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HomeMy WebLinkAbout23 - Lifeguard Safety Employees RetirementCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 23 April 14, 2009 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Human Resources Department Terri L. Cassidy, Human Resources Director 949- 644 -3300, tcassidy(a)city.newport- beach.ca.us SUBJECT: Implementation of CalPERS Retirement formula (3 % @50) for Lifeguard Safety Employees per ratified Memorandum of Understanding (July 2006 - December 2008) ISSUE: Shall the City authorize an Amendment to the Contract between the City Council of the City of Newport Beach and the Board of Administration of the California Public Employees' Retirement System to implement the 3 % @50 retirement formula for Lifeguard Safety Employees as previously authorized by the Memorandum of Understanding (MOU) approved by City Council in 2007? RECOMMENDATION: 1. Adopt Resolution 2009 -_ (Attachment 1) relating to the City's Intention to Approve an Amendment to the Contract between the Board of Administration, California Public Employees' Retirement System (CaIPERS) and the Newport Beach City Council to authorize a "3 % @50" retirement formula for specified Lifeguard Safety employees within the Fire Department. 2. Introduce Ordinance No. 2009- (Attachment II), an Ordinance of the City Council of the City of Newport Beach Authorizing an Amendment to the Contract between the City Council of the City of Newport Beach and the Board of Administration of the California Public Employees' Retirement System, and pass to second reading on May 12, 2009. Implementation of CalPERS Retirement formula (3 % @50) for Lifeguard Safety Employees April 14, 2009 Page 2 DISCUSSION: Background: In May 2006 the City's negotiation team began to Meet and Confer in good faith with the Lifeguard Management Association (LMA) pursuant to Government Code Section 3500 et. seq, (Meyers - Milias -Brown Act) on wages, benefits, hours and terms and conditions of employment. In January 2007, tentative agreement was reached following intense negotiations including a LMA declared impasse and the use of a mediator from State Mediation and Conciliation Service. This agreement was reached only after City Council, on January 23, 2007, authorized the City's negotiating team to offer the 3 % @50 retirement benefit. On March 13, 2007, City Council approved a MOU with the LMA which states on page 16 (Attachment III), that the City would implement the 3 % @50 retirement program no later than December 31, 2008 (at the end of the contract). Th a rationale for the 3 % @50 retirement benefit was that it be given in exchange for reduced salary adjustments in 2007 and 2008 and to make these employees comparable to other Newport Beach City sworn safety units (Police /Fire), and the majority of their lifeguard counterparts in Southern California. Newport Beach Police safety received the 3 % @50 formula in 2002 and Fire safety in 2007. The implementation date for the 3 % @50 retirement benefit with LMA has been delayed due to the unexpected and extended absence of the Human Resources staff member who is customarily responsible for Labor Relations and in order to comply with Senate Bill 1123 (effective January 1, 2009) requiring actuarial input at City Council meetings. According to the actuarial valuation (Attachment IV) provided by PERS in 2008 (actuarials are required close to the date of implementation), implementing the 3 % @50 formula for lifeguards will increase the CalPERS "employer rate" (what the City pays as a percentage of payroll) for all safety employees .395% (in other words, adding .395% to the 28.760% safety rate for Fiscal Year 2010). The Administrative Services Department has estimated the dollar cost of bringing Lifeguards up to the agreed -upon retirement will be $182,553 for FY 2009 -2010. In subsequent years, the cost increase is approximately $161,977 based upon any future adjustments to salaries. Senate Bill 1123, approved by the legislature on September 27, 2008 and effective January 1, 2009, requires that "... local legislative bodies, ... when considering changes in retirement benefits or other post employment benefits, shall secure the services of an actuary to provide a statement of the actuarial impact upon future annual costs, including normal costs and any additional accrued liability, before authorizing changes in the public retirement plan benefit or other post - employment benefits." To comply with the new law, Richard Santos, the Senior Actuary who prepared the report will be present to answer questions regarding CalPERS actuarial report on the 3 % @50 I Implementation of CalPERS Retirement formula (3 % @50) for Lifeguard Safety Employees April 14, 2009 Page 3 retirement benefit for the Lifeguard unit. Mr. Santos is the actuary for all Orange County Public Agencies and is very