An Analysis of Pension and Other Post Employment Benefits*

Conclusions 26

• CL1 Page 55
  Public sector employees are eligible for retirement at least 10 years earlier than is common for private sector employees.
• CL2 Page 55
  清明 司司司司 はだる あいかい Campbell, Gilroy, Los Altos Hills, Los Gatos, Milpitas and Palo Alto have adopted second tier plans that offer reduced Benefits, which help reduce future costs, but further changes are needed to address today's unfunded liability. Santa Clara County and the cities of Cupertino, Los Altos, Monte Sereno, Morgan Hill, Mountain View, San Jose, Santa Clara, Saratoga and Sunnyvale have not adopted second tier plans.
• CL3 Page 56
  Retroactive Benefit enhancements were enacted by Cities using overly optimistic ROI and actuarial assumptions without adequate funding in place to pay for them.
• CL4 Page 56
  The Cities are making an overly generous contribution toward the cost of providing Benefits.
• CL5 Page 56
  The Cities are not fully funding OPEB benefits as evidenced by large unfunded liabilities and small funded ratios.
• CL6 Page 57
  The Cities' defined benefit pension plan costs are volatile. Defined contribution plan costs are predictable and therefore more manageable by the Cities.
• CL7 Page 56
  The City of San Jose permits the transfer of pension trust fund money, when ROI exceeds expectations, to the SRBR, despite the fact that the pension trust funds are underfunded. 27
• CL8 Page 61
  Please describe vacation policy to include: How many vacation days are granted at what seniority levels? • Is there any limit to the amount of vacation time that can be accrued? . Is unused vacation paid upon retirement? Please describe sick leave policy to include: Is there any limit to the number of sick days allowed per year? is there any limit to the amount of sick days that can be accrued? Are unused sick days paid upon retirement? 32 Appendix C: Glossary of Terms & Acronyms Actuarial Assumptions: Assumptions representing expectations about future events (e.g. expected investment returns on plan assets, member retirement and mortality rates, future salary increases, or inflation) which are used by actuaries to calculate pension liabilities and contribution rates. Actuarial Valuation: Technical reports conducted by actuaries that measure retirement plans' assets and liabilities to determine funding progress. They also measure current costs and contribution requirements to determine how much employers and employees should contribute to maintain appropriate benefit funding progress. Actuary: Professionals who analyze the financial consequences of risk by using mathematics, statistics, and financial theory to study uncertain future events, particularly those of concern to insurance and pension programs. Pension actuaries analyze probabilities related to the demographics of the members in a pension plan (e.g., the likelihood of retirement, disability, and death) and economic factors that may affect the value of benefits or the value of assets held in a pension plan's trust (e.g., investment return rate, inflation rate, rate of salary increases). Actuarial Accrued Liability (AAL): The value of benefits promised to employees and retirees for services already provided. This concept applies to both the pension liability and retiree health care liabilities. Annual Required Contribution (ARC): The amount of money that actuaries calculate the employer needs to contribute to the retirement plan during the current year for benefits to be fully funded over time. Generally CalPERS uses a 30 year period. CAFR: Acronym for Comprehensive Annual Financial Report CalPERS: Acronym for California Public Employees' Retirement System Defined Benefit: Promised fixed sum paid or service rendered. The assets in a defined benefit plan are held by the employer who incurs all investments risks. See also defined contribution. Defined Contribution: Contributions made by an employer to an individual employees investment account such as a 401k. All investment gains or losses are those of the employee, not the employer. See also defined benefit. Employer Paid Member Contribution (EPMC): A program whereby the city pays employee contribution in a manner in which the amount paid is considered income for the purposes of determining pension. As exemplified by one city, "For example, an employee with a $100K income and a 7% EPMC retires using a salary of $107K per year rather than $100K per year." Experience Gains/Losses: Gains or losses that arise from the difference between actuarial assumptions about the future and actual outcomes in an organization's pension plan. First tier (1st tier) plans: Benefits promised to all employees prior to the implementation of a second tier plan. First tier plans have generally been enhanced; contributing to the cost escalation. See also "second tier" in the Glossary. · 33 Appendix C: Glossary of Terms & Acronyms - continued Funded Ratio: The market value of assets divided by the accrued liability. Funded ratio is a measure of the economic soundness of a fund, Market Gains/Losses: Gains or losses that arise from an increase or decrease in the market