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HomeMy WebLinkAbout06.a.2) CCCERA Update6606 2 ) Central Contra Costa Sanitary District February 3, 2011 To: BOARD OF DIRECTORS VIA: JAMES M. KELLY, GENERAL MANAGER p �M FROM: RANDALL M. MUSGRAVES, DIRECTOR OF ADMINISTRATION SUBJECT: CONTRA COSTA COUNTY EMPLOYEE'S RETIREMENT ASSOCIATION (CCCERA) RESPONSE TO THE DISTRICT'S DE- POOLING LETTER Attached is the response from Ms. Marilyn Leedom, Retirement Chief Executive Officer, to the District's December 27, 2010 letter regarding de- pooling and the CCCERA Board's authority. Staff has also attached a copy of the District's December 27, 2010 letter for reference. A closed Session for the Board to consider the appropriate action to take. cc: Kenton Alm, District counsel Daniel Clinton, District Labor counsel 1 ,ta CQ1 .0 Employees' Fbfirement Association 1;355witlnwwav SIIItP.791 concord ca 94520 925.521.3960 fax 925.646.5747 January 25, 2011 Mr. Michael R. McGill, P.E. President of the Board of Directors Central Contra Costa S anitary D i strict 5019 Imhoff Place Martinez, CA 94553-4392 Dear Mr. McGill: Thar you for your letter of December 27, 2010, regarding the depooling issue. At its January 12, 2011 meeting, the Board of Retirement asked me to respond to your letter. I trust you will find the fallowing informative. The Board of Retirement has full and exclusive authority under law to provide for the administration of the retirement system, the actuarial soundness of the system and the delivery of benefits and related services to the members and their beneficiaries. This authority is conferred on it by the California Constitution and the California government Code. Multiple provisions of the Government Code provide that the Board of Retirement, on the advice of its actuary, shall establish the contribution rates to be paid annually by the County and the participating districts in the retirement system, and their respective employees; and that each employer's contributions adequately pay for the liabilities it generates through the benefits it promises to its employees over tune. In establishing contribution rates, CCCERA is not required by law to "meet and confer" with any employer or employee group, nor to obtain consent or agreement to the rates it sets. Can the other hand, however, CCCERA has always followed an open and public process, with full advance notice to its employers and an opportunity for them to be heard, before the Board males any changes in its policies, actuarial assumptions and methodologies or other procedures that may affect the setting of contribution rates. That is the process the Board of Retirement has followed in establishing its policies regarding the calculation of "final compensation" and for the "depo oling" of employer contribution rates. In addition, for the Board' s public deliberations on the "depooling" matter, we sent the District at least five specific invitations to the meetings at which the Board would be discussing the matter. The meeting dates, discussion topics and .minutes are all a matter of public record and available on our website at www.cccera.org. It is important to understand that the Board of Retirement did not "depool" employer contribution rates "retroactively to 2002." The methodology used by the system's actuaries was to look at employer data for the years it had data (which started in 2002), and to use that retrospective data in setting contribution crates prospectively after 2011. The census and contribution data available to the actuaries permitted the actuaries to chart the relative future liabilities owed the members by each participating employer. CCCERA has not made adjustments to past contributions made by any employer. With reference to the Retirement Board's calculation of" final compensation" since the 1 997 Ventura decision, we note that following that decision and in resolution of pending litigation locally referred to as the "Paulsen" n" settlement, the Board of Retirement adopted its Policy called "Determining which Pay Items are 'Compensation' for Retirement Purposes." The Policy was adopted following duly noticed, open and public meetings at which employers and other stakeholders had the opportunity to be heard. In subsequent years, developments in reported cases in other j urisdictions provided additional guidance on elements that might or might not be included in "final compensation." Periodically the Board of Retirement considered its Policy in light of these developments. Prior to 2010, the Board determined that in the proper exercise of its constitutional and statutory discretion it need not alter its Policy in this regard. Of course, while it is the Retirement Board that determines which elements of pay are to be counted in "final compensation," it is the District, not the Retirement Board, that decides how much vacation, sick leave and other leave amounts the employee is permitted to take in cash and with what frequency. In 2010,, following another duly noticed, open and public series of meetings, at which time employers and other stakeholders had the opportunity to be heard, the Board determined to exercise its discretion to make changes in the calculation of "final compensation?' for new members of the retirement system and to amend' its Policy accordingly. The