familiar with Newport Beach's rates. CalPERS requires that clearly defined procedures be followed for contract amendments. Following are the guidelines provided by CalPERS in order to complete the contract amendment process: • A Resolution of Intention must be approved by the City Council (April 14, 2009 City Council Meeting), and a first reading of the Ordinance authorizing an amendment to the contract must occur (April 14, 2009 City Council Meeting). • A final reading of the Ordinance (May 12, 2009 City Council Meeting) and a City Council vote for or against adoption must take place. If adopted, the Ordinance may take effect no less than 30 days later. The effective date of the ordinance will be June 11, 2009. • The effective date of the contract amendment must be the first day of a payroll period and may not be earlier than the day after the effective date of the Ordinance. The effective date of the CalPERS contract amendment would be June 20, 2009. It is certainly a different fiscal climate as this item is being presented from back in March 2007 when City Council agreed to the 3 % @50 retirement plan for LMA. However, the City's Meet and Confer process and State law were adhered to and the past contractual obligations were entered into in "good faith" by the authorized bargaining representatives empowered to do so. LMA has received lower salary adjustments (2% lower in 2007 and 1% in 2008) than the Police Department employees received in exchange for this retirement benefit. Similar lower salary adjustments were negotiated with Police and Fire safety when they received this retirement benefit. Environmental Review: Not applicable Public Notice: This agenda item may be noticed according to the Ralph M. Brown Act (72 hours in advance of the public meeting at which the City Council considers the item). Funding Availabilit Implementation of CalPERS Enhanced Retirement formula for Lifeguard Safety Employees April 14, 2009 Page 4 Funding for the Lifeguard Safety contract amendment has been accounted for in the proposed Fire Department 2009/10 budget. No budget amendment is required for the retirement proposal. a red by: dolyn B ffard Human Resources Manager Submitted Terri L. Ca sidy Human Resources Director Attachments: Resolution of Intention (Attachment 1) Ordinance No_ 2009- (Attachment 11) LMA contract July 1, 2007 — December 31, 2008, page 16 - (Attachment 111) CalPERS Actuarial Valuation (Attachment IV) q Attachment I RESOLUTION NO. 2009- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH DECLARING ITS INTENTION TO APPROVE AN AMENDMENT TO CONTRACT BETWEEN THE BOARD OF ADMINISTRATION, CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE CITY COUNCIL, CITY OF NEWPORT BEACH WHEREAS, the Public Employees' Retirement Law permits the participation of public agencies and their employees in the Public Employees' Retirement System by the execution of a contract, and sets forth the procedure by which said public agencies may elect to subject themselves and their employees to said Law; and WHEREAS, one of the steps in the procedures to amend this contract is the adoption by the governing body of the public agency of a resolution giving notice of its intention to approve an amendment to said contract, which resolution shall contain a summary of the change proposed in said contract; and WHEREAS, the following is a statement of the proposed change: To provide Section 21362.2 (3% @ 50 Full formula) for local ocean beach lifeguards. NOW, THEREFORE, BE IT RESOLVED that the governing body of the above agency does hereby give notice of intention to approve an amendment to the contract between said public agency and the Board of Administration of the Public Employees' Retirement System, a copy of said amendment being attached hereto, as an "Exhibit" and by this reference made a part hereof. Passed and adopted by the City Council of the City of Newport Beach at a regular meeting held on the 14th day of April 2009. Mayor ATTEST: City Clerk 5 Attachment 11 ORDINANCE NO. 2009- AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, AUTHORIZING AN AMENDMENT TO THE CONTRACT BETWEEN THE CITY AND THE BOARD OF ADMINISTRATION OF THE CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM NOW THEREFORE, the City Council of the City of Newport Beach, California, HEREBY ORDAINS as follows: SECTION 1: That the Amendment to the contract between the City of Newport Beach and the Board of Administration, California Public Employees' Retirement System is hereby authorized, a copy of said Amendment being attached hereto, marked "Exhibit ", and by such reference made a part hereof as though set out in full. SECTION 2: The Mayor of the City of Newport Beach is hereby authorized, empowered and directed to execute said Amendment for and on behalf of the City. SECTION 3: If any section, subsection, sentence, clause or phrase of this