Agenda Board of Fire and Police Pension Commissioners

AGENDA

BOARD OF FIRE AND POLICE PENSION COMMISSIONERS

September 15, 2016 8:30 a.m.

Sam Diannitto Boardroom Los Angeles Fire and Police Pensions Building 701 East Third Street, Suite 400 Los Angeles, CA 90013

Commissioner Diannitto will participate telephonically from 4612 El Reposo Drive, Los Angeles, CA 90065

An opportunity for the public to address the Board or Committee about any item on today’s agenda for which there has been no previous opportunity for public comment will be provided before or during consideration of the item. Members of the public who wish to speak on any item on today’s agenda are requested to complete a speaker card for each item they wish to address, and present the completed card(s) to the commission executive assistant. Speaker cards are available at the commission executive assistant’s desk.

In compliance with Government Code Section 54957.5, non-exempt writings that are distributed to a majority or all of the Board or applicable Committee of the Board in advance of their meetings may be viewed at the office of the Los Angeles Fire and Police Pension System (LAFPP), located at 701 East 3rd Street, 2nd Floor, Los Angeles, California 90013, or by clicking on LAFPP’s website at www.lafpp.com, or at the scheduled meeting. Non-exempt writings that are distributed to the Board or Committee at a scheduled meeting may be viewed at that meeting. In addition, if you would like a copy of any record related to an item on the agenda, please contact the commission executive assistant, at (213) 279-3038 or by e-mail at [email protected].

Sign language interpreters, communication access real-time transcription, assistive listening devices, or other auxiliary aids and/or services may be provided upon request. To ensure availability, you are advised to make your request at least 72 hours prior to the meeting you wish to attend. Due to difficulties in securing sign language interpreters, five or more business days notice is strongly recommended. For additional information, please contact the Department of Fire and Police Pensions, (213) 279-3000 voice or (213) 628-7713 TDD.

A. ITEMS FOR BOARD ACTION

1. CONSIDERATION OF ASSUMPTIONS FOR THE JUNE 30, 2016 RETIREE HEALTH ACTUARIAL VALUATION AND POSSIBLE BOARD ACTION

2. GOVERNMENTAL ACCOUNTING STANDARDS (GAS) 68 ACTUARIAL VALUATION AS OF JUNE 30, 2016; GOVERNMENTAL ACCOUNTING STANDARDS BOARD (GASB) STATEMENT NO. 68 REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2015; AND POSSIBLE BOARD ACTION

3. PROPOSED RENEWAL OF ROBECO INVESTMENT MANAGEMENT INC./BOSTON PARTNERS LARGE CAP VALUE EQUITY CONTRACT AND POSSIBLE BOARD ACTION

4. CONTINUATION OF APPROVAL OF ANNUAL CONTRACT AMOUNT FOR OUTSIDE REAL ESTATE AND INVESTMENT COUNSEL FIRMS JACKSON WALKER LLP, KUTAK ROCK LLP, AND NOSSAMAN LLP AND POSSIBLE BOARD ACTION

5. CONTINUATION OF RVK REVIEW OF DOMESTIC EQUITY STRUCTURE AND STAFF SMART BETA PROPOSAL FOR POSSIBLE BOARD ACTION

B. REPORTS TO THE BOARD

1. VERBAL UPDATE REGARDING STATUS OF LAFPP MEMBERS ENROLLED IN LACERS HEALTH PLANS

2. Miscellaneous correspondence from money managers, consultants, etc. – Received and Filed.

3. General Manager’s Report

a. Monthly Report

b. Marketing Cessation Information

c. Benefits Actions approved by General Manager on September 1, 2016

d. Other business relating to Department operations

C. CONSENT ITEMS

1. Approval of Minutes

a. Minutes of the Regular Board meetings of August 6, 2015, December 3, 2015, and December 17, 2015.

2. APPROVAL OF TRAVEL AUTHORITY (NAVARRO) – IFEBP, CERTIFICATE SERIES – RETIREMENT PLAN BASICS AND INVESTMENT BASICS

D. CONSIDERATION OF FUTURE AGENDA ITEMS

E. GENERAL PUBLIC COMMENT ON MATTERS WITHIN THE BOARD’S JURISDICTION

September 1, 2016 2

F. DISABILITY CASES

Alternative 1

Police Officer II Joseph A. Armstrong. Officer Armstrong will be representing himself.

G. CLOSED SESSION

1. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.81 TO CONSIDER THE PURCHASE OF THREE (3) PARTICULAR, SPECIFIC INVESTMENTS AND POSSIBLE BOARD ACTION

2. CLOSED SESSION PURSUANT TO SUBDIVISIONS (a) AND (d)(1) OF GOVERNMENT CODE SECTION 54956.9 TO CONFER WITH LEGAL COUNSEL REGARDING PENDING LITIGATION, IN THE FOLLOWING CASE: ALLEN ET AL. V. OVER AND OVER READY MIX ET AL. (CASE NUMBER BC553839)

3. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54957(b)(1): BOARD REVIEW OF THE CITY ATTORNEY ANNUAL PERFORMANCE EVALUATION AND POSSIBLE BOARD ACTION

September 1, 2016 3

DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA 90013 (213) 279-3000

REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS

DATE: SEPTEMBER 15, 2016 ITEM: A.1

FROM: RAYMOND P. CIRANNA, GENERAL MANAGER

SUBJECT: CONSIDERATION OF ASSUMPTIONS FOR THE JUNE 30, 2016 RETIREE HEALTH ACTUARIAL VALUATION AND POSSIBLE BOARD ACTION

RECOMMENDATION

That the Board adopt the retiree health assumptions for the June 30, 2016 Retiree Health Valuation as recommended by The Segal Company (Segal).

DISCUSSION

The Los Angeles City Charter and Administrative Code require that the Board retain the services of a competent consulting actuary and on the advice of the actuary, adopt actuarial assumptions for the purpose of making the necessary actuarial studies, reports, investigations and valuations (e.g., mortality, service and salary experience of plan members, interest rates, investment rate of return, etc.). Segal develops the recommended assumptions in accordance with generally accepted actuarial principles and practices. Segal’s role is to advise and make recommendations to the Board, however, the Board has the ultimate responsibility and authority to determine and adopt the assumptions.

Beginning with the June 30, 2007 valuation, Segal has recommended that the health care trend assumptions used in the health valuation be reviewed annually due to the volatility and constant innovations present in the healthcare marketplace. Every year Segal publishes a set of health care trend assumptions based on the latest research and information available1. Segal has submitted their recommendations for LAFPP’s health care related actuarial assumptions in the attached letter (Attachment 1).

For the June 30, 2016 valuation, Segal continues to separate the medical trend rate assumption for Medicare and non-Medicare plans, and the trend rates for the two types of plans are the same again this year. However, in future years, Segal’s analysis may result in separate trend rates for the two plan types (e.g., due to the fact that Medicare rates are determined by the Federal Government, whereas non-Medicare rates are determined by private insurance companies).

In developing its first-year health trend assumptions, Segal considers a mix of health industry expectations as well as plan specific information:

1 At the time of this writing, the final published trend survey is still being formatted and will be provided to the Board if available in time for today’s meeting. In the absence of receiving the final report, the draft report will be provided to the Board.

1. Claims experience, enrollment and cost data are blended with Segal’s internal guidelines, typically expressed as a range (e.g., the trend may vary between 6-8% depending on plan design, financial condition, and arrangements with health care providers). 2. The trend guidance in part 1 above is used for short-term health care projections. Segal then makes further adjustments to reflect retiree health benefit costs over the long-term (e.g., 100 years into the future).

Segal reviewed the change in premiums for the Board-approved health plans over the last five and ten-year periods and found that, on average, premiums for medical plans available to LAFPP members have increased at a rate less than the trends assumed in the valuations.

Weighted Avg. Premium Increase Approved Trend Assumption

10.00% 9.00% 9.00% 8.50% 8.00% 8.00% 7.30% 7.00% 6.75% 7.00% 6.00% 6.20% 5.00% 5.20% 4.00%

3.00% 3.30% 2.70% 2.00% 2012- 13 2013- 14 2014- 15 2015- 16 2016- 17

Segal also considered the regional differences in health care trends when developing their assumptions. Segal’s report points out that while health care costs may be higher in the western U.S., that does not necessarily result in higher trends. Costs may remain higher, but the annual change, or trend, may be lower than in other regions. Segal’s trend assumption is set to model the changes in costs.

Segal’s recommended health care cost trend rate for the June 30, 2016 valuation has a first year trend rate of 6.50%, then grading down by 0.25% each year until an ultimate rate of 5.00% is reached after six years (FY 2022 and later).

6/30/15 6/30/15 6/30/16 6/30/16 Valuation Valuation Valuation Valuation Fiscal Year Trend: Trend: Trend: Trend: Non-Medicare Medicare Non-Medicare Medicare 2015-2016 6.75% 6.75% 2016-2017 6.50% 6.50% 6.50% 6.50% 2017-2018 6.25% 6.25% 6.25% 6.25% 2018-2019 6.00% 6.00% 6.00% 6.00% 2019-2020 5.75% 5.75% 5.75% 5.75% 2020-2021 5.50% 5.50% 5.50% 5.50%

Board Report Page 2 September 15, 2016 2021-2022 5.25% 5.25% 5.25% 5.25% 2022 and later 5.00% 5.00% 5.00% 5.00%

As in prior years, staff has reviewed the medical trend surveys of other major consulting firms and determined that Segal’s recommended health care trend rate of 6.50% for the June 30, 2016 valuation is consistent with other surveys. Staff reviewed medical trend surveys from Aon Hewitt, Milliman and PwC, and the table below shows the expected medical trend from those surveys (Attachment 2).

FIRM MEDICAL TREND Aon Hewitt (2016) 5.7% Milliman (2015-16) 4.7% PwC (2017) 6.5%

The per capita costs assumption, which has been adjusted to reflect current medical and dental plan premiums paid by LAFPP pensioners, has been reviewed by staff and found to be accurate. In accordance with Actuarial Standard of Practice No. 6, Segal is utilizing age-adjusted per-capita costs based on the demographics of the group being valued and the group’s total expected claims or premiums. As with last year, Segal recommends that the Medicare Part B Premium and Dental Premium trend rates remain unchanged at 5% for all years.

All other assumptions and methods will be consistent with those recommended in the June 30, 2010 to June 30, 2013 triennial experience study, which was adopted by the Board on July 17, 2014, including the economic and demographic assumptions. (NOTE: Segal will conduct a new three-year experience study in 2017.)

Segal has again noted the potential tax liability related to health care reform that possibly may need to be reported in future valuations. Specifically, the Affordable Care Act will impose a 40% excise tax on high-cost employer plans beginning in 2020. Segal notes that Statements No. 74 and 75 by the Governmental Accounting Standards Board, for financial reporting purposes, are expected to require the inclusion of the excise tax in the liability. Statement No. 74 is effective for fiscal years beginning after June 15, 2016 for plan reporting and Statement No. 75 is effective for fiscal years beginning after June 15, 2017 for employer reporting. For the June 30, 2016 valuation Segal will continue to exclude the projected excise tax from the valuation results for both reporting and funding purposes.

Messrs. Paul Angelo and Andy Yeung of The Segal Company will be present at today’s Board meeting to discuss the recommended assumptions.

BUDGET

If adopted, the recommended assumptions will be used in the June 30, 2016 valuation, which will determine the City’s contribution rate for the 2017-2018 fiscal year. Additionally, if these retiree health care trend assumptions are adopted, the Board could increase the July 1, 2017 maximum retired member health subsidy by up to 6.50% next year.

POLICY

There are no policy changes as a result of this report.

Board Report Page 3 September 15, 2016

This report was prepared by:

Greg Mack, Chief Benefits Analyst Pensions Division

RPC:JS:GFM

Attachments: 1. Segal Letter – Assumptions and Methods Recommended for the June 30, 2016 Retiree Health Actuarial Valuation 2. Aon Hewitt, Milliman, PwC Trend Surveys

Board Report Page 4 September 15, 2016 ATTACHMENT 1

100 Montgomery Street Suite 500 San Francisco, CA 94104-4308 T 415.263.8200 www.segalco.com

VIA E-MAIL and USPS

September 9, 2016

Mr. Raymond P. Ciranna General Manager Los Angeles Fire and Police Pension Plan 701 East 3rd Street, Suite 200 Los Angeles, CA 90013

Re: Los Angeles Fire and Police Pension Plan Assumptions and Methods Recommended for the June 30, 2016 Retiree Health Actuarial Valuation

Dear Ray:

We have provided in this letter the health care related actuarial assumptions that we recommend to the Board for use in the June 30, 2016 retiree health valuation.

The health care trend assumptions used in the health valuation are reviewed annually. Every year Segal Consulting publishes a set of health care trend assumptions based on the latest research and information available to our health actuaries. The health care trend assumptions take into account factors such as: recent and expected premium increases affecting our clients, changes in utilization of health care and cost shifting from Medicare.

Other assumptions such as the proportion of members expected to be covered by each health benefit provider (e.g. Kaiser, etc.) can sometimes be volatile due to the dynamic nature of the health care market place. That projection is typically based on the enrollment experience among the current retirees during the most recent annual open enrollment.

Following are our recommended assumptions for the June 30, 2016 health plan valuation:

1. Health care trend assumptions – The detailed health care trend assumptions we are recommending are outlined in Item 1 of Attachment One.

In developing first-year health care trend assumptions, a mix of health industry expectations and plan specific information is used as follows:

Benefits, Compensation and HR Consulting. Member of The Segal Group. Offices throughout the United States and Canada ATTACHMENT 1

Mr. Raymond P. Ciranna September 9, 2016 Page 2

a. Claims experience, enrollment data and cost data (although credibility varies by group size) is blended with internal Segal guidelines, which are typically expressed as a range (e.g., trend may vary between 6-8%1 depending on factors like plan design, financial condition, and arrangements with health care providers). Attention is given to past experience, industry expectation and expected future changes (e.g., plan design changes, demographic/enrollment changes, carrier/vendor contract changes and strategic program initiatives).

b. The trend guidance developed according to the process outlined in (a) is to be used for short-term health care projections. Segal then makes further adjustments to reflect that retiree health valuations project benefits over the long-term (as far as 100 years in the future). Segal’s national health care practice recommends the first- year trend first rates be set at 80% to 95% of Segal standard health trend rates. We make this adjustment because: • Premium rates for short-term projections include margin for adverse claims experience (not appropriate in retiree health valuations). This is consistent with our survey results, which indicate that projected market trends are consistently higher than the actual experience once retrospectively reviewed. • The short-term trend rates developed according to (a) reflect some increasing morbidity due to aging over the short-term. Retiree health valuations already reflect morbidity in the age/sex factors (shown in Item 2(e) of Attachment One) to reflect morbidity due to changing demographics over time. To avoid double counting the effect of morbidity, the trend is lowered slightly for retiree health care valuations. With this mix, we then take into consideration long-term plan cost stability (i.e. reducing year-to-year contribution rate fluctuations) by looking at the prior year’s trend assumption. If the trend for the upcoming year (the second year trend in the prior valuation) fits well within the updated guidelines and recent premium experience, we favor setting first-year trend equal to second-year trend from the prior valuations unless there are material changes in other factors supporting a change in the second-year trend.

The trends begin with selecting the first-year increase for LAFPP, usually within the Segal guidelines, and then selecting a step for grading down the trends over several years to an ultimate long-term trend.

Similar to the 2015 valuation, the recommended trend rates for Medicare and non- Medicare medical plans happen to be the same. In future years, if our analysis suggests, we may use separate trend rates for the two types of medical plans. Medicare rate changes are determined by the budgeting process in the Federal Government, whereas Non-Medicare rate changes are determined by private insurance carriers. Due to the

1 Ranges were narrowed from last year from 6-9% for HMOs and 6-10% for PPOs.

5445631v6/07916.003 ATTACHMENT 1

Mr. Raymond P. Ciranna September 9, 2016 Page 3

different funding sources and dynamics involved, rate changes in the future may differ between Medicare and Non-Medicare plans.

For this valuation, we are recommending the first year trend rate be set at 6.50%2 (this is unchanged from the second year trend rate of 6.50% assumed in the June 30, 2015 valuation), then grading down by 0.25% each year until an ultimate rate of 5.00% is reached after six years. In effect, this means the trend assumptions are unchanged from the previous valuation.

As shown in Attachment Two health care premiums for the medical plans available to members of LAFPP have increased at a rate of 4.9% averaged over the last five years and 5.5% over the last ten years. These increases were less than the medical trend assumptions used in the valuations: 7.8% averaged over the last five years and 8.8% over the last ten years. The reduction in trend assumption is consistent with preliminary guidance provided by Segal’s national health care practice.

In addition to reviewing the change in premiums over the last five years, we have considered regional differences in health care trends when developing our assumption. Note that there is not necessarily a correlation between differences in costs and trends between regions. Health care costs may be higher in the western US, but that does not necessarily result in higher trends. Costs may remain higher, but the annual change, or trend¸ may be lower than in other regions. Our trend assumption is set to model the changes in costs.

While a recent publication by the Kaiser Family Foundation3 did not find region of the US to be a significant factor that contributed to variations in cost among health plans, we believe variations in cost and trend both to be more readily explained by other factors such as demographics, plan design among those health plans, and the competitiveness of a local market. This is why we find it necessary to base our retiree health valuation on the most up to date medical premiums, which are developed to account for those factors.

Segal’s 2016 Trend Survey did show variations in health care trend by region. However, the West region includes a variety of rural and urban areas. Rural areas like Alaska and much of the Mountain West states have health care markets that are less developed than those in California and have less competition among both providers and health plans. Therefore, relying just on the observation of higher average trend for the West may not be totally appropriate for an urban area like the City of Los Angeles. A review of the California data for our trend survey indicates expected trends very much in line with trends expected nationally.

2 If approved by the Board, the 6.50% assumption would be used in the June 30, 2016 valuation and applied to the attached 2016/2017 medical premiums to estimate the projected 2017/2018 medical premiums. 3 A Comparison of the Availability and Cost of Coverage for Workers in Small Firms and Large Firms: Update from the 2015 Employer Health Benefits Survey. February 5, 2016

5445631v6/07916.003 ATTACHMENT 1

Mr. Raymond P. Ciranna September 9, 2016 Page 4

It is also important to remain mindful that the trend assumptions in the Retiree Health Valuation model expected changes in health care premiums. The market and survey information covered to this point have addressed expected changes in health care claims. Premium and claims trends may vary for a variety of reasons, including changes in benefits, health or demographic risk, provider contracting, reserve requirements, how carriers pool risk, and other factors. The premiums are developed to account for all of those factors.

In order to review plan specific experience, we have been provided with a recent presentation prepared by the health consultant retained by LAFRA (Fire) and LAPRA (Police) which shows, for instance, increases in claim costs of over 9% from 2014 to 2015 for the LAPRA (Police) Blue Cross (Anthem) HMO plan and increases in claim costs that vary from over 10% to over 20% for the various services from 2014 to 2015 for the Blue Cross (Anthem) PPO plan. As noted by the health consultant in their presentation, the increases in claim costs to provide prescription drugs for the PPO and the HMO plans were even higher.

When evaluating the above information, we want to draw to LAFPP’s attention the following factors: • Even though there are some correlations, an increase in the claim costs from one year to the next may not automatically translate into a higher medical premium going forward. This is because the increase in the claims costs would have been factored by the health plans when they provide LAFPP with the premium renewals for the next year that we again have always used as a starting point for our valuation. • According to the health consultant, some of the increase in claim costs to provide prescription drugs might have come from members who could have been covered under the employer’s Workers Compensation program. We understand from the presentation that such increases are being addressed and it might be somewhat premature to determine to what extent the cost of prescription drugs might be a driver of continued premium increases or if this could be a one- time jump that might level off in future years. The experience presented in the report should be accounted for in the July 1, 2016 premiums

After considering the above factors, we have decided to not adjust our 6.50% first-year trend assumption to reflect the local City of Los Angeles experience.

2. In developing the ultimate health care trend assumption of 5.00%, we have continued to rely on Segal’s research and analysis on long-term costs in the health care market as a whole.

5445631v6/07916.003 ATTACHMENT 1

Mr. Raymond P. Ciranna September 9, 2016 Page 5

3. Per capita health care costs – These per capita costs are used to project the premiums for current active members when they retire. Based on the percentage of retired members, spouses and beneficiaries electing health coverage and the proportion of members enrolled in each available medical plan, we have developed the per capita health premium costs for a member who is covered in fiscal year 2016-2017.

Based on the June 30, 2016 membership data, we have provided in Items 2(a) and 2(b) of Attachment One the observed election rates among the different medical plans. The medical coverage election assumption is shown in item 3(j) of Attachment One.

We have shown in Item 2(c) of Attachment One the per capita costs for members subject to the retiree medical freeze as those members have not agreed to make an additional 2% member contribution.

In accordance with Actuarial Standard of Practice (ASOP) No. 6, Measuring Retiree Group Benefits Program Periodic Costs or Actuarially Determined Contributions, we will continue to utilize age-adjusted per-capita costs using adjustment factors shown in Item 2(e) of Attachment One.

4. We understand that Harbor Port Police, upon reaching eligibility to retire, have a choice of retiree medical plans with contracts at the Los Angeles City Employees’ Retirement System (LACERS), but will be eligible for a subsidy up to the LAFPP maximum medical subsidy limit. In order to estimate the liability in the June 30, 2016 valuation, we will assume that Harbor Port Police will select similar plans at LACERS roughly in proportion to those assumed for future LAFPP Police retirees, shown in 2(a) and 2(b). For pre-65 retirees, we will assume that 65% will enroll in the Anthem Blue Cross PPO and 35% will enroll in the Kaiser Permanente HMO, available through LACERS. For retirees over age 65, we will assume that 85% will enroll in the Anthem Blue Cross PPO Medicare plan and 15% will enroll in the Kaiser Permanente Senior Advantage HMO, available through LACERS. We note that based on a relatively small population of 11 Harbor Port retirees, about 60% were enrolled in Kaiser, with the remainder enrolled in other plans. We will continue to monitor the data as more Harbor Port retirees enter the Plan and determine if the data warrants a change in assumption to project a greater proportion of future retirees enrolling in the lower-premium Kaiser HMO.

5. The per capita costs and election rates for the dental plan for the June 30, 2016 valuation are also provided in Items 2(d) and 3(k) of Attachment One, respectively.

6. Other assumptions – The other assumptions and methods will be consistent with those we will use in our June 30, 2016 pension valuation. These include the economic and demographic assumptions and are highlighted in Item 3 of Attachment One.

5445631v6/07916.003 ATTACHMENT 1

Mr. Raymond P. Ciranna September 9, 2016 Page 6

IMPACT OF HEALTH CARE REFORM

As stated in our June 30, 2011 retiree health report, based on direction provided to Segal, the impact of the excise tax that will be imposed in 20204 by the Affordable Care Act (ACA) and related statutes on certain health plans was not included in calculating the contribution rates for the employer5. Statements No. 74 and 75 by the Governmental Accounting Standards Board (GASB) for financial reporting purposes is expected to require the inclusion of the excise tax in the liability. Statement No. 74 is effective for fiscal years beginning after June 15, 2016 for plan reporting and Statement No. 75 is effective for fiscal years beginning after June 15, 2017 for employer reporting.

For the June 30, 2016 valuation, we will continue to exclude the projected excise tax from the valuation results for both financial reporting and funding purposes (i.e., the projected excise tax will not be used to calculate the liability and to set the contribution rates for the employer).

We look forward to discussing this with you. Please let us know if you have any questions.

Sincerely,

Paul Angelo, FSA, MAAA, FCA, EA Andy Yeung, ASA, MAAA, FCA, EA Senior Vice President & Actuary Vice President & Actuary

Thomas Bergman, ASA, MAAA, EA Associate Actuary

JAC/bqb Enclosures

4 Previously in 2018, the excise tax’s implementation was deferred by recent legislation. 5 A more subsequent discussion of this issue may be found in our 2012 Retiree Health Valuation Assumptions letter dated September 26, 2012.

5445631v6/07916.003 ATTACHMENT 1 ATTACHMENT ONE Comparison of Current and Recommended Actuarial Assumptions For the June 30, 2016 Health Valuation

1. Health Care Trend Rates

MEDICAL TRENDS USED IN JUNE 30, 2015 VALUATION

Trends to be applied in following fiscal years, to all health plans. Trend is to be applied to premium for shown fiscal year to calculate next fiscal year's projected premium*. First Fiscal Year (July 1, 2015 through June 30, 2016) The fiscal year trend rates are the following:

Trend (applied to calculate following year premium)

Fiscal Year Non-Medicare Medicare 2015-2016 6.75%** 6.75% 2016-2017 6.50% 6.50% 2017-2018 6.25% 6.25% 2018-2019 6.00% 6.00% 2019-2020 5.75% 5.75% 2020-2021 5.50% 5.50% 2021-2022 5.25% 5.25% 2022 and later 5.00% 5.00%

Dental Premium Trend 5.00% for all years Medicare Part B Premium Trend 5.00% for all years

* For example, the 6.75% assumption, when applied to the 2015/2016 medical premiums, would provide the projected 2016/2017 medical premiums.

** The maximum non-Medicare health subsidy for 2016/2017 was calculated by multiplying the maximum non-Medicare health subsidy for 2015/2016 by 6.75%.

5445631v6/07916.003 1 SEGALCONSULTING ATTACHMENT 1

1. Health Care Trend Rates (continued)

MEDICAL TRENDS PROPOSED FOR JUNE 30, 2016 VALUATION

Trends to be applied in following fiscal years, to all health plans. Trend is to be applied to premium for shown fiscal year to calculate next fiscal year's projected premium*. First Fiscal Year (July 1, 2016 through June 30, 2017) The fiscal year trend rates are the following:

Trend (applied to calculate following year premium)

Fiscal Year Non-Medicare Medicare 2016-2017 6.50%** 6.50% 2017-2018 6.25% 6.25% 2018-2019 6.00% 6.00% 2019-2020 5.75% 5.75% 2020-2021 5.50% 5.50% 2021-2022 5.25% 5.25% 2022 and later 5.00% 5.00%

Dental Premium Trend 5.00% for all years Medicare Part B Premium Trend 5.00% for all years

* For example, the 6.50% assumption, when applied to the 2016/2017 medical premiums, would provide the projected 2017/2018 medical premiums.

** The maximum non-Medicare health subsidy for 2017/2018 would be calculated by multiplying the maximum non-Medicare health subsidy for 2016/2017 by 6.50%.

5445631v6/07916.003 2 SEGALCONSULTING ATTACHMENT 1

2. (a) Per Capita Costs and Election Rates – Future retirees under age 65 are assumed, upon retirement, to elect carriers in the percentages with corresponding premiums and subsidies as noted in the table below. Current retirees and current eligible survivors under age 65 are assumed to continue to cover themselves (and their spouse or domestic partner) – but all children are assumed to age out at the valuation date.

2015 – 2016 Fiscal Year Single Party Married/With Domestic Partner Eligible Survivor Carrier Election Percent Monthly Maximum* Monthly Maximum* Monthly Maximum Observed Recommended Premium Subsidy Subsidy Premium Subsidy Subsidy Premium Subsidy Subsidy Fire Fire Medical 78.1 75 $1,059.81 $1,438.49 $1,059.81 $1,518.17 $1,438.49 $1,438.49 $485.53 $787.87 $485.53 Fire Kaiser 13.2 15 $648.30 $1,438.49 $648.30 $1,286.58 $1,438.49 $1,286.58 $648.30 $787.87 $648.30 Fire Blue Cross 4.8 5 $1,372.98 $1,438.49 $1,372.98 $1,703.42 $1,438.49 $1,438.49 $1,157.51 $787.87 $787.87 Fire California Care 3.9 5 $1,344.38 $1,438.49 $1,344.38 $1,372.98 $1,438.49 $1,372.98 $828.97 $787.87 $787.87 Police Blue Cross PPO 59.8 65 $917.07 $1,438.49 $917.07 $1,737.78 $1,438.49 $1,438.49 $917.07 $787.87 $787.87 Blue Cross HMO 18.3 15 $702.79 $1,438.49 $702.79 $1,336.26 $1,438.49 $1,336.26 $702.79 $787.87 $702.79 Police Kaiser 21.9 20 $580.36 $1,438.49 $580.36 $1,149.96 $1,438.49 $1,149.96 $580.36 $787.87 $580.36 * Retroactively increased from $1,435.13 to $1,438.49 since the prior valuation.

2016 – 2017 Fiscal Year Single Party Married/With Domestic Partner Eligible Survivor

Carrier Election Percent Monthly Maximum Monthly Maximum Monthly Maximum Observed Recommended Premium Subsidy Subsidy Premium Subsidy Subsidy Premium Subsidy Subsidy Fire Fire Medical 79.9 80 $903.02 $1,535.59 $903.02 $1,472.62 $1,535.59 $1,472.62 $903.02 $748.03 $748.03 Fire Kaiser 11.4 10 $685.44 $1,535.59 $685.44 $1,360.86 $1,535.59 $1,360.86 $685.44 $748.03 $685.44 Fire Blue Cross 4.6 5 $1,435.13 $1,535.59 $1,435.13 $1,781.12 $1,535.59 $1,535.59 $1,208.32 $748.03 $748.03 Fire California Care 4.1 5 $1,435.13 $1,535.59 $1,435.13 $1,439.35 $1,535.59 $1,439.35 $869.09 $748.03 $748.03 Police Blue Cross PPO 59.5 65 $947.42 $1,535.59 $947.42 $1,884.91 $1,535.59 $1,535.59 $947.42 $748.03 $748.03 Blue Cross HMO 17.8 15 $836.17 $1,535.59 $836.17 $1,554.22 $1,535.59 $1,535.59 $836.17 $748.03 $748.03 Police Kaiser 22.7 20 $579.90 $1,535.59 $579.90 $1,149.04 $1,535.59 $1,149.04 $579.90 $748.03 $579.90

We understand that Harbor Port Police, upon reaching eligibility to retire, have a choice of retiree medical plans with contracts at the Los Angeles City Employees’ Retirement System (LACERS), but will only be eligible for a subsidy up to the LAFPP maximum medical subsidy limit. In order to estimate the liability in the June 30, 2016 valuation, we will assume that Harbor Port Police will select similar plans at LACERS roughly in proportion to those assumed for future LAFPP Police retirees. For pre-65 retirees, we will assume that 65% will enroll in the Anthem Blue Cross PPO and 35% will enroll in the Kaiser Permanente HMO, available through LACERS.

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2. (b) Per Capita Costs and Election Rates – Future retirees and current retirees under age 65 are assumed, upon reaching age 65, to elect carriers in the percentages with corresponding premiums and subsidies as noted in the table below. Current retirees and current eligible survivors over age 65 are assumed to continue to cover themselves (and their spouse or domestic partner) – but all children are assumed to age out at the valuation date.

2015 – 2016 Fiscal Year Single Party Married/With Domestic Partner Eligible Survivor

Carrier Election Percent Monthly Maximum Monthly Maximum Monthly Maximum Observed Recommended Premium Subsidy Subsidy Premium Subsidy Subsidy Premium Subsidy Subsidy Fire Fire Medical 84.6 85 $578.65 $523.25 $523.25 $893.33 $837.93 $837.93 $501.15 $523.25 $501.15 Fire Kaiser 11.9 15 $384.28 $523.25 $384.28 $758.56 $758.56 $758.56 $384.28 $523.25 $384.28 Fire Blue Cross 2.3 0 $795.84 $523.25 $523.25 $1,659.95 $1,387.36 $1,387.36 $795.84 $523.25 $523.25 Fire California Care 1.2 0 $493.74 $523.25 $493.74 $1,399.09 $1,399.09 $1,399.09 $493.74 $523.25 $493.74 Police Blue Cross PPO 73.2 75 $544.07 $523.25 $523.25 $1,007.97 $987.15 $987.15 $544.07 $523.25 $523.25 Blue Cross HMO 9.3 10 $478.79 $523.25 $478.79 $995.29 $995.29 $995.29 $478.79 $523.25 $478.79 Police Kaiser 17.5 15 $256.70 $523.25 $256.70 $508.38 $508.38 $508.38 $256.70 $523.25 $256.70

2016 – 2017 Fiscal Year Single Party Married/With Domestic Partner Eligible Survivor

Carrier Election Percent Monthly Maximum Monthly Maximum Monthly Maximum Observed Recommended Premium Subsidy Subsidy Premium Subsidy Subsidy Premium Subsidy Subsidy Fire Fire Medical 84.7 85 $610.02 $487.71 $487.71 $886.62 $764.31 $764.31 $610.02 $487.71 $487.71 Fire Kaiser 11.7 15 $387.52 $487.71 $387.52 $765.04 $765.04 $765.04 $387.52 $487.71 $387.52 Fire Blue Cross 2.4 0 $830.38 $487.71 $487.71 $1,733.24 $1,390.57 $1,390.57 $830.38 $487.71 $487.71 Fire California Care 1.2 0 $523.25 $487.71 $487.71 $1,465.52 $1,429.98 $1,429.98 $523.25 $487.71 $487.71 Police Blue Cross PPO 73.8 75 $574.42 $487.71 $487.71 $1,121.42 $1,034.71 $1,034.71 $574.42 $487.71 $487.71 Blue Cross HMO 8.7 10 $607.17 $487.71 $487.71 $1,202.73 $1,083.27 $1,083.27 $607.17 $487.71 $487.71 Police Kaiser 17.5 15 $209.32 $487.71 $209.32 $413.64 $413.64 $413.64 $209.32 $487.71 $209.32

We understand that Harbor Port Police, upon reaching eligibility to retire, have a choice of retiree medical plans with contracts at the Los Angeles City Employees’ Retirement System (LACERS), but will only be eligible for a subsidy up to the LAFPP maximum medical subsidy limit. In order to estimate the liability in the June 30, 2016 valuation, we will assume that Harbor Port Police will select similar plans at LACERS roughly in proportion to those assumed for future LAFPP Police retirees. For retirees over age 65, we will assume that 85% will enroll in the Anthem Blue Cross PPO Medicare plan and 15% will enroll in the Kaiser Permanente Senior Advantage HMO, available through LACERS.

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2.(c) Per Capita Costs – For Members Subject to Retiree Medical Subsidy Freeze

Married/With Eligible Single Party Domestic Partner Survivor Under 65 – All Plans $1,097.41 $1,097.41 $595.60 Over 65 Fire Medical $480.41 $757.01 $480.41 Fire Kaiser $387.52* $765.04 $387.52* Fire Blue Cross $480.41 $1,054.57 $480.41 Fire California Care $480.41 $1,054.57 $480.41 Police Blue Cross PPO $480.41 $818.40 $480.41 Police Blue Cross HMO $480.41 $840.65 $480.41 Police Kaiser $209.32* $413.64 $209.32* *Future single-party subsidy levels limited to $480.41.

2. (d) Proposed Per Capita Costs used in June 30, 2016 Valuation – Dental Plan

Maximum Dental Subsidy

Because almost all current retirees enrolled (see Item 3(k) for election assumption) in a dental plan are paying a premium in excess of the maximum subsidy, we will assume that 100% of future retirees with dental coverage will receive the maximum subsidy.

Monthly Subsidy for 2016-2017 Fiscal Year $43.24

2. (e) Adjustment of Per Capita Medical Costs for Age, Gender and Spouse Status

Applied to Per Capita Costs in Table 2(a) for 2016-2017 Retiree Spouse Age Male Female Male Female 55 0.9269 0.9570 0.7295 0.8262 60 1.1008 1.0315 0.9766 0.9583 64 1.2629 1.0942 1.2328 1.0785 Applied to Per Capita Costs in Table 2(b) for 2016-2017 Retiree Spouse Age Male Female Male Female 65 0.9132 0.7762 0.9132 0.7762 70 1.0584 0.8365 1.0584 0.8365 75 1.1406 0.9004 1.1406 0.9004 80+ 1.2283 0.9708 1.2283 0.9708

5445631v6/07916.003 5 SEGALCONSULTING ATTACHMENT 1

3. Other Assumptions and Methods

In the June 30, 2016, valuation, we will also apply the following assumptions and methodologies:

a. Discount rate: 7.50% per annum, as recommended in our most recent economic assumptions study. b. Demographic assumptions: These include the incidence of service retirement, disability retirement, withdrawal, deferred vested retirement and death. We will apply the same assumptions that we recommended in the July 1, 2010 - June 30, 2013 experience study and adopted by the Board on July 17, 2014. c. Funding methodologies: The Entry Age cost method, level percent of pay method will continue to be used in this valuation. d. Expected annual rate of increase in the Board’s health subsidy amount: We will assume that the Board’s health subsidy amount will increase with the medical trend shown on page 2. e. Percentage of retirees over age 65 covered by Medicare Parts A and B: Because all active employees hired after 1986 must elect Medicare A and B coverage, we will assume 100% of future retirees will be covered by Medicare Parts A and B. f. Assets: We will use the seven-year smoothed actuarial value of asset method (with 60% to 140% Market Value Corridor) in our valuation. g. Implicit Subsidy: Unless directed otherwise by LAFPP, for valuation purposes, we will continue to proceed as if the insurance rates were underwritten separately for actives and retirees – that no implicit subsidy need be valued. We are aware that a small (less than 3%) proportion of retirees under age 65 (enrolled in Fire Blue Cross and Fire California Care) may be receiving an implicit subsidy. However, because we consider the potential liability to be insignificant, we recommend that for the June 30, 2016 valuation, all premiums be treated as retiree-only.

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h. Spouse Age Difference in Years for Retirees with Medical Coverage:

Average Observed Member Age Difference for Current Recommended Gender Spouse Assumption Assumption Male -3 -3 -3 Female +3 +3 +3

The table below summarizes the data used to derive our results: New Male and Female Retirees Added in Last 3 Years Total Number with LAFPP Health Subsidy and Spouse or Domestic Partner Coverage 538 Average Retiree Age 58.7 Average Spouse Age 55.3 Average Age Difference, Rounded Down to Nearest Integer -3 ______

i. Spousal or Domestic Partner Coverage: Observed Percentage Current Recommended Member Gender Coverage for Spouse Assumption Assumption Male and Female 77% 80% 80%

The table below summarizes the data used to derive our results:

Three Plan Year Ended Plan Year Ended Plan Year Ended Year Total June 30, 2016 June 30, 2015 June 30, 2014 New Retirees with LAFPP Health 697 254 244 199 Subsidy New Retirees with LAFPP Health Subsidy with Spouse 538 199 189 150 or Domestic Partner Coverage Spouse or Domestic Partner Coverage 77% Percentage

5445631v6/07916.003 7 SEGALCONSULTING ATTACHMENT 1

j. Retiree Medical Coverage Election: The table below summarizes the figures for retirees eligible for LAFPP retiree medical coverage.

Current Recommended Observed for Current Assumption for Assumption for Service Range Retirees Future Retirees Future Retirees Under 65 10-14* 37.5% 45% 45%

15-19 60.4 60 60

20-24 77.2 70 75

25 and over 89.0 95 95

Over 65 10-14* 64.4% 80% 80%

15-19 83.8 85 85

20-24 82.8 90 90

25 and over 96.5 95 95 * Since retirees with 10-14 years of service account for less than 5% of the retiree population , we have decided to leave the assumption unchanged. ______k. Retiree Dental Coverage Election: The table below summarizes the figures for retirees eligible for LAFPP retiree dental coverage. Observed for Current Assumption Recommended Assumption Current Retirees for Future Retirees for Future Retirees All Retirees 82.9% 80% 80% l. In the June 30, 2015 valuation, our retirement assumption for members enrolled in the DROP as of the valuation date matched the Pension Plan actuarial valuation. We will continue to assume in the June 30, 2016 valuation members will remain in the DROP for five years and then retire. m. Eligibility requirement changes since the prior valuation: Unless directed otherwise by LAFPP, we will assume that no changes in eligibility for benefits have occurred since the prior valuation.

5445631v6/07916.003 8 SEGALCONSULTING ATTACHMENT 1

n. Amortization period: Closed. On September 6, 2012, the Board adopted the following amortization policy: Type of Base Amortization Period (Closed) Actuarial Gains or Losses* 20 Assumption or Method Changes 25 Plan Amendments 15 ERIPs 5 Actuarial Surplus 30 * Retiree health assumption changes in this annual letter are treated as gains and losses and amortized over 20 years.

5445631v6/07916.003 9 SEGALCONSULTING ATTACHMENT TWO ATTACHMENT 1 Recent Retiree Health Valuation Trend Assumptions Compared to Recent Premium Changes Based on Six-Year History for Two-Party Pre-65 Premiums

Annual Increases

2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 Five-Year1 Ten-Year2 to to to to to Compound Compound FIRE 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 Average3 Average3

Fire Medical 7.0% 5.0% 7.0% 7.9% -3.0% 4.7% 4.7%

Fire Kaiser 8.3% 0.6% 2.3% 10.9% 5.8% 5.5% 5.5%

Fire Blue Cross 1.4% 0.0% 5.6% 9.3% 4.6% 4.1% 6.1%

Fire California Care 26.9% 7.7% 7.0% 9.3% 4.8% 10.9% 8.9% AVERAGE (Weighted by Premium and Enrollment)4 7.4% 4.3% 6.4% 8.4% -1.3% 5.0% 5.0% POLICE

Blue Cross PPO 4.8% 2.0% -2.8% 7.9% 8.5% 4.0% 5.1%

Blue Cross HMO 5.4% 9.4% 6.9% 9.4% 16.3% 9.4% 8.7%

Police Kaiser 9.8% 0.9% 11.4% 0.0% -0.1% 4.3% 6.0% AVERAGE (Weighted by Premium and Enrollment)4 5.7% 2.9% 0.9% 6.8% 8.3% 4.9% 5.8% Weighted Average of Police and Fire (Police Counts about twice that of Fire)4 6.2% 3.3% 2.7% 7.3% 5.2% 4.9% 5.5%

Trend Assumption Used in Valuation as of June 30 2011 2012 2013 2014 2015 Before limiting trend to 7.00% increase 9.00% 8.50% 8.00% 7.00% 6.75% 7.8% 8.8% After limiting trend to 7.00% increase 7.00% 7.00% 7.00% 7.00% 6.75% 6.9% 7.0% 1For the period from 2011/2012 to 2016/2017. 2For the period from 2006/2007 to 2016/2017. 3Compound average is calculated by taking the premium at the end of averaging period and dividing it by the premium at the beginning of averaging period and expressing that as an annual average over the five or ten year period. 4Weights used for enrollment are the same as those shown in the presentation by Segal to the Board on July 7, 2016: Other Postemployment Benefits (OPEB) Plan – Establishing Retiree Medical Subsidy Levels.

5445631v6/07916.003 10 SEGALCONSULTING ATTACHMENT 2 Aon Hewitt Global Benefits

2016 Global Medical Trend Rates

Risk. Reinsurance. Human Resources. ATTACHMENT 2 Table of Contents

Introduction ...... 3

Key Highlights...... 4

Call to Action ...... 7

Survey Results ...... 8 Average Medical Trend Rate Tables ...... 8 Key Reported Causes of Adverse Medical Claim Experience ...... 12 Risk Factors Driving Supplementary Medical Plan Costs ...... 13 Most Important Elements of Medical Plan Costs ...... 15 Global Wellness and Health Promotion Initiatives ...... 18

Appendix ...... 22 Trend Rate Overview ...... 22

Contacts ...... 23

2 2016 Global Medical Trend Rates ATTACHMENT 2 Introduction

Aon Hewitt is pleased to present the results of its 2016 survey This survey covers three separate themes: of medical trend rates from around the world . The survey was conducted among Aon Hewitt offices that broker, administer, • Estimated medical trend rates for 2016 or otherwise advise on medical plans that are established and • Risk factors that are expected to drive medical cost inflation in managed by employers in each of the 90 countries covered the future in this report . The survey responses reflect the medical trend expectations of the Aon professionals, clients, and carriers • Wellness and health promotion initiatives being undertaken represented in the portfolio of Aon medical plan business in by employers in order to deal with spiraling medical cost each country . The trend rates presented in this report do not trends include any allowances for potential employer countermeasures such as cost-containment plan amendments or the impact of As a reference, we have also included the general inflation rates any attendant employer negotiations with carriers . for 2016 published by the International Monetary Fund (IMF) which have been adopted as a proxy for the expected domestic Aon Hewitt has conducted this survey in order to assist retail inflation level in each country for 2016 . multinational companies in: The trend rate figures and risk factors in this report relate • Prov ide practical assistance with completion of paperwork to employer-sponsored plans and their participants . The information presented is not necessarily representative of each • Budgeting premium costs for medical plan renewals country’s health care costs as a whole, nor of the health care • Understanding the factors that are driving medical situation of each country’s population overall . cost increases A methodological improvement has been introduced in this • Devising wellness and cost-containment initiatives to report issue - a weighting process has been used in deriving respond to the challenges regional and global average trend rates . The weights were based on country average private healthcare insurance The trend rate figures shown in this report represent the expenditure per person . Last year’s survey results have been percentage increases in medical plan (insured and self-insured) recalculated according to the above methodologies . unit costs that are anticipated to be technically required in order to address projected price inflation, technology advances in the Aon Hewitt intends to issue annual survey updates in the medical field, plan utilization patterns, and cost shifting from future . We expect that as the global demand for medical plan social programs . benefits extends to more countries, the number of participating countries in our published reports will increase . In this report we are covering 90 countries, or 6 more than the 84 countries covered in our survey last year .

