Fire and Police Retirement System Funding Plan

Fire and Police Retirement System Funding Plan

March 28, 2010

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Fire and Police Retirement System

Outline for Discussion

• Background Information

• Statement of the Challenges

• Staff Recommendation

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Background

• Established by Article XV of the City Charter in mid 1930’s

• Oversight provided by 5 member Retirement Board

> Two System members: one police, one fire> Two qualified electors of the City (citizens)> One member of the City Council > Board has exclusive control of administration & investment of

the System - Charter Section 1502 and consistent with Prop. 162

• Uncapped Cost of Living Adjustment (COLA)

> Effort in 1981 to cap COLA failed (PPOA v. City)> System underfunded, as of June 30, 1998 assets were less than

1/3 liabilities

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1999 Contribution Agreement

• City issued $100 million pension obligation bonds (POBs) – funds System at 70% Actuarial Accrued Liability (AAL)

• Funding to increase ½% each year for 20 years to reach 80% AAL

• Supplemental contributions required if short of annual funding target

• Assumptions: 8% discount rate & 3.8% inflation based on average of retirement systems operating under the County Employees Retirement Law of 1937

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2004 Settlement & Release Agreement

• Stock market collapse in 2000 significantly reduced plan assets

• Dispute arose over the widening gap between Actuarial Value and Market Value of portfolio

• City issued $40 million POBs as part of settlement and release agreement

• Funding for 1999 and 2004 POBs made possible by SB 481 which authorized the repayment of prior advances from the General Fund to the Downtown Redevelopment Project Area

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Current Membership

Avg Avg Mo.

# Age Benefit $Service Retirees 118 73.7 5,288Disability Retirees 105 71.2 4,075Beneficiaries 52 80.8 3,027

TOTAL 275 74.1 4,398($14.5M annually)

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Actuarial Valuation (000’s)

• Actuarial Accrued Liability (AAL) 166,096

• Actuarial Value of Assets (AVA) 109,740

• AVA Unfunded AAL 56,356

• AVA Funded Percent 66.1%

• Market Value of Assets (MVA) 91,915

• MVA Unfunded AAL 74,181

• MVA Funded Percent 55.3%

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Retirees & Benefit Payments

Projected Retirees and Benefit Payments

-

50

100

150

200

250

300

350

400

2010 2015 2020 2025 2030 2035 2040

Plan Year Ending

Num

ber

of R

etir

ees

-

2

4

6

8

10

12

14

16

Ben

efit

Pay

men

ts in

Mill

ions

Number of Retirees

Benefit Payments

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The Challenge

• $56.4M Unfunded Liability

• SB 481, source of funding City’s obligation to the System, expires December 31, 2014

• Annual supplemental obligation is increasing

• Mandatory tender (balloon payment) of $81 million due in 2015 on prior pension obligation bonds

• Appropriateness of assumptions used to value the System’s portfolio

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Non-Self Funding General Fund Debt Service + FPRS Requirements

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041

Supplemental Contributions

2004 POBs

1999 POBs

2008 C COPs

2008 B COPs

2001 COPs

1993 COPs

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FPRS Taskforce

• Established Spring 2009 to provide recommendations to City Manager> Margaret McAustin> Sid Tyler> David Goodrich> Jaynie Miller Studenmund> Dennis Murphy

• Sense of urgency in dealing with the pension issues, not just FPRS

• Final report April 2010

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FPRS Taskforce Recommendations

> Improve working relationship with System

> Ask System to undertake selection process for financial advisor

> Consolidate administrative functions with City

> Consider “buy-outs”

> Pursue new revenue sources

> Consider using surplus SB 481 funds to increase plan assets

> Modify investment assumptions

> Reconsider investment strategy

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Staff Recommendation

• Issue new POB to fund the System at 85% AAL> Interest rates generally favorable> 30 year term, “all in” T.I.C. 7.5%

Historical 10-Yr and 30Yr US-Treasury Rates(January 1990 to Present)

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

1/2/

1990

1/2/

1991

1/2/

1992

1/2/

1993

1/2/

1994

1/2/

1995

1/2/

1996

1/2/

1997

1/2/

1998

1/2/

1999

1/2/

2000

1/2/

2001

1/2/

2002

1/2/

2003

1/2/

2004

1/2/

2005

1/2/

2006

1/2/

2007

1/2/

2008

1/2/

2009

1/2/

2010

1/2/

2011

10-Yr Treasury 30-Yr Treasury

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Staff Recommendation

• Amend contribution agreement> Decouple from ’37 Act Systems > Reset discount rate to 6.5% and inflation to 3.0% and

review annually

• Refinance $81 mandatory tender in 2015 with new POBs

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New System Investment Assumptions

• Current discount rate 8% and 3.8% inflation

• Last 10 years average returns:> FPRS – 3.51%> CalPERS – 3.44%> S&P 500 (calendar years) – 3.62%

• Inflation last 10 years average 2.49%

• Recommendation 6.5% and 3.0% reviewed annually

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Current General Fund Debt Profile

Non-Self Supporting General Fund Debt Service (Excludes POBs)

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

2008 C COPs

2008 B COPs

2001 COPs

1993 COPs

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Debt Profile With New 2011 & 2015 POBs

Impact to General Fund of Alternative Funding Plan:FPRS Requirements and Non-Self Supporting General Fund Debt Service

