Good morning. This is Fritzie Archuleta. Some of you may know me. I'm the actuary for Contra

Good morning. This is Fritzie Archuleta. Some of you may know me. I'm the actuary for Contra Costa and Alameda County and on behalf of the actuarial office, I would like to thank you for tuning in today. It's always appreciated when employers take the time to learn about what's going on in the actuarial world. The more you know, the easier my job is. I'd also like to introduce my colleague, Julian Robinson. Julian Robinson: Good morning, everybody. Fritzie: He'll be facilitating all of your questions today. Okay, on the agenda for today. Over the last two valuation cycles, CalPERS staff has implemented three significant changes. These changes will impact your rate. In some cases, these changes will impact your rate dramatically. The purpose of this webinar is two-fold. Number one, to make sure you understand why the actuarial office implemented these changes. And number two, to determine when and how these changes will affect your agency. We'll talk about the changes in order of when they will be implemented. The topics for today are: The new smoothing methods, the review of the asset allocation and actuarial assumptions and changes to the risk pooling structure. That last item will not affect any non-pooled plans. Okay, so let's first talk about the new smoothing methods. In April of 2013, the CalPERS Board adopted a new smoothing policy. What is a smoothing policy? Well, it's the terms on how to recoup your plan's unfunded liability or use your surplus if you are one of the fortunate plans still existing with a surplus today. It's also a tool that the actuaries use to reduce volatility in your employer rate. If you are familiar with the old smoothing policy, you'll recall that while it did a great job of reducing volatility, it did not do such a good job in lowering your unfunded liability from year to year. The new policy is designed to pay off your existing unfunded liabilities in 30 years. In other words, assuming all of our assumptions about the future are met, your unfunded liability will be paid off completely in 30 years. This is compared to the old smoothing policy, where an offsetting gain was needed to cancel out the losses and vice versa. You may hear me refer to the new smoothing policy as direct rate smoothing. Some of the highlights of our new policy are: There's a 30-year closed amortization of gains and losses. Each year when a gain or loss is established, the policy will set up a 30-year payment schedule for you to pay it back. We also have a five-year ramp up or down period. Rather than changing the fully amortized amount for each gain or loss, the policy creates a schedule that has a five-year ramp up or phase in period, the idea being that the ramp up period would allow employers more time to plan for the future. Once the five-year phase in is over, the rate remains stable and then ramps back down during the last five years of the amortization schedule. When you get your actuarial report in September of this year, your rate will be established using this new smoothing policy. You will get to see the specific actual impact to the change in the smoothing policy for the first time. Here's an illustration of the ramp up/ramp down schedule. Say, for example, we take a big hit in the stock market one year, because of the loss, the plan needs to recoup the money somewhere. The actuary calculates that an extra 4.7% each year is needed for the next 30 years to get the plan back on track. And that's what we would've done under the old smoothing policy. Now under direct rate smoothing, rather than adding the 4.7% to your rate for the next 30 years, the schedule first charges an extra 1% in the first year. And then in the following year, we add 1%. So now you're up to an extra 2%. And we keep going for the next five years until the rate tops out at about 5%. You might ask, we'll we said 4.7, why is it 5 now? Well, you know, anytime you delay payment, you know you always get to an ultimately point. It's like delaying interest, so you have to have pay a little bit more. Okay. And then your extra payments will remain at 5% for the next 20 years. Then the ramp goes back down to 4% and then 3% and so forth until the trapezoid is complete. Of course, no one likes to pay extra money, but with direct rate smoothing, at least you're allowed time to plan for the increase and the debt is repaid over a fixed period of time. Okay, what impact will the new smoothing methods have on your rates? You will not see a change to your employer normal cost. This may be of interest to you because of the PEPRA rules regarding normal costs. What you will see is a change in your unfunded liability rate. The rate changes will be higher contributions in the short-term and lower contributions in the long-term. More importantly, you will see your funded status recover over the long-term. When will the new smoothing policy impact you? The first time employers will see increases will be the 2015/2016 fiscal year. We incorporated the changes to the smoothing policy in the projections of the 2012 annual valuations. You should have an idea where your rate is headed if you checked those out. If you haven't checked those out, you can still take a look. Check out last year's report and you'll find them on page 26 of a non-pooled report or page 26 of section 2 if you belong to a risk pool. Again, the 2013 valuation