Liabilities and your assets. The sources of the unfunded are liability gains and losses which are the gray bars, and thats when people dont retire according to the assumptions, their salary increases or lower or higher than the assumptions, so you have whats called liability losses. The gold bars are your liability losses on your actuarial, examine then, the assumption changes are indicated by the toeal bars, ad then, the impact of contributions on your unfunded liability are the the red slivers. So basically, its to give a historical perspective, back in 2007, the plan actually had a surplus of about 1. 4 billion, and over the course of the last ten years, unfunded has increased by about 5 billion for a net unfunded liability as of 2017 of 3. 5 billion. Now there are three main fa factors for this increase. The first is the 2. 3 billion for assumption changes, and you can see that in 2010 and 2015 we had the dependenciy graphic experience studies, and those 2 eal bars wiare based basically, people are living longer, so youre paying benefits longer. It drives up your liabilities, and also, theyre retiring earlier than anticipated, you have shorter time to fund your benefits, and then, you also have to pay for them for a longer period of time. And then, the second driver is the investment losses, about 2 billion over the course of the last ten years. Next is the 1. 7 billion increases due to benefit changes. Back in 2008, there was a change to benefits for miscellaneous members where their age multipliers were increased, so theyre getting higher benefits when they retired, and there were changes in the colas, they used to be simple colas for most members, and then it went to compound colas. The rest of the benefit changes or those blue bars are for the supplemental colas, when the plan has excess earnings. There was a net decrease over the ten years of about 1 billion due to lablt liability actually, liabilities being less than expected due to salary increases being less than expected and basic colas for the old safety cola group being less than expected. Then, finally, the last sliver is the contributions and how those impact the unfunded, and it contributions were about a. 1 billion impact or contributions over that time. Basically, the so that other portion of the. 1 billion is paying down the unfunded. I thought it was interesting to note with the contributions that in 2014, thats when you changed the funding policy, and in its not the only reason, but it is a reason of why now youre paying more towards your unfunded with your funding policy with your contributions because you dont have that rolling piece anymore that you had a piece where you were rolling reamortizing it every year, which it positiv positive which is positive. Heres another chart that weve put in. [ please stand by ]. And a higher ratio indicates that the plan is more sensitive to changes in risk because you have a lower contribution base when that ratio gets higher, and you actually have to rely more heavily on your Investment Income for income coming into the plan. Whats interesting, though, is many public plans over this same time period, weve actually seen that ratio almost double, which is its not a bad thing, but again, its just the plan would be more risk more risk averse. Not risk averse, but its more sensitive to risk because of the lower contribution base that they have. And again, at first, its been relatively stable. It actually has declined in the last five years as the active membership is increasing at a slightly faster rate than the retirees. I just want to emphasize for a plan that has a long history of investors, this is pretty unusual to see this inpay for active being pretty level. Were seeing that plans across the country is getting pretty mature, and that rate is climbing across the country, and climbing for some of them pretty significantly, and they cannot afford the level of risk that theyve had in the past because theyre no extremely sensitive to that, so this is a very fortunate situation that we weve got a pretty stable base for this plan, and that that that ratio has not gone up dramatically. Not only has it stayed stable, its stayed under one. Theres a lot of plans know that that ratio is over one, so the fact that you have more active members than retirees is, like bill said, its very, very good. Okay. Now were going to move onto our projections of the funded ratio and contribution rates, and these are familiar graphs that weve showed to you in the past. This particular projection is the projection of the funded ratio. The purple bars represent the historic actuarial liability. The black bars represent the projected actuarial liability, and the liability purple is the actuarial liability as of this report. The market value is the green line, and you can see the volatility of the market value in these historical projections, and then more, the smooth line, that is actuarial value and its doing what its supposed to do. Its smoothing those ups and downs of the market. As of 2017, those numbers and assets are very close, but you can see that you have gained some ground on your status over the last five or six years, and with your funding policy currently in place, youre projected to steadily increase that ratio in the next ten years, if all assumptions are met, you reach your 7. 5 , you meet all your actual assumptions. This next graph shows the historical and projected employer and employee contribution rate. The gold bars are the employer contribution rates, the darker shaded bars are historic, the lighter shaded bars are projected. The purple bars are the member rate does. Again the darker hue is the historic, and the lighter is the projected. Im going to focus here more on the projections than the historic impact, but between fiscal year 201819, the rates stayed became. I do want to mention that 2016, that dark blue line, thats the baseline from last years valuation projections, so even though in the contribution rates didnt change much year to year year over year, youre going to see a bigger difference in the contributions rates when projected out into the future, and theres a few reasons for this. First, youre going to see slight increases in the contribution rate because continuing to phase in that assumption rate from 2015; and then, the 2014 supplemental cola will be paid off in fiscal year 2023, so the contribution rate drops, and then, it drops again to 21. 