calpers: ensuring long-term...

CalPERS: Ensuring Long-Term Sustainability

June 28, 2017

Marcie Frost, CalPERS CEO

Scott Terando, Chief Actuary

Marlene Timberlake D’Adamo, Interim CFO

Table of Contents

Introduction…………………………………… 3–8

System Status………………………………… 9–16

Employer Monitoring…………………………… 17–27

CalPERS: Ensuring Long-Term Sustainability June 28, 2017

CalPERS Background

1,439

School Districts 1 State of California

1,581

Public Agencies

3,021 Total Employers in

Retirement Program

1.85 Million

Members

650,000 Receiving Monthly

Pension Benefit

Source: June 30, 2016 Comprehensive Annual Financial Report * Retirees and beneficiaries and survivors

3


What We’re Focused On

Risk ComplexityCosts

4


Our Priorities

• Customer Satisfaction Driven

• Team Member Engagement

• Efficient and Effective Organization

• Reliable Partner

• Best Practice Leader

5


CalPERS Funded Status

65% 6


Pensions are a Shared Responsibility

Employer Employees

Pension

CalPERS

7


The CalPERS Pension Buck

8


ALM Framework

EX

TE

RN

AL

FAC

TO

RS

D

RIV

ING

RIS

K

Plan Demographics

Benefit Structure

Market Conditions

Actuarial

Assumptions

Actuarial

Reports

Investment

Allocation

Treasury

Management

Funding & Risk

Mitigation Policy

Actuarial Policies:

Smoothing/Amortizatio

n

PE

PR

A

Asset Liability Management (ALM)

Pension Beliefs

EX

TE

RN

AL FA

CT

OR

S

RE

DU

CIN

G R

ISK

9

CalPERS: Ensuring Long-Term Sustainability

Factors Driving Funding Risk

Plan Demographics

• Asset and liability ratios

• Plans are maturing

• Public employees are living longer

• Increased cash outflows

June 28, 2017

Market Conditions

• Current portfolio and market

environment includes significant

risk of volatility

• Market valuations and return

expectations

10

$ B

illio

ns

20.0

15.0

10.0

5.0

0.0


Contribution and Benefit Payments

25.0

30.0

35.0

Historical & Projected PERF Contributions & Investments for Benefit Payments

1999

-200

0

2000

-200

1

2001

-200

2

2002

-200

3

2003

-200

4

2004

-200

5

2005

-200

6

2006

-200

7

2007

-200

8

2008

-200

9

2009

-201

0

2010

-201

1

2011

-201

2

2012

-201

3

2013

-201

4

2014

-201

5

2015

-201

6

2016

-201

7

2017

-201

8

2018

-201

9

2019

-202

0

2020

-202

1

2021

-202

2

2022

-202

3

2023

-202

4

Current Contribution Addt'l Contribution at 7% Disc Rate Investments Used

11


Terminated Agency Pool

• Secure (immunize) the benefits for members of agencies which have terminated their CalPERS contract

• Prudently manage the short and long term benefit payment

and investment risks associated with terminated plan liabilities

• Accurately track and account for terminated agencies and their members

12


TAP Facts at a Glance

Number of Agencies 93

Total Membership 1,051 As of June 30, 2015: • Retirees 716 • Average Monthly Pension $573

$ Millions 2015 2014

MV Assets $219.7 $215.4Comparison of Liabilities $88.5 $82.3 Current & Prior Year Unfunded Accrued Liability $(131.2) $(133.1) Financial results: Funded Ratio 248.3% 261.9%

13


TAP Facts at a Glance: Risks

• Small plan size is highly sensitive to change

• Any additional agency that enters the TAP will lower the funded

status of the plan even if it is fully funded

• The funded status is largely a result of the last 3 decades

of unprecedented performance of long duration bonds; going

forward the market return outlook for U.S. Government

Securities is low

14


TAP Facts at a Glance: Risks

• Final compensation for 8% of TAP members not frozen and

other variables, such as mortality, exist; potential increase

in future liabilities

• Significant changes jeopardize retirement security of TAP

members, erode surplus

• CalPERS has no future recourse to agencies in the TAP after termination

15


Monitoring Employer Financial Health

• Strengthened and streamlined the collection and termination process, including member notification.