value of a plan's assets, including stock, real property, and investments. Miscellaneous (MISC) employee/plan: Public employees who are not sworn police or fire. The term MISC generally is used to describe a pension plan. The city of San Jose refers to these employees as belonging to a Federated plan rather than a MiSC plan. Normal Cost: That portion of the ARC (see above) which is based solely on the value of the benefits being offered. OPEB: Acronym for Other Post Employment Benefits. OPEB benefits are primarily health care benefits but can include other benefits such as life insurance, Opt in Plan: Term used to designate an employee elective benefit plan; employees choose between maintaining current benefits but at an increased employee contribution rate or elect to receive lower benefits and avoid increases to employee contribution rates, Risk Pool: In 2005 CalPERS created risk pools to aggregate small cities (generally defined as having less than 100 employees) into large pools to eliminate statistical anomalies associated with small sample sizes and gain reporting efficiencies. ROI: Acronym for Return on Investment. See also Market Gains/Losses. Public Safety Employees: Most police and fire personnel. Other public employees are generally referred to as miscellaneous employees (see above) and may include some members of police and fire departments. ġ, Second tier (2nd tier) plans: Benefits promised to all employees hired after the date of implementing a plan with reduced benefits, Second tier plans generally have reduced benefits and lower costs. See ....................................... also "first tier" in the Glossary. Sidefund: Generally the unfunded liability that existed prior to entering a risk pool, A city is responsible for their entire sidefund plus their portion of the risk pool. Sidefund repayment can be accelerated. Some cities did not separate sidefund monies from ARC while others did. Smoothing of Gains/Losses: Actuarial method of spreading, or smoothing, market gains and losses over a period of time. The purpose of smoothing is to minimize short-term, year-to-year contribution rate fluctuations which may result from market swings. The smoothed asset value is also known as the actuarial value of assets. Unfunded Liability: This is the unfunded obligation for prior benefit costs, measured as the difference between the accrued liability and plan assets. When using the actuarial value of plan assets, it is also referred to as the Unfunded Actuarial Accrued Liability (UAAL). 34 This report was PASSED and ADOPTED with a concurrence of at least 12 grand jurors on this 17^{\rm th} day of May, 2012. Kathryn G. JanoffForeperson Alfred P. BichoForeperson pro tem James T. Messano Secretary 35 ٠. · . . • . • . . . . 1984 . . . . . - . . . . • * . Attachment B ALTERNATIVE PENSION REFORM SETTLEMENT FRAMEWORK (Evidence Code Section 1152) Settlement Discussion Framework Language The City of San Jose, the San Jose Fire Fighters, IAFF Local 230, and the San Jose Police Officers' Association have engaged in settlement discussions concerning litigation arising out of a voter-approved ballot measure, known as Measure B. The parties have reached the below framework for a tentative settlement of San Jose Police Officers' Association V. City of San Jose, Santa Clara Superior Court, No. 1-12-CV-22926, Sapien, et. Al. v. City of San Jose, et. al., Santa Clara County Superior Court, No. 1-13-6V-225928 (and associated actions), The People of the State of California ex rel. San Jose Police Officers' Association v. City of San Jose, Santa Clara County Superior Court, No. 1-13- warranto proceedings), International Association of (quo CV245503 Firefighters, Local 230 vs. City of San Jose, Public Employment Relations Board Unfair Practice No. SF-CE 969-M, and various other actions, including grievances. This settlement framework shall be presented for approval by the City Council and the respective Union Board of Directors. It is understood that this settlement framework is subject to a final overall global settlement. In the event the settlement framework is not accepted, all parties reserve the right to modify, amend and/or add proposals. Each individual item contained herein is contingent on an overall global settlement/aareement beina reached on all terms, by all parties/litiaants (including the retirees), and ratified by union membership and approved by the City Council. ALTERNATIVE PENSION REFORM SETTLEMENT FRAMEWORK Evidence Code Section 1152 July 15, 2015- 9:00PM Page 1 of 16 MARCH 11th LETTER 11 In accordance with Mayor Sam Liccardo's letter on behalf of the City Council to all bargaining units dated March 11, 2015, inclusive of the direction from Councilmember Don Rocha's March 6, 2015, memorandum, the City Council is willing to pursue settlement of Measure B litigation through a quo warranto process in 2015, contingent on the Council's satisfaction that the following conditions have been met before the quo warranto process begins:
• CL9 Page 59
  which the pension plan is being administered. Please provide a description of each defined pension plan that you provide to your employees.
