HomeMy WebLinkAbout03.d.2) (Handout)SEGAL
THE SEGAL COMPANY
100 Montgomery . Street, Suite 500 San Francisco, CA 94104 -4308
T 415.263.8200 F415.263. 8290 www.segalco.com
February 1, 2011
Ms. Marilyn Leedom
Chief Executive Officer
Contra Costa County Employees' Retirement Association
1355 Willow Way, Suite 221
Concord, CA 94520
�Nand&.Lt) 3.d.2
John W. Monroe, ASA, MAAA, EA
Vice President & Associate Actuary
lmonroe(Osegalco. com
Re: Contra Costa County Employees' Retirement Association
Five -Year Projection of Employer Contribution Rate Changes
Dear Marilyn:
As requested, we have prepared a five -year projection of estimated employer contribution rate
changes for CCCERA. This projection is derived from the December 31, 2009 actuarial
valuation results. Key assumptions and methods are detailed below.
Results
The estimated contribution rate changes shown on the next page apply to the recommended
average employer contribution rate. For purposes of this projection, the rate changes are
assumed to be from asset gains and losses that are funded as a level percentage of the
Association's total active payroll base. The asset gains and losses are due to: (1) deferred gains
and losses from the actuarial asset smoothing methodology; (2) losses due to investment
income not earned on the difference between the Actuarial Value of Assets (AVA) and Market
Value of Assets (MVA); and (3) contribution gains and losses which occur from delaying the
implementation of new rates until 18 months after the actuarial valuation date.
The following table provides the year -to -year rate changes from each of the above causes and
the cumulative rate change over the five -year projection period. To obtain the estimated
average employer contribution rate at each successive valuation date, these cumulative rate
changes should be added to the rates developed from the December 31, 2009 valuation. These
rate changes become effective 18 months following the actuarial valuation date shown in the
table.
Benefits, Compensation antl HR C111ultm9 offices throughout the United States and Canada
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Founding Member of the Multinational Group of Actuanes and Consultants, a global afllliat :on of independent firms
Ms. Marilyn Leedom
February 1, 2011
Page 2
The rate changes shown below
represent the average rate for the aggregate plan.
Valuation
Date
Rate Change
Component
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31!201
(1) Deferred (Gains)/Losses
2.58%
2.81%
2.91%
0.41%
- 0.42%
(2) Loss of Investment
Income on Difference
0 62%
0,40%
0.17%
0.01%
-0.02%
Between AVA and MVA
(3) 18 Month Rate Delay
0.41%
0.45%
0.41%
3.61%
3.66%
3.49%
0.80%
-0.25%
Incremental Rate Change
3.61%
7.27%
10.76%
11.56%
11.31%
Cumulative Rate Change
The rate change for an individual cost group or employer will vary depending primarily on the
size of that group's assets and liabilities relative to its payroll. The ratio re results group's
m more volatile
payroll is sometimes referred to as the volatility index (VI). higher
contributions and can result from the following factors:
More generous benefits
• More retirees
• Older workforce
• Shorter careers
• Issuance of Pension Obligation Bonds (POBs)
The attached exhibit shows the VI for CCCERA's cost groups along with the "relative VI"
which is the VI for that specific cost group divided by the average VI for the aggregate plan.
Using these ratios we have estimated the rate change due to these generally investment related
net losses for each individual cost group by multiplying the rate changes shown above for the
aggregate plan by the relative VI for each cost group. These estimated rate changes for each cost
group are shown in the attached exhibit.
Note that because we have estimated the allocation of the rate changes across the cost groups, the
actual rate changes by croup may differ from those shown in the exhibit, even if the plan -wide
average rate changes are close to those shown above.
5110295V 1 10533 001
Ms. Marilyn Leedom
February 1, 2011
Page 3
Key Assumptions and Methods
The projection is based upon the following assumptions and methods:
> December 31, 2009 non - economic assumptions remain unchanged.
> December 31, 2009 retirement benefit formulas remain unchanged.
> December 31, 2009 1937 Act statutes remain unchanged.
> UAAL amortization method remains unchanged (i.e., 18 -year layers, level percent of
pay).
> December 31, 2009 economic assumptions remain unchanged, including the 7.75%
investment earnings assumption.
