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HomeMy WebLinkAboutBOARD MINUTES 04-10-03 180 MINUTES OF THE ADJOURNED REGULAR BOARD MEETING OF THE DISTRICT BOARD OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT HELD ON APRIL 10, 2003 The District Board of the Central Contra Costa Sanitary District convened in an adjourned regular session at its regular place of meeting, 5019 Imhoff Place, Martinez, County of Contra Costa, State of California, at 2:00 p.m. on April 10, 2003. President Nejedly called the meeting to order and requested that the Secretary call roll. 1. ROLL CALL PRESENT: Members: Menesini, Hockett, Lucey, Boneysteele, Nejedly ABSENT: Members: None 2. PUBLIC COMMENTS None 3. ADMINISTRATIVE a. RETIREMENT SYSTEM WORKSHOP - IRA SUMMER OF PUBLIC PENSION PROFESSIONALS. AND PATRICIA WIEGERT AND MARILYN LEEDMON OF CONTRA COSTA COUNTY EMPLOYEES RETIREMENT ASSOCIATION (CCC~RA) Mr. Charles W. Batts, General Manager, stated that this workshop on the retirement system is being presented at the request of the Board. Mr. Ira Summer, President of Public Pension Professionals, will provide an overview of pension plans, Contra Costa County Employees Retirement Association, a comparison with CalPERS, and cost of the benefits. Mr. Batts reviewed Mr. Summer's background and experience. Mr. Batts stated that the District is fortunate to have representatives from the Contra Costa County Employees Retirement Association (CCCERA), Ms. Patricia Wiegert and Ms. Marilyn Leedmon, present as well to answer questions that are specific to CCCERA. Mr. Batts stated that as always, District staff is available to answer any questions the Board may have. Mr. Batts introduced Mr. Ira Summer, President of Public Pensions Professionals, who stated that he was asked to provide an overview of CCCERA benefits, a comparison with CalPERS, and the cost of the benefits. With regard to pension programs, the District has the option to join CCCERA, join CaIPERS, form its own pension plan, or not have a retirement program. Mr. Summer stated that people tend to come to the public sector looking for stability and they tend not to change positions as often as those in the private sector. The average career in the public section is actually getting longer over the last few decades, in contrast to the private sector. Member Lucey questioned why time will be spent on the cost of the benefits, since the District has nothing to say about the costs. Mr. Summer stated that even if the District has no control over the cost of benefits, the District should have some idea of where the costs are going in order to be able to plan; however, Mr. Summer stated there are some places where the District can have some control. Member Boneysteele stated that he requested this workshop because his primary concern is the cost of benefits. Mr. Summer stated that a defined benefit plan is one where the benefit that is promised is defined in the beginning. Mr. Summer described the characteristics of a defined benefit plan, stating that it is a final pay plan based on your salary at the end of your career; using a formula of a percentage times years of service times final pay; and 04 10 03 181 includes cost of living adjustments; disability benefits, early retirement benefits, and guaranteed payments for life. CCCERA is a defined benefit plan. Mr. Summer described the characteristics of a traditional defined contribution plan, as follows: a formula of a percentage times pay contribution, voluntary employee contributions, employee investment elections, and single sum payment at termination. The District's 457 Plan is a defined contribution plan. Mr. Summer described the accumulation pattern of both the defined benefit plan and defined contribution plan. In a defined benefit plan, the increase in value per year as a percentage of pay increases over time; while in a defined contribution plan, the increase in value per year as a percentage of pay remains constant. Using pie charts, Mr. Summer described the benefit allocation (how much goes to retirees?) in the two types of plans, noting that in a defined contribution plan half goes to retirees (that is employees who actually retire) while in a defined benefit plan a much large portion goes to retirees. With regard to who pays if things go worse than planned, Mr. Summer stated that in a defined benefit plan the employer takes the risk. If the market goes up, it costs the employer less; if the market goes down, it costs the employer more. In a defined contribution plan, the employee takes the risk. A defined benefit plan provides greater flexibility for things like offering an early retirement incentive. There is no flexibility in a defined contribution plan. Mr. Summer reviewed the key features of the Contra Costa County Employees Retirement Association (CCCERA) Plan as follows: . Formula ~ ~ ~ Age Factor Final Pay (one year) Years of Service . 60% Continuance to Spouse . 3% Cost of Living Adjustments (maximum); if inflation is less than 3% the actual cost of living adjustment is given Using a chart, Mr. Summer showed the current District retirement plan with 2% at age 58%, a 2% at age 55 plan, and a 3% at age 60 plan. At age 60 the current plan and the 2% at age 55 plan are about the same. Between ages 55 and 60, the 2% at age 55 plan is costly to the District and beneficial to employees. The 3% at age 60 plan steadily increases from 2% at age 50 until age 60 where it levels out at 3%. Mr. Summer stated that the benefit of this plan is for people retiring between ages 50 and 60, and it creates a strong incentive for people to retire at age 60 or soon after. In response to questions from Member Boneysteele, Mr. Summer stated that these plans are set forth in California Government Code Sections 31676.11,31676.16, and 31676.17. Mr. Summer provided a comparison of the CCCERA Plan with