1. Fresno County Employees’ Retirement Association ACTUARIAL AUDIT ACTUARIAL VALUATION OF JUNE 30, 2010 EXPERIENCE STUDY FOR JULY 1, 2006 - JUNE 30, 2009 GRAHAM SCHMIDT BOB MCCRORY EFI ACTUARIES JANUARY 19, 2010 1

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

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 3

4. Good News 4 ($ in Millions) June 30, 2010 Valuation EFI Independent ReviewRatio Present Value of Benefits$4,961.5$4,886.998.5% Actuarial Accrued Liabilities4,092.54,041.798.8% Actuarial Value of Assets2,983.0 100.0% Unfunded Accrued Liability (UAL)1,109.51,058.795.4% UAL Amortization99.7 95.295.5% Normal Cost 80.3 77.997.0% Total 180.0 173.196.2%

5. More Good News Graham had a baby! 5

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

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 7

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 8

9. Rate of Return 9

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 10

11. Cost of Living Adjustments 11

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 12

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! 13

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