the lesser of 1) 2% 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% (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% (when inflation
is high after several years of low inflation).
Improved Benefit
Employers have the option of providing a COLA of 3%, 4%, or 5%, determined in the same manner as described above
for the standard 2% 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% 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.
ATTACHMENT B 1.b
Packet Pg. 78
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CalPERS Actuarial Valuation – June 30, 2020 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%.
• 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% 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%.
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% interest compounded annually.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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.
ATTACHMENT B 1.b
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Appendix C
Participant Data
• Summary of Valuation Data
• Active Members
• Transferred and Terminated Members
• Retired Members and Beneficiaries
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 Appendix C Miscellaneous Plan of the City of Palo Alto
Participant Data
C-1
Summary of Valuation Data
June 30, 2019 June 30, 2020
1. Active Members
a) Counts 773 777
b) Average Attained Age
45.50 45.63
c) Average Entry Age to Rate Plan 34.82 34.93
d) Average Years of Credited Service 10.81 10.79
e) Average Annual Covered Pay $102,003 $109,256
f) Annual Covered Payroll 78,848,216 84,892,137
g) Projected Annual Payroll for Contribution Year 85,533,721 92,090,103
h) Present Value of Future Payroll 655,083,871 705,964,490
2. Transferred Members
a) Counts 388 385
b) Average Attained Age 45.97 45.81
c) Average Years of Credited Service 3.34 3.34
d) Average Annual Covered Pay $116,675 $128,303
3. Terminated Members
a) Counts 438 450
b) Average Attained Age 47.25 47.38
c) Average Years of Credited Service 3.05 3.05
d) Average Annual Covered Pay $73,181 $74,685
4. Retired Members and Beneficiaries
a) Counts 1,194 1,223
b) Average Attained Age 70.2 70.54
c) Average Annual Benefits $35,868 $36,759
5. Active to Retired Ratio [(1a) / (4a)] 0.65 0.64
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple records
may exist for those who have service in more than one valuation group. This does not result in double counting of
liabilities.
Average Annual Benefits represents benefit amounts payable by this plan only. Some members may have service with
another agency and would therefore have a larger total benefit than would be included as part of the average shown
here.
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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 7 0 0 0 0 0 7
25-29 63 7 0 0 0 0 70
30-34 73 24 0 0 0 0 97
35-39 36 30 12 6 0 0 84
40-44 40 22 26 21 8 1 118
45-49 20 17 14 22 16 8 97
50-54 17 18 22 17 19 18 111
55-59 21 10 23 14 19 32 119
60-64 9 12 14 10 4 7 56
65 and Over 1 0 4 2 4 7 18
All Ages 287 140 115 92 70 73 777
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
Salary
15-24 $76,479 $0 $0 $0 $0 $0 $76,479
25-29 81,221 94,990 0 0 0 0 82,598
30-34 94,540 98,774 0 0 0 0 95,587
35-39 100,628 110,276 124,710 90,287 0 0 106,775
40-44 111,031 123,435 108,340 123,111 120,486 101,338 115,459
45-49 105,753 110,169 121,471 127,673 124,751 119,262 118,015
50-54 104,120 141,347 109,486 124,392 119,727 140,719 122,932
55-59 97,007 126,980 123,964 106,705 110,533 122,095 114,783
60-64 118,952 121,421 116,524 105,974 79,028 91,897 110,323
65 and Over 70,638 0 86,231 114,548 78,307 117,377 98,862
Average $96,449 $115,738 $115,218 $117,753 $113,774 $122,744 $109,256
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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 $97,440
25-29 19 0 0 0 0 0 19 95,135
30-34 33 4 0 0 0 0 37 110,028
35-39 52 7 5 0 0 0 64 119,846
40-44 45 11 6 1 0 0 63 126,063
45-49 48 7 1 4 0 0 60 132,501
50-54 48 12 2 3 0 0 65 138,333
55-59 34 10 4 2 0 0 50 136,743
60-64 11 3 3 0 0 0 17 162,696
65 and Over 8 1 0 0 0 0 9 140,427
All Ages 299 55 21 10 0 0 385 $128,303
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 20 0 0 0 0 0 20 72,551
30-34 39 3 0 0 0 0 42 83,912
35-39 50 8 1 0 0 0 59 76,257
40-44 66 7 4 0 0 0 77 76,119
45-49 44 15 4 0 0 0 63 83,327
50-54 50 19 2 4 1 0 76 77,901
55-59 40 6 1 2 0 0 49 68,135
60-64 26 6 5 1 0 0 38 58,575
65 and Over 22 4 0 0 0 0 26 59,161
All Ages 357 68 17 7 1 0 450 $74,685
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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 2 2
30-34 0 0 0 0 0 1 1
35-39 0 0 1 0 0 3 4
40-44 0 0 1 0 0 0 1
45-49 0 2 2 0 0 1 5
50-54 21 3 0 1 0 0 25
55-59 111 7 3 0 0 4 125
60-64 171 15 1 0 0 7 194
65-69 225 6 1 0 0 13 245
70-74 206 10 2 0 0 19 237
75-79 165 5 2 0 0 25 197
80-84 72 5 0 0 0 13 90
85 and Over 57 4 0 0 0 36 97
All Ages 1,028 57 13 1 0 124 1,223
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 $25,395 $25,395
30-34 0 0 0 0 0 14,138 14,138
35-39 0 0 318 0 0 8,394 6,375
40-44 0 0 247 0 0 0 247
45-49 0 5,617 285 0 0 109,955 24,352
50-54 16,764 16,215 0 17,553 0 0 16,729
55-59 40,626 12,745 560 0 0 28,188 37,705
60-64 46,123 15,273 1,746 0 0 13,268 42,324
65-69 42,888 18,080 12,415 0 0 35,613 41,770
70-74 41,401 17,763 10,042 0 0 22,123 38,594
75-79 34,397 15,331 2,020 0 0 24,574 32,338
80-84 35,620 24,865 0 0 0 28,643 34,014
85 and Over 29,754 20,433 0 0 0 22,539 26,692
All Ages $39,750 $16,614 $3,162 $17,553 $0 $24,896 $36,759
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 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 275 2 1 1 0 41 320
5-9 179 4 5 0 0 29 217
10-14 291 12 1 0 0 22 326
15-19 141 11 2 0 0 13 167
20-24 79 9 4 0 0 10 102
25-29 43 13 0 0 0 6 62
30 and Over 20 6 0 0 0 3 29
All Years 1,028 57 13 1 0 124 1,223
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 $39,536 $13,263 $318 $17,553 $0 $24,768 $37,289
5-9 40,504 12,619 284 0 0 29,920 37,649
10-14 49,423 11,917 18,988 0 0 27,664 46,480
15-19 34,238 19,521 6,746 0 0 14,659 31,416
20-24 30,333 21,856 1,721 0 0 20,752 27,524
25-29 17,277 18,626 0 0 0 19,812 17,805
30 and Over 19,585 12,242 0 0 0 26,116 18,741
All Years $39,750 $16,614 $3,162 $17,553 $0 $24,896 $36,759
* 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.
ATTACHMENT B 1.b
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Appendix D
Glossary of Actuarial Terms
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 Appendix D Miscellaneous Plan of the City of Palo Alto
Glossary of Actuarial Terms
D-1
Glossary of Actuarial Terms
Accrued Liability (also called Actuarial Accrued Liability or Entry Age Actuarial 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, method changes, and/or gains and losses.
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
The assumed long-term rate of return on plan assets. This is the rate at which projected cash flows are discounted
to the valuation date to determine Accrued Liability. This assumption is called “investment return” in earlier
CalPERS reports and “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 Actuarial 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.)
ATTACHMENT B 1.b
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CalPERS Actuarial Valuation – June 30, 2020 Appendix D Miscellaneous Plan of the City of Palo Alto
Glossary of Actuarial Terms
D-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% means the plan or risk pool has more assets than liabilities and a ratio less
than 100% 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
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.
ATTACHMENT B 1.b
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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 2021
Safety Plan of the City of Palo Alto (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2020
Dear Employer,
Attached to this letter, you will find the June 30, 2020 actuarial valuation report of your CalPERS pension plan. Provided
in this report is the determination of the minimum required employer contributions for fiscal year 2022-
23.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 requirements 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 table below shows the minimum required employer contributions and the Employee PEPRA Rate for fiscal year 2022-
23 along with an estimate of the required contribution for fiscal year 2023-24. Employee 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
2022-23 20.58% $14,860,807 11.75%
Projected Results
2023-24 20.1% $15,940,000 TBD
The actual investment return for fiscal year 2020-21 was not known at the time this report was prepared. The projections
above assume the investment return for that year would be 7.0%. To the extent the actual investment return for
fiscal year 2020-21 differs from 7.0%, the actual contribution requirements for fiscal year 2023-24 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 2027-28.
Changes from Previous Year’s Valuations
There are no significant changes in actuarial assumptions or policies in your 2020 actuarial valuation. Your annual
valuation report is an important tool for monitoring the health of your CalPERS pension Plan. Your report contains useful
information about future required contributions and ways to control your plan’s funding progress.
In addition to your annual actuarial report, my office has developed tools for employers to plan, project and protect the
retirement benefits of your employees. Pension Outlook is a tool to help plan and budget pension costs into the future
with easy to understand results and charts.
You will be able to view the projected funded status and required employer contributions for pension plans in different
potential scenarios for up to 30 years into the future — which will make budgeting more predictable. While
ATTACHMENT C 1.c
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Safety Plan of the City of Palo Alto (CalPERS ID: 6373437857)
Annual Valuation Report as of June 30, 2020
Page 2
Pension Outlook cannot predict the future, it can provide valuable planning information based on a variety of future
scenarios that you select.
Pension Outlook can help you answer specific questions about your plans, including:
•When is my plan’s funded status expected to increase?
•What happens to my required contributions in a down market?
•How does the discount rate assumption affect my contributions?
•What is the impact of making an additional discretionary payment to my plan?
To get started, visit our Pension Outlook page at www.calpers.ca.gov/page/employers/actuarial-resources/pension-
outlook-overview and take the steps to register online.
CalPERS will be completing an Asset Liability Management (ALM) review process in November 2021 that will review the
capital market assumptions and the strategic asset allocation and ascertain whether a change in the discount rate and
other economic assumptions is warranted. In addition, the Actuarial Office will be completing its Experience Study to
review the demographic experience within the pension system and make recommendations to modify future assumptions
where appropriate. Any assumption change stemming from these studies will be reflected in the June 30, 2021 actuarial
valuation.
Furthermore, this valuation does not reflect any impacts from the COVID-19 pandemic on your pension plan. The impact
of COVID-19 on retirement plans is not yet known and CalPERS actuaries will continue to monitor the effects and, where
necessary, make future adjustments to actuarial assumptions.
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.
Questions
We understand that you might have questions about these results, and your assigned CalPERS actuary whose signature
is on the valuation report is available to discuss. If you have other questions, you may call the Customer Contact Center
at (888)-CalPERS or (888-225-7377).
Sincerely,
SCOTT TERANDO, ASA, EA, MAAA, FCA, CFA
Chief Actuary, CalPERS
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Actuarial Valuation
as of June 30, 2020
for the
Safety Plan
of the
City of Palo Alto
(CalPERS ID: 6373437857)
(Rate Plan ID: 5080)
Required Contributions
for Fiscal Year
July 1, 2022 – June 30, 2023
ATTACHMENT C 1.c
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Table of Contents
Actuarial Certification 1
Highlights and Executive Summary
Introduction 3
Purpose of the Report 3
Required Contributions 4
Additional Discretionary Employer Contributions 5 Plan’s Funded Status 6
Projected Employer Contributions 6
Cost 7
Changes Since the Prior Year’s Valuation 8
Subsequent Events 8
Assets
Reconciliation of the Market Value of Assets 10 Asset Allocation 11
CalPERS History of Investment Returns 12
Liabilities and Contributions
Development of Accrued and Unfunded Liabilities 14
(Gain) / Loss Analysis 6/30/19 - 6/30/20 15 Schedule of Amortization Bases 16
Amortization Schedule and Alternatives 18
Reconciliation of Required Employer Contributions 20
Employer Contribution History 21
Funding History 21
Normal Cost by Benefit Group 22
PEPRA Member Contribution Rates 23
Risk Analysis
Future Investment Return Scenarios 25 Discount Rate Sensitivity 26
Mortality Rate Sensitivity 26
Maturity Measures 27
Maturity Measures History 28
Hypothetical Termination Liability 29
Plan’s Major Benefit Provisions
Plan’s Major Benefit Options 31
Appendix A – Actuarial Methods and Assumptions
Actuarial Data A-1Actuarial 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-2Transferred and Terminated Members C-3
Retired Members and Beneficiaries C-4
Appendix D – Glossary of Actuarial Terms D-1
(CY) FIN JOB INSTANCE ID: 379734 (PY) FIN JOB INSTANCE ID: 350271 REPORT ID: 379753
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CalPERS Actuarial Valuation - June 30, 2020 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, 2020 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 who satisfies the Qualification Standards for Actuaries Issuing Statements of
Actuarial Opinion in the United States with regard to pensions.
DAVID CLEMENT, ASA, MAAA, EA
Senior Pension Actuary, CalPERS
ATTACHMENT C 1.c
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Highlights and Executive Summary
• Introduction
• Purpose of the Report
• Required Contributions
• Additional Discretionary Employer Contributions
• Plan’s Funded Status
• Projected Employer Contributions
• Cost
• Changes Since the Prior Year’s Valuation
• Subsequent Events
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 3
Introduction
This report presents the results of the June 30, 2020 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 2022-23.
Purpose of the Report
The actuarial valuation was prepared by the CalPERS Actuarial Office using data as of June 30, 2020. The purpose of the report is to:
• Set forth the assets and accrued liabilities of this plan as of June 30, 2020;
• Determine the minimum required employer contributions for the fiscal year July 1, 2022 through June
30, 2023;
• Provide actuarial information as of June 30, 2020 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 the CalPERS website (calpers.ca.gov).
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.
Assessment and Disclosure of Risk
This report includes the following risk disclosures consistent with the recommendations of Actuarial Standards
of Practice No. 51 and recommended by the California Actuarial Advisory Panel (CAAP) in the Model Disclosure
Elements document:
• 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% and 8.0%.
• A “Sensitivity Analysis,” showing the impact on current valuation results assuming rates of mortality
are 10% lower or 10% higher than our current mortality assumptions adopted in 2017.
• Plan maturity measures indicating how sensitive a plan may be to the risks noted above.
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 4
Required Contributions
Fiscal Year
Required Employer Contribution 2022-23
Employer Normal Cost Rate 20.58%
Plus, Either
1) Monthly Employer Dollar UAL Payment $1,238,401
Or
2) Annual UAL Prepayment Option* $14,366,484
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) and 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
”PEPRA Member Contribution Rates” in the “Liabilities and Contributions” section. Required member
contributions for Classic members can be found in Appendix B.
Fiscal Year Fiscal Year
2021-22 2022-23
Normal Cost Contribution as a Percentage of Payroll
Total Normal Cost 31.17% 30.36%
Employee Contribution1 9.65% 9.78%
Employer Normal Cost2 21.52% 20.58%
Projected Annual Payroll for Contribution Year $27,649,475 $29,395,113
Estimated Employer Contributions Based On
Projected Payroll
Total Normal Cost $8,618,341 $8,924,356
Employee Contribution1 2,668,174 2,874,842
Employer Normal Cost2 5,950,167 6,049,514
Unfunded Liability Contribution 13,282,515 14,860,807
% of Projected Payroll (illustrative only) 48.04% 50.56%
Estimated Total Employer Contribution $19,232,682 $20,910,321
% of Projected Payroll (illustrative only) 69.56% 71.14%
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% of
the normal cost. A development of PEPRA member contribution rates can be found in the “Liabilities and Contributions” section. 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. For a breakout of normal cost by benefit
group, see “Normal Cost by Benefit Group” in the “Liabilities and Contributions” section.
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 5
Additional Discretionary Employer Contributions
The minimum required employer contribution towards the Unfunded Accrued Liability (UAL) for this rate plan
for the 2022-23 fiscal year is $14,860,807. CalPERS allows employers to make additional discretionary
payments (ADPs) at any time and in any amount. These optional payments serve to reduce the UAL and
future required contributions and can result in significant long-term savings. Employers can also use ADPs to stabilize annual contributions as a fixed dollar amount, percent of payroll or percent of revenue.
Provided below are select ADP options for consideration. Making such an ADP during fiscal year 2022-23 does
not require an ADP be made in any future year, nor does it change the remaining amortization period of any
portion of unfunded liability. For information on permanent changes to amortization periods, see the
“Amortization Schedule and Alternatives” section of the report.
If you are considering making an ADP, please contact your actuary for additional information.
Minimum Required Employer Contribution for Fiscal Year 2022-23
Estimated
Normal Cost
Minimum UAL
Payment
ADP Total UAL
Contribution
Estimated Total
Contribution
$6,049,514 $14,860,807 $0 $14,860,807 $20,910,321
Alternative Fiscal Year 2022-23 Employer Contributions for Greater UAL Reduction
Funding
Target
Estimated
Normal Cost
Minimum UAL
Payment ADP1 Total UAL
Contribution
Estimated Total
Contribution
20 years $6,049,514 $14,860,807 $2,948,451 $17,809,258 $23,858,772
15 years $6,049,514 $14,860,807 $5,854,314 $20,715,121 $26,764,635
10 years $6,049,514 $14,860,807 $12,001,775 $26,862,582 $32,912,096
5 years $6,049,514 $14,860,807 $31,154,425 $46,015,232 $52,064,746
1 The ADP amounts are assumed to be made in the middle of the fiscal year. A payment made earlier or later in the
fiscal year would have to be less or more than the amount shown to have the same effect on the UAL amortization.
Note that the calculations above are based on the projected Unfunded Accrued Liability as of June 30, 2022
as determined in the June 30, 2020 actuarial valuation. New unfunded liabilities can emerge in future years
due to assumption or method changes, changes in plan provisions and actuarial experience different than
assumed. Making an ADP illustrated above for the indicated number of years will not result in a plan that is
exactly 100% funded in the indicated number of years. Valuation results will vary from one year to the next
and can diverge significantly from projections over a period of several years.
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 6
Plan’s Funded Status
This measure of funded status is an assessment of the need for future employer contributions based on the
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. The projection assumes that all actuarial assumptions will be realized and that no further
changes to assumptions, contributions, benefits, or funding will occur during the projection period. Actual
contribution rates during this projection period could be significantly higher or lower than the projection shown
below. The projected normal cost percentages in the projections below reflect that the normal cost will
continue to 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 2020-21)
Fiscal Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28
Normal Cost % 20.58% 20.1% 19.6% 19.1% 18.6% 18.0%
UAL Payment $14,860,807 $15,940,000 $16,877,000 $17,511,000 $18,099,000 $18,546,000
Total as a % of Payroll* 71.14% 72.9% 74.0% 74.0% 73.8% 73.1%
Projected Payroll $29,395,113 $30,203,479 $31,034,074 $31,887,511 $32,764,418 $33,665,439
*Illustrative only and based on the projected payroll shown.
