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Home My WebLink About2024-09-17 Finance Committee Agenda PacketFINANCE COMMITTEE Regular Meeting Tuesday, September 17, 2024 Community Meeting Room & Hybrid 5:30 PM Finance Committee meetings will be held as “hybrid” meetings with the option to attend by teleconference/video conference or in person. Information on how the public may observe and participate in the meeting is located at the end of the agenda. The meeting will be broadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media Center https://midpenmedia.org. VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/99227307235) Meeting ID: 992 2730 7235 Phone: 1(669)900‐6833 PUBLIC COMMENTS General Public Comment for items not on the agenda will be accepted in person for up to three minutes or an amount of time determined by the Chair. General public comment will be heard for 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. Public comments for agendized items will be accepted both in person and viz Zoom for up to three minutes or an amount of time determined by the Chair. Requests to speak will be taken until 5 minutes after the staff’s presentation or as determined by the Chair. Written public comments can be submitted in advance to city.council@CityofPaloAlto.org and will be provided to the Council and available for inspection on the City’s website. Please clearly indicate which agenda item you are referencing in your subject line. PowerPoints, videos, or other media to be presented during public comment are accepted only by email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received, the Clerk will have them shared at public comment for the specified item. To uphold strong cybersecurity management practices, USB’s or other physical electronic storage devices are not accepted. Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting. CALL TO ORDER PUBLIC COMMENT Members of the public may speak in person ONLY to any item NOT on the agenda. 13 minutes depending on # of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. ACTION ITEMS 1.Accept California Public Employees’ Retirement System (CalPERS) Pension Annual Valuation Reports FUTURE MEETINGS AND AGENDAS Members of the public may not speak to the item(s) ADJOURNMENT PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 992‐2730‐7235 Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $250 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $250 made within the last 12 months, you must disclose the campaign contribution before making your comments. 1 September 17, 2024 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. FINANCE COMMITTEERegular MeetingTuesday, September 17, 2024Community Meeting Room & Hybrid5:30 PMFinance Committee meetings will be held as “hybrid” meetings with the option to attend byteleconference/video conference or in person. Information on how the public may observe andparticipate in the meeting is located at the end of the agenda. The meeting will be broadcast onCable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamedto Midpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/99227307235)Meeting ID: 992 2730 7235 Phone: 1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and viz Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted. Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting. CALL TO ORDER PUBLIC COMMENT Members of the public may speak in person ONLY to any item NOT on the agenda. 13 minutes depending on # of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. ACTION ITEMS 1.Accept California Public Employees’ Retirement System (CalPERS) Pension Annual Valuation Reports FUTURE MEETINGS AND AGENDAS Members of the public may not speak to the item(s) ADJOURNMENT PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 992‐2730‐7235 Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $250 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $250 made within the last 12 months, you must disclose the campaign contribution before making your comments. 2 September 17, 2024 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. FINANCE COMMITTEERegular MeetingTuesday, September 17, 2024Community Meeting Room & Hybrid5:30 PMFinance Committee meetings will be held as “hybrid” meetings with the option to attend byteleconference/video conference or in person. Information on how the public may observe andparticipate in the meeting is located at the end of the agenda. The meeting will be broadcast onCable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamedto Midpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/99227307235)Meeting ID: 992 2730 7235 Phone: 1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and viz Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.CALL TO ORDERPUBLIC COMMENT Members of the public may speak in person ONLY to any item NOT on the agenda. 13 minutes depending on # ofspeakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end ofthe agenda.ACTION ITEMS1.Accept California Public Employees’ Retirement System (CalPERS) Pension AnnualValuation ReportsFUTURE MEETINGS AND AGENDAS Members of the public may not speak to the item(s) ADJOURNMENT PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 992‐2730‐7235 Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $250 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $250 made within the last 12 months, you must disclose the campaign contribution before making your comments. 3 September 17, 2024 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. FINANCE COMMITTEERegular MeetingTuesday, September 17, 2024Community Meeting Room & Hybrid5:30 PMFinance Committee meetings will be held as “hybrid” meetings with the option to attend byteleconference/video conference or in person. Information on how the public may observe andparticipate in the meeting is located at the end of the agenda. The meeting will be broadcast onCable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamedto Midpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/99227307235)Meeting ID: 992 2730 7235 Phone: 1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and viz Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.CALL TO ORDERPUBLIC COMMENT Members of the public may speak in person ONLY to any item NOT on the agenda. 13 minutes depending on # ofspeakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end ofthe agenda.ACTION ITEMS1.Accept California Public Employees’ Retirement System (CalPERS) Pension AnnualValuation ReportsFUTURE MEETINGS AND AGENDASMembers of the public may not speak to the item(s)ADJOURNMENTPUBLIC COMMENT INSTRUCTIONSMembers of the Public may provide public comments to teleconference meetings via email,teleconference, or by phone.1. Written public comments may be submitted by email to city.council@cityofpaloalto.org.2. For in person public comments please complete a speaker request card located on thetable at the entrance to the Council Chambers and deliver it to the Clerk prior todiscussion of the item.3. Spoken public comments for agendized items using a computer or smart phone willbe accepted through the teleconference meeting. To address the Council, click on the linkbelow to access a Zoom‐based meeting. Please read the following instructions carefully.You may download the Zoom client or connect to the meeting in‐ browser. If usingyour browser, make sure you are using a current, up‐to‐date browser: Chrome 30 ,Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled inolder browsers including Internet Explorer. Or download the Zoom application ontoyour smart phone from the Apple App Store or Google Play Store and enter in theMeeting ID below.You may be asked to enter an email address and name. We request that youidentify yourself by name as this will be visible online and will be used to notify youthat it is your turn to speak.When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk willactivate and unmute speakers in turn. Speakers will be notified shortly before theyare called to speak.When called, please limit your remarks to the time limit allotted. A timer will beshown on the computer to help keep track of your comments.4. Spoken public comments for agendized items using a phone use the telephone numberlisted below. When you wish to speak on an agenda item hit *9 on your phone so weknow that you wish to speak. You will be asked to provide your first and last name beforeaddressing the Council. You will be advised how long you have to speak. When calledplease limit your remarks to the agenda item and time limit allotted.CLICK HERE TO JOIN Meeting ID: 992‐2730‐7235 Phone: 1‐669‐900‐6833Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its publicprograms, services and meetings in a manner that is readily accessible to all. Persons withdisabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $250 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $250 made within the last 12 months, you must disclose the campaign contribution before making your comments. 4 September 17, 2024 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. Finance Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Administrative Services Meeting Date: September 17, 2024 Report #:2405-3062 TITLE Accept California Public Employees’ Retirement System (CalPERS) Pension Annual Valuation Reports RECOMMENDATION Staff recommends that the Finance Committee review and recommend that Council accept the June 30, 2023 CalPERS Annual Valuation reports for the Miscellaneous and Safety Pension Plans. EXECUTIVE SUMMARY The June 30, 2023 CalPERS Annual Valuation report is used to inform the development of the upcoming FY 2026 Budget process and FY 2026 - 2035 Long Range Financial Forecast (LRFF). This report estimates total employer costs of $68.5 million in FY 2026, a $3.6 million or 5.5% increase over prior year levels of $64.9 million. This increase is primarily due to CalPERS investment gain of 5.8% and loss of -6.1% as compared to target levels of 6.8% for the period ending June 30, 2023 and June 30, 2022, respectively. This was preceded by a significant investment gain of +21.3% for the period ending June 30, 2021. This gain triggered the CalPERS Risk Mitigation Policy, which ultimately resulted in the reduction of the discount rate (target investment return) from 7.0% to 6.8%. Overall, the City’s combined funded status is projected to be 64.0% in FY 2026 as compared to 63.8% in FY 2025 and 73.3% in FY 2024. The Unfunded Accrued Liability (UAL) is $573.5 million. This amount is reduced to $498.9 million or 69.6% funded status once adjusted for the City’s Pension Trust. In total, planned contributions (principal) of $73.3 million to the Pension Trust will have been made through FY 2024 ($47.5 million, or 64.8% of the total, is from the General Fund). 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 Item 1 Item 1 Staff Report Item 1: Staff Report Pg. 1 Packet Pg. 5 of 184 employed by the City, including field personnel, administrative support, and managers). Table 1: City of Palo Alto Pension Benefit Plans and Tiers Miscellaneous Safety: Fire Safety: Police Tier 1 2.7%/service year worked; eligibility starting at the age of 55 (2.7% @ 55) 3.0%/service year worked; eligibility starting at the age of 50 (3.0% @ 50) 3.0%/service year worked; eligibility starting at the age of 50 (3.0% @ 50) Tier 2 Effective July 16, 2010: 2.0%/service year worked, eligibility starting at age 60 (2.0% @ 60) Effective June 7, 2012: 3.0%/service year worked, eligibility starting at age 55 (3.0% @ 55) Effective December 6, 2012: 3.0%/service year worked, eligibility starting at age 55 (3.0% @ 55) Tier 3 “PEPRA”* Effective January 1, 2013: 2.0%/service year worked; eligibility starting at age 62 (2.0% at 62) Effective January 1, 2013: 2.7%/service year worked; eligibility starting at age 57 (2.7% at 57) Effective January 1, 2013: 2.7%/service year worked; eligibility starting at age 57 (2.7% at 57) * Under the California Public Employees’ Pension Reform Act (PEPRA), the benefit calculation is limited by a maximum salary of $181,734 in 2024 for both the Miscellaneous and Safety plans, therefore it is calculated based on service years but cannot exceed the $181,734 amount. The final salary calculation is based on the average of the highest three years. Item 1 Item 1 Staff Report Item 1: Staff Report Pg. 2 Packet Pg. 6 of 184 investment returns, 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 due to assumption or method changes, changes in plan provisions, and actuarial experience that is different than anticipated such as investment returns that do not meet the CalPERS 6.8% target. ▪Reduction to the discount rate from 7.0% to 6.8%; ▪New actuarial assumptions, including a reduction for price inflation from 2.5% to 2.3%; and ▪New asset allocation to add 5% leverage and increase private asset (private equity, real assets, and private debt) allocations from 21% to 33%. 1), and adopting a Retiree Benefit Funding Policy that guides financial 1 January 23, 2017 Council Meeting: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/reports/city-manager-reports-cmrs/year-archive/2017/7553.pdf Item 1 Item 1 Staff Report Item 1: Staff Report Pg. 3 Packet Pg. 7 of 184 planning of retirement benefits. The City initially contributed to the Pension Trust in FY 2017 on an ad-hoc basis, using one-time savings or excess revenues. Beginning in FY 2019, the City Council directed staff to use a more conservative discount rate as compared to CalPERS for the Normal Cost (NC) portion of the payment, and transferring the additional “supplemental” funding beyond CalPERS required employer contributions to the Pension Trust (CMR 97402). This practice was reinforced in the development of a funding policy, as adopted by the City Council in FY 2021 (CMR 117223) and modified in FY 2023 (CMR 2212-05134); beginning in FY 2024 this rate is 5.3% as compared to the CalPERS discount rate of 6.8%. Additionally, one-time contributions continue to be made each year if excess revenues or unspent savings are available, subject to City Council approval. As part of policy goals, the City seeks to reach a 90% funded status by FY 2036. Every four years, in alignment with the timing of the CalPERS ALM study, the policy requires that staff consult with an actuary to inform the City Council of progress the City has made towards achieving a 90% funded status goal and assess and respond to changes impacting the City’s retiree benefit plans. The next ALM study is anticipated to be released in Fall 2025. The previous comprehensive review of the policy by Council was completed in FY 2023 and resulted in several policy revisions, most notably reducing the discount rate used to calculate supplemental contributions from 6.2% to 5.3% and extending actuary reporting from 3 to 4 years to align with the CalPERS ALM Study. Additionally, the title of the policy was revised from the Pension Policy to the Retiree Benefit Policy to recognize actions approved by the City Council to proactively plan for retiree healthcare plans in a similar manner to pensions (CMR 2212-0513). The most recent actuary analysis projects that the City will meet a 90% funded goal by FY 2034 (Miscellaneous plan) and FY 2036-37 (Safety plan); the City’s practice of transmitting excess one-time savings will help reach goals sooner. It is important to note that this policy, and the funding elements within it, are subject to modification at any time by the City Council. Consistent with prior years, any changes to the budget or financial planning of retiree benefits in interim years will be implemented at the timing of City Council approval and formalized in the policy document in the next comprehensive reporting period. DISCUSSION CalPERS has two components designated in the annual billing for employer contributions: 1.The Normal Cost (NC) or “pay-go” 2 City Council Meeting October 29, 2018: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes- reports/reports/city-manager-reports-cmrs/year-archive/2018/9740.pdf 3 City Council Meeting November 30, 2020: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas- minutes-reports/reports/city-manager-reports-cmrs/year-archive/2020-2/id- 11722.pdf#:~:text=The%20overarching%20goal%20of%20a,order%20to%20fund%20proactive%20contributions. 4 City Council Meeting February 6, 2023: https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82218 Item 1 Item 1 Staff Report Item 1: Staff Report Pg. 4 Packet Pg. 8 of 184 This cost 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 Unfunded Accrued Liability (UAL) or “catch-up” This cost 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. The Actuarial Determined Contribution (ADC) or “blended rate” reflects the combined cost of NC and UAL to approximate total employer cost. Current and Projected Employer Contributions Table 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 adjust from 47.4% of payroll or $42.3 million in FY 2025 to 44.1% of payroll or $45.2 million by FY 2030 for the Miscellaneous plan. Over the same six-year span, CalPERS estimates that the ADC will adjust from 83.1% of payroll or $22.6 million in FY 2025 to 88.5% of payroll or $27.6 million in 2030 for Safety. As projected in the table below, the cost fluctuations in the outyears are primarily due to investment returns of +21.3% (FY 2024) and -6.1% (FY 2025), where investment gains and losses are subject to a five-year ramp-up period. The full impact from these returns will be realized in FY 2028 and FY 2029, respectively. TABLE 2: CalPERS Current and Projected Employer Contributions* Miscellaneous FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 NC (%)**10.6 11.7 11.3 10.9%10.6%10.3%10.0%9.8%9.6% UAL (%)32.3 33.1 36.1 32.8%30.0%30.7%33.1%32.9%32.6% Total ADC (% payroll)42.9%44.8%47.4%43.7%40.6%41.0%43.1%42.7%42.2% NC ($)9.7 10.2 10.1 10.9 10.9 10.9 10.7 10.9 11.0 UAL ($)**29.7 28.7 32.2 32.8 30.8 32.4 35.8 36.7 37.5 Total ADC ($M)$39.5 $38.8 $42.3 $43.7 $41.7 $43.3 $46.5 $47.6 $48.5 Safety FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 NC (%)**21.5 20.6 22.2 20.6%20.0%19.4%18.7%18.1%17.5% UAL (%)48.0 50.6 60.9 61.1%62.8%63.9%67.6%67.3%66.9% Total ADC (% payroll)69.6%71.1%83.1 81.7%82.8%83.3%86.3%85.4%84.4% NC ($)6.0 6.1 6.0 6.3 6.2 6.2 6.2 6.1 6.1 Item 1 Item 1 Staff Report Item 1: Staff Report Pg. 5 Packet Pg. 9 of 184 Safety FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 UAL ($)**13.3 14.9 16.6 18.5 19.6 20.5 22.3 22.8 23.3 Total ADC ($M)$19.2 $20.9 $22.6 $24.8 $25.8 $26.7 $28.5 $29.0 $29.4 * This table does not include cost savings for prepayment of the UAL, which confers 3.2% or $1.7 million in savings, or provisions in labor agreements for employees to pay a portion of employer normal costs; Miscellaneous groups pay 1-2% and Safety groups pay 3-4%. These savings will be included in budget development. ** 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 respective terms. TABLE 3: CalPERS Investment Returns FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 Actual (%)4.7 21.3 -6.1 5.8 9.3*----- Target (%)7.0 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 *This CalPERS report does not consider the preliminary 9.3% return on investments for the period ending June 30, 2024 (6.8 percent target)5. The estimated impact from this return will be included in long-term financial planning. 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. As of June 30, 2023, the funded status of the overall Public Employee’s Retirement Fund (PERF) decreased an estimated 9.2% over the prior year, from 81.2% to projected levels of 72.0%6. This rate is higher than the City’s funded status of 66.3% for Miscellaneous and 59.7% for Safety. Table 4 details the City’s June 30, 2023 funded status for the Miscellaneous and Safety plans. The total unfunded pension liability increased from $553.4 million as of June 30, 2022 to $573.5 million as of June 30, 2023. This represents an increase of $20.2 million, or 3.7% over the prior year. This change was predominantly due to a significant investment return of 21.3% earned in 2021; this resulted in favorable outcomes for the City’s plans and triggered the CalPERS Risk Mitigation Policy to decrease to the discount rate from 7.0% to 6.8%. However, as shown in the table below, those gains were offset by the investment loss of -6.1% in 2022. Also, the gain of 5.8% in 2023 was below the discount rate of 6.8% which caused the incremental increase in the City’s unfunded liability. 5 CalPERS Reports Preliminary 9.3% Investment Return for 2023-24 Fiscal Year 6 2022 Annual Review of Funding Levels and Risks - CalPERS https://www.calpers.ca.gov/docs/board-agendas/202211/financeadmin/item-6a-01_a.pdf Item 1 Item 1 Staff Report Item 1: Staff Report Pg. 6 Packet Pg. 10 of 184 TABLE 4: CalPERS Projected Unfunded Accrued Liability As of June 30, 2020 As of June 30, 2021 As of June 30, 2022 As of June 30, 2023 Miscellaneous 317,116,346 236,033,956 340,518,738 349,828,105 Misc. Funded Status 65.1%75.3%65.8%66.3% Safety 193,301,713 155,885,841 212,812,272 223,707,130 Safety Funded Status 60.3%69.4%60.0%59.7% TOTAL UNFUNDED PENSION LIABILITY $510,418,059 $391,919,797 $553,331,510 $573,535,235 Total Funded Status % 63.5%73.3%63.8%64.0% % Change from Prior Year 7.0%-23.2%41.2%3.7% Pension Trust Status In total, planned contributions (principal) of $73.3 million to the pension Trust Fund will have been made since inception in FY 2017 through FY 2024 ($47.5 million, or 64.8% of the total, is from the General Fund). The Trust Fund is invested in a Balanced portfolio, earning 11.5%, 6.7%, and -9.9% for the years ending June 30, 2024, 2023, and 2022 respectively. The annualized 5-year return as of July 2024 is 5.4%. In the City Pension Trust, these additional contributions of $73.3 million and net earnings since inception of $11.5 million are not factored into the CalPERS reports funded status; however, when included the City’s combined funded status is 69.3%. The Retirement Benefit Policy requires that the City make Additional Discretionary Payments (ADPs) from the Pension Trust to CalPERS for amounts that exceed the one-year minimum employer contribution. CalPERS allows agencies to make ADPs at any time and in any amount at the agency’s discretion. These optional payments serve to reduce the UAL and future required contributions. Staff will continue to monitor the Pension Trust to evaluate when to begin making ADPs. This report and feedback from the Finance Committee will be used to inform the development of the FY 2026–2035 Long Range Financial Forecast (LRFF), the FY 2026 Adopted Operating Budget, and other long-term financial planning. Staff will continue to update the City Council and incorporate information as it becomes available. Below is a timeline of anticipated reporting: Item 1 Item 1 Staff Report Item 1: Staff Report Pg. 7 Packet Pg. 11 of 184 Dec/January: FY 2026 to FY 2035 Long Range Financial Forecast (LRFF) STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Item 1 Item 1 Staff Report Item 1: Staff Report Pg. 8 Packet Pg. 12 of 184 Employee Group Employee Group Sept 2024 Sept 2023 Sept 2024 Sept 2023 City Council & Council Appointees 8 6 IAFF 79 83 Tier 1 1 1 Tier 1 30 34 Tier 2 2 2 Tier 2 8 8 Tier 3 5 3 Tier 3 41 41 Management & Professional 199 189 Fire Chiefs' Association 4 4 Tier 1 56 66 Tier 1 4 4 Tier 2 36 31 Tier 2 0 0 Tier 3 107 92 Tier 3 0 0 Service Employees' International 571 525 Fire Management 6 3 Tier 1 145 156 Tier 1 3 3 Tier 2 43 44 Tier 2 1 0 Tier 3 383 325 Tier 3 2 0 Utilities Management 47 45 PAPOA 73 66 Tier 1 29 30 Tier 1 20 22 Tier 2 6 5 Tier 2 3 4 Tier 3 12 10 Tier 3 50 40 Police Management Association 7 6 Tier 1 7 6 Tier 2 0 0 Tier 3 0 0 Police Management 9 1 Tier 1 3 0 Tier 2 2 1 Tier 3 4 0 Grand Total Miscellaneous Plans 825 765 Grand Total Safety Plans 178 163 Tier 1 231 253 Tier 1 67 69 Tier 2 87 82 Tier 2 14 13 Tier 3 507 430 Tier 3 97 81 Tiered Percentage Miscellaneous Plans Tiered Percentage Safety Plans Tier 1 28.0% 33.1% Tier 1 37.6% 42.3% Tier 2 10.5% 10.7% Tier 2 7.9% 8.0% Tier 3 61.5% 56.2% Tier 3 54.5% 49.7% Tier Definitions Tier Definitions Tier 1 2.7% @ 55 Tier 1 3% @ 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 Attachment A: City of Palo Alto Pension Plan Benefit Levels Enrollment by Plan and Employee Group Miscellaneous Plans Safety Plans Employee Count Employee Count Item 1 Attachment A - Pension Plan Benefit Levels Enrollment by Plan and Employee Group Item 1: Staff Report Pg. 9 Packet Pg. 13 of 184 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 2024 Miscellaneous Plan of the City of Palo Alto (CalPERS ID: 6373437857) Annual Valuation Report as of June 30, 2023 Dear Employer, Attached to this letter is the June 30, 2023, actuarial valuation report for the rate plan noted above. Provided in this report is the determination of the minimum required employer contributions for fiscal year (FY) 2025-26. In addition, the report 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. Required Contributions The table below shows the minimum required employer contributions and the PEPRA member contribution rates for FY 2025 -26 along with an estimate of the employer contribution requirements for FY 2026-27. Employee contributions other than cost sharing (whether paid by the employer or the employe e) are in addition to the results shown below. The required employer and member contributions in this report do not reflect any cost sharing arrangement between the agency and the employees. Fiscal Year Employer Normal Cost Rate Employer Amortization of Unfunded Accrued Liability PEPRA Member Contribution Rate 2025-26 10.90% $32,780,459 7.25% Projected Results 2026-27 10.6% $30,806,000 TBD The actual investment return for FY 2023-24 was not known at the time this report was prepared. The projections above assume the investment return for that year would be 6.8%. To the extent the actual investment return for FY 2023-24 differs from 6.8%, the actual contribution requirements for FY 2026-27 will differ from those shown above. For additional detail s regarding the assumptions and methods used for these projections, please refer to Projected Employer Contributions . This section also contains projected required contributions through FY 2030-31. Report Enhancements A number of enhancements were made to the report this year to ease navigation and allow the reader to find specific information more quickly. The tables of contents are now “clickable .” This is true for the main table of contents that follows the title page and the intermediate tables of contents at the beginning of sections. The Adobe navigation pane on the left can al so be used to skip to specific exhibits . Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 10 Packet Pg. 14 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 2 There are a number of links throughout the document in blue text. Links that are internal to the document are not underlined, while underlined links will take you to the CalPERS website. Examples are shown below. Internal Bookmarks CalPERS Website Link s Required Employer Contributions Required Employer Contribution Search Tool Member Contribution Rates Public Agency PEPRA Mem ber Contribution Rates Summary of Key Valuation Results Pension Outlook Overview Funded Status – Funding Policy Basis Interactive Summary of Public Agency Valu ation Results Projected Employer Contributions Public Agency Actuarial Valuation Reports 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 any changes on the required contributions are included in the Reconciliation of Required Employer Contributions section. Questions A CalPERS actuary is available to answer questions about th is report. Other questions may be directed to the Customer Contact Center at 888 CalPERS (or 888-225-7377). Sincerely, Matthew Biggart, ASA, MAAA Actuary, CalPERS Randall Dziubek, ASA, MAAA Deputy Chief Actuary, Valuation Services , CalPERS Scott Terando , ASA, EA, MAAA, FCA, CFA Chief Actuary, CalPERS Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 11 Packet Pg. 15 of 184 California Public Employees’ Retirement System Actuarial Valuation for the Miscellaneous Plan of the City of Palo Alto as of June 30, 2023 (CalPERS ID: 6373437857) (Rate Plan ID: 8) Required Contributions for Fiscal Year July 1, 2025 — June 30, 2026 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 12 Packet Pg. 16 of 184 CY Fin Job Instance ID: 438257 PY Fin Job Instance ID: 416785 Report ID: 439291 Table of Contents Actuarial Certification .......................................................................................................................................................................................1 Highlights and Executive Summary .............................................................................................................................................................2 Introduction .......................................................................................................................................................................................................3 Purpose .............................................................................................................................................................................................................3 Summary of Key Valuation Results ..............................................................................................................................................................4 Changes Since the Prior Year’s Valuation ..................................................................................................................................................5 Subsequent Events .........................................................................................................................................................................................5 Assets ...................................................................................................................................................................................................................6 Reconciliation of the Market Value of Assets ..............................................................................................................................................7 Asset Allocation................................................................................................................................................................................................8 CalPERS History of Investment Returns .....................................................................................................................................................9 Liabilities and Contributions ....................................................................................................................................................................... 10 Determination of Required Contributions.................................................................................................................................................. 11 Development of Accrued and Unfunded Liabilities ................................................................................................................................. 12 Required Employer Contributions .............................................................................................................................................................. 13 Member Contribution Rates ........................................................................................................................................................................ 14 Funded Status – Funding Policy Basis ..................................................................................................................................................... 15 Additional Employer Contributions............................................................................................................................................................. 16 Projected Employer Contributions ............................................................................................................................................................. 17 (Gain)/Loss Analysis 6/30/22 – 6/30/23 .................................................................................................................................................... 18 Schedule of Amortization Bases ................................................................................................................................................................ 19 Amortization Schedule and Alternatives ................................................................................................................................................... 21 Reconciliation of Required Employer Contributions ................................................................................................................................ 23 Employer Con tribution History .................................................................................................................................................................... 24 Funding History ............................................................................................................................................................................................. 24 Normal Cost by Benefit Group .................................................................................................................................................................... 25 Risk Analysis ................................................................................................................................................................................................... 26 Future Investment Return Scenarios ......................................................................................................................................................... 27 Discount Rate Sensitivity............................................................................................................................................................................. 28 Mortality Rate Sensitivity ............................................................................................................................................................................. 28 Maturity Measures ........................................................................................................................................................................................ 29 Maturity Measures History........................................................................................................................................................................... 30 Funded Status – Termination Basis .......................................................................................................................................................... 31 Funded Status – Low-Default-Risk Basis ................................................................................................................................................. 32 Plan’s Major Benefit Options ....................................................................................................................................................................... 33 Appendix A - Actuarial Methods and Assumptions .............................................................................................................................. 37 Appendix B - Principal Plan Provisions .................................................................................................................................................... 62 Appendix C - Participant Data ..................................................................................................................................................................... 73 Appendix D - Glossary .................................................................................................................................................................................. 