• CL10 Page 59
  At what age is an employee eligible for a pension? How many years must an employee work to be vested for a pension? . Are employees required to make contributions to their own accounts? If so, what percent of their salary is paid toward their pension? Is there any annual or lifetime employee contribution cap? Does the plan include cost-of-living allowance increases post retirement?
• CL11 Page 59
  For each identified plan, what percent of an employee's income is earned toward retirement each year of employment? For each identified plan, is there an identified maximum salary percent cap that can be earned in retirement? Do plan participants contribute to Social Security?
• CL12 Page 59
  For each identified plan, describe the formula for determining final compensation used in factoring a retiree's pension. Include number of months that income is averaged, whether or not overtime is included or excluded from this calculation, and whether or not any other form of employee payments other than base salary are included in the formula (awards, bonuses, travel compensation, etc.). How much money was contributed in each of the last two fiscal years toward pensions (not
• CL13 Page 69
  No retroactive pension increases or decreases ALTERNATIVE PENSION REFORM SETTLEMENT FRAMEWORK Evidence Code Section 1152 July 15, 2015- 9:00PM Page 3 of 16 a. Any such changes in retirement benefits will only be applied on a prospective basis.
• CL14 Page 59
  Including employee contributions)? What percent was this of total payroll? How much pension money was paid out in each of the last two fiscal years to retirees? How many retired employees are currently collecting benefits? How many active employees are there currently? How many employees are within five years of being eligible for retirement? For each plan, please identify and quantify all significant actuarial assumptions used in evaluation of ARC to include: a) Amortization period Investment rate of return b) Projected salary increases C) Overall payroll growth d) Inflation factor . e) Smoothing duration f) Other, if applicable g) What is the unfunded liability of each identified plan for the fiscal years 2010 and 2011? 1.0
• CL15 Page 60
  Please indicate the major reasons for the unfunded liability. For each reason provided, indicate the
• CL16 Page 59
  approximate percentage of contribution to total unfunded liability.
• CL17 Page 60
  What is the funded ratio of each identified OPEB plan for the fiscal years 2010 and 2011?
• CL18 Page 70
  Tier 2 cost sharing a. Employees and the City will split the cost of Tier 2 including normal cost and unfunded liabilities on a 50/50 basis b. In the event an unfunded liability is determined to exist for the Police and Fire Tier 2 retirement plans, Tier 2 employees will contribute (the "Ramp Up") toward the unfunded liability in increments of 0.33% per year until such time that the unfunded liability is shared 50/50 between employee and employer c. Until such time that the unfunded liability is shared 50/50, the City will pay the balance of the unfunded liability
• CL19 Page 59
  What is the funded ratio of each identified plan for the fiscal years 2010 and 2011?
• CL20 Page 59
  When was the last time the funds have been funded at the level of 100% or higher?
• CL21 Page 59
  Have pension contributions ever been reduced from calculated ARC payments? What year was the last time this happened? : Please summarize any significant changes to pension benefits over the last ten years for each plan. For each, indicate if this was a pension benefit enhancement or reduction. : 1
• CL22 Page 60
  Please provide any evidence of plans that are in work to reduce future OPEB costs? (Page referencing within an included URL or separate attachment with appropriate material is an acceptable response.)
• CL23 Page 59
  Please provide any evidence that indicates how projected pension costs are expected to change in the next 5 to 10 years. (Page referencing within an included URL or separate attachment with appropriate material is an acceptable response.) 30 Appendix B: Grand Jury Survey - continued
• CL24 Page 60
  Please provide any evidence of the strategies that are in work to reduce the rate of pension escalation. (Page referencing within an included URL, or separate attachment with appropriate material is an acceptable response.)
• CL25 Page 60
  For each plan, please provide evidence as to how pension fund past performance is doing relative to assumed performance for the last ten years. (Page referencing within an included URL or separate attachment with appropriate material is an acceptable response.) Section 2: OTHER POST EMPLOYMENT BENEFITS How many defined benefit plans do you have? Please identify them by name and answer all
• CL26 Page 72
  Tier 2 members will be provided the same service repurchase options as Tier 1 members (excluding purchases of service credit related to disciplinary suspensions) so long as all costs for the repurchase are paid for by the employee. ALTERNATIVE PENSION REFORM SETTLEMENT FRAMEWORK Evidence Code Section 1152 November 23, 2015 Page 6 of 20 Retiree Healthcare - All provisions below are contingent on final costing by the City's Actuary and review for legal and/or tax issues

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