ordinance is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this ordinance. The City Council hereby declares that it would have passed this ordinance, and each section, subsection, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses and phrases be declared unconstitutional. SECTION 4: This ordinance shall take effect thirty (30) days after its adoption, and prior to expiration of fifteen (15) days from the passage thereof shall be published once in the Daily Pilot a newspaper of general circulation, published in Costa Mesa and circulated in the City of Newport Beach, and thenceforth and thereafter shall be in full force and effect. SECTION 5: This ordinance was introduced at a regular meeting of the City Council of the City of Newport Beach, held on the _ day of 2009, and adopted on the — day of 2009, by the following vote, to wit: AYES, COUNCILMEMBERS NOES, COUNCILMEMBERS ABSENT COUNCILMEMBERS MAYOR ATTEST: CITY CLERK it %i, Ca1PERS EXHIBIT California Public Employees' Retirement System AMENDMENT TO CONTRACT Between the Board of Administration California Public Employees' Retirement System and the City Council City of Newport Beach The Board of Administration, California Public Employees' Retirement System, hereinafter referred to as Board, and the governing body of the above public agency, hereinafter referred to as Public Agency, having entered into a contract effective July 1, 1945, and witnessed April 27, 1945, and as amended effective March 1, 1948, November 1, 1951, April 1, 1956,.October31, 1970, September 18, 1971, December 11, 1971, September 24, 1977, December 18, 1977, June 17, 1978, March 24, 1979, June 30, 1979, January 12, 1989, December 2, 1989, June 12, 1996, July 12, 2000, August 26, 2000, June 15, 2002, November 30, 2002, November 13, 2004, July 23, 2005, December 22, 2007 and March 15, 2008 which provides for participation of Public Agency in said System, Board and Public Agency hereby agree as follows: A. Paragraphs 1 through 14 are hereby stricken from said contract as executed effective March 15, 2008, and hereby replaced by the following paragraphs numbered 1 through 13 inclusive: 1. All words and terms used herein which are defined in the Public Employees' Retirement Law shall have the meaning as defined therein unless otherwise specifically provided. "Normal retirement age" shall mean age 55 for local miscellaneous members and age 50 for local safety members. 2. Public Agency shall participate in the Public Employees' Retirement System from and after July 1, 1945 making its employees as hereinafter provided, members of said System subject to all provisions of the Public Employees' Retirement Law except such as apply only on election of a contracting agency and are not provided for herein and to all amendments to said Law hereafter enacted except those, which by express provisions thereof, apply only on the election of a contracting agency. % PLEASE DO NOT SIGN "EXHIBIT ONLY" 3. Employees of Public Agency in the following classes shall become members of said Retirement System except such in each such class as are excluded by law or this agreement: a. Local Fire Fighters (herein referred to as local safety members); b. Local Police Officers (herein referred to as local safety members); C. Ocean Beach Lifeguards (included as local safety members); d. Employees other than local safety members (herein referred to as local miscellaneous members). 4. In addition to the classes of employees excluded from membership by said Retirement Law, the following classes of employees shall not become members of said Retirement System: a. POLICE CADETS; AND b. RESERVE OFFICERS. 5. The percentage of final compensation to be provided for each year of credited prior and current service as a local miscellaneous member in employment before and not on or after December 22, 2007 shall be determined in accordance with Section 21354 of said Retirement Law (2% at age 55 Full). 6. The percentage of final compensation to be provided for each year of credited prior and current service as a local miscellaneous member in employment on or after December 22, 2007 shall be determined in accordance with Section 21354.4 of said Retirement Law (2.5% at age 55 Full). 7. The percentage of final compensation to be provided for each year of credited prior and current service as a local safety member shall be determined in accordance with Section 21362.2 of said Retirement Law (3% at age 50 Full). 