We hope you will find this report useful . We welcome any feedback you may wish to provide .

Aon Hewitt | Survey Report 3 ATTACHMENT 2 Key Highlights

The prevalence of employer-sponsored medical plans is • For 2016, a difference of 5 .5 percentage points between the increasing in all countries covered by the survey . Furthermore, average medical trend rate of 9 1%. and the average general the scope of the provisions offered by supplementary plans inflation rate of 3 6%. is expected2 is expanding (e g. . larger maximum lifetime benefits, larger allowances for maternity benefits,fewer exclusions, more • Aon Hewitt expects further medical cost escalation due procedures covered by the plan) . to global population aging, overall declining health, poor lifestyle habits becoming pervasive in emerging countries, The medical trend rates continue to exceed local general continuing cost shifting from social programs, and increasing inflation levels . utilization of employer-sponsored plans

• In 2015, the global average medical trend rate of 8 75%. was 5 .5 percentage points higher than the average inflation rate of 3 .2%1

Double-digit margins between medical trend rates and domestic inflation levels were found in:

Lithuania

Serbia

Lebanon

Bahamas Costa Rica Vietnam Venezuela Panama Singapore Ecuador Pakistan Bahrain Sultanate of Oman Malaysia Brazil

The top reported conditions giving rise to adverse claim experience around the world are:

% responding

Cardiovascular 67

Cancer 53

Gastrointestinal 43 1IMF World Economic Outlook Database April 2014 . 2IMF World Economic Outlook Database April 2015 .

4 2016 Global Medical Trend Rates ATTACHMENT 2

Differentials by geographic region among the primary medical conditions that were reported to generate adverse claim experience are:

Asia Pacific Canada Europe Latin America Middle East/Africa

Cardiovascular Biologic Cardiovascular Cancer Respiratory Immunomodulators

Cancer & Other Mental Health Cancer Cardiovascular & Cardiovascular Respiratory

Gastrointestinal Cardiovascular Diabetes Gastrointestinal Diabetes

Non-communicable diseases (NCDs) are the biggest The top reported conditions giving rise to adverse claim contributors to the adverse experience driving high medical experience around the world are: inflation . NCDs are directly linked to modern lifestyles, and their % responding incidence can be significantly reduced through modification of individual behaviors . Influencing these behaviors represents High Blood Pressure 64 both a challenge and an opportunity for employers .

Obesity 44

High Cholesterol 41

Asia Pacific Canada Europe Latin America Middle East/Africa

High Blood Pressure Physical Inactivity High Blood Pressure High Blood Pressure High Blood Pressure

Obesity Obesity Smoking Obesity High Cholesterol

High Cholesterol & Ageing Poor Stress Management Poor Stress Management Physical Inactivity Physical Inactivity

The most impactful elements of medical plan costs around the world are:

% responding

Hospital 75

Clinics/Labs 49

Physician Services 44

Aon Hewitt | Survey Report 5 ATTACHMENT 2

Asia Pacific Canada Europe Latin America Middle East/Africa

Hospital Prescription Drugs Clinics/Labs Hospital Hospital

Clinics/Labs Administration Costs Hospital Physician Services Maternity & Physician Services

Physician Services Preventive Care Physician Services & Clinics/Labs Clinics/Labs Preventive Care

The most common wellness and health promotion initiatives being undertaken by progressive employers globally are:

% responding

Detection 80

Education Programs 71

Coaching Programs 69

Note: “progressive employers” are defined as employers of choice in each territory . In other words, a group of employers that are known in each country to be successful in attracting and retaining top talent

6 2016 Global Medical Trend Rates ATTACHMENT 2 Call to Action

The findings addressed in this report suggest that employers need to accelerate their efforts at helping employees to both understand their own health risks and begin to take steps to improve their health . Rising costs and the increased prevalence of chronic conditions are global phenomena—and regardless of the underlying medical insurance system, employers will experience added organizational cost and lost workforce productivity if these trends continue .

The wellness initiative summaries in this report should be useful in understanding wellness and cost mitigation efforts being undertaken by employers . However, the underlying causes of illness and risk factors vary by region and even from country to country within a region . It is therefore important to carefully target employer initiatives to the specific situation surrounding each medical plan .

Aon Hewitt | Survey Report 7 ATTACHMENT 2 Survey Results

Average Medical Trend Rate Tables

2015 2016

Annual Medical Trend Rates Annual Medical Trend Rates Annual General Annual General Inflation Rate (%) Inflation Rate (%) Region & Country Gross (%) Net (%) Gross (%) Net (%)

Global 3 .2 8 7. 5 .5 3 6. 9 1. 5 .5 North America 1 6. 5 3. 3 6. 1 .5 5 8. 4 3.

Latin America & Caribbean 6 9. 16 7. 9 8. 11 0. 20 0. 9 0.

Europe 1 6. 5 7. 4 1. 1 6. 5 9. 4 .2

Middle East & Africa 6 6. 13 3. 6 7. 6 3. 11 6. 5 3.

Asia 4 .2 10 4. 6 .2 3 .2 9 4. 6 3.

2015 2016

Annual Medical Trend Rates Annual Medical Trend Rates Annual General Annual General Inflation Rate (%) Inflation Rate (%) Region & Country Gross (%) Net (%) Gross (%) Net (%)

North America (Avg) 1 6. 5 3. 3 6. 1 .5 5 8. 4 3. Canada 1 9. 4 0. 2 1. 2 0. 8 0. 6 0.

United States 1 6. 5 3. 3 7. 1 .5 5 7. 4 .2

Latin America & Caribbean (Avg) 6 9. 16 7. 9 8. 11 0. 20 0. 9 0.

Argentina 12 .5 30 0. 17 .5 23 .2 30 0. 6 8.

Bahamas 2 6. 12 0. 9 .5 1 6. 15 0. 13 4.

Bolivia 5 3. 10 0. 4 7. 5 0. 8 0. 3 0.

Brazil 5 .5 18 1. 12 .5 5 9. 16 7. 10 8.

Chile 2 9. 6 0. 3 1. 3 0. 5 0. 2 0.

Colombia 2 9. 9 0. 6 1. 3 0. 6 0. 3 0.

Costa Rica 4 .5 13 0. 8 .5 4 0. 14 0. 10 0.

Dominican Republic 4 3. 8 0. 3 8. 3 .5 8 0. 4 .5

Ecuador 2 6. 17 0. 14 4. 3 0. 15 0. 12 0.

El Salvador 2 6. 10 0. 7 4. 1 7. 10 0. 8 3.

Guatemala 4 1. 12 0. 7 9. 3 0. 12 0. 9 0.

Honduras 6 .5 20 0. 13 .5 5 1. 15 0. 9 9.

Jamaica 8 3. 15 0. 6 8. 7 1. 12 0. 4 9.

Mexico 3 .5 9 3. 5 8. 3 0. 9 7. 6 7.

Nicaragua 7 0. 14 0. 7 0. 7 0. 13 0. 6 0.

8 2016 Global Medical Trend Rates ATTACHMENT 2

Average Medical Trend Rate Tables

2015 2016

Annual Medical Trend Rates Annual Medical Trend Rates Annual General Annual General Inflation Rate (%) Inflation Rate (%) Region & Country Gross (%) Net (%) Gross (%) Net (%)

Panama 3 6. 10 0. 6 4. 2 0. 14 0. 12 0. Peru 2 1. 5 7. 3 6. 2 0. 6 0. 4 0.

Puerto Rico 0 0. 8 0. 8 0. 3 0. 8 0. 5 0.

Trinidad and Tobago 4 0. 12 0. 8 0. 5 7. 15 0. 9 3.

Venezuela 38 0. 55 0. 17 0. 83 7. 120 0. 36 3.

Europe (Avg) 1 6. 5 7. 4 1. 1 6. 5 9. 4 .2

Austria 1 7. 3 0. 1 3. 1 .5 2 .5 1 0.

Belgium 1 1. 3 0. 1 9. 0 9. 3 0. 2 1.

Bulgaria 0 9. 8 0. 7 1. 0 6. 10 0. 9 4.

Croatia 1 1. 1 0. (0 1). 0 9. 1 1. 0 .2

Cyprus 1 4. 1 .5 0 1. 0 3. 1 4. 1 1.

Czech Republic 1 9. 5 0. 3 1. 1 3. 4 0. 2 7.

Denmark 1 .8 1 .5 (0 3). 1 6. 1 .5 (0 1).

Finland 1 .5 10 0. 8 .5 1 6. 10 0. 8 4.

France 1 .2 6 0. 4 .8 0 8. 3 0. 2 .2

Germany 1 4. 5 0. 3 6. 1 3. 8 .5 7 .2

Greece 0 3. 4 0. 3 7. 0 3. 7 0. 6 7.

Hungary 3 0. 4 0. 1 0. 2 3. 2 0. (0 3).

Ireland 1 1. 9 0. 7 9. 1 .5 5 0. 3 .5

Italy 1 0. 3 .5 2 .5 0 8. 4 0. 3 .2 Latvia 2 .5 5 0. 2 .5 1 7. 5 0. 3 3. Lithuania 1 8. 15 0. 13 .2 2 0. 15 0. 13 0. Norway 2 0. 10 0. 8 0. 2 3. 10 0. 7 8. Poland 2 4. 8 0. 5 6. 1 .2 5 0. 3 8. Portugal 1 .2 4 0. 2 8. 1 3. 4 0. 2 7. Romania 3 1. 5 0. 1 9. 2 4. 5 0. 2 6. Russia 5 3. 12 0. 6 7. 9 8. 15 0. 5 .2 Serbia 4 0. 15 0. 11 0. 4 0. 15 0. 11 0. Slovakia 1 6. 1 6. 0 0. 1 4. 1 4. (0 0). Spain 0 8. 4 .5 3 7. 0 7. 4 6. 3 9. Sweden 1 6. 4 .5 2 9. 1 1. 4 0. 3 0. Switzerland 0 .5 4 0. 3 .5 (0 4). 4 0. 4 4. The Netherlands 1 0. 2 3. 1 3. 0 9. 3 0. 2 1. Ukraine 8 7. 17 0. 8 3. 10 6. 14 0. 3 4.

Aon Hewitt | Survey Report 9 ATTACHMENT 2

Average Medical Trend Rate Tables

2015 2016

Annual Medical Trend Rates Annual Medical Trend Rates Annual General Annual General Inflation Rate (%) Inflation Rate (%) Region & Country Gross (%) Net (%) Gross (%) Net (%)

United Kingdom 1 9. 7 8. 5 9. 1 9. 9 3. 7 4. Middle East & Africa (Avg) 6 6. 13 3. 6 7. 6 3. 11 6. 5 3.

Angola 7 7. 9 0. 1 3. 8 .5 15 0. 6 6.

Bahrain 2 4. 11 .5 9 1. 1 .5 11 .5 10 0.

Democratic Republic of 4 1. n/a n/a 3 .5 5 0. 1 .5 the Congo Egypt 11 .2 13 0. 1 8. 10 .5 14 0. 3 .5

Ghana 11 1. n/a n/a 10 .2 15 0. 4 .8

Ivory Coast n/a n/a n/a 1 .5 5 0. 3 .5

Kenya 5 .5 13 0. 7 .5 5 .5 10 0. 4 .5

Kuwait 4 0. 12 0. 8 0. 3 6. 12 0. 8 4.

Lebanon 2 0. 16 0. 14 0. 2 8. 15 0. 12 3.

Malawi 6 9. n/a n/a 10 0. 11 0. 1 0.

Morocco 2 .5 n/a n/a 2 0. 0 0. (2 0).

Nigeria 7 0. n/a n/a 10 7. 12 0. 1 3.

Qatar 3 .5 10 0. 6 .5 2 7. 10 0. 7 3.

Saudi Arabia 3 .2 17 0. 13 8. 2 .5 12 0. 9 .5

Senegal 1 .5 n/a n/a 1 4. 5 0. 3 6.

South Africa 5 6. 6 3. 0 7. 5 6. 9 .5 3 9.

Sultanate of Oman 3 1. 15 0. 11 9. 2 6. 14 .5 11 9.

Turkey 6 .5 15 0. 8 .5 6 .5 12 0. 5 .5

Uganda 6 3. 10 0. 3 7. 4 8. 10 0. 5 .2

United Arab Emirates 2 .5 12 .5 10 0. 2 3. 12 0. 9 7.

Zimbabwe 1 7. n/a n/a 0 0. 0 0. (0 0).

Asia (Avg) 4 .2 10 4. 6 .2 3 .2 9 4. 6 3.

Australia 2 4. 7 .5 5 1. 2 3. 6 0. 3 7.

Bangladesh 6 7. 7 .5 0 8. 6 .5 7 3. 0 8.

China 3 0. 7 0. 4 0. 1 .5 7 0. 5 .5

Hong Kong 3 8. 8 6. 4 8. 3 4. 7 .5 4 1.

India 7 .5 13 0. 5 .5 5 7. 12 .5 6 8.

Indonesia 5 .5 15 0. 9 .5 5 8. 15 0. 9 .2

Japan 1 7. 4 7. 3 0. 0 9. 2 .2 1 3.

Kazakhstan 7 .5 7 .8 0 3. 5 .5 7 0. 1 .5

Malaysia 3 9. 12 0. 8 1. 3 0. 14 0. 11 0.

New Zealand 2 .2 7 6. 5 4. 2 1. 5 6. 3 .5

10 2016 Global Medical Trend Rates ATTACHMENT 2

Average Medical Trend Rate Tables

2015 2016

Annual Medical Trend Rates Annual Medical Trend Rates Annual General Annual General Inflation Rate (%) Inflation Rate (%) Region & Country Gross (%) Net (%) Gross (%) Net (%)

Pakistan 9 0. 18 0. 9 0. 4 .5 16 .5 12 0. Philippines 3 6. 8 0. 4 4. 2 8. 8 0. 5 .2

Singapore 2 6. 15 0. 12 4. 1 7. 15 0. 13 3.

South Korea 3 0. 15 0. 12 0. 2 .5 6 0. 3 .5

Taiwan 2 0. 10 0. 8 0. 1 3. 10 0. 8 7.

Thailand 2 1. 8 0. 5 9. 2 4. 8 0. 5 6.

Vietnam 6 .2 20 0. 13 8. 3 3. 20 0. 16 8.

Global 3 .2 8 7. 5 .5 3 6. 9 1. 5 .5

Notes:

“Net” indicates medical trend rates net of domestic general inflation rates .

The U .S . trend rates are from the Aon Hewitt Health Value Initiative database, which captures health care cost and benefit data for more than 600 large U .S . employers representing 11 7. million participants .

Aon Hewitt | Survey Report 11 ATTACHMENT 2 Key Reported Causes of Adverse Medical Claim Experience

The figures below represent the percentages of responses from Aon offices that reported the indicated cause as a contributing factor in adverse claims experience in their respective countries .

Top Global Key Causes

100 % Responding

75 67

53 50 43 43 42

0 Cardiovascular Cancer Gastrointestinal Other Diabetes

Asia Pacific Europe Latin America Middle East/Africa (% Responses) (% Responses) (% Responses) (% Responses)

1 Cardiovascular 76 Cardiovascular 76 Cancer 67 Other 74

2 Cancer 65 Cancer 59 Cardiovascular 62 Respiratory 63

3 Other 65 Diabetes 45 Respiratory 62 Cardiovascular 47

4 Gastrointestinal 47 Other 34 Gastrointestinal 57 Gastrointestinal 42

5 High Blood Pressure 41 Gastrointestinal 34 Diabetes 48 Diabetes 42

12 2016 Global Medical Trend Rates ATTACHMENT 2 Risk Factors Driving Supplementary Medical Plan Costs

The figures below represent the percentages of responses from Aon offices that reported the indicated risk as becoming a leading factor in future adverse claims experience in their respective countries .

Top Global Risk Factors

75 % Responding 64

50 44 41 38 38

0 High Blood Obesity High Physical Poor Stress Pressure Cholesterol Inactivity Management

Risk Factors % Responding

1 High Blood Pressure 64

2 Obesity 44

3 High Cholesterol 41

4 Physical Inactivity 38

5 Poor Stress Management 38

6 Smoking 28

7 High Blood Glucose 24

8 Ageing 18

9 Bad Nutrition 17

10 Lack of Health Screening 15

11 Air Pollution 11

12 Other 11

13 Unsafe Water, Sanitation, Hygiene 10

14 Genetics 8

15 Occupational Risks 7

Aon Hewitt | Survey Report 13 ATTACHMENT 2

The figures below represent the percentages of Aon offices reporting the indicated risk factors in their respective regions .

Asia Pacific Europe Latin America Middle East/Africa (% Responding) (% Responding) (% Responding) (% Responding)

1 High Blood Pressure 53 High Blood Pressure 76 High Blood Pressure 71 High Blood Pressure 56

2 Obesity 47 Smoking 55 Obesity 62 High Cholesterol 44

3 High Cholesterol 41 Poor Stress 45 Poor Stress 43 Physical Inactivity 44 Management Management 4 Physical Inactivity 41 Physical Inactivity 41 High Cholesterol 38 Lack of Health 33 Screening 5 Poor Stress 35 Obesity 38 High Blood Glucose 33 Unsafe Water, 32 Management Sanitation, Hygiene

14 2016 Global Medical Trend Rates ATTACHMENT 2 Most Important Elements of Medical Plan Cost

The figures below represent the percentages of responses from Aon offices that reported the indicated element as the most important element of medical plan cost in their respective countries .

Top Global Main Elements

% Responding 75 75

49 50 44

0 Hospital Clinics/Labs Physician Maternity Dental Services

The figures below represent the percentages of Aon offices reporting the indicated cost element in their respective regions .

Asia Pacific Europe Latin America Middle East/Africa (% Responses) (% Responses) (% Responses) (% Responses)

1 Hospital 88 Clinics/Labs 69 Hospital 81 Hospital 79

2 Clinics/Labs 59 Hospital 62 Physician Services 52 Physician Services 47

3 Physician Services 53 Physician Services 31 Clinics/Labs 33 Maternity 47

4 Maternity 29 Preventive Care 31 Maternity 24 Clinics/Labs 32

5 Other 18 Maternity 24 Dental 10 Dental 26

Aon Hewitt | Survey Report 15 ATTACHMENT 2 Medical Plan Employee Cost Sharing

The figures below represent the percentages of Aon offices reporting employee cost sharing in the medical plan in their respective regions .

Yes No

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% Global APAC Europe LATAM Mea

16 2016 Global Medical Trend Rates ATTACHMENT 2 Levels of Claims Information Available from Carriers

The figures below represent the percentages of Aon offices reporting availability of various levels of claims information from carriers and third party administrators for the medical plans in their respective regions .

None Basic Detailed Customizable to Clients’ Requirements

MEA

LATAM

Europe

Large Clients APAC

Global

MEA

LATAM

Europe

APAC

Mid Size Clients

Global

MEA

LATAM

Europe

Small Clients APAC

Global

0% 20% 40% 60% 80% 100%

Aon Hewitt | Survey Report 17 ATTACHMENT 2 Global Wellness and Health Promotion Initiatives

The figures below represent the percentages of responses from Aon offices that reported the indicated wellness program as commonly provided among the indicated employer groups in their respective countries .

Wellness Programs Reported as Commonly Provided (% Responding)

90 Commonly Provided across all Employers Provided by Progressive Employers

80 80

70 71 70 69 66 66

50 40 42 40 33 30

20 13 10

0 Detection Education Coaching Wellness Advanced Programs Programs Interventions Assessment Programs

Education (% Responding) Advanced Assessments (% Responding)

All Progressive All Progressive Employers Employers Employers Employers

Communication 31 52 Heart Health 26 40 Materials on Wellness Advanced Check-ups 11 41 Informational Web 28 44 Service Nutrition 14 42

Wellness Kits 28 47 Substance Use 8 28

Fitness Education 17 41 Level of Fitness 10 30

18 2016 Global Medical Trend Rates ATTACHMENT 2

Detection (% Responding) Coaching (% Responding)

All Progressive All Progressive Employers Employers Employers Employers

Physical Check-ups 49 60 Health Coaching 4 39 Management System Vision Screening 43 42 Incentive Programs 9 54 Mammograms 33 43 Health Specialists 7 54 Hearing Screening 23 33

Wellness Interventions (% Responding)

All Progressive Employers Employers

Quitting Smoking/ 22 42 Tobacco Use

Employee Assistance 16 46 Program

Physical Activity 22 36

Healthy Weight 19 31

Back Care 19 30

Healthy Eating 20 43

Reducing Risk for 14 39 Heart Disease

Aon Hewitt | Survey Report 19 ATTACHMENT 2

Asia Pacific

All Employers (%) Progressive Employers (%)

Physical check-ups Vision screening Hearing Screening

Detection Mammograms Heart health Advanced check upus Substance use

Advanced Nutrition

Assessment Level of ﬁtness Communication materials on wellness Wellness kits Informational web service

Education Fitness education Incentive programs Health specialists Health coaching management system Coaching Physical activity Quitting Smoking/Tobacco Use Healthy eating Healthy weight

Wellness Employee assistance program

Interventions Reducing risk for heart disease Back care

0 10 20 30 40 50 60 70 80 90 100

Europe

All Employers (%) Progressive Employers (%)

Physical check-ups Vision screening Hearing Screening

Detection Mammograms Heart health Advanced check upus Substance use

Advanced Nutrition

Assessment Level of ﬁtness Communication materials on wellness Wellness kits Informational web service

Education Fitness education Incentive programs Health specialists Health coaching management system Coaching Physical activity Quitting Smoking/Tobacco Use Healthy eating Healthy weight

Wellness Employee assistance program

Interventions Reducing risk for heart disease Back care

0 10 20 30 40 50 60 70 80 90 100

20 2016 Global Medical Trend Rates ATTACHMENT 2

Latin America

All Employers (%) Progressive Employers (%)

Physical check-ups Vision screening Hearing Screening

Detection Mammograms Heart health Advanced check upus Substance use

Advanced Nutrition

Assessment Level of ﬁtness Communication materials on wellness Wellness kits Informational web service

Education Fitness education Incentive programs Health specialists Health coaching management system Coaching Physical activity Quitting Smoking/Tobacco Use Healthy eating Healthy weight

Wellness Employee assistance program

Interventions Reducing risk for heart disease Back care

0 10 20 30 40 50 60 70 80 90 100

Middle East/Africa

All Employers (%) Progressive Employers (%)

Physical check-ups Vision screening Hearing Screening

Detection Mammograms Heart health Advanced check upus Substance use

Advanced Nutrition

Assessment Level of ﬁtness Communication materials on wellness Wellness kits Informational web service

Education Fitness education Incentive programs Health specialists Health coaching management system Coaching Physical activity Quitting Smoking/Tobacco Use Healthy eating Healthy weight

Wellness Employee assistance program

Interventions Reducing risk for heart disease Back care

0 10 20 30 40 50 60 70 80 90 100

Aon Hewitt | Survey Report 21 ATTACHMENT 2 Appendix

Trend Rate Overview

The trend rates shown in this report represent national averages and are the predicted increase in premium costs . Trend increases for a specific company may vary significantly from these trend rates due to regional cost variations, company plan design, company demographics, and other factors . In addition, insured rate increases may be higher or lower than these trend rates based on an insurance company’s profitability, the plan’s claims-loss ratio, the plan design, insured demographics, and other factors . It is important to note that these trend rates might not be appropriate for other purposes .

Medical trend rate is defined as percentage of change in the cost of health care prior to any cost-containment measure undertaken by plan sponsors .

The components of health care trend that we have considered include:

• Pri ce inflation . This is the projected annual change in the domestic retail consumer price index of the health care element in each country . In the absence of information on projected inflation for the medical plan component in any given country, we have used the change in the overall consumer price index .

• Lev eraging impact on fixed-amount elements of plan design . This is the additional cost added to a health plan due to the leveraging effect of increasing expected claims on unchanging deductibles, copays, or out-of-pocket maximums .

• Utilization . This component reflects an increase in the demand for medical care services in response to factors such as increased access to medical services, plan design, participant age, and new medical technology and services .

• Technology advances . This reflects the change in cost due to new procedures, information, experience, and equipment replacing older techniques .

• Cost shifting . This reflects a provider of medical services such as a government social health care program transferring its cost to private-sector supplementary plans .

22 2016 Global Medical Trend Rates ATTACHMENT 2 Who to contact

Francois Choquette Executive Vice President, Global Benefits, Aon Hewitt +1 415. 816. 1212. francois ch. oquette@aonhewitt com.

Timothy N. Nimmer Global Chief Actuary, Aon Health +1 303. 782. 338. 8 timothy nimm. er@aonhewitt com.

Wil J Gaitan Senior Vice President and Global Consulting Actuary, Aon Hewitt +1 312. 381. .5008 wil gai. tan@aonhewitt com.

Michael Hilton Regional Director Health & Benefits, Asia-Pacific, Aon Hewitt +65 9177 3269 michael j. hilt. on@aon com.

Stephen Caulk Vice President, Aon Hewitt +1 303. 782. 331. 4 Stephen Cau. lk@aonhewitt com.

Carl Redondo Global Benefits Leader, UK, Aon Hewitt +44 (0)20 7086 0797 carl redon. do@aonhewitt com.

Janine Heijckers Global Benefits Practice Director - EMEA +31 (0) 6 429 854 14 janine heij. ckers@aon nl.

About Aon Hewitt

Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement, and health solutions . We advise, design, and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability, and wellness . Aon Hewitt is the global leader in human resource solutions, with over 35,000 professionals in 90 countries serving more than 20,000 clients worldwide across 100+ solutions . For more information on Aon Hewitt, please visit aonhewitt com. .

Aon Hewitt | Survey Report 23 ATTACHMENT 2 About Aon Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 69,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com

© Aon plc 2015. All rights reserved. The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority, Registered in England & Wales. Registered No: 4396810. Registered office: The Aon Centre The Leadenhall Building 122 Leadenhall Street London EC3V 4AN aon.com

Risk. Reinsurance. Human Resources.

ATTACHMENT 2

Medical Cost Trend: Behind the Numbers 2017

June 2016 ATTACHMENT 2

Table of contents

The heart of the matter 2

Putting trends in perspective 3 Growth in employer health cost is at historic lows 3 Decline in utilization trend puts more focus on price trend 4 Not all components have the same impact on health benefit costs 5

Medical cost trend in 2017 6

Factors affecting 2017 medical cost trend 7 Inflator #1: Convenience has a cost 7 Inflator #2: Increased access for behavioral health 8 Deflator #1: High performance networks 9 Deflator #2: PBMs get aggressive 10 What this means for your business 13 Feedback from ACA health insurance exchanges 14 ATTACHMENT 2

The heart of the matter 2017 will be a year of equilibrium for medical costs. The forces that increase health costs are being tempered by a demand for value in the New Health Economy. Compared with a period of double-digit trend growth in the last decade, flat growth may feel like a win to health industry leaders.

PwC’s Health Research Institute (HRI) Yet these increases will be tempered HRI’s Medical Cost Trend: Behind the projects the medical cost trend to be by deflators, all pushes for value in Numbers 2017 projection of a flat the same as the prior year – a 6.5% the New Health Economy. Pharmacy growth rate raises critical issues. growth rate for 2017. After likely benefit managers (PBMs) are There are signs that the decade’s changes in benefit plan design, such employing new and more aggressive slowing medical cost growth rate as higher deductibles and co-pays, strategies in their contracts with could tick back up as new healthcare the net growth rate is expected to be drug makers for bulk discounts and access points increase utilization. At one percentage point lower at 5.5%. pricing. These moves will help keep the same time, employers are turning For comparison, the net growth rate overall drug cost trends in check next to a largely untested benefit strategy of projection in 2016 was two percentage year. We also expect that political and relying on narrow provider networks points lower due to more employer public pressure will tamp down the to bring prices down. interest in cost sharing. largest drug cost increases. As a result, 2017 will be a tough HRI’s analysis measures spending Insurers and employers also are balancing act for the health industry. growth for the 155 million Americans deploying more aggressive network Healthcare organizations must covered by employer-sponsored health strategies. As the continuous shift to simultaneously increase access to insurance. This analysis does not cover higher cost sharing starts to wane, consumer friendly services while government-sponsored or nongroup we expect employers to explore new decreasing unit cost. Employers, insurance. benefit strategies that change the focus worried that this current trend is at an from cost sharing to leveraging high- inflection point that could turn back Forces inflating medical cost trend performing provider networks with up, will demand more value from the stem from increases in access to care, higher quality and lower costs. health industry. When medical growth particularly primary and behavioral outpaces general inflation, a flat trend health services. Convenient care And though specialty drug costs is not good enough. settings, such as retail clinics, outpace traditional drug spending provide consumer satisfaction at a trends, the costs of these new cures low unit cost. Yet their success has are not growing as fast as in previous led to greater utilization, and more years when the cost of new Hepatitis spending. C drugs caught the market off-guard. Drug spending is still a relatively small At the same time, consumers will portion of overall health spending and, likely have greater access to behavioral as such, concerns of ever-increasing health services thanks to renewed cost growth from new cures may attention from regulators and trigger false alarms. 2017 will likely employers. But expanded treatment see slower specialty drug cost growth options for mental health, though relative to last year. potentially reducing health costs in the long term, may inflate next year’s spending growth.

2 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

Putting trends in perspective A historical perspective offers a wider lens to better understand the 2017 medical cost trend. This long-term view shows us that employer healthcare costs have fluctuated over the years in cycles, how price and utilization interplay in the cost equation, and which parts of the health system are the largest and fastest-growing components of cost.

Growth rates in tend to peak after several years of peak. Compared with the past six employer health cost double-digit increases, fall for several decades, healthcare costs appear to years, hit a trough and then rebound be in a prolonged period of relatively are at historic lows back to double digits (see Figure 1). low growth: The average trend from 1984 to 1994 was 10.0%; from 1994 to Since 1960, the federal government While each cycle tends to run about 2004, 7.9%, and from 2004 to 2014 (a has tracked historical cost information 10 years, the trending pattern varies time that includes the Great Recession 2 for private health insurance in from one cycle to the next. For and reflects fewer people enrolled in its National Health Expenditures example, since the Great Recession employer plans), just 4.2%. database.1 During those 56 years, this ended in 2009, the trend in premium measure has risen and fallen in cycles. costs has risen and fallen without During these cycles, premium trends consistent movement toward another

Figure 1: Recent trends in health insurance costs are at historical lows

25%

20% Linear trend 15% Four-year moving average

10% Annual trend Annual growth in private Annual growth

health insurance spending 5%

1961 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Source: PwC Health Research Institute analysis based on CMS National Health Expenditure Private Health data3

Source: PwC Health Research Institute analysis based on CMS National Health Expenditure Private Health Data

3 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

Decline in utilization The overall healthcare trend, as trend puts more focus measured by employers benefit cost, can be broken into price based on the on price trend Consumer Price Index (CPI) for the Healthcare cost can be broken down various components of health benefit to the two simplest components—the costs and a residual, which includes unit price of services and the volume utilization and other non-price changes 4 and intensity of use of those services, (see Figure 2). known as utilization. Understanding In the early 2000s, price and utilization trends in these components is key were both major contributors to to understanding changes in overall healthcare trend growth. Since then, spending: Are costs rising or falling? the utilization trend has declined while Are consumers using more or fewer price trend grew. Future reductions in services and products? medical cost trend growth will require a continued focus on prices but also delivery and access changes that might impact utilization.

Figure 2: Price, not utilization, is the historical force behind medical cost trend

Components of growth in healthcare costs 2001-2015

12% OVERALL HEALTHCARE COST: Employer Health Benefit Costs 8% PRICE: PwC Benefit Price Index

4% UTILIZATION: Annual growth PwC Utilization Index 0%

-4% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: PwC Health Research Institute analysis of Bureau of Labor Statistics data

4 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

Not all components It is important to understand the have the same impact weight of these components to put health spending in context. on health benefit costs Prescription drug spending is a prime Healthcare costs also can be broken example since individual drug costs into components such as hospital can be high enough to garner national inpatient and outpatient services, media attention but, as a whole, are a physician services and prescription relatively small portion of total health drug spending. Not all components spending: a 10% jump in the growth contribute equally to employer costs in prescription drug spending would (see Figure 3). Roughly half of all increase the overall medical cost trend 6 medical costs come from hospital by about 1.7%, for instance. spending: 30% from hospital inpatient and 19% from hospital outpatient. Physicians account for about another 30% and prescription drugs, 17%.5

Figure 3: Roughly half of employer health costs stem from hospital inpatient and outpatient services; the prescription drug share is small but increasing

45%

40% -17% 36% 35% 0% 30% 30% 30% 30%

25% 19% 21% 20% 19% 16% 17% 15% 14%

10% 0%

Share of employer health benefits Share 5% 4% 4%

0% Physician Inpatient Outpatient Pharmacy Other

2007 Share (Milliman) 2017 Share (PwC Projection) % Change since 2007

Source: Milliman Medical Index for 2007 and PwC Health Research Institute projections of 2017 medical spending based on the 2016 Milliman Medical Index. http://us.milliman.com/insight/?pfld=2413

5 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

Medical cost trend in 2017

PwC’s Health Research Institute projects 2017’s medical cost trend to What is Medical Cost Trend? be 6.5%—level with the trend for 2016 Medical cost trend is the projected percentage increase in the cost to treat (see Figure 4). Insurance companies patients from one year to the next. While it can be defined in several ways, this use medical cost trend to help set report estimates the projected increase in per capita costs of medical services premiums by estimating what the that affect commercial insurers and large, self-insured businesses. Insurance same health plan this year will cost companies use the projection to calculate health plan premiums for the the following year. coming year. For example, a 10% trend means that a plan that costs $10,000 per employee this year would cost $11,000 next year. The cost trend, or growth Benefit design changes typically hold rate, is influenced primarily by: down spending growth by reducing utilization of services through cost • Changes in the price of medical products and services, sharing. The net growth rate in 2017, known as unit cost inflation after accounting for benefit design • Changes in the number or intensity of services used, or changes in per changes such as higher deductibles capita utilization and narrow provider networks, is expected to be 5.5%.

For this research, HRI interviewed industry executives, health policy experts and health plan actuaries Figure 4: PwC’s HRI projects a 2017 medical cost trend of 6.5%—level whose companies cover more than with the 2016 projection 100 million employer-sponsored members. HRI also analyzed results HRI’s projected medical cost trend 2007–2017 from PwC’s 2016 Health and Well- 11.9% being Touchstone survey of more than 1,100 employers from 37 industries, and PwC’s national consumer survey 9.9% of more than 1,000 US adults. 9.2% 9% 9% 8.5% This projection is based on HRI’s analysis of medical costs in the 7.5% employer insurance market, which 6.5% 6.8% 6.5% covers about 155 million active 6.5% employees.7

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: PwC Health Research Institute medical cost trends 2007–2017

6 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

Factors affecting 2017 medical cost trend Convenience of care and more behavioral health parity will put upward pressure on the healthcare spending growth rate in 2017.

Inflator #1: Convenience has a cost

The proliferation of convenient ways site of service, we are seeing younger Recent research shows that, even to get care—such as retail clinics and people use urgent care centers while though retail clinic prices are lower than urgent care centers—has led to higher older individuals use ambulatory care many other sites of care, the ubiquitous utilization. And that is impacting centers and retail clinics.” locations and convenient access is medical cost trend. There will be increasing utilization and incrementally more than 3,000 retail health clinics Retail clinics aim to be the consumer- inflating medical cost trend. A recent in the US by 2017.8 Forty percent of friendly alternative to the traditional Health Affairs study found that the consumers will seek care from a retail doctor’s office and a much cheaper easier access to retail clinics increased clinic in 2016; 88% said they are likely site of care than a hospital emergency medical costs for low-acuity conditions to seek treatment at those sites in the room. According to Brian Marcotte, by 21% annually.12 future9 (See Figure 5). president and CEO at the National Business Group on Health, “as we Clinics could be drawing people who In addition to retail clinics, there expect employees to be more engaged may have forgone care in the past, or are 9,300 walk-in, stand-alone consumers, they will demand more they could be leading some to seek care urgent care centers in the US, and consumer-like experiences such as in more than one place. Even if higher 50–100 new clinics open every year.10 convenience, after-hours care and use of these alternative sites reduce According to Robin Gelburd, president easy access that is cost effective.” In overall spending in the future, the at FAIR Health, Inc. a not-for-profit addition, 74% of clinicians believe that savings may not reduce the short-term organization that tracks health costs, retail clinics have had a positive result cost of more visits. Health insurance “Looking at the demographic shift of on access to care.11 benefit design and the right mix of cost sharing may resolve this in future years.

Figure 5: Use of retail clinics is increasing along with the number of places for treatment

3,500 80%

3,000 70%

60% 2,500 50% 2,000 40% 1,500 36% 40% 30% Projected 1,000 Number of retail clinics Number of retail 24% 20%

500 10%

0 0% clinics of consumers who use retail Percent 2011 2012 2013 2014 2015 2016

Source: PwC Health Research Institute Consumer Survey and Convenient Care Association data13

7 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

Inflator #2: Increased access for behavioral health

In years past, behavioral health has “Many behavioral health insurance Figure 7: The new focus on mental been a back burner issue but now systems—with their complicated health parity will likely increase it is key to health status and health rules and claims processes—seem utilization in 2017 spending. The mental health share deliberately designed to discourage of employer health benefit costs is use by both patients and service increasing. Behavioral healthcare providers,” said Ken Dolan- Timeline of mental health now has the regulatory push and Del Vecchio, a vice president in parity legislation mainstream recognition to be a bigger Prudential Financial’s health and part of employer’s health benefits—and wellness organization. “The results 2008 with expanded access comes new costs are predictable. Clinicians decline 2005 Mental Health Parity Act amended to require full (see Figure 6). network participation and plan parity. Insurance companies participants receive limited treatment must treat mental health For employers, behavioral health or no treatment at all. We all deserve conditions on an equal basis is often closely connected to their a more effective system of care.” with physical conditions employees’ overall health. Sixty-eight when health policies cover 2010 percent of people with mental illness But that is changing. A raft of new both have chronic health conditions such efforts aimed at enforcing the Mental 14 2010 as diabetes and heart disease. But Health Parity and Addiction Equity The Patient Protection and employees have long had a hard time Act of 2008 are under way to make Affordable Care Act was gaining access to mental health care it easier to get care (see Figure 7). signed which required all and getting it paid for. As these changes go into effect, they 2015 health insurance plans to will unlock pent-up demand, inflating include coverage for the A National Alliance of Mental Illness treatment of mental health medical cost trend in the short term, and substance use disorders study in 2014 found that nearly one- but should also help reduce costs in third of consumers or their family had the long term. March 2016 been denied mental health care on CMS finalizes mental health the basis of medical necessity, which Mar. and substance use disorder was twice the denial rate for general 2016 parity rule for Medicaid and medical care.15 Children’s Health Insurance Program

Figure 6: The share of employer health spending on mental health March 2016 services is increasing President Obama announces June a new task force on mental health parity—aimed at Mental health spending as a share of total employer health spending 2016 ensuring that people with 6.5% mental illnesses and substance abuse problems don’t face discrimination in 6.0% the health care system Sept. Linear 2016 5.5% Annual Increase Trend

5.0% October 31, 2016 The interagency task force will be responsible for 4.5% Dec. delivering a report to the 2016 President

4.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Source: PwC Health Research Institute analysis, Kaiser Family Foundation, Source: PwC Health Research Institute analysis based on Medical Kaiser Health News and Health Affairs17 Expenditure Panel Survey data16

8 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

Other emerging trends may cause the scale to equalize. Employers shifting to more high performing networks and aggressive PBM strategies will put downward pressure on the growth rate.

Deflator #1: High performance networks

Employers may have squeezed all they costs by as much as 35%, compared But provider networks are regulated can from increased cost sharing, such with broader, more inclusive provider by state insurance and health laws to as offering high deductible plans. In networks.19 The balance is lower cost ensure networks aren’t too restrictive. the last three years, the percentage for narrower provider networks with To be successful, networks need of employers offering high deductible fewer choices of doctors and hospitals. to be designed and implemented plans has increased by one half. “There is a cost for having the based on cost, quality and consumer Sixty-three percent of employers offer increased access,” said Greg Malone, preferences.21 “Having a rich plan a high deductible plan with a health senior actuarial director at Cigna. doesn’t mean that employers are going savings account and 25% offer a high to pay the premium for that plan,” said deductible plan as the only health Employers are also looking to the Timothy P. Sullivan, vice president insurance option to their employees.18 lessons learned from the Affordable of healthcare affordability at HAP, a Care Act’s (ACA) public exchanges, Detroit-area health insurer. “This is But as more employees push back where half of the plans offered to why we offer a range of benefit plans against high cost sharing due to their consumers are considered narrow and funding arrangements. Employees 20 inability to pay their deductibles, networks. “The value I see from need to be educated about the benefits employers are exploring other narrow networks is the ability to of a high-performing network.” ways to control costs, such as high negotiate a better rate with providers performance networks that have more and monitor the quality of care,” limited provider choices and may said Mary Grealy, president of the feature outcomes-based payments. Washington, D.C.-based Healthcare Leadership Council, a coalition Forty-three percent of employers are of healthcare chief executives. “If considering implementing this type consumers are shopping primarily on of network in 2016, up from 37% premium cost, narrow networks are a the prior year (see Figure 8). High magnet, especially for those that are performance networks can reduce on the exchanges.”

Figure 8: Interest in high performance networks has increased substantially

Percent of employers

‘14 3% Already implemented a ‘15 6% performance based network ‘16 9%

‘14 34% Considering the implementation of a performance based network ‘15 37% ‘16 43%

Source: PwC Health Research Institute analysis of PwC’s Health and Well-being Touchstone survey for 2014, 2015 and 2016

9 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

Deflator #2: PBMs get aggressive

Pharmacy benefit managers are As a result of the new competition close to the same time as competitors’ aggressively negotiating drug costs, in Hepatitis C drug treatments, drugs. The availability of a competitor in part, because their employer PBMs at CVS/Caremark and Express product makes it easier to negotiate clients have more of an appetite for Scripts narrowed their formularies more attractive discounts if employers narrow formularies, and, in part due to exclusively feature either Gilead are willing to narrow their formularies to public and political pressures to Sciences’ drugs Harvoni and Sovaldi to one treatment option (see Figure 9). hold down drug prices. When there or AbbVie’s Viekira Pak. And with is competition, PBMs can win bigger competition comes pricing discounts: The future of PBM contracting points rebates that act as a counterweight to Gilead’s expected rebates more than toward paying for results and cures, higher drug spending. doubled across all payers for 2015.22 not the volume of drugs dispensed. The contracts and terms being The impact of specialty drug spending In the past, employers and their PBM negotiated may be more complex on overall medical spending soared in vendors have not had much appetite compared to simple volume discount 2014 primarily due to the sales of first- for limited drug formularies, but now models. Companies should develop in-class treatments for Hepatitis C. they are seeing their PBMs as a way strategic plans for sourcing and But with the approval of a competing to control costs. Many of the new procuring drugs. The need for an treatment in December 2014, PBMs prescription drugs that are coming on alternative to the tiered formulary moved aggressively to negotiate market are not arriving alone but at has also been created by coupons that larger rebates.

Figure 9: PBMs win price concessions

The approval of a second specialty medication within a treatment class can give PBMs leverage to extract sizable rebates $36,000 Discount = 40% PBMs act to limit formularies to one treatment, $57,000 lowering the net Discount = 5% cost of drug Z Specialty drug Z, a first-in-class breakthrough therapy, has a list price of $60,000 for a course Specialty drug M, of treatment a direct competitor, gains FDA approval

Source: PwC Health Research Institute

10 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

companies issue to reduce out-of- This was not the case in 2014 when the Specialty drugs have been pocket costs and thwart the incentives introduction of new drug treatments an inflator of spending for for patients to use the less costly, for Hepatitis C had increased the past two years, but the preferred drugs. John Sivori, president employer healthcare costs by nearly trend has leveled and may at Health Net Pharmaceutical Services one percentage point (see Figure 10). have a smaller impact on explains, “Drug companies are not Marcotte, at the National Business medical cost trend growth going away. How you partner with Group on Health, says “If Hepatitis C in 2017. drug makers for the long term is how medications were $10 per pill over a you improve your cost trend.” 20-year period, no one would blink. But the costs were so concentrated in a Specialty drugs are short time, it created a fire storm over loosening their grip cost and value.” on growth But now, Hepatitis C therapies’ Specialty drugs, a big contributor to contribution to medical cost spending growth in years past, are growth is shrinking partly because not expected to have the same impact competition between drug brands led in 2017. This is because there are no to significant discounts in 2015. Also, specialty blockbusters expected in the high number of patients receiving 2017, and the impact of the Hepatitis C treatment in 2014, 2015, and 2016 drugs has ebbed.23 shrunk the remaining population still living with Hepatitis C.

