San Joaquin County Employees Retirement Association A G E N D A BOARD MEETING SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD OF RETIREMENT FRIDAY, AUGUST 14, 2020 AT 9:00 AM Location: Via Zoom Client
0.01 In accordance with current state and local emergency proclamations and orders, this Board Meeting will be held virtually via Zoom Client.
The public may only attend the meeting by (1) clicking here https://us02web. zoom.us/j/84547183927 and following the prompts to enter your name and email, or (2) calling (669) 219-2599 or (669) 900-9128 and entering Meeting ID 84547183927#. Persons who require disability-related accommodations should contact SJCERA at (209) 468-2166 or [email protected] at least forty-eight (48) hours prior to the scheduled meeting time. Public comments, limited to 250 words or less, may be submitted by e-mailing [email protected]. Every effort will be made to read all comments received into the record, but some comments may not be read due to time limitations. Comments received after an agenda item will be made part of the official record on file with SJCERA if received prior to the end of the meeting. 1.0 ROLL CALL 2.0 PLEDGE OF ALLEGIANCE 3.0 APPROVAL OF MINUTES 3.01 Approval of the minutes for the Board Meeting of July 10, 2020 4 3.02 Board to approve minutes 4.0 PUBLIC COMMENT 4.01 E-mails received at [email protected], limited to 250 words or less, will be read into the record at this time. Comments received after this agenda item is completed will be made part of the official record on file with SJCERA if received prior to the end of the meeting. Public comment is expected to be civil and courteous. Except as otherwise permitted by the Ralph M. Brown Act (California Government Code Sections 54950 et seq.), no deliberation, discussion or action may be taken by the Board on items not listed on the agenda. Members of the Board may, but are not required to: (1) briefly respond to statements made or questions posed by persons addressing the Board; (2) ask a brief question for clarification; or (3) refer the matter to staff for further information. 5.0 CONSENT ITEMS 5.01 Service Retirement (18) 9 6.0 ACTUARIAL REPORTS AND 2021 RETIREMENT CONTRIBUTION RATES 12 6 South El Dorado Street, Suite 400 • Stockton, CA 95202 SJCERA Board Meeting • 8/14/2020 • Page 1 (209) 468-2163 • [email protected] • www.sjcera.org 6.01 Annual Actuarial Valuation Report as of January 1, 2020 prepared by Cheiron 15 6.02 Resolution 2020-08-01 titled “Actuarial Report and 2021 Retirement Contribution 117 Rates” 6.03 Board to accept the actuarial report, approve the retirement contribution rates for 2021 and adopt Resolution 2020-08-01 7.0 LEGAL EDUCATION SESSION 7.01 Presentation by Ashley Dunning of Nossaman LLP regarding California Supreme 123 Court decision in Alameda County Deputy Sheriffs’ Assn. v. Alameda County Employees’ Retirement Assn. 8.0 CONSULTANT REPORTS PRESENTED BY DAVID SANCEWICH OF MEKETA INVESTMENT GROUP 8.01 Monthly Investment Performance Updates 01 Receive and File Manager Performance Flash Report - June 2020 147 02 Receive and File Capital Markets Outlook and Risk Metrics - July 2020 151 8.02 Risk Parity Structure Review 184 8.03 Real Estate Pacing Study 206 8.04 Board to accept and file reports 9.0 STAFF REPORTS 9.01 Legislative Summary Report 215 9.02 Trustee and Executive Staff Travel 01 Conferences and Events Schedule for 2020 218 a NCPERS 2020 Public Pension Funding Forum 219 02 Summary of Pending Trustee and Executive Staff Travel 221 03 Summary of Completed Trustee and Executive Staff Travel 222 9.03 Board to accept and file reports 9.04 CEO Report 223 01 Pension System Enhancement Project 235 10.0 CORRESPONDENCE 10.01 Letters Received 01 July 27, 2020 Capital Prospects, LLC 238 10.02 Letters Sent 10.03 Market Commentary/Newsletters/Articles 01 FundFire Article re: Meketa Remote Due Diligence Process July 21, 239 2020 02 NCPERS The Monitor July 2020 242 03 Research Affiliates July 2020 252 04 FundFire Article re: Public Pensions Q2 Returns August 5, 270 2020 11.0 COMMENTS
SJCERA Board Meeting • 8/14/2020 • Page 2 11.01 Comments from the Board of Retirement 12.0 REAL ESTATE MANAGER PRESENTATION 12.01 Presentation by Aaron Snegg, Matt Novak, and Andrew Holmberg of Berkeley 272 Partners 13.0 CLOSED SESSION 13.01 PURCHASE OR SALE OF PENSION FUND INVESTMENTS CALIFORNIA GOVERNMENT CODE SECTION 54956.81 01 Investment in Berkeley Partners Value Industrial Fund V 02 Update on Global Equity Transition 03 GQG Partners and Global Equity Structure - Funding and Implementation 04 Discussion with CEO/IO regarding status of GQG Partners Investment 13.02 PERSONNEL MATTERS CALIFORNIA GOVERNMENT CODE SECTION 54957 EMPLOYEE DISABILITY RETIREMENT APPLICATIONS (2) 01 Disability Retirement Consent (2) 02 Petition for Board Rehearing 03 Board to act on disability retirement applications and petition 13.03 CONFERENCE WITH LEGAL COUNSEL - PENDING LITIGATION CALIFORNIA GOVERNMENT CODE SECTION 54956.9(d)(2) 01 Significant Exposure to Litigation (1 Case) 14.0 BOARD OF RETIREMENT COMMITTEE ASSIGNMENTS 14.01 Chair to review committee assignments and make changes as necessary 15.0 CALENDAR 15.01 Board Meeting, September 11, 2020 at 9:00 AM 16.0 ADJOURNMENT
SJCERA Board Meeting • 8/14/2020 • Page 3 San Joaquin County Employees Retirement Association M I N U T E S BOARD MEETING SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD OF RETIREMENT FRIDAY, JULY 10, 2020 AT 9:00 AM Location: Via Zoom Client
1.0 ROLL CALL 1.01 MEMBERS PRESENT: Phonxay Keokham, Emily Nicholas, Jennifer Goodman, Michael Duffy (in at 9:06), Katherine Miller, Chanda Bassett, Adrian Van Houten (absent for an undetermined portion of the meeting due to technical difficulties), Margo Praus, Raymond McCray, and Michael Restuccia presiding MEMBERS ABSENT: None STAFF PRESENT: Chief Executive Officer Johanna Shick, Assistant Chief Executive Officer Kathy Herman, Investment Officer Chris Wisdom, Management Analyst III Greg Frank, Department Information Systems Analyst II Lolo Garza, Department Information Systems Specialist II Jordan Regevig, and Retirement Administrative Assistant Andrea Bonilla OTHERS PRESENT: Deputy County Counsel Jason Morrish, David Sancewich and Ryan Lobdell of Meketa Investment Group, and Sean Byrne of Morrison & Foerster 2.0 PLEDGE OF ALLEGIANCE 2.01 Led by Michael Restuccia 3.0 APPROVAL OF MINUTES 3.01 Approval of the minutes for the Administrative Committee Meeting of June 5, 2020 01 The Board voted unanimously (8-0) to approve the Minutes of the Administrative Committee Meeting of June 5, 2020. (Motion: McCray; Second: Bassett) 3.02 Approval of the minutes for the Board Meeting of June 5, 2020 01 The Board voted unanimously (8-0) to approve the Minutes of the Board Meeting of June 5, 2020. (Motion: Keokham; Second: Miller) 4.0 PUBLIC COMMENT 4.01 There was no public comment 5.0 CONSENT ITEMS 5.01 Service Retirement (23) 5.02 Mid-Year Administrative Budget Update 5.03 SJCERA Bylaws Amendments 01 Proposed revisions to Bylaws - Mark-up 02 Proposed revisions to Bylaws - Clean 03 Resolution 2020-07-01 titled “Amendment of Bylaws”
6 South El Dorado Street, Suite 400 • Stockton, CA 95202 SJCERA Board Meeting • 7/10/2020 • Page 1 (209) 468-2163 • [email protected] • www.sjcera.org 5.04 Board Administration Policy Amendments 01 Cash Management and Liquidity Policy a Proposed revisions to Cash Management and Liquidity Policy - Mark-up b Proposed revisions to Cash Management and Liquidity Policy - Clean 02 CEO Performance Review Policy a Proposed revisions to CEO Performance Review Policy - Mark-up b Proposed revisions to CEO Performance Review Policy - Clean 03 Disability Retirement Policy and Procedure a Proposed revisions to Disability Retirement Policy and Procedure - Mark-up b Proposed revisions to Disability Retirement Policy and Procedure - Clean 04 Resolution 2020-07-02 titled “Board Administration Policy Amendments” 5.05 Chief Executive Officer (CEO) Performance Review Committee Charter 01 Proposed CEO Performance Review Committee Charter 5.06 Board Investment Policy Amendments 01 Investment Manager Monitoring and Communications Policy a Proposed revisions to Investment Manager Monitoring and Communications Policy - Mark-up b Proposed revisions to Investment Manager Monitoring and Communications Policy - Clean 02 Investment Roles and Responsibilities Policy a Proposed revisions to Investment Roles and Responsibilities Policy - Mark-up b Proposed revisions to Investment Roles and Responsibilities Policy - Clean 03 Placement Agent Information Disclosure Policy a Proposed revisions to Placement Agent Information Disclosure Policy - Mark- up b Proposed revisions to Placement Agent Information Disclosure Policy - Clean 04 Proxy Voting Policy a Proposed revisions to Proxy Voting Policy - Mark-up b Proposed revisions to Proxy Voting Policy - Clean 5.07 Resolution 2020-07-03 titled “Board Investment Policy Amendments” 5.08 The Board voted unanimously (9-0) to approve the Consent Items and adopt Resolutions 2020-07-01, 2020-07-02 and 2020-07-03. (Motion: Bassett; Second: Goodman) 6.0 INVESTMENT CONTRACT EDUCATION SESSION 6.01 Presentation by Sean Byrne of Morrison & Foerster 7.0 CONSULTANT REPORTS PRESENTED BY DAVID SANCEWICH OF MEKETA INVESTMENT GROUP 7.01 Monthly Investment Performance Updates
SJCERA Board Meeting • 7/10/2020 • Page 2 01 Receive and File Manager Performance Flash Report - May 2020 02 Receive and File Capital Markets Outlook and Risk Metrics - June 2020 7.02 Investment Fee Transparency Report 7.03 Capital Market Assumptions - Inflation Sensitivity Analysis 7.04 Benchmark Review - Asset Classes 7.05 Board accepted and filed reports 8.0 SACRS BOARD OF DIRECTOR ELECTIONS 8.01 SACRS Board of Director Elections - 2020-2021 Final Ballot 8.02 SJCERA’s SACRS Voting Proxy Form 01 The Board voted unanimously (9-0) to approve the proposed list of SJCERA trustees and staff to vote on behalf of SJCERA. (Motion: Miller; Second: Keokham) 02 NOTE: Agenda Item 8.02 was taken out of order, after Agenda Item 15.0 8.03 SACRS Voting Ballot Form 8.04 The Board voted unanimously (9-0) to support the SACRS nominating committee’s slate of officers and authorized the CEO to submit SJCERA’s voting proxy and ballot form for the SACRS 2020-2021 Board of Directors election. (Motion: McCray; Second: Keokham) 9.0 2020 INVESTMENT ROUNDTABLE 9.01 The Board voted unanimously (9-0) to cancel the 2020 Investment Roundtable and change the October Board meeting from October 7 to October 9. The Board also directed staff to look into the possibility of scheduling the Investment Roundtable in Spring 2021. (Motion: McCray; Second: Miller) 10.0 STAFF REPORTS 10.01 Pending Retiree Accounts Receivable - Second Quarter 2020 10.02 Legislative Summary Report 10.03 Trustee and Executive Staff Travel 01 Conferences and Events Schedule for 2020 a Pension Bridge Annual Conference b Markets Group 8th Annual California Institutional Forum 02 Summary of Pending Trustee and Executive Staff Travel 03 Summary of Completed Trustee and Executive Staff Travel 10.04 Board accepted and filed reports
SJCERA Board Meeting • 7/10/2020 • Page 3 10.05 CEO Report In addition to the CEO report, CEO Shick welcomed Emily Nicholas to the Board and stated she was pleased to have the additional diversity of a Special District’s perspective on the Board. She reported that the County and the Courts contineu to pay additional contributions towards the unfunded liability and added that the Mosquito and Vector Control District has added an agenda item to their July Board meeting regarding paying additional contributions as well. As part of her employer outreach, CEO Shick reported that she sent SJCERA’s Popular Annual Financial report to the Board of Supervisors and that an email was also being sent out to all active members. She also solicited the Board’s feedback in regards to issuing an RFP for a vendor to document system requirements and write an RFP for soliciting proposals from pension administration system vendors for SJCERA’s next system. The Board directed staff to place this topic on an Administrative Committee Meeting agenda for further discussion. 01 Pension System Enhancement Project 11.0 CORRESPONDENCE 11.01 Letters Received 11.02 Letters Sent 11.03 Market Commentary/Newsletters/Articles 01 NCPERS The Monitor June 2020 02 Research Affiliates June 2020 03 Research Affiliates Survey of Broken Asset Classes June 2020 12.0 COMMENTS 12.01 Chair Restuccia welcomed Trustee Nicholas to the Board of Retirement. 12.02 Trustee McCray requested Meketa consider modifying the comparison portfolio used on the Flash report from a 60/40 to a 75/25 portfolio. 12.03 Trustee Miller thanked CEO Shick for her excellent presentation to the Board of Supervisors. 12.04 NOTE: Agenda Item 15.0 was taken up next out of order 13.0 CLOSED SESSION
THE CHAIR CONVENED A CLOSED SESSION AT 11:11 A.M. THE CHAIR ADJOURNED THE CLOSED SESSION AND RECONVENED THE OPEN SESSION AT 11:29 A.M. 13.01 PERSONNEL MATTERS CALIFORNIA GOVERNMENT CODE SECTION 54957 EMPLOYEE DISABILITY RETIREMENT APPLICATIONS (2) 01 Disability Retirement Consent (2) Counsel reported that in Closed Session the Board took the following action on personnel matters: a Equipment Operator II Service & Nonservice-Connected Disability Retirement
The Board voted unanimously (9-0) to grant the applicant a Service- Connected Disability Retirement. (Motion: Van Houten; Second: Bassett)
SJCERA Board Meeting • 7/10/2020 • Page 4 b Sheriffs Captain Service-Connected Disability Retirement
The Board voted unanimously (9-0) to grant the applicant a Service- Connected Disability Retirement. (Motion: Keokham; Second: McCray) 14.0 REPORT OF CLOSED SESSIONS ON JUNE 5, 2020, THE BOARD UNANIMOUSLY AUTHORIZED THE CEO TO SIGN THE NECESSARY DOCUMENTS AND FURTHER APPROVED RESOLUTION 2020-07 -04 TITLED “DAVIDSON KEMPNER LONG TERM DISTRESSED OPPORTUNITIES FUND V” AND COMMITTED TO INVEST $50 MILLION IN THE FUND. 15.0 ELECTION OF OFFICERS 15.01 Board to select officers for 2020-2021 15.02 The Chair called for nominations for each office of the Board of Retirement. 15.03 The Board voted unanimously (9-0) to re-elect Michael Restuccia as Chairperson, Michael Duffy as Vice Chairperson and Raymond McCray as Secretary. (Motion: Keokham; Second: Van Houten) 16.0 CALENDAR 16.01 Board Meeting, August 14, 2020 at 9:00 AM 17.0 ADJOURNMENT 17.01 There being no further business the meeting was adjourned at 11:32 a.m. Respectfully Submitted:
______Michael Restuccia, Chair Attest: ______Raymond McCray, Secretary
SJCERA Board Meeting • 7/10/2020 • Page 5 PUBLIC San Joaquin County Employees Retirement Association August 2020 5.01 Service Retirement Consent 01 JOSE L ALVA Deferred Member N/A Member Type: General Years of Service: 05y 08m 28d Retirement Date: 4/1/2020 Comments: Deferred from SJCERA since January 1985. 02 ANNETTE H BICHLMEIER Deferred Member N/A Member Type: General Years of Service: 10y 08m 28d Retirement Date: 7/17/2020 Comments: Deferred from SJCERA since November 2016. Incoming reciprocity and concurrent retirement with CalPERS. Outgoing reciprocity and concurrent retirement with SCERS. 03 ESTHER J BURKES Deferred Member N/A Member Type: General Years of Service: 01y 08m 07d Retirement Date: 7/4/2020 Comments: Deferred from SJCERA since May 1989. Outgoing reciprocity and concurrent retirement with SCERS. 04 JAMIE J CASNER Legal Process Clerk III Court-Court Oper-Traffic Court Member Type: General Years of Service: 24y 05m 27d Retirement Date: 7/1/2020
05 MONTE A CLEVENGER Deferred Member N/A Member Type: General Years of Service: 04y 01m 07d Retirement Date: 4/1/2020 Comments: Deferred from SJCERA since June 2007. Outgoing reciprocity and concurrent retirement with CalPERS. 06 SUSAN F DEGEN Deferred Member N/A Member Type: General Years of Service: 10y 08m 25d Retirement Date: 5/1/2020 Comments: Deferred from SJCERA since May 1997. 07 DANIELLE R GEARY Deferred Member N/A Member Type: General Years of Service: 10y 10m 28d Retirement Date: 7/14/2020 Comments: Deferred from SJCERA since March 2001. Outgoing reciprocity and concurrent retirement with CalPERS. 08 RICHARD F LARROUY Deferred Member N/A Member Type: General Years of Service: 08y 00m 19d Retirement Date: 5/1/2020 Comments: Deferred from SJCERA since March 1996. Outgoing reciprocity and concurrent retirement with CalPERS.
8/7/2020 11:09:06 AM Page: 2 PUBLIC San Joaquin County Employees Retirement Association August 2020
09 JUDIETH D MORRIS Correctional Officer Sheriff-Custody-Regular Staff Member Type: Safety Years of Service: 17y 04m 00d Retirement Date: 7/6/2020
10 JUDIETH D MORRIS Correctional Officer Sheriff-Custody-Regular Staff Member Type: General Years of Service: 00y 04m 19d Retirement Date: 7/6/2020
11 COEVA H PARROTT CommunityHealthOutreachWorker Public Health-MCAH Member Type: General Years of Service: 25y 06m 28d Retirement Date: 7/5/2020
12 KIM T PEREZ Eligibility Worker I HSA-Staff Development-Trainees Member Type: General Years of Service: 00y 01m 06d Retirement Date: 6/20/2020
13 KIM T PEREZ Juvenile Detention Officer Juvenile Detention Member Type: Safety Years of Service: 12y 09m 17d Retirement Date: 6/20/2020
14 THEODORE T RYAN Deferred Member N/A Member Type: General Years of Service: 06y 00m 09d Retirement Date: 4/24/2020 Comments: Deferred from SJCERA since May 2016. 15 JOYCE J SAULSBERRY Office Assistant Specialist Sheriff-AB109-Alternatives Member Type: General Years of Service: 24y 00m 06d Retirement Date: 6/29/2020
16 VICTORIA L SPIVEY Juvenile Detention Unit Suprv Juvenile Detention Member Type: Safety Years of Service: 20y 05m 05d Retirement Date: 6/29/2020
17 JOHN O THOMASSON Deferred Member N/A Member Type: General Years of Service: 00y 10m 03d Retirement Date: 6/29/2020 Comments: Deferred from SJCERA since March 1992. Incoming reciprocity and concurrent retirement with CalPERS.
8/7/2020 11:09:06 AM Page: 3 PUBLIC San Joaquin County Employees Retirement Association August 2020
18 MARY E THOMPSON Deferred Member N/A Member Type: General Years of Service: 18y 03m 15d Retirement Date: 6/2/2020 Comments: Deferred from SJCERA since July 1999. Outgoing reciprocity and concurrent retirement with CalSTRS.
8/7/2020 11:09:06 AM Page: 4
Board of Retirement Meeting San Joaquin County Employees’ Retirement Association
______Agenda Item 6.0 August 14, 2020
SUBJECT: Actuarial Report and 2021 Retirement Contribution Rates
SUBMITTED FOR: __ CONSENT l_X_l ACTION ___ INFORMATION
RECOMMENDATION
Staff recommends that the Board of Retirement: 1. Accept and file the final Annual Actuarial Valuation Report as of January 1, 2020 prepared by Cheiron and approve the employer and member contribution rates for calendar year 2021 presented therein. 2. Approve Resolution 2020-08-01 titled “Actuarial Report and 2021 Retirement Contribution Rates,” which implements these recommendations. PURPOSE The primary purpose of the actuarial valuation is to measure, describe, and identify the following: • SJCERA’s financial condition • Past and expected trends in SJCERA’s financial progress • Assessment and disclosure of key risks • Employer and employee contribution rates for the Plan Year 2021
DISCUSSION At the February 12, 2020 meeting, the Board elected to lower both the discount rate assumption from 7.25 percent to 7.0 percent and the pay growth assumption from 3.15 percent to 3.0 percent for 2020 and phase-in the impact to the unfunded actuarial liability (UAL) over a three- year period. Financial Condition The funded ratio based on the Market Value of Assets (MVA) increased from 60.2 percent last year to 64.7 percent this year. The funded ratio based on the Actuarial Value of Assets (AVA) decreased from 64.5 percent to 64.3 percent. The UAL is the excess of actuarial liabilities over the AVA. The UAL increased from $1,676,389,785 last year to $1,787,533,324 this year. August 14, 2020 Page 2 of 3 Agenda Item 6.0
The December 31, 2019 market value return on plan assets was 13.35 percent compared to the 7.25 percent assumption, resulting in a market value gain on investments of $173,881,422. However, after applying the five-year smoothing of asset gains and losses, the return was 5.08 percent on the smoothed value of assets, resulting in an increase to contributions rates.
Historical Trends SJCERA’s net cash flow (contributions less benefit payments and administrative expenses) was negative from 2010 to 2016, but has been positive the past three years due to the increase in the contribution rates and the additional contributions being made by the County and other employers.
Assessment and Disclosure of Key Risks Over the last ten years, the UAL has increased $967 million, consisting primarily of the investment experience of $613.8 million and the assumption changes of $494.5 million.
Employer and Employee Contribution Rates Employer contribution rates will increase in 2021. The primary driver was lowering the discount rate and the pay growth assumptions. Lowering these two assumptions increased the employer contribution rate by 1.35 percent of pay (about $6.2 million). Rates are shown below.
2021 2020 Contribution rates as a percentage of Active Member Payroll
CONTRIBUTION TIER 1 TIER 2 TIER 1 TIER 2 TYPE Members Pay Members Pay Members Pay Members Pay Members Pay Members Pay Basic w /COLA Basic w/COLA Basic w/COLA Basic w/ COLA Basic Rate Basic Rate Only Cost Share Cost Share Cost Share Cost Share Only Plus1 Plus1
General 49.50% 46.59% 46.03% 39.62% 47.28% 44.51% 43.98% 37.57%
Safety 93.28% 88.20% 86.29% 76.74% 87.52% 82.77% 81.24% 70.50% Employer Composite 57.80% 54.47% 53.65% 43.69% 54.72% 51.58% 50.86% 41.00%
Member2 General 2.95%-5.37% 5.01%-9.45% 5.43%-10.20% 9.97% 2.83%-5.23% 4.76%-9.14% 5.16%-9.87% 9.47%
Safety 4.45%-6.78% 9.13%-13.37% 10.60%-15.61% 15.46% 4.27%-6.60% 8.65%-12.89% 10.07%-15.08% 14.67% 1. “Plus” refers to additional contributions members have agreed to pay (up to 14% of the Basic General Member Contribution Rate, and 33% of the Basic Safety Member Contribution Rate). 2. Tier 1 member contribution rates vary by entry age; Table presents the range.
August 14, 2020 Page 3 of 3 Agenda Item 6.0
Upon the Board’s adoption of proposed Resolution 2020-08-01, staff will transmit the Retirement Contribution Rates for 2021 to each of our participating employers at least 45 days before the effective date of the new rates for formal adoption by their respective Boards.
ATTACHMENTS
Actuarial Valuation Report as of January 1, 2020 Resolution 2020-08-01, entitled “Actuarial Report and 2021 Retirement Contribution Rates”
______JOHANNA SHICK GREG FRANK ! Chief Executive Officer Management Analyst III
San Joaquin County Employees’ Retirement Association Actuarial Valuation Report as of January 1, 2020
Produced by Cheiron
August 2020
TABLE OF CONTENTS
Section Page
Letter of Transmittal ...... i
Section I Executive Summary ...... 1
Section II Disclosures Related to Risk ...... 15
Section III Assets ...... 25
Section IV Liabilities ...... 33
Section V Contributions...... 37
Section VI Additional CAFR Schedules ...... 41
Appendices
Appendix A Membership Information ...... 42
Appendix B Statement of Current Actuarial Assumptions and Methods ...... 65
Appendix C Summary of Plan Provisions ...... 73
Appendix D 401(h) Repayment Schedule ...... 86
Appendix E Glossary ...... 87
Appendix F General and Safety Employer Contribution Rates ...... 89
Appendix G Member Contribution Rates ...... 95
August 6, 2020
Retirement Board of San Joaquin County Employees’ Retirement Association 6 South El Dorado Street, Suite 400 Stockton, CA 95202
Dear Members of the Board:
At your request, we have conducted an actuarial valuation of the San Joaquin County Employees’ Retirement Association (SJCERA, the System, the Fund, the Plan) as of January 1, 2020. This report contains information on the System’s assets and liabilities and discloses employer and employee contribution levels. It also contains schedules for inclusion in the Actuarial Section of the Comprehensive Annual Financial Report (CAFR). Your attention is called to the Foreword in which we refer to the general approach employed in the preparation of this report.
The purpose of this report is to present the results of the annual actuarial valuation of SJCERA. This report is for the use of the Retirement Board of SJCERA and its auditors in preparing financial reports in accordance with applicable law and accounting requirements.
Cheiron’s report was prepared solely for the Retirement Board of SJCERA for the purposes described herein, except that the plan auditor may rely on this report solely for the purpose of completing an audit related to the matters herein. Other users of this report are not intended users as defined in the Actuarial Standards of Practice, and Cheiron assumes no duty or liability to any other user.
This report and its contents have been prepared in accordance with generally recognized and accepted actuarial principles and practices and our understanding of the Code of Professional Conduct and applicable Actuarial Standards of Practice set out by the Actuarial Standards Board as well as applicable laws and regulations. Furthermore, as credentialed actuaries, we meet the Qualification Standards of the American Academy of Actuaries to render the opinion contained in this report. This report does not address any contractual or legal issues. We are not attorneys and our firm does not provide any legal services or advice.
Sincerely, Cheiron
Graham A. Schmidt, ASA, FCA, MAAA, EA Anne D. Harper, FSA, MAAA, EA Consulting Actuary Principal Consulting Actuary
SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
Cheiron has performed the actuarial valuation of the San Joaquin County Employees’ Retirement Association as of January 1, 2020. The valuation is organized as follows:
• In Section I, the Executive Summary, we describe the purpose of an actuarial valuation, summarize the key results found in this valuation and disclose important trends.
• The Main Body of the report presents details on the System’s
o Section II – Identification and Assessment of Risks o Section III – Assets o Section IV – Liabilities o Section V – Contributions o Section VI – Additional CAFR Schedules
• In the Appendices, we conclude our report with detailed information describing plan membership (Appendix A), actuarial assumptions and methods employed in the valuation (Appendix B), a summary of pertinent plan provisions (Appendix C), a 401(h) repayment schedule (Appendix D), a glossary of key actuarial terms (Appendix E), a summary of General and Safety Employer contribution rates (Appendix F), and tables containing member contribution rates (Appendix G).
Future results may differ significantly from the current results presented in this report due to such factors as the following: plan experience differing from that anticipated by the assumptions; changes in assumptions; and changes in plan provisions or applicable law.
This report does not contain any adjustment for the potential impact of COVID-19. We anticipate the virus will affect both demographic and economic experience.
In preparing our report, we relied on information (some oral and some written) supplied by the SJCERA staff. This information includes, but is not limited to, plan provisions, employee data, and financial information. We performed an informal examination of the obvious characteristics of the data for reasonableness and consistency in accordance with Actuarial Standard of Practice No. 23.
1 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
The primary purpose of the actuarial valuation and this report is to measure, describe, and identify the following as of the valuation date:
• The financial condition of the System, • Past and expected trends in the financial progress of the System, • Employer and employee contribution rates for Plan Year 2021, and • An assessment and disclosure of key risks.
The information required under GASB standards Nos. 67 and 68 is included in a separate report, with the report for the Plan’s Fiscal Year Ending December 31, 2019 provided to SJCERA in May 2020.
In the balance of this Executive Summary, we present (A) the basis upon which this year’s valuation was completed, (B) the key findings of this valuation including a summary of key financial results, (C) an examination of the historical trends, and (D) the projected financial outlook for the System.
A. Valuation Basis
This valuation determines the employer contributions for the Plan Year 2021.
The System’s funding policy is to contribute an amount equal to the sum of: • The normal cost under the Entry Age Normal Cost Method, • Amortization of the Unfunded Actuarial Liability (UAL), and • A portion of the Fund’s expected administrative expenses.
At the July 24, 2015 board meeting, the SJCERA Board of Retirement made a change to the funding policy, choosing to amortize any unexpected new changes in the UAL over a period of 15 years as a level percent of pay, with new amortization layers each year. The amortization period for each layer of the remaining UAL will decrease each year. Prior to this change, all UAL, other than the extraordinary loss from 2008, was being amortized over a closed period of 19 years as a level percentage of member payroll. The extraordinary loss from 2008 is amortized over a closed period of 30 years starting in 2009, as a level percentage of payroll. At the February 14, 2020 board meeting, the SJCERA Board of Retirement chose to phase-in the impact of the January 1, 2020 economic assumption changes to the UAL over a period of 3 years, followed by 12 years of payments as a level percent of pay. The single equivalent amortization period for the aggregate stream of UAL payments is 15 years. Table V-4 shows a detailed summary of each amortization layer.
This valuation was prepared based on the plan provisions shown in Appendix C. There have been no changes in plan provisions since the prior valuation.
Two assumption changes are reflected in this year’s valuation. The investment rate of return assumption has been lowered from 7.25% to 7.00%, and the future pay growth assumption has been lowered from 3.15% to 3.00%.
2 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
B. Key Findings of this Valuation
The key results of the January 1, 2020 actuarial valuation are as follows:
• The actuarially determined employer contribution rate increased from 47.46% of payroll last year to 48.47% of payroll for 2020 before assumption changes. Assumption changes further increased the employer contribution rate from 48.47% to 49.82%.
• The System’s funded ratio, the ratio of assets over Actuarial Liability, decreased from 64.5% last year to 64.3% as of January 1, 2020 on an Actuarial Value of Assets (AVA) basis. It increased from 60.2% to 64.7% on a Market Value of Assets (MVA) basis.
• The Unfunded Actuarial Liability (UAL) is the excess of the System’s Actuarial Liability over the Actuarial Value of Assets. The System experienced an increase in the UAL from $ 1,676,389,785 to $ 1,787,533,324 as of January 1, 2020.
• During the year ending December 31, 2019, the return on Plan assets was 13.35% on a market value basis, as compared to the 7.25% assumption. This resulted in a market value gain on investments of $173,881,422. The Actuarial Value of Assets recognizes 20% of the difference between the expected Actuarial Value of Assets and the Market Value of Assets. This method of smoothing the asset gains and losses returned 5.08% on the smoothed value of assets, an actuarial asset loss of $65,252,333 for the year.
• The Actuarial Value of Assets of $3,226,099,142 is currently 99% of market value at $3,244,361,827. Since actuarial assets are below market assets, there are unrecognized investment gains (approximately $18 million) that will be reflected in the smoothed value in future years.
• The System experienced a gain on the Actuarial Liability of $49,916,986 primarily due to lower than expected salary growth. Combining the liability gain and asset net loss, as well as the contribution-timing lag, the System experienced a total loss of $38,627,461. The updated investment return and salary growth assumptions further increased the liability by $135,011,307.
• During 2019, the County, the Mosquito and Vector Control District (MVCD), and the Superior Court of California County of San Joaquin made additional voluntary contributions (above the actuarially determined amount) of $22,470,182. The total market value of the additional contributions, including prior year amounts and accumulated with interest at the Plan’s actual rate of return, was $68,994,995 as of December 31, 2019. These assets are included in the calculation of the UAL and funded ratio. However, under the funding policy with respect to these reserves requested by the contributors and approved by the Board, these assets are not currently included in the calculation of the employer contribution rates.
3 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
Table I-1 below summarizes all the key results of the valuation with respect to membership, assets and liabilities, and contributions. The results are presented and compared for both the current and prior plan year.
TABLE I-1 Summary of Principal Plan Results
January 1, 2019 January 1, 2020 % Change Participant Counts Active Participants 6,345 6,369 0.38% Participants Receiving a Benefit 6,053 6,208 2.56% Terminated Vested Participants 954 1,012 6.08% Terminated Non-Vested Participants 756 934 23.54% Total 14,108 14,523 2.94%
Annual Pay of Active Members $ 474,501,897 $ 478,458,307 0.83% Calendar Year Projected Pay $ 481,917,358 $ 485,582,148 0.76%
Assets and Liabilities Actuarial Liability (AL) $ 4,721,287,476 $ 5,013,632,466 6.19% Actuarial Value of Assets (AVA)1 3,044,897,691 3,226,099,142 5.95% Unfunded Actuarial Liability (UAL) $ 1,676,389,785 $ 1,787,533,324 6.63% Funded Ratio (AVA) 64.5% 64.3% -0.2% Funded Ratio (MVA)2 60.2% 64.7% 4.5% Inactive Funded Ratio 64.6% 66.3% 1.7%
Contributions as a Percentage of Payroll
Normal Cost Rate 14.86% 15.04% 0.18% Unfunded Actuarial Liability Rate3 31.76% 33.92% 2.16% Administrative Expense 0.84% 0.86% 0.02% Total Contribution Rate 47.46% 49.82% 2.36%
1 Includes additional County, MVCD, and Superior Court Contribution Reserves. 2 The Market Value of Assets includes additional County, MVCD, and Superior Court Contribution Reserves. 3 Based on Actuarial Value of Assets that does not include additional County, MVCD, and Superior Court Contribution Reserves.
The Inactive Funded Ratio shown in Table I-1 represents the percentage of the Actuarial Liability attributable to members who are not active employees. A funded ratio of 66.3% or more, for example, is required just to fund the liabilities of the System’s inactive members: those currently retired, disabled, terminated with vested benefits, and their beneficiaries.
4 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
Changes in Cost
Table I-2 below summarizes the impact of actuarial experience on Plan cost, for the Plan as a whole and for the General and Safety classes.
TABLE I-2 Summary of Changes in Plan Cost from Prior Review General Employer Safety Safety Employer Employer General Contribution Employer Contribution Total Contribution Employer Cost Rate (% Payroll) Cost Rate (% Payroll) Employer Cost Rate (% Payroll) January 1, 2019 $ 165,548,328 41.59% $ 57,830,577 79.76% $ 223,378,904 47.46% Change in Cost Due to: Expected Change (Pay Growth) 5,214,772 0.00% 1,821,663 0.00% 7,036,435 0.00% Asset Experience 4,228,914 1.00% 1,606,330 2.11% 5,835,244 1.17% Contribution (Gain)/Loss (Rate Delay) 1,709,560 0.41% 386,397 0.51% 2,095,957 0.42% Demographic Experience (1,442,416) ( 0.34%) 443,182 0.56% (999,233) ( 0.18%) Salary Experience (4,913,005) ( 0.90%) (290,729) ( 0.06%) (5,203,734) ( 0.77%) Payroll Amortization 0 0.69% 0 0.98% 0 0.76% PEPRA Transition (1,328,947) ( 0.35%) (430,990) ( 0.61%) (1,759,937) ( 0.39%) Assumption Change 4,446,082 1.14% 1,738,651 2.42% 6,184,733 1.35% Total Cost as of January 1, 2020 $ 173,463,288 43.24% $ 63,105,081 85.67% $ 236,568,369 49.82%
An analysis of the cost changes from the prior valuation reveals the following:
• Demographic experience was somewhat favorable for General members but resulted in an increase in cost for Safety members.
The demographic experience of the Plan – rates of retirement, death, disability, and termination – was close to that predicted by the actuarial assumptions in aggregate, reducing the overall employer rate by 0.18% of pay.
The post-retirement COLA granted in 2019 (3.0%) was higher than the assumption (2.6%). However, there were more deaths than expected among those in pay status among General retirees and their surviving spouses, which decreased their liabilities. The net impact of these and other unexpected demographic changes was a decrease of 0.18% of pay in overall employer cost and in 0.34% in employer cost for General members.
However, employer costs increased by 0.56% of pay for Safety members, because of more retirements and fewer deaths than expected, in addition to the higher than expected COLA.
• Overall pay increases for returning General members were below expectations.
Salaries for continuing General members increased less than expected, decreasing the employer contribution rate for General members by 0.90% of pay, and 0.77% of overall payroll.
However, salaries for continuing Safety members were close to the assumption, with small gains that reduced the rate by 0.06% of pay.
5 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
• The unfunded liability is being amortized over a smaller-than-expected payroll base for the General members and Safety members.
The payroll used to amortize the unfunded liability for General members was lower than expected due to lower than expected payroll growth (0.65%, versus the 3.15% assumption), which increased the General employer contribution rate by an additional 0.69% of pay, since the UAL payments are spread out over a lower payroll base than expected. The lower than expected Safety projected payroll (reflecting a 1.39% increase) resulted in an increase in the contribution rate by about 0.98% of pay.
The aggregate impact from the change in total projected payroll was an increase in the contribution rate of 0.76% of pay. Note that the change in the payroll base used to amortize the unfunded liability does not change the dollar amount of the contribution – only the contribution rate calculated as a percentage of pay.
• New members entered the Plan as PEPRA members.
During 2019, there were 790 newly hired or rehired members entering the Plan to replace departing members. New Tier 2 hires have a smaller Plan normal cost as a percentage of payroll when compared to the legacy (Tier 1) members.
Due to the shift in both populations towards more Tier 2 members, the employer contribution rate decreased by 0.35% of payroll for General members, 0.61% of pay for Safety members, and the overall contribution rate dropped by 0.39% of pay.
In addition, different bargaining groups continue to negotiate modifications to the cost sharing arrangements for their Legacy members. The valuation results reflect the arrangements in place as of the valuation date. Changes to the cost sharing arrangements occurring after the valuation date will affect the aggregate employer costs in future valuations.
Overall, the combined demographic and salary experience resulted in a decrease in the dollar amount of the actuarial cost by about $8 million and a decrease in the contribution rate by about 0.58% of pay.
• New economic assumptions increased cost.
The decrease in the investment return assumption from 7.25% to 7.00% and pay growth assumption from 3.15% to 3.00% increased the employer contribution rate by 1.35% of pay overall and by about $6.2 million. The increase was 1.14% of pay for General members and 2.42% of pay for Safety members. These increases reflect the first year of a three-year phase-in of the UAL payment due to the new economic assumptions.
6 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
• Asset experience produced an investment gain on a market basis and a loss on a smoothed basis.
The assets of the Plan returned 13.35% on a market basis, higher than the assumed rate of 7.25%, resulting in a gain of approximately $174 million for 2019. Under the actuarial asset smoothing policy, 20% of this gain is recognized in the current year, in addition to 20% of the gains and losses from each of the prior three years. The overall return on the smoothed assets was 5.08%; lower than the assumed return of 7.25%, so the overall contribution rate increased by 1.17% of pay.
The contribution rate increased more for Safety members (by 2.11% of pay) than for General members (1.00% of pay) as a result of the asset loss; this is due to the fact that the Safety members have a higher ratio of assets to payroll than the General members, and is discussed further in this report.
• Contributions less than the actuarial cost increased the employer contribution rate by 0.42% of pay, largely due to the 12-month delay in implementation of the contribution rates and a shortfall in actual versus projected payroll.
7 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
Historical Trends
Despite the fact that for most retirement plans the greatest attention is given to the current valuation results and in particular, the size of the current Unfunded Actuarial Liability and the employer contribution, it is important to remember that each valuation is merely a snapshot in the long-term progress of a pension fund. It is more important to judge a current year’s valuation result relative to historical trends, as well as trends expected into the future.
Assets and Liabilities
The chart on this page compares the Market Value of Assets (MVA) and Actuarial Value of Assets (AVA) to the Actuarial Liabilities. The percentage shown at the top of each bar is the ratio of the Actuarial Value of Assets to the Actuarial Liability (the funded ratio).
Actuarial Liability MVA AVA
72.7% 69.9% 63.4% 64.2% 66.2% 65.0% 64.6% 64.8% 64.5% 64.3% $6.0
$5.0
$4.0 Billions $3.0
$2.0
$1.0
$0.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
The funded ratio has declined from 72.7% in 2011 to 64.3% in 2020. The extraordinary asset loss of 2008 adversely affected the funded ratio through 2013, as losses were recognized with asset smoothing. In addition, for the 2013, 2016, 2018, and 2020 valuations, assumption changes were made that reflected lower expected future returns on assets and improved mortality, increasing the Actuarial Liability, and therefore decreasing the funded ratio. The return on the actuarial value of assets the last five years has been between 3.9%-5.6%, lower than the assumed rate of return, which has also contributed to the Plan’s lack of funding progress.
8 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
Employer Contribution Rates
The chart on this page shows the employer contribution rate for each of the last 10 valuation cycles. The same factors that contributed to the decline and subsequent lack of progress in funded status – i.e. lower returns and assumptions that are more conservative – have resulted in increases in contribution rates. Rates have also increased due to growth in payroll lagging behind the actuarial assumptions, which spreads the UAL dollar payment over a smaller payroll base.
60%
49.82% 50% 47.46% 45.50% 42.99% 43.21% 41.35% 39.69% 40% 36.64% 35.12% 32.04% 30%
20%
10%
0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
9 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
Cash Flows
The chart below shows the Plan’s net cash flow (NCF) (contributions less benefit payments and administrative expenses). This is a critical measure, as it reflects the ability to have funds available to meet benefit payments without having to make difficult investment decisions, especially during volatile markets.
Contributions Benefits Admin Expense NCF $300 $250 $200 $150 $100 $50 Millions $0 ($50) ($100) ($150) ($200) ($250) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
The NCF – shown as the black line in the chart – has been slightly negative for the first seven years shown in this period, but has been positive the past three years due to the increase in the contribution rates and the additional contributions being made by the County and other employers.
The implications of a plan with negative net cash flow are that the impact of market fluctuations can be more severe: as assets are being depleted to pay benefits in down markets, there is less principal available to be reinvested during favorable return periods. If there were a shift to future negative net cash flow, it could magnify the losses during a market decline, hindering the Plan in its ability to absorb market fluctuations.
10 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
D. Future Expected Financial Trends
The analysis of projected financial trends is perhaps the most important component of this valuation. In this section, we present our assessment of the implications of the January 1, 2020 valuation results in terms of cost and benefit security (assets over liabilities). All the projections in this section are based on the updated interest rate assumption of 7.00%. We have assumed a level active workforce population and future payroll growth of 3.00% per year.
The following graphs show the expected employer contribution rates for General and Safety members, and for the Plan in aggregate, based on actually achieving the 7.00% assumption each year for the next 20 years, and if the employers contribute at the actuarially determined rates.
Projection of General Employer Contributions, 7.00% return each year
50%
44% 44% 40% 43% 44% 44% 43% 43% 43% 43% 43% 43% 40% 37% 30%
20% 22% 18% Percent Payroll of Percent 15% 14% 10% 14% 14% 8% 8% 0% 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Projection of Safety Employer Contributions, 7.00% return each year
100% 90% 87% 89% 89% 87% 80% 86% 87% 86% 86% 85% 85% 85% 80% 70% 77% 60% 50%
40% 43% 30% 37% Percent Payroll of Percent 27% 20% 25% 25% 24% 10% 11% 10% 0% 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
11 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
Projection of Total Employer Contributions, 7.00% return each year
60%
50% 51% 51% 50% 51% 50% 50% 50% 50% 49% 49% 49% 46% 40% 43%
30%
20% 25% 21% Percent Payroll of Percent 17% 16% 16% 16% 10% 9% 8% 0% 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
The projections show that General, Safety and Total County contributions are expected to increase over the next few years, as the impact of the reduction of the discount rate is phased in over a three-year period. The dollar contribution will be approximately $171 million for General and $60 million for Safety in 2020, growing to around $208 million for General and $76 million for Safety in five years, then remaining relatively flat as a percent of pay until 2033 when the 2014 UAL is paid off. The slight decline in contribution rates from 2025-2032 is attributable to Tier 2 new hires that are expected to replace existing Tier 1 membership, as well as the expiration of other UAL amortization layers.
Note that the graphs on the previous page do not forecast any actuarial gains or losses (except for deferred gains and losses on the Market Value of Assets). Even modest losses relative to the 7.00% assumed return could push the employer contribution rates even higher in the next few years. The graphs also do not include the impact of the additional contributions currently being made by the County, the Mosquito and Vector Control District, and the Superior Court; those additional contributions would eventually be expected to be available to reduce the employer contributions in future years.
12 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
Asset and Liability Projections:
The graph below shows the projection of SJCERA’s assets and liabilities assuming that assets will earn the 7.00% assumption each year during the projection period and the employers contribute at the actuarially determined rates.
Projection of Assets and Liabilities, 7.00% return each year Actuarial Value of Assets Market Value of Assets 105% 105% $10,000 104% 104% 102%103% 99% 101% 96% $8,000 90% 93% 84% 87% 79% 82% 74% 77% $6,000 69% 71% 65% 67% Millions
$4,000
$2,000
$0 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 Valuation Year
The graph shows that the projected funded status on a market value basis increases over the next 20 years to 105%, assuming the actuarial rate of return assumption is achieved. However, as noted above, it is the actual return on System assets that will determine the future funding status and contribution rates to the Fund.
The assets in the graph above include the additional contributions that the County (2017-2019), the Mosquito and Vector Control District (2018-2019), and Superior Court made to the fund. No further additional contributions are assumed. However, the additional contribution reserve continues to grow at the 7.00% assumed rate of return and are not used in the calculation of the actuarially determined contribution rates, which results in the projected funded states exceeding 100%. If these reserves are eventually used to offset the required contributions for these employers, the Plan would not expect to become overfunded.
The graph on the next page shows the same information as the previous graph and assumes that the County continues making additional contributions of 5% of payroll until the System’s funded ratio reaches 100%. No additional contributions on behalf of the Mosquito and Vector Control District or Superior Court are incorporated in these projections, as they are not expected to have a significant impact on the funded status for SJCERA as a whole, though they would affect the unfunded liabilities reported on the District’s and Court’s balance sheets. Note that no change in the contribution rate is assumed due to the additional contributions made by the County; these assets continue to be excluded from the actuarial cost calculation, as noted earlier.
13 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION I – EXECUTIVE SUMMARY
Projection of Assets and Liabilities, 7.00% return each year, Ongoing County Additional 5% Contributions Actuarial Value of Assets Market Value of Assets 115% 114% $10,000 114% 113% 111%112% 106%109% 102% $8,000 95% 99% 89% 92% 82% 85% 76% 79% $6,000 70% 73% 65% 67% Millions
$4,000
$2,000
$0 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 Valuation Year
As can be seen in the projection above, with the additional expected 5% of pay contributions from the County the Plan would be expected to return to full funding in 2032, two years earlier than expected in the projections without the additional future contributions.
14 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
Actuarial valuations are based on a set of assumptions about future economic and demographic experience. These assumptions represent a reasonable estimate of future experience, but actual future experience will undoubtedly be different and may vary significantly. This section of the report is intended to identify the primary risks to the Plan, provide some background information about those risks, and provide an assessment of those risks.
Identification of Risks
A fundamental risk to a pension plan is that the contributions needed to pay the benefits become unaffordable. While we believe it is unlikely that the Plan by itself would become unaffordable, the contributions needed to support the Plan may differ significantly from expectations. While there are a number of factors that could lead to contribution amounts deviating from expectations, we believe the primary risks are:
• Investment risk, • Assumption change risk, and • Contribution and payroll risk.
Other risks that we have not identified may also turn out to be important.
Investment Risk is the potential for investment returns to be different than expected. Lower investment returns than anticipated will increase the unfunded actuarial liability necessitating higher contributions in the future unless there are other gains that offset these investment losses. The potential volatility of future investment returns is determined by the Plan’s asset allocation and the affordability of the investment risk is determined by the amount of assets invested relative to the size of the plan sponsors or other contribution base.
Assumption change risk is the potential for the environment to change such that future valuation assumptions are different than the current assumptions. For example, declines in interest rates over the last three decades resulted in higher investment returns for fixed income investments, but lower expected future returns necessitating either a change in investment policy, a reduction in discount rate, or some combination of the two. Assumption change risk is an extension of the other risks identified, but rather than capturing the risk as it is experienced, it captures the cost of recognizing a change in environment when the current assumption is no longer reasonable.
Contribution risk is the potential for actual future contributions to deviate from expected future contributions. There are different sources of contribution risk such as the sponsor choosing to not make contributions in accordance with the funding policy or if the contribution requirement becomes such a financial strain on the sponsor as a result of material changes in the contribution base (e.g., covered employees, covered payroll) that affect the amount of contributions the Plan can collect.
15 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
The chart below shows the components contributing to the Unfunded Actuarial Liability (UAL) from December 31, 2010 through December 31, 2019. Over the last 10 years, the UAL has increased by approximately $966.9 million. The investment losses (gold bar) of $613.8 million on the actuarial value of assets (AVA) and assumptions changes (purple bar) resulting in a total UAL increase of $494.5 million are the primary sources in the UAL growth. The net liability gains (gray bar) of $77.6 million and contributions in excess of the “tread water” level (red bar) of $63.7 million have decreased the UAL since December 31, 2010.
Chart II-1
16 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
Chart II-2 below details the annual sources of the UAL change (colored bars) for the plan years ending December 31. The net UAL change for each year is represented by the blue diamonds.
Chart II-2 Changes in Unfunded Actuarial Liability $350 $300 $250 $200 $150 Millions $100 $50 $0 ($50) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ($100) AVA Investment (G)/L Assumption Changes Liability (G)/L Contributions Net Change
On a market value basis, the average annual geometric return over the 10-year period is 6.5%. This has resulted in investment losses on the AVA every year, increasing the UAL, except for the 2013 plan year.
Over the same time period, the assumed rate of return decreased from 8.16% to 7.00%. It is important to note that these changes simply reflect a downward revision to the estimate of future investment earnings and ultimately costs will be determined by actual investment earnings. Based on Meketa’s current capital market assumptions (including their inflation assumption of 2.18%) and the Plan’s asset allocation, the expected average annual return is 6.20%, compared to the Plan’s updated assumption of 7.00% in 2020. Future expectations of investment returns may continue to decline necessitating further reductions in the discount rate.
The impact of all assumption changes is represented by the purple bars and also includes decreases in mortality rates projected in the future which had a significant impact on the measurement of the UAL. The assumption changes effective with the January 1, 2019 valuation were only demographic changes with no change to the expected rate of return of 7.25%. The January 1, 2020 valuation decreases the expected rate of return to 7.00%.