For some sources of UAL, the change in UAL is 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 the change in UAL over a 5-year period in order to reduce 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 when 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.
Our online pension plan modeling and projection tool, Pension Outlook, is available in the Employers section
of the CalPERS website. Pension Outlook is a tool to help plan and budget pension costs into the future with results and charts that are easy to understand.
June 30, 2019 June 30, 2020
1. Present Value of Projected Benefits $540,115,883 $558,256,577
2. Entry Age Accrued Liability 471,338,133 487,159,688
3. Market Value of Assets (MVA) 289,117,004 293,857,975
4. Unfunded Accrued Liability (UAL) [(2) – (3)] $182,221,129 $193,301,713
5. Funded Ratio [(3) / (2)] 61.3% 60.3%
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 7
Cost
Actuarial Determination of Pension Plan Cost
Contributions to fund the pension plan are comprised of two components:
• Normal Cost, expressed as a percentage of total active payroll
• Amortization of the Unfunded Accrued Liability (UAL), expressed as a dollar amount
For fiscal years prior to 2017-18, the Amortization of UAL component was expressed as percentage of total
active payroll. Starting with fiscal year 2017-18, the Amortization of UAL component is expressed as a dollar
amount and invoiced on a monthly basis. There is an option to prepay this amount during July of each fiscal year.
The Normal Cost component is 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 (e.g., mortality rates, retirement rates, employment termination rates,
disability rates)
• Economic assumptions (e.g., future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPERS’ best estimate of future experience of the plan and are long term in nature.
We recognize that all assumptions will not be realized in any given year. For example, the investment earnings
at CalPERS have averaged 5.5% over the 20 years ending June 30, 2020, yet individual fiscal year returns have ranged from -23.6% to +20.7%. In addition, CalPERS reviews all actuarial assumptions by conducting
in-depth experience studies every four years, with the most recent experience study completed in 2017.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 8
Changes Since the Prior Year’s Valuation
Benefits
The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first annual valuation following the effective date of the legislation. Voluntary benefit changes by plan amendment
are generally included in the first valuation that is prepared after the amendment becomes effective, even if
the valuation date is prior to the effective date of the amendment.
This valuation generally reflects plan changes by amendments effective before the date of the report. Please
refer to the “Plan’s Major Benefit Options” and Appendix B for a summary of the plan provisions used in this
valuation. The effect of any mandated benefit changes or plan amendments on the unfunded liability is shown
in the “(Gain)/Loss Analysis” and the effect on 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
The are no significant changes to the actuarial methods or assumptions for the 2020 actuarial valuation.
Subsequent Events
The contribution requirements determined in this actuarial valuation report are based on demographic and
financial information as of June 30, 2020. Changes in the value of assets subsequent to that date are not
reflected. Investment returns below the assumed rate of return will increase future required contributions while investment returns above the assumed rate of return will decrease future required contributions.
CalPERS will be completing an Asset Liability Management (ALM) review process in November 2021 that will
review the capital market assumptions and the strategic asset allocation and ascertain whether a change in
the discount rate and other economic assumptions is warranted. In addition, the Actuarial Office will be
completing its Experience Study to review the demographic experience within the pension system and make
recommendations to modify future assumptions where appropriate.
Furthermore, this valuation does not reflect any impacts from the COVID-19 pandemic on your pension plan.
The impact of COVID-19 on retirement plans is not yet known and CalPERS actuaries will continue to monitor
the effects and, where necessary, make future adjustments to actuarial assumptions.
The projected employer contributions on Page 6 are calculated under the assumption that the discount rate
remains at 7.0% going forward and that the realized rate of return on assets for fiscal year 2020-21 is 7.0%.
This actuarial valuation report reflects statutory changes, regulatory changes and CalPERS Board actions
through January 2021. Any subsequent changes or actions are not reflected.
ATTACHMENT C 1.c
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Assets
• Reconciliation of the Market Value of Assets
• Asset Allocation
• CalPERS History of Investment Returns
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 10
Reconciliation of the Market Value of Assets
1. Market Value of Assets as of 6/30/19 including Receivables $289,117,004
2. Change in Receivables for Service Buybacks (48,325)
3. Employer Contributions 14,297,031
4. Employee Contributions 3,432,229
5. Benefit Payments to Retirees and Beneficiaries (25,936,671)
6. Refunds (11,679)
7. Transfers 0
8. Service Credit Purchase (SCP) Payments and Interest 75,003
9. Administrative Expenses (222,045)
10. Miscellaneous Adjustments 0
11. Investment Return (Net of Investment Expenses) 13,155,428
12. Market Value of Assets as of 6/30/20 including Receivables $293,857,975
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 11
Asset Allocation
CalPERS adheres to an Asset Allocation Strategy which establishes asset class allocation policy targets and
ranges and manages those asset class allocations within their policy ranges. CalPERS Investment Belief No. 6
recognizes that strategic asset allocation is the dominant determinant of portfolio risk and return. On December 19, 2017, the CalPERS Board of Administration adopted changes to the current asset allocation as
shown in the Policy Target Allocation below expressed as a percentage of total assets.
The asset allocation shown below reflect the allocation of the Public Employees’ Retirement Fund (PERF) in
its entirety as of June 30, 2020. The assets for City of Palo Alto Safety Plan are part of the PERF and are
invested accordingly.
Asset Class
Actual
Allocation
Policy Target
Allocation
Public Equity 53.0% 50.0%
Private Equity 6.3% 8.0%
Global Fixed Income 28.3% 28.0%
Real Assets 11.3% 13.0%
Liquidity 0.9% 1.0%
Inflation Sensitive Assets 0.0% 0.0%
Trust Level1 0.2% 0.0%
Total Fund 100.0% 100.0%
1 Trust Level includes Multi-Asset Class, Completion Overlay, Risk Mitigation, Absolute
Return Strategies, Plan Level Transition and other Total Fund level portfolios.
Strategic Asset Allocation Policy Targets
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 12
CalPERS History of Investment Returns
The following is a chart with the 20-year historical annual returns of the PERF for each fiscal year ending on
June 30. Beginning in 2002, investment returns reported are net of investment expenses and gross of
administrative expenses.
The table below shows annualized investment returns of the PERF for various time periods ending on June
30, 2020 (figures reported are net of investment expenses and gross of administrative expenses). These
returns are the annual rates that if compounded over the indicated number of years would equate to the
actual performance of the PERF. It should be recognized that in any given year the rate of return is volatile.
The portfolio has an expected volatility of 11.4% per year based on the most recent Asset Liability Modeling study. The realized volatility is a measure of the risk of the portfolio expressed as the standard deviation of
the fund’s total monthly return distribution, expressed as an annual percentage. Due to their volatile nature,
when looking at investment returns, it is more instructive to look at returns over longer time horizons.
History of CalPERS Compound Annual Rates of Return and Volatilities
1 year 5 year 10 year 20 year 30 year
Compound Annual Return 4.7% 6.3% 8.5% 5.5% 8.0%
Realized Volatility – 7.3% 7.1% 8.6% 8.6%
ATTACHMENT C 1.c
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Liabilities and Contributions
• Development of Accrued and Unfunded Liabilities
• (Gain) / Loss Analysis 6/30/19 - 6/30/20
• Schedule of Amortization Bases
• Amortization Schedule and Alternatives
• Reconciliation of Required Employer Contributions
• Employer Contribution History
• Funding History
• Normal Cost by Benefit Group
• PEPRA Member Contribution Rates
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 14
Development of Accrued and Unfunded Liabilities
June 30, 2019 June 30, 2020
1. Present Value of Projected Benefits
a) Active Members $190,843,454 $197,379,325
b) Transferred Members 10,711,205 10,354,720
c) Terminated Members 3,368,570 3,330,796
d) Members and Beneficiaries Receiving Payments 335,192,654 347,191,736
e) Total $540,115,883 $558,256,577
2. Present Value of Future Employer Normal Costs $45,282,263 $45,431,028
3. Present Value of Future Employee Contributions $23,495,487 $25,665,861
4. Entry Age Accrued Liability
a) Active Members [(1a) - (2) - (3)] $122,065,704 $126,282,436
b) Transferred Members (1b) 10,711,205 10,354,720
c) Terminated Members (1c) 3,368,570 3,330,796
d) Members and Beneficiaries Receiving Payments (1d) 335,192,654 347,191,736
e) Total $471,338,133 $487,159,688
5. Market Value of Assets (MVA) $289,117,004 $293,857,975
6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $182,221,129 $193,301,713
7. Funded Ratio [(5) / (4e)] 61.3% 60.3%
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 15
(Gain)/Loss Analysis 6/30/19 – 6/30/20
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 6/30/19 $182,221,129
b) Expected Payment on the UAL during 2019-20 9,685,024
c) Interest through 6/30/20 [.07 x (1a) - ((1.07)½ - 1) x (1b)] 12,422,238 d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 184,958,343
e) Change due to plan changes 0
f) Change due to AL Significant Increase 0
g) Change due to assumption change 0
h) Change due to method change 0
i) Expected UAL after all other changes [(1d) + (1e) + (1f) + (1g) + (1h)] 184,958,343
j) Actual UAL as of 6/30/20 193,301,713
k) Total (Gain)/Loss for 2019-20 [(1j) - (1i)] $8,343,370
2. Contribution (Gain)/Loss for the Year
a) Expected Contribution (Employer and Employee) $17,755,901 b) Interest on Expected Contributions 610,946
c) Actual Contributions 17,729,261
d) Interest on Actual Contributions 610,029
e) Expected Contributions with Interest [(2a) + (2b)] 18,366,847
f) Actual Contributions with Interest [(2c) + (2d)] 18,339,290
g) Contribution (Gain)/Loss [(2e) - (2f)] $27,557
3. Investment (Gain)/Loss for the Year
a) Market Value of Assets as of 6/30/19 $289,117,004
b) Prior Fiscal Year Receivables (406,894)
c) Current Fiscal Year Receivables 358,568 d) Contributions Received 17,729,261
e) Benefits and Refunds Paid (25,948,351)
f) Transfers, SCP Payments and Interest, and Miscellaneous Adjustments 75,003
g) Expected Return [.07 x (3a + 3b) + ((1.07)½ - 1) x ((3d) + (3e) + (3f))] 19,929,486
h) Expected Assets as of 6/30/20 [(3a) + (3b) + (3c) + (3d) + (3e) + (3f) + (3g)] 300,854,078
i) Actual Market Value of Assets as of 6/30/20 293,857,975
j) Investment (Gain)/Loss [(3h) - (3i)] $6,996,103
4. Liability (Gain)/Loss for the Year
a) Total (Gain)/Loss (1j) $8,343,370
b) Contribution (Gain)/Loss (2g) 27,557 c) Investment (Gain)/Loss (3j) 6,996,103
d) Liability (Gain)/Loss [(4a) - (4b) - (4c)] $1,319,710
5. Non-Investment (Gain)/Loss for the Year
a) Contribution (Gain)/Loss (2g) $27,557
b) Liability (Gain)/Loss (4d) 1,319,710
c) Non-Investment (Gain)/Loss [(5a) + (5b)] $1,347,267
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 16
Schedule of Amortization Bases
Below 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, 2020.
• The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuation date: fiscal year 2022-23.
This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with
their required employer contribution well in advance of the start of the fiscal year.
The Unfunded Accrued Liability (UAL) is used to determine the employer contribution and therefore must be rolled forward two years from the valuation date to the first
day of the fiscal year for which the contribution is being determined. The UAL is rolled forward each year by subtracting the expected payment on the UAL for the fiscal
year and adjusting for interest. The expected payment on the UAL for a fiscal year is equal to the Expected Employer Contribution for the fiscal year minus the Expected
Normal Cost for the year. The Employer Contribution for the first fiscal year is determined by the actuarial valuation two years ago and the contribution for the second
year is from the actuarial valuation one year ago. Additional discretionary payments are reflected in the Expected Payments column in the fiscal year they were made by
the agency.
Reason for Base Date Est.
Ramp
Level 2022-23 Ramp Shape
Escala-
tion Rate Amort. Period Balance 6/30/20
Expected
Payment 2020-21 Balance 6/30/21
Expected
Payment 2021-22 Balance 6/30/22
Minimum
Required
Payment 2022-23
Fresh Start 6/30/04 No Ramp 2.75% 14 (889,970) (76,632) (872,999) (78,739) (852,661) (80,904)
Benefit Change 6/30/05 No Ramp 2.75% 4 102,359 19,482 89,372 20,018 74,921 20,568
Assumption Change 6/30/09 No Ramp 2.75% 9 6,480,799 740,246 6,168,739 760,603 5,813,777 781,520
Special (Gain)/Loss 6/30/09 No Ramp 2.75% 19 8,935,194 640,612 8,898,003 658,229 8,839,986 676,330
Special (Gain)/Loss 6/30/10 No Ramp 2.75% 20 4,282,400 298,204 4,273,703 306,405 4,255,914 314,831
Assumption Change 6/30/11 No Ramp 2.75% 11 5,666,226 568,423 5,474,880 584,055 5,253,970 600,116
Special (Gain)/Loss 6/30/11 No Ramp 2.75% 21 2,441,175 165,425 2,440,940 169,974 2,435,983 174,649
Payment (Gain)/Loss 6/30/12 No Ramp 2.75% 22 1,584,008 104,641 1,586,647 107,518 1,586,495 110,475
(Gain)/Loss 6/30/12 No Ramp 2.75% 22 45,336,744 2,994,983 45,412,282 3,077,345 45,407,911 3,161,972
(Gain)/Loss 6/30/13 100% Up/Down 2.75% 23 45,419,966 3,081,154 45,412,193 3,165,885 45,316,230 3,252,947
Assumption Change 6/30/14 100% Up/Down 2.75% 14 21,627,354 2,056,528 21,013,980 2,113,082 20,299,170 2,171,192
(Gain)/Loss 6/30/14 100% Up/Down 2.75% 24 (30,395,515) (2,009,961) (30,444,081) (2,065,235) (30,438,871) (2,122,029)
(Gain)/Loss 6/30/15 100% Up/Down 2.75% 25 16,530,804 864,629 16,793,581 1,110,507 16,820,414 1,141,046
Assumption Change 6/30/16 100% Up/Down 2.75% 16 7,395,773 402,662 7,496,960 551,647 7,451,119 708,521
(Gain)/Loss 6/30/16 100% Up/Down 2.75% 26 19,048,275 748,572 19,607,325 1,025,543 19,919,008 1,317,182
Assumption Change 6/30/17 80% Up/Down 2.75% 17 9,659,184 352,226 9,970,981 542,869 10,107,402 743,730
(Gain)/Loss 6/30/17 80% Up/Down 2.75% 27 (1,122,380) (29,835) (1,170,085) (45,983) (1,204,426) (62,996)
Method Change 6/30/18 60% Up/Down 2.75% 18 3,325,510 62,003 3,494,159 127,416 3,606,950 196,380
Assumption Change 6/30/18 60% Up/Down 2.75% 18 14,421,008 268,874 15,152,353 552,537 15,641,469 851,597
(Gain)/Loss 6/30/18 60% Up/Down 2.75% 28 (3,038,270) (41,496) (3,208,025) (85,275) (3,344,378) (131,430)
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 17
Schedule of Amortization Bases (continued)
Reason for Base
Date
Est.
Ramp Level
2022-23
Ramp
Shape
Escala-tion
Rate
Amort.
Period
Balance
6/30/20
Expected Payment
2020-21
Balance
6/30/21
Expected Payment
2021-22
Balance
6/30/22
Minimum
Required Payment
2022-23
Non-Investment (Gain)/Loss 6/30/19 No Ramp 0.00% 19 6,646,831 0 7,112,109 649,002 6,938,624 649,002
Investment (Gain)/Loss 6/30/19 40% Up Only 0.00% 19 1,500,868 0 1,605,929 35,112 1,682,024 70,224
Non-Investment (Gain)/Loss 6/30/20 No Ramp 0.00% 20 1,347,267 0 1,441,576 0 1,542,486 140,757
Investment (Gain)/Loss 6/30/20 20% Up Only 0.00% 20 6,996,103 0 7,485,830 0 8,009,838 175,127
Total 193,301,713 11,210,740 195,236,352 13,282,515 195,163,355 14,860,807
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 20 Page 18
Amortization Schedule and Alternatives
The amortization schedule on the previous page shows the minimum contributions required according to the
CalPERS amortization policy. Many agencies have expressed a desire for a more stable pattern of payments or have indicated interest in paying off the unfunded accrued liabilities more quickly than required. As such,
we have provided alternative amortization schedules to help analyze the current amortization schedule and
illustrate the potential savings 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) alternative
“fresh start” amortization schedules using two sample periods that would both result in interest savings relative to the current amortization schedule. To initiate a Fresh Start, please consult with your plan actuary.
The Current Amortization Schedule typically contains both positive and negative bases. Positive bases result
from plan changes, assumption changes, method changes or plan experience that increase unfunded liability.
Negative bases result from plan changes, assumption changes, method changes, or plan experience that
decrease 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:
• When a negative payment would be required on a positive unfunded actuarial liability; or
• When the payment would completely amortize the total unfunded liability in a very short time period,
and results in a large change in the employer contribution requirement.