CalPERS, stating that similar plans providing similar benefits are available through CaIPERS. According to various studies, CalPERS is the most efficient system in the U.S. so the cost for a similar plan through CalPERS would be slightly less on a per person basis (0.05%) because they have so many members. Because CalPERS is so much larger than CCCERA, the service level would be different. CCCERA is more flexible in dealing with employees and with the agencies. CCCERA information and data is more timely. Mr. Summer stated that over the long term, the contributions to a pension plan plus investment return must equal benefit payments plus expenses. Generally expenses are less than 1 % of the total costs. In the case of CCCERA, expenses are likely more in the range of 0.5% of total costs. The funding goal of any retirement plan is to be fully paid at retirement. That is, to put money into the pension plan while people are working so when they retire there is enough money in the pension plan to pay for their benefit for the rest of their lives. In order to reach that goal, an actuary makes some assumptions. Actuarial Accrued Liability (AAL) is the portion of projected liability attributable to the past. Unfunded Actuarial Accrued Liability (UAAL) is the portion of the AAL not covered 04 10 0 f":¡ .. () 182 by the assets already in the retirement system. If you are fully funded, you pay a percentage of salary (Normal Contribution). If you have unfunded liability, you must pay for the current percentage of salary (Normal Contribution) and make up the amount that is not funded yet (Amortization). Mr. Summer stated that Contra Costa County is now getting Pension Obligation Bonds to fund its unfunded liability at a lower interest rate than that being used by CCCERA; however, there are significant costs to issuing bonds and some agencies do not qualify because their bond rating is not high enough. Member Lucey questioned the assumptions CCCERA has used, stating that the 8% factor seems completely unrealistic. Member Lucey asked the assumptions used by CaIPERS. Mr. Summer stated that as he remembers CalPERS used an 8.25% factor. CCCERA used an 8.5% factor for a period of time, then dropped it over time to the current 8%. The 8% is not what CCCERA expects to earn this year or what it earned last year. The 8% factor is the average it expects to earn over the next 20 years. Mr. Summer stated that the District's projected Unfunded Actuarial Accrued Liability (UAAL) at December 31,2001 was $21.7 million plus interest at 8.5% plus this year's normal cost less contributions made, plus the assumption change to 8% brings the estimated UAAL at December 31,2002 to $27.0 million. Mr. Summer stated that over the last few years pension plans across the country have lost money. Investments tend to go up and down. Pension systems use an asset smoothing process to level that out on the belief that the ups and downs will average out over time, usually about five years. That means that the District has not yet seen some of the losses that have already hit. Those losses will appear if the fund earns 8% a year. If the fund earns more than 8% a year, some of those costs will go away. Mr. Summer stated that his best guess based on a UAAL at December 31,2002 of $27 million is that the realistic District liability would be $52 million over the next five years. This estimate takes into account $25 million in unrecognized investment losses. Mr. Summer used a pie chart to describe this year's contribution, indicating that Assets make up about 2/3 of the total and Present Value of Future Normal Costs makes up a sizable portion as well. The District pays its Normal Contribution and Amortization to cover a portion of the UAAL until fully funded. Mr. Summer stated that in the next five years the District can expect its contributions to the retirement system to double. Much of the discussion of benefit improvements has slowed down recently. When investment returns go up again, agencies will likely be looking at benefit improvements. In response to questions from Member Lucey, Mr. Summer stated that he expects the District retirement costs to double over the next five years. Mr. Summer stated that he is aware of one agency that has left CCCERA and gone to CaIPERS, the City of Pittsburg. In response to questions from Mr. Batts concerning the impact of the Ventura decision, Mr. Summer stated that the Ventura decision deals with what was included in pay for retirement purposes. The Ventura safety workers said that anything you get paid in cash or can be taken as a cash benefit should count in your base pay. The Judge said employers must go back and make up this difference. It would be difficult at best to find records of actual pay amounts for people who have been retired for 30 or 40 years, so most of the retirement systems settled out of Court. In Contra Costa County, there was a lawsuit and settlement, and benefits were provided. Some of the benefits were paid from money set aside in a special reserve account. CCCERA used part of that money to pay for a part of the settlement. The rest must be paid by the employers (districts and agencies). Mr. Summer stated that he does not know the actual impact of the Ventura decision on Central Contra Costa Sanitary District. Ms. Patricia Wiegert, CCCERA Retirement Administrator, stated that the cost increase for the Ventura decision as a percentage of pay was very small, 2% or less. CCCERA had $90 million set aside to pay for the costs for all retirees. The agencies are charged for the costs for going forward. The actuary has advised CCCERA that the total cost will be about $115 million, so employers will have to pay the portion of the difference for their employees. The cost increase for the Ventura decision is already in the District's rates. The difference between $90 million and $115 million will be billed to each agency. The agency can then write a check or amortize it over 20 years. 