17 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
Each year the UAL is expected to increase for benefits earned in the current year (the normal cost), administrative expenses, and interest on the UAL. This expected increase is referred to as the tread water level. If contributions are greater than the tread water level, the UAL is expected to decrease. Conversely, if contributions are less than the tread water level, the UAL is expected to increase. The amortization policy (as well as the contribution-timing lag) can impact whether or not the contributions exceed the tread water level. For example, the Board changed the amortization policy in 2009 to amortize 50% of the extraordinary asset loss over a 30-year period and the remaining UAL over a 20-year period. Initially, the relatively long amortization period resulted in contributions being below the tread water level.
However, the single equivalent amortization period for the last several year has been much lower (around 15-16 years), with the UAL payment going towards principal as well as interest on the UAL. In addition, the County and at least two other employers have made discretionary contributions above the actuarial determined contribution rate, in the County’s case equal to 5% of their pensionable payroll, or approximately $20 million for the 2017, 2018, and 2019 plan years. These contributions went directly toward paying down the principal on the UAL as seen below in Table II-1, which numerically summarizes the changes in the UAL for each year by source over the last 10 years.
Table II-1 Unfunded Actuarial Liability (UAL) Change by Source
December Investment Liability Assumption Total UAL 31, Experience Experience Changes Contributions Change 2010 $12,501,000 ($29,625,000) $0 ($6,173,000) ($23,297,000) 2011 141,181,000 (31,403,000) 0 11,186,000 120,964,000 2012 168,334,000 (29,597,000) 169,755,000 833,000 309,325,000 2013 (18,030,000) 28,061,000 0 39,067,000 49,098,000 2014 653,000 (11,929,000) 0 (5,073,000) (16,349,000) 2015 46,200,000 3,691,000 91,855,000 (172,000) 141,574,000 2016 53,461,000 45,033,000 0 831,000 99,325,000 2017 48,426,000 (14,693,000) 81,855,000 (33,016,000) 82,572,000 2018 95,800,000 12,745,000 16,017,000 (31,986,000) 92,576,000 2019 65,252,000 (49,917,000) 135,011,000 (39,203,000) 111,143,000 Total $613,778,000 ($77,634,000) $494,493,000 ($63,706,000) $966,931,000
18 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
Assessing Costs and Risks
Sensitivity to Investment Returns
The chart below compares assets to the present value of all projected future benefits discounted at the current expected rate of return and at discount rates 100 basis points above and below the expected rate of return. The present value of future benefits is shown as a bar with the portion attributable to past service in dark blue (Actuarial Liability) and the portion attributable to future service in teal (Present Value of Future Normal Costs). The Market Value of Assets is shown by the gold line.
Present Value of Future Benefits versus Assets
Actuarial Liability PV Future Normal Costs Market Value of Assets
8,000 $7,006 7,000 $5,958 6,000 $5,146 5,000
4,000 Millions 3,000
2,000
1,000
0 6.00% 7.00% 8.00% Expected Return on Assets
If investments return 7.00% annually, the Plan will need approximately $6.0 billion in assets today to pay all projected benefits compared to current assets of $3.2 billion. If investment returns are only 6.00%, the Plan would need approximately $7.0 billion in assets today, and if investment returns are 8.00%, the Plan would need approximately $5.1 billion in assets today.
19 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
Sensitivity to Investment Returns - Stochastic Projections
Stochastic projections serve to show the range of probable outcomes of various measurements. The graphs below and on the following page show the projected range of the employer contribution rate and of the funded ratio on an actuarial value of assets basis. The range in both scenarios is driven by the volatility of investment returns (assumed to be based on a 10.4% standard deviation of annual returns, as indicated in Meketa’s current capital market assumptions).
Stochastic Projection of Employer Contributions as a Percent of Pay
The stochastic projection of employer contributions as a percent of pay shows the probable range of future contribution rates. The baseline contribution rate (black line), which is based on the median of the simulations using an average return of 7.00%, aligns closely with the projections discussed in subsection D. of the Executive Summary of this report. In the most pessimistic scenario shown, the 95th percentile, the projected employer contribution rate approaches 75% of pay in 2030. Conversely, the most optimistic scenario shown, the 5th percentile, the projected employer contribution rate declines to 0% in 2032.
We note that these projections allow the employers’ contribution to drop below their share of the normal cost if the Plan becomes overfunded (i.e. a funded ratio above 100%). Under the PEPRA legislation, this is currently only allowed if the Plan becomes extremely over-funded (above 120%) and meets other conditions; these provisions have been ignored for the purposes of these simulations. The projections above do not include the additional contribution reserve or any future contributions above the actuarially determined contributions.
20 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
Stochastic Projection of Funded Ratio on an Actuarial Value of Assets Basis
The graph above shows the projection of the funded ratio based on the actuarial value of assets. The projections do not assume future additional contributions from the County or other employers. While the baseline-funded ratio (black line) is projected to be approximately 101% at the end of the 15-year period shown here, there is a wide range of potential outcomes. Good investment returns have the likelihood of bringing the funded ratio well over 100%. Due to the current funding policy of the Plan, even in scenarios with unfavorable investment returns, the Plan is projected to remain over 60% funded on an actuarial value of assets basis in all but the most unfavorable of scenarios, as long as the actuarially determined contributions continue to be made.
Contribution Risk
The Safety contribution rate is very large at nearly 86% of payroll and as a result, future salary increases, and the hiring of new members are potentially at risk. When member payroll growth stagnates or even declines, the dollar level of contributions made to the Plan also stagnate or decline since contributions are based on payroll levels.
There is also a risk of the contribution rate increasing even higher when payroll decreases since the Plan’s funding policy amortizes the UAL as a level percentage of pay. This means that the UAL payments increase at the assumed payroll growth rate of 3.00%, so that the payment is expected to remain constant as a percentage of payroll. If payroll growth is less than the expected 3.00% or there is a decline in payroll, the UAL payments are spread over a smaller payroll base and the contribution rate as a percentage of pay increases, making the Plan less affordable for the Safety and potentially other plan sponsors.
21 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
Plan Maturity Measures
The future financial condition of a mature pension plan is more sensitive to each of the risks identified above than a less mature plan. Before assessing each of these risks, it is important to understand the maturity of the Plan compared to other plans and how the maturity has changed over time.
Plan maturity can be measured in a variety of ways, but they all get at one basic dynamic - the larger the plan is compared to the contribution or revenue base that supports it; the more sensitive the plan will be to risk. The measures below have been selected as the most important in understanding the primary risks identified for the Plan.
Inactives per Active (Support Ratio)
One simple measure of plan maturity is the ratio of the number of inactive members (those receiving benefits or inactives – those entitled to a deferred benefit) to the number of active members. The Support Ratio is expected to increase gradually as a plan matures. The chart below shows the growth in the Support Ratio from 2011 to 2013 as the number of active members declined and the number of retirees increased. The Support Ratio slightly declined from 2014 to 2017 since the active population increased an average of about 3.6% per year. The last three years, the active population increased at a slower pace than the inactive population, resulting in an uptick in the Support Ratio.
22 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
Leverage Ratios
Leverage or volatility ratios measure the size of the plan compared to its revenue base more directly. The asset leverage ratio is simply the market value of assets to active member payroll and indicates the sensitivity of the Plan to investment returns. The liability leverage ratio is the plan’s actuarial liability to active member payroll and indicates the sensitivity of the Plan to assumption changes or demographic experience.
The chart below shows the historical leverage ratios of the Plan. Both leverage ratios have gradually increased since 2011, but the asset to payroll ratio had remained relatively stable around 6.0 - assets are six times member payroll - for the seven years prior to this year. In 2020, the ratio increased to 6.7 times member payroll, due to the favorable asset return. The liabilities to payroll ratio increase by 0.5 in 2020 since the liabilities increased as a result of lowering the discount rate from 7.25% to 7.00%.
Leverage Ratios
12 Assets to Payroll Liabilities (AL) to Payroll 10.3 9.7 9.8 9.8 10 9.2 9.2 9.4 9.5 8.6 7.9 8 6.7 6.2 6.3 5.9 6.0 5.8 5.7 5.9 6 5.1 5.4
4
2
0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
To appreciate the impact of the ratio of assets to payroll on plan cost, consider the situation for a new plan with almost no assets. Even if the assets suffer a bad year of investment returns, the impact on the plan cost is nil, because the asset level is so small.
As the Plan becomes better funded, the asset leverage ratio will increase, and if it were 100% funded, the asset leverage ratio would be over 10 times payroll, or the Actuarial Liability (AL) leverage ratio.
We note that the ratio of both assets and liabilities to payroll, and therefore the sensitivity to investment returns, is higher for the Safety members compared to the General members, because of the higher benefit amounts and the earlier average retirement ages for Safety.
23 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION II – DISCLOSURES RELATED TO RISK
Leverage Ratios 20.0 18.2 General Safety 16.0
11.7 12.0 8.9 8.0 5.8
4.0
0.0 Assets to Payroll AL to Payroll
The General asset leverage ratio of 5.8 means that if the Plan’s assets lose 10% of their value, which is a 17.00% actuarial loss compared to the expected return of 7.00%, the loss would be equivalent to 99% of payroll (17.00% times 5.8). Based on the current amortization policy and economic assumptions, the General contribution rate would ultimately increase by about 9% of payroll, after deferred asset losses are fully recognized. The same investment loss for the Safety group with an asset ratio of 11.7 would be equivalent to 199% of payroll, or an approximate contribution rate increase of 19%. Therefore, the contribution rates for the Safety members will generally be much more volatile than those of the General members.
More Detailed Assessment
While a more detailed assessment is always valuable to enhance the understanding of the risks identified above, we believe the scenarios illustrated above cover the primary risks facing the Plan at this time. We would be happy to provide the Board with a more in-depth analysis at their request.
24 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION III – ASSETS
Pension Plan assets play a key role in the financial operation of the System and in the decisions the Board may make with respect to future deployment of those assets. The level of assets, the allocation of assets among asset classes, and the methodology used to measure assets will likely impact benefit levels, employer contributions, and the ultimate security of participants’ benefits.
In this section, we present detailed information on System assets including:
• Disclosure of System assets as of December 31, 2018 and December 31, 2019, • Statement of the changes in market values during the year, • Development of the Actuarial Value of Assets, • An assessment of investment performance, and • Determination of reserve balances as of January 1, 2020.
Disclosure
There are two types of asset values disclosed in the valuation, the Market Value of Assets, and the Actuarial Value of Assets. The market value represents the fair value of assets that provide the principal basis for measuring financial performance from one year to the next. Market values, however, can fluctuate widely with corresponding swings in the marketplace. As a result, market values are usually not as suitable for long-range planning as are the Actuarial Value of Assets, which reflect smoothing of annual investment returns.
Table III-1 on the next page discloses and compares the market values as of December 31, 2018 and December 31, 2019.
25 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION III – ASSETS
TABLE III-1 Statement of Assets at Market Value December 31, Assets: 2018 2019 Cash and Cash Equivalents $ 129,812,307 $ 72,762,977 Cash Collateral-Securities Lending 81,063,525 46,038,227 Total Cash and Cash Equivalents 210,875,832 118,801,204 Receivables: Investment Income Receivables 3,643,209 5,847,455 Contributions Receivable 7,643,798 8,187,026 Securities Sold, Not Received - Domestic 2,411,261 3,111,902 Other Investment Income Receivable 0 0 Miscellaneous Receivables 49,098 46,448 Total Receivables 13,747,366 17,192,831 Investments, at Market Value: Stable Fixed Income 295,492,803 318,806,931 Credit 317,627,170 408,015,328 Global Public Equity 822,935,436 1,089,461,379 Private Appreciation 387,844,390 415,332,040 Risk Parity 368,268,349 408,546,978 Crisis Risk Offset 509,350,711 518,236,764 Total Investments 2,701,518,859 3,158,399,420 Other Assets: Prepaid Expenses 85,135 82,030 Equipment and Fixtures, Net 212,126 179,797 Other Assets 297,261 261,827 Total Assets 2,926,439,318 3,294,655,282 Liabilities: Securities Lending-Cash Collateral 81,063,525 46,038,227 Securities Purchased, Not Paid 2,417,979 3,402,003 Accrued Expenses and Other Payables 1,722,948 762,190 Security Lending Interest and Other Expense 192,790 91,035 Total Liabilities 85,397,242 50,293,455 Market Value of Assets $ 2,841,042,076 $ 3,244,361,827
26 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION III – ASSETS
Changes in Market Value
The components of asset change are: • Contributions (employer and employee) • Benefit payments • Expenses (investment and administrative) • Investment income (realized and unrealized)
Table III-2 below shows the components of change in the Market Value of Assets during 2018 and 2019.
TABLE III-2 Changes in Market Values Additions 2018 2019 Contributions Employer's Contribution 208,757,572 225,528,756 Members' Contributions 35,377,951 38,098,688 Total Contributions 244,135,523 263,627,444
Net Investment Income Net Appreciation/(Depreciation) in Fair Value of Investments (74,208,559) 345,001,380 Interest 17,748,616 34,070,170 Dividends 11,859,972 6,958,776 Real Estate Income, net 8,320,486 13,540,096 Investment Expenses (20,513,425) (19,363,548) Miscellaneous Investment Income 1,353 54,974 Net Investment Income, Before Securities Lending Income (56,791,557) 380,261,848
Securities Lending Income Earnings 1,743,726 2,186,019 Rebates (1,309,501) (1,734,932) Fees (108,406) (112,594) Net Securities Lending Income 325,819 338,493 Net Investment Income (56,465,738) 380,600,341 Miscellaneous Income 68,140 74,187 Total Additions 187,737,925 644,301,972
27 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION III – ASSETS
TABLE III-2 Changes in Market Values (Continued) Deductions 2018 2019 Benefit payments 218,456,053 232,736,441 Death Benefits 622,901 668,768 Refunds of Members' Contributions 2,364,713 2,944,863 Total Benefit Payments 221,443,667 236,350,072
Administrative & Other Expenses General Administrative Expenses 3,844,648 3,708,350 Actuary Fees 120,122 226,652 Fund Legal Fees 900,312 996,161 Total Administrative & Other Expenses 4,865,082 4,931,163 Transfer Between Plans (324,269) (299,014) Total Deductions 225,984,480 240,982,221 Net increase (Decrease) (38,246,555) 403,319,751
Net Assets Held in Trust for Pension Benefits: Beginning of Year 2,879,288,631 2,841,042,076 End of Year 2,841,042,076 3,244,361,827
Approximate Return -1.95% 13.35%
28 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION III – ASSETS
Actuarial Value of Assets (AVA)
The Actuarial Value of Assets represents a “smoothed” value developed by the actuary to reduce contribution volatility, which could develop due to short-term fluctuations in the Market Value of Assets. For this System, the Actuarial Value of Assets is calculated by recognizing the deviation of actual investment returns compared to the expected return over a five-year period.
The dollar amount of the expected return on the Market Value of Assets is determined using the actual contributions, administrative expense, and benefit payments during the year. Any difference between this amount and the actual investment earnings is considered a gain or loss. However, in no event will the Actuarial Value of Assets be less than 80% or more than 120% of market value on the valuation date. The following table shows the development of the actuarial asset value.
TABLE III-3 Development of Actuarial Value of Assets as of January 1, 2020 (a) (b) (c) (d) (e) (f) (g) = (f) – (e) (h) (i) = (g) x (h) Administrative Healthcare Expected Actual Additional Not Unrecognized Year Contributions Benefits Expense Fund Transfer Return Return Earnings Recognized Earnings 2016 189,239,931 194,719,177 4,369,744 293,779 178,243,779 151,114,788 (27,128,991) 20% (5,425,798) 2017 233,686,648 205,406,970 4,118,578 364,714 189,960,353 299,960,693 110,000,340 40% 44,000,136 2018 244,135,523 221,443,667 4,865,082 324,269 209,406,849 (56,397,598) (265,804,447) 60% (159,482,668) 2019 263,627,444 236,350,072 4,931,163 299,014 206,793,106 380,674,528 173,881,422 80% 139,105,138 1. Total Unrecognized Dollars 18,196,808 2. Market Value of Assets as of December 31, 2019 3,244,361,827 3. Preliminary Actuarial Value of Assets as of December 31, 2019: [(2) - (1)] 3,226,165,019 4. Corridor Limits a. 80% of Net Market Value 2,595,489,462 b. 120% of Net Market Value 3,893,234,192 5. Actuarial Value of Assets after Corridor 3,226,165,019 6. Ratio of Actuarial Value to Market Value 99.44% [(5) ÷ (2)] 7. Market Stabilization Designation 18,196,808 [(2) – (5)] 8. Special (Non Valuation) Reserves: Class Action Settlement – Post 4/1/1982 65,877 Contingency 0 Undistributed Earnings Reserve 0 Total Special Reserves 65,877 9. Actuarial Value of Assets for the Funding Ratio: [(5) - (8)] $3,226,099,142
10. Additional Contribution Reserves $68,994,995
11. Actuarial Value of Assets Used for Calculating the Employer Contribution Rates: [(9) - (10)] $3,157,104,147
29 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION III – ASSETS
Investment Performance
The following table calculates the investment related gain/loss for the plan year on both a market value and an actuarial value basis. The market value gain/loss is a useful measure for comparing the actual asset performance to the previous valuation assumption.
The employer contributions include the additional contributions of $22,470,182 made by the County, the MVCD, and the Superior Court in the gain/loss development for the market value of assets but are excluded in the analysis for the valuation assets.
TABLE III-4 Asset Gain/(Loss)
Market Value Valuation Assets January 1, 2019 value $ 2,841,042,076 $ 3,004,348,882 Employer Contributions 225,528,756 203,058,574 Employee Contributions 38,098,688 38,098,688 Healthcare Transfer 299,014 299,014 Benefit Payments (236,350,072) (236,350,072) Administrative Expenses (4,931,163) (4,931,163) Expected Investment Earnings (7.25%) 206,793,106 217,832,557 Expected Value December 31, 2019 $ 3,070,480,405 $ 3,222,356,480 Investment Gain / (Loss) 173,881,422 (65,252,333) January 1, 2020 value $ 3,244,361,827 $ 3,157,104,147
Return 13.35% 5.08%
Note that the return on market value shown above is not the dollar-weighted return on assets required for purposes of GASB Statements 67 and 68.
30 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION III – ASSETS
The following table shows the historical annual asset returns on a market value and actuarial value basis, as well in the increase in the Consumer Price Index (CPI) since 1999.
TABLE III-5 Historical Asset Returns Year Ended Return on Return on Increase December 31 Market Value Actuarial Value in CPI1 1999 13.7% 15.1% 2.7% 2000 3.2% 11.5% 3.4% 2001 ( 0.1%) 8.8% 1.6% 2002 ( 5.5%) 4.7% 2.4% 2003 25.5% 6.8% 1.9% 2004 11.8% 6.6% 3.3% 2005 6.9% 7.2% 3.4% 2006 12.7% 9.6% 2.5% 2007 6.9% 11.2% 4.1% 2008 ( 30.1%) ( 14.3%) ( 0.5%) 2009 11.4% 7.4% 2.5% 2010 12.4% 6.4% 1.5% 2011 1.3% ( 1.8%) 3.0% 2012 11.7% ( 0.2%) 1.7% 2013 9.2% 8.5% 1.5% 2014 4.7% 7.5% 0.8% 2015 ( 1.9%) 5.6% 0.7% 2016 6.3% 5.3% 2.1% 2017 11.7% 5.6% 2.1% 2018 ( 2.0%) 3.9% 1.9% 2019 13.3% 5.1% 2.3% Compounded 15- Year Average 4.3% 4.3% 2.0% Compounded 10- Year Average 6.5% 4.6% 1.8% Compounded 5- Year Average 5.3% 5.1% 1.8%
1 Based on All Urban Consumers - U.S. City Average, December Indices.
31 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION III – ASSETS
Reserve Balances
The following table shows historical balances of the Post-1982 Settlement Reserve.
TABLE III-6 Post-1982 Settlement Reserve Valuation Date Number Estimated Years January 1 Eligible Benefits Payable Reserve of Payments
2008 1,896 3,683,939 25,872,222 13 2009 1,856 3,602,904 22,015,055 10 2010 1,800 3,484,762 20,090,654 9 2011 1,738 3,370,636 18,108,660 6 2012 1,679 3,243,068 14,556,866 5 2013 1,709 3,244,009 11,063,855 4 2014 1,662 3,197,416 8,765,004 3 2015 1,617 3,046,233 6,338,007 2 2016 1,560 2,939,133 3,644,507 1 2017 1,501 2,821,575 915,393 <1 2018 1,441 2,705,007 485,100 <1 2019 1,376 2,594,058 62,951 <1 2020 1,313 2,479,710 65,877 <1
As of January 1, 2020, the total projected liability associated with paying the Post-82 Settlement allowances for the remaining lifetime of the eligible members and beneficiaries was estimated to be approximately $18.6 million. Payments from the Post-82 Settlement reserve have been suspended, with the last benefits payable in August of 2018.
32 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION IV – LIABILITIES
In this section, we present detailed information on System liabilities including: • Disclosure of System liabilities at January 1, 2019 and January 1, 2020 • Statement of changes in these liabilities during the year
Disclosure
Several types of liabilities are calculated and presented in this report. We note that the liabilities described below are not appropriate for assessing the sufficiency of plan assets to cover the estimated cost of settling the plan’s benefit obligations, in the case of a plan termination or other similar action.
• Present Value of Future Benefits: Used for measuring all future System obligations, represents the amount of money needed today to fully fund all benefits of the System both earned as of the valuation date and those to be earned in the future by current plan participants, under the current System provisions. • Actuarial Liability: Used for funding calculations, this liability is calculated taking the Present Value of Future Benefits and subtracting the present value of future Member Contributions and future Employer Normal Costs under an acceptable actuarial funding method. The method used for this System is called the Entry Age Normal (EAN) funding method. • Unfunded Actuarial Liability: The excess of the Actuarial Liability over the Actuarial Value of Assets.
Table IV-1 discloses each of these liabilities for the current and prior valuations. With respect to each disclosure, a subtraction of the appropriate value of Plan assets yields, for each respective type, a net surplus, or an Unfunded Actuarial Liability.
33 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION IV – LIABILITIES
TABLE IV-1 Liabilities/Net (Surplus)/Unfunded January 1, 2019 January 1, 2020 Present Value of Future Benefits Active Participant Benefits $ 2,560,534,003 $ 2,635,984,057 Retiree and Inactive Benefits 3,052,260,096 3,321,874,296 Present Value of Future Benefits (PVB) $ 5,612,794,099 $ 5,957,858,353
Actuarial Liability Present Value of Future Benefits (PVB) $ 5,612,794,099 $ 5,957,858,353 Present Value of Future Normal Costs (PVFNC) 891,506,623 944,225,887 Actuarial Liability (AL = PVB – PVFNC) $ 4,721,287,476 $ 5,013,632,466 Actuarial Value of Assets (AVA)1 3,044,897,691 $3,226,099,142 Net (Surplus)/Unfunded (AL – AVA) $ 1,676,389,785 $ 1,787,533,324
1 Assets include the additional County, MVCD, and Superior Court Contribution Reserves.
34 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION IV – LIABILITIES
Changes in Liabilities
Each of the liabilities disclosed in the prior table are expected to change at each valuation. The components of that change, depending upon which liability is analyzed, can include: • New hires since the last valuation • Benefits accrued since the last valuation • Plan amendments • Passage of time which adds interest to the prior liability • Benefits paid to retirees since the last valuation • Participants retiring, terminating, or dying at rates different than expected • A change in actuarial or investment assumptions • A change in the actuarial funding method
Unfunded liabilities will change because of all of the above, and due to changes in System assets resulting from:
• Employer contributions different than expected • Investment earnings different than expected • A change in the method used to measure plan assets
TABLE IV-2 Changes in Actuarial Liability
Actuarial Liability at January 1, 2019 $ 4,721,287,476 Actuarial Liability at January 1, 2020 $ 5,013,632,466 Liability Increase (Decrease) 292,344,990
Change due to: Accrual of Benefits $ 102,307,866 Actual Benefit Payments (236,350,072) Interest 341,292,875 Assumption Changes 135,011,307 Actuarial Liability (Gain) / Loss (49,916,986)
35 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION IV – LIABILITIES
TABLE IV-3 Development of Actuarial (Gain) / Loss
1. Unfunded Actuarial Liability at Start of Year (not less than zero) $ 1,716,938,594
2. Middle of year unfunded actuarial liability payment (153,075,201)
3. Interest to end of year on 1. and 2. 119,026,159
4. Increase in Actuarial Liability due to assumption change 135,011,307
5. Expected UAL at the end of year (1+2+3+4) 1,817,900,859
6. Actual Unfunded Liability at end of year1 1,856,528,319
7. Net (Gain)/Loss: (6 - 5) 38,627,461
8. Actuarial Liability (Gain) / Loss $ (49,916,986)
9. Actuarial Asset (Gain) / Loss $ 65,252,333
10. Contribution Delay (Gain) / Loss $ 23,292,114
1 Assets exclude the additional County, MVCD, and Superior Court Contribution Reserves.
36 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION V – CONTRIBUTIONS
In the process of evaluating the financial condition of any pension plan, the actuary analyzes the assets and liabilities to determine what level (if any) of contributions is needed to properly maintain the funding status of the System. The actuarial process utilizes funding techniques with a goal of producing a pattern of contributions that are both stable and predictable.
For this System, the actuarial funding method used to determine the normal cost and the Unfunded Actuarial Liability is the Entry Age Normal (EAN) cost method. There are three primary components to the total contribution: the normal cost rate (employee and employer), the unfunded actuarial liability rate (UAL rate), and the administrative expense contribution.
The normal cost rate is determined in the following steps. First, an individual normal cost rate is determined by taking the value, as of entry age into the System, of each member’s projected future benefits. This value is then divided by the value, also at entry age, of the member’s expected future salary producing a normal cost rate that should remain relatively constant over a member’s career. The total normal cost is adjusted with interest to the middle of the year, to reflect the fact that the normal cost contributions are paid throughout the year as member payroll payments are made. Finally, the total normal cost rate is reduced by the member contribution rate to produce the employer normal cost rate.
The Unfunded Actuarial Liability is the difference between the EAN Actuarial Liability and the Actuarial Value of Assets. At the July 24, 2015 board meeting, the SJCERA Board of Retirement chose to make a change to their funding policy, opting to amortize any unexpected changes in the UAL over a period of 15 years as a level percent of pay, with new amortization layers each year. The result was a set of three amortization bases as of January 1, 2015: the 2008 loss being amortized over 24 years, the remaining UAL as of December 31, 2014 being amortized over 18 years, and new additions to the UAL on and after January 1, 2015 amortized over 15 years. At the February 14, 2020 board meeting, the SJCERA Board of Retirement chose to phase-in the impact of the January 1, 2020 economic assumption changes to the UAL over a period of 3 years, followed by 12 years of payments as a level percent of pay. The single equivalent amortization period for all streams of UAL payments is 15 years as of January 1, 2020. The amortization period for each Unfunded Actuarial Liability layer will decrease each year.
The total administrative expenses are assumed to be $4,900,418 in 2020, increasing with the CPI assumption each valuation. The administrative expenses are split between employees and employers based on their share of the overall contributions.
The tables on the following pages present the employer contributions for the System for this valuation.
37 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION V – CONTRIBUTIONS
TABLE V-1 Development of Employer Contribution Amount
January 1, 2020 % of pay 1. Normal Cost at Middle of Year $67,714,669 15.04%
2. Amortization of Unfunded Liability a. Actuarial Liability $ 5,013,632,466 b. Actuarial Value of Assets1 $3,157,104,147 c. Unfunded Liability (a) – (b) $ 1,856,528,319 d. Amortization of Unfunded Liability $164,692,363 33.92% 3. Administrative Expenses 4,161,336 0.86% (Employer allocation only) 4. Actuarially Determined Contribution $ 236,568,368 49.82% (1) + (2d) + (3)
1Assets exclude additional County, MVCD, and Superior Court Contribution Reserves.
TABLE V-2 Employer Contribution Rate
January 1, 2019 January 1, 2020 Contributions as a Percentage of Payroll1 Gross Entry Age Normal Cost Rate 22.95% 23.73% Employee Contribution Rate 8.09% 8.69% Employer Entry Age Normal Cost Rate 14.86% 15.04%
Employer Normal Cost Rate 14.86% 15.04% Administrative Expense 0.84% 0.86% Amortization Payment 31.76% 33.92% Employer Contribution Rate 47.46% 49.82%
Actuarially Determined Contribution (Employer) $ 223,378,904 $ 236,568,369
1 Normal cost and employee contribution rates do not include administrative expenses.
38 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION V – CONTRIBUTIONS
TABLE V-3 Employer Contribution Rate General Tier 1 General Tier 2 Safety Tier 1 Safety Tier 2 January 1, 2020 January 1, 2020 January 1, 2020 January 1, 2020 Contributions as a Percentage of Payroll1 Gross Entry Age Normal Cost Rate 23.44% 19.44% 37.38% 30.42% Employee Contribution Rate 7.00% 9.72% 9.17% 15.21% Employer Entry Age Normal Cost Rate 16.44% 9.72% 28.21% 15.21%
Employer Normal Cost Rate 16.44% 9.72% 28.21% 15.21% Administrative Expense 0.86% 0.86% 0.86% 0.86% Amortization Payment 29.04% 29.04% 60.67% 60.67% Employer Contribution Rate 46.34% 39.62% 89.74% 76.74%
Actuarially Determined Contribution (Employer) $ 100,157,163 $ 73,306,125 $ 45,542,882 $ 17,562,198
1 Normal cost and employee contribution rates do not include administrative expenses.
39 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION V – CONTRIBUTIONS
TABLE V-4 Development of Amortization Payment For Fiscal Year 2020
Initial 1/1/2020 Remaining Date Initial Amortization Outstanding Amortization Amortization Type of Base Established Amount Ye ars Balance Ye ars Amount Charges/(Credits) 1. 2008 Extraordinary Actuarial Loss 1/1/2009 $ 424,264,899 30 $ 463,530,095 19 $ 34,795,249 2. Remaining 1/1/2014 UAL 1/1/2014 820,499,756 19 754,046,928 13 74,648,712 3. 1/1/2015 Gain 1/1/2015 (16,438,883) 15 (14,034,224) 10 (1,712,941) 4. 1/1/2016 Loss 1/1/2016 52,425,827 15 46,798,155 11 5,285,831 5. 1/1/2016 Assumption Changes 1/1/2016 91,855,247 15 81,995,003 11 9,261,298 6. 1/1/2017 Loss 1/1/2017 109,410,922 15 101,386,425 12 10,684,318 7. 1/1/2018 Loss 1/1/2018 37,659,825 15 35,980,314 13 3,561,959 8. 1/1/2018 Assumption Changes 1/1/2018 81,854,661 15 78,204,199 13 7,742,016 9. 1/1/2019 Loss 1/1/2019 121,736,453 15 119,288,235 14 11,158,454 10. 1/1/2019 Assumption Changes 1/1/2019 16,016,526 15 15,694,421 14 1,468,086 11. 1/1/2020 Loss 1/1/2020 38,627,461 15 38,627,461 15 3,431,269 12. 1/1/2020 Assumption Changes 1/1/2020 135,011,307 15 135,011,307 15 4,368,112 1
$ 1,856,528,319 15 2 $ 164,692,363
1 This payment reflects the first year of a three-year phase-in of the recognition of the increase in UAL due to the new economic assumptions. 2 The single equivalent amortization period - i.e. the length of time required to amortize the overall UAL as a level percentage of payroll based on the total current amortization payment is approximately 15 years.
40 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
SECTION VI – ADDITIONAL CAFR SCHEDULES
This section of the report provides a schedule for the Actuarial Section of the CAFR for SJCERA that is not provided in the GASB 67 and 68 reports.
We have prepared the following schedule:
Schedule of Funded Liabilities by Type
The schedule of funded liabilities by type (formerly known as the solvency test) shows the portion of Actuarial Liabilities for active member contributions, inactive members, and the employer financed portion of the active members that are covered by the Actuarial Value of Assets.
The Actuarial Liability is determined assuming that the System is ongoing, and participants continue to terminate employment, retire, etc., in accordance with the actuarial assumptions. Liabilities for 2013 through 2015 were discounted at an assumed interest rate of 7.50%, whereas liabilities for 2016 and 2017 were discounted at the assumed rate of 7.40%, and the liabilities for 2018 and 2019 were discounted at the assumed rate of 7.25%. The liabilities for 2020 are discounted at the assumed rate of 7.00%.
Table VI-1 S chedule of Funded Liabilities by Type Aggregate Actuarial Liabilities for
Portion of Actuarial Valuation Date Active Member Retirees & Active Actuarial Value Liabilities Covered by January 1, Contributions Beneficiaries Members1 of Assets Reported Assets (1) (2) (3) (1) (2) (3) 2020 $ 396,549,386 $ 3,162,982,551 $ 1,454,100,529 $ 3,226,099,142 100% 89% 0% 2019 368,549,547 2,899,425,320 1,437,296,083 3,044,897,691 100% 92% 0% 2018 344,503,811 2,706,791,152 1,445,680,634 2,913,161,286 100% 95% 0% 2017 318,020,652 2,513,640,349 1,403,432,945 2,733,851,661 100% 96% 0% 2016 297,179,041 2,347,908,211 1,361,302,798 2,604,472,784 100% 98% 0% 2015 276,818,405 2,117,009,658 1,337,806,309 2,471,291,047 100% 100% 6% 2014 258,198,240 1,956,930,619 1,346,730,197 2,285,165,972 100% 100% 5% 2013 209,987,230 1,810,775,897 1,332,531,085 2,125,700,227 100% 100% 8% 2012 202,924,928 1,627,338,404 1,218,058,024 2,130,052,649 100% 100% 25% 2011 193,612,757 1,495,665,075 1,228,410,127 2,120,384,183 100% 100% 35% 2010 187,986,706 1,373,256,766 1,208,368,072 1,949,011,498 100% 100% 32% 2009 176,235,961 1,231,647,623 1,103,041,755 1,821,357,079 100% 100% 37% 2008 166,804,000 1,119,690,000 1,048,027,000 2,029,949,000 100% 100% 71% 2007 159,100,000 1,023,296,000 967,542,000 1,869,717,000 100% 100% 71% 2006 147,953,000 904,208,000 883,657,000 1,727,033,000 100% 100% 76% 1 Includes terminated vested members.
41 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
The data for this valuation was provided by the San Joaquin County staff as of January 1, 2020.
Summary of Participant Data as of January 1, 2020 General Safety Total Tier 1 Active Participants Number 2,671 538 3,209 Average Age 51.12 44.65 50.03 Average Benefit Service 16.73 15.93 16.59 Average Vesting Service 16.81 16.06 16.68 Average Pay $82,054 $94,820 $84,195
Tier 2 Active Participants Number 2,855 305 3,160 Average Age 40.51 32.68 39.76 Average Benefit Service 2.90 3.09 2.92 Average Vesting Service 2.94 3.09 2.96 Average Pay $64,989 $74,538 $65,911
All Active Participants Number 5,526 843 6,369 Average Age 45.64 40.32 44.94 Average Benefit Service 9.59 11.28 9.81 Average Vesting Service 9.64 11.37 9.87 Average Pay $73,238 $87,482 $75,123
42 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Summary of Participant Data as of January 1, 2020 General Safety Total Service Retired Number 4,056 647 4,703 Average Age 70.87 66.11 70.22 Average Annual Base Benefit $14,725 $31,954 $17,095 Average Annual Total Benefit $36,681 $71,077 $41,413
Beneficiaries Number 653 207 860 Average Age 72.66 69.87 71.99 Average Annual Base Benefit $6,258 $11,956 $7,629 Average Annual Total Benefit $20,516 $36,513 $24,367
Duty Disabled Number 261 214 475 Average Age 64.92 61.73 63.48 Average Annual Base Benefit $12,570 $28,247 $19,633 Average Annual Total Benefit $26,293 $55,363 $39,390
Non-Duty Disabled Number 155 15 170 Average Age 64.94 67.27 65.14 Average Annual Base Benefit $8,894 $12,231 $9,189 Average Annual Total Benefit $17,770 $28,677 $18,733
Total Receiving Benefits Number 5,125 1,083 6,208 Average Age 70.62 65.98 69.81 Average Annual Base Benefit $13,360 $27,126 $15,762 Average Annual Total Benefit $33,520 $60,778 $38,276
43 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Summary of Participant Data as of January 1, 2020 General Safety Total Deferred Vested Number 458 40 498 Average Age 48.59 43.53 48.18 Average Service 9.02 9.74 9.08
Transfers and DROs Number 406 108 514 Average Age 49.26 44.78 48.32 Average Service 5.20 4.69 5.09
Funds on Account Number 887 47 934 Average Age 45.03 39.23 44.74 Average Service 1.27 1.66 1.29
Total Inactive Number 1,751 195 1,946 Average Age 46.94 43.18 46.57 Average Service 4.21 4.99 4.29
44 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Changes in Plan Membership: General
Transfers/ Non-Vested Vested Non-Duty Duty Actives Retired Beneficiaries Total DROS Terminations Terminations Disabled Disabled
January 1, 2019 5,485 403 719 410 156 250 3,969 635 12,027 New Entrants 752 0 0 0 0 0 0 0 752 Rehires 10 (2) (6) (4) 0 0 0 0 (2) Duty Disabilities (8) 0 0 0 0 8 0 0 0 Non- Duty Disabilities (4) 0 0 0 4 0 0 0 0 Retirements (168) (23) 0 (23) 0 0 213 1 0 Vested Terminations (82) 0 0 82 0 0 0 0 0 Retirements from Safety with 0 0 0 0 0 2 10 0 12 General Service Died, With Beneficiaries' (4) 0 0 0 (1) (1) (49) 55 0 Benefit Payable Died, Without Beneficiary, (224) (3) 221 (1) (4) (2) (83) (2) (98) and Other Terminations Transfers (44) 31 (3) 0 0 0 0 0 (16) Redeposits – AB 2766 0 0 0 0 0 0 0 0 0 Withdrawals Paid (187) (2) (41) (7) 0 0 0 0 (237) Beneficiary Deaths 0 0 0 0 0 0 0 (37) (37) Domestic Relations Orders 0 4 0 0 0 0 0 1 5 Data Corrections 0 (2) (3) 1 0 4 (4) 0 (4) January 1, 2020 5,526 406 887 458 155 261 4,056 653 12,402
45 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Changes in Plan Membership: Safety
Transfers/ Non-Vested Vested Non-Duty Duty Actives Retired Beneficiaries Total DROS Terminations Terminations Disabled Disabled
January 1, 2019 860 108 37 33 15 212 619 197 2,081 New Entrants 38 0 0 0 0 0 0 0 38 Rehires 1 0 0 0 0 0 0 0 1 Duty Disabilities (3) 0 (1) 0 0 4 0 0 0 Non- Duty Disabilities 0 0 0 0 0 0 0 0 0 Retirements (37) (5) 0 (2) 0 0 42 2 0 Vested Terminations (9) 0 0 9 0 0 0 0 0 Retirements from Safety with 0 0 0 0 0 0 3 0 3 General Service Died, With Beneficiaries' 0 0 0 0 0 (1) (10) 11 0 Benefit Payable Died, Without Beneficiary, (9) (1) 10 0 0 (2) (6) 0 (8) and Other Terminations Transfers 12 5 0 (1) 0 0 0 0 16 Redeposits – AB 2766 0 0 0 0 0 0 0 0 0 Withdrawals Paid (10) (2) 0 0 0 0 0 0 (12) Beneficiary Deaths 0 0 0 0 0 0 0 (3) (3) Domestic Relations Orders 0 1 0 0 0 0 0 0 1 Data Corrections 0 2 1 1 0 1 (1) 0 4 January 1, 2020 843 108 47 40 15 214 647 207 2,121
46 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Changes in Plan Membership: All Groups
Transfers/ Non-Vested Vested Non-Duty Duty Actives Retired Beneficiaries Total DROS Terminations Terminations Disabled Disabled
January 1, 2019 6,345 511 756 443 171 462 4,588 832 14,108 New Entrants 790 0 0 0 0 0 0 0 790 Rehires 11 (2) (6) (4) 0 0 0 0 (1) Duty Disabilities (11) 0 (1) 0 0 12 0 0 0 Non- Duty Disabilities (4) 0 0 0 4 0 0 0 0 Retirements (205) (28) 0 (25) 0 0 255 3 0 Vested Terminations (91) 0 0 91 0 0 0 0 0 Retirements from Safety with 0 0 0 0 0 2 13 0 15 General Service Died, With Beneficiaries' (4) 0 0 0 (1) (2) (59) 66 0 Benefit Payable Died, Without Beneficiary, (233) (4) 231 (1) (4) (4) (89) (2) (106) and Other Terminations Transfers (32) 36 (3) (1) 0 0 0 0 0 Redeposits – AB 2766 0 0 0 0 0 0 0 0 0 Withdrawals Paid (197) (4) (41) (7) 0 0 0 0 (249) Beneficiary Deaths 0 0 0 0 0 0 0 (40) (40) Domestic Relations Orders 0 5 0 0 0 0 0 1 6 Data Corrections 0 0 (2) 2 0 5 (5) 0 0 January 1, 2020 6,369 514 934 498 170 475 4,703 860 14,523
47 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Average Average Valuation at Member Plan Type Annual Payroll Annual Salary Ye ar End Count Salary Increase
2006 General 5,234 $288,178,806 $55,059 18.22% Safety 820 $56,293,820 $68,651 15.52% Total 6,054 $344,472,626 $56,900 17.68% 2007 General 5,353 $308,773,122 $57,682 4.76% Safety 871 $62,988,014 $72,317 5.34% Total 6,224 $371,761,136 $59,730 4.97% 2008 General 5,180 $315,202,954 $60,850 5.49% Safety 900 $67,127,759 $74,586 3.14% Total 6,080 $382,330,713 $62,883 5.28% 2009 General 4,990 $320,526,792 $64,234 5.56% Safety 925 $70,801,157 $76,542 2.62% Total 5,915 $391,327,949 $66,159 5.21% 2010 General 4,643 $308,183,424 $66,376 3.33% Safety 830 $64,817,396 $78,093 2.03% Total 5,473 $373,000,820 $68,153 3.01% 2011 General 4,441 $298,308,687 $67,172 1.20% Safety 813 $64,041,814 $78,772 0.87% Total 5,254 $362,350,501 $68,967 1.19% 2012 General 4,492 $301,505,122 $67,120 -0.08% Safety 803 $64,386,900 $80,183 1.79% Total 5,295 $365,892,023 $69,101 0.19% 2013 General 4,748 $316,885,044 $66,741 -0.57% Safety 805 $65,640,055 $81,540 1.69% Total 5,553 $382,525,098 $68,886 -0.31% 2014 General 4,879 $322,836,680 $66,169 -0.86% Safety 827 $68,491,483 $82,819 1.57% Total 5,706 $391,328,162 $68,582 -0.44% 2015 General 5,131 $340,731,847 $66,407 0.36% Safety 793 $66,456,278 $83,804 1.19% Total 5,924 $407,188,125 $68,735 0.22% 2016 General 5,291 $373,202,798 $70,535 6.22% Safety 811 $67,593,920 $83,346 -0.55% Total 6,102 $440,796,718 $72,238 5.10% 2017 General 5,370 $381,151,442 $70,978 0.63% Safety 848 $70,776,611 $83,463 0.14% Total 6,218 $451,928,053 $72,681 0.61% 2018 General 5,485 $401,820,940 $73,258 3.86% Safety 860 $72,680,957 $84,513 1.40% Total 6,345 $474,501,897 $74,784 3.52% 2019 General 5,526 $404,710,743 $73,238 -0.03% Safety 843 $73,747,564 $87,482 3.51% Total 6,369 $478,458,307 $75,123 0.45% Payroll figures represent active member's annualized pay rates on December 31.
48 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Schedule of Retirees and Beneficiaries Valuation Data
Valuation Members and Total Annual Average Average Plan Member Beneficiary at Year Beneficiaries Retirees Retirement Annual Allowance Type Retirements Continuance End Removed on Payroll Payroll Allowance Incre ase 2006 General 190 41 102 3,107 58,634,478 18,872 3.96% Safety 31 8 11 632 25,003,422 39,562 2.14% Total 221 49 113 3,739 83,637,900 22,369 3.45% 2007 General 199 31 99 3,238 65,213,731 20,140 6.72% Safety 38 6 8 668 27,396,329 41,012 3.67% Total 237 37 107 3,906 92,610,060 23,710 5.99% 2008 General 203 30 83 3,388 71,488,335 21,100 4.77% Safety 50 10 18 710 30,575,540 43,064 5.00% Total 253 40 101 4,098 102,063,875 24,906 5.04% 2009 General 207 31 104 3,522 78,988,070 22,427 6.29% Safety 24 7 11 730 32,575,964 44,625 3.62% Total 231 38 115 4,252 111,564,034 26,238 5.35% 2010 General 242 35 102 3,697 85,931,078 23,243 3.64% Safety 65 5 8 792 36,354,738 45,902 2.86% Total 307 40 110 4,489 122,285,816 27,241 3.82% 2011 General 240 42 108 3,871 92,938,361 24,009 3.30% Safety 32 4 14 814 38,098,866 46,805 1.97% Total 272 46 122 4,685 131,037,227 27,970 2.68% 2012 General 278 27 135 4,041 102,025,575 25,248 5.16% Safety 52 12 20 856 42,008,598 49,075 4.85% Total 330 39 155 4,897 144,034,172 29,413 5.16% 2013 General 213 52 134 4,172 109,869,721 26,335 4.31% Safety 22 11 20 869 43,548,028 50,113 2.11% Total 235 63 154 5,041 153,411,632 30,433 3.47% 2014 General 247 51 112 4,358 120,722,240 27,701 5.19% Safety 29 14 21 891 45,889,472 51,503 2.77% Total 276 65 133 5,249 166,611,711 31,742 4.30% 2015 General 227 45 136 4,494 129,928,957 28,912 4.37% Safety 54 15 19 941 50,813,875 54,000 4.85% Total 281 60 155 5,435 180,742,832 33,255 4.77% 2016 General 251 40 128 4,657 139,511,334 29,957 3.62% Safety 40 12 22 971 54,508,607 56,137 3.96% Total 291 52 150 5,628 194,019,941 34,474 3.66% 2017 General 249 49 149 4,806 149,183,295 31,041 3.62% Safety 46 12 13 1,016 57,837,517 56,927 1.41% Total 295 61 162 5,822 207,020,812 35,558 3.15% 2018 General 290 47 133 5,010 161,602,326 32,256 3.91% Safety 39 8 20 1,043 61,364,472 58,835 3.35% Total 329 55 153 6,053 222,966,797 36,836 3.59% 2019 General 237 57 179 5,125 171,791,597 33,520 3.92% Safety 49 13 22 1,083 65,822,764 60,778 3.30% Total 286 70 201 6,208 237,614,311 38,276 3.91% Payroll figures represent year end monthly retirement benefits annualized and exclude Post-Employment Healthcare benefits.
49 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Annual Average Added Allowances Removed Average Fiscal Beginning Allowances End of Retirement Allowance During Added During Annual Ye ar of Year Removed Ye ar Payroll Percentage Ye ar 1 Ye ar Allowance (in 000s) (in 000s) Increase 2010 4,252 353 12,918 116 2,196 4,489 122,286 3.82% 27,241 2011 4,489 318 11,544 122 2,793 4,685 131,037 2.67% 27,969 2012 4,685 361 16,400 149 3,403 4,897 144,034 5.16% 29,413 2013 4,897 297 12,908 153 3,530 5,041 153,412 3.47% 30,433 2014 5,041 340 16,230 132 3,030 5,249 166,612 4.30% 31,742 2015 5,249 341 17,776 155 3,651 5,435 180,737 4.77% 33,255 2016 5,435 343 17,151 150 3,868 5,628 194,020 3.66% 34,474 2017 5,628 355 17,288 161 4,287 5,822 207,021 3.15% 35,558 2018 5,822 382 19,839 151 3,893 6,053 222,967 3.59% 36,836 2019 6,053 355 20,574 200 5,927 6,208 237,614 3.91% 38,276 1 Includes COLA amounts not included in previous year’s Annual Allowance totals.