Policy was amended March 10, 2010, effective for members whose first date of membership was on or after January 1, 2011. In all of its decision - making processes, the Board of Retirement has complied with all applicable laws, regulations and bylaws, and has always provided sample opportunity for its participating employers to provide their views before making its decisions. we loop forward to continuing this practice and continuing our cooperation with the Central Contra Costa Sanitary District to provide for the benefits the District has promised to its employees and their beneficiaries. Sincerely, Marilyn Lee m Retirement Chief Executive Officer cc: Board of Retirement Karen Levy, general Counsel 1WR Central Contra Costa S strict anitary Di Pr otecting public `• ■ I the enviro BOARD OF DIRECTORS : MICHAEL, R. MCCILL President December 27, 2010 BARBARA D H(X� K1:7T President Pro 'fain HAND DELIVERED MANOM. MF.NF.SIN] JAMES A. NEJEDLY Honorable Members of the Board DAVID R. 47LLIAMS Contra Costa County Employees' Retirement PHONE (925) 228 - 9500 Association FAX. (925) 676 -7211 1355 Willow Way, S 2 www. centralsan.org Concord, CA 94520 Dear Members of the Board: The Central Contra Costa Sanitary District ( "CCCSD ") Board of Directors thanks CCCERA for the information it has provided and for delaying action on its consideration of retroactive de- pooling to allow CCCSD to review CCCERA's proposed rate adjustments. CCCSD has spent substantial effort in evaluating the retroactive de- pooling decision of CCCERA and the implementation of those decisions through the proposed member rates, to be implemented July 1, 2011. The cumulative impact of CCCERA's actions or inactions and the de- pooling methodology would increase CCCSD's unfunded liability (and hence burden our ratepayers) by $20 million. This potential unfunded liability would result in a substantial increase in CCCSD's cost of operations beginning in July 2011. As part of our review to ensure CCCERA was correctly calculating our liability, CCCSD reviewed our practices of reporting final annual salary (FAS) to CCCERA (following CCCERA Policy "Determine Which Pay Items are "Compensation" for Retirement Purposes" ( "Policy " )}. Based on this review we concur with CCCERA's analysis that the vast majority of the pay codes that make up the FAS are being correctly reported (memorandum from Harvey Leiderman to Marilyn Leedom dated September 15, 2010), and hence the retirement benefits comply with CCCERA's "Policy ". The CCCSD Board has significant concerns about decisions CCCERA made that led to the proposed de- pooling action, although we are willing to consider paying our fair share of the de- pooled retirement costs, as appropriately determined. CCCSD rejects the proposition that all of the current circumstances which have led to de- pooling could not have been avoided or ameliorated. We contend it is the CCCERA Board, not the employer, that has the constitutional and statutory duty to manage retirement funds and to determine whether and how much the fund is obligated to pay to individual retirees. Central Contra Costa Sanitary District further contends that subsequent to the July 11, 2003 decision of In re Retirement Cases (2403) 110 Cal.App.4th 425, 457 -460, CCCERA had both the opportunity to and obligation to modify its "Policy" as it ultimately did on March 10, 2010. It is worth noting that CCCERA's lack of action after 2003 led to much of CCCSD's and other employers' accrued de- pooling unfunded liability. We "contract" with you to administer the fund and your failure to either track or consider changes in the law at that time detrimentally impacted CCCSD and other employers. For example, approximately 90 of CCCSD's 250 employees have been hired since January 2004, and could have been covered by the second tier policy adopted (�D Recycled Paper Letter to CCCERA Board December 27, 2010 Page 2 this year. We would like to know why the decision to set up a second tier was delayed for years and only occurred when "spiking" became a matter of public controversy. Given the significant public policy change by CCCERA to move from a pooled system to a de- pooled system by employer and to do so retroactively, and the resultant unanticipated liability and costs to CCCSD and several other employers, we, as Board members of CCCSD, request that: (1) the CCCERA Board respond to our questions set forth on Attachment A as an agenda item for the CCCERA January 12, 2011 Board meeting, and (2) the CCCERA Board make this letter available for distribution at the meeting as part of the public record. The purpose of our letter is to seek a statement and understanding from the CCCERA Board as to its perceived authority for certain decisions and the process used to make those decisions so we can perform our due diligence as a Board and to ensure this is a lawful change in public policy. We hope that your response to this request will satisfy our concerns and make CCCERA's decision- making process more transparent to CCCSD as an employer member, to other employer members, as well as to the public. It is critical that future decisions which affect CCCSD's financial and policy status allow for our timely input prior to becoming final. Notwithstanding these comments- and the questions set forth in the