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6.1.C. - Page 13 <br />Table of Contents <br />SOARING CITY PENSION COSTS — TIME FOR HARD CHOICES.............................................1 <br />ISSUES.....................................................................................................................................................1 <br />SUMMARY..............................................................................................................................................1 <br />GLOSSARY............................................................................................................................................. 2 <br />BACKGROUND...................................................................................................................................... 4 <br />TheCities' Pension Plans....................................................................................................................... 4 <br />Importance of Rate of Return on Investment....................................................................................... 6 <br />Importance of Discount Rates................................................................................................................ 6 <br />Debate Over Ca1PERS' Discount Rates and Projected Rates of Return ........................................... 7 <br />Importance of Amortization Periods..................................................................................................... 9 <br />Public Employees Pension Reform Act of 2013(PEPRA).................................................................10 <br />"California Rule"..................................................................................................................................12 <br />Ca1PERS' changes................................................................................................................................13 <br />Ca1PERS' reduction of Discount Rate from 7.5 to 7 percent.............................................................14 <br />Ca1PERS' adoption of new mortality rate assumptions......................................................................15 <br />Ca1PERS' reduction of Amortization Period......................................................................................15 <br />DISCUSSION.........................................................................................................................................15 <br />Why are Unfunded Liabilities and Funded Percentages so important?..........................................15 <br />The Cities' Pension Costs and Unfunded Liabilities Today..............................................................16 <br />Unfunded Liabilities and Funded Percentages of the Cities............................................................... <br />16 <br />Table No. 1 - Increasing Unfunded Liabilities and Decreasing Funded Percentages ......................... <br />16 <br />Increase in Unfunded Liabilities and Decrease in Funded Percentages if a Lower Discount Rate is <br />Used....................................................................................................................................................17 <br />Table No. 2 - Increased Pension Unfunded Liabilities and Decreased Funded Percentages if Discount <br />Rate is Reduced By 1 percentage point..............................................................................................17 <br />Increasing Pension Contribution Payments........................................................................................17 <br />Table No. 3 - Increasing Pension Contribution Payments..................................................................17 <br />Percentage of Employer Contribution Paid for Amortization Costs...................................................18 <br />Table No. 4 - Percentage of Cities' FY 2017-18 Pension Costs that are Amortization Costs ............18 <br />Interest Charges on Unfunded Liabilities...........................................................................................19 <br />Table No. 5 - Interest payment savings where shorter Amortization Periods are applied ..................19 <br />What does the future hold? The Impact of Increasing Pension Costs on the Cities. ...................... <br />20 <br />Table No. 6 - Increasing Pension Costs for Cities.............................................................................. <br />21 <br />Table No. 7.1 - Redwood City's projected increases in pension contribution costs from FY 2016- <br />2017 to FY 2024-2025 and FY 2027-2028......................................................................................... <br />22 <br />2017-18 San Mateo County Civil Grand Jury <br />