50 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Schedule of Average Monthly Benefit Payments Number of Years of Service Credit Retirement Effective Date 0-4 5-9 10-14 15-19 20-24 25-29 30 & Over 1/2/11 to 1/1/12 Retirees General Members Average Benefits $470 $1,205 $1,464 $2,615 $3,302 $3,968 $4,670 Average Final Compensation $5,518 $5,903 $4,928 $6,463 $6,110 $5,541 $5,570 Count 12 26 56 27 41 16 39 Safety Members Average Benefits $922 $1,112 $2,551 $3,970 $7,499 $7,790 $10,586 Average Final Compensation $9,746 $4,483 $5,290 $7,767 $10,430 $9,162 $10,797 Count 2 6 3 3 4 5 3 Survivors/QDROs General Members Average Benefits $622 $890 $773 $1,367 $1,838 $2,039 $3,281 Average Final Compensation $9,807 $4,816 $3,578 $4,371 $4,108 $3,364 $5,366 Count 5 9 11 10 5 5 5 Safety Members Average Benefits $825 $859 $1,591 $3,334 $0 $0 $3,829 Average Final Compensation $9,779 $4,960 $2,795 $9,010 $0 $0 $5,257 Count 1 1 2 1 0 0 1 1/2/12 to 1/1/13 Retirees General Members Average Benefits $517 $1,077 $1,481 $2,129 $2,729 $4,198 $6,317 Average Final Compensation $7,532 $5,925 $5,233 $4,900 $5,338 $6,449 $7,295 Count 19 31 56 36 42 30 44 Safety Members Average Benefits $429 $2,194 $3,026 $4,186 $5,302 $9,183 $13,206 Average Final Compensation $6,793 $5,812 $6,636 $8,124 $7,306 $13,360 $13,606 Count 4 5 7 3 14 11 5 Survivors/QDROs General Members Average Benefits $331 $1,189 $1,017 $1,525 $1,274 $3,105 $2,783 Average Final Compensation $4,482 $3,558 $2,664 $2,604 $3,639 $4,794 $3,940 Count 4 4 8 3 1 2 4 Safety Members Average Benefits $0 $1,039 $2,423 $3,450 $3,573 $3,206 $4,887 Average Final Compensation $0 $6,972 $7,561 $1,358 $1,776 $3,836 $6,169 Count 0 2 2 2 1 3 2
51 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Schedule of Average Monthly Benefit Payments Number of Years of Service Credit Retirement Effective Date 0-4 5-9 10-14 15-19 20-24 25-29 30 & Over 1/2/13 to 1/1/14 Retirees General Members Average Benefits $433 $1,410 $1,589 $2,556 $3,149 $4,241 $5,837 Average Final Compensation $7,695 $7,279 $5,787 $6,125 $6,132 $6,467 $6,718 Count 10 25 40 35 35 26 29 Safety Members Average Benefits $1,165 $1,435 $2,621 $3,501 $4,260 $11,134 $9,279 Average Final Compensation $9,478 $7,434 $6,316 $7,044 $5,599 $13,945 $9,670 Count 3 2 7 4 1 2 2 Survivors/QDROs General Members Average Benefits $687 $1,000 $883 $1,182 $2,063 $1,572 $2,985 Average Final Compensation $3,804 $4,531 $3,953 $3,163 $3,722 $1,821 $3,681 Count 6 9 15 7 5 2 5 Safety Members Average Benefits $650 $3,101 $1,385 $2,012 $1,918 $3,745 $4,936 Average Final Compensation $4,955 $10,868 $2,506 $3,966 $2,525 $6,184 $5,381 Count 3 1 2 1 2 1 1 1/2/14 to 1/1/15 Retirees General Members Average Benefits $618 $1,120 $1,601 $2,635 $4,409 $4,672 $6,283 Average Final Compensation $9,300 $6,612 $5,529 $6,454 $8,122 $6,944 $7,635 Count 9 25 49 46 23 45 41 Safety Members Average Benefits $380 $1,190 $3,433 $4,546 $3,993 $7,412 $11,302 Average Final Compensation $8,910 $6,591 $7,642 $8,863 $6,031 $9,013 $11,761 Count 1 1 3 5 4 6 1 Survivors/QDROs General Members Average Benefits $475 $654 $1,087 $814 $2,160 $1,680 $2,941 Average Final Compensation $5,928 $4,152 $2,879 $2,457 $4,998 $3,887 $8,068 Count 11 6 11 6 5 3 5 Safety Members Average Benefits $2,030 $2,464 $2,890 $3,326 $2,002 $3,569 $3,499 Average Final Compensation $9,251 $8,581 $5,515 $4,817 $4,850 $5,955 $2,018 Count 2 3 4 1 1 1 2
52 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Schedule of Average Monthly Benefit Payments Number of Years of Service Credit Retirement Effective Date 0-4 5-9 10-14 15-19 20-24 25-29 30 & Over 1/2/15 to 1/1/16 Retirees General Members Average Benefits $330 $988 $1,661 $2,449 $3,277 $4,342 $5,770 Average Final Compensation $5,778 $5,953 $5,826 $5,723 $5,918 $6,501 $6,781 Count 12 27 36 43 26 29 37 Safety Members Average Benefits $585 $1,352 $2,452 $3,959 $5,597 $8,061 $10,770 Average Final Compensation $7,403 $5,334 $6,269 $6,943 $8,120 $9,621 $11,481 Count 2 2 4 3 10 21 6 Survivors/QDROs General Members Average Benefits $376 $987 $999 $1,612 $3,184 $2,709 $5,276 Average Final Compensation $3,328 $5,939 $3,359 $4,532 $8,017 $5,312 $5,850 Count 4 10 9 4 4 3 5 Safety Members Average Benefits $530 $2,019 $2,184 $1,970 $2,902 $4,784 $5,026 Average Final Compensation $6,052 $11,395 $9,909 $3,887 $4,783 $6,788 $5,405 Count 2 1 2 1 2 4 3 1/2/16 to 1/1/17 Retirees General Members Average Benefits $310 $1,100 $1,823 $2,487 $3,779 $3,911 $5,931 Average Final Compensation $6,616 $5,885 $6,368 $5,950 $6,805 $5,756 $7,132 Count 21 24 54 48 24 31 42 Safety Members Average Benefits $3,817 $1,759 $2,546 $6,290 $5,510 $9,513 $12,671 Average Final Compensation $7,634 $5,985 $6,353 $11,452 $8,566 $11,959 $13,175 Count 1 6 6 3 7 12 4 Survivors/QDROs General Members Average Benefits $313 $858 $1,065 $1,596 $3,214 $1,720 $2,769 Average Final Compensation $5,726 $4,674 $4,527 $4,648 $6,051 $3,809 $3,313 Count 5 7 11 6 2 5 1 Safety Members Average Benefits $495 $2,235 $1,253 $1,661 $4,086 $5,943 $4,712 Average Final Compensation $7,339 $9,642 $3,842 $2,755 $5,646 $8,003 $4,803 Count 2 4 1 1 1 1 2
53 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Schedule of Average Monthly Benefit Payments Number of Years of Service Credit Retirement Effective Date 0-4 5-9 10-14 15-19 20-24 25-29 30 & Over 1/2/17 to 1/1/18 Retirees General Members Average Benefits $377 $1,188 $2,070 $2,390 $3,665 $4,847 $6,187 Average Final Compensation $9,793 $6,524 $6,533 $5,839 $6,699 $7,055 $7,391 Count 23 35 42 48 20 34 33 Safety Members Average Benefits $787 $1,223 $2,212 $3,441 $5,973 $7,370 $9,169 Average Final Compensation $9,858 $5,688 $5,842 $6,681 $9,020 $9,264 $9,050 Count 5 4 6 9 6 8 1 Survivors/QDROs General Members Average Benefits $701 $992 $1,442 $1,078 $1,941 $1,746 $4,828 Average Final Compensation $5,325 $4,183 $4,550 $3,587 $5,038 $2,502 $5,368 Count 11 10 8 7 3 4 4 Safety Members Average Benefits $667 $2,413 $1,292 $0 $0 $3,363 $5,834 Average Final Compensation $5,605 $6,310 $3,454 $0 $0 $4,597 $3,354 Count 2 3 2 0 0 1 3 1/2/18 to 1/1/19 Retirees General Members Average Benefits $596 $1,166 $1,759 $2,671 $3,522 $5,202 $6,036 Average Final Compensation $9,601 $6,704 $5,920 $6,603 $6,555 $7,633 $6,975 Count 21 45 47 55 25 33 39 Safety Members Average Benefits $2,721 $2,622 $2,166 $3,313 $3,997 $7,453 $10,935 Average Final Compensation $5,485 $8,987 $6,168 $6,135 $6,442 $9,615 $11,725 Count 1 3 5 5 8 7 4 Survivors/QDROs General Members Average Benefits $224 $659 $1,201 $1,204 $2,150 $2,590 $2,759 Average Final Compensation $4,220 $3,482 $5,324 $4,292 $3,513 $3,538 $4,382 Count 3 5 10 10 1 5 9 Safety Members Average Benefits $0 $1,724 $3,203 $0 $1,201 $0 $6,213 Average Final Compensation $0 $6,376 $4,065 $0 $3,140 $0 $4,768 Count 0 3 1 0 1 0 3
54 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Schedule of Average Monthly Benefit Payments Number of Years of Service Credit Retirement Effective Date 0-4 5-9 10-14 15-19 20-24 25-29 30 & Over 1/2/19 to 1/1/20 Retirees General Members Average Benefits $345 $1,131 $1,780 $3,030 $3,669 $4,796 $7,232 Average Final Compensation $8,121 $7,276 $6,189 $6,988 $7,070 $7,062 $8,554 Count 20 35 40 36 29 30 37 Safety Members Average Benefits $596 $2,060 $3,057 $3,965 $4,173 $9,630 $17,094 Average Final Compensation $9,587 $6,917 $6,658 $7,484 $7,087 $11,287 $17,300 Count 6 5 5 6 11 10 5 Survivors/QDROs General Members Average Benefits $235 $927 $994 $1,599 $2,453 $2,930 $4,532 Average Final Compensation $6,898 $5,691 $3,777 $5,652 $4,288 $4,213 $5,778 Count 6 8 12 7 8 6 10 Safety Members Average Benefits $712 $1,280 $1,831 $0 $3,258 $4,435 $6,246 Average Final Compensation $7,533 $7,809 $5,374 $0 $4,504 $4,987 $6,460 Count 2 2 3 0 3 2 1
55 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
DISTRIBUTION OF GENERAL ACTIVE MEMBERS BY AGE AND SERVICE AS OF JANUARY 1, 2020
COUNTS BY AGE/SERVICE Service Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total Under 25 36 24 0 0 0 0 0 0 0 0 60 25 to 29 80 260 21 0 0 0 0 0 0 0 361 30 to 34 73 375 159 12 0 0 0 0 0 0 619 35 to 39 61 328 194 131 27 1 0 0 0 0 742 40 to 44 48 276 185 157 125 26 0 0 0 0 817 45 to 49 37 202 159 154 174 100 16 1 0 0 843 50 to 54 33 153 119 111 137 103 51 21 0 0 728 55 to 59 12 104 102 90 134 86 82 65 18 0 693 60 to 64 12 61 85 61 70 84 48 36 12 3 472 65 to 69 1 17 35 20 19 22 11 8 7 4 144 70 & up 2 4 11 8 6 8 3 2 2 1 47 Total 395 1,804 1,070 744 692 430 211 133 39 8 5,526
Average Age = 45.64 Average Service = 9.59
56 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
DISTRIBUTION OF SAFETY ACTIVE MEMBERS BY AGE AND SERVICE AS OF JANUARY 1, 2020
COUNTS BY AGE/SERVICE Service Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total Under 25 4 19 0 0 0 0 0 0 0 0 23 25 to 29 2 78 19 1 0 0 0 0 0 0 100 30 to 34 1 71 42 19 0 0 0 0 0 0 133 35 to 39 1 32 24 85 19 1 0 0 0 0 162 40 to 44 1 11 14 33 60 16 0 0 0 0 135 45 to 49 1 8 7 24 56 46 4 0 0 0 146 50 to 54 1 6 0 10 23 26 7 6 0 0 79 55 to 59 0 4 5 6 7 11 6 5 0 0 44 60 to 64 0 1 2 1 4 4 2 0 0 0 14 65 to 69 0 0 1 2 1 0 0 0 0 0 4 70 & up 0 0 0 0 1 2 0 0 0 0 3 Total 11 230 114 181 171 106 19 11 0 0 843
Average Age = 40.32 Average Service = 11.28
57 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
PAYROLL DISTRIBUTION OF GENERAL ACTIVE PARTICIPANTS BY AGE AND SERVICE AS OF JANUARY 1, 2020
COUNTS BY AGE/SERVICE Service Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total Under 25 48,350 46,934 0 0 0 0 0 0 0 0 47,784 25 to 29 57,870 60,903 59,805 0 0 0 0 0 0 0 60,167 30 to 34 62,648 64,670 76,255 71,129 0 0 0 0 0 0 67,532 35 to 39 65,762 64,462 74,089 71,567 65,172 57,336 0 0 0 0 68,357 40 to 44 60,718 67,924 73,170 81,405 79,706 70,372 0 0 0 0 73,160 45 to 49 67,244 65,688 85,425 87,124 78,970 82,748 68,959 68,078 0 0 78,225 50 to 54 66,226 66,038 77,609 79,930 80,128 79,489 76,609 85,496 0 0 75,913 55 to 59 62,969 71,362 80,021 73,996 77,140 79,391 82,294 87,143 96,660 0 78,378 60 to 64 72,074 74,030 81,179 76,944 71,764 66,599 83,874 92,614 82,678 58,673 76,526 65 to 69 124,550 82,423 80,215 74,928 99,077 74,432 77,153 100,045 85,476 119,732 83,876 70 & up 53,831 73,938 118,165 90,166 66,885 66,769 51,819 56,797 158,954 158,954 87,360 Total 61,761 65,471 77,830 79,129 78,158 76,611 79,567 88,540 93,545 101,738 73,238
Average Salary = $73,238
58 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
PAYROLL DISTRIBUTION OF SAFETY ACTIVE PARTICIPANTS BY AGE AND SERVICE AS OF JANUARY 1, 2020
COUNTS BY AGE/SERVICE Service Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 & up Total Under 25 53,420 64,961 0 0 0 0 0 0 0 0 62,954 25 to 29 47,944 69,431 87,720 98,934 0 0 0 0 0 0 72,771 30 to 34 50,254 70,083 87,030 98,330 0 0 0 0 0 0 79,321 35 to 39 44,470 77,306 82,195 94,249 95,232 94,566 0 0 0 0 88,927 40 to 44 76,150 77,326 79,835 89,985 91,677 104,368 0 0 0 0 90,255 45 to 49 71,074 96,410 81,850 91,730 99,083 101,315 86,057 0 0 0 97,056 50 to 54 75,414 99,950 0 85,356 90,263 95,604 118,482 123,819 0 0 96,997 55 to 59 0 102,847 111,705 86,763 86,038 87,750 99,430 127,411 0 0 97,537 60 to 64 0 97,240 117,510 71,948 72,967 70,593 76,751 0 0 0 80,854 65 to 69 0 0 109,462 111,944 77,884 0 0 0 0 0 102,808 70 & up 0 0 0 0 43,618 85,446 0 0 0 0 71,503 Total 56,994 73,173 86,739 92,925 93,277 97,445 101,246 125,452 0 0 87,482
Average Salary = $87,482
59 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Service Retired Benefits General Safety Total Annual Annual Annual Current Number Average Number Average Number Average Age Benefit Benefit Benefit 0-24 0 $0 0 $0 0 $0 25-29 0 $0 0 $0 0 $0 30-34 0 $0 0 $0 0 $0 35-39 0 $0 0 $0 0 $0 40-44 0 $0 1 $33,174 1 $33,174 45-49 1 $1,550 10 $36,709 11 $33,513 50-54 79 $17,117 55 $65,691 134 $37,054 55-59 250 $25,872 105 $73,141 355 $39,853 60-64 612 $38,243 125 $78,600 737 $45,088 65-69 942 $42,290 114 $75,820 1,056 $45,910 70-74 957 $39,813 119 $79,710 1,076 $44,225 75-79 565 $36,344 73 $57,168 638 $38,727 80-84 348 $31,399 28 $42,416 376 $32,220 85-89 180 $29,207 11 $39,914 191 $29,824 90-94 81 $25,398 6 $89,963 87 $29,850 95+ 41 $20,410 0 $0 41 $20,410 All Ages 4,056 $36,681 647 $71,077 4,703 $41,413
Non-Duty Disabled Benefits General Safety Total Annual Annual Annual Current Number Average Number Average Number Average Age Benefit Benefit Benefit 0-24 0 $0 0 $0 0 $0 25-29 0 $0 0 $0 0 $0 30-34 0 $0 0 $0 0 $0 35-39 2 $15,459 0 $0 2 $15,459 40-44 3 $20,637 0 $0 3 $20,637 45-49 6 $13,809 2 $15,267 8 $14,174 50-54 13 $17,922 1 $16,765 14 $17,840 55-59 20 $20,358 0 $0 20 $20,358 60-64 32 $18,998 3 $41,136 35 $20,895 65-69 28 $17,659 3 $21,495 31 $18,030 70-74 27 $15,486 1 $15,486 28 $15,486 75-79 14 $17,841 2 $56,062 16 $22,618 80-84 6 $18,109 2 $22,176 8 $19,125 85-89 2 $17,961 1 $23,003 3 $19,642 90-94 1 $8,114 0 $0 1 $8,114 95+ 1 $15,654 0 $0 1 $15,654 All Ages 155 $17,770 15 $28,677 170 $18,733
60 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Duty Disabled Benefits General Safety Total Annual Annual Annual Current Number Average Number Average Number Average Age Benefit Benefit Benefit 0-24 0 $0 0 $0 0 $0 25-29 0 $0 0 $0 0 $0 30-34 0 $0 0 $0 0 $0 35-39 4 $7,335 5 $38,290 9 $24,533 40-44 2 $281 8 $37,097 10 $29,734 45-49 17 $11,103 23 $37,118 40 $26,062 50-54 15 $21,258 13 $50,511 28 $34,840 55-59 27 $23,239 43 $54,381 70 $42,369 60-64 50 $28,076 32 $61,884 82 $41,270 65-69 57 $27,773 33 $60,486 90 $39,768 70-74 52 $32,490 32 $61,717 84 $43,624 75-79 25 $27,135 17 $55,868 42 $38,765 80-84 7 $25,422 5 $65,355 12 $42,061 85-89 4 $29,317 0 $0 4 $29,317 90-94 0 $0 3 $94,313 3 $94,313 95+ 1 $47,614 0 $0 1 $47,614 All Ages 261 $26,293 214 $55,363 475 $39,390
Surviving Beneficiary Benefits (all benefit types) General Safety Total Annual Annual Annual Current Number Average Number Average Number Average Age Benefit Benefit Benefit 0-24 6 $18,711 0 $0 6 $18,711 25-29 4 $14,139 0 $0 4 $14,139 30-34 3 $17,461 0 $0 3 $17,461 35-39 2 $11,420 0 $0 2 $11,420 40-44 0 $0 2 $51,728 2 $51,728 45-49 13 $13,422 4 $45,561 17 $20,984 50-54 19 $12,100 12 $24,223 31 $16,793 55-59 42 $14,493 25 $18,456 67 $15,972 60-64 55 $19,848 28 $27,368 83 $22,385 65-69 92 $17,220 27 $45,071 119 $23,539 70-74 115 $23,028 33 $40,518 148 $26,928 75-79 108 $22,973 35 $41,519 143 $27,512 80-84 68 $18,487 18 $48,111 86 $24,687 85-89 63 $22,163 15 $38,427 78 $25,291 90-94 41 $22,994 7 $39,120 48 $25,346 95+ 22 $33,574 1 $30,717 23 $33,449 All Ages 653 $20,516 207 $36,513 860 $24,367
61 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Assumed Probabilities of Separation from Active Membership Non-Duty Ordinary Service Duty Age Duty Death Death Disability Retirement1 Disability General Members – Male 20 0.0004 0.000 0.000 0.000 0.001 25 0.0003 0.000 0.000 0.000 0.001 30 0.0004 0.000 0.000 0.000 0.001 35 0.0005 0.000 0.000 0.000 0.001 40 0.0006 0.001 0.000 0.000 0.004 45 0.0008 0.001 0.000 0.000 0.004 50 0.0012 0.001 0.030 0.000 0.003 55 0.0019 0.001 0.065 0.000 0.004 60 0.0029 0.001 0.090 0.000 0.004 65 0.0041 0.001 0.250 0.000 0.005 General Members – Female 20 0.0001 0.001 0.000 0.000 0.000 25 0.0001 0.001 0.000 0.000 0.000 30 0.0002 0.001 0.000 0.000 0.000 35 0.0003 0.001 0.000 0.000 0.000 40 0.0004 0.002 0.000 0.000 0.001 45 0.0005 0.002 0.000 0.000 0.001 50 0.0008 0.003 0.035 0.000 0.001 55 0.0012 0.004 0.035 0.000 0.001 60 0.0019 0.005 0.125 0.000 0.002 65 0.0027 0.005 0.250 0.000 0.002
1 Lower rates assumed for members with less than 10 years of service, and higher rates assumed for members with at least 30 years of service.
The probabilities for each cause of separation represent the likelihood that a given member will separate at a particular age for the indicated reason. As an example, if the probability of separation of a male general member at age 20 is 0.036, that indicates that 3.6% of active general members are expected to separate from service during the year. Rates of Duty and Non-Duty Death are for active members who reach the given age during valuation year.
62 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Assumed Probabilities of Separation from Active Membership Non-Duty Ordinary Service Duty Age Duty Death Death Disability Retirement1 Disability Safety Members – Male 20 0.0004 0.000 0.050 0.0004 0.000 25 0.0004 0.000 0.050 0.0004 0.001 30 0.0005 0.000 0.050 0.0005 0.001 35 0.0006 0.000 0.050 0.0006 0.002 40 0.0007 0.000 0.050 0.0007 0.004 45 0.0008 0.000 0.050 0.0008 0.008 50 0.0011 0.001 0.150 0.0011 0.014 55 0.0017 0.001 0.200 0.0017 0.014 Safety Members – Female 20 0.0002 0.000 0.050 0.0002 0.000 25 0.0002 0.000 0.050 0.0002 0.001 30 0.0004 0.000 0.050 0.0004 0.001 35 0.0005 0.000 0.050 0.0005 0.002 40 0.0006 0.000 0.050 0.0006 0.004 45 0.0007 0.000 0.050 0.0007 0.009 50 0.0009 0.001 0.150 0.0009 0.014 55 0.0014 0.001 0.200 0.0014 0.014 1 Lower rates assumed for members with less than 20 years of service.
63 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX A – MEMBERSHIP INFORMATION
Salary Increase, Termination and Withdrawal Assumptions Salary Salary Years of Withdrawal: Withdrawal: Termination: Termination: Increase: Increase: Service General Safety 1 2 General Safety General Safety 0 0.1124 0.1330 0.105 0.054 0.070 0.036 1 0.1021 0.1330 0.066 0.042 0.044 0.028 2 0.0712 0.0815 0.060 0.030 0.040 0.020 3 0.0712 0.0815 0.047 0.030 0.031 0.020 4 0.0506 0.0815 0.041 0.027 0.027 0.018 5 0.0506 0.0532 0.019 0.010 0.044 0.023 6 0.0506 0.0429 0.018 0.009 0.042 0.021 7 0.0506 0.0429 0.014 0.005 0.032 0.011 8 0.0429 0.0429 0.014 0.005 0.032 0.011 9 0.0429 0.0429 0.011 0.005 0.026 0.011 10 0.0403 0.0429 0.011 0.002 0.026 0.013 11 0.0403 0.0429 0.008 0.002 0.019 0.013 12 0.0403 0.0429 0.008 0.002 0.019 0.013 13 0.0403 0.0429 0.008 0.002 0.018 0.013 14 0.0403 0.0429 0.008 0.002 0.018 0.013 15 0.0352 0.0429 0.003 0.001 0.023 0.006 16 0.0352 0.0429 0.003 0.001 0.023 0.006 17 0.0352 0.0429 0.003 0.001 0.023 0.006 18 0.0352 0.0429 0.003 0.001 0.023 0.006 19 0.0352 0.0429 0.003 0.001 0.023 0.006 20 0.0352 0.0429 0.001 0.000 0.009 0.000 21 0.0352 0.0429 0.001 0.000 0.009 0.000 22 0.0352 0.0429 0.001 0.000 0.009 0.000 23 0.0352 0.0429 0.001 0.000 0.009 0.000 24 0.0352 0.0429 0.001 0.000 0.009 0.000 25 0.0352 0.0429 0.001 0.000 0.009 0.000 26 0.0352 0.0429 0.001 0.000 0.009 0.000 27 0.0352 0.0429 0.001 0.000 0.009 0.000 28 0.0352 0.0429 0.001 0.000 0.009 0.000 29 0.0352 0.0429 0.001 0.000 0.009 0.000 30+ 0.0352 0.0429 0.000 0.000 0.000 0.000
1 75% of vested terminated General Members with less than five years of service, 25% of those with five to 14 years of service, and 30% of those with 15 or more years of service are assumed to be reciprocal.
2 67% of vested terminated Safety Members with less than five years of service, and 50% of those with five or more years of service are assumed to be reciprocal.
64 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX B – STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS
The assumptions and methods used in the actuarial valuation as of January 1, 2020 are:
Actuarial Methods
1. Actuarial Cost Method The actuarial valuation is prepared using the entry age actuarial cost method (CERL 31453.5). Under the principles of this method, the actuarial present value of the projected benefits of each individual included in the valuation is allocated as a level percentage of the individual's projected compensation between entry age and assumed exit (until maximum retirement age). For members who transferred from outside of SJCERA, entry age (for the Actuarial Cost calculation only) is based on entry into the system. The normal cost for the Plan is based on the sum of the individual normal costs for each member (Individual Entry Age Method).
The UAL (or Surplus Funding) is amortized as a percentage of the projected salaries of present and future members of SJCERA. Effective with the January 1, 2015 valuation, the UAL as of January 1, 2014 is amortized over a closed 19-year period (13 years remaining as of January 1, 2020), except for the additional UAL attributable to the extraordinary loss from 2008, which is being amortized over a separate closed period (19 years as of January 1, 2020).
Any subsequent unexpected change in the Unfunded Actuarial Liability after January 1, 2014 is amortized over 15 years. The UAL payment for the 2020 assumption change is being phased in over a three-year period.
2. Valuation of Assets The assets are valued using a five-year smoothed method based on the difference between the expected market value and the actual market value of the assets as of the valuation date. The expected market value is the prior year’s market value increased with the net increase in the cash flow of funds, all increased with interest during the past fiscal year at the expected investment return rate assumption.
An asset corridor limit is applied such that the smoothed Market Value of Assets stays within 20% of the Market Value of Assets.
65 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX B – STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS
Actuarial Assumptions
The recommended assumptions were adopted by the Board at their July 12, 2019 meeting. The demographic assumptions are based on an experience study covering the period from January 1, 2016 through December 31, 2018. The rate of return, CPI, and pay increase assumption have been updated in this valuation.
1. Rate of Return Assets are assumed to earn 7.00% net of investment expenses.
2. Administrative Expenses Administrative expenses are assumed to be $4,900,418 for the next year, to be split between employees and employers based on their share of the overall contributions. Expenses are expected to grow with the cost-of-living (by 2.75% per year.)
3. Cost-of-Living The cost-of-living as measured by the Consumer Price Index (CPI) will increase at the rate of 2.75% per year. This assumption is also used to project increases in the PEPRA wage cap.
4. Post Retirement COLA Benefits are assumed to increase after retirement at the rate of 2.6% per year.
5. Increases in Pay Assumed pay increases for active Members consist of increases due to base salary adjustments plus service-based increase due to longevity and promotion, as shown below:
Pay Increases Years of Service 0 1 2 3 4 5 6 7 8-9 10-14 15+ Base Increase 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Longevity & Promotion General 8.00% 7.00% 4.00% 4.00% 2.00% 2.00% 2.00% 2.00% 1.25% 1.00% 0.50% Safety 10.00% 10.00% 5.00% 5.00% 5.00% 2.25% 1.25% 1.25% 1.25% 1.25% 1.25% Total (Compound) General 11.24% 10.21% 7.12% 7.12% 5.06% 5.06% 5.06% 5.06% 4.29% 4.03% 3.52% Safety 13.30% 13.30% 8.15% 8.15% 8.15% 5.32% 4.29% 4.29% 4.29% 4.29% 4.29%
66 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX B – STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS
6. Family Composition Percentage married for all active members who retire, become disabled, or die during active service is shown in the following table. Male members are assumed to be three years older than their spouses, and female members are assumed to be two years younger than their spouses. Percentage Married Gender Percentage Males 75% Females 55%
7. Rates of Termination Sample rates of termination are shown in the following table. Termination rates do not apply once a member is eligible for retirement.
Rates of Termination Years of General Safety Service 0 17.50% 9.00% 1 11.00% 7.00% 2 10.00% 5.00% 3 7.75% 5.00% 4 6.75% 4.50% 5 6.25% 3.25% 6 6.00% 3.00% 7 4.50% 1.50% 8 4.50% 1.50% 9 3.75% 1.50% 10 3.75% 1.50% 11-12 2.75% 1.50% 13-14 2.50% 1.50% 15-19 2.50% 0.75% 20-29 1.00% 0.00% 30+ 0.00% 0.00%
8. Withdrawal Rates of withdrawal apply to active Members who terminate their employment and withdraw their member contributions, forfeiting entitlement to future Plan benefits.
67 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX B – STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS
60% of all General Member terminations with less than five years of service, 30% of those with five to 14 years of service, and 10% of those with more than 15 years of service, are assumed to take a refund of contributions.
60% of all Safety Member terminations with less than five years of service, 30% of those with five to 9 years of service, and 15% of those with more than 10 years of service, are assumed to take a refund of contributions.
9. Vested Termination and Reciprocal Transfers Rates of vested termination apply to active Members who terminate their employment and leave their member contributions on deposit with the Plan.
40% of all General Member terminations with less than five years of service, 70% of those with five to 14 years of service, and 90% of those with 15 or more years of service, are assumed to leave their contributions on deposit.
40% of all Safety Member terminations with less than five years of service, 70% of those with five to nine years of service, and 85% of those with 10 or more years of service, are assumed to leave their contributions on deposit.
Vested terminated General Members are assumed to begin receiving benefits at age 58; vested terminated Safety Members are assumed to begin receiving benefits at age 50, unless they have outgoing reciprocity, in which case they are assumed to begin receiving benefits at age 53.
75% of vested terminated General Members with less than five years of service, 25% of those with five to 14 years of service, and 30% of those with 15 or more years of service, are assumed to be reciprocal.
67% of vested terminated Safety Members with less than five years of service, and 50% of those with five or more years of service, are assumed to be reciprocal.
Final average pay for General Members who terminate with reciprocity is assumed to increase by 3.67% per year until their assumed retirement date. Final average pay for Safety Members who terminate with reciprocity is assumed to increase by 4.44% per year until their assumed retirement date.
10. Rates of Service-Connected Disability Sample service-connected disability rates of active participants are provided in the table on the next page.
68 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX B – STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS
Rates of Svc Disability General General Safety Safety Age Male Fe male Male Fe male 22 0.094% 0.019% 0.048% 0.048% 27 0.107% 0.024% 0.086% 0.089% 32 0.122% 0.033% 0.161% 0.166% 37 0.139% 0.044% 0.296% 0.305% 42 0.414% 0.058% 0.565% 0.592% 47 0.446% 0.080% 1.023% 1.101% 52 0.361% 0.106% 1.425% 1.425% 57 0.410% 0.135% 1.425% 1.425% 62 0.470% 0.164% 1.425% 1.425%
11. Rates of Nonservice-Connected Disability Sample nonservice-connected disability rates of active participants are provided in the table below.
Rates of Non-Svc Disability General General Safety Safety Age Male Fe male Male Fe male 22 0.023% 0.057% 0.003% 0.003% 27 0.027% 0.072% 0.005% 0.005% 32 0.030% 0.099% 0.008% 0.009% 37 0.035% 0.131% 0.016% 0.016% 42 0.104% 0.174% 0.030% 0.031% 47 0.112% 0.239% 0.054% 0.058% 52 0.090% 0.319% 0.075% 0.075% 57 0.102% 0.406% 0.075% 0.075% 62 0.118% 0.493% 0.075% 0.075%
12. Rates of Mortality for Healthy Lives Mortality rates for General active members are based on the sex distinct Public General 2010 Above-Median Income Mortality Table, with generational mortality improvements projected from 2010 using Projection Scale MP-2018, and a partial credibility adjustment of 1.05 for females and no adjustment for males.
69 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX B – STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS
Mortality rates for Safety active members are based on the sex distinct Public Safety 2010 Mortality Table, with generational mortality improvements projected from 2010 using Projection Scale MP-2018, and a partial credibility adjustment of 0.98 for males and 1.06 for females. 10% of Safety member active deaths are assumed to occur in the line of duty.
Mortality rates for healthy General annuitants and General beneficiaries are based on the sex distinct Public General 2010 Above-Median Income Mortality Table, with generational mortality improvements projected from 2010 using Projection Scale MP- 2018, and a partial credibility adjustment of 1.04 for females and no adjustment for males.
Mortality rates for Safety annuitants and Safety beneficiaries are based on the sex distinct Public Safety 2010 Mortality Table, with generational mortality improvements projected from 2010 using Projection Scale MP-2018, and a partial credibility adjustment of 1.02 for males and 1.05 for females.
13. Rates of Mortality for Disabled Retirees Mortality rates for General disabled annuitants are based on the sex distinct Public General Disabled Annuitant 2010 Mortality Table, with generational mortality improvements projected from 2010 using Projection Scale MP-2018, with a partial credibility adjustment of 1.04 for males and 1.07 for females.
Mortality rates for Safety disabled annuitants are based on the sex distinct Public Safety Disabled Annuitant 2010 Mortality Table, with generational mortality improvements projected from 2010 using Projection Scale MP-2018, with a partial credibility adjustment of 1.04 for males and 0.98 for females.
14. Mortality Improvement The mortality assumptions employ a fully generational mortality improvement projection from the base year of the Society of Actuaries’ new Public mortality tables (2010) using Scale MP-2018.
15. Adjustment for Service Purchases SJCERA provides Cheiron with the amount of service that active employees are eligible to purchase. We include this service when calculating the employees’ benefit eligibility. Half of eligible service purchases, which have not been purchased by the members, are included in the employees’ Credited Service, as employees will pay approximately half of the normal cost for these benefits when purchasing this service.
70 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX B – STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS
16. Assumptions for Employee Contribution Rates Mortality rates are the base mortality tables described above, projected using Scale MP-2018 from 2010 to 2040 for General and Safety Members. The projection periods are based on the duration of active liabilities for the respective groups, and the period during which the associated employee contribution rates will be in use. The employee contribution rates are also blended using a male/female weighting of 29%/71% for General Members and 75%/25% for Safety members.
17. Rates of Retirement Rates of retirement are based on age and service according to the following table.
71 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX B – STATEMENT OF CURRENT ACTUARIAL ASSUMPTIONS AND METHODS
Rates of Retirement General Male General Female Safety Years of Service Years of Service Years of Service Age 5-9 10-29 30+ 5-9 10-29 30+ 5-19 20+ 45 0.00% 0.00% 5.00% 0.00% 0.00% 4.50% 0.00% 5.00% 46 0.00% 0.00% 5.00% 0.00% 0.00% 4.50% 0.00% 5.00% 47 0.00% 0.00% 5.00% 0.00% 0.00% 4.50% 0.00% 5.00% 48 0.00% 0.00% 5.00% 0.00% 0.00% 4.50% 0.00% 5.00% 49 0.00% 0.00% 5.00% 0.00% 0.00% 4.50% 0.00% 5.00% 50 3.00% 3.00% 5.00% 1.00% 3.50% 4.50% 5.00% 15.00% 51 3.00% 3.00% 5.00% 1.00% 3.50% 4.50% 5.00% 10.00% 52 3.00% 3.00% 5.00% 1.00% 3.50% 4.50% 5.00% 10.00% 53 3.00% 3.00% 5.00% 1.00% 3.50% 4.50% 5.00% 20.00% 54 3.00% 3.00% 10.00% 5.75% 3.50% 4.50% 5.00% 20.00% 55 3.00% 6.50% 10.00% 2.50% 3.50% 4.50% 5.00% 20.00% 56 3.00% 4.00% 10.00% 1.50% 7.00% 15.00% 10.00% 20.00% 57 3.00% 4.00% 10.00% 1.50% 7.00% 15.00% 10.00% 20.00% 58 3.00% 4.00% 10.00% 1.50% 7.00% 15.00% 10.00% 20.00% 59 7.00% 9.00% 27.50% 2.00% 7.00% 15.00% 10.00% 15.00% 60 7.00% 9.00% 27.50% 6.25% 12.50% 25.00% 10.00% 30.00% 61 7.00% 15.00% 27.50% 6.25% 12.50% 25.00% 10.00% 30.00% 62 7.00% 30.00% 40.00% 18.50% 25.00% 35.00% 20.00% 30.00% 63 7.00% 25.00% 40.00% 5.00% 25.00% 35.00% 20.00% 30.00% 64 15.00% 25.00% 40.00% 9.00% 25.00% 35.00% 20.00% 50.00% 65 25.00% 25.00% 40.00% 12.50% 25.00% 35.00% 100.00% 100.00% 66 10.00% 35.00% 50.00% 25.00% 25.00% 30.00% 100.00% 100.00% 67 15.00% 30.00% 40.00% 25.00% 25.00% 30.00% 100.00% 100.00% 68 15.00% 30.00% 30.00% 25.00% 25.00% 30.00% 100.00% 100.00% 69 30.00% 40.00% 30.00% 25.00% 25.00% 30.00% 100.00% 100.00% 70 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
18. Changes in Assumptions The investment rate of return assumption has been lowered from 7.25% to 7.00%, the CPI increase assumption has been lowered from 2.90% to 2.75%, and the future pay growth assumption has been lowered from 3.15% to 3.00%.
72 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
A. Definitions
Compensation: Compensation means the cash remuneration for services paid by the employer. It includes base pay and certain differential, incentive, and special pay allowances defined by the Board of Retirement. Overtime is excluded, with the exception of overtime paid under the Fair Labor Standards Act that is regular and recurring.
For members joining the Plan on and after January 1, 2013 (Tier 2 Members), only pensionable compensation up to the PEPRA compensation limit ($126,291 for 2020) will count for computing Plan benefits and employee contributions and employer contributions for those participating in Social Security. For those not participating in Social Security, the compensation cap is 120% of the PEPRA compensation limit ($151,549 for 2020.) In addition, it is possible that some sources of compensation, such as any payments deemed to be terminal or special pays, may be excluded from benefit and contribution computations for Tier 2 Members.
Credited Service: In general, Credited Service is earned for the period during which Member Contributions are paid.
Temporary service for which the Member was not credited, or service for which the Member withdrew his or her Member Contributions, may be purchased by paying or repaying the Member Contributions with interest. Credit for up to 12 months of a medical leave of absence and all military leaves of absence may also be purchased.
Public Service (see below) is part of Credited Service for the computation of benefits only, not for eligibility for benefits or for vesting.
Final Compensation: For Tier 1 Members, Final Compensation means the highest average Compensation earned during any 12 consecutive months of the Member’s employment.
For Tier 2 Members, highest average Compensation will be based on the highest 36 consecutive months, rather than 12 months.
General Member: Any Member who is not a Safety Member is a General Member.
Public Service: The Member may elect to purchase Public Service for time spent while employed in another recognized public agency. The public agency must have a reciprocal agreement with the Plan or be one of several specified municipalities, counties, special districts, or State or Federal agencies.
73 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
Public Service cannot be purchased if it is used for eligibility for another pension.
The cost to purchase Public Service is twice the Member Contributions and interest applicable for the period of time purchased. Public Service is used to compute benefits but does not count toward eligibility for benefits or vesting.
Safety Member: Any sworn Member engaged in law enforcement, probation, or fire suppression is a Safety Member.
B. Membership
Eligibility: All full-time, permanent employees of San Joaquin County and other participating special districts become Members on their date of appointment. Membership is mandatory; only elected officials and members who are age 60 or older at the time of employment in a position requiring membership in SJCERA may choose not to participate.
A Tier 2 Member is any Member joining the Plan for the first time on or after January 1, 2013. Employees who transfer from and are eligible for reciprocity with another public employer will not be Tier 2 Members if their service in the reciprocal system was under a previous tier. Employees who were Members of SJCERA prior to January 1, 2013 and experienced a break in service of more than six months and then were reemployed by a different SJCERA-participating employer on or after January 1, 2013 will be considered Tier 2 Members for all subsequent service. Member Contributions: Each Member contributes a percentage of Compensation to the Plan through payroll deduction. For Tier 1 members, the percentage contributed depends on the Member’s age upon joining the Plan. Representative rates are shown in Table 1 on the next page.
Tier 1 members covered by Social Security have their contributions reduced by one-third on the first $161.54 of biweekly Compensation. General Members who joined the Plan prior to March 7, 1973 and who have earned 30 years of Credited Service do not contribute; Safety Members do not contribute after earning 30 years of Credited Service.
74 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
Table 1: Tier 1 Member Contribution Rates (Basic Rates) General Member Rate Safety Member Rate Entry Age 1st $350/month Over $350 1st $350/month Over $350 20 1.97% 2.95% 2.97% 4.45% 25 2.18% 3.27% 3.20% 4.80% 30 2.41% 3.62% 3.45% 5.18% 35 2.68% 4.02% 3.74% 5.61% 40 2.97% 4.46% 4.09% 6.14% 45 3.26% 4.89% 4.48% 6.72% 50 3.54% 5.31% 4.27% 6.41% Rates include the employee share of the administrative expenses.
Some Tier 1 members also contribute half of the normal cost associated with the post-retirement COLA benefits, also based on entry age. Many bargaining groups have also agreed to have their Tier 1 members pay additional basic rate contributions (14% of the current basic rates for General members, 33% for Safety). The complete rate tables for all groups are in the Appendix G; these tables were updated for the current valuation to reflect the new demographic assumptions adopted from the experience study.
Tier 2 Members contribute half of the normal cost of the Plan. Contributions for these Members are based on the Normal Cost associated with their benefits; General and Safety members pay different rates.
Tier 2 Members pay a single contribution rate, not a rate based on entry age. All Tier 2 Members continue contributing after earning 30 years of service. These rates are updated annually, to reflect changes in the Tier 2 demographics, as well as any changes in assumptions (such as the discount rate change).
Table 2: Tier 2 Member Contribution Rates
General Member Rate Safety Member Rate 9.97% 15.46%
Rates include the employee share of the administrative expenses.
Interest is credited semiannually to each Member’s accumulated contributions. The crediting rate for 2020 is 3.4408%, for an effective annual rate of 7.00%.
75 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
C. Service Retirement
Eligibility: Tier 1 General Members are eligible to retire at age 50 if they have earned five years of Credited Service and have passed the tenth anniversary of their membership in the Plan. Alternatively, General Members are eligible to retire at any age after having earned 30 years of Credited Service, or upon reaching age 70 with no service requirement.
Tier 1 Safety Members are eligible to retire at age 50 if they have earned five years of Credited Service and have passed the tenth anniversary of their membership in the Plan. Alternatively, Safety Members are eligible to retire at any age after having earned 20 years of Credited Service.
Tier 2 General Members are eligible to retire upon attaining age 52 and completing five or more years of service. Tier 2 Safety Members are eligible to retire upon attaining age 50 and completing five or more years of service. Tier 2 Members are eligible to retire, regardless of service, after attaining age 70.
Benefit Amount: The Service Retirement Benefit payable to Tier 1 General Members is equal to the percentage in Table 3 on the next page multiplied by the Member’s Final Compensation. The Service Retirement Benefit payable to Tier 1 Safety Members is equal to the percentage in the upcoming Table 4 multiplied by the Member’s Final Compensation. The percentage of Final Compensation may not exceed 100%.
76 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
Table 3: Tier 1 General Members (CERL Section 31676.14)
Service 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 10 14.75 15.67 16.67 17.41 18.41 19.48 20.61 21.82 22.68 23.54 24.40 25.26 26.11 26.11 26.11 26.11 11 16.23 17.23 18.33 19.15 20.25 21.42 22.67 24.00 24.95 25.89 26.84 27.78 28.72 28.72 28.72 28.72 12 17.70 18.80 20.00 20.89 22.10 23.37 24.73 26.19 27.22 28.25 29.28 30.31 31.34 31.34 31.34 31.34 13 19.18 20.36 21.67 22.64 23.94 25.32 26.79 28.37 29.48 30.60 31.72 32.83 33.95 33.95 33.95 33.95 14 20.65 21.93 23.33 24.38 25.78 27.27 28.85 30.55 31.75 32.95 34.16 35.36 36.56 36.56 36.56 36.56 15 22.13 23.50 25.00 26.12 27.62 29.22 30.91 32.73 34.02 35.31 36.60 37.88 39.17 39.17 39.17 39.17 16 23.60 25.06 26.67 27.86 29.46 31.16 32.97 34.92 36.29 37.66 39.04 40.41 41.78 41.78 41.78 41.78 17 25.08 26.63 28.33 29.60 31.30 33.11 35.03 37.10 38.56 40.01 41.47 42.93 44.39 44.39 44.39 44.39 18 26.55 28.20 30.00 31.34 33.14 35.06 37.09 39.28 40.82 42.37 43.91 45.46 47.00 47.00 47.00 47.00 19 28.03 29.76 31.67 33.08 34.98 37.01 39.16 41.46 43.09 44.72 46.35 47.98 49.61 49.61 49.61 49.61 20 29.50 31.33 33.33 34.82 36.83 38.95 41.22 43.64 45.36 47.08 48.79 50.51 52.23 52.23 52.23 52.23 21 30.98 32.90 35.00 36.57 38.67 40.90 43.28 45.83 47.63 49.43 51.23 53.04 54.84 54.84 54.84 54.84 22 32.45 34.46 36.67 38.31 40.51 42.85 45.34 48.01 49.90 51.78 53.67 55.56 57.45 57.45 57.45 57.45 23 33.93 36.03 38.33 40.05 42.35 44.80 47.40 50.19 52.16 54.14 56.11 58.09 60.06 60.06 60.06 60.06 24 35.40 37.60 40.00 41.79 44.19 46.74 49.46 52.37 54.43 56.49 58.55 60.61 62.67 62.67 62.67 62.67 25 36.88 39.16 41.67 43.53 46.03 48.69 51.52 54.56 56.70 58.85 60.99 63.14 65.28 65.28 65.28 65.28 26 38.35 40.73 43.33 45.27 47.87 50.64 53.58 56.74 58.97 61.20 63.43 65.66 67.89 67.89 67.89 67.89 27 39.83 42.30 45.00 47.01 49.72 52.59 55.64 58.92 61.24 63.55 65.87 68.19 70.51 70.51 70.51 70.51 28 41.30 43.86 46.67 48.75 51.56 54.54 57.70 61.10 63.50 65.91 68.31 70.71 73.12 73.12 73.12 73.12 29 42.78 45.43 48.33 50.49 53.40 56.48 59.76 63.28 65.77 68.26 70.75 73.24 75.73 75.73 75.73 75.73 30 35.28 37.27 39.41 41.73 44.25 47.00 50.00 52.24 55.24 58.43 61.82 65.47 68.04 70.61 73.19 75.77 78.34 78.34 78.34 78.34 31 38.51 40.72 43.12 45.73 48.56 51.67 53.98 57.08 60.38 63.88 67.65 70.31 72.97 75.63 78.29 80.95 80.95 80.95 80.95 32 42.04 44.51 47.20 50.13 53.33 55.72 58.92 62.33 65.95 69.83 72.58 75.32 78.07 80.82 83.56 83.56 83.56 83.56 33 45.90 48.68 51.69 55.00 57.46 60.76 64.27 68.01 72.01 74.84 77.68 80.51 83.34 86.17 86.17 86.17 86.17 34 50.15 53.26 56.67 59.20 62.60 66.22 70.07 74.19 77.11 80.03 82.95 85.87 88.78 88.78 88.78 88.78 35 54.83 58.33 60.94 64.45 68.17 72.13 76.38 79.38 82.38 85.39 88.39 91.40 91.40 91.40 91.40 36 60.00 62.68 66.29 70.12 74.19 78.56 81.65 84.74 87.83 90.92 94.01 94.01 94.01 94.01 37 64.42 68.13 72.06 76.25 80.74 83.92 87.09 90.27 93.44 96.62 96.62 96.62 96.62 38 69.97 74.01 78.31 82.92 86.18 89.44 92.71 95.97 99.23 99.23 99.23 99.23 39 75.96 80.37 85.11 88.45 91.80 95.15 98.49 100 100 100 100 40 82.43 87.29 90.72 94.15 97.59 100 41 89.47 92.99 96.51 100 42 95.26 98.86 43 100
77 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
Table 4: Tier 1 Safety Members (CERL Section 31664.1) Service 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 10 30.00 30.00 30.00 30.00 30.00 30.00 11 33.00 33.00 33.00 33.00 33.00 33.00 12 36.00 36.00 36.00 36.00 36.00 36.00 13 39.00 39.00 39.00 39.00 39.00 39.00 14 42.00 42.00 42.00 42.00 42.00 42.00 15 45.00 45.00 45.00 45.00 45.00 45.00 16 48.00 48.00 48.00 48.00 48.00 48.00 17 51.00 51.00 51.00 51.00 51.00 51.00 18 54.00 54.00 54.00 54.00 54.00 54.00 19 57.00 57.00 57.00 57.00 57.00 57.00 20 37.55 39.75 42.02 44.38 46.83 49.36 52.07 54.51 57.13 60.00 60.00 60.00 60.00 60.00 60.00 21 41.74 44.13 46.6 49.17 51.82 54.67 57.24 59.99 63.00 63.00 63.00 63.00 63.00 63.00 22 46.23 48.82 51.51 54.29 57.27 59.96 62.85 66.00 66.00 66.00 66.00 66.00 66.00 23 51.04 53.85 56.76 59.88 62.69 65.7 69.00 69.00 69.00 69.00 69.00 69.00 24 56.2 59.23 62.48 65.41 68.56 72.00 72.00 72.00 72.00 72.00 72.00 25 61.7 65.09 68.14 71.42 75.00 75.00 75.00 75.00 75.00 75.00 26 67.69 70.86 74.27 78.00 78.00 78.00 78.00 78.00 78.00 27 73.59 77.13 81.00 81.00 81.00 81.00 81.00 81.00 28 79.98 84.00 84.00 84.00 84.00 84.00 84.00 29 87.00 87.00 87.00 87.00 87.00 87.00 30 90.00 90.00 90.00 90.00 90.00 90.00 31 93.00 93.00 93.00 93.00 93.00 93.00 32 96.00 96.00 96.00 96.00 96.00 96.00 33 99.00 99.00 99.00 99.00 99.00 99.00 34 100.00 100.00 100.00 100.00 100.00 100.00 35 100.00 100.00 100.00 100.00 100.00 36 100.00 100.00 100.00 100.00 37 100.00 100.00 100.00 38 100.00 100.00 39 100.00
78 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
Table 5: Tier I Social Security Adjustment General Age at Safety Member Member Retirement Reduction Reduction 46 $1.372 $2.879 47 $1.449 $3.037 48 $1.533 $3.180 49 $1.623 $3.333 50 $1.721 $3.500 51 $1.828 $3.500 52 $1.944 $3.500 53 $2.031 $3.500 54 $2.148 $3.500 55 $2.272 $3.500 56 $2.404 $3.500 57 $2.546 $3.500 58 $2.646 $3.500 59 $2.746 $3.500 60 $2.846 $3.500 61 $2.946 $3.500 62 $3.046 $3.500 63 $3.046 $3.500 64 $3.046 $3.500 65 $3.046 $3.500
For Tier 2 General Members, the benefit multiplier is 1% at age 52, increasing by 0.1% for each year of age to 2.5% at 67. For Tier 2 Safety Members, the benefit multiplier is 2% at age 50, increasing by 0.1% for each year of age to 2.7% at age 57. In between exact ages, the multiplier increases by 0.025% for each quarter year increase in age.
Form of Benefit: The Service Retirement Benefit will be paid monthly beginning at retirement and for the life of the Member. If the member selects the unmodified benefit form, in the event of the Member’s death, 60% of the benefit will continue for the life of the Member’s spouse, or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.
79 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
Actuarially equivalent optional benefit forms are also available.
Annually on April 1, benefits are adjusted to reflect changes in the CPI for the San Francisco Bay Area. Annual adjustments may not exceed 3%, but changes in CPI in excess of 3% are “banked” and used for future adjustments when changes in CPI are less than 3%.
In addition, ad hoc cost-of-living adjustments have been granted in the past and may be granted in the future.
A lump sum benefit of $5,000 will be payable upon the death of a retired member.
D. Service-Connected Disability
Eligibility: Members are eligible for Service-Connected Disability Retirement benefits at any age if they are permanently disabled as a result of injuries or illness sustained in the line of duty.
Benefit Amount: The Service-Connected Disability Retirement Benefit payable to Members is equal to the greater of 50% of their Final Compensation or – if the Member is eligible at disability for a Service Retirement Benefit – the Service Retirement Benefit accrued on the date of disability.
Members who return to work at a different position with lower pay may receive a Supplemental Disability Allowance that, when added to their new pay, may bring the Member’s total income up to the current pay for his or her position at the time of disability. The Supplemental Disability Allowance may not exceed the Service-Connected Disability Retirement benefit.
Form of Benefit: The Service-Connected Disability Retirement Benefit will be paid monthly beginning at the effective date of disability retirement and for the life of the Member; in the event of the Member’s death, 100% of the benefit will continue for the life of the Member’s spouse, or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.
Actuarially equivalent optional benefit forms are also available.
Annually on April 1, benefits are adjusted to reflect changes in the CPI for the San Francisco Bay Area. Annual adjustments may not exceed 3%, but
80 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
changes in CPI in excess of 3% are “banked” and used for future adjustments when changes in CPI are less than 3%.
In addition, ad hoc cost-of-living adjustments have been granted in the past and may be granted in the future.
A lump sum benefit of $5,000 will be payable upon the death of a retired member.
E. Nonservice-Connected Disability
Eligibility: Members are eligible for Nonservice-Connected Disability Retirement benefits if they are permanently disabled at any age after earning five years of Credited Service or after becoming eligible for a deferred vested benefit.
