Fiscal Year 2013-2015 Special Budget Meeting

FILED OFFICE OF THE CiT i Cttft* O A K L A N D 2013 JUN 21 AM 8= 58 DISTRIBUTION DATE: 6/7/13 CITY OF OAKL^ND MEMORANDUM TO: HONORABLE MAYOR & FROM: Katano Kasaine CITY COUNCIL SUBJECT: SEE BELOW DATE: June 7, 2013 City Administrator Date Approval /s/ Deanna J. Santana 6/7/13 REVISED INFORMATION SUBJECT: Update on CalPERS New Rate Increases Due to Amortization and Smoothing Policy Changes Adopted by CalPERS on April 17,2013 This information memorandum provides an update on CalPERS recent changes to its new smoothing and amortization policy that was approved on April 17, 2013. Under the new smoothing and amortization policy changes as provided in CalPERS circular letter dated April 26, 2013, investment gains and losses would be recognized over a fixed 30-year period with the increases or decreased in the rate spread directly over a 5-year period. According to CalPERS, this action will result in an increase in employer rates in the near term but lower contributions rates in the long term. The smoothing will increase the employer rate volatility in normal years but a much reduced chance of very large rate increase in extreme years if there was a large investment loss. In addition, the adoption of this new amortization and smoothing method will improve funding levels, which would reduce the funding level risk and ultimately achieve a fully funded status for its plans in thirty years. The adopted policy changes intend to protect the beneficiaries and reduce the long-term cost of benefits for all. This new change will be implemented in the June 30, 2013 actuarial valuations. A copy of the CalPERS circular letter dated April 26, 2013 is attached to this memo. On April 5, 2013, Staff provided an information memorandum on CalPERS newly adopted actuarial assumptions being implemented with the June 30, 2011 valuation and the impact to the City's contribution. This memorandum is revising the figures to reflect the newly adopted CalPERS' rates and the new information issued by CalPERS on projected impacts on future rates effective FY 2015-16.