Retirement Committee ReportBy Jean S. Thomas,                                        five-year significant change. Most sc...
Upcoming SlideShare
Loading in …5

Reccsf bulletin 3 2011


Published on

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Reccsf bulletin 3 2011

  1. 1. Retirement Committee ReportBy Jean S. Thomas, five-year significant change. Most scenariosHerb Meiberger, CFA, and Stephen Herold show significant increases in contribution rates until at least 2015, then tapering downward;Roller Coaster, Anyone? also, they show some decrease in funded ratios Look at the following comparison of SFERS until about 2012—or somewhat later—thenfinancial performance: moving upward. 2009 2011 Conclusions/Points to RememberPlan Value at January 31 • Actual experience will differ from stress test $11.1B $14.9B results depending, especially, on earnings,Seven Months Fiscal-Year-to-Date Earnings but also on changes in benefits, salaries, em- (July 1 – January 31) ployee contribution rates, and other variables. Minus 27.9% Plus 16.7% Some stress tests show enormous changes inThe climb upward has been steady, with a few contribution rates and funded ratios; someminor peaks and valleys along the way; but to- don’t. Choosing the “best” one to support a pre-tally encouraging, don’t you think? Something disposed viewpoint is possible (and likely).to keep in mind as you read on: • Under five-year “smoothing,” FY 2008/09 un-Actuarial Projections (AKA, best estimates): precedented losses have been carried forwardFunded Levels and City Contribution Rates and affect the short-term funded ratios and contribution rates. If banner gains continue forBackground: the remaining five months of FY 2010/11 (see Firstly, a new concept: first paragraph), they won’t help the short-term• Stress testing, or actuarially-created scenarios contribution rate/funded ratio problems very to determine how changes in investment returns much because they, too, will be “smoothed” affect funded ratios and employer contribution over five years. rates in the long term; i.e., 20 years. • Facts that the public press frequently ignores: Secondly, recall the following terms: The City contributed nothing to the retirement• Funded ratio, the percentage of Plan assets system for seven years in the late 1990s and relative to Plan pension liabilities. (Example: a early 2000s. Result was no “cushion” to offset 91% funded level means that, today, 91 cents the effects of the 2008/09 abnormal losses. is available for each $1 of pension promise.); Also, most employees contribute 7-1/2% of and salary to the Retirement System—new safety• City contribution rate, the percentage applied employees will start contributing 9% of salary to covered payroll (about $2+ B) that the City in FY 2011/12. must pay, each fiscal year, to fully fund the • Cheiron states that San Francisco has the retirement system. Of course, the public outcry second-highest funded level in the 50 public now is about the growing City contribution rate. plans, countrywide, that they studied. (San To illustrate: currently, in FY 2010/11, SFERS’ Diego we’re not!) contribution rate is about 14%; in FY 2011/12, it will be about 18%. You do the math. The City Other Points of Interest must pay a lot more in FY 2011/12 than it does • Congratulations, all you investors in the De- now! To dampen the effect of the contribution ferred Compensation Plan (AK A 457 Plan)! rate percentage increase, the City has reduced Total deposits have reached a new milestone of (and likely will continue to reduce) covered pay- $2B. When investments reach $2.3B, fees will roll, or the base, by downsizing—to which our go down and earnings will increase on every active employee friends gloomily attest. invested dollar.Findings: Actuarial “Stress Test” of SFERS • Call SFERS (see phone numbers on Page 1 of• At the Feb. 8 SFERS Board meeting, Cheiron, this issue) if you need a replacement 1099R. SFERS actuarial consultants, presented sev- State and federal tax tables changed 1/1/2011, eral 20-year “stress test” scenarios, all using affecting some retirees’ net benefit amount. the actual existing 7-1/2% employee contri- bution rate. The “Baseline” demonstrates a Questions? Comments? Contact: Herb at herb. 7-3/4% investment return over 20 years; other; Jean at, scenarios demonstrate the affect of a one-year or (415) 665-4149; Stephen at stephenhome@att. “shock”; a five-year moderate change; and a net, or (415) 664-1201. Page 3