Benefit Amount: The Nonservice-Connected Disability Retirement Benefit payable to General Members is equal to the greatest of:
• 1.5% of Final Compensation at disability multiplied by years of Credited Service at disability; • 1.5% of Final Compensation at disability multiplied by years of Credited Service projected to age 65, but not to exceed one-third of Final Compensation; or • If the Member is eligible at disability for a Service Retirement Benefit, the Service Retirement Benefit accrued on the date of disability.
The Nonservice-Connected Disability Retirement Benefit payable to Safety Members is equal to the greatest of:
• 1.8% of Final Compensation at disability multiplied by years of Credited Service at disability; • 1.8% of Final Compensation at disability multiplied by years of Credited Service projected to age 55, but not to exceed one-third of Final Compensation; or • If the Member is eligible at disability for a Service Retirement Benefit, the Service Retirement Benefit accrued on the date of disability.
Members who return to work at a different position with lower pay may receive a Supplemental Disability Allowance that, when added to their new pay, may bring the Member’s total income up to the current pay for his or her position at the time of disability. The Supplemental Disability
81 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
Allowance may not exceed the Nonservice-Connected Disability Retirement benefit.
Form of Benefit: The Nonservice-Connected Disability Retirement Benefit will be paid monthly beginning at the effective date of disability retirement, and for the life of the Member; in the event of the Member’s death, 60% of the benefit will continue for the life of the Member’s spouse or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.
Actuarially equivalent optional benefit forms are also available.
Annually on April 1, benefits are adjusted to reflect changes in the CPI for the San Francisco Bay Area. Annual adjustments may not exceed 3%, but changes in CPI in excess of 3% are “banked” and used for future adjustments when changes in CPI are less than 3%.
In addition, ad hoc cost-of-living adjustments have been granted in the past and may be granted in the future.
A lump sum benefit of $5,000 will be payable upon the death of a retired member.
F. Service-Connected Death
Eligibility: A Member’s survivors are eligible to receive Service-Connected Death benefits if the Member’s death resulted from injury or illness sustained in connection with the Member’s duties.
Benefit Amount: The Service-Connected Death benefit payable to a surviving spouse or minor children will be 50% of the Member’s Final Compensation.
In the event the Member’s death was caused by external violence or physical force, an additional benefit of 25% of the above basic benefit will be paid for the first minor child, 15% for the second, and 10% for the third.
Furthermore, for Safety Members only, there will be an additional lump sum benefit of 12 months of pay at the time of death.
Form of Benefit: The Service-Connected Death Benefit will be paid monthly beginning at the Member’s death and for the life of the surviving spouse or to the age of majority of dependent minor children if there is no spouse.
82 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
Annually on April 1, benefits are adjusted to reflect changes in the CPI for the San Francisco Bay Area. Annual adjustments may not exceed 3%, but changes in CPI in excess of 3% are “banked” and used for future adjustments when changes in CPI are less than 3%.
In addition, ad hoc cost-of-living adjustments have been granted in the past and may be granted in the future.
G. Nonservice-Connected Death
Eligibility: A Member’s survivors are eligible to receive Nonservice-Connected Death benefits if the Member’s death arose from causes unrelated to the Member’s duties.
Benefit Amount: In the event the Member had earned fewer than five years of Credited Service and has no or insufficient reciprocity service from another system, the Nonservice-Connected Death benefit will be a refund of the Member’s accumulated contributions with interest plus a payment of one month of Final Compensation for each year of Credited Service, not to exceed six months.
In the event the Member had earned five or more years of Credited Service, the Nonservice-Connected Death benefit payable to a surviving spouse or minor children will be 60% of the amount the Member would have received as a Nonservice-Connected Disability Retirement Benefit on the date of death.
Form of Benefit: For Members who had earned fewer than five years of Credited Service at death, the benefit will be paid as a lump sum.
For Members with five or more years of Credited Service, the Nonservice-Connected Death Benefit will be paid monthly beginning at the Member’s death and for the life of the surviving spouse or to the age of majority of dependent minor children if there is no spouse.
Annually on April 1, benefits are adjusted to reflect changes in the CPI for the San Francisco Bay Area. Annual adjustments may not exceed 3%, but changes in CPI in excess of 3% are “banked” and used for future adjustments when changes in CPI are less than 3%.
In addition, ad hoc cost-of-living adjustments have been granted in the past and may be granted in the future.
83 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
H. Withdrawal Benefit
Eligibility: A Member is eligible for a Withdrawal Benefit upon termination of employment.
Benefit Amount: The Withdrawal Benefit is a refund of the Member’s accumulated contributions with interest. Upon receipt of the Withdrawal Benefit, the Member forfeits all Credited Service.
Form of Benefit: The Withdrawal Benefit is paid in a lump sum upon election by the Member.
I. Deferred Vested Benefit
Eligibility: A Member is eligible for a Deferred Vested Benefit upon termination of employment after earning five years of Credited Service, including reciprocity service from another system. The Member must leave his or her Member Contributions with interest on deposit with the Plan.
Benefit Amount: The Deferred Vested Benefit is computed in the same manner as the Service Retirement Benefit, but it is based on Credited Service and Final Compensation on the date of termination.
For Tier 1 Members, Tables 2 and 3 are extended for service under 10 years using benefit multipliers of one-sixtieth per year of Credited Service at age 52 (General) or 3% per year of Credited Service at age 50 (Safety), with adjustments for earlier or later retirement under Sections 31676.14 and 31664.1, respectively, of the County Employees Retirement Law of 1937.
Form of Benefit: The Deferred Vested Benefit will be paid monthly beginning at retirement and for the life of the Member; in the event of the Member’s death, 60% of the benefit will continue for the life of the Member’s spouse or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.
Actuarially equivalent optional benefit forms are also available.
Annually on April 1, benefits are adjusted to reflect changes in the CPI for the San Francisco Bay Area. Annual adjustments may not exceed 3%, but changes in CPI in excess of 3% are “banked” and used for future adjustments when changes in CPI are less than 3%.
84 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX C – SUMMARY OF PLAN PROVISIONS
In addition, ad hoc cost-of-living adjustments have been granted in the past and may be granted in the future.
A lump sum benefit of $5,000 will be payable upon the death of a retired member.
J. Reciprocal Benefit
Eligibility: A Member is eligible for a Reciprocal Benefit upon termination of employment and entry, within a specified period of time, into another retirement system recognized as a reciprocal system by the Plan. In addition, the Member must leave his or her Member Contributions with interest on deposit with the Plan.
Benefit Amount: The Reciprocal Benefit is computed in the same manner as the Service Retirement Benefit, but it is based on Credited Service on the date of termination and Final Compensation on the date of retirement; Final Compensation is based on the highest of the Compensation earned under this Plan or the reciprocal plan.
Form of Benefit: The Reciprocal Benefit will be paid monthly beginning at retirement and for the life of the Member; in the event of the Member’s death, 60% of the benefit will continue for the life of the Member’s spouse or to the age of majority of dependent minor children if there is no spouse. In the event there is no surviving spouse or minor children, any unpaid remainder of the Member’s accumulated contributions will be paid to the Member’s designated beneficiary.
Actuarially equivalent optional benefit forms are also available.
Annually on April 1, benefits are adjusted to reflect changes in the CPI for the San Francisco Bay Area. Annual adjustments may not exceed 3%, but changes in CPI in excess of 3% are “banked” and used for future adjustments when changes in CPI are less than 3%.
In addition, ad hoc cost-of-living adjustments have been granted in the past and may be granted in the future.
A lump sum benefit may be payable upon the death of a retired Member by the last system under which the Member’s service was covered.
The member contribution rates have been updated for the current valuation to reflect the change in the discount rate and pay growth assumptions. There have been no other changes in plan provisions since the prior valuation.
85 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX D – 401(H) REPAYMENT SCHEDULE
As of January 1, 2014, a separate amortization layer was established for the repayment of funds originally transferred to a retiree health reserve. This schedule was prepared in compliance with an approved Voluntary Correction Program that SJCERA submitted to the IRS. The original balance of the amortization layer ($48.0 million) is being amortized using the same methodology and assumptions as the UAL – as a level percentage of payroll over a 19-year period – after an initial payment of $19.8 million.
Outstanding Years End of Year Date Balance Remaining Payment 1/1/2017 $27,547,546 16 $2,460,275 1/1/2018 $27,125,789 15 $2,512,141 1/1/2019 $26,580,267 14 $2,591,274 1/1/2020 $25,916,063 13 $2,653,902 1/1/2021 $25,076,285 12 $2,733,519 1/1/2022 $24,098,107 11 $2,815,524 1/1/2023 $22,969,449 10 $2,899,990 1/1/2024 $21,677,321 9 $2,986,990 1/1/2025 $20,207,743 8 $3,076,600 1/1/2026 $18,545,686 7 $3,168,898 1/1/2027 $16,674,986 6 $3,263,965 1/1/2028 $14,578,270 5 $3,361,883 1/1/2029 $12,236,866 4 $3,462,740 1/1/2030 $9,630,706 3 $3,566,622 1/1/2031 $6,738,234 2 $3,673,621 1/1/2032 $3,536,289 1 $3,783,829 1/1/2033 $0 0 $0
86 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX E – GLOSSARY
1. Actuarial Assumptions
Assumptions as to the occurrence of future events affecting pension costs such as mortality, withdrawal, disability, retirement, changes in compensation, and rates of investment return.
2. Actuarial Cost Method
A procedure for determining the actuarial present value of pension plan benefits and expenses and for developing an allocation of such value to each year of service, usually in the form of a normal cost and an Actuarial Liability.
3. Actuarial Gain (Loss)
The difference between actual experience and that expected based upon a set of actuarial assumptions during the period between two actuarial valuation dates, as determined in accordance with a particular Actuarial Cost Method.
4. Actuarial Liability
The portion of the actuarial present value of projected benefits that will not be paid by future normal costs. It represents the value of the past normal costs with interest to the valuation date.
5. Actuarial Present Value (Present Value)
The value as of a given date of a future amount or series of payments. The Actuarial Present Value discounts the payments to the given date at the assumed investment return and includes the probability of the payment being made.
6. Actuarial Valuation
The determination, as of a specified date, of the normal cost, Actuarial Liability, Actuarial Value of Assets, and related actuarial present values for a pension plan.
7. Actuarial Value of Assets
The value of cash, investments, and other property belonging to a pension plan as used by the actuary for the purpose of an actuarial valuation. The purpose of an Actuarial Value of Assets is to smooth out fluctuations in market values.
8. Actuarially Equivalent
Of equal actuarial present value, determined as of a given date, with each value based on the same set of actuarial assumptions.
87 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX E – GLOSSARY
9. Amortization Payment
The portion of the pension plan contribution that is designed to pay interest and principal on the Unfunded Actuarial Liability in order to pay for that liability in a given number of years.
10. Entry Age Normal 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 of the individual between entry age and assumed exit ages.
11. Funded Ratio
The ratio of the Actuarial Value of Assets to the Actuarial Liabilities. The Funded Ratio shown in this report is not appropriate for assessing the sufficiency of plan assets to cover the estimated cost of settling the plan’s benefit obligations, in the case of a plan termination or other similar action. However, it is an appropriate measure for assessing the need for or the amount of future contributions.
12. Inactive Funded Ratio
The ratio of the Inactive Actuarial Liabilities to the total Actuarial Liabilities. The Inactive Funded Ratio is a measure that shows the minimum funded status needed to pay benefits for all inactive members.
13. Normal Cost
That portion of the actuarial present value of pension plan benefits and expenses, which is allocated to a valuation year by the Actuarial Cost Method.
14. Projected Benefits
Those pension plan benefit amounts which are expected to be paid in the future under a particular set of actuarial assumptions, taking into account such items as increases in future compensation and service credits.
15. Unfunded Actuarial Liability
The excess of the Actuarial Liability over the Actuarial Value of Assets.
88 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX F – GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES
Tier 1: Contribution Rates for General and Safety (no COLA Cost-Sharing)
Separate rates for General and Safety members are shown below. These rates are applicable for employment groups that have not implemented equal sharing of the contributions required for post-retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873.
As of January 1, 2019 As of January 1, 2020 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 13.47% 21.66% 14.99% Basic 13.85% 21.43% 15.30% COL 5.71% 10.03% 6.52% COL 6.00% 10.57% 6.88% Total 19.18% 31.69% 21.51% Total 19.85% 32.00% 22.18% UAL Amortization Cost UAL Amortization Cost Basic 19.06% 38.66% 22.67% Basic 22.26% 47.37% 27.00% COL 9.04% 17.17% 10.54% COL 7.39% 13.91% 8.62% Total 28.10% 55.83% 33.21% Total 29.65% 61.28% 35.62% Total Cost Total Cost Basic 32.53% 60.32% 37.66% Basic 36.11% 68.80% 42.30% COL 14.75% 27.20% 17.06% COL 13.39% 24.48% 15.50% Total 47.28% 87.52% 54.72% Total 49.50% 93.28% 57.80% Rates include the employer share of the administrative expenses.
89 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX F – GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES
Tier 1: Contribution Rates for General and Safety (Employer Cost with additional 14% / 33% Normal Rates by members without COLA Cost-sharing)
Separate rates for General and Safety members contributing an additional 14% / 33% of Normal Rates are shown below.
As of January 1, 2019 As of January 1, 2020 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 12.94% 20.13% 14.28% Basic 13.29% 19.52% 14.48% COL 5.71% 10.03% 6.51% COL 6.00% 10.57% 6.88% Total 18.65% 30.16% 20.79% Total 19.29% 30.09% 21.36% UAL Amortization Cost UAL Amortization Cost Basic 19.06% 38.66% 22.67% Basic 22.26% 47.37% 27.00% COL 9.04% 17.17% 10.54% COL 7.39% 13.91% 8.62% Total 28.10% 55.83% 33.21% Total 29.65% 61.28% 35.62% Total Cost Total Cost Basic 32.00% 58.79% 36.95% Basic 35.55% 66.89% 41.48% COL 14.75% 27.20% 17.05% COL 13.39% 24.48% 15.50% Total 46.75% 85.99% 54.00% Total 48.94% 91.37% 56.98% Rates include the employer share of the administrative expenses.
90 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX F – GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES
Tier 1: Contribution Rates for General and Safety (with COLA Cost-sharing)
Separate rates for General and Safety members contributing Normal Rates plus COLA Cost-sharing are shown below.
As of January 1, 2019 As of January 1, 2020 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 13.47% 21.66% 14.99% Basic 13.85% 21.43% 15.30% COL 2.94% 5.28% 3.38% COL 3.09% 5.49% 3.55% Total 16.41% 26.94% 18.37% Total 16.94% 26.92% 18.85% UAL Amortization Cost UAL Amortization Cost Basic 19.06% 38.66% 22.67% Basic 22.26% 47.37% 27.00% COL 9.04% 17.17% 10.54% COL 7.39% 13.91% 8.62% Total 28.10% 55.83% 33.21% Total 29.65% 61.28% 35.62% Total Cost Total Cost Basic 32.53% 60.32% 37.66% Basic 36.11% 68.80% 42.30% COL 11.98% 22.45% 13.92% COL 10.48% 19.40% 12.17% Total 44.51% 82.77% 51.58% Total 46.59% 88.20% 54.47% Rates include the employer share of the administrative expenses.
91 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX F – GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES
Tier 1: Contribution Rates for General and Safety (Employer Cost with additional 14% / 33% Normal Rates by members and COLA Cost-sharing)
Separate rates for General and Safety members contributing an additional 14% / 33% of Normal Rates and COLA Cost-sharing are shown below.
As of January 1, 2019 As of January 1, 2020 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 12.94% 20.13% 14.28% Basic 13.29% 19.52% 14.48% COL 2.94% 5.28% 3.37% COL 3.09% 5.49% 3.55% Total 15.88% 25.41% 17.65% Total 16.38% 25.01% 18.03% UAL Amortization Cost UAL Amortization Cost Basic 19.06% 38.66% 22.67% Basic 22.26% 47.37% 27.00% COL 9.04% 17.17% 10.54% COL 7.39% 13.91% 8.62% Total 28.10% 55.83% 33.21% Total 29.65% 61.28% 35.62% Total Cost Total Cost Basic 32.00% 58.79% 36.95% Basic 35.55% 66.89% 41.48% COL 11.98% 22.45% 13.91% COL 10.48% 19.40% 12.17% Total 43.98% 81.24% 50.86% Total 46.03% 86.29% 53.65% Rates include the employer share of the administrative expenses.
92 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX F – GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES
Tier 2: Contribution Rates for General and Safety (PEPRA Members)
Separate rates for General and Safety members are shown below. These rates are applicable for employment groups that are subject to Government Code Section 7522.30.
As of January 1, 2019 As of January 1, 2020 General Safety Total General Safety Total Employer Normal Cost Employer Normal Cost Basic 7.20% 10.70% 7.58% Basic 7.52% 11.05% 7.92% COL 2.27% 3.97% 2.45% COL 2.45% 4.41% 2.67% Total 9.47% 14.67% 10.03% Total 9.97% 15.46% 10.59% UAL Amortization Cost UAL Amortization Cost Basic 19.06% 38.66% 21.09% Basic 22.26% 47.37% 25.00% COL 9.04% 17.17% 9.88% COL 7.39% 13.91% 8.10% Total 28.10% 55.83% 30.97% Total 29.65% 61.28% 33.10% Total Cost Total Cost Basic 26.26% 49.36% 28.67% Basic 29.78% 58.42% 32.92% COL 11.31% 21.14% 12.33% COL 9.84% 18.32% 10.77% Total 37.57% 70.50% 41.00% Total 39.62% 76.74% 43.69% Rates include the employer share of the administrative expenses.
93 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX F – GENERAL AND SAFETY EMPLOYER CONTRIBUTION RATES
Total Normal Cost Rates for General and Safety
As of January 1, 2019 As of January 1, 2020 General Safety Total General Safety Total Total Normal Cost Total Normal Cost Tier 1 22.99% 36.33% 25.47% Tier 1 23.82% 37.80% 26.50% Tier 2 18.94% 29.34% 20.06% Tier 2 19.94% 30.92% 21.18% The Total Normal Costs shown include the employee and employer share of the assumed administrative expenses.
94 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX G – MEMBER CONTRIBUTION RATES
General Member Contribution Rates Basic Half Rate (Government Code Section 31621.3) Basic Rate COLA Cost-Sharing Rate1 Entr y Ag e 1st $350/month Over $350 1st $350/month Over $350 16 1.97% 2.95% 1.37% 2.06% 17 1.97% 2.95% 1.37% 2.06% 18 1.97% 2.95% 1.37% 2.06% 19 1.97% 2.95% 1.37% 2.06% 20 1.97% 2.95% 1.37% 2.06% 21 2.01% 3.01% 1.41% 2.12% 22 2.05% 3.07% 1.45% 2.18% 23 2.09% 3.14% 1.50% 2.25% 24 2.13% 3.20% 1.54% 2.31% 25 2.18% 3.27% 1.58% 2.37% 26 2.23% 3.34% 1.62% 2.43% 27 2.27% 3.41% 1.66% 2.49% 28 2.32% 3.48% 1.69% 2.54% 29 2.37% 3.55% 1.73% 2.60% 30 2.41% 3.62% 1.77% 2.65% 31 2.47% 3.70% 1.80% 2.70% 32 2.51% 3.77% 1.83% 2.75% 33 2.57% 3.85% 1.87% 2.81% 34 2.62% 3.93% 1.91% 2.87% 35 2.68% 4.02% 1.96% 2.94% 36 2.73% 4.10% 2.01% 3.01% 37 2.79% 4.19% 2.06% 3.09% 38 2.85% 4.28% 2.12% 3.18% 39 2.92% 4.38% 2.18% 3.27% 40 2.97% 4.46% 2.25% 3.37% 41 3.03% 4.54% 2.31% 3.46% 42 3.08% 4.62% 2.37% 3.55% 43 3.14% 4.71% 2.43% 3.64% 44 3.21% 4.81% 2.49% 3.73% 45 3.26% 4.89% 2.55% 3.83% 46 3.33% 4.99% 2.63% 3.94% 47 3.37% 5.05% 2.65% 3.97% 48 3.42% 5.13% 2.67% 4.01% 49 3.47% 5.21% 2.69% 4.03% 50 3.54% 5.31% 2.70% 4.05% 51 3.55% 5.33% 2.71% 4.07% 52 3.58% 5.37% 2.72% 4.08% 53 3.53% 5.30% 2.71% 4.06% 54+ 3.47% 5.20% 2.66% 3.99% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. Rates include the employee share of the administrative expenses.
95 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX G – MEMBER CONTRIBUTION RATES
General Member Contribution Rates Basic Half Rate (Government Code Section 31621.3) + 14% , not greater than 1/2 Normal Cost Basic Rate COLA Cost-Sharing Rate1
Entr y Ag e 1st $350/month Over $350 1st $350/month Over $350 16 2.24% 3.36% 1.38% 2.07% 17 2.24% 3.36% 1.38% 2.07% 18 2.24% 3.36% 1.38% 2.07% 19 2.24% 3.36% 1.38% 2.07% 20 2.24% 3.36% 1.38% 2.07% 21 2.29% 3.43% 1.41% 2.12% 22 2.33% 3.50% 1.45% 2.18% 23 2.39% 3.58% 1.50% 2.25% 24 2.43% 3.65% 1.55% 2.32% 25 2.49% 3.73% 1.58% 2.37% 26 2.54% 3.81% 1.62% 2.43% 27 2.59% 3.89% 1.66% 2.49% 28 2.65% 3.97% 1.69% 2.54% 29 2.70% 4.05% 1.73% 2.60% 30 2.75% 4.13% 1.77% 2.65% 31 2.81% 4.22% 1.80% 2.70% 32 2.87% 4.30% 1.84% 2.76% 33 2.93% 4.39% 1.87% 2.81% 34 2.99% 4.48% 1.91% 2.87% 35 3.05% 4.58% 1.96% 2.94% 36 3.11% 4.67% 2.01% 3.01% 37 3.19% 4.78% 2.07% 3.10% 38 3.25% 4.88% 2.12% 3.18% 39 3.33% 4.99% 2.19% 3.28% 40 3.39% 5.08% 2.25% 3.37% 41 3.45% 5.18% 2.31% 3.46% 42 3.51% 5.27% 2.37% 3.55% 43 3.58% 5.37% 2.43% 3.64% 44 3.65% 5.48% 2.49% 3.73% 45 3.71% 5.57% 2.56% 3.84% 46 3.79% 5.69% 2.63% 3.94% 47 3.84% 5.76% 2.65% 3.97% 48 3.90% 5.85% 2.67% 4.01% 49 3.96% 5.94% 2.69% 4.03% 50 4.03% 6.05% 2.71% 4.06% 51 4.05% 6.08% 2.71% 4.07% 52 4.08% 6.12% 2.72% 4.08% 53 4.03% 6.04% 2.71% 4.06% 54+ 3.95% 5.93% 2.67% 4.00% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. Rates include the employee share of the administrative expenses.
96 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX G – MEMBER CONTRIBUTION RATES
Safety Member Contribution Rates Basic Half Rate (Government Code Section 31639.5) Basic Rate COLA Cost-Sharing Rate1
Entr y Ag e 1st $350/month Over $350 1st $350/month Over $350
16 2.97% 4.45% 3.12% 4.68% 17 2.97% 4.45% 3.12% 4.68% 18 2.97% 4.45% 3.12% 4.68% 19 2.97% 4.45% 3.12% 4.68% 20 2.97% 4.45% 3.12% 4.68% 21 3.01% 4.51% 3.23% 4.84% 22 3.05% 4.58% 3.28% 4.92% 23 3.10% 4.65% 3.33% 4.99% 24 3.15% 4.72% 3.37% 5.06% 25 3.20% 4.80% 3.42% 5.13% 26 3.25% 4.87% 3.46% 5.19% 27 3.30% 4.95% 3.51% 5.26% 28 3.35% 5.02% 3.54% 5.31% 29 3.40% 5.10% 3.58% 5.37% 30 3.45% 5.18% 3.62% 5.43% 31 3.51% 5.26% 3.62% 5.43% 32 3.57% 5.35% 3.67% 5.50% 33 3.62% 5.43% 3.72% 5.58% 34 3.68% 5.52% 3.73% 5.59% 35 3.74% 5.61% 3.74% 5.61% 36 3.81% 5.71% 3.76% 5.64% 37 3.87% 5.81% 3.80% 5.70% 38 3.94% 5.91% 3.85% 5.77% 39 4.01% 6.02% 3.90% 5.85% 40 4.09% 6.14% 3.97% 5.96% 41 4.18% 6.27% 4.03% 6.04% 42 4.28% 6.42% 4.08% 6.12% 43 4.39% 6.59% 4.15% 6.23% 44 4.49% 6.73% 4.23% 6.35% 45 4.48% 6.72% 4.31% 6.46% 46 4.49% 6.73% 4.36% 6.54% 47 4.52% 6.78% 4.39% 6.59% 48 4.39% 6.59% 4.42% 6.63% 49+ 4.27% 6.41% 4.45% 6.67% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. Rates include the employee share of the administrative expenses.
97 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX G – MEMBER CONTRIBUTION RATES
Safety Member Contribution Rates Basic Half Rate (Government Code Section 31639.5) + 33% , not greater than 1/2 Normal Cost Basic Rate COLA Cost-Sharing Rate1
Entr y Ag e 1st $350/month Over $350 1st $350/month Over $350
16 3.95% 5.92% 3.12% 4.68% 17 3.95% 5.92% 3.12% 4.68% 18 3.95% 5.92% 3.12% 4.68% 19 3.95% 5.92% 3.12% 4.68% 20 3.95% 5.92% 3.12% 4.68% 21 4.00% 6.00% 3.23% 4.84% 22 4.06% 6.09% 3.28% 4.92% 23 4.12% 6.18% 3.33% 5.00% 24 4.19% 6.28% 3.37% 5.06% 25 4.25% 6.38% 3.42% 5.13% 26 4.32% 6.48% 3.46% 5.19% 27 4.39% 6.58% 3.51% 5.26% 28 4.45% 6.68% 3.55% 5.32% 29 4.52% 6.78% 3.58% 5.37% 30 4.59% 6.89% 3.62% 5.43% 31 4.67% 7.00% 3.63% 5.44% 32 4.75% 7.12% 3.67% 5.50% 33 4.81% 7.22% 3.72% 5.58% 34 4.89% 7.34% 3.73% 5.59% 35 4.97% 7.46% 3.74% 5.61% 36 5.06% 7.59% 3.76% 5.64% 37 5.15% 7.73% 3.80% 5.70% 38 5.24% 7.86% 3.85% 5.78% 39 5.34% 8.01% 3.90% 5.85% 40 5.45% 8.17% 3.98% 5.97% 41 5.56% 8.34% 4.03% 6.05% 42 5.69% 8.54% 4.08% 6.12% 43 5.84% 8.76% 4.15% 6.23% 44 5.97% 8.95% 4.24% 6.36% 45 5.96% 8.94% 4.31% 6.46% 46 5.97% 8.95% 4.36% 6.54% 47 6.01% 9.02% 4.39% 6.59% 48 5.84% 8.76% 4.42% 6.63% 49+ 5.69% 8.53% 4.45% 6.67% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. Rates include the employee share of the administrative expenses.
98
San Joaquin County Employees' Board of Retirement Retirement Association Resolution
RESOLUTION TITLE: Actuarial Report and 2021 Retirement Contribution Rates
RESOLUTION NO. 2020-08-01
WHEREAS, in compliance with Government Code Section 31453, the Board of Retirement requested its consulting actuary, Cheiron, conduct an actuarial valuation as of January 1, 2020; and
WHEREAS, the assumed rate of return was lowered from 7.25 percent to 7.0 percent and the pay growth assumption was lowered from 3.15 percent to 3.0 percent; and
WHEREAS, the actuary has determined the recommended employer and member contribution rates for calendar year 2021 for Tiers 1 and 2.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Retirement approves the recommended retirement contribution rates for 2021 expressed as a percentage of active member payroll to be effective the first payday after January 1, 2021 as shown in the following attachments, which are hereby incorporated into and made a part of this Resolution:
Attachment 1 SJCERA – Retirement Contribution Rates – 2021 Attachment 2 Table 1A – General Member Contribution Rates Attachment 3 Table 1B – General Member Contribution Rates Attachment 4 Table 2A – Safety Member Contribution Rates Attachment 5 Table 2B – Safety Member Contribution Rates
PASSED AND APPROVED by the Board of Retirement of the San Joaquin County Employees' Retirement Association on the 14th day of August 2020.
AYES: ______NOES: MICHAEL RESTUCCIA, Chair
ABSENT:
ABSTAIN: ______RAYMOND McCRAY, Secretary Resolution 2020-08-01 SJCERA - RETIREMENT CONTRIBUTION RATES - 2021 Attachment 1 As determined by annual actuarial valuation as of January 1, 2020 Expressed as a Percentage of Active Member Payroll
TIER 1 TIER 1 TIER 1 TIER 2 w/COLA Cost Sharing w/COLA Cost Sharing Plus EMPLOYER COMPOSITE COMPOSITE COMPOSITE COMPOSITE CONTRIBUTIONS: GENERAL SAFETY TOTAL GENERAL SAFETY TOTAL GENERAL SAFETY TOTAL GENERAL SAFETY TOTAL Normal Cost Basic 13.85% 21.43% 15.30% 13.85% 21.43% 15.30% 13.29% 19.52% 14.48% 7.52% 11.05% 7.92% Post-retirement COLA 6.00% 10.57% 6.88% 3.09% 5.49% 3.55% 3.09% 5.49% 3.55% 2.45% 4.41% 2.67% Total 19.85% 32.00% 22.18% 16.94% 26.92% 18.85% 16.38% 25.01% 18.03% 9.97% 15.46% 10.59% UAL Amortization Cost Basic 22.26% 47.37% 27.00% 22.26% 47.37% 27.00% 22.26% 47.37% 27.00% 22.26% 47.37% 25.00% Post-retirement COLA 7.39% 13.91% 8.62% 7.39% 13.91% 8.62% 7.39% 13.91% 8.62% 7.39% 13.91% 8.10% Total 29.65% 61.28% 35.62% 29.65% 61.28% 35.62% 29.65% 61.28% 35.62% 29.65% 61.28% 33.10% Total Plan Cost Basic 36.11% 68.80% 42.30% 36.11% 68.80% 42.30% 35.55% 66.89% 41.48% 29.78% 58.42% 32.92% Post-Retirement COLA 13.39% 24.48% 15.50% 10.48% 19.40% 12.17% 10.48% 19.40% 12.17% 9.84% 18.32% 10.77% Total 49.50% 93.28% 57.80% 46.59% 88.20% 54.47% 46.03% 86.29% 53.65% 39.62% 76.74% 43.69%
Total Plan Normal Cost 23.82% 37.80% 26.50% 23.82% 37.80% 26.50% 23.82% 37.80% 26.50% 19.94% 30.92% 21.18%
9.97% 15.46% MEMBER Table 1B Table 2B CONTRIBUTIONS: Table 1A Table 2A "114% of "133% of Table 1A Table 2A "Basic Rate" "Basic Rate" Basic Rate" Basic Rate" "Basic Rate" "Basic Rate" + "COLA + "COLA + "COLA + "COLA from from Cost Share Cost Share Cost Share Cost Share 1/1/20 1/1/20 Rate" from Rate" from Rate" from Rate" from Valuation Valuation 1/1/20 1/1/20 1/1/20 1/1/20 Report Report Valuation Valuation Valuation Valuation Report Report Report Report
Printed 8/3/20 9:17 AM SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION Resolution 2020-08-01 ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020 Attachment 2
APPENDIX G – MEMBER CONTRIBUTION RATES
General Member Contribution Rates Table 1A Basic Half Rate (Government Code Section 31621.3) Basic Rate COLA Cost-Sharing Rate1 Entr y Ag e 1st $350/month Over $350 1st $350/month Over $350 16 1.97% 2.95% 1.37% 2.06% 17 1.97% 2.95% 1.37% 2.06% 18 1.97% 2.95% 1.37% 2.06% 19 1.97% 2.95% 1.37% 2.06% 20 1.97% 2.95% 1.37% 2.06% 21 2.01% 3.01% 1.41% 2.12% 22 2.05% 3.07% 1.45% 2.18% 23 2.09% 3.14% 1.50% 2.25% 24 2.13% 3.20% 1.54% 2.31% 25 2.18% 3.27% 1.58% 2.37% 26 2.23% 3.34% 1.62% 2.43% 27 2.27% 3.41% 1.66% 2.49% 28 2.32% 3.48% 1.69% 2.54% 29 2.37% 3.55% 1.73% 2.60% 30 2.41% 3.62% 1.77% 2.65% 31 2.47% 3.70% 1.80% 2.70% 32 2.51% 3.77% 1.83% 2.75% 33 2.57% 3.85% 1.87% 2.81% 34 2.62% 3.93% 1.91% 2.87% 35 2.68% 4.02% 1.96% 2.94% 36 2.73% 4.10% 2.01% 3.01% 37 2.79% 4.19% 2.06% 3.09% 38 2.85% 4.28% 2.12% 3.18% 39 2.92% 4.38% 2.18% 3.27% 40 2.97% 4.46% 2.25% 3.37% 41 3.03% 4.54% 2.31% 3.46% 42 3.08% 4.62% 2.37% 3.55% 43 3.14% 4.71% 2.43% 3.64% 44 3.21% 4.81% 2.49% 3.73% 45 3.26% 4.89% 2.55% 3.83% 46 3.33% 4.99% 2.63% 3.94% 47 3.37% 5.05% 2.65% 3.97% 48 3.42% 5.13% 2.67% 4.01% 49 3.47% 5.21% 2.69% 4.03% 50 3.54% 5.31% 2.70% 4.05% 51 3.55% 5.33% 2.71% 4.07% 52 3.58% 5.37% 2.72% 4.08% 53 3.53% 5.30% 2.71% 4.06% 54+ 3.47% 5.20% 2.66% 3.99% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. Rates include the employee share of the administrative expenses.
95 Resolution 2020-08-01 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020 Attachment 3
APPENDIX G – MEMBER CONTRIBUTION RATES
General Member Contribution Rates Table 1B Basic Half Rate (Government Code Section 31621.3) + 14% , not greater than 1/2 Normal Cost Basic Rate COLA Cost-Sharing Rate1
Entr y Ag e 1st $350/month Over $350 1st $350/month Over $350 16 2.24% 3.36% 1.38% 2.07% 17 2.24% 3.36% 1.38% 2.07% 18 2.24% 3.36% 1.38% 2.07% 19 2.24% 3.36% 1.38% 2.07% 20 2.24% 3.36% 1.38% 2.07% 21 2.29% 3.43% 1.41% 2.12% 22 2.33% 3.50% 1.45% 2.18% 23 2.39% 3.58% 1.50% 2.25% 24 2.43% 3.65% 1.55% 2.32% 25 2.49% 3.73% 1.58% 2.37% 26 2.54% 3.81% 1.62% 2.43% 27 2.59% 3.89% 1.66% 2.49% 28 2.65% 3.97% 1.69% 2.54% 29 2.70% 4.05% 1.73% 2.60% 30 2.75% 4.13% 1.77% 2.65% 31 2.81% 4.22% 1.80% 2.70% 32 2.87% 4.30% 1.84% 2.76% 33 2.93% 4.39% 1.87% 2.81% 34 2.99% 4.48% 1.91% 2.87% 35 3.05% 4.58% 1.96% 2.94% 36 3.11% 4.67% 2.01% 3.01% 37 3.19% 4.78% 2.07% 3.10% 38 3.25% 4.88% 2.12% 3.18% 39 3.33% 4.99% 2.19% 3.28% 40 3.39% 5.08% 2.25% 3.37% 41 3.45% 5.18% 2.31% 3.46% 42 3.51% 5.27% 2.37% 3.55% 43 3.58% 5.37% 2.43% 3.64% 44 3.65% 5.48% 2.49% 3.73% 45 3.71% 5.57% 2.56% 3.84% 46 3.79% 5.69% 2.63% 3.94% 47 3.84% 5.76% 2.65% 3.97% 48 3.90% 5.85% 2.67% 4.01% 49 3.96% 5.94% 2.69% 4.03% 50 4.03% 6.05% 2.71% 4.06% 51 4.05% 6.08% 2.71% 4.07% 52 4.08% 6.12% 2.72% 4.08% 53 4.03% 6.04% 2.71% 4.06% 54+ 3.95% 5.93% 2.67% 4.00% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. Rates include the employee share of the administrative expenses.
96 Resolution 2020-08-01 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION Attachment 4 ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX G – MEMBER CONTRIBUTION RATES
Safety Member Contribution Rates Table 2A Basic Half Rate (Government Code Section 31639.5) Basic Rate COLA Cost-Sharing Rate1
Entr y Ag e 1st $350/month Over $350 1st $350/month Over $350
16 2.97% 4.45% 3.12% 4.68% 17 2.97% 4.45% 3.12% 4.68% 18 2.97% 4.45% 3.12% 4.68% 19 2.97% 4.45% 3.12% 4.68% 20 2.97% 4.45% 3.12% 4.68% 21 3.01% 4.51% 3.23% 4.84% 22 3.05% 4.58% 3.28% 4.92% 23 3.10% 4.65% 3.33% 4.99% 24 3.15% 4.72% 3.37% 5.06% 25 3.20% 4.80% 3.42% 5.13% 26 3.25% 4.87% 3.46% 5.19% 27 3.30% 4.95% 3.51% 5.26% 28 3.35% 5.02% 3.54% 5.31% 29 3.40% 5.10% 3.58% 5.37% 30 3.45% 5.18% 3.62% 5.43% 31 3.51% 5.26% 3.62% 5.43% 32 3.57% 5.35% 3.67% 5.50% 33 3.62% 5.43% 3.72% 5.58% 34 3.68% 5.52% 3.73% 5.59% 35 3.74% 5.61% 3.74% 5.61% 36 3.81% 5.71% 3.76% 5.64% 37 3.87% 5.81% 3.80% 5.70% 38 3.94% 5.91% 3.85% 5.77% 39 4.01% 6.02% 3.90% 5.85% 40 4.09% 6.14% 3.97% 5.96% 41 4.18% 6.27% 4.03% 6.04% 42 4.28% 6.42% 4.08% 6.12% 43 4.39% 6.59% 4.15% 6.23% 44 4.49% 6.73% 4.23% 6.35% 45 4.48% 6.72% 4.31% 6.46% 46 4.49% 6.73% 4.36% 6.54% 47 4.52% 6.78% 4.39% 6.59% 48 4.39% 6.59% 4.42% 6.63% 49+ 4.27% 6.41% 4.45% 6.67% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. Rates include the employee share of the administrative expenses.
97 Resolution 2020-08-01 SAN JOAQUIN COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION Attachment 5 ACTUARIAL VALUATION REPORT AS OF JANUARY 1, 2020
APPENDIX G – MEMBER CONTRIBUTION RATES
Safety Member Contribution Rates Table 2B Basic Half Rate (Government Code Section 31639.5) + 33% , not greater than 1/2 Normal Cost Basic Rate COLA Cost-Sharing Rate1
Entr y Ag e 1st $350/month Over $350 1st $350/month Over $350
16 3.95% 5.92% 3.12% 4.68% 17 3.95% 5.92% 3.12% 4.68% 18 3.95% 5.92% 3.12% 4.68% 19 3.95% 5.92% 3.12% 4.68% 20 3.95% 5.92% 3.12% 4.68% 21 4.00% 6.00% 3.23% 4.84% 22 4.06% 6.09% 3.28% 4.92% 23 4.12% 6.18% 3.33% 5.00% 24 4.19% 6.28% 3.37% 5.06% 25 4.25% 6.38% 3.42% 5.13% 26 4.32% 6.48% 3.46% 5.19% 27 4.39% 6.58% 3.51% 5.26% 28 4.45% 6.68% 3.55% 5.32% 29 4.52% 6.78% 3.58% 5.37% 30 4.59% 6.89% 3.62% 5.43% 31 4.67% 7.00% 3.63% 5.44% 32 4.75% 7.12% 3.67% 5.50% 33 4.81% 7.22% 3.72% 5.58% 34 4.89% 7.34% 3.73% 5.59% 35 4.97% 7.46% 3.74% 5.61% 36 5.06% 7.59% 3.76% 5.64% 37 5.15% 7.73% 3.80% 5.70% 38 5.24% 7.86% 3.85% 5.78% 39 5.34% 8.01% 3.90% 5.85% 40 5.45% 8.17% 3.98% 5.97% 41 5.56% 8.34% 4.03% 6.05% 42 5.69% 8.54% 4.08% 6.12% 43 5.84% 8.76% 4.15% 6.23% 44 5.97% 8.95% 4.24% 6.36% 45 5.96% 8.94% 4.31% 6.46% 46 5.97% 8.95% 4.36% 6.54% 47 6.01% 9.02% 4.39% 6.59% 48 5.84% 8.76% 4.42% 6.63% 49+ 5.69% 8.53% 4.45% 6.67% 1 Some members and employers share equally the contributions required for post- retirement cost-of-living adjustments (COLA) in accordance with Government Code Section 31873. For other members, the employers pay all of the contributions required for post-retirement COLA. Rates include the employee share of the administrative expenses.
98 Fiduciary Counsel Comments on SJCERA’s Implementation of Alameda Decision
Presented by: Ashley K. Dunning, Partner Co-Chair, Public Pensions & Investments Practice Group
Presented to the Board of Retirement of San Joaquin County Employees’ Retirement Association
August 14, 2020 California Law – The State Constitution and the Alameda Decision
§ Article XVI, Section 17 vests the Board with “plenary” authority over the administration of SJCERA, subject to its fiduciary duties.
§ On July 30, 2020, the California Supreme Court filed its decision Alameda County Deputy Sheriff’s Assoc. et al., v. Alameda County Employees’ Retirement Assn., et al. (2020) __ P.3d.__ (WL 4360051) (S247095) (“Alameda”).
§ Now that Alameda has been decided by the highest court in California, and it interprets the law applicable to county retirement systems, SJCERA is bound by its mandates.
§ In Alameda, the Court described the fiduciary and administrative role of public retirement boards to implement statutes governing them as those statutes are written.
2 California Law- The County Employees Retirement Law of 1937 (“CERL”)
§ Government Code section 31461 of CERL, as amended by Assembly Bill 197 (2012-2013) and the Public Employees’ Pension Reform Act of 2013 (“PEPRA”), required new exclusions from “compensation earnable” that the Alameda Court determined were, in large part, changes in the law.
§ The Alameda Court further determined that the new exclusions were both constitutional (thus, not a violation of legacy members’ vested rights) and must be applied, even if pre- existing settlement agreements or other Board actions provided that such pay items would be included in compensation earnable, and even if active members had paid retirement contributions on those pay items.
3 Prior SJCERA Board Actions on Compensation Earnable
§ The Board continued to include a number of pay codes of its legacy members that were potentially required to be excluded by PEPRA, deferring further action on those pay codes until Alameda was decided for potential vested rights and estoppel- based considerations.
4 The Alameda Decision
§ Alameda was filed on July 30, 2020 and, pursuant to applicable California Supreme Court rules, is to be thirty days later.
§ Alameda rejected vested rights and estoppel-based concerns that dissuaded the SJCERA Board from acting on PEPRA previously.
5 The Alameda Decision
§ Significantly, the Alameda Court’s conclusions were based on its analysis of the narrow questions relating to the legality of PEPRA amendments to the compensation earnable statute.
§ Because those amendments were consistent with the “theory and successful operation” of a public pension system, and because requiring a “comparable new advantage” to members who were disadvantaged by the change in law would undermine the constitutionally permitted purpose of the change, the changes were upheld as a matter of both law and equity.
6 SJCERA Implementation of Alameda
§ Four key questions arise: – To whom does Alameda apply? – As to what period of time are benefits to be corrected? – What about member contributions? – What pay items must be excluded?
7 Question No. 1: To Whom Does Alameda Apply?
§ The Alameda Court stated: “County retirement boards . . . have the ordinary authority of an administrative body to resolve, in the first instance, ambiguities in the interpretation and application of these statutes, but nothing in the text of sections 31460 and 31461 hints that the discretion extends further.”
(Emphasis added.)
8 Question No. 1: To Whom Does Alameda Apply? (cont.)
§ The Alameda Court also stated: “We assume for purposes of this analysis that the settlement agreements embodied permissible interpretations of CERL at the time they were executed. The issue here is whether the retirement boards could have agreed to continue to implement those interpretations despite a statutory amendment that rendered the interpretations contrary to CERL. For the reasons discussed above, such a provision would have been beyond their authority. County employees can have no express contractual right to the continued adherence to interpretations of CERL that are now, as a result of PEPRA, contrary to the statute.” (Emphasis added.)
9 Question No. 1: To Whom Does Alameda Apply? (cont.)
§ Alameda thus determines that PEPRA’s amendments to section 31461 apply effective January 1, 2013, as written.
§ There is no basis to perpetuate the erroneous construction of CERL as the Supreme Court concluded in Alameda, even as to currently retired members. See generally, Retirement Cases (2003) 110 Cal.App.4th 426 (“Retirement Cases”); City of San Diego v. San Diego City Employees’ Retirement System (2010) 186 Cal.App.4th 69 (“City v. “SDCERS”).
10 Question No. 1: To Whom Does Alameda Apply? (cont.)
§ Thus, as to SJCERA, Alameda’s interpretation of PEPRA amendments to section 31461 (the “PEPRA Exclusions”) applies to SJCERA legacy members who retired, and will retire, on and after January 1, 2013, because that was the statute- based law applicable to those individuals when they retired.
11 Question No. 2: As to What Period of Time Are Retirement Benefits to Be Corrected Under Alameda?
§ Retirement benefits that SJCERA pays retirees from August 2020 (when Alameda is final) forward are to implement PEPRA’s amendments to section 31461.
§ If SJCERA cannot implement Alameda that quickly for administrative reasons, overpaid amounts paid to retirees from the August 2020 payroll forward should be corrected in accordance with SJCERA’s Correction of Errors or Omissions Policy.
12 Question No. 2: As to What Period of Time Are Retirement Benefits to Be Corrected Under Alameda? (cont.)
§ We further conclude, however, that under California law, recoupment of additional amounts from retirees with respect to the new exclusions is not required. City of Oakland v. Oakland Police and Fire Retirement System (2014) 224 Cal.App.4th 210; Blaser v. State Teachers’ Retirement System (2019) 37 Cal.App.5th 349.
§ Tax counsel to address federal tax qualification topic regarding permissible error correction.
13 Question No. 3: What About Member Contributions?
§ As stated in Alameda footnote no. 18, it did not “address,” or thus decide, whether the return of any member contributions made on pay items that are excluded by section 31461, as amended, are warranted.
§ As to member contributions taken on pay codes associated with the PEPRA Exclusions before January 1, 2013, contributions were not only permitted, they were required by CERL. The PEPRA amendments to CERL do not provide for a refund of such contributions. Cf. Gov. Code sec. 7522.74 (felony forfeiture statute provides for certain refunds of contributions).
14 Question No. 3: What About Member Contributions? (cont.)
§ Return contributions to active and deferred members that were taken on excluded pay items from January 1, 2013 forward.
§ For retired members the overpaid benefits typically offset the members contributions that were paid on excluded items.
15 Question No. 4: What Pay Items Must Be Excluded from Compensation Earnable Now?
§ Alameda described somewhat greater restraints on CERL Boards than previously was understood with respect to inclusions in compensation earnable that statutes did not permit (e.g., the “Guelfi footnote 6” issue and Alameda Exclusions).
§ Per the Supreme Court’s discussion of section 31461, as amended, PEPRA also closes certain “loopholes” such as straddling of fiscal years for leave cashouts (a PEPRA Exclusion) and inclusion of “in-kind” benefits in compensation earnable (an Alameda Exclusion).
16 Question No. 4: What Pay Items Must Be Excluded from Compensation Earnable Now?
§ Mandatory exclusions are in subdivisions (b)(2), (3) and (4),
§ Exclusions in subdivision (b)(1)(A), (B) and (C) are more discretionary in that the Board “may” exclude such items, such as conversions to cash of in-kind benefits, one-time or ad hoc payment of benefits, and pre-termination golden handshakes.
§ Discretionary, as opposed to mandatory, PEPRA Exclusions should not be applied for the first time to current retirees now as a result of Alameda, unless a board took such action in response to PEPRA previously and applied that action to future retirees.
17 Question No. 4: What Pay Items Must Be Excluded from Compensation Earnable Now? (cont.)
§ SJCERA is to determine each pay code that is not to be included in compensation earnable under the PEPRA amendments and exclude those pay codes for purposes of both contribution collection and benefit payments.
§ The Board should adopt a Resolution Implementing the Alameda Decision, providing proper direction to SJCERA staff on these topics.
18 Questions?
Thank you
19 The California Supreme Court Addresses the California Rule and Public Retirement System Governance
07.31.2020 Nossaman eAlert
In a landmark decision of a unanimous court, on July 30, 2020, the California Supreme Court issued its second case in two years on the scope of the “California Rule,” Alameda County Deputy Sheriff’s Assoc. et al., v. Alameda County Employees’ Retirement Assn., et al. (2020) __ P.3d.__ (WL 4360051) (S247095) (“Alameda”). In sum, the Court decided the narrow issue presented to it, determining that statutory amendments it considered were constitutional, while preserving the strength of the California Rule as to other legislative attempts to change pension benefits of current retirement system members to the member’s detriment without providing comparable new advantages. As we discuss below, the Court’s decision affirms the continuing force of the Rule in California, but refocuses judicial review of public pension changes in this State. For those alterations that disadvantage pensioners, courts will now closely examine the stated purposes of such modifications to determine whether they are justified and thus are permissible under the Contracts Clause of the California Constitution.
In Alameda, the Court first noted that just recently, in March 2019, the California Supreme Court issued its first decision in the five cases before it that challenged the constitutionality of various parts of the state legislature’s Public Employees’ Pension Reform Act of 2013 (“PEPRA”) and related changes to statutes governing the State and county public retirement systems as provided in Assembly Bills 340 and 197 (2012) (collectively, “PEPRA”). In that case, Cal Fire Local 2881 v. California Public Employees’ Retirement System (2019) 6 Cal.5th 965 (“CalFire”), the Court provided a comprehensive analysis of the predicates necessary to determine whether a particular employment or pension benefit is a “vested” contract right, and thus constitutionally protected, under California law. The CalFIRE Court unanimously concluded that “California’s public employees have never had a contractual right to the continued availability of the opportunity to purchase [Additional Retirement Service, or “ARS”] credit.” (CalFIRE, supra, 6 Cal.5th at p. 993.) Accordingly, the Court stated that its decision “expresses no opinion on the various issues raised by the state and amici curiae relating to the scope of the California Rule.”
In Alameda, the Court turned to the issue left on the table in CalFIRE – the meaning of the California Rule – and applied the Rule to PEPRA provisions amending the County Employees Retirement Law of 1937 (“CERL; Gov. Code, §31450 et seq.). The PEPRA provision at issue “amended CERL’s definition of compensation earnable to exclude or limit the inclusion of additional types of compensation in an effort to prevent perceived abuses of the pension system.” The Court noted that the challenge to PEPRA’s amendment of CERL raised two sets of issues.