79 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 13 Packet Pg. 17 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 1 Actuarial Certification It is our opinion that the valuation has been performed in accordance with generally accepted actuarial principles as well as the applicable Standards of Practice promulgated by the Actuarial Standards Board . While this report is intended to be complete, our office is available to answer questions as needed. All of the undersigned are actuaries who satisfy the Qualification Standards for Actuaries I ssuing Statements of Actuarial Opinion in the United States of the American Academy of Actuaries with regard to pensions. Actuarial Methods and Assumptions It is our opinion that the assumptions and methods, as recommended by the Chief Actuary and adopted by the CalPERS Board of Administration, are internally consistent and reasonable for this plan. Randall Dziubek, ASA, MAAA Deputy Chief Actuary, Valuation Services , CalPERS Scott Terando , ASA, EA, MAAA, FCA, CFA Chief Actuary, CalPERS Actuarial Data and Rate Plan Results To the best of my knowledge and having relied upon the attestation above that the actuarial methods and assumptions are reasonable, 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 and satisfies the actuarial valuation requirements of Government Code section 7504. This valuation and related validation work w as performed by the CalPERS Actuarial Office. The valuation was based on the member and financial data as of June 30, 2023 , provided by the various CalPERS databases and the benefits under this plan with CalPERS as of the date this report was pr oduced. Matthew Biggart, ASA, MAAA Actuary, CalPERS Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 14 Packet Pg. 18 of 184 Highlights and Executive Summary • Introduction 3 • Purpose 3 • Summary of Key Valuation Results 4 • Changes Since the Prior Year’s Valuation 5 • Subsequent Events 5 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 15 Packet Pg. 19 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 3 Introduction This report presents the results of the June 30, 2023 , 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 contributions for fiscal year (FY) 2025-26. Purpose This report documents the results of the actuarial valuation prepared by the CalPERS Actuarial Office using data as of June 30, 2023. The purpose of the valuation is to: • Set forth the assets and accrued liabilities of this rate plan as of June 30, 2023 ; • Determine the minimum required employer co ntributions for this rate plan for FY July 1, 2025, through June 30, 2026; • Determine the required member contribution rate for FY July 1, 2025, through June 30, 2026 , for employees subject to the California Public Employees' Pension Reform Act of 2013 (PEPRA); and • Provide actuarial information as of June 30, 2023 , to the CalPERS Board of Administration (board) 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 (www.calpers.ca.gov). The measurements shown in this actuarial valuation may not be applicable for other purposes. The agency should contact a CalPERS 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 th e following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; changes in actuarial policies; changes in plan provisions or applicable law; and differences between th e required contributions determined by the valuation and the actual contributions made by the agency. Assessment and Disclosure of Risk This report includes the following risk disclosures consistent with the guidance 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 curre nt valuation results using alternative discount rates of 5.8% and 7.8%. • A “Sensitivity Analysis,” showing the impact on current valuation results assuming rates of mortality are 10% lower or 10% higher than our current post-retirement mortality assumptions adopted in 2021. • Plan maturity measures indicating how sensitive a plan may be to the risks noted above. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 16 Packet Pg. 20 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 4 Summary of Key Valuation Results Below is a brief summary of key valuation results alo ng with page references where more detailed information can be found . Required Employer Contributions — page 13 Fiscal Year 2024-25 Fiscal Year 2025-26 Employer Normal Cost Rate 11.34% 10.90 % Unfunded Accrued Liability (UAL) Contribution Amount $32,190,210 $32,780,459 Paid either as Option 1) 12 Monthly Payments of $2,682,518 $2,731,705 Option 2) Annual Prepayment in July $31,148,575 $31,719,724 Member Contribution Rates — page 14 Fiscal Year 2024-25 Fiscal Year 2025-26 Classic Member Contribution Rate 7.00%/8.00% 7.00%/8.00% PEPRA Member Contribution Rate 7.25% 7.25% Projected Employer Contributions — page 17 Fiscal Year Normal Cost (% of payroll) Annual UAL Payment 2026-27 10.6% $30,806,000 2027-28 10.3% $32,435,000 2028-29 10.0% $35,841,000 2029-30 9.8% $36,701,000 2030-31 9.6% $37,458,000 Funded Status — Funding Policy Basis — page 15 June 30, 2022 June 30, 2023 Entry Age Accrued Liability (AL) $996,201 ,108 $1,037,247,281 Market Value of Assets (MVA) 655,682,370 687,419,176 Unfunded Accrued Liability (UAL) [AL – MVA] $340,518,738 $349,828,105 Funded Ratio [MVA ÷ AL] 65.8% 66.3% Summary of Valuation Data — Page 74 June 30, 2022 June 30, 2023 Active Member Count 712 757 Annual Covered Payroll $82,193,044 $91,956,169 Transferred Member Count 387 392 Separated Member Count 479 488 Retired Me mbers and Beneficiaries Count 1,320 1,348 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 17 Packet Pg. 21 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 5 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. For rate plans that are not in a risk pool (non -pooled), benefit change s by contract amendment are generally included in the first valuation that is prepared after the amendment becomes effective, even if the effective date of the amendment is after the valuation date. Please refer to the Plan’s Major Benefit Options and Appendix B - Principal Plan Provisions 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 6/30/22 – 6/30/23 and the effect on the employer contribution is shown in the Reconcil iation 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 There are no significant changes to the actuarial methods or assumptions for the June 30, 2023, actuarial valuation. New Disclosure Items In December 2021, the Actuarial Standards Board issued a revision of Actuarial Standard of Practice No. 4 (ASOP 4) requiring actuaries to disclose a low-default-risk obligation measure (LDROM) of the benefits earned. This information is shown in a new exhibit, Funded Status – Low-Default-Risk Basis. Subsequent Events This actuarial valuation report reflects fund investment return through June 30, 2023, as well as statutory changes, regulatory changes and board actions through January 202 4. During the time period between the valuation date and the p ublication of this report, inflation has been higher than the expected inflation of 2.3% per annum. Since inflation influences cost-of-living increases for retirees and beneficiaries and active member pay increases, higher inflation is likely to put at lea st some upward pressure on contribution requirements and downward pressure on the funded status in the June 30, 202 4, valuation. The actual impact of higher inflation on future valuation results will depend on, among other factors , how long higher inflatio n persists. The 2023 annual benefit limit under Internal Revenue Code (IRS) section 415(b) and annual compensation limits under IRS section 401(a)(17) and Government Code section 7522.10 were use d for this valuation and are assumed to increase 2.3% per year based on the price inflation assumption. The actual 2024 limits , determined in October 2023, are not reflected. On April 16, 2024, the board took action to modify the Funding Risk Mitigation Policy to remove the automatic change to the discount rate when the investment return exceeds various thresholds. Rather than an automatic change to the discount rate, a board discussion would be placed on the calendar. The 95 th percentile return in the Future Investment Return Scenarios exhibit in this report has not been modified and still reflects the projected contribution requirements associated with a reduction i n the discount rate. To the best of our knowledge, there have been no other subsequent events that could materially affect current or future certifications rendered in this report. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 18 Packet Pg. 22 of 184 Assets • Reconciliation of the Market Value of Assets 7 • Asset Allocation 8 • CalPERS History of Investment Returns 9 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 19 Packet Pg. 23 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 7 Reconciliation of the Market Value of Assets 1. Market Value of Assets as of 6/30/22 including Receivables $655,682,370 2. Change in Receivables for Service Buybacks (137,575) 3. Employer Contributions 37,170,955 4. Employee Contributions 8,059,338 5. Benefit Payments to Retirees and Beneficiaries (53,190,716) 6. Refunds (648,157) 7. Transfers (2,503) 8. Service Credit Purchase (SCP) Payments and Interest 250,416 9. Administrative Expenses (388,609) 10. Miscellaneous Adjustments 0 11. Investment Return (Net of Investment Expenses) 40,623,657 12. Market Value of Assets as of 6/30/23 including Receivables $687,419,176 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 20 Packet Pg. 24 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 8 Asset Allocation CalPERS adheres to an Asset Allocation Strategy which establishes asset class allocation policy targets and ranges and manages those asset class allocations within their policy ranges . CalPERS recognizes that over 90% of the variation in investment returns of a large, well -diversified pool of assets can typically be attributed to asset allocation decisions . The asset allocation shown below reflects the allocation of the Public Employe es’ Retirement Fund (PERF) in its entirety. The assets for City of Palo Alto Miscellaneous Plan are a subset of the PERF and are invested accordingly. On November 17, 2021, the board adopted changes to the strategic asset allocation . The new allocation was effective July 1, 2022. The asset allocation as of June 30, 2023 , is shown below, along with the long-term strategic asset allocations. For more information s ee the Trust Level Review as of June 30, 2023 , which is available on the CalPERS website. 33.1% 12.0% 5.1% 5.1% 6.6% 4.5% 5.1% 12.9% 15.2% 2.2% (1.8%) 30% 12% 5% 5% 10% 5% 5% 13% 15% 5% (5%) (10%)0%10%20%30%40% Public Equities - Cap Weighted Public Equities - Factor Weighted Treasury Mortgage-Backed Securities Investment Grade Corporates High Yield Emerging Market Sovereign Bonds Private Equity Real Assets Private Debt Strategic Financing Current Allocation Long-Term Strategic Asset Allocation Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 21 Packet Pg. 25 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 9 CalPERS History of Investment Returns The following is a chart with the 20 -year historical annual return s of the PERF for each fiscal year ending on June 30 as reported by the Investment Office. Investment returns reported are net of investment expenses but without reduction for administrative expenses. The assumed rate of return, however, is net of both investment and administrative expenses. Also, the Investment Office uses a three-month lag on private equity and real assets for investment performance reporting purposes. This can lead to a timing difference in the returns below and those used for financial reporting purposes. The investment gain or loss calculation in this report relies on final assets that have been audited and are appropriate for financial reporting. Because of these differences, the effective investment return for funding purposes in a single year can be higher or lower than the return reported by the Investment Office shown here. * As reported by the Investment Office with a 3-month lag on private equity and real assets and without any reduction for administrative expenses . The table below shows annualized investment returns of the PERF for various time periods ending on June 30, 2023 . Figures reported are net of investment expenses but without reduction for administrative expen ses. These returns are the annual rates that if compounded over the indicated number of years would equate to the actual time -weighted investment performance of the PERF. It should be recognized that in any given year the rate of return is volatile. The po rtfolio has an expected volatility of 12.0% per year based on the most recent Asset Liability Management 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 distrib ution, 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 5.8% 6.1% 7.1% 7.0 % 7.5 % Realized Volatility – 9.5% 7.8% 8.4 % 8.8 % Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 22 Packet Pg. 26 of 184 Liabilities and Contributions • Determination of Required Contributions 11 • Development of Accrued and Unfunded Liabilities 12 • Required Employer Contributions 13 • Member Contribution Rates 14 • Funded Status – Funding Policy Basis 15 • Additional Employer Contributions 16 • Projected Employer Contributions 17 • (Gain)/Loss Analysis 6/30/22 – 6/30/23 18 • Schedule of Amortization Bases 19 • Amortization Schedule and Alternatives 21 • Reconciliation of Required Employer Contributions 23 • Employer Contribution History 24 • Funding History 24 • Normal Cost by Benefit Group 25 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 23 Packet Pg. 27 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 11 Determination of Required Contributions Contributions to fund the plan are determined by an actuarial valuation performed each year. The valuation employs complex calculations based on a set of actuarial assumptions and methods. See Appendix A for information on the assumptions and methods used in this valuation. The valuation incorporates all plan experience through the valuation date and sets required contributions for the fiscal year that begins two years after the valuation date. Contribution Components Two components comprise required contributions: • Normal Cost — expressed as a percentage of pensionable payroll • Unfunded Accrued Liability (UAL) Contribution — expressed as a dollar amount Normal Cost represents the value of benefits allocated to the upcoming year for active employees. If al l plan experience exactly matched the actuarial assumptions, normal cost would be sufficient to fully fund all benefits. The em ployer and employee s each pay a share of the normal cost with contributions payable as part of the regular payroll reporting proc ess. The contribution rate for Classic members is set by statute based on benefit formula whereas for PEPRA members it is based on 50% of the total normal cost. When plan experience differs from the actuarial assumptions, unfunded accrued liability (UAL) emerges. The new UAL may be positive or negative. If the total UAL is positive (i.e., accrued liability exceeds assets), the employer is required to make contributions to pay off the UAL over time. This is called the Unfunded Accrued Liability Contribution component. There is an option to prepay this amount during July of each fiscal year , otherwise it is paid monthly. In measuring the UAL each year, plan experience is split by source. Common sources of UAL include investment experience different than expe cted, non-investment experience different than expected, assumption changes, and benefit changes. Each source of UAL (positive or negative) forms a base that is amortized, or paid off, over a specified period of time in accordan ce with the CalPERS Actuarial Amortization Policy. The Unfunded Accrued Liability Contribution is the sum of the payments on all bases. See the Schedul e of Amortization Bases section of this report for an inventory of existing bases and Appendix A for more information on the amortization policy. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 24 Packet Pg. 28 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 12 Development of Accrued and Unfunded Liabilities June 30, 2022 June 30, 2023 1. Present Value of Projected Benefits a) Active Members $423,700,971 $454,680,927 b) Transferred Members 44,952,241 45,946,284 c) Separated Members 20,770,710 22,788,782 d) Members and Beneficiaries Receiving Payments 634,851,404 653,009,459 e) Total $1,124,275,326 $1,176,425,452 2. Present Value of Future Employer Normal Costs $73,008,925 $77,828,908 3. Present Value of Future Employee Contributions $55,065,293 $61,349,263 4. Entry Age Accrued Liability a) Active Members [(1a) - (2) - (3)] $295,626,753 $315,502,756 b) Transferred Members (1b) 44,952,241 45,946,284 c) Separated Members (1c) 20,770,710 22,788,782 d) Members and Beneficiaries Receiving Payments (1d) 634,851,404 653,009,459 e) Total $996,201,108 $1,037,247,281 5. Market Value of Assets (MVA) $655,682,370 $687,419,176 6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $340,518,738 $349,828,105 7. Funded Ratio [(5) ÷ (4e)] 65.8% 66.3% Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 25 Packet Pg. 29 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 13 Required Employer Contributions The required employer contributions in this report do not reflect any cost sharing arrangement between the agency and the employees. Fiscal Year Required Employer Contributions 2025-26 Employer Normal Cost Rate 10.90% Plus Unfunded Accrued Liability (UAL) Contribution Amount $32,780,459 Paid either as 1) Monthly Payment $2,731,705 Or 2) Annual Prepayment Option* $31,719,724 The total minimum required employer contribution is the sum of the Plan’s Employer Normal Cost Rate (expressed as a percentage of payroll and paid as payroll is reported) and the Unfunded Accrued Liability (UAL) Contribution Amount (billed monthly (1) or p repaid annually (2) in dollars). * Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later than July 31). For Member Contribution Rates see the following page. Fiscal Year Fiscal Year 2024-25 2025-26 Normal Cost Contribution as a Percentage of Payroll Total Normal Cost1 18.86% 18.39% Offset due to Employee Contribution s 2 7.52% 7.49% Employer Normal Cost 11.34% 10.90% Projected Annual Payroll for Contribution Year $89,292,382 $99,898,787 Estimated Employer Contributions Based on Projected Payroll Total Normal Cost $16,840,543 $18,371,387 Expected Employee Contribution s 6,714,787 7,482,419 Employer Normal Cost 10,125,756 10,888,968 Unfunded Liability Contribution 32,190,210 32,780,459 % of Projected Payroll (illustrative only) 36.05% 32.81% Estimated Total Employer Contribution $42,315,966 $43,669,427 % of Projected Payroll (illustrative only) 47.39% 43.71% 1 The Total 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. 2 This is the expected employee contributions, taking into account individual benefit formula and any offset from the use of a modified formula, divided by projected annual payroll. For member contribution rates above the breakpoint for each benefit formula, see Member Contribution Rates . Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 26 Packet Pg. 30 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 14 Member Contribution Rates The required member contributions in this report do not reflect any cost sharing arrangement between the agency and the employees. Classic Members Each member contributes toward their retirement based upon the retirement formula. The standard Classic member contribution rate above the breakpoint, if any, is as described below. Benefit Formula Percent Contributed above the Breakpoint Miscellaneous, 1.5% at age 65 2% Miscellaneous, 2% at age 60 7% Miscellaneous, 2% at age 55 7% Miscellaneous, 2.5% at age 55 8% Miscellaneous, 2.7% at age 55 8% Miscellaneous, 3% at age 60 8% Auxiliary organizations of the CSU system may elect reduced contribution rates for Miscellaneous members, in which case the contribution rate above the breakpoint is 6% if members are not covered by Social Security and 5% if they are. PEPRA Members 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 CalP ERS-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 rate 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 c ost rate of the plan change by more than 1% from the base total normal cost rate established for the plan, the new member rate shall be 50% of the new normal cost rate rounded to the nearest quarter percent. The table below shows the determination of the PEPRA m ember contribution rates effective July 1, 2025, based on 50 % of the total normal cost rate for each respective plan as of the June 30, 2023 , valuation. Basis for Current Rate Rates Effective July 1, 2025 Plan Identifier Benefit Group Name Total Normal Cost Member Rate Total Normal Cost Change Change Needed Member Rate 26004 Miscellaneous PEPRA Level 14.250% 7.25% 14.53% 0.280% No 7.25% For a description of the methodology used to determine the Total Normal Cost for this purpose, see PEPRA Normal Cost Rate Methodology in Appendix A. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 27 Packet Pg. 31 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 15 Funded Status – Funding Policy Basis The table below provides information on the current funded status of the plan under the funding policy. The funded status for this purpose is based on the market value of assets relative to the funding target produced by the entry age actuarial cost method and actuarial assumptions adopted by the board. The actuar ial cost method allocates the total expected cost of a member’s projected benefit (Present Value of Benefits ) to individual years of service (the Normal Cost). The value of the projected benefit that is not allocated to future service is referred to as the Accrued Liability and is the plan’s funding target on the valuation date. The Unfunded Accrued Liability (UAL) equals the funding target minus the assets. The UAL is an absolute measure of funded status and can be viewed as employer debt. The funded ratio equals the assets divided by the funding target. The funded ratio is a relative measure of the funded status and allows for comparisons between plans of different siz es. June 30, 2022 June 30, 2023 1. Present Value of Benefits $1,124,275,326 $1,176,425,452 2. Entry Age Accrued Liability 996,201,108 1,037,247,281 3. Market Value of Assets (MVA) 655,6 82,370 687,419,176 4. Unfunded Accrued Liability (UAL) [(2) – (3)] $340,518,738 $349,828,105 5. Funded Ratio [(3) ÷ (2)] 65.8% 66.3% A funded ratio of 100% (UAL of $0) implies that the funding of the plan is on target and that future contributions equal to t he normal cost of the active plan members will be sufficient to fully fund all retirement benefits if future experience matches the actuarial assumptions. A funded ratio of less than 100% (positive UAL) implies that in addition to normal costs, payments tow ard the UAL will be required. Plans with a funded ratio greater than 100% have a negative UAL (or surplus) but are requ ired under current law to continue contributing the normal cost in most cases, preserving the surplus for future contingencies. Calculations for the funding target reflect the expected long -term investment return of 6.8%. If it were known on the valuation date that future investment returns will average something greater/less than the expected return, calculated normal costs and accrued liabilities provided in this report would be less/greater than the results shown. Therefore, for example, if actual a verage future returns are less than the expected return, calculated normal costs and UAL contributions will not be sufficient to ful ly fund all retirement benefits. Under this scenario, required future normal cost contributions will need to increase from those provided in this report, and the plan will develop unfunded liabilities that will also add to required future contributions. For illustra tive purposes, funded status es based on a 1% lower and higher average future investment return (discount rate) are as follows: 1% Lower Average Return Current Assumption 1% Higher Average Return Discount Rate 5.8% 6.8% 7.8% 1. Present Value of Benefits $1,360,207,967 $1,176,425,452 $1,031,082,699 2. Entry Age Accrued Liability 1,169,285,420 1,037,247,281 927,893,085 3. Market Value of Assets (MVA) 687,419,176 687,419,176 687,419,176 4. Unfunded Accrued Liability (UAL) [(2) – (3)] $481,866,244 $349,828,105 $240,473,909 5. Funded Ratio [(3) ÷ (2)] 58.8% 66.3% 74.1% The Risk Analysis section of the report provides additional information regarding the sensitivity of valuation results to the expected investment return and other factors. Also provided in that section are measures of funded status that are appropriate for assessing the sufficiency of plan assets to cover estimated termination liabilities. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 28 Packet Pg. 32 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 16 Additional Emplo yer Contributions The minimum required employer contribution towards the Unfunded Accrued Liability (UAL) for this rate plan for FY 2025-26 is $32,780,459 . CalPERS allows agencies 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. Agencies can also u se 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 FY 2025-26 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 Amortization Schedule and Alternatives . Agencies considering making an ADP should contact CalPERS for additional information. Fiscal Year 2025-26 Employer Contributions — Illustrative Scenarios Funding Approach Estimated Normal Cost Minimum UAL Contribution ADP1 Total UAL Contribution Estimated Total Contribution Minimum required only $10,888,968 $32,780,459 0 $32,780,459 $43,669,427 15 year funding horizon $10,888,968 $32,780,459 $2,271,901 $35,052,360 $45,941,328 10 year funding horizon $10,888,968 $32,780,459 $12,829,260 $45,609,719 $56,498,687 5 year funding horizon $10,888,968 $32,780,459 $45,653,988 $78,434,447 $89,323,415 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 w ould have to be less or more than the amount shown to have the same effect on the UAL amortization. The calculations above are based on the projected UAL as of June 30, 2025, as determined in the June 30, 2023, actuarial valuation. New unfunded liabilities can em erge 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 year s will not result in a plan that is exactly 100% funded i n 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. Additional Discretionary Payment History The following table provides a recent history of actual ADPs made to the plan. Fiscal Year ADP Fiscal Year ADP 2018-19 $0 2021-22 $0 2019-20 $0 2022-23 $0 2020-21 $0 2023-24 $0 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 29 Packet Pg. 33 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 17 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. In particular, the investment return beginning with FY 2023-24 is assumed to be 6.80% per year, net of investment and administrative expenses. The projected normal cost percentages below reflect that the normal cost is expected to continue to decline over time as new employees are hired into lower cost benefit tiers. Future contribution requirements may differ signifi cantly from those shown below. The actual long -term cost of the plan will depend on the actual benefits and expenses paid and the actual investment experience of the fund. Required Contribution Projected Future Employer Contributions (Assumes 6.80% Return for Fiscal Year 2023-24 and Beyond) Fiscal Year 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Normal Cost % 10.90% 10.6% 10.3% 10.0% 9.8% 9.6% UAL Payment $32,780,459 $30,806,000 $32,435,000 $35,841,000 $36,701,000 $37,458,000 Total as a % of Payroll* 43.71% 40.6% 41.0% 43.1% 42.7% 42.2% Projected Payroll $99,898,787 $102,695,953 $105,571,440 $108,527,440 $111,566,208 $114,690,062 *Illustrative only and based on the projected payroll shown. For ongoing plans, investment gains and losses are amortized using a 5 -year ramp up. For more information, please see Amortization of Unfunded Actuarial Accrued Liability 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 con tributions can change gradually and significantly over the next five years. In years when there is a large investment loss, the relatively small amortization payments during the ramp up period could result in contributions that are less than interest on th e UAL (i.e. negative amortization) 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 exhibit. Our online pension plan projection tool, Pension Outlook, is available in the Employers section of the CalPERS website. Pension Outlook can help plan and budget pension costs under various scenarios. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 30 Packet Pg. 34 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 18 (Gain)/Loss Analysis 6/30/22 – 6/30/23 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 6/30/22 $340,518,738 b) Expected payment on the UAL during 20 22-23 28,299,872 c) Interest through 6/30/23 [.068 x (1a) - ((1.068)½ - 1) x (1b)] 22,208,904 d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 334,427,770 e) Change due to plan changes 0 f) Change due to AL Significant Increase 0 g) Change due to assumption changes 0 h) Change due to method change s 0 i) Change due to discount rate change with Funding Risk Mitigation 0 j) Expected UAL after all other changes [(1d) + (1e) + (1f) + (1g) + (1h) + (1i)] 334,427,770 k) Actual UAL as of 6/30/23 349,828,105 l) Total (Gain)/Loss for 20 22-23 [(1k) - (1j)] $15,400,335 2. Investment (Gain)/Loss for the Year a) Market Value of Assets as of 6/30/22 $655,682,370 b) Prior fiscal year receivables (649,626) c) Current fiscal year receivables 512,051 d) Contributions received 45,230,293 e) Benefits and refunds paid (53,838,873) f) Transfers, SCP p ayments and interest, and m iscellaneous adjustments 247,912 g) Expected return at 6.8% per year 45,255,412 h) Expected assets as of 6/30/23 [(2a) + (2b) + (2c) + (2d) + (2e) + (2f) + (2g)] 692,439,539 i) Actual Market Value of Assets as of 6/30/23 687,419,176 j) Investment (Gain)/Loss [(2h) - (2i)] $5,020,364 3. Non -Investment (Gain)/Loss for the Year a) Total (Gain)/Loss (1l) $15,400,335 b) Investment (Gain)/Loss (2j) 5,020,364 c) Non-Investment (Gain)/Loss [(3a) - (3b)] $10,379,971 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 31 Packet Pg. 35 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 19 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 year. • The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2023 . • The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuati on date: FY 2025-26. 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 fro m 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 FY 2023-24 is based on the actuarial valuation two years ago , adjusted for additional discretionary payments , if necessary, and the expected payment for FY 2024-25 is based on the actuarial valuation one year ago. Reason for Base Date Est. Ramp Level 2025-26 Ramp Shape Escala - tion Rate Amort. Period Balance 6/30/23 Expected Payment 2023-24 Balance 6/30/24 Expected Payment 2024-25 Balance 6/30/25 Minimum Required Payment 2025-26 Assumption Change 6/30/03 No Ramp 2.80% 0 4,741,605 2,496,841 2,483,697 2,566,754 0 0 Method Change 6/30/04 No Ramp 2.80% 1 (490,671) (175,518) (342,649) (180,433) (179,482) (185,484) Benefit Change 6/30/05 No Ramp 2.80% 1 10,870,629 3,888,537 7,591,259 3,997,417 3,976,371 4,109,344 Assumption Change 6/30/09 No Ramp 2.80% 6 18,768,272 2,760,473 17,191,729 2,837,767 15,428,102 2,917,224 Special (Gain)/Loss 6/30/09 No Ramp 2.80% 16 16,318,393 1,270,929 16,114,614 1,306,515 15,860,202 1,343,097 Special (Gain)/Loss 6/30/10 No Ramp 2.80% 17 1,366,036 102,505 1,352,994 105,376 1,336,098 108,326 Assumption Change 6/30/11 No Ramp 2.80% 8 9,703,117 1,183,563 9,139,787 1,216,703 8,503,902 1,250,770 Special (Gain)/Loss 6/30/11 No Ramp 2.80% 18 (58,160) (4,216) (57,758) (4,334) (57,207) (4,455) (Gain)/Loss 6/30/12 No Ramp 2.80% 19 25,929,949 1,820,158 25,812,160 1,871,123 25,633,692 1,923,514 Payment (Gain)/Loss 6/30/12 No Ramp 2.80% 19 3,075,848 215,910 3,061,875 221,955 3,040,705 228,170 (Gain)/Loss 6/30/13 100% Up/Dn 2.80% 20 81,016,191 5,880,343 80,448,305 6,044,993 79,671,647 6,214,252 (Gain)/Loss 6/30/14 100% Up/Dn 2.80% 21 (51,752,196) (3,637,070) (51,512,649) (3,738,908) (51,151,569) (3,843,597) Assumption Change 6/30/14 100% Up/Dn 2.80% 11 40,547,059 4,589,850 38,560,921 4,718,366 36,306,911 4,850,480 (Gain)/Loss 6/30/15 100% Up/Dn 2.80% 22 32,252,921 2,199,492 32,173,075 2,261,077 32,024,155 2,324,387 (Gain)/Loss 6/30/16 100% Up/Dn 2.80% 23 37,141,227 2,462,580 37,121,900 2,531,532 37,030,001 2,602,415 Assumption Change 6/30/16 100% Up/Dn 2.80% 13 13,600,377 1,348,739 13,131,361 1,386,503 12,591,425 1,425,325 (Gain)/Loss 6/30/17 100% Up/Dn 2.80% 24 (20,977,651) (1,354,707) (21,004,122) (1,392,639) (20,993,192) (1,431,633) Assumption Change 6/30/17 100% Up/Dn 2.80% 14 15,186,252 1,422,767 14,748,572 1,462,604 14,239,960 1,503,557 Assumption Change 6/30/18 100% Up/Dn 2.80% 15 28,496,309 2,063,437 28,301,618 2,651,517 27,485,942 2,725,759 Method Change 6/30/18 100% Up/Dn 2.80% 15 5,519,868 399,697 5,482,156 513,611 5,324,156 527,992 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 32 Packet Pg. 36 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 20 Schedule of Amortization Bases (continued) Reason for Base Date Est. Ramp Level 2025-26 Ramp Shape Escala - tion Rate Amort. Period Balance 6/30/23 Expected Payment 2023-24 Balance 6/30/24 Expected Payment 2024-25 Balance 6/30/25 Minimum Required Payment 2025-26 (Gain)/Loss 6/30/18 100% Up/Dn 2.80% 25 (6,551,485) (334,277) (6,651,530) (429,546) (6,659,924) (441,574) Investment (Gain)/Loss 6/30/19 100% Up Only 0.00% 16 2,727,047 163,968 2,743,035 218,624 2,703,626 273,280 Non-Investment (Gain)/Loss 6/30/19 No Ramp 0.00% 16 5,530,962 524,400 5,365,131 524,400 5,188,024 524,400 Investment (Gain)/Loss 6/30/20 80% Up Only 0.00% 17 16,524,533 679,278 16,946,208 1,018,917 17,045,560 1,358,556 Non-Investment (Gain)/Loss 6/30/20 No Ramp 0.00% 17 10,095,329 931,019 9,819,658 931,019 9,525,242 931,019 Assumption Change 6/30/21 No Ramp 0.00% 18 2,087,558 187,721 2,035,513 187,721 1,979,929 187,720 Net Investment (Gain) 6/30/21 60% Up Only 0.00% 18 (81,788,461) (1,758,018) (85,533,269) (3,516,036) (87,715,916) (5,274,054) Non-Investment (Gain)/Loss 6/30/21 No Ramp 0.00% 18 (7,491,134) (673,629) (7,304,375) (673,629) (7,104,917) (673,629) Risk Mitigation 6/30/21 No Ramp 0.00% 0 26,174,799 27,050,107 0 0 0 0 Risk Mitigation Offset 6/30/21 No Ramp 0.00% 0 (26,174,799) (27,050,107) 0 0 0 0 Benefit Change 6/30/22 No Ramp 0.00% 19 877,767 (8,691) 946,437 85,107 922,842 85,107 Investment (Gain)/Loss 6/30/22 40% Up Only 0.00% 19 111,790,824 0 119,392,600 2,566,307 124,859,170 5,132,615 Non-Investment (Gain)/Loss 6/30/22 No Ramp 0.00% 19 9,369,455 0 10,006,578 899,827 9,757,107 899,827 Investment (Gain)/Loss 6/30/23 20% Up Only 0.00% 20 5,020,364 0 5,361,749 0 5,726,348 123,086 Non-Investment (Gain)/Loss 6/30/23 No Ramp 0.00% 20 10,379,971 0 11,085,809 0 11,839,644 1,064,663 Total 349,828,105 28,646,081 344,012,389 32,190,210 334,138,554 32,780,459 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 33 Packet Pg. 37 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 21 Amortization Schedule and Alternatives The amortization schedule on the previous page (s) 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 i n paying off the unfunded accrue d 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 lia bility payments. Shown on the follow ing 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 s tart, please contact a CalPERS actuary. The current amortization s chedule typically contains both positive and negative bases. Positive bases re sult 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 combinatio n of positive and negative bases within an amortization schedule can result in unusual or problematic circumstances in future year s, 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 re placing the existing unfunded liability bases with a single “fresh start” base and amortizing it over an appropriate period. The current amortization s chedule 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 fa ct arise since there will be additional bases added to the amortization schedule in each future year. Should such a scenario ari se in any future year, the actuary will take appropriate action based on guidelines in the CalPERS Actuarial Amortization Policy. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 34 Packet Pg. 38 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 22 Amortization Schedule and Alternatives (continued) Alternative Schedules Current Amortization Schedule 15 Year Amortization 10 Year Amortization Date Balance Payment Balance Payment Balance Payment 6/30/2025 334,138,554 32,780,459 334,138,554 35,052,360 334,138,554 45,609,719 6/30/2026 322,983,310 30,805,887 320,635,435 35,052,360 309,725,029 45,609,719 6/30/2027 313,110,117 32,434,530 306,214,104 35,052,360 283,651,384 45,609,719 6/30/2028 300,882,438 35,840,704 290,812,122 35,052,360 255,804,731 45,609,719 6/30/2029 284,303,197 36,700,653 274,362,805 35,052,360 226,064,506 45,609,719 6/30/2030 265,707,858 37,458,141 256,794,935 35,052,360 194,301,945 45,609,719 6/30/2031 245,065,221 34,793,907 238,032,450 35,052,360 160,379,530 45,609,719 6/30/2032 225,772,210 34,321,032 217,994,116 35,052,360 124,150,391 45,609,719 6/30/2033 205,655,963 32,241,975 196,593,175 35,052,360 85,457,671 45,609,719 6/30/2034 186,320,393 31,265,316 173,736,970 35,052,360 44,133,846 45,609,720 6/30/2035 166,679,322 29,819,900 149,326,543 35,052,360 6/30/2036 147,196,413 27,394,865 123,256,207 35,052,360 6/30/2037 128,894,798 26,169,440 95,413,088 35,052,359 6/30/2038 110,615,077 24,861,482 65,676,638 35,052,360 6/30/2039 92,444,032 23,886,939 33,918,109 35,052,360 6/30/2040 74,044,489 23,300,927 6/30/2041 54,999,386 18,862,924 6/30/2042 39,245,626 15,582,655 6/30/2043 25,810,575 23,584,473 6/30/2044 3,192,535 3,299,296 6/30/2045 6/30/2046 6/30/2047 6/30/2048 6/30/2049 Total 555,405,505 525,785,399 456,097,191 Interest Paid 221,266,951 191,646,845 121,958,6 37 Estimated Savings 29,620,106 99,308,314 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 35 Packet Pg. 39 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 23 Reconciliation of Required Employer Contributions Normal Cost (% of Payroll) 1. For Period 7/1/24 – 6/30/25 a) Employer Normal Cost 11.34% b) Employee contribution 7.52% c) Total Normal Cost 18.86% 2. Changes since the prior year annual valuation a) Effect of demographic experience (0.47%) b) Effect of plan changes 0.00% c) Effect of discount rate change due to Funding Risk Mitigation 0.00% d) Effect of assumption changes 0.00% e) Effect of method changes 0.00% f) Net effect of the changes above [sum of (a) through (e)] (0.47%) 3. For Period 7/1/25 – 6/30/26 a) Employer Normal Cost 10.90% b) Employee contribution 7.49% c) Total Normal Cost 18.39% Employer Normal Cost Change [(3a) – (1a)] (0.44%) Employee Contribution Change [(3b) – (1b)] (0.03%) Unfunded Liability Contribution ($) 1. For Period 7/1/24 – 6/30/25 32,190,210 2. Changes since the prior year annual valuation a) Effect of adjustments to prior year’s amortization schedule 0 b) Effect of elimination of amortization bases (2,566,754) c) Effect of progression of amortization bases 1 1,969,254 d) Effect of investment (gain)/loss during prior year2 123,086 e) Effect of non -investment (gain)/loss during prior year 1,064,663 f) Effect of re-amortizing existing bases due to Funding Risk Mitigation 0 g) Effect of Golden Handshake 0 h) Effect of plan changes 0 i) Effect of AL Significant Increase (Government Code section 20791) 0 j) Effect of assumption changes 0 k) Effect of adjustments to the amortization schedule (e.g., Fresh Start) 0 l) Effect of method change 0 m ) Net effect of the changes above [sum of (a) through (l)] 590,249 3. For Period 7/1/25 – 6/30/26 [(1) + (2m)] 32,780,459 The amounts shown for the period 7/1/24 – 6/30/25 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 perf ormed. 1 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. 2 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 c ) for each of the next four years. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 36 Packet Pg. 40 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 24 Employer Contribution History The table below provides a 10-year history of the employer contribution requirements for the plan , as determined by the annual actuarial valuation . Changes due to prepayments or plan amendments after the valuation report was finalized are not reflected. Valuation Date Contribution Year Employer Normal Cost Rate Unfunded Liability Rate Unfunded Liability Payment 06/30/2014 2016 - 17 10.334% 18.556% N/A 06/30/2015 2017 - 18 10.039% N/A 15,765,273 06/30/2016 2018 - 19 10.217% N/A 18,392,618 06/30/2017 2019 - 20 10.716% N/A 21,287,260 06/30/2018 2020 - 21 11.487% N/A 23,432,860 06/30/2019 2021 - 22 10.95% N/A 26,358,094 06/30/2020 2022 - 23 10.58% N/A 29,715,229 06/30/2021 2023 - 24 11.73% N/A 28,654,772 06/30/2022 2024 - 25 11.34% N/A 32,190,210 06/30/2023 2025 - 26 10.90% N/A 32,780,459 Funding History The table below shows the recent history of the 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 6/30/2014 $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 6/30/2021 956,179,582 720,145,626 236,033,956 75.3% 79,718,988 6/30/2022 996,201,108 655,682,370 340,518,738 65.8% 82,193,044 6/30/2023 1,037,247,281 687,419,176 349,828,105 66.3% 91,956,169 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 37 Packet Pg. 41 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 25 Normal Cost by Benefit Group The table below displays the Total Normal Cost broken out by benefit group for FY 2025-26. 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 exce ed 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. Plan Identifier Benefit Group Name Total Normal Cost FY 2025-26 Number of Actives Payroll on 6/30/2023 8 Miscellaneous First Level 23.39% 255 $34,519,445 26004 Miscellaneous PEPRA Level 14.53% 420 $45,386,175 30157 Miscellaneous Second Level 19.07% 82 $12,050,549 Plan Total 18.39% 757 $91,956,169 Note that if a Benefit Group above has multiple bargaining units, each of which has separately contracted for different benef its such as Employer Paid Member Contributions, then the Normal Cost shown for the respective benefit level 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. For questions in these situations, please contact a CalPERS actuary. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 38 Packet Pg. 42 of 184 Risk Analysis • Future Investment Return Scenarios 27 • Discount Rate Sensitivity 28 • Mortality Rate Sensitivity 28 • Maturity Measures 29 • Maturity Measures History 30 • Funded Status – Termination Basis 31 • Funded Status – Low-Default-Risk Basis 32 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 39 Packet Pg. 43 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 27 Future Investment Return Scenarios Analysis using the investment return scenarios from the Asset Liability Management process completed in 2021 was performed to determine the effects of various future investment returns on required employer contributions. The projections below refle ct the impact of the CalPERS Funding Risk Mitigation Policy. The projected normal cost rates reflect that the rates are anticipated to decline over time as new employees are hired into lower -cost benefit tiers. The projections also assume that all other actuarial assumptions will be realized and that no further changes in assumptions, contributions, benefits, or funding will occur. The first table shows projected contribution requirements if the fund were to earn either 3.0% or 10.8% annually. These alter nate investment returns were chosen because 90% of long -term average returns are expected to fall between them over the 20 -year period ending June 30, 2043. Assumed Annual Return FY 2023-24 through FY 2042 -43 Projected Employer Contributions 2026-27 2027-28 2028-29 2029 -30 2030-31 3.0% (5th percentile) Discoun t Rate 6.80 % 6.80% 6.80% 6.80% 6.80% Normal Cost Rate 10.6% 10.3% 10.0% 9.8% 9.6% UAL Contribution $31,442,000 $34,356,000 $39,709,000 $43,191,000 $47,258,000 10.8% (95th percentile) Discoun t Rate 6.75% 6.70% 6.65% 6.60% 6.55% Normal Cost Rate 10.8% 10.8% 10.7% 10.7% 10.7% UAL Contribution $30,187,000 $30,626,000 $32,184,000 $30,513,000 $27,953,000 Required contributions outside of this range are also possible. In particular, whereas it is unlikely that investment returns will average less than 3.0% or greater than 10.8% over a 20 -year period, the likelihood of a single investment return less than 3.0% or greater than 10.8% in any given year is much greater. The following analysis illustrat es the effect of an extreme, single year investment return. The portfolio has an expected volatility (or standard deviation) of 12.0% per year. Accordingly, in any given year there is a 16% probability that the annual return will be -5.2% or less and a 2.5% probability that the annual return will be -17.2% or less. These returns represent one and two standard deviations below the expected return of 6.8%. The following table shows the effect of one and two standard deviation investment loss es in FY 2023-24 on the FY 2026-27 contribution requirements. Note that a single -year investment gain or loss decreases or increases the required UAL contribution amount incrementally for each of the next five years, not just one, due to the 5 -year ramp in the amortization policy. However, the contribution requirements beyond the first year are also impac ted by investment returns beyond the first year . Historically, significant downturns in the market are often followed by higher than average returns. Such investment gains would offset the impact of these single year negative returns in years beyond FY 2026-27. Assumed Annual Return for Fiscal Year 2023-24 Required Employer Contributions Projected Employer Contributions 2025-26 2026-27 (17.2%) (2 standard deviation loss) Discount Rate 6.80% 6.80% Normal Cost Rate 10.90% 10.6% UAL Contribution $32,780,459 $34,823,000 (5.2%) (1 standard deviation loss) Discount Rate 6.80% 6.80% Normal Cost Rate 10.90% 10.6% UAL Contribution $32,780,459 $32,815,000 • Without investment gains (returns higher than 6.8%) in FY 2024-25 or later, projected contributions rates would continue to rise over the next four years due to the continued phase -in of the impact of the illustrated investment loss in FY 2023-24. • The Pension Outlook Tool can be used to model projected contributions for these scenarios beyond FY 2026-27 as well as to model other investment return scenarios . Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 40 Packet Pg. 44 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 28 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 4.5% and 2.3%, respectively. Ch anging 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 bel ow are various valuation results as of June 30, 2023, assuming alternate discount rates by changing the two components independently. Results are shown using the current discount rate of 6.8% as well as alternate discount rates of 5.8% and 7.8%. The rates of 5.8% and 7.8% were selected since they illustrate the impact of a 1.0% increase or decrease to the 6.8% assumption. Sensitivity to the Real Rate of Return Assumption As of June 30, 2023 1% Lower Real Return Rate Current Assumptions 1% Higher Real Return Rate Discount Rate 5.8% 6.8% 7.8% Price Inflation 2.3% 2.3% 2.3% Real Rate of Return 3.5% 4.5% 5.5% a) Total Normal Cost 23.29% 18.39% 14.68% b) Accrued Liability $1,169,285,420 $1,037,247,281 $927,893,085 c) Market Value of Assets $687,419,176 $687,419,176 $687,419,176 d) Unfunded Liability/(Surplus) [(b) - (c)] $481,866,244 $349,828,105 $240,473,909 e) Funded Ratio 58.8% 66.3% 74.1% Sensitivity to the Price Inflation Assumption As of June 30, 2023 1% Lower Price Inflation Current Assumptions 1% Higher Price Inflation Discount Rate 5.8% 6.8% 7.8% Price Inflation 1.3% 2.3% 3.3% Real Rate of Return 4.5% 4.5% 4.5% a) Total Normal Cost 19.33% 18.39% 16.72% b) Accrued Liability $1,070,516,317 $1,037,247,281 $964,582,997 c) Market Value of Assets $687,419,176 $687,419,176 $687,419,176 d) Unfunded Liability/(Surplus) [(b) - (c)] $383,097,141 $349,828,105 $277,163,821 e) Funded Ratio 64.2% 66.3% 71.3% Mortality Rate Sensitivity The following table looks at the change in the June 30, 2023, plan costs and funded status under two different longevity scenarios, namely assuming rates of post-retirement mortality are 10% lower or 10% higher than our current mortality assumptions adopted in 2021 . This type of analysis highlights the impact on the plan of a change in the mortality assumption . As of June 30, 2023 10% Lower Mortality Rates Current Assumptions 10% Higher Mortality Rates a) Total Normal Cost 18.70% 18.39% 18.09% b) Accrued Liability $1,060,017,840 $1,037,247,281 $1,016,361,626 c) Market Value of Assets $687,419,176 $687,419,176 $687,419,176 d) Unfunded Liability/(Surplus) [(b) - (c)] $372,598,664 $349,828,105 $328,942,450 e) Funded Ratio 64.8% 66.3% 67.6% Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 41 Packet Pg. 45 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 29 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 pension 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 t otal 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, 2022 June 30, 2023 1. Retiree Accrued Liability $634,851,404 $653,009,459 2. Total Accrued Liability $996,201,108 $1,037,247,281 3. Ratio of Retiree AL to Total AL [(1) ÷ (2)] 64% 63% Another measure of the maturity level of CalPERS and its plans is the ratio of actives to retirees, also called the s upport ratio. A pension plan in its infancy will have a very high ratio of active to retired members. As the plan matures and members retir e, the ratio declines. A mature plan will often have a ratio near or below one. To calculate the support ratio for the rate plan, retirees and beneficiaries receiving a continuance are each counted as one, even though they may have only worked a portion of their careers as an active member of this rate plan. For this reason, the support ratio, while intuitive, may be less informative than the ratio of retiree liability to total accrued liability above. For comparison, the support ratio for all CalPERS pu blic agency plans as of June 30, 202 2, was 0.77 and was calculated consistently with how it is for the individual rate plan. Note that to calculate the support ratio for all public agency plan s, a retiree with service from more than one CalPERS agency is c ounted as a retiree more than once . Support Ratio June 30, 2022 June 30, 2023 1. Number of Actives 712 757 2. Number of Retirees 1,320 1,348 3. Support Ratio [(1) ÷ (2)] 0.54 0.56 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 42 Packet Pg. 46 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 30 Maturity Measures (continued) 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 increases, 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 contributi ons 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 an AVR of 8 may experience twice the contribution volatility due to investment return volatility than a plan with an 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 ha ve a higher LVR experience more volatile employer contributions (as a percentage of payroll) due to changes in liability. For example, a plan with an LVR of 8 is expected to have twice the contribution volatility of a plan with an 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 ratio approaches 100%. Contribution Volatility June 30, 2022 June 30, 2023 1. Market Value of Assets without Receivables $655,032,743 $686,907,124 2. Payroll 82,193,044 91,956,169 3. Asset Volatility Ratio (AVR) [(1) ÷ (2)] 8.0 7.5 4. Accrued Liability $996,201,108 $1,037,247,281 5. Liability Volatility Ratio (LVR) [(4) ÷ (2)] 12.1 11.3 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 6/30/2021 62% 0.57 9.0 12.0 6/30/2022 64% 0.54 8.0 12.1 6/30/2023 63% 0.56 7.5 11.3 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 43 Packet Pg. 47 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 31 Funded Status – Termination Basis The funded status measured on a termination basis is an estimate of the financial position of the plan had the contract with CalPERS been terminated as of June 30, 2023. The accrued liability on a termination basis (termination liability) is calculated differently from the plan’s ongoing funding liability. For th e 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 employ er that continues to provide CalPERS retirement benefits to active employees. Unlike the actuarial cost method used for ongoing plans, the termination liability is the present value of the benefits earned through the valuation date. A more conservative investment policy and asset allocation strategy was adopted by the 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 re mainder of the PERF and consequently, a lower discoun t rate assumption. The lower discount rate for the Terminated Agency Pool results in higher liabilities for terminated plans. The discount rate used for actual termination valuations is a weighted average of the 10 -year and 30 -year Treasury yields where the weights are based on matching asset and liability durations as of the termination date. The discount rates used in the following analysis is based on 20 -year Treasury bonds , which is a good proxy for most plans. The discount rate upon contract termination will depend on actual Treasury rates on the date of termination , which varies over time, as shown below . Valuation 20-Year Valuation 20-Year Date Treasury Rate Date Treasury Rate 06/30/2014 3.08% 06/30/2019 2.31% 06/30/2015 2.83% 06/30/2020 1.18% 06/30/2016 1.86% 06/30/2021 2.00% 06/30/2017 2.61% 06/30/2022 3.38% 06/30/2018 2.91% 06/30/2023 4.06% As Treasury rates are variable, the table below shows a range for the termination liability using discount rates 1% below and above the 20-year Treasury rate on the valuation date. The price inflation assumption is the 20 -year Treasury breakeven inflation rate, that is, the difference between the 20 -year inflation indexed bond and the 20 -year fixed -rate bond. The Market Value of Assets (MVA) also varies with interest rates and will fluctuate depending on other market conditions on the date of termination . Since i t is not possible to approximate how the MVA will change in different interest rate environments, the results below use the MVA as of the valuation date. Discount Rate: 3.06 % Price Inflation: 2.50% Discount Rate: 5.06% Price Inflation: 2.50% 1. Termination Liability1 $1,619,417,854 $1,224,989,038 2. Market Value of Assets (MVA) 687,419,176 687,419,176 3. Unfunded Termination Liability [(1) – (2)] $931,998,678 $537,569,862 4. Funded Ratio [(2) ÷ (1)] 42.4% 56.1% 1 The termination liabilities calculated above include a 5% contingency load. The contingency load and other actuarial assumptions can be found in Appendix A. In order to terminate the plan, first contact our Pension Contract Services unit to initiate a Resolution of Intent to Termin ate. The completed Resolution will allow a CalPERS actuary to provide a preliminary termination valuation with a more up -to-date es timate of the plan ’s assets and liabilities. Before beginning this process, please consult with a CalPERS actuary. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 44 Packet Pg. 48 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 32 Funded Status – Low-Default-Risk Basis Actuarial Standard of Practice (ASOP) No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions, requires the disclosure of a low -default-risk obligation measure (LDROM) of benefit costs accrued as of the valuation date using a discount rate based on the yields of high quality fixed income securities with cash flows that replicate expected benefit payments. Conceptually, this measure represents the level at which financial markets would value the accrued plan costs, and would be approximately equal to the cost of a portfolio of low -default-risk bonds with similar financial characteristics to accrued plan costs. As permitted in ASOP No. 4, the Actuarial Office uses the Entry Age Actuarial Cost Method to calculate the LDROM. This methodology is in line with the measure of “benefit entitlements” calculated by the Bureau of Economic Analysis and used by t he Federal Reserve to report the indebtedness due to pensions of plan sponsors and, conversely, the household wealth due to pensions of plan members. As shown below, the discount rate used for the LDROM is 4.82%, which is the Standard FTSE Pension Liability Index1 discount rate as of June 30, 2023 , net of assumed administrative exp enses. Selected Measures on a Low -Default-Risk Basis June 30, 2023 Discount Rate 4.82% 1. Accrued Liability2 – Low-Default-Risk Basis (LDROM) a) Active Members $434,163,492 b) Transferred Members 68,831,773 c) Separated Members 30,916,314 d) Members and Beneficiaries Receiving Payments 792,726,914 e) Total $1,326,638,493 2. Market Value of Assets (MVA) 687,419,176 3. Unfunded Accrued Liability – Low-Default-Risk Basis [(1e) – (2)] $639,219,317 4. Unfunded Accrued Liability – Funding Policy Basis 349,828,105 5. Present Value of Unearned Investment Risk Premium [(3) – (4)] $289,391,212 The difference between the unfunded liabilities on a low -default-risk basis and on the funding policy basis represents the present value of the investment risk premium that must be earned in future years to keep future contributions for currently accrued plan costs at the levels anticipated by the funding policy. Benefit security for members of the plan relies on a combination of the assets in the plan, the investment income generated f rom those assets, and the ability of the plan sponso r to make necessary future contributions. If future returns fall short of 6.8%, benefit security could be at risk without higher than currently anticipated future contributions. The funded status on a low -default-risk basis is not appropriate for assessi ng the sufficiency of plan assets to cover the cost of settling the plan’s benefit obligations (see Funded Status – Termination Basis), nor is it appropriate for assessing the need for future contributions (see Funded Status – Funding Policy Basis ). 1 This index is based on a yield curve of hypothetical AA -rated zero coupon corporate bonds whose maturities range from 6 months to 30 years. The index represents the single discount rate that would produce the same present value as discounting a standardized set of liabilit y cash flows for a fully open pension plan using the yield curve. The liability cash flows are reasonably consistent with the pattern of benefits expected to be paid from the entire Public Employees’ Retirement Fund for current and former plan members. A different index, hence a different discount rate, may be needed to measure the LDROM for a subset of the fund, such as a single rate plan or a group o f retirees. 2 If plan assets were invested entirely in the AA fixed income securities used to determine the discount rate of 4.82%, the CalPERS discount rate could, at various times, be below 4.5% or 5.25%, and some automatic annual retiree COLAs could be suspended (Gov. Code sections 21329 and 21335). Since there is currently no proposal to adopt an asset allocation entirely comprised of fixed income securities, the automa tic COLAs have been fully valued in the measures above based on the assumptions used for plan funding. Removing future COLAs from the measurement would understate the statutory obligation. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 45 Packet Pg. 49 of 184 Plan’s Major Benefit Options Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 46 Packet Pg. 50 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 34 Plan's Major Benefit Options Shown below is a summary of the major optional benefits for which the 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 Yes Yes No No Transfers/Separated Yes Yes Yes Yes Yes No No Receiving Yes Yes Yes Yes Yes Yes Yes Benefit Group Key 105391 105393 107485 111264 200040 200044 200045 Benefit Provision Benefit Formula 2% @ 55 2.7% @ 55 2% @ 60 2% @ 62 2% @ 62 Social Security Coverage No No No No No Full/Modified Full Full Full Full Full Employee Contribution Rate 8.00% 7.00% 7.25% 7.25% Final Average Compensation Period One Year One Year One Year Three Year Three Year Sick Leave Credit No No No No No Non-Industrial Disability Standard Standard Standard Standard Standard Industrial Disability No No No No No Pre-Retirement Death Benefits Optional Settlement 2 No No No No No 1959 Survivor Benefit Level Level 1 Level 1 Level 1 Level 1 Level 1 Special No No No No No Alternate (firefighters) No No No No No Post-Retirement Death Benefits Lump Sum $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 Survivor Allowance (PRSA) No No No No No No No COLA 2% 2% 2% 2% 2% 2% 2% Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 47 Packet Pg. 51 of 184 CalPERS Actuarial Valuation - June 30, 2023 Miscellaneous Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 35 Plan's Major Benefit Options (Continued) Shown below is a summary of the major optional benefits for which the agency has contracted. A description of principal stand ard and optional plan provisions is in Appendix B. Benefit Group Member Category Misc Demographics Actives No Transfers/Separated No Receiving Yes 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 $2,000 Survivor Allowance (PRSA) No COLA 2% Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 48 Packet Pg. 52 of 184 Appendices • Appendix A – Actuarial Methods and Assumptions • Appendix B – Principal Plan Provisions • Appendix C – Participant Data • Appendix D – Glossary Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 49 Packet Pg. 53 of 184 Appendix A - Actuarial Methods and Assumptions • Actuarial Data 38 • Actuarial Methods 38 • Actuarial Assumptions 41 • Miscellaneous 61 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 50 Packet Pg. 54 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 38 Actuarial Data As stated in the Actuarial Certification, the data which serves as the basis of this valuation has been obtained from the var ious 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 form er 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 t hese cases may not be accurate. These situations are relatively inf requent, however, and generally do not have a material impact on the required employer contributions. Actuarial Methods Actuarial Cost Method With one exception, the actuarial cost method use d in this valuation is the Entry Age Actuarial Cost Method. This method is used to calculate the required employer contributions and the PEPRA member contribution rate. Under this method, the cost of the projected benefits is allocated on an individual basis as a level percent of e arnings for the individual between entry age and retirement age. The portion allocated to the year following the valuation date is the normal cost. This method yields a total normal cost rate, expressed as a percentage of payroll, which is designed to rema in level throughout the member’s career. The actuarial accrued liability for active members is then calculated as the present value of benefits minus the present value of future normal cost, or the portion of the total present value of benefits 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 benef its expected to be paid. No normal costs are applicable for these pa rticipants. To calculate the accrued liability on termination basis, this valuation use d the Traditional Unit Credit Actuarial Cost Method. This method differs from the entry age method only for active members where the accrued liability is the present va lue of benefits assuming no future pay increases or service accruals. 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 acc rued l iability (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 Actuarial Amortization Policy. The 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. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 51 Packet Pg. 55 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 39 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 am ortized 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: 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 2.80% 0% 2.80% 0% 2.80% 0% 2.80% 0% 2.80% 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: Driver 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 se t number of years. For example, a fresh star t is needed in the following situations: • When a negative payment would be required on a positive unfunded actuarial liability; or Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 52 Packet Pg. 56 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 40 • 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; how ever, the period will not be greater than 20 years. 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 sur plus 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 les s. Exceptions for Small Amounts Where small unfunded liabilities are identified in annual valuation s 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 e xpectation 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 m arket value of assets. Asset values include accounts receivable. PEPRA Normal Cost Rate Methodology Per Government Code s ection 7522.30(b), the “normal cost rate” shall mean the annual actuarially de termined 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 benefi ts shall include any elements that would impact the actuarial determination of the normal cost, including, but not limited to, the retirement form ula, eligibility and vesting criteria, ancillary benefit provisions, and any automatic cost-of-living adjustme nts 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 s ufficiently large active population for this purpose, the PEPRA active population by itself may not be sufficiently large enough yet. The total PEPRA normal cost for each PEPRA benefit tier will be determined based on the entire active plan population (both PEPRA and Classic) only until 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 Once one of these conditions is met, the total PEPRA normal cost for each PEPRA benefit tier will be determined using the entire active PEPRA population. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 53 Packet Pg. 57 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 41 Actuarial Assumptions In 2021, CalPERS completed its most recent asset liability management stud y incorporating actuarial assumptions and strategic asset allocation. In November 2021, the board adopted changes to the asset allocation that increased the expected volatility of returns. The adopted asset allocation was expected to have a long -term blend ed return that continued to support a discount rate assumption of 6.80%. The board also approved several changes to the demographic assumptions that more closely aligned with actual experience. For more details and additional rationale for the selection of the actuarial assumptions, please refer to the 2021 CalPERS Experience Study and Review of Actuarial Assumptions 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 and price inflation assumption used for the accrued liability on a termination basis ) 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 November 17, 2 021, is 6.80% compounded annually (net of investment and administrative expenses) as of June 30, 2023. The discount rate is based on the long-term expected rate of return on assets using a building -block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major a s set class. The current assumption, originally based on capital market assumptions developed by the Investment Office in 2021, has been reviewed for this valuation based on capital market assumptions developed by the Investment Office in 2023. Termination Liability Discount Rate The current discount rate assumption used for termi nation 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 accrued liabilities on a termination basis in this report use discount rates that are based on the 20-year Treasury rate on the valuation date. To illustrate the impact of the variability of interest rates, the accrued liabilities on a termination basis in this report use discount rates 1% below and 1% above the 20-year Treasury rate on the valuation date. The 20-year Treasury rate was 4.06% on June 30, 2023. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 54 Packet Pg. 58 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 42 Salary Increases Annual increases vary by category, entry age, and duration of service. A sample of assumed increases due to seniority, merit and promotion are shown below. Assumed wage inflation is combined with these factors to develop the total expected salary increases. Public Agency Miscellaneous Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.0764 0.0621 0.0521 1 0.0663 0.0528 0.0424 2 0.0576 0.0449 0.0346 3 0.0501 0.0381 0.0282 4 0.0435 0.0324 0.0229 5 0.0378 0.0276 0.0187 10 0.0201 0.0126 0.0108 15 0.0155 0.0102 0.0071 20 0.0119 0.0083 0.0047 25 0.0091 0.0067 0.0031 30 0.0070 0.0054 0.0020 Public Agency Fire Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.1517 0.1549 0.0631 1 0.1191 0.1138 0.0517 2 0.0936 0.0835 0.0423 3 0.0735 0.0613 0.0346 4 0.0577 0.0451 0.0284 5 0.0453 0.0331 0.0232 10 0.0188 0.0143 0.0077 15 0.0165 0.0124 0.0088 20 0.0145 0.0108 0.0101 25 0.0127 0.0094 0.0115 30 0.0112 0.0082 0.0132 Public Agency Police Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.1181 0.1051 0.0653 1 0.0934 0.0812 0.0532 2 0.0738 0.0628 0.0434 3 0.0584 0.0485 0.0353 4 0.0462 0.0375 0.0288 5 0.0365 0.0290 0.0235 10 0.0185 0.0155 0.0118 15 0.0183 0.0150 0.0131 20 0.0181 0.0145 0.0145 25 0.0179 0.0141 0.0161 30 0.0178 0.0136 0.0179 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 55 Packet Pg. 59 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 43 Salary Increases (continued) Public Agency County Peace Officers Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.1238 0.1053 0.0890 1 0.0941 0.0805 0.0674 2 0.0715 0.0616 0.0510 3 0.0544 0.0471 0.0387 4 0.0413 0.0360 0.0293 5 0.0314 0.0276 0.0222 10 0.0184 0.0142 0.0072 15 0.0174 0.0124 0.0073 20 0.0164 0.0108 0.0074 25 0.0155 0.0094 0.0075 30 0.0147 0.0083 0.0077 Schools Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.0275 0.0275 0.0200 1 0.0422 0.0373 0.0298 2 0.0422 0.0373 0.0298 3 0.0422 0.0373 0.0298 4 0.0388 0.0314 0.0245 5 0.0308 0.0239 0.0179 10 0.0236 0.0160 0.0121 15 0.0182 0.0135 0.0103 20 0.0145 0.0109 0.0085 25 0.0124 0.0102 0.0058 30 0.0075 0.0053 0.0019 • The Miscellaneous salary scale is used for Local Prosecutors. • The Police salary scale is used for Other Safety, Local Sheriff, and School Police. Price Inflation 2.30% compounded annually. Termination Liability Price Inflation The breakeven inflation rate for 20 -year Treasuries on the valuation date, 2.50%. Wage Inflation 2.80% compounded annually. This is used in projecting individual salary increases. Payroll Growth 2.80% compounded annually. This is used as the escalation rate of the amortization payments on level percent of payroll amortization bases , that is, on any amortization bases established prior to 2019 for plans that currently have active members. Non-valued Potential Additional Liabilities The potential liability loss for a cost-of-living increase exceeding the 2.30% price inflation assumption and any potential liability loss from future member service purchases that 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. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 56 Packet Pg. 60 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 44 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 project ed 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 improvements in mortality. Demographic Assumptions Pre -Retirement Mortality The mortality assumptions are based on mortality rates resulting from the most recent Ca lPERS Experience Study adopted by the CalPERS Board in November 2021. For purposes of the mortality rates, the rates incorporate generational mortality to capture ongoing mortality improvement. Generational mortality explicitly assumes that members born mo re recently will live longer than the members born before them thereby capturing the mortality improvement seen in the past and expected continued improvement. For more details, please refer to the 2021 CalPERS Experience Study and Review of Actuarial Assumptions report that can be found on the CalPERS website . Rates vary by age and gender. This table only contains a sample of the 2017 base table rates for illustrative purposes. The n on- industrial death rates are used for all plans. The industrial death rates are used for Safety plans (except for local Safety mem bers described in Government Code s ection 20423.6 where the agency has not specifically contracted for industrial death benefits.) Miscellaneous Safety Non-Industrial Death Non-Industrial Death Industrial Death (Not Job-Related) (Not Job-Related) (Job-Related) Age Male Female Male Female Male Female 20 0.00039 0.00014 0.00038 0.00014 0.00004 0.00002 25 0.00033 0.00013 0.00034 0.00018 0.00004 0.00002 30 0.00044 0.00019 0.00042 0.00025 0.00005 0.00003 35 0.00058 0.00029 0.00048 0.00034 0.00005 0.00004 40 0.00075 0.00039 0.00055 0.00042 0.00006 0.00005 45 0.00093 0.00054 0.00066 0.00053 0.00007 0.00006 50 0.00134 0.00081 0.00092 0.00073 0.00010 0.00008 55 0.00198 0.00123 0.00138 0.00106 0.00015 0.00012 60 0.00287 0.00179 0.00221 0.00151 0.00025 0.00017 65 0.00403 0.00250 0.00346 0.00194 0.00038 0.00022 70 0.00594 0.00404 0.00606 0.00358 0.00067 0.00040 75 0.00933 0.00688 0.01099 0.00699 0.00122 0.00078 80 0.01515 0.01149 0.02027 0.01410 0.00225 0.00157 • The pre -retirement mortality rates above are for 2017 and are projected generationally for future years using 80% of the Society of Actuaries’ Scale MP -2020. • 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. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 57 Packet Pg. 61 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 45 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. Service Retirement Non-Industrial Disability Industrial Disability (Not Job-Related) (Job-Related) Age Male Female Male Female Male Female 50 0.00267 0.00199 0.01701 0.01439 0.00430 0.00311 55 0.00390 0.00325 0.02210 0.01734 0.00621 0.00550 60 0.00578 0.00455 0.02708 0.01962 0.00944 0.00868 65 0.00857 0.00612 0.03334 0.02276 0.01394 0.01190 70 0.01333 0.00996 0.04001 0.02910 0.02163 0.01858 75 0.02391 0.01783 0.05376 0.04160 0.03446 0.03134 80 0.04371 0.03403 0.07936 0.06112 0.05853 0.05183 85 0.08274 0.06166 0.11561 0.09385 0.10137 0.08045 90 0.14539 0.11086 0.16608 0.14396 0.16584 0.12434 95 0.24665 0.20364 0.24665 0.20364 0.24665 0.20364 100 0.36198 0.31582 0.36198 0.31582 0.36198 0.31582 105 0.52229 0.44679 0.52229 0.44679 0.52229 0.44679 110 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 • The post-retirement mortality rates above are for 2017 and are projected generationally for future years using 80% of the Society of Actuaries’ Scale MP -2020. Marital Status For active members, a percentage who are married upon retirement is assumed according to the member category as shown in the following table. Member Category Percent Married Miscellaneous Member 70% Local Police 85% Local Fire 85% 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. Separated Members It is assumed that separated members refund immediately if non -vested. Separated members who are vested are assumed to retire at age 59 for Miscellaneous members and age 54 for Safety members. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 58 Packet Pg. 62 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 46 Termination with Refu nd Rates vary by entry age and service for Miscellaneous plans. Rates vary by service for Safety plans. See sample rates in tabl es 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 Male Female Male Female Male Female Male Female Male Female Male Female 0 0.1851 0.1944 0.1769 0.1899 0.1631 0.1824 0.1493 0.1749 0.1490 0.1731 0.1487 0.1713 1 0.1531 0.1673 0.1432 0.1602 0.1266 0.1484 0.1101 0.1366 0.1069 0.1323 0.1037 0.1280 2 0.1218 0.1381 0.1125 0.1307 0.0970 0.1183 0.0815 0.1058 0.0771 0.0998 0.0726 0.0938 3 0.0927 0.1085 0.0852 0.1020 0.0727 0.0912 0.0601 0.0804 0.0556 0.0737 0.0511 0.0669 4 0.0672 0.0801 0.0616 0.0752 0.0524 0.0670 0.0431 0.0587 0.0392 0.0523 0.0352 0.0459 5 0.0463 0.0551 0.0423 0.0517 0.0358 0.0461 0.0292 0.0404 0.0261 0.0350 0.0230 0.0296 10 0.0112 0.0140 0.0101 0.0129 0.0083 0.0112 0.0064 0.0094 0.0048 0.0071 0.0033 0.0049 15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 20 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 25 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 30 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 35 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 Public Agency Safety Duration of Service Fire Police County Peace Officer Male Female Male Female Male Female 0 0.1022 0.1317 0.1298 0.1389 0.1086 0.1284 1 0.0686 0.1007 0.0789 0.0904 0.0777 0.0998 2 0.0441 0.0743 0.0464 0.0566 0.0549 0.0759 3 0.0272 0.0524 0.0274 0.0343 0.0385 0.0562 4 0.0161 0.0349 0.0170 0.0206 0.0268 0.0402 5 0.0092 0.0214 0.0113 0.0128 0.0186 0.0276 10 0.0015 0.0000 0.0032 0.0047 0.0046 0.0038 15 0.0000 0.0000 0.0000 0.0000 0.0023 0.0036 20 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 25 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 30 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 35 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 • The police termination and refund rates are also used for Public Agency Local Prosecutors, Other Safety, Local Sheriff, and School Police. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 59 Packet Pg. 63 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 47 Termination with Refund (continued) Schools Duration of Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45 Male Female Male Female Male Female Male Female Male Female Male Female 0 0.2054 0.2120 0.1933 0.1952 0.1730 0.1672 0.1527 0.1392 0.1423 0.1212 0.1318 0.1032 1 0.1922 0.2069 0.1778 0.1883 0.1539 0.1573 0.1300 0.1264 0.1191 0.1087 0.1083 0.0910 2 0.1678 0.1859 0.1536 0.1681 0.1298 0.1383 0.1060 0.1086 0.0957 0.0934 0.0853 0.0782 3 0.1384 0.1575 0.1256 0.1417 0.1042 0.1155 0.0829 0.0893 0.0736 0.0774 0.0643 0.0656 4 0.1085 0.1274 0.0978 0.1143 0.0800 0.0925 0.0622 0.0707 0.0542 0.0620 0.0462 0.0533 5 0.0816 0.0991 0.0732 0.0887 0.0590 0.0713 0.0449 0.0539 0.0383 0.0476 0.0317 0.0413 10 0.0222 0.0248 0.0200 0.0221 0.0163 0.0174 0.0125 0.0128 0.0094 0.0100 0.0063 0.0072 15 0.0106 0.0132 0.0095 0.0113 0.0077 0.0083 0.0058 0.0052 0.0040 0.0039 0.0021 0.0026 20 0.0059 0.0065 0.0050 0.0054 0.0035 0.0036 0.0021 0.0019 0.0010 0.0009 0.0000 0.0000 25 0.0029 0.0034 0.0025 0.0029 0.0018 0.0020 0.0010 0.0012 0.0005 0.0006 0.0000 0.0000 30 0.0012 0.0015 0.0011 0.0013 0.0011 0.0011 0.0010 0.0009 0.0005 0.0005 0.0000 0.0000 35 0.0006 0.0007 0.0006 0.0007 0.0005 0.0006 0.0005 0.0005 0.0003 0.0002 0.0000 0.0000 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 60 Packet Pg. 64 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 48 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 Male Female Male Female Male Female Male Female Male Female 5 0.0381 0.0524 0.0381 0.0524 0.0358 0.0464 0.0334 0.0405 0.0301 0.0380 10 0.0265 0.0362 0.0265 0.0362 0.0254 0.0334 0.0244 0.0307 0.0197 0.0236 15 0.0180 0.0252 0.0180 0.0252 0.0166 0.0213 0.0152 0.0174 0.0119 0.0132 20 0.0141 0.0175 0.0141 0.0175 0.0110 0.0131 0.0079 0.0087 0.0000 0.0000 25 0.0084 0.0108 0.0084 0.0108 0.0064 0.0076 0.0000 0.0000 0.0000 0.0000 30 0.0047 0.0056 0.0047 0.0056 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 35 0.0038 0.0041 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 Public Agency Safety Duration of Service Fire Police County Peace Officer Male Female Male Female Male Female 5 0.0089 0.0224 0.0156 0.0272 0.0177 0.0266 10 0.0066 0.0164 0.0113 0.0198 0.0126 0.0189 15 0.0048 0.0120 0.0083 0.0144 0.0089 0.0134 20 0.0035 0.0088 0.0060 0.0105 0.0063 0.0095 25 0.0024 0.0061 0.0042 0.0073 0.0042 0.0063 30 0.0012 0.0031 0.0021 0.0037 0.0021 0.0031 35 0.0000 0.0000 0.0000 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 Male Female Male Female Male Female Male Female Male Female 5 0.0359 0.0501 0.0359 0.0501 0.0332 0.0402 0.0305 0.0304 0.0266 0.0272 10 0.0311 0.0417 0.0311 0.0417 0.0269 0.0341 0.0228 0.0265 0.0193 0.0233 15 0.0193 0.0264 0.0193 0.0264 0.0172 0.0220 0.0151 0.0175 0.0123 0.0142 20 0.0145 0.0185 0.0145 0.0185 0.0113 0.0141 0.0080 0.0097 0.0000 0.0000 25 0.0089 0.0123 0.0089 0.0123 0.0074 0.0093 0.0000 0.0000 0.0000 0.0000 30 0.0057 0.0064 0.0057 0.0064 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 35 0.0040 0.0049 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 61 Packet Pg. 65 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 49 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 All All All Male Female 20 0.0001 0.0000 0.0001 0.0001 0.0001 0.0000 0.0002 25 0.0001 0.0001 0.0001 0.0001 0.0001 0.0000 0.0002 30 0.0002 0.0003 0.0001 0.0001 0.0001 0.0002 0.0002 35 0.0004 0.0007 0.0001 0.0002 0.0003 0.0005 0.0004 40 0.0009 0.0012 0.0001 0.0002 0.0006 0.0010 0.0008 45 0.0015 0.0019 0.0002 0.0003 0.0011 0.0019 0.0015 50 0.0015 0.0019 0.0004 0.0005 0.0016 0.0027 0.0021 55 0.0014 0.0013 0.0006 0.0007 0.0009 0.0024 0.0017 60 0.0012 0.0009 0.0006 0.0011 0.0005 0.0020 0.0010 • 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. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 62 Packet Pg. 66 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 50 Service Retirement Retirement rates vary by age, service, and formula, except for the Safety Half Pay at 55 and 2% at 55 formulas, where retirement rates vary by age only. Public Agency Miscellaneous 1.5% at age 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% at age 60 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.010 0.011 0.014 0.014 0.017 0.017 51 0.017 0.013 0.014 0.010 0.010 0.010 52 0.014 0.014 0.018 0.015 0.016 0.016 53 0.015 0.012 0.013 0.010 0.011 0.011 54 0.006 0.010 0.017 0.016 0.018 0.018 55 0.012 0.016 0.024 0.032 0.036 0.036 56 0.010 0.014 0.023 0.030 0.034 0.034 57 0.006 0.018 0.030 0.040 0.044 0.044 58 0.022 0.023 0.033 0.042 0.046 0.046 59 0.039 0.033 0.040 0.047 0.050 0.050 60 0.063 0.069 0.074 0.090 0.137 0.116 61 0.044 0.058 0.066 0.083 0.131 0.113 62 0.084 0.107 0.121 0.153 0.238 0.205 63 0.173 0.166 0.165 0.191 0.283 0.235 64 0.120 0.145 0.164 0.147 0.160 0.172 65 0.138 0.160 0.214 0.216 0.237 0.283 66 0.198 0.228 0.249 0.216 0.228 0.239 67 0.207 0.242 0.230 0.233 0.233 0.233 68 0.201 0.234 0.225 0.231 0.231 0.231 69 0.152 0.173 0.164 0.166 0.166 0.166 70 0.200 0.200 0.200 0.200 0.200 0.200 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 63 Packet Pg. 67 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 51 Service Retirement (continued) Public Agency Miscellaneous 2% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.014 0.014 0.017 0.021 0.023 0.024 51 0.013 0.017 0.017 0.018 0.018 0.019 52 0.013 0.018 0.018 0.020 0.020 0.021 53 0.013 0.019 0.021 0.024 0.025 0.026 54 0.017 0.025 0.028 0.032 0.033 0.035 55 0.045 0.042 0.053 0.086 0.098 0.123 56 0.018 0.036 0.056 0.086 0.102 0.119 57 0.041 0.046 0.056 0.076 0.094 0.120 58 0.052 0.044 0.048 0.074 0.106 0.123 59 0.043 0.058 0.073 0.092 0.105 0.126 60 0.059 0.064 0.083 0.115 0.154 0.170 61 0.087 0.074 0.087 0.107 0.147 0.168 62 0.115 0.123 0.151 0.180 0.227 0.237 63 0.116 0.127 0.164 0.202 0.252 0.261 64 0.084 0.138 0.153 0.190 0.227 0.228 65 0.167 0.187 0.210 0.262 0.288 0.291 66 0.187 0.258 0.280 0.308 0.318 0.319 67 0.195 0.235 0.244 0.277 0.269 0.280 68 0.228 0.248 0.250 0.241 0.245 0.245 69 0.188 0.201 0.209 0.219 0.231 0.231 70 0.229 0.229 0.229 0.229 0.229 0.229 Public Agency Miscellaneous 2.5% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.014 0.017 0.027 0.035 0.046 0.050 51 0.019 0.021 0.025 0.030 0.038 0.040 52 0.018 0.020 0.026 0.034 0.038 0.037 53 0.013 0.021 0.031 0.045 0.052 0.053 54 0.025 0.025 0.030 0.046 0.057 0.068 55 0.029 0.042 0.064 0.109 0.150 0.225 56 0.036 0.047 0.068 0.106 0.134 0.194 57 0.051 0.047 0.060 0.092 0.116 0.166 58 0.035 0.046 0.062 0.093 0.119 0.170 59 0.029 0.053 0.072 0.112 0.139 0.165 60 0.039 0.069 0.094 0.157 0.177 0.221 61 0.080 0.077 0.086 0.140 0.167 0.205 62 0.086 0.131 0.149 0.220 0.244 0.284 63 0.135 0.135 0.147 0.214 0.222 0.262 64 0.114 0.128 0.158 0.177 0.233 0.229 65 0.112 0.174 0.222 0.209 0.268 0.273 66 0.235 0.254 0.297 0.289 0.321 0.337 67 0.237 0.240 0.267 0.249 0.267 0.277 68 0.258 0.271 0.275 0.207 0.210 0.212 69 0.117 0.208 0.266 0.219 0.250 0.270 70 0.229 0.229 0.229 0.229 0.229 0.229 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 64 Packet Pg. 68 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 52 Service Retirement (continued) Public Agency Miscellaneous 2.7% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.011 0.016 0.022 0.033 0.034 0.038 51 0.018 0.019 0.023 0.032 0.031 0.031 52 0.019 0.020 0.026 0.035 0.034 0.037 53 0.020 0.020 0.025 0.043 0.048 0.053 54 0.018 0.030 0.040 0.052 0.053 0.070 55 0.045 0.058 0.082 0.138 0.208 0.278 56 0.057 0.062 0.080 0.121 0.178 0.222 57 0.045 0.052 0.071 0.106 0.147 0.182 58 0.074 0.060 0.074 0.118 0.163 0.182 59 0.058 0.067 0.086 0.123 0.158 0.187 60 0.087 0.084 0.096 0.142 0.165 0.198 61 0.073 0.084 0.101 0.138 0.173 0.218 62 0.130 0.133 0.146 0.187 0.214 0.249 63 0.122 0.140 0.160 0.204 0.209 0.243 64 0.104 0.124 0.154 0.202 0.214 0.230 65 0.182 0.201 0.242 0.264 0.293 0.293 66 0.272 0.249 0.273 0.285 0.312 0.312 67 0.182 0.217 0.254 0.249 0.264 0.264 68 0.223 0.197 0.218 0.242 0.273 0.273 69 0.217 0.217 0.217 0.217 0.217 0.217 70 0.227 0.227 0.227 0.227 0.227 0.227 Public Agency Miscellaneous 3% at age 60 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.015 0.020 0.025 0.039 0.040 0.044 51 0.041 0.034 0.032 0.041 0.036 0.037 52 0.024 0.020 0.022 0.039 0.040 0.041 53 0.018 0.024 0.032 0.047 0.048 0.057 54 0.033 0.033 0.035 0.051 0.049 0.052 55 0.137 0.043 0.051 0.065 0.076 0.108 56 0.173 0.038 0.054 0.075 0.085 0.117 57 0.019 0.035 0.059 0.088 0.111 0.134 58 0.011 0.040 0.070 0.105 0.133 0.162 59 0.194 0.056 0.064 0.081 0.113 0.163 60 0.081 0.085 0.133 0.215 0.280 0.333 61 0.080 0.090 0.134 0.170 0.223 0.292 62 0.137 0.153 0.201 0.250 0.278 0.288 63 0.128 0.140 0.183 0.227 0.251 0.260 64 0.174 0.147 0.173 0.224 0.239 0.264 65 0.152 0.201 0.262 0.299 0.323 0.323 66 0.272 0.273 0.317 0.355 0.380 0.380 67 0.218 0.237 0.268 0.274 0.284 0.284 68 0.200 0.228 0.269 0.285 0.299 0.299 69 0.250 0.250 0.250 0.250 0.250 0.250 70 0.245 0.245 0.245 0.245 0.245 0.245 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 65 Packet Pg. 69 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 53 Service Retirement (continued) Public Agency Miscellaneous 2% at age 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 Public Agency Fire Half Pay at age 55 and 2% at age 55 Age Rate Age Rate 50 0.016 56 0.111 51 0.000 57 0.000 52 0.034 58 0.095 53 0.020 59 0.044 54 0.041 60 1.000 55 0.075 Public Agency Police Half Pay at age 55 and 2% at age 55 Age Rate Age Rate 50 0.026 56 0.069 51 0.000 57 0.051 52 0.016 58 0.072 53 0.027 59 0.070 54 0.010 60 0.300 55 0.167 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 66 Packet Pg. 70 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 54 Service Retirement (continued) Public Agency Police 2% at age 50 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.018 0.077 0.056 0.046 0.043 0.046 51 0.022 0.087 0.060 0.048 0.044 0.047 52 0.020 0.102 0.081 0.071 0.069 0.075 53 0.016 0.072 0.053 0.045 0.042 0.046 54 0.006 0.071 0.071 0.069 0.072 0.080 55 0.009 0.040 0.099 0.157 0.186 0.186 56 0.020 0.051 0.108 0.165 0.194 0.194 57 0.036 0.072 0.106 0.139 0.156 0.156 58 0.001 0.046 0.089 0.130 0.152 0.152 59 0.066 0.094 0.119 0.143 0.155 0.155 60 0.177 0.177 0.177 0.177 0.177 0.177 61 0.134 0.134 0.134 0.134 0.134 0.134 62 0.184 0.184 0.184 0.184 0.184 0.184 63 0.250 0.250 0.250 0.250 0.250 0.250 64 0.177 0.177 0.177 0.177 0.177 0.177 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. Public Agency Fire 2% at age 50 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.054 0.054 0.056 0.080 0.064 0.066 51 0.020 0.020 0.021 0.030 0.024 0.024 52 0.037 0.037 0.038 0.054 0.043 0.045 53 0.051 0.051 0.053 0.076 0.061 0.063 54 0.082 0.082 0.085 0.121 0.097 0.100 55 0.139 0.139 0.139 0.139 0.139 0.139 56 0.129 0.129 0.129 0.129 0.129 0.129 57 0.085 0.085 0.085 0.085 0.085 0.085 58 0.119 0.119 0.119 0.119 0.119 0.119 59 0.167 0.167 0.167 0.167 0.167 0.167 60 0.152 0.152 0.152 0.152 0.152 0.152 61 0.179 0.179 0.179 0.179 0.179 0.179 62 0.179 0.179 0.179 0.179 0.179 0.179 63 0.179 0.179 0.179 0.179 0.179 0.179 64 0.179 0.179 0.179 0.179 0.179 0.179 65 1.000 1.000 1.000 1.000 1.000 1.000 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 67 Packet Pg. 71 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 55 Service Retirement (continued) Public Agency Police 3% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.019 0.053 0.045 0.054 0.057 0.061 51 0.002 0.017 0.028 0.044 0.053 0.060 52 0.002 0.031 0.037 0.051 0.059 0.066 53 0.026 0.049 0.049 0.080 0.099 0.114 54 0.019 0.034 0.047 0.091 0.121 0.142 55 0.006 0.115 0.141 0.199 0.231 0.259 56 0.017 0.188 0.121 0.173 0.199 0.199 57 0.008 0.137 0.093 0.136 0.157 0.157 58 0.017 0.126 0.105 0.164 0.194 0.194 59 0.026 0.146 0.110 0.167 0.195 0.195 60 0.155 0.155 0.155 0.155 0.155 0.155 61 0.210 0.210 0.210 0.210 0.210 0.210 62 0.262 0.262 0.262 0.262 0.262 0.262 63 0.172 0.172 0.172 0.172 0.172 0.172 64 0.227 0.227 0.227 0.227 0.227 0.227 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. Public Agency Fire 3% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.003 0.006 0.013 0.019 0.025 0.028 51 0.004 0.008 0.017 0.026 0.034 0.038 52 0.005 0.011 0.022 0.033 0.044 0.049 53 0.005 0.034 0.024 0.038 0.069 0.138 54 0.007 0.047 0.032 0.051 0.094 0.187 55 0.010 0.067 0.046 0.073 0.134 0.266 56 0.010 0.063 0.044 0.069 0.127 0.253 57 0.135 0.100 0.148 0.196 0.220 0.220 58 0.083 0.062 0.091 0.120 0.135 0.135 59 0.137 0.053 0.084 0.146 0.177 0.177 60 0.162 0.063 0.099 0.172 0.208 0.208 61 0.598 0.231 0.231 0.231 0.231 0.231 62 0.621 0.240 0.240 0.240 0.240 0.240 63 0.236 0.236 0.236 0.236 0.236 0.236 64 0.236 0.236 0.236 0.236 0.236 0.236 65 1.000 1.000 1.000 1.000 1.000 1.000 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 68 Packet Pg. 72 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 56 Service Retirement (continued) Public Agency Police 3% at age 50 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.124 0.103 0.113 0.143 0.244 0.376 51 0.060 0.081 0.087 0.125 0.207 0.294 52 0.016 0.055 0.111 0.148 0.192 0.235 53 0.072 0.074 0.098 0.142 0.189 0.237 54 0.018 0.049 0.105 0.123 0.187 0.271 55 0.069 0.074 0.081 0.113 0.209 0.305 56 0.064 0.108 0.113 0.125 0.190 0.288 57 0.056 0.109 0.160 0.182 0.210 0.210 58 0.108 0.129 0.173 0.189 0.214 0.214 59 0.093 0.144 0.204 0.229 0.262 0.262 60 0.343 0.180 0.159 0.188 0.247 0.247 61 0.221 0.221 0.221 0.221 0.221 0.221 62 0.213 0.213 0.213 0.213 0.213 0.213 63 0.233 0.233 0.233 0.233 0.233 0.233 64 0.234 0.234 0.234 0.234 0.234 0.234 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. Public Agency Fire 3% at age 50 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.095 0.048 0.053 0.093 0.134 0.175 51 0.016 0.032 0.053 0.085 0.117 0.149 52 0.013 0.032 0.054 0.087 0.120 0.154 53 0.085 0.044 0.049 0.089 0.129 0.170 54 0.038 0.065 0.074 0.105 0.136 0.167 55 0.042 0.043 0.049 0.085 0.132 0.215 56 0.133 0.103 0.075 0.113 0.151 0.209 57 0.062 0.048 0.060 0.124 0.172 0.213 58 0.124 0.097 0.092 0.153 0.194 0.227 59 0.092 0.071 0.078 0.144 0.192 0.233 60 0.056 0.044 0.061 0.131 0.186 0.233 61 0.282 0.219 0.158 0.198 0.233 0.260 62 0.292 0.227 0.164 0.205 0.241 0.269 63 0.196 0.196 0.196 0.196 0.196 0.196 64 0.197 0.197 0.197 0.197 0.197 0.197 65 1.000 1.000 1.000 1.000 1.000 1.000 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 69 Packet Pg. 73 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 57 Service Retirement (continued) Public Agency Police 2% at age 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. Public Agency Fire 2% at age 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 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 70 Packet Pg. 74 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 58 Service Retirement (continued) Public Agency Police 2.5% at age 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. Public Agency Fire 2.5% at age 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 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 71 Packet Pg. 75 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 59 Service Retirement (continued) Public Agency Police 2.7% at age 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 0.040 0.040 0.040 0.040 0.058 0.094 52 0.038 0.038 0.038 0.038 0.058 0.083 53 0.038 0.038 0.038 0.038 0.077 0.117 54 0.038 0.038 0.038 0.044 0.093 0.150 55 0.068 0.068 0.068 0.091 0.134 0.242 56 0.063 0.063 0.063 0.084 0.123 0.217 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. Public Agency Fire 2.7% at age 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 0.013 0.019 52 0.016 0.016 0.016 0.016 0.025 0.038 53 0.044 0.044 0.044 0.044 0.068 0.102 54 0.061 0.061 0.061 0.061 0.093 0.140 55 0.083 0.083 0.083 0.083 0.127 0.190 56 0.074 0.074 0.074 0.074 0.114 0.171 57 0.090 0.090 0.090 0.090 0.139 0.208 58 0.079 0.079 0.079 0.079 0.122 0.182 59 0.073 0.073 0.073 0.073 0.112 0.168 60 0.114 0.114 0.114 0.114 0.175 0.262 61 0.114 0.114 0.114 0.114 0.175 0.262 62 0.114 0.114 0.114 0.114 0.175 0.262 63 0.114 0.114 0.114 0.114 0.175 0.262 64 0.114 0.114 0.114 0.114 0.175 0.262 65 1.000 1.000 1.000 1.000 1.000 1.000 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 72 Packet Pg. 76 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 60 Service Retirement (continued) Schools 2% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.003 0.004 0.006 0.007 0.010 0.010 51 0.004 0.005 0.007 0.008 0.011 0.011 52 0.005 0.007 0.008 0.009 0.012 0.012 53 0.007 0.008 0.010 0.012 0.015 0.015 54 0.006 0.009 0.012 0.015 0.020 0.021 55 0.011 0.023 0.034 0.057 0.070 0.090 56 0.012 0.027 0.036 0.056 0.073 0.095 57 0.016 0.027 0.036 0.055 0.068 0.087 58 0.019 0.030 0.040 0.062 0.078 0.103 59 0.023 0.034 0.046 0.070 0.085 0.109 60 0.022 0.043 0.062 0.095 0.113 0.141 61 0.030 0.051 0.071 0.103 0.124 0.154 62 0.065 0.098 0.128 0.188 0.216 0.248 63 0.075 0.112 0.144 0.197 0.222 0.268 64 0.091 0.116 0.138 0.180 0.196 0.231 65 0.163 0.164 0.197 0.232 0.250 0.271 66 0.208 0.204 0.243 0.282 0.301 0.315 67 0.189 0.185 0.221 0.257 0.274 0.287 68 0.127 0.158 0.200 0.227 0.241 0.244 69 0.168 0.162 0.189 0.217 0.229 0.238 70 0.191 0.190 0.237 0.250 0.246 0.254 Schools 2% at age 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 0.004 0.007 0.010 0.011 0.013 0.015 53 0.004 0.008 0.010 0.013 0.014 0.016 54 0.005 0.011 0.015 0.018 0.020 0.022 55 0.014 0.027 0.038 0.045 0.050 0.056 56 0.013 0.026 0.037 0.043 0.048 0.055 57 0.013 0.027 0.038 0.045 0.050 0.055 58 0.017 0.034 0.047 0.056 0.062 0.069 59 0.019 0.037 0.052 0.062 0.068 0.076 60 0.026 0.053 0.074 0.087 0.097 0.108 61 0.030 0.058 0.081 0.095 0.106 0.119 62 0.053 0.105 0.147 0.174 0.194 0.217 63 0.054 0.107 0.151 0.178 0.198 0.222 64 0.053 0.105 0.147 0.174 0.194 0.216 65 0.072 0.142 0.199 0.235 0.262 0.293 66 0.077 0.152 0.213 0.252 0.281 0.314 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 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 73 Packet Pg. 77 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 61 Miscellaneous Models The valuation results are based on proprietary actuarial valuation models. The models are centralized and maintained by a specialized team to achieve a high degree of accuracy and consistency. The Actuarial Office is responsible for confirming the appropriaten ess of the inputs (such as participant data, actuarial methods and assumptions, and plan provisions) as well as performing tests and validating the reasonableness of the output. The results of our models are independently confirmed by parallel valuations p erformed by outside actuaries on a periodic basis using their models. In our professional judgment, our actuarial valuation models produce comprehensive pension funding information consistent with the purposes of the valuation and have no material limitati ons or known weaknesses. Internal Revenue Code Section 415 (b) The limitations on benefits imposed by Internal Revenue Code s ection 415(b) are taken into account in this valuation. Each year the impact of any changes in this limitation other than assumed since the prior valuation is included and amortized as part of the non-investment 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 2023 calendar year is $2 65,000. Internal Revenue Code Section 401(a)(17) The limitations on compensation imposed by Internal R evenue Code s ection 401(a)(17) are taken into account in this valuation. Each year, the impact of any changes in the compensation limitation other than assumed since the prior valuation is included and amortized as part of the non -investment gain or loss base. The compensation limit for classic members for the 2023 calendar year is $330,000. PEPRA Compensation Limits The limitations on compensation for PEPRA members imposed by Government Code section 75 22.10 are taken into account in this valuation. Each year, the impact of any changes in the compensation limitation other than assumed since the prior valuation is included and amortized as part of the non-investment gain or loss base. The PEPRA compensati on limit for 2023 is $146,042 for members who participate in Social Security and $175,250 for those who do not. The limits are adjusted annually based on changes to the CPI for all urban consumers. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 74 Packet Pg. 78 of 184 Appendix B - Principal Plan Provisions • Service Retirement 63 • Vested Deferred Retirement 65 • Non-Industrial Disability Retirement 65 • Industrial Disability Retirement 66 • Post-Retirement Death Benefit 67 • Form of Payment for Retirement Allowance 67 • Pre-Retirement Death Benefits 68 • Cost-of-Living Adjustments (COLA) 70 • Purchasing Power Protection Allowance (PPPA) 70 • Employee Contr ibutions 71 • Refund of Employee Contributions 71 • 1959 Survivor Benefit 72 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 75 Packet Pg. 79 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 63 The following i s 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’ Retire ment Law and the California Public Employees’ Pension Reform Act of 2013 . 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 Ca lPERS 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 attai nment 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 the 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 retire ment at whole year ages: Miscellaneo us Plan Formulas Retirement Age 1.5% at age 65 2% at age 60 2% at age 55 2.5% at age 55 2.7% at age 55 3% at age 60 PEPRA 2% at age 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% Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 76 Packet Pg. 80 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 64 Classic Safety Plan Formulas Retirement Age Half Pay at age 55* 2% at age 55 2% at age 50 3% at age 55 3% at age 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 age 57 2.5% at age 57 2.7% at age 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 co nverted 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 emplo yer 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 m onths’ pay under the 1.5% at age 65 formula. PEPRA members have a limit on the annual compensation that can be used to calculate final compensation . The limits are adjusted annually based on changes to the CPI for all urban consumers. • PEPRA benefit formul as have no Social Security offsets and Social Security coverage is optional . For Classic benefit formulas, employees must be covered by Social Security with the 1.5% at age 65 formula. Social Security is optional for all other Classic 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 th an $400). Employers may contract for the full benefit with Social Security that will eliminate the offset applicable to the final compensation. For employees not covered by Social Security, the full benefit is paid with no offsets. Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the offset is $317 if members are not covered by Social Security or $513 if members are covered by Social Security. • The Miscellaneous and PEPRA Safety service retirement benefit is not capped. The Classic Safety service retirement benefit is capped at 90% of final compensation. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 77 Packet Pg. 81 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 65 Vested Deferred Retirement Eligibility for Deferred Status CalPERS members becomes eligible for a deferred vested retirement benefit when they leave employment, keep their contribution account balance on deposit with CalPERS, and have earned at least 5 years of credited service (total service across all CalPERS employers, and with certain other retirement systems with which CalPERS has reciproci ty 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 o f age 50 (55 for employees hired into a 1.5% at age 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 Disability Retirement Eligibility A CalPERS member is eligible for Non -Industrial (non-job related) 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 w ith which CalPERS has reciprocity agreements). There is no special age requirement. Disabled means the member is unable to perform their job because of an illness or injury, which is expected to be permanent or to last indefinitely. The illness or injury does n ot 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 allo wance 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. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 78 Packet Pg. 82 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 66 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 s ervice 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 b enefit. 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 wh o 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 Disability Retirement This is a standard benefit fo r Safety members except those described in Section 20423.6. For excluded Safety members and all 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 (job related) 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 Disabil ity 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% of final compensation for total dis ability. 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 m aximum 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 in dustrial disability retirement benefit, the member may choose to receive the larger benefit. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 79 Packet Pg. 83 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 67 Post-Retirement Death Benefit Standard Lump Sum Payment Upon the death of a retiree, a one -time lum p sum payment of $500 will be made to the retiree’s designated survivor(s), or to the retiree’s estate. The lump sum payment amount increases to $2,000 for any death occurring on or after July 1, 2023 due to SB 1168. Optional Lump Sum Payment In lieu of the standard lump sum death benefit, e mployers have the option of providing a lump sum death benefit of $600, $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 r etiree may choose to provide for a portion of their 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 their 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 a modified Classic 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 retir ee’s allowance. For retirement allowances with respect to service subject to a PEPRA formula or a full or supplemental Classic 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 ag e 18; or, if no eligible child(ren), to a qualifying dependent parent) for the rest of their 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 sam e as those offered with the standard form. The reduction is calculated in the same manner but is applied only to the option portion. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 80 Packet Pg. 84 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 68 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 survi vor 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 inte rest 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 PEPRA Safety members and age 52 for PEPRA Miscellaneous members, and has at least 5 years of credited service (total service across all Ca lPERS 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 mean s 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 their 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 o f age 18, unless the child(ren) is disabled. The total amount paid will be at least equal to the basic death benefit. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 81 Packet Pg. 85 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 69 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 PEPRA Safety members and age 52 for PEPRA Miscellaneous 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 D eath 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 their death and elected 100% to continue to the eligible survivor after the member’s death. The allowance is payable to the surviving spouse until death , at which time it is continued to any unmarried child(ren), 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 except those described in Section 20423.6. For excluded Safety members and all Miscellaneous members, employers have the option of providing this benefit. 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 el igible 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 ch ild(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 com pensation 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 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 82 Packet Pg. 86 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 70 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 i s 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 receive d had the member retired on the d ate of their 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 their death to a surviving beneficiary.) If the member has not yet attai ned 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 to the surviving spouse until death , at which time it is continued to any unmarrie d child(ren), 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 price inflation. The resulting increase is divided by the total increase provided in prior years. For any given year, the COLA adjustment may be l ess than 2% (when the rate of price inflation is low), may be gre ater than the rate of price inflation (when the rate of price inflation is low after several years of high price inflation) or may even be greater than 2% (when price inflation is high after several years of low price 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 age 65 formula. Purchasing Power Protection Allowance (PPPA) Retirement and survivor allowances are protected against price 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 price inflation since retirement. The PPPA benefit will be coordinated with other cost -of-living adjustments provided under the plan. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 83 Packet Pg. 87 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 71 Employee Contribution s Each employee contributes toward their 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 all PEPRA members and Classic members covered by a full or supplemental formula and $133.33 for Classic members covered by a 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 age 65 2% Miscellaneous, 2% at age 60 7% Miscellaneous, 2% at age 55 7% Miscellaneous, 2.5% at age 55 8% Miscellaneous, 2.7% at age 55 8% Miscellaneous, 3% at age 60 8% Miscellaneous, 2% at age 62 50% of the Total Normal Cost Miscellaneous, 1.5% at age 65 50% of the Total Normal Cost Safety, Half Pay at age 55 Varies by entry age Safety, 2% at age 55 7% Safety, 2% at age 50 9% Safety, 3% at age 55 9% Safety, 3% at age 50 9% Safety, 2% at age 57 50% of the Total Normal Cost Safety, 2.5% at age 57 50% of the Total Normal Cost Safety, 2.7% at age 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 emplo yer 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 their employee contributions, which are credited with 6 % interest compounded annually. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 84 Packet Pg. 88 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Miscellaneous Plan of the City of Palo Alto Principal Plan Provisions Page 72 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 choos e 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. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 85 Packet Pg. 89 of 184 Appendix C - Participant Data • Summary of Valuation Data 74 • Active Members 75 • Transferred and Separated Members 76 • Retired Members and Beneficiaries 77 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 86 Packet Pg. 90 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix C Miscellaneous Plan of the City of Palo Alto Participant Data Page 74 Summary of Valuation Data June 30, 2022 June 30, 2023 1. Active Members a) Counts 712 757 b) Average Attained Age 45.72 45.55 c) Average Entry Age to Rate Plan 34.98 35.29 d) Average Years of Credited Service 10.80 10.26 e) Average Annual Covered Pay $115,440 $121,474 f) Annual Covered Payroll 82,193,044 91,956,169 g) Projected Annual Payroll for Contribution Year 89,292,382 99,898,787 h) Present Value of Future Payroll 741,723,892 829,447,506 2. Transferred Members a) Counts 387 392 b) Average Attained Age 46.05 45.76 c) Average Years of Credited Service 3.57 3.58 d) Average Annual Covered Pay $134,373 $137,723 3. Separ ated Members a) Counts 479 488 b) Average Attained Age 47.49 47.65 c) Average Years of Credited Service 2.95 3.03 d) Average Annual Covered Pay $77,863 $80,177 4. Retired Members and Beneficiaries a) Counts 1,320 1,348 b) Average Attained Age 70.84 71.13 c) Average Annual Benefits $39,406 $40,011 d) Total Annual Benefits $52,016,069 $53,934,949 5. Active to Retired Ratio [(1a) ÷ (4a)] 0.54 0.56 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. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 87 Packet Pg. 91 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix C Miscellaneous Plan of the City of Palo Alto Participant Data Page 75 Active Members Counts of members included in the valuation are counts of the recor ds 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 15 0 0 0 0 0 15 25-29 49 4 0 0 0 0 53 30-34 68 38 1 0 0 0 107 35-39 40 29 16 3 0 0 88 40-44 31 34 23 9 10 2 109 45-49 22 23 19 17 18 6 105 50-54 17 18 13 12 16 17 93 55-59 17 15 15 12 18 15 92 60-64 12 9 10 10 9 16 66 65 and Over 4 4 3 8 5 5 29 All Ages 275 174 100 71 76 61 757 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 20-2 4 25+ Average Salary 15-24 $90,764 $0 $0 $0 $0 $0 $90,764 25-29 96,692 117,141 0 0 0 0 98,235 30-34 98,103 113,140 123,631 0 0 0 103,681 35-39 106,799 133,129 130,402 156,793 0 0 121,472 40-44 108,546 128,444 131,233 123,530 127,958 116,517 122,704 45-49 113,386 133,550 130,668 119,930 148,607 142,167 129,672 50-54 104,817 158,463 132,534 138,949 140,338 166,371 140,842 55-59 102,358 122,363 143,864 129,303 131,937 144,841 128,615 60-64 99,159 159,427 150,315 128,743 116,243 124,715 128,136 65 and Over 102,117 81,540 99,438 131,994 90,085 137,464 111,263 Average $101,898 $129,403 $133,935 $129,343 $132,518 $143,766 $121,474 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 88 Packet Pg. 92 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix C Miscellaneous Plan of the City of Palo Alto Participant Data Page 76 Transferred and Separated 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 $106,305 25-29 12 1 0 0 0 0 13 107,388 30-34 44 6 0 0 0 0 50 111,675 35-39 52 10 1 0 0 0 63 132,736 40-44 45 9 10 1 1 0 66 138,410 45-49 51 10 3 2 1 2 69 145,636 50-54 38 12 0 5 0 0 55 156,918 55-59 26 5 1 1 0 0 33 160,624 60-64 20 7 3 0 0 0 30 127,690 65 and Over 10 1 1 0 0 0 12 132,760 All Ages 299 61 19 9 2 2 392 $137,723 Distribution of Separated 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 20-2 4 25+ Total Average Salary 15-24 1 0 0 0 0 0 1 $60,658 25-29 13 1 0 0 0 0 14 82,132 30-34 47 3 2 0 0 0 52 86,209 35-39 47 12 1 1 0 0 61 89,807 40-44 62 12 5 0 1 0 80 83,656 45-49 64 9 6 0 0 1 80 83,184 50-54 50 16 3 0 1 0 70 86,305 55-59 43 13 2 0 0 1 59 68,049 60-64 38 4 0 1 0 0 43 64,491 65 and Over 22 6 0 0 0 0 28 63,506 All Ages 387 76 19 2 2 2 488 $80,177 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 89 Packet Pg. 93 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix C Miscellaneous Plan of the City of Palo Alto Participant Data Page 77 Retired Members and Beneficiaries Distribution of Retirees and Beneficiaries by Age and Retirement Type* Attained Age Service Retirement Non- Industrial Disability Industrial Disability Non- Industrial Death Industrial Death Death After Retirement Total Under 30 0 0 0 0 0 1 1 30 -34 0 0 1 0 0 1 2 35 -39 0 0 1 0 0 3 4 40 -44 0 0 1 0 0 1 2 45 -49 0 0 3 0 0 1 4 50 -54 32 2 2 0 0 0 36 55 -59 100 6 2 1 0 0 109 60 -64 203 11 2 0 0 13 229 65 -69 227 8 1 0 0 13 249 70 -74 211 9 0 0 0 22 242 75 -79 198 8 2 0 0 18 226 80 -84 108 2 1 0 0 23 134 85 and Over 67 4 0 0 0 39 110 All Ages 1,146 50 16 1 0 135 1,348 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 $38,966 $38,966 30-34 0 0 218 0 0 15,700 7,959 35-39 0 0 275 0 0 9,713 7,353 40-44 0 0 338 0 0 13,290 6,814 45-49 0 0 725 0 0 116,899 29,768 50-54 23,767 6,119 1,320 0 0 0 21,540 55-59 38,997 17,537 753 18,628 0 0 36,927 60-64 45,471 14,908 1,079 0 0 18,012 42,056 65-69 47,545 13,880 13,279 0 0 24,152 45,104 70-74 46,700 16,756 0 0 0 25,000 43,613 75-79 45,198 21,338 10,859 0 0 29,027 42,761 80-84 33,929 32,561 2,208 0 0 32,558 33,437 85 and Over 34,793 20,519 0 0 0 24,187 30,514 All Ages $43,178 $17,224 $2,907 $18,628 $0 $26,124 $40,011 Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 90 Packet Pg. 94 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix C Miscellaneous Plan of the City of Palo Alto Participant Data Page 78 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 301 2 4 0 0 50 357 5-9 211 2 1 1 0 23 238 10-14 269 8 5 0 0 25 307 15-19 181 12 3 0 0 16 212 20-24 113 7 1 0 0 11 132 25-29 42 8 2 0 0 3 55 30 and Over 29 11 0 0 0 7 47 All Years 1,146 50 16 1 0 135 1,348 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 $44,201 $9,331 $1,103 $0 $0 $27,580 $41,195 5-9 38,972 14,402 338 18,628 0 23,146 36,989 10-14 53,653 10,870 310 0 0 31,133 49,836 15-19 44,466 18,586 11,662 0 0 23,443 40,950 20-24 36,359 23,893 1,853 0 0 24,690 34,464 25-29 20,721 23,696 1,685 0 0 3,124 19,502 30 and Over 17,040 13,356 0 0 0 25,857 17,491 All Years $43,178 $17,224 $2,907 $18,628 $0 $26,124 $40,011 * 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 . Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 91 Packet Pg. 95 of 184 Appendix D - Glossary Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 92 Packet Pg. 96 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix D Mis cellaneous Plan of the City of Palo Alto Glossary Page 80 Glossary Accrued Liability (Actuarial Accrued Liability) The portion of the Present Value of Benefits allocated to prior years. It can also be expressed as the Present Value of Benefits minus the present value of future Normal Cost. Different actuarial cost methods and different assumptions will lead to different measures of Accru ed Liability. 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, dis ability, and retirement rates. Economic assumptions include discount rate, wage inflation , and price inflation. Actuarial Methods Procedures employed by actuaries to achieve certain funding goals of a pension plan. Actuarial methods include an actuarial cost method, an amortization policy, and an asset valuation method. 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 in plan provisions. Actuary A business professional proficient in mathematics and statistics who measures and manages risk. A public retirement system actuary in California perform s actuarial valuatio ns necessary to properly fund a pension plan and disclose its liabilities and must satisfy the qualification s tandards for actuaries issuing s tatements of actuarial opinion in the United States with regard to pensions. Amortization Bases Separate payment schedules for different portions of the Unfunded Accrued Liability (UAL). The total UAL of a rate plan can be segregated by cause. The impact of such individual causes on the UAL are quantified at the time of their occurrence, resulting in new amortization bases. Each base is separately amortized and paid for over a specific period of time. Generally, in an actuarial valuation, the separate bases consist of changes in UAL due to contract amendments, actuarial assumption changes, method changes, and/or experience gains and losses. Amortization Period The number of years required to pay off an Amortization Base. Classic Member (under PEPRA) A member who joined a public retirement system 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 rate used to discount the expected future benefit payments to the valuation date to determine the Projected Value of Benefits. Different discount rates will produce different measures of the Projected Value of Benefits. The discount rate for funding purposes is based on the assumed long -term rate of return on plan assets, net of investment and administrative expenses. This rate is called the “actuar ial interest rate” in Section 20014 of the California Public Employees’ Retirement Law. 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 that allocates the cost of the projected benefits on an individual basis as a level percent of earnings for the individual between entry age and retirement age. This method yields a total normal cost rate, expressed as a percentage of payroll, which is designed to remain level throughout the member’s career. Fresh Start A Fresh Start is when multiple amortization bases are combined into a single base and amortized over a new Amortizat ion Period. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 93 Packet Pg. 97 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix D Mis cellaneous Plan of the City of Palo Alto Glossary Page 81 Glossary (continued) Funded Ratio Defined as the Market Value of Assets divided by the Accrued Liability. Different actuarial cost methods and different assumptions will lead to different measures of Funded Ratio. The Funded Ratio with the Accrued Liability equal to the funding target is a measure of how well funded a rate plan is. A ratio greater than 100% means the rate plan has more assets than the funding target and the employer need only contribute the Normal Cost . A ratio less than 100% means assets are less than the funding target and contributions in addition to Normal Cost are required. Funded Status Any comparison of a particular measure of plan assets to a particular measure of pension obligations. The methods and assumptions used to calculate a funded status should be consistent with the purpose of the measurement. Funding Target The Accrued Liability measure upon which the funding requirements are based. The funding target is the Accrued Liability under the Entry Age Actuari al Cost Method using the assumptions adopted by the board. 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. 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 n ot subject to reciprocity with another public retirement system. Normal Cost The portion of the Present Value of Benefits allocated to the upcoming fiscal year for active employees. Different actuarial cost methods and different assumptions will lead to d ifferent measures of Normal Cost. The Normal Cost under the Entry Age Actuarial Cost Method , using the assumptions adopted by the board , plus the required amortization of the UAL, if any, make up the required contributions. 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. Traditional Unit Credit Actuarial Cost Method An actuarial cost method that sets the Accrued Liability equal to the Present Value of Benefits assuming no future pay increases or service accruals. The Traditional Unit Credit Cost Method is used to measure the accrued liability on a termina tion basis. Unfunded Accrued Liability (UAL) The Accrued Liability minus the Market Value of Assets. If the UAL for a rate plan is positive, the employer is required to make contributions in excess of the Normal Cost. Item 1 Attachment B - CalPERS Miscellaneous Valuation as of June 30, 2023 Item 1: Staff Report Pg. 94 Packet Pg. 98 of 184 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 2024 Safety Plan of the City of Palo Alto (CalPERS ID: 6373437857) Annual Valuation Report as of June 30, 2023 Dear Employer, Attached to this letter is the June 30, 2023, actuarial valuation report for the rate plan noted above. Provided in this report is the determination of the minimum required employer contributions for fiscal year (FY) 2025-26. In addition, the report 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. Required Contributions The table below shows the minimum required employer contributions and the PEPRA member contribution rates for FY 2025 -26 along with an estimate of the employer contribution requirements for FY 2026-27. Employee contributions other than cost sharing (whether paid by the employer or the employe e) are in addition to the results shown below. The required employer and member contributions in this report do not reflect any cost sharing arrangement between the agency and the employees. Fiscal Year Employer Normal Cost Rate Employer Amortization of Unfunded Accrued Liability PEPRA Member Contribution Rate 2025-26 20.61% $18,545,666 11.75% Projected Results 2026-27 20.0% $19,605,000 TBD The actual investment return for FY 2023-24 was not known at the time this report was prepared. The projections above assume the investment return for that year would be 6.8%. To the extent the actual investment return for FY 2023-24 differs from 6.8%, the actual contribution requirements for FY 2026-27 will differ from those shown above. For additional detail s regarding the assumptions and methods used for these projections, please refer to Projected Employer Contributions . This section also contains projected required contributions through FY 2030-31. Report Enhancements A number of enhancements were made to the report this year to ease navigation and allow the reader to find specific information more quickly. The tables of contents are now “clickable .” This is true for the main table of contents that follows the title page and the intermediate tables of contents at the beginning of sections. The Adobe navigation pane on the left can al so be used to skip to specific exhibits . Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 95 Packet Pg. 99 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 2 There are a number of links throughout the document in blue text. Links that are internal to the document are not underlined, while underlined links will take you to the CalPERS website. Examples are shown below. Internal Bookmarks CalPERS Website Link s Required Employer Contributions Required Employer Contribution Search Tool Member Contribution Rates Public Agency PEPRA Mem ber Contribution Rates Summary of Key Valuation Results Pension Outlook Overview Funded Status – Funding Policy Basis Interactive Summary of Public Agency Valu ation Results Projected Employer Contributions Public Agency Actuarial Valuation Reports 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 any changes on the required contributions are included in the Reconciliation of Required Employer Contributions section. Questions A CalPERS actuary is available to answer questions about th is report. Other questions may be directed to the Customer Contact Center at 888 CalPERS (or 888-225-7377). Sincerely, Matthew Biggart, ASA, MAAA Actuary, CalPERS Randall Dziubek, ASA, MAAA Deputy Chief Actuary, Valuation Services , CalPERS Scott Terando , ASA, EA, MAAA, FCA, CFA Chief Actuary, CalPERS Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 96 Packet Pg. 100 of 184 California Public Employees’ Retirement System Actuarial Valuation for the Safety Plan of the City of Palo Alto as of June 30, 2023 (CalPERS ID: 6373437857) (Rate Plan ID: 5080) Required Contributions for Fiscal Year July 1, 2025 — June 30, 2026 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 97 Packet Pg. 101 of 184 CY Fin Job Instance ID: 440173 PY Fin Job Instance ID: 416684 Report ID: 440203 Table of Contents Actuarial Certification .......................................................................................................................................................................................1 Highlights and Executive Summary .............................................................................................................................................................2 Introduction .......................................................................................................................................................................................................3 Purpose .............................................................................................................................................................................................................3 Summary of Key Valuation Results ..............................................................................................................................................................4 Changes Since the Prior Year’s Valuation ..................................................................................................................................................5 Subsequent Events .........................................................................................................................................................................................5 Assets ...................................................................................................................................................................................................................6 Reconciliation of the Market Value of Assets ..............................................................................................................................................7 Asset Allocation................................................................................................................................................................................................8 CalPERS History of Investment Returns .....................................................................................................................................................9 Liabilities and Contributions ....................................................................................................................................................................... 10 Determination of Required Contributions.................................................................................................................................................. 11 Development of Accrued and Unfunded Liabilities ................................................................................................................................. 12 Required Employer Contributions .............................................................................................................................................................. 13 Member Contribution Rates ........................................................................................................................................................................ 14 Funded Status – Funding Policy Basis ..................................................................................................................................................... 15 Additional Employer Contributions............................................................................................................................................................. 16 Projected Employer Contributions ............................................................................................................................................................. 17 (Gain)/Loss Analysis 6/30/22 – 6/30/23 .................................................................................................................................................... 18 Schedule of Amortization Bases ................................................................................................................................................................ 19 Amortization Schedule and Alternatives ................................................................................................................................................... 21 Reconciliation of Required Employer Contributions ................................................................................................................................ 23 Employer Con tribution History .................................................................................................................................................................... 24 Funding History ............................................................................................................................................................................................. 24 Normal Cost by Benefit Group .................................................................................................................................................................... 25 Risk Analysis ................................................................................................................................................................................................... 26 Future Investment Return Scenarios ......................................................................................................................................................... 27 Discount Rate Sensitivity............................................................................................................................................................................. 28 Mortality Rate Sensitivity ............................................................................................................................................................................. 28 Maturity Measures ........................................................................................................................................................................................ 29 Maturity Measures History........................................................................................................................................................................... 30 Funded Status – Termination Basis .......................................................................................................................................................... 31 Funded Status – Low-Default-Risk Basis ................................................................................................................................................. 32 Plan’s Major Benefit Options ....................................................................................................................................................................... 33 Appendix A - Actuarial Methods and Assumptions .............................................................................................................................. 38 Appendix B - Principal Plan Provisions .................................................................................................................................................... 63 Appendix C - Participant Data ..................................................................................................................................................................... 74 Appendix D - Glossary .................................................................................................................................................................................. 80 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 98 Packet Pg. 102 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 1 Actuarial Certification It is our opinion that the valuation has been performed in accordance with generally accepted actuarial principles as well as the applicable Standards of Practice promulgated by the Actuarial Standards Board . While this report is intended to be complete, our office is available to answer questions as needed. All of the undersigned are actuaries who satisfy the Qualification Standards for Actuaries I ssuing Statements of Actuarial Opinion in the United States of the American Academy of Actuaries with regard to pensions. Actuarial Methods and Assumptions It is our opinion that the assumptions and methods, as recommended by the Chief Actuary and adopted by the CalPERS Board of Administration, are internally consistent and reasonable for this plan. Randall Dziubek, ASA, MAAA Deputy Chief Actuary, Valuation Services , CalPERS Scott Terando , ASA, EA, MAAA, FCA, CFA Chief Actuary, CalPERS Actuarial Data and Rate Plan Results To the best of my knowledge and having relied upon the attestation above that the actuarial methods and assumptions are reasonable, 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 and satisfies the actuarial valuation requirements of Government Code section 7504. This valuation and related validation work w as performed by the CalPERS Actuarial Office. The valuation was based on the member and financial data as of June 30, 2023 , provided by the various CalPERS databases and the benefits under this plan with CalPERS as of the date this report was pr oduced. Matthew Biggart, ASA, MAAA Actuary, CalPERS Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 99 Packet Pg. 103 of 184 Highlights and Executive Summary • Introduction 3 • Purpose 3 • Summary of Key Valuation Results 4 • Changes Since the Prior Year’s Valuation 5 • Subsequent Events 5 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 100 Packet Pg. 104 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 3 Introduction This report presents the results of the June 30, 2023 , 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 mi nimum required contributions for fiscal year (FY) 2025-26. Purpose This report documents the results of the actuarial valuation prepared by the CalPERS Actuarial Office using data as of June 30, 2023. The purpose of the valuation is to: • Set forth the assets and accrued liabilities of this rate plan as of June 30, 2023 ; • Determine the minimum required employer contributions for this rate plan for FY July 1, 2025, through June 30, 2026; • Determine the required member contribution rate for FY July 1, 2025, through June 30, 2026 , for employees subject to the California Public Employees' Pension Reform Act of 2013 (PEPRA); and • Provide actuarial information as of June 30, 2023 , to the CalPERS Board of Administration (board) 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 (www.calpers.ca.gov). The measurements shown in this actuarial valuation may not be applicable for other purposes. The agency should contact a CalPERS 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 th e following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; changes in actuarial policies; changes in plan provisions or applicable law; and differences between th e required contributions determined by the valuation and the actual contributions made by the agency. Assessment and Disclosure of Risk This report includes the following risk disclosures consistent with the guidance 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 5.8% and 7.8%. • A “Sensitivity Analysis,” showing the impact on current valuation results assuming rates of mortality are 10% lower or 10% higher than our current post-retirement mortality assumptions adopted in 2021. • Plan maturity measures indicating how sensitive a plan may be to the risks noted above. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 101 Packet Pg. 105 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 4 Summary of Key Valuation Results Below is a brief summary of key valuation results along with page references where more detailed information can be found . Required Employer Contributions — page 13 Fiscal Year 2024-25 Fiscal Year 2025-26 Employer Normal Cost Rate 22.21% 20.61% Unfunded Accrued Liability (UAL) Contribution Amount $16,551,519 $18,545,666 Paid either as Option 1) 12 Monthly Payments of $1,379,293 $1,545,472 Option 2) Annual Prepayment in July $16,015,933 $17,945,551 Member Contribution Rates — page 14 Fiscal Year 2024-25 Fiscal Year 2025-26 Classic Member Contribution Rate 9.00% 9.00% PEPRA Member Contribution Rate 11.75% 11.75% Projected Employer Contributions — page 17 Fiscal Year Normal Cost (% of payroll) Annual UAL Payment 2026-27 20.0% $19,605,000 2027-28 19.4% $20,526,000 2028-29 18.7% $22,300,000 2029-30 18.1% $22,831,000 2030-31 17.5% $23,316,000 Funded Status — Funding Policy Basis — page 15 June 30, 2022 June 30, 2023 Entry Age Accrued Liability (AL) $531,613,942 $555,403,195 Market Value of Assets (MVA) 318,801,170 331,696,065 Unfunded Accrued Liability (UAL) [AL – MVA] $212,812,772 $223,707,130 Funded Ratio [MVA ÷ AL] 60.0% 59.7% Summary of Valuation Data — Page 75 June 30, 2022 June 30, 2023 Active Member Count 156 164 Annual Covered Payroll $25,004,764 $27,941,899 Transferred Member Count 61 61 Separated Member Count 56 65 Retired Members and Beneficiaries Count 453 458 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 102 Packet Pg. 106 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 5 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. For rate plans that are not in a risk pool (non -pooled), benefit changes by contract amendment are generally included in the first valuation that is prepared after the amendment becomes effective, even if the effective date of the amendment is after the valuation date. Please refer to the Plan’s Major Benefit Options and Appendix B - Principal Plan Provisions 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 6/30/22 – 6/30/23 and the effect on the employer contribution is shown in the Reconcil iation 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 There are no significant changes to the actuarial methods or assumptions for the June 30, 2023, actuarial valuation. New Disclosure Items In December 2021, the Actuarial Standards Board issued a revision of Actuarial Standard of Practice No. 4 (ASOP 4) requiring actuaries to disclose a low-default-risk obligation measure (LDROM) of the benefits earned. This information is shown in a new exhibit, Funded Status – Low-Default-Risk Basis. Subsequent Events This actuarial valuation report reflects fund investment return through June 30, 2023, as well as statutory changes, regulatory changes and board actions through January 202 4. During the time period between the valuation date and the p ublication of this report, inflation has been higher than the expected inflation of 2.3% per annum. Since inflation influences cost-of-living increases for retirees and beneficiaries and active member pay increases, higher inflation is likely to put at lea st some upward pressure on contribution requirements and downward pressure on the funded status in the June 30, 202 4, valuation. The actual impact of higher inflation on future valuation results will depend on, among other factors , how long higher inflatio n persists. The 2023 annual benefit limit under Internal Revenue Code (IRS) section 415(b) and annual compensation limits under IRS section 401(a)(17) and Government Code section 7522.10 were use d for this valuation and are assumed to increase 2.3% per year based on the price inflation assumption. The actual 2024 limits , determined in October 2023, are not reflected. On April 16, 2024, the board took action to modify the Funding Risk Mitigation Policy to remove the automatic change to the discount rate when the investment return exceeds various thresholds. Rather than an automatic change to the discount rate, a board discussion would be placed on the calendar. The 95 th percentile return in the Future Investment Return Scenarios exhibit in this report has not been modified and still reflects the projected contribution requirements associated with a reduction i n the discount rate. To the best of our knowledge, there have been no other subsequent events that could materially affect current or future certifications rendered in this report. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 103 Packet Pg. 107 of 184 Assets • Reconciliation of the Market Value of Assets 7 • Asset Allocation 8 • CalPERS History of Investment Returns 9 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 104 Packet Pg. 108 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 7 Reconciliation of the Market Value of Assets 1. Market Value of Assets as of 6/30/22 including Receivables $318,801,170 2. Change in Receivables for Service Buybacks (95,652) 3. Employer Contributions 19,224,123 4. Employee Contributions 3,955,494 5. Benefit Payments to Retirees and Beneficiaries (29,852,456) 6. Refunds 0 7. Transfers 2,503 8. Service Credit Purchase (SCP) Payments and Interest 117,011 9. Administrative Expenses (188,355) 10. Miscellaneous Adjustments 0 11. Investment Return (Net of Investment Expenses) 19,732,225 12. Market Value of Assets as of 6/30/23 including Receivables $331,696,065 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 105 Packet Pg. 109 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 8 Asset Allocation CalPERS adheres to an Asset Allocation Strategy which establishes asset class allocation policy targets and ranges and manages those asset class allocations within their policy ranges . CalPERS recognizes that over 90% of the variation in investment returns of a large, well -diversified pool of assets can typically be attributed to asset allocation decisions . The asset allocation shown below reflects the allocation of the Public Employe es’ Retirement Fund (PERF) in its entirety. The assets for City of Palo Alto Safety Plan are a subset of the PERF and are invested accordingly. On November 17, 2021, the board adopted changes to the strategic asset allocation . The new allocation was effective July 1, 2022. The asset allocation as of June 30, 2023 , is shown below, along with the long-term strategic asset allocations. For more information s ee the Trust Level Review as of June 30, 2023 , which is available on the CalPERS website. 