8. Public Agency elected and elects to be subject to the following optional provisions: a. Section 20421 ( "Local Safety Member" shall include ocean beach - lifeguards of a city as described in Government Code Section 20421). b. Section 21574 (Fourth Level of 1959 Survivor Benefits). C. Section 21024 (Military Service Credit as Public Service). d. Section 21389 (Second Opportunity to Elect 1959 Survivor Benefits). Legislation repealed said Section effective September 27, 1979. PLEASE DO NOT SIGN "EXHIBIT ONLY„ e. Section 20965 (Credit for Unused Sick Leave) for local miscellaneous members only. f. Section 20042 (One -Year Final Compensation). g. Section 21548 (Pre- Retirement Option 2W Death Benefit). h. Section 20516 (Employees Sharing Cost of Additional Benefits): Section 21354.4 (2.5% @ 55 Full formula) for local miscellaneous members. The employee cost sharing contributions are not to exceed 2.420 %. The maximum employee cost sharing contribution is the normal cost plus the increase in the accrued liability due to the benefit improvement amortized over 20 years. In no event shall the employee cost sharing contribution attributable to the unfunded liability remain in effect beyond December 31, 2027. Thereafter, in any given contribution year, the maximum employee cost sharing contribution cannot exceed .838% of payroll. 9. Public Agency, in accordance with Government Code Section 20790, ceased to be an "employer" for purposes of Section 20834 effective on September 24, 1977. Accumulated contributions of Public Agency shall be fixed and determined as provided in Government Code Section 20834, and accumulated contributions thereafter shall be held by the Board as provided in Government Code Section 20834. 10. Public Agency shall contribute to said Retirement System the contributions determined by actuarial valuations of prior and future service liability with respect to local miscellaneous members and local safety members of said Retirement System. 11. Public Agency shall also contribute to said Retirement System as follows: a. Contributions required per covered member on account of the 1959 Survivor Benefits provided under Section 21574 of said Retirement Law. (Subject to annual change.) In addition, all assets and liabilities of Public Agency and its employees shall be pooled in a single account, based on term insurance rates, for survivors of all local miscellaneous members and local safety members. b. A reasonable amount, as fixed by the Board, payable in one installment within 60 days of date of contract to cover the costs of administering said System as it affects the employees of Public Agency, not including the costs of special valuations or of the periodic investigation and valuations required by law. q G. A reasonable amount, as fixed by the Board, payable in one installment as the occasions arise, to cover the costs of special valuations on account of employees of Public Agency, and costs of the periodic investigation and valuations required by law. 12. Contributions required of Public Agency and its employees shall be subject to adjustment by Board on account of amendments to the Public Employees' Retirement Law, and on account of the experience under the Retirement System as determined by the periodic investigation and valuation required by said Retirement Law. 13. Contributions required of Public Agency and its employees shall be paid by Public Agency to the Retirement System within fifteen days after the end of the period to which said contributions refer or as may be prescribed by Board regulation. If more or less than the correct amount of contributions is paid for any period, proper adjustment shall be made in connection with subsequent remittances. Adjustments on account of errors in contributions required of any employee may be made by direct payments between the employee and the Board. I1� B. This amendment shall be effects e BOARD OF ADMINISTRATIOK11 PUBLIC EMPLOYEES' Rte% ENT SYSTEM BY LORI MC6-AWLAND, CHIEF EMP,�R SERVICES DIVISION PU��{{���EM�PLOYEES' RETIREMENT SYSTEM AMENDMENT ER #60 PERS- CON -702A (Rev. 10105) day of CITY COUNCIL CITY OF NEWPORT BEACH BY PRESIDING OFFICER Witness Date Attest:����� Clerk I L, Attachment III 3. The City will amend its PERS contract to provide for the 3% @ 50 retirement formula to be in effect no later than December 31, 2008, E. Retiree Health Benefits Program Background In 2005, the City and all Employee Associations agreed to replace the previous "defined benefit" retiree medical program with a new "defined contribution" program_ The process of fully converting to the new program will be ongoing for an extended period. During the transition, employees and (then) existing retirees have been administratively classified into one of four categories. The benefit is structured differently for each of the categories. The categories are as follows: a. Category 1 - Employees newly hired after January 1, 2005. b. Category 2 - Active employees hired prior to January 1, 2005, whose age plus years of service as of January 1, 2005 was less than 50 (46 for public safety employees). c. Category 3 - Active employees hired prior to January 1, 2005, whose age plus years of service was 50 or greater (46 for public safety employees) as of January 1, 2005. d. Category 4 - Employees who had already retired from the City prior to January 1, 2005, and were participating in the previous retiree medical program. 