Fiscal Year 2013-2015 Special Budget Meeting

Circular Letter No.: 200-019-13 April 26, 2013 Page 2 • The use of rolling amortization and asset smoothing periods may result in additional calculations for the new accounting standards. These calculations would be avoided with a quicker funded status recovery. The adoption of the new smoothing and amortization policies will change future employer contribution rates. Changes are as follows: • Funding levels will improve, which will reduce the funding level risk. The new methods will put your plan on a path to be fully funded in 30 years. • Your plan will experience more rate volatility in normal years, but a much reduced chance of very large rate increases in years when there are large investment losses. • Contribution rates in the near term will increase. • Long tenri contribution rates will be lower. • There will be greater transparency about the timing and impact of future employer contribution rate changes. • The new policy eliminates the need for an actuarial value of assets. As a result, there will be only one funded status and unfunded liability in actuarial reports. • There will be less confusion when the new accounting standards are implemented since there will be no need for extra liability calculations. Expected Rate Increases Due to Changes The following table can be used to gauge your agency's expected increase in employer contribution rates under the new amortization and smoothing policy. The illustrated rates are based on public agency asset volatility ratios. The asset volatility ratio (AVR) is an agency's assets divided by their annual payroll. This ratio provides a measure of how sensitive an agency's contribution rate will be due to investment returns. For pooled plans, the AVR is the asset volatility ratio of the pool. Your plans AVR is provided in the risk analysis section of your annual actuarial report. The table shows the projected increases in employer contribution rates for Fiscal Years 2015-16 through 2019-20, assuming CalPERS earns 7.50 percent after 2011-12. Projections for Fiscal Year 2014-15 are not affected. As an extreme example, we have Included a plan with an AVR of 15. Cumulative Proiected Increase in Employer Contribution Rate beyond the Projected Fiscal Year 2014-15 Rate Fiscal Year AVR of 4 AVR of 6 AVR of 8 AVR of 10 AVR of 15 2015-2016 1.1% 1.7% 2.2% 2.8% 4.2% 2016-2017 2.2% 3.4% 4.4% 5.6% 8.4% 2017-2018 3.3% 5.1% 6.6% 8.4% 12.6% 2018-2019 4.4% 6.8% 8.8% 11.2% 16.8% 2019-2020 5.5% 8.5% 11.0% 14.0% 21.0%