Settlement Agreements, Board Resolutions, and Related Issues
The first set of issues concerned settlement agreements or other promises made by CERL boards: namely, do these actions provide a contractual or equitable right to members of those retirement systems to continue to receive the benefit of those promises, even when the benefits were no longer permitted because of PEPRA’s statutory changes? The Court concluded that they do not. “[N]either argument authorizes the county retirement boards to administer CERL in a manner inconsistent with the governing statutory provisions by including items of compensation in compensation earnable that section 31461, as amended, excludes.” The Court explained the role of the board of public retirement systems as managing the retirement’s “financial assets,” and “processing and payment of claims for benefits under the plan.” “Of necessity,” the Court observed, “the task of processing claims for retirement benefits requires the county retirement boards to interpret and apply the provisions of CERL, including the sections defining compensation, compensation earnable, and final compensation.” But the Court drew a line on benefit changes: “The task of a county retirement board is not to design the county’s pension plan but to implement the design enacted by the Legislature through CERL.”
With respect to settlement agreements that promised benefits in excess of that which PEPRA permitted, the Court concluded “any provision in the settlement agreements that would have required the retirement boards to continue to apply the agreed upon characterizations in the face of contrary legislative changes or authoritative judicial interpretations would have been void. The retirement boards had no authority to enter into an agreement that would require them to pursue a policy that conflicts with the governing legislation.” Thus, the Supreme Court concluded that settlement agreement terms could not properly be invoked as a rationale not to implement PEPRA.
With respect to a more general invocation of the doctrine of equitable estoppel resulting from Board resolutions as well as the agreements, the Court rejected the Court of Appeal’s conclusion that it applied and held, “because we find no actionable representations in the settlement agreements that would support invocation of that doctrine. Equitable estoppel generally must be premised on some type of representation, ordinarily false, about a set of circumstances.” The Court thus found “no basis for estopping the county boards from adjusting their policies in response to the PEPRA amendment, as they are required by law to do.”
Constitutionality Issues
The second set of issues the Court addressed was whether PEPRA’s amendment to CERL’s definition of compensation earnable violated the rights of county employees under the Contract Clause of the California Constitution. The California Rule, which provides Contracts Clause-based protection of a public employee’s right to continue accruing retirement benefits on the same or better terms during their future public employment as they did during their prior years of qualifying public employment, has been the subject of extensive academic and political discussion. The Rule, also adopted in a number of other states, is premised on the view that retirement benefits provided through legislation or similar governmental action are a form of deferred compensation promised by the employer and thus are a part of the employment contract of the employee. The Court discussed the more than half- century of its judicial history at length and, in the main, affirmed it, observing that from its first substantive articulation of the rule in Allen v. City of Long Beach (1955) 45 Cal.2d 128 (Allen I), through “the intervening 65 years, our decisions have clarified aspects of the Allen I test, but its substance is unchanged.” The Court synthesized these decisions into a two-part test. A court must “first … determine whether the modifications impose an economic disadvantage on affected employees and, if so, whether those disadvantages are offset in some manner by comparable new advantages.” If the modifications result in disadvantages, “[t]he court must then determine whether the government’s articulated purpose was sufficient, for constitutional purposes, to justify any impairment of pension rights.”
This summation of the California Rule is clearly consistent with prior California Rule caselaw. On one hotly-contested point, however, the Court sided with two lower courts of appeals in holding that when a change in law results in disadvantages to employees, it “should,” and not “must,” be accompanied by “comparable new advantages.” On its face, this is arguably a change to the strictures of the Rule. But the Court appeared to limit its application through its review of prior caselaw and the types of “permissible purposes” that will justify a disadvantageous change in pension rights.
Returning to the legislation at issue, the Court described the nuances of the CERL’s definition of compensation earnable, observing that it “is both very general and somewhat inscrutable.” It also examined the Court’s own first decision interpreting that statute in Ventura County Deputy Sheriffs’ Assn. v. Board of Retirement (1997) 16 Cal.4th 483, 499 (Ventura County) and concluded that because PEPRA excluded certain pay items from compensation earnable that Ventura County, in a “brief but relatively summary” manner “appears to include,” PEPRA’s amendment of section 31461 “constituted a modification of CERL,” as to all but “termination pay.” Because the legislative changes to the CERL definition of compensation earnable resulted in smaller pensions than Ventura’s interpretation of the pre-PEPRA version of the statute would have required, and did not provide a “comparable new advantage,” the Court held that these changes were sufficient to meet the “first component” of the California Rule.
The Court then turned to the second component of the Rule: in order to be constitutional, changes to a public pension must have been enacted for a constitutionally permissible purpose and must be sufficiently limited as discussed below. Observing that “public employee pension plans may be modified ‘for the purpose of keeping [the] pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system,’” to survive contract clause scrutiny such changes ‘must bear some material relation to the theory of a pensionsystem and its successful operation.’” (Quoting, Allen I, supra, 45 Cal.2d at p. 131.) The Court then concluded, “assuming the changes were made for a proper purpose, one further analytic step is necessary …: The Legislature’s decision to impose financial disadvantages on public employees without providing comparable advantages will be upheld under the contract clause only if providing comparable advantages would undermine, or would otherwise be inconsistent with, the modification’s constitutionally permissible purpose.” Here, the Court “conclude[d] that the PEPRA amendment survives this constitutional scrutiny.”
Significantly, the Court concluded “PEPRA’s amendments of CERL were enacted for the constitutionally permissible purpose of conforming pension benefits more closely to the theory underlying section 31461 by closing loopholes and proscribing potentially abusive practices.” The Court further explained: “the amendment was designed to limit pension spiking, the manipulation of compensation to artificially increase a pension benefit. Unquestionably, preventing manipulation of the terms of a pension plan to produce outsize benefits is a substantively proper reason for modifying the plan, since it serves to maintain the system’s financial integrity and discourage gamesmanship in the management of compensation practices.” Relying on its prior decisions, the Court was also quick to “delineat[e] what is not a constitutionally permissible purpose.” The Court stated that these non-permissible purposes include “essentially political reasons,” such as responding to “the objections of taxpayers,” and “an attempt to stem rising pensions costs[.]”
The Court then ventured into new territory: “In featuring a properly motivated pension modification that imposes uncompensated financial disadvantages on plan participants, this matter requires us to address for the first time the interplay of the two parts of the Allen I test.” It noted, “There is no doubt that Allen I requires a modification of public employee pension rights to have been properly motivated — that is, to have been enacted ‘for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system’ and to ‘bear some material relation to the theory of a pension system and its successful operation.’” (Allen I, supra, 45 Cal.2d at p. 131.) Less clear is the role of the second part of the test, the offsetting of financial disadvantages with comparable new advantages.
The Court resolved the second part of the test as follows: “the contract clause requires a properly motivated pension modification to provide comparable new advantages to offset any financial disadvantages unless to do so would undermine, or would otherwise be inconsistent with, the constitutionally permissible purpose underlying the modification.” The Court further held that “the PEPRA amendment at issue here is constitutional under this analysis.”
The Court recognized the arguments of the State and various amici that the California Rule “constitutes an improper interpretation of the contract clause and bad public policy.” In its conclusion, the Court responded to these attacks: “[W]e have no jurisprudential reason to undertake a fundamental reexamination of the [California] [R]ule. The test announced in Allen I, as explained and applied here, remains the law California.”
The Court also addressed two other important issues of public retirement system governance about which we have previously written (see https://noss.law/CaliforniaRule): (1) Retirement system correction of errors; and (2) Retirement Board attempts to improve system operations. We believe Alameda definitively upholds both important governance rules for retirement boards, confirming that retirement boards have the authority to correct retirement system errors, and to improve retirement system operations, and not be bound by estoppel principles into perpetuating the erroneous construction of statutes.
As we stated in our prior article, and the California Supreme Court has affirmed in Alameda, the California Constitution expressly affords public retirement boards “plenary authority, consistent with their fiduciary responsibilities,” to administer the retirement systems they govern. The express grant of authority and discretion means that they may, and must, correct errors and improve operations within the retirement system, after a careful balancing of short and long-term interests of their members and beneficiaries. The Supreme Court’s guidance on this topic provides critical confirmation of that aspect of public retirement system governance, while also confirming the significance of the California Rule to the administration of public retirements, in California.
San Joaquin County Employees Retirement Association (SJCERA) Preliminary Monthly Flash Report (Net)1 June 2020 Commitment Physical % of Policy Sub-Segment Market Value 1-Mo 3-Mos YTD 1-Yr 3-Yrs 5-Yrs SI Return SI Date ($000) Total Target % TOTAL PLAN1 $ 3,141,513,785 100.0% 100.0% -0.1 4.7 -2.4 1.8 5.0 4.5 7.6 Apr-90 Policy Benchmark 4 0.0 6.0 -2.5 2.5 5.4 5.5 7.4 Difference: -0.1 -1.3 0.1 -0.7 -0.4 -1.0 0.2 75/25 Portfolio 5 2.7 15.2 0.0 6.0 6.6 6.3 7.1 Difference: . -2.8 -10.5 -2.4 -4.2 -1.6 -1.8 0.5 Broad Growth $ 2,168,513,161 69.0% 75.0% 0.5 7.7 -6.2 -0.9 4.9 5.0 8.0 Jan-95
Aggressive Growth Lag2 $ 245,310,610 7.8% 10.0% 0.5 0.5 3.0 6.3 11.0 8.8 -5.7 Feb-05 MSCI ACWI +2% Lag -13.3 -20.8 -13.2 -9.0 0.9 4.0 0.0 Difference: 13.8 21.3 16.2 15.3 10.1 4.8 -5.7 BlackRock Global Energy&Power Lag3 $50,000 Global Infrastructure $ 11,058,800 0.4% -1.5 -1.5 -1.0 ------13.1 Jul-19 MSCI ACWI +2%Lag / 9% Lag -13.3 -20.8 -13.2 ------9.0 Difference: 11.8 19.3 12.2 ------22.1 Ocean Avenue II Lag3 $40,000 PE Buyout FOF $ 36,896,993 1.2% 5.6 5.6 5.8 10.3 21.9 14.7 10.3 May-13 MSCI ACWI +2% Lag -13.3 -20.8 -13.2 -9.0 0.9 4.0 5.4 Difference: 18.9 26.4 19.0 19.3 21.0 10.7 4.9 Ocean Avenue III Lag3 $40,000 PE Buyout FOF $ 56,366,582 1.8% -0.4 -0.4 3.7 14.1 34.8 -- 22.6 Apr-16 MSCI ACWI +2% Lag -13.3 -20.8 -13.2 -9.0 0.9 -- 2.8 Difference: 12.9 20.4 16.9 23.1 33.9 -- 19.8 Ocean Avenue IV Lag3 $50,000 PE Buyout $ 6,547,078 0.2% -3.9 -3.9 16.9 ------16.9 Dec-19 MSCI ACWI +2% Lag -13.3 -20.8 -13.2 ------11.2 Difference: 9.4 16.9 30.1 ------28.1 Morgan Creek III Lag6 $10,000 Multi-Strat FOF $ 7,667,936 0.2% -15.8 -15.8 -15.8 -22.4 -0.6 --- -2.6 Feb-15 MSCI ACWI +2% Lag 3.7 9.6 9.6 29.8 9.8 --- 9.5 Difference: -19.5 -25.4 -25.4 -52.2 -10.4 --- -12.1 Morgan Creek V Lag3 $12,000 Multi-Strat FOF $ 10,662,085 0.3% -0.1 -0.1 2.5 9.0 11.6 10.9 13.2 Jun-13 MSCI ACWI +2% Lag -13.3 -20.8 -13.2 -9.0 0.9 4.0 5.3 Difference: 13.2 20.7 15.7 18.0 10.7 6.9 7.9 Morgan Creek VI Lag6 $20,000 Multi-Strat FOF $ 21,498,160 0.7% 1.1 1.1 1.1 7.0 14.0 --- 5.5 Feb-15 MSCI ACWI +2% Lag 3.7 9.6 9.6 29.8 9.8 --- 9.5 Difference: -2.6 -8.5 -8.5 -22.8 4.2 --- -4.0 Non-Core Private Real Assets Lag6 $341,100 Private Real Estate $ 94,612,976 3.0% 3.8 3.8 3.8 4.1 4.4 5.2 -4.6 Nov-04 MSCI ACWI +2% Lag 3.7 9.6 9.6 29.8 9.8 9.5 9.2 Difference: 0.1 -5.8 -5.8 -25.7 -5.4 -4.3 -13.8 1 Returns are preliminary and are finalized during each quartlerly reporting cycle. Monthly returns since previous quarter are provided by the managers. Market values are provided by Northern Trust. 2 Total class returns are as of 6/30/20 and lagged 1 quarter. 3 Manager returns are as of 6/30/20, and lagged 1 quarter. 4 4/1/20 to present benchmark is 32% MSCI ACWI IMI, 10% BB Aggregate Bond Index, 17% 50% BB High Yield, 50% S&P Leveraged Loans, 16% T-Bill +4%, 10% MSCI ACWI +200 bps, 15% CRO Custom Benchmark. Prior to 4/1/20 benchmark is legacy policy benchmark. 5 4/1/20 to present 75% MSCI ACWI, 25% BB Global Agregate. Prior to 4/1/20 60% MSCI ACWI, 40% BB Global Aggregate. 6 Manger Returns are as of 3/31/20 and lagged 1 quarter. San Joaquin County Employees Retirement Association (SJCERA) Preliminary Monthly Flash Report (Net)1 June 2020 Commitment Physical % of Policy Sub-Segment Market Value 1-Mo 3-Mos YTD 1-Yr 3-Yrs 5-Yrs SI Return SI Date ($000) Total Target % Traditional Growth2 $ 976,388,516 31.1% 32.0% 3.0 18.7 -10.6 -3.3 4.1 5.1 8.7 Jan-95 MSCI ACWI IMI Blend 3.2 19.8 -5.6 3.0 6.8 7.1 7.3 Difference: -0.2 -1.1 -5.0 -6.3 -2.7 -2.0 1.4 US Equity $ 523,519,332 16.7% BlackRock Russell 1000 Index Large Cap US $ 450,357,320 14.3% 2.2 21.8 -2.8 7.5 10.7 10.5 13.2 Nov-09 Russell 1000 Index 2.2 21.8 -2.8 7.5 10.6 10.5 13.2 Difference: 0.0 0.0 0.0 0.0 0.1 0.0 0.0 Capital Prospects Small Cap Value US $ 33,610,669 1.1% 3.2 23.4 -22.9 -17.7 -3.7 1.2 5.5 Jul-06 Russell 2000 Value Index 2.9 18.9 -23.5 -17.5 -4.3 1.3 4.3 Difference: 0.3 4.5 0.6 -0.2 0.6 -0.1 1.2 BlackRock Russell 2000 Growth Index Fund Small Cap Growth US $ 39,551,343 1.3% 3.8 30.6 -3.0 3.6 8.0 -- 9.0 Mar-17 Russell 2000 Growth Index 3.8 30.6 -3.1 3.5 7.9 -- 8.8 Difference: 0.0 0.0 0.1 0.1 0.1 -- 0.2 Non-US Equity $ 392,006,782 12.5% BlackRock International Stock Index Non-US Developed $ 159,866,494 5.1% 3.5 15.5 -11.3 -5.1 1.2 2.4 4.5 Nov-09 MSCI World ex-US Index Net 3.4 15.3 -11.5 -5.4 0.8 2.0 4.2 Difference: 0.1 0.2 0.2 0.3 0.4 0.4 0.3 PIMCO RAE Fundamental International Non-US Enhanced $ 149,385,365 4.8% 3.6 13.9 -19.0 -13.6 -3.7 -0.4 2.4 Apr-06 MSCI EAFE Index 3.4 15.1 -11.1 -4.7 1.3 2.5 3.1 Difference: 0.2 -1.2 -7.9 -8.9 -5.0 -2.9 -0.7 PIMCO RAE Fundamental Emerging Markets Emerging Markets $ 82,754,923 2.6% 5.2 16.7 -22.0 -18.6 -3.5 0.6 2.8 Apr-07 MSCI Emerging Markets Index 3.5 15.5 -11.3 -5.1 1.2 2.4 4.5 Difference: 1.7 1.2 -10.7 -13.5 -4.7 -1.8 -1.7 REITS $ 60,862,402 1.9% Invesco All Equity REIT Core US REIT $ 36,991,184 1.2% 2.1 13.5 -13.9 -7.6 3.1 5.9 8.4 Aug-04 FTSE NAREIT Equity Index 3.1 11.8 -18.7 -13.0 0.0 4.1 7.5 Difference: -1.0 1.7 4.8 5.4 3.1 1.8 0.9 BlackRock Developed ex-US REIT Value Add Intl REIT $ 23,871,218 0.8% 1.8 8.3 -21.7 -16.0 -0.7 0.9 0.2 Aug-14 FTSE EPRA/NAREIT Global ex-US REIT Index 1.9 8.6 -21.5 -15.9 -0.9 0.6 -0.1 Difference: -0.1 -0.3 -0.2 -0.1 0.2 0.3 0.3 1 Returns are preliminary and are finalized during each quartlerly reporting cycle. Monthly returns since previous quarter are provided by the managers. Market values are provided by Northern Trust. 2 MSCI ACWI IMI Net as of 4/1/2020, MSCI ACWI Gross prior. San Joaquin County Employees Retirement Association (SJCERA) Preliminary Monthly Flash Report (Net)1 June 2020 Commitment Physical % of Policy Sub-Segment Market Value 1-Mo 3-Mos YTD 1-Yr 3-Yrs 5-Yrs SI Return SI Date ($000) Total Target % Stabilized Growth $ 946,814,035 30.1% 33.0% -2.0 0.0 -3.1 0.3 4.2 4.1 3.3 Jan-05
Risk Parity $ 359,445,369 11.4% 2.1 8.7 -2.0 2.0 5.7 4.5 4.1 T-Bill +4% 0.3 1.0 2.6 5.7 5.8 5.2 4.6 Difference: 1.8 7.7 -4.6 -3.7 -0.1 -0.7 -0.5 Bridgewater All Weather Risk Parity $ 176,741,639 5.6% 1.8 7.9 -2.8 1.3 5.1 4.2 4.3 Mar-12 T-Bill +4% 0.3 1.0 2.6 5.7 5.8 5.4 5.7 Difference: 1.5 6.9 -5.4 -4.4 -0.7 -1.2 -1.4 PanAgora Diversified Risk Multi-Asset Risk Parity $ 182,703,730 5.8% 2.3 9.4 -1.2 2.7 6.2 -- 6.8 Apr-16 T-Bill +4% 0.3 1.0 2.6 5.7 5.8 -- 5.4 Difference: 2.0 8.4 -3.8 -3.0 0.4 -- 1.4 Liquid Credit Lag2 $ 182,305,090 5.8% -12.1 -13.3 -11.2 -8.8 -1.0 0.6 2.0 Oct-06 50% BB High Yield, 50% S&P/LSTA Leveraged Loans 1.1 9.9 -4.2 -1.0 2.7 3.8 5.3 Difference: -13.2 -23.2 -7.0 -7.8 -3.7 -3.2 -3.3 Neuberger Berman Lag Global Credit $ 73,740,057 2.3% -13.3 -13.8 -11.9 -8.9 -- -- -6.4 Feb-19 33% ICE BofA HY Constrained, 33% S&P/LSTA LL, 33% JPM EMBI Glbl Div. -12.5 -13.0 -11.3 -7.7 -- -- -4.9 Difference: -0.8 -0.8 -0.6 -1.2 -- -- -1.5 Stone Harbor Absolute Return Lag Absolute Return $ 108,565,033 3.5% -11.3 -12.5 -10.5 -8.4 -1.0 0.6 1.9 Oct-06 3-Month Libor Total Return 0.1 0.5 1.0 2.4 2.0 1.4 1.5 Difference: -11.4 -13.0 -11.5 -10.8 -3.0 -0.8 0.4 Private Credit Lag2 $ 248,362,677 7.9% -0.7 -0.7 -1.2 -0.3 1.6 2.4 3.2 CPI +6% Annual Blend 4 -11.9 -12.9 -11.0 -8.0 0.0 2.0 4.9 Difference: 11.2 12.2 9.8 7.7 1.6 0.4 -1.7 BlackRock Direct Lending Lag $100,000 Direct Lending $ 7,526,976 0.2% ------May-20 CPI +6% Annual Blend 4 ------Mesa West RE Income III Lag3 $45,000 Comm. Mortgage $ 2,215,038 0.1% -1.9 -1.9 -1.7 -1.4 7.2 8.1 5.7 Sep-13 CPI +6% Annual Blend 4 0.3 1.9 3.5 7.6 8.2 8.5 8.6 Difference: -2.2 -3.8 -5.2 -9.0 -1.0 -0.4 -2.9 Mesa West RE Income IV Lag3 $75,000 Comm. Mortgage $ 46,269,892 1.5% 2.5 2.5 4.6 9.0 -- -- 7.8 Mar-17 CPI +6% Annual Blend 4 0.3 1.9 3.5 7.6 -- -- 8.2 Difference: 2.2 0.6 1.1 1.4 -- -- -0.4 Crestline Opportunity II Lag3 $45,000 Opportunistic $ 21,763,404 0.7% -5.9 -5.9 -7.6 -8.8 -0.6 2.2 4.1 Nov-13 CPI +6% Annual Blend 4 0.3 1.9 3.5 7.6 8.2 8.5 8.6 Difference: -6.2 -7.8 -11.1 -16.4 -8.8 -6.3 -4.5 Oaktree Lag $50,000 Leveraged Direct $ 13,152,418 0.4% -0.5 -0.5 4.7 15.9 -- -- 5.2 Mar-18 MSCI ACWI +2% Lag -13.3 -20.8 -13.2 -9.0 -- -- -2.5 Difference: 12.8 20.3 17.9 24.9 -- -- 7.7 Raven Opportunity II Lag3 $50,000 Direct Lending $ 14,324,740 0.5% 0.4 0.4 -8.2 -4.6 4.8 -0.4 -2.8 Aug-14 CPI +6% Annual Blend 4 0.3 1.9 3.5 7.6 8.2 8.5 8.6 Difference: 0.1 -1.5 -11.7 -12.2 -3.4 -8.9 -11.4 Raven Opportunity III Lag3 $50,000 Direct Lending $ 45,093,443 1.4% 0.9 0.9 4.8 8.1 9.3 -- 2.5 Nov-15 CPI +6% Annual Blend 4 0.3 1.9 3.5 7.6 8.2 -- 8.5 Difference: 0.6 -1.0 1.3 0.5 1.1 -- -6.0 Medley Opportunity II Lag3 $50,000 Direct Lending $ 15,952,833 0.5% -6.0 -6.0 -8.6 -18.5 -11.8 -5.3 -0.9 Jul-12 CPI +6% Annual Blend 4 0.3 1.9 3.5 7.6 8.2 8.5 8.7 Difference: -6.3 -7.9 -12.1 -26.1 -20.0 -13.8 -9.6 White Oak Summit Peer Fund Lag3 $50,000 Direct Lending $ 46,460,668 1.5% -1.4 -1.4 0.9 3.9 6.5 -- 7.0 Mar-16 CPI +6% Annual Blend 4 0.3 1.9 3.5 7.6 8.2 -- 8.4 Difference: -1.7 -3.3 -2.6 -3.7 -1.7 -- -1.4 White Oak Yield Spectrum Master V Lag3 $50,000 Direct Lending $ 35,603,265 1.1% 0.3 0.3 ------7.2 Mar-20 CPI +6% Annual Blend 4 0.3 0.3 ------2.3 Difference: 0.0 0.0 ------9.5 Core Real Assets Lag $ 156,700,899 5.0% Core Private Real Estate Lag5 $112,500 Private Real Estate $ 156,700,899 5.0% 2.7 2.7 2.7 10.9 11.2 11.6 5.2 Feb-05 NCREIF ODCE Net +1% 0.5 1.5 1.5 5.4 7.2 9.1 8.5 Difference: 2.2 1.2 1.2 5.5 4.0 2.5 -3.3 1 Returns are preliminary and are finalized during each quartlerly reporting cycle. Monthly returns since previous quarter are provided by the managers. Market values are provided by Northern Trust. 2 Total class returns are as of 6/30/20 and lagged 1 quarter. 3 Manager returns are as of 6/30/20, and lagged 1 quarter. 4 9% Annual until 7/1/2018 then CPI +6% Annual thereafeter. 5 Manager returns are as of 3/31/20 and lagged 1 quarter. San Joaquin County Employees Retirement Association (SJCERA) Preliminary Monthly Flash Report (Net)1 June 2020 Commitment Physical % of Policy Sub-Segment Market Value 1-Mo 3-Mos YTD 1-Yr 3-Yrs 5-Yrs SI Return SI Date ($000) Total Target % Diversifying Strategies $ 783,630,939 24.9% 25.0% -1.8 -2.7 4.2 5.4 4.4 3.0 6.6 Oct-90
Principal Protection $ 317,578,694 10.1% 10.0% -1.9 0.5 -1.1 2.0 3.5 3.6 6.4 Oct-90 BB Aggregate Bond Index 0.6 2.9 6.1 8.7 5.3 4.3 6.2 Difference: -2.5 -2.4 -7.2 -6.7 -1.8 -0.7 0.2 Dodge & Cox Core Fixed Income $ 113,391,620 3.6% 1.3 6.1 5.1 8.3 5.6 4.9 7.3 Oct-90 BB Aggregate Bond Index 0.6 2.9 6.1 8.7 5.3 4.3 6.2 Difference: 0.7 3.2 -1.0 -0.4 0.3 0.6 1.1 Doubleline Capital MBS $ 107,566,121 3.4% 1.9 4.6 0.6 2.6 3.5 4.1 5.2 Feb-12 BB Aggregate Bond Index 0.6 2.9 6.1 8.7 5.3 4.3 3.4 Difference: 1.3 1.7 -5.5 -6.1 -1.8 -0.2 1.8 PRIMA Lag Comm. Mortgage $ 96,620,953 3.1% -9.0 -9.0 -9.1 -5.1 1.1 1.8 3.7 Jul-08 BB Aggregate Bond Index Lag -0.6 3.1 3.3 8.9 4.8 3.4 4.2 Difference: -8.4 -12.1 -12.4 -14.0 -3.7 -1.6 -0.5 Crisis Risk Offset $ 466,052,245 14.8% 15.0% -1.7 -4.8 7.3 7.3 4.8 3.2 7.0 Jan-05 CRO Custom Benchmark 2 0.0 0.4 6.8 9.5 6.1 4.6 5.0 Difference: -1.7 -5.2 0.5 -2.2 -1.3 -1.4 2.0 Long Duration $ 167,115,786 5.3% 0.4 -0.4 19.9 23.2 11.1 -- 7.0 BB US Long Duration Treasuries 0.1 0.2 21.2 25.4 12.0 -- 8.4 Difference: 0.3 -0.6 -1.3 -2.2 -0.9 -- -1.4 Dodge & Cox Long Duration Long Duration $ 167,115,786 5.3% 0.4 -0.4 19.9 23.2 11.1 -- 7.0 Feb-16 BB US Long Duration Treasuries 0.1 0.2 21.2 25.4 12.0 -- 8.4 Difference: 0.3 -0.6 -1.3 -2.2 -0.9 -- -1.4 Systematic Trend Following $ 152,127,854 4.8% -3.0 -5.5 -4.6 -3.4 -1.8 1.6 7.5 BTOP50 Index -0.6 -0.6 -2.8 -1.5 1.1 -0.7 3.9 Difference: -2.4 -4.9 -1.8 -1.9 -2.9 2.3 3.6 Mt. Lucas Managed Futures - Cash Systematic Trend Following $ 74,735,259 2.4% -3.4 -8.8 0.1 -3.9 -3.6 -0.9 6.6 Jan-05 BTOP50 Index -0.6 -0.6 -2.8 -1.5 1.1 -0.7 3.9 Difference: -2.8 -8.2 2.9 -2.4 -4.7 -0.2 2.7 Graham Tactical Trend Systematic Trend Following $ 77,392,595 2.5% -2.6 -2.1 -8.9 -3.4 -0.1 -- -2.6 Apr-16 SG Trend Index -1.7 -3.1 -0.8 0.8 3.0 -- -1.5 Difference: -0.9 1.0 -8.1 -4.2 -3.1 -- -1.1 Alternative Risk Premia $ 146,808,605 4.7% -2.6 -8.8 6.9 2.9 4.6 0.7 8.9 5% Annual 0.4 1.2 2.5 5.0 5.0 5.7 6.4 Difference: -3.0 -10.0 4.4 -2.1 -0.4 -5.0 2.5 AQR Style Premia Alternative Risk Premia $ 25,460,330 0.8% -4.3 -16.4 -23.8 -25.7 -13.3 -- -9.1 May-16 5% Annual 0.4 1.2 2.5 5.0 5.0 -- 5.0 Difference: -4.7 -17.6 -26.3 -30.7 -18.3 -- -14.1 PE Diversified Global Macro Alternative Risk Premia $ 52,481,744 1.7% -5.7 -19.3 21.8 13.1 8.5 -- 6.2 Jun-16 5% Annual 0.4 1.2 2.5 5.0 5.0 -- 5.0 Difference: -6.1 -20.5 19.3 8.1 3.5 -- 1.2 Lombard Odier Alternative Risk Premia $ 68,866,531 2.2% 0.6 1.9 3.9 2.6 -- -- 2.8 Jan-19 5% Annual 0.4 1.2 2.5 5.0 -- -- 5.0 Difference: 0.2 0.7 1.4 -2.4 -- -- -2.2 Cash3 $ 143,719,002 4.6% 0.0% 0.0 0.1 0.2 1.3 1.3 1.0 2.5 Sep-94 US T-Bills 0.0 0.0 0.6 1.6 1.8 1.2 2.5 Difference: 0.0 0.1 -0.4 -0.3 -0.5 -0.2 0.0 Northern Trust STIF Collective Govt. Short Term $ 131,024,174 4.2% 0.0 0.1 0.3 1.2 1.3 1.0 2.7 Jan-95 US T-Bills 0.0 0.0 0.6 1.6 1.8 1.2 2.5 Difference: 0.0 0.1 -0.3 -0.4 -0.5 -0.2 0.2 Parametric Overlay5 Cash Overlay $ 45,650,683 1.5% 0.0 0.0 0.0 ------0.0 Jan-20 1 Returns are preliminary and are finalized during each quartlerly reporting cycle. Monthly returns since previous quarter are provided by the managers. Market values are provided by Northern Trust. 2 Benchmark is (1/3) BB Long Duration Treasuries, (1/3) BTOP50 Index, (1/3) 5% Annual. 3 Includes lagged cash 5 60% MSCI ACWI, 40% BB Universal 5 Given daily cash movement returns may vary from those shown above. Capital Markets Outlook & Risk Metrics
Capital Markets Outlook & Risk Metrics As of June 30, 2020
Capital Markets Outlook & Risk Metrics
Capital Markets Outlook
Takeaways For risk-oriented assets, Q2 was a mirror image of Q1. Equity markets across the globe retraced a material portion of their Q1 drawdowns, with certain markets (e.g., US growth stocks) now standing in positive return territory on a year-to-date basis. While not the strongest month of Q2, June saw most equity indices produce returns in the low-to-mid single digit range. The triumph of growth stocks over value stocks continued during June. In an extension from May, small cap stocks outperformed large cap stocks during June and over the most recent quarter in aggregate. There continues to be a material divergence in trailing period performance for growth vs. value and small vs. large, and this is exemplified at the extremes with large cap growth stocks (e.g., Russell 1000 Growth) outperforming small cap value stocks (e.g., Russell 2000 Value) by over 30% thus far in 2020. As the Federal Reserve continued to implement unprecedented monetary policies, US Treasuries produced flat-to-positive returns during June. The US Treasury interest rate curve was essentially unchanged from the end of May to the end of June. Intramonth volatility did occur at the long end of the curve, however, as 10- to 30-year bonds saw their yields fluctuate within a range of approximately 30 basis points (at current levels, 30 basis point swings represent material bond price fluctuations).
Page 2 of 33 Capital Markets Outlook & Risk Metrics
Capital Markets Outlook
Takeaways Local/regional US economies are in various stages of reopening, and the timeline for returning to normal levels of economic activity remains uncertain. Relatedly, the aggregate impacts to global GDP due to the COVID-19 pandemic are still unknown. Although certain pieces of economic data have come in higher than expectations, economic conditions are still far from pre-COVID levels. Although monetary and fiscal policies across the globe remain extremely accommodative, many global authorities appear to be in a period of observation as they attempt to gauge how the economy does, or does not, recover in the short term. If the recovery proves insufficient, it is expected that we will experience a continuation of the until recently unprecedented policies to combat a sustained economic downturn. Implied equity market volatility1 began the month around 28 and hit a peak near 44 during the middle of the month before declining to roughly 30.5 at month-end. Likewise, our Systemic Risk measure increased at the margin during June. While valuations for several risk-based asset classes appear attractive at first glance, it is important to note that the full impact on corporate earnings and solvencies remains unknown. The actual path that the global economy will take moving forward is uncertain. The Market Sentiment Indicator2 flipped to grey (i.e., neutral) at month-end.
1 As measured by VIX Index. 2 See Appendix for the rationale for selection and calculation methodology used for the risk metrics.
Page 3 of 33 Capital Markets Outlook & Risk Metrics
Risk Overview/Dashboard (1) (As of June 30, 2020)1
Dashboard (1) summarizes the current state of the different valuation metrics per asset class relative to their own history.
1 With the exception of Private Equity Valuation, that is YTD as of December 31, 2019.
Page 4 of 33 Capital Markets Outlook & Risk Metrics
Risk Overview/Dashboard (2) (As of June 30, 2020)
Dashboard (2) shows how the current level of each indicator compares to its respective history.
Page 5 of 33 Capital Markets Outlook & Risk Metrics
Market Sentiment Indicator (All History) (As of June 30, 2020)
Page 6 of 33 Capital Markets Outlook & Risk Metrics
Market Sentiment Indicator (Last Three Years) (As of June 30, 2020)
Page 7 of 33 Capital Markets Outlook & Risk Metrics
US Equity Cyclically Adjusted P/E1 (As of June 30, 2020)
This chart details one valuation metric for US equities. A higher (lower) figure indicates more expensive (cheaper) valuation relative to history.
1 US Equity Cyclically Adjusted P/E on S&P 500 Index. Source: Robert Shiller, Yale University, and Meketa Investment Group.
Page 8 of 33 Capital Markets Outlook & Risk Metrics
Small Cap P/E vs. Large Cap P/E1 (As of June 30, 2020)
This chart compares the relative attractiveness of small cap US equities vs. large cap US equities on a valuation basis. A higher (lower) figure indicates that large cap (small cap) is more attractive.
1 Small Cap P/E (Russell 2000 Index) vs. Large Cap P/E (Russell 1000 Index) - Source: Russell Investments. Earnings figures represent 12-month “as reported” earnings.
Page 9 of 33 Capital Markets Outlook & Risk Metrics
Growth P/E vs. Value P/E1 (As of June 30, 2020)
This chart compares the relative attractiveness of US growth equities vs. US value equities on a valuation basis. A higher (lower) figure indicates that value (growth) is more attractive.
1 Growth P/E (Russell 3000 Growth Index) vs. Value (Russell 3000 Value Index) P/E - Source: Bloomberg, MSCI, and Meketa Investment Group. Earnings figures represent 12-month “as reported” earnings.
Page 10 of 33 Capital Markets Outlook & Risk Metrics
Developed International Equity Cyclically Adjusted P/E1 (As of June 30, 2020)
This chart details one valuation metric for developed international equities. A higher (lower) figure indicates more expensive (cheaper) valuation relative to history.
1 Developed International Equity (MSCI EAFE ex Japan Index) Cyclically Adjusted P/E – Source: MSCI and Bloomberg. Earnings figures represent the average of monthly “as reported” earnings over the previous ten years.
Page 11 of 33 Capital Markets Outlook & Risk Metrics
Emerging Market Equity Cyclically Adjusted P/E1 (As of June 30, 2020)
This chart details one valuation metric for emerging markets equities. A higher (lower) figure indicates more expensive (cheaper) valuation relative to history.
1 Emerging Market Equity (MSCI Emerging Markets Index) Cyclically Adjusted P/E – Source: MSCI and Bloomberg. Earnings figures represent the average of monthly “as reported” earnings over the previous ten years.
Page 12 of 33 Capital Markets Outlook & Risk Metrics
Private Equity Multiples1 (As of February 29, 2020)2
This chart details one valuation metric for the private equity market. A higher (lower) figure indicates more expensive (cheaper) valuation relative to history.
1 Private Equity Multiples – Source: S&P LCD Average EBITDA Multiples Paid in All LBOs. 2 Annual figures, except for 2020 (YTD).
Page 13 of 33 Capital Markets Outlook & Risk Metrics
Core Real Estate Spread vs. Ten-Year Treasury1 (As of June 30, 2020)
This chart details one valuation metric for the private core real estate market. A higher (lower) figure indicates cheaper (more expensive) valuation.
1 Core Real Estate Spread vs. Ten-Year Treasury – Source: Real Capital Analytics, US Treasury, Bloomberg, and Meketa Investment Group. Core Real Estate is proxied by weighted sector transaction based indices from Real Capital Analytics and Meketa Investment Group.
Page 14 of 33 Capital Markets Outlook & Risk Metrics
REITs Dividend Yield Spread vs. Ten-Year Treasury1 (As of June 30, 2020)
This chart details one valuation metric for the public REITs market. A higher (lower) figure indicates cheaper (more expensive) valuation.
1 REITs Dividend Yield Spread vs. Ten-Year Treasury – Source: NAREIT, US Treasury. REITs are proxied by the yield for the NAREIT Equity index.
Page 15 of 33 Capital Markets Outlook & Risk Metrics
Credit Spreads1 (As of June 30, 2020)
This chart details one valuation metric for the US credit markets. A higher (lower) figure indicates cheaper (more expensive) valuation relative to history.
1 Credit Spreads – Source: Barclays Capital. High Yield is proxied by the Barclays High Yield index and Investment Grade Corporates are proxied by the Barclays US Corporate Investment Grade index. Spread is calculated as the difference between the Yield to Worst of the respective index and the 10-Year US Treasury yield.
Page 16 of 33 Capital Markets Outlook & Risk Metrics
Emerging Market Debt Spreads1 (As of June 30, 2020)
This chart details one valuation metric for the EM debt markets. A higher (lower) figure indicates cheaper (more expensive) valuation relative to history.
1 EM Spreads – Source: Bloomberg. Option Adjusted Spread (OAS) for the Bloomberg Barclays EM USD Aggregate Index.
Page 17 of 33 Capital Markets Outlook & Risk Metrics
Equity Volatility1 (As of June 30, 2020)
This chart details historical implied equity market volatility. This metric tends to increase during times of stress/fear and while declining during more benign periods.
1 Equity Volatility – Source: Bloomberg, and Meketa Investment Group. Equity Volatility proxied by VIX Index, a Measure of implied option volatility for US equity markets.
Page 18 of 33 Capital Markets Outlook & Risk Metrics
Fixed Income Volatility1 (As of June 30, 2020)
This chart details historical implied fixed income market volatility. This metric tends to increase during times of stress/fear and while declining during more benign periods.
1 Fixed Income Volatility – Source: Bloomberg, and Meketa Investment Group. Fixed Income Volatility proxied by MOVE Index, a Measure of implied option volatility for US Treasury markets.
Page 19 of 33 Capital Markets Outlook & Risk Metrics
Systemic Risk and Volatile Market Days1 (As of June 30, 2020)
Systemic Risk is a measure of ‘System-wide’ risk, which indicates herding type behavior.
1 Source: Meketa Investment Group. Volatile days are defined as the top 10 percent of realized turbulence, which is a multivariate distance between asset returns.
Page 20 of 33 Capital Markets Outlook & Risk Metrics
Yield Curve Slope (Ten Minus Two)1 (As of June 30, 2020)
This chart details the historical difference in yields between ten-year and two-year US Treasury bonds/notes. A higher (lower) figure indicates a steeper (flatter) yield curve slope.
1 Yield Curve Slope (Ten Minus Two) – Source: Bloomberg, and Meketa Investment Group. Yield curve slope is calculated as the difference between the 10-Year US Treasury Yield and 2-Year US Treasury Yield.
Page 21 of 33 Capital Markets Outlook & Risk Metrics
Ten-Year Breakeven Inflation1 (As of June 30, 2020)
This chart details the difference between nominal and inflation-adjusted US Treasury bonds. A higher (lower) figure indicates higher (lower) inflation expectations.
1 Ten-Year Breakeven Inflation – Source: US Treasury and Federal Reserve. Inflation is measured by the Consumer Price Index (CPI-U NSA).
Page 22 of 33 Capital Markets Outlook & Risk Metrics
Total Return Given Changes in Interest Rates (bps)1 (As of June 30, 2020)
Total Return for Given Changes in Interest Rates (bps) Statistics -100 -50 0 50 100 150 200 250 300 Duration YTW Barclays US Short Treasury (Cash) 0.40% 0.27% 0.14% 0.01% -0.12% -0.25% -0.37% -0.50% -0.63% 0.26 0.14% Barclays US Treasury 1-3 Yr. 1.90% 1.17% 0.41% -0.39% -1.22% -2.10% -3.01% -3.95% -4.94% 1.56 0.41% Barclays US Treasury Intermediate 4.28% 2.25% 0.28% -1.64% -3.50% -5.30% -7.05% -8.75% -10.39% 3.89 0.28% Barclays US Treasury Long 23.08% 11.62% 1.32% -7.82% -15.80% -22.63% -28.29% -32.80% -36.15% 19.44 1.32%
1 Data represents the expected total return from a given change in interest rates (shown in basis points) over a 12-month period assuming a parallel shift in rates. Source: Bloomberg, and Meketa Investment Group.
Page 23 of 33 Capital Markets Outlook & Risk Metrics
Long-Term Outlook – 20-Year Annualized Expected Returns1
This chart details Meketa’s long-term forward-looking expectations for total returns across asset classes.
1 Source: Meketa Investment Group’s 2020 Annual Asset Study.
Page 24 of 33 Capital Markets Outlook & Risk Metrics
Appendix
Data Sources and Explanations1 US Equity Cyclically Adjusted P/E on S&P 500 Index – Source: Robert Shiller and Yale University. Small Cap P/E (Russell 2000 Index) vs. Large Cap P/E (Russell 1000 Index) - Source: Russell Investments. Earnings figures represent 12-month “as reported” earnings. Growth P/E (Russell 3000 Growth Index) vs. Value (Russell 3000 Value Index) P/E - Source: Bloomberg, MSCI, and Meketa Investment Group. Earnings figures represent 12-month “as reported” earnings. Developed International Equity (MSCI EAFE ex Japan Index) Cyclically Adjusted P/E – Source: MSCI and Bloomberg. Earnings figures represent the average of monthly “as reported” earnings over the previous ten years. Emerging Market Equity (MSCI Emerging Markets Index) Cyclically Adjusted P/E – Source: MSCI and Bloomberg. Earnings figures represent the average of monthly “as reported” earnings over the previous ten years Private Equity Multiples – Source: S&P LCD Average EBITDA Multiples Paid in All LBOs Core Real Estate Spread vs. Ten-Year Treasury – Source: Real Capital Analytics, US Treasury, Bloomberg, and Meketa Investment Group. Core Real Estate is proxied by weighted sector transaction based indices from Real Capital Analytics and Meketa Investment Group.
1 All Data as of March 31, 2020 unless otherwise noted.
Page 25 of 33 Capital Markets Outlook & Risk Metrics
Appendix
Data Sources and Explanations1 REITs Dividend Yield Spread vs. Ten-Year Treasury – Source: NAREIT, US Treasury. REITs are proxied by the yield for the NAREIT Equity index. Credit Spreads – Source: Barclays Capital. High Yield is proxied by the Barclays High Yield index and Investment Grade Corporates are proxied by the Barclays US Corporate Investment Grade index. Spread is calculated as the difference between the Yield to Worst of the respective index and the 10-Year Treasury Yield. EM Debt Spreads – Source: Bloomberg, and Meketa Investment Group. Option Adjusted Spread (OAS) for the Bloomberg Barclays EM USD Aggregate Index. Equity Volatility – Source: Bloomberg, and Meketa Investment Group. Equity Volatility proxied by VIX Index, a Measure of implied option volatility for US equity markets. Fixed Income Volatility – Source: Bloomberg, and Meketa Investment Group. Equity Volatility proxied by MOVE Index, a Measure of implied option volatility for US Treasury markets. Systemic Risk and Volatile Market Days – Source: Meketa Investment Group. Volatile days are defined as the top 10 percent of realized turbulence, which is a multivariate distance between asset returns.
1 All Data as of March 31, 2020 unless otherwise noted.
Page 26 of 33 Capital Markets Outlook & Risk Metrics
Appendix
Data Sources and Explanations1 Systemic Risk, which measures risk across markets, is important because the more contagion of risk that exists between assets, the more likely it is that markets will experience volatile periods. Yield Curve Slope (Ten Minus Two) – Source: Bloomberg, and Meketa Investment Group. Yield curve slope is calculated as the difference between the 10-Year US Treasury Yield and 2-Year US Treasury Yield. Ten-Year Breakeven Inflation – Source: US Treasury and Federal Reserve. Inflation is measured by the Consumer Price Index (CPI-U NSA).
1 All Data as of March 31, 2020 unless otherwise noted.
Page 27 of 33 Capital Markets Outlook & Risk Metrics
Meketa Market Sentiment Indicator Explanation, Construction and Q&A
Page 28 of 33 Capital Markets Outlook & Risk Metrics
Meketa has created the MIG Market Sentiment Indicator (MIG-MSI) to complement our valuation-focused Risk Metrics. This measure of sentiment is meant to capture significant and persistent shifts in long-lived market trends of economic growth risk, either towards a risk-seeking trend or a risk-aversion trend.
This appendix explores: What is the Meketa Market Sentiment Indicator? How do I read the indicator graph? How is the Meketa Market Sentiment Indicator constructed? What do changes in the indicator mean?
Page 29 of 33 Capital Markets Outlook & Risk Metrics
Meketa has created a market sentiment indicator for monthly publication (the MIG-MSI – see below) to complement Meketa’s Risk Metrics. Meketa’s Risk Metrics, which rely significantly on standard market measures of relative valuation, often provide valid early signals of increasing long-term risk levels in the global investment markets. However, as is the case with numerous valuation measures, the Risk Metrics may convey such risk concerns long before a market corrections take place. The MIG-MSI helps to address this early-warning bias by measuring whether the markets are beginning to acknowledge key Risk Metrics trends, and / or indicating non-valuation based concerns. Once the MIG-MSI indicates that the market sentiment has shifted, it is our belief that investors should consider significant action, particularly if confirmed by the Risk Metrics. Importantly, Meketa believes the Risk Metrics and MIG-MSI should always be used in conjunction with one another and never in isolation. The questions and answers below highlight and discuss the basic underpinnings of the Meketa MIG-MSI:
What is the Meketa Market Sentiment Indicator (MIG-MSI)? The MIG-MSI is a measure meant to gauge the market’s sentiment regarding economic growth risk. Growth risk cuts across most financial assets, and is the largest risk exposure that most portfolios bear. The MIG-MSI takes into account the momentum (trend over time, positive or negative) of the economic growth risk exposure of publicly traded stocks and bonds, as a signal of the future direction of growth risk returns; either positive (risk seeking market sentiment), or negative (risk averse market sentiment).
Page 30 of 33 Capital Markets Outlook & Risk Metrics
How do I read the Meketa Market Sentiment Indicator graph? Simply put, the MIG-MSI is a color-coded indicator that signals the market’s sentiment regarding economic growth risk. It is read left to right chronologically. A green indicator on the MIG-MSI indicates that the market’s sentiment towards growth risk is positive. A gray indicator indicates that the market’s sentiment towards growth risk is neutral or inconclusive. A red indicator indicates that the market’s sentiment towards growth risk is negative. The black line on the graph is the level of the MIG-MSI. The degree of the signal above or below the neutral reading is an indication the signal’s current strength. Momentum as we are defining it is the use of the past behavior of a series as a predictor of its future behavior.
Page 31 of 33 Capital Markets Outlook & Risk Metrics
How is the Meketa Market Sentiment Indicator (MIG-MSI) Constructed? The MIG-MSI is constructed from two sub-elements representing investor sentiment in stocks and bonds: Stock return momentum: Return momentum for the S&P 500 Equity Index (trailing 12-months) Bond yield spread momentum: Momentum of bond yield spreads (excess of the measured bond yield over the identical duration US Treasury bond yield) for corporate bonds (trailing 12-months) for both investment grade bonds (75% weight) and high yield bonds (25% weight). Both measures are converted to Z-scores and then combined to get an “apples to apples” comparison without the need of re-scaling. The black line reading on the graph is calculated as the average of the stock return momentum measure and the bonds spread momentum measure.1 The color reading on the graph is determined as follows: If both stock return momentum and bond spread momentum are positive = GREEN (positive) If one of the momentum indicators is positive, and the other negative = GRAY (inconclusive) If both stock return momentum and bond spread momentum are negative = RED (negative)
1 Momentum as we are defining it is the use of the past behavior of a series as a predictor of its future behavior. “Time Series Momentum” Moskowitz, Ooi, Pedersen, August 2010. http://pages.stern.nyu.edu/~lpederse/papers/TimeSeriesMomentum.pdf
Page 32 of 33 Capital Markets Outlook & Risk Metrics
What does the Meketa Market Sentiment Indicator (MIG-MSI) mean? Why might it be useful? There is strong evidence that time series momentum is significant and persistent. In particular, across an extensive array of asset classes, the sign of the trailing 12-month return (positive or negative) is indicative of future returns (positive or negative) over the next 12-month period. The MIG-MSI is constructed to measure this momentum in stocks and corporate bond spreads. A reading of green or red is agreement of both the equity and bond measures, indicating that it is likely that this trend (positive or negative) will continue over the next 12 months. When the measures disagree, the indicator turns gray. A gray reading does not necessarily mean a new trend is occurring, as the indicator may move back to green, or into the red from there. The level of the reading (black line) and the number of months at the red or green reading, gives the user additional information on which to form an opinion, and potentially take action.
Page 33 of 33 San Joaquin County Employees’ Retirement Association (“SJCERA”)
2020 Risk Parity Review
BOSTON CHICAGO LONDON MIAMI NEW YORK PORTLAND SAN DIEGO MEKETA.COM San Joaquin County Employees’ Retirement Association
Agenda
Agenda
1. Background and Introduction
2. Risk Parity Strategy Review
3. Risk Parity Manager Review
MEKETA INVESTMENT GROUP Page 2 of 22 Background and Introduction
Page 3 of 22 San Joaquin County Employees’ Retirement Association
Stabilized Growth Background
Role of Risk Parity
• 10% of the target total asset allocation and ~30% of Stabilized Growth.
• New target allocation of 10% reduced from 14%, approved in March 2020.
• Role is to provide similar returns to a traditional allocation with less volatility.
– Equal risk distribution risk equally amongst a combination of asset classes.
– Reduced reliance on equity risk.
– Active management by the underlying managers.
Total Portfolio Long Term Targets Stabilized Growth Long Term Targets
Core Real Diversifying Assets Strategies 18% Bridgewater 25% Stabilized 15% Growth Risk Parity 33% 30% Traditional PanAgora Credit Growth 15% 32% 52%
Aggressive Growth 10%
MEKETA INVESTMENT GROUP Page 4 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Strategy Review
The Considerations of a Typical Asset Allocation
• Traditional allocations are tilted towards equities due to higher stand alone expected returns.
• This increases the volatility of the portfolio.