Figure 10: The impact of Hepatitis C therapy on medical cost trend declines after 2016 as the number of patients treated declines

Impact of Hepatitis C therapy on employer medical costs

1.2% 140,000

1.0% 120,000

0.8% 0.71% Change in Medical Costs 100,000

0.6% 80,000 0.4% Annual number of patients treated 60,000 0.2% 0.15% 0.10% 40,000 0% Number of patients treated -0.04%

trend due to Hep C drug therapy trend -0.06%

Change in employer medical cost -0.08% -0.2% -0.10% 20,000 -0.23% -0.4% 0 2014 2015 2016 2017 2018 2019 2020 2021 Annual change in medical cost trend

Source: PwC Health Research Institute estimate based on National Health and Nutrition Examination Survey and 2012 Truven Health Analytics claims data from employers24

11 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

“Specialty pharmacy cost is the some analysts pointed to the new headliner in 2016, but better PCSK9 anti-cholesterol drugs as the management and pricing should next Hepatitis C tsunami, but spending moderate this trend in 2017,” said on the first entries in the class has been Mick Diede, chief actuary for Kaiser light to moderate.25 Foundation Health Plan. “Hepatitis C cost trend is declining, but Despite the extensive media coverage everyone is still asking what the next about high-priced specialty drugs, they blockbuster drug is – even though it do not always have a big impact on may not be as prevalent as the new Hep medical cost trend. It depends on the C drugs, with only low frequency and combination of price and volume—and high severity of treatments,” according it takes a lot of both to increase medical to Greg Malone, senior actuarial cost trend substantially (see Figure 11). director at Cigna. While the pipeline has 200+ biologics under development No drug with a similar impact to and testing, no one knows whether Hepatitis C is known to be in the any one of them will become a budget approval pipeline for 2017. Last year, buster.

Figure 11: The impact of a new specialty drug entering the market can vary greatly depending on price and volume of sales

Base medical cost trend Increase from new therapy use 8%

7% 0.7% 0.0% 0.2% 6%

4% 6.5% 6.5% 6.5% 3%

Annual % change in the medical cost trend 0% High Cost, Low Cost, High Cost, High Volume High Volume Low Volume

Source: PwC Health Research Institute estimate26

12 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

What this means for your business

Employers drugs to treat chronic conditions, to identify higher-value treatments. While health benefit costs are growing such as diabetes, may keep medical PBMs can help providers with patient at a rate that is low compared to costs in check. adherence to drug regimens that historical trends, the growth in manage chronic disease and avoid Healthcare providers premiums is still outpacing the growth more costly care that providers may in wages. Health benefit costs will Traditional healthcare providers be at risk for. be unsustainable in the long run. are facing competition from a Health insurers Employers are looking for new ways to multitude of new sites of care and reduce costs as employees push back consumer demand for convenience. Insurers are still reeling from the against further cost sharing. Many providers are pursuing sudden jump of prescription drug costs consolidations or affiliations with in 2014. But now, under pressure from Things to consider other health systems to grow market employers to reduce costs, they need Realign cost sharing on ambulatory share. Healthcare providers also are to transform their business models services. Given the rapid growth struggling to help consumers manage and steer patients to high performance in convenient retail clinics and their high levels of cost sharing. providers while providing appropriate telemedicine, employers should transparency to the consumers. consider reviewing cost sharing for Things to consider these services. Since recent evidence Consider partnerships with insurers. Things to consider suggests that these new points of What insurers want are “high Leverage alternative therapies. entry are adding to benefit costs, performance” healthcare providers High-priced specialty drugs have plan enrollees could be asked to who deliver quality care efficiently few generic alternatives. But less- pay larger shares of costs for this and avoid unnecessary care. Focus on costly biosimilar alternatives should added “convenience.” initiatives to reduce the unit cost of be available in the next few years. providing services while partnering Although biosimilar and generic Consider a high performance with insurers to manage utilization specialty treatments may not offer network arrangement. As an to ultimately increase market share. savings as large as generics for alternative to more cost sharing, It is important to align incentives traditional drugs, employers and employers may want to use a more with insurers so efficiencies result in insurers should explore building them limited network of providers that are shared savings. into their plans. contracted to deliver high-quality care at affordable prices. These Provide convenience. Patients are Create a framework for high arrangements will require robust moving rapidly to more convenient performance networks. Companies employee education to explain the sites of care. To keep costs in check, should consider the total cost of trade-offs between network sizes these visits should be substitutes for care, provider quality, and consumer and costs. more expensive care and not extra, preference when designing and unnecessary appointments. To avoid implementing high performance Evaluate PBM arrangements. fragmenting patient care, health networks that may contract with Employers should evaluate the abilities systems should provide their own fewer providers.27 To control costs, of PBMs to negotiate drug discounts retail clinics and telemedicine outlets, health insurers should collaborate, and optimize utilization of the highest or partner with existing ones to direct explore joint ventures and offer value drugs in each therapeutic patients needing more intensive care risk-sharing arrangements with class. In addition, they should to their hospitals and clinics. healthcare providers. consider combining management of prescription drugs and management Collaborate with PBMs. As healthcare Review PBM relationships. PBMs of other medical services to avoid providers take on more risk for patient and insurers can join forces to better missing opportunities for savings. For outcomes and managing the cost of understand the pipeline of upcoming example, adherence to prescription care, they should work with PBMs drugs and create plans for managing

13 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2 their cost and utilization. There are sharing with patients. The reputation when drugs arrive on the market. a number of levers they can engage of the pharmaceutical industry has Health plans will put up less resistance jointly, from formulary design to drug been weakened as a result of the to new products if they can budget distribution and administration to high-profile pricing strategies of for them. This process will go more adherence programs to outcomes- some manufacturers during the past smoothly when drug manufacturers based pricing. This is particularly few years. have already made the case that new critical for the specialty drugs in areas Things to consider products are worth the price. such as oncology where innovative, Develop a pricing strategy that takes complex and expensive diagnostics Consider the impression made into account competitors and price and treatments are rapidly coming to by pricing decisions. Major resistance. Manufacturers are being the marketplace. HRI also anticipates pharmaceutical companies can damage asked to provide large discounts but that insurers will continue to evaluate, their reputation from pricing decisions often are reacting to this by increasing on an ongoing basis, which of the even if they can show stockholders big list prices. This can cause public PBM functions they will continue to profit gains. Companies with high- outrage. Companies need a strategy of insource versus outsource. priced products should consider what introducing products with something happens to patients who face high cost Pharmaceutical and different from a standard list price, sharing for the new product. Price life sciences such as outcome-based pricing. Higher increases for existing products should prices can be justified when paying for The need for innovative, cost be backed up with a case for why high-value products. effective medicines continues to rise increases beyond normal inflation are justified. as regulators, payers, healthcare Discuss new products with insurers providers and patients demand and PBMs before they come on the greater value for money. The need market. Patients are more likely to for more transparency and access to have immediate access to new drugs information has grown significantly if insurers have clearly stated policies due to high deductible plans and cost

Feedback from ACA 1. Adoption of private exchanges by employers. The ACA exchanges attracted strong enrollment in their first few years despite the initial problems with health insurance websites. Moreover, premiums for health insurance plans are similar to or exchanges lower than those for comparable employer plans.28 Given the public exchange experience, some employers are considering whether private exchanges for What can employers learn from the public employees would make sense. Thus far, few employers have chosen this avenue. exchanges? Only 3% of employers have moved active employees to a private exchange and only 19% are currently considering this move—which is down from 28% last The ACA has had a direct impact on employer year.29 Large employers frequently offer insurance choices already and having an benefit costs through numerous changes exchange that offers more of the same may not add much. such as dependent coverage for adult children, minimum essential benefits, tax on 2. Adoption of narrow networks by exchange enrollees. The lower cost of commercial insurance, the upcoming Cadillac narrow networks is appealing to employers, but they worry about whether tax, and other regulations. But the overall employees will accept narrow network plans. The acceptance of narrow networks impact on large employers has been relatively by exchange enrollees may encourage employers to introduce them, as a choice modest thus far. or in conjunction with premium incentives. Also, the cost of setting up a network plan for employers is not very high if the insurer has already built one for the An interesting question is whether there is a state health insurance exchange. potentially larger impact from the ACA health insurance exchanges themselves even though 3. Employer cross-subsidization may decline in Medicaid expansion states. large employers are not allowed to purchase Employers, who are ultimately paying for uninsured patients through their these exchange plans for their workers. But payments to providers, should expect their own healthcare costs to fall as the other mechanisms may lead to feedback loops burden of indigent care is cut by half or two-thirds in states where the uninsured from the ACA exchanges, including: are being enrolled both by exchanges and an expanded Medicaid program.

14 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2 Notes

1. US Centers for Medicare and Medicaid Services, “Historical” web 13. Percentage of individuals who sought treatment, according to PwC brochure, https://www.cms.gov/Research-Statistics-Data-and-Systems/ Health Research Institute Consumer Surveys 2011 and 2015 with a 2016 Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealt projection. Number of Retail Clinics from Convenient Care Association as hAccountsHistorical.html. referenced in Staff Care, “Convenient Care: Growth and Staffing Trends in Urgent Care and Retail Medicine,” 2015, https://www.staffcare.com/ 2. Smoothing the trends over the 55-year period, by a 4-year moving uploadedFiles/convenient-care-growth-staffing-trends-urgent-careretail- average, results in the red line curve with distinct cyclical patterns. Using medicine.pdf. the smoothed data, distinct peaks can be seen in the late 1970s, early 1990s, and early 2000s with a mini-peak around 1971–72. Similarly, 14. Substance Abuse and Mental Health Services Administration infographic, distinct troughs can be discerned in 1968, 1987, and 1997, with a mini- “Can We Live Longer? Integrated Healthcare’s Promise,” http://www. trough in 1974. integration.samhsa.gov/Integration_Infographic_8_5x30_final.pdf. 3. PwC Health Research Institute calculations based on CMS Private Health 15. National Alliance of Mental Illness report, “A Long Road Ahead: Achieving Insurance component of National Health Expenditures, 1961-2014; PwC True Parity in Mental Health and Substance Use Care,” April 2015, https:// Health Research Institute estimate of private insurance payments in 2015 www.nami.org/parityreport. based on CMS estimate for 2015, adjusted for CMS changes in actuals in 16. PwC Health Research Institute calculation based on Medical Expenditure 2014 compared with forecasts for 2014. Panel Survey (MEPS), 2005-2013. Mental health and total expenditures 4. Prices from the Bureau of Labor Statistics Consumer Price Index for those with full-year employer coverage and without Medicare. components and the Bureau of Labor Statistics Employer Cost Index for 17. Kaiser Family Foundation, “Timeline: History of Health Reform in the health benefit costs. The total trend in employer health benefit costs (as U.S.,” https://kaiserfamilyfoundation.files.wordpress.com/2011/03/5-02- measured by the Bureau of Labor Statistics Employer Cost Index) can be 13-history-of-health-reform.pdf. broken into price and utilization components. The rest of the trend, which

we labeled, “Utilization Trend” in the figure, includes both traditional Jenny Gold, “President’s Task Force Aims To Help End Discrimination utilization as well as changes in prices not captured by the price trend. In Mental Health Coverage,” March 31, 2016, http://khn.org/news/ This includes utilization, but also may include measurement errors in the presidents-task-force-aims-to-help-end-discrimination-in-mental- CPI price component, declining numbers of workers with health benefits health-coverage/?utm_campaign=KHN%3A+Daily+Health+Pol and less comprehensive health insurance. icy+Report&utm_source=hs_email&utm_medium=email&utm_ 5. PwC Health Research Institute estimates for 2017 are based on medical content=27901924&_hsenc=p2ANqtz-_JS804s68aVgpBSJEBdu_ cost spending data obtained from the 2016 Milliman Medical Index se4qWyv2pCljs_BNT7TKueHVM2fZ6YS64SJd6w-kFThBZ7c3Y6lWA- (MMI) and the annual rate of increase in costs by component of medical QXz8fiqNeDBghxiQg&_hsmi=27901924 care from 2015 to 2016. http://us.milliman.com/uploadedFiles/insight/ Periodicals/mmi/2016-milliman-medical-index.pdf. “Enforcing Mental Health Parity. Five years after the Mental Health Parity and Addiction Equity Act took effect, access to equal benefits and 6. Specifically, a 10% growth times the share of costs from prescription qualified providers remains elusive for many insured Americans”, Health drugs (0.17) equals 1.7%. Affairs health policy brief, November 9, 2015 http://healthaffairs.org/ 7. “Health Insurance Coverage for People Under Age 65 – Employment healthpolicybriefs/brief_pdfs/healthpolicybrief_147.pdf. based coverage” https://www.cbo.gov/sites/default/files/114th- 18. PwC Health Research Institute analysis of PwC Health and Well-being congress-2015-2016/reports/51385-HealthInsuranceBaseline_OneCol. Touchstone Survey for 2016. pdf. See Table 1. 19. Joyjit Saha Choudhury, Jayanth Godla, Jennifer Yaggy, John Andrewes, 8. Number of Retail Clinics from Convenient Care Association as “High-performance health networks: A methodical approach creates a referenced in Staff Care, “Convenient Care: Growth and Staffing Trends right to win,” Strategy&, July 15, 2015, http://www.strategyand.pwc.com/ in Urgent Care and Retail Medicine,” 2015, https://www.staffcare.com/ reports/high-performance-health-networks. uploadedFiles/convenient-care-growth-staffing-trends-urgent-careretail-medicine.pdf. 20. Bruce Japsen, “Half Of Obamacare Choices Are HMOs Or Narrow Network Plans,” Forbes, January 13, 2016, http://www.forbes.com/ 9. PwC Health Research Institute Consumer Insights Survey 2015 questions: sites/brucejapsen/2016/01/13/half-of-obamacare-choices-are-hmos-or- “How often did you seek healthcare treatment in a retail medical clinic?” narrow-network-plans/#2e657d141b78. and “How likely are you (or someone in your household) to seek treatment at the retail medical clinic in the future?” Response choices were: very 21. Joyjit Saha Choudhury, Jayanth Godla, Jennifer Yaggy, John Andrewes, likely, somewhat likely, not very likely, and not at all likely. Percentage “High-performance health networks: A methodical approach creates a represents the sum of very likely and somewhat likely. right to win,” Strategy&, July 15, 2015. http://www.strategyand.pwc.com/ reports/high-performance-health-networks. 10. American Academy of Urgent Care Medicine web article, “Future of Urgent Care,” http://aaucm.org/about/future/default.aspx. 22. Ed Silverman, “What the ‘Shocking’ Gilead Discounts on its Hepatitis C Drugs Will Mean,” Wall Street Journal blog, February 4, 2015, http://blogs. 11. PwC Health Research Institute Clinician Survey 2015 question: “In your wsj.com/pharmalot/2015/02/04/what-the-shocking-gilead-discounts- opinion, are new, non-traditional care venues (e.g. retail clinics, concierge on-its-hepatitis-c-drugs-will-mean/; Adam, J. Fein, “What Gilead’s Big medicine services, on-demand telehealth services, etc.) having a positive Hepatitis C Discounts Mean for Biosimilar Pricing,” Drug Channels, or negative effect on access to care?” February 5, 2015, http://www.drugchannels.net/2015/02/what-gileads- 12. Specifically, the spending for low-acuity conditions was increased big-hepatitis-c-discounts.html. by $14 per user relative to the $66 in spending for nonusers. See J. 23. PwC Health Research Institute analysis based on estimates reported by Scott Ashwood, Martin Gaynor, Claude M. Setodji, Rachel O. Reid, Express Scripts 2015 Drug Trend Report (March 2016), Truven Health Ellerie Weber, and Ateev Mehrotra, “Retail Clinic Visits For Low-Acuity Analytics and the National Health and Nutrition Examination Survey Conditions Increase Utilization And Spending,” Health Affairs (35): 3449- (NHANES).. 455, March 2016, http://content.healthaffairs.org/content/35/3/449.full. pdf.

15 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2

24. PwC Health Research Institute forecast is based on estimates reported by Truven Health Analytics and the National Health and Nutrition Examination Survey (NHANES). Forecasts are based on a population of about 3.3 million patients who have Hepatitis C in the United States, an estimated 35,000 commercial insurance patients who received treatment per year under prior medication regimes and an estimated 16,000 new cases of Hep C contracted each year. The number of patients with commercial insurance treated with new Hep C therapies is assumed to increase to 74,250 in 2014, 91,630 in 2015, and peak at 121,176 in 2016. The costs of Hep C treatment with the new medications are adjusted to reflect discounts and the costs of treatment with older medications but not to reflect savings from lower non-drug medical costs. 25. Dan Mangan, Cholesterol drug cost worries linger even after spending report, August 6, 2015, http://www.cnbc.com/2015/08/06/cholesterol- drug-cost-worries-linger-even-after-spending-report.html. 26. The costs of treatments with all three new medications are adjusted to reflect the costs of treatments with older medications, but not to reflect savings from lower non-drug medical costs.

The high cost, high volume drug was assumed to have the same commercially insured patient treated population as Sovaldi in its first year on the market of 2017 – 74,250 patients. The price was set at $100,000 in 2017, an incremental increase in price of $68,152 over an old, existing therapy.

The low-cost, high-volume drug was priced at $3,600 per year and was estimated to treat 100,000 patients in 2017. With these stats, the drug would achieve over $1 billion in sales its first year on the market, making it a “blockbuster” drug. The $3,600 price tag was assumed to be an incremental increase in price of $2,453 over an old, existing treatment.

The high-cost, low-volume drug was priced at $100,000, just like the “high cost, high volume drug”, but was estimated to treat 24,750 patients in its first year on the market. Also, like the high cost, high volume drug, it was assumed to be an incremental increase in price of $68,152 over an old, existing therapy. 27. Joyjit Saha Choudhury, Jayanth Godla, Jennifer Yaggy, and John Andrewes, “High-performance health networks: A methodical approach creates a right to win,” Strategy&, July 15, 2015. http://www.strategyand. pwc.com/reports/high-performance-health-networks. 28. PwC Health Research Institute found that health exchange plans had 2014 premiums that were somewhat lower than similar employer plans. See PwC, Health insurance premiums: comparing ACA exchange rates to the employer-based market, 2014. http://www.pwc.com/us/en/ health-industries/health-research-institute/hri-aca-exchange-insights- report-2016.html. 29. PwC Health Research Institute analysis of PwC Health and Well-being Touchstone survey for 2015 and 2016.

16 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2 Acknowledgments

John Bertko Doug Lynch Cori Uccello Chief Actuary Vice President and Chief Actuary Actuary and Senior Health Fellow Covered California Florida Blue American Academy of Actuaries

William Cashion Sarah Macderment Ken Dolan-Del Vecchio Chief Actuary Chief Actuary Vice President Highmark Group Geisinger Health Plans Prudential Financial’s Health and Wellness Organization Douglas (Dee) Clamp, Jr. Greg Malone Staff Vice President and Actuary III Senior Actuarial Director Amy Yao Anthem Cigna Senior Vice President and Chief Actuary Mick Diede Brian Marcotte Blue Shield of CA Senior Vice President and Chief President Actuary National Business Group on Health Kaiser Foundation Health Plan John Poisal Paul Fronstin Deputy Director Director Centers for Medicare and Medicaid Employee Benefit Research Institute Services

Robin Gelburd Russell D. Robbins MD MBA President Chief Medical Officer FAIR Health FAIR Health

Mary Grealy Charles Roehrig, PhD President Vice President, Health Care Healthcare Leadership Council Economics; Director, Center for Sustainable Health Spending Kevin Grozio Altarum Institute Vice President Underwriting & Actuarial Services Bill Sarniak Fallon Health Senior Markets Actuary and Vice President Paul Hughes-Cromwick Highmark Group Health Economist and Senior Analyst, Center for Sustainable Health John Sivori Spending President Altarum Institute HealthNet Pharmaceutical Services

Sean Keehan John Stenson Economist in the Office of the Actuary Vice President Centers for Medicare and Medicaid Aetna Services Timothy Sullivan David Lansky Vice President, Healthcare President Affordability Pacific Business Group on Health HAP

17 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2 Each year, PwC’s Health Research Institute (HRI) projects the growth of private About this research medical costs in the coming year and identifies the leading drivers of the trend. Insurance companies use medical cost trend to help set premiums by estimating what the same health plan this year will cost next year. In turn, employers use the information to make adjustments in benefit plan design to help offset cost increases. The report identifies and explains what it refers to as “inflators” and “deflators” to describe why and how the healthcare spending growth rate is affected.

This forward-looking report is based on the best available information through May 2016. HRI conducted interviews in February, March and April 2016 with 12 health plan executives (whose companies cover more than 100 million people) about their estimates for 2017 and the factors driving those trends. Findings from PwC’s 2016 Health and Well-Being Touchstone survey of more than 1,100 employers from 37 industries and PwC’s national consumer survey of more than 1,000 US adults are also included. Additionally, HRI analyzed the findings of a survey of more than 10 health plans belonging to the Health Plan Alliance. HRI also examined government data sources, journal articles and conference proceedings in determining the 2017 growth rate.

Behind the Numbers 2017 is our eleventh report in this series.

PwC’s Health Research Institute (HRI) provides new intelligence, perspectives, About Health and analysis on trends affecting all health related industries. HRI helps Research Institute executive decision makers navigate change through primary research and collaborative exchange. Our views are shaped by a network of professionals with executive and day-to-day experience in the health industry. HRI research is independent and not sponsored by businesses, government, or other institutions.

At PwC, our purpose is to build trust in society and solve important problems. About PwC We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory, and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

18 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2 HRI Advisory Team PwC Health Research Institute Jim Prutow Principal [email protected] Kelly Barnes Sarah Haflett 858 677 2655 Partner Senior Manager Health Industries Leader [email protected] Mark St. George [email protected] 267 330 1654 Managing Director 214 754 5172 [email protected] Laura McLaughlin 646 471 6226 Benjamin Isgur Senior Manager Director [email protected] Rick Judy [email protected] 203 233 6041 Principal 214 754 5091 [email protected] Anetta Hendershot 415 498 5218 Trine Tsouderos Research Analyst Director [email protected] Kulleni Gebreyes, MD [email protected] 716 855 4350 Principal 312 298 3038 [email protected] Eric Furry 703 918 6676 Matthew DoBias Research Analyst

Senior Manager [email protected] Jinn-Feng Lin [email protected] 317 946 2915 Principal 202 312 7946 [email protected] Jack Rodgers, PhD 312 298 3792 Ben Comer Managing Director, Health Policy Senior Manager Economics [email protected] [email protected] 919 791 4139 202 414 1646

Alexander Gaffney Kristen Bernie Senior Manager Manager, Health Policy Economics [email protected] [email protected] 202 414 4309 202 346 5134

Carly Carmody, Jeff Gitlin, Ari Gottlieb, Barbara Gniewek, Sandra Hunt, Frank Other Contributors Lemmon, James McNeil, Michael K. Roberts, Warren Skea, Michael Thompson, Paul Veronneau, Mark Williams, Allan Zimmerman

19 Medical Cost Trend: Behind the Numbers 2017 ATTACHMENT 2 www.pwc.com/us/healthindustries www.pwc.com/hri twitter.com/PwCHealth

To have a deeper conversation about how this subject may affect your business, please contact:

Kelly Barnes US Health Industries and Global Health Industries Consulting Leader [email protected] 214 754 5172

Rick Judy Principal [email protected] 415 498 5218

Benjamin Isgur Director [email protected] 214 754 5091

© 2016 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please seewww.pwc.com/structure for further details.This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. 172489-2016.

DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA 90013 (213) 279-3000

REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS

DATE: SEPTEMBER 15, 2016 ITEM: A.2

FROM: RAYMOND P. CIRANNA, GENERAL MANAGER

SUBJECT: GOVERNMENTAL ACCOUNTING STANDARDS (GAS) 68 ACTUARIAL VALUATION BASED ON JUNE 30, 2015 MEASUREMENT DATE FOR EMPLOYER REPORTING AS OF JUNE 30, 2016; GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 68 REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2015; AND POSSIBLE BOARD ACTION

RECOMMENDATION

It is recommended that the Board:

1. Review and approve the Governmental Accounting Standards (GAS) 68 Actuarial Valuation as of June 30, 2016; and, 2. Review and approve the Governmental Accounting Standards Board Statement No. 68 Report as of and for the Fiscal Year Ended June 30, 2015.

BACKGROUND

In June 2012, the Government Accounting Standards Board (GASB) issued Statement No. 68, Accounting and Financial Reporting for Pensions – an Amendment of GASB Statement No. 27, effective for plan years beginning on or after June 15, 2014. The primary objective of GAS 68 is to improve accounting and financial reporting of state and local government pension information. Requirements are intended to enhance “decision-usefulness” of this information. Plan sponsors began implementing GAS 68 in their 2015 financial statements.

GASB 68 requires employers to record their proportionate share of the total pension liability less the plan’s fiduciary net position (i.e., net pension liability) on the face of their financial statements. A proportionate share of the total pension expense and collective deferred inflows of resources and deferred outflows of resources of the pension fund is also reflected.

DISCUSSION

LAFPP’s plan year beginning July 1, 2015 through June 30, 2016 is the second year for which GAS 68 applies. Segal Consulting prepared the GAS 68 Actuarial Valuation Based on June 30, 2015 Measurement Date for Employer Reporting as of June 30, 2016 (GAS 68 Report). Simpson & Simpson Certified Public Accountants audited Segal’s’ GAS 68 Report as reflected in the GASB Statement No. 68 Report that includes the Independent Auditor’s Report, Schedule of Pension Amounts by Entity, and Notes to Schedule of Pension Amounts by Entity.

Once approved by the Board, these reports will be provided to the City with the following disclaimer:

To complete their financial statements, each “Employer” (the City, and the Harbor Department) will need to record its own proportionate share of collective pension amounts for all benefits provided through LAFPP”s pension plan. LAFPP has provided a schedule of pension amounts by Employer, prepared by the independent actuary Segal Consulting in accordance with the methodology set forth in GASB 68, based on data maintained and provided by LAFPP. This schedule has been audited by independent auditor Simpson & Simpson Certified Public Accountants. Please note that LAFPP is not responsible for Employers’ compliance with the requirements of GASB 68. Employers are solely responsible for accurately presenting their financial statements within the requirements of GASB 68.

CONCLUSION

The GAS 68 Report contains information and schedules that will assist the City and the Harbor Department in implementing reporting requirements for 2016. The GASB 68 rules redefine pension liability and expense for financial reporting, and do not apply to contribution amounts for pension funding purposes. For example, the GASB 68 rules impact financial reporting with respect to pension liability, total pension liability, and the treatment of the Deferred Retirement Option Plan (DROP), and do not impact contribution amounts or funding policies and practices.

BUDGET

Costs up to $18,000 are budgeted.

POLICY

There is no policy impact associated with this report.

This report was prepared by:

Erin J. Kenney, Departmental Audit Manager Internal Audit Section

RPC/EJK

Attachments: 1. Governmental Accounting Standards (GAS) 68 Actuarial Valuation Based on June 30, 2015 Measurement Date for Employer Reporting as of June 30, 2016 2. Governmental Accounting Standards Board Statement No. 68 Report as of and for the Fiscal Year Ended June 30, 2015

Board Report Page 2 September 15, 2016

City of Los Angeles Fire and Police Pension Plan Governmental Accounting Standards (GAS) 68 Actuarial Valuation Based on June 30, 2015 Measurement Date for Employer Reporting as of June 30, 2016

This report has been prepared at the request of the Board of Commissioners to a ssist the sponsors of the Fund in preparing their financial report for their liabilities associated with the pension plan. This valuation report may not otherwise be copied or reproduced in any form without the consent of the Board of Commissioners and may only be provided to other parties in its entirety. The measurements shown in this actuarial valuation may not be applicable for other purposes. Copyright © 2016 by The Segal Group, Inc. All rights reserved.

100 Montgomery Street Suite 500 San Francisco, CA 94104-4308 T 415.263.8200 www.segalco.com

May 3, 2016

Board of Fire and Police Pension Commissioners City of Los Angeles Fire and Police Pension Plan 701 East 3rd Street, Suite 200 Los Angeles, CA 90013 Dear Board Members: We are pleased to submit this Governmental Accounting Standard (GAS) 68 Actuarial Valuation based on June 30, 2015 measurement date for employer reporting as of June 30, 2016. It contains various information that will need to be disclosed in order to comply with GAS 68. This report was prepared in accordance with generally accepted actuarial principles and practices at the request of the Board to assist the sponsors in preparing their financial report for the pension plan. The census and financial information on which our calculations were based was provided by LAFPP. That assistance is gratefully acknowledged. The measurements shown in this actuarial valuation may not be applicable for other purposes. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; and changes in plan provisions or applicable law. The actuarial calculations were completed under the supervision of Andy Yeung, ASA, MAAA, FCA, Enrolled Actuary. We are members of the American Academy of Actuaries and we meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion herein. To the best of our knowledge, the information supplied in the actuarial valuation is complete and accurate. Further, in our opinion, the assumptions as approved by the Board are reasonably related to the experience of and expectations for LAFPP. We look forward to reviewing this report with you and to answering any questions. Sincerely,

Segal Consulting, a Member of The Segal Group, Inc.

By: Paul Angelo, FSA, MAAA, FCA, EA Andy Yeung, ASA, MAAA, FCA, EA Senior Vice President and Actuary Vice President and Actuary EK/bqb 5420438v4/07916.120

SECTION 1 SECTION 2 SECTION 2 (CONTINUED) SECTION 3

ACTUARIAL ASSUMPTIONS VALUATION SUMMARY GAS 68 INFORMATION AND METHODS AND APPENDICES Purpose ...... i EXHIBIT 1 EXHIBIT 8 Actuarial Assumptions and Methods ...... 29 Significant Issues in Valuation General Information – Pension Expense ...... 13 Year...... i “Financial Statements”, Note EXHIBIT 9 APPENDIX A Disclosures and Required Calculation of Discount Rate Summary of Key Valuation Deferred Outflows of Supplementary Information as of June 30, 2015 ...... 39 Results ...... iii Resources and Deferred for a Single-Employer Inflows of Resources...... 16 APPENDIX B Important Information about Pension Plan ...... 1 Glossary of Terms ...... 41 Actuarial Valuations ...... iv EXHIBIT 10 EXHIBIT 2 Schedule of Proportionate Net Pension Liability ...... 4 Share of the Net Pension EXHIBIT 3 Liability ...... 20 Target Asset Allocation ...... 5 EXHIBIT 11 EXHIBIT 4 Schedule of Reconciliation of Discount Rate Sensitivity ...... 7 Net Pension Liability ...... 23 EXHIBIT 5 EXHIBIT 12 Schedule of Changes in Net Schedule of Recognition of Pension Liability – Last Two Changes in Total Net Pension Fiscal Years...... 8 Liability ...... 26 EXHIBIT 6 EXHIBIT 13 Schedule of Employer Allocation of Changes in Contributions – Last Ten Total Net Pension Liability ..... 28 Fiscal Years...... 9 EXHIBIT 7 Determination of Proportionate Share ...... 11

SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan

Purpose This report has been prepared by Segal Consulting to present certain disclosure information required by Governmental Accounting Standard (GAS) 68 as of June 30, 2016. The results used in preparing this GAS 68 report are comparable to those used in preparing the Governmental Accounting Standard (GAS) 67 report for the plan based on a reporting date and a measurement date as of June 30, 2015. This valuation is based on:  The benefit provisions of the Pension Plan, as administered by the Board of Commissioners;  The characteristics of covered active members, terminated vested members, and retired members and beneficiaries as of June 30, 2014, provided by LAFPP;  The assets of the Plan as of June 30, 2015, provided by LAFPP;  Economic assumptions regarding future salary increases and investment earnings; and  Other actuarial assumptions, regarding employee terminations, retirement, death, etc.

Significant Issues in Valuation Year The following key findings were the result of this actuarial valuation:  The Governmental Accounting Standards Board (GASB) rules only define pension liability and expense for financial reporting purposes, and do not apply to contribution amounts for pension funding purposes. Employers and plans can still develop and adopt funding policies under current practices.  When measuring pension liability GASB uses the same actuarial cost method (Entry Age method) and the same type of discount rate (expected return on assets) as LAFPP uses for funding. Note that, with regard to the actuarial cost method, the GASB rules use a version of the Entry Age method where the Total Pension Liability (TPL) must be fully accrued by the time a member either enters the DROP or is expected to elect the DROP. This is in contrast to the version of the Entry Age method used for funding, where the Actuarial Accrued Liability (AAL) is not fully accrued until members retire from employment after participation in the DROP. Under GASB, actives who are expected to enroll in the DROP in the future would report an annual Service Cost that is higher than the Normal Cost used for funding, while members already in the DROP would report no Service Cost even though their Normal Cost continues to accrue. As the service retirement rates we use in the funding valuation have been developed based on the later date of exit from the DROP, we have adjusted those rates in this valuation so that they are based on the earlier date of first participation in the DROP. Those rates are provided in Section 3.

SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan

 The Net Pension Liability (NPL) is equal to the difference between the TPL and the Plan’s Fiduciary Net Position. The Plan’s Fiduciary Net Position is equal to the market value of assets and therefore, the NPL measure is very similar to an Unfunded Actuarial Accrued Liability (UAAL) calculated on a market value basis.  For this report, the reporting dates for the employer are June 30, 2016 and June 30, 2015. The NPLs measured as of June 30, 2015 and 2014 have been determined by rolling forward the TPL from actuarial valuations as of June 30, 2014 and 2013, respectively. The Plan’s Fiduciary Net Position (plan assets) was valued as of the measurement dates. Consistent with the provisions of GAS 68, the assets and liabilities measured as of June 30, 2015 and June 30, 2014 are not adjusted or rolled forward to the respective June 30, 2016 and June 30, 2015 reporting dates.  The NPL increased from $1.872 billion as of June 30, 2014 to $2.039 billion as of June 30, 2015, mainly due to the loss from an approximate return on the market value of assets of 4.0% during 2014/2015 that was less than the assumption of 7.50% used in the June 30, 2014 valuation (that loss was about $0.6 billion). That loss is offset somewhat by gains from lower than expected salary increases and COLA increases during 2013/2014 (because liabilities were rolled forward from June 30, 2013 to June 30, 2014, these gains are first reported in the June 30, 2015 results). Changes in these values during the last two fiscal years ending June 30, 2014 and June 30, 2015 can be found in Exhibit 5.  The discount rates used to determine the TPL and NPL as of June 30, 2015 and 2014 were 7.50%, following the same assumptions used by LAFPP in the pension funding valuation as of June 30, 2014. Details on the derivation of the discount rate can be found in Appendix A of Section 3. Various other information that is required to be disclosed can be found throughout Exhibits 1 through 13 in Section 2.  It should be noted that there are two member categories in LAFPP: (1) the Harbor Port Police (an enterprise fund) and (2) the other members associated with the City’s Fire and Police Departments. We have been directed by LAFPP to provide the pension expense and NPL for each of the two member categories. Both the pension expense and the NPL for each member category have been obtained from internal valuation results which have been developed separately for each of the members associated with the Fire and Police Departments and the Harbor Port Police. The Plan Fiduciary Net Position for each membership category was estimated by adjusting the valuation value of assets for each membership category by the ratio of the total LAFPP Plan Fiduciary Net Position to total LAFPP valuation value of assets.  Results shown in this report exclude any employer contributions made after the measurement date of June 30, 2015. Employers should consult with their auditors to determine the deferred outflow that should be created for these contributions.

SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan

Summary of Key Valuation Results Reporting Date for Employer under GAS 68 6/30/2016(1) 6/30/2015(2) Measurement Date for Employer under GAS 68 6/30/2015 6/30/2014 Disclosure elements for fiscal year ending June 30: 1. Service cost(3) $368,700,102 $368,017,648 2. Total Pension Liability 19,385,427,756 18,861,992,028 3. Plan’s Fiduciary Net Position 17,346,554,076 16,989,704,585 4. Net Pension Liability 2,038,873,680 1,872,287,443 5. Pension expense 85,535,264 148,766,618 Schedule of contributions for fiscal year ending June 30: 6. Actuarially determined contributions $480,332,251 $440,698,260 7. Actual Contributions 480,332,251 440,698,260 8. Contribution deficiency (excess) (6) – (7) 0 0 Demographic data for plan year ending June 30(4): 9. Number of retired members and beneficiaries 12,593 12,502 10. Number of vested terminated members(5) 112 131 11. Number of DROP members 1,359 1,277 12. Number of active members 11,709 11,820

Key assumptions as of June 30: 13. Investment rate of return 7.50% 7.50% 14. Inflation rate 3.25% 3.25% 15. Projected salary increases(6) Ranges from 4.75% to 11.50% Ranges from 4.75% to 11.50% based on years of service based on years of service (1) The reporting date and measurement date for the plan are June 30, 2015. (2) The reporting date and measurement date for the plan are June 30, 2014. (3) The service cost is always based on the previous year’s assumptions, meaning the value as of the June 30, 2015 measurement date is based on those assumptions shown as of June 30, 2014, whereas the value as of the June 30, 2014 measurement date is based on the assumptions as of June 30, 2013 shown below: Key assumptions as of June 30, 2013: Investment rate of return 7.75% Inflation rate 3.50% Projected salary increases* Ranges from 5.25% to 12.25% * Includes inflation at 3.50% plus real across-the-board salary increase of 0.75% plus merit and promotional increases. (4) Data as of June 30, 2014 is used in the measurement of the TPL as of June 30, 2015. (5) Includes terminated members due only a refund of member contributions. (6) Includes inflation at 3.25% plus real across-the-board salary increase of 0.75% plus merit and promotional increases that vary by service. iii

SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan

Important Information about Actuarial Valuations In order to prepare an actuarial valuation, Segal Consulting (“Segal”) relies on a number of input items. These include:  Plan of benefits Plan provisions define the rules that will be used to determine benefit payments, and those rules, or the interpretation of them, may change over time. It is important to keep Segal informed with respect to plan provisions and administrative procedures, and to review the plan description in this report (as well as the plan summary included in our funding valuation report) to confirm that Segal has correctly interpreted the plan of benefits.  Participant data An actuarial valuation for a plan is based on data provided to the actuary by LAFPP. Segal does not audit such data for completeness or accuracy, other than reviewing it for obvious inconsistencies compared to prior data and other information that appears unreasonable. It is important for Segal to receive the best possible data and to be informed about any known incomplete or inaccurate data.  Assets This valuation is based on the market value of assets as of the valuation date, as provided by LAFPP.  Actuarial assumptions In preparing an actuarial valuation, Segal projects the benefits to be paid to existing plan participants for the rest of their lives and the lives of their beneficiaries. This projection requires actuarial assumptions as to the probability of death, disability, withdrawal, and retirement of each participant for each year. In addition, the benefits projected to be paid for each of those events in each future year reflect actuarial assumptions as to salary increases and cost-of-living adjustments. The projected benefits are then discounted to a present value, based on the assumed rate of return that is expected to be achieved on the plan’s assets. There is a reasonable range for each assumption used in the projection and the results may vary materially based on which assumptions are selected. It is important for any user of an actuarial valuation to understand this concept. Actuarial assumptions are periodically reviewed to ensure that future valuations reflect emerging plan experience. While future changes in actuarial assumptions may have a significant impact on the reported results, that does not mean that the previous assumptions were unreasonable. The user of Segal’s actuarial valuation (or other actuarial calculations) should keep the following in mind:  The valuation is prepared at the request of the Board to assist the sponsors of the Fund in preparing items related to the pension plan in their financial reports. Segal is not responsible for the use or misuse of its report, particularly by any other party.  An actuarial valuation is a measurement of the plan’s assets and liabilities at a specific date. Accordingly, except where otherwise noted, Segal did not perform an analysis of the potential range of future financial measures. The actual long-term cost of the plan will be determined by the actual benefits and expenses paid and the actual investment experience of the plan.  If LAFPP is aware of any event or trend that was not considered in this valuation that may materially change the results of the valuation, Segal should be advised, so that we can evaluate it.

SECTION 1: Valuation Summary for the City of Los Angeles Fire and Police Pension Plan

 Segal does not provide investment, legal, accounting, or tax advice. Segal’s valuation is based on our understanding of applicable guidance in these areas and of the plan’s provisions, but they may be subject to alternative interpretations. The Board should look to their other advisors for expertise in these areas. As Segal Consulting has no discretionary authority with respect to the management or assets of LAFPP, it is not a fiduciary in its capacity as actuaries and consultants with respect to LAFPP.

SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 1 General Information – “Financial Statements”, Note Disclosures and Required Supplementary Information for a Single-Employer Pension Plan Plan Description Plan administration. The City of Los Angeles Fire and Police Plan (LAFPP) was established by the City of Los Angeles in 1899. LAFPP is a single employer public employee retirement system whose main function is to provide retirement benefits to the safety members employed by the City of Los Angeles. It should be noted that there are two member categories in LAFPP: (1) the Harbor Port Police (an enterprise fund) and (2) the other members associated with the City’s Fire and Police Departments. The Fire and Police Pension Plan is administered by a Board of Commissioners composed of five commissioners who are appointed by the Mayor, two commissioners elected by Police Members of the Plan and two commissioners elected by Fire Members of the Plan. Under provisions of the City Charter, the City Administrative Code and the State Constitution, the Board has the responsibility to administer the Plan. Plan membership. At June 30, 2015, pension plan membership consisted of the following: Retired members or beneficiaries currently receiving benefits 12,593 Vested terminated members entitled to but not yet receiving benefits(1) 112 DROP members 1,359 Active members 11,709 Total 25,773 (1) Includes terminated members due only a refund of member contributions. Note: Data as of June 30, 2015 is not used in the measurement of the TPL as of June 30, 2015.

Benefits provided. LAFPP provides service retirement, disability, death and survivor benefits to eligible sworn members of the Los Angeles Fire, Police and Harbor Departments. Sworn employees become members upon graduation from the Police Academy or Fire Drill Tower. There are currently six tiers applicable to members of the LAFPP. Tier 1 includes members hired on or before January 28, 1967. Tier 2 includes members hired from January 29, 1967 through December 7, 1980, and those Tier 1 members who transferred to Tier 2 during the enrollment period of January 29, 1967 to January 29, 1968. Tier 3 includes members hired from December 8, 1980 through June 30, 1997 and those Tier 4 members hired during the period of July 1, 1997 through December 31, 1997 who elected to transfer to Tier 3 by the enrollment deadline of June 30, 1998. Tier 4 includes members hired from 1 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

July 1, 1997 through December 31, 2001 and those Tier 3 members who elected to transfer to Tier 4 by the enrollment deadline of June 30, 1998. Tier 5 includes members hired from January 1, 2002 through June 30, 2011 and those active members of Tiers 2, 3, or 4 who elected to transfer to Tier 5 during the enrollment period of January 2, 2002 through December 31, 2002. Tier 6 was established for all firefighters and police officers hired on or after July 1, 2011. Tier 1, Tier 2, and Tier 4 members are eligible to retire once they attain 20 years of service. Tier 3 members are eligible to retire once they reach age 50 and have attained 10 or more years of service. Tier 5 and Tier 6 members are eligible to retire once they reach age 50 and have attained 20 or more years of service. The Service Retirement benefit the member will receive is based upon age at retirement, final average compensation, years of retirement service credit and tier. The Tier 1 Service Retirement benefit is calculated pursuant to the provisions of Section 1304 of the Los Angeles Charter. The monthly allowance for a member with between 20 to 25 years of service who retires from active status is equal to 40% of the average monthly rate of salary assigned to the ranks or positions held by the member during the three years immediately preceding the date of his/her retirement plus 2% of the average rate of salary for each year of service in excess of 20 years. The monthly allowance for a member with between 25 to 34 years of service who retires from active status is equal to 50% of the average monthly rate of salary assigned to the ranks or positions held by the member during the three years immediately preceding the date of his/her retirement plus 1 2/3% of the average rate of salary for each year of service in excess of 25 years. The monthly allowance for a member with 35 or more years of service who retires from active status is equal to 66 2/3% of the average monthly rate of salary assigned to the ranks or positions held by the member during the three years immediately preceding the date of his/her retirement. The Tier 2 Service Retirement benefit is calculated pursuant to the provisions of Section 1408 of the Los Angeles Charter. The monthly allowance for a member with less than 25 years of service who retires from active status is equal to 2% of Normal Pension Base per year of service. The monthly allowance for a member with 25 or more years of service who retires from active status is equal to 55% of Normal Pension Base plus 3% of Normal Pension Base for each year of service in excess of 25 years, with a maximum of 70% of Normal Pension Base. The Tier 3 Service Retirement benefit is calculated pursuant to the provisions of Section 1504 of the Los Angeles Charter. The monthly allowance for a member with less than 20 years of service who retires from active status is equal to 2% of Final Average Salary per year of service. The monthly allowance for a member with 20 or more years of service who retires from active status is equal to 40% of Final Average Salary plus 3% of Final Average Salary for each year of service in excess of 20 years, with a maximum of 70% of Final Average Salary. The Tier 4 Service Retirement benefit is calculated pursuant to the provisions of Section 1604 of the Los Angeles Charter. The monthly allowance for a member who retires from active status is equal to 40% of Final Average Salary plus 3% per year of service over 20 years, with a maximum of 70% of Final Average Salary.

