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Home My WebLink About05. Receive actuarial valuation required prior to transition to CalPERS Healthcare Page 1 of 5 Item 5. CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER MEETING DATE: MARCH 7, 2019 SUBJECT: RECEIVE ACTUARIAL VALUATION REQUIRED PRIOR TO THE TRANSITION TO CALPERS HEALTHCARE SUBMITTED BY: INITIATING DEPARTMENT: TEJI O'MALLEY, HUMAN RESOURCES OPERATIONS - POD - HUMAN RESOURCES MANAGER REVIEWED BY: ANN SASAKI, DEPUTY GENERAL MANAGER Roger S. Bailey General Manager ISSUE Pursuant to Government Code Section 7507, an agency is required to conduct an actuarial valuation when considering changes to any post-employment benefits before authorizing and formally adopting any such changes. BACKGROUND In late 2018, the Board of Directors adopted Memoranda of Understanding (MOUs)with all three of its bargaining units; Public Employees Union Local One, Management Support/Confidential Group, and the Management Group. As part of negotiations, Central San and the bargaining units agreed to transition from Central San's current medical plans to CalPERS medical plans, effective July 1, 2019. This change will impact all current employees as well as District retirees. To formally enter into an agreement with CalPERS, the Board of Directors must adopt a resolution, however, prior to adopting the resolution and formally authorizing the change, the District must comply with Government Code Section 7507 which requires the following: • Retain an actuary to provide a statement of the actuarial impact on future annual costs before authorizing the changes; • Make the future costs of changes in retiree health benefits, as determined by the actuary, available at March 7, 2019 Regular Board Meeting Agenda Packet- Page 57 of 107 Page 2 of 5 a public meeting at least two weeks prior to the meeting at which the Board will consider the adoption of the change; • The adoption of any such change cannot be placed on a consent calendar; and • Upon adoption of any benefit change(s), the General Manager or designee, must acknowledge in writing that he or she understands the current and future cost of the benefit as determined by the actuary. Central San contracted with Bartel and Associates, LLC., an actuarial firm, to conduct the valuation. A copy of the actuarial valuation is attached. To summarize, the Present Value of Projected Benefits (PVPB), which is the amount the plan needs to pay future benefits, decreases by$32,848,000 and the Actuarial Accrued Liability (AAL), which is the amount the plan is actuarially underfunded to pay future benefits, decreases by$28,659,000. ALTERNATIVES/CONSIDERATIONS None. This actuarial valuation is a requirement of Government Code Section 7507 prior to the Board being able to authorize participation in the CalPERS medical plans. FINANCIAL IMPACTS None. The actuarial valuation is an analysis of the financial impact of the transition of Central San's current medical plans to the CalPERS medical plans. The financial impact of the transition will not occur until the Board authorizes participation in the CalPERS medical plans. The actuarial valuation demonstrates substantial savings related to the cost of providing medical benefits for current and future retirees The full cost savings includes the retiree cost savings as well as the savings for current employees. These savings will be detailed in the position paper requesting authorization for the transition to CalPERS. COMMITTEE RECOMMENDATION The Administration Committee received the actuarial valuation during their February 19, 2019 meeting. RECOMMENDED BOARD ACTION Receive the actuarial valuation so that Central San can proceed with the change to CalPERS medical plans pursuant to Government Code Section 7507. Strategic Plan Tie-In GOAL THREE: Be a Fiscally Sound and Effective Water Sector Utility Strategy 2- Manage costs ATTACHMENTS: 1. Valuation performed by Bartel Associates, LLC March 7, 2019 Regular Board Meeting Agenda Packet- Page 58 of 107 Page 3 of 5 BRTE L SSOCIATES, LLC February 8, 2019 Teji O'Malley Human Resources Manager Central Contra Costa Sanitary District 5019 Imhoff Place Martinez, CA 94553-4292 Re: Central Contra Costa Sanitary District—Changes to Retiree Healthcare Benefits Dear Ms.O'Malley: Section 7507 of the California Government Code requires agencies obtain a statement of actuarial opinion regarding the cost impact of retiree healthcare plan benefit changes. This letter provides the actuarial impact of the proposed change from District healthcare plans to the CalPERS medical program(PEMHCA). Proposed Benefit Changes The District currently provides healthcare benefits through the District's medical plans. Under the proposed benefit changes,the District would participate in CalPERS PEMHCA medical plans. The District will continue paying a percentage of premium for eligible retirees and dependents with the percentage and coverage varying based on hire date, except medical premiums will be capped(for all benefit tiers)at the following"Core Plan"PEMHCA premiums: Kaiser and HealthNet Smartcare for non Medicare retirees and Kaiser Senior Advantage and UnitedHealthcare for Medicare retirees. We understand the District will elect the PEMHCA Minimum' unequal method benefit. Employees retiring from the District who are not eligible for the District's retiree healthcare benefit will receive this benefit(if they elect healthcare coverage through PEMHCA).Under this method,the District will pay$1/month in 2019 and increase to 100%of PEMHCA Minimum over 20 years. Summary of Cost Change The changes in the District's July 1, 2018 actuarial obligations and 2019/20 