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

Supplemental Contributions

2015 POBs

2011 POBs

2004 POBs

1999 POBs

General Fund Debt ServicePayments above $16.5

million will be paid from SB 481 Revenues and

remaining fund balance

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Net Impact on General Fund Debt Profile

Net Impact to General Fund of Alternative Funding:Net FRPS Requirements and General Fund Debt Service

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

Net FPRS Requirements

Non-Self Supporting General FundDebt Service

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Impact to General Fund

Comparison of Net Impact to General Fund: Base Case vs. Alternative Funding

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

Base Case (Do Nothing) Alternative Funding

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Alternative Funding Cost

FiscalYear Net FPRS Gen Fund Debt Net FPRS Gen Fund Debt Savings/ Present Value

Requirements(Non-Self Supporting) Total Requirements(Non-Self Supporting) Total (Costs) at 7.50%

2011 - 16,346,815 16,346,815 - 16,346,815 16,346,815 - - 2012 - 13,728,515 13,728,515 2,771,485 13,728,515 16,500,000 (2,771,485) (2,578,126) 2013 - 13,729,155 13,729,155 2,770,845 13,729,155 16,500,000 (2,770,845) (2,397,703) 2014 - 13,314,418 13,314,418 3,185,583 13,314,418 16,500,000 (3,185,583) (2,564,268) 2015 - 7,933,590 7,933,590 8,566,410 7,933,590 16,500,000 (8,566,410) (6,414,532) 2016 15,057,870 7,931,565 22,989,435 8,568,435 7,931,565 16,500,000 6,489,435 4,520,272 2017 15,057,870 7,929,665 22,987,535 8,570,335 7,929,665 16,500,000 6,487,535 4,203,673 2018 15,057,870 7,931,265 22,989,135 8,568,735 7,931,265 16,500,000 6,489,135 3,911,358 2019 12,557,870 7,931,265 20,489,135 8,568,735 7,931,265 16,500,000 3,989,135 2,236,717 2020 9,782,870 4,512,365 14,295,235 11,180,891 4,512,365 15,693,256 (1,398,021) (729,185) 2021 11,179,420 4,515,365 15,694,785 11,176,139 4,515,365 15,691,504 3,281 1,592 2022 11,579,360 4,513,365 16,092,725 11,175,109 4,513,365 15,688,474 404,251 182,456 2023 11,385,250 4,512,415 15,897,665 11,177,061 4,512,415 15,689,476 208,189 87,409 2024 10,682,070 4,516,525 15,198,595 11,176,256 4,516,525 15,692,781 (494,186) (193,010) 2025 9,479,990 4,515,025 13,995,015 11,174,926 4,515,025 15,689,951 (1,694,936) (615,793) 2026 9,776,950 4,515,000 14,291,950 11,174,361 4,515,000 15,689,361 (1,397,411) (472,277) 2027 9,781,340 4,514,800 14,296,140 11,176,423 4,514,800 15,691,223 (1,395,083) (438,596) 2028 9,880,740 4,511,750 14,392,490 11,182,033 4,511,750 15,693,783 (1,301,293) (380,567) 2029 9,482,380 4,512,000 13,994,380 11,177,683 4,512,000 15,689,683 (1,695,303) (461,206) 2030 9,176,980 4,515,250 13,692,230 11,175,033 4,515,250 15,690,283 (1,998,053) (505,646) 2031 9,077,880 4,516,000 13,593,880 11,175,575 4,516,000 15,691,575 (2,097,695) (493,825) 2032 8,881,940 4,514,000 13,395,940 11,177,461 4,514,000 15,691,461 (2,295,521) (502,694) 2033 8,780,450 4,514,000 13,294,450 11,176,242 4,514,000 15,690,242 (2,395,792) (488,048) 2034 12,226,010 765,500 12,991,510 14,923,410 765,500 15,688,910 (2,697,400) (511,153) 2035 8,282,780 4,515,500 12,798,280 11,174,618 4,515,500 15,690,118 (2,891,838) (509,766) 2036 8,178,930 4,512,200 12,691,130 11,179,327 4,512,200 15,691,527 (3,000,397) (492,002) 2037 7,878,800 4,515,575 12,394,375 11,174,661 4,515,575 15,690,236 (3,295,861) (502,746) 2038 7,783,310 4,514,925 12,298,235 11,173,771 4,514,925 15,688,696 (3,390,461) (481,094) 2039 12,198,950 - 12,198,950 15,693,699 - 15,693,699 (3,494,749) (461,295) 2040 11,895,500 - 11,895,500 15,692,010 - 15,692,010 (3,796,510) (466,164) 2041 9,993,570 - 9,993,570 15,690,436 - 15,690,436 (5,696,866) (650,702)

TOTAL 275,096,950 178,797,813 453,894,763 314,747,688 178,797,813 493,545,500 (39,650,738) (8,166,922)

Base Case (Do Nothing) Alternative Funding

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Recommendations

• Issue new POB to fund the System at 85% AAL> Interest rates generally favorable> 30 year term, “all in” T.I.C. 7.5%

• Amend contribution agreement> Decouple from ’37 Act Systems > Reset discount rate to 6.5% and inflation to 3.0% and

review annually

• Refinance $81 mandatory tender in 2015 with new POBs

Fire and Police Retirement System Funding Plan

Documents

Transcript of Fire and Police Retirement System Funding Plan