In any year when 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.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 19
Amortization Schedule and Alternatives
(continued)
Alternative Schedules
Current Amortization
Schedule 20 Year Amortization 15 Year Amortization
Date Balance Payment Balance Payment Balance Payment
6/30/2022 195,163,355 14,860,807 195,163,355 17,809,258 195,163,355 20,715,121
6/30/2023 193,452,652 15,940,036 190,402,750 17,809,258 187,396,902 20,715,120
6/30/2024 190,505,836 16,876,931 185,308,903 17,809,258 179,086,798 20,715,121
6/30/2025 186,383,610 17,511,253 179,858,486 17,809,258 170,194,986 20,715,120
6/30/2026 181,316,682 18,099,202 174,026,540 17,809,258 160,680,748 20,715,120
6/30/2027 175,286,889 18,546,304 167,786,358 17,809,258 150,500,514 20,715,121
6/30/2028 168,372,523 19,005,701 161,109,363 17,809,258 139,607,662 20,715,120
6/30/2029 160,498,948 19,477,734 153,964,979 17,809,259 127,952,312 20,715,121
6/30/2030 151,585,949 19,962,745 146,320,487 17,809,259 115,481,086 20,715,121
6/30/2031 141,547,342 19,463,451 138,140,880 17,809,258 102,136,874 20,715,120
6/30/2032 131,322,505 19,378,495 129,388,702 17,809,259 87,858,568 20,715,120
6/30/2033 120,469,808 18,466,754 120,023,870 17,809,258 72,580,781 20,715,121
6/30/2034 109,800,533 18,126,408 110,003,501 17,809,258 56,233,548 20,715,120
6/30/2035 98,736,466 17,490,214 99,281,706 17,809,258 38,742,010 20,715,121
6/30/2036 87,555,997 16,414,276 87,809,386 17,809,259 20,026,063 20,715,121
6/30/2037 76,705,858 15,798,116 75,534,002 17,809,258
6/30/2038 65,733,569 15,137,042 62,399,342 17,809,258
6/30/2039 54,677,040 14,653,785 48,345,256 17,809,259
6/30/2040 43,346,442 14,436,890 33,307,383 17,809,258
6/30/2041 31,447,059 11,736,944 17,216,860 17,809,258
6/30/2042 21,507,565 10,084,591
6/30/2043 12,581,511 9,249,934
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
6/30/2050
6/30/2051
Total 364,931,706 356,185,165 310,726,808
Interest Paid 169,768,351 161,021,810 115,563,453
Estimated Savings 8,746,541 54,204,898
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 20
Reconciliation of Required Employer
Contributions
Normal Cost (% of Payroll)
1. For Period 7/1/21 – 6/30/22
a) Employer Normal Cost 21.52%
b) Employee Contribution 9.65%
c) Total Normal Cost 31.17%
2. Changes since the prior year annual valuation
a) Effect of demographic experience (0.81%)
b) Effect of plan changes 0.00%
c) Effect of assumption changes 0.00%
d) Effect of method changes 0.00%
e) Net effect of the changes above [sum of (a) through (d)] (0.81%)
3. For Period 7/1/22 – 6/30/23
a) Employer Normal Cost 20.58%
b) Employee Contribution 9.78%
c) Total Normal Cost 30.36%
Employer Normal Cost Change [(3a) – (1a)] (0.94%)
Employee Contribution Change [(3b) – (1b)] 0.13%
Unfunded Liability Contribution ($)
1. For Period 7/1/21 – 6/30/22 13,282,515
2. Changes since the prior year annual valuation
a) Effect of adjustments to prior year’s amortization schedule 0
b) Effect of investment (gain)/loss during prior year1 175,127
c) Effect of non-investment (gain)/loss during prior year 140,757
d) Effect of plan changes 0
e) Effect of AL Significant Increase 0
f) Effect of assumption changes 0
g) Changes to prior year amortization payments2
1,262,408
h) Effect of changes due to Fresh Start or immediate recognition of small balances 0
i) Effect of elimination of amortization base 0
j) Effect of method change 0
k) Net effect of the changes above [sum of (a) through (j)] 1,578,292
3. For Period 7/1/22 – 6/30/23 [(1) + (2k)] 14,860,807
The amounts shown for the period 7/1/21 – 6/30/22 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 investment (gain)/loss during the year prior to the valuation date is 20% 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 g) in future years.
2 Includes scheduled escalation in individual amortization base payments due to the 5-year ramp and payroll growth assumption used in the pre-2019 amortization policy.
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 21
Employer Contribution History
The table below provides a recent history of the required employer contributions for the plan. The amounts
are based on the actuarial valuation from two years prior and does not account for prepayments or benefit changes made during a fiscal year. Additional discretionary payments before July 1, 2018 or after June 30,
2020 are not included.
Fiscal
Year
Employer
Normal Cost
Unfunded Rate
Unfunded Liability
Payment ($)
Additional Discretionary
Payments
2013 - 14 18.658% 14.786% N/A N/A
2014 - 15 18.874% 20.654% N/A N/A
2015 - 16 18.627% 23.305% N/A N/A
2016 - 17 18.977% 26.449% N/A N/A
2017 - 18 18.900% N/A 7,127,885 N/A
2018 - 19 19.397% N/A 8,421,191 0
2019 - 20 20.194% N/A 10,019,332 0
2020 - 21 21.566% N/A 11,210,740
2021 - 22 21.52% N/A 13,282,515
2022 - 23 20.58% N/A 14,860,807
Funding History
The table below shows the recent history of actuarial accrued liability, market value of assets, unfunded
accrued liability, funded ratio and annual covered payroll.
[]
Valuation
Date
Accrued
Liability
(AL)
Market Value
of Assets
(MVA)
Unfunded
Accrued
Liability (UAL)
Funded
Ratio
Annual
Covered
Payroll
6/30/2011 $313,183,690 $225,015,089 $88,168,601 71.8% $22,774,462
6/30/2012 327,608,300 215,605,457 112,002,843 65.8% 20,919,846
6/30/2013 338,666,499 233,417,363 105,249,136 68.9% 21,258,082
6/30/2014 367,478,634 264,145,000 103,333,634 71.9% 21,274,021
6/30/2015 377,934,524 259,169,591 118,764,933 68.6% 21,186,275
6/30/2016 392,911,774 249,886,581 143,025,193 63.6% 21,268,028
6/30/2017 422,062,152 267,871,162 154,190,990 63.5% 23,485,510
6/30/2018 451,111,924 280,399,741 170,712,183 62.2% 23,613,222
6/30/2019 471,338,133 289,117,004 182,221,129 61.3% 25,488,331
6/30/2020 487,159,688 293,857,975 193,301,713 60.3% 27,097,526
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 22
Normal Cost by Benefit Group
The table below displays the Total Normal Cost broken out by benefit group for fiscal year 2022-23. 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 2022-23
Number of
Actives
Payroll on
6/30/2020
5080 Safety Police First Level 35.26% 44 $8,079,070
25006 Safety Fire PEPRA Level 19.32% 28 $3,563,024
25007 Safety Police PEPRA Level 26.09% 30 $3,947,439
30705 Safety Fire First Level 27.89% 2 $320,662
30706 Safety Fire Second Level 31.58% 56 $9,033,152
30707 Safety Fire Third Level 28.92% 8 $1,143,252
30708 Safety Police Second Level 40.60% 6 $1,010,927
Plan Total 30.36% 174 $27,097,526
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 Second Level Benefit Group amended to the same benefit formula as a
First Level Benefit Group, their Normal Costs may be dissimilar due to demographic or other population
differences. If you have questions in these situations, please consult with your plan actuary.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 23
PEPRA Member Contribution Rates
The California Public Employees’ Pension Reform Act of 2013 (“PEPRA”) established new benefit formulas,
final compensation period, and contribution requirements for “new” employees (generally those first hired
into a CalPERS-covered position on or after January 1, 2013). In accordance with Government Code section
7522.30(b), “new members … shall have an initial contribution rate of at least 50% 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 members’ entry age into the plan. Should the total normal cost of the plan change by more than 1% from the base total normal cost established for the plan, the new member rate shall be 50%
of the new normal cost rounded to the nearest quarter percent.
The table below shows the determination of the PEPRA member contribution rates effective July 1, 2022,
based on 50% of the Total Normal Cost for each respective plan as of the June 30, 2020 valuation.
Basis for Current Rate Rates Effective July 1, 2022
Rate Plan
Identifier Benefit Group Name
Total
Normal
Cost
Member
Rate
Total
Normal
Cost
Change Change
Needed
Member
Rate
25006 Safety Fire PEPRA Level 23.540% 11.75% 22.82% (0.720%) No 11.75%
25007 Safety Police PEPRA
Level 23.540% 11.75% 22.82% (0.720%) No 11.75%
For purposes of setting member rates, it is preferable to determine total normal cost using a large active
population so that the rate remains relatively stable. While each CalPERS non-pooled plan has a sufficiently large active population for this purpose, the PEPRA active population by itself may not be sufficiently large.
The total PEPRA normal cost will be determined based on the plan’s PEPRA membership only if the number
of members covered under the PEPRA formula meets either:
1. 50% of the active population, or
2. 25% of the active population and 100 or more PEPRA members
Until one of these conditions is met, the plan’s total PEPRA normal cost will be determined using the entire
active plan population (both PEPRA and Classic) based on the PEPRA benefit provisions. For this reason, the
PEPRA member contribution rate determined in the table above may not equal 50% of the total normal cost
of the PEPRA group shown on the “Normal Cost by Benefit Group” page.
ATTACHMENT C 1.c
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Risk Analysis
• Future Investment Return Scenarios
• Discount Rate Sensitivity
• Mortality Rate Sensitivity
• Maturity Measures
• Maturity Measures History
• Hypothetical Termination Liability
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 25
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 (2020-21, 2021-22, 2022-23 and 2023-24). 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 2020-21, 2021-22, 2022-23, and 2023-24 each scenario assumes an alternate fixed annual
return. The fixed return assumptions for the five scenarios are 1.0%, 4.0%, 7.0%, 9.0% and 12.0%.
These alternate investment returns were chosen based on stochastic analysis of possible future investment
returns over the four-year period ending June 30, 2024. 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 four-year
outcomes generated in the stochastic analysis, approximately 25% had an average annual return of 4.0% 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% or greater than 12.0% over a four-year period, the likelihood
of a single investment return less than 1.0% or greater than 12.0% in any given year is much greater.
Assumed Annual Return From
2020-21 through 2023-24
Projected Employer Contributions
2023-24 2024-25 2025-26 2026-27
1.0%
Normal Cost 20.1% 19.6% 19.1% 18.6%
UAL Contribution $16,376,000 $18,180,000 $20,111,000 $22,424,000
4.0%
Normal Cost 20.1% 19.6% 19.1% 18.6%
UAL Contribution $16,158,000 $17,535,000 $18,838,000 $20,328,000
7.0%
Normal Cost 20.1% 19.6% 19.1% 18.6%
UAL Contribution $15,940,000 $16,877,000 $17,511,000 $18,099,000
9.0%
Normal Cost 20.5% 20.5% 20.4% 20.4%
UAL Contribution $15,804,000 $16,527,000 $16,862,000 $17,054,000
12.0%
Normal Cost 20.5% 20.5% 20.4% 20.4%
UAL Contribution $15,587,000 $15,853,000 $15,465,000 $14,636,000
These projections reflect changes to the amortization policy effective with the June 30, 2019 valuation as well
as the impact of the CalPERS risk mitigation policy (which reduces the discount rate when investment returns exceed specified trigger points). The projected normal cost percentages reflect that normal cost is anticipated
to decline over time as new employees are hired into PEPRA or other lower-cost benefit tiers.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 26
Discount Rate Sensitivity
The discount rate assumption is calculated as the sum of the assumed real rate of return and the assumed
annual price inflation, currently 4.50% and 2.50%, respectively. Changing either the price inflation assumption
or the real rate of return assumption will change the discount rate. The sensitivity of the valuation results to
the discount rate assumption depends on which component of the discount rate is changed. Shown below are various valuation results as of June 30, 2020 assuming alternate discount rates by changing the two
components independently. Results are shown using the current discount rate of 7.0% as well as alternate
discount rates of 6.0% and 8.0%. The rates of 6.0% and 8.0% were selected since they illustrate the impact
of a 1.0% increase or decrease to the 7.0% assumption.
Sensitivity to the Real Rate of Return Assumption
As of June 30, 2020 1% Lower
Real Return Rate
Current
Assumptions
1% Higher
Real Return Rate
Discount Rate 6.0% 7.0% 8.0%
Inflation 2.5% 2.5% 2.5%
Real Rate of Return 3.5% 4.5% 5.5%
a) Total Normal Cost 38.04% 30.36% 24.47%
b) Accrued Liability $549,917,070 $487,159,688 $435,280,139
c) Market Value of Assets $293,857,975 $293,857,975 $293,857,975
d) Unfunded Liability/(Surplus) [(b) - (c)] $256,059,095 $193,301,713 $141,422,164
e) Funded Status 53.4% 60.3% 67.5%
Sensitivity to the Price Inflation Assumption
As of June 30, 2020 1% Lower
Inflation Rate
Current
Assumptions
1% Higher
Inflation Rate
Discount Rate 6.0% 7.0% 8.0%
Inflation 1.5% 2.5% 3.5%
Real Rate of Return 4.5% 4.5% 4.5%
a) Total Normal Cost 32.49% 30.36% 27.95%
b) Accrued Liability $513,251,154 $487,159,688 $455,858,893
c) Market Value of Assets $293,857,975 $293,857,975 $293,857,975
d) Unfunded Liability/(Surplus) [(b) - (c)] $219,393,179 $193,301,713 $162,000,918
e) Funded Status 57.3% 60.3% 64.5%
Mortality Rate Sensitivity
The following table looks at the change in the June 30, 2020 plan costs and funded status under two different
longevity scenarios, namely assuming rates of mortality are 10% lower or 10% higher than our current
mortality assumptions. This type of analysis highlights the impact on the plan of improving or worsening
mortality over the long term.
As of June 30, 2020 10% Lower
Mortality Rates
Current
Assumptions
10% Higher
Mortality Rates
a) Total Normal Cost 30.82% 30.36% 29.94%
b) Accrued Liability $496,343,437 $487,159,688 $478,686,511
c) Market Value of Assets $293,857,975 $293,857,975 $293,857,975
d) Unfunded Liability/(Surplus) [(b) - (c)] $202,485,462 $193,301,713 $184,828,536
e) Funded Status 59.2% 60.3% 61.4%
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 27
Maturity Measures
As pension plans mature they become more sensitive to risks. Understanding plan maturity and how it affects
the ability of a pension plan sponsor 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 increases. A mature plan will often have a ratio above 60%-65%.
Ratio of Retiree Accrued Liability to
Total Accrued Liability June 30, 2019 June 30, 2020
1. Retiree Accrued Liability 335,192,654 347,191,736
2. Total Accrued Liability 471,338,133 487,159,688
3. Ratio of Retiree AL to Total AL [(1) / (2)] 71% 71%
Another measure of the maturity level of CalPERS and its plans is the ratio of actives to retirees, also called
Support Ratio. 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 declines. 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, 2019 June 30, 2020
1. Number of Actives 169 174
2. Number of Retirees 430 435
3. Support Ratio [(1) / (2)] 0.39 0.40
The actuarial calculations supplied in this communication are based on various assumptions about long-term
demographic and economic behavior. Unless these assumptions (e.g., terminations, deaths, disabilities,
retirements, salary growth, 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
Shown in the table below is the asset volatility ratio (AVR), which is the ratio of market value of assets to
payroll. Plans that have a higher AVR experience more volatile employer contributions (as a percentage of
payroll) due to investment return. For example, a plan with AVR of 8 may experience twice the contribution
volatility due to investment return volatility than a plan with AVR of 4. It should be noted that this ratio is a measure of the current situation. It increases over time but generally tends to stabilize as a plan matures.
Liability Volatility Ratio
Also shown in the table below is the liability volatility ratio (LVR), which is the ratio of accrued liability to
payroll. Plans that have a higher LVR experience more volatile employer contributions (as a percentage of
payroll) due to changes in liability. For example, a plan with LVR of 8 is expected to have twice the contribution
volatility of a plan with LVR of 4 when there is a change in accrued liability, such as when there is a change in actuarial assumptions. It should be noted that this ratio indicates a longer-term potential for contribution
volatility, since the AVR, described above, will tend to move closer to the LVR as the funded status approaches
100%.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 28
Maturity Measures (continued)
Contribution Volatility June 30, 2019 June 30, 2020
1. Market Value of Assets without Receivables $288,710,111 $293,499,407
2. Payroll 25,488,331 27,097,526
3. Asset Volatility Ratio (AVR) [(1) / (2)] 11.3 10.8
4. Accrued Liability $471,338,133 $487,159,688
5. Liability Volatility Ratio (LVR) [(4) / (2)] 18.5 18.0
Maturity Measures History
Valuation Date
Ratio of
Retiree Accrued Liability
to
Total Accrued Liability
Support
Ratio
Asset
Volatility Ratio
Liability
Volatility Ratio
6/30/2017
72%
0.40
11.4
18.0
6/30/2018
74%
0.39
11.9
19.1
6/30/2019
71%
0.39
11.3
18.5
6/30/2020
71%
0.40
10.8
18.0
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020 Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 29
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, 2020. 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 19-month period from 12 months before the valuation date to 7 months after.
[
Market Value of
Assets (MVA)
Hypothetical Termination
Liability1,2
at 0.75%
Funded
Status
Unfunded Termination
Liability
at 0.75%
Hypothetical Termination
Liability1,2
at 2.50%
Funded
Status
Unfunded Termination
Liability
at 2.50%
$293,857,975 $1,129,447,591 26.0% $835,589,616 $856,365,684 34.3% $562,507,709
1 The hypothetical liabilities calculated above include a 5% 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 1.18% on June 30, 2020, and was 1.68% on January 31, 2021.
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.
ATTACHMENT C 1.c
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Plan’s Major Benefit Provisions
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020
Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 31
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 Appendix B.
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 Yes 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% @ 55 3% @ 55
Social Security Coverage No No No No No No
Full/Modified Full Full Full Full Full Full
Employee Contribution Rate 9.00% 9.00% 9.00% 11.75% 9.00% 9.00%
Final Average Compensation Period One Year One Year One Year Three Year Three Year Three Year
Sick Leave Credit No No No No No No
Non-Industrial Disability Standard Standard Standard Standard Standard Standard
Industrial Disability Standard Standard Standard Standard Standard Standard
Pre-Retirement Death Benefits
Optional Settlement 2 No Yes Yes No Yes No 1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1 Level 1 Level 1
Special Yes Yes Yes Yes Yes Yes
Alternate (firefighters) No No No No No No
Post-Retirement Death Benefits
Lump Sum $500 $500 $500 $500 $500 $500 $500
Survivor Allowance (PRSA) No No No No No No No
COLA 2% 2% 2% 2% 2% 2% 2%
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020
Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 32
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 Appendix B.
Benefit Group
Member Category Police Fire Fire Fire Fire Fire Police
Demographics Actives No Yes No No No No No
Transfers/Separated No Yes No No No No No
Receiving Yes No Yes Yes Yes Yes Yes
Benefit Group Key 112652 112653 217221 217224 217225 217226 217231
Benefit Provision
Benefit Formula 2.7% @ 57 Social Security Coverage No
Full/Modified Full
Employee Contribution Rate 11.75%
Final Average Compensation Period Three Year
Sick Leave Credit No
Non-Industrial Disability Standard
Industrial Disability Standard
Pre-Retirement Death Benefits
Optional Settlement 2 Yes
1959 Survivor Benefit Level Level 1
Special Yes
Alternate (firefighters) 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%
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation - June 30, 2020
Safety Plan of the City of Palo Alto
CalPERS ID: 6373437857
Page 33
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 Appendix B.