2 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

The Tier 5 Service Retirement benefit is calculated pursuant to the provisions of Section 4.2004 of the Los Angeles Administrative Code. The monthly allowance for a member who retires from active status is equal to 50% of Final Average Salary plus 3% per year of service over 20, except for the 30th year, where 4% is provided, with a maximum of 90% of Final Average Salary. The Tier 6 Service Retirement benefit is calculated pursuant to the provisions of Section 1704 of the Los Angeles Charter. The monthly allowance for a member who retires from active status is equal to 40% of Final Average Salary, plus 3% of Final Average Salary per year of service from 21 through 25 years, 4% of Final Average Salary per year of service from 26 through 30 years, and 5% of Final Average Salary per year of service over 30 years, with a maximum of 90% of Final Average Salary. Under Tier 1, pension benefits are calculated based on the average monthly rate of salary assigned to the ranks or positions held by the member during the three years immediately preceding the date of his/her retirement. Under Tier 2, pension benefits are calculated based on the Normal Pension Base, the final monthly salary rate. Under Tiers 3 – 6, pension benefits are calculated based on the Final Average Salary. Under Tiers 3 – 5, the Final Average Salary is the highest monthly average salary actually received during any 12 consecutive months of service. Under Tier 6 the Final Average Salary is the highest monthly average salary actually received during any 24 consecutive months of service. LAFPP provides annual cost-of-living adjustments (COLAs) to retirees. The cost-of-living adjustments are made each July 1 and vary by Tier. Under Tier 1 and Tier 2, the COLA is based on the percentage change in the average of the Consumer Price Index for the Los Angeles-Riverside-Orange County Area--All Items For All Urban Consumers. Under Tier 3 and Tier 4, the COLA is the same as under Tier 1 and Tier 2 but is capped at 3%, with a prorated COLA in the first year of retirement. Under Tier 5 and Tier 6, the COLA is the same as under Tier 3 and Tier 4, with the excess of the COLA over 3% banked for future use when the COLA is under 3%. The City of Los Angeles contributes to the retirement plan based upon actuarially determined contribution rates adopted by the Board of Commissioners based upon recommendations received from LAFPP’s actuary after the completion of the annual actuarial valuation. The average employer contribution rate for fiscal year 2014 – 2015 (based on the June 30, 2013 valuation) was 36.47% of compensation if paid on July 15, 2014. All members are required to make contributions to LAFPP regardless of tier in which they are included. However, members are exempt from making contributions when their continuous service exceeds 30 years for Tiers 1 through 4, and 33 years for Tier 5 and Tier 6. The average member contribution rate for fiscal year 2014 – 2015 (based on the June 30, 2013 valuation) was 9.63% of compensation paid biweekly.

3 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 2 Net Pension Liability

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 The components of the Net Pension Liability are as follows: Total Pension Liability $19,385,427,756 $18,861,992,028 Plan’s Fiduciary Net Position 17,346,554,076 16,989,704,585 Net Pension Liability $2,038,873,680 $1,872,287,443 Plan’s Fiduciary Net Position as a percentage of the Total Pension Liability 89.48% 90.07% The Net Pension Liability (NPL) was measured as of June 30, 2015 and 2014. The Plan’s Fiduciary Net Position (plan assets) was valued as of the measurement date while the Total Pension Liability (TPL) was determined based upon rolling forward the TPL from actuarial valuations as of June 30, 2014 and 2013, respectively. Plan provisions. The plan provisions used in the measurement of the NPL as of June 30, 2015 and 2014 are the same as those used in the LAFPP actuarial valuation as of June 30, 2015 and 2014, respectively. Actuarial assumptions and methods. The TPL’s as of June 30, 2015 and June 30, 2014 were determined by actuarial valuations as of June 30, 2014 and June 30, 2013, respectively. The actuarial assumptions used were based on the results of an experience study for the period from July 1, 2010 through June 30, 2013. They are the same as the assumptions used in the June 30, 2015 funding actuarial valuation for LAFPP. The assumptions are outlined in Section 3 of this report. In particular, the following actuarial assumptions were applied to all periods included in the measurement: Inflation 3.25% Salary increases Ranges from 4.75% to 11.50% based on years of service, including inflation Investment rate of return 7.50%, including inflation but net of Pension Plan investment expense Other assumptions See analysis of actuarial experience during the period July 1, 2010 through June 30, 2013 and Section 3 for the service retirement rates after they have been adjusted to be based on the assumed date of first participation in the DROP.

4 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 3 Target Asset Allocation

The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of inflation) are developed for each major asset class. These returns are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation and deducting expected investment expenses and a risk margin. The target allocation and projected arithmetic real rates of return for each measurement class, after deducting inflation but before reduction for investment expenses, used in the derivation of the long-term expected investment rate of return assumption are summarized in the following table:

Long-Term Target Expected Real Asset Class Allocation Rate of Return Large Cap U.S. Equity 23.00% 6.03% Small Cap U.S. Equity 6.00% 6.71% Developed International Equity 16.00% 6.71% Emerging Markets Equity 5.00% 8.02% U.S. Core Fixed Income 14.00% 0.52% High Yield Bonds 3.00% 2.81% Real Estate 10.00% 4.73% TIPS 5.00% 0.43% Commodities 5.00% 4.67% Cash 1.00% -0.19% Unconstrained Fixed Income 2.00% 2.50% Private Equity 10.00% 9.25% Total Portfolio 100.00% 5.12% Discount rate: The discount rate used to measure the Total Pension Liability (TPL) was 7.50% as of June 30, 2015 and June 30, 2014. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rates for each tier and that employer contributions will be made at rates equal to the actuarially determined contribution rates for each tier. For this purpose, only employer contributions that are intended to fund benefits for current plan members and their beneficiaries are included. Projected employer contributions that are intended to fund the service costs for future plan members and their beneficiaries, as well as projected contributions from future plan members, are

5 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

not included. Based on those assumptions, the Pension Plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments for current plan members. Therefore, the long-term expected rate of return on Pension Plan investments was applied to all periods of projected benefit payments to determine the TPL as of both June 30, 2015 and June 30, 2014.

6 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 4 Discount Rate Sensitivity

Sensitivity of the Net Pension Liability to changes in the discount rate. The following presents the Net Pension Liability (NPL) of LAFPP as of June 30, 2015, calculated using the discount rate of 7.50%, as well as what LAFPP’s NPL would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50%) than the current rate:

1% Decrease Current Discount Rate 1% Increase Net Pension Liability (6.50%) (7.50%) (8.50%) Fire and Police $4,600,307,000 $2,030,202,385 $(81,992,746) Harbor Port Police 18,490,137 8,671,295 810,122 Total for the City $4,618,797,137 $2,038,873,680 $(81,182,624)

7 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 5 Schedule of Changes in Net Pension Liability – Last Two Fiscal Years

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014

Total Pension Liability 1. Service cost $368,700,102 $368,017,648 2. Interest 1,384,526,680 1,392,552,174 3. Change of benefit terms 0 0 4. Differences between expected and actual experience -310,881,738 -234,637,547 5. Changes of assumptions 0 -69,482,273 6. Benefit payments, including refunds of member contributions -918,909,316 -858,986,055 7. Net change in Total Pension Liability $523,435,728 $597,463,947

8. Total Pension Liability – beginning 18,861,992,028 18,264,528,081 9. Total Pension Liability – ending $19,385,427,756 $18,861,992,028

Plan’s Fiduciary Net Position 10. Contributions – employer $480,332,251 $440,698,260 11. Contributions – employee 126,770,882 124,394,889 12. Net investment income 686,470,123 2,617,089,650 13. Benefit payments, including refunds of member contributions -918,909,316 -858,986,055 14. Administrative expense -17,814,449 -13,865,199 15. Other 0 0 16. Net change in Plan’s Fiduciary Net Position $356,849,491 $2,309,331,545

17. Plan’s Fiduciary Net Position – beginning 16,989,704,585 14,680,373,040 18. Plan’s Fiduciary Net Position – ending $17,346,554,076 $16,989,704,585

19. Net Pension Liability – ending (9) – (18) $2,038,873,680 $1,872,287,443

20. Plan’s Fiduciary Net Position as a percentage of the Total Pension Liability 89.48% 90.07% 21. Covered employee payroll(1) $1,316,968,607 $1,308,148,504 22. Plan’s Net Pension Liability as percentage of covered employee payroll 154.82% 143.12%

(1) Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories. Notes to Schedule: Benefit changes: None. 8 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 6 Schedule of Employer Contributions – Last Ten Fiscal Years

Contributions in Relation to the Contributions as Actuarially Actuarially a Percentage of Year Ended Determined Determined Contribution Covered-Employee Covered Employee June 30 Contributions(1) Contributions Deficiency (Excess) Payroll(2) Payroll(3) 2006 $143,945,802 $143,945,802 $0 N/A(4) N/A(4) 2007 224,946,082 224,946,082 0 $1,130,296,904 19.90% 2008(5) 261,635,491 261,635,491 0 1,188,972,417 22.01% 2009 238,697,929 238,697,929 0 1,253,658,885 19.04% 2010 250,516,858 250,516,858 0 1,266,311,709 19.78% 2011 277,092,251 277,092,251 0 1,289,856,708 21.48% 2012 321,593,433 321,593,433 0 1,213,395,874 26.50% 2013 375,448,092 375,448,092 0 1,277,031,317 29.40% 2014 440,698,260 440,698,260 0 1,308,148,504 33.69% 2015 480,332,251 480,332,251 0 1,316,968,607 36.47%

See accompanying notes to this schedule on next page. (1) All “Actuarially Determined Contributions” through June 30, 2015 were determined as the “Annual Required Contribution” under GAS 25 and 27. (2) Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories. (3) Contribution rate as a percentage of payroll reflects discount applied when the employer prepays its contributions. This rate has been “backed” into by dividing the actual contributions by the budgeted covered-employee payroll. (4) Not available. (5) Figures include amounts transferred and contributed during the fiscal year that were related to the transfer of certain Harbor Port Police members from the Los Angeles City Employees’ Retirement System into LAFPP.

9 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

Notes to Exhibit 6 Methods and assumptions used to establish “actuarially determined contribution” (ADC) rates: The methods and assumptions used in the most recent funding valuation as of June 30, 2015 which established the ADC for the year ending June 30, 2017 are shown below. (The assumptions used in establishing the ADC for the year ended June 30, 2015 were based on the June 30, 2013 funding valuation(1)). Valuation date Actuarially determined contribution rates are calculated as of June 30, two years prior to the end of the fiscal year in which contributions are reported Actuarial cost method Entry Age Actuarial Cost Method Amortization method For Tier 1, level dollar amortization is used with last period ending on June 30, 2037. For Tiers 2, 3 and 4, level percent of payroll amortization with multiple layers is used as a percent of total valuation payroll from the respective employer (i.e., City or Harbor Port Police). For Tiers 5 and 6, level percent of payroll with multiple layers is used as a percent of combined payroll for these tiers from the respective employer (i.e., City or Harbor Port Police). Remaining amortization period Actuarial gains/losses are amortized over 20 years. Assumption changes are amortized over 25 years. Plan changes are amortized over 15 years. Asset valuation method The market value of assets less unrecognized returns. Unrecognized return is equal to the difference between the actual and the expected return on a market value basis, and is recognized over a seven-year period. Deferred gains and losses as of June 30, 2013 have been combined and will be recognized over a period of six years from July 1, 2013. The actuarial value of assets is further adjusted, if necessary, to be within 40% of the market value of assets. Actuarial assumptions: Investment rate of return 7.50%, net of investment expenses Inflation rate 3.25% Administrative expenses Out of the total 1.00% of payroll in administrative expense, 0.94% of payroll payable biweekly is allocated to the Retirement Plan. This is equal to 0.91% of payroll payable at beginning of the year. Real across-the-board salary increase 0.75% Projected salary increases(2) Ranges from 4.75% to 11.55% based on years of service Cost of living adjustments 3.25% of Tiers 1 and 2 retirement income and 3.00% of Tiers 3, 4, 5, and 6 retirement income. Other assumptions Same as those used in the June 30, 2015 funding actuarial valuation

(1) Key assumptions as of June 30, 2013 funding valuation: Investment rate of return 7.75%, net of investment and administrative expenses Inflation rate 3.50% Cost of living adjustments 3.50% of Tiers 1 and 2 retirement income and 3.00% of Tiers 3, 4, 5, and 6 retirement income Projected salary increases* Ranges from 5.25% to 12.25% * Includes inflation at 3.50% plus real across-the-board salary increase of 0.75% plus merit and promotional increases. (2) Includes inflation at 3.25% plus real across-the-board salary increase of 0.75% plus merit and promotional increases that vary by service. 10 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 7 Determination of Proportionate Share

Allocation of June 30, 2014 Net Pension Liability Member Category Total NPL Fire and Police $1,861,824,464 Harbor Port Police 10,462,979 Total for the City $1,872,287,443

Allocation of June 30, 2015 Net Pension Liability Member Category Total NPL Fire and Police $2,030,202,385 Harbor Port Police 8,671,295 Total for the City $2,038,873,680

Notes: The Net Pension Liability (NPL) for each member category is the Total Pension Liability (TPL) minus the Plan Fiduciary Net Position (plan assets). The TPL for each member category is obtained from internal valuation results and is calculated separately for each of the members associated with the Fire and Police Departments and the Harbor Port Police. The Plan Fiduciary Net Position for each membership category was estimated by adjusting the valuation value of assets for each membership category by the ratio of the total LAFPP Plan’s Fiduciary Net Position to total LAFPP valuation value of assets.

11 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

The following items are allocated based on the internal valuation results maintained and calculated separately for each of the members associated with the Fire and Police Departments and the Harbor Port Police.

1) Net Pension Liability 2) Service cost 3) Interest on the Total Pension Liability 4) Expensed portion of current-period benefit changes 5) Expensed portion of current-period difference between expected and actual experience in the Total Pension Liability 6) Member contributions 7) Projected earnings on plan investments 8) Expensed portion of current-period differences between actual and projected earnings on plan investments 9) Administrative expense 10) Recognition of beginning of year deferred outflows of resources as pension expense 11) Recognition of beginning of year deferred inflows of resources as pension expense

12 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 8 Pension Expense – Total for all Employers

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Components of Pension Expense 1. Service cost $368,700,102 $368,017,648 2. Interest on the Total Pension Liability 1,384,526,680 1,392,552,174 3. Expensed portion of current-period changes in proportion and differences between employer's contributions and proportionate share of contributions 0 0 4. Expensed portion of current-period benefit changes 0 0 5. Expensed portion of current-period difference between expected and actual experience in the Total Pension Liability (53,324,483) (41,020,550) 6. Expensed portion of current-period changes of assumptions or other inputs 0 (12,147,251) 7. Member contributions (126,770,882) (124,394,889) 8. Projected earnings on plan investments (1,278,378,491) (1,155,859,729) 9. Expensed portion of current-period differences between actual and projected earnings on plan investments 118,381,674 (292,245,984) 10. Administrative expense 17,814,449 13,865,199 11. Other 0 0 12. Recognition of beginning of year deferred outflows of resources as pension expense 0 0 13. Recognition of beginning of year deferred inflows of resources as pension expense (345,413,785) 0 14. Net amortization of deferred amounts from changes in proportion and differences between employer’s contributions and proportionate share of contributions 0 0 Pension Expense $85,535,264 $148,766,618

13 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 8 (continued) Pension Expense – Fire and Police

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Components of Pension Expense 1. Service cost $365,267,503 $364,618,784 2. Interest on the Total Pension Liability 1,380,713,054 1,388,872,981 3. Expensed portion of current-period changes in proportion and differences between employer's contributions and proportionate share of contributions 0 0 4. Expensed portion of current-period benefit changes 0 0 5. Expensed portion of current-period difference between expected and actual experience in the Total Pension Liability (52,934,965) (40,983,473) 6. Expensed portion of current-period changes of assumptions or other inputs 0 (12,063,325) 7. Member contributions (125,595,341) (123,456,579) 8. Projected earnings on plan investments (1,275,135,843) (1,153,225,966) 9. Expensed portion of current-period differences between actual and projected earnings on plan investments 118,150,663 (291,560,899) 10. Administrative expense 17,670,459 13,833,601 11. Other 0 0 12. Recognition of beginning of year deferred outflows of resources as pension expense 0 0 13. Recognition of beginning of year deferred inflows of resources as pension expense (344,607,697) 0 14. Net amortization of deferred amounts from changes in proportion and differences between employer’s contributions and proportionate share of contributions 0 0 Pension Expense $83,527,833 $146,035,124

14 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 8 (continued) Pension Expense – Harbor Port Police

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Components of Pension Expense 1. Service cost $3,432,599 $3,398,864 2. Interest on the Total Pension Liability 3,813,626 3,679,193 3. Expensed portion of current-period changes in proportion and differences between employer's contributions and proportionate share of contributions 0 0 4. Expensed portion of current-period benefit changes 0 0 5. Expensed portion of current-period difference between expected and actual experience in the Total Pension Liability (389,518) (37,077) 6. Expensed portion of current-period changes of assumptions or other inputs 0 (83,926) 7. Member contributions (1,175,541) (938,310) 8. Projected earnings on plan investments (3,242,648) (2,633,763) 9. Expensed portion of current-period differences between actual and projected earnings on plan investments 231,011 (685,085) 10. Administrative expense 143,990 31,598 11. Other 0 0 12. Recognition of beginning of year deferred outflows of resources as pension expense 0 0 13. Recognition of beginning of year deferred inflows of resources as pension expense (806,088) 0 14. Net amortization of deferred amounts from changes in proportion and differences between employer’s contributions and proportionate share of contributions 0 0 Pension Expense $2,007,431 $2,731,494

15 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 9 Deferred Outflows of Resources and Deferred Inflows of Resources – Total for all Employers

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Deferred Outflows of Resources 1. Changes in proportion and differences between employer's contributions and proportionate share of contributions(1) $0 $0 2. Changes of assumptions or other inputs 0 0 3. Net difference between projected and actual earnings on pension plan investments 473,526,694 0 4. Difference between expected and actual experience in the Total Pension Liability 0 0 5. Total Deferred Outflows of Resources $473,526,694 $0 Deferred Inflows of Resources 6. Changes in proportion and differences between employer's contributions and proportionate share of contributions(1) $0 $0 7. Changes of assumptions or other inputs 45,187,771 57,335,022 8. Net difference between projected and actual earnings on pension plan investments 876,737,953 1,168,983,937 9. Difference between expected and actual experience in the Total Pension Liability 410,153,702 193,616,997 10. Total Deferred Inflows of Resources $1,332,079,426 $1,419,935,956

Deferred outflows of resources and deferred inflows of resources related to pension will be recognized as follows: Reporting Date for Employer under GAS 68 Year Ended June 30: 2016 N/A $(345,413,785) 2017 $(280,356,594) (345,413,785) 2018 (280,356,594) (345,413,785) 2019 (280,356,595) (345,413,786) 2020 26,776,374 (38,280,815) 2021 (44,259,323) 0 Thereafter 0 0 (1) Calculated in accordance with Paragraphs 54 and 55 of GAS 68.

16 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 9 (continued) Deferred Outflows of Resources and Deferred Inflows of Resources – Fire and Police

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Deferred Outflows of Resources 1. Changes in proportion and differences between employer's contributions and proportionate share of contributions(1) $0 $0 2. Changes of assumptions or other inputs 0 0 3. Net difference between projected and actual earnings on pension plan investments 472,602,650 0 4. Difference between expected and actual experience in the Total Pension Liability 0 0 5. Total Deferred Outflows of Resources $472,602,650 $0 Deferred Inflows of Resources 6. Changes in proportion and differences between employer's contributions and proportionate share of contributions(1) $0 $0 7. Changes of assumptions or other inputs 44,875,566 56,938,891 8. Net difference between projected and actual earnings on pension plan investments 874,682,697 1,166,243,596 9. Difference between expected and actual experience in the Total Pension Liability 408,134,403 193,441,991 10. Total Deferred Inflows of Resources $1,327,692,666 $1,416,624,478

Deferred outflows of resources and deferred inflows of resources related to pension will be recognized as follows: Reporting Date for Employer under GAS 68 Year Ended June 30: 2016 N/A $(344,607,697) 2017 $(279,391,999) (344,607,697) 2018 (279,391,999) (344,607,697) 2019 (279,391,999) (344,607,697) 2020 27,022,006 (38,193,690) 2021 (43,936,025) 0 Thereafter 0 0 (1) Calculated in accordance with Paragraphs 54 and 55 of GAS 68.

17 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 9 (continued) Deferred Outflows of Resources and Deferred Inflows of Resources – Harbor Port Police

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Deferred Outflows of Resources 1. Changes in proportion and differences between employer's contributions and proportionate share of contributions(1) $0 $0 2. Changes of assumptions or other inputs 0 0 3. Net difference between projected and actual earnings on pension plan investments 924,044 0 4. Difference between expected and actual experience in the Total Pension Liability 0 0 5. Total Deferred Outflows of Resources $924,044 $0 Deferred Inflows of Resources 6. Changes in proportion and differences between employer's contributions and proportionate share of contributions(1) $0 $0 7. Changes of assumptions or other inputs 312,205 396,131 8. Net difference between projected and actual earnings on pension plan investments 2,055,256 2,740,341 9. Difference between expected and actual experience in the Total Pension Liability 2,019,299 175,006 10. Total Deferred Inflows of Resources $4,386,760 $3,311,478

Deferred outflows of resources and deferred inflows of resources related to pension will be recognized as follows: Reporting Date for Employer under GAS 68 Year Ended June 30: 2016 N/A $(806,088) 2017 $(964,595) (806,088) 2018 (964,595) (806,088) 2019 (964,596) (806,089) 2020 (245,632) (87,125) 2021 (323,298) 0 Thereafter 0 0 (1) Calculated in accordance with Paragraphs 54 and 55 of GAS 68.

18 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 9 (continued) Deferred Outflows of Resources and Deferred Inflows of Resources

Notes: Amounts shown in this exhibit were allocated by Fire and Police and Harbor Port Police member categories based on the internal calculations as described in Exhibit 7. In determining the pension expense: - Any differences between projected and actual investment earnings on pension plan investments are recognized over a period of five years beginning with the year in which they occur. - Current period (i.e., 2014/2015) differences between expected and actual experience and changes of assumptions are recognized over the average of the expected remaining service lives of all employees that are provided with pensions through LAFPP determined as of June 30, 2014 (the beginning of the measurement period ending June 30, 2015) and is 5.83 years. - Prior period differences between expected and actual experience and changes of assumptions are continued to be recognized based on the expected remaining service lives of all employees calculated as of those prior measurement dates.

The average of the expected remaining service lives of all employees was determined by: - Calculating each active employee’s expected remaining service life as the present value of $1 per year of future service at zero percent interest. - Setting the remaining service life to zero for each nonactive or retired members. - Dividing the sum of the above amounts by the total number of active employee, nonactive and retired members.

There is no change in the pension expense brought about by “Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions”. This is because calculations are done separately to track TPL and Plan Fiduciary Net Position for each of the Fire and Police Departments and Harbor Port Police.

19 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 10 Schedule of Proportionate Share of the Net Pension Liability – Total for all Employers

Proportionate share of the Reporting Date for Proportion of the Proportionate Covered- Net Pension Liability as a Plan’s Fiduciary Net Employer under GAS 68 Net Pension share of Net employee percentage of its covered- Position as a percentage of as of June 30 Liability Pension Liability payroll(1) employee payroll the Total Pension Liability 2014 100.000% $3,584,155,041 $1,277,031,317 280.66% 80.38% 2015 100.000% 1,872,287,443 1,308,148,504 143.12% 90.07% 2016 100.000% 2,038,873,680 1,316,968,607 154.82% 89.48% (1) Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories.

20 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 10 (continued) Schedule of Proportionate Share of the Net Pension Liability – Fire and Police

Proportionate share of the Reporting Date for Proportion of the Proportionate Covered- Net Pension Liability as a Plan’s Fiduciary Net Employer under GAS 68 Net Pension share of Net employee percentage of its covered- Position as a percentage of as of June 30 Liability Pension Liability payroll(1) employee payroll the Total Pension Liability 2014 99.600% $3,569,834,904 $1,266,729,332 281.82% 80.41% 2015 99.441% 1,861,824,464 1,296,529,122 143.60% 90.10% 2016 99.575% 2,030,202,385 1,304,658,079 155.61% 89.50% (1) Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories.

21 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 10 (continued) Schedule of Proportionate Share of the Net Pension Liability – Harbor Port Police

Proportionate share of the Reporting Date for Proportion of the Proportionate Covered- Net Pension Liability as a Plan’s Fiduciary Net Employer under GAS 68 Net Pension share of Net employee percentage of its covered- Position as a percentage of as of June 30 Liability Pension Liability payroll(1) employee payroll the Total Pension Liability 2014 0.400% $14,320,137 $10,301,985 139.00% 68.00% 2015 0.559% 10,462,979 11,619,382 90.05% 79.16% 2016 0.425% 8,671,295 12,310,528 70.44% 83.98% (1) Covered employee payroll represents the collective total of the LAFPP eligible wages of all LAFPP member categories.

22 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 11 Schedule of Reconciliation of Net Pension Liability – Total for all Employers

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Reconciliation of Net Pension Liability 1. Beginning Net Pension Liability $1,872,287,443 $3,584,155,041 2. Pension Expense 85,535,264 148,766,618 3. Employer Contributions (480,332,251) (440,698,260) 4. New Net Deferred Inflows/Outflows 215,969,439 (1,419,935,956) 5. New Net Deferred Flows Due to Change in Proportion 0 0 6. Recognition of Prior Deferred Inflows/Outflows 345,413,785 0 7. Ending Net Pension Liability $2,038,873,680 $1,872,287,443

23 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 11 (continued) Schedule of Reconciliation of Net Pension Liability – Fire and Police

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Reconciliation of Net Pension Liability 1. Beginning Net Pension Liability $1,861,824,464 $3,569,834,904 2. Pension Expense 83,527,833 146,035,124 3. Employer Contributions (476,684,374) (437,421,086) 4. New Net Deferred Inflows/Outflows 216,926,765 (1,416,624,478) 5. New Net Deferred Flows Due to Change in Proportion 0 0 6. Recognition of Prior Deferred Inflows/Outflows 344,607,697 0 7. Ending Net Pension Liability $2,030,202,385 $1,861,824,464

24 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 11 (continued) Schedule of Reconciliation of Net Pension Liability – Harbor Port Police

Reporting Date for Employer under GAS 68 June 30, 2016 June 30, 2015 Measurement Date for Employer under GAS 68 June 30, 2015 June 30, 2014 Reconciliation of Net Pension Liability 1. Beginning Net Pension Liability $10,462,979 $14,320,137 2. Pension Expense 2,007,431 2,731,494 3. Employer Contributions (3,647,877) (3,277,174) 4. New Net Deferred Inflows/Outflows (957,326) (3,311,478) 5. New Net Deferred Flows Due to Change in Proportion 0 0 6. Recognition of Prior Deferred Inflows/Outflows 806,088 0 7. Ending Net Pension Liability $8,671,295 $10,462,979

25 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 12 Schedule of Recognition of Changes in Total Net Pension Liability

Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Differences between Expected and Actual Experience on Total Pension Liability Reporting Date for Employer Differences under GAS between 68 Year Expected and Recognition Reporting Date for Employer under GAS 68 Year Ended June 30: Ended June Actual Period 30 Experience (Years) 2015 2016 2017 2018 2019 2020 2021 Thereafter 2015 $(234,637,547) 5.72 $(41,020,550) $(41,020,550) $(41,020,550) $(41,020,550) $(41,020,550) $(29,534,797) - - 2016 (310,881,738) 5.83 N/A (53,324,483) (53,324,483) (53,324,483) (53,324,483) (53,324,483) (44,259,323) - Net increase (decrease) in pension expense $(41,020,550) $(94,345,033) $(94,345,033) $(94,345,033) $(94,345,033) $(82,859,280) $(44,259,323) -

Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Assumption Changes Reporting Date for Employer under GAS 68 Year Effect of Recognition Reporting Date for Employer under GAS 68 Year Ended June 30: Ended Assumption Period June 30 Changes (Years) 2015 2016 2017 2018 2019 2020 2021 Thereafter 2015 $(69,482,273) 5.72 $(12,147,251) $(12,147,251) $(12,147,251) $(12,147,251) $(12,147,251) $ (8,746,018) - - 2016 0 5.83 N/A ------Net increase (decrease) in pension expense $(12,147,251) $(12,147,251) $(12,147,251) $(12,147,251) $(12,147,251) $ (8,746,018) - - As described in Exhibit 9, the average of the expected remaining service lives of all employees that are provided with pensions through LAFPP (active and inactive employees) determined as of June 30, 2014 (the beginning of the measurement period ending June 30, 2015) is 5.83 years.

26 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 12 (continued) Schedule of Recognition of Changes in Total Net Pension Liability

Increase (Decrease) in Pension Expense Arising from the Recognition of Differences between Projected and Actual Earnings on Pension Plan Investments Reporting Date for Employer Differences under GAS between 68 Year Projected and Recognition Reporting Date for Employer under GAS 68 Year Ended June 30: Ended Actual Period June 30 Earnings (Years) 2015 2016 2017 2018 2019 2020 2021 Thereafter 2015 $(1,461,229,921) 5.00 $(292,245,984) $(292,245,984) $(292,245,984) $(292,245,984) $(292,245,985) - - - 2016 591,908,368 5.00 N/A 118,381,674 118,381,674 118,381,674 118,381,674 118,381,672 - - Net increase (decrease) in pension expense $(292,245,984) $(173,864,310) $(173,864,310) $(173,864,310) $(173,864,311) $118,381,672 - -

The difference between projected and actual earnings on pension plan investments are recognized over a five-year period per Paragraph 33 of GAS 68.

Total Increase (Decrease) in Pension Expense Reporting Date for Employer under GAS 68 Year Reporting Date for Employer under GAS 68 Year Ended June 30: Ended Total June 30 Differences 2015 2016 2017 2018 2019 2020 2021 Thereafter 2015 $(1,765,349,741) $(345,413,785) $(345,413,785) $(345,413,785) $(345,413,785) $(345,413,786) $(38,280,815) - - 2016 281,026,630 N/A 65,057,191 65,057,191 65,057,191 65,057,191 65,057,189 (44,259,323) - Net increase (decrease) in pension expense $(345,413,785) $(280,356,594) $(280,356,594) $(280,356,594) $(280,356,595) $26,776,374 $(44,259,323) -

27 SECTION 2: GAS 68 Information for the City of Los Angeles Fire and Police Pension Plan

EXHIBIT 13 Allocation of Changes in Total Net Pension Liability

There is no change in the pension expense brought about by “Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions”. This is because calculations are done separately to track TPL and Plan’s Fiduciary Net Position for each of the Fire and Police Departments and Harbor Port Police.

28 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Actuarial Assumptions and Methods

Rationale for The information and analysis used in selecting each assumption that has a significant effect on this Assumptions: actuarial valuation is shown in the July 1, 2010 through June 30, 2013 Actuarial Experience Study dated July 3, 2014 and the Economic Actuarial Assumption Study for June 30, 2014 Actuarial Valuation dated July 3, 2014. Unless otherwise noted, all actuarial assumptions and methods shown below apply to all members. These assumptions have been adopted by the Board.

Mortality Rates

Healthy: RP-2000 Combined Healthy Mortality Table (separate for males and females), projected to 2022 with scale BB set back one year for members.

RP-2000 Combined Healthy Mortality Table (separate for males and females), projected to 2022 with scale BB set forward one year for beneficiaries.

Disabled: RP-2000 Combined Healthy Mortality Table (separate for males and females), projected to 2022 with scale BB set forward one year.

The above mortality tables contain about a 10% margin, based on actual to expected deaths, as a provision appropriate to reasonably anticipate future mortality improvement, based on a review of mortality experience as of the measurement date.

29 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Termination Rates Before Retirement: Pre-Retirement Mortality:

Rate (%) Mortality Age Male Female 20 0.03 0.02 25 0.04 0.02 30 0.04 0.02 35 0.07 0.04 40 0.10 0.06 45 0.13 0.10 50 0.19 0.15 55 0.30 0.22 60 0.52 0.36

All pre-retirement deaths are assumed to be service connected.

30 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Termination Rates Before Retirement (continued):

Rate (%) Disability* Age Fire Police 20 0.02 0.02 25 0.02 0.03 30 0.03 0.05 35 0.06 0.08 40 0.15 0.22 45 0.23 0.36 50 0.28 0.46 55 1.02 0.80 60 3.00 1.18 * 90% of disabilities are assumed to be service connected. Disability rates are not applied to members eligible to enter the DROP.

31 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Termination Rates Before Retirement (continued):

Rate (%) Termination (< 5 Years of Service) Years of Service Fire Police

0 - 1 8.00 8.00 1 - 2 2.50 3.00 2 – 3 1.50 2.50 3 – 4 0.75 2.50 4 – 5 0.50 1.75

Rate (%) Termination (5+ Years of Service) * Age Fire Police

20 1.00 2.00 25 1.00 2.00 30 0.85 1.70 35 0.54 1.20 40 0.37 0.85 45 0.17 0.66 50 0.02 0.24 55 0.00 0.00 60 0.00 0.00

* No termination is assumed after a member is eligible for retirement. This includes all active members currently in Tier 2. Members in Tiers 3, 5 and 6 who are not eligible to receive a deferred vested retirement benefit are assumed to receive a refund of member contributions.

32 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Retirement Rates for Funding Valuation:

Rate(%) Fire Police Age Tiers 2&4 Tiers 3&5 Tier 6 Tiers 2&4 Tiers 3&5 Tier 6 41 1.00 0.00 0.00 10.00 0.00 0.00 42 1.00 0.00 0.00 10.00 0.00 0.00 43 1.00 0.00 0.00 10.00 0.00 0.00 44 1.00 0.00 0.00 10.00 0.00 0.00 45 1.00 0.00 0.00 10.00 0.00 0.00 46 1.00 0.00 0.00 7.00 0.00 0.00 47 1.00 0.00 0.00 7.00 0.00 0.00 48 2.00 0.00 0.00 7.00 0.00 0.00 49 2.00 0.00 0.00 7.00 0.00 0.00 50 3.00 3.00 3.00 12.00 7.00 8.00 51 4.00 3.00 3.00 12.00 6.00 10.00 52 5.00 3.00 4.00 12.00 6.00 10.00 53 10.00 3.00 5.00 15.00 6.00 15.00 54 15.00 7.00 5.00 20.00 10.00 15.00 55 20.00 12.00 10.00 20.00 18.00 18.00 56 20.00 14.00 12.00 25.00 18.00 18.00 57 20.00 16.00 15.00 25.00 20.00 20.00 58 20.00 20.00 18.00 25.00 22.00 22.00 59 20.00 25.00 20.00 25.00 25.00 25.00 60 20.00 25.00 25.00 25.00 25.00 25.00 61 20.00 30.00 30.00 25.00 25.00 25.00 62 25.00 35.00 30.00 25.00 25.00 25.00 63 25.00 40.00 35.00 30.00 25.00 25.00 64 30.00 40.00 40.00 40.00 30.00 30.00 65 100.00 100.00 100.00 100.00 100.00 100.00 DROP Program: DROP participants are considered active members until they leave the DROP and begin receiving retirement benefits. Members are assumed to remain in the DROP for 5 years. Of all members expected to retire with a service retirement benefit, we project a 95% probability that members have elected the DROP before retirement if they will have also satisfied the requirements for participating in the DROP for 5 years

33 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Retirement Rates After Adjustment for DROP Participation: As the service retirement rates we use in the funding valuation have been developed based on the later date of exit from the DROP, we have adjusted those rates in this GASB valuation so that they are based on the earlier date of first participation in the DROP. Retirement rates used in our June 30, 2015 funding valuation are shown again on the next page. Please note that those rates are applicable in the GASB valuation for actives not eligible to enter the DROP. A sample of those rates used in the GASB valuation for an active eligible to enter the DROP at age 55 are as follows:

34 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Retirement Rates for funding valuation Sample Retirement Rates for GASB valuation (Also applicable to actives not eligible to enter the DROP in (For actives eligible to enter the DROP at 55) GASB valuation) Fire Police Fire Police Tiers Tiers Tiers Tiers Tiers Tiers Tiers Tiers Age Tier 6 Tier 6 Age Tier 6 Tier 6 2&4 3&5 2&4 3&5 2&4 3&5 2&4 3&5 41 1.00% 0.00% 0.00% 10.00% 0.00% 0.00% 41 1.00% 0.00% 0.00% 10.00% 0.00% 0.00% 42 1.00 0.00 0.00 10.00 0.00 0.00 42 1.00 0.00 0.00 10.00 0.00 0.00 43 1.00 0.00 0.00 10.00 0.00 0.00 43 1.00 0.00 0.00 10.00 0.00 0.00 44 1.00 0.00 0.00 10.00 0.00 0.00 44 1.00 0.00 0.00 10.00 0.00 0.00 45 1.00 0.00 0.00 10.00 0.00 0.00 45 1.00 0.00 0.00 10.00 0.00 0.00 46 1.00 0.00 0.00 7.00 0.00 0.00 46 1.00 0.00 0.00 7.00 0.00 0.00 47 1.00 0.00 0.00 7.00 0.00 0.00 47 1.00 0.00 0.00 7.00 0.00 0.00 48 2.00 0.00 0.00 7.00 0.00 0.00 48 2.00 0.00 0.00 7.00 0.00 0.00 49 2.00 0.00 0.00 7.00 0.00 0.00 49 2.00 0.00 0.00 7.00 0.00 0.00 50 3.00 3.00 3.00 12.00 7.00 8.00 50 3.00 3.00 3.00 12.00 7.00 8.00 51 4.00 3.00 3.00 12.00 6.00 10.00 51 4.00 3.00 3.00 12.00 6.00 10.00 52 5.00 3.00 4.00 12.00 6.00 10.00 52 5.00 3.00 4.00 12.00 6.00 10.00 53 10.00 3.00 5.00 15.00 6.00 15.00 53 10.00 3.00 5.00 15.00 6.00 15.00 54 15.00 7.00 5.00 20.00 10.00 15.00 54 15.00 7.00 5.00 20.00 10.00 15.00 55 20.00 12.00 10.00 20.00 18.00 18.00 55 26.23 21.06 20.49 26.01 25.47 25.47 56 20.00 14.00 12.00 25.00 18.00 18.00 56 27.70 26.20 25.81 32.42 27.00 27.00 57 20.00 16.00 15.00 25.00 20.00 20.00 57 31.92 32.30 30.46 34.77 30.84 30.84 58 20.00 20.00 18.00 25.00 22.00 22.00 58 34.71 41.79 38.90 40.44 35.38 35.38 59 20.00 25.00 20.00 25.00 25.00 25.00 59 41.79 51.69 48.62 52.03 45.33 45.33 60 20.00 25.00 25.00 25.00 25.00 25.00 60 90.43 88.44 88.89 89.56 90.23 90.23 61 20.00 30.00 30.00 25.00 25.00 25.00 61 1.00 1.50 1.50 1.25 1.25 1.25 62 25.00 35.00 30.00 25.00 25.00 25.00 62 1.25 1.75 1.50 1.25 1.25 1.25 63 25.00 40.00 35.00 30.00 25.00 25.00 63 1.25 2.00 1.75 1.50 1.25 1.25 64 30.00 40.00 40.00 40.00 30.00 30.00 64 1.50 2.00 2.00 2.00 1.50 1.50 65 100.00 100.00 100.00 100.00 100.00 100.00 65 100.00 100.00 100.00 100.00 100.00 100.00

35 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Retirement Age and Benefit for Inactive Vested Participants: For deferred vested members, retirement assumption is age 50. Unknown Data for Members: Same as those exhibited by members with similar known characteristics. If not specified, members are assumed to be male. Exclusion of Inactive Vesteds: All inactive participants are included in the valuation. Definition of Active Members: First day of biweekly payroll following employment for new department employees or immediately following transfer from other city department. Percent Married/Domestic Partner: 80% of male members, 60% of female members Age of Spouse: Wives are 3 years younger than their husbands. Future Benefit Accruals: 1.0 year of service per year.

Consumer Price Index: Increase of 3.25% per year; benefit increases due to CPI subject to a 3.0% maximum for Tiers 3 through 6. Member Contribution and Matching Account Crediting Rate: 5.00% Net Investment Return: 7.50%, net of investment expenses

Administrative Expenses: Out of the total 1.00% of payroll in administrative expense, 0.94% of payroll payable biweekly is allocated to the Retirement Plan. This is equal to 0.91% of payroll payable at beginning of the year.

36 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Salary Increases:

Annual Rate of Compensation Increase

Inflation: 3.25% per year; plus 0.75% “across the board” salary increases; plus the following Merit and Longevity increases based on years of service.

Years of Service Additional Salary Increase 0 7.50% 1 6.50 2 5.00 3 4.75 4 3.75 5 3.00 6 2.25 7 2.00 8 1.75 9 1.75 10 1.25 11 or more 0.75 Service Connected Disability Benefits: Years of Service Benefit Less than 20 55% of Final Average Salary 20 – 30 65% of Final Average Salary More than 30 75% of Final Average Salary

Nonservice Connected Disability Benefits: 40% of Final Average Salary

37 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

Actuarial Value of Assets: The market value of assets less unrecognized returns. Unrecognized return is equal to the difference between the actual and expected returns on a market value basis, and is recognized over a seven-year period. Deferred gains and losses as of June 30, 2013 have been combined and will be recognized in equal amounts over a period of six years from that date. The actuarial value of assets is further adjusted, if necessary, to be within 40% of the market value of assets.

Actuarial Cost Method: Entry Age Actuarial Cost Method. Entry Age is the current age minus Service Credit. Actuarial Accrued Liability is calculated on an individual basis and is based on costs allocated as a level percentage of compensation. Funding Policy: The City of Los Angeles Fire & Police Pension Plan makes contributions equal to the Normal Cost adjusted by amount to amortize any Surplus or Unfunded Actuarial Accrued Liability. Both the Normal Cost and the Actuarial Accrued Liability are determined under the Entry Age Cost Method. Any Surplus is amortized over an open (non-decreasing) thirty-year period. Any changes in Unfunded Actuarial Accrued Liability due to actuarial gains or losses are amortized over separate twenty-year periods as a level percentage of payroll. Any changes in Unfunded Actuarial Accrued Liability from plan amendments are amortized over separate fifteen-year periods as a level percentage of payroll. Any changes in Unfunded Actuarial Accrued Liability from plan assumption changes are amortized over separate twenty-five year periods as a level percentage of payroll. Normal Cost and Actuarial Accrued Liability are calculated on an individual basis and are allocated by service. For Tier 1, the Unfunded Actuarial Accrued Liability is amortized using level dollar amortization ending on June 30, 2037. For Tiers 2, 3 and 4, the Unfunded Actuarial Accrued Liability is amortized using level percent of payroll as a percent of total valuation payroll from the respective employer (i.e., the City or Harbor Port Police). For Tiers 5 and 6, the Unfunded Actuarial Accrued Liability is amortized using level percent of payroll as a percent of combined payroll for these tiers from the respective employer (i.e., City or Harbor Port Police). Change in Actuarial Assumptions: There were no assumption changes since the last valuation.

38 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX A Calculation of Discount Rate as of June 30, 2015 Projection of Pension Plan’s Fiduciary Net Position ($ in millions)

Projected Beginning Projected Projected Projected Projected Projected Ending Year Plan Fiduciary Total Benefit Administrative Investment Plan Fiduciary Beginning Net Position Contributions Payments Expenses Earnings Net Position July 1, (a) (b) (c) (d) (e) (f) = (a) + (b) - (c) - (d) + (e) 2014 $16,990 $607 $919 $18 $686 $17,347 2015 17,347 632 970 13 1,306 18,302 2016 18,302 634 1,104 13 1,372 19,190 2017 19,190 609 1,050 13 1,439 20,176 2018 20,176 616 1,149 13 1,509 21,139 2019 21,139 586 1,267 12 1,574 22,019 2020 22,019 538 1,212 12 1,639 22,971 2021 22,971 537 1,283 12 1,707 23,920 2022 23,920 538 1,350 12 1,775 24,871 2023 24,871 539 1,416 12 1,844 25,825

2038 32,905 197 2,584 5 2,370 32,883 2039 32,883 214 2,667 4 2,366 32,791 2040 32,791 174 2,734 4 2,353 32,581 2041 32,581 91 2,785 3 2,329 32,213 2042 32,213 74 2,824 2 2,298 31,759

2082 1,097 0 290 0 70 877 2083 877 0 239 0 55 694 2084 694 0 194 0 44 543 2085 543 0 156 0 34 420 2086 420 0 124 0 26 322

2101 2 0 1 0 0 * 2 2102 2 0 1 0 0 * 1 2103 1 0 0 * 0 0 * 1

2115 0 * 0 0 * 0 0 * 0 * 2116 0 * 0 0 * 0 0 * 0 * 2117 0 * 2117 Discounted Value: 0 * * Less than $1 million, when rounded.