will be the first year in which you will see the actual impact to the smoothing policy changes. Late last year and earlier this year, the CalPERS staff completed its review of the actuarial assumptions. This next section will explain the findings of the review and how they impact you. Let's talk about actuarial assumptions. What are actuarial assumptions? They are predictions developed by actuaries on what will happen to each plan in the future. We develop these assumptions based on what has happened in the recent past. It's kind of like driving forward while staring out the rear view mirror. To be clear, I am not recommending this in the real world. In order to calculate future pension plan costs for a particular individual, we need to make assumptions regarding what their future will look like. For example, how much money will the member make? How old will the member be when they retire? When will the member die? These assumptions are referred to as demographic assumptions. But the cost of pension plans only make up half the equation. We also need to be able to estimate the level of assets associated with each plan in the future. How well will the investment strategies perform? How much will inflation come into play? These assumptions are referred to as economic assumptions. I have listed a few of the most influential assumptions on this slide. So you can see that the investment return has the biggest impact on what your rate will be from year to year. And then there are salary increases, agent retirement and life expectancy. These are all very big factors in what your rate ultimately ends up being each year and the cost of your pension plan for that matter. Why do we review assumptions? We do this on a regular basis because the world around us is changing. To ensure proper funding of the benefits, our assumptions must be relevant to today's world. According to Board policy, we need to review our actuarial assumptions every four years. This practice is consistent with the best practices of the actuarial industry. CalPERS actuarial staff review both demographic and economic assumptions and the key findings are on the slides to come. In February of this year, the CalPERS Board made some important decisions: They set the asset allocation. They determined which set of assumptions to use, and now I'm talking about both economic and demographic assumptions. The assumptions they decided on changed the cost of the pension plan. During this meeting, they also decided how to adjust the funding to pay for the changed cost. First, we look at the asset allocation. The Board was presented with three candidate portfolios. And you can see it's the purple, blue and orange columns. They chose the portfolio with the smallest volatility. And that was the purple portfolio. And you can see how it compares to the current portfolio in green. Just give you a few minutes to check it out...a few seconds. Okay. So once the asset allocation was adopted, the economic assumptions were set. The Board decided on no change to any of the economic assumptions. What does this mean? The discount rate, the wage inflation, price inflation and payroll growth all remained the same. As I stated earlier, Board policy requires staff to examine and review demographic experience every four years. The most recent study was completed by looking at data from 1997 to 2011. Unlike the economic assumptions, some changes to demographic assumptions were adopted. Highlights to some of the changes are outlined on this slide. We lowered the disability retirement rates. We hired the service retirement rates for earlier retirement for Safety members, especially the firefighters and State CHP. We also noticed that there were greater salary increases for Safety members later in their career. If the first three bullets were the only changes made to the demographic assumptions, it would've resulted in lower costs in the future. However, the last finding was lower rates of mortality, which means longer life expectancy. The most significant finding of the experience study was the difference in our mortality assumption. Mortality rates continue to decline, which means that life expectancy continues to increase. This is a great thing for all of us as individuals. However, it's a very bad thing when you think about pension plan costs for pension plans that pay benefits over the course of one's lifetime. The study showed that not only did we need to lower our mortality rates, but we also needed to build in future mortality improvements into our actuarial basis. We did this to properly fund the system. We also needed the change to be consistent with best practices and changing actuarial standards. If we did not account for mortality improvements, it could've led to a requirement to qualify the valuation reports. This also would have had implications for the financial statements of participating employers. We knew we needed to project the mortality improvement. The big question was, how far into the future should the improvements be projected? The last mortality was based on 2008 information. So this slide shows how life expectancy has been changing. We looked at life expectancies for members retiring at age 55 in this particular graph. The shorter blue bars are males and the longer, brownish bars are females. So you can see that there's still a pretty big discrepancy between male and female mortality, but that both are improving. The first three