Benefit Group
Member Category Police Police Police
Demographics Actives No No No
Transfers/Separated No No No
Receiving Yes Yes Yes
Benefit Group Key 217234 217235 217236
Benefit Provision
Benefit Formula Social Security Coverage
Full/Modified
Employee Contribution Rate
Final Average Compensation Period
Sick Leave Credit
Non-Industrial Disability
Industrial Disability
Pre-Retirement Death Benefits
Optional Settlement 2
1959 Survivor Benefit Level
Special
Alternate (firefighters)
Post-Retirement Death Benefits
Lump Sum $500 $500 $500
Survivor Allowance (PRSA) No No No
COLA 2% 2% 2%
ATTACHMENT C 1.c
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Appendices
• Appendix A – Actuarial Methods and Assumptions
• Appendix B – Principal Plan Provisions
• Appendix C – Participant Data
• Appendix D – Glossary of Actuarial Terms
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Appendix A
Actuarial Methods and Assumptions
• Actuarial Data
• Actuarial Methods
• Actuarial Assumptions
• Miscellaneous
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CalPERS Actuarial Valuation – June 30, 2020 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 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 Actuarial 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.
CalPERS uses an in-house proprietary actuarial model for calculating pension plan costs. We believe this model is fit for its intended purpose and meets all applicable Actuarial Standards of Practice. Furthermore, the
actuarial results of our model are independently confirmed periodically by outside auditing actuaries. The
actuarial assumptions used are internally consistent and the generated results reasonable. A further
refinement to the actuarial model will be the introduction of generational mortality in the June 30, 2021
actuarial valuation.
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 a
payment toward the UAL. The UAL payment is equal to the sum of individual amortization payments, each
representing a different source of UAL for a given measurement period.
Amortization payments are determined according to the CalPERS amortization policy. The CalPERS Board
adopted a new policy effective for the June 30, 2019 actuarial valuation. The new policy applies prospectively only; amortization bases (sources of UAL) established prior to the June 30, 2019 valuation will continue to be
amortized according to the prior policy.
Prior Policy (Bases Established prior to June 30, 2019)
Amortization payments are determined as a level percentage of payroll whereby the payment increases each
year at an escalation rate. 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. Bases
established prior to June 30, 2013 may be amortized differently. A summary is provided in the following table:
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 Appendix A Actuarial Methods and Assumptions
A-2
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
The 5-year ramp up means that the payments in the first four years of the amortization period are 20%, 40%,
60% and 80% 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.
Current Policy (Bases Established on or after June 30, 2019)
Amortization payments are determined as a level dollar amount. Investment gains or losses are amortized
over a fixed 20-year period with a 5-year ramp up at the beginning of the amortization period. Non-investment
gains or losses are amortized over a fixed 20-year period with no ramps. All changes in liability due to plan amendments (other than golden handshakes) are amortized over a 20-year period with no ramps. Changes
in actuarial assumptions or changes in actuarial methodology are amortized over a 20-year period with no
ramps. Changes in unfunded accrued liability due to a Golden Handshake are amortized over a period of five
years. A summary is provided in the table below:
Source
(Gain)/Loss Assumption/Method
Change
Benefit
Change
Golden
Handshake Investment
Non-
investment
Amortization Period 20 Years 20 Years 20 Years 20 Years 5 Years
Escalation Rate 0% 0% 0% 0% 0%
Ramp Up 5 0 0 0 0
Ramp Down 0 0 0 0 0
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 negative payment would be required on a positive unfunded actuarial liability; or
• When the payment would completely amortize the total unfunded liability in a very short time period,
and results in a large change in the employer contribution requirement.
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 20 years.
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CalPERS Actuarial Valuation – June 30, 2020 Appendix A Actuarial Methods and Assumptions
A-3
Exceptions for Plans in Surplus
If a surplus exists (i.e. the Market Value of Assets exceeds the plan’s accrued liability) any prior amortization layers shall be considered fully amortized, and the surplus shall not be amortized.
In the event of any subsequent unfunded liability, a Fresh Start shall be used with an amortization period of
20 years or less.
Exceptions for Small Amounts
Where small unfunded liabilities are identified in annual valuations which result in small payment amounts,
the actuary may shorten the remaining period for these bases.
• When the balance of a single amortization base has an absolute value less than $250, the
amortization period is reduced to one year.
• When the entire unfunded liability is a small amount the actuary may perform a Fresh Start and
use an appropriate amortization period.
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.
Exceptions for Inactive Agencies
For a public agency with no active members in any CalPERS rate plan, the unfunded liability shall be amortized over a closed amortization period of no more than 15 years.
Asset Valuation Method
The Actuarial Value of Assets is set equal to the market value of assets. Asset values include accounts
receivable.
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.
For purposes of setting member rates, it is preferable to determine total normal cost using a large active
population so that the rate remains relatively stable. While each CalPERS non-pooled plan has a sufficiently large active population for this purpose, the PEPRA active population by itself may not be sufficiently large.
The total PEPRA normal cost will be determined based on the plan’s PEPRA membership only if the number
of members covered under the PEPRA formula meets either:
1. 50% of the active population, or 2. 25% of the active population and 100 or more PEPRA members
Until one of these conditions is met, the plan’s total PEPRA normal cost will be determined using the entire
active plan population (both PEPRA and Classic) based on the PEPRA benefit provisions.
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CalPERS Actuarial Valuation – June 30, 2020 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%. 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% to 7.00%
using a three-year phase-in beginning with the June 30, 2016 actuarial valuations. The minimum employer
contributions for fiscal year 2022-23 determined in this valuation were calculated using a discount rate of
7.00%. 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 7.00% 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%
compounded annually (net of investment and administrative expenses) as of June 30, 2020.
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 19-month period from 12 months before the valuation date to 7 months after. 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 1.18% on June 30, 2020.
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CalPERS Actuarial Valuation – June 30, 2020 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 2020) 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
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CalPERS Actuarial Valuation – June 30, 2020 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% 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% compounded annually.
Non-valued Potential Additional Liabilities
The potential liability loss for a cost-of-living increase exceeding the 2.50% 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% for those plans that have adopted the provision of providing
Credit for Unused Sick Leave.
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CalPERS Actuarial Valuation – June 30, 2020 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% 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% will become the non-industrial death rate and 1% will become the
industrial death rate.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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% 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.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 137
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 138
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CalPERS Actuarial Valuation – June 30, 2020 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.
• 50% of the police industrial disability rates are used for School Police.
• 1% 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% will become the non-industrial disability rate and 50% will become the industrial disability rate.
ATTACHMENT C 1.c
Packet Pg. 139
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 140
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 142
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 143
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 144
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 145
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 146
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 147
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 148
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CalPERS Actuarial Valuation – June 30, 2020 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
ATTACHMENT C 1.c
Packet Pg. 149
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CalPERS Actuarial Valuation – June 30, 2020 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(b) dollar limit for the 2020 calendar year is
$230,000.
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 2020 calendar year is $285,000.
ATTACHMENT C 1.c
Packet Pg. 150
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Appendix B
Principal Plan Provisions
ATTACHMENT C 1.c
Packet Pg. 151
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CalPERS Actuarial Valuation – June 30, 2020 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% at age 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%
ATTACHMENT C 1.c
Packet Pg. 152
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CalPERS Actuarial Valuation – June 30, 2020 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% 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 $126,291 for 2020 and for those employees that do not participate in Social
Security the cap for 2020 is $151,549. 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.
ATTACHMENT C 1.c
Packet Pg. 153
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CalPERS Actuarial Valuation – June 30, 2020 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% 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% 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 33⅓% of final compensation.
ATTACHMENT C 1.c
Packet Pg. 154
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CalPERS Actuarial Valuation – June 30, 2020 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% of final compensation for the first 5 years of service, plus 1% for each additional
year of service to a maximum of 50% 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% of final compensation.
Increased Benefit (75% 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% to 90% 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% or greater, with a maximum of 90%) 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.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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% 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% 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% or 50% 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% or 50% 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.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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
credited annually at the greater of 6% or the prevailing discount rate 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.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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% 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% 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% of final compensation
• if 2 eligible children: 20.0% of final compensation
• if 3 or more eligible children: 25.0% of final compensation
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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%. Annual adjustments are
calculated by first determining the lesser of 1) 2% 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% (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% (when inflation
is high after several years of low inflation).
Improved Benefit
Employers have the option of providing a COLA of 3%, 4%, or 5%, determined in the same manner as described above
for the standard 2% 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% 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.
ATTACHMENT C 1.c
Packet Pg. 159
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CalPERS Actuarial Valuation – June 30, 2020 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%.
• 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% 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%.
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% interest compounded annually.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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.
ATTACHMENT C 1.c
Packet Pg. 161
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Appendix C
Participant Data
• Summary of Valuation Data
• Active Members
• Transferred and Terminated Members
• Retired Members and Beneficiaries
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 Appendix C Safety Plan of the City of Palo Alto
Participant Data
C-1
Summary of Valuation Data
June 30, 2019 June 30, 2020
1. Active Members
a) Counts 169 174
b) Average Attained Age
41.90 41.44
c) Average Entry Age to Rate Plan 30.41 30.19
d) Average Years of Credited Service 11.72 11.44
e) Average Annual Covered Pay $150,819 $155,733
f) Annual Covered Payroll 25,488,331 27,097,526
g) Projected Annual Payroll for Contribution Year 27,649,475 29,395,113
h) Present Value of Future Payroll 236,905,356 254,149,091
2. Transferred Members
a) Counts 59 55
b) Average Attained Age 43.49 43.37
c) Average Years of Credited Service 4.11 4.09
d) Average Annual Covered Pay $130,854 $140,966
3. Terminated Members
a) Counts 50 49
b) Average Attained Age 42.27 42.80
c) Average Years of Credited Service 2.81 2.66
d) Average Annual Covered Pay $90,415 $89,058
4. Retired Members and Beneficiaries
a) Counts 430 435
b) Average Attained Age 69.11 69.36
c) Average Annual Benefits $58,574 $60,483
5. Active to Retired Ratio [(1a) / (4a)] 0.39 0.40
Counts of members included in the valuation are counts of the records processed by the valuation. Multiple records
may exist for those who have service in more than one valuation group. This does not result in double counting of
liabilities.
Average Annual Benefits represents benefit amounts payable by this plan only. Some members may have service with
another agency and would therefore have a larger total benefit than would be included as part of the average shown
here.
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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 3 0 0 0 0 0 3
25-29 19 1 0 0 0 0 20
30-34 13 7 4 0 0 0 24
35-39 8 13 7 2 0 0 30
40-44 3 10 10 9 1 0 33
45-49 1 3 3 6 16 0 29
50-54 1 1 1 9 6 5 23
55-59 1 0 1 3 2 2 9
60-64 1 0 1 0 0 0 2
65 and Over 0 0 0 0 0 1 1
All Ages 50 35 27 29 25 8 174
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
Salary
15-24 $102,635 $0 $0 $0 $0 $0 $102,635
25-29 113,752 144,835 0 0 0 0 115,306
30-34 128,185 148,419 156,683 0 0 0 138,836
35-39 137,700 153,745 179,056 182,068 0 0 157,261
40-44 141,929 165,988 169,709 183,334 238,191 0 171,847
45-49 151,116 152,063 158,611 199,067 177,250 0 176,329
50-54 160,619 154,145 196,598 153,772 158,978 156,235 157,842
55-59 151,549 0 151,514 164,365 170,074 209,882 172,897
60-64 146,078 0 156,288 0 0 0 151,183
65 and Over 0 0 0 0 0 160,331 160,331
Average $125,447 $155,791 $168,794 $175,365 $174,728 $170,159 $155,733
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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 2 0 0 0 0 0 2 119,567
30-34 6 1 0 0 0 0 7 144,346
35-39 4 5 2 0 0 0 11 144,270
40-44 9 1 0 0 0 0 10 122,237
45-49 8 3 0 1 0 0 12 152,011
50-54 5 2 1 0 0 0 8 138,068
55-59 4 1 0 0 0 0 5 153,116
60-64 0 0 0 0 0 0 0 0
65 and Over 0 0 0 0 0 0 0 0
All Ages 38 13 3 1 0 0 55 $140,966
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 1 0 0 0 0 0 1 106,483
30-34 9 0 0 0 0 0 9 84,912
35-39 7 0 1 0 0 0 8 91,253
40-44 12 4 1 0 0 0 17 95,228
45-49 2 2 1 0 0 0 5 97,377
50-54 1 1 0 0 0 0 2 92,421
55-59 5 0 0 0 0 0 5 59,743
60-64 1 1 0 0 0 0 2 86,896
65 and Over 0 0 0 0 0 0 0 0
All Ages 38 8 3 0 0 0 49 $89,058
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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 2 0 0 1 3
40-44 0 0 4 0 0 0 4
45-49 0 0 6 0 0 0 6
50-54 26 1 8 0 0 0 35
55-59 37 0 19 0 1 0 57
60-64 46 2 19 0 2 0 69
65-69 28 0 16 0 0 4 48
70-74 35 1 18 0 0 7 61
75-79 27 0 19 0 0 15 61
80-84 25 1 17 0 0 9 52
85 and Over 17 0 13 0 0 9 39
All Ages 241 5 141 0 3 45 435
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 60,249 0 0 27,866 49,455
40-44 0 0 47,818 0 0 0 47,818
45-49 0 0 53,601 0 0 0 53,601
50-54 69,024 89 63,928 0 0 0 65,890
55-59 91,360 0 80,129 0 56,983 0 87,013
60-64 85,478 18,927 74,951 0 39,464 0 79,316
65-69 75,947 0 51,160 0 0 47,801 65,339
70-74 74,187 18,782 51,999 0 0 29,632 61,619
75-79 48,874 0 38,194 0 0 47,121 45,116
80-84 47,606 15,317 39,990 0 0 11,293 38,210
85 and Over 37,505 0 25,232 0 0 34,499 32,720
All Ages $70,445 $14,409 $53,755 $0 $45,304 $34,343 $60,483
ATTACHMENT C 1.c
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CalPERS Actuarial Valuation – June 30, 2020 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 48 0 10 0 0 16 74
5-9 56 1 20 0 0 4 81
10-14 33 1 19 0 0 6 59
15-19 41 0 14 0 1 10 66
20-24 19 1 18 0 1 6 45
25-29 28 0 14 0 0 1 43
30 and Over 16 2 46 0 1 2 67
All Years 241 5 141 0 3 45 435
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 $75,634 $0 $70,159 $0 $0 $31,732 $65,402
5-9 91,396 2,211 82,442 0 0 11,053 84,116
10-14 70,931 89 79,987 0 0 33,140 68,803
15-19 72,787 0 71,880 0 56,983 46,101 68,312
20-24 42,877 35,643 45,853 0 50,444 37,606 43,372
25-29 52,976 0 49,696 0 0 38,462 51,570
30 and Over 37,858 17,049 25,691 0 28,483 34,776 28,651
All Years $70,445 $14,409 $53,755 $0 $45,304 $34,343 $60,483
* 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.
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Appendix D
Glossary of Actuarial Terms
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CalPERS Actuarial Valuation – June 30, 2020 Appendix D Safety Plan of the City of Palo Alto
Glossary of Actuarial Terms
D-1
Glossary of Actuarial Terms
Accrued Liability (also called Actuarial Accrued Liability or Entry Age Actuarial 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, method changes, and/or gains and losses.
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
The assumed long-term rate of return on plan assets. This is the rate at which projected cash flows are discounted
to the valuation date to determine Accrued Liability. This assumption is called “investment return” in earlier
CalPERS reports and “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 Actuarial 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.)
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CalPERS Actuarial Valuation – June 30, 2020 Appendix D Safety Plan of the City of Palo Alto
Glossary of Actuarial Terms
D-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% means the plan or risk pool has more assets than liabilities and a ratio less
than 100% 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
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.
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City of Palo Alto (ID # 13469)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 9/21/2021
City of Palo Alto Page 1
Title: Review and Recommend to the City Council a Fire Department
Ambulance Subscription Program: 1) Adopt Ordinance to Establish Program
and Fees, and 2) Approval of a Budget Amendment in the General Fund
From: City Manager
Lead Department: Fire
Recommendation
To establish a Fire Department Ambulance Subscription Program, staff recommends that the
Finance Committee review and recommend to the City Council:
1. Approval of a new Ambulance Subscription Program and associated fees for Residential
and Business Participants;
2. Adopt the Finance Committee’s recommended fees including the adoption of an
Ordinance amending the Fiscal Year 2022 Municipal Fee Schedule (Attachment A); and,
3. Approval of budget amendments, as necessary, to begin and maintain this program.
Executive Summary
As part of the Fiscal Year 2021 Adopted Budget, both a new Ambulance Subscription Program
and First Responder Fee were proposed for residents and businesses for Fire Department
services. This report specifically addresses establishing the new ambulance subscription
program. This program will be voluntary and proposes to waive the insurance co-pay
participants would otherwise be charged when transported to the hospital by ambulance. It is
recommended that the program be established with a flat monthly participation fee that would
be administered by adding it to the household or business utility bill. Ultimately, staff is seeking
the Finance Committee’s review and approval of the specific attributes of this program, most
notably, a discussion and recommendation on the proposed fee, and recommendation to the
City Council for formal adoption.
Background
The Palo Alto Fire Department (PAFD) has been operating an ambulance service since 1974.
PAFD is the only fire agency in Santa Clara County that provides an ambulance service, which
performs approximately 3,500 transports each year. Emergency medical calls for service make
up approximately two-thirds of all calls for service for the Fire Department annually. For at least
5 consecutive years, PAFD has exceeded the response standard for Emergency Medical Service
(EMS) response for a unit to arrive on-scene in 8 minutes or less 90% of the time, and a
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paramedic on-scene in 12 minutes or less 99% percent of the time. The ambulance transport
service has been recognized as one of the City’s highest-rated services, based on customer
satisfaction surveys.
On June 22, 2020, City Council adopted a budget for Fiscal Year 2021 that included revenue of
$1.5 million from creating a new Ambulance Subscription Program. The Ambulance
Subscription Program is an optional fee for residents and businesses to secure co-pay free
ambulance transport.
An Ambulance Subscription Program proposed by the Fire Department is modeled after similar
programs offered by other fire departments in California that also provide an ambulance
transport service. The voluntary program covers the co-pay for ambulance transports to the
residents or employees of participating businesses. The first known Ambulance Subscription
Program was established in 1985 in Anaheim, California, and most cities that have offered such
a program are in Southern California.
The PAFD identified five other fire departments in California that offer an Ambulance
Subscription Program. All cities offer the program to residents and some offer it to businesses.
Each city has a flat annual fee, ranging from $43-60 for participation that was determined when
the program started, and they have not been adjusted since the programs started.
All cities reported participation rates of 25-30% of all residents and/or businesses in the initial
year of implementation and slowly declining participation rates over decades as residents and
businesses turn over. Some cities reported running marketing campaigns every 2-3 years to
boost enrollment or even adding an automatic voluntary payment on the utility bill once per
month to encourage enrollment.
Corona, California a city in Riverside County with a resident population of 152,374 (2010
Census), provided some details on the number of participants and revenue received from the
program. Their program was established in 2004, and charges $60 per household. In Fiscal Year
2018, they had a total of 18,470 subscribers, approximately twelve percent (12%) of the
resident population. The program generated $886,564 of revenue.