2. Program Structure This is an Integral Part Trust (IPT) Medical Expense Reimbursement Program Plan (MERP). , a. For employees in Category 1, the program is structured as follows: Each employee will have an individual MERP account for bookkeeping purposes, called his or her "Employee Account." This account will accumulate contributions to be used for health care expense after separation. All contributions to the plan are either mandatory employee contributions or City paid employer contributions, so they are not taxable to employees at the time of deposit. Earnings from investment of funds in the account are not taxable when posted to the account. Benefit payments are not taxable when withdrawn, because the plan 16 Attachment IV CONTRACT AMENDMENT COST ANALYSIS - VAWATION BASIS: June 30, 2007 SAFETY PLAN FOR CITY OF NEWPORT BEACH Employer Number: 60 Benefit Description: Section 21362.2, 3% @ SO Full Formula for Local safety Members (Safety Lifeguards Only) Actuarial Cost Estimates in General What will this amendment cost? Unfortunately, there is no simple answer. There are two major reasons for the complexity of the answer: First, all actuarial calculations, including the ones in this cost estimate are based on a lot of assumptions about the future — demographic assumptions about the percentage of your employees that will terminate, die, become disabled, and retire in each future year, and economic assumptions about what salary increases each employee receives and the most important assumption: what the assets at CaIPERS will earn for each year into the future until the last dollar is paid to current members of your plan. While CaIPERS has set these assumptions as our best estimate of the real future of your plan, it must be understood that these assumptions are very long term predictors and will surety not be realized each year as we go forward. For example, the asset earnings for the past 15 years at CaIPERS have ranged from -7.2% to 20.1 %, yet the 15 year compound return has been 10.4 %, well above our assumption. • Second, the very nature of actuarial funding produces the answer to the question of amendment cost as the sum of two separate pieces: 1. The increase in Normal Cost (i.e., the increase in future annual premiums in the absence of surplus or unfunded liability) expressed as a percentage of total active payroll, and 2. The increase in Past Service Cost (i.e., Accrued Liability — representing the current value of the increased benefit for all past service of current members) which is expressed as a lump sum dollar amount. The cost is the sum of a percent of future pay and a lump sum dollar amount (the sum of an apple and an orange if you will). To communicate the total cost, either the increase in Normal Cost (i.e., future percent of payroll) must be converted to a lump sum dollar amount (in which case the result is called the increase in the present value of benefits), or the Past Service Cost (i.e., the lump sum) must be converted to a percent of payroll (in which case the result is the increase in the employer's rate). Converting the Past Service Cost lump sum to a percent of payroll requires a specific amortization period. So, the new employer rate can be computed in many different ways depending on how long one will take to pay for it. And don't forget the first bullet point above; all of these results depend on all of the assumptions being exactly realized. Rate Volatility As is stated above, the cost estimates supplied in this communication are based on a number of assumptions about very long term demographic and economic behavior. Even if these assumptions are exactly realized (terminations, deaths, disabilities, retirements, salary growth, and investment return) there will be differences on a year to year basis. This year to year difference between actual experience and the assumptions is tailed gains and losses and serve to raise or lower the employer's rates from year to year. So, the rates will bounce around, especially due to the ups and downs of investment returns. The volatility in annual employer rates may be affected by this amendment. The reason is that higher benefits and earlier retirement ages require the accumulation of more assets per member earlier in their career. Rate volatility can be measured by the ratio of plan assets to alive member payroll. Higher asset to payroll ratios produce more volatile employer rates. To see this, consider two plans, one with assets that are 4 times active member payroll, and the other with assets that are 8 times active member payroll. In a given year, see what happens when assets rise or fall 10% above or below the actuarial assumption. For the plan with a ratio of 4, this 10 percent gain or loss in assets is the same in dollars as 40% of payroll; and for the plan with a ratio of 8, this is equivalent to 80% of payroll. If this gain or loss is spread over 20 years (and we oversimplify by ignoring interest on the gain or loss), then the first plan's rate changes by 2% of pay while the second plan's rate changes by 4% of pay. November 19, 2008 Page 1 k CONTRACT AMENDMENT COST ANALYSIS - VALUATION BASIS: June 30, 2007 SAFETY PLAN FOR CITY OF NEWPORT BEACH Employer Number. 