• Adopted a risk oversight process to improve monitoring and reduce risk to members.

• Developed tools to identify risks using a standardized review criteria.

• Improved oversight of agencies with all inactive plans to reduce risk.

16


Public Agency Demographics

1,521—Total Public Agencies in Retirement Program1

Agency Type # of

Agencies

% of Total

Agencies

Total

Participants 2

% of Total

Participants

Current UAL4 & Funded %

@ 7.5% ($ in Millions)

Cities or Towns 449 30% 371,032 52% $28,071 73%

Counties 39 3% 195,191 27% $10,051 75%

Special Districts

● JPAs 170 11% 23,878 3% $641 80%

● Non-Profits 63 4% 15,057 2% $218 85%

● Others3 800 52% 114,537 16% $6,582 77%

Total 1,521 100% 719,695 100% $45,563 74.38%

1Data Source: June 30, 2015 Annual Valuation Reports 2Includes members who have service in more than one rate plan. 3Represents special districts in California who formed and are governed under a specific California government Code 4UAL: Unfunded Accrued Liability

17


All Public Agency Funded Status

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

73% 75%

80% 85%

77%

36% 37% 40%

43% 39%

Funding Status at 7.5%

Funding Status at 2%

City or Town County JPA Non-Profits Other Special Districts

Agency Type

18

~'CalPERS

Risk Oversight


19


Annual

Actuarial

Reports

Budget Annual

Financial

Statements

Legislation

Research

Contract

Compliance

Contract Amendments

Media

Alerts

Risk

Monitoring

Indicators

20


Risk Prioritization

Risk Detection

Tier 1 Tier 2 Tier 3

Requires immediate

attention and has

significant impact

May lead to more

serious impact

May require greater

controls and oversights

21

~'CalPERS

Risk Management


22


Inactive Agency Demographics

59—Inactive Public Agencies in Retirement Program1

Agency Type # of Agencies % of Total

Agencies

Total

Participants

% of Total

Participants

Cities or Towns 0 0% 0 0%

Counties 1 2% 348 18%

Special Districts

● JPAs 13 22% 684 36%

● Non-Profits 10 17% 271 14%

● Others2 35 59% 595 32%

Total 59 100% 1,898 100%

1Data Source: 2016 valuation report dataset; Total participants represent the actual participants in each rate plan. 2Represents special districts in California who formed and are governed under a specific California government Code.

23


Inactive Agency Unfunded Accrued Liability

59—Inactive Agencies in Retirement Program1

Agency Type # of

Agencies

Current UAL & Funded %


Termination UAL & Funded %


Cities or Towns 0 $0 0% $0 0%

Counties 1 $10 75% $40 44%

Special Districts

● JPAs 13 $45 75% $236 36%

● Non-Profits 10 $3 86% $27 44%

● Others2 35 $23 82% $153 40%

Total 59 $81 78% $456 39%

1Data Source: 2016 valuation report dataset 2Represents special districts in California who formed and are governed under a specific California government Code.

24

-

Monthly Billing

of Payroll

Day 1

Day 31 Day 36

Day 50 Day 40–60

Month 2 Month 3

Month 4 Month 5

Month 7–9

Review to determine

if audit needed

Agency elevated

to Contract

Management Team

Prepare Bonds

agenda item for

Board review

Review for approval

to terminate/reduce

benefits based on

non payment

Agency Prepare for Review Board Review

Elevated Board Review

Collection Call

Received

Final Demand

Letter

Assets Moved Account Final Collection

to Terminated Delinquent Letter

Agency Pool my|CalPERS system

generates late notice

to employer

Account considered

delinquent if payment

not received

10 days notice for

payment; members

receive notification

30 days to pay;

members notified of

status and risk of

benefit reduction

Immediate benefit

reductions


2018 Legislative Strategies

• Establish timeframes from employer’s intent to finalizing

voluntary terminations and require employers to notify past

and present employees of their intention to terminate.

• Require new contracting JPA member agencies to be joint

and severally liable for the JPA’s pension obligations and allow

the Board to refuse to contract with a JPA whose members

are not liable.

26

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