In December 2020, the Department brought forward a report (CMR 11710) and proposed three
fee tier options asking Finance Committee to decide upon a fee level for the Ambulance
Subscription Program. After discussing the program and fees, the Finance Committee directed
staff to collect more information and opinion from the community on the amount at which to
set the fees. The Department conducted an online survey and virtual focus group in order to
gauge the community’s interest and collect the opinion on the rate at which to set the fee. The
results of those studies are presented in this report and the Department is proposing a fee
structure based on the community’s input.
Discussion
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Community Input
The survey included eight questions focused on the value of adding this program to the
community, individual interest in participating in the program, and fee amounts were sent to
the Emergency Service Volunteer Group. We received a total of 35 responses, with the survey
open for one week.
Result Highlights:
• 52% think the program would be extremely or very valuable
• Interest in the program was split (34% very, 31% somewhat, 35% not so or not at all)
• More commercial insurance respondents (57%) reported the program to be extremely
or very valuable than Medicare respondents (43%)
• More commercial insurance respondents (43%) reported they would be extremely or
very interested than Medicare respondents (21%)
• The more interested in the program, the more they are willing to pay. Of those
responding “extremely or very” interested in the program, most would be willing to pay
$100 or more annually.
On May 5, 2021 the Fire Department held a virtual conference focus group with one of the
City’s neighborhood associations. A total of 7 residents participated in the focus group and
provided helpful information and asked questions that helped to shape the proposed program.
Feedback and Suggestion Highlights:
• All thought the program would be beneficial to the community
• Think it would be best to target towards families
• Make it a monthly program, not annual
• 2 people wanted the City to charge the highest tier fee ($10/month)
• 1 person wanted the City to charge a lowest amount ($6.67/month) believing this would
get more people to sign up
• The group was excited about the program and wanted to help the City promote the
program
• Create a way to donate if you didn’t want to sign up for the entire fee
• Create a way for someone to pay for someone else’s membership in the program
Key Quotes from Focus Group Participants:
“Well, being that I have five kids and we went through all the teenage years with them.
We've met many opportunities to partake of the lovely ambulance service. So, we would
have paid off in dividends for us.”
“Well, I was saying this to Amber and the Chief, you know, it's just something for them to
keep in mind, but I too, I have four grandchildren, grandchildren now left in the school
system and they all play sports big time and they all two of them have had injuries.”
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“Oh, $10, 10, well, whatever it works out $12 to make it $12 a month. And that doesn't
sound painful. So, I just thank you. You're really on the right track with that.”
“So, I think it's a showstopper. If you don't cover the out of County ambulances, if I pay for
this and then you charge me, I'm going to be really pissed off. I, I think that's just a social
cost. Right.”
“I think that I think $120 a year is a lot, honestly, I would go lower just because I think it
would make it. I mean, you guys, in your model, you show the same number of people
adopting it at every level. We all know demand; curves don't work that way. So, you will get
fewer people if you positioned higher.”
“As a member of the [neighborhood] association board, which a number of us are here, I
think we should promote it in the community.”
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Costs to Patients and Program Design
The PAFD has established ambulance transport fees, and contracts with a third-party vendor to
collect insurance fees. Often patients are responsible for a co-pay when transported to the
hospital, depending on their insurance coverage. In Fiscal Year 2019, the average
deductible/co-pay required for a single trip to the hospital for patients with commercial
insurance was $650, with most patients paying $385 out-of-pocket for a transport.
For residents or businesses that elect to enroll in the Ambulance Subscription Program, a flat
monthly fee will be assessed, and eligible participants will have the co-pay amount waived
when transported by PAFD to the hospital. This program has the potential to reduce revenue
generated by the City’s paramedic transportation service fees (approximately $3 million
annually); however, with the expected participation levels in the program, staff estimates the
impact to be no greater than $15,000 to $25,000 annually. During the implementation of the
program, staff will track how many waivers are granted to monitor the impacts on paramedic
transportation revenue.
Participation in the program will be limited to residents and businesses within the City of Palo
Alto, and applies to EMS responses within the Palo Alto city limits.
- For residential participants, all household members who are permanent residents of the
subscribing household will be covered. The program will include umbrella coverage for
visitors in the subscribing household who need emergency medical transport from a
resident that is a program participant.
- For business participants, the Program will cover all employees at the business address
or those elsewhere in the City of Palo Alto during the course of their duties. A business
subscription will not cover customers or other visitors to the premises of the business.
This program will not be available for Stanford student or residents. The Department will offer
an option to Stanford University if it chooses to cover its residents and day-time population. A
separate agreement with the University would be negotiated if they are interested.
Program Administration and Fee Collection
Participants who elect to enroll in the Program will be able to do so through various methods
including online, email or phone. Current administrative staff within the PAFD will be assigned
to assist residents and businesses with enrolling and answering any questions they may have
about the program, and the Department will use current technology to create a database of
participants. Fees will be collected in partnership with the Utilities Department, and Fire
Administrative staff will collaborate with Utilities Customer Support to coordinate enrollment
and billing.
From a customer perspective, the enrollment will be seamless after submitting their
information, and the pro-rated monthly charge will show up on their next utility bill.
Participants will be able to elect to unenroll at any time for any reason, and their subscription
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benefits will be terminated upon request, effective the following month.
All cities interviewed reported the success of enrolling participants in the program resulted
from a strong marketing and outreach campaign over the course of the first year. The PAFD will
launch a community education and outreach campaign to inform the residents and businesses
about the new program benefits and provide clear communication on the eligibility and
enrollment in collaboration with the City Manager’s Office.
Fee Setting and Revenue Estimates
The FY 2022 Adopted Budget assumed a revised revenue estimate of $550,000 generated from
residential and business participants for the second half of the fiscal year, assuming a launch by
January 2022. The Fire Department is seeking to adjust the FY2022 Municipal Fee Schedule to
add this fee, and approval from the Finance Committee on the amount of monthly Residential
and Business Fees. The cities identified with similar programs in California set fees upon the
program’s onset and have not increased them. With most of those fees set more than thirty
years ago, the Fire Department is proposing a higher rate than compared to other city programs
based on the current cost of services as well as the financial benefit of the program should the
co-payment paid by the participant be waived.
Residential Participants
Participants in the Online Survey and Focus Group were given 3 tiers of annual fees to consider.
Based on their feedback the Department is proposing a monthly rate, rather than annual. The
Department is also proposing setting that monthly fee in the middle of the options proposed to
the community based on the mixed feedback from the community. The proposed monthly fee
would be set at a rate of $8 per month.
There are approximately 25,000 residential Utility customers in Palo Alto that could elect to
participate in the program. Using other cities as a benchmark who have reported a 25-30%
participation rate in Ambulance Subscription Programs, the Fire Department is estimating 6,250
residential utility customers (25 percent) will enroll in the program. With a $8 per month fee,
this would generate $600,000 in gross programmatic revenue annually.
Business Participants
In March of 2020 the City of Palo Alto considered a Local Tax Measure (Staff Report #11161)
which provided data on business population from the California Employment Development
Department (EDD). That data showed an estimated 3,141 businesses with employee counts
ranging widely from under 10 to 1,000 or more. It should be noted that these estimates and
data reflect information prior to the current shelter in place environment and the long-term
impacts of business models as a result of the current public health emergency.
A modified program approach similar to that of Corona, CA, that sets the Business rate based
on employee headcount is recommended. The Palo Alto Ambulance Subscription Program
would establish 5 tiers of rates for businesses based on employee headcount.
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Tier
Employee
Headcount
Number of
Businesses Monthly Fee
1 0-10 2,300 $20
2 11-50 621 $100
3 51-100 121 $200
4 101-250 62 $500
5 251-1,000 37 $1,000
Expected Participation Rate 25%
Total Estimated Revenue $600,900
Resource Impact
The proposed fees estimate a total annual revenue of up to $1.2 million using an estimated
participation rate of 25% for both residential and commercial utility customers. This voluntary
fee does not need to be based on costs, in contrast to fees imposed by the City for services. The
Department intends to have the fees and revenue targets remain flat for the first few years of
implementation while staff analyzes trends and viability of the program.
There are costs to implement this program unanticipated at the time of budget development.
In collaboration with the Utilities Department, staff have identified a way to leverage existing
invoice infrastructure, however some marginal additional staff resources will required to
support the billing activities of the Program. Utilities estimates a total of 30 hours each month
will be required for customer support, amounting to an annual charge of $60,000 to support
customer inquiries, payment posting, credit collection, and accounting. The fee for Utilities
support will be evaluated annually and charged in arrears based on the actual level of effort. An
ongoing base budget increase to interdepartmental services costs of $60,000 annually will be
needed in the General Fund and if this program is approved would be included in the FY 2023
base budget for the administration of this program.
Fire Department will conduct a strong marketing and outreach campaign throughout the first
year in collaboration with the City Manager’s Office. This will include no-cost efforts, such as
press releases, and for-cost efforts including print and digital marketing. Additional one-time
funding of $50,000 will be necessary to cover the campaign’s costs and will be recommended as
a budget amendment in FY 2022 when presented to the City Council. The funding source for
these additional funds would be recommended to be drawn from available reserve funds or the
Budget Stabilization Reserve. In order to maintain enrollment rates, a strong marketing
campaign will be required every 2-3 years, and the budget will be recommended for adjustment
in the future to boost enrollment when needed.
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Stakeholder Engagement
Residents and businesses have been engaged in the budget adoption process; however,
targeted outreach and information marketing are required to provide clear communication and
information to residents and businesses about the program benefits and enrollment. The
above-recommended approach includes a robust initial outreach campaign.
Environmental Review
The Finance Committee’s recommendation that Council adopt an Ambulance Subscription
Program is not a project requiring environmental review for the purpose of the California
Environmental Quality Act, because the Program will not result in a direct or reasonably
foreseeable indirect physical change in the environment (Pub. Res. Code sec. 21065).
The Finance Committee’s recommendation of an Ambulance Subscription Program fee rate and
the Committee’s recommendation to Council for approval of budget adjustments associated
with Program approval do not constitute a project requiring environmental review for the
purpose of the California Environmental Quality Act, as the creation of governing funding
mechanisms and fiscal activities that do not involve any commitment to any specific project
which may result in a potentially significant physical impact on the environment (14 Cal. Code
Regs. sec. 15478(b)(4)).
Attachments:
• Attachment A: Ambulance Fee Ordinance
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30431 AB 1
*Yet to be Passed*
Ordinance No. ___
Ordinance of the Council of the City of Palo Alto Amending the
Fiscal Year 2022 Municipal Fee Schedule to Add Fire
Department Ambulance Subscription Program Fees
The Council of the City of Palo Alto ORDAINS as follows:
SECTION 1. Findings and Declarations. The City Council finds and declares as follows:
A.The City of Palo Alto Fire Department has provided an ambulance transport service
since 1974.
B. The City plans to establish a new Ambulance Subscription Program (Program)
allowing eligible participants to pay an annual fee to have the insurance co-pay waived for
ambulance transports occurring within the City.
C. All residences and businesses within the City of Palo Alto are eligible for voluntary
participation in the program.
D. A Residential Program subscription will cover all permanent residents at the
subscribing household address.
E. A Business Program subscription will cover all employees at the subscribing
business address or those who are elsewhere in the City of Palo Alto during the course of their
duties. A business subscription will not cover customers or other visitors to the premises of the
business, or employees while outside the Palo Alto city limits.
The City will fund the Program through a flat annual fee for Residential and Business Program
participants.
SECTION 2. The Council of the City of Palo Alto approves and adopts new fees for an
Ambulance Subscription Program available to residential and business participants and adopts
the amendments to the Fiscal Year 2022 Municipal Fee Schedule as set forth in Exhibit “A” and
incorporated here by reference.
SECTION 3. The fees in this Ordinance are for voluntary enrollment in the Program.
Pursuant to Art. XIII C, Section 1(e) of the California Constitution, such fees are not a tax.
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30431 AB 2
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SECTION 4. The Council finds that this project is exempt from the provisions of the
California Environmental Quality Act (“CEQA”), pursuant to Section 20165 of the Public Resources
Code, because the Program will not result in a direct or reasonably foreseeable indirect physical
change in the environment.
SECTION 5. This ordinance shall be effective thirty-one days after the date of its adoption.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
____________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
____________________________ ____________________________
Deputy City Attorney City Manager
____________________________
Fire Chief
____________________________
Director of Administrative
Services
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Exhibit A
30431 AB 3
Fiscal Year 2022 Municipal Fee
Schedule Chapter VIII - Fire Fees
New Fee: Ambulance Subscription Program
Residential Rate
Annual Fee per Household TBD
Business Rate
Rate Tier Employee Headcount Annual Fee
1 0-10 TBD
2 11-50 TBD
3 51-100 TBD
4 101-250 TBD
5 251-1000 TBD
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City of Palo Alto (ID # 13514)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 9/21/2021
City of Palo Alto Page 1
Title: Discuss Updates and a Recommend Further Refinement of Potential
Revenue Generating Local Ballot Measure
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee:
A) Review preliminary calculations of a potential tax on non-residential square footage
and recommend direction to the City Council to provide direction to staff for further
refinement of a potential business tax, including characteristics such as:
a. the desired range of revenue to be raised by such a tax,
b. confirming the basis (unit of measure) of the tax, and
c. identify areas for further exploration of potential exemptions or reduced
rates; and
B) Review preliminary calculations of a potential on-bill tax for gas and electric usage
and recommend direction to the City Council on the continued pursuit of such a tax;
C) Accept follow-up research as requested by the Council regarding documentary
transfer tax, payroll taxes, and San Francisco taxes on business.
Executive Summary:
This report continues the City Council and Finance Committee’s work exploring the
development of potential revenue generating local ballot measures. Through work with the
Finance Committee in June and the City Council in August, the City Council provided direction
to staff to continue development of a potential business tax with square footage as the
preferred basis for such a tax and the continued development of a potential utility use-based
tax. This is reflected in the Action Minutes from August 16, 2021 at the City Council meeting.
In order to advance the conversation about potential revenue-generating local ballot measures,
this report transmits information across a number of topics. The report is structured such that
the main body of the report provides high-level summary information for ease of reference and
discussion, with additional follow-up and greater detail included in respective attachments for
the various topics. Topics discussed in this report and detailed in attachments include:
• Data Regarding a Square Footage Tax and Preliminary Calculations (Detailed in
Attachment A)
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• Information Regarding an on-bill tax for gas and electric usage and Preliminary
Calculations (Detailed in Attachment B)
• Preliminary Calculations related to a Documentary Transfer Tax (Detailed in Attachment
C)
• Summary Information Regarding San Francisco’s prior Payroll-based business Tax
(Detailed in Attachment D)
• Summary Information Regarding San Francisco’s breadth of business taxes (Detailed in
Attachment E)
A review of all prior City Manager Reports related to the development of a potential revenue-
generating local ballot measure is also included as Attachment F to this report, with links to
respective City Manager Reports (CMRs) for ease of reference.
This is the first of two planned items with the Finance Committee prior to returning to the City
Council for further direction. A second item is expected for the Committee’s consideration
which will assist in focusing on the potential structure of the tax, e.g. parcel tax versus business
tax and the regulations that tie to these structures. This item transmits much of the research
and data staff have completed since August 16th for review and recommended direction for
further narrowing of focus for Council consideration tentatively scheduled for November 2021.
Discussion:
Data Regarding a Square Footage Tax and Preliminary Calculations
The City Council directed staff to further explore a potential revenue-generating local tax
measure as a means of recovering additional revenue from businesses operating within the city,
with the preference of using commercial (non-residential) square footage occupancy as the
basis for such a tax. Staff continues to research the implications of the tax base this may be
applied through, e.g. parcel tax or a business tax, and expects to return to the Committee to
discuss this in greater detail.
The City Council and the Finance Committee have used the Equity, Administrability, Stability,
and Economic Benefits (EASE) framework to analyze impacts of potential new taxes since this
work started in 2019. One consideration under this framework is the equity and economic
benefits that staff has identified through its research is an underlying challenge in the quality of
the space versus the quantity of the space. This is highlighted when applying a structure the
Council has referenced such as the East Palo Alto Parcel Tax of a specific dollar per square foot.
When this rate per square foot is applied, premier Class “A” office space would have the same
standard rate per square footage as lower-tier Class “B” and Class “C” office space. Therefore,
the square footage tax would essentially have a higher percentage burden on less expensive
space. San Francisco addressed this issue by instead charging a commercial rent tax, wherein
commercial landlords remit a percentage of revenues from leased space (1% on amounts from
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a lease or sublease of warehouse space and 3.5% on lease or sublease of non-warehouse
commercial space) to the City. That approach is potentially a more equitable distribution of
costs than a flat rate approach depending on the intent of the raising and use of funds. More
information on the City and County of San Francisco’s Commercial Rents tax can be found in
Attachment E. Additionally, the more carve-outs and exemptions applied to a potential tax, the
more complicated it would be to administer such a program.
Staff was able to perform preliminary calculations based on data provided by the City’s
property tax consultant, Coren and Cone (an HdL company). While this dataset was generally
consistent with information transmitted to City Council through CMR 10445, detailing 25.8
million square feet, there are omissions in the data. 746 of the 20,933 parcels (or approximately
3.5 percent) did not include building square footage data. For example, many of Stanford’s
properties do not list a building square footage, including both the new 824,000 square foot
hospital finished in November 2019 and the 521,000 square foot Lucille Packard Children’s
Hospital completed in 2017. The preliminary tables and calculations in this report will be further
refined as the process continues and the conversation narrows and focuses. Staff will be able to
prioritize resolving gaps in the data consistent with City Council’s direction on next steps as well
as layer on both legal and policy exemptions.
Based on information provided by Coren and Cone, staff modeled the potential impacts of a tax
on non-residential square footage. Staff conducted preliminary calculations through a number
of different scenarios, including:
• a base calculation on all published building square footage
• a calculation that included only square footage of parcels with a taxable assessed value
• a calculation based on total Square Footage in City, excluding parcels with less than
20,000 square feet of building space
• a calculation based on square footage of properties with taxable value, excluding
parcels with less than 20,000 square feet of building space
Given the lack of information on building square footage from various parcels- including many
owned by Stanford- discussed earlier in this attachment, the differences between the base
calculation and the exclusion of those with a taxable assessed value of 0 is likely lower than it
will be in later calculations. These calculations are seen in Table A6 below and additional
information regarding how the calculations were derived and additional back-up information is
detailed in Attachment A. It is critical to understand that these very preliminary calculations,
they do not account for legal or policy exemptions nor alternatives rates. They are simple
mathematical calculations as described and intended for context and initial understanding. This
means these rates will increase as the base of which the tax is applied will shrink with these
refinements.