bars are based on the results of the last three experience studies. The last four sets of bars are the results from the 2013 study, extrapolated and projected with mortality improvement using an industry standard scale called Scale BB. The Board adopted the assumptions that projected mortality to 2028. The mortality change will increase cost for the pension plan. The final decision made in February was how to collect these added costs from the various employers. The Board decided to collect the added cost by following current board policy. Current board policy is to amortize changes in liabilities due to assumption changes over 20 years with a five-year ramp up of contributions, then a five-year ramp down. The first time you will see this impact your rate will be the 2016/2017 fiscal year. Before you look at how your rates are expected to change due to the assumption change, it is important to understand why your rates are changing due to the assumption change. Once the assumption change is implemented, your rate will go up for two reasons: Future service accruals will cost more. All the past service your members have earned is all of a sudden worth more than what you pre-funded for. In other words, an unfunded liability is created due to the increase in past service value. Rather than charge you all at once for this unfunded liability change, our new policy amortizes the increase over 20 years and phases in the increase over five years. The increase in rate due to future service accruals is displayed in the left most column. The increase in rate due to the combination of the future service accruals and payment towards the unfunded liability is in the second column. Note that this is the first year of payment towards the unfunded liability. The total extra payments will be phased in over the next five years. Finally, the increase in the rate due to the combination of the future service accruals and the fully phased in payment towards the UAL created by the assumption change is expressed in the right most column. This is after the costs are fully phased in. After the costs are fully phased in, the rate increase will remain level for the next 10 years, and then ramp back down for five. The value displayed on the slide are the impacts due to the assumption change only. Remember, there are many experience factors that go into setting your rates. For example, CalPERS investments earned about 16% during the 2013/2014 fiscal year. Our office has done some preliminary calculations, taking into account the strong investment return and it seems to almost completely counteract the rate increases due to the assumption changes. For example, I looked at an agency with expected ultimate increases of about 6.7%. After we accounted for the investment return, the total increased ended up being 1%. The previous slides were estimates based on CalPERS-wide information. This year, in the 6/30/2013 valuations, the impact of the assumption change specific to your plan will be included in your projections. Also included in your projections will be the good investment return. I think we're using 15.5% as the projected investment return, so you will see our best guess basically for the future. Our goal is to release these reports to you in September of this year. Something else new to your report this year are alternative funding options should you choose to pay off your unfunded liability sooner than the rate which we prescribe. If alternative financing interests you, I would strongly suggest you have a conversation with your plan actuary, but please don't tell them that I encouraged that. They are awfully busy right now since it is rate setting season. Another consideration is that the assumption changes will have an impact on your plan's normal cost. PEPRA requires 50% cost sharing of normal costs for PEPRA members. If the normal cost of your plan increases, it is quite possible that your employee contribution rate for PEPRA members will also increase. Just note that the normal cost has to increase by 1% to trigger an increase in the member contribution rate. According to CalPERS-wide calculations, some safety plans may experience an increase greater than 1% due to the assumption change. Pay special attention to your PEPRA plan in case this applies to you. So how will the new assumptions impact your rate? You will see a change to your employer normal cost. This may be of interest to you because of the PEPRA rules regarding normal cost. You will also see a change in your unfunded liability rate. The rate changes will remain in effect for 20 years. The cost will be phased in over five. When will the rate change due to the assumptions impact you? The first time employers will see increases will be the 2016/2017 fiscal year. Again, we have incorporated the specific impact of the assumption change in the projections of your 2013 valuations. Ask you actuary to help you interpret the information if you need it. Don't be shy. This is important. Okay, so we're on the final section of our webinar. The final changes implemented this year were changes to our risk pool structure. For all of you non-pool plans only, take a break for the last part of the webinar. This doesn't pertain to you and it might confuse you. And we'll see you at the Q&A. First, I wanted to provide a brief background of risk pooling at CalPERS. What is risk pooling? Well, risk pooling is an insurance arrangement. Demographic risks plans are