4 when this years supplement cal colas paid off, and then youre reaping not really seeing the asset return benefit for this last year because it still kneesneeds to phased in. This chart is your baseline stress testing that bills going to go over and show different various return scenarios, and the only difference between the charts that we showed on seven and eight is this chart shows the cost sharing mechanism. The top graph is the funded status, so thats not going to change with or without cost sharing, but this shows the cost sharing between employers and employees. Right now its about 3. 5 , and that means that employers pay 3. 5 less than the actual projected rate, and then, the employees pat about 3. 5 more. Because were a little bit behind schedule today oh, im sorry, what were you going to say . [ inaudible ] what was it behind were a little bit behind schedule today. If you think that you can wrap up sort of the point in the next five minutes. Easily. That would be great. So the one thing i want to point out about these baseline projections is we have an assumption about future supplemental colas built into these projections for the baseline. Every year, we show you economic scenarios, and when we do those projections, we calculate whats supplemental cola would be under the anywhere joes. The scenarios are laid out here. Theyre based on the Capital Market assumptions over a year one and a five year period. The one year shock scenarios, positive and negative, take the 5th and 95 percentile returns over one year, and then, we have five year moderate and five year signature scenarios that take the 25th and 75th percentile. Theyre not meant to be realistic projections, but to give you a sense of the sensitivity to investment return. So on each graph, these show the funded status, we show the positive version of the scenario on the top, and the negative version on the bottom. The when were showing the funded status, black bars indicate that we calculated a supplemental cola would be payable in that year, and the gray bars indicate that theres no supplemental cola payable in that year under the scenario. And so you can see how the change in funded status works for for each of those. And then, we follow with the contribution rate. Again, the employer rate in gold, the member rate in purple. These are all done with cost sharing in the presentation. We have similar things in the val that are not cost sharing. And then last years projection, its the baseline projection from last year, so you can see how far the scenario took it from the baseline. Im not going to go through each of the scenarios, but its meant to give you the sense of how much investment returns affect those contributions and the funding status as we project forward. At the end here, we have a chart that shows the historical contributions in black or just looking at the employer contribution rates before cost sharing, and then, the black baseline Going Forward is that that baseline, and then, we show each of the economic scenarios as those colors line. The gray area behind it is the cathic range, and its just to give you an idea that the scenarios fit within that range that we would get from a potential contribution rate. So its just to set that context. I think the the conclusion from this valuation, the investment returns, and other plan experience and the assumption changes have a significant effect on the projected longterm contribution rates. We only say a 15 basis point change here, but compared to our projections, there was a bigger change, and then, when you look longer term, primarily because we amortized that supplemental cola over five years, so once that five year payment is gone for paying for this years supplement cal cola, that difference in projection looks significantly better. In the near term, were looking at the impacts of the supplemental colas continuing to phase in as the 2015 assumption changes, so theres expected increases in the next couple of years before we see that expected gradual decline and but overall, we see the system on very stable footing, but there is potential of substantial volatility in contribution rate Going Forward, less so than many other systems, but its still significant volatility in those contributions. Okay. Thank you for your presentation. Any questions . Not now, but if you can send it to me, on page ten, your expected return over a 30 year period is 8. 1 . Those are npcs. Okay. Could you run your stress tests if you have on the page before that and just distribute it to the commission offline so i can see what that chart would look at at 8. 1 . 8. 1 . Sure. Okay. Any other questions from the board . We were going to say, did you id just like to remind you that wed also like to accomplish item number 26. I would also like to accomplish that. Commissioner driscoll, please. Page ten is the number that. [ inaudible ] those are the numbers that i was trying to find earlier. Thank you. I just want to point out that this one of the factors why contribution rates did not go up is identified, but gross payroll went up because of all the new hires in the last several years. Many of those were hired at reduced pension benefits, which helped keep the liability down. I just want to acknowledge that number oregon mmay or may not and i just want to say if this comes through itll change a little bit. Whether or not itll be significant enough to move your lines, i dont know. Those are other things the board has to account for when were planning. Thank you. Any other questions or comments . Great. There is a recommendation to adopt the actuarial funding valuation report. Is there a motion . I already called for Public Comment. [ inaudible ] no, we dont. No, we dont, but thank you for the comments from the audience. Mr. Furland, no, we already called for Public Comment. If you dont like it, you can step outside. Im sorry. There is a recommendation from staff to adopt the actuarial funding valuation report. Is there a motion . So moved. Second . Second. Is there any discussion . Can we take this item out objection . Great. Item passes. Thank you so much. Item number 26, please. Go ahead. This item is to approve the recommended employer contribution rate of 23. 