Actuarially Determined Contribution(ADC)are summarized below. ■ The Present Value of Projected Benefits(PVPB)represents the amount the plan needs as of the valuation date to pay all future benefits if all assumptions are met. The PVPB decreases by $32,848,000 from$125,561,000 under current plan to $92,713,000 under proposed benefit changes. ■ The Actuarial Accrued Liability(AAL)represents the portion of the PVPB that participants have earned(on an actuarial,not actual,basis)through the valuation date. The AAL decreases by $28,659,000 from$108,135,000 under current plan to $79,476,000 under proposed plan. ■ The District's ADC is equal to the employer Normal Cost(the value of benefits earned during the year),plus a 16-year level dollar amortization of the unfunded liability(the value of benefits that have been earned in previous years). The 2019/20 ADC decreases by$3,407,000 from$7,313,000 under current plan to$3,906,000 under proposed plan. PEMHCA Minimum is$136/month in 2019 and increases each year by healthcare component of the CPI-U. 411 Borel Avenue,Suite 101 •San Mateo,California 94402 March 7, 2019 Regular7�¢64t/I� iN�9'�gtFd2�� `fAd �3�� b��el-associates.com Page 4 of 5 Teji O'Malley February 8,2019 (B? Page 2 Summary of changes to the July 1, 2018 Actuarial Obligations and 2019/20 ADC is as follows: Amounts in$000's Current Proposed Increase/ Plan Changes (Decrease) ■ 7/1/18 Actuarial Obligations • Present Value of Projected Benefits $125,561 $92,713 $(32,848) • Actuarial Accrued Liability 108,135 79,476 (28,659) • Actuarial Value of Assets 59,356 59,356 - • Unfunded AAL 48,779 20,120 28,659 ■ 2019/20 ADC-$ • Normal Cost 2,672 2,113 (559) • Amortization of Unfunded AAL 4,641 1,7932( ,848) • Total 7,313 1 3,906 3,407 Additional breakdown of July 1,2018 Actuarial Obligations is as follows: Amounts in$000's Current Proposed Increase/ Plan Chane (Decrease) ■ Present Value of Projected Benefits • Current Actives $60,675 $46,422 $(14,253) • Current Retirees&Beneficiaries ➢ Current Pre-Medicare 31,045 22,301 (8,744) ➢ Current Post-Medicare 33,841 23,990 (9,851) • Total 125,561 92,713 32,848 ■ Actuarial Accrued Liability • Current Actives 43,249 33,185 (10,064) • Current Retirees&Beneficiaries ➢ Current Pre-Medicare 31,045 22,301 (8,744) ➢ Current Post-Medicare 33,841 23,990 (9,851) • Total 108,135 79,476 28,659 Methods and Assumptions Actuarial methods and assumptions are the same as those used in the District's July 1,2018 actuarial valuation preliminary report dated January 28,2019 (including a 5.75%discount rate)with the following additional assumptions: ■ Participants are assumed to elect the following PEMHCA plans: • Kaiser HMO or waived--*Kaiser HMO (Kaiser Senior Advantage post-Medicare) • Health Net HMO --+ 95%Health Net SmartCare HMO and 5%Anthem Select HMO (80%UnitedHealthcare PPO and 20%PERS Choice PPO post-Medicare) • Health Net PPO --+ 95%Health Net SmartCare and 5%PERS Choice PPO (80% UnitedHealthcare PPO and 20%PERS Choice PPO post-Medicare) • Health Net PPO OOS --+ 90%PERS Choice PPO and 10%PERS Care PPO(80% UnitedHealthcare PPO and 20%PERS Choice PPO post-Medicare) 411 Borel Avenue,Suite 101 •San Mateo,California 94402 March 7, 2019 Regular7�¢64t/I� iN�9'�gtFd2��i �`fAd /60'� �b@7e1-associates.com Page 5 of 5 Teji O'Malley February 8,2019 P Page 3 ■ Following are 2018/19 District premiums and 2019 PEMHCA premiums for single coverage pre and post Medicare eligibility. Current District Plans PEMHCA Bay Area Pre- Post- Pre- Post- Medicare Medicare Medicare Medicare Kaiser HMO $ 805.56 $387.83 Kaiser HMO $ 768.25 $ 323.74 Health Net HMO 1,488.34 813.89 Health Net SmartCare 901.55 n/a Health Net PPO 2,178.33 891.68 PERS Choice PPO 866.27 360.41 Health Net OOS 2,433.74 885.25 Anthem Select HMO 831.44 n/a United Healthcare n/a 299.37 ■ No re-election is assumed for current retirees and beneficiaries not in District's medical plans. ■ 60%participation is assumed for current active employees and future beneficiaries who do not meet the District's retiree healthcare benefits eligibility(i.e.participants who are only eligible for the PEMHCA minimum benefit). ■ PEMHCA minimum is assumed to increase by 4.25%per year after 2019. Conclusion The District's actuarial cost would decrease due to the proposed benefit change. Bartel Associates is not a law firm and we are not qualified to render a legal opinion. Information provided in this report is for the District's management purposes. Future results may differ significantly if the Plan or District's experience differs from our assumptions or if there are changes in plan design or actuarial assumptions. The project scope did not include an analysis of this potential variation. Our calculations are based on benefit provisions,participant data, and actuarial assumptions, and other information provided by the District as summarized in this letter and our July 1,2018 actuarial valuation report. This study was conducted using generally accepted actuarial principles and practices. As members of the American Academy of Actuaries meeting the Academy Qualification Standards,we certify the actuarial results and opinions herein. Please let us know if you have any questions about this information. Sincerely, Doug Pryor,ASA,EA,MAAA Catherine Wandro,ASA,MAAA,FCA Vice President Assistant Vice President Bartel Associates,LLC Bartel Associates,LLC February 7,2019 February 7,2019 O:\Clients\Central Contra Costa Sanitary District\Projects\OPEB\2018 Val\Reports\BA CentralContraCostaSD 19-02-08 Letter-7507-Lnpact of Moving to PEMHCA.docx 411 Borel Avenue,Suite 101 •San Mateo,California 94402 March 7, 2019 Regular *r,d 6-dbt (Agind6-p6 0`pd lgWVf7.i)@r7cl-associates.com