exposed to are shared amongst all members of the pool. The participants in the risk pool are all protected against large liability losses. The arrangement helps to smooth out their employer contribution rates from year to year. Why did we set up risk pools in the first place? Risk pools were created to lower the risk due to demographic events for small employers. Since they have a small number of actives, their experience was harder to predict each year. For example, say that you have a five-person plan. And the actuarial assumptions assume 5% of the population will retire that year. You can see that if one person actually does retire, you are looking at 20% of the population. A loss like that could raise a small plan's rate dramatically. With risk pooling, many small plans are valued together. Instead of five actives in one plan, you now have hundreds or thousands of actives. It makes the demographic experience much easier to predict and as a result, you get a much more stable rate. Some examples of demographic events that could impact your rates dramatically are: Work related disability, work related death and service retirements. Since the beginning of pooling, the number of plans have grown dramatically. We started with over 1200 plans initially. From 2003 to 2012 alone, we saw an increase of over 500 plans. You might ask, where did all the new plans come from? Well, these plans were either brand new agencies joining CalPERS for the first time and some were also second tiers and others were mergers of plans. Most recently, a large number of second tiers were created due to the downturn in the economy and the enactment of PEPRA. After PEPRA came into place, the number of pool plans virtually doubled. We are now up to over 3500 pool plans. Well, why are we here today? Risk pooling was working well. Well, with just a few minor kinks, until PEPRA came along. With the introduction of PEPRA, a number of problems were created for the risk pools. PEPRA effectively closed all the classic risk pools. The accounting and the actuarial standard rules for the closed plans are different from those of the open plans. Also, as the payroll of plans shrink, the rates trend upward. If we did nothing, the governing rules would lead to increased contribution rates across the board for all pool plans. This chart shows the estimated impact on employer rates for risk pool plans if we made no changes to the pooling structure and simply applied existing board policies. You can see that most plans would experience an increase to their employer rates. Actuarial staff at CalPERS knew that something had to be done. On a side note, please remember what this slide looks like. We will see it again soon. In 2012, the office did an extensive review of the pooling structure. Some of the main findings were that risk pooling did protect small employers from large rate fluctuations. But we also identified issues with the structure. You can read all about that review if you're curious. It's available on our CalPERS website in the Board Agenda Items for the June 2012 meeting. The key issues found with the risk pooling structure can be categorized into three types. There were funding issues, equity and fairness issues, and employer contribution rate volatility issues. Recall that PEPRA has effectively closed all risk pools offering classic benefits. Closed groups create big issues with regards to the funding of plans. If the payroll does not grow at the rate the assumptions have predicted, the pool is under-funded each year and the employer contribution rate trends up. I'll just give you a kind of numeric example because this is the way I learned. Let's give you an example. Imagine an actuarially calculated contribution of $10,000.00 each year. If we assume the payroll for the current plan is $100,000.00, the contribution would be 10% of pay. But say when we look at your plan, that the actual payroll is only $90,000.00. Remember that the rate was determined to be 10% of pay. So over the course of the year, you will have only contributed 10% of $90,000.00 or $9,000.00. You're shorting the plan $1,000.00. In the following year, we will need to collect more than $10,000.00 because not only do we need the standard $10,000.00 contribution, we will also need to collect for the shortage of the year before. As time goes on, the same cycle repeats itself and the rate continues to rise. Something had to be done. The equity fairness issue arises when a plan's liability is not in line with the size of it's payroll. That is because the actuarial office determines an unfunded liability rate for the risk pool each year. Employers in the risk pool pay towards the pool's unfunded liability based on the unfunded liability times their own payroll. Employers with large payrolls will pay more of the unfunded liability payment. This is okay if their liability is also large with respect to the risk pool. However, as the payrolls of plans shrink at different paces, the agency that does not have employee turnover will continue to pay an increasing share of the unfunded liability payment. Conversely, employers with more retirees than actives will pay less than their fair share of the unfunded liability. Again, let's go over a numeric example to demonstrate this. Imagine that the required risk pool unfunded liability contribution is $100,000.00 and if we have an assumed payroll for the risk pool of $1 million, the calculated UAL rate for the risk