31 for fiscal year 20182019. All the data for this was in the previous report. Yes, exactly. Why dont we call for Public Comment. Are there any members of the public that would like to address the commission on this topic . Is it on this topic . Yes. 30 seconds. [ inaudible ] thank you, mr. Furland. Is there a motion to are there any other members of the public that would like to address the commission on this topic . Seeing none, well close Public Comment. Is there a motion on the floor to adopt the public contribution rate . Is there no motion on the table . There is. Theres a motion. Is there a second . I will second. Is there any discussion on this item . Could we take this item without objection . Great. Item passes. Mr. Huish, where would you like to go . [ inaudible ] can we call 23 and 24 together . Second. Well call item 23 and 24 together. Theres been a motion and a second. Why dont we call for Public Comment. Are there any members of the public that would wish to address the commission . Seeing none, we will close Public Comment. We take it as submitted or does staff want to okay. Well take it as submitted. We take this item without objection, 23 and 24 . Great. Item passes. Thank you very much. Thank you so much. You want to go back to parametric now . Were ready, commissioner. Ellen has been preparing for this item for almost two years. We brought this rec back to the board back in june of 2017. The board had some additional questions. We do think this strategy is essential for implementing the Asset Allocation approved by the board, which includes a zero percent allocation to cash. In fact we always have cash. We have investment cash, our managers are holding cash. Sometimes we have slippage whefrom selling physical is where we have cash for a short period of time. So to assume our rate of return is we think we recapture that lost return by holding cash is essential, and ellen, would you please introduce the item. Sure. Thank you, bill. As bill said, this is a continuation of the staff recommendation of the june 2017 board meeting. In the meantime, all legal documents, the manager guidelines, the investment manager, Management Agreement and the futures agreement have been completed or nearly completed, so were ready to implement if the board approves. But first, i just want to give a quick overview. In september 2017, the board approved a target callocation, and achieving this policy target of 7. 17 annually is dependent on holding 0. 1 cash. This was part of the calculation of the projected return. October 2017, the board approved the Investment Policy Statement affirming the policy target and directing staff to implement the Asset Allocation with a zero percent cash holding. Holding some cash is necessary to pay benefits and meet capital calls and for managers to execute trades, so the organization is necessary to implement this zero is cash target and meet our expects returns. So historical simulations show versus losing money relative to our policy target by not implementing cash securitization and this program will reduce risks. Parametric has been implementing these strategies for over 30 years, and the current cio has been working on these strategies since inception. They have a broad range of clients, on slide five, the attached documents, theres 12 clients in the state of california alone. We conducted two years of extensive due diligence. We believe that parametric will be a Strong Partner that because of their experience and their expertise, their responsiveness, transparency, commitment to risk management, focused dedication to overlay strategies, and their commitment to find solutions to current management challenges. The firm as a whole shares our esg values. Theyve spent over is a years working with clients on developing esg strategies. Can i just jump in. Why dont we take it as submitted. We heard the presentation last time, but why dont you go right to the questions that the board had last time, so which youre going to go back and do some more research. Okay. And i have the board mentioned you needed more time to ask questions. Staff invited the parametric team to join us to answer your questions. Oh, can we yeah. Im dan lazarus. Im from parametric. Ive got justin henny and kelley hillquist. I think the board had a lot of questions last time that they want some answers to, so why dont you just go ahead and jump in and start addressing those. Okay. Thats what i had hoped to do. So do you want me to just go through them . Yeah. Answer the questions. Why Index Futures, im reading from slide four, Exchange Traded futures yallow us to remove the secured indexes. Are there slides . Its attached to the recommendation. Attached to item [ inaudible ]. Did you get it . No, theres no slides attached to item 12. Attached to the memo . No slides. I dont have any slides. Oh, they might be 11, you might be in the guidelines. [ inaudible ] im sorry. Two different pieces of material. First. My mistake. I thought we were on item 12. So yeah, index so in other words, Index Futures are another way to invest in indexes. They have a different structure, but the same result is index eft and mutual funds, which also are different structures from each other, but futures are easier to trade in and out of and stay fully invested. They allow investors to maintain cash investments for operations while remaining invested in the market. Its a highly lick witness market. If you turn to slide 6, you can see that as of the end of january on the lefthand column, the 20 day average rum of s and p average futures was 148 billion versus the constituents, the usual signs, which was 142 billion. Slide 12, so the historical cash drag on performance on the period from 2000 to 2017, which includes the tech bubble bursting, as well as the financial crisis. 2008 was the one year when it was really beneficial to hold cash if you could time the market perfectly, but most of the years, the return it was beneficial. The annualized impact on an Overall Holding portfolio was 12 basis points peryear. Slides 18 to 20 show this in more detail. Theyre his