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7.B. - Page 19 Actuarial Office P.O. Box 1494 Sacramento, CA 95812 -1494 %e, Telecommunications Device for the Deaf - (916) 795 -3240 C (888) CalPERS (225 -7377) FAX (916) 795 -2744 September 22, 2010 Employer Number: 0008 Employer Name: CITY OF REDWOOD CITY Rate Plan: MISCELLANEOUS PLAN Re: New 2% @ 60 with Three -Year Final Average Compensation Miscellaneous Second Tier within a Non - pooled Plan (Section 20475: Different Level of Benefits Provided for New Employees) Dear Requestor: As requested, employer contribution rate information on your proposed second tier follows. If you are aware of others interested in this information (i.e. payroll staff, county court employees, port districts, etc.), please inform them. The information is based on the June 30, 2008 annual valuation. CalPERS offers a choice of two options in implementing a second tier within a non - pooled pension plan. Under both options, if the employee contribution rate changes, that change would take place immediately. The first option, our standard method, reduces the employer rate slowly over time as new employees are hired with second tier lower benefits, which have a lower employer contribution rate. The second option is to temporarily have a different employer contribution rate for new employees as determined by the appropriate risk pool's rates in combination with the first tier plan's current unfunded liability rate. This option will provide more immediate rate relief. Details on both methods are provided below and an election form can be found at the end of this letter. Standard Method Under the standard method, there will be no immediate employer contribution rate impact from this amendment. Ultimately, however, your employer normal cost will decrease. If the mix of active member entry ages were the same for both the current continuing first tier employees and the new second tier employees, the ultimate decrease would be 3.8 %. This rate reduction will occur gradually, beginning on July 1, 2013, if there are second tier employees hired on or before June 30, 2011. For fiscal years 2013/2014 and beyond, the projected cumulative amount of rate reduction you can expect from introducing a second tier is equal to the ratio of your second tier payroll to your total plan payroll two and a half years earlier. For example if 1/10 of your miscellaneous members were in second tier on June 30, 2011 and the ultimate expected normal cost decrease was 3.8% the cumulative rate reduction you can expect by the 2013 /2014 fiscal year would be 1/10 x 3.8% = 0.38 %. Temporary Pooling Option Under this new optional approach, a temporary second tier rate group would be created that would pay an employer contribution rate determined as follows: 2% @ 60 employer normal cost rate 6.553% Current City of Redwood City Miscellaneous plan payment on the amortization bases 6.453% • Total Employer Contribution rate 13.006% The rate described here would be temporary for the second tier members until two years after the first annual actuarial valuation following the hiring of new employees. If, for example, you begin hiring second tier employees in the 2010 /2011 fiscal year, the first annual valuation following that would be June 30, 2011, and so the 13.006% rate would last until June 30, 2013. After that, under current procedures, you would receive a single employer