pool will be 10%. Say you have a plan, Too Many Retirees, that has 10% of the liability and $50,000.00 in payroll. Since the unfunded liability rate is 10%, the plan will pay 10% x $50,000.00, which is $5,000.00 in unfunded liability. But their share of the liability is 10% of the entire pool. That plan should really pay 10% of $100,000.00, which is $10,000.00. This plan gets a break on their contributions. Now say that you have a plan, Too Many Actives, that has 5% of the liability and $100,000.00 in payroll. Since the unfunded liability rate is 10%, the plan will pay $10,000.00, but their share of the liability is only 5% of the entire pool. That plan should really only pay 5% of $100,000.00, which is $5,000.00. This plan has to pay more than their fair share of contributions. From a pool standpoint, the pool was unaffected. Both plans together make up 15% of the pool's liability and contribute 15% of the payment. This is appropriate towards the pool. The extra payments made by too many actives was subsidized in the shortage of payment by plan too many retirees. And finally, we're onto the rate volatility issue. Since employers pay toward the risk pool unfunded liability as a percentage of pay, the contribution rate starts to become more volatile as the payroll shrinks. This would become extremely difficult for you to predict from year to year because each employer's payroll will shrink at varying rates. If we can't project the rate somewhat accurately, it will be very hard for you to budget for your pension planning share. So the actuarial office has come up with a new risk pool structure, which addresses all of the three issues just outlined. Just last month, the CalPERS Board adopted the new structure. Some of the highlights of the new structure are outlined on this slide. The risk pools will be combined into two super-pools. One pool will be for miscellaneous plans and the other for safety plans. The pool's unfunded liability will be allocated to each plan based on their share of the pool's liability instead of their share of the pool's payroll. This will address the equity issues since plans will now pay for their fair share of the unfunded liability. And your annual unfunded liability contribution rate will be expressed as a dollar amount, rather than a percentage of pay. I believe in the report, and Julian, you can correct me if I'm wrong, but you'll still see the contribution rate in the report, however, when you log on to myCalPERS, it'll be billed as a dollar amount for that fiscal year. Julian: Yes, I understand that's correct. There'll be a percentage, which will be the normal cost percentage part of the contribution and then the rest of the contribution, which is respectively unfunded accrued liability, that will be expressed as a dollar amount. Fritzie: And then there will be an unfunded liability contribution rate for information purposes? Julian: Yes. Fritzie: Okay, so this will solve the funding issue since all unfunded liability will be allocated each year and paid for as a dollar amount. It will not matter if the payroll for each plan shrinks. This will also solve the rate volatility issue since the unfunded liability will not be collected as a percentage of pay. What does this mean for you, the employer? About half of you will see an increased tier rate because of this change. The other half will see a decrease. Fortunately, about 80% of employers will see a change of 3% or less. Employers with a high retiree to active ratio, more than a 1:1 ratio, are expected to receive an increase in cost. Conversely, employers with a low retiree to active ratio, less than a 1:1, are expected to see a decrease in cost. This is because typically the more retirees a plan has, the larger the plan's liability. CalPERS released estimated impacts to individual plans due to changes in the risk pool structure. The listing is available in the handout section of the webinar and I believe Heather referred to this at the beginning of the webinar. This chart was the same chart from a few slides back, with added information. The gray bars represent the distribution of employer rates if the rates are set by existing board policy. The blue bars represent the distribution of employer rates after the risk pool structure change. The shaded region are roughly the half of the employers who are expected to get a decrease in their rate. You can see the blue bars are actually much more even-keeled than the gray bars, which is what we wanted. And you can also see that most of the blue bars are concentrated around the -3 to 3% range. This chart shows the difference of employer rates under both pooling structures. You can see that about 80% of the employers in the shaded region are better off under the new risk pooling structure versus setting the rate based on the existing policies. The -2 to -1% bar means that almost 200 employers will see a 1-2% drop in their rate from what it would have been due to the change in the risk pooling structure. There are many benefits to the change in the structure. Plans still benefit from the sharing of risk. Small plans are still protected from potentially large demographic losses. The new structure allocates these losses in an equitable manner. Plans that offer higher benefits will also continue to pay a higher normal cost percentage to account for the extra cost. For the pool as a whole, there will be no overall contribution increase. Remember that half the