Traditional Allocation Rolling 3-year Annualized Return 100% 20% 90% 15% 80% 70% 10% 60% 5% 50% 40% 0% 30% 20% -5% 10% -10% 0% 2012 2018 1998 2014 1992 2016 1994 2010 1996 1990 2008 2002
Capital Allocation Risk Allocation 2004 2006 2000
Growth/Equities Rate Sensitive Inflation Linked Traditional Allocation
• Because equities are more volatile than other asset classes, their contribution to volatility (>95%) is even higher than their share of capital (60%).
• Although the 60/40 allocation appears to be diversified, when equity corrections occur they can have an outsized impact on an investment portfolio.
MEKETA INVESTMENT GROUP Page 5 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Strategy Review
An Alternative Approach
• Rather than having risk exposure be dominated by equity, another approach seeks balanced risk exposures (equities, fixed income, currencies, commodities).
Global Equities - Core Bonds Global Equities - Inflation Linked Bonds Core Bonds - Inflation Linked Bonds
1.00
0.50
0.00 Year Correlations - -0.50 ling 5 Rol
Inflation- Global Equities Core Bonds Linked Bonds Expected Return (20-year) 7.6% 2.1% 2.1% Standard Deviation 17.0% 4.0% 7.0% Sharpe Ratio 0.41 0.36 0.21
• These classes reward investors proportionally for the risk they are taking as measured by Sharpe Ratio.
• Sharpe ratio measures the amount of return you receive for the amount of risk you take.
• A higher number means more return for the amount of risk that is taken.
• Sharpe Ratio = the return of an investment in excess of cash (the risk-free rate) divided by volatility.
MEKETA INVESTMENT GROUP Page 6 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Strategy Review
A Risk Parity Allocation
• Balancing equity risk with other exposures results in a more diversified risk allocation.
Growth/Equities Rate Sensitive Inflation Linked
100% 90% 80% 70% 60% 50% 40% 30%
Risk AllocationRisk 20% 10% 0% Traditional Allocation Unlevered Risk Parity
• In this simple example each broad asset group’s contributions to volatility are equal or at parity. • However, a higher allocation to lower returning assets (e.g. bonds) and the impact of low correlations across assets results in a much lower expected return.
Traditional Unlevered Risk Allocation Parity Expected Return (20 Years) 5.8% 3.1% Standard Deviation 10.4% 5.0% Sharpe Ratio 0.43 0.36
MEKETA INVESTMENT GROUP Page 7 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Strategy Review
A Risk Parity Allocation
• By using leverage to magnify returns (and risk), a risk-parity portfolio can achieve similar returns to a traditional portfolios.
Risk Allocation Comparison 100%
80%
60%
40%
20%
0% Traditional Allocation Unlevered Risk Parity Levered Risk Parity
Growth/Equities Rate Sensitive Inflation Linked Traditional Unlevered Levered Risk Allocation Risk Parity Parity Expected Return (20-year) 5.8% 3.1% 5.0% Standard Deviation 10.4% 5.0% 11.0% Sharpe Ratio 0.43 0.36 0.34
MEKETA INVESTMENT GROUP Page 8 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Strategy Review
Implementing Risk Parity
• Risk Parity uses investment vehicles with inherent leverage to achieve its exposures. • In practice this means derivatives, usually futures contracts. ‒ Futures require investments of only a fraction of the economic exposure, called collateral. . For example, putting down only $5-10 in collateral could achieve exposure up to $100. ‒ Futures are traded on exchanges and are highly liquid. • The investible universe typically includes liquid contracts in equities, currencies, commodities, and fixed income ‒ Other more illiquid asset classes such as private equity do not have futures and are typically foregone in Risk Parity portfolios, limiting the investable universe. • Investments are mostly made via futures, swaps, currency forwards.
MEKETA INVESTMENT GROUP Page 9 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Strategy Review
The Considerations of Risk Parity
• While Risk Parity greatly reduces the amount of equity exposure, it increases the exposure to other risks, notably interest-rate exposure. • Risk Parity managers must be highly skilled in managing leveraged positions through multiple market environments. • Peer Risk: ‒ Risk Parity is still very much an alternative method of portfolio construction. ‒ Path of returns may look very different than most of peers and broad equity markets. . Less equity exposure, more interest-rate exposure. . When stocks are declining and then bonds are gaining, Risk Parity earnings will beat a traditional asset allocation. . When stocks surge and then bonds retreat, Risk Parity will lag a traditional asset allocation.
MEKETA INVESTMENT GROUP Page 10 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Strategy Review
The Benefits of Risk Parity
• Compared to a typical asset allocation, risk parity is expected to deliver: ‒ Similar levels of expected return over the long-term (10-years) ‒ Increased diversification ‒ Less reliance on a single risk factor (equity) . Lower exposure to equity volatility . Reduction of large expected negative outcomes (i.e. left-tail risk) . Smoother return profile
Traditional Allocation Unlevered Risk Parity Levered Risk Parity
30% 25% 20% Month Month - 15% 36 10% 5%
Rolling Rolling 0% Annualized Returns Annualized -5% -10% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
MEKETA INVESTMENT GROUP Page 11 of 22 Risk Parity Manager Review
Page 12 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Manager Review
Performance Review vs Benchmark
• Both managers have beat the benchmark since April 2016 (PanAgora inception).
• Bridgewater has trailed the benchmark since inception but is still within expectations.
Performance vs. Benchmark Performance vs. Benchmark Since Inception Since Inception Growth Growth of $1 (Logscale) Growth Growth of $1 (Logscale)
0.80 0.80 Jun-17 Dec-17 Jun-18 Jun-12 Jun-13 Jun-14 Dec-18 Dec-12 Dec-13 Jun-15 Jun-16 Dec-14 Jun-19 Dec-15 Dec-16 Dec-19 Jun-20 Oct-12 Oct-13 Oct-14 Oct-15 Feb-13 Feb-14 Feb-15 Feb-16 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Bridgewater CI Upper bound 95% PanAgora CI Upper bound 95% Benchmark CI Lower bound 5% Benchmark CI Lower bound 5%
MEKETA INVESTMENT GROUP Page 13 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Manager Review
Performance Review vs Benchmark
• Both manager have produced similar drawdown profiles although at differing degrees producing some diversification benefit.
Historical Drawdowns
1.00
0.98
0.96
0.94
0.92
0.90
0.88
0.86
0.84
0.82
0.80 3/1/2017 6/1/2017 9/1/2017 3/1/2018 3/1/2013 3/1/2014 6/1/2018 6/1/2012 9/1/2012 9/1/2018 6/1/2013 9/1/2013 3/1/2015 3/1/2016 3/1/2019 6/1/2014 9/1/2014 6/1/2015 6/1/2016 9/1/2015 9/1/2016 6/1/2019 9/1/2019 12/1/2017 3/1/2020 12/1/2018 12/1/2012 12/1/2013 12/1/2014 6/1/2020 12/1/2015 12/1/2016 12/1/2019
Bridgewater PanAgora 60/40 Portfolio
MEKETA INVESTMENT GROUP Page 14 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Manager Review
Manager Comparison Review
• Historical correlations between the two managers has varied from 0.75 to 0.95 to be expected given the similarities in both managers strategy.
Rolling 12-Month Correlation Rolling 36-Month Correlation (Bridgewater-PanAgora) (Bridgewater-PanAgora) 1.00 1.00
0.90 0.95
0.80 0.90
0.70 0.85
0.60 0.80
0.50 0.75 Oct-17 Oct-18 Feb-17 Oct-15 Oct-16 Oct-19 Feb-18 Jun-17 Jun-17 Feb-16 Feb-19 Dec-17 Jun-18 Jun-18 Jun-13 Jun-14 Dec-18 Dec-13 Jun-15 Jun-16 Jun-19 Jun-15 Jun-16 Jun-19 Dec-14 Dec-16 Dec-15 Dec-19 Feb-20 Jun-20 Jun-20
MEKETA INVESTMENT GROUP Page 15 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Manager Review
Manager Comparison Review
• PanAgora has consistently realized a higher volatility (e.g. taken more risk) but has been compensated for doing so as both Bridgewater and PanAgora have had similar Sharpe Ratios historically (a measure of return per unit of risk).
Rolling 36-Month Standard Deviation (%) Rolling 36-Month Sharpe Ratio 12.00 2.00 10.00 1.50 8.00 6.00 1.00 4.00 0.50 2.00 - 0.00
-0.50 Oct-17 Oct-18 Feb-17 Oct-16 Oct-15 Oct-19 Feb-18 Jun-17 Feb-16 Feb-19 Jun-18 Jun-15 Jun-16 Jun-19 Feb-20 Jun-20 Oct-17 Oct-18 Feb-17 Oct-15 Oct-16 Oct-19 Feb-18 Feb-16 Jun-17 Feb-19 Jun-18 Jun-15 Jun-16 Jun-19 Feb-20
Bridgewater PanAgora Jun-20
Bridgewater PanAgora
MEKETA INVESTMENT GROUP Page 16 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Manager Review
Manager Comparison Review
• While both managers employ a risk parity approach across much of the same investment universe, there can be meaningful differences in the risk allocations
• At the end of June, PanAgora had a much larger allocation to equities than Bridgewater which has resulted in higher performance in the Q2 rebound
Est. June 30 2020 Risk Allocations Returns versus Benchmark
100% 6% 6% 90% 16% 14% 80%
70%
60% 32%
50% 63% 40% Growth Growth of $1 (Logscale) 30% 46% 20% 0.80
10% 18% Jul-17 Jul-18 Jul-16 Jul-19 Nov-17 Mar-17 Nov-18 Mar-18 Nov-16 Nov-19 Mar-16 Mar-19 0% Mar-20 PanAgora BridgeWater 2 StDev -2 StDev PanAgora Global Equities Global Bonds Real Assets / Commodities Credit Bridgewater Benchmark
MEKETA INVESTMENT GROUP Page 17 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Manager Review
Manager Comparison Review
• Over trailing 1-year periods, both managers have produced results within +/- 1 standard deviation of the benchmark with various periods of each manager under or outperforming each other
• The most recent 1-year period is near the benchmark and well within expectations for both managers
1-Year Rolling Return Confidence Intervals 30.0%
25.0%
20.0%
15.0% 2 StDev 10.0% 1 StDev
5.0% -1 StDev -2 StDev 0.0% PanAgora -5.0% Bridgewater -10.0% Benchmark -15.0%
-20.0% Oct-17 Oct-18 Oct-13 Oct-14 Feb-17 Oct-16 Oct-15 Oct-19 Feb-18 Feb-14 Jun-17 Feb-15 Feb-16 Feb-19 Jun-18 Jun-13 Jun-14 Jun-15 Jun-16 Jun-19 Feb-20 Jun-20
MEKETA INVESTMENT GROUP Page 18 of 22 San Joaquin County Employees’ Retirement Association
Risk Parity Manager Review
Manager Comparison Review
• Over trailing 3-year periods, both managers have produced results within +/- 1 standard deviation of the benchmark
• The most recent 3-year period is at or near the benchmark for both managers
3-Year Rolling Return Confidence Intervals 20.0%
15.0%
10.0% 2 StDev 1 StDev
5.0% -1 StDev -2 StDev
0.0% PanAgora Bridgewater
-5.0% Benchmark
-10.0% Jun-17 Sep-17 Dec-17 Jun-18 Mar-17 Dec-18 Sep-18 Jun-15 Jun-16 Mar-18 Jun-19 Sep-15 Dec-15 Sep-16 Dec-16 Dec-19 Sep-19 Mar-16 Mar-19 Jun-20 Mar-20
MEKETA INVESTMENT GROUP Page 19 of 22 Summary and Recommendations
Page 20 of 22 San Joaquin County Employees’ Retirement Association
Summary and Recommendations
Summary and Recommendations
• Both managers have produced good long-term results
• Many risk parity approaches are fairly similar and as such Bridgewater and PanAgora have produced broadly similar return profiles over time
• That said, given their risk allocation differences there has been a modest amount of diversification benefit in allocating to two managers with two different approaches
• Each manager manages approximately 5% of the total SJCERA portfolio and any further increase or tilting between the managers may be unwarranted
• Meketa recommends that SJCERA continue to equal weight both managers within the Risk Parity allocation
MEKETA INVESTMENT GROUP Page 21 of 22 San Joaquin County Employees’ Retirement Association
Disclosure
WE HAVE PREPARED THIS REPORT (THIS “REPORT”) FOR THE SOLE BENEFIT OF THE INTENDED RECIPIENT (THE “RECIPIENT”). SIGNIFICANT EVENTS MAY OCCUR (OR HAVE OCCURRED) AFTER THE DATE OF THIS REPORT AND THAT IT IS NOT OUR FUNCTION OR RESPONSIBILITY TO UPDATE THIS REPORT. ANY OPINIONS OR RECOMMENDATIONS PRESENTED HEREIN REPRESENT OUR GOOD FAITH VIEWS AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE AT ANY TIME. ALL INVESTMENTS INVOLVE RISK. THERE CAN BE NO GUARANTEE THAT THE STRATEGIES, TACTICS, AND METHODS DISCUSSED HERE WILL BE SUCCESSFUL. INFORMATION USED TO PREPARE THIS REPORT WAS OBTAINED FROM INVESTMENT MANAGERS, CUSTODIANS, AND OTHER EXTERNAL SOURCES. WHILE WE HAVE EXERCISED REASONABLE CARE IN PREPARING THIS REPORT, WE CANNOT GUARANTEE THE ACCURACY OF ALL SOURCE INFORMATION CONTAINED HEREIN. CERTAIN INFORMATION CONTAINED IN THIS REPORT MAY CONSTITUTE “FORWARD - LOOKING STATEMENTS,” WHICH CAN BE IDENTIFIED BY THE USE OF TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “AIM”, “ANTICIPATE,” “TARGET,” “PROJECT,” “ESTIMATE,” “INTEND,” “CONTINUE” OR “BELIEVE,” OR THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. ANY FORWARD-LOOKING STATEMENTS, FORECASTS, PROJECTIONS, VALUATIONS, OR RESULTS IN THIS PRESENTATION ARE BASED UPON CURRENT ASSUMPTIONS. CHANGES TO ANY ASSUMPTIONS MAY HAVE A MATERIAL IMPACT ON FORWARD - LOOKING STATEMENTS, FORECASTS, PROJECTIONS, VALUATIONS, OR RESULTS. ACTUAL RESULTS MAY THEREFORE BE MATERIALLY DIFFERENT FROM ANY FORECASTS, PROJECTIONS, VALUATIONS, OR RESULTS IN THIS PRESENTATION. PERFORMANCE DATA CONTAINED HEREIN REPRESENT PAST PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
MEKETA INVESTMENT GROUP Page 22 of 22
San Joaquin County Employees’ Retirement
August 14, 2020
Real Estate Presentation
BOSTON CHICAGO LONDON MIAMI NEW YORK PORTLAND SAN DIEGO MEKETA.COM San Joaquin County Employees’ Retirement
Real Estate Report
Real Estate Portfolio Allocation Model
80 Private market data as of 12/31/2019; Total plan asset data as of 5/31/2020 15%
70 10.9% 11.0% 11.1% 11.1% 11.1% 11.0% 12% 10.3% 10.3% 10.6% 60 9.7% 8.7% 50 9% 40
6% 30
20 3%
($ in millions)mmitment 10 Program FMV % of Total Assets Total Program FMV % of Co 0 0% 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Commitments by Vintage Year FMV % of Total Assets Commitment Allocations 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Value-Added 65 65 65 70 70 70 75 75 75 75 75
Fair Market Value by Strategy Target 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Allocation Value-Added 40% - 50% 24% 31% 37% 41% 45% 48% 49% 49% 49% 48% 47% Opportunistic 0% - 0% 17% 16% 12% 7% 4% 2% 1% 0% 0% 0% 0% Core 50% - 60% 59% 53% 51% 52% 51% 50% 50% 50% 51% 52% 53% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Page 2 of 9 San Joaquin County Employees’ Retirement
Real Estate Report
Proposed Pacing Plan Assumption of 5% total asset plan growth rate
Goal of 6% core, 5% non-core for a total of 11% Real Estate Allocation
More conservative investing approach (smoother), may take a few years to achieve
Allows for vintage diversification – more risk adverse
Recommendation: Meketa recommends SJCERA adopt the proposed Real Estate Pacing plan
Page 3 of 9 San Joaquin County Employees’ Retirement
Real Estate Report
Real Estate Plan Cash flowing investments
Real Estates role within the entire SJCERA investment portfolio
Adaptive investing based on market trends and opportunities
Risk adverse
Page 4 of 9 San Joaquin County Employees’ Retirement
Real Estate Report
Real Estate Fundamentals
Vacancy by Property Type1
In the first quarter of 2020, vacancy rates increased slightly for all property types. Multifamily vacancies have fluctuated around 6.0% since 2009. Retail vacancies have flattened over the last three years, while office vacancies continued on a downward trend. Industrial vacancies appear to have bottomed out just above 3.0%, at all-time lows for the sector. Compared to one year ago, vacancy rates in multifamily increased 35 basis points, office decreased 22 basis points, industrial decreased 2 basis points, and retail increased 6 basis points. Overall, the vacancy rate across all properties increased 2 basis points from Q1 2019. Since the end of the first quarter, the distinctions between occupancy, contract rent, collected rent, deferred rent and owed but uncollectable rents have become germane. So far, collections are lagging somewhat, but for other than retail and hospitality assets, holding up, but this will be an area of concern for the duration of the pandemic and its aftermath.
1 Source: NCREIF
Page 5 of 9 San Joaquin County Employees’ Retirement
Real Estate Report
ODCE Return Components1 (Equal Weight, Net)
The NFI-ODCE Equal Weight return for Q2 2020 was down from the previous quarters to -1.5%, which is 217 basis points lower than the previous quarter. The income component of the quarterly return has come down slightly to 0.8%, while appreciation for the quarter was -2.2% due to valuation adjustments caused by the early phases of COVID-19.
1 Source: NCREIF
Page 6 of 9 San Joaquin County Employees’ Retirement
Real Estate Report
NOI Growth1
The trailing twelve-month rate of NOI decreased slightly to 4.3% in the first quarter of 2020. Continued growth of the U.S. economy coupled with only moderate new construction has allowed property owners to increase rents and lease vacant space. The strongest NOI growth continues to be within the industrial sector, trending upwards to 8.3% for the trailing year ending Q1 2020. Office NOI growth trended down slightly to 5.8% year-over-year, and apartment moved down to 4.5%. Retail NOI growth for the trailing four quarters decreased to -1.5%. NOI was not meaningfully impaired in Q1 2020 but future cash flow impairment is expected in Q2 2020 following the global pandemic.
1 Source: NCREIF
Page 7 of 9 San Joaquin County Employees’ Retirement
Real Estate Market Update
Market Real Estate Q1 2020 Expected Performance Core and core-plus risk investments including ODCE funds and separate accounts, will likely post positive performance for the 1st quarter of 2020.
Preliminary results estimate 1% total return for Q1 2020, net of AUM fees.
Appreciation was expected to be flat or slightly up.
Debt marked to market will have marginal positive attribution.
Positive performance for Q1 2020 is based on current valuation methodologies and the lag in reporting. There is no doubt that there has been a negative impact on most real estate in March, and that impact will flow through to valuations in subsequent quarters.
Page 8 of 9 San Joaquin County Employees’ Retirement
Real Estate Market Update
Transaction Activity and Price Discovery
Much lower transaction volume was experienced in Q2 and is expected in Q3 and Q4, which means limited price discovery for appraisals.
Most private equity real estate buyers have halted acquisition activity, and some sellers are pulling assets off the market as the bid/ask spread widens.
The debt markets for origination and financing has been severely constricted. Quotes are now for more secure positions in the capital stack, with lower advance rates, wider spreads, and more severe covenants.
Forward Valuations
We expect there may be a 5% to 10% diminution in value reported overall in core funds during Q2 and then again in Q3. This will be partially offset by 0.5% to 1.0% income returns.
Changes in valuations will reflect reduction in rental growth rate assumptions, absorption rates, discount rates, and cost of leverage.
For non-core funds, whose performance is more dependent on higher levels of leverage, the values may decline as much as 10% to 20% in each of the two quarters.
Page 9 of 9 2020 LEGISLATION
! Last Updated: 07/31/2020 LAST BILL AUTHOR DESCRIPTION ACTION LOC SPONSOR NO. DATE Legislation Impacting SJCERA: AB 287 Voepel This bill would require each state and local pension or retirement system to 02/03/20 Filed with post a concise annual report of the investments and earnings on the website no Chief Clerk later than the 90th day following the annual audit's completion. pursuant Joint Rule 56
AB 992 Mullin The Brown Act generally requires that the meetings of legislative bodies of 07/30/20 Senate local agencies be conducted openly and prohibits members, outside a meeting, GOV & F Comm. from using communications of any kind to discuss, deliberate, or take action on matters within the body's jurisdiction. This bill would provide that the Brown Act does not apply to participation in an internet-based social media platform, by a majority of the members of a legislative body, provided that majority of the members do not discuss among themselves business of a specific nature that is within the subject matter of jurisdiction of the legislative body of the local agency.
AB 2138 Chua This bill would recodify and reorganize the California Public Records Act (CPRA) 05/05/20 Assembly and is intended to be entirely nonsubstantive. JUD Comm.
AB 2659 Chen The Information Act of 1977 prescribes a set of requirements and prohibitions 03/12/20 Assembly P with regard to collection, storage, and disclosure of personal information. This & CP Comm. bill would require that security awareness and training policies and procedures be added to the rules of conduct.
AB 2768 Kalra This bill would eliminate current digital signature requirements and instead 05/05/20 Assembly require the Secretary of State to adopt emergency regulations and provide JUD Comm. guidance to public entities regarding those requirements no later than March 1, 2022. This bill would be effective only until nonemergency regulations are adopted.
AB 2937 Fong This bill would create an optional provision that, if adopted by a county Board 03/05/20 Assembly PE SACRS of Supervisors, would exclude from consideration the intemperate use of & R Comm. alcohol when determining a non-service connected disability retirement allowance. SB 615 Hueso The California Public Records Act requires a public agency to make its public 2/03/20 Returned to Sec records available for public inspection and to make copies available upon of State request and payment of a fee, unless the public records are exempt from pursuant to Joint disclosure. This bill would define "improperly withheld", require a person to Rule 56 meet and confer with the agency before instituting legal action against the agency for improperly withholding records, and sets the criteria for the requester to prevail in litigation. LAST BILL AUTHOR DESCRIPTION ACTION LOC SPONSOR NO. DATE AB 2101 Comm. on Formerly SB 783, the provisions of the SACRS sponsored "CERL housekeeping" 6/29/20 Senate L, SACRS PE & R bill were added to the CalPERS' sponsored annual "PERL housekeeping" bill; PE & R Comm. this bill would correct several erroneous and obsolete cross-references within the CERL. This bill would 1) amend the CERL to include a statement of legislative affirmation regarding the ruling in Mijares v. OCERS , which upheld a retirement board's plenary authority to recommend adjustments to contributions necessary to ensure the appropriate funding of the retirement system; 2) authorize a member who returns to active service following an uncompensated leave of absnece for approved parental leave to purchase up to 12 months of service (requires BOS adoption); 3) generally require the CERL to comply with the federal Uniformed Services Employment Act and Reemployment Rights of 1994; 4) would authorize the system administrator or other personnel to exercise a board's power to retire members, and report such retirements at the next board meeting; 5) prescribe general requirements regarding the effective date of retirement to prohibit it from beginning earlier than the date the application is filed with the board or more than 60 days after the filing date, or more than a number of days that has been approved by the board; 6) require members who have retired under involuntary termination who are subsequently reinstated to repay the retirement allowance they received, and pay contributions on retroactive pay; 7) amend various deferred retirement rules including changing age from 701/2 to 72 and to notify them regarding their eligibility for a one-time distribution; 8) regarding benefits that accrue to children, revise the standard applicable to children through age 21 to instead be up to 22nd birthday and a related change to a provision that provides an alternative to survivorship benefits under federal social security benefits. SB 931 Wieckowski This bill would require a legislative body to email a copy of agenda or agenda 4/02/20 Senate packet if so requested. GOV & F Comm.
SB 1297 Moorlach This bill, prospectively to new members, would: 1) void any limit on a pension 3/05/20 Senate L, from exceeding a percentage of final compensation, 2) prohibit a local entity PE & R Comm. from establishing a deferred retirement option program (DROP) and require closure of any DROP programs, 3) cap fractional percentage of final compensation at 2.7 percent, 4) require final annual compensation be calculated on member's highest three earnings years, 5) any agency participating in PERS that increases compensation of member previously employed by another agency bear all actuarial liability for the action if actuarial increase beyond reasonable expectations.
Other Bills of Interest:
AB 664 Cooper This bill would define "injury" for certain state and local firefighters, peace 05/18/20 Senate officers, certain hospital employees, and certain fire and rescue personnel who L, PE&R Comm. work for OES to include being exposed to or contracting, on or after 1/1/20, a communicable disease, including COVID-19. This bill would create a conclusive presumption that the injury arose out of and in the course of employment and to take effect immediately as an urgency statute.
AB 1198 Stone This bill would except transit workers hired before January 1, 2016, from 02/03/20 Filed with PEPRA, in alignment with a Dec. 31, 2014 federal district court ruling. Chief Clerk pursuant Joint Rule 56
AB 1945 Salas This bill would provide that the definition of first responder does not entitle an 06/29/20 Senate employee to obtain a retirement benefit formula for an employment L, PE&R Comm. classification that is not included in that formula. The bill would prohibit an employer from offering a benefit formula for an employment classification that is not included in that formula. LAST BILL AUTHOR DESCRIPTION ACTION LOC SPONSOR NO. DATE AB 2378 Cooper This bill would authorize PERS to adjust the death benefit amounts following 02/24/20 Assembly each valuation to reflect changes in the All Urban California Consumer Price PE&R Comm. Index.
AB 2473 Cooper This bill would exempt from disclosure, under CPRA, the records of internally 07/28/20 Senate L, managed private loans made directly by a public investment fund. PE&R Comm.
SB 430 Wieckowski PEPRA currently applies to "new members", defined as those who become a 06/26/19 Assembly member of a public retirement system for the first time on or after January 1, PE&R Comm. 2013. Existing law creates the Judges Retirement System II for the retirement Hearing canceled to specified judges. This bill would grant a judge who was elected to office in at rqst of author 2012, but did not take office until on or after January 1, 2013, the option of making a one-time, irrevocable election to have a pre-January 1, 2013 membership status in the Judges Retirement System II.
SB 769 Moorlach This bill would make nonsubstantive changes to the PERL regarding compulsory 02/03/20 Returned to Sec membership provisions. of State pursuant to Joint Rule 56
SB 1042 Pan This bill would rename the California Secure Choice Retirement Savings Trust 05/12/20 Rescinded due to Act as the CalSavers Retirement Savings Trust Act and make conforming shortened 2020 changes: 1) eliminating the requirement to establish managed accounts Legislative invested in US Treasuries, myRAs, or similar investments, 2) authorize the Calendar Board to delegate rulemaking to its executive director, 3) authorize employees to opt out of participation by telephone, 4) eliminate a condition relating to contribution amounts that depends on length of time that an employee has contributed, and 5) require cannabis licensing authorities to provide specified information regarding licensees to the CalSavers Retirement Savings Board upon request.
SB 1159 Hill This bill would define "injury" for a critical worker an employee to include 7/27/20 Assembly illness or death that results from exposure to COVID-19 and creates a Hearing disputable presumption that the injury arose out of and in the course of postponed by employment. This bill would require an employee to exhaust their paid sick committee leave benefits and meet other requirements before receiving any temporary disability benefits or, for specified employees, a leave of absence. Federal Legislation: HR 3934 Brady Called the "Equal Treatment of Public Servants Act of 2019", this bill would 07/24/19 House modify the Social Security Windfall Elimination Provision (WEP) penalty: 1) Social Security Age 60 and older continue to be hit by WEP penalty but receive monthly $100 Subcommittee rebate, 2) Age 59 to 21 receive higher of current law or new formula, and 3) Age 20 and younger use new formula.
2020 State Legislative Calendar (Revised May 6, 2020) Jan 31 Last day for each house to pass bills introduced in that house during the first year of the 2019-20 session Feb 21 Last day for new bills to be introduced Apr 2 Spring Recess begins upon adjournment May 29 June 26 Last day for bills to be passed out of the house of origin Jun 15 Budget Bill must be passed by midnight Jul 2 - Aug 2 Summer Recess upon adjournment provided budget bill passed Aug 21 Last day to amend bills on the floor Aug 31 Last day for each house to pass bills; Final Study Recess begins upon adjournment Sept 30 Last day for Governor to sign or veto bills. 2020 CONFERENCES AND EVENTS SCHEDULE 2020
EVENT DATES 2020 REG. WEBLINK EST. BOARD EVENT TITLE EVENT SPONSOR LOCATION EDUCATION BEGIN END FEE FOR MORE INFO HOURS
Aug 18 Aug 25-26 Principles for Trustees CALAPRS Webinar $500 calaprs.org 7.5 hrs
Aug 24 Aug 25 Public Pension Funding Forum NCPERS Webinar N/A ncpers.org 4.75 hrs
Aug 24 Aug 28 Pension Bridge Annual Conference Pension Bridge Webinar N/A pensionbridge.com 14.4 hrs*
Sep 23 Sep 25 CALAPRS Administrators Institute CALAPRS Long Beach, CA $1,500 calaprs.org 14.4 hrs* Public Pensions and Investments Sep 30 Oct 2 Nossaman Webinar N/A nossaman.com 8 hrs* Fiduciaries' Forum
Dec 8 Dec 8 8th Annual California Institutional Forum Markets Group Napa, CA N/A marketsgroup.com 7 hrs * Estimates based on prior agendas
Printed 7/31/20 8:19 AM
2020 PUBLIC PENSION FUNDING FORUM
August 24 – 25 Virtual Event
FINAL AGENDA
MONDAY, AUGUST 24
1:00 pm – 2:00 pm Welcome & Opening Remarks Hank Kim, NCPERS
How Long Can Public Pensions Be Sustained? Byron Lutz, Federal Reserve Board of Governors Tom Sgouros, Brown University Alex Brown, National Assoc. of State Retirement Administrators
2:00 pm – 2:15 pm Break
2:15 pm – 3:00 pm Strategies to Maintain an Adequate Funding Level Through Economic Ups and Downs David Villa, CEO and CIO, State of Wisconsin Investment Board
3:00 pm – 3:15 pm Break
3:15 pm – 4:00 pm The Impact of Geo‐scientific and Economic Uncertainty of Climate Change on Market and Social Valuation Lars Peter Hansen, Nobel Laureate in Economics, University of Chicago
*This event will be held via Zoom Meetings. All times in EST. Agenda as of 7/20/20 TUESDAY, AUGUST 25
1:00 pm – 1:15 pm Welcome Back
1:15 pm – 2:30 pm Funding Strategies in Selected Plans New York – Sanford Rich, New York City Board of Education RS Kentucky – David Eager, Kentucky Employees Retirement System Illinois – Richard Ingram, Illinois Teachers Retirement System New Jersey – Corey Amon, NJ Division of Investments
2:30 pm – 2:45 pm Break
2:45 pm – 3:45 pm Funding Challenges in Corona Economy: An Actuarial Perspective Gene Kalwarski, Cheiron Brian Grinnell, Chief Actuary, State Teachers Retirement System of Ohio Richard Young, New York State Teachers Retirement System
3:45 pm Thank You and Closing Remarks
THANK YOU TO OUR SPONSORS
PLATINUM
GOLD
*This event will be held via Zoom Meetings. All times in EST. Agenda as of 7/20/20 SAN JOAQUIN COUNTY EMPLOYEES' RETIREMENT ASSOCIATION SUMMARY OF PENDING TRUSTEE AND EXECUTIVE STAFF TRAVEL
2020 Estimated BOR Approval Event Dates Sponsor / Event Description Location Traveler(s) Cost Date
Aug 18 CALAPRS Principles for Trustees Webinar Nicholas $500 N/A Aug 25 - 26
Aug 24 - 28 NCPERS Public Pension Funding Forum Webinar Praus, Herman $250 N/A
Goodman, McCray, Aug 24 - 28 Pension Bridge Annual Conference Webinar N/A 2/14/20 Shick, Wisdom Nossaman Public Pensions and Investments Sep 30 - Oct 2 Webinar Morrish N/A N/A Fiduciaries' Forum
Printed 8/7/20 1:37 PM SAN JOAQUIN COUNTY EMPLOYEES' RETIREMENT ASSOCIATION
SUMMARY OF COMPLETED TRUSTEE AND EXECUTIVE STAFF TRAVEL
Event Estimated Actual Event Report Dates Sponsor / Event Description Location Traveler(s) Cost Cost Filed 2020 2020 Visions, Insights & Perspectives (VIP) Jan 28 - 30 Dana Point, CA Restuccia, Weydert $3,320 $1,930 2/14/20 Conference Feb 7 CALAPRS Administrators Roundtable Costa Mesa, CA Shick $1,070 $651 N/A
Mar 7 - 10 CALAPRS General Assembly Rancho Mirage, CA Shick, Wisdom $5,000 $2,178 N/A SACRS Public Pension Investment Jul 28 - Aug 13 Webinar Nicholas $500 $500 N/A Management Program
Printed 7/31/20 9:03 AM San Joaquin County Employees' Retirement Association
August 6, 2020
TO: Board of Retirement
FROM: Johanna Shick Chief Executive Officer
SUBJECT: Chief Executive Officer Report
Strengthen Fund Stability Deliver Target Return. Financial markets continued to advance during the month of July, and the portfolio ended the month with a market value of approximately $3.2 billion. However, because of the sharp drawdown earlier this year, we will need to see continued, significant gains during the remainder of 2020 if SJCERA is to meet its target return assumption of 7% for the calendar year.
Determine the Optimal Structure within Asset Classes. Staff continues to implement the Board-approved changes to the portfolio. During the month of July, staff focused on the restructuring of the global equity portfolio. At the August Board meeting, Meketa will present the Risk Parity structure review and the Real Estate pacing plan. In the coming months, Meketa is planning to complete a final structure review on the Principal Protection portfolio.
Improve Operational Efficiency Decrease Processing Time on Disability Applications. SJCERA’s 2020 Action Plan includes a goal to implement procedures to ensure that disability applications that don’t require a hearing, be considered by Board within nine months. Assistant CEO Kathy Herman successfully implemented revised procedures, which are beginning to yield results. The August agenda includes two applications that met the nine-month goal. One key to her success is communicating with potential applicants prior to the application being submitted.
Improve IT Infrastructure. Lolo Garza worked with County Information Systems Division staff to improve SJCERA’s IT infrastructure. As a result of these efforts, SJCERA can more efficiently maintain our hardware and software.
Eliminate Unnecessary Mailings. It’s easy to get lulled into routine and stop thinking. That’s what makes employees who think about what they’re doing and question it so valuable. Marissa Smith and Mary Chris Johnson did just that. They realized that a special tax letter may no longer be needed because the information is reported on members’ 1099-R forms and earnings statements. Tax counsel confirmed, and the letter has been discontinued. This one change saves approximately 350 pieces of paper annually; $192 in postage, and at least $1,458 in staff time, in addition to printing and the cost of paper.
Streamline Deduction Process. SJCERA Payroll Technician, Marissa Smith, Assistant CEO, Kathy Herman, and representatives from FCCU streamlined the process by which SJCERA retirees make FCCU loan payments or transfers to savings accounts. As part of her analysis on eliminating the use of paper checks, Marissa noted that each month SJCERA generated a report listing deductions from members’ individual benefit payments for FCCU loan payments or deposits into other FCCU accounts, and a paper check for the total of those deductions. More than 160 of the members on the report were for retirees who also directly deposit their SJCERA benefit to an account at the credit union. The current
6 South El Dorado Street, Suite 400 • Stockton, CA 95202 (209) 468-2163 • [email protected] • www.sjcera.org
CEO Report August 6, 2020 Page 2 process not only requires SJCERA to issue a check and report, it also requires FCCU staff to make manual adjustments for each transaction. Marissa and staff at FCCU, identified a solution, acquired the necessary approvals, notified the members and automated the process for retirees that bank at FCCU. Thanks to Marissa and FCCU staff for their assistance in streamlining this process.
Develop a Plan to Eliminate Paper Checks. Marissa Smith and Kathy Herman submitted the plan to eliminate paper checks on July 29, 2020 for review. The plan identifies both what has already been done to accomplish this goal and the next steps.
Reduce Complexity: Assess Calendar Year vs. Fiscal Year. Staff’s analysis of whether being a calendar or fiscal year plan is more advantageous is well underway. As is often the case, data helps to clarify the right path forward. So far, the data show that SJCERA’s investment returns on a calendar year and fiscal year basis are essentially the same over the last 19 years. Additionally, based on input from our actuary and auditor, costs would be expected to increase during the transition year, and normalize thereafter. If SJCERA were a fiscal year plan, it would be more convenient for our employers; however, based on what staff has discovered so far, it is unlikely that there will be a compelling reason to change from a calendar year to a fiscal year.
Deliver Excellent Service and Support to Stakeholders Employer Notices. For the first time in SJCERA’s 74-year history, we are developing a reference library of materials to assist employers in their administrative and reporting duties. Management Analyst III, Greg Frank developed and published two Employer Notices—fact sheets on specific topics, and has several more drafted. The Membership Requirements notice, provides a detailed overview of membership requirements and exceptions, and the Salary or Retirement Benefit Changes notice, explains when an actuarial analysis of proposed salary or benefit changes is required. Both notices were distributed to our employer contacts and are posted on the Employer page of our website.
Active Member Communication. The Retirement Benefit Options fact sheet, described in this report last month, was highlighted in an email to all-employees on July 23. A copy of the fact sheet is attached for your reference. Additionally, staff notified active members that SJCERA will issue their next member statement in 2021. Included in the email was a survey from which we learned that members like receiving the statement annually, and 41 percent of comments requested to receive statements electronically or through a portal. Staff continues to work with Departmental IT managers to encourage them to distribute these emails to their department’s staff.
Retirement Planning Seminars. Twice a year SJCERA provides retirement seminars to members. The half-day seminars include presentations on Social Security and Deferred Compensation, in addition to retirement. Due to the COVID-19 Shelter-in-Place order the May sessions were canceled. Debra Khan, Ron Banez, and Lolo Garza are preparing to offer the seminar via zoom in September. One test has been conducted and another is scheduled for next week with outside participants.
Maintain a High-Performing Workforce Back-to-School Staffing. For the safety and health of all concerned, school districts have decided to conduct school remotely, resulting in a need for most working parents to supervise and assist their children during the school day. Seven staff members (more than one-third of our staff) have submitted leave requests to accommodate their children’s distance learning schedule. Some requests reduce the hours worked per day, others take the first couple weeks off to establish a routine with the aim of increasing the student’s independence over time, still others requested to work split shifts from home, performing SJCERA work when they are not assisting their child with school work. Each situation is unique and schedules vary. Staff’s commitment to SJCERA is obvious in their efforts to ensure critical SJCERA functions continue uninterrupted, while still providing the necessary care for their families.
Training. Retirement Administrative Assistant Andrea Bonilla and I attended the CALAPRS Communications virtual roundtable on July 17. Of particular interest, was the presentation on creating
6 South El Dorado Street, Suite 400 • Stockton, CA 95202 (209) 468-2163 • [email protected] • www.sjcera.org
CEO Report August 6, 2020 Page 3 online videos, which assisted us on our Action Plan goal of researching time- and cost-efficient methods of providing quality online SJCERA benefit videos.
Manage Risk Continue to Strengthen Cyber Security. SJCERA continues to partner with the County Cyber Security team to strengthen SJCERA’s Cyber Security. On July 20, Information Systems Analyst Lolo Garza and Information Systems Manager Adnan Khan participated in the ongoing San Joaquin County Security Governance Team Meeting. In June a Network Vulnerability Assessment scan was conducted by a representative of the Central California Intelligence Center, and all parties met to discuss the findings and remediation plan. Overall the scan results were within the reasonable boundaries. A remediation plan was developed and is being executed for potential vulnerabilities. Existing technology and processes are being enhanced to avoid reoccurrence of similar vulnerabilities in future.
Staff has gathered sample RFPs and scopes of work for IT Audits from other retirement systems. We are reviewing those now, and plan to discuss with the Audit Committee at an upcoming meeting.
Assess Disaster Recovery Procedures and Identify Opportunities for Improvement. Staff continue to monitor and refine the response to the COVID-19 pandemic to ensure staff is safe, member data is secure and critical functions continue.
Manage Emerging Organizational Needs ACERA Vested Rights Case. The California Supreme Court issued its decision on the ACERA DSA vs. ACERA et al case concluding that the PEPRA amendment at issue is constitutional. It was enacted for the “constitutionally permissible purpose of conforming pension benefits more closely to the theory underlying section 31461 by closing loopholes….” and “was designed to limit pension spiking, the manipulation of compensation to artificially increase a pension benefit.” Additionally, the Court determined that financial disadvantages created by the PEPRA amendment need not be offset by comparable new advantages because those advantages “would undermine, or would otherwise be inconsistent with, the constitutionally permissible purpose underlying the modification.” Staff is working closely with counsel to assess the impact of this decision on SJCERA and establish a prudent implementation plan, part of which will entail reviewing Tier 1 earnings codes. Fiduciary counsel, Ashley Dunning will provide more information at the Board meeting.
On a related note, staff has completed a retirement eligibility review of all Tier 2 earnings codes. A next step will include reviewing the outcome of our analysis with legal counsel.
Conclusion SJCERA’s Super Team continues to face the challenges of the day (COVID-19, reduced staffing to support remote learning for kids, pension administration project, determining how to implement new court decisions, and more!), while continually striving to serve our customers even better than we have in the past.
6 South El Dorado Street, Suite 400 • Stockton, CA 95202 (209) 468-2163 • [email protected] • www.sjcera.org
Monday, July 13, 2020 at 3:28:24 PM Pacific Daylight Time
Subject: SJCERA 2019 PAFR AND CAFR Date: Monday, July 13, 2020 at 3:26:32 PM Pacific Daylight Time From: ISD Service Desk [ISD] To: ISD Service Desk [ISD]
Sent on behalf of Johanna Shick, Chief Executive Officer SJCERA: (Sent to All County Employees)
SJCERA’s 2019 Financial Update SJCERA invests your, and your employer’s, retirement contributions and then pays your retirement benefit from those funds when you retire. Highlights of SJCERA’s 2019 performance include: Exceeded our 7.25% investment return target 1-year return: 13.3% net of fees 3-year return: 7.5% net of fees Improved funded ratio 64.7% up from 60.4% Paid an average monthly benefit of $3,199 to 6,208 Retirees
Read more in the 2019 Popular Annual Financial Report (PAFR) or the more detailed 2019 Comprehensive Annual Financial Report (CAFR).
Thank you,
ISD Service Desk Information Systems Division San Joaquin County 209-953-HELP (4357)
Page 1 of 1 Friday, July 24, 2020 at 9:21:36 AM Pacific Daylight Time
Subject: Employer No ces for SJCERA-par cipa ng employers Date: Monday, July 20, 2020 at 9:39:11 AM Pacific Daylight Time From: Johanna Shick To: [email protected], [email protected], [email protected], sjcllstaff@gmail.com, [email protected], [email protected], tpcd@a .net, gneely@lmfire.org, shenry@wmfire.org CC: [email protected], [email protected], [email protected], [email protected], [email protected], [email protected], hsalazar@lmfire.org, ypalermo@wmfire.org
Dear SJCERA-Participating Employer Representatives:
SJCERA is developing a series of Employer Notices as part of our effort to make the Employer page on our website a centralized source of tips and rules for employers. Currently, there are two notices; others will be posted soon and I will let you know when those are available so you can stay up-to-date. Of utmost importance today, please read the Salary or Retirement Benefit Change Notice to be sure the SJCERA-participating employer that you represent is in compliance.
Salary or Retirement Benefit Change Notice explains that before the governing board of an employer approves changes to either their employees’ salaries or retirement benefits, the employer must obtain an actuarial statement documenting the costs of the proposed changes and the impact those changes will have on SJCERA’s funding. The recent Luke v. County of Sonoma, and Sonoma County Employees’ Retirement Association, et al. case has increased awareness of this requirement throughout the state. It is important that all employers are aware of and comply with these responsibilities.
Membership Requirements Notice summarizes which members are required to be SJCERA members, who may opt-out of membership, and who must opt-in to membership if they want to become (or remain) members. It also provides you links to the documents employers are required to gather from new employees and submit to SJCERA.
Additional Employer Notice topics that will be coming soon are listed below. Retiree Return to Work (requirements if you are hiring a retired SJCERA member) Exceptions to the 960-hour retiree return to work rules during COVID state of emergency SJCERA and Gravely Ill Employees (On occasion employers have to terminate employees who are gravely ill; in general, it’s better for the employee to work with SJCERA before they are terminated so they (and their family) do not lose valuable retirement benefits.)
Don’t see the topic you’re hoping for? Let me know what information you or your employer’s payroll or personnel staff need or want. The Employer page is intended to meet your needs—if there is information you wish you had easy access to, let me know!
As always, if you have any questions, please feel free to contact me directly.
Best Regards,
Johanna
Johanna Shick Chief Execu ve Officer
Page 1 of 2 Salary or Retirement Benefit Changes
SJCERA Employer Notice
Analysis of Costs and Impact on SJCERA Funding Required
Before the governing board of a SJCERA employer approves Process Checklist changes to either employees’ salaries or retirement benefits, the employer must obtain an actuarial statement documenting the ✓ Define the increase or change costs of the proposed changes and the impact those changes and population affected. will have on SJCERA’s funding. ✓ Contact SJCERA to request an Requirements for Salary Increases actuarial impact statement. The actuarial analysis of proposed salary increases must report ✓ SJCERA coordinates with the increases’ financial impact on SJCERA’s funding status. This actuary. information must be included in the public notice of the governing board’s meeting when the action will be considered. ✓ Actuary contacts employer with follow-up questions. Requirements for Retirement Benefit Changes ✓ Actuary provides impact The actuarial analysis of proposed retirement benefit changes statement. must report the actuarial impact on the future annual costs, ✓ If the actuary determines the including the normal cost or changes to the accrued liability. costs exceed 0.5%, schedule the actuary to attend the public The future annual costs associated with an increase in meeting at which the changes retirement benefits must be made public at a public meeting at will be considered. least two weeks prior to the adoption of the increase in benefits. If those costs exceed one-half of one percent, an actuary must ✓ Publicly post actuary’s impact be present to provide information as needed at the public statement of benefit increases two weeks before the public meeting at which the adoption of benefits will be considered. meeting at which changes will be discussed. Use of SJCERA’s Actuary for the Analysis is Recommended Upon the employer’s request and at the employer’s expense, ✓ Publicly post actuary’s impact SJCERA may ask its actuary to prepare the required analysis. statement of salary increases Using SJCERA’s actuary is recommended as a time- and cost- with notice of the meeting. efficient option because they already have SJCERA’s data and ✓ Employer’s governing body are familiar with SJCERA’s benefit programs. (e.g., Board) votes on changes in a public meeting. Actuarial firms will need time to perform the required analysis and prepare their report. Please keep this in mind when ✓ Provide documentation of changes, costs, and approval scheduling these matters on your Board’s agenda. to SJCERA.
✓ SJCERA CEO acknowledges in writing understanding of the current and future costs. ✓ Employer reimburses SJCERA This Employer Notice is intended to provide employers with information as simply for actuarial costs and accurately as possible. The laws governing retirement systems are complex. If a conflict arises between the applicable law and any statements in this notice, the law will govern. Rev. 07/14/2020
San Joaquin County Employees’ Retirement Association www.SJCERA.org 6 South El Dorado Street, Suite 400, Stockton, CA 95202 (209) 468-2163
Membership Requirements
SJCERA Employer Notice
Membership Requirements and Exceptions • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
Employees become members of the San Joaquin County Employees’ Retirement Association (SJCERA) upon appointment to a permanent full-time position of the County or other SJCERA-participating employer. Superior Court Officers and their attaches and the Public Administrator are included in SJCERA pursuant to the County Employees Retirement Law (CERL).
Required Membership Forms and Documents
Every employee who is or becomes a member of SJCERA must complete a Member Certification form and submit acceptable proof of age documentation as outlined in SJCERA’s Age Verification Policy. It is the employer’s responsibility to ensure that all eligible employees provide the required form and documents to SJCERA.
Exclusions from Membership
Employees who are appointed to a position or employed under contract for a period not to exceed 1,560 hours in any consecutive twelve (12) month period, seasonal employees, intermittent employees, or part- time employees, are excluded from SJCERA membership.
Optional Membership
Employees who are age 60 or older when they are first employed in a position requiring SJCERA membership may make an irrevocable election to waive membership. The election will be evidenced by the employee’s signature on a Membership Waiver form.
Elected officials who wish to become (or remain) SJCERA members must file a declaration with the Board. Please contact SJCERA for more information.
Membership Types • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
SJCERA Membership is divided into two categories:
✓ Safety member – Employees occupying a classification of which the principal duties encompass active law enforcement or probation services or fire suppression. Complete list of Safety member job titles.
✓ General member – All other eligible employees.
Membership type affects the employees’ retirement benefit, member and employer contribution rates, and, in most cases, their eligibility to participate in Social Security. Only Safety members working for the Lathrop-Manteca Fire District participate in Social Security; all other SJCERA Safety positions are not covered by Social Security. Visit the employer page of www.SJCERA.org for information about employers’ legal requirements to provide SJCERA a completed Form SSA-1945 for any employee hired in a job not covered by Social Security.
This Employer Notice is intended to provide employers with general information regarding SJCERA membership. If a conflict arises between the applicable law and any statements in this Employer Notice, the law will govern. Rev. 7/15/2020
San Joaquin County Employees’ Retirement Association www.SJCERA.org 6 South El Dorado Street, Suite 400, Stockton, CA 95202 (209) 468-2163
Friday, July 24, 2020 at 7:44:36 AM Pacific Daylight Time
Subject: FW: Re rement Insights: Re rement Benefit Op ons Date: Friday, July 24, 2020 at 7:44:13 AM Pacific Daylight Time From: Andrea Bonilla To: Employers, [email protected]
Good Morning,
Forwarding the email below that was sent out on behalf of SJCERA. Please circulate to your employees if they did not receive the email from the County ISD Department.
Thank you, Andrea Bonilla Retirement Administrative Assistant San Joaquin County Employees’ Retirement Association [email protected] 209.468.9950
From: "ISD Service Desk [ISD]"
Sent on behalf of Johanna Shick, Chief Executive Officer SJCERA: (Sent all County Employees)
Retirement Insights: Retirement Benefit Options On your retirement application, you will select a retirement benefit option and name a beneficiary. These choices affect the amount of your lifetime retirement benefit and any benefit payable to your survivor upon your death. SJCERA created the Retirement Benefit Options fact sheet to help you understand each option so you’re prepared when it’s time to retire.
Thank you,
ISD Service Desk Information Systems Division San Joaquin County 209-953-HELP (4357)
Page 1 of 1 Retirement Benefit Options
When you retire you will elect a retirement benefit option and name a beneficiary. These choices affect the amount of your retirement benefit as well as the benefit payable to your survivor upon your death. After you retire, you cannot change your benefit option selection or the beneficiary named to receive a survivor’s continuance, even if your beneficiary dies or the relationship changes.