Table A6. Flat Rate per Square Foot by Small, Medium, and Large Businesses
Small
2,500 Square Feet
Medium
30,000 Square Feet
Large
100,000 Square Feet
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Small
2,500 Square Feet
Medium
30,000 Square Feet
Large
100,000 Square Feet
Examples of Types of
Businesses
Cafes/coffee shops,
small local/
neighborhood
businesses and shops,
small commercial
Office buildings, retail,
specialty shopping
centers, service
stations
International Hotel
Brands, manufacturing
Total Square
Footage in City
$10 M Annual Fee: $995
Tax Rate: $0.398/SF
Annual Fee: $11,940
Tax Rate: $0.398/SF
Annual Fee: $39,800
Tax Rate: $0.398/SF
$20 M Annual Fee: $1,990
Tax Rate: $0.796/SF
Annual Fee: $23,880
Tax Rate: $0.796/SF
Annual Fee: $79,600
Tax Rate: $0.796/SF
$30 M Annual Fee: $2,985
Tax Rate: $1.194/SF
Annual Fee: $35,820
Tax Rate: $1.194/SF
Annual Fee: $119,400
Tax Rate: $1.194/SF
Square footage of
properties with
taxable value
$10 M Annual Fee: $1,043
Tax Rate: $0.417/SF
Annual Fee: $12,510
Tax Rate: $0.417/SF
Annual Fee: $41,700
Tax Rate: $0.417/SF
$20 M Annual Fee: $2,083
Tax Rate: $0.833/SF
Annual Fee: $24,990
Tax Rate: $0.833/SF
Annual Fee: $79,600
Tax Rate: $0.833/SF
$30 M Annual Fee: $3,128
Tax Rate: $1.251/SF
Annual Fee: $37,530
Tax Rate: $1.251/SF
Annual Fee: $119,400
Tax Rate: $1.251/SF
Total Square
Footage in City,
excluding less than
20,000 sf
$10 M N/A Annual Fee: $15,150
Tax Rate: $0.505/SF
Annual Fee: $50,500
Tax Rate: $0.505/SF
$20 M N/A Annual Fee: $30,300
Tax Rate: $1.01/SF
Annual Fee: $101,000
Tax Rate: $1.01/SF
$30 M N/A Annual Fee: $45,450
Tax Rate: $1.515/SF
Annual Fee: $151,500
Tax Rate: $1.515/SF
Square footage of
properties with
taxable value,
excluding less than
20,000 sf
$10 M N/A Annual Fee: $15,840
Tax Rate: $0.528/SF
Annual Fee: $52,800
Tax Rate: $0.528/SF
$20 M N/A Annual Fee: $31,680
Tax Rate: $1.056/SF
Annual Fee: $105,600
Tax Rate: $1.056/SF
$30 M N/A Annual Fee: $37,530
Tax Rate: $1.584/SF
Annual Fee: $158,400
Tax Rate: $1.584/SF
According to Newmark, a company that tracks real estate trends throughout the country, the
average asking rent in Palo Alto for commercial space during the second quarter of 2021 was
$6.88/sf. That report is available online here: https://www.nmrk.com/storage-
nmrk/uploads/fields/pdf-market-reports/2Q21-SPeninsula-Office-Market.pdf. Another way to
review the potential tax is to express the size of the tax as compared to the rent owed. Using
that average rent, the imposition of a flat rate square footage tax to reach a revenue target of
$10 million would result in increases ranging from 5.7% at the low end (total square footage in
the city) to 7.7% at the high end, if only properties with taxable value with more than 20,000
square of building square footage were taxed. These percentages would scale, doubling if the
revenue target was $20 million, and tripling if the target was $30 million.
Information Regarding an on-bill tax for gas and electric usage and Preliminary Calculations
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In the August 16, 2021 City Council meeting, the City Council directed staff focus pursuit of a
utility use-based tax and explore the option to incorporate revenue to support the City’s
climate adaptability initiative. The City’s FY 2022 Adopted Budget includes $9.7 million for UUT
assessed on utility usage and he City’s current UUT rate is 5 percent. staff estimates that a 1
percent increase to the UUT rate is estimated to yield an additional $2 million in UUT revenue
in the General Fund; this calculation is based sale activity and utility rates in the FY 2022
Adopted Budget. To illustrate, if the desired total UUT revenue is $30 million, a $20 million
increase above the FY 2022 Adopted Budget, then the UUT rate would be approximately 15
percent, a 10 percent increase, from the current 5 percent rate.
Preliminary Calculations related to a Documentary Transfer Tax
As part of the conversations exploring the development of potential revenue generating local
ballot measures, members of the City Council expressed interest in revisiting the City’s
documentary transfer tax rate. This was surfaced at the Finance Committee on June 15, 2021
and again when the staff report (City Manager’s Report (CMR) 12299) was transmitted to the
City Council and discussed on August 16, 2021. The interest was focused on discussing the
possibility of a higher Documentary Transfer Tax (DTT) rate for transactions at certain tiered
thresholds. DTT is a tax assessed on real property transactions when interest is conveyed to
another person
To preliminarily explore the City Council’s interest in a progressive or tiered DTT, staff
calculated what revenues may have been generated over the past five years if a tiered
Documentary Transfer Tax system had been in place. Through a model developed by Coren and
Cone (an HdL company), staff generated a structure with four tiers. In consultation with Coren
and Cone, the rate is not marginal, but is instead set on the entire amount of the sale. Coren
and Cone advised that a marginal rate becomes administratively difficult to calculate, monitor,
and recover compared to a rate that is set on the entire amount of the sale. However, it is at
the City’s discretion to identify the desired structure. The tiers in the model are seen in Table C1
below.
Table C1. Tiers and Effective Documentary Transfer Tax Rates in Preliminary Modeling
Tier 1
Current City Rate
Tier 2 Tier 3 Tier 4
Rate/$1,000 $ 3.30 $ 6.60 $ 9.90 $ 13.20
Property Price
Minimum/Start:
$ 1 $ 3,000,000 $ 5,000,000 $10,000,000
Property Price
Maximum/End:
$ 2,999,999 $ 4,999,999 $ 9,999,999 And up
The next table shows the amount of revenue the City received in Documentary Transfer Tax for
the past five years. It should be noted that the information is presented in calendar years, so it
will not align with the revenues received in a given fiscal year. Additionally, 2021’s figures
include only transactions through July 2021 since that was the last complete month of
information available. The table shows the amount of DTT revenue collected each year under
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the current $3.30 flat rate, and then recalculates how much DTT revenue would have been
collected if the tiered system described in Table C1 had been in place.
Table C2. Five Years of Documentary Transfer Tax – Current Flat Rate vs Tiered Rates
Calendar Year Current Flat Rate Tiered Rates Difference
Total 2021 (through 7/31) $5,766,328 $12,954,546 $7,188,218
Total 2020 $7,127,606 $17,366,403 $10,238,798
Total 2019 $7,162,856 $17,922,089 $10,759,233
Total 2018 $8,792,783 $23,689,130 $14,896,347
Total 2017 $6,954,085 $15,507,497 $8,553,412
Grand Total $35,803,657 $87,439,665 $51,636,008
Years 2017-2020 $30,037,329 $74,485,119 $44,447,790
Average per full year $7,509,332 $18,621,280 $11,111,947
As seen in Table C2, had the tiered structure been in place starting January 1, 2017, the City
would have raised an additional $51.6 million in Documentary Transfer Tax revenue through
July 31, 2021. The greatest difference would have occurred in 2018, with an additional $14.9
million under the tiered structure. The least difference would have been raised in 2017 with an
additional $8.6 million under the tiered structure. Averaging out the four full years, from 2017
to 2020, would have generated approximately $11.1 million per year. Information regarding the
breakdown of revenues generated by each of the four tiers can be found in Table C3 in
Attachment C along with more information about a potential Documentary Transfer Tax
increase.
Summary Information Regarding San Francisco’s Payroll Tax
Based on research performed by staff, there are currently no California cities who administer a
business tax based on payroll expenses. Prior to 2001, City and County of San Francisco (CCSF)
required businesses to pay taxes on their payroll expenses or gross receipts, whichever was
greater. The application of that alternative tax structure to particular economic sectors exposed
CCSF to allegations, brought in a series of claims and lawsuits, that CCSF was discriminating
against out-of-state businesses in violation of the Commerce Clause of the United States
Constitution. In 2001 CCSF settled the claims against it and repealed the gross-receipts
alternative measure, leaving it with a business tax based solely on payroll expenses. There was
widespread dissatisfaction with the payroll expense tax on policy grounds. The tax was
considered depressive of job creation, inequitable in its application since it applied to a minority
of San Francisco businesses, and unstable as a revenue generator. In the ensuing years, San
Francisco voters rejected several attempts to amend or supplement the payroll expense tax.
In 2010, the CCSF Controller’s Office issued a comprehensive report: “Improving San Francisco’s
Business Tax: An Analysis of Two Alternatives” . The main critiques of San Francisco’s payroll tax
system, as addressed in the report, are that it was:
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• Economically Inefficient – The 1.5% payroll tax at the time was found to raise the cost
of employing a worker in San Francisco. The report also found that the burden of the tax
fell both on the business and the worker, reducing the income of both. Another factor
impacting payroll taxes is the definition of payroll; the issue of stock vesting and IPOs
came up in San Francisco as a point of contention. Considering the unique nature of
start-ups in Palo Alto, the definition of payroll and compensation could become
burdensome and complicate efforts to keep a business tax straightforward.
• Unstable Source of Revenue – CCSF enjoyed significant growth in private sector payroll
in the 20 years from 1990 to 2010, resulting in growth in business tax that outpaced the
overall growth of the San Francisco economy. Businesses Taxes, including the Payroll
Tax, grew by 10% per year from 2003 to 2008 but they are also volatile. In 2009, payroll
taxes were projected to have declined 12% from the prior year.
• Inequitably Levied – In addition to the volatility from year to year with payroll taxes,
CCSF was increasingly dependent on business and professional services for the growth
of its business tax revenues. Since financial corporations are exempt from business
taxes by the California Constitution, CCSF’s Office of Economic Analysis estimated that
87% of the City and County’s growth in payroll taxes came from business and
professional services alone. Additionally, although payroll could be considered a proxy
for profit in a service-based economy, it fails to adequately or completely represent a
businesses’ profitability. The Controller’s report also notes that there could be some
small businesses that are extremely profitable, and that some exempted non-profits
likely have substantial retained earnings.
More information regarding a potential business tax with payroll as the basis, including an
updated EASE table for such a measure, is included in Attachment D of this report. In 2012 and
2020, San Francisco voters approved a shift away from payroll expenses to gross receipts as a
basis for that city’s primary business tax.
Summary Information Regarding San Francisco’s Breadth of Business Taxes
The Council has consistently requested further information about the CCSF breath of business
taxes. Staff has researched this and San Francisco has a robust business tax structure that
includes many different taxing mechanisms outlined further in the attachment E. The various
taxes and fees include a Gross Receipts tax (GR), Commercial Rents Tax (CR), Cannabis Business
Tax (CB), Homelessness Gross Receipts Tax (HGR), Overpaid Executive Tax (OE) and an
Administrative Office Tax (AOT).
A bulleted summary is included below; more details including the percentages of gross receipts
by business activity by dollar tier are detailed in Attachment E.
• Gross Receipts – This tax varies based on the dollar value of a company’s gross receipts
and its business activity; it is also subject to an apportionment calculation so that only
the firms’ activities within the City and County of San Francisco are taxed. The detailed
table by business activity by dollar value is included in Attachment E.
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• Commercial Rents – This tax levies a 1% tax on revenue that businesses receive from the
lease or sublease of warehouse space in the City, and 3.5% on revenue that businesses
receive from the lease of non-warehouse commercial space in the City. It excludes
industrial space.
• Cannabis Business Tax – This tax imposes an additional percentage, beyond the Gross
Receipts tax, for receipts associated with cannabis activity. The rate table can be found
in Attachment E.
• Homeless Gross Receipts Tax – This tax imposes an additional Gross Receipts tax on
combined taxable gross receipts over $50 million. The rate table can be found in
Attachment E.
• Overpaid Executive Gross Receipts Tax – This tax imposes an additional gross receipts
tax when the highest-paid managerial employee earns more than 100 times the median
compensation of employees based in San Francisco. The rate table can be found in
Attachment E.
• Administrative Office Tax – This tax applies to a very small percentage of San Francisco’s
businesses; a 1.4% payroll tax is levied on businesses with more than 1,000 US
Employees and more than $1 billion in combined gross receipts for a federal income tax
year who have more than 50% of their San Francisco payroll expense associated with
administrative or management services. These services are defined as internal support
services provided on an enterprise-wide basis and include company business strategy,
record keeping, personnel administration, executive office oversight, risk management,
and legal, accounting, and market research and analysis.
Next Steps
As the Finance Committee considers the information contained in this report, it is important to
note the compressed and compacted timeline the City is facing to bring a ballot measure
forward for the general 2022 election. If the Finance Committee is able to further narrow the
focus of a potential revenue generating ballot measure, both for a tax to recover funds from
businesses as well as a utility use-based tax, staff can continue advancing the workplan
approved by the City Council in August. Specifically, providing direction to the desired range of
revenue to be raised by such a tax, confirming the basis (unit of measure) of the tax, and
identify areas for further exploration of potential exemptions or reduced rates.
Staff is working to bring forward contracts for consultants to assist in the areas of stakeholder
engagement, polling, and analysis as necessary and appropriate. It is expected that following
contract completion and further work with the Committee in October, staff will return to the
City Council with the recommended refinements from the Finance Committee and likely seek
direction on an initial round of polling.
Stakeholder Engagement
Staff has solicited input and feedback at multiple junctures through evaluation of a potential
business tax through previous conversations with the Finance Committee, the City Council,
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residents, and the business community. As the scope of this work is refined, staff will work to
develop a more detailed corresponding stakeholder engagement plan as outlined in the
approved workplan. Staff will include stakeholder engagement and feedback as an element of
any potential revenue-generating local ballot measure workplan and will regularly report on the
status of those efforts.
Resource Impact
The actions recommended in this report do not specifically result in a resource impact or
additional funding. Implementation of this workplan to develop revenue-generating local ballot
measures will require significant resources, including internal staffing and consultant expertise
as well as extensive stakeholder engagement. Depending on which ballot measure(s) the
Finance Committee and the City Council direct staff to pursue, the resource needs will scale
proportionately. It is important that the scope of potential ballot measures be narrowed to
effectively deploy necessary resources and stay on the timeline as noted above.
Consultants are required to augment staff on topics such as research, modeling and analysis,
polling, stakeholder outreach, and eventually the drafting of ballot measure and ordinance
language, staff will return to the City Council for appropriation of funds and approval of
contracts. For reference, the prior single initiative was directly resourced by approximately the
equivalent of 2.0 full-time dedicated staff, significant support from staff stakeholders in key
departments, and consultant services support of $250,000 (until the pausing of the work). Staff
have gone through resource reductions and therefore expect there will be impacts to other
projects, and additional funding needed in excess of the amount used previously, consistent
with the work completed in 2019 and 2020. In addition, the research continues to require
significant internal staff resources requiring the prioritization of this work impacting timelines
of other initiatives.
Attachments:
• Attachment A: Preliminary Square Footage Calculations
• Attachment B: Preliminary On-Bill Tax for Gas and Electric Utility
• Attachment C: Preliminary Documentary Transfer Tax Calculations
• Attachment D: City and County of San Franscisco Payroll Tax Research
• Attachment E: City and County of San Francisco Business Tax Summary
• Attachment F: Summary of Prior Work on Potential Revenue Generating Ballot
Measures
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ATTACHMENT A
Attachment A - 1
ATTACHMENT A: Preliminary Square Footage Calculations
Through the City of Palo Alto’s conversations exploring a potential business tax, the City Council
directed staff to pursue a business tax with the priority of square footage as the basis for such a
tax. To date, the City Council has not yet chosen the underlying tax basis (e.g. parcel tax), and
there are material differences to different approaches including a different threshold for voter
passage. This specific question will be discussed in further detail at a subsequent item. This
attachment transmits additional information related to a potential tax based on square footage
to further the Finance Committee and City Council’s conversations around such a tax. This
attachment includes:
• A discussion of available square footage data, and
• Preliminary calculations that show what revenue a potential tax on non-residential
square footage could generate in different scenarios
Review of Available Square Footage Data
Through conversations with the City’s property tax consultant, Coren and Cone (an HdL
company), the City procured parcel information for properties within the City of Palo Alto. This
includes a breakdown of the categorization of the parcel, such as commercial or industrial, as
well as the taxable valuation of the property, parcel square footage, and building square
footage. The data set is generally consistent with information previously presented to the City
Council as part of CMR 10445, which detailed approximately 25.8 million square feet of non-
residential space available for rent in the City of Palo Alto.
Although this data set is generally consistent with the information previously presented to the
City Council, staff has identified gaps in the data set. Notably, 746 of 20,933 parcels (or
approximately 3.5 percent) did not include building square footage data. For example, many of
Stanford’s properties do not list a building square footage, including both the new 824,000
square foot hospital finished in November 2019 and the 521,000 square foot Lucille Packard
Children’s Hospital completed in 2017. The preliminary tables and calculations in this report will
be further refined as the process continues and the conversation narrows and focuses. Staff will
be able to prioritize resolving gaps in the data consistent with City Council’s direction on next
steps.
Preliminary Calculations of Revenue Generated by a Square Footage Tax
Based on information provided by Coren and Cone, staff was able to model the potential
impacts of a tax on non-residential square footage. Staff conducted preliminary calculations
through a number of different scenarios, including a base calculation on all published building
square footage, a calculation that excluded building square footage from properties with an
assessed taxable value of 0, and a calculation that excluded all parcels with building square
footage that was less than 20,000 feet. Given the lack of information on building square
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ATTACHMENT A
Attachment A - 2
footage from various parcels- including many owned by Stanford- discussed earlier in this
attachment, the differences between the base calculation and the exclusion of those with a
taxable assessed value of 0 is likely lower than it will be in later calculations. It is critical to
understand that these very preliminary calculations, they do not account for legal or policy
exemptions nor alternatives rates. They are simple mathematical calculations as described and
intended for context and initial understanding. This means these rates will increase as the base
of which the tax is applied will shrink with these refinements.
Table A1 – Total Square Footage by Size by Category
Size Commercial
Govt.
