Fresno County Employees’ Retirement Association

1. Fresno County Employees’ Retirement Association Actuarial auditactuarial valuation of June 30, 2010Experience study for July 1, 2006 - June 30, 2009 Graham schmidtBob mccroryEFI Actuaries January 19, 2010

2. Today’s Discussion Good news More good news Even more good news

3. Good News • We agree! • Liabilities and costs in actuarial valuation as of June 30, 2010 agree within reasonable tolerances • Our independent experience study from July 1, 2006 to June 30, 2009 produced comparable results • Experience study recommendations are reasonable and in accordance with generally accepted actuarial principles

4. Good News

5. More Good News Graham had a baby!

6. Even More Good News • We found some things to quibble about • Mortality rates • Rate of return • Cost of living adjustments • Productivity pay increases

7. Mortality Rates • Life expectancy after retirement may be underestimated in recommended mortality rates; therefore, liabilities may be understated • A number of retired members were incorrectly treated as deaths • Members with higher benefits tend to live longer; this is not considered in setting rates • Fixing these issues resulted in an 11% margin decreasing to -3% • No allowance for future mortality improvements • Even current mortality rates are overestimated • Not a huge issue, but it is worth addressing • Assumptions for retirees should be carefully considered before changes in GASB rules

8. Rate of Return • Assumed rate of return of 7.75% is reasonable, but may have no margin • Gathered assumptions from Wurts – returns, standard deviations by class, correlation matrix • Simulated your investment allocation – 10,000 trials of a 10-year period • Average compound return: 7.66% after expenses • Probability of making 7.75%: 49.3% • This calculation is illustrative, not definitive • Return assumptions are declining in general

9. Rate of Return

10. Cost of Living Adjustments • Our analysis indicates that the COLAs are likely to average below 3% • Current inflation assumption is 3.5% • COLA is capped at 3%; any shortfall relative to inflation is banked • In a low inflation environment, new retirees will not build up a bank balance to offset later inflation • As a result, average COLA will be somewhat less than the cap • Based on typical retiree mix and banking procedures at other ‘37 Act counties, we estimate 2.7% is a reasonable COLA estimate

11. Cost of Living Adjustments

12. Productivity Increases • We are skeptical of productivity increases in wages, at least for the next 10 years • Current assumption is wage increases – not due to merit/longevity – will average 4% per year, 0.5% higher than inflation • We doubt even inflationary increases for the foreseeable future • We also see wage decreases and reductions in force happening now

13. Summary • We confirm Segal valuation liabilities and costs • We confirm Segal experience study recommendations • We have listed areas for further consideration • Mortality rates • Assumed investment return • Assumed cost of living increases • Assumed productivity pay increases • Thank you for this opportunity!

14. Contact Information Graham Schmidt(415) 439-5313gschmidt@efi-actuaries.com Bob McCrory(206) 328-8628bobmccrory@efi-actuaries.com