60 Benefit Description: Section 21362.2,3% @ 50 Full formula for Local Safety Members (Safety Lifeguards Only) When a plan is amended, liability changes but assets do rot. In addition, the desired state is to be 100% funded (i.e., to bring assets to equal accrued liability). Therefore, we disclose the ratio of accruedbility to payroll rather than assets to payroll as a measure of the plan's potential future rate volatility. The highefte ratio, the more volatile the future rate may be. The table below contains these measures of potential future rate volatility. As of June 30, 2007 Current Plan Post - Amendment Accrued Liability $ 308,551,677 $ 309,338,753 Payroll 25,034,573 25,034,573 Volatility Index 12.3 12.4 It should also be noted that these ratios tend to stabilize as the plan matures. That is, all plans with no past service start their lives with zero assets and zero accrued liability — and so asset to payroll ratio and liability to payroll ratio of zero. However, as time goes by these ratios begin to rise and then tend to stabilize at some constant amount as the plan matures. Higher benefit levels and earlier expected retirements produce higher constant future ratios. For example, our miscellaneous plans have average ratios that range from 2.6% for 2% @ 60 plans to 5.1% for 2.7% @ 55 plans. For safety plans, the ratios range from 5.2% for 2% @ 55 plans to 9.3% for 3% @ 50 plans. Present Value of Projected Benefits The table below shows the change In the total present value of benefits for the proposed plan amendment. The present value of benefits represents the total dollars needed today to fund all future benefits for currentmembers of the plan (i.e., without regard to future employees). The difference between this amount and current plan assets must be paid by future employee and employer contributions. As such, the change in the present value of benefits due to the plan amendment represents the "cost" of the plan amendment. However, for plans with excess assets some or all of this "cost" may already be covered by current excess assets. As of June 30, 2007 Total Assets at Market Value (MVA) Actuarial Value of Assets (AVA) AVA / MVA Present Value of Projected Benefits (PVB) Actuarial Value of Assets (AVA) Present Value of Future Employer and Employee Contributions (PVB — AVA) to PVB Accrued Liability Current Plan Post = Amendment 292,102,211 $ 292,102,211 250,062,262 250,062,262 85.6% 85.6% 364,567,961 $ 365,332,822 250.062.262 250.062.262 114,505,695 $ 115,Z70,560 It is not required, nor necessarily desirable, to have accumulated assets sufficient to cover the total present value of benefits until every member has left employment. Instead, the actuarial funding process calculates a regular contribution schedule of employee contributions and employer contributions (called normal costs) which are designed to accumulate with interest to equal the total present value of benefits by the time every member has left employment. As of each June 30, the actuary calculates the "desirable" level of plan assets as of that point in time by subtracting the present value of scheduled future employee contributions and future employer normal costs from the total present value of benefits. The resulting "desirable" level of assets is called the accrued Aabi/ity. November 19, 2008 Page 2 13 CONTRACT AMENDMENT COST ANALYSIS -VALUATION BASIS: June 30, 2007 SAFETY PLAN FOR CITY OF NEWPORT BEACH Employer Number: 60 Benefit Description: Section 21362.2, 3% @ 50 Full Formula for Local Safety Members (Safety Lifeguards Only) A plan with assets exactly equal to the plan's accrued liability is simply "on schedule" in funding that plan, and only future employee contributions and future employer normal costs are needed. A plan with assets below the accrued liability is "behind schedule ", or is said to have an unfunded AaMity, and must temporarily increase contributions to get back on schedule. A plan with assets in excess of the plan's accrued liability is "ahead of schedule ", or is said to have excess assets, and can temporarily reduce future contributions. A plan with assets (AVA) in excess of the total present value of benefits is called super-finded, and neither future employer nor employee contributions are required. Of course, events such as plan amendments and investment or demographic gains or losses can change a .plan's condition from year