Owned Industrial Inst. Misc. Rec. Vacant Grand Total
% of
Total
Running
%
1 -2,000 163,025 - 2,910 6,436 784 1,980 28,485 203,620 0.8%
2,001 - 5,000 886,416 - 119,663 6,539 - 13,563 39,257 1,065,438 4.2% 5.0%
5,001 - 8,000 905,355 - 138,249 6,420 - 21,126 6,112 1,077,262 4.3% 9.3%
8,001 - 12,000 926,898 10,120 226,735 11,392 11,786 - - 1,186,931 4.7% 14.1%
12,001 - 16,000 639,260 29,112 202,324 27,791 - 29,042 - 927,529 3.7% 17.7%
16,001 - 20,000 664,726 - 181,080 - - - - 845,806 3.4% 21.1%
20,001 - 40,000 1,991,079 - 499,571 23,276 - 153,046 - 2,666,972 10.6% 31.7%
40,001 - 75,000 1,971,313 - 677,243 109,528 - - - 2,758,084 11.0% 42.7%
75,001 - 100,000 1,234,293 75,045 859,708 - - - - 2,169,046 8.6% 51.3%
100,001 - 200,000 3,579,181 - 262,125 - - - - 3,841,306 15.3% 66.6%
200,001 - 300,000 1,977,847 - 628,724 - - - - 2,606,571 10.4% 77.0%
300,001 - 500,000 458,842 - 1,047,936 - - - - 1,506,778 6.0% 83.0%
500,001 - 750,000 675,100 - 1,169,927 - - - - 1,845,027 7.3% 90.3%
750,000 – 1.5 M 1,395,540 - 1,043,988 - - - - 2,439,528 9.7% 100.0%
Total 17,468,875 114,277 7,060,183 191,382 12,570 218,757 73,854 25,139,898
% of Total 69.5% 0.5% 28.1% 0.8% 0.1% 0.9% 0.3%
Based on available data detailed in Table A1 above, there are 25,139,898 square feet of non-
residential space in the City of Palo Alto. Using a flat square footage tax to reach a $10 million
target would require a rate of $0.398 per square foot on an annual basis, or $0.033 per square
foot per month. These are based on the entire inventory of square footage; if the City Council
chooses to use square footage as a basis for a business tax then non-profits and charitable
organizations would need to be excluded. If the City chooses to include additional exceptions in
a potential ballot measure the rate would need to increase by a corresponding amount to
capture the desired level of revenue.
As noted above, a business tax would have necessary exemptions by state and federal statue,
and would therefore shrink the available square footage that a tax could be assessed on,
resulting in corresponding increases to the rates. To approximate this increase, staff excluded
parcels with an assessed taxable value of $0 that have building square footage detailed in the
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ATTACHMENT A
Attachment A - 3
data set. This more accurately reflecting the likely available square footage for a business tax
and increases the rates necessary to reach different revenue targets identified by the City
Council. The available square footage contracts from the 25 million square feet seen in Table A1
to 24 million square feet seen in table A2 below.
Table A2. Square Footage by Size by Category – Only Properties with Taxable Value
Size Commercial
Govt.
Owned Industrial Inst. Misc. Rec. Vacant Grand Total
% of
Total
Running
%
1 -2,000 163,025 - 2,910 2,508 784 1,980 28,485 199,692 0.8%
2,001 - 5,000 870,322 - 119,663 - - 10,514 39,257 1,039,756 4.3% 5.2%
5,001 - 8,000 880,358 - 138,249 - - 21,126 6,112 1,045,845 4.4% 9.5%
8,001 - 12,000 889,309 10,120 226,735 - 11,786 - - 1,137,950 4.7% 14.3%
12,001 - 16,000 600,507 14,640 202,324 27,791 - 29,042 - 874,304 3.6% 17.9%
16,001 - 20,000 594,262 - 181,080 - - - - 775,342 3.2% 21.1%
20,001 - 40,000 1,884,014 - 499,571 23,276 - 90,546 - 2,497,407 10.4% 31.5%
40,001 - 75,000 1,929,883 - 604,547 59,820 - - - 2,594,250 10.8% 42.3%
75,001 - 100,000 1,234,293 - 687,008 - - - - 1,921,301 8.0% 50.4%
100,001 - 200,000 3,459,198 - 262,125 - - - - 3,721,323 15.5% 65.9%
200,001 - 300,000 1,977,847 - 427,029 - - - - 2,404,876 10.0% 75.9%
300,001 - 500,000 458,842 - 1,047,936 - - - - 1,506,778 6.3% 82.2%
500,001 - 750,000 675,100 - 1,169,927 - - - - 1,845,027 7.7% 89.8%
750,000 – 1.5 M 1,395,540 - 1,043,988 - - - - 2,439,528 10.2% 100.0%
Total 17,012,500 24,760 6,613,092 113,395 12,570 153,208 73,854 24,003,379
% of Total 70.9% 0.1% 27.6% 0.5% 0.1% 0.6% 0.3%
Based on the lower volume of square footage, the rates increase by approximately 4.7 percent.
To reach $10 million in annual revenue, a rate of $0.417/square foot per year would be
necessary, or approximately $0.035/square foot per month. This would result in an
approximate 6.0% increase from the current average asking price of $6.88 per square foot in
Palo Alto, compared to 5.7% seen before excluding properties with a taxable value of $0.
During earlier conversations with the City Council and Finance Committee regarding
development of a potential business tax, there was significant interest, and direction, by the
City Council to exempt small businesses. In order to calculate what the square footage tax
impacts would be if certain businesses were exempted, staff re-ran the calculations seen above
excluding all buildings with fewer than 20,000 square feet. Buildings smaller than 20,000 square
feet account for approximately 21.1% of total square footage in the model with total square
footage and the model excluding properties with zero taxable value. This percentage is seen in
the far right column of tables A1 and A2.
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ATTACHMENT A
Attachment A - 4
As one might expect with a flat rate square footage tax, the rates change accordingly in order to
still meet the potential City Council targets of $10 million, $20 million, and $30 million. The new
totals of available square feet become 19,833,312 in the base model and 18,930,490 that
focuses on properties with taxable value. This changes the necessary rates to reach $10 million
to $0.505 for the entire inventory of square footage, and to $0.528 for the model excluding
properties with zero taxable value.
The rates discussed in the paragraphs above are detailed for small, medium, and large
businesses at the various revenue levels identified by the City Council in table A3 below.
Table A3. Flat Rate per Square Foot by Small, Medium, and Large Businesses
Small
2,500 Square Feet
Medium
30,000 Square Feet
Large
100,000 Square Feet
Types of Businesses Cafes/coffee shops, small
local/neighborhood
businesses and shops,
small commercial
Office buildings, retail,
specialty shopping
centers, service stations
International Hotel
Brands, manufacturing
Total Square
Footage in City
$10 M Annual Fee: $995
Tax Rate: $0.398/SF
Annual Fee: $11,940
Tax Rate: $0.398/SF
Annual Fee: $39,800
Tax Rate: $0.398/SF
$20 M Annual Fee: $1,990
Tax Rate: $0.796/SF
Annual Fee: $23,880
Tax Rate: $0.796/SF
Annual Fee: $79,600
Tax Rate: $0.796/SF
$30 M Annual Fee: $2,985
Tax Rate: $1.194/SF
Annual Fee: $35,820
Tax Rate: $1.194/SF
Annual Fee: $119,400
Tax Rate: $1.194/SF
Square footage of
properties with
taxable value
$10 M Annual Fee: $1,043
Tax Rate: $0.417/SF
Annual Fee: $12,510
Tax Rate: $0.417/SF
Annual Fee: $41,700
Tax Rate: $0.417/SF
$20 M Annual Fee: $2,083
Tax Rate: $0.833/SF
Annual Fee: $24,990
Tax Rate: $0.833/SF
Annual Fee: $79,600
Tax Rate: $0.833/SF
$30 M Annual Fee: $3,128
Tax Rate: $1.251/SF
Annual Fee: $37,530
Tax Rate: $1.251/SF
Annual Fee: $119,400
Tax Rate: $1.251/SF
Total Square
Footage in City,
excluding less
than 20,000 sf
$10 M N/A Annual Fee: $15,150
Tax Rate: $0.505/SF
Annual Fee: $50,500
Tax Rate: $0.505/SF
$20 M N/A Annual Fee: $30,300
Tax Rate: $1.01/SF
Annual Fee: $101,000
Tax Rate: $1.01/SF
$30 M N/A Annual Fee: $45,450
Tax Rate: $1.515/SF
Annual Fee: $151,500
Tax Rate: $1.515/SF
Square footage of
properties with
taxable value,
excluding less
than 20,000 sf
$10 M N/A Annual Fee: $15,840
Tax Rate: $0.528/SF
Annual Fee: $52,800
Tax Rate: $0.528/SF
$20 M N/A Annual Fee: $31,680
Tax Rate: $1.056/SF
Annual Fee: $105,600
Tax Rate: $1.056/SF
$30.M N/A Annual Fee: $37,530
Tax Rate: $1.584/SF
Annual Fee: $158,400
Tax Rate: $1.584/SF
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ATTACHMENT A
Attachment A - 5
According to Newmark, a company that tracks real estate trends throughout the country, the
average asking rent in Palo Alto for commercial space during the second quarter of 2021 was
$6.88/sf. That report is available online here: https://www.nmrk.com/storage-
nmrk/uploads/fields/pdf-market-reports/2Q21-SPeninsula-Office-Market.pdf. Using that
average rent, the imposition of a flat rate square footage tax to reach a revenue target of $10
million would result in increases ranging from 5.7% at the low end (total square footage in the
city) to 7.7% at the high end, if only properties with taxable value with more than 20,000
square of building square footage were taxed. These percentages would scale, doubling if the
revenue target was $20 million, and tripling if the target was $30 million.
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ATTACHMENT B
Attachment B - 1
ATTACHMENT B: Preliminary Utility Ballot Measure Options
The City Council has directed staff, through the City of Palo Alto’s conversations exploring a
potential business tax, to purse a utility-based tax and to explore the option to generate revenue
for climate adaptability. There are a variety of ways to structure such a tax, each of which relates
to the broader question of whether and how to modify or replace the Council-adopted General
Fund Equity Transfer (GFET) methodology. A ballot measure could be narrowly tailored to
replace the gas and/or electric GFET, to seek voter approval of an increased UUT, or drafted
broadly to address policy goals such as electrification. In the FY 2022 Adopted Budget, the
combined equity transfer from the Electric and Gas Funds is $21.7 million; the City’s UUT rate is
5 percent.
This attachment transmits additional analysis related to a potential ballot measure to further the
Finance Committee and City Council’s conversations on this issue. This attachment includes:
• Estimated Utility Users Tax (UUT) rates to yield a range of potential General Fund
revenue to generated and corresponding average dollar impact to customer’s monthly
utility bill;
• Climate adaptability options that includes impact on current rates and estimated
generated revenue to support this initiative;
• Review of EASE framework as it pertains to utility users tax;
• Utility user tax rates for cities in Santa Clara County and San Mateo County.
The GFET is included in the City’s utility rate model as an expense, therefore, fundamentally, the
GFET impacts utility rates. Pending litigation related to the City’s GFETs has shifted the City’s FY
2022 financial balancing strategy and has potentially significant, long-term budgetary impacts to
the City’s General Fund.
If the GFET is excluded from Palo Alto’s utility rate model, approximately $7 million in gas and
$14 million in electric funds would no longer be transferred to the General Fund annually.
Finance Committee and City Council direction is needed on whether to seek to recover an
equivalent amount, or some portion of the total, via a modified GFET, an increase in the UUT, or
some combination of both.
Potential Modifications to City’s General Fund Equity Transfer
As it has done for decades, the City transfers a portion of the earnings of its gas and electric
utilities to its General Fund each year, pursuant to a voter-approved charter provision. In doing
so, Palo Alto is essentially like all municipal power utilities (and the three other municipal gas
utilities) in California, which make General Fund transfers on various theories. In 2009, the
Council adopted a methodology, still in effect (CMR 260:09), to determine its GFET, which is
calculated as a rate of return on each utility’s asset base. The asset base is calculated by
determining the net asset value of each utility, its operating expenses, working capital,
depreciation and capital improvement project costs. That value is multiplied by a return on
equity to calculate the transfer. The City’s return on equity is based on PG&E’s California Public
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ATTACHMENT B
Attachment B - 2
Utilities Commission-approved rate of return on equity, with two reductions to account for
differences between investor-owned and municipal utilities.
The City may wish to simplify the GFET methodology. One option is a flat tax on the gross
revenues of the electric and/or gas utilities, rather than the complex 2009 formula. Many other
cities with municipal utilities structure their annual utility transfers as a percentage of gross
revenues.
Several cities have been challenged in court over this practice, and this area of the law remains
in flux. However, California’s Court of Appeal recently upheld Sacramento and Pasadena’s voter-
approved general fund transfer taxes, which were structured as an 11 percent and 12 percent
tax, respectively, on the gross revenues of Sacramento’s and Pasadena’s city-operated utility
enterprises.1 Long Beach is currently litigating a challenge to its 12 percent tax on each of its
utilities’ annual gross revenues.2 Each of these taxes are embedded in the cost of providing
utility services, and are not identified as a separate line item on the customer’s utility bills.
In the August 16, 2021 City Council meeting, the City Council directed staff to focus pursuit of a
utility use-based tax and explore the option to incorporate revenue to support the City’s climate
adaptability initiative. The City’s FY 2022 Adopted Budget includes $9.7 million for UUT assessed
on utility usage and he City’s current UUT rate is 5 percent. staff estimates that a 1 percent
increase to the UUT rate is estimated to yield an additional $2 million in UUT revenue in the
General Fund; this calculation is based sale activity and utility rates in the FY 2022 Adopted
Budget. To illustrate, if the desired total UUT revenue is $30 million, a $20 million increase above
the FY 2022 Adopted Budget, then the UUT rate would be approximately 15 percent, a 10 percent
increase, from the current 5 percent rate.
Review of the Equity, Administrability, Stability, and Economic Benefits (EASE) framework for
a Utility Based Tax
The City Council and Finance Committee have used the EASE framework as the main means of
evaluating potential tax ballot measures. A review of the EASE framework for UUT is presented
in Table B1 below.
Table B1. EASE Framework for Utility Users Tax
Equity Utility Users Tax is a flat rate tax imposed on the charges made for metered utility
and charges for service (includes customer charges, service charges, standby
charges, charges for temporary services, demand charges, and annual and monthly
charges.
This tax is considered a proportional tax, a tax that takes the same percentage from
all groups, since the flat tax rate is assessed based on the customer bill, the amount
of tax paid by a customer directly correlates to the amount of utility commodity
that is used.
1 Wyatt v. City of Sacramento, (2021) 60 Cal.App.5th 373; Komesar v. City of Pasadena
2 Kimball, et. al. v. City of Long Beach (B305134, appeal pending).
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ATTACHMENT B
Attachment B - 3
Administrability This tax is administrated through the City’s Utility Billing system and appears
monthly on customer bills. The cost for administrating this tax is assumed in the
City’s Utility Department budget and is supported internally by City staff.
Stability The City’s Sustainability and Climate Action Plan outlines a variety of work plan
items that makes progress towards reducing the City’s carbon impacts, greenhouse
gas emissions, and resource consumption. Changes in resource consumption,
particularly for electric, gas, and water, will have a direct impact on the amount of
UUT revenue collected by the City in the long term.
Economic Benefits This tax may deter certain business industries that have heavy resource
consumption (i.e. industrial, manufacturing). Weighing this impact against the
overall lower utility rates, specifically if utility rates are adjusted downward for the
General Fund Equity Transfer, will offset this impact. Payment of the tax for
customers is incorporated into the customer’s monthly bill; the seamless
administration of this tax minimizes disruption for the taxpayer.
Utility User Tax Rates for Cities in Santa Clara County and San Mateo County
The Utility User Tax rates for cities in San Mateo County and Santa Clara County are listed in Table
B5. Comparison of Local Utility User Tax Rates, obtained from the California State Controller.
Average UUT rates in the region fall between 2 percent (City of Sunnyvale) and 6.5 percent (City
of Pacifica). The City’s 5 percent rate falls within the overall average of the region.
Table B2. Comparison of Local Utility User Tax Rates
Electric Gas
Residential Commercial Residential Commercial
San Mateo County
Daly City 5.0% 5.0% 5.0% 5.0%
East Palo Alto 5.0% 5.0% 5.0% 5.0%
Menlo Park 3.5% 3.5% 3.5% 3.5%
Pacifica 6.5% 6.5% 6.5% 6.5%
Portola Valley 4.5% 4.5% 4.5% 4.5%
Redwood City 5.0% 5.0% 5.0% 5.0%
Electric Gas
Residential Commercial Residential Commercial
Santa Clara County
Cupertino 2.4% 2.4% 2.4% 2.4%
Gilroy 5.0% 5.0% 5.0% 5.0%
Los Altos 3.5% 3.5% 3.5% 3.5%
Mountain View 3.0% 3.0% 3.0% 3.0%
Palo Alto 5.0% 5.0% 5.0% 5.0%
San Jose 5.0% 5.0% 5.0% 5.0%
Sunnyvale 2.0% 2.0% 2.0% 2.0%
Source: California State Controller, Cities Annual Reports
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ATTACHMENT C
Attachment C - 1
ATTACHMENT C: Preliminary Documentary Transfer Tax Calculations
As part of the conversations exploring the development of potential revenue generating local ballot
measures, members of the City Council expressed interest in revisiting the City’s documentary transfer
tax rate. This was surfaced at the Finance Committee on June 15, 2021 and again when the staff report
(City Manager’s Report (CMR) 12299) was transmitted to the City Council and discussed on August 16,
2021. The interest was focused on discussing the possibility of a higher Documentary Transfer Tax (DTT)
rate for transactions at certain tiered thresholds.
The Documentary Transfer Tax is applied to the sale of real property within Palo Alto as property
ownership is transferred. The State of California has a standard base rate of $1.10 per $1,000 of sale price,
applicable to general law cities, which is split 50/50 between the city and the County. As a charter city,
Palo Alto has more flexibility to change its Documentary Transfer Tax rate. The City’s current DTT rate is a
flat rate of $3.30 per $1,000. A change to the Documentary Transfer Tax rate or rate structure would need
to be approved by the voters. Consistent with prior discussions on taxes, a general tax would require only
a simple majority of voter approval to pass and could be brought forward during any general election. A
special tax dedicated to a specific purpose, such as affordable housing, would have a higher voter
threshold of a two-thirds supermajority, but could be brought forward during any election.
To preliminarily explore the City Council’s interest in a progressive or tiered DTT, staff calculated what
revenues may have been generated over the past five years if a tiered Documentary Transfer Tax system
had been in place. Through a model developed by Coren and Cone (an HdL company), staff generated a
structure with four tiers. In consultation with Coren and Cone, the rate is not marginal, but is instead set
on the entire amount of the sale. Coren and Cone advised that a marginal rate becomes administratively
difficult to calculate, monitor, and recover compared to a rate that is set on the entire amount of the sale.
The tiers in the model are seen in Table C1 below.
