CALPERS AND PENSION OBLIGATION BONDS City Council Workshop July 13, 2005.
Pension Obligation Bonds Fire and Police Retirement System
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Pension Obligation Bonds Fire and Police Retirement System Presented by Department of Finance October 24, 2011 Finance Committee/City Council
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Pension Obligation Bonds Fire and Police Retirement System. Presented by Department of Finance October 24, 2011 Finance Committee/City Council. Background. In 1999, the City issued $100 million pension obligation bonds (POBs) – funds System at 70 percent Actuarial Accrued Liability (AAL) - PowerPoint PPT Presentation
Transcript of Pension Obligation Bonds Fire and Police Retirement System
Pension Obligation BondsFire and Police Retirement System
Presented byDepartment of Finance
October 24, 2011
Finance Committee/City Council
Fire and Police Retirement System
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Background
• In 1999, the City issued $100 million pension obligation bonds (POBs) – funds System at 70 percent Actuarial Accrued Liability (AAL)
• Funding to increase ½ percent each year for 20 years to reach 80 percent AAL
• Supplemental contributions required if short of annual funding target
• Assumptions: 8 percent discount rate & 3.8 percent inflation based on average of retirement systems operating under the County Employees Retirement Law of 1937
Fire and Police Retirement System
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Background
• Stock market collapse in 2000 significantly reduced plan assets
• Dispute arose over the widening gap between Actuarial Value and Market Value of portfolio
• In 2004, the 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
Fire and Police Retirement System
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Actuarial Valuation (in millions) as of 6/30/11
• Estimated Actuarial Accrued Liability (AAL)179.3
• Estimated Actuarial Value of Assets (AVA)105.8
• Estimated Unfunded AAL 73.50
• Funding ratio = 59%
• 85% of estimated AAL 6/30/11 152.4
• Estimated AVA 6/30/11 105.8
• Difference to fund with a POB 46.6
Fire and Police Retirement System
Background
On March 28, 2011 City Council approved:
•Negotiation with the FPRS to amend the current Contribution Agreement
•Issuance of not to exceed $65 million POBs
•Approved in concept the refinancing in 2015 all outstanding balance of the POBs (1999, 2004, and 2011)
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Fire and Police Retirement System
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Status of Council Approved Actions
• Amend Contribution Agreement:
> Decouple from ’37 Act Systems
> Reset discount rate to 6.0 percent and inflation to 3.0% and review annually
> FPRS approved agreement on October 20th
• Today’s recommendation to issue up to $50 million of POBs to fund the system at 85 percent funding ratio
• Restructure and Refinance $81 mandatory tender (1999 and 2004 POBs) and the proposed 2011 POBs in 2015
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Historic Interest Rates
• Issue new POBs to fund the System at 85 percent AAL
> Interest rates generally favorable> 30 year term, “all in” T.I.C. not to exceed 7.5 percent> 30 year term with a mandatory tender in 2016 at est 3
percent Historical 10-Yr and 30Yr US-Treasury Rates
(October 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%
10/2
0/90
10/2
0/91
10/2
0/92
10/2
0/93
10/2
0/94
10/2
0/95
10/2
0/96
10/2
0/97
10/2
0/98
10/2
0/99
10/2
0/00
10/2
0/01
10/2
0/02
10/2
0/03
10/2
0/04
10/2
0/05
10/2
0/06
10/2
0/07
10/2
0/08
10/2
0/09
10/2
0/10
10/2
0/11
10-Yr Treasury 30-Yr Treasury
Fire and Police Retirement System
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GF Debt Profile
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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Debt Profile With New POBs
General Fund Debt Service and FPRS Requirements
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,00020
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2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
Alternative Funding
Fire and Police Retirement System
Comparison of Do Nothing vs Recommended Restructuring
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General Fund Debt Service and FPRS Requirements
-
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,00020
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2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
Base Case
Alternative Funding
Fire and Police Retirement System
Advantages
• More realistic assumptions given the characteristics of the FPRS
• Minimizes the volatility and the gap between actuarial value of assets and market value of assets
• Mitigates the risk of creating future unfunded liabilities
• Does not eliminate market or inflation risk
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Fire and Police Retirement System
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Recommendation
• Execution of the Amended and Restated Contribution Agreement with the FPRS, and;
• Adoption of a Resolution authorizing the issuance of not to exceed the lesser of (i) $50 million of (II) the amount required to achieve a funding level for the FPRS of 85 percent based on the new actuarial assumptions and approving and authorizing the execution all the bond documents.
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