to year. For example, a plan amendment could cause a plan to move all the way from being super - funded to being in an unfunded position. The changes in your plan's accrued liability, unfunded accrued liability, and the actuarial values of assets funded ratio as of June 30, 2007 due to the plan amendment are shown in the table below. As of June 30, 2007 Entry Age Normal Accrued Liability (AL) Actuarial Value of Assets (AVA) Unfunded Liability /(Excess Assets) (UAL = AL — AVA) Funded Ratio (AVA / AL) to AL Total Employer Contribution Rate Current Plan Post - Amendment 308,551,677 $ 309,338,753 250,062,262 250,062,262 58,489,415 $ 59,276,491 81.0% 80.8% 787,076 While the table above gives the changes in the accrued liability and funded status of the plan due to the amendment, there remains the question of what will happen to the employer contribution rate because of the change in plan provisions. CaIPERS policy is to implement rate changes due to plan amendments immediately on the effective date of the change in plan benefits. This change is displayed as the "Change to Total Employer Rate" on the following page. If the contract amendment effective date is on or before June 30, 2009, the change in the employer contribution rate should be added to the employer's current rate. In general, the policy also provides that the change in unfunded liability due to the plan amendment will be separately amortized over a period of 20 years from the effective date of the amendment and all other components.of the plan's unfunded liability/excess assets will continue to be amortized separately. However, your actuary may choose to apply different rules to plans with a current employer contribution rate of zero. The pre - amendment excess assets in these plans were sufficient to cover the employers normal cost for one or more years into the future. A plan amendment will use up some or all of the pre- amendment excess assets. In order to maintain our goal of providing rates that are relatively stable, while taking into account known or expected future events, your actuary may decide to spread any remaining excess assets over a single number of years. This is known as a "fresh start" and will, in no case, be less than 5 years. You may call your actuary to discuss further alternative financing options. If the amendment uses up all excess assets and creates an unfunded liability (i.e., from being ahead of schedule to behind schedule), the total post- amendment unfunded liability may be amortized over 20 years. In no case may the annual contribution with regard to a positive unfunded liability be less than the amount which would be required to amortize that unfunded liability, as a level percent of pay, over 30 years. The table on the following page shows the change in your plan's employer contribution rate due to the plan amendment for fiscal year 2009 -2010. November 19, 2008 Page 3 i� CONTRACT AMENDMENT COST ANALYSIS - VALUATION BASIS: June 30, 2007 SAFETY PLAN FOR CITY OF NEWPORT BEACH Employer Number: 60 Benefit Description: Section 21362.2, 3% @ 50 Full Formula for Local Safety Members (Safety Lifeguards Only) As of June 30, 2007 Current Plan Post - Amendment 2009 -2010 Employer Rate Payment for Normal Cost 15.251% 15.376% Payment on Amortization Bases 13.509% 13.779% Total Employer Rate 28.760% 29.155% Change to Normal Cost 0.125% Change to Total Employer Rate 0.395% Current Amortization Bases 3 Multiple Bases Amendment Amortization Base - Fresh Start 2 N/A - Multiple Base 3 20 -year 2009 -2010 Employee Rate Total Employee Rate 9.000% 9.000% Change to Total Employee Rate 0.000% 2010 -2011 Estimated Employer Rate 28.3% 28.8% Projection Amortization Base Multiple Base Multiple Base 1 — Details of the current amortization base are shown on page 13 of June 30, 2007 annual valuation reporL If you have adopted any other subsequent amendments, the current amortization base is the schedule after these adopted amendments- 2 - If a fixed number of years is shown, it means that the current unfunded actuarial liability is projected and amortized over this fixed number of years. This amortization replaces the amortization schedule shown In your June 30, 2007 annual valuation and any other subsequent amendments you have adopted. 