AgdaPkt 2016-01-11 Closed and Joint SA PFA

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City of Redwood City 6.1.E. - Page 90 Notes to the Basic Financial Statements For the year ended June 30, 2015 NOTE 9—EMPLOYEE BENEFITS(CONTINUED) Actuarial Assumptions — The total pension liabilities in the June 30, 2013 actuarial valuation were determined using the following assumptions: Miscellaneous Safety Valuation Date June 30, 2013 June 30,2013 Measurement Date June 30,2014 June 30,2014 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.50% 7.50% Inflation 2.75% 2.75% Salary Increases Varies by Entry Age and Service Investment Rate of Return(1) 7.50% 7.50% Mortality(2) Derived using CaIPERS' Membership Data for all Funds Post Retirement Benefit Increase Protection Allowance Floor on Purchasing Power applies, 2.75%thereafter (1) Net of pension Plan investment expenses,including inflation (2) The mortality table used was developed based on CaIPERS' specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2013 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to 2011. Further details of the Experience Study can be found on the CaIPERS website. Discount Rate — The discount rate used to measure the total pension liability was 7.5% for each Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CaIPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.5% discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.5% will be applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report that can be obtained from the CaIPERS website. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.5% investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return including administrative expenses would have been 7.65%. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. CaIPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. CaIPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management review cycle that is scheduled to be complete in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CaIPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the 2017-18 fiscal year. CaIPERS will continue to check the materiality of the difference in calculation until such time as CaIPERS changes its methodology. 61