plans in the risk pool will see a rate decline and the other half will see a rate increase. Most importantly, this is a permanent solution, which will work until your classic rate plan ceases to exist. Aside from the benefits of the previous slides, the changes to the pooling structure allow for more flexibility for pooled plans. Pooled plans can now pay off their entire unfunded liability. Prior to this change, pool plans were only allowed to pay off their side funds. Unlike the side fund payoff, the unfunded liability payments will be subject to the rate return on the PERF. If this is a possibility that interests you, contact your plan actuary. I know I keep saying that, but I do think that dialogue with you and your actuary are important. Unfunded liability payments will now be billed as a dollar amount. We will still provide a rate for those of you who need it for information purposes. For example, an agency that has a cost sharing agreement in place based on employer rates, your plan normal cost will still be provided as a rate and that part will not change. The new risk pool structure will have minor impact to your employer normal cost. You will also see a change to your unfunded liability rate. In most cases, though, the change will be less than 3%. When will the rate changes due to risk pool structure impact you? The first time employers will see changes will be the 2015/2016 fiscal year. The specific impact to your plan will be included in the rate set by the 2013 valuation report. Okay, so I know we've gone over a lot of changes that are going on over the course of the next two valuation cycles. I just wanted to recap so that you know when to expect and look for these things. The fiscal year 2015/2016 -- that is the valuation that is coming out in September. Okay? You will see your rate will incorporate the new smoothing policy. It will also incorporate the new pooling structure if you are a pool plan. Okay, and then the following year, the 2014 valuation, which sets your 2016/2017 fiscal year rate -- that's the first time you'll see the new assumptions impacting your rate. In the 2013 valuation you get this year, your projections will also give you a kind of heads up on what these assumptions are expected to do to your rate. Okay, and with that, we're going to go ahead and open it up for questions. Julian: Thank you very much, Fritzie, for that fascinating presentation. We've had a number of questions come in. Some of them have been answered during your presentation, but we can pick some of them and just review them quickly. For somebody who's looking for information about an accurate projection, where is the best place for them to look? Fritzie: That's a very good question. First of all, the only projections that we have available right now are if you take a look at your 2012 valuation report, you will see the impact to the new smoothing policy there. We also had, and I can't recall the number, but if you look at circular letters from this year, there is a circular letter that talks about the impact of the assumption change. Now, remember that letter only talks about the impact to the assumption change. It does not include the investment return that we've received that kind of counteracts that, so you know, that's one thing also I would look for. When the 2013 reports come out this year, you'll get a much better picture. You'll have the new smoothing policy incorporated, the changes to the risk pool structure will be incorporated and your projections will show, you know, based on...it'll show the impacts to the assumption change and the offsetting kind of good return in the market. And if all else fails, you know, contact your plan actuary because they can kind of walk you through, you know, how to read these things. what do these things really mean, specifically for your agency. Julian: Thank you. This is a general question. Somebody is interested in being able to tell if their plan is a pooled plan or a non-pool plan. What's the easiest way for them to determine that? Fritzie: I think the easiest way to determine is if your annual valuation comes and it's divided into two sections; section 1 and section 2, that means that you belong to a risk pool. Also, I believe in the footer of your annual valuation, it should say, 'belonging to such and such risk pool' if you are in a risk pool. If not, it won't. Julian, do you have any suggestions? Julian: You know, I totally agree with you. I think that's the best way to determine whether you're part of a pool or not. We have a question about normal cost PEPRA rates. And as the normal cost changes from year to year, how will that impact any changes to the PEPRA rate contributions for employees? Fritzie: That's a very good question. So right now, the PEPRA rates were set on, I guess, December of 2012 and you guys all have those PEPRA rates. Now, that's the benchmark. If the normal cost changes by more than 1% from that benchmark...now, I'm talking....so, say 0.5% changes this year. That's not 1%. Okay. But in the following year, it changes by another 0.5% and the two years combined, that 1%, so I'm talking about a 1% cumulative change over the years. Once that happens, then the PEPRA employees are required to pay half and so they will incur an extra 0.5% increase. And I hope that makes sense. So, you know, we have a baseline. Right now, everybody's baseline is the rate... the PEPRA rates that were given to you as of December 