> 7.75% is actually earned on a market value basis for each of the five years, including
2010.
> Active payroll grows at 4.25% per annum.
> Deferred investment gains and losses are recognized per the asset smoothing schedule
prepared by the Association as of December 31, 2009. They are funded as a level
percentage of the Association's total active payroll base.
> Deferred investment gains are all applied directly to reduce the UAAL. Note that this
assumption may not be entirely consistent with the details of the Board's Interest
Crediting and Excess Earnings Policy.
> All other actuarial assumptions used in the December 31, 2009 actuarial valuation are
realized.
> No changes are made to actuarial methodologies, such as adjusting for the contribution
rate delay in advance.
Finally, we emphasize that projections, by their nature, are not a guarantee of future results. The
modeling projections are intended to serve as illustrations of future financial outcomes that are
based on the information available to us at the time the modeling is undertaken and completed,
and the agreed -upon assumptions and methodologies described herein. Emerging results may
differ significantly if the actual experience proves to be different from these assumptions or if
alternative methodologies are used. Actual experience may differ due to such variables as
demographic experience, the economy, stock market performance and the regulatory
environment.
5110295v1/05337.001
Ms. Marilyn Leedom
February 1. 2011
page 4
Unless otherwise noted, all of the above calculations are based on the December 31, 2009
actuarial valuation results including the participant data and actuarial assumptions on which
that valuation was based. That valuation and these projections were completed under the
supervision of John Monroe, ASA, MAAA, Enrolled Actuary.
Please let us know if you have any questions.
Sincerely,
V
John Monroe
CZI/hy
cc: Rick Koehler
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SEGAL
THE SEGAL COMPANY
100 MnnIgommy SI,ocl Snne 500 Son 5-0c,i, ,.CA 041044908
T .i 15.263 8200 F 415.20382410
March 11, 2011
Ms. Marilyn Leedom
Chief Executive Officer
Contra Costa County Employees Retirement Association
1355 Willow Way, Suite 221
Concord, CA 94520
J01111 W. Monroe, ASA, MAAA. EA
Vice PreSidenl & Assucia:e Actuary
lmonroe @segalco.com
Re: Contra Costa County Employees' Retirement Association
Five -Year Projection of Employer Contribution Rate Changes
Based on Estimated 14% Market Value Investment Return for 2010
Dear Marilyn:
As requested, we have updated our five -year projection of estimated employer contribution rate
changes for CCCERA. This projection is derived from the December 31, 2009 actuarial
valuation results and incorporates an estimated market value investment return of 14% for the
2010 calendar year. Key assumptions and methods are detailed below.
Results
The estimated contribution rate changes shown on the next page apply to the recommended
average employer contribution rate. For purposes of this projection, the rate changes are
assumed to be from asset gains and losses that are funded as a level percentage of the
Association's total active payroll base. The asset gains and losses are due to: (1) deferred gains
and losses from the actuarial asset smoothing methodology; (2) losses due to investment
income not earned on the difference between the Actuarial Value of Assets (AVA) and Market
Value of Assets (MVA); and (3) contribution gains and losses which occur from delaying the
implementation of new rates until 18 months after the actuarial vahlation date.
The following table provides the year -to -}rear rate changes from each of the above causes and
the cumulative rate change over the five -year projection period. To obtain the estimated
average employer contribution rate at each successive valuation date, these cumulative rate
changes should be added to the rates developed from the December 31, 2009 valuation. These
rate changes become effective 18 months following the actuarial valuation date shown in the
table.
Ms. Marilyn Leedom
March 11, 2011
Page 2
The rate changes shown below represent the avera e rate for the aggregate plan
More generous benefits
• More retirees
• Older workforce
• Shorter careers
• Issuance of Pension Obligation Bonds (POBs)
The attached exhibit shows the VI for CCCI;RA's cost groups along with the "relative VI"
which is the VI for that specific cost group divided by the average VI for the aggregate plan.
Using these ratios we have estimated the rate change due to these generally investment related
net losses for each individual cost group by multiplying the rate changes shown above for the
aggregate plan by the relative VI for each cost group. These estimated rate changes for each
cost group are shown in the attached exhibit.
