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8.B. - Page 62 of 122
<br />Total Plan Assets: The current dollar value of all assets within a pension plan (sometimes
<br />referred to in CAFRs as "Fiduciary Net Position").
<br />• Total Plan Liabilities: The present value of all future Benefit obligations under a pension
<br />plan (sometimes referred to in a CAFR as "Total Pension Liability").
<br />• Unfunded Liability: The dollar amount, if any, by which Total Plan Liabilities of a
<br />pension plan exceed its Total Plan Assets (sometimes referred to in a CAFR as "Net
<br />Pension Liability").
<br />BACKGROUND
<br />The Cities' Pension Plans.
<br />Each of the Cities provides its employees with a pension plan administered by Ca1PERS 1 as an
<br />integral part of their compensation package. All of these plans are defined benefit plans2 in
<br />which future Benefits are determined by a formula that is set at the outset of employment.3°4 The
<br />Benefits are guaranteed by the Cities and do not depend on how well pension contributions are
<br />invested. Benefits are financed from three sources:5
<br />' See, the Comprehensive Annual Financial Reports (CAFRs) listed in the BIBLIOGRAPHY section below for each
<br />of the Cities.
<br />2 See, CAFRs for each of the Cities listed in the BIBLIOGRAPHY section below. Ca1PERS, Comprehensive Annual
<br />Financial Report for the Year Ended June 30, 2017, p. 7, <hgps://www.calpers.ca. eov/docs/forms-publications/cafr-
<br />2017.pdf>.
<br />3 Biggs, Andrew and Smetters, Kent, Understanding the Argument for Market Valuation of Public Pension
<br />Liabilities, American Enterprise Institute. May 2013, p. 1, <hlt2://www.aei.org/wp-content/uploads/2013/05/-
<br />understandin_-tg he -argument -for -market -valuation -of -public -pension -liabilities_ 10491782445.pdf>. Ruloff, Mark,
<br />Defined Benefit Plans vs. Defined Contribution Plans, Pension Section News of Society of Actuaries, January 2005
<br />— Issue No. 57, p. 1. Money -Zine, Defined Benefit versus Contribution Plans, July 5, 2017, <https://www.money-
<br />zine.com/financial-planning,/retirement/defined-benefit-versus-contribution-plans/>. Investopedia, How does a
<br />defined benefit pension plan differ from a defined contribution plan?, March 2015,
<br /><https://www.investopedia. com/ask/answers/032415/how-does-defined-benefit-pension-plan-differ-defined-
<br />contribution-plan. asp>.
<br />4 In contrast, most private companies' retirement plans are defined contribution plans, such as 401k's, where the
<br />amounts of future benefit payments vary depending on returns achieved on investments. Greenhut, Steven,
<br />California Still Facing Pension Crisis Even with Good Stock Market Returns, California Policy Center, July 14,
<br />2017, <http://reason.com/archives/2017/07/14/dont-let-unions-use-good-returns-to-defl>.
<br />5 Ca1PERS at a Glance, CalPERS Communications and Stakeholder Relations,
<br /><hllps://www.calpers.ca.gov/docs/forms-publications/calpers-at-a- lg ance.pdf>. CalPERS 2017 CAFR, p. 47. Lin,
<br />Judy, Retirement Debt: What's the problem and how does it affect you? CalMatters.org, February 21, 2018,
<br /><https://calmatters.org/articles/califomia-retirement-pension-debt-explainer/>. Nation, Joe, Pension Math: How
<br />California's Retirement Spending is Squeezing the State Budget. SIEPR (Stanford Institute for Economic Policy
<br />Research). December 13, 2011, p. 23, <hgp:Harc.asm.ca.gov/NSR.pdf>. Nation, Joe and Storms, Evan, More
<br />Pension Math: Funded Status, Benefits, and Spending Trends for California's Largest Independent Public Employee
<br />Pension Systems. SIEPR (Stanford Institute for Economic Policy Research). February 21, 2012, p. 3,
<br /><http://sigpr.stanford.edu/sites/default/files/publications/Nation_ More Pension_O.ydf>. Biggs and Smetters,
<br />Understanding the Argument for Market Valuation, p. 3.
<br />2017-2018 San Mateo County Civil Grand Jury 4
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