04 10 03 183 In response to further questions from Mr. Batts concerning CCCERA involvement in retiree benefits costs, Ms. Wiegert stated that in 1994 Contra Costa County issued Pension Obligation Bonds and the County's retirement rates dropped significantly as a result. The County's UAAL (unfunded liability) was paid by the bonds so the County could no longer use its portion of the surplus to buy down its UAAL. There is a provision in the law that allows the County to buy health insurance with its share of the surplus, so the County purchased retiree health insurance with its share of the surplus. Ms. Wiegert stated that changed about a year or two ago, and is no longer being done. In response to questions from Mr. Tad Pilecki, President of the Management Support/Confidential Group, Mr. Summer stated that CalPERS was not impacted by the Ventura decision. The CalPERS law is fairly clear on what is included in base pay and what is not. Most of the things in the Ventura decision were already included in CaIPERS. Mr. Summer stated further that under CCCERA, early retirement benefits are based on the employee's age at hire so a lower contribution rate is paid. Under CalPERS, everyone pays the same rate. For that reason, Mr. Summer stated that changing to CalPERS would be a public relations nightmare with employees. Some would win and some would lose. With regard to the security of CalPERS funds, in the past some agencies tried to stop minimum payments with a promise of future contributions. In 1992 California voters said you can no longer do that. Mr. Dave Rolley, President of Central Contra Costa Employees Association Local 1, asked about the practice of letting people who retire get the benefit of the higher of the plans in place during their employment. Ms. Wiegert stated that employees hired before a certain date (January 1, 2003 for the County), get the higher of the two plans. Employees hired after that date get the new plan. Ms. Wiegert stated that employees have a constitutional right to the retirement pension that was in place the date they retired. Mr. Paul Louis, Maintenance Supervisor, asked if there is a limit on the amount of retirement benefit an employee can receive. Mr. Summer stated that the limit is 100 percent of salary. Mr. Pilecki stated that the cost for the District to go to the 2% at age 55 plan is about $300,000 for the Management Support/Confidential Group. Mr. Pilecki asked what the cost would be to go to the 3% at age 60 plan? Mr. Summer stated that he would estimate that it would be more than $1 million. Mr. Summer stated that it is difficult to estimate without knowing the specifics. Mr. Summer stated that for the 2% at age 55 plan, the District's UAAL probably went up about $2 million. The UAAL for the 3% at age 60 plan would probably be three times as much. President Nejedly thanked Mr. Summer, Ms. Wiegert, and Ms. Leedmon. Ms. Wiegert expressed concern about the sense of frustration the Board expressed about not being heard by CCCERA. Ms. Wiegert suggested that the District have a representation attend CCCERA Board meetings on a regular basis. Randy Musgraves, Director of Administration, indicated that he attends CCCERA Board meetings when items of interest to the District are on the agenda. Mr. Batts stated that District requests receive prompt service from CCCERA staff, and he commended CCCERA on that. The comment was that there is a sense of frustration that in some cases it appears that the CCCERA Board makes some arbitrary decisions without considering or receiving input. One example is making the employers' cost of living increase effective in January while delaying implementation of the employees' portion until July when in the past these two have always been treated in the same way. On behalf of the District, Mr. Batts commended Ms. Wiegert, Ms. Leedmon, and CCCERA staff for their excellent service to the District and its employees. 4. REPORTS None 04 10 03 184 5. EMERGENCY SITUATIONS REQUIRING BOARD ACTION None 6. ANNOUNCEMENTS/SUGGESTIONS FOR FUTURE AGENDA ITEMS None BREAK At 4:03 p.m., President Nejedly declared a recess, reconvening at 4:13 p.m. in closed session with all parties present as previously designated. 7. CLOSED SESSION a. LABOR NEGOTIATIONS With respect to labor negotiations, the closed session was held pursuant to Government Code Section 54957.6 to meet with designated representatives prior to and during consultations and discussions with representatives of employee organizations regarding the salary, salary schedules or compensation paid in the form of fringe benefits to employees in order to review its position and instruct its designated representatives. The District's negotiators are Labor Counsel Allison Woodall, Director of Administration Randall M. Musgraves, and Human Resources Manager Cathryn Freitas, and the pertinent employee organizations are the Central Contra Costa Sanitary District Employees Association Local 1 and the Management supporUConfidential Group. At 4:13 p.m., President Nejedly declared the closed session to discuss labor negotiations pursuant to Government Code Section 54957.6 as noted above. At 4:35 p.m., President Nejedly concluded the closed session and reconvened the meeting into open session. 8. REPORT OF DISCUSSIONS IN CLOSED SESSION No decisions were made or votes taken in closed session which require reporting at this time. 9. ADJOURNMENT There being no further business to come before the Board, President Nejedly adjourned the meeting at the hour of 4:37 p.m. Pres' nt of the Board of D' cto s, Ce tral Contra Costa Sanitary District, County of Contra Costa, State of California COUNTERSIGNED: c¿ Secr of the Centr I Sanitary District, County 0 Costa, State of California 04 10 03