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7.1.F. - Page 23 <br /> within the website may not be current and has not been reviewed by the City and is not <br /> incorporated in this Official Statement by reference. <br /> The CaIPERS Board of Administration adjustment has been undertaken in order to <br /> address underfunding of the CaIPERS funds, which arose from significant losses incurred as a <br /> result of the economic crisis arising in 2008 and persists due to a slower than anticipated, <br /> subsequent economic recovery. The City is unable to predict what the amount of CaIPERS <br /> liabilities will be in the future, or the amount of the CaIPERS contributions which the City may be <br /> required to make. <br /> At its April 17, 2013 meeting, the CaIPERS Board of Administration approved a <br /> recommendation to change the CaIPERS amortization and smoothing policies. Prior to this <br /> change, CaIPERS employed an amortization and smoothing policy which spread investment <br /> returns over a 15-year period with experience gains and losses paid for over a rolling 30-year <br /> period. After this change, CaIPERS will employ an amortization and smoothing policy that will pay <br /> for all gains and losses over a fixed 30-year period with the increases or decreases in the rate <br /> spread directly over a 5-year period. <br /> The new amortization and smoothing policy will be used for the first time in the June 30, <br /> 2013 actuarial valuations. These valuations will be performed in the fall of 2014 and will set <br /> employer contribution rates for the fiscal year 2015-16. <br /> According to CaIPERS, the current amortization and smoothing policy was designed to <br /> reduce volatility in employer contribution rates, and, although the policy accomplished this goal <br /> fairly well since its adoption, a number of concerns have developed: <br /> • The use of an actuarial value of assets corridor can lead to significant single year <br /> increases to rates in years when there are large investment losses. <br /> • The use of long asset smoothing periods and long rolling amortization periods <br /> result in slow progress toward full funding. <br /> • The use of an actuarial value of assets requires the disclosure of two different <br /> funded statuses and unfunded liability numbers in actuarial valuation reports. This <br /> adds confusion and inhibits transparency. <br /> • The use of rolling amortization and long asset smoothing periods makes it difficult <br /> for employers to predict when contribution rates will peak and how high that peak <br /> will be. <br /> • The use of rolling amortization and asset smoothing periods may result in <br /> additional calculations for the new accounting standards. These calculations would <br /> be avoided with a quicker funded status recovery. <br /> According to CaIPERS, the adoption of the new smoothing and amortization policies will <br /> change future employer contribution rates, as follows: <br /> • Funding levels will improve, which will reduce the funding level risk. <br /> • Local agencies' plans will experience more rate volatility in normal years, but a <br /> much reduced chance of very large rate increases in years when there are large <br /> investment losses. <br /> • Contribution rates in the near term will increase. <br /> • Long-term contribution rates will be lower. <br /> A-15 <br />