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Resolution authorizing the issuance and refinancing of the City’s Pension obligations with <br />CalPERS <br />August 17, 2021 <br />Page 5 <br />1 <br />9 <br />9 <br />3 <br />Source: CalPERS website <br />On April 27, 2021, CalPERS CEO Marcie Frost indicated that CalPERS expects to earn <br />an average of 5.6% over the next 10 years (interview with Amanda White on <br />top1000funds.com). CalPERS recently announced its preliminary rate of return for FY20- <br />21 was 21.3%, which is significantly higher than the 7.0% assumption and the expectation <br />stated by Ms. Frost in April. CalPERS has a policy to reduce the discount rate, which is <br />also the assumed investment rate of return, after high-return years. The 21.3% return <br />results in a discount rate decrease from 7.0% to 6.8% effective with the June 30, 2021 <br />actuarial valuation, likely available in August 2022, affecting the FY23-24 contribution <br />rates. <br />After the refinancing is complete, the City’s debt to the CalPERS pension system could <br />continue to grow if the plan does not meet assumptions going forward. For example, <br />salary increases in excess of the assumption drove a $20 million increase of the unfunded <br />liability in FY19-20. The CalPERS wage growth assumption is 2.75%, yet the City granted <br />salary increases of 4% to the Police Officers Association and the Police Management <br />Association, and 3.5% increases to all other bargaining groups. <br />Stress Test Analysis <br />The financing team has run many different scenarios to gain an understanding of the best <br />refinancing structure to minimize risk for the City and maximize savings. In each stress <br />test scenario, with future CalPERS investment returns ranging from annual 4.5% gains to <br />an immediate 20% loss, there is an expected net present value benefit from the <br />refinancing.