Local Elected Officials Forum CalPERS Overview for Public Agency and - PowerPoint PPT Presentation

Local Elected Officials Forum CalPERS Overview for Public Agency and School Elected Leaders October 28, 2019 | 9:30 a.m. -12:00 p.m.

Our Discussion Together • Introductions and Overview • Plan for Long-Term Sustainability • Funding the System • Employer Costs • Health Care • Closing and Q&A 2

Our Speakers Marcie Frost Michael Cohen Scott Terando Chief Executive Officer Chief Financial Officer Chief Actuary 3

Members Are Our Focus 31% State members 31% Public Agency members 38% School members 4

$24.2 billion Paid in pension benefits FY 2018-19 5

Strategic Goals Focused on Reducing Risk Strategic Goals Fund Sustainability Health Care Affordability Reduce Complexity Risk Management Talent Management 6

Current Value ~$380 billion 5.8% 9.1% 6.7% 5.8% 8.1% 2018/19 5-yr Annualized 10-yr Annualized 20-yr Annualized 30-yr Annualized Portfolio Return Return Return Return Return 7

Plan for Long-Term Sustainability Marcie Frost Chief Executive Officer

How We Got Here – 20-Year Look * Estimate

Functions in Pension Decision-Making CalPERS Board Legislature Employees • • • Fiduciary obligation Make contributions Set pension benefit formulas • Select employer • Set risk tolerance • Make and change • Collectively bargain • Set investment asset pension laws salary and (optional) cost allocation • sharing Make benefit design changes CalPERS Employers Courts • Select pension formulas • Administer pension • • • Rule on legal questions Add optional provisions Calculate pension costs • • Implement investment Set salaries of pension law strategy • Make contributions 10

Strong Foundation Changes Capital Injection Shorter Amortization Lower Discount Rate New Asset Allocation Additional contribution to State and Shortened the amortization Lowered the discount rate from Adopted new strategic asset School pension obligations period for employers to pay their 7.5% to 7% over three years allocation effective July 1, 2018 unfunded liability (assumed rate of return) 30 yrs. 20 yrs. 7.5 % $9 billion from the State = significant $904 million to Schools 7 % long-term savings 11

Foundational Change - Improved Liquidity + Employer Additional $9B Improved contributions from State liquidity 12

71% Funded status goal: 100% 50-60% 90-100% 70-80% Estimate for 2019

10-Year Projection of Funded Status 14

8.1% 30-year average return (as of FY 2018-19)

Three Key Risks Investment Employer Climate risk risk/liquidity affordability 16

Chief Investment Officer • Portfolio • Processes • People • Performance Yu (Ben) Meng

Private Equity Team • Pivotal leadership • Extensive experience • $27.64B invested Greg Ruiz, CalPERS Managing Investment Director Private Equity

Private Equity Co-Investments Innovative Private Equity Models

How We’re Addressing Climate Risk 20

Investment Focus: CalPERS Advantages + = Size Increased Long-Term Branding chance Horizon Liquidity of success 21

Efficient and Effective Operations 0 >75% 4 new positions investments tools for for past two years managed employers in-house 22

Board Governance & Transparency Board New Insight governance stakeholder platform workstreams forum 23

Laser-focused on our top priorities Benefits are only as secure as our employers’ ability to pay them

Funding the System Michael Cohen Chief Financial Officer

How CalPERS Retirement Benefits Are Funded 26

CalPERS Funded Status 71.0 % Funded Status (est.) 2018-19* * Using a 7% discount rate 27

CalPERS’ ALM Cycle Asset Liability Management Cycle Capital Market Discount Asset Assumptions Rate Allocation June 2021 Fall 2021 July 2022 28

Funding Risk Mitigation Policy

Employer Tools Employer Funding Programs Additional CEPPT CERBT Discretionary Fresh Start (Pension (OPEB) Prefunding) Payments 30

Example of Prepayment Impact 31

Our Board Monitors Employer Contribution Rate Impact

Break

Employer Costs Scott Terando Chief Actuary

Normal Cost + UAL Amortization of Unfunded Employer Normal Cost Accrued Liability (UAL) Total Employer Contribution 35

Public Agency Employer Contributions 36

A Look at Pension Outlook

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Health Benefits Program Marcie Frost Chief Executive Officer

Health Priorities Address rising Engage in Contain costs Improve health Rx costs and drive quality health policy outcomes 43

Working with You

Our Commitment to Employers Access Listen to CalPERS leadership and solicit feedback Single Tools message to inform decisions to all stakeholders 45

Thank you Questions?