39 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX A (continued) Calculation of Discount Rate as of June 30, 2015 Projection of Pension Plan’s Fiduciary Net Position ($ in millions)

Notes: (1) Amounts may not total exactly due to rounding. (2) Amounts shown in the year beginning July 1, 2014 row are actual amounts, based on the information provided by LAFPP. (3) Years 2024-2037, 2043-2081, 2087-2100, and 2104-2114 have been omitted from this table. (4) Column (a): Except for the "discounted value" shown for 2117, none of the projected beginning plan fiduciary net position amounts shown have been adjusted for the time value of money. (5) Column (b): Projected total contributions include employee and employer normal cost contributions based on closed group projections (based on covered active members as of June 30, 2014); plus employer contributions to the unfunded actuarial accrued liability; plus employer contributions to fund each year's annual administrative expenses. Contributions are assumed to occur beginning of the year. (6) Column (c): Projected benefit payments have been determined in accordance with paragraph 39 of GASB Statement No. 67, and are based on the closed group of active, inactive vested, retired members, and beneficiaries as of June 30, 2014. The projected benefit payments reflect the cost of living increase assumptions to be used in the June 30, 2015 valuation report. The projected benefit payments are assumed to occur beginning of the month, on average. (7) Column (d): Projected administrative expenses (payable at the beginning of the year) are calculated as 0.91% of projected payroll, based on the closed group of active members as of June 30, 2014. Projected administrative expenses are then adjusted to reflect the assumption that they occur halfway through the year, on average. (8) Column (e): Projected investment earnings are based on the assumed investment rate of return of 7.50% per annum except for 2014/2015. (9) As illustrated in this Exhibit, the Plan's fiduciary net position was projected to be available to make all projected future benefit payments for current Plan members. In other words, there is no projected "cross-over date" when projected benefits are not covered by projected assets. Therefore, the long-term expected rate of return on Plan investments of 7.50% per annum was applied to all periods of projected benefit payments to determine the total pension liability as of June 30, 2015 shown earlier in this report, pursuant to paragraph 44 of GASB Statement No. 67.

40 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX B Glossary of Terms

Definitions of certain terms as they are used in Statement 68; the terms may have different meanings in other contexts.

Active employees Individuals employed at the end of the reporting or measurement period, as applicable.

Actual contributions Cash contributions recognized as additions to a pension Plan’s Fiduciary Net Position.

Actuarial present value of projected benefit payments Projected benefit payments discounted to reflect the expected effects of the time value (present value) of money and the probabilities of payment.

Actuarial valuation The determination, as of a point in time (the actuarial valuation date), of the service cost, Total Pension Liability, and related actuarial present value of projected benefit payments for pensions performed in conformity with Actuarial Standards of Practice unless otherwise specified by the GASB.

Actuarial valuation date The date as of which an actuarial valuation is performed.

Actuarially determined contribution A target or recommended contribution to a defined benefit pension plan for the reporting period, determined in conformity with Actuarial Standards of Practice based on the most recent measurement available when the contribution for the reporting period was adopted.

Ad hoc cost-of-living adjustments (ad hoc COLAs) Cost-of-living adjustments that require a decision to grant by the authority responsible for making such decisions.

41 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX B (continued) Glossary of Terms

Ad hoc postemployment benefit changes Postemployment benefit changes that require a decision to grant by the authority responsible for making such decisions.

Agent employer An employer whose employees are provided with pensions through an agent multiple-employer defined benefit pension plan.

Agent multiple-employer defined benefit pension plan (agent pension plan) A multiple-employer defined benefit pension plan in which pension plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer’s share of the pooled assets is legally available to pay the benefits of only its employees.

Allocated insurance contract A contract with an insurance company under which related payments to the insurance company are currently used to purchase immediate or deferred annuities for individual employees. Also may be referred to as an annuity contract.

Automatic cost-of-living adjustments (automatic COLAs) Cost-of-living adjustments that occur without a requirement for a decision to grant by a responsible authority, including those for which the amounts are determined by reference to a specified experience factor (such as the earnings experience of the pension plan) or to another variable (such as an increase in the consumer price index).

Automatic postemployment benefit changes Postemployment benefit changes that occur without a requirement for a decision to grant by a responsible authority, including those for which the amounts are determined by reference to a specified experience factor (such as the earnings experience of the pension plan) or to another variable (such as an increase in the consumer price index).

Closed period A specific number of years that is counted from one date and declines to zero with the passage of time. For example, if the recognition period initially is five years on a closed basis, four years remain after the first year, three years after the second year, and so forth.

42 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX B (continued) Glossary of Terms

Collective deferred outflows of resources and deferred inflows of resources related to pensions Deferred outflows of resources and deferred inflows of resources related to pensions arising from certain changes in the collective Net Pension Liability.

Collective Net Pension Liability The Net Pension Liability for benefits provided through (1) a cost-sharing pension plan or (2) a single-employer or agent pension plan in circumstances in which there is a special funding situation.

Collective pension expense Pension expense arising from certain changes in the collective Net Pension Liability.

Contributions Additions to a pension Plan’s Fiduciary Net Position for amounts from employers, nonemployer contributing entities (for example, state government contributions to a local government pension plan), or employees. Contributions can result from cash receipts by the pension plan or from recognition by the pension plan of a receivable from one of these sources.

Cost-of-living adjustments Postemployment benefit changes intended to adjust benefit payments for the effects of inflation.

Cost-sharing employer An employer whose employees are provided with pensions through a cost-sharing multiple-employer defined benefit pension plan.

Cost-sharing multiple-employer defined benefit pension plan (cost-sharing pension plan) A multiple-employer defined benefit pension plan in which the pension obligations to the employees of more than one employer are pooled and pension plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan.

Covered-employee payroll The payroll of employees that are provided with pensions through the pension plan. 43 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX B (continued) Glossary of Terms

Deferred retirement option program (DROP) A program that permits an employee to elect a calculation of benefit payments based on service credits and salary, as applicable, as of the DROP entry date. The employee continues to provide service to the employer and is paid for that service by the employer after the DROP entry date; however, the pensions that would have been paid to the employee (if the employee had retired and not entered the DROP) are credited to an individual employee account within the defined benefit pension plan until the end of the DROP period.

Defined benefit pension plans Pension plans that are used to provide defined benefit pensions.

Defined benefit pensions Pensions for which the income or other benefits that the employee will receive at or after separation from employment are defined by the benefit terms. The pensions may be stated as a specified dollar amount or as an amount that is calculated based on one or more factors such as age, years of service, and compensation. (A pension that does not meet the criteria of a defined contribution pension is classified as a defined benefit pension for purposes of Statement 68.)

Defined contribution pension plans Pension plans that are used to provide defined contribution pensions.

Defined contribution pensions Pensions having terms that (1) provide an individual account for each employee; (2) define the contributions that an employer is required to make (or the credits that it is required to provide) to an active employee’s account for periods in which that employee renders service; and (3) provide that the pensions an employee will receive will depend only on the contributions (or credits) to the employee’s account, actual earnings on investments of those contributions (or credits), and the effects of forfeitures of contributions (or credits) made for other employees, as well as pension plan administrative costs, that are allocated to the employee’s account.

44 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX B (continued) Glossary of Terms

Discount rate The single rate of return that, when applied to all projected benefit payments, results in an actuarial present value of projected benefit payments equal to the total of the following:

1. The actuarial present value of benefit payments projected to be made in future periods in which (a) the amount of the pension Plan’s Fiduciary Net Position is projected (under the requirements of Statement 68) to be greater than the benefit payments that are projected to be made in that period and (b) pension plan assets up to that point are expected to be invested using a strategy to achieve the long-term expected rate of return, calculated using the long-term expected rate of return on pension plan investments.

2. The actuarial present value of projected benefit payments not included in (1), calculated using the municipal bond rate.

Entry age actuarial cost method A method under which the actuarial present value of the projected benefits of each individual included in an actuarial valuation is allocated on a level basis over the earnings or service of the individual between entry age and assumed exit age(s). The portion of this actuarial present value allocated to a valuation year is called the normal cost. The portion of this actuarial present value not provided for at a valuation date by the actuarial present value of future normal costs is called the actuarial accrued liability.

Inactive employees Terminated individuals that have accumulated benefits but are not yet receiving them, and retirees or their beneficiaries currently receiving benefits.

Measurement period The period between the prior and the current measurement dates.

Multiple-employer defined benefit pension plan A defined benefit pension plan that is used to provide pensions to the employees of more than one employer.

45 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX B (continued) Glossary of Terms

Net Pension Liability The liability of employers and nonemployer contributing entities to employees for benefits provided through a defined benefit pension plan.

Nonemployer contributing entities Entities that make contributions to a pension plan that is used to provide pensions to the employees of other entities. For purposes of Statement 68, employees are not considered nonemployer contributing entities.

Other postemployment benefits All postemployment benefits other than retirement income (such as death benefits, life insurance, disability, and long-term care) that are provided separately from a pension plan, as well as postemployment healthcare benefits, regardless of the manner in which they are provided. Other postemployment benefits do not include termination benefits.

Pension plans Arrangements through which pensions are determined, assets dedicated for pensions are accumulated and managed, and benefits are paid as they come due.

Pensions Retirement income and, if provided through a pension plan, postemployment benefits other than retirement income (such as death benefits, life insurance, and disability benefits). Pensions do not include postemployment healthcare benefits and termination benefits.

Plan members Individuals that are covered under the terms of a pension plan. Plan members generally include (1) employees in active service (active plan members) and (2) terminated employees who have accumulated benefits but are not yet receiving them and retirees or their beneficiaries currently receiving benefits (inactive plan members).

Postemployment The period after employment.

46 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX B (continued) Glossary of Terms

Postemployment benefit changes Adjustments to the pension of an inactive employee.

Postemployment healthcare benefits Medical, dental, vision, and other health-related benefits paid subsequent to the termination of employment.

Projected benefit payments All benefits estimated to be payable through the pension plan to current active and inactive employees as a result of their past service and their expected future service.

Public employee retirement system A special-purpose government that administers one or more pension plans; also may administer other types of employee benefit plans, including postemployment healthcare plans and deferred compensation plans.

Real rate of return The rate of return on an investment after adjustment to eliminate inflation.

Service costs The portions of the actuarial present value of projected benefit payments that are attributed to valuation years.

Single employer An employer whose employees are provided with pensions through a single-employer defined benefit pension plan.

Single-employer defined benefit pension plan (single-employer pension plan) A defined benefit pension plan that is used to provide pensions to employees of only one employer.

47 SECTION 3: Actuarial Assumptions and Methods and Appendices for the City of Los Angeles Fire and Police Pension Plan

APPENDIX B (continued) Glossary of Terms

Special funding situations Circumstances in which a nonemployer entity is legally responsible for making contributions directly to a pension plan that is used to provide pensions to the employees of another entity or entities and either of the following conditions exists:

1. The amount of contributions for which the nonemployer entity legally is responsible is not dependent upon one or more events or circumstances unrelated to the pensions. 2. The nonemployer entity is the only entity with a legal obligation to make contributions directly to a pension plan.

Termination benefits Inducements offered by employers to active employees to hasten the termination of services, or payments made in consequence of the early termination of services. Termination benefits include early-retirement incentives, severance benefits, and other termination-related benefits.

Total Pension Liability The portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service in conformity with the requirements of Statement 68.

5420438v4/07916.120

LOS ANGELES FIRE AND POLICE PENSION SYSTEM

GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT N0. 68 REPORT

AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2015

LOS ANGELES FIRE AND POLICE PENSION SYSTEM

TABLE OF CONTENTS Page

Independent Auditor’s Report ...... 1 Schedule of Pension Amounts by Entity ...... 3 Notes to Schedule of Pension Amounts by Entity ...... 4

U.S. Bank Tower 633 WEST 5TH STREET, SUITE 3320 LOS ANGELES, ca 90071 (213) 736-6664 TELEPHONE (213) 736-6692 FAX www.simpsonandsimpsoncpas.com

SIMPSON & SIMPSON Certified Public Accountants

FOUNDING PARTNERS Brainard C. Simpson, CPA MELBA W. Simpson, CPA

INDEPENDENT AUDITOR’S REPORT

Board of Fire and Police Pension Commissioners Los Angeles Fire and Police Pension System Los Angeles, California

Report on the Schedule of Pension Amounts by Entity

We have audited the entity allocations and the total for all entities of the columns titled net pension liability, total deferred outflows of resources, total deferred inflows of resources, and total pension expense (specified column totals) included in the accompanying schedule of pension amounts by entity (Schedule) of the Los Angeles Fire and Police Pension Plan (Plan) administered by the Los Angeles Fire and Police Pension System (LAFPP) as of and for the fiscal year ended June 30, 2015, and the related notes.

Management’s Responsibility for the Schedule of Pension Amounts by Entity

Management is responsible for the preparation and fair presentation of the Schedule in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Schedule that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on the entity allocations and specified column totals included in the Schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Schedule is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Schedule. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Schedule, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the Schedule in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Schedule. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

17437_2nd sheet 11/12/03 4:21 PM Page 1

Opinions

In our opinion, the Schedule referred to above present fairly, in all material respects, the entity allocations, net pension liability, total deferred outflows of resources, total deferred inflows of resources, and total pension expense of all participating entities for the Plan as of and for the fiscal year ended June 30, 2015, in accordance with accounting principles generally accepted in the United States of America.

Other Matter

The financial statements of the Los Angeles Fire and Police Pension System as of and for the fiscal year ended June 30, 2015, were audited by other auditors whose report dated November 9, 2015, expressed an unmodified opinion on those financial statements.

Restriction on Use

Our report is intended solely for the information and use of the LAFPP’s management, the Board of Fire and Police Pension Commissioners, the Plan’s participating entities and their auditors; and is not intended to be, and should not be, used by anyone other than these specified parties.

Los Angeles, California September 7, 2016

LOS ANGELES FIRE AND POLICE PENSION SYSTEM SCHEDULE OF PENSION AMOUNTS BY ENTITY AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2015

Deferred Outflows of Resources Deferred Inflows of Resources Pension Expense

Net Net Difference Difference Between Between Projected and Projected and Differences Actual Total Changes of Actual Between Total Proportionate Net Earnings on Deferred Assumptions Earnings on Expected and Deferred Shares of Total Pension Pension Plan Outflows of or Other Pension Plan Actual Inflows of Plan Pension Pension Entity Liability Investments Resources Inputs Investments Experience Resources Expense Expense

Fire and Police Departments $ 2,030,202,385 $ 472,602,650 $ 472,602,650 $ 44,875,566 $ 874,682,697 $ 408,134,403 $ 1,327,692,666 $ 83,527,833 $ 83,527,833

Harbor Department 8,671,295 924,044 924,044 312,205 2,055,256 2,019,299 4,386,760 2,007,431 2,007,431

Total of All Entities $ 2,038,873,680 $ 473,526,694 $ 473,526,694 $ 45,187,771 $ 876,737,953 $ 410,153,702 $ 1,332,079,426 $ 85,535,264 $ 85,535,264

LOS ANGELES FIRE AND POLICE PENSION SYSTEM NOTES TO THE SCHEDULE OF PENSION AMOUNTS BY ENTITY AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2015

NOTE 1 – PLAN DESCRIPTION

The Los Angeles Fire and Police Pension Plan (Plan) is administered by the Los Angeles Fire and Police Pension System (LAFPP). LAFPP is a single employer public employee retirement system whose main function is to provide retirement benefits to the safety members employed by the City of Los Angeles. There are two participating entities in LAFPP: (1) the Harbor Department (an enterprise fund of the City of Los Angeles) and (2) City of Los Angeles’ Fire and Police Departments.

LAFPP is administered by a Board of Commissioners composed of five commissioners who are appointed by the Mayor, two commissioners elected by Police members of the Plan and two commissioners elected by Fire members of the Plan. Under provisions of the City Charter, the City Administrative Code and the State Constitution, the Board has the responsibility to administer the Plan.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Basis of Accounting

Entities participating in the Plan are required to report pension information in their financial statements for fiscal periods beginning on or after June 15, 2014, in accordance with Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions. The Schedule of Pension Amounts by Entity (Schedule) provide participating entities with the required information for financial reporting related to pensions provided through the Plan.

The accompanying Schedule was prepared in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates in the Presentation of the Financial Schedule

The preparation of the Schedule in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts during the reporting period. Actual results could differ from those estimates.

LOS ANGELES FIRE AND POLICE PENSION SYSTEM NOTES TO THE SCHEDULE OF PENSION AMOUNTS BY ENTITY AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2015

NOTE 3 – NET PENSION LIABILITY

The components of the net pension liability for all entity as of June 30, 2015 are as follows:

Measurement Date June 30, 2015 Reporting Date for Employer June 30, 2016

Total Pension Liability: Service Cost $ 368,700,102 Interest 1,384,526,680 Differences between Expected and Actual Experience (310,881,738) Benefit Payments, including Refunds of Member Contributions (918,909,316) Net Change in Total Pension Liability 523,435,728 Total Pension Liability – Beginning 18,861,992,028 Total Pension Liability - Ending $ 19,385,427,756

Plan’s Fiduciary Net Position: Employer Contributions $ 480,332,251 Employee Contributions 126,770,882 Net Investment Income 686,470,123 Benefit Payments, Including Refunds of Member Contributions (918,909,316) Administrative Expense (17,814,449) Net Change in Plan’s Fiduciary Net Position 356,849,491 Plan’s Fiduciary Net Position – Beginning 16,989,704,585 Plan’s Fiduciary Net Position – Ending $ 17,346,554,076

Net Pension Liability - Ending $ 2,038,873,680

Plan’s Fiduciary Net Position as a Percentage of the Total Pension Liability 89.48%

LOS ANGELES FIRE AND POLICE PENSION SYSTEM NOTES TO THE SCHEDULE OF PENSION AMOUNTS BY ENTITY AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2015

NOTE 4 – ACTUARIAL METHODS AND ASSUMPTIONS

Key Methods and Assumptions Used in Valuation of Total Pension Liability

The total pension liability as of June 30, 2015 was determined based on the June 30, 2014 actuarial valuation rolled forward to June 30, 2015. The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an experience study for the period from July 1, 2010 through June 30, 2013 and the economic assumptions as of June 30, 2014

Significant actuarial assumption and other key inputs used to measure the total pension liability:

Actuarial Cost Method Entry Age Actuarial Cost Method Actuarial Assumptions: Investment Rate of Return 7.50%, net of investment expenses Inflation Rate 3.25% Projected Salary Increases 4.75 % to 11.50 % based on years of service Cost-of-Living Adjustments 3.25 % of Tiers 1 and 2 retirement income and 3.00% of Tiers 3, 4, 5, and 6 retirement income

Mortality Assumption

Mortality rates used in the actuarial valuation dated June 30, 2014 are as follows:

Healthy: RP-2000 Combined Health Mortality Table (separate for males and females), projected to 2022 with Scale BB set back one year for members.

RP-2000 Combined Health Mortality Table (separate for males and females), projected to 2022 with Scale BB set forward one year for beneficiaries.

Disabled: RP-2000 Combined Health Mortality Table (separate for males and females), projected to 2022 with Scale BB set forward one year

LOS ANGELES FIRE AND POLICE PENSION SYSTEM NOTES TO THE SCHEDULE OF PENSION AMOUNTS BY ENTITY AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2015

NOTE 4 – ACTUARIAL METHODS AND ASSUMPTIONS (Continued)

Target Asset Allocation

The long-term expected rate of return on the Plan’s investments was determined using a building-block method in which expected future real rates of return (expected returns, net of inflation) are developed for each major asset class. This information is combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage, and by adding expected inflation and subtracting expected investment expenses and a risk margin. The target allocation (approved by the Board) and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before deducting investment expenses, used in the derivation of the long-term expected investment rate of return assumption, are summarized in the following table:

Discount Rate

The discount rate used to measure the total pension liability was 7.50% as of June 30, 2015. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rates for each tier and that employer contributions will be made at rates equal to the actuarially determined contribution rates for each tier. For this purpose, only employer contributions that are intended to fund benefits for current plan members and their beneficiaries are included. Projected employer contributions that are intended to fund the service costs for future plan members and their beneficiaries, as well as projected contributions from future plan members, are not included. Based on those assumptions, the Plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments for current plan members. Therefore, the long-term expected rate of return on the Plan’s investments was applied to all periods of projected benefit payments to determine the total pension liability as of June 30, 2015.

LOS ANGELES FIRE AND POLICE PENSION SYSTEM NOTES TO THE SCHEDULE OF PENSION AMOUNTS BY ENTITY AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2015

NOTE 5 – AMORTIZATION OF DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES

Any differences between projected and actual investment earnings on pension plan investments are amortized over a period of five years beginning with the year in which they occur.

Current period differences between expected and actual experience and changes of assumptions are amortized over the average of the expected remaining service lives of all employees that are provided with pensions through LAFPP determined as of June 30, 2014 (the beginning of the measurement period ending June 30, 2015) and is 5.83 years. Prior period differences between expected and actual experience and changes of assumptions are continued to be amortized based on the expected remaining service lives of all employees calculated as of those prior measurement dates.

The average of the expected remaining service lives of all employees was determined by:

. Calculating each active employee’s expected remaining service life as the present value of $1 per year of future service at zero percent interest. . Setting the remaining service life to zero for each nonactive or retired members. . Dividing the sum of the above amounts by the total number of active employee, nonactive and retired members.

NOTE 6 – ALLOCATION OF PENSION AMOUNTS TO INDIVIDUAL ENTITY

The total pension liability for each individual entity is obtained from internal valuation results and is calculated separately for each of the members associated with the Fire and Police Departments and the Harbor Department. The Plan’s Fiduciary Net Position for each entity was estimated by adjusting the valuation value of assets for each entity by the ratio of the total Plan’s Fiduciary Net Position to total Plan’s valuation value of assets.

1) Net pension liability 2) Service cost 3) Interest on the total pension liability 4) Expensed portion of current-period benefit changes 5) Expensed portion of current-period difference between expected and actual experience in the total pension liability 6) Member contributions 7) Projected earnings on plan investments 8) Expensed portion of current-period differences between actual and projected earnings on plan investments 9) Administrative expense 10) Recognition of beginning of year deferred outflows of resources as pension expense 11) Recognition of beginning of year deferred inflows of resources as pension expense

DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA 90013 (213) 279-3000

REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS

DATE: SEPTEMBER 15, 2016 ITEM: A.4

FROM: RAYMOND P. CIRANNA, GENERAL MANAGER

SUBJECT: APPROVAL OF ANNUAL CONTRACT AMOUNT FOR OUTSIDE REAL ESTATE AND INVESTMENT COUNSEL FIRMS JACKSON WALKER LLP, KUTAK ROCK LLP, AND NOSSAMAN LLP AND POSSIBLE BOARD ACTION

RECOMMENDATION

That the Board approve an annual contract amount of $100,000 for each of the three outside real estate and investment counsel firms (Jackson Walker LLP, Kutak Rock LLP, and Nossaman LLP).

DISCUSSION

During the July 7, 2016 Board meeting, the Board interviewed five outside counsel firms and selected three firms to assist the Board and the City Attorney’s Office in reviewing investment transactions. The three firms that were selected by the Board were Jackson Walker LLP, Kutak Rock LLP, and Nossaman LLP. The Board also authorized the City Attorney to negotiate the terms and conditions with each firm. However, the Board did not adopt an annual contract ceiling for each firm in its resolution. This contract amount must be established based on the City’s contracting requirements.

On July 21, 2016, Staff recommended that each outside counsel firm contract be limited to $125,000 per year. However, the Board continued the item until additional cost information could be submitted to the Board. Specifically, the Board requested the City Attorney to negotiate the hourly rates with all three firms to determine whether the rates could be reduced for each firm. The City Attorney has reported that Nossaman has agreed to reduce the hourly rates of some of their partners. The hourly rates for Kutak Rock were already the lowest rates so no further negotiation was necessary. However, the hourly rates for Jackson Walker were the highest rates submitted and unfortunately the firm declined to lower their rates.

The Board also requested the City Attorney and staff to report on the value of requesting outside investment counsel to review private equity subscription documents and side letters. Currently, as part of Portfolio Advisors’ services in the core private equity program, legal counsel is provided to assist in the review of fund subscription documents and side letters. However, the use of outside counsel directed by the City Attorney and staff has resulted in additional protections of LAFPP’s interests and compliance of policies. While it is difficult to quantify the value of this additional legal review, Staff strongly believe it is prudent to continue to use outside counsel for this purpose to insure additional protections for LAFPP given the System’s multi-million dollar investments in private equity.

Staff recognizes that over the last two years, expenditures for the current real estate and investment outside counsel contract with Nossaman have exceeded budget and the original contract limits. Going forward, staff anticipates better utilization of Nossaman as work will be more equally distributed between the outside counsel firms.

After discussions with the City Attorney, Staff is recommending that each investment outside counsel firm contract be limited to $100,000 per year for a total of $300,000 over the life of each contract. However, the Board may want to reconsider contracting with Jackson Walker as their rates were substantially higher than the other two firms. If the Board decides to select only two firms, then the contract annual expenditure limits can be increased slightly up to the $235,000 total budget limit ($117,500 annually for each of the two remaining firms).

Staff and the City Attorney do not expect to expend $100,000 per year for each firm, but request flexibility in assigning work to each firm over the three-year term of the contracts. As a reminder, work is assigned to an outside counsel firm on a project basis and not-to-exceed estimates are requested before work is authorized to be completed.

BUDGET

The 2016-17 Adopted Budget includes a total of $635,000 for all outside counsel contracts. Specifically, $235,000 out of the $635,000 has been allocated for real estate and investment outside counsel services. If additional funds are required specifically for outside real estate and investment counsel services, staff will reallocate funds within the overall outside counsel contract allocation in order to stay within budget.

POLICY

As recommended, there are no policy changes.

This report was prepared by:

Stephanie Clements, Chief Management Analyst Administrative Operations Division

RPC:WSR:SHC

Board Report Page 2 September 15, 2016 September 15, 2016 Large Cap US Equity Structure Study Los Angeles Fire and Police Pension System Large Cap US Equity Structure Analysis Introduction • We are here today to discuss the Large Cap US Equity Structure • Schedule: – Broad Asset Allocation Target (May 5th) – Risk Follow Up (May 19th) – Active/Passive Discussion (June 16th) – US Equity Structure Discussion (August 18th) – Large Cap US Equity Structure Discussion (Today) – Small Cap US Equity Structure Discussion – International Equity Structure Discussion – Fixed Income Structure Discussion

• Today’s objectives: – Determine future Large Cap US Equity structure (active/passive mixes, mandates, and sizing)

2 Investment Decision Process

Step 1  Step 2  Step 3 (Today)

Large Cap (X%) Manager X ($) US Equity Structure Manager (X%) Study De cis ions Small Cap (X%) Manager Y ($)

100%

Total Plan Total Plan International Developed (X%) Manager X ($) Asse ts vs. Structure Manager A/L Study Asse ts AA Study Equity Plan Study De cis ions (100%) (X%) Emerging (X%) Manager Y ($) Liabilities 100%

Fixed Investment Grade (X%) Manager X ($) Structure Manager Income Study De cis ions (X%) High Yield (X%) Manager Y ($)

Funding 100% 100% 100% Ratio

Future Meetings Today (October forward)

3 Asset Class Structure Decision Process

Today October 2016

4 US Large Cap Equity Structure Analysis Recommendations 1. Increase passive exposure from 65%  69% i. Transition Russell 1000 Value Index to the Equal Weighted S&P 500 Index and increase allocation

2. Replace 2 of the existing enhanced index strategies with 2 additional smart beta strategies i. Terminate Research Affiliates and Chicago Equity ii. Add STOXX USA 900 Minimum Variance and AllianceBernstein US Systematic Value strategies

5 Large Cap US Equity Structure Proposed Structure - Changes

EXISTING LINEUP PROPOSED LINEUP

Total US Equity $5,860 100% Total US Equity $5,860 100% Large Cap US Equity $4,700 80% Large Cap US Equity $4,700 80% Large Cap - Index $3,061 65% Large Cap - Index $3,246 69% AllianceBernstein Russell 1000 Value Index$125 Fund3% S&P 500 (Equal Weighted) Index $310 7% AllianceBernstein S&P 500 Index Fund $1,975 42% AllianceBernstein$1,975 S&P 42%500 Index Fund AllianceBernstein Russell 1000 Growth Index Fund $961 20% AllianceBernstein Russell 1000 Growth Index Fund $961 20% Large Cap - Active $1,639 35% Large Cap - Active $1,454 31% Robeco Large Cap Value Equity $531 11% Robeco Large Cap Value Equity $531 11% Chicago Equity Enhanced Core $311 7% STOXX USA 900 Minimum Variance $310 7% Research Affiliates Enhanced Core $495 11% AllianceBernstein US Systematic Value$310 7% LA Capital Enhanced Growth $249 5% LA Capital Enhanced Growth $249 5% Oakbrook Investments* $28 1% Oakbrook Investments* $28 1% Redwood Investments* $25 1% Redwood Investments* $25 1%

* Represents an Emerging Manager. Data shown is as of March 31, 2016. 6 Recommendation 1 Increase Passive Exposure 1. Large Cap US Equity Active/Passive vs Peers

Asset Range Actively Managed % Passively Managed %

All Public 40% 60% $10B-20B 34% 66% LAFPP (Current) 35% 65% LAFPP (Proposed) 31% 69% 2. Active passive study data – Focus active management on sub-asset classes that managers have demonstrated consistent ability to add alpha

Equity 25th Percentile Median 75th Percentile US Large Cap Growth Equity 1.89% -0.04% -1.82% US Large Cap Core Equity 1.51% -0.02% -1.57% US Large Cap Value Equity 2.01% 0.19% -1.50% US Large Cap Enhanced/Smart Beta Equity 0.99% 0.35% -0.22% 3. Reduced Fees – Increased allocation to passive strategies reduces estimated fees by ~$280,000 per year

7 Recommendation 2 Enhanced Index and Smart Beta 1. Improved Diversification vs. Broad Russell 1000 – Reduced standard deviation, decreased down market capture, additional sources of potential excess return

2. Enhanced Returns – Historical net of fees returns in excess of pure passive Russell 1000 Index

3. Reduce Fees – Proposed Smart Beta strategies reduce estimated fees by ~$400,000 per year compared to existing strategies

8 Recommendations 1 & 2 Key Conclusions 1. Increased passive exposure – 65%  69%

2. Estimated combined annual fee savings of $680,000 per year – ~$280,000 from the increased Passive exposure – ~$400,000 from moving to specific Smart Beta products

3. Increased Diversification  Improved Performance Potential

1 3 5 7 10 15 Since Inception Year Years Years Years Years Years Incep. Date 2015 2014 2013 2012 2011 2010 2009 2008 Proposed US LC Equity Structure 1.60 12.34 12.12 17.74 N/A N/A 7.66 01/01/2008 1.80 13.85 33.50 15.95 2.99 16.11 30.77 -35.51 LAFPP US LC Equity Composite (Actual) 1.19 11.87 11.62 17.12 7.31 6.51 6.89 01/01/2008 1.49 12.97 33.87 16.23 1.93 15.48 27.60 -36.11 Difference 0.41 0.47 0.50 0.62 N/A N/A 0.77 0.31 0.88 -0.37 -0.28 1.06 0.63 3.18 0.60 S&P 500 Index (Cap Wtd) 1.78 11.82 11.58 16.97 7.01 5.99 6.49 01/01/2008 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00

Since the beginning of 2008, annual average outperformance would have netted LAFPP an estimated additional $36 million per year, or a total of ~$300 million since January 2008.

Performance shown is gross of fees and is as of March 31, 2016. Proposed Structure prior to October 2015 excludes the Emerging Managers. Performance is backfilled using product history when necessary. 9 Appendix 1 – Proposed US Equity Structure Details US Equity Proposed Structure - Changes

Market Value Allocation % of Allocation % of Active/ Passive Effective Fee ($ millions) Total Fund US Equity Composite Total US Equity $5,860 31.8% 100.00% 47% / 53% 15 basis points Large Cap US Equity $4,700 25.5% 80.20% 34% / 66% 6 basis points Large Cap Value $1,462 7.9% 24.95% 91% / 9% 11 basis points NEW S&P 500 (Equal Weighted) Index $310 1.7% 5.30% Smart Beta NEW STOXX USA 900 Minimum Variance $310 1.7% 5.30% Smart Beta ~10 basis points NEW AllianceBernstein US Systematic Value $310 1.7% 5.30% Smart Beta AllianceBernstein Russell 1000 Value Index Fund - - - Passive 2 basis points Chicago Equity Enhanced Core - - - Enhanced Index 15 basis points Research Affiliates Enhanced Core - - - Enhanced Index 18 basis points Robeco Large Cap Value Equity $531 2.9% 9.06% Active 14 basis points Large Cap Core $2,028 11.0% 34.61% 3% / 97% 2 basis points AllianceBernstein S&P 500 Index Fund $1,975 10.7% 33.70% Passive 1 basis points Oakbrook Investments* $28 0.2% 0.48% Active 49 basis points Redwood Investments* $25 0.1% 0.43% Active 45 basis points Large Cap Growth $1,210 6.6% 20.65% 21% / 79% 6 basis points AllianceBernstein Russell 1000 Growth Index Fund $961 5.2% 16.40% Passive 2 basis points

LA Capital Enhanced Growth $249 1.4% 4.25% Enhanced Index 22 basis points

* Represents an Emerging Manager. Data shown is as of March 31, 2016. 11 US Equity Proposed Style Structure (Holdings Based)

Proposed US Equity Composite Russell 3000 Index • The proposed US Equity Composite growth bias increases as a result of removing more heavy value bias Value Value Growth 29.5% Growth 26.7% managers (36.9% vs. 32.9% for 36.9% 32.9% benchmark).

Core Core • The proposed US Equity Composite 33.7% 40.4% still has a slight value bias vs. the Russell 3000, but less so than the 0% 15% 30% current structure (29.5% vs. 26.7% 3.2% 3.5% for benchmark). 15.6% 17.2% 3.6% 3.2% • The core allocation is reduced by 10.1% 9.2% ~3% from the current allocation. 11.8% 10.9% 2.3% • This is true on both a mandate and 2.5% 20.4% 20.0% security level analysis to the left. 4.8% 6.1% 14.3% 13.6% 13.9% 13.7%

Data shown is as of March 31, 2016. 12 US Equity Mean Benchmark Optimization (MBO) What is MBO? • This process assists with structuring the “sub-asset classes” within the broader asset classes of the target asset allocation.

• The modeling is similar to the mean variance optimization (MVO) process used in “traditional” asset allocation models. – Inputs are return, risk, and correlation – Outputs are efficient frontier, portfolios, and their (excess) returns and risks

• The difference relative to MVO is that the inputs, process, and outputs are relative to a benchmark (called mean benchmark optimization (MBO)). – MBO inputs are relative to a benchmark (i.e. – excess return, tracking error) • Domestic equity asset structure MBOs typically uses the Russell 3000 Index as the benchmark.

13 US Equity Proposed Structure MBO LAFPP Proposed Min Max 1 2 3 4 5 6 7 8 9 10 Allocation Allocation Large-Cap Passive 50 100 50 50 50 50 50 50 50 50 50 50 52 50 Large-Cap Core 0 30 0 0 0 0 0 0 0 0 0 0 1 1 Large-Cap Growth 0 30 25 19 16 14 12 9 7 5 2 0 4 4 Large-Cap Value 0 30 15 17 19 19 19 18 18 18 18 17 23 9 LAFPP Smart Beta 0 20 0 0 0 1 3 4 5 7 10 13 0 16 Small-Cap Core 0 10 0 0 0 0 0 0 0 0 0 0 10 7 Small-Cap Growth 0 10 0 3 5 6 7 8 9 10 10 10 9 6 Small-Cap Value 0 10 10 10 10 10 10 10 10 10 10 10 1 7 Total . . 100 100 100 100 100 100 100 100 100 100 100 100 ...... Active . . 50 50 50 50 50 50 50 50 50 50 48 50 Passive . . 50 50 50 50 50 50 50 50 50 50 52 50 ...... Excess Return . . 0.28 0.31 0.33 0.35 0.36 0.37 0.39 0.40 0.41 0.43 0.33 0.38 Tracking Error . . 0.44 0.55 0.67 0.78 0.89 1.01 1.12 1.24 1.35 1.47 1.22 1.31 Information Ratio . . 0.64 0.57 0.50 0.44 0.40 0.37 0.34 0.32 0.31 0.29 0.27 0.29 0.45 10 • The proposed US Equity allocation reduces Large 9

8 0.40 Cap Value exposure in favor of Smart Beta 7

6 Proposed Allocation strategies. 5 • The proposed portfolio improves the information 0.35 4

3 ratio relative to the current portfolio. LAFPP Allocation

0.30

Excess Return (Annualized, %) (Annualized, Return Excess 1

0.25

0.20 0.25 0.50 0.75 1.00 1.25 1.50 1.75 Risk (Tracking Error, %) The Equal Weighted S&P 500 Index proposed investment is bucketed in the Smart Beta category for the purposes of this analysis, although it can also be classified as a passive mandate. 14 Appendix 2 – Current US Equity Structure US Equity Public Funds Comparison

• The LAFPP US Equity portfolio is ~47% actively managed, which is in line with other members in the peer group with similar asset size.

• LAFPP holds more passively managed US Equity than the All Public peer group.

Asset Range Actively Managed % Passively Managed %

All Public 51% 49%

10B-20B 46% 54%

LAFPP 47% 53%

Data from RVK 2015 Q4 Public Fund Report. Active allocations includes exposure to Enhanced Index mandates. 16 US Equity Current Structure

Market Value Allocation % of Allocation % of Active/ Passive Effective Fee ($ millions) Total Fund US Equity Composite Total US Equity $5,860 31.8% 100.0% 47% / 53% 15 basis points Large/Mid Cap US Equity $4,700 25.5% 80.2% 34% / 66% 7 basis points Large/Mid Cap Value $1,462 7.9% 24.9% 91% / 9% 15 basis points AllianceBernstein Russell 1000 Value Index Fund $125 0.7% 2.1% Passive 2 basis points Robeco Large Cap Value Equity $531 2.9% 9.1% Active 14 basis points Chicago Equity Enhanced Core $311 1.7% 5.3% Enhanced Index 15 basis points Research Affiliates Enhanced Core $495 2.7% 8.4% Enhanced Index 18 basis points Large/Mid Cap Core $2,028 11.0% 34.6% 3% / 97% 2 basis points AllianceBernstein S&P 500 Index Fund $1,975 10.7% 33.7% Passive 1 basis point Oakbrook Investments* $28 0.2% 0.5% Active 49 basis points Redwood Investments* $25 0.1% 0.4% Active 45 basis points Large/Mid Cap Growth $1,210 6.6% 20.6% 21% / 79% 6 basis points

AllianceBernstein Russell 1000 Growth Index Fund $961 5.2% 16.4% Passive 2 basis points LA Capital Enhanced Growth $249 1.4% 4.2% Enhanced Index 22 basis points

* Represents an Emerging Manager. Data shown is as of March 31, 2016. 17 US Equity Current Style Structure (Holdings Based)

LAFPP US Equity Composite Russell 3000 Index • LAFPP’s US Equity Composite has a slight value bias vs. the Russell 3000. Value Value Growth 31.5% Growth 26.7% 31.7% 32.9% • This is true on both a mandate (as shown on the earlier slide) and Core Core security level analysis below (31.5% 36.8% 40.4% vs. 26.7% for benchmark).

0% 15% 30%

2.3% 3.5%

13.7% 17.2%

3.4% 3.2%

8.2% 9.2%

12.5% 10.9%

2.7% 2.5%

22.6% 20.0%

5.3% 6.1%

14.8% 13.6%

14.6% 13.7%

Data shown is as of March 31, 2016. 18 US Equity Performance

1 3 5 7 10 15 Since Inception CYTD FYTD Year Years Years Years Years Years Incep. Date Domestic Equity Composite 0.30 -1.83 -1.57 10.79 10.50 17.01 7.19 6.94 5.68 01/01/2001 Russell 3000 Index 0.97 -0.48 -0.34 11.14 11.01 17.09 6.90 6.38 5.37 Difference -0.67 -1.35 -1.23 -0.35 -0.51 -0.08 0.29 0.56 0.31 All Public Plans-US Equity Segment Median 0.87 -1.62 -1.36 10.70 10.33 17.14 6.72 6.64 5.68 Rank 77 55 58 48 42 54 16 28 48 IM U.S. Equity (SA+CF) Median 0.35 -3.55 -3.24 10.18 10.08 17.20 7.21 7.94 7.25 Rank 51 37 37 43 44 55 51 67 73 Domestic Large Cap Equity Composite 1.20 0.92 1.19 11.87 11.62 17.12 7.31 6.51 6.51 04/01/2001 S&P 500 Index (Cap Wtd) 1.35 1.50 1.78 11.82 11.58 16.97 7.01 5.99 5.99 Difference -0.15 -0.58 -0.59 0.05 0.04 0.15 0.30 0.52 0.52 IM U.S. Large Cap Equity (SA+CF) 0.43 -0.93 -0.59 11.48 11.11 16.77 7.18 6.70 6.70 Rank 34 30 30 40 38 40 46 58 58

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 Domestic Equity Composite 0.15 11.11 35.54 16.36 0.20 18.03 30.31 -36.07 7.47 13.56 5.97 13.06 35.73 -22.41 Russell 3000 Index 0.48 12.55 33.55 16.42 1.03 16.93 28.34 -37.31 5.14 15.72 6.12 11.95 31.06 -21.54 Difference -0.33 -1.44 1.99 -0.06 -0.83 1.10 1.97 1.24 2.33 -2.16 -0.15 1.11 4.67 -0.87 All Public Plans-US Equity Segment Median 0.13 11.42 33.76 16.57 0.84 18.06 28.24 -37.42 4.66 14.33 7.20 12.67 N/A N/A Rank 50 57 17 57 60 51 33 24 15 67 95 42 N/A N/A IM U.S. Equity (SA+CF) Median -0.57 9.99 35.81 15.99 -0.03 19.63 31.25 -36.84 6.60 15.24 8.31 14.80 33.51 -19.69 Rank 44 44 52 46 49 56 54 44 46 62 71 60 43 67 Domestic Large Cap Equity Composite 1.49 12.97 33.87 16.23 1.93 15.48 27.60 -36.11 6.42 14.22 6.21 11.40 31.44 -22.01 S&P 500 Index (Cap Wtd) 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 Difference 0.11 -0.72 1.48 0.23 -0.18 0.42 1.14 0.89 0.93 -1.57 1.30 0.52 2.76 0.09 IM U.S. Large Cap Equity (SA+CF) 0.95 12.91 33.54 15.86 1.18 15.11 27.65 -36.66 7.00 15.52 7.34 12.09 29.40 -20.94 Rank 43 49 47 44 42 44 51 45 54 61 63 58 32 60

Performance shown is gross of fees and is as of March 31, 2016. 19 US Equity Performance Stats • Risk/Return • Rolling stats? • Take from performance report

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the Russell 3000 Index the US peer group. 20 US Equity Active Share • One very helpful use of Active Share is to help make sure that when combining multiple managers within a given composite, that we avoid creating an index fund with fee levels resembling active management. • LAFPP’s active Large/Mid Cap managers have an expected lower active share provided the types of mandates currently included.

Active Share Active Share Tracking Error Management Composite (All Managers) (Active Only)* (5 Year) Fees

US Equity 25% 52% 1.09 29 basis points

US Large/Mid Cap 15% 37% 0.57 18 basis points

Data is as of March 31, 2016 and only includes active managers. Tracking Error is calculated using both active and passive managers as performance for active managers only is not calculated by Northern Trust. *Enhanced Index managers are included. Active share is a statistic that describes the degree to which the holdings of an investment fund or composite differ from the holdings of the fund’s benchmark. 21 US Equity Fees • LAFPP’s US Equity fees rank very well (low) when compared to the peer universe of funds within each sub asset class

LAFPP Active Fees Market Cap LAFPP Representative Index Active (5th –95th Rank Size Total Fee Fee** percentile)* US Equity Russell 3000 15 bps 29 bps 22-100 bps 8th Large/Mid Russell 1000/S&P 500 7 bps 18 bps 28-80 bps 2nd

22 Appendix 3 – Smart Beta Smart Beta Comprehensive List of Options • There are multiple firms that offer smart beta indexes. Traditional index suppliers, such as FTSE Russell, MSCI and Standard & Poors (“S&P”), and firms focused solely on smart beta solutions, such as Scientific Beta. • The universe of providers was expanded to include active managers with smart beta solutions, such as AllianceBernstein, and other index providers, such as STOXX. • The indexes offered by AllianceBernstein, STOXX and S&P were compared to the other providers of smart beta indexes. • The long-term returns, style biases and risk profiles for the AllianceBernstein, STOXX and S&P indexes compared favorably to that of other providers. • Each selected index targets a differentiated factor: • AllianceBersten – Value • STOXX – Low Volatility • S&P – Size 24 Smart Beta S&P 500 Equal Weighted Index Index Description:

• The S&P 500 Equal Weighted Index assigns an equal weight to each stock in the S&P 500 Index. • Each stock receives a 0.2% allocation. • The stock weights are rebalanced on a quarterly basis. • Intra-quarter constituent changes in the S&P 500 are also reflected in the S&P 500 Equal Weighted Index.

Performance shown is gross of fees and is as of June 30, 2016. Strategy is benchmarked25 against the S&P 500 (Cap Weighted) Index and the US LCC peer group. Smart Beta STOXX USA 900 Minimum Variance Index Description:

• The STOXX USA 900 Minimum Variance Index selects and weights stocks from a parent index to construct a low volatility index. • The parent index is the STOXX USA 900 Index which includes the 900 largest stocks in the USA. • STOXX uses risk estimates from Axioma to select stocks and optimize weights to minimize portfolio volatility. • The index is rebalanced on a monthly basis.