attachment, the professional manner in which you and your staff have dealt with our inquiries and concerns on this matter is appreciated. We look forward to CCCERA's response to this letter and the questions presented in the attachment. If the Board has any questions or needs further clarification, please contact James M. Kelly, General Manager, at (925) 229 -7386. Sin fi r' Michael R. M , I . E. President of the Board of Directors Central Contra Costa Sanitary District cc: Ms. Marilyn Leedom, Executive Director Attachment A : Questions to CCCERA Board of Directors regarding de- pooling ATTACHMENT A 1. October 13, 2009 "De- pooling" Decision �. Please identify the authority CCCERA relied upon to unilaterally implement its October 14, 2009 "de- pooling decision. To prevent any confusion, our question seeks the following: a. Did CCCERA rely on any California constitutional authority? If so, please specify. b. Did CCCERA rely on any California statutory authority? If so, please specify. C. Did CCCERA rely on its own regulations, bylaws or other authority? If so, please specify. d. Is there any authority CCCERA relied upon other than the above? e. Does CCCERA believe that its Board has unfettered authority to make policy decisions, without seeking input and /or approval from its employer members? If so, what authority does the Board rely upon for this conclusion? 2. Is it CCCERA's position that its "de- pooling" decision did not require consent or other form of approval from its employer members? If so, what is the authority for that conclusion? 3. When did the CCCERA Board commence its discussion of adopting a "de- pooling" policy? Please provide a list of dates when this issue was discussed by the Board, including publicly noticed open and closed session meetings. Il. Retroactive Effect of "De- pooling" Decision 1. Please identify the authority CCCERA relied upon to unilaterally decide to effectuate the "de- pooling" decision retroactively to 2002. a. Did CCCERA rely on any California constitutional authority? If so, please specify. b. Did CCCERA rely on any California statutory authority? If so, please specify. C. Did CCCERA rely on its own regulations, bylaws or other authority? If so, please specify. d. Is there any authority CCCERA relied upon other than the above? e. Do you assert that the CCCERA Board has unfettered authority to make policy decisions, without seeking input and/or approval from its employer members? If so, what authority does the Board rely upon for this conclusion? 2. Under the County Employees Retirement Law, Government Code Sec. 31453.6 provides statutory authority to, on a one -time basis, amortize unfunded accrued actuarial obligations for 30 years, for the purpose of determining employer contribution rates. In making its decision to apply "de- pooling" retroactively to 2002, did the Board consider exercising its authority under Government Code Sec. 31453.6? If so, did the Board decide that this section was irrelevant or not necessary? To the extent that the Board responds that no request was forthcoming from the Board of Supervisors, please advise whether, as part of the Board's "de- pooling" decision - making, any discussions have taken place with respect to the Board's powers afforded by the above statute. lll. implementation of "in re Retirement cases" Limitations on Reportable Compensation ! . Please identify and list any and all documents, including but not limited to settlement agreements, policy directives, etc. by which CCCERA decided to implement the compensation benefits as identified in the Supreme Court's decision Ventura County Deputy Sheriffs' Assn. v. Board of Retirement ( 1997) 16 Cal.4 453, 66 Cal. Rptr.2d 304. 2. Please identify and list any and all non - attorney client privileged documents which the Board considered with respect to whether the Board should adopt, or refrain from adopting, the compensation limitations approved by the Court of Appeal in In re Retirement Cases (2003) 110 Cal.App.4 426, 1 Cal. Rptr.3d 790. 3. Please identify and list any Board decision to refrain from adopting the compensation limitations set forth the In re Retirement Cases decision. If none is identified and listed, what was the Board's decision - making procedure, if any, for evaluating the legal impact of the above 2003 Court of Appeal decision? Is it accurate to conclude that the CCCERA Board has voluntarily applied the Ventura decision to all then and currently active employee members since that 1997 decision, without imposing the limitations approved by the In re Retirement Cases Court? 4. We understand that the Board received a legal opinion on or about October 21, 2009 related to CCCERA's treatment of final compensation and retirement benefits. Please describe the decision - making process resulting in the Board's policy to implement the Court of Appeal limits on compensation, effective in 2011. IV. Future Decision- making Process Please identify the decision- making protocols under which CCCERA currently operates. Further, we assume that the CCCERA Board will have future policy decisions to consider; these decisions, similar to the those above, may potentially involve significant financial impact on members, including, but not limited to, contribution rates and addressing unfunded liabilities. 1564067.6