3 - If 20 -year is shown, it means that the change in liability due to plan amendments is amortized separately over a 20 -year period. This amortization schedule Is in addition to the amortization schedule shown in the June 30, 2007 annual valuation and any other subsequent amendments you have adopted. In the above table, the information shown represents the actual Initial contribution rate that will apply during fiscal year 2009 -2010 if you adopt the amendment. However, these figures do not incorporate the investment return in 2007 -2008. The estimated employer rate shown for 2010 -2011 incorporates this return and assumes no demographic gains or losses. The rate of return used for the post- amendment analysis was -5.1 %. Due to timing and availability of data, the annual valuation projected an .employer rate using a rate of return of -2.5 %. If the investment rate of return of -5.1% had been available at the time of the annual valuation, the projected employer contribution rate shown in the annual valuation report would be approximately 0.1% higher. Note that the change in normal cost in the table above may be much more indicative of the long term change in the employer contribution rate due to the plan amendment. The plan's payment on amortization bases shown in the table above is a temporary adjustment to the employer contribution to "get the plan back on schedule ". This temporary adjustment to the employer rate varies in duration from plan to plan. For example, a plan with initial excess assets being amortized over a short period of time will typically experience a large rate increase when excess assets are fully amortized. While a plan amendment for such a plan may produce little or no increase in the employer contribution rate now the change in normal cost due to the plan amendment will become fully reflected in the employer contribution rate as soon as initial excess assets are fully amortized. November 19, 2008 Page 4 15 CONTRACT AMENDMENT COST ANALYSIS -VALUATION BASIS: June 30, 2007 - .- SAFETY PLAN FOR CITY OF NEWPORT BEACH Employer Number. 60 Benefit Description: Section 21362.2, 3% @ 50 Full Formula for Local Safety Members (SafetpAd rds Only) Disclosure If your agency is requesting cost information for two or more benefit changes, the cost of adopprig e-than one of these changes may not be obtained by adding the individual costs. Instead, a separate valua ft'llbust be done to provide a cost analysis for the combination of benefit changes. If the proposed plan amend- es to only some of the employees in the plan, the rate change due to the plan amendment still applies to the a Milan, and is still based on the total plan payroll. Any mandated benefit Improvements not Included in the June 30, 2007 annual valuation have notHt ,incorporated into this cost analysis. Please note that the cost analysis provided in this document may not be reiled upon after August 1, 2009. If you have not taken action to amend your contract, by this date, you must contact our office for an updated cost analysis, based on the new annual valuation. Descriptions of the actuarial methodologies, actuarial assumptions, and plan benefit provisions may be found in the appendices of the June 30, 2007 annual report. Please note that the results shown here are subject to change if any of the data or plan provisions change from what was used in this study. Certification This actuarial valuation for the proposed plan amendment is based on the participant, benefits, and asset data used in the June 30, 2007 annual valuation, with the benefits modified if necessary to reflect what is currently provided under your contract with CaIPERS, and further modified to reflect the proposed plan amendment. The valuation has been performed in accordance with standards of practice prescribed by the Actuarial Standards Board, and the assumptions and methods are internally consistent and reasonable for this plan, as prescribed by the CaIPERS Board of Administration according to provisions set forth in the California Public Employees' Retirement Law, Richard Santos, ASA, MAAA Senior Pension Actuary, CalPERS Fin Process Ids: Annual- 318076 November 19, 2008 Base- 321835 Proposal- 321836 Page 5 I� CONTRACT AMENDMENT COST ANALYSIS -VALUATION BASIS: June 3U, 2007 SAFETY PLAN FOR CITY OF NEWPORT BEACH Employer Number: 60 Benefit Description: Section 21362.2, 3% @ 50 Full Formula for Local Safety Members (Safety Lifeguards Only) Summary of Plan Amendments Valued COVERAGE GROUP 76001 Pre - Amendment • The Service Retirement benefit calculated for service earned by this group of members is a monthly allowance equal to the product of the 3% @ 55 benefit factor, years of service, and final compensation. (Final compensation is reduced by $133.33 per month for members with a modified fomiula). The benefit factors for retirement at integral ages are shown below: Retirement 3% at 55 Age Factor 50 2.400% 51 2.520% 52 2.640% 53 2.760% 54 2.880% 55 and older 3.000% Post- Amendment • The Service Retirement benefit calculated for service earned by this group of members is a monthly allowance equal to the product of the 3% @ 50 benefit factor, years of service, and final compensation. (Final compensation is reduced by $133.33 per month for members with a modified formula). The benefit factors for retirement at integral ages are shown below: Retirement 3% at 50 Age Factor 50 3.000% 51 3.000% 52 3.000% 53 3.000% 54 3.000% 55 and older 3.000% November 19, 2008 Page 6