2012. Now as soon as the normal cost changes by 1% from that point, that's when the employees will be assessed the extra 0.5% increase. And then we'll have a new baseline once that increase is in. And then, you know, we have to wait for another 1% to trigger a change again. And, you know, by the way, the new assumption change is going to increase the normal cost percentage, but it is possible in the future that, you know, the normal cost will decrease. So, you know, we're talking about it goes both ways. Julian: Great. I've had a number of questions from people about the availability of the slides and the presentation. Can you let us know when that will be available? Fritzie: Absolutely. We will definitely post the slides of this presentation on our website in a couple of weeks and, already, I believe, as one of the handouts, if you're a pool plan and you want to know what the pooling structure changes are going to do to your rate, you can already go to the website and look up your plan specifically. And remember, those are projected rates. Okay, so you'll actually see the specific actual impact in the 2013 val. These are just all kind of estimates to help you plan for the future. Julian: Great. Thank you very much for that. I have a question here regarding GASB 68 and I'm happy to address that one. It's on everybody's mind since all plans will be required to provide information based on the GASB 68 disclosures as of the end of the fiscal year ending June 30, 2015. CalPERS fully intends to be providing this information to all of the agencies. It will most likely be on a fee-per-service basis, as would be required by the current legislation. And CalPERS will issue a circular letter explaining more of the details as they become available. So thank you very much for your questions about GASB 68. Feel free to contact your actuary at CalPERS and mention that you're interested in obtaining the GASB 68 valuation, as we're compiling a list of those agencies, which are interested in having those valuations. We're currently updating our systems and looking to put on additional staff in order to help us get through the additional work required to produce those valuations. And we will keep you fully informed about the developments about GASB 68 and it's availability. I've got a question here about the...what's the rate of return that CalPERS has earned over the past five years? Fritzie: I don't know off the top of my head to be honest. Do you, Julian? Julian: I don't know either, but I mean in any of the reports that we produce, there is an asset section, which describes the current allocation of the portfolio, as well as a history of the investment performance going back much more than five years. So I would highly recommend that you look in that part of the report if you're interested in finding out about the rate of return of the PERF and other information on the CalPERS website with respect to the investment performance of our fund is also available there. Fritzie: Actually, and if you're a pooled plan, you'll find that in section 2 of the report, not in section 1. Julian: Right. Now, I'm going back to the options about the restructuring of pooling. Which option did CalPERS Board finally adopt? Fritzie: I believe it was called Alternative 2. Julian: That's my recollection too. Fritzie: Yeah, but the bottom line was that, you know, the liabilities are now going to be billed for... as a percentage...I mean, the liabilities are going to be allocated by your prorated share of the pool's liability instead of your prorated share of the pool's payroll. Julian: Right. I've had a question here about what qualifies a plan for it to be put into a pool and is it possible to remove a plan from a pool and have it as a stand-alone plan? Fritzie: That's a very good question and I know a lot of people have been talking to me about this or asking this question. When we initially set up pooling back in the 2003 valuation, the criteria was if you had less than 100 active members, you were put into one of these risk pools based on your benefit formula. Now, I know with the risk pooling structure change, people have asked, well, you know, do you really even need....you know, can we opt out at this point? And you might kill me, but this is really a conversation that you should have with Allen if it's interesting to you. We have had this conversation a couple of times and, you know, he kind of looked and he was like, 'Ah, interesting,' so I'm not quite sure where he is on that, but you know, that's definitely something that he would have to make a decision on. So, if you're interested in that, you know, write him a letter, send him an email. Julian: Thank you.... Fritzie: Oh, sorry, one more thing to add. There is nothing at this point that you can do to get out. I mean, there might be the opportunity later, I don't know, but at this point and time, there is nothing you can do to get out once you're in. It's like a black hole, sorry. Julian: Going back to PEPRA rate...contribution rates for employees, would those rates, at some point, decrease if the overall normal cost rate did decrease? Fritzie: Absolutely. Again, you need a 1% difference from the baseline. So the numbers that were sent out in late 2012, that's your baseline. So if it were to go...if the normal cost were to decrease less than 1%, you know, more than 1% from what the baseline is, absolutely. That decrease would be passed on to the employees. It