Performance shown is gross of fees and is as of June 30, 2016. Strategy is benchmarked26 against the Russell 1000 Index and the US LCC peer group. Smart Beta AllianceBernstein US Systematic Value Index Description:

• The AllianceBernstein US Systematic Value strategy provides consistent exposure to multiple value indicators. • US stocks are scored based on Relative Value, Earnings Quality and Earnings Risk leading to a composite score. • The stocks in the top 30%, as ranked by the composite score, are selected for the portfolio. • The strategy is rebalanced on a semi-annual basis.

Performance shown is gross of fees and is as of June 30, 2016. Strategy is benchmarked27 against the Russell 1000 Index and the US LCC peer group. Smart Beta Hypothetical Composite Equally weighted between the three options discussed:

• S&P 500 Equal Weighted • STOXX USA 900 Minimum Variance • AB US Systematic Value

Approximately $310 million each, or 5.3% of the Total US Equity Composite

Performance shown is gross of fees and is as of June 30, 2016. Strategy is benchmarked28 against the Russell 1000 Index and the US LCC peer group. Appendix 4 – Current Manager Performance Data and Profiles US Equity Trailing Period Performance

1 3 5 7 10 15 Since Inception Year Years Years Years Years Years Incep. Date AllianceBernstein R1000 Value (SA) -1.19 9.48 10.30 N/A N/A N/A 14.82 05/01/2009 Russell 1000 Val Index -1.54 9.38 10.25 16.31 5.72 6.40 14.82 Difference 0.35 0.10 0.05 N/A N/A N/A 0.00 AllianceBernstein R1000 Value (SA) - Net -1.21 9.46 10.28 N/A N/A N/A 14.80 Russell 1000 Val Index -1.54 9.38 10.25 16.31 5.72 6.40 14.82 Difference 0.33 0.08 0.03 N/A N/A N/A -0.02

Robeco Large Cap Value Equity (SA) -4.19 9.76 11.02 16.84 7.65 8.04 10.02 11/01/1995 Russell 1000 Val Index -1.54 9.38 10.25 16.31 5.72 6.40 8.82 Difference -2.65 0.38 0.77 0.53 1.93 1.64 1.20 Robeco Large Cap Value Equity (SA) - Net -4.33 9.62 10.88 16.70 7.51 7.90 9.88 Russell 1000 Val Index -1.54 9.38 10.25 16.31 5.72 6.40 8.82 Difference -2.79 0.24 0.63 0.39 1.79 1.50 1.06 IM U.S. Large Cap Value Equity (SA+CF) Median -2.44 9.90 10.25 16.17 6.64 7.42 9.89 Rank 71 54 31 36 25 30 42

AllianceBernstein S&P 500 (SA) 1.92 11.84 11.57 16.92 7.02 5.99 10.10 01/01/1987 S&P 500 Index (Cap Wtd) 1.78 11.82 11.58 16.97 7.01 5.99 10.06 Difference 0.14 0.02 -0.01 -0.05 0.01 0.00 0.04 AllianceBernstein S&P 500 (SA) - Net 1.91 11.83 11.56 16.91 7.01 5.98 10.09 S&P 500 Index (Cap Wtd) 1.78 11.82 11.58 16.97 7.01 5.99 10.06 Difference 0.13 0.01 -0.02 -0.06 0.00 -0.01 0.03

Chicago Equity Enhanced Core Index (SA) 0.66 11.61 11.92 17.20 N/A N/A 9.38 08/01/2008 S&P 500 Index (Cap Wtd) 1.78 11.82 11.58 16.97 7.01 5.99 8.90 Difference -1.12 -0.21 0.34 0.23 N/A N/A 0.48 Chicago Equity Enhanced Core Index (SA) - Net 0.51 11.46 11.77 17.05 N/A N/A 9.23 S&P 500 Index (Cap Wtd) 1.78 11.82 11.58 16.97 7.01 5.99 8.90 Difference -1.27 -0.36 0.19 0.08 N/A N/A 0.33 IM U.S. Large Cap Core Equity (SA+CF) Median -0.20 11.67 11.35 16.63 7.31 6.72 8.96 Rank 39 51 35 37 N/A N/A 33

Performance shown is gross of fees unless otherwise noted and is as of March 31, 2016. 30 US Equity Trailing Period Performance

1 3 5 7 10 15 Since Inception Year Years Years Years Years Years Incep. Date Oakbrook Investments Large Cap Equity (SA) N/A N/A N/A N/A N/A N/A 11.19 10/01/2015 S&P 500 Index (Cap Wtd) 1.78 11.82 11.58 16.97 7.01 5.99 8.49 Difference N/A N/A N/A N/A N/A N/A 2.70 Oakbrook Investments Large Cap Equity (SA) - Net N/A N/A N/A N/A N/A N/A 10.95 S&P 500 Index (Cap Wtd) 1.78 11.82 11.58 16.97 7.01 5.99 8.49 Difference N/A N/A N/A N/A N/A N/A 2.46 IM U.S. Large Cap Core Equity (SA+CF) Median -0.20 11.67 11.35 16.63 7.31 6.72 6.50 Rank N/A N/A N/A N/A N/A N/A 6

Research Affiliates Enhanced Core Index (SA) 0.69 10.86 11.51 18.25 N/A N/A 9.71 08/01/2008 S&P 500 Index (Cap Wtd) 1.78 11.82 11.58 16.97 7.01 5.99 8.90 Difference -1.09 -0.96 -0.07 1.28 N/A N/A 0.81 Research Affiliates Enhanced Core Index (SA) - Net 0.51 10.68 11.33 18.07 N/A N/A 9.53 S&P 500 Index (Cap Wtd) 1.78 11.82 11.58 16.97 7.01 5.99 8.90 Difference -1.27 -1.14 -0.25 1.10 N/A N/A 0.63 IM U.S. Large Cap Core Equity (SA+CF) Median -0.20 11.67 11.35 16.63 7.31 6.72 8.96 Rank 38 67 48 12 N/A N/A 23

Redwood Investments Large Cap Equity (SA) N/A N/A N/A N/A N/A N/A 2.22 10/01/2015 Russell 1000 Index 0.50 11.52 11.35 17.15 7.06 6.28 7.75 Difference N/A N/A N/A N/A N/A N/A -5.53 Redwood Investments Large Cap Equity (SA) - Net N/A N/A N/A N/A N/A N/A 2.00 Russell 1000 Index 0.50 11.52 11.35 17.15 7.06 6.28 7.75 Difference N/A N/A N/A N/A N/A N/A -5.75 IM U.S. Large Cap Core Equity (SA+CF) Median -0.20 11.67 11.35 16.63 7.31 6.72 6.50 Rank N/A N/A N/A N/A N/A N/A 97

AllianceBernstein R1000 Growth (SA) 2.54 13.59 12.35 N/A N/A N/A 16.41 07/01/2010 Russell 1000 Grth Index 2.52 13.61 12.38 17.94 8.28 6.03 16.46 Difference 0.02 -0.02 -0.03 N/A N/A N/A -0.05 AllianceBernstein R1000 Growth (SA) - Net 2.52 13.57 12.33 N/A N/A N/A 16.39 Russell 1000 Grth Index 2.52 13.61 12.38 17.94 8.28 6.03 16.46 Difference 0.00 -0.04 -0.05 N/A N/A N/A -0.07

Performance shown is gross of fees unless otherwise noted and is as of March 31, 2016. 31 US Equity Trailing Period Performance

1 3 5 7 10 15 Since Inception Year Years Years Years Years Years Incep. Date LA Capital Enhanced Growth Index (SA) 4.17 14.48 13.11 18.48 N/A N/A 10.82 08/01/2008 Russell 1000 Grth Index 2.52 13.61 12.38 17.94 8.28 6.03 10.16 Difference 1.65 0.87 0.73 0.54 N/A N/A 0.66 LA Capital Enhanced Growth Index (SA) - Net 3.95 14.26 12.89 18.26 N/A N/A 10.60 Russell 1000 Grth Index 2.52 13.61 12.38 17.94 8.28 6.03 10.16 Difference 1.43 0.65 0.51 0.32 N/A N/A 0.44 IM U.S. Large Cap Growth Equity (SA+CF) Median -0.29 12.76 11.45 16.91 7.97 6.53 9.58 Rank 9 21 17 16 N/A N/A 22

Performance shown is gross of fees unless otherwise noted and is as of March 31, 2016. 32 US Equity Calendar Year Performance

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

AllianceBernstein R1000 Value (SA) -3.46 13.37 32.47 17.37 0.50 15.42 19.52 -36.85 N/A N/A N/A N/A N/A N/A Russell 1000 Val Index -3.83 13.45 32.53 17.50 0.39 15.51 19.69 -36.85 -0.17 22.25 7.05 16.49 30.03 -15.52 Difference 0.37 -0.08 -0.06 -0.13 0.11 -0.09 -0.17 0.00 N/A N/A N/A N/A N/A N/A AllianceBernstein R1000 Value (SA) - Net -3.48 13.35 32.45 17.35 0.48 15.40 19.50 -36.87 N/A N/A N/A N/A N/A N/A Russell 1000 Val Index -3.83 13.45 32.53 17.50 0.39 15.51 19.69 -36.85 -0.17 22.25 7.05 16.49 30.03 -15.52 Difference 0.35 -0.10 -0.08 -0.15 0.09 -0.11 -0.19 -0.02 N/A N/A N/A N/A N/A N/A

Robeco Large Cap Value Equity (SA) -3.92 11.64 37.53 21.37 1.20 13.80 26.78 -33.17 5.20 20.07 12.04 16.90 27.11 -18.51 Russell 1000 Val Index -3.83 13.45 32.53 17.50 0.39 15.51 19.69 -36.85 -0.17 22.25 7.05 16.49 30.03 -15.52 Difference -0.09 -1.81 5.00 3.87 0.81 -1.71 7.09 3.68 5.37 -2.18 4.99 0.41 -2.92 -2.99 Robeco Large Cap Value Equity (SA) - Net -4.06 11.50 37.39 21.23 1.06 13.66 26.64 -33.31 5.06 19.93 11.90 16.76 26.97 -18.65 Russell 1000 Val Index -3.83 13.45 32.53 17.50 0.39 15.51 19.69 -36.85 -0.17 22.25 7.05 16.49 30.03 -15.52 Difference -0.23 -1.95 4.86 3.73 0.67 -1.85 6.95 3.54 5.23 -2.32 4.85 0.27 -3.06 -3.13 IM U.S. Large Cap Value Equity (SA+CF) Median -2.41 12.22 34.33 15.69 0.56 14.63 25.27 -35.46 3.82 18.86 8.28 15.23 30.60 -16.63 Rank 6860287 44624134413618347563

AllianceBernstein S&P 500 (SA) 1.49 13.64 32.34 15.89 2.12 15.06 26.33 -36.85 5.52 15.78 4.95 10.84 28.51 -21.97 S&P 500 Index (Cap Wtd) 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 Difference 0.11 -0.05 -0.05 -0.11 0.01 0.00 -0.13 0.15 0.03 -0.01 0.04 -0.04 -0.17 0.13 AllianceBernstein S&P 500 (SA) - Net 1.48 13.63 32.33 15.88 2.11 15.05 26.32 -36.86 5.51 15.77 4.94 10.83 28.50 -21.98 S&P 500 Index (Cap Wtd) 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 Difference 0.10 -0.06 -0.06 -0.12 0.00 -0.01 -0.14 0.14 0.02 -0.02 0.03 -0.05 -0.18 0.12

Chicago Equity Enhanced Core Index (SA) 3.28 12.91 32.49 15.56 6.12 14.53 24.58 -34.48 N/A N/A N/A N/A N/A N/A S&P 500 Index (Cap Wtd) 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 Difference 1.90 -0.78 0.10 -0.44 4.01 -0.53 -1.88 2.52 N/A N/A N/A N/A N/A N/A Chicago Equity Enhanced Core Index (SA) - Net 3.13 12.76 32.34 15.41 5.97 14.38 24.43 -34.63 N/A N/A N/A N/A N/A N/A S&P 500 Index (Cap Wtd) 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 Difference 1.75 -0.93 -0.05 -0.59 3.86 -0.68 -2.03 2.37 N/A N/A N/A N/A N/A N/A IM U.S. Large Cap Core Equity (SA+CF) Median 1.28 13.43 32.94 15.71 1.99 14.80 26.50 -35.97 7.13 15.57 7.26 11.77 28.70 -21.04 Rank 24 59 56 54 12 56 62 38 N/A N/A N/A N/A N/A N/A

Performance shown is gross of fees unless otherwise noted and is as of March 31, 2016. 33 US Equity Calendar Year Performance

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Oakbrook Investments Large Cap Equity (SA) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A S&P 500 Index (Cap Wtd) 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 Difference N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Oakbrook Investments Large Cap Equity (SA) - Net N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A S&P 500 Index (Cap Wtd) 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 Difference N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A IM U.S. Large Cap Core Equity (SA+CF) Median 1.28 13.43 32.94 15.71 1.99 14.80 26.50 -35.97 7.13 15.57 7.26 11.77 28.70 -21.04 Rank N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Research Affiliates Enhanced Core Index (SA) -2.95 12.15 36.97 16.62 2.18 19.00 27.56 -36.25 N/A N/A N/A N/A N/A N/A S&P 500 Index (Cap Wtd) 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 Difference -4.33 -1.54 4.58 0.62 0.07 3.94 1.10 0.75 N/A N/A N/A N/A N/A N/A Research Affiliates Enhanced Core Index (SA) - Net -3.13 11.97 36.79 16.44 2.00 18.82 27.38 -36.43 N/A N/A N/A N/A N/A N/A S&P 500 Index (Cap Wtd) 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 Difference -4.51 -1.72 4.40 0.44 -0.11 3.76 0.92 0.57 N/A N/A N/A N/A N/A N/A IM U.S. Large Cap Core Equity (SA+CF) Median 1.28 13.43 32.94 15.71 1.99 14.80 26.50 -35.97 7.13 15.57 7.26 11.77 28.70 -21.04 Rank 86 66 17 38 48 11 42 53 N/A N/A N/A N/A N/A N/A

Redwood Investments Large Cap Equity (SA) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Russell 1000 Index 0.92 13.24 33.11 16.43 1.50 16.10 28.43 -37.60 5.77 15.46 6.27 11.40 29.89 -21.65 Difference N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Redwood Investments Large Cap Equity (SA) - Net N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Russell 1000 Index 0.92 13.24 33.11 16.43 1.50 16.10 28.43 -37.60 5.77 15.46 6.27 11.40 29.89 -21.65 Difference N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A IM U.S. Large Cap Core Equity (SA+CF) Median 1.28 13.43 32.94 15.71 1.99 14.80 26.50 -35.97 7.13 15.57 7.26 11.77 28.70 -21.04 Rank N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

AllianceBernstein R1000 Growth (SA) 5.69 13.00 33.39 15.17 2.66 16.57 37.22 -38.44 N/A N/A N/A N/A N/A N/A Russell 1000 Grth Index 5.67 13.05 33.48 15.26 2.64 16.71 37.22 -38.44 11.81 9.07 5.26 6.30 29.75 -27.88 Difference 0.02 -0.05 -0.09 -0.09 0.02 -0.14 0.00 0.00 N/A N/A N/A N/A N/A N/A AllianceBernstein R1000 Growth (SA) - Net 5.67 12.98 33.37 15.15 2.64 16.55 37.20 -38.46 N/A N/A N/A N/A N/A N/A Russell 1000 Grth Index 5.67 13.05 33.48 15.26 2.64 16.71 37.22 -38.44 11.81 9.07 5.26 6.30 29.75 -27.88 Difference 0.00 -0.07 -0.11 -0.11 0.00 -0.16 -0.02 -0.02 N/A N/A N/A N/A N/A N/A

Performance shown is gross of fees unless otherwise noted and is as of March 31, 2016. 34 US Equity Calendar Year Performance

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

LA Capital Enhanced Growth Index (SA) 6.75 12.35 35.31 15.54 1.98 18.51 33.50 -35.75 N/A N/A N/A N/A N/A N/A Russell 1000 Grth Index 5.67 13.05 33.48 15.26 2.64 16.71 37.22 -38.44 11.81 9.07 5.26 6.30 29.75 -27.88 Difference 1.08 -0.70 1.83 0.28 -0.66 1.80 -3.72 2.69 N/A N/A N/A N/A N/A N/A LA Capital Enhanced Growth Index (SA) - Net 6.53 12.13 35.09 15.32 1.76 18.29 33.28 -35.97 N/A N/A N/A N/A N/A N/A Russell 1000 Grth Index 5.67 13.05 33.48 15.26 2.64 16.71 37.22 -38.44 11.81 9.07 5.26 6.30 29.75 -27.88 Difference 0.86 -0.92 1.61 0.06 -0.88 1.58 -3.94 2.47 N/A N/A N/A N/A N/A N/A IM U.S. Large Cap Growth Equity (SA+CF) Median 5.20 12.01 34.56 15.19 0.07 16.08 34.09 -38.51 13.30 9.51 7.69 9.38 28.64 -24.58 Rank 38 46 45 47 33 32 54 32 N/A N/A N/A N/A N/A N/A

Performance shown is gross of fees unless otherwise noted and is as of March 31, 2016. 35 US Equity Composite Profile • Risk/Return • Rolling stats? • Take from performance report

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the Russell 3000 Index and the US peer group. 36 AllianceBernstein R1000 Value (SA) Manager Profile

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the Russell 1000 Value Index. 37 Robeco Large Cap Value Equity (SA) Manager Profile

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the Russell 1000 Value Index and the US LCV peer group. 38 AllianceBernstein S&P 500 (SA) Manager Profile

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the S&P 500 (Cap Wtd) Index. 39 Chicago Equity Enhanced Core Index (SA) Manager Profile

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the S&P 500 (Cap Wtd) Index and the US LCC peer group. 40 Oakbrook Large Cap Equity (SA)* Manager Profile

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the S&P 500 (Cap Wtd) Index and the US LCC peer group. * Represents an Emerging Manager. 41 Research Affiliates Enhanced Core Index (SA) Manager Profile

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the S&P 500 (Cap Wtd) Index and the US LCC peer group. 42 Redwood Large Cap Equity (SA)* Manager Profile

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the S&P 500 (Cap Wtd) Index and the US LCC peer group. * Represents an Emerging Manager. 43 AllianceBernstein R1000 Growth (SA) Manager Profile

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the Russell 1000 Growth Index. 44 LA Capital Enhanced Growth Index (SA) Manager Profile

Performance shown is gross of fees and is as of March 31, 2016. Strategy is benchmarked against the Russell 1000 Growth Index and the US LCG peer group. 45

DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA 90013 (213) 279-3000

REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS

DATE: SEPTEMBER 15, 2016 ITEM: B.3.a

FROM: RAYMOND P. CIRANNA, GENERAL MANAGER

SUBJECT: AUGUST 2016 MONTHLY REPORT AND UPDATE

THIS REPORT IS PROVIDED FOR INFORMATIONAL PURPOSES

(Please note, on August 18, 2016 the July 2016 Monthly Report and Update provided to the Board was mislabeled as the August 2016 Monthly Report and Update.)

DISCUSSION

The August 2016 Monthly Report includes the following notable items:

1) 2016 Annual Report – Staff will design and finalize the entire Annual Report in-house without the assistance of a graphic designer including the layout and preparation of the final digital copy. The target deadline is December 31, 2016, which is one month earlier than last year.

2) Pension Perspectives – Active Members – Staff is expected to have the next Active Members newsletter completed in November. The newsletter will be emailed to members and posted on the website.

3) Financial Counseling Program – Focus group invitations were emailed in August to members who attended a DROP Exit seminar from January 2015 to the present. A focus group session was conducted on September 6, 2016 to gain feedback from members for the proposed financial counseling program. The feedback from the focus group session will assist staff and the contractor in the development of the program.

4) Pension Administration System Replacement – The CPAS team will be onsite in September to provide a walkthrough and training for LAFPP staff to assess and test the new features that will be included in Build No. 2.

5) Electronic Documents Management (Documentum & DocuShare) – LAFFP has hired three part- time Relief Retirement Workers to focus on the Quality Assurance of the scanned documents. This will enable staff to focus on the day-forward scanning request backlog. As of August, the day-forward backlog has been reduced to three weeks.

The following searches and firms are within the Marketing Cessation Period Policy*:

Contract Market Contract Vendor / Contract Expiration Cessation Start Start Date Date Date Robeco Investment Management, Inc. (Boston Partners) (Domestic Equity) 11/01/13 10/31/16 08/02/16 Principal Global Investors, LLC (Global REIT Manager) 12/01/13 11/30/16 09/01/16 Principal Global Investors, LLC (U.S. REIT Manager) 12/01/13 11/30/16 09/01/16 AllianceBerstein, LP (Domestic Equity) 01/01/14 12/31/16 10/01/16

*Marketing Cessation: In accordance with Section 9.0 of the Investment Policy, from the time the search begins with the Board’s approval of the minimum criteria for the search until the search ends with the selection of the firm(s) to receive contract(s), all direct marketing contact with firms that meet the search criteria will be limited to meetings with the Consultant, information sent to the Consultant or Department, questions about the search directed to the Staff or Consultant, one meeting at the Department’s office with Staff and any site visits. The Board members, Department Staff or Consultant will accept no entertainment or gifts of any kind from any firm qualifying for the search. This policy does not prohibit contact with potential interview candidates at group social events, educational seminars, conferences, or charitable events so long as there is no direct marketing.

During the three months prior to the renewal of a contract with a firm currently under contract, the Board Members, Department Staff and Consultant will accept no entertainment or gifts from that firm until the contract has been renewed or terminated by the Board. Firms who currently have contracts with LAFPP are allowed to continue contact related to the existing contract with Staff and the Consultant.

Attachment

Board Report Page 2 September 15, 2016 Item: B.3.a

MONTHLY REPORT

AUGUST 2016 STATUS REPORT OF BOARD ASSIGNMENTS TO STAFF

09/15/16

DATE DUE MEETING STAFF ASSIGNMENT TO THE STATUS DATE PERSON BOARD FORMALLY AUDIT COMMITTEE The Board approved the status of the four recommendations on June 19, 2014 as follows: No Action – 1 HEK Audit recommendations: 4 Erin Completed – 3 September 04/03/14 recommendations assigned to the Kenney The final recommendation 2016 Audit Committee. (1) regarding a comprehensive security plan for the new building was completed and approved by the Board on September 1, 2016. FORMALLY GOVERMANCE The Board approved the COMMITTEE status of the two recommendations on October 2, 2014, leaving one in Progress.

The one remaining active recommendation marked “In Progress” concerns the process that will be invoked when a potential HEK Audit recommendations: 2 conflict of interest arises William

04/03/14 recommendations assigned to the Raggio (1) TBD with the City Attorney. Governance Committee. This is being discussed by the Ad Hoc Committee – City Attorney on Engagement of Outside Counsel.

The date this is expected to be completed and presented to the Board is contingent upon the work of the Ad Hoc Committee on Outside Counsel.

I:Executive/Board Assignments/Board Assign to Staff 09/15/16 A Portfolio as of August 31, 2016

EQUITIES STOCKS BONDS CASH TOTAL ALLOC. PRIVATE EQUITY STOCKS / EQUITY / RE BONDS CASH TOTAL ALLOC. Alliance Capital (S&P 500 Index) 2,072.4 - 7.5 2,080.0 Abbott Capital 52.8 - - 52.8 Alliance Capital (Russell 1000 Value Index) 133.2 - 0.7 133.9 Hamilton Lane 10.5 - - 10.5 Alliance Capital (Russell 1000 Growth Index) 996.7 - 3.2 999.9 PCA 48.5 - - 48.5 Chicago Equity (Enh. Index-Core) 319.2 - 4.3 323.5 Portfolio Advisors 1,204.0 - - 1,204.0 LA Capital (Enh. Index-Growth) 259.0 - 0.8 259.8 Aldus Equity 265.4 - - 265.4 PIMCO (Enh. Index-Value) 515.6 - 2.1 517.7 Stepstone Group 141.0 - - 141.0 Robeco (Value) 555.1 - 4.1 559.3 TOTAL PRIVATE EQUITY MGRS (12%) 1,722.2 - - 1,722.2 8.81% OakBrook Investments (Large Cap-Core) 29.3 - 0.2 29.5 Target Differential (3.19)% (623.1) Redwood Investments (Large Cap-Core) 26.0 - 0.5 26.5 Terminated Domestic Equity Managers - - 0.0 0.0 REAL ESTATE Core Equity Managers (23%) 4,906.5 - 23.5 4,930.0 25.22% Alliance Capital Global REIT 116.4 - 0.4 116.9 Target Differential 2.22% 434.7 Principal Global REIT 178.5 - 0.8 179.3 Principal U.S. REIT 353.4 - 2.2 355.6 Frontier Capital Mgt (Growth) 586.4 - 10.7 597.1 Terminated REIT Managers 0.0 - 0.0 0.0 Daruma (Value) 478.0 - 42.0 520.0 REIT Managers (3.0%) 648.4 - 3.5 651.9 3.34% Channing Capital Mgt. (Small Cap.) 55.1 - 1.5 56.6 Target Differential 0.34% 65.5 Phocas Financial (Small Cap.) 54.3 - 1.4 55.7 REAL ESTATE COMMINGLED FUNDS SUMMARY Granite Investment Partners (Micro Cap) 26.6 - 0.6 27.2 Total Pooled Funds 843.3 - - 843.3 4.31% Attucks (Mgr of Emerging Mgrs) / New Accts. - - 0.0 0.0 REAL ESTATE SEPARATE ACCT. SUMMARY BY MANAGER Small Cap. Equity Mgrs (6%) 1,200.5 - 56.2 1,256.7 6.43% Heitman 207.7 - - 207.7 Target Differential 0.43% 84.0 Sentinel 311.7 - - 311.7 Real Estate Equity Mgrs 519.4 - - 519.4 2.66% Brandes (Value) 845.1 - 59.8 904.9 TOTAL REAL ESTATE (10%) 2,011.1 - 3.5 2,014.6 10.31% Fisher (Core) 422.7 - 6.3 429.0 Target Differential 0.31% 60.1 Blackrock (Core Passive) 659.8 - 1.1 660.8 COMMODITIES Baille Gifford (Growth) 540.3 - 8.7 549.0 Alliance (Commodities, Public Equity) 297.1 - 0.3 297.4 Boston Common (ESG) 26.8 - 0.4 27.2 Gresham Invest. Mgmt. (Commodities, Active) 83.2 - 7.9 91.1 Northern Trust (Int'l Small Cap Index) 331.7 - 5.1 336.8 Goldman Sachs (Commodities, Enhanced Index) 94.9 - - 94.9 FIS (Mgr of Emerging Mgrs) International 92.0 - 2.0 94.0 Kleinwort Benson (Commodities, Public Equity) 89.9 - 2.5 92.4 Terminated Int'l Equity Managers 0.0 - 0.0 0.0 Mellon Capital (Commodities, Public Equity) 76.6 - 7.7 84.4 Int'l Equity Mgrs (16%) 2,918.4 - 83.5 3,001.8 15.36% PA (Commodities, Private Equity) 78.1 - - 78.1 Target Differential (0.64)% (125.3) TOTAL COMMODITIES (5.0%) 719.9 - 18.4 738.3 3.78% Harding Loevner 340.7 - 7.8 348.5 Target Differential (1.22)% (257.3) Dimensional Fund Advisors 429.6 - 5.2 434.8 Terminated Int'l Emerg. Mkts. Mgrs. 0.0 - 0.0 0.0 CASH Int'l Emerg. Mkts Mgrs (5.0%) 770.4 - 13.0 783.3 4.01% HOUSE ACCOUNTS Target Differential (0.99)% (193.9) Tier 1 (Article 17) - - 2.4 2.4 TOTAL EQUITIES MGRS (50.0%) 9,795.7 - 176.1 9,971.8 51.02% Tier 2 (Article 18) - - 623.1 623.1 Int'l Tax Reclaims - - 0.3 0.3 Tier 3 (Article 35) - - 9.7 9.7 FIXED INCOME Tier 4 (New) - - 5.1 5.1 Northern Trust (Fixed Income Index) - 693.1 0.6 693.7 Tier 5 (New) - - 155.2 155.2 Reams Asset Mgmt. (Opportunistic) - 708.0 - 708.0 Tier 6 (New) - - 6.1 6.1 LM Capital (Opportunistic) - 337.0 6.9 343.9 CASH SUMMARY GIA Partners (Opportunistic) - 26.5 0.3 26.8 Unallocated Cash Reserve (1%) - - 801.5 801.5 4.10% SemperCapital Mgt. - 25.0 1.6 26.6 Target Differential 3.10% 606.1 Loomis Sayles (Long Duration) - 684.7 18.6 703.2 Transition - - 0.0 0.0 CA Comm. Mort. Fund - 1.6 - 1.6 TOTAL FUND Bridgewater (TIPS) - 351.5 - 351.5 PRIVATE REAL Reams Asset Mgmt. (Passive TIPS) - 479.5 0.0 479.5 COMMODITIES EQUITY STOCKS BONDS ESTATE CASH TOTAL Bridgewater Pure Alpha - 62.2 - 62.2 ACTUAL ASSET MIX Core Bond Mgrs (17.0%) - 3,369.2 28.0 3,397.2 17.38% Current Month 719.9 1,722.2 9,796.8 4,247.0 2,011.1 1,047.6 19,544.7 Target Differential 0.38% 74.6 3.68% 8.81% 50.13% 21.73% 10.29% 5.36% 100.00% MacKay Shields 1.1 498.8 19.8 519.8 Last Month 724.6 1,665.9 9,757.4 4,210.6 2,001.1 1,106.3 19,466.0 High Yield Bond Mgrs (3.0%) 1.1 498.8 19.8 519.8 2.66% % Change -0.64% 3.38% 0.40% 0.86% 0.50% -5.31% 0.40% Target Differential (0.34)% (66.6) Reams Asset Mgmt. (Unconstrained) - 189.9 - 189.9 Payden & Rygel (Unconstrained) 189.1 - 189.1 Unconstrained Fixed Income (2.0%) 379.0 - 379.0 1.94% Target Differential (0.06)% (11.9)

TOTAL FIXED INCOME MGRS (22.0%) 1.1 4,247.0 47.8 4,295.9 21.98%

Subtotals & totals may not sum up exactly due to rounding. Note: Data is unaudited Dollars expressed in Millions. Note: City Pension Contribution received on 7/15/16 Portfolio as of January 29, 2016 Private Equity Commitment Summary

Venture Capital Buy-out Special Situations Percentage

Total $780,702,000 23% $1,622,352,000 48% $966,521,000 29% 100.00%

Commitment Total $3,369,575,000

Private Equity Funding Summary

Total Commitment Contributions Remaining Commitment Percent Funded

Abbott $303,112,000 $291,261,000 $13,420,000 96.09% Hamilton Lane $172,925,000 $167,407,000 $10,288,000 96.81% Portfolio Advisors Legacy $265,185,000 $254,208,000 $10,977,000 95.86% Portfolio Advisors Current $1,725,614,000 $886,165,000 $839,450,000 51.35% PCA $193,443,000 $180,805,000 $12,638,000 93.47% Stepstone Group $197,451,000 $172,660,000 $24,791,000 87.44% Aldus Equity $511,845,000 $463,263,000 $48,582,000 90.51% Total $3,369,575,000 $2,415,769,000 $960,146,000 78.63%

Unfunded Commitment $960,146,000

Source: BOARD OF FIRE AND POLICE PENSION COMMISSIONERS Data as of December 31, 2015 Data is based only on current/active funds whaich are funds that have remailing commitment or residual value. Total Fund Portfolio Allocation

35.00% % 30.00% 25.22

25.8 25.00%

20.2 %

20.00% %

18.4 17.38 18.0 15.36 16.0 15.0 15.00% 13.6 % 10.31 11.5 % % 8.81 10.00% 8.5 9.0 6.43 %

7.3 % 6.4 % 4.10 % % 4.01 5.00% 4.7 6.2 3.78 4.0 3.8

3.6 3.4 2.66 2.6 2.2 1.94 1.8 1.0 0.00% Core Equity (23%) Small Cap. Equity (6%) Int'l Equity (16%) Int'l Emerg. Mkts (5.0%) Core Bonds Iincluding High Yield Bonds (3%) Unconstrained Fixed Cash (1.0%) Total RE (Including REITS) Private Equity (12.0%) Commodities Energy TIPS) (17.0%) Income (2.0%) (10.0%) (5.0%) Actual Allocation, Target Allocation in parenthesis Over-allocated (Blue), Under-allocated (Red) *Board approved ranges on 6/16/16 Portfolio as of January 29, 2016

Real Estate Summary

COMMINGLED FUNDS EQUITY POOLED CASH TOTAL ALLOC. ABR Chesapeake Fund III NA 10.7 - 10.7 AEW Partners V NA 0.4 - 0.4 AEW Value Investors II NA 2.1 - 2.1 Almanac Securities Realty VII NA 15.1 - 15.1 Berkshire Multifamily Income Realty Fund NA 34.6 - 34.6 Buchanan Fund IV NA 11.5 - 11.5 Calif Smart Growth IV NA 12.7 - 12.7 Capri Urban Investors NA 19.2 - 19.2 CIM Real Estate Fund III NA 30.7 - 30.7 CIM Urban REIT, LLC NA 33.4 - 33.4 CityView LA Urban Land Fund NA 6.3 - 6.3 Clarion Lion NA 88.2 - 88.2 Colony VIII NA 5.4 - 5.4 CPI Capital Europe (A NA 2.1 - 2.1 Forum Asian Realty II NA 1.2 - 1.2 Gerrity Retail Fund NA 17.2 - 17.2 Genesis Workforce Fund II NA 0.1 - 0.1 Guggenheim RE III NA 0.0 - 0.0 Hampshire Partners VI NA 0.5 - 0.5 Heitman Value Partners II NA 7.2 - 7.2 Heitman American Realty Trust (HART) NA 72.0 - 72.0 Jamestown Premier NA 83.6 - 83.6 Kennedy Wilson II NA 0.0 - 0.0 LaSalle Asia Opp. II NA 0.1 - 0.1 Legg Mason Chesapeake RE NA 0.1 - 0.1 Legg Mason II NA 7.9 - 7.9 Metlife Core Property NA 83.0 - 83.0 Noble Hospitality NA 12.9 - 12.9 Oaktree Capital RE Opp. III NA 1.3 - 1.3 Praedium Fund VII NA 0.4 - 0.4 Principal Green I NA 2.1 - 2.1 Prudential PRISA NA 80.1 - 80.1 Prudential PRISA III NA 30.2 - 30.2 Prudential RE Fund II NA 0.3 - 0.3 Rothschild Five Arrows Realty V (Almanac) NA 7.7 - 7.7 Savanna Real Estate Fund III NA 35.2 - 35.2 Starwood Distressed Opp IX NA 24.4 - 24.4 Standard Life Investments NA 23.6 - 23.6 Standard Life Investments Euro RE Club II NA 26.4 - 26.4 Stockbridge RE Fund II NA 8.2 - 8.2 Unico Partners I NA 35.1 - 35.1 Urdang Value-Added Fund II (CenterSquare) NA 4.5 - 4.5 Value Enhancement IV (Ares) NA 0.0 - 0.0 Value Enhancement V (Ares) NA 5.4 - 5.4 Total 843.3 - 843.3 4.31%

SEPARATE ACCOUNT PROPERTIES EQUITY POOLED CASH TOTAL ALLOC. Heitman - Galleria Palms Apts. 31.4 NA - 31.4 Heitman - 121 W. Chestnut 69.3 NA - 69.3 Heitman - Palm Valley 0.0 NA - 0.0 Heitman - Woodland Plaza 35.3 NA - 35.3 Heitman - Twin Creeks Village 32.1 NA - 32.1 Heitman - Sea Isle, Inc. 39.6 NA - 39.6 Sentinel - Corridor Park Pointe 6.7 NA - 6.7 Sentinel - Riverplace 33.6 NA - 33.6 Sentinel - Walmart Building at Water Ridge 33.9 NA - 33.9 Sentinel - Windward Place Apts. 27.8 NA - 27.8 Sentinel - Jefferson Town Center Apts 42.3 NA - 42.3 Sentinel - Shoppes @ Broad Street 0.1 NA - 0.1 Sentinel - St. Louis Industrial 44.5 NA - 44.5 Sentinel - NorthPointe Exec. Park 19.9 NA - 19.9 Sentinel - Aerial Center Exec. Park 32.1 NA - 32.1 Sentinel (Urdang) - Shadeland Station 45.9 NA - 45.9 Sentinel (Urdang) - Exelon Building 24.9 NA - 24.9 Neptune Building 0.0 NA 0.0 Real Estate Managers Total Committed Heitman 207.7 Sentinel 240.9 Sentinel (Urdang) 70.9 Total 519.4 2.66% Preliminary Return Information as of August 31, 2016

Manager 1-month 3-month 1-year 3-years 5-years FYTD Total Fund 0.64 % 3.97 % 8.26 % 7.95 % 9.11 % 3.61 % S & P 500 Index 0.14 % 4.10 % 12.55 % 12.30 % 14.69 % 3.83 %

Total Equity 0.75 % 4.60 % 8.43 % 8.33 % 10.79 % 5.52 % S & P 500 Index 0.14 % 4.10 % 12.55 % 12.30 % 14.69 % 3.83 %

Total Domestic Equity 0.51 % 4.41 % 9.91 % 10.80 % 14.15 % 4.83 % Russell 3000 Index 0.26 % 4.45 % 11.44 % 11.74 % 14.46 % 4.23 %

Total Large Cap Equity 0.12 % 3.96 % 11.39 % 11.98 % 14.74 % 3.88 % S & P 500 Index 0.14 % 4.10 % 12.55 % 12.30 % 14.69 % 3.83 %

Total Small Cap 2.08 % 6.14 % 4.56 % 6.25 % 11.77 % 8.75 % Russell 2000 Index 1.77 % 7.78 % 8.59 % 8.53 % 12.85 % 7.84 %

Total International Equity 1.16 % 4.92 % 6.05 % 4.41 % 4.94 % 6.67 % MSCI ACWI ex-US 0.65 % 4.10 % 3.43 % 2.49 % 3.78 % 5.65 %

Total International Developed Markets 1.05 % 3.24 % 3.84 % 4.64 % 5.97 % 6.66 % MSCI ACWI ex-US 0.65 % 4.10 % 3.43 % 2.49 % 3.78 % 5.65 %

Total International Emerging Markets 1.73 % 12.02 % 15.66 % 3.08 % 0.22 % 7.03 % MSCI Emerging Markets Index 2.52 % 12.15 % 12.25 % 1.48 % -0.07 % 7.74 %

Total Fixed Income 0.25 % 3.72 % 8.13 % 5.39 % 4.85 % 1.58 % Barclays Universal 0.11 % 2.71 % 6.50 % 4.60 % 3.67 % 0.93 %

Total Core Fixed Income 0.04 % 3.88 % 9.16 % 6.10 % 5.29 % 1.35 % Barclays Aggregate -0.11 % 2.32 % 5.97 % 4.37 % 3.24 % 0.52 %

Total High Yield 2.15 % 6.16 % 10.22 % 6.69 % 8.16 % 4.78 % LAFPP HY Benchmark1 2.23 % 5.95 % 9.22 % 5.40 % 7.46 % 4.81 %

Total REITs -2.83 % 6.60 % 20.77 % 13.91 % 12.55 % 1.39 % LAFPP REIT Benchmark2 -2.97 % 6.80 % 21.25 % 13.06 % 11.42 % 1.61 %

Total Commodities -0.20 % 3.32 % 3.87 % N/A N/A 1.08 % Bloomberg Commodities Index TR -1.76 % -2.93 % -8.76 % N/A N/A -6.78 %

Footnote: 1 LAFPP HY Benchmark: CS HY Index thru 12/31/11 & BofA ML US HY Master II Cnst Index thereafter.

2 LAFPP REIT Benchmark: Dow Jones US Select RE Securities Index thru 12/31/13, 50% FTSE EPRA/NAREIT Global RE Index & 50% Dow Jones US Select RE Securities Index thereafter. PENSIONS DIVISION

(Data through August 31, 2016)

DISABILITY PENSIONS Total Claims Filed* 12 11 10 9 8 7 6 5 4 3 2 1 0 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec YTD 2014 2 2 7 5 7 6 4 1 2 3 1 10 50 2015 8 3 5 4 3 3 6 2 3 3 5 1 46

2016 0 1 5 4 1 3 3 4 21

*Claims filed include the following: Disability, Active Member Death, Dependent Child/Parent.

Withdrawn Claims 7

0 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 2015 3 2 0 1 0 1 1 2 0 2 4 6 2016 1 0 4 2 2 2 1 1

PENSIONS DIVISION

Total Claims Pending - All 95 90 85 80 75 70 65 60 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 2014 69 66 70 72 71 72 73 71 71 72 71 77 2015 79 78 81 82 85 86 90 89 87 85 85 79 2016 75 72 73 69 68 66 65 67

Total Claims Pending - Disability Pensions New Applications and Review 80 75 70 65 60 55 50 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 2015 72 71 73 73 75 76 79 77 75 74 74 68 2016 62 59 60 60 59 57 55 56

Total Claims Pending - Active Member Deaths* 14 12 10 8 6 4 2 0 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 2015 7 7 8 9 10 10 11 12 12 11 11 11 2016 13 13 13 9 9 9 10 11

*Claims include Surviving Spouse/Domestic Partner, Minor Child, Dependent Child/Parent. PENSIONS DIVISION

Total Claims Presented to the Board* 12 11 10 9 8 7 6 5 4 3 2 1 0 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec YTD 2014 2 4 2 2 5 5 3 3 0 3 1 5 35 2015 4 2 2 3 0 2 1 3 6 3 5 4 35 2016 3 4 1 8 0 4 3 3 2 6

*Claims include the following: Disability, Active Member Death, Dependent Child/Parent.

Avg. Processing Time for Claims Presented to the Board* 30

0 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 2014 20.8 12.2 19.1 0.7 6.1 9.2 8.4 11.8 0 0.3 6.5 13.1 2015 6 9.4 12 11.5 0 12.6 13 8.8 17.3 12.9 14.5 19.9 2016 26.1 16 1.4 8.8 0 17.4 13 7

*Claims include the following: Disability, Active Member Death, Dependent Child/Parent. Months with zero (0) indicate no claims presented to the Board that month. PENSIONS DIVISION

DROP ENTRIES/EXITS DROP Entries

80 70 60 50 40 30 20 10 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2014 15 77 32 41 45 22 41 29 14 12 6 16 350 2015 16 43 46 55 37 34 48 12 19 18 7 9 344 2016 19 69 23 24 30 23 26 16 230

DROP Exits 100 80 60 40 20 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2014 35 11 20 20 16 22 21 17 13 15 6 5 201 2015 42 53 31 29 31 24 18 24 16 8 2 17 295 2016 46 41 27 39 46 98 65 3 365 Projected 2016 5 2 0 2 Projected 2017 22 17

DROP PARTICIPATION DROP Participants

1,600 1,400 1,200 1,000 800 600 400 200 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 1,138 1,205 1,218 1,240 1,271 1,271 1,290 1,302 1,305 1,302 1,303 1,311 2015 1,285 1,275 1,292 1,322 1,332 1,342 1,378 1,369 1,375 1,398 1,404 1,397 2016 1,370 1,403 1,399 1,384 1,370 1,294 1,255 1,268

PENSIONS DIVISION

SERVICE PENSIONS Current Fiscal Year 12 Month Month To Date Moving Avg. Service Pensions by Effective Date 6 11 5

SURVIVORSHIP PENSIONS Current Fiscal Year 12 Month Month To Date Moving Avg. Surviving Spouse/Domestic Partner Pension Applications Processed 12 31* 15 Survivor Benefit Purchase Program 0 0 1 Total Surviving Spouse/DP Applications Processed and Survivor Benefit Purchase Program Granted 12 31 * One additional application was processed in the prior month, increasing the YTD total.

