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CaIPERS 101: HOW DOES IT WORK? DEFINED BENEFIT PLAN PENSION FORMULAS Defined Benefit Plans (DBPs) are pension plans in which an employee receives fixed benefits that are based on length of service and salary earned at the time of retirement. The City's relationship with CalPERS to provide a DBP to its employees dates back to 1945 when the initial plan was approved by Riverside voters by Special Election on June 5. Further, the City's Charter (Article X - Retirement), requires a CalPERS retirement for City employees. A defined contribution plan (DCP), such as a 401 K, is a dollar contribution to a retirement fund. The total retirement in a DCP is generally based on the amount of assets and growth of the money. The City has several employee groups with different CalPERS DBP formulas (see page 3). The formula represents the percent of salary for each year employed with the City that a plan member will receive at or after the specified age. For example, for a plan member that receives a pension of 2.7% @ 55 with a 3 -year highest salary average of $65,000 and 20 years of service will: • Be eligible to retire at 55 years of age • Receive an annual pension based on the following formula: • Years of service x pension rate x 3 -year highest salary average = annual pension • 20 x 2.7% x $65,000 = $35,100 annual pension HOW ARE CaIPERS BENEFITS FUNDED? TWO-THIRDS OF FUNDS COME FROM INVESTMENTS Historically, more than 60% of all funds paid to CalPERS retirees comes from investment earnings. When CalPERS does not meet its investment return goals, the City will pay more. . M h.IZI(IA Fall Page 5 (SEE THE LAST PAGE FOR INVESTMENT AND CaIPERS TERMINOLOGY DEFINITIONS)