33.1% 12.0% 5.1% 5.1% 6.6% 4.5% 5.1% 12.9% 15.2% 2.2% (1.8%) 30% 12% 5% 5% 10% 5% 5% 13% 15% 5% (5%) (10%)0%10%20%30%40% Public Equities - Cap Weighted Public Equities - Factor Weighted Treasury Mortgage-Backed Securities Investment Grade Corporates High Yield Emerging Market Sovereign Bonds Private Equity Real Assets Private Debt Strategic Financing Current Allocation Long-Term Strategic Asset Allocation Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 106 Packet Pg. 110 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 9 CalPERS History of Investment Returns The following is a chart with the 20 -year historical annual retu rns of the PERF for each fiscal year ending on June 30 as reported by the Investment Office. Investment returns reported are net of investment expenses but without reduction for administrative expenses. The assumed rate of return, however, is net of both i nvestment and administrative expenses. Also, the Investment Office uses a three-month lag on private equity and real assets for investment performance reporting purposes. This can lead to a timing difference in the returns below and those used for financia l reporting purposes. The investment gain or loss calculation in this report relies on final assets that have been audited and are appropriate for financial reporting. Because of these differences, the effective investment return for funding purposes in a single year can be higher or lower than the return reported by the Investment Office shown here. * As reported by the Investment Office with a 3-month lag on private equity and real assets and without any reduction for administrative expenses . The table below shows annualized investment returns of the PERF for various time periods ending on June 30, 2023 . Figures reported are net of investment expenses but without reduction for administrative expen ses. These returns are the annual rates that if compounded over the indicated number of years would equate to the actual time -weighted investment performance of the PERF. It should be recognized that in any given year the rate of return is volatile. The po rtfolio has an expected volatility of 12.0% per year based on the most recent Asset Liability Management 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 distrib ution, 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 5.8% 6.1% 7.1% 7.0 % 7.5 % Realized Volatility – 9.5% 7.8% 8.4 % 8.8 % Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 107 Packet Pg. 111 of 184 Liabilities and Contributions • Determination of Required Contributions 11 • Development of Accrued and Unfunded Liabilities 12 • Required Employer Contributions 13 • Member Contribution Rates 14 • Funded Status – Funding Policy Basis 15 • Additional Employer Contributions 16 • Projected Employer Contributions 17 • (Gain)/Loss Analysis 6/30/22 – 6/30/23 18 • Schedule of Amortization Bases 19 • Amortization Schedule and Alternatives 21 • Reconciliation of Required Employer Contributions 23 • Employer Contribution History 24 • Funding History 24 • Normal Cost by Benefit Group 25 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 108 Packet Pg. 112 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 11 Determination of Required Contributions Contributions to fund the plan are determined by an actuarial valuation performed each year. The valuation employs complex calculations based on a set of actuarial assumptions and methods. See Appendix A for information on the assumptions and methods used in this valuation. The valuation incorporates all plan experience through the valuation date and sets required contributions for the fiscal year that begins two years after the valuation date. Contribution Components Two components comprise required contributions: • Normal Cost — expressed as a percentage of pensionable payroll • Unfunded Accrued Liability (UAL) Contribution — expressed as a dollar amount Normal Cost represents the value of benefits allocated to the upcoming year for active employees. If all plan experience exactly match ed the actuarial assumptions, normal cost would be sufficient to fully fund all benefits. The em ployer and employee s each pay a share of the normal cost with contributions payable as part of the regular payroll reporting process. The contribution rate for Classic members is set by statute based on benefit formula whereas for PEPRA members it is based on 50% of the total normal cost. When plan experience differs from the actuarial assumptions, unfunded accrued liability (UAL) emerges. The new UAL may be pos itive or negative. If the total UAL is positive (i.e., accrued liability exceeds assets), the employer is required to make contributions to pay off the UAL over time. This is called the Unfunded Accrued Liability Contribution component. There is an option to prepay this amount during July of each fiscal year , otherwise it is paid monthly. In measuring the UAL each year, plan experience is split by source. Common sources of UAL include investment experience different than expected , non-investment experience different than expected, assumption changes, and benefit changes. Each source of UAL (positive or negative) forms a base that is amortized, or paid off, over a specified period of time in accordan ce with the CalPERS Actuarial Amortization Policy. The Unfunded Accrued Liability Contribution is the sum of the payments on all bases. See the Schedule of Amortization Bases section of th is report for an inventory of existing bases and Appendix A for more information on the amortization policy. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 109 Packet Pg. 113 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 12 Development of Accrued and Unfunded Liabilities June 30, 2022 June 30, 2023 1. Present Value of Projected Benefits a) Active Members $195,734,582 $208,285,143 b) Transferred Members 12,803,675 13,177,758 c) Separated Members 6,422,761 6,467,049 d) Members and Beneficiaries Receiving Payments 384,83 4,508 402,806,352 e) Total $599,795,526 $630,736,302 2. Present Value of Future Employer Normal Costs $44,207,523 $46,631,408 3. Present Value of Future Employee Contributions $23,974,061 $28,701,699 4. Entry Age Accrued Liability a) Active Members [(1a) - (2) - (3)] $127,552,998 $132,952,036 b) Transferred Members (1b) 12,803,675 13,177,758 c) Separated Members (1c) 6,422,761 6,467,049 d) Members and Beneficiaries Receiving Payments (1d) 384,834,508 402,806,352 e) Total $531,613,942 $555,403,195 5. Market Value of Assets (MVA) $318,801,170 $331,696,065 6. Unfunded Accrued Liability (UAL) [(4e) - (5)] $212,812,772 $223,707,130 7. Funded Ratio [(5) ÷ (4e)] 60.0% 59.7% Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 110 Packet Pg. 114 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 13 Required Employer Contributions The required employer contributions in this report do not reflect any cost sharing arrangement between the agency and the employees. Fiscal Year Required Employer Contributions 2025-26 Employer Normal Cost Rate 20.61% Plus Unfunded Accrued Liability (UAL) Contribution Amount $18,545,666 Paid either as 1) Monthly Payment $1,545,472 Or 2) Annual Prepayment Option* $17,945,551 The total minimum required employer contribution is the sum of the Plan’s Employer Normal Cost Rate (expressed as a percentage of payroll and paid as payroll is reported) and the Unfunded Accrued Liability (UAL) Contribution Amount (billed monthly (1) or p repaid annually (2) in dollars). * Only the UAL portion of the employer contribution can be prepaid (which must be received in full no later than July 31). For Member Contribution Rates see the following page. Fiscal Year Fiscal Year 2024-25 2025-26 Normal Cost Contribution as a Percentage of Payroll Total Normal Cost1 32.14% 30.76% Offset due to Employee Contribution s 2 9.93% 10.15% Employer Normal Cost 22.21% 20.61% Projected Annual Payroll for Contribution Year $27,164,524 $30,355,352 Estimated Employer Contributions Based on Projected Payroll Total Normal Cost $8,730,678 $9,337,306 Expected Employee Contribution s 2,697,437 3,081,068 Employer Normal Cost 6,033,241 6,256,238 Unfunded Liability Contribution 16,551,519 18,545,666 % of Projected Payroll (illustrative only) 60.93% 61.10% Estimated Total Employer Contribution $22,584,760 $24,801,904 % of Projected Payroll (illustrative only) 83.14% 81.71% 1 The Total 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. 2 This is the expected employee contributions, taking into account individual benefit formula and any offset from the use of a modified formula, divided by projected annual payroll. For member contribution rates above the breakpoint for each benefit formula, see Member Contribution Rates . Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 111 Packet Pg. 115 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 14 Member Contribution Rates The required member contributions in this report do not reflect any cost sharing arrangement between the agency and the employees. Classic Members Each member contributes toward their retirement based upon the retirement formula. The standard Classic member contribution rate above the breakpoint, if any, is as described below. Benefit Formula Percent Contributed above the Breakpoint Safety, 2% at age 55 7% Safety, 2% at age 50 9% Safety, 3% at age 55 9% Safety, 3% at age 50 9% PEPRA Members 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 CalP ERS-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 rate 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 c ost rate of the plan change by more than 1% from the base total normal cost rate established for the plan, the new member rate shall be 50% of the new normal cost rate rounded to the nearest quarter percent. The table below shows the determination of the PEPRA m ember contribution rates effective July 1, 2025, based on 50 % of the total normal cost rate for each respective plan as of the June 30, 2023 , valuation. Basis for Current Rate Rates Effective July 1, 2025 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% 23.47% (0.070%) No 11.75% 25007 Safety Police PEPRA Level 23.540% 11.75% 23.47% (0.070%) No 11.75% For a description of the methodology used to determine the Total Normal Cost for this purpose, see PEPRA Normal Cost Rate Methodology in Appendix A. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 112 Packet Pg. 116 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 15 Funded Status – Funding Policy Basis The table below provides information on the current funded status of the plan under the funding policy. The funded status for this purpose is based on the market value of assets relative to the funding target produced by the entry age actuarial cost method and actuarial assumptions adopted by the board. The actuarial cost method allocates the total expected cost of a member’s projected benefit (Present Value of Benefits ) to individual years of service (the Normal Cost). The value of the projected benefit that is not allocated to future service is referred to as the Accrued Liability and is the plan’s funding target on the valuation date. The Unfunded Accrued Liability (UAL) equals the funding target minus the assets. The UAL is an absolute measure of funded status and can be viewed as employer debt. The funded ratio equals the assets divided by the funding target. The funded ratio is a relative measure of the funded status and allows for comparisons between plans of diffe rent sizes. June 30, 2022 June 30, 2023 1. Present Value of Benefits $599,795,526 $630,736,302 2. Entry Age Accrued Liability 531,613,942 555,403,195 3. Market Value of Assets (MVA) 318,801,170 331,696,065 4. Unfunded Accrued Liability (UAL) [(2) – (3)] $212,812,772 $223,707,130 5. Funded Ratio [(3) ÷ (2)] 60.0% 59.7% A funded ratio of 100% (UAL of $0) implies that the funding of the plan is on target and that future contributions equal to the normal cost of the active plan members will be sufficient to fully fund all retirement benefits if future experience matches the actuarial assumptions. A funded ratio of less than 100% (positive UAL) implies that in addition to normal costs, payments t oward the UAL will be required. Plans with a funded ratio greater than 100% have a negative UAL (or surplus) but are required under current law to continue contributing the normal cost in most cases, preserving the surplus for future contingencies. Calcul ations for the funding target reflect the expected long -term investment return of 6.8%. If it were known on the valuation date that future investment returns will average something greater/less than the expected return, calculated normal costs and accrued liabilities provided in this report would be less/greater than the results shown. Therefore, for example, if actual average future returns are less than the expected return, calculated normal costs and UAL contributions will not be sufficient to ful ly fund all retirement benefits. Under this scenario, required future normal cost contributions will need to increase from those provided in this report, and the plan will develop unfunded liabilities that will also add to required future contributions. For illus trative purposes, funded status es based on a 1% lower and higher average future investment return (discount rate) are as follows: 1% Lower Average Return Current Assumption 1% Higher Average Return Discount Rate 5.8% 6.8% 7.8% 1. Present Value of Benefits $729,709,016 $630,736,302 $552,489,884 2. Entry Age Accrued Liability 626,975,562 555,403,195 496,405,722 3. Market Value of Assets (MVA) 331,696,065 331,696,065 331,696,06 5 4. Unfunded Accrued Liability (UAL) [(2) – (3)] $295,279,497 $223,707,130 $164,709,657 5. Funded Ratio [(3) ÷ (2)] 52.9% 59.7% 66.8% The Risk Analysis section of the report provides additional information regarding the sensitivity of valuation results to the expected investment return and other factors. Also provided in that section are measures of funded status that are appropriat e for ass essing the sufficiency of plan assets to cover estimated termination liabilities. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 113 Packet Pg. 117 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 16 Additional Employer Contributions The minimum required employer contribution towards the Unfunded Accrued Li ability (UAL) for this rate plan for FY 2025-26 is $18,545,666 . CalPERS allows agencies 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. Agencies can also u se 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 FY 2025-26 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 Amortization Schedule and Alternatives . Agencies considering making an ADP should contact CalPERS for additional information. Fiscal Year 2025-26 Employer Contributions — Illustrative Scenarios Funding Approach Estimated Normal Cost Minimum UAL Contribution ADP1 Total UAL Contribution Estimated Total Contribution Minimum required only $6,256,238 $18,545,666 0 $18,545,666 $24,801,904 20 year funding horizon $6,256,238 $18,545,666 $1,434,763 $19,980,429 $26,236,667 15 year funding horizon $6,256,238 $18,545,666 $4,763,247 $23,308,913 $29,565,151 10 year funding horizon $6,256,238 $18,545,666 $11,783,618 $30,329,284 $36,585,522 5 year funding horizon $6,256,238 $18,545,666 $33,611,213 $52,156,879 $58,413,117 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 hav e to be less or more than the amount shown to have the same effect on the UAL amortization. The calculations above are based on th e projected UAL as of June 30, 2025, as determined in the June 30, 2023, actuarial valuation. New unfunded liabilities can emerge in future years due to assumption or method chan ges, changes in plan provisions, and actuarial experience different than assumed. Making an ADP illustrated above for the indicated number of year s will not result in a plan that is exactly 100% funded in the indicated number of years. Valuation results wi ll vary from one year to the next and can diverge significantly from projections over a period of several years. Additional Discretionary Payment History The following table provides a recent history of actual ADPs made to the plan. Fiscal Year ADP Fiscal Year ADP 2018-19 $0 2021-22 $0 2019-20 $0 2022-23 $0 2020-21 $0 2023-24 $0 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 114 Packet Pg. 118 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 17 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 assumptio ns will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the projection period. In particular, the investment return beginning with FY 2023-24 is assumed to be 6.80% per year, net of investment and administrative expenses. The projected normal cost percentages below reflect that the normal cost is expected to continue to decline over time as new employees are hired in to lower cost benefit tiers. Future contribution requirements may differ significantly from those shown below. The actual long -term cost of the plan will depend on the actual benefits and expenses paid and the actual investment experience of the fund. Required Contribution Projected Future Employer Contributions (Assumes 6.80% Return for Fiscal Year 2023-24 and Beyond) Fiscal Year 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Normal Cost % 20.61% 20.0% 19.4% 18.7% 18.1% 17.5% UAL Payment $18,545,666 $19,605,000 $20,526,000 $22,300,000 $22,831,000 $23,316,000 Total as a % of Payroll* 81.71% 82.8% 83.3% 86.3% 85.4% 84.4% Projected Payroll $30,355,352 $31,205,301 $32,079,050 $32,977,264 $33,900,626 $34,849,844 *Illustrative only and based on the projected payroll shown. For ongoing plans, investment gains and losses are amortized using a 5 -year ramp up. For more information, please see Amortization of Unfunded Actu arial Accrued Liability 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 investment loss, the relatively small amortization payments during the ramp up period could result in contributions that are less than interest on the UAL (i.e. negative amortization) 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 exhibit. Our online pension plan projection tool, Pension Outlook, is available in the Employers section of the CalPERS website. Pension Outlook can help plan and budget pension costs under various scenarios. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 115 Packet Pg. 119 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 18 (Gain)/Loss Analysis 6/30/22 – 6/30/23 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 6/30/22 $212,812,772 b) Expected payment on the UAL during 20 22-23 14,172,457 c) Interest through 6/30/23 [.068 x (1a) - ((1.068)½ - 1) x (1b)] 13,997,330 d) Expected UAL before all other changes [(1a) - (1b) + (1c)] 212,637,645 e) Change due to plan changes 0 f) Change due to AL Significant Increase 0 g) Change due to assumption changes 0 h) Change due to method change s 0 i) Change due to discount rate change with Funding Risk Mitigation 0 j) Expected UAL after all other changes [(1d) + (1e) + (1f) + (1g) + (1h) + (1i)] 212,637,645 k) Actual UAL as of 6/30/23 223,707,130 l) Total (Gain)/Loss for 20 22-23 [(1k) - (1j)] $11,069,485 2. Investment (Gain)/Loss for the Year a) Market Value of Assets as of 6/30/22 $318,801,170 b) Prior fiscal year receivables (230,389) c) Current fiscal year receivables 134,737 d) Contributions received 23,179,617 e) Benefits and refunds paid (29,852,456) f) Transfers, SCP p ayments and interest, and m iscellaneous adjustments 119,515 g) Expected return at 6.8% per year 21,940,158 h) Expected assets as of 6/30/23 [(2a) + (2b) + (2c) + (2d) + (2e) + (2f) + (2g)] 334,092,352 i) Actual Market Value of Assets as of 6/30/23 331,696,065 j) Investment (Gain)/Loss [(2h) - (2i)] $2,396,288 3. Non -Investment (Gain)/Loss for the Year a) Total (Gain)/Loss (1l) $11,069,485 b) Investment (Gain)/Loss (2j) 2,396,288 c) Non-Investment (Gain)/Loss [(3a) - (3b)] $8,673,197 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 116 Packet Pg. 120 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 19 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 year. • The assets, liabilities, and funded status of the plan are measured as of the valuation date: June 30, 2023 . • The required employer contributions determined by the valuation are for the fiscal year beginning two years after the valuati on date: FY 2025-26. 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 fro m 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 FY 2023-24 is based on the actuarial valuation two years ago , adjusted for additional discretionary payments , if necessary, and the expected payment for FY 2024-25 is based on the actuarial valuation one year ago. Reason for Base Date Est. Ramp Level 2025-26 Ramp Shape Escala - tion Rate Amort. Period Balance 6/30/23 Expected Payment 2023-24 Balance 6/30/24 Expected Payment 2024-25 Balance 6/30/25 Minimum Required Payment 2025-26 Fresh Start 6/30/04 No Ramp 2.80% 11 (825,249) (81,654) (796,981) (83,940) (764,429) (86,290) Benefit Change 6/30/05 No Ramp 2.80% 1 58,590 20,958 40,915 21,545 21,432 22,149 Assumption Change 6/30/09 No Ramp 2.80% 6 5,389,068 792,634 4,936,384 814,828 4,429,982 837,643 Special (Gain)/Loss 6/30/09 No Ramp 2.80% 16 8,723,831 679,440 8,614,890 698,464 8,478,881 718,021 Special (Gain)/Loss 6/30/10 No Ramp 2.80% 17 4,211,145 315,998 4,170,938 324,846 4,118,853 333,942 Assumption Change 6/30/11 No Ramp 2.80% 8 4,979,965 607,444 4,690,845 624,453 4,364,487 641,937 Special (Gain)/Loss 6/30/11 No Ramp 2.80% 18 2,416,103 175,143 2,399,398 180,047 2,376,489 185,089 (Gain)/Loss 6/30/12 No Ramp 2.80% 19 45,134,116 3,168,199 44,929,090 3,256,908 44,618,446 3,348,102 Payment (Gain)/Loss 6/30/12 No Ramp 2.80% 19 1,576,930 110,693 1,569,767 113,792 1,558,914 116,979 (Gain)/Loss 6/30/13 100% Up/Dn 2.80% 20 44,942,274 3,262,015 44,627,249 3,353,351 44,196,412 3,447,245 (Gain)/Loss 6/30/14 100% Up/Dn 2.80% 21 (30,252,827) (2,126,125) (30,112,795) (2,185,657) (29,901,718) (2,246,855) Assumption Change 6/30/14 100% Up/Dn 2.80% 11 19,393,011 2,195,252 18,443,073 2,256,719 17,365,016 2,319,907 (Gain)/Loss 6/30/15 100% Up/Dn 2.80% 22 16,750,275 1,142,287 16,708,808 1,174,271 16,631,467 1,207,150 (Gain)/Loss 6/30/16 100% Up/Dn 2.80% 23 19,871,449 1,317,539 19,861,109 1,354,431 19,811,940 1,392,355 Assumption Change 6/30/16 100% Up/Dn 2.80% 13 7,210,137 715,024 6,961,491 735,044 6,675,248 755,625 (Gain)/Loss 6/30/17 100% Up/Dn 2.80% 24 (1,218,772) (78,707) (1,220,309) (80,910) (1,219,674) (83,176) Assumption Change 6/30/17 100% Up/Dn 2.80% 14 10,005,367 937,381 9,717,004 963,628 9,381,908 990,609 (Gain)/Loss 6/30/18 100% Up/Dn 2.80% 25 (3,429,206) (174,969) (3,481,572) (224,835) (3,485,965) (231,130) Assumption Change 6/30/18 100% Up/Dn 2.80% 15 15,793,219 1,143,598 15,685,317 1,469,523 15,233,253 1,510,670 Method Change 6/30/18 100% Up/Dn 2.80% 15 3,641,944 263,716 3,617,061 338,875 3,512,814 348,363 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 117 Packet Pg. 121 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 20 Schedule of Amortization Bases (continued) Reason for Base Date Est. Ramp Level 2025-26 Ramp Shape Escala - tion Rate Amort. Period Balance 6/30/23 Expected Payment 2023-24 Balance 6/30/24 Expected Payment 2024-25 Balance 6/30/25 Minimum Required Payment 2025-26 Investment (Gain)/Loss 6/30/19 100% Up Only 0.00% 16 1,720,435 103,444 1,730,521 137,925 1,705,659 172,406 Non-Investment (Gain)/Loss 6/30/19 No Ramp 0.00% 16 6,725,224 637,630 6,523,586 637,630 6,308,237 637,630 Investment (Gain)/Loss 6/30/20 80% Up Only 0.00% 17 8,357,533 343,555 8,570,801 515,333 8,621,049 687,110 Non-Investment (Gain)/Loss 6/30/20 No Ramp 0.00% 17 1,498,832 138,226 1,457,904 138,226 1,414,193 138,226 Assumption Change 6/30/21 No Ramp 0.00% 18 2,686,469 241,577 2,619,493 241,577 2,547,963 241,577 Net Investment (Gain) 6/30/21 60% Up Only 0.00% 18 (39,065,012) (839,690) (40,853,663) (1,679,381) (41,896,171) (2,519,071) Non-Investment (Gain)/Loss 6/30/21 No Ramp 0.00% 18 (7,055,176) (634,427) (6,879,285) (634,426) (6,691,435) (634,427) Risk Mitigation 6/30/21 No Ramp 0.00% 0 14,068,669 14,539,137 0 0 0 0 Risk Mitigation Offset 6/30/21 No Ramp 0.00% 0 (14,068,669) (14,539,137) 0 0 0 0 Benefit Change 6/30/22 No Ramp 0.00% 19 270,878 0 289,298 26,015 282,085 26,015 Investment (Gain)/Loss 6/30/22 40% Up Only 0.00% 19 54,724,603 0 58,445,876 1,256,276 61,121,909 2,512,552 Non-Investment (Gain)/Loss 6/30/22 No Ramp 0.00% 19 8,402,489 0 8,973,858 806,961 8,750,134 806,961 Investment (Gain)/Loss 6/30/23 20% Up Only 0.00% 20 2,396,288 0 2,559,236 0 2,733,264 58,751 Non-Investment (Gain)/Loss 6/30/23 No Ramp 0.00% 20 8,673,197 0 9,262,974 0 9,892,856 889,601 Total 223,707,130 14,376,181 224,062,281 16,551,519 222,193,499 18,545,666 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 118 Packet Pg. 122 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 21 Amortization Schedule and Alternatives The amortization schedule on the previous page (s) 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 i n paying off the unfunded accrue d 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 lia bility payments. Shown on the follow ing 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 s tart, please contact a CalPERS actuary. The current amortization s chedule typically contains both positive and negative bases. Positive bases re sult 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 combinatio n of positive and negative bases within an amortization schedule can result in unusual or problematic circumstances in future year s, 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 re placing the existing unfunded liability bases with a single “fresh start” base and amortizing it over an appropriate period. The current amortization s chedule 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 fa ct arise since there will be additional bases added to the amortization schedule in each future year. Should such a scenario ari se in any future year, the actuary will take appropriate action based on guidelines in the CalPERS Actuarial Amortization Policy. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 119 Packet Pg. 123 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 22 Amortization Schedule and Alternatives (continued) Alternative Schedules Current Amortization Schedule 15 Year Amortization 10 Year Amortization Date Balance Payment Balance Payment Balance Payment 6/30/2025 222,193,499 18,545,666 222,193,499 23,308,913 222,193,499 30,329,284 6/30/2026 218,136,808 19,604,804 213,214,274 23,308,913 205,959,136 30,329,284 6/30/2027 212,709,706 20,526,467 203,624,462 23,308,913 188,620,836 30,329,284 6/30/2028 205,961,077 22,300,325 193,382,542 23,308,913 170,103,532 30,329,284 6/30/2029 196,920,363 22,830,751 182,444,172 23,308,913 150,327,051 30,329,284 6/30/2030 186,716,718 23,315,626 170,761,993 23,308,913 129,205,769 30,329,284 6/30/2031 175,318,135 22,825,495 158,285,426 23,308,913 106,648,240 30,329,284 6/30/2032 163,650,972 22,747,303 144,960,452 23,308,913 82,556,799 30,329,283 6/30/2033 151,271,245 21,850,517 130,729,380 23,308,913 56,827,141 30,329,284 6/30/2034 138,976,472 21,519,293 115,530,595 23,308,913 29,347,865 30,329,283 6/30/2035 126,187,953 20,895,581 99,298,292 23,308,913 6/30/2036 113,174,388 19,837,531 81,962,193 23,308,913 6/30/2037 100,369,333 19,234,250 63,447,239 23,308,914 6/30/2038 87,316,987 18,585,964 43,673,267 23,308,913 6/30/2039 74,047,048 18,113,064 22,554,666 23,308,913 6/30/2040 60,363,468 17,903,230 6/30/2041 45,966,252 15,250,680 6/30/2042 33,331,282 13,630,962 6/30/2043 21,511,016 17,404,329 6/30/2044 4,987,422 3,404,893 6/30/2045 1,807,810 992,372 6/30/2046 905,183 935,453 6/30/2047 6/30/2048 6/30/2049 Total 382,254,556 349,633,696 303,292,838 Interest Paid 160,061,057 127,440,197 81,099,339 Estimated Savings 32,620,860 78,961,718 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 120 Packet Pg. 124 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 23 Reconciliation of Required Employer Contributions Normal Cost (% of Payroll) 1. For Period 7/1/24 – 6/30/25 a) Employer Normal Cost 22.21% b) Employee contribution 9.93% c) Total Normal Cost 32.14% 2. Changes since the prior year annual valuation a) Effect of demographic experience (1.38%) b) Effect of plan changes 0.00% c) Effect of discount rate change due to Funding Risk Mitigation 0.00% d) Effect of assumption changes 0.00% e) Effect of method changes 0.00% f) Net effect of the changes above [sum of (a) through (e)] (1.38%) 3. For Period 7/1/25 – 6/30/26 a) Employer Normal Cost 20.61% b) Employee contribution 10.15% c) Total Normal Cost 30.76% Employer Normal Cost Change [(3a) – (1a)] (1.60%) Employee Contribution Change [(3b) – (1b)] 0.22% Unfunded Liability Contribution ($) 1. For Period 7/1/24 – 6/30/25 16,551,519 2. Changes since the prior year annual valuation a) Effect of adjustments to prior year’s amortization schedule 0 b) Effect of elimination of amortization bases 0 c) Effect of progression of amortization bases 1 1,045,795 d) Effect of investment (gain)/loss during prior year2 58,751 e) Effect of non -investment (gain)/loss during prior year 889,601 f) Effect of re-amortizing existing bases due to Funding Risk Mitigation 0 g) Effect of Golden Handshake 0 h) Effect of plan changes 0 i) Effect of AL Significant Increase (Government Code section 20791) 0 j) Effect of assumption changes 0 k) Effect of adjustments to the amortization schedule (e.g., Fresh Start) 0 l) Effect of method change 0 m ) Net effect of the changes above [sum of (a) through (l)] 1,994,147 3. For Period 7/1/25 – 6/30/26 [(1) + (2m)] 18,545,666 The amounts shown for the period 7/1/24 – 6/30/25 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 perf ormed. 1 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. 2 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 c ) for each of the next four years. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 121 Packet Pg. 125 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 24 Employer Contribution History The table below provides a 10-year history of the employer contribution requirements for the plan , as determined by the annual actuarial valuation . Changes due to prepayments or plan amendments after the valuation report was finalized are not reflected. Valuation Date Contribution Year Employer Normal Cost Rate Unfunded Liability Rate Unfunded Liability Payment 06/30/2014 2016 - 17 18.977% 26.449% N/A 06/30/2015 2017 - 18 18.900% N/A 7,127,885 06/30/2016 2018 - 19 19.397% N/A 8,421,191 06/30/2017 2019 - 20 20.194% N/A 10,019,332 06/30/2018 2020 - 21 21.566% N/A 11,210,740 06/30/2019 2021 - 22 21.52% N/A 13,282,515 06/30/2020 2022 - 23 20.58% N/A 14,860,807 06/30/2021 2023 - 24 22.59% N/A 14,376,181 06/30/2022 2024 - 25 22.21% N/A 16,551,519 06/30/2023 2025 - 26 20.61% N/A 18,545,666 Funding History The table below shows the recent history of the 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 6/30/2014 $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 6/30/2021 509,225,515 353,339,674 155,885,841 69.4% 25,745,571 6/30/2022 531,613,942 318,801,170 212,812,772 60.0% 25,004,764 6/30/2023 555,403,195 331,696,065 223,707,130 59.7% 27,941,899 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 122 Packet Pg. 126 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 25 Normal Cost by Benefit Group The table below displays the Total Normal Cost broken out by benefit group for FY 2025-26. 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 exce ed 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. Plan Identifier Benefit Group Name Total Normal Cost FY 2025-26 Number of Actives Payroll on 6/30/2023 5080 Safety Police First Level 38.53% 29 $6,251,342 25006 Safety Fire PEPRA Level 20.62% 43 $5,786,151 25007 Safety Police PEPRA Level 26.33% 38 $5,592,603 30705 Safety Fire First Level N/A 0 $0 30706 Safety Fire Second Level 34.32% 42 $8,094,911 30707 Safety Fire Third Level 30.82% 8 $1,395,634 30708 Safety Police Second Level 44.35% 4 $821,258 Plan Total 30.76% 164 $27,941,899 Note that if a Benefit Group above has multiple bargaining units, each of which has separately contracted for different benef its such as Employer Paid Member Contributions, then the Normal Cost shown for the respective benefit level 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. For questions in these situations, please contact a CalPERS actuary. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 123 Packet Pg. 127 of 184 Risk Analysis • Future Investment Return Scenarios 27 • Discount Rate Sensitivity 28 • Mortality Rate Sensitivity 28 • Maturity Measures 29 • Maturity Measures History 30 • Funded Status – Termination Basis 31 • Funded Status – Low-Default-Risk Basis 32 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 124 Packet Pg. 128 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 27 Future Investment Return Scenarios Analysis using the investment return scenarios from the Asset Liability Management process completed in 2021 was performed to determine the effects of various future investment returns on required employer contributions. The projections below refle ct the impact of the CalPERS Funding Risk Mitigation Policy. The projected normal cost rates reflect that the rates are anticipated to decline over time as new employees are hired into lower -cost benefit tiers. The projections also assume that all other actuarial assumptions will be realized and that no further changes in assumptions, contributions, benefits, or funding will occur. The first table shows projected contribution requirements if the fund were to earn either 3.0% or 10.8% annually. These alter nate investment returns were chosen because 90% of long -term average returns are expected to fall between them over the 20 -year period ending June 30, 2043. Assumed Annual Return FY 2023-24 through FY 2042 -43 Projected Employer Contributions 2026-27 2027-28 2028-29 2029 -30 2030-31 3.0% (5th percentile) Discoun t Rate 6.80 % 6.80% 6.80% 6.80% 6.80% Normal Cost Rate 20.0% 19.4% 18.7% 18.1% 17.5% UAL Contribution $19,911,000 $21,448,000 $24,151,000 $25,932,000 $27,995,000 10.8% (95th percentile) Discoun t Rate 6.75% 6.70% 6.65% 6.60% 6.55% Normal Cost Rate 20.4% 20.1% 19.9% 19.6% 19.4% UAL Contribution $19,294,000 $19,642,000 $20,540,000 $19,881,000 $18,812,000 Required contributions outside of this range are also possible. In particular, whereas it is unlikely that investment returns will average less than 3.0% or greater than 10.8% over a 20 -year period, the likelihood of a single investment return less than 3.0% or greater than 10.8% in any given year is much greater. The following analysis illustrat es the effect of an extreme, single year investment return. The portfolio has an expected volatility (or standard deviation) of 12.0% per year. Accordingly, in any given year there is a 16% probability that the annual return will be -5.2% or less and a 2.5% probability that the annual return will be -17.2% or less. These returns represent one and two standard deviations below the expected return of 6.8%. The following table shows the effect of one and two standard deviation investment loss es in FY 2023-24 on the FY 2026-27 contribution requirements. Note that a single -year investment gain or loss decreases or increases the required UAL contribution amount incrementally for each of the next five years, not just one, due to the 5 -year ramp in the amortization policy. However, the contribution requirements beyond the first year are also impac ted by investment returns beyond the first year . Historically, significant downturns in the market are often followed by higher than average returns. Such investment gains would offset the impact of these single year negative returns in years beyond FY 2026-27. Assumed Annual Return for Fiscal Year 2023-24 Required Employer Contributions Projected Employer Contributions 2025-26 2026-27 (17.2%) (2 standard deviation loss) Discount Rate 6.80% 6.80% Normal Cost Rate 20.61% 20.0% UAL Contribution $18,545,666 $21,535,000 (5.2%) (1 standard deviation loss) Discount Rate 6.80% 6.80% Normal Cost Rate 20.61% 20.0% UAL Contribution $18,545,666 $20,570,000 • Without investment gains (returns higher than 6.8%) in FY 2024-25 or later, projected contributions rates would continue to rise over the next four years due to the continued phase -in of the impact of the illustrated investment loss in FY 2023-24. • The Pension Outlook Tool can be used to model projected contributions for these scenarios beyond FY 2026-27 as well as to model other investment return scenarios . Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 125 Packet Pg. 129 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 28 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 4.5% and 2.3%, respectively. Changing either the pri ce 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 valuat ion results as of June 30, 2023, assuming alternate discount rates by changing the two components independently. Results are shown using the current discount rate of 6.8% as well as alternate discount rates of 5.8% and 7.8%. The rates of 5.8% and 7.8% were selected since they illustrate the impact of a 1.0% increase or decrease to the 6.8% assumption. Sensitivity to the Real Rate of Return Assumption As of June 30, 2023 1% Lower Real Return Rate Current Assumptions 1% Higher Real Return Rate Discount Rate 5.8% 6.8% 7.8% Price Inflation 2.3% 2.3% 2.3% Real Rate of Return 3.5% 4.5% 5.5% a) Total Normal Cost 38.89% 30.76% 24.59% b) Accrued Liability $626,975,562 $555,403,195 $496,405,722 c) Market Value of Assets $331,696,065 $331,696,065 $331,696,065 d) Unfunded Liability/(Surplus) [(b) - (c)] $295,279,497 $223,707,130 $164,709,657 e) Funded Ratio 52.9% 59.7% 66.8% Sensitivity to the Price Inflation Assumption As of June 30, 2023 1% Lower Price Inflation Current Assumptions 1% Higher Price Inflation Discount Rate 5.8% 6.8% 7.8% Price Inflation 1.3% 2.3% 3.3% Real Rate of Return 4.5% 4.5% 4.5% a) Total Normal Cost 32.28% 30.76% 27.92% b) Accrued Liability $573,681,082 $555,403,195 $517,681,398 c) Market Value of Assets $331,696,065 $331,696,065 $331,696,065 d) Unfunded Liability/(Surplus) [(b) - (c)] $241,985,017 $223,707,130 $185,985,333 e) Funded Ratio 57.8% 59.7% 64.1% Mortality Rate Sensitivity The following table looks at the change in the June 30, 2023, plan costs and funded status under two different longevity scenarios, namely assuming rates of post-retirement mortality are 10% lower or 10% higher than o ur current mortality assumptions adopted in 2021 . This type of analysis highlights the impact on the plan of a change in the mortality assumption . As of June 30, 2023 10% Lower Mortality Rates Current Assumptions 10% Higher Mortality Rates a) Total Normal Cost 31.20% 30.76% 30.35% b) Accrued Liability $566,232,973 $555,403,195 $545,435,074 c) Market Value of Assets $331,696,065 $331,696,065 $331,696,065 d) Unfunded Liability/(Surplus) [(b) - (c)] $234,536,908 $223,707,130 $213,739,009 e) Funded Ratio 58.6% 59.7% 60.8% Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 126 Packet Pg. 130 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 29 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 pension 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 liabili ty 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 ra tio increases. A mature plan will often have a ratio above 60%-65%. Ratio of Retiree Accrued Liability to Total Accrued Liability June 30, 2022 June 30, 2023 1. Retiree Accrued Liability $384,834,508 $402,806,352 2. Total Accrued Liability $531,613 ,942 $555,403,195 3. Ratio of Retiree AL to Total AL [(1) ÷ (2)] 72% 73% Another measure of the maturity level of CalPERS and its plans is the ratio of actives to retirees, also called the s upport 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. To calculate the support ratio for the rate plan, retirees and beneficiaries receiving a continuance are each counted as one, even though they may have only worked a portion of their careers as an active member of this rate plan. For this reason, the support ratio, while intuitive, may be less informative than the ratio of retiree liability to total accrued liability above. For comparison, the support ratio for all CalPERS public agency plans as of June 30, 202 2, was 0.77 and was calculated consistently with how it is for the individual rate plan. Note that to calculate the support ratio for all public agency plans, a retiree with service from more than one CalPERS agency is counted as a retiree more than once . Support Ratio June 30, 2022 June 30, 2023 1. Number of Actives 156 164 2. Number of Retirees 453 458 3. Support Ratio [(1) ÷ (2)] 0.34 0.36 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 127 Packet Pg. 131 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 30 Maturity Measures (continued) 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 increases, 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 contributi ons 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 an AVR of 8 may experience twice the contribution volatility due to investment return volatility than a plan with an 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. Pl ans that have a higher LVR experience more volatile employer contributions (as a perc entage of payroll) due to changes in liability. For example, a plan with an LVR of 8 is expected to have twice the contribution volatility of a plan with an LVR of 4 when there is a change in accrued liability, such as when there is a change in actuarial a ssumptions. 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 ratio approaches 100%. Contribution Volatility June 30, 2022 June 30, 2023 1. Market Value of Assets without Receivables $318,570,781 $331,561,327 2. Payroll 25,004,764 27,941,899 3. Asset Volatility Ratio (AVR) [(1) ÷ (2)] 12.7 11.9 4. Accrued Liability $531,613,942 $555,403,195 5. Liability Volatility Ratio (LVR) [(4) ÷ (2)] 21.3 19.9 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 6/30/2021 71% 0.37 13.7 19.8 6/30/2022 72% 0.34 12.7 21.3 6/30/2023 73% 0.36 11.9 19.9 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 128 Packet Pg. 132 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 31 Funded Status – Termination Basis The funded status measured on a termination basis is an estimate of the financial position of the plan had the contract with CalPERS been termi nated as of June 30, 2023. The accrued liability on a termination basis (termination liability) is calculated differently from the plan’s ongoing funding liability. For th e 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 ongoi ng plan, that is, for an employer that continues to provide CalPERS retirement benefits to active employees. Unlike the actuarial cost method used for ongoing plans, the termination liability is the present value of the benefits earned through the valuatio n date. A more conservative investment policy and asset allocation strategy was adopted by the 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 re mainder of 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 discount rate used for actual termination valuations is a weighted average of the 10 -year and 30 -year Treasury yields where the weights are based on matching asset and liability durations as of the termination date. The discount rates used in the following analysis is based on 20 -year Treasury bonds , which is a good proxy for most plans. The discount rate upon contract termination will depend on actual Treasury rates on the date of termination , which varies over time, as shown below . Valuation 20-Year Valuation 20-Year Date Treasury Rate Date Treasury Rate 06/30/2014 3.08% 06/30/2019 2.31% 06/30/2015 2.83% 06/30/2020 1.18% 06/30/2016 1.86% 06/30/2021 2.00% 06/30/2017 2.61% 06/30/2022 3.38% 06/30/2018 2.91% 06/30/2023 4.06% As Treasury rates are variable, the table below shows a range for the termination liability using discount rates 1% below and above the 20-year Treasury rate on the valuation date. The price inflation assumption is the 20 -year Treasury breakeven inflation rate, that is, the difference between the 20 -year inflation indexed bond and the 20 -year fixed -rate bond. The Market Value of Assets (MVA) also varies with interest rates and will fluctuate depending on other market conditions on the date of termination . Since i t is not possible to approximate how the MVA will change in different interest rate environments, the results below use the MVA as of the valuation date. Discount Rate: 3.06 % Price Inflation: 2.50% Discount Rate: 5.06% Price Inflation: 2.50% 1. Termination Liability1 $904,933,308 $674,921,015 2. Market Value of Assets (MVA) 331,696,065 331,696,065 3. Unfunded Termination Liability [(1) – (2)] $573,237,243 $343,224,950 4. Funded Ratio [(2) ÷ (1)] 36.7% 49.1% 1 The termination liabilities calculated above include a 5% contingency load. The contingency load and other actuarial assumptions can be found in Appendix A. In order to terminate the plan, first contact our Pension Contract Services unit to initiate a Resolution of Intent to Terminate. The completed Resolution will allow a CalPERS actuary to provide a preliminary termination valuation with a more up -to-date estimate of the plan ’s assets and liabilities. Before beginning this process, please consult with a CalPERS actuary. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 129 Packet Pg. 133 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 32 Funded Status – Low-Default-Risk Basis Actuarial Standard of Practice (ASOP) No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions, requires the disclosure of a low -default-risk obligation measure (LDROM) of benefit costs accrued as of the valuation date using a discount rate based on the yields of high qual ity fixed income securities with cash flows that replicate expected benefit payments. Conceptually, this measure represents the level at which financial markets would value the accrued plan costs, and would be approximately equal to the cost of a portfolio of low-default-risk bonds with similar financial characteristics to accrued plan costs. As permitted in ASOP No. 4, the Actuarial Office uses the Entry Age Actuarial Cost Method to calculate the LDROM. This methodology is in line with the measure of “benefit entitlements” calculated by the Bureau of Economic Analysis and used by the Federal Reserve to report the indebtedness due to pensions of plan sponsors and, conversely, the household wealth due to pensions of plan members. As shown below, the dis count rate used for the LDROM is 4.82%, which is the Standard FTSE Pension Liability Index1 discount rate as of June 30, 2023 , net of assumed administrative expenses. Selected Measures on a Low -Default-Risk Basis June 30, 2023 Discount Rate 4.82% 1. Accrued Liability2 – Low-Default-Risk Basis (LDROM) a) Active Members $183,862,350 b) Transferred Members 20,519,522 c) Separated Members 9,387,460 d) Members and Beneficiaries Receiving Payments 499,071,708 e) Total $712,841,040 2. Market Value of Assets (MVA) 331,696,065 3. Unfunded Accrued Liability – Low-Default-Risk Basis [(1e) – (2)] $381,144,975 4. Unfunded Accrued Liability – Funding Policy Basis 223,707,130 5. Present Value of Unearned Investment Risk Premium [(3) – (4)] $157,437,845 The difference between the unfunded liabilities on a low -default-risk basis and on the funding policy basis represents the present value of the investment risk premium that must be earned in future years to keep future contributions for currently accrued p lan costs at the levels anticipated by the funding policy. Benefit security for members of the plan relies on a combination of the assets in the plan, the investment income generated f rom those assets, and the ability of the plan sponsor to make necessary future contributions. If future returns fall short of 6.8%, benefit security could be at risk without higher than currently anticipated future contributions. The funded status on a low -default-risk basis is not appropriate for assessing the sufficiency of plan assets to cover the cost of settling the plan’s benefit obligations (see Funded Status – Termination Basis), nor is it appropriate for assessing the need for future contributions (see Funded Status – Funding Policy Basis ). 1 This index is based on a yield curve of hypothetical AA -rated zero coupon corporate bonds whose maturities range from 6 months to 30 years. The index represents the single discount rate that would produce the same present value as discounting a standardized set of liabilit y cash flows for a fully open pension plan using the yield curve. The liability cash flows are reasonably consistent with the pattern of benefits expected to be paid from the entire Public Employees’ Retirement Fund for current and former plan members. A different index, hence a different discount rate, may be needed to measure the LDROM for a subset of the fund, such as a single rate plan or a group o f retirees. 2 If plan assets were invested entirely in the AA fixed income securities used to determine the discount rate of 4.82%, the CalPERS discount rate could, at various times, be below 4.5% or 5.25%, and some automatic annual retiree COLAs could be suspended (Gov. Code sections 21329 and 21335). Since there is currently no proposal to adopt an asset allocation entirely comprised of fixed income securities, the automa tic COLAs have been fully valued in the measures above based on the assumptions used for plan funding. Removing future COLAs from the measurement would understate the statutory obligation. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 130 Packet Pg. 134 of 184 Plan’s Major Benefit Options Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 131 Packet Pg. 135 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 34 Plan's Major Benefit Options Shown below is a summary of the major optional benefits for which the 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 No Yes No Yes Yes Transfers/Separated Yes Yes Yes Yes No Yes Yes Receiving Yes Yes Yes Yes Yes Yes Yes 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% 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 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 Survivor Allowance (PRSA) No No No No No No No COLA 2% 2% 2% 2% 2% 2% 2% Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 132 Packet Pg. 136 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 35 Plan's Major Benefit Options (Continued) Shown below i s a summary of the major optional benefits for which the agency has contracted. A description of principal standard and optio nal plan provisions is in Appendix B. Benefit Group Member Category Fire Police Fire Fire Fire Fire Police Demographics Actives Yes Yes No No No No No Transfers/Separated Yes Yes No No No No No Receiving No Yes Yes Yes Yes Yes Yes 112653 217220 217221 217224 217225 217226 217231 Benefit Provision Benefit Formula 2.7% @ 57 2.7% @ 57 Social Security Coverage No No Full/Modified Full Full Employee Contribution Rate 11.75% 11.75% Final Average Compensation Period Three Year Three Year Sick Leave Credit No No Non-Industrial Disability Standard Standard Industrial Disability Standard Standard Pre-Retirement Death Benefits Optional Settlement 2 Yes No 1959 Survivor Benefit Level Level 1 Level 1 Special Yes Yes Alternate (firefighters) No No Post-Retirement Death Benefits Lump Sum $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 Survivor Allowance (PRSA) No No No No No No No COLA 2% 2% 2% 2% 2% 2% 2% Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 133 Packet Pg. 137 of 184 CalPERS Actuarial Valuation - June 30, 2023 Safety Plan of the City of Palo Alto CalPERS ID: 6373437857 Page 36 Plan's Major Benefit Options (Continued) Shown below is a summary of the major optional benefits for which the agency has contracted. A description of principal stand ard 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 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 $2,000 $2,000 $2,000 Survivor Allowance (PRSA) No No No COLA 2% 2% 2% Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 134 Packet Pg. 138 of 184 Appendices • Appendix A – Actuarial Methods and Assumptions • Appendix B – Principal Plan Provisions • Appendix C – Participant Data • Appendix D – Glossary Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 135 Packet Pg. 139 of 184 Appendix A - Actuarial Methods and Assumptions • Actuarial Data 39 • Actuarial Methods 39 • Actuarial Assumptions 42 • Miscellaneous 62 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 136 Packet Pg. 140 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 39 Actuarial Data As stated in the Actuarial Certification, the data which serves as the basis of this valuation has been obtained from the var ious 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 form er 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 t hese cases may not be accurate. These situations are relatively inf requent, however, and generally do not have a material impact on the required employer contributions. Actuarial Methods Actuarial Cost Method With one exception, the actuarial cost method use d in this valuation is the Entry Age Actuarial Cost Method. This method is used to calculate the required employer contributions and the PEPRA member contribution rate. Under this method, the cost of the projected benefits is allocated on an individual basis as a level percent of earnings for the individual between entry age and retirement age. The portion allocated to the year following the valuation date is the normal cost. This method yields a total normal cost rate, expressed as a pe rcentage of payroll, which is designed to remain level throughout the member’s career. The actuarial accrued liability for active members is then calculated as the present value of benefits minus the present value of future normal cost, or the portion of the total present value of benefits 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 benef its expected to be paid. No norma l costs are applicable for these participants. To calculate the accrued liability on termination basis, this valuation use d the Traditional Unit Credit Actuarial Cost Method. This method differs from the entry age method only for active members where the accrued liability is the present value of benefits assuming no future pay increases or service accruals. Amortization of Unfunded Actuarial Accrued Liability The excess of the total actuarial accrued liability over the market value of plan assets is call ed 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 Actuarial Amortization Policy. The 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 prio r policy. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 137 Packet Pg. 141 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 40 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: 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 2.80% 0% 2.80% 0% 2.80% 0% 2.80% 0% 2.80% 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. N on-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 cha nges 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: Driver 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 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 138 Packet Pg. 142 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 41 • 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. Exceptions for Plans in Surplus If a surplus exists (i.e., the Market Value of Assets exceeds the plan’s accrued liability) any prior amort ization 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 les s. 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 clas sified 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 demogra phics 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 m arket value of assets. Asset values include accounts receivable. PEPRA Normal Cost Rate Methodology Per Government Code s ection 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 th e 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 form ula, eligibility and vesting criteria, ancillary be nefit 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 re latively 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 enough yet. The total PEPRA normal cost for each PEPRA benefit tier will be determined based on the entire active plan population (both PEPRA and Classic) only until 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 mem bers Once one of these conditions is met, the total PEPRA normal cost for each PEPRA benefit tier will be determined using the entire active PEPRA population. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 139 Packet Pg. 143 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 42 Actuarial Assumptions In 2021, CalPERS completed its most recent asset liability management study incorporating actuarial assumptions and strategic asset allocation. In November 2021, the board adopted changes to the asset allocation that increased the expected volatility of returns. The adopted asset alloca tion was expected to have a long -term blended return that continued to support a discount rate assumption of 6.80%. The board also approved several changes to the demographic assumptions that more closely aligned with actual experience. For more details and additional rationale for the selection of the actuarial assumptions, please refer to the 2021 CalPERS Experience Study and Review of Actuarial Assumptions 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 and price inflation assumption used for the accrued liability on a termination basis ) 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 November 17, 2 021, is 6.80% compounded annually (net of investment and administrative expenses) as of June 30, 2023. The discount rate is based on the long-term expected rate of return on assets using a building -block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major a s set class. The current assumption, originally based on capital market assumptions developed by the Investment Office in 2021, has been reviewed for this valuation based on capital market assumptions developed by the Investment Office in 2023. Termination Liability Discount Rate The current discount rate assumption used for termi nation 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 accrued liabilities on a termination basis in this report use discount rates that are based on the 20-year Treasury rate on the valuation date. To illustrate the impact of the variability of interest rates, the accrued liabilities on a termination basis in this report use discount rates 1% below and 1% above the 20-year Treasury rate on the valuation date. The 20-year Treasury rate was 4.06% on June 30, 2023. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 140 Packet Pg. 144 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 43 Salary Increases Annual increases vary by category, entry age, and duration of service. A sample of assumed increases due to seniority, merit and promotion are shown below. Assumed wage inflation is combined with these factors to develop the total expected salary increases. Public Agency Miscellaneous Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.0764 0.0621 0.0521 1 0.0663 0.0528 0.0424 2 0.0576 0.0449 0.0346 3 0.0501 0.0381 0.0282 4 0.0435 0.0324 0.0229 5 0.0378 0.0276 0.0187 10 0.0201 0.0126 0.0108 15 0.0155 0.0102 0.0071 20 0.0119 0.0083 0.0047 25 0.0091 0.0067 0.0031 30 0.0070 0.0054 0.0020 Public Agency Fire Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.1517 0.1549 0.0631 1 0.1191 0.1138 0.0517 2 0.0936 0.0835 0.0423 3 0.0735 0.0613 0.0346 4 0.0577 0.0451 0.0284 5 0.0453 0.0331 0.0232 10 0.0188 0.0143 0.0077 15 0.0165 0.0124 0.0088 20 0.0145 0.0108 0.0101 25 0.0127 0.0094 0.0115 30 0.0112 0.0082 0.0132 Public Agency Police Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.1181 0.1051 0.0653 1 0.0934 0.0812 0.0532 2 0.0738 0.0628 0.0434 3 0.0584 0.0485 0.0353 4 0.0462 0.0375 0.0288 5 0.0365 0.0290 0.0235 10 0.0185 0.0155 0.0118 15 0.0183 0.0150 0.0131 20 0.0181 0.0145 0.0145 25 0.0179 0.0141 0.0161 30 0.0178 0.0136 0.0179 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 141 Packet Pg. 145 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 44 Salary Increases (continued) Public Agency County Peace Officers Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.1238 0.1053 0.0890 1 0.0941 0.0805 0.0674 2 0.0715 0.0616 0.0510 3 0.0544 0.0471 0.0387 4 0.0413 0.0360 0.0293 5 0.0314 0.0276 0.0222 10 0.0184 0.0142 0.0072 15 0.0174 0.0124 0.0073 20 0.0164 0.0108 0.0074 25 0.0155 0.0094 0.0075 30 0.0147 0.0083 0.0077 Schools Duration of Service (Entry Age 20) (Entry Age 30) (Entry Age 40) 0 0.0275 0.0275 0.0200 1 0.0422 0.0373 0.0298 2 0.0422 0.0373 0.0298 3 0.0422 0.0373 0.0298 4 0.0388 0.0314 0.0245 5 0.0308 0.0239 0.0179 10 0.0236 0.0160 0.0121 15 0.0182 0.0135 0.0103 20 0.0145 0.0109 0.0085 25 0.0124 0.0102 0.0058 30 0.0075 0.0053 0.0019 • The Miscellaneous salary scale is used for Local Prosecutors. • The Police salary scale is used for Other Safety, Local Sheriff, and School Police. Price Inflation 2.30% compounded annually. Termination Liability Price Inflation The breakeven inflation rate for 20 -year Treasuries on the valuation date, 2.50%. Wage Inflation 2.80% compounded annually. This is used in projecting individual salary increases. Payroll Growth 2.80% compounded annually. This is used as the escalation rate of the amortization payments on level percent of payroll amortization bases , that is, on any amortization bases established prior to 2019 for plans that currently have active members. Non-valued Potential Additional Liabilities The potential liability loss for a cost-of-living increase exceeding the 2.30% price inflation assumption and any potential liability loss from future member service purchases that 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. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 142 Packet Pg. 146 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 45 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 project ed 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 improvements in mortality. Demographic Assumptions Pre -Retirement Mortality The mortality assumptions are based on mortality rates resulting from the most recent Ca lPERS Experience Study adopted by the CalPERS Board in November 2021. For purposes of the mortality rates, the rates incorporate generational mortality to capture ongoing mortality improvement. Generational mortality explicitly assumes that members born mo re recently will live longer than the members born before them thereby capturing the mortality improvement seen in the past and expected continued improvement. For more details, please refer to the 2021 CalPERS Experience Study and Review of Actuarial Assumptions report that can be found on the CalPERS website . Rates vary by age and gender. This table only contains a sample of the 2017 base table rates for illustrative purposes. The n on- industrial death rates are used for all plans. The industrial death rates are used for Safety plans (except for local Safety mem bers described in Government Code s ection 20423.6 where the agency has not specifically contracted for industrial death benefits.) Miscellaneous Safety Non-Industrial Death Non-Industrial Death Industrial Death (Not Job-Related) (Not Job-Related) (Job-Related) Age Male Female Male Female Male Female 20 0.00039 0.00014 0.00038 0.00014 0.00004 0.00002 25 0.00033 0.00013 0.00034 0.00018 0.00004 0.00002 30 0.00044 0.00019 0.00042 0.00025 0.00005 0.00003 35 0.00058 0.00029 0.00048 0.00034 0.00005 0.00004 40 0.00075 0.00039 0.00055 0.00042 0.00006 0.00005 45 0.00093 0.00054 0.00066 0.00053 0.00007 0.00006 50 0.00134 0.00081 0.00092 0.00073 0.00010 0.00008 55 0.00198 0.00123 0.00138 0.00106 0.00015 0.00012 60 0.00287 0.00179 0.00221 0.00151 0.00025 0.00017 65 0.00403 0.00250 0.00346 0.00194 0.00038 0.00022 70 0.00594 0.00404 0.00606 0.00358 0.00067 0.00040 75 0.00933 0.00688 0.01099 0.00699 0.00122 0.00078 80 0.01515 0.01149 0.02027 0.01410 0.00225 0.00157 • The pre -retirement mortality rates above are for 2017 and are projected generationally for future years using 80% of the Society of Actuaries’ Scale MP -2020. • 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. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 143 Packet Pg. 147 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 46 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. Service Retirement Non-Industrial Disability Industrial Disability (Not Job-Related) (Job-Related) Age Male Female Male Female Male Female 50 0.00267 0.00199 0.01701 0.01439 0.00430 0.00311 55 0.00390 0.00325 0.02210 0.01734 0.00621 0.00550 60 0.00578 0.00455 0.02708 0.01962 0.00944 0.00868 65 0.00857 0.00612 0.03334 0.02276 0.01394 0.01190 70 0.01333 0.00996 0.04001 0.02910 0.02163 0.01858 75 0.02391 0.01783 0.05376 0.04160 0.03446 0.03134 80 0.04371 0.03403 0.07936 0.06112 0.05853 0.05183 85 0.08274 0.06166 0.11561 0.09385 0.10137 0.08045 90 0.14539 0.11086 0.16608 0.14396 0.16584 0.12434 95 0.24665 0.20364 0.24665 0.20364 0.24665 0.20364 100 0.36198 0.31582 0.36198 0.31582 0.36198 0.31582 105 0.52229 0.44679 0.52229 0.44679 0.52229 0.44679 110 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 • The post-retirement mortality rates above are for 2017 and are projected generationally for future years using 80% of the Society of Actuaries’ Scale MP -2020. Marital Status For active members, a percentage who are married upon retirement is assumed according to the member category as shown in the following table. Member Category Percent Married Miscellaneous Member 70% Local Police 85% Local Fire 85% 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. Separated Members It is assumed that separated members refund immediately if non -vested. Separated members who are vested are assumed to retire at age 59 for Miscellaneous members and age 54 for Safety members. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 144 Packet Pg. 148 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 47 Termination with Refu nd Rates vary by entry age and service for Miscellaneous plans. Rates vary by service for Safety plans. See sample rates in tabl es 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 Male Female Male Female Male Female Male Female Male Female Male Female 0 0.1851 0.1944 0.1769 0.1899 0.1631 0.1824 0.1493 0.1749 0.1490 0.1731 0.1487 0.1713 1 0.1531 0.1673 0.1432 0.1602 0.1266 0.1484 0.1101 0.1366 0.1069 0.1323 0.1037 0.1280 2 0.1218 0.1381 0.1125 0.1307 0.0970 0.1183 0.0815 0.1058 0.0771 0.0998 0.0726 0.0938 3 0.0927 0.1085 0.0852 0.1020 0.0727 0.0912 0.0601 0.0804 0.0556 0.0737 0.0511 0.0669 4 0.0672 0.0801 0.0616 0.0752 0.0524 0.0670 0.0431 0.0587 0.0392 0.0523 0.0352 0.0459 5 0.0463 0.0551 0.0423 0.0517 0.0358 0.0461 0.0292 0.0404 0.0261 0.0350 0.0230 0.0296 10 0.0112 0.0140 0.0101 0.0129 0.0083 0.0112 0.0064 0.0094 0.0048 0.0071 0.0033 0.0049 15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 20 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 25 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 30 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 35 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 Public Agency Safety Duration of Service Fire Police County Peace Officer Male Female Male Female Male Female 0 0.1022 0.1317 0.1298 0.1389 0.1086 0.1284 1 0.0686 0.1007 0.0789 0.0904 0.0777 0.0998 2 0.0441 0.0743 0.0464 0.0566 0.0549 0.0759 3 0.0272 0.0524 0.0274 0.0343 0.0385 0.0562 4 0.0161 0.0349 0.0170 0.0206 0.0268 0.0402 5 0.0092 0.0214 0.0113 0.0128 0.0186 0.0276 10 0.0015 0.0000 0.0032 0.0047 0.0046 0.0038 15 0.0000 0.0000 0.0000 0.0000 0.0023 0.0036 20 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 25 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 30 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 35 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 • The police termination and refund rates are also used for Public Agency Local Prosecutors, Other Safety, Local Sheriff, and School Police. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 145 Packet Pg. 149 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 48 Termination with Refund (continued) Schools Duration of Service Entry Age 20 Entry Age 25 Entry Age 30 Entry Age 35 Entry Age 40 Entry Age 45 Male Female Male Female Male Female Male Female Male Female Male Female 0 0.2054 0.2120 0.1933 0.1952 0.1730 0.1672 0.1527 0.1392 0.1423 0.1212 0.1318 0.1032 1 0.1922 0.2069 0.1778 0.1883 0.1539 0.1573 0.1300 0.1264 0.1191 0.1087 0.1083 0.0910 2 0.1678 0.1859 0.1536 0.1681 0.1298 0.1383 0.1060 0.1086 0.0957 0.0934 0.0853 0.0782 3 0.1384 0.1575 0.1256 0.1417 0.1042 0.1155 0.0829 0.0893 0.0736 0.0774 0.0643 0.0656 4 0.1085 0.1274 0.0978 0.1143 0.0800 0.0925 0.0622 0.0707 0.0542 0.0620 0.0462 0.0533 5 0.0816 0.0991 0.0732 0.0887 0.0590 0.0713 0.0449 0.0539 0.0383 0.0476 0.0317 0.0413 10 0.0222 0.0248 0.0200 0.0221 0.0163 0.0174 0.0125 0.0128 0.0094 0.0100 0.0063 0.0072 15 0.0106 0.0132 0.0095 0.0113 0.0077 0.0083 0.0058 0.0052 0.0040 0.0039 0.0021 0.0026 20 0.0059 0.0065 0.0050 0.0054 0.0035 0.0036 0.0021 0.0019 0.0010 0.0009 0.0000 0.0000 25 0.0029 0.0034 0.0025 0.0029 0.0018 0.0020 0.0010 0.0012 0.0005 0.0006 0.0000 0.0000 30 0.0012 0.0015 0.0011 0.0013 0.0011 0.0011 0.0010 0.0009 0.0005 0.0005 0.0000 0.0000 35 0.0006 0.0007 0.0006 0.0007 0.0005 0.0006 0.0005 0.0005 0.0003 0.0002 0.0000 0.0000 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 146 Packet Pg. 150 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 49 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 Male Female Male Female Male Female Male Female Male Female 5 0.0381 0.0524 0.0381 0.0524 0.0358 0.0464 0.0334 0.0405 0.0301 0.0380 10 0.0265 0.0362 0.0265 0.0362 0.0254 0.0334 0.0244 0.0307 0.0197 0.0236 15 0.0180 0.0252 0.0180 0.0252 0.0166 0.0213 0.0152 0.0174 0.0119 0.0132 20 0.0141 0.0175 0.0141 0.0175 0.0110 0.0131 0.0079 0.0087 0.0000 0.0000 25 0.0084 0.0108 0.0084 0.0108 0.0064 0.0076 0.0000 0.0000 0.0000 0.0000 30 0.0047 0.0056 0.0047 0.0056 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 35 0.0038 0.0041 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 Public Agency Safety Duration of Service Fire Police County Peace Officer Male Female Male Female Male Female 5 0.0089 0.0224 0.0156 0.0272 0.0177 0.0266 10 0.0066 0.0164 0.0113 0.0198 0.0126 0.0189 15 0.0048 0.0120 0.0083 0.0144 0.0089 0.0134 20 0.0035 0.0088 0.0060 0.0105 0.0063 0.0095 25 0.0024 0.0061 0.0042 0.0073 0.0042 0.0063 30 0.0012 0.0031 0.0021 0.0037 0.0021 0.0031 35 0.0000 0.0000 0.0000 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 Male Female Male Female Male Female Male Female Male Female 5 0.0359 0.0501 0.0359 0.0501 0.0332 0.0402 0.0305 0.0304 0.0266 0.0272 10 0.0311 0.0417 0.0311 0.0417 0.0269 0.0341 0.0228 0.0265 0.0193 0.0233 15 0.0193 0.0264 0.0193 0.0264 0.0172 0.0220 0.0151 0.0175 0.0123 0.0142 20 0.0145 0.0185 0.0145 0.0185 0.0113 0.0141 0.0080 0.0097 0.0000 0.0000 25 0.0089 0.0123 0.0089 0.0123 0.0074 0.0093 0.0000 0.0000 0.0000 0.0000 30 0.0057 0.0064 0.0057 0.0064 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 35 0.0040 0.0049 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 147 Packet Pg. 151 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 50 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 All All All Male Female 20 0.0001 0.0000 0.0001 0.0001 0.0001 0.0000 0.0002 25 0.0001 0.0001 0.0001 0.0001 0.0001 0.0000 0.0002 30 0.0002 0.0003 0.0001 0.0001 0.0001 0.0002 0.0002 35 0.0004 0.0007 0.0001 0.0002 0.0003 0.0005 0.0004 40 0.0009 0.0012 0.0001 0.0002 0.0006 0.0010 0.0008 45 0.0015 0.0019 0.0002 0.0003 0.0011 0.0019 0.0015 50 0.0015 0.0019 0.0004 0.0005 0.0016 0.0027 0.0021 55 0.0014 0.0013 0.0006 0.0007 0.0009 0.0024 0.0017 60 0.0012 0.0009 0.0006 0.0011 0.0005 0.0020 0.0010 • 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. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 148 Packet Pg. 152 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 51 Service Retirement Retirement rates vary by age, service, and formula, except for the Safety Half Pay at 55 and 2% at 55 formulas, where retirement rates vary by age only. Public Agency Miscellaneous 1.5% at age 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% at age 60 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.010 0.011 0.014 0.014 0.017 0.017 51 0.017 0.013 0.014 0.010 0.010 0.010 52 0.014 0.014 0.018 0.015 0.016 0.016 53 0.015 0.012 0.013 0.010 0.011 0.011 54 0.006 0.010 0.017 0.016 0.018 0.018 55 0.012 0.016 0.024 0.032 0.036 0.036 56 0.010 0.014 0.023 0.030 0.034 0.034 57 0.006 0.018 0.030 0.040 0.044 0.044 58 0.022 0.023 0.033 0.042 0.046 0.046 59 0.039 0.033 0.040 0.047 0.050 0.050 60 0.063 0.069 0.074 0.090 0.137 0.116 61 0.044 0.058 0.066 0.083 0.131 0.113 62 0.084 0.107 0.121 0.153 0.238 0.205 63 0.173 0.166 0.165 0.191 0.283 0.235 64 0.120 0.145 0.164 0.147 0.160 0.172 65 0.138 0.160 0.214 0.216 0.237 0.283 66 0.198 0.228 0.249 0.216 0.228 0.239 67 0.207 0.242 0.230 0.233 0.233 0.233 68 0.201 0.234 0.225 0.231 0.231 0.231 69 0.152 0.173 0.164 0.166 0.166 0.166 70 0.200 0.200 0.200 0.200 0.200 0.200 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 149 Packet Pg. 153 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 52 Service Retirement (continued) Public Agency Miscellaneous 2% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.014 0.014 0.017 0.021 0.023 0.024 51 0.013 0.017 0.017 0.018 0.018 0.019 52 0.013 0.018 0.018 0.020 0.020 0.021 53 0.013 0.019 0.021 0.024 0.025 0.026 54 0.017 0.025 0.028 0.032 0.033 0.035 55 0.045 0.042 0.053 0.086 0.098 0.123 56 0.018 0.036 0.056 0.086 0.102 0.119 57 0.041 0.046 0.056 0.076 0.094 0.120 58 0.052 0.044 0.048 0.074 0.106 0.123 59 0.043 0.058 0.073 0.092 0.105 0.126 60 0.059 0.064 0.083 0.115 0.154 0.170 61 0.087 0.074 0.087 0.107 0.147 0.168 62 0.115 0.123 0.151 0.180 0.227 0.237 63 0.116 0.127 0.164 0.202 0.252 0.261 64 0.084 0.138 0.153 0.190 0.227 0.228 65 0.167 0.187 0.210 0.262 0.288 0.291 66 0.187 0.258 0.280 0.308 0.318 0.319 67 0.195 0.235 0.244 0.277 0.269 0.280 68 0.228 0.248 0.250 0.241 0.245 0.245 69 0.188 0.201 0.209 0.219 0.231 0.231 70 0.229 0.229 0.229 0.229 0.229 0.229 Public Agency Miscellaneous 2.5% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.014 0.017 0.027 0.035 0.046 0.050 51 0.019 0.021 0.025 0.030 0.038 0.040 52 0.018 0.020 0.026 0.034 0.038 0.037 53 0.013 0.021 0.031 0.045 0.052 0.053 54 0.025 0.025 0.030 0.046 0.057 0.068 55 0.029 0.042 0.064 0.109 0.150 0.225 56 0.036 0.047 0.068 0.106 0.134 0.194 57 0.051 0.047 0.060 0.092 0.116 0.166 58 0.035 0.046 0.062 0.093 0.119 0.170 59 0.029 0.053 0.072 0.112 0.139 0.165 60 0.039 0.069 0.094 0.157 0.177 0.221 61 0.080 0.077 0.086 0.140 0.167 0.205 62 0.086 0.131 0.149 0.220 0.244 0.284 63 0.135 0.135 0.147 0.214 0.222 0.262 64 0.114 0.128 0.158 0.177 0.233 0.229 65 0.112 0.174 0.222 0.209 0.268 0.273 66 0.235 0.254 0.297 0.289 0.321 0.337 67 0.237 0.240 0.267 0.249 0.267 0.277 68 0.258 0.271 0.275 0.207 0.210 0.212 69 0.117 0.208 0.266 0.219 0.250 0.270 70 0.229 0.229 0.229 0.229 0.229 0.229 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 150 Packet Pg. 154 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 53 Service Retirement (continued) Public Agency Miscellaneous 2.7% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.011 0.016 0.022 0.033 0.034 0.038 51 0.018 0.019 0.023 0.032 0.031 0.031 52 0.019 0.020 0.026 0.035 0.034 0.037 53 0.020 0.020 0.025 0.043 0.048 0.053 54 0.018 0.030 0.040 0.052 0.053 0.070 55 0.045 0.058 0.082 0.138 0.208 0.278 56 0.057 0.062 0.080 0.121 0.178 0.222 57 0.045 0.052 0.071 0.106 0.147 0.182 58 0.074 0.060 0.074 0.118 0.163 0.182 59 0.058 0.067 0.086 0.123 0.158 0.187 60 0.087 0.084 0.096 0.142 0.165 0.198 61 0.073 0.084 0.101 0.138 0.173 0.218 62 0.130 0.133 0.146 0.187 0.214 0.249 63 0.122 0.140 0.160 0.204 0.209 0.243 64 0.104 0.124 0.154 0.202 0.214 0.230 65 0.182 0.201 0.242 0.264 0.293 0.293 66 0.272 0.249 0.273 0.285 0.312 0.312 67 0.182 0.217 0.254 0.249 0.264 0.264 68 0.223 0.197 0.218 0.242 0.273 0.273 69 0.217 0.217 0.217 0.217 0.217 0.217 70 0.227 0.227 0.227 0.227 0.227 0.227 Public Agency Miscellaneous 3% at age 60 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.015 0.020 0.025 0.039 0.040 0.044 51 0.041 0.034 0.032 0.041 0.036 0.037 52 0.024 0.020 0.022 0.039 0.040 0.041 53 0.018 0.024 0.032 0.047 0.048 0.057 54 0.033 0.033 0.035 0.051 0.049 0.052 55 0.137 0.043 0.051 0.065 0.076 0.108 56 0.173 0.038 0.054 0.075 0.085 0.117 57 0.019 0.035 0.059 0.088 0.111 0.134 58 0.011 0.040 0.070 0.105 0.133 0.162 59 0.194 0.056 0.064 0.081 0.113 0.163 60 0.081 0.085 0.133 0.215 0.280 0.333 61 0.080 0.090 0.134 0.170 0.223 0.292 62 0.137 0.153 0.201 0.250 0.278 0.288 63 0.128 0.140 0.183 0.227 0.251 0.260 64 0.174 0.147 0.173 0.224 0.239 0.264 65 0.152 0.201 0.262 0.299 0.323 0.323 66 0.272 0.273 0.317 0.355 0.380 0.380 67 0.218 0.237 0.268 0.274 0.284 0.284 68 0.200 0.228 0.269 0.285 0.299 0.299 69 0.250 0.250 0.250 0.250 0.250 0.250 70 0.245 0.245 0.245 0.245 0.245 0.245 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 151 Packet Pg. 155 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 54 Service Retirement (continued) Public Agency Miscellaneous 2% at age 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 Public Agency Fire Half Pay at age 55 and 2% at age 55 Age Rate Age Rate 50 0.016 56 0.111 51 0.000 57 0.000 52 0.034 58 0.095 53 0.020 59 0.044 54 0.041 60 1.000 55 0.075 Public Agency Police Half Pay at age 55 and 2% at age 55 Age Rate Age Rate 50 0.026 56 0.069 51 0.000 57 0.051 52 0.016 58 0.072 53 0.027 59 0.070 54 0.010 60 0.300 55 0.167 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 152 Packet Pg. 156 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 55 Service Retirement (continued) Public Agency Police 2% at age 50 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.018 0.077 0.056 0.046 0.043 0.046 51 0.022 0.087 0.060 0.048 0.044 0.047 52 0.020 0.102 0.081 0.071 0.069 0.075 53 0.016 0.072 0.053 0.045 0.042 0.046 54 0.006 0.071 0.071 0.069 0.072 0.080 55 0.009 0.040 0.099 0.157 0.186 0.186 56 0.020 0.051 0.108 0.165 0.194 0.194 57 0.036 0.072 0.106 0.139 0.156 0.156 58 0.001 0.046 0.089 0.130 0.152 0.152 59 0.066 0.094 0.119 0.143 0.155 0.155 60 0.177 0.177 0.177 0.177 0.177 0.177 61 0.134 0.134 0.134 0.134 0.134 0.134 62 0.184 0.184 0.184 0.184 0.184 0.184 63 0.250 0.250 0.250 0.250 0.250 0.250 64 0.177 0.177 0.177 0.177 0.177 0.177 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. Public Agency Fire 2% at age 50 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.054 0.054 0.056 0.080 0.064 0.066 51 0.020 0.020 0.021 0.030 0.024 0.024 52 0.037 0.037 0.038 0.054 0.043 0.045 53 0.051 0.051 0.053 0.076 0.061 0.063 54 0.082 0.082 0.085 0.121 0.097 0.100 55 0.139 0.139 0.139 0.139 0.139 0.139 56 0.129 0.129 0.129 0.129 0.129 0.129 57 0.085 0.085 0.085 0.085 0.085 0.085 58 0.119 0.119 0.119 0.119 0.119 0.119 59 0.167 0.167 0.167 0.167 0.167 0.167 60 0.152 0.152 0.152 0.152 0.152 0.152 61 0.179 0.179 0.179 0.179 0.179 0.179 62 0.179 0.179 0.179 0.179 0.179 0.179 63 0.179 0.179 0.179 0.179 0.179 0.179 64 0.179 0.179 0.179 0.179 0.179 0.179 65 1.000 1.000 1.000 1.000 1.000 1.000 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 153 Packet Pg. 157 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 56 Service Retirement (continued) Public Agency Police 3% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.019 0.053 0.045 0.054 0.057 0.061 51 0.002 0.017 0.028 0.044 0.053 0.060 52 0.002 0.031 0.037 0.051 0.059 0.066 53 0.026 0.049 0.049 0.080 0.099 0.114 54 0.019 0.034 0.047 0.091 0.121 0.142 55 0.006 0.115 0.141 0.199 0.231 0.259 56 0.017 0.188 0.121 0.173 0.199 0.199 57 0.008 0.137 0.093 0.136 0.157 0.157 58 0.017 0.126 0.105 0.164 0.194 0.194 59 0.026 0.146 0.110 0.167 0.195 0.195 60 0.155 0.155 0.155 0.155 0.155 0.155 61 0.210 0.210 0.210 0.210 0.210 0.210 62 0.262 0.262 0.262 0.262 0.262 0.262 63 0.172 0.172 0.172 0.172 0.172 0.172 64 0.227 0.227 0.227 0.227 0.227 0.227 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. Public Agency Fire 3% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.003 0.006 0.013 0.019 0.025 0.028 51 0.004 0.008 0.017 0.026 0.034 0.038 52 0.005 0.011 0.022 0.033 0.044 0.049 53 0.005 0.034 0.024 0.038 0.069 0.138 54 0.007 0.047 0.032 0.051 0.094 0.187 55 0.010 0.067 0.046 0.073 0.134 0.266 56 0.010 0.063 0.044 0.069 0.127 0.253 57 0.135 0.100 0.148 0.196 0.220 0.220 58 0.083 0.062 0.091 0.120 0.135 0.135 59 0.137 0.053 0.084 0.146 0.177 0.177 60 0.162 0.063 0.099 0.172 0.208 0.208 61 0.598 0.231 0.231 0.231 0.231 0.231 62 0.621 0.240 0.240 0.240 0.240 0.240 63 0.236 0.236 0.236 0.236 0.236 0.236 64 0.236 0.236 0.236 0.236 0.236 0.236 65 1.000 1.000 1.000 1.000 1.000 1.000 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 154 Packet Pg. 158 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 57 Service Retirement (continued) Public Agency Police 3% at age 50 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.124 0.103 0.113 0.143 0.244 0.376 51 0.060 0.081 0.087 0.125 0.207 0.294 52 0.016 0.055 0.111 0.148 0.192 0.235 53 0.072 0.074 0.098 0.142 0.189 0.237 54 0.018 0.049 0.105 0.123 0.187 0.271 55 0.069 0.074 0.081 0.113 0.209 0.305 56 0.064 0.108 0.113 0.125 0.190 0.288 57 0.056 0.109 0.160 0.182 0.210 0.210 58 0.108 0.129 0.173 0.189 0.214 0.214 59 0.093 0.144 0.204 0.229 0.262 0.262 60 0.343 0.180 0.159 0.188 0.247 0.247 61 0.221 0.221 0.221 0.221 0.221 0.221 62 0.213 0.213 0.213 0.213 0.213 0.213 63 0.233 0.233 0.233 0.233 0.233 0.233 64 0.234 0.234 0.234 0.234 0.234 0.234 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. Public Agency Fire 3% at age 50 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.095 0.048 0.053 0.093 0.134 0.175 51 0.016 0.032 0.053 0.085 0.117 0.149 52 0.013 0.032 0.054 0.087 0.120 0.154 53 0.085 0.044 0.049 0.089 0.129 0.170 54 0.038 0.065 0.074 0.105 0.136 0.167 55 0.042 0.043 0.049 0.085 0.132 0.215 56 0.133 0.103 0.075 0.113 0.151 0.209 57 0.062 0.048 0.060 0.124 0.172 0.213 58 0.124 0.097 0.092 0.153 0.194 0.227 59 0.092 0.071 0.078 0.144 0.192 0.233 60 0.056 0.044 0.061 0.131 0.186 0.233 61 0.282 0.219 0.158 0.198 0.233 0.260 62 0.292 0.227 0.164 0.205 0.241 0.269 63 0.196 0.196 0.196 0.196 0.196 0.196 64 0.197 0.197 0.197 0.197 0.197 0.197 65 1.000 1.000 1.000 1.000 1.000 1.000 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 155 Packet Pg. 159 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 58 Service Retirement (continued) Public Agency Police 2% at age 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. Public Agency Fire 2% at age 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 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 156 Packet Pg. 160 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 59 Service Retirement (continued) Public Agency Police 2.5% at age 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. Public Agency Fire 2.5% at age 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 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 157 Packet Pg. 161 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 60 Service Retirement (continued) Public Agency Police 2.7% at age 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 0.040 0.040 0.040 0.040 0.058 0.094 52 0.038 0.038 0.038 0.038 0.058 0.083 53 0.038 0.038 0.038 0.038 0.077 0.117 54 0.038 0.038 0.038 0.044 0.093 0.150 55 0.068 0.068 0.068 0.091 0.134 0.242 56 0.063 0.063 0.063 0.084 0.123 0.217 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. Public Agency Fire 2.7% at age 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 0.013 0.019 52 0.016 0.016 0.016 0.016 0.025 0.038 53 0.044 0.044 0.044 0.044 0.068 0.102 54 0.061 0.061 0.061 0.061 0.093 0.140 55 0.083 0.083 0.083 0.083 0.127 0.190 56 0.074 0.074 0.074 0.074 0.114 0.171 57 0.090 0.090 0.090 0.090 0.139 0.208 58 0.079 0.079 0.079 0.079 0.122 0.182 59 0.073 0.073 0.073 0.073 0.112 0.168 60 0.114 0.114 0.114 0.114 0.175 0.262 61 0.114 0.114 0.114 0.114 0.175 0.262 62 0.114 0.114 0.114 0.114 0.175 0.262 63 0.114 0.114 0.114 0.114 0.175 0.262 64 0.114 0.114 0.114 0.114 0.175 0.262 65 1.000 1.000 1.000 1.000 1.000 1.000 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 158 Packet Pg. 162 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 61 Service Retirement (continued) Schools 2% at age 55 Duration of Service Age 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 50 0.003 0.004 0.006 0.007 0.010 0.010 51 0.004 0.005 0.007 0.008 0.011 0.011 52 0.005 0.007 0.008 0.009 0.012 0.012 53 0.007 0.008 0.010 0.012 0.015 0.015 54 0.006 0.009 0.012 0.015 0.020 0.021 55 0.011 0.023 0.034 0.057 0.070 0.090 56 0.012 0.027 0.036 0.056 0.073 0.095 57 0.016 0.027 0.036 0.055 0.068 0.087 58 0.019 0.030 0.040 0.062 0.078 0.103 59 0.023 0.034 0.046 0.070 0.085 0.109 60 0.022 0.043 0.062 0.095 0.113 0.141 61 0.030 0.051 0.071 0.103 0.124 0.154 62 0.065 0.098 0.128 0.188 0.216 0.248 63 0.075 0.112 0.144 0.197 0.222 0.268 64 0.091 0.116 0.138 0.180 0.196 0.231 65 0.163 0.164 0.197 0.232 0.250 0.271 66 0.208 0.204 0.243 0.282 0.301 0.315 67 0.189 0.185 0.221 0.257 0.274 0.287 68 0.127 0.158 0.200 0.227 0.241 0.244 69 0.168 0.162 0.189 0.217 0.229 0.238 70 0.191 0.190 0.237 0.250 0.246 0.254 Schools 2% at age 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 0.004 0.007 0.010 0.011 0.013 0.015 53 0.004 0.008 0.010 0.013 0.014 0.016 54 0.005 0.011 0.015 0.018 0.020 0.022 55 0.014 0.027 0.038 0.045 0.050 0.056 56 0.013 0.026 0.037 0.043 0.048 0.055 57 0.013 0.027 0.038 0.045 0.050 0.055 58 0.017 0.034 0.047 0.056 0.062 0.069 59 0.019 0.037 0.052 0.062 0.068 0.076 60 0.026 0.053 0.074 0.087 0.097 0.108 61 0.030 0.058 0.081 0.095 0.106 0.119 62 0.053 0.105 0.147 0.174 0.194 0.217 63 0.054 0.107 0.151 0.178 0.198 0.222 64 0.053 0.105 0.147 0.174 0.194 0.216 65 0.072 0.142 0.199 0.235 0.262 0.293 66 0.077 0.152 0.213 0.252 0.281 0.314 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 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 159 Packet Pg. 163 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix A Actuarial Methods and Assumptions Page 62 Miscellaneous Models The valuation results are based on proprietary actuarial valuation models. The models are centralized and maintained by a specialized team to achieve a high degree of accuracy and consistency. The Actuarial Office is responsible for confirming the appropriaten ess of the inputs (such as participant data, actuarial methods and assumptions, and plan provisions) as well as performing tests and validating the reasonableness of the output. The results of our models are independently confirmed by parallel valuations p erformed by outside actuaries on a periodic basis using their models. In our professional judgment, our actuarial valuation models produce comprehensive pension funding information consistent with the purposes of the valuation and have no material limitati ons or known weaknesses. Internal Revenue Code Section 415 (b) The limitations on benefits imposed by Internal Revenue Code s ection 415(b) are taken into account in this valuation. Each year the impact of any changes in this limitation other than assumed since the prior valuation is included and amortized as part of the non-investment 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 2023 calendar year is $2 65,000. Internal Revenue Code Section 401(a)(17) The limitations on compensation imposed by Internal R evenue Code s ection 401(a)(17) are taken into account in this valuation. Each year, the impact of any changes in the compensation limitation other than assumed since the prior valuation is included and amortized as part of the non -investment gain or loss base. The compensation limit for classic members for the 2023 calendar year is $330,000. PEPRA Compensation Limits The limitations on compensation for PEPRA members imposed by Government Code section 75 22.10 are taken into account in this valuation. Each year, the impact of any changes in the compensation limitation other than assumed since the prior valuation is included and amortized as part of the non-investment gain or loss base. The PEPRA compensati on limit for 2023 is $146,042 for members who participate in Social Security and $175,250 for those who do not. The limits are adjusted annually based on changes to the CPI for all urban consumers. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 160 Packet Pg. 164 of 184 Appendix B - Principal Plan Provisions • Service Retirement 64 • Vested Deferred Retirement 66 • Non-Industrial Disability Retirement 66 • Industrial Disability Retirement 67 • Post-Retirement Death Benefit 68 • Form of Payment for Retirement Allowance 68 • Pre-Retirement Death Benefits 69 • Cost-of-Living Adjustments (COLA) 71 • Purchasing Power Protection Allowance (PPPA) 71 • Employee Contr ibutions 72 • Refund of Employee Contributions 72 • 1959 Survivor Benefit 73 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 161 Packet Pg. 165 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 64 The following i s 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’ Retire ment Law and the California Public Employees’ Pension Reform Act of 2013 . 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 Ca lPERS 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 attai nment 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 the 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 retire ment at whole year ages: Miscellaneo us Plan Formulas Retirement Age 1.5% at age 65 2% at age 60 2% at age 55 2.5% at age 55 2.7% at age 55 3% at age 60 PEPRA 2% at age 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% Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 162 Packet Pg. 166 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 65 Classic Safety Plan Formulas Retirement Age Half Pay at age 55* 2% at age 55 2% at age 50 3% at age 55 3% at age 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 age 57 2.5% at age 57 2.7% at age 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 co nverted 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 emplo yer 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 m onths’ pay under the 1.5% at age 65 formula. PEPRA members have a limit on the annual compensation that can be used to calculate final compensation . The limits are adjusted annually based on changes to the CPI for all urban consumers. • PEPRA benefit formul as have no Social Security offsets and Social Security coverage is optional . For Classic benefit formulas, employees must be covered by Social Security with the 1.5% at age 65 formula. Social Security is optional for all other Classic 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 th an $400). Employers may contract for the full benefit with Social Security that will eliminate the offset applicable to the final compensation. For employees not covered by Social Security, the full benefit is paid with no offsets. Auxiliary organizations of the CSUC system may elect reduced contribution rates, in which case the offset is $317 if members are not covered by Social Security or $513 if members are covered by Social Security. • The Miscellaneous and PEPRA Safety service retirement benefit is not capped. The Classic Safety service retirement benefit is capped at 90% of final compensation. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 163 Packet Pg. 167 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 66 Vested Deferred Retirement Eligibility for Deferred Status CalPERS members becomes eligible for a deferred vested retirement benefit when they leave employment, keep their contribution account balance on deposit with CalPERS, and have 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% at age 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 deferre d 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 calc ulated separately according to each employer’s contract, and then added together for the total allowance. Non-Industrial Disability Retirement Eligibility A CalPERS member is eligible for Non-Industrial (non-job related) 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 w ith which CalPERS has reciprocity agre ements). There is no special age requirement. Disabled means the member is unable to perform their 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 CalP ERS 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 comp ensation, 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 numbe r 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. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 164 Packet Pg. 168 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 67 Improved Benefit Employers have the opti on 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 se rvice to a maximum of 50% of fin al compensation. Members who are eligible for a larger service retirement benefit may choose to receive that benefit in lieu of a disability b enefit. 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 wh o have earned service with multiple CalPERS employers, the benefit attributed to each employer is the total disa bility allowance multiplied by the ratio of service with a particular employer to the total CalPERS service. Industrial Disability Retirement This is a standard benefit for Safety members except those de scribed in Section 20423.6. For excluded Safety members and all 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 (job related) 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 expecte d 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% of 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 r etirement benefit, the member may choose to receive the larger benefit. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 165 Packet Pg. 169 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 68 Post-Retirement Death Benefit Standard Lump Sum Payment Upon the death of a retiree, a one -time lump sum payment of $500 wil l be made to the retiree’s designated survivor(s), or to the retiree’s estate. The lump sum payment amount increases to $2,000 for any death occurring on or after July 1, 2023 due to SB 1168. Optional Lump Sum Payment In lieu of the standard lump sum death benefit, employers have the option of providing a lump sum death benefit of $600, $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 their allowance to be paid to any designated beneficiary after the retiree’s death. CalPERS provide s for a variety of such benefit options, which the retiree pays for by taking a reduction in their 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 a modified Classic 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 retir ee’s allowance. For retirement allowances w ith respect to service subject to a PEPRA formula or a full or supplemental Classic 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 ag e 18; or, if no eligible child(ren), to a qualifying dependent parent) for the rest of their lifetime. This bene fit 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 sam e as those offered with the standard form. The reduction is calculated in the same manner but is applied only to the option portion. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 166 Packet Pg. 170 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 69 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 benefi t, 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 be nefit if the member dies while actively employed, has attained at least age 50 for classic and PEPRA Safety members and age 52 for PEPRA Miscellaneous members, and has at least 5 years of credited service (total service across all CalPERS employers and wit h 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 d eath 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 t he date of their 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 ch ild(ren) is disabled. The total amount paid will be at least equal to the basic death benefit. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 167 Packet Pg. 171 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 70 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 PEPRA Safety members and age 52 for PEPRA Miscellaneous 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 D eath 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 their death and elected 100% to continue to the eligible survivor after the member’s death. The allowance is payable to the surviving spouse until death , at which time it is continued to any unmarried child(ren), 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 except those described in Section 20423.6. For excluded Safety members and all Miscellaneous members, employers have the option of providing this benefit. 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 el igible 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 ch ild(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 com pensation 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 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 168 Packet Pg. 172 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 71 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 i s 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 receive d had the member retired on the d ate of their 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 their death to a surviving beneficiary.) If the member has not yet attai ned 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 to the surviving spouse until death , at which time it is continued to any unmarrie d child(ren), 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 price inflation. The resulting increase is divided by the total increase provided in prior years. For any given year, the COLA adjustment may be l ess than 2% (when the rate of price inflation is low), may be gre ater than the rate of price inflation (when the rate of price inflation is low after several years of high price inflation) or may even be greater than 2% (when price inflation is high after several years of low price 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 age 65 formula. Purchasing Power Protection Allowance (PPPA) Retirement and survivor allowances are protected against price 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 price inflation since retirement. The PPPA benefit will be coordinated with other cost -of-living adjustments provided under the plan. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 169 Packet Pg. 173 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 72 Employee Contribution s Each employee contributes toward their 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 all PEPRA members and Classic members covered by a full or supplemental formula and $133.33 for Classic members covered by a 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 age 65 2% Miscellaneous, 2% at age 60 7% Miscellaneous, 2% at age 55 7% Miscellaneous, 2.5% at age 55 8% Miscellaneous, 2.7% at age 55 8% Miscellaneous, 3% at age 60 8% Miscellaneous, 2% at age 62 50% of the Total Normal Cost Miscellaneous, 1.5% at age 65 50% of the Total Normal Cost Safety, Half Pay at age 55 Varies by entry age Safety, 2% at age 55 7% Safety, 2% at age 50 9% Safety, 3% at age 55 9% Safety, 3% at age 50 9% Safety, 2% at age 57 50% of the Total Normal Cost Safety, 2.5% at age 57 50% of the Total Normal Cost Safety, 2.7% at age 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 emplo yer 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 their employee contributions, which are credited with 6 % interest compounded annually. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 170 Packet Pg. 174 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix B Safety Plan of the City of Palo Alto Principal Plan Provisions Page 73 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 choos e 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. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 171 Packet Pg. 175 of 184 Appendix C - Participant Data • Summary of Valuation Data 75 • Active Members 76 • Transferred and Separated Members 77 • Retired Members and Beneficiaries 78 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 172 Packet Pg. 176 of 184 CalPERS Actuarial Valuation – June 30, 20 23 Appendix C Safety Plan of the City of Palo Alto Participant Data Page 75 Summary of Valuation Data June 30, 2022 June 30, 2023 1. Active Members a) Counts 156 164 b) Average Attained Age 41.39 40.02 c) Average Entry Age to Rate Plan 29.90 29.65 d) Average Years of Credited Service 11.54 10.46 e) Average Annual Covered Pay $160,287 $170,377 f) Annual Covered Payroll 25,004,764 27,941,899 g) Projected Annual Payroll for Contribution Year 27,164,524 30,355,352 h) Present Value of Future Payroll 232,634,743 271,205,520 2. Transferred Members a) Counts 61 61 b) Average Attained Age 42.17 42.23 c) Average Years of Credited Service 4.02 4.08 d) Average Annual Covered Pay $143,998 $147,916 3. Separ ated Members a) Counts 56 65 b) Average Attained Age 43.68 42.84 c) Average Years of Credited Service 3.29 3.07 d) Average Annual Covered Pay $97,247 $99,985 4. Retired Members and Beneficiaries a) Counts 453 458 b) Average Attained Age 69.30 69.26 c) Average Annual Benefits $64,469 $67,186 d) Total Annual Benefits $29,204,669 $30,771,193 5. Active to Retired Ratio [(1a) ÷ (4a)] 0.34 0.36 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. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 173 Packet Pg. 177 of 184 CalPERS Actuarial Valuation – June 30, 20 23 Appendix C Safety Plan of the City of Palo Alto Participant Data Page 76 Active Members Counts of members included in the valuation are counts of the recor ds 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 4 0 0 0 0 0 4 25-29 31 0 0 0 0 0 31 30-34 16 8 0 0 0 0 24 35-39 5 9 7 3 0 0 24 40-44 2 4 11 10 1 0 28 45-49 0 4 3 4 8 1 20 50-54 0 0 3 4 13 5 25 55-59 0 1 0 2 0 2 5 60-64 0 1 0 0 2 0 3 65 and Over 0 0 0 0 0 0 0 All Ages 58 27 24 23 24 8 164 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 20-2 4 25+ Average Salary 15-24 $117,009 $0 $0 $0 $0 $0 $117,009 25-29 127,257 0 0 0 0 0 127,257 30-34 131,277 170,038 0 0 0 0 144,197 35-39 127,565 168,404 185,506 198,274 0 0 168,618 40-44 153,729 167,334 183,324 214,272 234,475 0 191,805 45-49 0 213,261 192,391 186,510 220,424 267,412 210,35 3 50-54 0 0 186,410 216,960 189,250 213,638 198,220 55-59 0 145,473 0 170,404 0 218,467 184,643 60-64 0 164,140 0 0 200,430 0 188,333 65 and Over 0 0 0 0 0 0 0 Average $128,599 $174,368 $185,479 $204,010 $202,457 $221,567 $170,377 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 174 Packet Pg. 178 of 184 CalPERS Actuarial Valuation – June 30, 20 23 Appendix C Safety Plan of the City of Palo Alto Participant Data Page 77 Transferred and Separated 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 2 132,808 30-34 7 1 0 0 0 0 8 123,372 35-39 12 3 0 0 0 0 15 148,698 40-44 10 4 2 2 0 0 18 154,213 45-49 7 1 0 0 0 0 8 134,871 50-54 5 2 0 0 0 0 7 161,973 55-59 2 0 0 0 0 0 2 187,398 60-64 1 0 0 0 0 0 1 176,417 65 and Over 0 0 0 0 0 0 0 0 All Ages 46 11 2 2 0 0 61 $147,916 Distribution of Separated 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 20-2 4 25+ Total Average Salary 15-24 0 0 0 0 0 0 0 $0 25-29 2 0 0 0 0 0 2 106,285 30-34 8 2 0 0 0 0 10 114,985 35-39 12 1 1 0 0 0 14 97,640 40-44 14 3 2 0 0 0 19 98,209 45-49 5 2 1 1 0 0 9 123,153 50-54 3 1 0 0 0 0 4 79,635 55-59 3 0 0 0 0 0 3 64,690 60-64 3 0 0 0 0 0 3 51,086 65 and Over 0 1 0 0 0 0 1 129,400 All Ages 50 10 4 1 0 0 65 $99,985 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 175 Packet Pg. 179 of 184 CalPERS Actuarial Valuation – June 30, 20 23 Appendix C Safety Plan of the City of Palo Alto Participant Data Page 78 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 1 0 0 2 3 30 -34 0 0 1 0 0 0 1 35 -39 0 0 1 0 0 1 2 40 -44 0 0 4 0 0 0 4 45 -49 0 0 7 0 0 0 7 50 -54 17 0 11 0 0 0 28 55 -59 49 1 14 0 0 1 65 60 -64 47 1 22 0 2 1 73 65 -69 42 1 15 0 1 4 63 70 -74 29 0 14 0 0 4 47 75 -79 28 1 18 0 0 12 59 80 -84 29 1 14 0 0 15 59 85 and Over 20 0 16 0 0 11 47 All Ages 261 5 138 0 3 51 458 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 $53,067 $0 $0 $33,123 $39,771 30-34 0 0 1,847 0 0 0 1,847 35-39 0 0 77,483 0 0 30,485 53,984 40-44 0 0 72,882 0 0 0 72,882 45-49 0 0 63,776 0 0 0 63,776 50-54 71,680 0 61,350 0 0 0 67,622 55-59 76,377 99 89,693 0 0 26,815 77,309 60-64 95,888 37,825 74,826 0 56,999 54,932 87,119 65-69 86,069 2,399 86,254 0 32,607 42,808 81,189 70-74 98,602 0 58,522 0 0 28,781 80,721 75-79 56,931 20,120 46,771 0 0 36,785 49,110 80-84 52,197 17,531 45,823 0 0 44,909 48,244 85 and Over 48,385 0 34,196 0 0 32,581 39,856 All Ages $76,696 $15,595 $62,252 $0 $48,869 $38,006 $67,186 Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 176 Packet Pg. 180 of 184 CalPERS Actuarial Valuation – June 30, 20 23 Appendix C Safety Plan of the City of Palo Alto Participant Data Page 79 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 50 0 15 0 0 25 90 5-9 42 1 17 0 0 7 67 10-14 62 1 19 0 0 3 85 15-19 34 0 14 0 1 5 54 20-24 28 0 16 0 0 9 53 25-29 22 1 14 0 1 0 38 30 and Over 23 2 43 0 1 2 71 All Years 261 5 138 0 3 51 458 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 $75,145 $0 $76,594 $0 $0 $35,202 $64,291 5-9 81,831 2,399 76,333 0 0 15,222 72,292 10-14 96,910 99 101,447 0 0 24,197 94,219 15-19 74,267 0 77,303 0 60,468 57,060 73,206 20-24 73,256 0 62,337 0 0 55,432 66,933 25-29 46,063 37,825 48,389 0 53,531 0 46,900 30 and Over 53,277 18,826 33,943 0 32,607 47,453 40,142 All Years $76,696 $15,595 $62,252 $0 $48,869 $38,006 $67,186 * 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 i n double counting of liabilities . Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 177 Packet Pg. 181 of 184 Appendix D - Glossary Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 178 Packet Pg. 182 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix D Safety Plan of the City of Palo Alto Glossary Page 81 Glossary Accrued Liability (Actuarial Accrued Liability) The portion of the Present Value of Benefits allocated to prior years. It can also be expressed as the Present Value of Benefits minus the present value of future Normal Cost. Different actuarial cost methods and different assumptions will lead to different measures of Accru ed Liability. 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, dis ability, and retirement rates. Economic assumptions include discount rate, wage inflation , and price inflation. Actuarial Methods Procedures employed by actuaries to achieve certain funding goals of a pension plan. Actuarial methods include an actuarial cost method, an amortization policy, and an asset valuation method. 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 in plan provisions. Actuary A business professional proficient in mathematics and statistics who measures and manages risk. A public retirement system actuary in California perform s actuarial valuatio ns necessary to properly fund a pension plan and disclose its liabilities and must satisfy the qualification s tandards for actuaries issuing s tatements of actuarial opinion in the United States with regard to pensions. Amortization Bases Separate payment schedules for different portions of the Unfunded Accrued Liability (UAL). The total UAL of a rate plan can be segregated by cause. The impact of such individual causes on the UAL are quantified at the time of their occurrence, resulting in new amortization bases. Each base is separately amortized and paid for over a specific period of time. Generally, in an actuarial valuation, the separate bases consist of changes in UAL due to contract amendments, actuarial assumption changes, method changes, and/or experience gains and losses. Amortization Period The number of years required to pay off an Amortization Base. Classic Member (under PEPRA) A member who joined a public retirement system 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 rate used to discount the expected future benefit payments to the valuation date to determine the Projected Value of Benefits. Different discount rates will produce different measures of the Projected Value of Benefits. The discount rate for funding purposes is based on the assumed long -term rate of return on plan assets, net of investment and administrative expenses. This rate is called the “actuar ial interest rate” in Section 20014 of the California Public Employees’ Retirement Law. 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 that allocates the cost of the projected benefits on an individual basis as a level percent of earnings for the individual between entry age and retirement age. This method yields a total normal cost rate, expressed as a percentage of payroll, which is designed to remain level throughout the member’s career. Fresh Start A Fresh Start is when multiple amortization bases are combined into a single base and amortized over a new Amortizat ion Period. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 179 Packet Pg. 183 of 184 CalPERS Actuarial Valuation – June 30, 2023 Appendix D Safety Plan of the City of Palo Alto Glossary Page 82 Glossary (continued) Funded Ratio Defined as the Market Value of Assets divided by the Accrued Liability. Different actuarial cost methods and different assumptions will lead to different measures of Funded Ratio. The Funded Ratio with the Accrued Liability equal to the funding target is a measure of how well funded a rate plan is. A ratio greater than 100% means the rate plan has more assets than the funding target and the employer need only contribute the Normal Cost . A ratio less than 100% means assets are less than the funding target and contributions in addition to Normal Cost are required. Funded Status Any comparison of a particular measure of plan assets to a particular measure of pension obligations. The methods and assumptions used to calculate a funded status should be consistent with the purpose of the measurement. Funding Target The Accrued Liability measure upon which the funding requirements are based. The funding target is the Accrued Liability under the Entry Age Actuari al Cost Method using the assumptions adopted by the board. 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. 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 n ot subject to reciprocity with another public retirement system. Normal Cost The portion of the Present Value of Benefits allocated to the upcoming fiscal year for active employees. Different actuarial cost methods and different assumptions will lead to d ifferent measures of Normal Cost. The Normal Cost under the Entry Age Actuarial Cost Method , using the assumptions adopted by the board , plus the required amortization of the UAL, if any, make up the required contributions. 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. Traditional Unit Credit Actuarial Cost Method An actuarial cost method that sets the Accrued Liability equal to the Present Value of Benefits assuming no future pay increases or service accruals. The Traditional Unit Credit Cost Method is used to measure the accrued liability on a termina tion basis. Unfunded Accrued Liability (UAL) The Accrued Liability minus the Market Value of Assets. If the UAL for a rate plan is positive, the employer is required to make contributions in excess of the Normal Cost. Item 1 Attachment C - CalPERS Safety Valuation as of June 30, 2023 Item 1: Staff Report Pg. 180 Packet Pg. 184 of 184