ACTIVE MEMBER SERVICES Refund of Contributions Current Fiscal Year 12 Month (Number Leaving Without Vesting) Month To Date Moving Avg. Fire 1 2 1 Police 5 10 5 Harbor 0 0 0 Completed Basic Training Purchases Fire 8 15 9 Police 23 56 40 Harbor 0 0 0 Public Service Purchases (PSP) Completed Purchases 0 0 1 Avg. Years of Service (YOS) Purchased N/A N/A 1.9 Avg. Cost per YOS Purchased N/A N/A $51,461

MEDICAL & DENTAL TRANSACTIONS August 2016 (PPE August 31, 2016)

Current Month* Fiscal YTD* Last 12 Mos* Total Subsidies Paid $9,752,605 $19,030,097 $108,267,227 Total Medicare Part B Reimbursements Paid $848,601 $1,628,655 $9,642,607 *Includes Quarterly HIPR Payment(s) PENSIONS DIVISION

OUTREACH ACTIVITIES Number of Date Type of Outreach Tier Participants Financial Planning Education Seminar: August 10, 2016 57 5 Late Career – Grace Simons Lodge Information Table: LAPPL Outreach - August 11, 2016 40 Multiple Wilshire/West Traffic Division Information Table: LAPPL Outreach - August 25, 2016 57 Multiple Southeast Division South Traffic Division Training Day - August 25, 2016 89 Multiple Harbor Range New Recruit Talk: LAPD Graduates - August 26, 2016 22 6 Westchester ARTC Financial Planning Education Seminar: August 31, 2016 30 5 Early Career - Grace Simons Lodge Upcoming Events Proposed Financial Counseling September 6, 2016 11 4 & 5 Program – Focus Group Session Information Table: LAPPL Outreach, September 8, 2016 TBD Multiple West Valley Division Financial Planning Education Seminar: September 14, 2016 TBD Multiple DROP Exit – Grace Simons Lodge Information Table: LAPPL Outreach - September 22, 2016 TBD Multiple Hollywood Division Financial Planning Education Seminar: September 28, 2016 TBD 3 & 4 Late Career – Grace Simons Lodge Outreach Activity Totals Current Month Fiscal Year to Date Members Reached 295 371 -# of Recruit Talks 1 2 -# of Financial Planning Education Seminars 2 2 -# of Other Outreach Events 3 5 Note: The number of participants for “Information Table” events is an estimate. Staff is available to answer questions, check personal information and collect forms at these events.

NEW PROJECTS

2016 ANNUAL REPORT Staff prepared a project timeline for creating the 2016 Annual Report and the review of several report sections has already begun. This year staff will finalize the entire report in-house which includes layout and preparation of the final digital copy, without the assistance of a graphic designer.

The target deadline has moved up to December 31, 2016, one month prior to last year’s deadline. Electronic distribution is scheduled for early January 2017, and a limited number of print copies will be available in late January. Management will begin their review of the Annual Report in late September.

PENSIONS DIVISION

PENSION PERSPECTIVES – ACTIVE MEMBERS Staff is drafting the next newsletter for Active Members. Some of the proposed topics include:  Purchasing Recruit Training Time  Validated Parking for Members Visiting LAFPP offices  Relief Associations – Health Plan Enrollment Requirements  Financial Planning Education Seminars  Rich Chicotel Award for LAFPP

The newsletter is expected to be emailed to members and posted on the website in November.

UPDATED PROJECTS

PROPOSED FINANCIAL COUNSELING PROGRAM Staff is conducting research to determine the scope and feasibility of offering individual financial counseling sessions to members. Members who attend one of the Financial Planning Education (FPE) seminars (for education only) would be given the opportunity to schedule a follow-up session with a financial planner for a personalized review of their financial situation. This would allow members to apply the education provided in the FPE seminar to take the next step and develop a comprehensive financial plan.

Staff previously met with representatives of United Firefighters of Los Angeles City, Los Angeles Police Protective League, Los Angeles Firemen’s Relief Association, Los Angeles Police Relief Association, and Los Angeles Retired Fire and Police Association, to request their input on the individual financial counseling services. The representatives were supportive of the proposed services.

The individual counseling sessions would be conducted through our current financial education consultant. The FPE seminar contract was awarded as a result of an RFP released in July 2015. At that time, staff requested to make a recommendation to award a financial counseling contract at a later date. The financial education and planning consultants would not be allowed to provide, sell or derive any income from the sale of any investment products to members. In addition, any advice to the member for certain investment choices should not affect or provide compensation to the advisor.

Staff met with the City Attorney on May 27, 2016, to discuss the parameters of the proposed financial counseling program. Staff proceeded with the plan for a pilot study of the financial counseling program and to conduct focus group sessions with members to gather feedback that will assist staff and the contractor in the development of the program.

[UPDATE: In August, invitations were sent for two separate focus group sessions scheduled for September 6, 2016. These invitations were emailed to approximately 360 members who had attended a DROP Exit seminar from January 2015 to the present. Sixteen members responded affirmatively which was enough for one full session, instead of two. These members were asked to complete a questionnaire to generate personalized reports. Eleven of the 16 members submitted their responses to the questionnaire.

The session was facilitated by a representative from Cambridge Financial (the current financial education consultant) and the Communications & Education staff. The 11 PENSIONS DIVISION participants were also offered a brief private session with the Cambridge representative to review their personalized reports, immediately following the session.

Staff received substantial feedback on the issues the participants faced as they transitioned into retirement. After reviewing their personal reports and providing suggestions to customize the report, the participants agreed that the proposed program with the financial counselor would be of great value to LAFPP members. Staff plans to consult with the City Attorney for the proposed contract and to request authority from the Board to award a contract.]

UNCHANGED PROJECTS

AIRPORT POLICE TRANSFER TO TIER 6 Currently, sworn personnel of the Airport Department (“Airport Police”) are members of the Los Angeles City Employees’ Retirement System (LACERS). During labor negotiations with the Airport Police bargaining units, the City agreed to place on the November 8, 2016 State General Election ballot a Charter amendment that proposes certain retirement benefit enhancements for this group.

Staff has worked with the City Attorney’s Office, outside tax counsel, CAO, and LACERS in reviewing the draft Charter amendment which would: 1) Enroll new Airport Police into Tier 6; 2) Allow current Airport Police to transfer into Tier 6 from LACERS at their own expense; and 3) Permit new Airport Police Chiefs to transfer into LACERS rather than participate in Tier 6. Additionally, staff worked with the Plan actuary to commission a study demonstrating the impact of allowing Airport Police to participate in Tier 6.

On June 16, the Plan actuary completed the cost study showing the increases in normal cost rates for Airport Police Officers to enter Tier 6, utilizing a simplified method to estimate the cost differences. A follow-up study using a detailed methodology was completed on July 7. The proposed ballot measure was approved by City Council on July 1.

2016 ANNUAL MEMBER SURVEY One of the milestones of the 2015-16 Business Plan project to enhance member and stakeholder education (Project #7), was to develop an online annual member survey to evaluate LAFPP services. The 2016 Annual Member Survey was conducted in April to request feedback on our various services, including newsletters, website, MyLAFPP (member self-service portal), social media, customer service and overall satisfaction. Emails and postcards were sent to approximately 23,000 active and retired members, including DROP members, to invite their participation. Members were encouraged to complete the survey online but hard copies were also mailed upon request. Responses were received from approximately 1,362 members. This was a 6% sample size, which exceeded our target of 3%. A summary of survey results will be compiled, emailed to respondents as requested and posted on the website. Staff has also identified key action items to implement, which will further enhance LAFPP services. Staff is creating an infographics brochure to highlight the survey results. In September 2016, this brochure will be emailed to respondents as requested and posted on the website. ADMINISTRATIVE OPERATIONS DIVISION

UPDATED PROJECTS

PENSION ADMINISTRATION SYSTEM REPLACEMENT The monthly requirements gathering sessions with Xerox and staff Subject Matter Experts from impacted business units continue in order to develop the specifications for the configuration and customization of the CPAS system.

Weekly meetings with the project management team (LAFPP, Xerox, and LRWL consultant) are also being conducted to review and check on the progress of various deliverables, including planning documents, data mapping and conversion, hosting services, as well as the implementation of the new imaging solution to replace Documentum.

[UPDATE: The development of the functionalities for the Secondary Calculation is going well. The CPAS Team will be onsite the week of September 19th to provide a general Walkthrough of the new features being released and a Hands-on training for LAFPP staff to perform the calculations.]

ELECTRONIC DOCUMENTS MANAGEMENT (DOCUMENTUM & DOCUSHARE) LAFPP still warehouses more than 2000 boxes of historical documents at off-site facilities. Many of these boxes require an assessment of whether or not they can be destroyed per the Department’s Record Retention Schedule or scanned into the Department’s repository system (DocuShare). Scanning of these historical documents at off-site facilities is not a priority for the Department at this time until other major projects are completed.

The LAFPP file repository conversion of Documentum to DocuShare was completed on June 30, 2016. Approximately 237,000 documents were reclassified and migrated from Documentum to DocuShare. Staff anticipates providing refresher end-user training on how to further navigate DocuShare prior to the retirement of Documentum. A date to retire the Documentum repository will be set after the completion of end user training.

Staff continues to expedite the scanning of day-forward documents to minimize the amount of hardcopy files stored at the new Headquarters. After the hardcopy files are scanned, staff provides a Quality Assurance (QA) assessment to ensure that all documents are digitally captured and retained before destruction. The backfile repository conversion project and QA functionality has created a backlog of day-forward scanning. Concurrently, staff continues to refine policies and procedures associated with the implementation of DocuShare.

[UPDATE: To mitigate the day-forward scanning request backlog, LAFPP hired three part-time Retirement Relief Workers to focus on the QA functionality, while staff completes the scanning requests. Through August, the day-forward scanning request backlog has been reduced to three weeks.]

ADMINISTRATIVE OPERATIONS DIVISION

UNCHANGED PROJECTS

PERFORMANCE METRICS As part of the Mayor’s “Back to Basics” philosophy, the Mayor has directed departments to submit performance metrics that will measure the effectiveness of the departments in key areas. Monthly, staff submits performance metrics and business plan project updates to Mayoral staff including data in following areas: payment of pension payments; disability applications; customer satisfaction; contractor disclosure; and investment benchmarks.

In addition, the General Manager has expanded the use of performance metrics to better measure and track performance and assist management decision making, taking into consideration resource requirements needed to compile and analyze the data

DEPARTMENT OF FIRE AND POLICE PENSIONS BUDGET TO ACTUAL - RECEIPTS AND EXPENSES As of August 31, 2016 (17% of year)

VARIANCE ACTUAL PROJECTED % YEAR YEAR END SURPLUS/ (UNDER)/OVER BUDGET TO DATE PROJECTIONS DEFICIT PROJECTED AB CC-A RECEIPTS General Fund $ 614,931,398 $ 614,931,398 $ 614,931,398 $ - 0% Special Fund (Harbor) 4,547,876 4,547,876 4,547,876 - 0% Excess Benefit Plan (1) 1,303,600 1,303,600 1,303,600 - 0% Member Contributions (2) 142,160,559 25,186,465 135,930,605 (6,229,954) -4% Earnings on Investments 325,000,000 18,005,896 325,000,000 - 0% Miscellaneous (3) 2,000,000 385,594 2,313,564 313,564 16% Total Receipts $ 1,089,943,433 $ 664,360,829 $ 1,084,027,042 $ (5,916,390) -1%

EXPENSES Service Pensions $ 590,000,000 $ 101,607,109 $ 609,308,249 $ 19,308,249 3% Service Pensions - DROP payout 105,000,000 31,485,385 105,000,000 - 0% Disability Pensions 120,000,000 18,896,368 113,939,788 (6,060,212) -5% Surviving Spouse Pensions 121,000,000 20,147,793 121,612,983 612,983 1% Minor/Dependent Pensions 2,500,000 456,472 2,272,378 (227,622) -9% Refund of Contributions 3,500,000 630,448 3,782,688 282,688 8% Health Insurance Subsidy 113,000,000 18,033,277 108,836,057 (4,163,943) -4% Dental Insurance Subsidy 4,100,000 663,498 4,000,388 (99,612) -2% Medicare Reimbursement 11,500,000 1,628,709 10,107,369 (1,392,631) -12% Health Insurance Reimbursement 1,300,000 253,130 1,265,650 (34,350) -3% Investment Management Expenses 91,152,419 8,229,606 91,152,419 - 0% Administrative Expenses (4) 23,270,652 8,493,553 22,300,760 (969,892) -4%

Total Expenses $ 1,186,323,071 $ 210,525,348 $ 1,193,578,729 $ 7,255,658 1%

RECEIPTS OVER EXPENSES $ (96,379,638) $ 453,835,481 $ (109,551,686)

YTD CURRENT MOVING MONTH AVERAGE

PENSION PAYROLL $ 82,866,024 $ 96,901,095

(1) Represents the City of Los Angeles General Fund earmarked to pay excess benefits including associated administrative costs in compliance with IRC Section 415. In FY 2016-17, funds totaling $202,455 will be re-appropriated from prior-years' available funds in addition to the original budget of $1,303,600 for the Excess Benefit Plan. (2) Includes FY 2015-16 Pay Period 26 and up to FY 2016-17 Pay Period 04. (3) Represents receipts from purchase of prior years' lost service time and recovery of prior years' pension overpayment. (4) Actual Year-to-Date reflects Year-to-Date commitments (encumbrances) and expenditures. DEPARTMENT OF FIRE AND POLICE PENSIONS BUDGET TO ACTUAL - ADMINISTRATIVE AND INVESTMENT MANAGEMENT EXPENSES As of August 31, 2016 (17% of year)

ADMINISTRATIVE EXPENSE (A) (B) (C) (D) (E) (F) (G) (H) DIFFERENCE ADOPTED BUDGET ADJUSTED YEAR TO DATE REMAINING YR END (UNDER)/OVER VARIANCE ACCOUNT TITLE BUDGET CHANGES2 BUDGET TOTAL BALANCE PROJECTED PROJECTED %1 (A + B = C) COMMITTED (C - D = E) EXPENSES (C - F = G) (G / C = H)

Salaries-General3 11,800,000 - 11,800,000 1,494,572 10,305,428 11,412,000 (388,000) -3% = Salaries-As-Needed3 107,000 - 107,000 13,891 93,109 101,000 (6,000) -6%

Overtime3 69,715 - 69,715 3,872 65,843 48,000 (21,715) -31%

Printing & Binding 36,654 - 36,654 36,654 - 36,654 - 0%

Travel 159,443 - 159,443 25,111 134,332 130,000 (29,443) -18%

Transportation3 6,000 - 6,000 750 5,250 6,000 - 0%

Contractual Services 4,932,150 - 4,932,150 2,990,331 1,941,819 4,932,150 - 0%

Medical Services 330,000 - 330,000 330,000 - 330,000 - 0%

Health Insurance 1,300,000 - 1,300,000 93,436 1,206,564 1,171,000 (129,000) -10%

Dental Insurance 55,000 - 55,000 4,010 50,990 50,500 (4,500) -8%

Other Employee Benefits 40,000 - 40,000 3,630 36,370 40,000 - 0%

Retirement Contribution 3,175,000 - 3,175,000 3,170,456 4,544 3,170,456 (4,544) 0%

Medicare Contribution 173,000 - 173,000 - 173,000 173,000 - 0%

Office & Administrative 728,690 - 728,690 269,467 459,223 600,000 (128,690) -18%

Tuition Reimbursement 20,000 - 20,000 - 20,000 15,000 (5,000) -25%

Election 25,000 - 25,000 - 25,000 25,000 - 0%

Furniture, Office & Tech 60,000 - 60,000 57,373 2,627 60,000 - 0%

Unappropriated Balance 253,000 - 253,000 - 253,000 - (253,000) -100%

TOTAL ADMINISTRATIVE EXPENSES $ 23,270,652 $ - $ 23,270,652 $ 8,493,553 $ 14,777,099 $ 22,300,760 $ (969,892) -4%

TOTAL INVESTMENT MANAGEMENT EXPENSES $ 91,152,419 $ - $ 91,152,419 $ 8,229,606 $82,922,813$ 91,152,419 $ - 0%

1 Percentage difference between projected expenses and the adjusted budget. 2 Year-to-Date Committed based on Pay Period 04 ending August 20, 2016. DEPARTMENT OF FIRE AND POLICE PENSIONS Active, Expired, and Upcoming Contracts August 31, 2016

Contract Term Board Authorization Date Market Contract Cessation New Vendor/ Contract Vendor / Services Expiration Award / Comments Start Date Start Date1 Search Candidate Date Renewal Date Finalist Date Date

INVESTMENTS SEARCH Private Equity - Specialized Manager tbd tbd New Contract No. 662PEN is effective 10/01/16, pending negotiation and execution. 583PEN Scout Investments, Inc. - Reams Asset 09/01/13 08/31/16 New Contract No. 657PEN is effective Management Division (Fixed Income - TIPS) 09/01/16. 582PEN AllianceBernstein, LP (Commodities) 10/01/13 09/30/16 New Contract No. 658PEN is effective 10/01/16. 580PEN Northern Trust Company (Custodian Bank) 10/01/13 09/30/16 New Contract No. 651PEN is effective 10/01/16. 586PEN Robeco Investment Management, Inc. (Boston 11/01/13 10/31/16 08/02/16 Staff recommendations to Board Partners) (Domestic Equity) scheduled for 09/15/16. 589PEN Principal Global Investors, LLC (Global REIT 12/01/13 11/30/16 09/01/16 Staff recommendations to Board Manager) scheduled for 10/06/16. 587PEN Principal Global Investors, LLC (U.S. REIT Manager) 12/01/13 11/30/16 09/01/16 Staff recommendations to Board scheduled for 10/06/16. 590PEN AllianceBernstein, LP (Domestic Equity) 01/01/14 12/31/16 10/01/16 Staff recommendations to Board scheduled for 11/03/16. 585PEN Harding Loevner (International Emerging Markets) 02/01/14 01/31/17

591PEN The Townsend Group (Real Estate Consultant) 02/01/14 01/31/17 Staff recommendations to Board scheduled for 12/01/16. 595PEN FIS Group, Inc. (International Manager of Emerging 07/01/14 06/30/17 Managers) 596PEN MacKay Shields, LLC (Fixed Income - High Yield 07/01/14 06/30/17 Bond) 598PEN Chicago Equity Partners LLC (Domestic Equity) 08/01/14 07/31/17

599PEN Los Angeles Capital Management and Equity 08/01/14 07/31/17 Research, Inc. (Domestic Equity) 602PEN Payden & Rygel (Unconstrained Fixed Income 08/01/14 07/31/17 Manager) 600PEN Research Affiliates LLC (Domestic Equity) 08/01/14 07/31/17

601PEN Scout Investments, Inc. - Reams Asset Management 08/01/14 07/31/17 Division (Unconstrained Fixed Income Manager)

604PEN Kleinwort Benson Investors (Commodities Active 10/01/14 09/30/17 Equity Manager) 605PEN Mellon Capital (Commodities Active Equity Manager) 10/01/14 09/30/17

613PEN Dimensional Fund Advisors LP (International 01/01/15 12/31/17 Emerging Markets) 614PEN BlackRock Institutional Trust Company (International 02/01/16 01/31/18 Equity) 615PEN Baillie Gifford Overseas Limited (International Equity) 03/01/15 02/28/18

618PEN AllianceBernstein, L.P. (Global REIT) 03/02/15 02/28/18

624PEN Frontier Capital Management Company, LLC 07/01/15 06/30/18 (Domestic Equity) 621PEN Gresham Investment Management (Active 07/28/15 06/30/18 Constrained Commodity Manager) 622PEN Goldman Sachs Asset Management (Enhanced Index 07/16/15 07/15/18 Commodity Manager) 629PEN LM Capital Group, LLC (Fixed Income) 09/01/15 08/31/18

638PEN Boston Common Asset Management, LLC 10/01/15 09/30/18 (International Equity Emerging Manager) 639PEN Loomis, Sayles & Co. LP (Fixed Income) 10/01/15 09/30/18

633PEN Channing Capital Management, LLC (Domestic 10/01/15 09/30/18 Equity) 636PEN GIA Partners, LLC (Domestic Fixed Income) 10/01/15 09/30/18

635PEN Granite Investment Partners (Domestic Equity) 10/01/15 09/30/18

631PEN OakBrook Investments, Inc. (Domestic Equity) 10/01/15 09/30/18

634PEN PHOCAS Financial Corporation (Domestic Equity) 10/01/15 09/30/18

632PEN Redwood Investments, LLC (Domestic Equity) 10/01/15 09/30/18

637PEN Semper Capital Management, L.P. (Fixed Income) 10/01/15 09/30/18 DEPARTMENT OF FIRE AND POLICE PENSIONS Active, Expired, and Upcoming Contracts August 31, 2016

643PEN Northern Trust Investments, Inc. (Fixed Income) 12/01/15 11/30/18INVESTMENTS

642PEN Scout Investments, Inc. - Reams Asset 12/01/15 11/30/18 Management Division (Fixed Income) 647PEN Glass, Lewis, & Co., LLC (Proxy Voting Services) 01/01/16 12/31/18

646PEN Northern Trust Investments, Inc. (International 01/01/16 12/31/18 Equity) 644PEN Heitman Capital Management, LLC (Real Estate 01/01/16 12/31/18 Separate Account) 645PEN Sentinel Trust Company (Real Estate Separate 01/01/16 12/31/18 Account) 649PEN R.V. Kuhns & Associates, Inc. (General Consultant) 03/01/16 02/28/19

650PEN Portfolio Advisors, LLC (Private Equity) 04/01/16 03/31/19

655PEN Brandes Investment Partners, LP (International 08/01/16 07/31/19 Equity) 659PEN Daruma Asset Management, Inc. (Domestic Equity) 08/01/16 07/31/19

656PEN Fisher Asset Management, LLC (International Equity) 08/01/16 07/31/19

ADMINISTRATIVE OPERATIONS 640PEN Blackman & Holberton (HQ Move Consulting 09/01/15 08/31/16 Services) 653PEN InnerVision Technology Relocation Company 03/01/16 02/28/17 (Technology Relocation Services) 641PEN Haworth, Inc. (HQ Furniture) 08/01/15 12/31/17

ADMINISTRATIVE SERVICES 608PEN Iron Mountain Secure Shredding, Inc. (Secure 07/01/16 06/30/17 Document Shredding) COMMUNICATIONS & EDUCATION 661PEN Something Special (Catering) 08/01/16 07/31/17

607PEN The Cherry Hill Company (Website Design and 10/01/14 09/30/17 Support) 648PEN Four Square Financial Literacy Partners, Inc. 12/03/15 12/02/18 (Financial Planning Education) 652PEN Firedrill (Graphic Design Services) 05/19/16 05/18/19

DISABILITY PENSION 654PEN U.S. Legal Support (Court Reporting) 07/01/16 06/30/17

627PEN Alpha-One Investigations, Inc. (Investigative 09/15/15 09/14/18 Services Contractor) 628PEN CoventBridge (USA) Inc. (Investigative Services 09/15/15 09/14/18 Formerly "Examination Management Contractor) Services, Inc. dba ICS Merrill". Name change effective 07/07/16. INTERNAL AUDIT 660PEN Simpson & Simpson Certified Public Accountants 07/19/16 07/18/19 (Annual Financial Statements Audits) LEGAL SERVICES C-113244 Berstein Liebhard & Lefshitz (Securities 03/15/08 03/14/11 Litigation/Monitoring Services) C-113252 Kaplan Fox & Kilsheimer, LLP (Securities 03/15/08 03/14/11 Litigation/Monitoring Services) - Kessler Topaz Meltzer & Check (Securities 03/15/08 03/14/11 Litigation/Monitoring Services) - Robbins Geller Rudman & Dowd (Securities 03/15/08 03/14/11 Litigation/Monitoring Services) RFP Fiduciary Counsel tbd tbd 03/17/16 Board awarded three contracts on 09/01/16: K&L Gates LLP; Nossaman LLP; and Olson Hagel & Fishburn LLP. RFP Outside Real Estate and Investment Counsel tbd tbd 03/17/16 07/07/16 Board selected three firms on 07/07/16: Jackson Walker LLP, Kutak Rock LLP, and Nossaman LLP. Contractual Hourly Rates need to be negotiated and presented to the Board.

C-123047 Nossaman, LLP (Investment Services) 06/16/13 09/16/16 07/07/16 See RFP Outside Real Estate and Investment Counsel. C-123757 Reed Smith, LLP (Fiduciary Services) 10/01/13 09/30/16

C-125199 Nossaman, LLP (Fiduciary Services) 11/10/14 11/09/17 DEPARTMENT OF FIRE AND POLICE PENSIONS Active, Expired, and Upcoming Contracts August 31, 2016

C-126341 Ice Miller, LLP (Tax Services) 06/16/15 06/15/18INVESTMENTS

C-126452 Steptoe & Johnson LLP (Tax Services) 09/21/15 09/20/18

C-123569 Nossaman, LLP (Legal Representation) 09/15/13 until completion C-121678 Reed Smith, LLP (Legal Representation) 08/02/12 until completion C-126107 Morgan Lewis & Bockius LLP (Bingham) 03/01/12 until (Tribune Shareholders Legal Representation) completion MEDICAL AND DENTAL BENEFITS Los Angeles City Employee Retirement System 08/22/11 07/31/14 Contract currently under negotiation. (Health and Dental Plan Subgroups) Los Angeles Firemen's Relief Association 07/01/14 06/30/17 (Medical Insurance Administration) Los Angeles Police Relief Association 07/01/14 06/30/17 N/A (Medical and Dental Insurance Administration) Los Angeles Police Protective League 08/01/14 07/31/17 (Dental Insurance Administration) United Firefighters of Los Angeles City 09/01/14 08/31/17 (Medical and Dental Insurance Administration) 574PEN Keenan & Associates, Inc. (Health Consulting 03/01/13 02/28/17 Services) PENSIONS DIVISION (EXECUTIVE) 625PEN The Segal Company (Western States), Inc. (Actuarial 07/01/15 06/30/18 Consulting Services) SYSTEMS 603PEN Center for Internet Security, Inc. (Network Security 03/01/14 02/28/17 Monitoring) 610PEN EMC Corporation (Documentum) 10/01/14 09/30/17

611PEN Verizon Terremark (Disaster Recovery Services) 12/04/14 12/03/17

552PEN Buck Consultants, LLC (OnPoint Software) 05/01/15 04/30/18

616PEN AT&T (CALNET3 Phone) 11/15/13 06/30/18

617PEN AT&T (CALNET3 Data) 11/15/13 06/30/18

619PEN Verizon (CALNET3 Phone) 11/15/13 06/30/18

620PEN Verizon (CALNET3 Data) 03/26/14 06/30/18

575PEN LRWL, Inc. (Pension Administration System 06/01/13 12/31/18 Consulting Services) 521PEN Northern Trust Company (Benefit Payment System) 05/20/13 05/19/19

626PEN Xerox State and Local Solutions, Inc. (Pension 07/02/15 07/01/23 Administration System Replacement Project) HEDGE FUND OF FUNDS PARTNERSHIP AGREEMENTS2 Subscription Bridgewater Associates, Inc. (TIPS and Pure Alpha) 07/31/08 n/a on-going Agreements 1 Marketing Cessation: The purpose of this policy is to prevent, and avoid the appearance of, undue influence on the Board or any of its members in the award of all contracts. In accordance with Section 9.0 of the Investment Policy, from the time the search begins with the Board’s approval of the minimum criteria for the search until the search ends with the selection of the firm(s) to receive the contract(s), all direct marketing contact with firms that meet the search criteria will be limited to meetings with the Consultant, information sent to the Consultant or Department, questions about the search directed to the Staff or Consultant, one meeting at the Department’s office with Staff and any site visits. The Board members, Department Staff or Consultant will accept no entertainment or gifts of any kind from any firm qualifying for the search. This policy does not prohibit contact with potential interview candidates at group social events, educational seminars, conferences, or charitable events so long as there is no direct marketing. During the three months prior to the renewal of a contract with a firm currently under contract, the Board Members, Department Staff and Consultant will accept no entertainment or gifts from that firm until the contract has been renewed or terminated by the Board. Firms who currently have contracts with the Los Angeles Fire and Police Pension System are allowed to continue contact related to the existing contract with Staff and Consultant. 2 Hedge Fund of Funds do not have contracts like our other managers. They have limited partnership agreements that do not have a fixed expiration date. They are on this list to include them in our regular three-year manager review process. *Expired contracts are listed in red. Expired investments contracts will remain on the list if the market cessation period is active and until a new contract is awarded. M I N U T E S

OF THE

BOARD OF FIRE AND POLICE PENSION COMMISSIONERS

BOARD MEETING OF AUGUST 6, 2015

The Board of Fire and Police Pension Commissioners of the City of Los Angeles met at the LACERS Board Room, located at the Los Angeles Times Building, 202 W. First Street, Suite 500, Los Angeles 90012 on Thursday, August 6, 2015.

COMMISSIONERS PRESENT: Robert von Voigt, President George Aliano Cielo Castro Sam Diannitto (participated telephonically) Adam Nathanson Ruben Navarro Belinda Vega

COMMISSIONERS ABSENT: Pedram Salimpour, MD Corinne Tapia

DEPARTMENT OF FIRE AND POLICE PENSIONS: Raymond P. Ciranna, General Manager William Raggio, Executive Officer Tom Lopez, Chief Investment Officer Robyn Wilder, Chief Benefits Analyst Barbara Nobregas, Commission Executive Assistant

CITY ATTORNEY’S OFFICE: Joshua Geller, Deputy City Attorney

President von Voigt called the meeting to order at 8:38 a.m. All of the above-listed Commissioners were present at the start of the meeting with the exception of Commissioner Vega who arrived at 9:48 a.m.

A. COMMITTEE REPORTS

1. REVIEW OF THE INTERNAL AUDIT CHARTER AND POSSIBLE BOARD ACTION

Ms. Erin Kenney, Departmental Audit Manager, and Mr. James Yeung, Internal Auditor IV, were before the Board.

The board report was approved without discussion. Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 2

RESOLUTION 16014

Commissioner Navarro moved that the Board approve the proposed updated Internal Audit Charter, which was seconded by Commissioner Aliano and approved by the following vote: ayes, Commissioners Aliano, Castro, Diannitto, Nathanson, Navarro, and President von Voigt – 6; nays, none.

2. FOLLOW UP TO THE SUBSIDY PROGRAM AUDIT – HEALTH PLANS ADMINISTERED BY THE LOS ANGELES POLICE RELIEF ASSOCIATION AND POSSIBLE BOARD ACTION

Ms. Erin Kenney, Departmental Audit Manager, and Mr. James Yeung, Internal Auditor IV, were before the Board.

Commissioner Navarro stated his concern about saving time for staff and the board in regards to items going before a Committee, and then the board. He believed the process is duplicative. He also stated that he did not receive an answer about a Committee meeting that turns into a special board meeting, is it then in fact a board meeting? If not, the committee item then has to go before the board and again the process is duplicated.

Ms. Kenney introduced Ms. Diane Whisnant, the new Executive Director of the Los Angeles Police Relief Association.

RESOLUTION 16015

Commissioner Navarro moved that the Board review, receive, and file the follow up to the Subsidy Program Audit – Health Plans Administered by the Los Angeles Police Relief Association (LAPRA), which was seconded by Commissioner Castro and approved by the following vote: ayes, Commissioners Aliano, Castro, Diannitto, Nathanson, Navarro, and President von Voigt – 6; nays, none.

B. ITEMS FOR BOARD ACTION

1. REVIEW OF INTERNATIONAL EQUITY MANAGER CONTRACT OF BOSTON COMMON ASSET MANAGEMENT AND POSSIBLE BOARD ACTION

Mr. Paul Palmer, Investment Officer II, and Ms. Annie Chao, Investment Officer I, Investments Division, presented Boston Common Asset for a contract renewal. Mr. Ryan Sullivan, Associate Consultant, of RV Kuhns, addressed Commissioner Nathanson’s concern regarding Boston’s under performance, recommending renewal of the contract, and Ms. Chao stated that the historical performance is listed on a composite level.

Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 3

RESOLUTION 16016

Commissioner Navarro moved that the Board:

1. Approve a three-year contract with Boston Common Asset Management for international equity management services;

2. Authorize the General Manager to negotiate and approve the terms and conditions of a contract with Boston Common Asset Management for international equity management services for the period October 1, 2015 through September 30, 2018; and,

3. Authorize the President of the Board, on behalf of the Board, to execute the contract with Boston Common Asset Management for international equity management services, subject to the approval of the City Attorney as to form, which was seconded by Commissioner Aliano and approved by the following vote: ayes, Commissioners Aliano, Castro, Diannitto, Navarro, and President von Voigt – 5; nays, Commissioner Nathanson – 1.

2. DISCUSSION OF BOARD-APPROVED PROCEDURES FOR TIER TRANSFER REQUESTS AND POSSIBLE BOARD ACTION

Mr. Gregory Mack, Senior Management Analyst II, Active Member Services, was before the Board and provided a summary of the Tier transfer issue.

The Board members gave their respective opinions on the issue.

Mr. Ken Buzzell, Director, Los Angeles Retired Fire & Police Association, Inc., provided public comment.

RESOLUTION 16017

Commissioner Navarro moved that the Board uphold Items 1, 3, 4 of the current procedures for processing late tier transfer requests and Item 2 as revised, as follows:

1. The Department receives a written request from a member requesting a tier transfer and providing an explanation as to why his/her prior election or waiver was invalid.

2. Staff will consult the City Attorney’s Office as to whether a legal basis exists for remedial action. If both staff and the City Attorney agree that a legal basis does not exist, staff will perform the ministerial duty of denying the request and will inform the member that he/she may appeal staff’s decision by submitting a written request to the General Manager for a hearing before the Board. If both Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 4

staff and the City Attorney agree a legal basis exists, or if staff and the City Attorney cannot agree on whether a legal basis exists, the matter will proceed to the next step.

3. If both staff and the City Attorney agree that a legal basis exists, LAFPP staff will consult with the City Attorney’s Office to determine whether a factual finding is necessary to support the legal basis. If the legal basis does not require a factual finding, relief will be granted administratively and the request will be approved. If the legal basis does require factual finding(s), or if both staff and City Attorney cannot agree on whether a legal basis exists, the matter will be referred to the Board.

4. For all requests referred to the Board, staff will provide the Board with an analysis and the factual findings that must be made in order to approve the transfer request, which was seconded by Commissioner Aliano and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Nathanson, Navarro, and President von Voigt – 5; nays, Commissioner Castro – 1.

3. APPROVAL OF PROPOSED AMENDMENT TO BOARD RULE 7.0: AUTHORIZATION OF SPECIAL ACTUARIAL STUDIES

Ms. Robyn Wilder, Chief Benefits Analyst, Pensions Division, presented the report detailing the amendments to the Board policy.

Commissioner Navarro stated that the Board disagreed previously with the issue, and how illustrations have been used against the Board in the past.

General Manager Ciranna discussed the value of the illustrations and his support of them.

RESOLUTION 16018

Commissioner Navarro moved that the Board approve the proposed amendment to Board Operating Policies and Procedures, Section 7.0: Authorization of Special Actuarial Studies, which was seconded by Commissioner Nathanson and approved by the following vote: ayes, Commissioners Aliano, Castro, Diannitto, Nathanson, Navarro, and President von Voigt – 6; nays, none.

4. AWARD OF CONTRACTS FOR INVESTIGATION/SURVEILLANCE SERVICES AND POSSIBLE BOARD ACTION

Ms. Erin Kenney, Department Audit Manager, stated that Internal Audit Section received the required disclosure information including that regarding gifts, campaign contributions, and charitable contributions; and that there is nothing to report under LAFPP’s contractor disclosure policy. Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 5

Mr. Christopher Annala, Senior Management Analyst II, and Ms. Tina Zipper, Senior Management Analyst I, were available for questions. The board report was approved without discussion.

RESOLUTION 16019

Commissioner Navarro moved that the Board:

1) Approve the selection of Alpha-One Investigations for investigation/surveillance services for a three-year term, with a total contract amount not to exceed $150,000; 2) Approve the selection of ICS Merrill for investigation/surveillance services for a three-year term, with a total contract amount not to exceed $150,000;

3) Authorize the General Manager to negotiate the terms and conditions of the contracts; and,

4) Authorize the President of the Board, on behalf of the Board, to execute the contracts, subject to the approval of the City Attorney as to form, which was seconded by Commissioner Aliano and approved by the following vote: ayes, Commissioners Aliano, Castro, Diannitto, Nathanson, Navarro, and President von Voigt – 6; nays, none.

C. REPORTS TO THE BOARD

Item C1 was heard in the latter portion of the meeting.

2. President von Voigt asked if any Board Member made any expenditure to influence State legislative or administrative action to which their reply was negative.

3. Miscellaneous correspondence from money managers, consultants, etc. – Received and Filed.

4. General Manager’s Report

a. Benefits Actions approved by General Manager on July 16, 2015

Pursuant to Resolution 04008, adopted by the Board of Fire & Police Pension Commissioners on August 7, 2003, the following benefit actions have been approved by the General Manager.

DISCONTINUED PENSIONS – TIER 1 – 2

Kenneth G. Turner Police Service Retired: 04-01-66 Died 05-30-15 Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 6

Betty Baxter Police Widow Retired: 12-26-05 Died: 06-12-15

DISCONTINUED PENSIONS – TIER 2 – 10

Edward H. Phelps Fire Service Retired: 02-01-78 Died: 05-18-15 Harvey P. Friend Police Service Retired: 04-22-68 Died: 05-28-15 George R. La Rue Police Service Retired: 07-09-98 Died: 06-06-15 William J. Murphy Police Service Retired: 07-01-70 Died: 06-07-15 Earl H. Carlson Fire Disability Retired: 04-01-72 Died: 12-31-14 George Duarte Fire Disability Retired: 05-15-90 Died: 06-05-15 Harry B. Schuck Fire Disability Retired: 06-29-82 Died: 05-30-15 Sondra L. Hartkopf Police Widow Retired: 06-12-12 Died: 06-03-15 Blanche T. Horkan Police Widow Retired: 04-23-04 Died: 06-02-15 Joann Lance Police Widow Retired: 09-14-95 Died: 06-27-15

DISCONTINUED PENSIONS FORMER SPOUSE – TIER 2 – 1

Jeanne F. Wolcott Fire Disability Retired: 06-01-84 Member Died: 05-30-15

ELIGIBLE SURVIVING SPOUSE’S PENSION – TIER 2 – 1

Name Deceased Member Member’s Class Effective Date Margaret P. Duarte George Duarte Fire Disability 06-06-15

ELIGIBLE SURVIVING SPOUSE’S PENSION – TIER 5 – 1

Name Deceased Member Member’s Class Effective Date Lovania R. Gregory Ray A. Gregory Police Service 06-11-15

SURVIVOR BENEFIT PURCHASE PROGRAM – TIER 2 – 1

Name Member’s Class Effective Date Survivor Benefit % Mark S. Turnipseed Police Disability 07-01-15 50%

INCREASE SURVIVING CHILD’S PENSION – TIER 5 – 1

Increase the pension payable to Kendall B. Hoss, surviving child of deceased Firefighter III, Kelly R. Hoss, effective April 1, 2015, due to the discontinuance of full-time student status by Bailey P. Hoss. There are no minors remaining.

DISCONTINUE SURVIVING CHILD’S PENSION – TIER 5 – 1

Discontinue the pension payable to Bailey P. Hoss, surviving child of deceased Firefighter III, Kelly R. Hoss, effective April 1, 2015, due to the discontinuance of full-time student status.

PARTIAL PAYMENT OF PENSION – TIER 5 – 2

Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 7

In accordance with the City Attorney’s advice, a designated proportion of the community property interest of the pension payable to Keoki Deporter, Fire Service Pensioner, is to be paid to his former spouse, Patricia L. Deporter, effective July 31, 2015. Ms. Deporter will receive cost of living adjustments.

In accordance with the City Attorney’s advice, a designated proportion of the community property interest of the pension payable to Arthur J. Duran, Police Service Pensioner, is to be paid to his former spouse, Jacqueline F. Newby, effective June 1, 2015. Ms. Newby will receive cost of living adjustments.

MODIFIED PARTIAL PAYMENT OF PENSION – TIER 5 – 1

In accordance with the City Attorney’s advice, a designated proportion of the community property interest of the pension payable to Daryl L. Maxwell, Police Service Pensioner, being withheld for his former spouse, Victoria A. Maxwell, since April 30, 2015, should be released effective July 1, 2015.

DEFERRED SERVICE PENSION – TIER 3 – 1

Police Frank R. Trevino, Jr. Sergeant I Eff: 06-25-15 13 Years 258 Days

SERVICE PENSION – TIER 3 – 1

Fire Kathleen D. Bosak Firefighter III +3 Eff: 05-28-15 10 Years 30 Days

SERVICE PENSION – TIER 4 – 1

Fire Alicia L. Mathis Captain I Eff: 06-20-15 25 Years 159 Days

SERVICE PENSION – TIER 5 – 4

Fire Paula E. Perry Engineer Eff: 06-19-15 25 Years 0 Days

Police Alison F. Alexander Detective II Eff: 05-31-15 21 Years 127 Days James E. Flynn Detective III Eff: 05-31-15 25 Years 231 Days Gloria J. Snipes Police Officer III Eff: 05-31-15 26 Years 1 Day

SERVICE PENSION/DROP – TIER 3 – 2

Police Debra K. Dickerson Police Officer II +6 Eff: 03-16-15 25 Years 92 Days Rachel Ramirez Police Officer II Eff: 04-24-15 25 Years 51 Days

SERVICE PENSION/DROP – TIER 4 – 2

Police Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 8

Sterling D. Gordon Police Officer III Eff: 02-02-15 27 Years 0 Days Christopher A. Walter Police Officer III Eff: 06-01-15 25 Years 261 Days

SERVICE PENSION/DROP – TIER 5 – 42

Fire Alfred J. Flores Captain I Eff: 03-12-15 27 Years 350 Days Charles E. Garcia Captain I Eff: 04-01-15 26 Years 240 Days Kevin J. Hamilton Captain I Eff: 04-02-15 26 Years 298 Days Lee T. Hazelquist Apparatus Operator Eff: 03-25-15 29 Years 48 Days Charles K. Herrera Captain II Eff: 02-01-15 26 Years 62 Days John B. Hicks Firefighter III Eff: 03-26-15 29 Years 349 Days Terance M. Hubbard Firefighter III Eff: 04-01-15 27 Years 150 Days Paul J. Jordan Inspector I Eff: 03-17-15 28 Years 105 Days Kenneth S. Mason Firefighter III Eff: 04-02-15 26 Years 68 Days Dexter G. McDaniel Firefighter III Eff: 04-02-15 25 Years 92 Days Scott T. Melanson Engineer Eff: 04-06-15 29 Years 59 Days David A. Navarro Firefighter III Eff: 03-01-15 27 Years 139 Days James P. Vlach Captain I Eff: 06-04-15 33 Years 0 Days

Police Steven J. Arellano Sergeant II Eff: 04-01-15 25 Years 79 Days Robert C. Boyd Detective II Eff: 04-01-15 26 Years 265 Days Patrick J. Cronin Police Officer III Eff: 03-01-15 31 Years 310 Days Clifton E. Frazier Sergeant II Eff: 03-01-15 25 Years 79 Days Larry P. Garcia Police Officer II Eff: 05-01-15 25 Years 5 Days Rosalie S. Garcia Sergeant II Eff: 04-01-15 25 Years 5 Days Dan L. Hadfield Police Officer II Eff: 04-14-15 27 Years 223 Days Barrett D. Halcromb Detective I Eff: 02-02-15 27 Years 312 Days William N. Heider Police Officer III Eff: 02-02-15 25 Years 9 Days Robert J. Hernandez Detective II Eff: 05-01-15 28 Years 0 Days Jeffrey A. Hofmeyer Detective I Eff: 05-01-15 25 Years 162 Days Emerson L. Holder Sergeant II Eff: 04-06-15 25 Years 309 Days Mark T. Holguin Detective III Eff: 02-03-15 30 Years 0 Days David L. Hovey Police Officer II Eff: 04-01-15 26 Years 0 Days Darryl Y. Ito Captain I Eff: 03-01-15 25 Years 49 Days Daniel T. Jenks Detective III Eff: 04-01-15 30 Years 173 Days Kevin J. Jolivette Detective II Eff: 04-01-15 27 Years 238 Days Lawrence P. Jones Sergeant I Eff: 03-02-15 25 Years 0 Days Perry J. Jones Police Officer III Eff: 04-03-15 25 Years 0 Days Nicole M. Nunez Police Officer II Eff: 05-03-15 25 Years 3 Days Mark M. Ramirez Police Officer III Eff: 06-01-15 25 Years 175 Days Gregory R. Staats Detective II Eff: 05-02-15 27 Years 15 Days Sharen S. Stallworth Detective II Eff: 05-01-15 27 Years 149 Days Pamela A. Stirling Detective III Eff: 06-01-15 27 Years 135 Days Craig A. Taylor Detective I Eff: 03-23-15 25 Years 164 Days Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 9

Darrell W. Vanroy Detective II Eff: 06-01-15 25 Years 67 Days Phillip A. Walters Police Officer II +2 Eff: 06-01-15 25 Years 31 Days Natalie Y. Whisenton Detective II Eff: 06-01-15 25 Years 5 Days Daniel T. Wise Detective I Eff: 06-03-15 26 Years 344 Days

SERVICE PENSION/DROP – TIER 5 – 1 CORRECTION

Fire Kurt R. Tietze Engineer Eff: 03-01-15 26 Years 212 Days

DISCONTINUE DROP – TIER 3 – 1

Police Jose R. Yearwood Retired: 01-03-11 Exit Close of: 07-31-15

DISCONTINUE DROP – TIER 4 – 2

Police Raymond Madrid Retired: 07-01-12 Exit Close of: 07-31-15 David M. Parra Retired: 07-13-11 Exit Close of: 07-31-15

DISCONTINUE DROP – TIER 5 – 18

Fire Brian E. Allen Retired: 08-01-10 Exit Close of: 07-31-15 Keoki Deporter Retired: 07-30-10 Exit Close of: 07-30-15 Craig L. Fujimoto Retired: 07-29-10 Exit Close of: 07-28-15 Joseph F. Jackson, Jr. Retired: 03-30-12 Exit Close of: 07-31-15 Benjamin Kuzichev Retired: 08-01-10 Exit Close of: 07-31-15 Sheldon G. McKowan Retired: 08-01-10 Exit Close of: 07-31-15 Paul A. Proni Retired: 07-04-10 Exit Close of: 07-03-15

Police Christopher P. Bonilla Retired: 07-01-11 Exit Close of: 07-31-15 Brenda Y. Cureton Retired: 10-08-10 Exit Close of: 07-31-15 Jesus Corral Retired: 08-03-10 Exit Close of: 07-31-15 Russell A. Freeman Retired: 06-30-11 Exit Close of: 07-31-15 Thomas M. Glazebrook Retired: 08-02-10 Exit Close of: 07-31-15 Barry C. Kirschenmann Retired: 08-03-10 Exit Close of: 07-31-15 Byong K. Kwon Retired: 02-01-12 Exit Close of: 07-31-15 Daryl Lewis Retired: 08-01-10 Exit Close of: 07-31-15 Lewis J. Parker Retired: 07-20-14 Exit Close of: 06-30-15 Auston Price Retired: 02-01-13 Exit Close of: 06-30-15 William F. Sera Retired: 08-01-13 Exit Close of: 06-11-15

PARTIAL PAYMENT OF DROP FUNDS – TIER 5 – 1

Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 10

In accordance with the City Attorney’s advice, a designated proportion of the community property interest of the DROP funds payable to Keoki Deporter, Fire Service Pensioner, is to be paid to his former spouse, Patricia L. Deporter effective July 30, 2015.