goes both ways. Julian: I have a question here about the asset performance this year. Can you make any comment about that and how you think that's going to impact the rates that we're setting for the 2015/2016 fiscal year? Fritzie: You mean 2016/2017? Julian: Yes, both. Fritzie: Okay. So in the 2013/2014 fiscal year, we actually had a pretty good year. We are, in our projections, using a 15.5% return and, you know, that's the same year that we are going to see the specific impact due to the assumption change. And the good news is is that that good investment return is pretty much counteracting the increases due to the assumption change. You'll still see a bit of an increase. Obviously the normal cost is going to increase and that's not going to change. But, you know, the impacts disclosed in the circular letter only include the impacts to the assumption change. The good news is with that 15.5% projected return, you know, you're seeing the increases due to the assumption change almost cancelled out. And I say almost. There's still a little bit of an increase, but instead of....like I said, the one plan that I did look at, instead of seeing a 6.7% increase over the next five years, you know, it looked like they were only going to see a 1% increase total, which is much better. Julian: Right. And a question about, you know, if there are any changes to the PEPRA rates, will CalPERS be notifying the agencies of these changes? Fritzie: Absolutely. That's a very good question. I believe the plan is, at this point, to still send out a letter with what your new PEPRA rates will be, much like you got in 2012. But in the future, I'm sure we plan to incorporate these PEPRA employee contribution rates into your report so that you have just one place to look at it. It's also new, so you know, you've got to work with us here. Sorry. We are trying to get it all together in a, I guess, easy to interpret manner. Julian: I've received a question about actuarial assumptions. And they're asking if CalPERS reflects any medical information for planned members when they set their assumptions and given that medical records are electronic these days, would that be something which will be possible? Fritzie: Yeah, I don't think so. I mean, you know, what we did when we projected the....the one thing I'll say is, I guess the health of the general public will go a long way towards determining what the mortality rates are going to be. When we projected our mortality rates and accounted for future mortality rate improvements, we used the standard scales BB, which I believe the Society of Actuaries put out, so.... Julian: That's right and, in fact, the Society of Actuaries has released the draft of a new mortality table and a new projection scale. So when those are finalized, then of course CalPERS will review the appropriateness of our current assumptions and make appropriate adjustments with respect to that. Fritzie: But as far as CalPERS staff actually looking at the individual medical records, we don't do that. Julian: Right. I've received a question about plans which are fully funded or a plan that becomes sup-funded. What will the affect of that be on the plan's contribution rate? I believe this question is focused on the PEPRA requirement that all plans have to make at least the normal cost contribution. And as far as I understand, currently all plans have to make that contribution no matter what their funded status is. We have a handful of agencies who are over-funded or in the super-funded status and there would be a legislative change required in order for CalPERS to recommend any contribution rate less than the normal cost, which is currently by law the minimum required contribution rate. Just checking here to see if we have any more questions. When do you expect to finish the valuations this year and expect to release them? Fritzie: That's a very good question. We hope to have them done by September of this year. That's the plan. Julian: Right. We fully intend to produce them a few months earlier than last year and it would be great because all of the agencies will have time to look at those valuation reports before they come to the educational forum, which is in Riverside this year at the end of October. So we hope to see you all there. Fritzie: Yeah, certainly. Julian and I will be there. So we look forward to meeting some of you. I should say all of you. Julian: I don't see any other new questions in here. If by some chance we've missed answering your questions, will we be providing answers to questions? Fritzie: Yeah. We can go ahead and we'll scroll through the questions and if we didn't provide an answer to it, we can provide written answers and post those to the CalPERS website, I guess, in a couple of weeks with the slides. But there are no more questions? Julian: How soon can somebody make a contribution towards their unfunded liability? Fritzie: Oh, that's a great question. If that's something that you want to do, just call your actuary and they can make arrangements with you. You can do that today. Julian: Right. I think that's all the questions that we have for the moment. Fritzie: Okay, well, I would like to really thank you for joining us on this web cast. It actually sounds like some of you were not watching World Cup and actually paying attention to the presentation, which is wonderful. I guess you'll hear from us soon if you have any unanswered questions. And hope you have a great day.