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8.B. - Page 75 of 122
<br />Increase in Unfunded Liabilities and Decrease in Funded Percentages if a Lower
<br />Discount Rate is Used.
<br />The Cities' Unfunded Liabilities and Funded Percentages in Table No. 1 were calculated using
<br />CaIPERS then -applicable Discount Rate of 7.5 percent. If, however, the Discount Rate had been
<br />just one percentage point lower, the Cities' Unfunded Liabilities for FY 2016-2017 would have
<br />been approximately 44 percent larger (as shown in Table No. 2) and the corresponding Funded
<br />Percentage that year would have been 62.4 percent rather than 70.5 percent, almost 18
<br />percentage points below the 80 percent Funded Percentage standard.
<br />(See, Appendix A.)
<br />Applying its new Discount Rate of 7 percent (which will be implemented in stages over the three
<br />fiscal years ending FY 2020-2021), CalPERS states that its current, system -wide Funded
<br />Percentage is 68 percent .76 However, if long-term Returns on Investment decrease, or are
<br />projected to decrease, below 7 percent, then Ca1PERS' Funded Percentage (and corresponding
<br />Discount Rate) would drop even lower. For example, at a Discount Rate of 6.2 percent, it has
<br />been estimated that CalPERS' Funded Percentage would drop by almost 10 percentage points,
<br />from 68 to 58.3 percent.77
<br />Increasing Pension Contribution Payments.
<br />Increasing Unfunded Liabilities result in larger contribution payment costs. Table No. 3 shows
<br />how the Cities' contribution costs have risen from FY 2014-2015 through FY 2016-2017 and
<br />how the percentages of cities' payroll and general fund spending consumed by contribution
<br />payments have been increasing.
<br />Table No. 2 - Increased Pension Unfunded Liabilities and Decreased Funded Percentages
<br />if Discount Rate is Reduced By 1 percentage point
<br />Pension Contribution Payments
<br />($000)
<br />($000)
<br />Fiscal Year
<br />Unfunded Liabilities based
<br />on 7.5 % Discount Rate
<br />Unfunded Liabilities based
<br />on 6.5 % Discount Rate
<br />Funded Percentages based
<br />on 7.5 % Discount Rates
<br />Funded Percentages based on
<br />6.5 % Discount Rates
<br />2016-2017
<br />$1,215,465
<br />$1,755,047
<br />70.5%
<br />62.4%
<br />2015-2016
<br />$994,535
<br />$1,515,521
<br />75.1%
<br />66.5%
<br />2014-2015
<br />$898,036
<br />$1,399,702
<br />76.8%
<br />68.0%
<br />(See, Appendix A.)
<br />Applying its new Discount Rate of 7 percent (which will be implemented in stages over the three
<br />fiscal years ending FY 2020-2021), CalPERS states that its current, system -wide Funded
<br />Percentage is 68 percent .76 However, if long-term Returns on Investment decrease, or are
<br />projected to decrease, below 7 percent, then Ca1PERS' Funded Percentage (and corresponding
<br />Discount Rate) would drop even lower. For example, at a Discount Rate of 6.2 percent, it has
<br />been estimated that CalPERS' Funded Percentage would drop by almost 10 percentage points,
<br />from 68 to 58.3 percent.77
<br />Increasing Pension Contribution Payments.
<br />Increasing Unfunded Liabilities result in larger contribution payment costs. Table No. 3 shows
<br />how the Cities' contribution costs have risen from FY 2014-2015 through FY 2016-2017 and
<br />how the percentages of cities' payroll and general fund spending consumed by contribution
<br />payments have been increasing.
<br />(See, Appendix A.)
<br />76 Terando, Strategies for Managing the New Reality, slide 8. CalPERS 2017 CAFR, p. 27. League of California
<br />Cities, 2018 Retirement System Sustainability Study, p. 1.
<br />77 Nation, 2011 Pension Math, p. vii.
<br />2017-2018 San Mateo County Civil Grand Jury 17
<br />301
<br />Table No. 3 - Increasing
<br />Pension Contribution Payments
<br />($000)
<br />Fiscal Year
<br />Total Contribution
<br />Payments
<br />Contributions as a percent
<br />of covered payroll
<br />Contributions as a percent
<br />of general fund spending
<br />2016-2017
<br />$104,986
<br />27.3%
<br />13.6%
<br />2015-2016
<br />$95,987
<br />27.4%
<br />13.2%
<br />2014-2015
<br />$85,335
<br />25.5%
<br />12.8%
<br />(See, Appendix A.)
<br />76 Terando, Strategies for Managing the New Reality, slide 8. CalPERS 2017 CAFR, p. 27. League of California
<br />Cities, 2018 Retirement System Sustainability Study, p. 1.
<br />77 Nation, 2011 Pension Math, p. vii.
<br />2017-2018 San Mateo County Civil Grand Jury 17
<br />301
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