Unmodified Option under the Unmodified Option, which increases the likelihood that there will be a remaining balance to pay to your beneficiary. With Option 1, you may NO REDUCTION/ 60% CONTINUANCE name a new beneficiary at any time. The Unmodified Option provides the maximum monthly benefit during your lifetime and, upon Option 2 your death, your eligible surviving spouse or registered domestic partner (RDP) will receive a lifetime monthly continuance benefit equal to 100% JOINT AND SURVIVOR 60 percent of your benefit. To be eligible for the continuance, you and your spouse/partner must Option 2 reduces your monthly retirement benefit be married/registered for at least one and, upon your death, 100 percent year prior to your retirement date. of your reduced monthly benefit will be paid monthly to your beneficiary If there is no surviving spouse/ Learn more: Go for their lifetime. The amount of partner, the 60 percent continuance to a Seminar. your benefit reduction is based on is paid to any unmarried children until the age difference between you and they reach the age of 18, or 22 if they your beneficiary. Option 2 provides are enrolled as a full-time student Go to the the largest benefit to your survivor, in an accredited school. If there is so your benefit is reduced more no eligible surviving spouse/partner Retirement than under other options. If your or minor children, your designated Planning Menu beneficiary dies before you, your beneficiary will receive a one-time, on www. retirement benefit remains reduced lump-sum payment of your remaining sjcera.org for and you cannot name a different member contributions and interest (if upcoming dates. beneficiary. any), minus the monthly retirement payments already paid. If your beneficiary is more than 10 years younger than you and If your retirement benefit is based on is not your spouse, the Internal a service-connected disability, read the Disability Revenue Code requires further reductions to your fact sheet for special Unmodified Retirement Benefit beneficiary’s continuance. Option rules that apply to you. Option 3 Option 1 50% JOINT AND SURVIVOR BENEFICIARY LUMP SUM/NO MONTHLY CONTIUANCE Option 3 reduces your monthly retirement benefit and, upon your death, 50 percent of your Option 1 provides you a monthly retirement reduced monthly benefit will be paid monthly to benefit that is slightly less than the Unmodified your beneficiary for their lifetime. The amount Option. Upon your death, your remaining member of your benefit reduction is based on the age contributions and interest (if any) will be paid difference between you and your beneficiary. If to your beneficiary in a lump sum. Option 1 your beneficiary dies before you, your retirement does not provide a continuing monthly benefit benefit remains reduced and you cannot name a to your beneficiary. Instead, your accumulated contribution balance declines more slowly than different beneficiary.
San Joaquin County Employees’ Retirement Association | www.SJCERA.org | 6 South El Dorado Street, Suite 400, Stockton, CA 95202 | (209) 468-2163 Option 4
MULTIPLE BENEFICIARIES/CUSTOM PERCENTAGES Option 4 allows you to select a customized percentage (up to 100 percent) for the continuance or to provide monthly continuance benefits to multiple beneficiaries, such as when both a former and current spouse are eligible for a portion of your benefit. Your benefit is reduced based on the age difference between you and your beneficiary(ies). If your beneficiary(ies) dies before you, your retirement benefit remains reduced and you cannot name another beneficiary. Option 4 benefits must be individually calculated by SJCERA’s actuary.
Insurable Interest Required for Options 1-4 Beneficiaries
If you elect Option 1, 2, 3 or 4, your beneficiary must have an insurable interest in your life. Generally, a person with insurable interest is related by blood or law, or is someone who benefits financially from your continued life and would suffer financial loss as a result of your death or disability. Under California law, a retiree’s spouse/registered domestic partner (RDP) may have rights over any other designated beneficiary.
San Joaquin County Employees’ Retirement Association | www.SJCERA.org | 6 South El Dorado Street, Suite 400, Stockton, CA 95202 | (209) 468-2163 2 Social Security Advancement Option In addition to selecting one of the five benefit options (Unmodified and Options 1 through 4), you will also decide whether to select the Social Security Advancement Option (SSAO). The SSAO is an optional, temporary benefit option for qualifying members that provides additional monthly income until age 62. The SSAO temporarily increases your SJCERA retirement benefit by a percentage of your estimated Age-62 Social Security benefit. The additional monthly income provided by the SSAO ends at age 62, and your monthly SJCERA benefit is permanently reduced by the full amount of your estimated Age- 62 Social Security benefit. If you begin receiving your Social Security Benefit at age 62, it should help offset the reduction to your SJCERA benefit. (To apply to begin your Social Security benefit, visit www.ssa.gov)
While the SSAO temporarily increases, and then reduces, your SJCERA benefit, it has no impact on your Social Security benefit. If you decide to wait until after age 62 to begin your Social Security benefit, your SJCERA benefit will still decrease at age 62 by the full estimated Age-62 benefit amount. The adjustments to your benefit are based on the Social Security estimate you provide, even if your actual Social Security benefit is different. If your survivor is eligible for a continuance, their continuance benefit will be based on your original SJCERA retirement benefit option amount before it was adjusted for the SSAO increase or decrease. Eligibility for the SSAO How to Request the SSAO
You may elect the SSAO if you are: • Ask the Social Security Administration to generate a personalized Age-62 Social Security benefit • Under age 62 at retirement from SJCERA estimate that is based on the date you plan to • “Fully insured” under Social Security, which generally stop working. (The annual estimate you receive means you have 40 work credits, or 10 years of from the Social Security Administration assumes work covered by Social Security. Visit www.ssa.gov that you will work until age 62, which will be or call 1.800.SSA.1213 to learn whether you are inaccurate for this purpose.) fully insured in that system. • Submit your age-62 Social Security estimate to • Have not been granted a SJCERA disability SJCERA with your request for a SJCERA retirement retirement benefit. application. • Select the SSAO on your retirement application.
This fact sheet is intended to provide you with information as simply and accurately as possible. If a conflict arises between the applicable law and any statement in this fact sheet, the law will govern. To request this material in an alternative format, call (209) 468-2163, or TTY 711. 07/2020
San Joaquin County Employees’ Retirement Association | www.SJCERA.org | 6 South El Dorado Street, Suite 400, Stockton, CA 95202 | (209) 468-2163 3 Thursday, August 6, 2020 at 8:01:15 AM Pacific Daylight Time
Subject: SJCERA Membership Statements Date: Wednesday, August 5, 2020 at 2:56:13 PM Pacific Daylight Time From: ISD Service Desk [ISD] To: ISD Service Desk [ISD]
Sent on behalf of Johanna Shick, Chief Executive Officer, SJCERA: (Sent to all County Employees)
Your next SJCERA member statement will be issued in September 2021. Until then, SJCERA’s online retirement calculator continues to be a great tool to help you estimate your retirement benefit when you have more than a year until retirement. If you are planning to retire in 2020 or 2021, and you need an estimate, please contact SJCERA.
SJCERA will not be producing member statements in 2020 due to the impact of COVID-19 on staffing and related workload issues. We would appreciate your feedback on how often you’d like to receive these statements. Please follow the link to the survey: https://www.surveymonkey.com/r/SJCERA_Mbr_Stmt.
Thank you,
ISD Service Desk Information Systems Division San Joaquin County 209-953-HELP (4357)
Page 1 of 1 San Joaquin County Employees' Retirement Association
August 6, 2020
TO: Board of Retirement
FROM: Kathy Herman Assistant Chief Executive Officer
SUBJECT: Pension System Enhancement Project Update
The attached matrix has been updated to provide a snapshot of the progress based upon the contractual statement of work. Items updated in green show measurable progress. Items listed on the matrix that are not critical for initial cut over may show zero to minimum completion.
2.1 – AMS automation of Contributions and Service Time Registers – 92% ready to go, it is testing well, works as planned and will shorten run time by several hours once cutover is complete.
2.3 Interest run – Staff is preparing the 6/30/20 interest in production and will replicate in the new system shortly after.
2.7 – New Screens – Tested and ready to go
2.16 – Reporting is an area of the system that is actually being used successfully. Where special IT skills were previously required to pull data for special projects, this tool with training allows all staff to run reports that export to excel by selecting criteria.
SJCERA continues to experience reoccurring problems in the old system that only the vendor can address. For example, June was closed in production on August 5 and staff is currently working on the June 30 interest posting run. Each time IT and IG Inc staff are pulled away from testing and working on the new system to address reoccurring problems and issues on the old system, it serves to confirm our commitment to this cutover.
6 South El Dorado Street, Suite 400 • Stockton, CA 95202 (209) 468-2163 • [email protected] • www.sjcera.org
Core 37 Pension Software Upgrade Project Update 8/6/20 % Complete % Complete % Complete SOW ID Description Base Programming Parallel Ready Cutover Ready
2.1 AMS Automation of Contributions and Service Time Registers 99 96 92.5 2.1.a Merge contributions and service time registers 100 100 100 2.1.b Update screens and reporting templates 100 100 100
2.1.c Data export and automation of periodic reports 95 85 85 2.1.d Ad-hoc reporting 100 100 85 Upgrade the Current Process for Importing Bi-Weekly Employer Data and New Automated Validation Processes – Replace EOM 2.2 batch process 90 90 80 2.2.a Automated verification of employer data 100 100 100 2.2.b Creation of "safe" sandbox to run pre-import validations 100 100 100
2.2.c Data validations 75 75 75 2.2.d New pay period update process 100 100 100 2.2.e Replace End of Month (EOM) batch process with Live Transaction process 75 75 25 2.3 Interest Run 97 90 58
2.3.a Expand accessibility to interest data 100 100 50 2.3.b Improve and enhance functionality 95 95 75
Allow Finance to prep and conduct pre-run, make corrections and perform 2.3.c final run with in same week of interest posting dates (June 30 and Dec. 31) 95 75 50 New Tables and Interfaces to be Maintained by SJCERA (New 2.4 Dashboard for IT and Assigned Office Work Groups), Including 98 98 98 2.4.a Employers/Departments 100 100 100 2.4.b Contribution rates 95 95 95 2.4.c 415 Limit 100 100 100 2.4.d Employer class 100 100 100 2.4.e Accounting transaction codes 95 95 95 2.4.f Interest rates 100 100 100 Additional Changes to Fields as Deemed Necessary During the 2.5 Construction and Design Phases 85 75 75 2.6 New Fields for Validations and Processing 71 57 14 2.6.a Year to Date Calculated Amount 100 100 0 2.6.b 415 Grandfathered 100 100 0 2.6.c Temporary Hours 0 0 0 2.6.d Refund and returned members 100 100 50 2.6.e DRO refund 100 100 50 2.6.f Actuary comments 100 0 0 2.6.g Retiring Members and Status (on Active Side) 0 0 0 2.7 New Screens 86 86 74
2.7.a Restructure of AMS screens 100 100 90 2.7.b Reciprocity tabs 100 100 100 2.7.c OTC and other transactions 100 100 75 2.7.d New DRO/AB2766 member screens 0 0 0 2.7.e "ADDRET" entry 100 100 100 2.7.f Interest views 100 100 50 2.7.g Finance transaction Queue 100 100 100
2.8 RBC Changes 25 25 0 2.9 Service Purchase 99 85 37 2.9.a Integration with AMS 100 100 85 Core 37 Pension Software Upgrade Project Update 8/6/20 % Complete % Complete % Complete SOW ID Description Base Programming Parallel Ready Cutover Ready 2.9.b Improve reporting on new contracts 100 50 0 2.9.c All contracts, pay down in the beginning or pay off at the end 100 100 0 2.9.d Automate service purchase calculations 100 100 50 2.9.e Various required service purchases will be calculated in the system 95 75 50 2.10 Actuary/Auditor/CPRA Data Extracts and Processes 85 0 0 2.10.a Centralize Actuary and Member Statements data 85 0 0 2.10.b Improved user interface 85 0 0 2.11 Other Changes 25 25 0 2.12 Terminations and Refunds 95 85 75 2.13 Deaths 100 100 50 2.13.a Link to AMS and CR for Active/Deferred members 100 100 50 2.13.b Link to RMS for all payments 100 100 50 2.14 DRO 100 94 38 2.14.a Pull in data and create splits 100 100 75 2.14.b Tie in to CR processing 100 100 75 2.14.c Process DRO refunds through RMS 100 75 0 2.14.d Flag active DROs in AMS 100 100 0 2.15 Upgrade Optix / FM Connector to New Version of Optix 100 100 100 2.16 Reporting 92 92 78
2.16.a Improve on demand reporting feature to run custom queries against all data sets 100 100 85 2.16.b Improve reporting process to allow export as excel file 100 100 100 2.16.c Determine and standardize reporting requirements 75 75 50
% Complete
Cutover Ready 25% Base Programming 25 39 35 Parallel Ready 36%
* Items listed that are not critical for initial cut over may show zero to minimum completion.
A wholly-owned subsidiary of Attucks Asset Management, LLC
July 27, 2020
To the Board of SJCERA:
We wanted to write to express our deep appreciation for the confidence you have placed in our firm for these past 14 years, entrusting us with the plan’s small cap value mandate. The emerging managers on the team (most of whom have been in place since the beginning) and we all have much to appreciate from this assignment.
We are of course disappointed that your decision will take you in a different direction and the relationship will not continue, but we wanted to wrap things up by thanking you and all the team that has worked with us over the years.
We are very proud of the record we delivered to you and wish you the best.
Thank you!
Sincerely,
Marilyn R. Freeman Managing Director Capital Prospects/Attucks Asset Management
FundFire - Print Content Page https://www.fundfire.com/pc/2814043/347083?all=true
Meketa Going 'Fully Remote' on Manager Due Diligence By Aziza Kasumov July 21, 2020
Since the onset of the pandemic, investment consultants across the country have debated whether they should allocate capital to asset managers they have never visited. Now, Meketa Investment Group, a consulting heavyweight overseeing $1.5 trillion in client assets, has come out and told clients that it feels con dent in a fully virtual due-diligence process. “To avoid disadvantaging new or emerging managers during the pandemic, we modi ed our process to be fully remote and connect face-to-face using video technology,” the rm wrote in a July 2 memo to one of its clients, the Los Angeles County Employees Retirement Association (LACERA). “We believe these changes do not sacri ce the depth of research and analysis we conduct, and put smaller and emerging asset managers on a level playing eld within Meketa’s due diligence process,” the memo continued. So far, Meketa hasn’t completed a due-diligence process with a new manager remotely from start to nish, says Brandon Colón, managing principal and co-director of public markets manager research at the rm. “But we anticipate we’ll have fully remote due diligence completed [on managers] sometime in the near future,” he adds. To try to match the quality of due diligence usually done in person, Meketa says it has shifted its process to rely more on video conferencing technologies, expanded its document review work, increased the use of secure data sharing rooms, and added more reference calls and background checks. Doing virtual o ce walk-throughs or requesting detailed oor plans for the operational due- diligence portion is part of the discussion too, says Colón. Industry professionals are split over consultants’ ability to get comfortable enough with a manager they’ve never visited before through a remote-only due-diligence process, as reported. Some say there’s an opportunity cost associated with not allocating to new managers, especially as today’s volatile markets present rapidly changing investment opportunities. But others note that it's harder to pick up on certain cues in body language that could be distorted by issues such as a bad internet connection or delays. “I can understand the hesitancy on the part of the consultants to say that their processes are all done remotely because they ascribe a lot of value to the in-person,” says Kevin Neubauer, a partner at nancial services-focused law rm Seward & Kissel. He adds, however, that the move to fully remote due diligence is born out of necessity, especially as early hopes of a rapid coronavirus slowdown in the U.S. have been crushed by the surge in recent weeks. “Frankly, I’m not sure what other choices they have,” Neubauer says. Some rms have already decided to forge ahead without an on-site visit. Boutique outsourced CIO (OCIO) rm Verger Capital Management allocated to a manager it has never visited before this
1 of 3 7/21/20, 8:47 AM FundFire - Print Content Page https://www.fundfire.com/pc/2814043/347083?all=true
spring, and global consulting rm B nance has a client-by-client policy on whether an allocation to a new manager is possible with just online due diligence. Meketa, which has $1.5 trillion in client assets under advisement and $17 billion in assets under management, is going ahead with virtual due diligence as well, at least in part to be able to continue its work sourcing and allocating to new and emerging managers. “We recognize that this time is pretty challenging for emerging managers, who are in the early yet critical stages of scaling their businesses,” says Colón. Such managers often rely on emerging manager conferences and other in-person events, but even in the absence of those, “we’re making sure that we’re continuing our efforts in that space,” he adds. Meketa postponed its emerging manager day earlier this year out of concerns about the spread of COVID-19. Instead, the company is planning to host a two-day emerging manager conference on Oct. 21 and Oct. 22, which could either be held virtually or in person, depending on how far the pandemic is contained by then. Compliance professionals say that forgoing the onsite visit doesn’t necessarily raise any red ags as long as consultants try to match the processes as best as possible in a virtual format. Part of the purpose of an onsite visit, for instance, is usually to see how the managers’ o ces are set up and where managers sit in relation to compliance. But these days, “a lot of managers have iPad capability, and can do a walk-through that way,” says Kristina Staples, managing director at consultancy ACA Compliance Group. Consultants also need to make sure they have secure transfer sites for the documents they’re requesting, Staples notes, adding that “most consultants… are already using portals to have the documents uploaded and securely transferred.” When it comes to the actual documents that consultants want to see, both parties need to make sure they’re aware of any privacy or con dentiality issues. “If you’re in the [manager’s] o ce, you can look at the document without taking it with you and just hand it back,” says Amy Lynch, founder and president of consulting rm Frontline Compliance. But when those documents are shared virtually instead, “that [non-disclosure agreement] has to be in place early, and both sides have to understand the sensitivity around the documents being shared.” One way that Meketa has handled those issues is by asking managers to share their computer screen during a video call so that consultants can see the documents without having a digital or physical copy sent to them. Just as there’s an understanding that consultants shouldn’t take out their iPhones during an on-site and take photos of those documents, it should also be clear that, during a Zoom call, “the managers wouldn’t want people to screenshot something,” Staples adds. From a legal perspective, too, moving due-diligence processes online doesn’t have to be an issue, professionals say. “There’s certainly value in the in-person interviews that they conduct, and the tours that they conduct of the o ce,” says Neubauer. “But do I think that not doing an in-person review of a particular manager raises duciary concerns for an institutional investor? Not necessarily.” Contact the reporter on this story at akasumov@fund re.com or (212) 542-1209.
2 of 3 7/21/20, 8:47 AM FundFire - Print Content Page https://www.fundfire.com/pc/2814043/347083?all=true
FundFire is a copyrighted publication. FundFire has agreed to make available its content for the sole use of the employees of the subscriber company. Accordingly, it is a violation of the copyright law for anyone to duplicate the content of FundFire for the use of any person, other than the employees of the subscriber company.
An Information Service of Money-Media, a Financial Times Company
3 of 3 7/21/20, 8:47 AM THE NCPERS MONITOR The Latest in Legislative News July 2020
In This Issue ‘What, Me Worry?’ Pushing Back at 2 Pension Plan Reserve the Retirement Savings Crisis Deniers Funds Photo Illustration © 2020, shutterstock.com © 2020, Illustration Photo
Te U.S. Ofce of Management and Budget (OMB) is involved in an ongoing project to clarify the cost principles and rules for states with regard to federal grants and agreements, including employee beneft costs. Photo Illustration © 2020, shutterstock.com 3 Executive Directors Corner Photo Illustration © 2020, shutterstock.com © 2020, Illustration Photo
hat, Me Worry?’ Pushing Back at the Retirement Savings Crisis Deniers Setbacks in the fnancial market have triggered a new round of public policy scapegoating—and pension systems have unfortunately tended Public school employees are passionate about to be popular targets in the blame game. One of our jobs at NCPERS their profession, but most say they would “W leave their jobs if pension benefts, salary or is to stand up again misconceptions and bad analysis of how public pensions operate. health coverage were cut, according to new research from the Center for State and Local Government Excellence. Consider the recent column in Forbes by Andrew Biggs, a resident scholar at the American Enterprise Institute. On May 31, he delivered his latest screed against the overwhelming 4 Around the Regions evidence that there is a retirement crisis brewing in America. Like other conservatives, he dismisses calls to pay attention to this problem as scare tactics, arguing that reports of Americans being under-prepared are greatly exaggerated. Afer all, if we could just make the problem magically disappear, we won’t have to make hard choices about things like strengthening social security and promoting workplace savings initiatives, right?
Te problem is that his column—titled “Two Decades Ago, Progressives Warned of a Retirement Crisis. It Didn’t Happen,” and published May 29, 2020—is a study in cognitive bias. When confronted with mounting evidence that Americans are woefully unprepared for retirement, his response can be boiled down to the ostrich efect—“Nothing bad has happed, This month, we will highlight New York, Minnesota, Texas and Colorado. CONTINUED ON PAGE 5
NATIONAL CONFERENCE ON PUBLIC EMPLOYEE RETIREMENT SYSTEMS Pension Plan Reserve Funds
By Tony Roda
he U.S. Office of Management and Budget (OMB) is involved in an ongoing project to clarify the cost principles and rules for T states with regard to federal grants and agreements, including employee beneft costs. Tese costs would include contributions to public pension plans for federally funded employees working for state or local governments. Te project reached a milestone in January 2020 with the issuance by OMB of new proposed regulations. Photo Illustration © 2020, shutterstock.com
Since the Great Recession, every state and many of their political subdivisions have made changes to pension beneft levels, the fnancing of pension funds, or both. Te changes include increasing contribution rates for employees and employers, lowering assumed rates of return on investments (discount rates), freezing or repealing COLAs, and raising retirement ages and suggested in its comment letter that guidance on reserve funds length of service requirements. Te Covid-19 pandemic may usher could be provided in a Question-and-Answer format, thereby in a new round of these types of changes due to the strain state removing the need to rewrite the proposed regulation. and local government fnances. Te issuance of clear guidance on costs associated with pension Given the considerable fnancial pressure on state, county, and reserve funds would provide federal, state and local governments municipal governments to fund pension plans for their employees with certainty on cost allocation issues and provide states and in a sustainable manner, innovative cost-containment strategies localities the confidence to employ this innovative means to are being considered. One such strategy is the creation of pension ensuring pension sustainability. reserve funds. It is in the best interests of taxpayers and the federal government Within the past few years, Tennessee, Louisiana, and Oklahoma to provide the tools to states and localities to enable them to make have enacted pension reserve funds. While the details of each the necessary changes to their pension plans to ensure long- reserve fund differ and are based on unique state and local term sustainability. Transparent guidance on the cost allocation circumstances, there is one signifcant way in which the federal treatment of pension reserve funds would facilitate one such government could assist the efort, namely providing states and important tool. u localities with regulatory guidance on the cost expense treatment of these reserve funds. Tony Roda is a partner at the Washington, D.C. law and Tere was some hope that this would be addressed in the recently lobbying firm Williams & Jensen, where he specializes in proposed OMB rules, but they were not. In fact, the State of federal legislative and regulatory issues affecting state Tennessee wrote to OMB prior to the issuance of the proposed regulations and again as a comment letter to OMB’s proposed rules and local governmental pension plans. He represents raising issues specifc to their stabilization reserve trust fund. Both NCPERS and statewide, county, and municipal pension of these documents are available online at the Federal Register site. plans in California, Colorado, Georgia, Kentucky, Ohio, Tennessee, and Texas. He has an undergraduate While, again, there is some hope that these specifc questions will degree in government and politics from the University be addressed by OMB in its fnal set of rules, indications are instead of Maryland, J.D. from Catholic University of America, that OMB will stick to the four corners of the proposed regulations when they draf the fnal regulations and will not introduce and LL.M (tax law) from Georgetown University. new issues or topics. Anticipating this response, Tennessee also
JULY 2020 | NCPERS MONITOR | 2 NCPERS Executive Directors Corner
Study: 60% of Public School Workers Would Consider Quitting if Pensions Were Slashed Photo Illustration © 2020, shutterstock.com
ublic school employees are passionate about their In all, 62 percent of respondents were extremely satisfed (24 profession, but most say they would leave their jobs if percent) or very satisfed (38 percent with their retirement benefts. pension benefits, salary or health coverage were cut, A further 29 percent were somewhat satisfed. Only 7 percent were Paccording to new research from the Center for State and not very satisfed and the remaining 2 percent described themselves Local Government Excellence. as not satisfed at all.
Sixty percent of respondents said signifcant cuts in their defned Te majority of the employees surveyed (70 percent) said they were beneft plans would prompt them to seriously rethink their jobs. ofered a defned beneft pension plan, and the vast majority (87 Tis result was second only to the 75 percent who would think percent) participated. (Seven percent said they did not participate, about quitting if salary were cut. A and seven percent did not know.) further 58 percent said reductions in health care benefits would By contract, fewer employees (55 make them consider fnding new Sixty percent of respondents said significant percent) were offered defined work. cuts in their defined benefit plans would contribution plans, and they were less likely (76 percent) to The study also found that 70 prompt them to seriously rethink their jobs. participate. Sixteen percent said percent of K-12 public school they did not participate, and 7 employees are either somewhat percent did not know. or not very confident about making retirement plan decisions on their own, underscoring the Surprisingly, one in fve employees didn’t know whether their importance of education and advice in helping them save for their employer ofered a defned beneft or a defned contribution plan, future. underscoring the need to make sure this critical beneft is explained.
CONTINUED ON PAGE 6
JULY 2020 | NCPERS MONITOR | 3 NCPERSNCPERS AroundAround the the Regions Regions
Tis month, we will highlight New York, Minnesota, Texas and Colorado.
NORTHEAST: New York “Tis new law is an important step toward protecting public Te New York State and Local Retirement System workers who are on the front lines fghting the coronavirus and (NYSLRS) has enhanced death benefts for helping their communities,” said New York State Comptroller survivors of Covid-19. Retirement system Tomas P. DiNapoli. “If something happens to them, they deserve members who carried out essential duties their retirement benefts and the peace of mind that their families have been among the tens of thousands to die are provided for.” in the state of New York from the pandemic. Te accidental death beneft is available to NYSLRS member who Recently enacted legislation provides accidental worked at either their normal workplace or another assigned death coverage to certain benefciaries of public employees who workplace, not their residence, on or afer March 1, 2020, and contracted Covid-19 on the job and died of the disease. contracted Covid-19 within 45 days of their last workday. Te beneft covers deaths that occurred through December 31, 2020, Te ordinary death beneft available to NYSLRS members is a and in which Covid-19 was either a cause or a contributing factor. single lump sum payment worth up to three years’ salary. Te Members who were working as of March 1 but retired prior to July accidental death beneft supplements the ordinary beneft when 1, 2020, and subsequently die of Covid-19, would also be covered. a death is related to an on-the-job accident. Tis beneft generally equals 50 percent of the member’s fnal average salary or last year’s CONTINUED ON PAGE 8 salary, depending on the plan in which the member is enrolled.
JULY 2020 | NCPERS MONITOR | 4 ‘WHAT, ME WORRY?’ CONTINUED FROM PAGE 1 so nothing bad WILL happen.” Disbelieving and minimizing threats, governments to help private-sector workers save for retirement. as he does, is just as bad as defaulting to a worst-case scenario, as SecureChoice harnesses the investment expertise that already exists he ofen does with public pensions. His analysis also ignores the in public pension systems to help workers save where savings is ofen corrosive efects of income inequality. Evidence from the Economic the most successful: In the workplace, through payroll deduction. Policy Institute’s analysis shows that the rich consistently capture more than their share of retirement savings. Tere’s nothing wrong with healthy skepticism, and we shouldn’t make a bogeyman of things we cannot see. But we can see a retirement To say there is no retirement savings crisis is a remarkably cavalier crisis coming, and it is very real. Ignoring it is profoundly short- attitude in the face of powerful evidence to the contrary. Some sighted. 32 million Americans have no retirement savings, and 55 million work for an employer that ofers no retirement savings or pension We’ve also seen a recent uptick in articles asserting that state fscal whatsoever. It doesn’t take a quant or a rocket scientist to realize problems are about to get much worse, and laying the blame on that this is a recipe for disaster. But it takes a real Alfred E. Neuman, pension systems. We recently came across a starting article of this ripped from the pages of Mad magazine, to boil the response down ilk by an author who really should know better. When Professor to what Biggs comes up with, which is basically “What, me worry?” Raymond Scheppach of the University of Virginia, delivered a broadside against public pensions that completely ignores how Te truth is that many Americans ARE underprepared to sustain politicians fund pet projects while skipping pension contributions, their standard of living, or anything close to it, in retirement and we called him on it. Like many critics, he conveniently ignores they are deeply concerned. In the face of recent stock market shocks, that fact that when pension funds fow into communities, they of course it is prudent for workers to concern themselves with this. have a positive efect and act as an economic stabilizer during bad Dismissing the concerns is cynical and unproductive. economic times, like the times we are currently in. Our analysis shows that public pensions are net revenue positive for state and Fortunately, the problem isn’t universal. In the U.S., millions of local governments. Without the impact of public pensions, taxpayers public sector workers are covered by defned beneft pension plans, would have to pay more to receive the same level of services. which provide a modest but reliable source of income during retirement. When supplemented by private savings and, where Te real problem, which Professor Scheppach sidesteps, is the available, Social Security, a pension ofers a frm underpinning for mismatch between the state and local revenue structures and fnancial security in what should be workers’ golden years. economic growth. Tat’s what needs to be fxed. Public pensions have been around for decades and have navigated economic ups And there is the Secure Choice model, which—since its inception and downs by adjusting their portfolios and managing risk. Tat’s in 2011--has become the linchpin in efforts by state and local a story we have to keep telling. u DON’T DELAY! Renew Your Membership Online Today!
Renew Your Membership at http://ncpers.org/Members/
JULY 2020 | NCPERS MONITOR | 5 EXECUTIVE DIRECTOR’S CORNER CONTINUED FROM PAGE 3
Te survey asked what educational topics workers wanted to receive In other key report fndings: from employers to help with their retirement planning. Among other responses, 42 percent wanted information on how much m Te employees cited the ability to serve their community (83 income they could expect from a defned beneft plan when they percent), their job security (77 percent), and the personal retire; 41 percent wanted to know more about how defned beneft satisfaction they receive from their job (75 percent) as the plans work; 37 percent wanted explanations of how defned beneft job elements that attracted them to their work. and defned contribution plans difer. Te top answer (58 percent) was understanding the tax rules governing retirement benefts. m Twenty-one percent of respondents said were very comfortable investing and managing defned contribution accounts, and 51 The research, Survey Findings: K-12 Public School Employee percent were somewhat comfortable doing so. Views on Job and Benefts, is based on the results of a national online survey of 400 state and local government K-12 public school m To make retirement decision, K-12 public school employees employees. It was conducted in March 2020 by the Center for turned most ofen turn to a friend or family member who State and Local Government Excellence (SLGE) and Greenwald & isn’t a fnancial professional (40 percent) or to a fnancial Associates, with support from ICMA-RC. professional associated with their employer (34 percent). u
Don’t Miss NCPERS’ Social Media
JULY 2020 | NCPERS MONITOR | 6 NCPERS Center for Online Learning
July 7, 2020: July 16. 2020: Determining the Necessary Short-Term Changes Navigating the Waters of a Work-Out World: and Best Long-Term Tactics to Deal with the Preparing for Private Investments that Turn COVID-19 Fall Out, Choppy & What Fiduciaries Need to Know sponsored by Segal Co. July 23, 2020: July 9, 2020: U.S. Listed Companies from China, Sustainability and Affordability of Public sponsored by Rosen Law Firm Pensions Despite Covid-19 Shock, with NCPERS
July 14, 2020: NCPERS Semi- Annual State & Federal Legislation Webcast with NPPC & Williams & Jensen
Webinar Series
JULY 2020 | NCPERS MONITOR | 7 NCPERS Around the Regions
AROUND THE REGIONS CONTINUED FROM PAGE 4
“Te Committee did not take control of the retirement systems nor MIDWEST: could it under current Texas State law,” said the letter, which was Minnesota signed by Christopher Hanson, executive director of COAERS. On June 3, Austin’s audit and fnance committee voted to desig- Te Minnesota State Board of Investments nate itself as the legislative working group for the City of Austin’s is saying no to companies that make more ongoing pension analysis, Hanson noted, characterizing this as “a than 25 percent of their revenue from procedural action.” thermal coal mining. Te Committee’s action is a step toward enacting a more fexible Stocks that ft the criteria will have to contribution policy to manage the System’s risks and fund the un- be sold of “in a prudent and expeditious funded liability, amend beneft policies to ensure that the System’s manner, but no later than December 31, obligations are met, and utilize appropriate risk-sharing measures, 2020,” according to a board resolution. About Hanson said. $4 billion of holdings would be afected. .
Social, political and economic pressure to improve climate change WEST: has led to a global push to divest fossil fuels. As of late June, more Colorado than 1,200 institutions worldwide had begun or committed to divest $14 trillion in investments, according to the organization Fossil Free. TLegislation to create the Colorado Secure Minnesota joins public retirement systems in California, New York Savings Program for private sector workers City, and the District of Columbia in pursuing a divestment strategy. was awaiting signature of Democratic Governor Jared Polis at press time. Te Te State Board of Investments said coal companies face “material bill, SB20-200, was sent to the governor declining market values and risks of stranded assets due to demand on June 22. for more cost efective and efcient forms of energy production.” It would make Colorado the latest state to Members of the board are Governor Tim Walz, Attorney General embrace the Secure Choice model for pro- Keith Ellison, Secretary of State Steve Simon, and State Auditor viding retirement savings options to employees who lack access Julie Blaha. to a retirement plan at work. Eight other states have established programs that foster retirement savings by requiring businesses to aut0-enroll workers in payroll deduction plans. Workers have the choice to opt out.
SOUTH: Te text of the bill notes that more than 900,000 working Colora- Texas dans, or about 40 percent of the workforce, work for an employer than doesn’t ofer a retirement savings account or program. Te City of Austin Employees’ Retirement Younger workers are disproportionately afected, with 48 percent of System (COAERS) shot back forcefully those between 25 and 29 having no access to a plan; the fgures fall at an article in Chief Investment Ofcer only slightly, to 46 percent for those between 30 and 34, and 41 per- that misrepresented recent actions taken cent for those between 35 and 39. Minority workers in Colorado are by the city’s audit and fnance committee. also disproportionately afected, with 46 percent African-American workers and 59 percent of Latinx workers lacking access to a retire- Te article bore an infammatory headline ment program at work. And 69 of Colorado’s workers in the lowest asserting that Austin was taking emergency 20 percent of income don’t have workplace retirement options. control of pensions and suggested the city had granted itself “extended legislative authority over the retirement Te program is expected to be cost-neutral within fve years, and system.” In response to demands COAERS outlined in a letter, the eventually businesses with as few as fve employers will be mandated article was corrected. to participate. u
JULY 2020 | NCPERS MONITOR | 8 ADVOCACY | RESEARCH | EDUCATION National Conference on Public Employee Retirement Systems The Voice for Public Pensions 2020 PUBLIC PENSION FUNDING FORUM August 24 - 25 Virtually “Anywhere, USA”
REGISTRATION NOW OPEN Follow Us on Twitter #PPFF20 2020 Conferences 2020-2021 Officers
August September Daniel Fortuna Carol Stukes-Baylor President Secretary 2020 Public Pension NCPERS F.A.L.L. Conference Funding Forum September 29-30, 2020 Kathy Harrell Will Pryor August 24 - 25 A Virtual Event First Vice President Treasurer A Virtual Event Dale Chase Mel Aaronson Second Vice President Immediate Past President Executive Board Members
State Employees Fire Classification Classification Dan Givens Stacy Birdwell Emmit Kane John Neal James Lemonda County Employees Educational Classification Classification Teresa Valenzuela David Kazansky Richard Ingram Local Employees Classification Protective Classification Sherry Mose Peter Carozza, Jr. Thomas Ross Ronald Saathoff Ralph Sicuro Canadian Classification Police Classification Frank Ramagnano Kenneth Hauser James Sklenar
The Monitor is published by the National Conference on Public Employee Retirement Systems. The Voice for Public Pensions Website: www.NCPERS.org • E-mail: [email protected]
JULY 2020 | NCPERS MONITOR | 10 Environmental / Social / Governance
Is ESG a Factor?
July 2020
AUTHORS KEY POINTS
John West, CFA • Increasingly, investors are asking if ESG is a factor. We answer this question using the criteria set forth by our Research Afliates Ari Polychronopoulos, CFA colleagues in their 2016 Graham and Dodd Scroll–winning article, “Will Your Factor Deliver? An Examination of Factor Robustness and Implementation Costs.” We conclude that ESG is not a factor. • We do believe, however, that ESG could be a powerful theme as new owners of capital—in particular, women and millennials—prioritize ESG in their portfolios over the next two decades. Progress in aligning definitions of “good” and “bad” ESG companies will also enhance the ability of the ESG theme to deliver positive investor outcomes. • We conclude that ESG does not need to be a factor for investors to achieve their ESG and performance goals.
www.researchafliates.com/esg
Additional readings and contact info are at the end of this article. Is ESG a Factor? July 2020
ABSTRACT
As we hit the halfway point of this remarkable year, the health of our planet, the well-being of our communities, and the necessity for meaningful societal change are all top of mind and assuming a greater sense of urgency. Accordingly, many investors desire to take personal action by incorporating environmental, social, and governance (ESG) considerations into their investment portfolios. Unfortunately, they are confronted by a confusing ESG landscape with conflicting claims—similar to the multitude of competing health care studies. This confusion may be slowing down their good intentions. As a factor index provider with ESG oferings, we attempt to answer the question “Is ESG a factor?” by synthesizing what we, and our colleagues, have discovered over the years.
www.researchafliates.com/esg 2 Research Afliates Is ESG a Factor? July 2020
an drinking red wine daily stave of heart disease? A newly released study answers that very question. We’ll cover it "C right after this commercial break.” Does this teaser sound familiar from your favorite morning television or radio show? Does this attention-grabber peak your interest to wait a few minutes, bear the commercials, and hear the story? The media has a natural inclination to use science to engage audiences. Consequently, we’re bombarded with new studies, especially as they relate to our health, a topic of interest to everyone and, of course, top of mind today.
The findings may entertain, but do they inform? Nagler (2014) finds that contradictory scientific claims on red wine, cofee, fish, and vitamins, all touted by the media, led to substantial confusion on the part of consumers. Indeed, the claims led to such confusion that many consumers grew skeptical of even vetted health advice such as exercising and eating fruits and vegetables. Ironically, learning more about nutrition via competing claims led to more confusion, lack of trust, and less likely adoption of better eating and exercising habits.
As we hit the halfway point of a remarkable 2020 and become more acclimated to our new circumstances, we’re concerned about the health of our planet, the well-being of our communities, and the necessity for meaningful societal change. Accordingly, many desire to put these concerns into their investment portfolios using environmental, social, and governance (ESG) considerations and tools. Investors, however, find a confusing ESG landscape with conflicting claims—similar to the multitude of competing health care studies—that may be slowing down good intentions.
As an example, it was John’s turn to represent Research Afliates at the annual Inside ETFs event in Florida earlier this year.1 The overwhelming points of emphasis from both ETF and index providers throughout the presentations were factor investing and ESG. Several sessions covered one or the other, often both. Regardless of whether the headliner was ESG or factor investing, inevitably a question popped up at the end of the session from
www.researchafliates.com/esg 3 Research Afliates Is ESG a Factor? July 2020
either the moderator or the audience: “Is ESG a factor?” If John heard the question six times, he’d venture to guess he heard more than 12 answers! Accordingly, as a factor index provider with ESG oferings, we attempt to answer the question, synthesizing what we, and our colleagues, have discovered over the years.
What Is a Factor, Factors are stock characteristics and Can We Count associated with a long-term on It in the Future? risk-adjusted return premium. An example is the value premium, which rewards investors who buy stocks that have a low price relative to their fundamentals. Two theories are advanced to explain the value efect: one is risk based and the other is behavior based.
The risk-based explanation posits that value companies are cheap for a reason, such as lower profitability and/or greater leverage, and thus investors require that they earn a premium to compensate for the risk of investing in them (a risk premium). The behavioral-based explanation posits “ESG is not an equity that investor biases, such as being overly return factor in the pessimistic about value companies and overly traditional, academic optimistic about growth companies, create sense.” stock mispricings, and that value stocks outperform once investors’ expectations are not met and mean reversion occurs.
Popular factors, such as value, low beta, quality, and momentum, have been well documented and vetted by both academics and practitioners. Research by Beck et al. (2016) provides a useful framework for determining if a factor is robust. For ESG to be a factor, it should satisfy these three critical requirements:
1. A factor should be grounded in a long and deep academic literature.
2. A factor should be robust across definitions.
3. A factor should be robust across geographies. www.researchafliates.com/esg 4 Research Afliates Is ESG a Factor? July 2020
A factor should be grounded in a long and deep academic literature. Traditional factors, such as value, low beta, and momentum, have been thoroughly researched and have a track record spanning several decades; very little debate currently exists regarding their robustness. Beyond the size factor,2 all of the factors in the following table have a positive CAPM alpha and are statistically significant at the 95% t-stat level (1.96).
SOURCE! Factor Year of Average Standard CAPM t-value t-value Arnott et al. (2019) Jul 1963–Mar 2020 Discovery Return Deviation Alpha
Market 1964 6.1% 15.3% 3.0 Value 1977/1990 3.2% 9.8% 2.5 4.1% 3.2 Size 1975 2.1% 10.3% 1.5 0.9% 0.7 Operating Profitability 2013 2.8% 7.7% 2.7 3.5% 3.5 Investment 2003 2.6% 6.4% 3.0 3.4% 4.3 Momentum 1989 7.9% 14.5% 4.1 8.8% 4.6 Low Beta 1966 0.6% 15.3% 0.3 5.0% 3.5
Note: All factors are long–short strategies. Source: Arnott et al. (2019).
Any use of the above content is subject to all important legal disclosures, disclaimers, and terms of use found at www.researchaffiliates.comIn examining, which are fully incorporatedthe vast by reference body as if set of out research herein at length. on ESG, we find little agreement regarding its robustness in earning a return premium for investors. Research by Clark, Feiner, and Viehs (2015), Friede, Busch, and Bassen (2015), and Khan, Serafeim, and Yoon (2016) finds that ESG is additive to returns, while research by Brammer, Brooks, and Pavelin (2006), Fabozzi, Ma, and Oliphant (2008), and Hong and Kacperczyk (2009) demonstrates that ESG detracts from returns. Neither is there evidence to suggest a risk-based or behavioral- based explanation for the ESG factor.
Arguments are put forth that certain situations could lead to positive ESG-related stock price movements, such as increased popularity of strong ESG companies as more investors adopt ESG (more on this topic later). These price movements, however, would be one-time adjustments and cannot be expected to deliver a reliable and robust premium over time.
www.researchafliates.com/esg 5 Research Afliates Is ESG a Factor? July 2020
Factors should be robust across definitions. Slight variations in the definition of a factor should still produce similar performance results. Using the value factor as an example, the three valuation metrics of price-to-book ratio, price-to-earnings ratio, and price-to- cash flow ratio all yield similar performance results in assessing the factor’s long-horizon performance.
ESG has no common standard definition and is a broad term that encapsulates a range of themes and subthemes.3 ESG ratings providers examine hundreds of metrics when determining a company’s ESG score. Conducting a quick web search yields several ESG strategies whose underlying themes are quite distinct and diferent. These index strategies align more closely with investor preferences than with a particular factor.
Broad ESG Theme Environmental Social Governance
Exclusionary Screening Low Carbon Gender Diversity Governance Leaders ESG Integration Water Minority Empowerment Green Revenues Clean Energy/Solar Conscious Companies Impact Investing Ex Fossil Fuels China ex State Owned Enterprises Faith Based Ex Controversies Environmentally and Socially Responsible Diversity and Governance
Any use of the above content is subject to all important legal disclosures, disclaimers, and terms of use found at www.researchaffiliates.com, which are fully incorporated by reference as if set out herein at length. To illustrate this, we construct a simple test on four variants of ESG definitions. We build long–short portfolios by selecting the top 30% and bottom 30% of US companies by market capitalization each year, after ranking by overall ESG rating. We also build three similarly constructed long–short portfolios, ranking companies on each individual ESG characteristic of environmental, social, and governance.4 None of these strategies displays a materially positive CAPM alpha except for the environmental long–short strategy, and no strategy is statistically significant at the 95% t-stat level (1.96).
www.researchafliates.com/esg 6 Research Afliates Is ESG a Factor? July 2020
Unfortunately, none of the simulated strategies we tested has a long track record because the ESG data history is quite short. This lack of history is a significant impediment to conducting research in ESG investing, limiting our study period to 11 years from July 2009 to June 2020. Because multiple decades of data are needed to conduct a proper test, the lack of significance in the t-values is not surprising. Only after several decades of quality ESG data will it be possible to accurately test the claim that ESG is a robust factor.
SOURCE! Average Standard CAPM Index t-value t-value Research Afliates, LLC, Return Deviation Alpha based on data from FactSet Market 13.7% 14.0% 3.2 and Vigeo Eiris. ESG Strategy –1.6% 5.5% –1.0 0.9% 0.6 Environmental Strategy 0.1% 5.5% 0.1 1.7% 1.0 Social Strategy –2.6% 6.8% –1.3 0.5% 0.3 Governance Strategy –2.4% 4.4% –1.8 –1.4% –1.0
Source: Research Affiliates, LLC, based on data from FactSet and Vigeo Eiris.
In addition to the problem of a short data history, the lack of Any use of the above content is subject to all important legal disclosures, disclaimers, and terms of use found at www.researchaffiliates.comconsistency, whichamong are fully incorporated ESG ratings by reference as providers if set out herein at length. also hinders our ability to determine if ESG is a robust factor. Research Afliates published findings earlier this year that showed the correlation of company ratings between ESG ratings providers is low (Li and Polychronopoulos, 2020). We illustrated this by comparing two companies, Wells Fargo and Facebook, and showed that one ESG ratings provider rates Wells Fargo positively and Facebook negatively, while a second ratings provider ranked them the opposite way. In addition, we demonstrated that a portfolio construction process using the same methodology, but diferent ESG ratings providers, can yield diferent results. While beyond the scope of this article, had we used a diferent ESG ratings provider for the analysis in the preceding table, we likely would have gotten diferent results!
Factors should be robust across geographies. We conduct the same study using European companies. The results are largely consistent with the US results. None of the strategies tested has a materially positive CAPM alpha except for the environmental strategy, and no strategy tested exhibits statistically significant CAPM alpha at the 95% t-stat level. www.researchafliates.com/esg 7 Research Afliates Is ESG a Factor? July 2020
SOURCE! Average Standard CAPM Index t-value t-value Research Afliates, LLC, Return Deviation Alpha based on data from FactSet Market 7.1% 17.3% 1.4 and Vigeo Eiris. ESG Strategy –0.1% 5.3% –0.1 0.1% 0.1 Environmental Strategy 2.2% 5.6% 1.3 2.9% 1.8 Social Strategy –0.9% 5.3% –0.5 –1.1% –0.7 Governance Strategy –1.9% 5.1% –1.3 –1.3% –0.9
Source: Research Affiliates, LLC, based on data from FactSet and Vigeo Eiris. We should note that for the US and European analysis we conduct
Anya usesimple of the above single-factorcontent is subject to all important linear legal disclosures, regression disclaimers, and against terms of use found the at market return. www.researchaffiliates.com, which are fully incorporated by reference as if set out herein at length. In the appendix we present the results of a stricter test using a multi-factor regression that incorporates the value, size, profitability, investment, momentum, and low beta factors. The multi-factor regression results indicate low or negative alpha for the majority of the strategies.
Having put ESG investing strategies through a framework to assess factor robustness, we find that ESG fails all three tests outlined by Beck et al. (2016): 1) evidence of an ESG return premium is not supported by a long and deep academic literature, 2) ESG performance results are not robust across definitions, and 3) ESG performance results are not robust across regions.
ESG Is Not a Factor, Even though we are unable to apply but Could Be a the factor framework to ESG, these Powerful Theme strategies, however heterogeneous, may still produce superior returns. Non-robust, and even robustly negative, strategies will invariably cycle through periods—think three-to-five year stretches—of outperformance. And over the very long term, possibly decades, stocks that rank well on ESG criteria may also outperform.
We witness two principle arguments in favor of superior risk-adjusted returns for companies that rate well on ESG metrics. First, as some claim, there may be latent risks in companies that rate poorly on ESG metrics (Orsagh et al., 2018). In other words, ESG risk needs to be incorporated into security selection.
www.researchafliates.com/esg 8 Research Afliates Is ESG a Factor? July 2020
Let’s consider carbon. Historical fundamental analysis developed during a predominantly stable climate backdrop may miss the investment risk associated with carbon and thereby deliver poor results if the risk materializes. Coal has been a declining source of energy production in the United States for years, accounting for 52% of the nation’s total electricity generation in 1990, but just 23% at the end of 2019.5 The percentage will continue to decline as energy providers move toward cleaner and more-energy- efcient alternatives to combat climate change, leaving coal companies with assets of decreasing value. Investment managers who do not consider and integrate the ESG “The theme is the massive risk of, in this case, climate change may be coming adoption of ESG blindsided. investing on the part of new owners of capital.” Not recognizing a specific type of risk implies a mispricing efect. This mispricing seems to be highly idiosyncratic in nature and probably best exploited via the forward- looking framework of active management. Such “ESG alpha” has the potential to be sizeable, especially if very few managers are incorporating ESG criteria into their investment processes—but that’s not the case. According to Cerulli, 83% of investment managers are embedding ESG criteria into their fundamental processes.6
At the time of this publication, over 2,200 investment managers have signed on to the United Nations (UN) PRI | Principles for Responsible Investing, which encourages signatories to “incorporate ESG issues into investment analysis and decision-making processes.” Indeed, investment manager signatories managed approximately US$80 trillion as of March 31, 2020.7 Such widespread use of ESG criteria in the investment management process means that identifying ESG skill will likely be as difcult as identifying other types of investor skill.8 Neither does it speak to the ability of investors to harvest the alpha, if found. Will investors have the
www.researchafliates.com/esg 9 Research Afliates Is ESG a Factor? July 2020
patience to wait out manager ESG risk assessments, especially given the very long horizon for some of these risks?
A large shift in investor preference toward ESG is occurring as two distinct groups—women and millennials—take greater control of household assets. Accordingly, Bank of America (2019) recently noted a “tsunami of assets is poised to invest in ‘good’ stocks” and concluded that “three critical investor cohorts care deeply about ESG: women, millennials, and high net worth individuals. Based on demographics, we conservatively estimate over $20tn of asset growth in ESG funds over the next two decades—equivalent to the S&P 500 today.”9 Similarly, an Accenture study concluded that US$30 trillion in assets will change hands, a staggering amount which, at its peak between 2031 and 2045, will witness 10% of total US wealth transferred every five years.10
Not only are investor preferences shifting in favor of ESG strategies, regulatory eforts in Europe aim to bring greater standardization and transparency to ESG products, which is likely to increase demand. As of 2019, UK government pension funds are required to integrate ESG considerations into their investment management approach (McNamee, 2019). Starting in March 2021, the European Union will require investment managers to provide ESG disclosures related to their investment products. The efort “aims to enhance transparency regarding integration of environmental, social, and governance matters into investment decisions and recommendations” (Maleva-Otto and Wright, 2020). In 2018, the European Commission set up a Technical Expert Group tasked with several ESG initiatives including creating index methodology requirements for low carbon benchmarks, increasing transparency in the green bond market, and creating an EU taxonomy to help companies transition to a low carbon economy.