Table C1. Tiers and Effective Documentary Transfer Tax Rates in Preliminary Modeling
Tier 1
Current City Rate
Tier 2 Tier 3 Tier 4
Rate/$1,000 $ 3.30 $ 6.60 $ 9.90 $ 13.20
Property Price
Minimum/Start:
$ 1 $ 3,000,000 $ 5,000,000 $10,000,000
Property Price
Maximum/End:
$ 2,999,999 $ 4,999,999 $ 9,999,999 And up
The next table shows the amount of revenue the City received in Documentary Transfer Tax for the past
five years. It should be noted that the information is presented in calendar years, so it will not align with
the revenues received in a given fiscal year. Additionally, 2021’s figures include only transactions through
July 2021 since that was the last complete month of information available. The table shows the amount
of DTT revenue collected each year under the current $3.30 flat rate, and then recalculates how much
DTT revenue would have been collected if the tiered system described in Table C1 had been in place.
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ATTACHMENT C
Attachment C - 2
Table C2. Five Years of Documentary Transfer Tax – Current Flat Rate vs Tiered Rates
Current Flat Rate Tiered Rates Difference
Total 2021 (through 7/31) $5,766,328 $12,954,546 $7,188,218
Total 2020 $7,127,606 $17,366,403 $10,238,798
Total 2019 $7,162,856 $17,922,089 $10,759,233
Total 2018 $8,792,783 $23,689,130 $14,896,347
Total 2017 $6,954,085 $15,507,497 $8,553,412
Grand Total $35,803,657 $87,439,665 $51,636,008
Years 2017-2020 $30,037,329 $74,485,119 $44,447,790
Average per full year $7,509,332 $18,621,280 $11,111,947
As seen in Table C2, had the tiered structure been in place starting January 1, 2017, the City would have
raised an additional $51.6 million in Documentary Transfer Tax revenue through July 31, 2021. The
greatest difference would have occurred in 2018, with an additional $14.9 million under the tiered
structure. The least difference would have been raised in 2017 with an additional $8.6 million under the
tiered structure. Averaging out the four full years, from 2017 to 2020, would have generated
approximately $11.1 million per year.
However, the distribution of the differences is not evenly split across the different tiers. Table C3 below
shows the marginal revenue raised in each tier, and the relative percentage of that given year’s total. Tier
1 is always responsible for zero (0) percent of the difference since the rate of $3.30 per $1,000 is
unchanged and therefore does not appear in the table below.
Table C3. Five Years of Documentary Transfer Tax – Marginal Revenues by Tier
Year Tier 2 $ Tier 2 % Tier 3 $ Tier 3
%
Tier 4 $ Tier 4
%
Total Difference
2021 (7/31) $2,399,791 33.4% $2,361,526 32.9% $2,426,901 33.8% $7,188,218
2020 $1,915,823 18.7% $1,966,625 19.2% $6,356,349 62.1% $10,238,798
2019 $2,167,267 20.1% $1,918,227 17.8% $6,673,739 62.0% $10,759,233
2018 $2,327,736 15.6% $2,493,619 16.7% $10,074,993 67.6% $14,896,347
2017 $1,955,837 22.9% $2,438,139 28.5% $4,159,436 48.6% $8,553,412
As seen in the table above, the bulk of the difference in revenues generated during the years of 2018,
2019, and 2020 were generated by transactions in Tier 4, where the value of the transaction exceeded
$10,000,000. 67.6% ($10.1 million) of the $14.9 million in additional revenue that would have been
generated under a tiered a system in 2018 was generated through by the Tier 4 transactions.
This information is meant only to provide preliminary baseline estimates of what a potential change to
the City’s Documentary Transfer Tax rate could yield in revenue. It should be noted that since DTT is
relatively volatile from year to year, driven directly by real estate transactions, it is difficult to predict what
future revenue yields might be. Nonetheless, looking at five years of historical data across different tiers
does provide information to help the Finance Committee and the City Council understand the relative
magnitudes of potential changes.
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Attachment D
Attachment D - 1
Attachment D: Additional Information Regarding Payroll as basis for a
Business Tax
As the City Council explored a potential business tax, it has held the question of which basis to use for a
business tax at the forefront of its discussions. These options have included using employee headcount
as the basis, as seen in the focus of potential business tax efforts in 2019 and 2020, but as part of the
resumption of work on this topic the City Council has revisited potential bases through the lens of
Equity, Administrability, Stability, and Economic Benefits (EASE).
The most recent conversations through the Finance Committee and the City Council, on June 15, 2021
and August 16, 2021 respectively, discussed information transmitted as part of City Manager’s Report
(CMR) 12299 which included an examination of bases ranging from square footage (administered either
as a business tax or a parcel tax), gross receipts, or payroll. Although the motion made on August 16,
2021 directed staff to pursue the development of a business tax focused on square footage, various
questions were raised throughout the conversation pertaining specifically to a business tax levied on
payroll.
In response to the Finance Committee’s questions, this attachment describes legal challenges to the
City and County of San Francisco’s (CCSF) business tax structure as it existed in 2001, links to a report
from the CCSF that examines their use of payroll expenses as the primary basis the City’s business tax
from 2001 through 2012, and includes a restated version of the EASE framework for a payroll tax that
was initially transmitted as part of CMR 10445.
Based on research performed by staff, there are currently no California cities who administer a business
tax based on payroll expenses. Prior to 2001, CCSF required businesses to pay taxes on their payroll
expenses or gross receipts, whichever was greater. The application of that alternative tax structure to
particular economic sectors exposed CCSF to allegations, brought in a series of claims and lawsuits, that
CCSF was discriminating out-of-state businesses in violation of the Commerce Clause of the United
States Constitution. In 2001 CCSF settled of the claims against it and repealed the gross-receipts
alternative measure, leaving it with a business tax based solely on payroll expenses. There was
widespread dissatisfaction with the payroll expense tax on policy grounds. The tax was considered
depressive of job creation, inequitable in its application since it applied to a minority of San Francisco
businesses, and unstable as a revenue generator. In the ensuing years, San Francisco voters rejected
several attempts to amend or supplement the payroll expense tax.
In 2010, the CCSF Controller’s Office issued a comprehensive report: “Improving San Francisco’s
Business Tax: An Analysis of Two Alternatives” . The main critiques of San Francisco’s payroll tax system,
as addressed in the report, are that it was:
• Economically Inefficient – The 1.5% payroll tax at the time was found to raise the cost of
employing a worker in San Francisco. The report also found that the burden of the tax fell both
on the business and the worker, reducing the income of both. Another factor impacting payroll
taxes is the definition of payroll; the issue of stock vesting and IPOs came up in San Francisco as
a point of contention. Considering the unique nature of start-ups in Palo Alto, the definition of
payroll and compensation could become burdensome and complicate efforts to keep a business
tax straightforward.
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Attachment D
Attachment D - 2
• Unstable Source of Revenue – CCSF enjoyed significant growth in private sector payroll in the
20 years from 1990 to 2010, resulting in growth in business tax that outpaced the overall growth
of the San Francisco economy. Businesses Taxes, including the Payroll Tax, grew by 10% per year
from 2003 to 2008 but they are also volatile. In 2009, payroll taxes were projected to have
declined 12% from the prior year.
• Inequitably Levied – In addition to the volatility from year to year with payroll taxes, CCSF was
increasingly dependent on business and professional services for the growth of its business tax
revenues. Since financial corporations are exempt from business taxes by the California
Constitution, CCSF’s Office of Economic Analysis estimated that 87% of the City and County’s
growth in payroll taxes came from business and professional services alone. Additionally,
although payroll could be considered a proxy for profit in a service-based economy, it fails to
adequately or completely represent a businesses’ profitability. The Controller’s report also notes
that there could be some small businesses that are extremely profitable, and that some
exempted non-profits likely have substantial retained earnings.
In 2012 and 2020, San Francisco voters adopted a pair of measures repealing the payroll expense tax
and replacing it with a gross receipts tax. In addition to the gross receipts tax, San Francisco has several
specialized taxes that apply to particular categories of businesses. These are discussed in greater detail
in Attachment E.
While none of the critiques in the 2010 San Francisco report are necessarily insurmountable for the City
of Palo Alto to use payroll as a basis, they do present complications and arguments against pursuit of a
payroll tax. A brief, updated summary of the EASE framework originally transmitted as part of CMR
10445 for a payroll tax is below.
Table 1. Equity, Administration, Stability, and Economic Benefits (EASE) of a Payroll Tax
EQUITY Wage data will include bonuses and sometimes stock options, which can drastically vary
across industries and within sub-categories of an industry. The timing of stock options
vesting and IPOs can also have a significant impact on what is considered taxable
payroll.
Based on the industry data from EDD, the higher wages are in professional services
industries which indicates the average employee wage is higher than manufacturing,
retail, social assistance, and food service/hospitality industries. It should be noted that
financial corporations are exempt under the California Constitution so it would be
focused on other professional services.
ADMINISTRATION The simplest form of administration would be self-reported by the business owner,
however there is a risk that data is reported incorrectly, and an apportionment formula
would need to be devised.
Data from the EDD can validate and support regulation of this tax structure.
The payroll tax model will be impacted as companies transition to alternative
employment models. Structure for this tax model should define how wages for such
employees are included in the tax. The more straightforward a payroll tax, the easier it
would be to administer.
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Attachment D
Attachment D - 3
STABILITY Tax revenue driver is directly related to how many businesses are in the City and the
average employee wage. According to data from the EDD, high wage sectors in the City
are information, financial activities, and professional services which comprises half of
the City’s employment base. If payroll fluctuates significantly in the City of Palo Alto,
then the revenues would fluctuate accordingly. As noted above, the financial activities
may be exempt under the California Constitution depending on the nature of their
services.
ECONOMIC BENEFITS Administration of the tax is simple if based on wages of employees at a site address,
which is already reported by businesses to the EDD on a quarterly basis; results in
minimal operational disruption to the tax payor. Depending on structure, this model
has the potential to encourage growth for targeted industries and/or business sizes
and/or employee types.
The treatment of vesting stocks and IPOs under the design of such a tax would also have
a direct impact on start-up businesses in Palo Alto.
As discussed throughout the exploration of a potential business tax, the City of Palo Alto could choose to
administer a business tax with payroll as the basis. However, doing so would present a series of
challenges and difficulties that would need to be resolved in relatively short order to reach the ballot
while potentially still exposing the City to some of the same disadvantages identified by the City and
County of San Francisco. CCSF chose to move away from a payroll tax to minimize the adverse impacts
of it and instead pursued a business tax that was economically more efficient, resulting in a more stable
source of revenues that was more equitably levied across the diverse businesses in their community.
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ATTACHMENT E
Attachment E - 1
ATTACHMENT E: San Francisco Business Tax Summary
In addition to the City Council’s desire to understand the background of the City of San Francisco’s
path to changes in their business tax structure (discussed in Attachment D), a request for
additional details of the entire business tax framework emerged through the discussions at the
City Council meeting on August 16, 2021 through discussions as part of the City Manager’s Report
(CMR) 12299 . This attachment details the different types of business taxes and the current rates
for each business activity.
San Francisco has a robust business tax structure that includes many different taxing
mechanisms. The various taxes and fees include a Gross Receipts tax (GR), Commercial Rents Tax
(CR), Cannabis Business Tax(CB), Homelessness Gross Receipts Tax (HGR), Overpaid Executive Tax
(OE) and an Administrative Office Tax (AOT).
The Gross Receipts Tax varies depending on a business’ gross receipts and business activity.
Below are the 2021 rates after the passage of Proposition F, in November 2020 that fully repealed
the Payroll Tax Expense Tax and increased the Gross Receipts Tax across most industries while
providing relief to certain industries and small businesses.
Business Activity 0-$1m $1-$2.5m $2.5-$25m $25m+
Retail Trade; and Certain Services 0.053% 0.070% 9.500% 0.224%
Manufacturing; and Food Services 0.088% 0.144% 0.259% 0.665%
Transportation and Warehousing; Bio-Technology; and
Clean Technology 0.175% 0.287% 0.518% 0.665%
Accommodations; and Arts Entertainment and Recreation 0.210% 0.228% 0.288% 0.560%
Private Education and Health Services; Administrative and
Support Services; and Miscellaneous Business Activities 0.735% 0.770% 84.000% 0.910%
Construction 0.420% 0.490% 0.560% 0.630%
Financial Services; Insurance; Information and
Professional, Scientific and Technical Services 0.560% 0.644% 0.714% 0.784%
Utilities 0.420% 0.455% 0.455% 0.560%
Wholesale Trade 0.105% 0.140% 0.189% 0.224%
0-$1m $1-$2.5m $2.5-$25m $25m+
Real Estate and Rental Leasing Services 0.399% 0.399% 0.420% 0.420%
The Commercial Rents Tax, also referred to as the Early Care and Education Commercial Rents
Tax, generally applies to businesses leasing commercial space in the City and generally does not
apply to businesses exempt from the Gross Receipts tax.
Rate Imposed on:
1% Amount a business receives from the lease or sublease of warehouse space in the City
3.5% Amount a business receives from the lease or sublease of other commercial spaces in
the City
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ATTACHMENT E
Attachment E - 2
The Cannabis Business Tax (CB) becomes effective on January 1. 2022. In addition to the Gross
Receipts Tax, the CB imposes an additional gross receipts tax on receipts from Cannabis Activity
attributable to the City based on the rate schedule below.
Cannabis Business Activity $1M to $1.5M Over $1.5M
Retail Sales 2.5% 5%
Other than Retail Sales 1% 1.5%
The Homeless Gross Receipts Tax imposes an additional Gross Receipts tax on combines
taxable gross receipts over $50 million.
Business Activity Tax Rate
Retail Trade; Wholesale Trade; and Certain Services .175%
Manufacturing: Transportation and Warehousing Information; Bio-Technology;
Clean Technology; and Food Services
.500%
Accommodations; Utilities and Arts Entertainment and Recreation .425%
Private Education and Health Services; Administrative and Support Services; and
Miscellaneous Business Activities
.690%
Construction .475%
Financial Services; Insurance; and Professional, Scientific and Technical Services .600%
Real Estate and Rental and Leasing Services .325%
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ATTACHMENT E
Attachment E - 3
The Overpaid Executive Gross Receipts Tax (OE) becomes effective January 1, 2022. It imposes
a gross receipts tax on taxable gross receipts from business in which the highest-paid managerial
employee earns more than 100 times the median compensation of employees based in San
Francisco. This tax is paid in the form of an additional gross receipts tax or an additional
administrative office tax. The “executive pay ratio” is defined (for the person or combined group)
as the ratio of the compensation of the highest-paid managerial employee for a tax year over the
median compensation of the person or combined group’s city full-time and part-time employees.
A person is considered an employee based in the city if the employee’s total working hours in the
city exceeds the employee’s total working hours in other jurisdictions.
Executive Pay Ratio Additional Gross
Receipts Rate
Additional Administrative
Office Tax Rate
Greater than 100:1 but less
than or equal to 200:1
0.1% 0.4%
Greater than 200:1 but less
than or equal to 300:1
0.2% 0.8%
Greater than 300:1 but less
than or equal to 400:1
0.3% 1.2%
Greater than 400:1 but less
than or equal to 500:1
0.4% 1.6%
Greater than 400:1 but less
than or equal to 500:1
0.5% 2.0%
Greater thank 600:1 0.6% 2.4%
The Administrative Office Tax (AOT) is a 1.4 percent tax on the San Francisco payroll expense of
a person or combined group engaging in business within San Francisco as an administrative office.
This tax is wagered on entities with over 1,000 US employees and over $1 billion in combined
gross receipts for the most recent tax year. Beginning in 2019, an additional 1.5 percent
homelessness gross receipts tax was added for a combined rate of 2.9 percent.
The City of San Francisco’s tax structure is robust, yet complex. The above information is
presented to provide context to allow City of Palo Alto move forward a revenue generating ballot
measure that falls within the parameters set using the EASE framework.
3.e
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ATTACHMENT F
Attachment F - 1
ATTACHMENT F: Summary of Prior Work on Potential Revenue
Generating Ballot Measures
The City of Palo Alto has been discussing its options for potential revenue-generating ballot
measures through 2019 and 2020. This work was suspended at City Council direction in March
2020 in order to marshal available resources to manage through the COVID-19 pandemic. A brief
timeline of the CMRs and discussions with the Finance Committee and the City Council since April
of 2019, when staff was formally directed to begin working on this project by the City Council, is
included below for additional context. The date, the forum of the meeting (Finance Committee
or City Council), the summary title, and the CMR number are included for ease of reference.
Timeline:
4/22/2019 City Council, “2019 Fiscal Sustainability Workplan”, CMR 10267
4/22/2019 City Council, “Approve Workplan for a Potential Revenue Generated Ballot Measure”,
CMR 10261
6/18/2019 Finance Committee, “Review, Comment, and Accept Preliminary Revenue Estimates
for Consideration of a Ballot Measure”, CMR 10392
8/20/2019 Finance Committee, “Evaluation and Discussion of Potential Revenue Generating
Ballot Measures”, CMR 10445
9/16/2019 City Council, “Evaluation and Discussion of Potential Revenue Generating Ballot
Measures and Budget Amendment”, CMR 10615
10/1/2019 Finance Committee, “Revised Workplan for Consideration of a Ballot Measure”, CMR
10712
10/15/2019 Finance Committee, “Stakeholder Outreach, Initial Polling, and Discussion of a
Potential Ballot Measure”, CMR 10743
11/4/2019 City Council, “Potential Ballot Measure Polling/Outreach, Contract, Solicitation
Exemption and Budget Amendment”, CMR 10792
12/2/2019 City Council, “Structure and Scenarios of Initial Round of Polling for a Potential Local
Tax Measure”, CMR 10891
12/17/2019 Finance Committee, “Consideration, Evaluation, and Discussion of a Revenue
Generating Local Tax Ballot Measure, Review of Refined Modeling, Analysis, Tax Structure and
Recommendation to the City Council”, CMR 10655
3.f
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ATTACHMENT F
Attachment F - 2
1/27/2020 City Council, “Update, Consideration, and Potential Direction on Possible Local Tax
Measure for 2020 Election”, CMR 11019
3/23/20 City Council, “Consideration of Analysis, Public Outreach, and Refined Polling and
Further Direction on a Potential Local Business Tax Ballot Measure for 2020 Election”, CMR 11161
3/23/20 City Council, “Consideration of Analysis, Public Outreach, and Refined Polling and
Further Direction on a Potential Local Business Tax Ballot Measure for 2020 Election”, At-Places
Memorandum
6/15/2021, Finance Committee Staff Report, “Recommend the City Council Approve the
Workplan for Pursuit of a Revenue-Generating Local Ballot Measure for the November 2022
General Election; Review and Potential Guidance to Staff on Affordable Housing Funding as
Referred by the Council”, CMR 12299
8/16/2021 City Council, “Approve the Workplan for Development of a Revenue-Generating Local
Ballot Measure for the November 2022 General Election; Review and Potential Guidance to Staff
on Affordable Housing Funds as Referred by the City Council”, CMR 12381
3.f
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