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Date:February 25, 2025 <br />To:Susan Hsieh <br />From:Doug Pryor <br />Page:2 <br />411 Borel Avenue, Suite 620 San Mateo, CA 94402 · (650) 377-1600 · www.foster-foster.com <br />Plan Funded Status <br />Before reviewing the funded status of these plans, following are comments on funding: <br />The general goal of pre-funding is to set aside money (while employees are working for the City) in order to <br />pay their retirement benefits after they leave. Note that this concept is the same as for a 403(b) defined <br />contribution plan. Of course, with pensions and OPEB, this goal is much more complicated to achieve, as the <br />measure of how much money is needed to pay benefits must be estimated, and will change throughout an <br />employee’s career as well as after they retire. <br />For pension and OPEB, the Actuarial Accrued Liability (AAL) represents the target asset value so that the <br />plan is on track to meet the goal of having sufficient assets to pay all benefits from the trust once employees <br />retire. <br />Due to many factors including the need to estimate the AAL, plans will rarely be 100% funded. In each <br />valuation, the recommended contribution is equal to the value of benefits accruing for active employees, <br />plus/minus a payment/credit to move the plan towards 100% funding. <br />Trust assets can only be used to pay benefits to participants. However, Supplemental Trust assets have <br />special characteristics. Assets can only be used to (1) transfer funds to CalPERS, or (2) reimburse the City <br />for contributions made to CalPERS. The Supplemental Trust is required to be accounted for as a City asset <br />(unlike the CalPERS pension and OPEB trusts which are not City assets). However, because the trust can <br />only be used for CalPERS payments, we believe it makes sense when looking at overall funded status to <br />include Supplemental Trust assets. <br />The primary benefit of a Supplemental Trust is managing unexpected future CalPERS contribution increases. <br />In years of large required CalPERS contributions, the trust can be accessed to pay some or all of the required <br />contributions. <br />Following is the funded status of these plans at June 30, 2024. The projections are based on the most recently <br />available actuarial valuations as of June 30, 2023, and include the impact of actual 2023/24 investment returns <br />(9.5% for CalPERS and 10.9% for the OPEB trusts). <br />(amounts in $ millions) <br />Assets Total Total <br />Plan <br />Liability <br />(AAL) <br />Primary <br />Trust <br />Supp. <br />Trust2 Total <br />Unfunded <br />Liability <br />Funded Ratio <br />(Assets/AAL) <br />CalPERS <br />Miscellaneous $ 383 $ 251 $ 29 $ 280 $ 103 72.9% <br />Police 214 158 12 170 44 79.6% <br />Fire 145 97 10 107 38 73.9% <br />Total 742 506 51 557 185 75.0% <br />OPEB <br />Non-Fire 81 66 n/a 66 15 82.3% <br />Fire 19 15 n/a 15 4 80.1% <br />Total 100 81 n/a 81 19 81.0% <br />Grand Total 842 587 51 638 204 75.8% <br />A few general observations: <br />The OPEB plans are better funded than CalPERS plans despite (1) OPEB funding started relatively recently <br />(2010/11) compared to CalPERS, and (2) Supplemental Trust assets are included for CalPERS. <br />Without the Supplemental Trust, the overall CalPERS plans funded ratio would be 68.2% ($506/$742). <br />Less than 10% of the total unfunded liability is with the OPEB plans. <br />2 Assets allocated to the 3 CalPERS plans based on 6/30/24 unfunded liabilities using primary trust assets. <br />Page 47 of 56