Outside of Europe there has been less movement on the regulatory front, but good progress made on standard setting. In the United States, public pension funds have taken the lead on ESG integration and in 2018 held 54% of all ESG-related investments in the United
www.researchafliates.com/esg 10 Research Afliates Is ESG a Factor? July 2020
States (Bradford, 2019). The UN has created the Sustainable Development Goals, a blueprint for improving the planet, both environmentally and socially, by 2030. The 17 goals—including reducing poverty, improving education, creating afordable and clean energy, and creating sustainable cities and communities— have been adopted by all UN member states.
The numbers are large, and the implication that the new owners of wealth will favor "good" ESG stocks will in turn likely lead to a very diferent supply–demand dynamic than in the past. More demand for good ESG companies may result in an upward, one-time positive shock to relative valuations of these companies and the funds that invest in them. We previously discussed that factors and smart beta strategies can experience such a revaluation alpha (Arnott et al., 2016).11 This is classic thematic investing, following in the footsteps of cloud, artificial intelligence, and robotics themes, but it’s not factor investing.
The theme in this case is the massive coming adoption of ESG investing on the part of new owners of capital. Getting ahead of that demand could be substantially profitable on two conditions. First, the perceived demand is not already reflected in stock prices. Second, the market’s perception of good ESG companies is fairly consistent so that these inflows more or less “ESG does not need to benefit the same companies. be a factor for investors to achieve their ESG and As we have explained, we currently see performance goals.” incredibly inconsistent definitions of good and bad ESG companies. Yes, a rising tide lifts all boats, but they all have to be in the water and in the same harbor! It may very well be that the best options for thematic investing in ESG are for narrower— and therefore homogenous—groups of securities. Low carbon, sustainable forestry, or gender equality may be easier to exploit in a thematic manner than the entire ESG company universe.
www.researchafliates.com/esg 11 Research Afliates Is ESG a Factor? July 2020
Incorporate ESG At Research Afliates, we believe into a Variety ESG is an important investing of Equity Index consideration despite dismissing it Strategies as a factor or lacking confidence in its ability to currently deliver as a theme. One of our core investment beliefs is that investor preferences are broader than risk and return. As value investors, we believe that prices vary around fair value and that investing in unpopular companies and not following the herd is a strategy that will be rewarded as prices mean revert over a market cycle (Brightman, Masturzo, and Treussard, 2014). Of course, investor preferences extend beyond value investing, and as we have shown, many investors have a preference for ESG strategies for many reasons, such as the desire to bring about societal change, mindfulness of the environment, promotion of good corporate governance, or all of the above.
Investors can satisfy their ESG preferences while still maintaining the characteristics of their preferred investment strategy. We illustrate this by comparing the characteristics of three strategies: RAFI™ Fundamental Developed Index, RAFI ESG Developed Index, and RAFI Diversity & Governance Developed Index. All three strategies utilize the Fundamental Index™ approach, which selects and weights companies by fundamental measures of company size rather than market capitalization. The RAFI Fundamental Developed Index does not incorporate any ESG considerations. The RAFI ESG Developed Index is a broad-based ESG index that tilts toward companies with strong overall ESG scores. The RAFI Diversity & Governance Developed Index reflects a preference for companies that score well across several metrics of gender diversity and strong corporate governance.
All three strategies share similar characteristics. The Fundamental Index methodology is a contrarian approach that uses fundamental weights to act as rebalancing anchors against market price movements. Fundamental Index strategies typically trade at a
www.researchafliates.com/esg 12 Research Afliates Is ESG a Factor? July 2020
SOURCE! Index Characteristics Number of Dividend WAMC Active P/E P/B P/S P/CF Research Afliates, LLC, Jun 30, 2020 Holdings Yield (%) ($B) Share (%) based on data from FactSet, RAFI Fundamental Developed 1,615 14.6 1.3 0.8 5.7 3.6 155 34.5 Worldsope, and Datastream.
RAFI ESG Developed 492 13.8 1.3 0.9 5.2 3.7 109 60.9
RAFI Diversity & Governance Dev. 453 15.2 1.7 0.9 6.6 3.6 107 63.9
Morningstar Dev. Markets Large-Mid 2,487 19.9 2.3 1.6 9.7 2.3 235
Multi-Factor Regression Alpha Beta Size Value Momentum Low Beta Jul 2009–Mar 2020 (Annual) (Mkt-Rf) (SMB) (HML) (WML) (BAB)
RAFI Fundamental Developed 0.1% 1.00 –0.05 0.27 –0.04 0.01
RAFI ESG Developed 0.7% 1.01 –0.18 0.22 –0.10 0.02
RAFI Diversity & Governance Dev. –0.1% 0.94 –0.14 0.11 –0.05 0.17 Note: P/E is price-to-earnings ratio, P/B is price-to-book value ratio, P/S is price-to-sales ratio, and P/CF is price-to-cash flow ratio. Source: Research Affiliates, LLC, based on data from FactSet, Worldsope, and Datastream.
discount to cap-weight. All three strategies maintain similar Any use of the above content is subject to all important legal disclosures, disclaimers, and terms of use found at www.researchaffiliates.comvaluation, which are discountsfully incorporated by referenceand asdividend if set out herein at yields, length. with the only noticeable diferences being index concentration. Given that the ESG and Diversity & Governance indices exclude many securities that perform poorly across multiple ESG considerations, they have a much higher active share. In addition, all three strategies maintain similar factor exposures, mainly positive loadings on value and negative loadings on momentum.
The Diversity & Governance index, which incorporates a tilt toward lower-volatility companies, also has a high exposure to the low beta factor. The bottom line is that investors who would like to incorporate ESG into their investment decisions can do so and retain their desired investment characteristics. Accordingly, they likely maintain a similar expected return outcome (although with some short-term deviations in performance) whether their preferred approach is traditional passive, smart beta, or active. ESG does not need to be a factor for investors to achieve their ESG and performance goals.
www.researchafliates.com/esg 13 Research Afliates Is ESG a Factor? July 2020
CONCLUSION
Let’s hope the events of 2020—Australian wildfires, a global pandemic, a searing recession, and social protests denouncing racial inequality—lead to positive societal changes and perhaps more refinement to and greater consistency in ESG ratings. Indeed, once the dust settles, we expect these forces to accelerate an already simmering ESG investment movement—but action will require clarity around exactly what ESG is and what it is not. Currently, various stakeholders are sending a whole host of mixed messages. Investors, particularly fiduciaries, need education and alignment. If ESG remains a heterogeneous basket of claims, we will likely never see it fulfill its vast promise.
We have debunked one of these messages: ESG is not an equity return factor in the traditional, academic sense. We have shown that, unlike vetted factors such as value, low beta, quality, or momentum, ESG strategies lack sufcient historical data, impeding our ability to make a similar conclusion of robustness. Nevertheless, ESG can be a very powerful theme in the portfolio management process in the years ahead. Furthermore, we believe a variety of equity styles can very efectively capture ESG criteria. We believe our conclusions will add clarity around the question “Is ESG a factor?” and therefore quicken the pace of ESG integration in equity portfolios.
www.researchafliates.com/esg 14 Research Afliates Is ESG a Factor? July 2020
Appendix We examine the results of a multi-factor regression compared to long–short ESG portfolios in the United States and Europe. This approach results in low or negative alpha from the majority of the strategies. The environmental strategy in Europe is the only strategy with annual alpha greater than 1.0%, however, the results are not statistically significant at the 95% t-stat level (1.96). Most of the strategies exhibit positive loadings on the low beta, profitability, and investment factors, meaning that ESG portfolios tend to exhibit low-volatility and high-quality characteristics, bringing merit to the argument of ESG as a risk mitigation strategy.
SOURCE! Alpha Alpha Beta Size Value Profitability Investment Momentum Low Beta Multi-Factor Regression Source: Research Afliates, LLC, (Annual) t-value (Mkt-Rf) (SMB) (HML) (RMW) (CMA) (WML) (BAB) based on data from FactSet and t t t Vigeo Eiris.
ESG Strategy –1.4% –1.14 –0.10 –0.17 0.02 0.16 0.21 –0.09 0.24
Environmental Strategy –0.4% –0.24 –0.06 –0.25 0.02 0.03 –0.11 –0.09 0.16
Social Strategy –1.7% –1.03 –0.16 –0.18 0.02 0.09 0.32 –0.12 0.28
Governance Strategy –1.6% –1.24 –0.10 0.09 0.08 0.08 0.05 –0.13 0.14
ESG Strategy 0.2% 0.13 –0.09 –0.25 0.33 0.01 –0.09 –0.01 0.31
Environmental Strategy 1.3% 0.80 –0.09 –0.21 0.09 –0.04 –0.01 0.03 0.27
Social Strategy –0.7% –0.48 –0.04 –0.25 0.34 0.02 –0.02 –0.03 0.24
Governance Strategy –1.4% –0.93 –0.08 –0.11 0.18 0.33 0.00 –0.05 0.04
Source: Research Affiliates, LLC, based on data from FactSet and Vigeo Eiris.
Any use of the above content is subject to all important legal disclosures, disclaimers, and terms of use found at www.researchaffiliates.com, which are fully incorporated by reference as if set out herein at length.
www.researchafliates.com/esg 15 Research Afliates Environmental / Social / Governance
Endnotes References 1. The notion of hundreds of attendees gathering in a ballroom and Arnott, Robert, Noah Beck, Vitali Kalesnik, and John West. 2016. “How congregating around cofee and snack tables seems, quoting Can ‘Smart Beta’ Go Horribly Wrong?” Research Afliates Publications George Lucas, like a long time ago in a galaxy far, far away. (February).
2. Although size is a commonly accepted factor by many investors, Arnott, Robert, Campbell Harvey, Vitali Kalesnik, and Juhani Research Afliates has expressed concern that the size factor Linnainmaa. 2019. “Alice’s Adventures in Factorland.” Research may lack robustness (Kalesnik and Beck, 2014). Afliates Publications (February). Available at SSRN: https://papers. ssrn.com/sol3/papers.cfm?abstract_id=3331680. 3. The attention given to specific ESG considerations has varied over time. For example, climate change has been a leading ESG Bank of America. 2019. “10 Reasons You Should Care about ESG.” ESG issue for several years, while gender equality and even more Matters–US (September 23). recently racial equality, are issues now starting to gain momen- Beck, Noah, Jason Hsu, Vitali Kalesnik, and Helge Kostka. 2016. tum. Discussing whether gender or racial inequality was a priced “Will Your Factor Deliver? An Examination of Factor Robustness factor decades in the past is irrelevant if we wish to support and Implementation Costs.” Financial Analysts Journal, vol. 72, no. 5 investors who desire to have an impact today. (September/October):58–82.
4. We use the Russell 1000 Index as the starting universe for se- Bradford, Hazel. 2019. “Public Funds Taking the Lead in Spectacular lection within the US, and we use the FTSE All World Developed Boom of ESG.” Pensions and Investments (April 19). Europe Index as the starting universe for selection within Europe. We exclude companies without an ESG rating, and strategies Brammer, Stephen, Chris Brooks, and Stephen Pavelin. 2006. rebalance once a year on June 30. We use ESG ratings data from “Corporate Social Performance and Stock Returns: UK Evidence Vigeo Eiris. from Disaggregate Measures.” Financial Management, vol. 35, no. 3 (September):97–116. 5. Source is US Energy Information Administration available at https://www.eia.gov/energyexplained/electricity/electrici- Brightman, Chris, James Masturzo, and Jonathan Treussard. 2014. ty-in-the-us-generation-capacity-and-sales.php#:~:text=In%20 “Our Investment Beliefs.” Research Afliates Fundamentals (October). 1990%2C%20coal%2Dfired%20power,total%20utility%2D- Clark, Gordon, Andreas Feiner, and Michael Viehs. 2015. “From the scale%20electricity%20generation. Stockholder to the Stakeholder: How Sustainability Can Drive Financial 6. Source is “Environmental, Social, and Governance (ESG) Invest- Outperformance.” Available on SSRN. ing in the United States,” Cerulli Associates (2019) available at Fabozzi, Frank, K.C. Ma, and Becky Oliphant. 2008. “Sin Stock https://info.cerulli.com/US-ESG-2019.html. Returns.” Journal of Portfolio Management, vol. 35, no. 1 (Fall):82–94. 7. Source is UN PRI available at https://www.unpri.org/pri/about- Friede, Gunnar, Timo Busch, and Alexander Bassen. 2015. “ESG and the-pri accessed on July 9, 2020. Financial Performance: Aggregated Evidence from More Than 2000 Empirical Studies.” Journal of Sustainable Finance and Investment, vol. 5, 8. In 2018, responsible investment strategies used in actively man- no. 4:210–233. aged equity assets included US$7.4 trillion for integration; US$4.4 trillion for screening and integration; US$1.8 trillion for screening, Hong, Harrison, and Marcin Kacperczyk. 2009. “The Price of Sin: The thematic, and integration; and US$0.4 trillion for thematic and Efects of Social Norms on Markets.” Journal of Financial Economics, vol. integration. Source is UN PRI available at https://www.unpri.org/ 93, no. 1 (July):15–36. annual-report-2018/how-we-work/the-pri-in-numbers. Kalesnik, Vitali, and Noah Beck. 2014. “Busting the Myth about Size.” 9. Source is Bank of America Merrill Lynch (September 23, 2019) Research Afliates Simply Stated (November). available at https://www.bofaml.com/content/dam/boamlim- ages/documents/articles/ID19_1119/esg_matters.pdf. Khan, Mozafar, George Serafeim, and Aaron Yoon. 2016. “Corporate Sustainability: First Evidence on Materiality.” Accounting Review, vol. 91, 10. Source is “The ‘Greater’ Wealth Transfer: Capitalizing on the no. 6 (November):1697–1724. Intergenerational Shift in Wealth,” Accenture (2015). Available at https://www.accenture.com/us-en/~/media/accenture/con- Li, Feifei, and Ari Polychronopoulos. 2020. “What a Diference an ESG version-assets/dotcom/documents/global/pdf/industries_5/ Ratings Provider Makes!” Research Afliates Publications (January). accenture-cm-awams-wealth-transfer-final-june2012-web-ver- Maleva-Otto, Anna, and Joshua Wright. 2020. “New ESG Disclosure sion.pdf. Obligations.” Harvard Law School Forum on Corporate Governance 11. Arnott et al. (2016) note that revaluation alpha can cut both (March 24). ways in that a strategy trading at a substantial premium to the McNamee, Emmet. 2019. “UK’s New ESG Pension Rules: Four market might perform poorly if valuations mean revert toward Measures to Ensure Their Success.” PRI Blog (October 1). market multiples. Environmental / Social / Governance
References (cont.) Further Reading
Nagler, Rebekah. (2014). “Adverse Outcomes Associated with Media Exposure to Contradictory Nutrition Messages.” Journal of Health Leading in Uncertain Times Communication, vol. 19, no. 1:24–40.
Orsagh, Matt, James Allen, Justin Sloggett, Anna Georgieva, Sofia by Sherrerd Bartholdy, and Kris Duoma. 2018. Guidance and Case Studies for ESG April 2020 Integration: Equities and Fixed Income. CFA Institute: Charlottesville, VA.
What a Diference an ESG Ratings Provider Makes!
by Li and Polychronopoulos
January 2020
The Winning Formula: Mission + Culture + Team
by Sherrerd
January 2019 Environmental / Social / Governance
CONTACT US www.researchafliates.com
Americas phone: +1.949.325.8700 email: [email protected]
Europe phone: +44.0.203.929.9880 email: [email protected]
Australasia phone: +6.129.160.2290 email: [email protected]
Press phone: +1.212.207.9450 email: [email protected]
Disclosure The material contained in this Investors should be aware of the risks associated with data sources document is for general information and quantitative processes used to create the content contained purposes only. It is not intended as herein or the investment management process. Errors may exist in an ofer or a solicitation for the purchase and/or sale of any security, data acquired from third party vendors, the construction or coding of derivative, commodity, or financial instrument, nor is it advice or a indices or model portfolios, and the construction of the spreadsheets, recommendation to enter into any transaction. Research results results or information provided.Research Afliates takes reasonable relate only to a hypothetical model of past performance (i.e., a steps to eliminate or mitigate errors, and to identify data and simulation) and not to actual results or historical data of any asset process errors so as to minimize the potential impact of such errors, management product. Hypothetical investor accounts depicted are however Research Afliates cannot guarantee that such errors will not representative of actual client accounts.No allowance has been not occur. Use of this material is conditioned upon, and evidence made for trading costs or management fees, which would reduce of, the user’s full release of Research Afliates from any liability or investment performance. Actual results may difer. Simulated data responsibility for any damages that may result from any errors herein. may have under-or-over compensated for the impact, if any, of certain market factors.Simulated returns may not reflect the impact The trademarks Fundamental Index™, RAFI™, Research Afliates that material economic and market factors might have had on the Equity™, RAE™, and the Research Afliates™ trademark and advisor’s decision-making if the adviser were actually managing corporate name and all related logos are the exclusive intellectual clients’ money.Simulated data is subject to the fact that it is designed property of Research Afliates, LLC and in some cases are registered with the benefit of hindsight.Simulated returns carry the risk that the trademarks in the U.S. and other countries. Various features of the performance depicted is not due to successful predictive modeling. Fundamental Index™ methodology, including an accounting data- Simulated returns cannot predict how an investment strategy will based non-capitalization data processing system and method perform in the future.Simulated returns should not be considered for creating and weighting an index of securities, are protected indicative of the skill of the advisor.Investors may experience loss. by various patents, and patent-pending intellectual property of Index returns represent back-tested performance based on rules used Research Afliates, LLC. (See all applicable US Patents, Patent in the creation of the index, are not a guarantee of future performance, Publications, Patent Pending intellectual property and protected and are not indicative of any specific investment. Indexes are not trademarks located at http://www. researchafliates.com/Pages/ managed investment products and cannot be invested in directly. legal.aspx, which are fully incorporated herein.) Any use of these This material is based on information that is considered to be trademarks, logos, patented or patent pending methodologies reliable, but Research Afliates™ and its related entities (collectively without the prior written permission of Research Afliates, LLC, is “Research Afliates”) make this information available on an “as is” expressly prohibited. Research Afliates, LLC, reserves the right to basis without a duty to update, make warranties, express or implied, take any and all necessary action to preserve all of its rights, title, regarding the accuracy of the information contained herein. Research and interest in and to these marks, patents or pending patents. Afliates is not responsible for any errors or omissions or for results obtained from the use of this information. Nothing contained in this The views and opinions expressed are those of the material is intended to constitute legal, tax, securities, financial or author and not necessarily those of Research Afliates, investment advice, nor an opinion regarding the appropriateness LLC. The opinions are subject to change without notice. of any investment. The information contained in this material should not be acted upon without obtaining advice from a licensed ©2020 Research Afliates, LLC. All rights reserved professional. Research Afliates, LLC, is an investment adviser registered under the Investment Advisors Act of 1940 with the U.S. Securities and Exchange Commission (SEC). Our registration as an investment adviser does not imply a certain level of skill or training. FundFire - Print Content Page https://www.fundfire.com/pc/2838073/351043?all=true
Public Pensions Score Best Returns in 22 Years in Q2 August 5, 2020
Public pension funds posted a median 11.1% return in the second-quarter – hitting a 22-year high for the period – as stock prices rebounded from rst quarter losses, The Wall Street Journal reports. However, the second-quarter gains weren’t enough to erase all losses for the year to date, according to Wilshire Trust Universe Comparison Service. State and local pensions that ended the scal year on June 30 recorded median gains of 3.2% for the year, leaving them well short of the average 7% long-term investment-return target. “That’s the funny thing with math: if you go down 20%, a 20% return does not make it up,” Wilshire Associates managing director Robert Waid tells the Journal. Collectively, U.S. public pension systems were sitting on $4.05 trillion of assets as of March 31. But that’s $4.93 trillion less than their future obligations, Federal Reserve data shows. Still, posting the best second-quarter returns since 1998 is a boost for fund managers who expect the coronavirus pandemic to deliver more market upsets. Tampa Fire ghters and Police O cers Pension Fund manager Jay Bowen of Bowen Hanes & Co. likens the pandemic market to a natural disaster: There’s a plunge “but it doesn’t last for a protracted period and then there’s a sharp rebound.” That could change, says Bowen, adding, “It’s a very uid situation.” The Tampa fund gained 17.1% in the second quarter, thanks in part to Bowen buying stocks during the March market crisis. Over four weeks ending March 24, the pension traded $500 million in stocks, compared with $180 million in the previous four weeks, the Journal reports. The $2.2 billion police and re pension, which ended the Related Content year with a gain of 7%, is normally “very buy-and-hold,” but Bowen “moved pretty fast” when stock prices collapsed. July 31, 2020 That’s set the fund up “for why we’re having a very good NY State Pension Investments Lose 2.7% in Fiscal Year scal year now,” Bowen tells the Journal. Strong second-quarter returns may have pulled some July 27, 2020 pension funds out of negative territory after the March Rhode Island Pension Earns Record collapse. The California Public Employees’ Retirement Return Despite COVID-19 Crisis System returned 4.7% in the scal year ended June 30, while the California State Teachers’ Retirement System was up 3.9%,
1 of 2 8/5/20, 1:30 PM FundFire - Print Content Page https://www.fundfire.com/pc/2838073/351043?all=true
However, the $194.3 billion New York State Common July 22, 2020 CalSTRS Up 3.9% in FY20, Fails to Retirement Fund – with its March 31 year-end – lost 2.7% Reach 7% Target in its scal year, as reported. Meanwhile, state and local tax intake is down and spending is up, meaning pension managers are likely to face lower government contributions this year, says Keith Brainard, research director of the National Association of State Retirement Administrators. Oklahoma Teachers’ Retirement System executive director Tom Spencer expects to receive $70 million less in state sales and income tax contributions in the current scal year and $75 million to $80 million less in scal 2022, the Journal reports. Spencer predicts the lower government contributions could see the $17 billion pension system, which is more than 70% funded, lose out on the opportunity to collect about $40 million in investment returns. “If we don’t have that money we can’t earn income off it,” Spencer tells the Journal. By Kathleen Laverty To read the Wall Street Journal article cited in this story, go to https://www.wsj.com/articles /beleaguered-public-pension-funds-make-record-gains-in-second-quarter- 11596531602?mod=hp_lead_pos6
FundFire is a copyrighted publication. FundFire has agreed to make available its content for the sole use of the employees of the subscriber company. Accordingly, it is a violation of the copyright law for anyone to duplicate the content of FundFire for the use of any person, other than the employees of the subscriber company.
An Information Service of Money-Media, a Financial Times Company
2 of 2 8/5/20, 1:30 PM Berkeley Partners Value Industrial Fund V, L.P. Prepared for San Joaquin County Employees' Retirement Association August 14, 2020 Important Disclaimer Information
THIS PRESENTATION CONTAINS SELECTED INFORMATION ABOUT BERKELEY PARTNERS MANAGEMENT, LLC (“BERKELEY PARTNERS”) AND ITS AFFILIATES. THIS PRESENTATION HAS BEEN PREPARED AND IS BEING FURNISHED SOLELY FOR INFORMATIONAL PURPOSES AND SOLELY FOR USE BY YOU. IN PARTICULAR, THIS PRESENTATION IS NOT, AND IS NOT INTENDED TO BE, AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OR ANY OTHER INTEREST IN BERKELEY PARTNERS OR IN ANY FUND, ACCOUNT OR OTHER INVESTMENT PRODUCT OR ASSETS MANAGED BY BERKELEY PARTNERS OR TO OFFER ANY SERVICES. ANY SUCH OFFERING AND SALE WOULD BE MADE ONLY ON THE BASIS OF CERTAIN TRANSACTION DOCUMENTS AND, AS THE CASE MAY BE, A FINAL PRIVATE PLACEMENT MEMORANDUM AND RELATED GOVERNING AND SUBSCRIPTION DOCUMENTS (TOGETHER, “TRANSACTION DOCUMENTS”) PERTAINING TO SUCH OFFERING AND SALE AND IS QUALIFIED IN ALL RESPECTS AND IN ITS ENTIRETY BY ANY SUCH FINAL TRANSACTION DOCUMENTS.
THIS PRESENTATION CONTAINS PRELIMINARY INFORMATION ONLY, IS SUBJECT TO CHANGE AT ANY TIME. NO REPRESENTATION IS MADE AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH HEREIN. THE CONTENTS OF THIS PRESENTATION ARE NOT TO BE CONSTRUED AS LEGAL, REGULATORY, BUSINESS, ACCOUNTING OR TAX ADVICE. YOU SHOULD CONSULT YOUR OWN ATTORNEY, BUSINESS ADVISOR, ACCOUNTANT AND TAX ADVISOR AS TO LEGAL, REGULATORY, BUSINESS, ACCOUNTING AND TAX ADVICE.
THE INFORMATION CONTAINED IN THIS PRESENTATION IS BASED IN PART ON PAST PERFORMANCE AND CERTAIN ASSUMPTIONS, PARTICULARLY ABOUT FUTURE GROWTH. THESE ASSUMPTIONS HAVE CERTAIN INHERENT LIMITATIONS, AND WILL BE AFFECTED BY ANY CHANGES IN THE STRUCTURE, CRITERIA OR ASSETS INVOLVED IN PARTICULAR TRANSACTIONS. SOME ASSUMPTIONS ARE NOT IDENTIFIED IN THIS PRESENTATION. ACTUAL PERFORMANCE MAY DIFFER, AND MAY DIFFER SUBSTANTIALLY, FROM THAT SET FORTH IN THIS PRESENTATION. NO REPRESENTATION IS MADE THAT THE SCENARIOS DESCRIBED HEREIN ARE ACCURATE OR COMPLETE, OR THAT ALTERNATIVE ASSUMPTIONS WOULD NOT BE MORE APPROPRIATE OR PRODUCE SIGNIFICANTLY DIFFERENT RESULTS. THE TERMS AND CHARACTERISTICS OF ANY INVESTMENT WITH BERKELEY PARTNERS OR IN ANY FUND, ACCOUNT OR OTHER INVESTMENT PRODUCT MANAGED BY BERKELEY PARTNERS MAY CHANGE BASED ON ECONOMIC AND MARKET CONDITIONS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. BERKELEY PARTNERS ASSUMES NO OBLIGATION TO UPDATE OR OTHERWISE REVISE ANY PROJECTIONS, FORECASTS OR ESTIMATES CONTAINED IN THIS PRESENTATION, INCLUDING ANY REVISIONS TO REFLECT CHANGES IN ECONOMIC OR MARKET CONDITIONS OR OTHER CIRCUMSTANCES ARISING AFTER THE DATE OF THIS PRESENTATION OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
CERTAIN INFORMATION CONTAINED HEREIN CONSTITUTES “FORWARD-LOOKING STATEMENTS,” WHICH CAN BE IDENTIFIED BY USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “ATTEMPT,” “ANTICIPATE,” “PROJECT,” “ESTIMATE,” “INTEND,” “SEEK,” “TARGET,” “CONTINUE,” OR “BELIEVE,” OR THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. DUE TO THE VARIOUS RISKS AND UNCERTAINTIES, ACTUAL EVENTS OR RESULTS IN THE ACTUAL PERFORMANCE OF INVESTMENTS MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS.
2 Executive Summary As of March 31, 2020
Berkeley Partners Management, LLC (“Berkeley Partners” or the “Sponsor”) • Berkeley Partners (“Berkeley” or the “Sponsor”) is a fully integrated real estate operating company with a demonstrated history of generating value for its investors through the investment in and management of light industrial real estate • Since 2005, our affiliates have sponsored a series of value-add investment funds and core separate accounts dedicated to the light industrial sector • Together with its affiliates, owns and operates approximately 6.1 million square feet (“SF”) of light industrial real estate • Approximately $974.7 million of assets under management(1) • Berkeley Properties (“BP”) is Berkeley’s property management company that works exclusively on behalf of its series of funds and separately managed account(2) • Berkeley was founded in San Francisco, CA and has additional corporate offices in Dallas, TX and Boston, MA with regional property management in select active markets
Berkeley Partners Value Industrial Fund V, L.P. (the “Fund”) • Targeted $275 million value-add fund focused exclusively on light industrial real estate in urban core and infill locations throughout the U.S • 11-13% net IRR (13-16% gross ) target(3), utilizing leverage of 50-65% per property • Continuing the strategy of IC Berkeley Partners IV, L.P., this will be the Sponsor’s third institutional fund(4) • The Fund held its first close on March 2, 2020 and currently has $221 million of limited partner commitments
(1) Assets under management as of March 31, 2020 and calculated as the sum of the gross market value of assets across funds and separate accounts managed by the Firm plus unfunded commitments and recallable distribution. (2) Please refer to slide 17 which details asset management fees and BP’s services and fees (3) The overall return target is not a guarantee nor a prediction nor projection of future performance 3 (4) Please refer to slide 13 which details the performance of BP’s other vehicles Organization Chart – Berkeley Partners As of July 2020
Partner(1) Managing Partner(1) Matthew Novak Aaron Snegg
Principal (1) Chief Compliance Officer Andrew Holmberg Doug Wertheimer
Director, Investor Relations Director, Acquisitions General Counsel SVP Construction & Facilities Chief Financial Officer (1) Erin Byrne Watson Mallory Gonzalez Brad Watson Andrew Ramirez Bahaar Sidhu
Senior Associate, Associate Director, Acquisitions Lease Analyst Director, Project Management Treasury & Corporate Portfolio Management Andrew Near Rukaya Amir Ashley Hart Lucy Lee & Alisa Liu Connie Yu Investor Relations & Associate, Acquisitions & Project Coordinator Fund Accounting Operations Manager Asset Management Lori Miller Kenny Woo, June Gu & Chris Wong Yesenia Ruiz Joseph Buonopane & Hannah Cope Analyst, Acquisitions & Asset Management Property Accounting Lyndsie Currie, Nick Dmochowski Lauren Kennaugh, Tiffany Ng, & Dean Sansovich Audrey Brosz & Priscillia Engelking
Acquisitions Sourcing Business Systems & Analytics David Zealear Daniel Matthias
Human Resources, Technology & Compliance Operating Committees
(1) Investment Committee Member 4 Organization Chart – Berkeley Properties As of July 2020
Property Management Facilities Management
VP Property Management Facilities/Construction Rob Saidi Technicians
Director, Property Management Jack Cameron Juan Sanchez William Mosley Francisco Romero Nathaniel Pettiford
Northeast Regional Director of Property Management Jack Cameron III Fernando Ponce Francisco Melgar Dennis Montano Dennis Kenny
Southeast Regional Director of Property Management Vanessa Canupp
Property Managers
Anita Deal Jack Sanders Brett Voeltz
Beau Hesketh Marc Krop Jonathan Stark
Miah Sack Anne O’Byrne Linda Flanigan
Sammy Dawes
5 Market Overview – Light Industrial
• Large Market Size – 3-4 billion SF(1)
• Light Industrial/Service Center/Office Warehouse Specifications • All units have grade and/or dock doors • Average unit is 80% warehouse/20% office • Clear heights generally 18 feet to 29+ feet • Flexible configuration appeals to broad base of U.S. businesses • Truck courts sufficient for box trucks up to 53’ trailers • Low F.A.R. averages 40% • Infill urban locations – close to city centers, housing and transportation corridors
• Simple Building Construction • Most buildings are single-story concrete tilt, and CMU • Major capital improvements tend to be limited to roof, parking lots and HVAC units
(1) Source: CoStar Portfolio Strategy, Q4 2019 6 Market Opportunity – Long-Term Positive Fundamental Trends in Light Industrial Real Estate
• Large, highly fragmented asset class • Opportunity to acquire from regional owner/operators • Smaller deal size leads to less institutional competition
• Steady current income with appreciation through active management (leasing, rent growth, etc.)
• Positive supply/demand trends • Limited new construction(1) • Demolition of in-fill product in core markets • Stock per capita ratio at historic low(2)
• Multi-faceted diversification reduces risk • Geographies, unit sizes, lease durations, tenant types/industries
• Consistent performance across economic cycles • Serves small and mid-sized businesses which grow and shrink across economic cycles • Flexible unit configurations
• High replacement cost leads to limited new competitive supply
(1) Source: CoStar Portfolio Strategy, Q4 2019 (2) Source: CoStar Portfolio Strategy, Q4 2019 7 Market Opportunity – Light Industrial Supply
Limited New Supply of Light Industrial • Majority of new construction has been large unit projects • Smaller unit properties have higher per unit build costs and compete with higher value-add infill developments (multifamily, strip retail, etc.) for land
Completion Rate As Percent Of Inventory (%) 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
Completions % Stock, 120K + Completions % Stock, < 120K
Source: CoStar Portfolio Strategy, Q4 2019 8 Market Opportunity – Light Industrial Demand
Occupancy Levels Outperform In Smaller, Infill Buildings • Older buildings located in infill locations experience higher long-term occupancy levels • Limited new supply and steady demand drive occupancy and rent levels, further driven by the generational shift towards office and multi-family development in infill locations • Average year of construction for Sponsor’s portfolio is 1988
Berkeley Target Markets – Occupancy Comparison 100% 98% 96% 94% 92% 90% 88% 86% 84% 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Occupancy - Building Sizes Up To 70,000 SF, YOC Pre 1990 Occupancy - Building Sizes Up To 70,000 SF Occupancy - All Building Sizes > 70,000 SF
9 Source: CoStar Portfolio Strategy, Q4 2019 Market Opportunity – Light Industrial Leasing
Smaller Spaces Dominate Leasing • Since 2010, approximately 120,000 leases were initiated for unit sizes below 50,000 square feet, which represents 76% of industrial leasing activity • Strong demand driven by e-commerce, city services, food distribution and life science
Number of Industrial Leases: 2010 - Q4 2019 180,000 4,868 160,000 2,248 11,495 140,000 6,817 14,082 120,000 37,262 100,000 80,000 41,258 60,000 40,000 20,000 45,714 0
10K - 15K SF 15K - 25K SF 25K - 50K SF 50K - 75K SF 75K - 100K SF 100K - 200K Sf 200K - 250K SF 250K+ SF 10 Source: CoStar Portfolio Strategy, Q4 2019 Market Opportunity – Diversified Tenant Roster
• Current portfolio(1) comprised of a diversified tenant base with varying lease tenures, which is typical for light industrial real estate assets
R&D - 14% (2) Essential Services - 16%
Office - 8%
Light/Custom Manufacturing - 13% Warehouse/Logistics - 35%
Wholesale/Retail Trade - 15%
(1) Based on rent roll as of June 2020. Subject to change. 11 (2) “Essential services” refers to tenants providing a service to the regional economy that has generally avoided mandated shutdowns, such as construction and automotive repair, etc. Market Opportunity – Target Markets
10 Year Average 10 Year Average Rent Median Household Population/Sq Mile College Attainment Metro Population Growth Growth Income % Rank # Rank % Rank $ Rank % Rank San Jose - CA 11.3% 26 885 26 5.1% 3 $ 128,266 1 47.6% 3 San Francisco - CA 10.3% 29 4,292 3 4.1% 10 $ 123,857 2 50.7% 1 Washington - DC 14.5% 18 1,190 18 2.6% 32 $ 104,004 4 49.5% 2 East Bay - CA 12.3% 25 2,123 9 4.5% 6 $ 102,529 5 41.6% 7 Boston - MA 8.4% 35 1,644 10 3.3% 22 $ 90,749 8 45.5% 5 Orange County - CA 7.1% 36 5,234 1 3.5% 19 $ 92,520 7 38.1% 13 Northern New Jersey - NJ 1.8% 47 1,246 17 2.3% 43 $ 89,577 9 37.8% 14 Seattle - WA 16.7% 12 1,288 16 4.5% 5 $ 88,357 10 38.9% 12 Philadelphia – PA 2.8% 45 1,461 12 2.5% 37 $ 72,694 23 34.8% 23 New York – NY 4.4% 38 4,590 2 2.5% 34 $ 73,736 22 37.6% 15 Los Angeles – CA 3.6% 43 3,717 5 2.9% 28 $ 69,476 27 30.1% 39 Fort Lauderdale – FL 13.4% 22 3,645 6 3.2% 24 $ 59,941 46 31.1% 36 Miami – FL 13.6% 21 3,756 4 2.7% 31 $ 53,464 54 27.6% 48 Denver – CO 18.5% 9 502 42 4.7% 4 $ 81,539 13 40.8% 9 Dallas-Fort Worth – TX 20.7% 6 835 28 3.5% 18 $ 71,334 26 32.6% 31 Atlanta – GA 15.4% 15 739 31 4.0% 13 $ 68,992 28 35.9% 18 Nashville – TN 18.5% 10 349 48 3.3% 21 $ 67,754 29 33.1% 29 Palm Beach – FL 15.5% 14 913 24 3.4% 18 $ 63,247 39 34.0% 24 Inland Empire – CA 12.4% 24 473 44 4.1% 9 $ 65,570 34 20.0% 53
Seattle
Boston Greater NYC Bay Area Philadelphia Denver Washington DC Nashville Southern California Atlanta Dallas
Current Markets Source: CoStar Portfolio Strategy, Q2 2019 South 12 Target Markets Florida Fund-Level Investment Performance As of March 31, 2020
Value-Add Investment Performance Summary(1,2,3,4) MTM As of March 31, 2020 ($ in millions)
Total Total No. of Total Called Total Net Asset Gross Gross Net Fund(1)(2) Vintage Committed Net IRR SF Total Assets Commitments Distributions Value IRR Multiple Multiple Capital
Berkeley Capital Partners I, LP (“BCPI”)(3) 2006 1,252,179 21 $25.1 $25.1 $25.3 -- 1.5% 1.16x 0.1% 1.01x
Berkeley Capital Partners II, LP 2007 136,200 2 1.4 1.3 3.0 -- 14.8% 2.50x 12.7% 2.24x (“BCPII”)(3) Berkeley Capital Trust (“BCT”)(3) 2008 1,059,581 13 25.0 22.8 39.6 -- 15.2% 2.08x 10.7% 1.73x
IC Berkeley Partners III, LP (“Fund III”)(4) 2013 3,923,816 36 125.0 111.4 173.8 0.7 23.7% 1.74x 18.1% 1.57x
IC Berkeley Partners IV, LP (“Fund IV”) 2016 3,909,407 41 274.8 274.3 40.2 282.1 18.6% 1.22x 13.8% 1.18x
(1) Please refer to Endnotes to Fund-Level Investment Performance on the subsequent slide (2) Past performance is not necessarily indicative of future results, and there can be no assurance that an investment offered will achieve comparable results to any of the prior performance information contained herein or that targeted returns or other measured standards, which Berkeley Partners believes to be sound and reasonable under the circumstances, will be met (3) BCPI, BCPII and BCT were retail / high net worth offerings and had higher offering costs and expenses as a percentage of capital raised compared to larger institutional offerings (4) Fund III is fully committed with the remaining unfunded capital reserved. The fund will not acquire any new investments. The remaining Net Asset Value represents fund-level net cash. 13 Endnotes to Fund-Level Investment Performance
I. “Total Called Commitments” represents the actual capital called from investors at the fund-level as of March 31, 2020.
II. “Total Distributions” represents the total actual distributions to investors at the fund-level as of March 31, 2020.
III. “Net Asset Value” represents the fair market value of the fund as of March 31, 2020, based on internal calculations by Berkeley Partners, net of outstanding debt and any other liabilities. Performance information that includes Net Asset Value assumes, with respect to unrealized properties, a hypothetical liquidation of such properties at their Net Asset Values. Fair market values are audited on an annual basis. The fund-level Net Asset Value includes fund-level items, including fund-level subscription lines, and any other liabilities, and fund-level net cash.
IV. “Gross IRR” is calculated at the fund-level based on the fund-level Total Called Commitments and Total Distributions plus Net Asset Value, excluding fund- level management fees and carried interest. Gross IRR is reported at the fund-level and is the same as the Net IRR, but excludes the fund-level management fees and carried interest.
V. “Gross Multiple” is calculated at the fund-level, including Total Distributions plus Net Asset Value, excluding fund-level management fees and carried interest, divided by total Called Commitments through March 31, 2020. Gross Multiple is reported at the fund-level and is the same as the Net Multiple, but excludes the fund-level management fees and carried interest.
VI. “Net IRR” is calculated based on the Total Called Commitments, Total Distributions and Net Asset Value, net of all fund-level management fees, expenses and carried interest. There are no projections included.
VII. “Net Multiple” represents actual fund-level Total Distributions plus Net Asset Value divided by Total Called Commitments as of March 31, 2020. There are no projections included.
14 Market Opportunity – COVID Update
• Vertical integration allows us to have direct relationship with tenants. Rent collections (as a percentage of occupied square feet) have average over 94% since April
• Leasing activity slowed in late March / early April, then velocity slowly increased as regional stay-at-home orders began to expire
• Over the past few years, we have shifted our value-add acquisitions strategy in anticipation of a potential future economic slowdown • Strong credit tenants in sectors with positive underlying fundamentals • Higher building quality – clear height, loading, parking
• Secular tailwinds forecasted to drive continued demand for industrial going forward • E-commerce • Cold storage • Onshoring of the global supply chain, including manufacturing
• However, not all industrial tenants are benefitting from secular growth trends • Recessionary environment will hurt tenants tied to retail, energy and trade • Expect more opportunities to come as the effects of the economic slowdown get fully priced in
15 Fund V Seed Transaction – 333 Centennial Parkway 333-335 Centennial Parkway, Louisville, CO 80027
Acquisition Date July 2020 LTC(1) 65% Year of Construction 1995 & 2019 Sourcing Lightly Marketed SF 408,045 Going-In Cap Rate 6.07% Purchase Price $49.0M / $120PSF Projected Gross IRR(2) 17.8% Initial Equity $17.4M Projected Gross Multiple(2) 2.00x Overview • Single story, class B, multi-tenant industrial building with excellent access and visibility totaling 408,045 square feet. • Located in northwest Denver (Louisville/Broomfield), between Boulder and Denver, the property is located at the last exit prior to Downtown Boulder. The Louisville sub-market is extremely land constrained with limited potential for new development going forward. The market attracts users that want close proximity to Boulder, but also want access to greater Denver. • Acquired in limited marketing process from seller looking to exit asset for portfolio management reasons. • Received six month rent guarantee on over half of the building from seller. • 100% occupied at acquisition with 6 units ranging from 40,000 SF to 112,000. Opportunity • Going-in cap rate of 6.1% with levered year one cash-on-cash return of approximately 10%. Opportunity to create value by either rolling two tenants to market or re-tenanting the spaces at market rates by 2025. • $7.44PSF NNN base rents are approximately 11% below market rents and 14% below broker rents. • In-place tenants have been in business an average of 36 years and represent diverse industries, including automotive supply, manufacturing, biotechnology, pharmaceutical and e-commerce R&D. • Post COVID-19 cap rate premium of roughly 50 bps. Purchase price of $120PSF is material discount to new construction and recent transactions, which range from $150-200PSF. Value-Add Initiatives • Push rents to market as tenants roll. • Sell the building as a stabilized and functional mid-bay industrial building with high-quality credit tenants.
(1) Projected stabilized loan-to-cost ratio. 16 (2) Gross levered property-level returns based on projected pro-forma. Summary of Terms
The Fund Berkeley Partners Value Industrial Fund V, L.P., a Delaware limited partnership, and any parallel partnerships Target Fund Size $275 million with $350 million hard cap Sponsor Commitment Berkeley Partners and/or its affiliates and certain employees will commit 2% of the Fund’s aggregate capital commitments, up to $5 million Minimum Commitment $5 million Investment Period 4 years after the final closing Term 10 years from the initial closing Leverage Limit 65% at the fund-level Preferred Return 8% compounded annually Distributions Distributable proceeds will be distributed as follows: (a) First, 100% to the Limited Partners until they receive their capital contributions plus an 8% preferred return; (b) Second, 50% to the Limited Partners and 50% to the General Partner, until the General Partner has received 20% of all net distributions; (c) Finally, 80% to the Limited Partners and 20% to the General Partner, thereafter
Asset Management Fee (a) During the Investment Period, 1.5% per annum of the Capital Commitments; (b) After the Investment Period, 1.5% per annum of the Net Invested Equity BP Services and Fees (a) Property Management: 3% of gross revenue (minimum $3,000 per month); 4% for investments where the average unit size is less than 5,000 SF (b) Construction Management: Charged at BP’s cost (c) Leasing: Charged at BP’s cost (d) Facilities: Charged at BP’s cost (e) Legal: $350 per hour for in-house counsel for fund-related work that is not duplicative with 3rd party counsel
A full explanation of fund terms as well as affiliate fee arrangements and any associated potential conflicts of interest can be found within the partnership agreement and private placement memorandum of the Fund.
17 Management Team Biographies
Aaron Snegg, Founding/Managing Partner. Mr. Snegg is the Managing Partner of Berkeley Partners. Since 2005, through Berkeley Partner's affiliates, he has led the acquisition of over 13 million square feet of industrial real estate. Mr. Snegg has been instrumental in building Berkeley Partners into one of the premier institutional industrial operators. Prior to founding Berkeley Partners, Mr. Snegg has held various officer positions at Snegg & Snegg LP, his family’s real estate holding company, and Workstream Inc. Mr. Snegg holds a BA from the University of California at Berkeley.
Matthew Novak, Partner. Mr. Novak is a Partner at Berkeley Partners. Mr. Novak is responsible for the firm's overall operations including acquisitions and asset management. Mr. Novak has over 19 years of real estate experience in asset management, acquisitions, dispositions, development, and construction. He started his career with Arthur Andersen in San Francisco in the Real Estate Valuation Group. He then spent over five years on the investment management team for National Office Partners (a partnership of CalPERS and Hines) focusing on portfolio and asset management for over $1.0 billion of assets. Most recently, Mr. Novak worked as a developer in the Bay Area focusing on entitlements, project management, and construction of infill development projects. Mr. Novak is a member of the Pension Real Estate Association, the Urban Land Institute and NCREIF. Mr. Novak holds a BA in Economics from Cornell University.
Andrew Holmberg, Principal. Mr. Holmberg serves as a Principal at Berkeley Partners. He is involved with financing, acquisitions, portfolio management, investor relations and overall strategy. Previously, Mr. Holmberg worked at The Davis Companies, a Boston-based real estate investment and development company and Long Wharf Capital. Mr. Holmberg also worked as an investment analyst at Landmark Partners, where he was involved with investing Landmark's series of discretionary funds into a variety of real estate-related opportunities globally. Mr. Holmberg is a member of the Pension Real Estate Association and the Urban Land Institute. He holds a BA in Economics from Cornell University.
Bahaar Sidhu, Chief Financial Officer. Ms. Sidhu is the Chief Financial Officer of Berkeley Partners. Ms. Sidhu has over 15 years of real estate experience in investment management. She joined Berkeley Partners in 2017 and is responsible for oversight of fund management, financial planning & analysis, reporting, compliance, treasury, human capital, technology, corporate functions and firm strategy. Prior to joining Berkeley Partners, she served as Vice President at Bank of New York Mellon in Alternative Investment Services, where she led the San Francisco practice of BNY Mellon’s fund administration business. She also spent seven years at Deutsche Bank in Asset and Wealth Management providing oversight to the flagship Real Estate Investment Trust (REIT) and other investment vehicles with combined AUM of over $10 billion. She started her career at Deloitte in the Assurance practice with a diverse client base in retail, technology and financial services. Ms. Sidhu is a Certified Public Accountant (CPA) in the state of California. She holds a BS in Business Administration and an MBA both from the Haas School of Business at University of California, Berkeley.
Brad Watson, General Counsel. Mr. Watson serves as General Counsel at Berkeley Partners. He has over 12 years of extensive real estate experience, and has overseen and/or worked on approximately $1.0 billion of acquisition, disposition, leasing and financing transactions. Mr. Watson started his career with Oakland, California-based Caldecott Properties, Inc. where he served as a top-producing real estate broker. Mr. Watson joined Berkeley Partners in January 2012 in the role of Director of Leasing & Acquisitions, and in that role and his current one, has worked on and overseen the closing of acquisition, disposition, leasing, and financing transactions across millions of square feet of industrial and commercial real estate. Mr. Watson is an active member of the State Bar of California. He holds a Bachelor of Business Administration in Legal Studies from the University of Miami and a Juris Doctorate from the University of Miami School of Law.
18 Management Team Biographies (cont.)
Andy Ramirez, SVP of Construction. Mr. Ramirez serves as Senior Vice President of Construction at Berkeley Partners. He brings over 20 years of experience in construction management, working his way up from Carpenter to CEO at West Coast Contractors of Nevada, Inc. in Reno, NV. He has overseen multi-million dollar projects throughout all stages including numerous LEED certified projects. Mr. Ramirez is OSHA/MSHA certified and a member of AGC. He holds a BA in Construction Management from Colorado State University.
Rob Saidi, VP of Leasing and Property Management. Mr. Saidi joined Berkeley Partners in December of 2010 and is now the VP of Leasing and Property Management. He is responsible for driving the business strategy for each property from acquisition to disposition by overseeing all leasing transactions and management activities for the portfolio. Prior to joining Berkeley Partners, Mr. Saidi was involved in several business ventures in real estate and construction. Mr. Saidi holds a BA in Business from San Francisco State University.
Mallory Gonzalez, Director of Acquisitions. Ms. Gonzalez serves as the Director of Acquisitions at Berkeley Partners and is responsible for managing the firm’s acquisition activities in various target markets, including DC, Atlanta, Nashville and Florida. Previously, Ms. Gonzalez worked at Longpoint Realty Partners, where she sourced, underwrote and coordinated all aspects of due diligence as well as performed asset management functions for various retail and industrial transactions. Prior to Longpoint Realty Partners, she worked at TA Associates Realty. Ms. Gonzalez holds a Bachelor of Science in Architecture from The University of Michigan as well as an MBA from the University of Connecticut School of Business.
Erin Watson, Director of Investor Relations. Ms. Watson serves as the Director of Investor Relations at Berkeley Partners and is responsible for covering existing client and consultant relationships as well as current and future fundraising efforts. Prior to joining Berkeley Partners, Ms. Watson was responsible for investor coverage at Carlson Capital, a Dallas- based hedge fund. Prior to that, Ms. Watson worked as a consultant at Deloitte and Riveron Consulting. Ms. Watson is a CFA® charterholder and holds a BBA in Finance from James Madison University.
Andrew Near, Associate Director of Acquisitions. Mr. Near serves as Associate Director of Acquisitions and is responsible for managing the firm’s new investment activities in Texas and Colorado. Prior to joining Berkeley Partners, Mr. Near worked on the investment team of RSF Partners, a Dallas-based private equity fund. During his tenure at RSF, Mr. Near oversaw a portfolio of healthcare assets and underwrote new investments on behalf of RSF's series of discretionary real estate funds. Mr. Near holds an M.M.S. from Duke University’s Fuqua School of Business and a B.A. in Economics & Commerce from Hampden-Sydney College.
Doug Wertheimer, Chief Compliance Officer. Mr. Wertheimer is the Chief Compliance Officer of Berkeley Partners, oversees its legal relationships and advises on strategic decisions. Mr. Wertheimer also serves as a Partner at Industry Capital. Previously, he was a successful entrepreneur with several well-known ventures in media and entertainment, consumer products and financial services. From 1999 to 2002, he was a founding executive with Size Technologies, an electronic payments Sponsor acquired by First Data Corporation in 2006. From 1995 to 1999, he was a Principal in Mark Burnett Productions, where he played a critical role in the development and sale of the successful reality TV franchises “Survivor” and “Eco-Challenge”. In the early 1990’s Mr. Wertheimer served as Director of Business Development for early interactive television mover, Interactive Network. Mr. Wertheimer holds an A.B. from Princeton University and JD from the UCLA School of Law.
19