MODIFIED PARTIAL PAYMENT OF DROP FUNDS – TIER 5 – 1

In accordance with the City Attorney’s advice, a designated proportion of the community property interest of the pension payable to Daryl L. Maxwell, Police Service Pensioner, being withheld for his former spouse, Victoria A. Maxwell, since April 29, 2015, should be released effective July 1, 2015.

DISABILITY PENSION ADJUSTED – TIER 2 – 1

Name Member’s Class Type % Rate Effective Date Board Date Gregory A. Bielman Sergeant I From: 50% 04-15-92 06-11-92 To: 55% 06-04-15 06-04-15

b. Other business relating to Department operations

General Manager Ciranna gave the following updates:

1. With the Board’s approval of the building budget, the construction on the Headquarters facility is moving forward.

D. COMMITTEE CALENDAR

1. Audit Committee – Last met: 07/16/15; next meeting: 10/15/15

2. Benefits Committee – Last met: 04/02/15; next meeting: 08/20/15

3. Governance Committee – Last met: 05/21/15; next meeting: 08/06/15

4. Ad Hoc Emerging Investment Managers – Last met: 11/06/14; Dissolved on 07/17/15

President von Voigt announced the upcoming Committee meetings.

E. CONSENT ITEMS

1. APPROVAL OF TRAVEL AUTHORITY (TAPIA) – PENSION REAL ESTATE ASSOCIATION, 25TH ANNUAL INSTITUTIONAL INVESTOR REAL ESTATE CONFERENCE

2. Approval of Minutes

a. Minutes of the Regular Board meeting of April 2, 2015 b. Minutes of the Audit Committee of April 16, 2015 Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 11

c. Minutes of the Special Board Meeting of April 2, 2015 (Benefits Committee) and April 2, 2015 (Governance Committee)

3. Findings of Fact

a. Kellie A. Ellwood – Tier 5 c. Gregory A. Bielman – Tier 2 b. Christina Higuera – Tier 5

MOTION

Commissioner Aliano moved that the Board approve the consent items, which was seconded by Commissioner Navarro and approved by the following vote: ayes, Commissioners Aliano, Castro, Diannitto, Nathanson, Navarro, and President von Voigt – 6; nays, none.

F. CONSIDERATION OF FUTURE AGENDA ITEMS

No items were referred for consideration.

G. GENERAL PUBLIC COMMENT ON MATTERS WITHIN THE BOARD’S JURISDICTION

There were no additional public comments.

C. REPORTS TO THE BOARD (continued)

1. SEMI-ANNUAL REVIEW OF CORE AND SPECIALIZED MANAGER PRIVATE EQUITY PROGRAMS AND THE COMMODITIES ALLOCATION TO PRIVATE EQUITY

Messrs. Brian P. Murphy and Todd A. Hughes, both Managing Directors, and Ms. Elizabeth M. Campbell, Vice President from Portfolio Advisors presented their report to the Board. Messrs. Murphy and Hughes provided an overview of the advisory mandate and timeline. Mr. Hughes reviewed the private equity portfolio, the core and specialized managers, the commodity portfolio, the Strategic Plan, an update of the firm, and discussion on investment process.

Commissioner Nathanson discussed fund of funds, advisory duties, and fees with Mr. Hughes and fees and economies of scale with Mr. Tom Lopez, Chief Investment Officer.

President von Voigt recessed for break at 10:24 a.m. and reconvened the meeting at 10:35 a.m.

H. DISABILITY CASES

DISABILITY CLAIM – NEW – TIER 5 Minutes of the Board of Fire and Police Pension Commissioners Meeting of August 6, 2015 Page 12

Ian M. Schunke (H) Sergeant I

Service-connected disability pension is granted at 35% with no foreseeable purpose for review. Motion made by Commissioner Vega, seconded by Commissioner Aliano and adopted by the following vote: ayes, Commissioners Aliano, Castro, Diannitto, Nathanson, and Vega – 5; nays, Commissioners Navarro, and President von Voigt - 2. Petty Santos, Commander, Fiscal Operations, Human Resources, Los Angeles Harbor Department testified regarding Sergeant Schunke. Sergeant Schunke was present and was represented by his attorney, Thomas J. Wicke.

Commissioner Navarro left the boardroom for the remainder of the meeting at 11:30 a.m.

I. CLOSED SESSION ITEMS FOR POSSIBLE BOARD ACTION

1. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.81 TO CONSIDER THE PURCHASE OF ONE (1) PARTICULAR, SPECIFIC INVESTMENTS AND POSSIBLE BOARD ACTION

The Board met in closed session.

Commissioner Nathanson left the boardroom for the remainder of the meeting at 11:40 a.m.

2. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.8 TO CONFER WITH REAL PROPERTY NEGOTIATOR; Properties: 315 S. Hewitt Street and 713 E. 3rd Street; Negotiators: David Weiner, Martin Cawley, Ray Ciranna, Negotiating parties: Sentinel Real Estate Corporation and LAFPP: Under negotiation: Instruction to negotiator will concern price

The Board met in closed session.

Upon reconvening in open session, President von Voigt stated there was no public report.

The meeting adjourned at 11:52 a.m.

President

Secretary

M I N U T E S

OF THE

BOARD OF FIRE AND POLICE PENSION COMMISSIONERS

BOARD MEETING OF DECEMBER 3, 2015

COMMISSIONERS PRESENT: Robert von Voigt, President Pedram Salimpour, MD, Vice President George Aliano Sam Diannitto (participated telephonically) Ruben Navarro Brian Pendleton Corinne Tapia

COMMISSIONERS ABSENT: Adam Nathanson Belinda Vega

DEPARTMENT OF FIRE AND POLICE PENSIONS: Raymond P. Ciranna, General Manager William Raggio, Executive Officer Tom Lopez, Chief Investment Officer Joseph Salazar, Assistant General Manager Rhonda Ketay, Commission Executive Assistant

CITY ATTORNEY’S OFFICE: Joshua Geller, Deputy City Attorney

President von Voigt called the meeting to order at 8:38 a.m. All of the above-listed Commissioners were present at the start of the meeting with the exception of Commissioners Tapia and Aliano, who arrived at 8:40 a.m. and 8:52 a.m. respectively.

Item G1 was taken out of order.

G. DISABILITY CASE

Alternative 1

Shaun W. King (P) Police Officer III Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 2

As recommended by Staff and concurred in by the applicant, nonservice-connected disability pension is granted at 50% with no foreseeable purpose for review. Motion made by Commissioner Navarro, seconded by Commissioner von Voigt and adopted by the following vote: ayes, Commissioners Diannitto, Navarro, Pendleton, Salimpour, Tapia, and President von Voigt – 6; nays, none. Officer King was not present but was represented by Corina Lee of the Los Angeles Police Protective League.

A. ITEMS FOR BOARD ACTION

1. CONSIDERATION OF RICHARD D. EVANS’ APPEAL TO TRANSFER FROM TIER 3 TO TIER 4 AND POSSIBLE BOARD ACTION

Mr. Gregory Mack, Senior Management Analyst II, Active Member Services and Communications, presented the Department’s position on the request as untimely. Sgt. Richard Evans discussed his belief that there would be cost savings to the Fund if he were allowed to transfer. Ms. Corina Lee, Los Angeles Police Protective League, spoke to the Board on behalf of Sgt. Evans.

The Board discussed the possibility of setting precedent by granting this request with Mr. Josh Geller, Deputy City Attorney III.

RESOLUTION 16069

Commissioner Navarro moved that the Board deny the request of Sergeant II Richard D. Evans to transfer from Tier 3 to Tier 4 based on the following findings of fact:

1. The filing of a request to transfer to Tier 4 was not timely. Over 17 years have passed since the deadline to transfer to Tier 4.

2. Sergeant Evans’ decision to remain in Tier 3 was voluntary as he was aware of the Tier 4 transfer period and the enrollment deadline.

3. No legal basis has been provided with which the Board could allow Sergeant Evans to transfer from Tier 3 to Tier 4 outside of the election period specified in Los Angeles City Charter Section 1600 (b), which was from July 1, 1997 through June 30, 1998.

4. Staff is required to perform the ministerial duty of enforcing the statutory deadline and deny the late transfer request, which was seconded by Commissioner Salimpour and approved by the following vote: ayes, Commissioners Diannitto, Navarro, Pendleton, Salimpour, Tapia, and President von Voigt – 6; nays, none.

Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 3

2. CONSIDERATION OF IAN EULIAN’S APPEAL TO TRANSFER FROM TIER 4 TO TIER 5 AND POSSIBLE BOARD ACTION

Mr. Gregory Mack, Senior Management Analyst II, Active Member Services and Communications, presented the Department’s position on the request as untimely. Mr. Ian Eulian stated that he did not have the information necessary to make a timely decision due to an error in his address of record.

The Board questioned Mr. Mack concerning the various methods of distributing information regarding the Tier 5 transfer period. Mr. Mack discussed the various outreach and communications strategies employed by the department to notify members of the Tier 5 transfer period.

RESOLUTION 16070

Commissioner Navarro moved that the Board deny the request of former Fire Engineer Ian Eulian to transfer from Tier 4 to Tier 5 based on the following findings of fact:

1. The filing of a request to transfer to Tier 5 was not timely. Over 12 years have passed since the deadline to transfer to Tier 5.

2. Former Engineer Eulian did not inquire about transferring to Tier 5 until shortly before he resigned and Los Angeles Fire and Police Pensions (LAFPP) staff informed him that there is no refund of contributions upon termination or resignation under Tier 4.

3. No legal basis has been provided with which the Board could allow former Engineer Eulian to transfer from Tier 4 to Tier 5 outside of the election period specified in Los Angeles Administrative Code Section 4.2000(c)(1), which was from January 2, 2002 through December 31, 2002.

4. Staff is required to perform the ministerial duty of enforcing the statutory deadline and deny the late transfer request, which was seconded by Commissioner Pendleton and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Navarro, Pendleton, Salimpour, Tapia, and President von Voigt – 7; nays, none.

3. MEDICARE PART B PREMIUM REIMBURSEMENT MAXIMUMS FOR 2016 AND POSSIBLE BOARD ACTION

Mr. Joseph McGlinchey, Management Analyst II, Medical and Dental Benefits, discussed the two-tier Medicare Part B Premium Reimbursement structure for 2016 with the Board. Medicare beneficiaries who currently have the Social Security Administration withhold their Part B premiums and have incomes below a certain threshold will not have a premium increase in 2016. New Part B Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 4

beneficiaries in 2016, beneficiaries who do not currently have the Part B premium withheld from their Social Security benefit, and higher-income beneficiaries will have a standard monthly premium of $121.80 in 2016.

Mr. McGlinchey stated that the Department will be sending letters to members, printing information on pension checks, and posting the new two-tier Medicare Part B Premium information on the LAFPP website.

Public comment was provided by Mr. Ken Buzzell, Director, Los Angeles Retired Fire & Police Association, Inc. (LARFPA). Mr. Buzzell stated that LARFPA concurs with staff’s recommendation and asked Staff what documentation will be required from the membership.

Mr. McGlinchey answered that a Social Security letter showing the Part B premium owed would suffice.

Mr. Buzzell stated that members may be reticent to send Social Security documents by mail and was answered that all but the last four digits of the Social Security number can be redacted.

General Manager Ciranna stated that Staff will make every effort to provide information to the membership. . RESOLUTION 16071

Commissioner Navarro moved that the Board adopt the Resolution implementing a two tier Medicare Part B Premium Reimbursement, with a maximum monthly reimbursement amount of $121.80, effective January 1, 2016 as follows:

WHEREAS, Los Angeles City Administrative Code Section 4.1162 provides that the Board of Fire and Police Pension Commissioners will pay reimbursement of Medicare Part B basic premiums for eligible retired members and qualified surviving spouses/domestic partners of the Fire and Police Pension Plan who are eligible to receive health insurance subsidies and enrolled in Medicare Parts A and B; and

WHEREAS, the Medicare Part B basic premiums effective January 1, 2016, are $104.90 and $121.80 per month;

RESOLVED, that eligible members and eligible qualified surviving spouses/domestic partners shall have paid a monthly Medicare Part B premium reimbursement of $104.90 or $121.80; and

RESOLVED, the Medicare premium reimbursement provided herein shall be applied to the December 31, 2015 pension payments and subsequent monthly Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 5

payments and shall remain in effect until modified or cancelled by subsequent action of the Board; and

RESOLVED, that the Manager-Secretary of the Department of Fire and Police Pensions be authorized to cause demands to be drawn upon the General Pension Funds of the Fire and Police Pension Plan, Tiers 1, 2, 3, 4, 5, and 6, to be paid to eligible members and beneficiaries, provided such payments have been verified against records kept by the Department of Fire and Police Pensions and found to be correct and proper, and individual reimbursement amounts are within the limits as set forth in the Los Angeles City Administrative Code; which was seconded by Commissioner Aliano and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Pendleton, Salimpour, Tapia, and President von Voigt – 6; nays, none.

B. REPORTS TO THE BOARD

1. CONTRACTOR DISCLOSURE POLICY - QUARTERLY REPORT

The board report was received and filed.

2. President von Voigt asked if any Board Member made any expenditure to influence State legislative or administrative action to which their reply was negative.

3. Miscellaneous correspondence from money managers, consultants, etc. – Received and Filed.

4. General Manager’s Report

a. Benefits Actions approved by General Manager on November 19, 2015

Pursuant to Resolution 04008, adopted by the Board of Fire & Police Pension Commissioners on August 7, 2003, the following benefit actions have been approved by the General Manager on November 19, 2015.

DISCONTINUED PENSIONS – TIER 1 – 1

Mae F. Domhoff Police Widow Retired: 11-10-89 Died: 05-19-15

DISCONTINUED PENSIONS – TIER 2 – 10

Robert L. Notley Fire Service Retired: 02-13-73 Died: 06-04-15 Don P. Shumway Fire Service Retired: 01-26-91 Died: 10-08-15 Gene E. Thompson Fire Service Retired: 10-02-73 Died: 09-26-15 Harold B. Maxwell Fire Disability Retired: 06-25-85 Died: 10-16-15 Robert C. Houston Police Disability Retired: 05-30-81 Died: 10-03-15 Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 6

James R. Womack Police Disability Retired: 05-20-78 Died: 07-26-15 Anna L. Green Fire Widow Retired: 12-04-11 Died: 09-20-15 Betty J. Rodgers Fire Widow Retired: 05-26-01 Died: 05-24-14 Harriet L. Arnest Police Widow Retired: 05-22-95 Died: 10-15-15 Marilyn R. De Witt Police Widow Retired: 02-25-07 Died: 09-30-15

DISCONTINUED PENSIONS – TIER 3 – 1

Benjamin J. Fulghum Fire Service Retired: 07-21-99 Died: 09-27-15

DISCONTINUED PENSIONS FORMER SPOUSE – TIER 2 – 2

Oeeta M. Shumway Former Spouse Retired: 10-01-91 Member Died: 10-08-15 Marion E. Tone Former Spouse Retired: 04-01-93 Member Died: 10-08-15

DISCONTINUED PENSIONS FORMER SPOUSE – TIER 5 – 1

Patricia L. Deporter Former Spouse Retired: 07-30-10 Died: 09-29-15

ELIGIBLE SURVIVING SPOUSE’S PENSION – TIER 2 – 11

Name Deceased Member Member’s Class Effective Date Olly T. Notley Robert L. Notley Fire Service 06-05-15 Katherine L. Stevens Stanley D. Stevens Fire Service 09-20-15 M. E. Susanna Tolley Don L. Tolley Fire Service 09-26-15 Dorothy E. Buffington J. L. Buffington Police Service 09-25-15 Chris Peurifoy Lawrence Peurifoy Police Service 08-29-15 Eileen M. Rock George H. Rock, III Police Service 09-02-15 Penelope M. Root Richard A. Root Police Service 10-12-15 Kathleen A. Baty Joseph W. Baty Police Disability 09-20-15 Sandra J. Houston Robert C. Houston Police Disability 10-04-15 Rita C. Stachowski David M. Stachowski Police Disability 10-15-15 Cynthia C. Womack James R. Womack Police Disability 07-27-15

SURVIVOR BENEFIT PURCHASE PROGRAM – TIER 2 – 1

Name Member’s Class Effective Date Survivor Benefit % Don E. Holloway Fire Service 11-01-15 35%

SURVIVOR BENEFIT PURCHASE PROGRAM VESTED MEMBERS – TIER 2 – 1

Name Member’s Class Effective Date Vested Date Survivor Benefit % Richard K. Police Disability 11-01-14 11-01-15 30% Kaspersen

Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 7

ELIGIBLE SURVIVOR BENEFIT PURCHASE PROGRAM – TIER 2 – 1

Name Deceased Member Member’s Class Effective Date Donna M. Harvey Wesley S. Harvey Police Service 09-22-15

INCREASE SURVIVING CHILD’S PENSION – TIER 3 – 1

Increase the pension payable to Alexa D. Ramirez, surviving child of deceased Sergeant I, Angela M. Shepard, effective November 7, 2015, due to the attainment of age 22 by Marissa S. Ramirez.

INCREASE SURVIVING CHILD’S PENSION – TIER 5 – 1

Increase the pension payable to Joshua R. Orlando, surviving child of deceased Police Officer II, Robert J. Orlando, effective November 1, 2015, due to the discontinuance of full-time student status by Melanie P. Orlando.

DISCONTINUE SURVIVING CHILD’S PENSION – TIER 3 – 1

Discontinue the pension payable to Marissa S. Ramirez, surviving child of deceased Sergeant I, Angela M. Shepard, effective November 6, 2015, due to the attainment of age 22 on November 7, 2015. There is one remaining surviving child.

DISCONTINUE SURVIVING CHILD’S PENSION – TIER 5 – 1

Discontinue the pension payable to Melanie P. Orlando, surviving child of deceased Police Officer II, Robert J. Orlando, effective November 1, 2015, due to the discontinuance of full-time student status.

PARTIAL PAYMENT OF PENSION – TIER 4 – 1

In accordance with the City Attorney’s advice, a designated proportion of the community property interest of the pension payable to Steven H. Williams, Police Service Pensioner, is to be paid to his former spouse, Tiffini R. Hughes, effective November 1, 2015. Ms. Hughes will receive cost of living adjustments.

PARTIAL PAYMENT OF PENSION – TIER 5 – 1

In accordance with the City Attorney’s advice, a designated proportion of the community property interest of the pension payable to Jose A. Morga, Fire Disability Pensioner, is to be withheld for his former spouse, Rocio C. Morga, effective November 1, 2015. Ms. Morga will receive cost of living adjustments.

PARTIAL PAYMENT OF SURVIVING SPOUSE’S PENSION – TIER 5 – 1

Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 8

In accordance with the City Attorney’s advice, a designated proportion of the community property interest of the Surviving Spouse Pension payable to Nancy L. Mitchell, surviving spouse of deceased Fire Service Pensioner, John J. Mitchell, is to be withheld for his former spouse, Lorri Jo B. Stameisen, effective June 25, 2015. Ms. Stameisen will receive cost of living adjustments.

MODIFIED PARTIAL PAYMENT OF SURVIVING SPOUSE’S PENSION – TIER 2 – 1

In accordance with the City Attorney’s advice, a designated proportion of the community property interest of the Surviving Spouse Pension payable to Helen Fox, surviving spouse of deceased Police Service Pensioner, Frank A. Fox, being withheld for his former spouse, Miriam E. Fox, effective June 1, 2015, should be released effective November 1, 2015.

MODIFIED PARTIAL PAYMENT OF SURVIVING SPOUSE’S PENSION – TIER 5 – 1

In accordance with the City Attorney’s advice, the Surviving Spouse Pension payable to Nancy L. Mitchell, surviving spouse of deceased Fire Service Pensioner, John J. Mitchell, is to be withheld effective November 1, 2015, pending receipt of additional court order. Ms. Mitchell will receive cost of living adjustments.

CONSERVATORSHIP – TIER 2 – 1

A certified copy of the Letters of Conservatorship for the Person and the Estate of Christine A. Rodgers, issued in the Superior Court of the State of California, County of Los Angeles, Case Number BP 155654, appointing Caryn G. Bickford, Conservator for the Person and the Estate of Christine A. Rodgers, dependent child of deceased Firefighter Eugene E. Rodgers, effective March 12, 2015, has been filed with this office.

Pension payments will be paid to Caryn G. Bickford for the benefit of Christine A. Rodgers, effective May 25, 2014.

SERVICE PENSION – TIER 5 – 3

Police Andrew B. Gallagher Police Officer II Eff: 10-04-15 24 Years 276 Days Joel Hernandez Police Officer II Eff: 10-18-15 21 Years 225 Days Antonio Ramirez Police Officer II Eff: 11-01-15 31 Years 77 Days

SERVICE PENSION/DROP – TIER 3 – 3

Police John Arredondo Detective I Eff: 10-01-15 26 Years 198 Days Hector S. Diaz Police Officer II Eff: 08-14-15 25 Years 28 Days Willie R. Jordan IV Police Officer III Eff: 08-01-15 30 Years 14 Days

SERVICE PENSION/DROP – TIER 4 – 1

Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 9

Police Patrick E. Butler Lieutenant II Eff: 10-01-15 25 Years 9 Days

SERVICE PENSION/DROP – TIER 5 – 12

Fire Denise D. Alvarado Firefighter III Eff: 09-02-15 27 Years 44 Days Jeffrey J. Ambarian Captain I Eff: 09-01-15 26 Years 272 Days Michael J. Cunningham Captain II Eff: 09-01-15 29 Years 130 Days Leah K. Fleischmann Firefighter III Eff: 09-06-15 26 Years 95 Days Scott J. Tanner Engineer Eff: 09-02-15 28 Years 31 Days

Police Alex J. Arredondo Detective II Eff: 09-01-15 27 Years 280 Days Bennie Boatwright Sergeant I Eff: 09-01-15 31 Years 16 Days Melvin A. Gamble Sergeant II Eff: 08-01-15 25 Years 121 Days Michael V. Mattox Sergeant I Eff: 10-01-15 31 Years 344 Days Michael W. McGann Police Officer II Eff: 10-01-15 31 Years 179 Days Geoffrey A. Tavares Detective I Eff: 10-01-15 25 Years 203 Days Timothy L. Toth Sergeant I Eff: 09-01-15 25 Years 10 Days

ELIGIBLE SURVIVING SPOUSE APPLICATION – TIER 3 – 1

Name Member’s Rank Type % Rate Effective Date Orawan P. Chadbourne Police Officer III NSC w/o prejudice: 10-09-15 (Christopher J. Chadbourne) 40% + 3 minor children b. Other business relating to Department operations

General Manager Ciranna gave the following update:

1. The next Board Retreat will be held on March 3, 2016. 2. A pamphlet was distributed to Board members outlining the Los Angeles Fire and Police Pensions Three-Year 2015-2018 Strategic Plan.

C. COMMITTEE CALENDAR

1. Audit Committee – Last met: 10/01/15; next meeting: 01/21/16

2. Benefits Committee – Last met: 10/01/15; next meeting: 02/04/16

3. Governance Committee – Last met: 08/06/15; next meeting: 12/17/15

President von Voigt announced the upcoming meetings.

D. CONSENT ITEMS Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 10

1. Approval of Minutes of the Audit Committee meeting of July 16, 2015

MOTION

Commissioner Salimpour moved that the Board approve the consent items, which was seconded by Commissioner Aliano and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Navarro, Pendleton, Salimpour, Tapia, and President von Voigt – 7; nays, none.

E. CONSIDERATION OF FUTURE AGENDA ITEMS

President von Voigt requested a follow-up report on the refundability of Tier 4 member contributions.

F. GENERAL PUBLIC COMMENT ON MATTERS WITHIN THE BOARD’S JURISDICTION

No public comment.

G. DISABILITY CASES

Alternative 2

Retired Detective I William J. Flannery. Mr. Flannery will be represented by Michael Treger of Straussner and Sherman.

Withdrawn by letter dated 11/30/15.

Alternative 2

Police Officer II Angela J. Daywalt. Officer Daywalt will be represented by Thomas J. Wicke of Lewis, Marenstein, Wicke, Sherwin and Lee.

Continued to January 21, 2016.

H. CLOSED SESSION ITEMS FOR POSSIBLE BOARD ACTION

1. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.81 TO CONSIDER THE PURCHASE OF TWO (2) PARTICULAR, SPECIFIC INVESTMENTS AND POSSIBLE BOARD ACTION

The Board met in closed session.

2. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.8: REGARDING THE PROPOSED PURCHASE OF A NEW SEPARATE ACCOUNT Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 3, 2015 Page 11

PROPERTY BY SENTINEL REAL ESTATE CORPORATION AND POSSIBLE BOARD ACTION

The Board met in closed session.

3. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.81 TO CONSIDER THE SALE OF A SEPARATE ACCOUNT PROPERTY BY HEITMAN CAPITAL MANAGEMENT AND POSSIBLE BOARD ACTION

The Board met in closed session.

Open session reconvened at 11:04 a.m. President von Voigt stated there was no report.

The meeting adjourned at 11:06 a.m.

President

Secretary

M I N U T E S

OF THE

BOARD OF FIRE AND POLICE PENSION COMMISSIONERS

BOARD MEETING OF DECEMBER 17, 2015

COMMISSIONERS PRESENT: Robert von Voigt, President Pedram Salimpour, MD, Vice President George Aliano Sam Diannitto (participated telephonically) Adam Nathanson Ruben Navarro Brian Pendleton Corinne Tapia

COMMISSIONERS ABSENT: Belinda Vega

CITY ATTORNEY’S OFFICE: Alan Manning, Assistant City Attorney

President von Voigt called the meeting to order at 8:31 a.m. All of the above-listed Commissioners were present at the start of the meeting.

A commemorative plaque was presented to Ms. Cielo Castro for her service on the Board of Fire and Police Pension Commissioners.

A. ITEMS FOR BOARD ACTION

1. GENERAL CONSULTANT CONTRACT RENEWAL AND POSSIBLE BOARD ACTION

Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 17, 2015 Page 2

Mr. Rick Rogers, Investment Officer III, gave a brief history of RV Kuhns, Inc and discussed staff’s recommendation with the Board. Mr. Rogers and Mr. Tom Lopez, Chief Investment Officer, answered the Board’s questions. The Board discussed fee structures, costs of consultant searches, and stated they would prefer that representatives from RVK attend all board meetings. Mr. Lopez stated that RVK is represented at Board meetings whenever investment topics are agendized.

General Manager Ciranna stated that the firm was highly rated by the Board and staff during the recent consultant evaluation survey. Ms. Rebecca Gratsinger, CEO, and Mr. Jim Voytko, COO, of RV Kuhns, discussed the history and distinguishing features of their firm and answered questions from the Board.

RESOLUTION 16076

Commissioner Navarro moved that the Board:

1. Approve a new three-year contract with RVK, Inc. for General Consulting;

2. Authorize the General Manager to negotiate the terms and conditions with RVK, Inc. for General Consulting services for the period March 1, 2016 to February 28, 2019; and

3. Authorize the President of the Board, on behalf of the Board, to execute the contract with RVK, Inc. for General Consulting, subject to the approval of the City Attorney as to form, which was seconded by Commissioner Aliano and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Nathanson, Navarro, Pendleton, Salimpour, Tapia, and President von Voigt – 8; nays, none.

2. REAL ESTATE POLICY UPDATE AND POSSIBLE BOARD ACTION

Mr. Paul Palmer, Investment Officer II, presented the staff’s recommendation to the Board and was available for questions.

RESOLUTION 16077

Commissioner Navarro moved that the Board approve Section 3.0 (Real Estate Policy) of the Investment Policies to reflect the Real Estate Strategic and Implementation Plan which was adopted by the Board on July 16, 2015, Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 17, 2015 Page 3

which was seconded by Commissioner Nathanson and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Nathanson, Navarro, Pendleton, Salimpour, Tapia, and President von Voigt – 8; nays, none.

3. APPROVAL TO ISSUE A REQUEST FOR PROPOSAL FOR GRAPHIC DESIGN SERVICES AND POSSIBLE BOARD ACTION

Ms. Carol Tavares, Management Analyst II, presented the staff recommendation to the Board and was available for questions.

RESOLUTION 16078

Commissioner Tapia moved that the Board authorize the General Manager to issue a Request for Proposal (RFP) for graphic design services, which was seconded by Commissioner Pendleton and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Nathanson, Navarro, Pendleton, Salimpour, Tapia, and President von Voigt – 8; nays, none.

4. HEADQUARTER FACILITY PROJECT – FINAL STATUS REPORT AND POSSIBLE BOARD ACTION

Mr. William Raggio, Executive Officer, introduced Ms. Samantha Jew, who gave a PowerPoint presentation of architectural renderings and photographs of the Headquarter Facility to the Board. Mr. Raggio and General Manager Ciranna discussed the Headquarter Facility Project with the Board.

RESOLUTION 16079

Commissioner Nathanson moved that the Board:

1) Approve the revised Headquarter Facility Project budget of $22,484,718 (excluding additional parking needs); and,

2) Authorize staff the requisite flexibility to transfer funds between accounts and among construction line items as necessary to effectuate the intent of the Board, which was seconded by Commissioner Tapia and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Nathanson, Navarro, Pendleton, Salimpour, Tapia, and President von Voigt – 8; nays, none.

5. CHIEF INVESTMENT OFFICER’S QUARTERLY REPORT OF ASSET ALLOCATION STATUS AND POSSIBLE BOARD ACTION

Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 17, 2015 Page 4

Mr. Tom Lopez, Chief Investment Officer, Investment Section, presented the quarterly report to the Board. Commissioner Pendleton discussed interest rates with Mr. Lopez.

Ms. Elsa Moy provided public comment.

Commissioners Salimpour and Tapia were absent from the board room during the following vote.

RESOLUTION 16080

Commissioner Aliano moved that the Board approve the actual asset allocation of the Fund and Staff’s plans for bringing asset classes currently outside of their target allocation ranges back within their allocation ranges, which was seconded by Commissioner Navarro and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Nathanson, Navarro, Pendleton, and President von Voigt – 6; nays, none.

The Board recessed at 10:00 a.m. and reconvened at 10:10 a.m.

B. REPORTS TO THE BOARD

1. QUARTERLY PORTFOLIO PERFORMANCE REPORT BY RVK

Ms. Rebecca Gratsinger, CEO, and Mr. Jim Voytko, COO, of RV Kuhns, discussed the quarterly report with the Board, including economic indicators and allocations. Commissioners Pendleton and Nathanson discussed fees, trends, and benchmarks with Ms. Gratsinger and Mr. Voytko. The report was received and filed.

2. Miscellaneous correspondence from money managers, consultants, etc. – Received and Filed.

3. General Manager’s Report

a. Monthly Report

b. Marketing Cessation Information

c. Benefits Actions approved by General Manager on December 3, 2015

Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 17, 2015 Page 5

DISCONTINUED PENSIONS – TIER 1 – 2

Frankie L. Banks Police Widow Retired: 05-08-10 Died: 10-17-15 Marie L. Clark Police Widow Retired: 03-17-90 Died: 09-21-15

DISCONTINUED PENSIONS – TIER 2 – 8

Bob Humphrey Fire Service Retired: 03-22-71 Died: 08-09-15 Ronald E. Bare Police Service Retired: 02-09-82 Died: 10-05-15 Gunter R. Lindermeier Police Service Retired: 09-26-89 Died: 10-06-15 David E. Knighton Police Service Retired: 02-28-99 Died: 11-05-15 Robert L. Suter Police Service Retired: 01-10-93 Died: 10-23-15 Richard Wixon Fire Disability Retired: 05-01-79 Died: 09-14-15 Stewart M. Weinreb Police Disability Retired: 09-07-03 Died: 10-20-15 Marion Triffon Fire Widow Retired: 05-04-94 Died: 10-18-15

DISCONTINUED PENSIONS – TIER 5 – 1

Suzanna A. Bower Police Service Retired: 12-07-08 Died: 10-10-15

DISCONTINUED PENSIONS FORMER SPOUSE – TIER 4 – 1

Dorothy J. Shireman Police Service Retired: 01-01-05 Member Died: 10-06-15

SERVICE PENSION – TIER 3 – 2

Police Cathy R. Marx Sergeant II Eff: 11-14-15 24 Years 250 Days Kelli M. Stallings Police Officer III Eff: 10-09-15 27 Years 13 Days

SERVICE PENSION – TIER 5 – 1

Police John A. Hernandez Detective III Eff: 10-28-15 26 Years 320 Days

SERVICE PENSION/DROP – TIER 3 – 1

Police Christian L. Hansen Lieutenant II Eff: 09-01-15 26 Years 249 Days

SERVICE PENSION/DROP – TIER 4 – 1

Police Jacqueline M. Hickey Police Officer III +3 Eff: 09-01-15 26 Years 3 Days

Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 17, 2015 Page 6

SERVICE PENSION/DROP – TIER 5 – 8

Fire Christopher L. Carpenter Firefighter III Eff: 10-30-15 26 Years 77 Days Jesse Cisneros Battalion Chief Eff: 10-01-15 30 Years 236 Days Preston D. Fountain Firefighter III Eff: 11-01-15 28 Years 3 Days Ronald W. Grote Firefighter III Eff: 10-11-15 26 Years 307 Days

Police Michael R. Donatoni Lieutenant II Eff: 11-02-15 25 Years 23 Days William C. Dunn Detective II Eff: 11-02-15 25 Years 105 Days John E. Ficken Sergeant I Eff: 10-30-15 25 Years 0 Days Albert J. Gavin Lieutenant II Eff: 09-01-15 27 Years 246 Days

d. Other business relating to Department operations

General Manager Ciranna provided the following updates:

1. As part of the pension administration system replacement project, the Department transitioned its document imaging system from Documentum to DocuShare this week. The DocuShare system is expected to have better integration with the new Creative Pension Administration System (CPAS) software solution.

2. The two pension reform ballot initiatives filed by former San Jose Mayor Chuck Reed and a bi-partisan group of current and former local government officials have been cleared for circulation and signature gathering by the Secretary of State.

C. COMMITTEE CALENDAR

1. Audit Committee – Last met: 10/01/15; next meeting: 01/21/16

2. Benefits Committee – Last met: 10/01/15; next meeting: 02/04/16

3. Governance Committee – Last met: 08/06/15; next meeting: 1/07/16

President von Voigt announced the upcoming meetings.

D. CONSENT ITEMS

1. APPROVAL OF LOCAL TRAINING (SALIMPOUR) – CALAPRS, ADVANCED PRINCIPLES OF PENSION MANAGEMENT FOR TRUSTEES

Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 17, 2015 Page 7

2. Approval of Minutes

a. Minutes of the Regular Board Meetings of June 18, 2015 and July 16, 2015

3. Findings of Fact

a. Brian S. Sorenson b. Monika Rehder c. Guadalupe Palomares

Commissioner Salimpour was absent from the board room during the following vote.

MOTION

Commissioner Navarro moved that the Board approve the consent items, which was seconded by Commissioner Tapia and approved by the following vote: ayes, Commissioners Aliano, Diannitto, Nathanson, Navarro, Pendleton, Tapia, and President von Voigt – 7; nays, none.

E. CONSIDERATION OF FUTURE AGENDA ITEMS

There were no items referred for consideration.

F. GENERAL PUBLIC COMMENT ON MATTERS WITHIN THE BOARD’S JURISDICTION

Mr. Ken Buzzell, Director, Los Angeles Retired Fire & Police Association, provided public comment regarding firing underperforming money managers.

G. DISABILITY CASE

Alternative 2

Police Officer III Kenneth L. Collard. Officer Collard will be represented by Thomas J. Wicke, Esq., of Lewis, Marenstein, Wicke, Sherwin and Lee.

The case was withdrawn.

Commissioner Aliano left the meeting at 11:15 a.m. and the Board went into closed session.

H. CLOSED SESSION ITEMS FOR POSSIBLE BOARD ACTION

1. CLOSED SESSION PURSUANT TO SUBDIVISIONS (a) AND (d)(1) OF GOVERNMENT CODE SECTION 54956.9 TO CONFER WITH, OR RECEIVE ADVICE FROM, LEGAL COUNSEL WITH REGARD TO PENDING LITIGATION, IN THE CITY OF LOS ANGELES, LOS ANGELES FIRE & POLICE PENSION ex Minutes of the Board of Fire and Police Pension Commissioners Meeting of December 17, 2015 Page 8

rel MARCELLUS TAYLOR, vs. DEUTSCHE BANK, AG, et al., CASE NO. 2:15-cv- 05343-RGK-RAOx (UNITED STATES DISTRICT COURT, CENTRAL DISTRICT OF CALIFORNIA)

The Board met in closed session.

2. CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.81 TO CONSIDER THE PURCHASE OF TWO (2) PARTICULAR, SPECIFIC INVESTMENTS AND POSSIBLE BOARD ACTION

The Board met in closed session.

Open session reconvened at 11:49 a.m. President von Voigt stated there was no report.

The meeting adjourned at 11:50 a.m.

President

Secretary

DEPARTMENT OF FIRE AND POLICE PENSIONS 701 E. 3rd Street, Suite 200 Los Angeles, CA 90013 (213) 279-3000

REPORT TO THE BOARD OF FIRE AND POLICE PENSION COMMISSIONERS

DATE: SEPTEMBER 15, 2016 ITEM: C.2

FROM: RAYMOND P. CIRANNA, GENERAL MANAGER

SUBJECT: APPROVAL OF TRAVEL AUTHORITY (NAVARRO) – IFEBP, CERTIFICATE SERIES – RETIREMENT PLAN BASICS AND INVESTMENT BASICS

RECOMMENDATION

That the Board approve Commissioner Ruben Navarro’s request to attend the International Foundation of Employee Benefit Plans (IFEBP), Certificate Series – Retirement Plan Basics and Investment Basics on October 4 – 8, 2016 in Boston, MA (October 4th is a travel day).

DISCUSSION

Commissioner Navarro expressed interest in participating in the following conference:

Conference: Certificate Series – Retirement Plan Basics & Investment Basics Sponsor: International Foundation of Employee Benefit Plans Dates: October 5 – 8, 2016 Location: Boston, MA Mode of transportation: Commercial Airline

BUDGET

Sufficient funds are available in the Fiscal Year 2016-17 Travel Account. Listed below is an estimated cost to travel for Commissioner Navarro.

Registration $2,280.00 Airfare 402.00 Hotel 2,351.00 Per Diem 259.00 Incidentals (mileage, parking & ground transportation) 280.00 TOTAL $4,572.00

POLICY

If approved by the Board, the proposed expenditures would be within the Board’s Travel and Education Policy.

All information regarding the conference is contained in the attached agenda.

This report was prepared by:

Evangelina Masud, Executive Administrative Assistant Administrative Operations Division

RPC:WSR:EM

Attachment: Conference agenda

Certificate in Retirement Plans ME PE CORP Basic Intermediate Advanced The challenge of funding for retirement has brought a host of changes in the laws, regulations and trends that impact retirement plans. The Certificate in Retirement Plans provides a survey of defined benefit and defined contribution retirement plans, Social Security, investment principles and the legal and regulatory environment— from a historical perspective through today.

Instructors The following is a sample of instructors who have taught Certificate Series courses. Thomas Margenau Robert W. Ridley, Esq. Social Security Consultant Attorney John T. McCarthy, CFP Brian Schaefer President Founder and Principal McCarthy Grittinger Financial Group, LLC 401(k) Ventures Dawn M. Milligan, CEBS Relationship Executive The Vanguard Group

“Interaction with fellow professionals from public, corporate and multiemployer plans was extremely educational.” William F. Feyling, Executive Director Carpenters 46 Northern CA Counties Conference Board Oakland, California RECEIVE

8 Certificate Series 2016-2017 Certificate in Retirement Plans (You must be present for each course in its entirety to earn your certificate. Please make your travel plans accordingly.)

Required Courses Elective Courses: Choose One Investment Basics* 401(k) Plans • Investment terms • Plan design • Risk and return • Administration • Stocks, bonds and mutual funds • Investment policy statement • Investment benchmarks • Fund selection process • Portfolio management • Effective communication and asset allocation and education • Contemporary investment issues • Compliance • Economic considerations • Legal and regulatory update • Tax considerations • Case study • Sources of information October 10-11, 2016 • Case study Boston, Massachusetts October 7-8, 2016 March 1-2, 2017 Boston, Massachusetts Orlando, Florida March 3-4, 2017 October 13-14, 2017 Orlando, Florida San Jose, California October 11-12, 2017 Public Sector 401, 403, 457 Plans* San Jose, California Note: For those who work with public Retirement Plan Basics* sector plans, the Public Sector 401, 403, • Overview of Social Security 457 Plans course may be taken in lieu of the 401(k) Plans course to complete the • Retirement plan philosophy Certificate in Retirement Plans. • Defined contribution plans • Oversight • Defined benefit plans • Fiduciary responsibilities • Hybrid plans • Compliance • Distribution options • Fund performance and fees • Benefit design and financing issues • Education • Legal/regulatory environment • Customer service • Case study • Options and trends October 5-6, 2016 • Case study Boston, Massachusetts March 1-2, 2017 February 27-28, 2017 Orlando, Florida Orlando, Florida October 9-10, 2017 *These courses apply to San Jose, California more than one certificate.

(888) 334-3327, option 2 | www.ifebp.org 9 9/7/2016 Retirement Plan Basics—Session Schedule, Speakers and Handouts

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Retirement Plan Basics—Session Home > Education > Certificate Programs > Certificate Series > Schedule > Retirement Plan Basics— Schedule, Session Schedule, Speakers and Handouts Speakers and Handouts Retirement Plan Basics—Session Schedule, Speakers and Earning Certificates Handouts

Who Should Attend In order to download session handouts you must be logged in and registered for the program.

Schedule Session handouts will be available to registered attendees Friday, September 30 through Monday, December 12. Instructors

FAQ

Host Classes Show Date: Wednesday, October 5, 2016 Contact Us WEDNESDAY, OCTOBER 5

8:00 am – 10:00 am

RPB1A Retirement Plan Basics - Day 1 Bruce D. Schobel, CEBS, CLU, FSA, MAAA Instructor Consulting Actuary Sunrise, FL

10:15 am – 4:30 pm

RPB1B Retirement Plan Basics - Day 1 Jay K. Egelberg, ASA, EA, FCA, MAAA Instructor Consulting Actuary First Actuarial Consulting Inc. (FACT) New York, NY

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Who Should Attend In order to download session handouts you must be logged in and registered for the program.

Schedule Session handouts will be available to registered attendees Friday, September 30 through Monday, December 12. Instructors

FAQ

Host Classes Show Date: Thursday, October 6, 2016 Contact Us THURSDAY, OCTOBER 6

8:00 am – 3:45 pm

RPB2 Retirement Plan Basics - Day 2 Robert W. Ridley, Esq. Instructor Attorney Los Angeles, CA

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Investment Basics—Session Home > Education > Certificate Programs > Certificate Series > Schedule > Investment Basics—Session Schedule, Schedule, Speakers and Handouts Speakers and Handouts Investment Basics—Session Schedule, Speakers and Handouts Earning Certificates In order to download session handouts you must be logged in and registered for the program. Who Should Attend Session handouts will be available to registered attendees Friday, September 30 through Schedule Monday, December 12.

Instructors

FAQ Show Date: Friday, October 7, 2016

Host Classes FRIDAY, OCTOBER 7 Contact Us 8:00 am – 4:30 pm

INVB1 Investment Basics - Day 1 John T. McCarthy, CFP Instructor Founder McCarthy Grittinger Financial Group, LLC Milwaukee, WI

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FAQ Show Date: Saturday, October 8, 2016

Host Classes SATURDAY, OCTOBER 8 Contact Us 8:00 am – 3:45 pm

INVB2 Investment Basics - Day 2 John T. McCarthy, CFP Instructor Founder McCarthy Grittinger Financial Group, LLC Milwaukee, WI

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