Note that because we have estimated the allocation of the rate changes across the cost groups,
the actual rate changes by group may differ from those shown in the exhibit, even if the plan -
aide average rate changes are close to those shown above.
5134399v V 05337.001
Valuation Date (12131)
Rate Change
Component
2010 2011 2012 2013
2014
(1) Deferred (Gains) /Losses
2.57% 2.25% 2.38% - 0.11%
-0.92%
(2) Loss of investment
Income on Difference
0.39% 0.19% 0.01% - 0.12%
-0.0 0
Between AVA and MVA
(3) 18 Month Rate Delay
0.41% 0.44% 0.34% 0.31%
0.11%
3.37% 2.88% 2.73% 0.08%
-0.90%
Incremental Rate Change
Cumulative Rate Change
3.37% 6.25% 8.98% 9.06%
8.16%
The rate change for an individual
cost group or employer will vary depending primarily on the
liabilities relative to its payroll. The ratio of the group's assets to
size of that group's assets and
the volatility index (VI). A higher V1 results in more
payroll is sometimes referred
to as
from the following factors:
volatile contributions and can
result
More generous benefits
• More retirees
• Older workforce
• Shorter careers
• Issuance of Pension Obligation Bonds (POBs)
The attached exhibit shows the VI for CCCI;RA's cost groups along with the "relative VI"
which is the VI for that specific cost group divided by the average VI for the aggregate plan.
Using these ratios we have estimated the rate change due to these generally investment related
net losses for each individual cost group by multiplying the rate changes shown above for the
aggregate plan by the relative VI for each cost group. These estimated rate changes for each
cost group are shown in the attached exhibit.
Note that because we have estimated the allocation of the rate changes across the cost groups,
the actual rate changes by group may differ from those shown in the exhibit, even if the plan -
aide average rate changes are close to those shown above.
5134399v V 05337.001
Ms. Marilyn Leedom
March 11, 2011
Page 3
Key Assumptions and Methods
The projection is based upon the following assumptions and methods;
> December 31, 2009 non - economic assumptions remain unchanged.
> December 31, 2009 retirement benefit formulas remain unchanged.
> December 31, 2009 1937 Act statutes remain unchanged.
> UAAL amortization method remains unchanged (i.e., 18 -year layers, level percent of
pay).
> December 31, 2009 economic assumptions remain unchanged, including the 7.75%
investment earnings assumption.
> The 2010 estimated market investment return of 14% is based on information provided
by CCCERA. We have assumed that returns of 7.75% are actually earned on a market
value basis for each of the next four years after 2010.
> Active payroll grows at 4.25% per annum.
> Deferred investment gains and losses are recognized per the asset smoothing schedule
prepared by the Association as of June 30, 2010. In addition, the estimated investment
gain for the second half of 2010 is also recognized over a five -year period. They are
funded as a level percentage of the Association's total active payroll base.
> Deferred investment gains are all applied directly to reduce the UAAL. Note that this
assumption may not be entirely consistent with the details of the Board's Interest
Crediting and Excess Earnings Policy.
> The VI used for these projections is based on the December 31, 2009 Actuarial
Valuation and is assumed to stay constant during the projection period.
> All other actuarial assumptions used in the December 31, 2009 actuarial valuation are
realized.
> No changes are made to actuarial methodologies, such as adjusting for the contribution
rate delay in advance.
Finally, we emphasize that projections, by their nature, are not a guarantee of future results.
The modeling projections are intended to serve as illustrations of future financial outcomes that
are based on the information available to us at the time the modeling is undertaken and
completed, and the agreed -upon assumptions and methodologies described herein. Emerging
results may differ significantly if the actual experience proves to be different from these
assumptions or if alternative methodologies are used. Actual experience may differ due to such
5124399v1/05337 001
Ms. Marilyn Leedom
March 11, 2011
page 4
variables as demographic experience, the economy
regulatory environment.
stock market performance and the
Unless otherwise noted, all of the above calculations are based on the December 31, 2009
actuarial valuation results including the participant data and actuarial assumptions on which
that valuation was based, That valuation and these projections were completed under the
supervision of John Monroe, ASA, MAAA, Enrolled Actuary.
Please let us know if you have any questions.
Sincerely,
Jolm Monroe
GZl/hy
cc: Rick Koehler
5124399x1/05337.001
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