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RFP No. 21-025 <br />EXHIBIT B <br />4 Key Factors Driving Pension Liabilities <br />Prior to legislative changes facilitating changes to CaIPERS retirement plans, the State of <br />California and CaIPERS member agencies, many local agencies were considered "super funded", <br />which means they had over 100% of their respective CalPERS plans funded. However, in 1999 <br />and 2001, SB 400 and AB 616 were passed by the legislature granting member agencies to <br />enhanced existing benefits for safety and miscellaneous plans. The allowance of enhanced <br />benefits allowed for future retirees to capture a higher benefit level based on prior service with <br />a current employer. The retroactive benefit was unfunded and immediately created unfunded <br />liabilities in most, if not all pension plans, upon adoption. <br />The remaining four (4) drivers are based on the following: <br />1. CalPERS Plan Investment Returns; <br />2. Cost of Living Adjustments; <br />3. Demographics (Life Expectancy); and <br />4. CalPERS Contribution Policies <br />With the adoption of the Public Employees' Pension Reform Act (PEPRA) in January 2013, the <br />ability to provide enhanced benefits was eliminated. However, the remaining four drivers remain <br />in effect and continue to impact the funding status of CalPERS plans throughout the state. In the <br />sections below, we will focus on the impacts of investment returns and CaIPERS policy changes <br />including demographics and contribution policy changes. <br />Pension Plan Reporting Basics <br />CalPERS provides two annual "aggregate" actuarial reports for the City's Miscellaneous and <br />Safety employees, respectively. Each group of employees has two tiers: 1st Tier or Classic, and <br />PEPRA. The actuarial reports group together both tiers into a single report. — they only provide <br />a single unfunded accrued liability (UAL). <br />The plans are funded through two (2) categories: 1) Normal cost; and 2) Unfunded Accrued <br />Liability. <br />Normal Costs - Since Normal Costs are based on a percentage of payroll, they are directly linked <br />to the size of the City's payroll and are reported by tier. A portion of these payments are made <br />by City employees based on negotiated terms. <br />Unfunded Accrued Liability ("UAL") - Similar to most CaIPERS Plans across the state, the City's <br />UAL represents a financial shortfall of the Plan to meet current benefit funding levels. As of the <br />actuarial report dated June 30, 2018, the UAL was $681 million. The City's most recent UAL for <br />June 30, 2019 is $707 million, reflecting an increase in of $25.8 million from the prior year (see <br />chart below). <br />