HomeMy WebLinkAbout08.a.2) CCCERA Update9. OL. 2..-)
Central Contra Costa Sanitary District
August 26, 2011
TO: HONORABLE BOARD OF DIRECTORS
VIA: JAMES M. KELLY, GENERAL MANAGER W tl
Q%NN�
FROM: RANDALL M. MUSGRAVES, DIRECTOR OF ADMINISTRATION
SUBJECT: CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT
ASSOCIATION (CCCERA) 8/10/2011 BOARD MEETING
Attached is a copy of the August 10, 2011 CCCERA Board meeting agenda, an August
12, 2011 memo from CCCERA regarding the Five -Year Projection of Employer
Contribution Rate Changes, and the August 17, 2011 CCCERA Board meeting agenda.
As reference for the Board, I have attached the August 9, 2011 Board memo and letter
to CCCERA. This provides the Board with a complete packet of information.
August 10, 2011 CCCERA Board Meeting
Attached is the agenda and the attached material for each relevant item. Items #5, #6,
#7, and #8 are of interest to the District.
Item # 5 Presentation from Segal regarding the December 31, 2010 Valuation Report -
The Segal Company staff presented the Valuation Report. As previously discussed
with the Board, the District's UAAL is proposed to increase by $29.5 million due to two
factors; (1) Investment losses spread to the District of $18,178,489 and (2) Assumption
Change of $11,479,648. The investment losses are understandable and were
previously reported at the June 15, 2011 meeting under the Market Stabilization
Account item. However, the $11.5 million increase in the District's UAAL for
"Assumption Changes" is due to the change of "terminal pay assumptions are now
based on cost groups." This is an additional cost or component of de- pooling that the
Actuary never raised in the previous discussions. The District's Actuary, Mr. Bartel, was
not made aware of the assumption in his prior review. The total cost of de- pooling to
the District is $31,504,719 not the $20,037,235 as discussed up to this point.
Staff expressed to the CCCERA Board that this was unfortunate. When the CCCERA
Board directed the Actuary, Segal Company, to de -pool by employer, or "cost group ",
the District understood they did so, and thus the de- pooling impact was approximately a
$20 million increase to the UAAL. At no time during the discussions did the Actuary
clarify that terminal pay was calculated at the Tier average and not by cost group. This
oversight only reported two- thirds of the total de- pooling costs, or $20 million. The
other one third, or $11.5 million, is now identified in this report. Staff expressed to the
CCCERA Board the District's frustration with implementing a two year rate increase,
significantly influenced by the de- pooling impact, only to find another significant
increase to the District's UAAL and employer contribution rates.
The District has contracted with John Bartel to once again review.000ERA's data and
evaluate the appropriateness and accuracy of the data, assumptions and
methodologies. He is currently analyzing the data in an effort to provide an answer and
report by the end of September. The CCCERA Board has requested to review the
implementation of the rates at their October 12, 2011 meeting. Staff has notified the
CCCERA Board that the District is requesting a meeting with District staff, Mr. Bartel,
CCCERA staff and Segal staff to evaluate the findings to ensure that no future
surprises occur.
There are three items that staff is aware of at this time that will impact the District's
UAAL.
1. There will be another $18 - $20 million increase due to the final year of
decreased interest income primarily due to the 2008 loss of $1.8 billion
in asset market value. This was identified in the June 15, 2011
presentation of the Market Stabilization Account.
2. There will be a small impact due to the need to calculate the impact of
cash out and service credit for sick leave. This assumption is still at
the Tier average and needs to be calculated at the cost group, or
employer, level. A small impact is in terms of the current $20 million
impact and then the $11.5 million dollar impact. Mr. Bartel has been
asked to estimate the financial impact.
3. GASB is proposing to modify the way the retirement UAAL is reported
on the balance sheet. Upon receipt of their guidelines, staff will
evaluate and report regarding the impact of such a change to the
current practice.
Item # 6 Consider and take action to adopt contribution rates effective July 1, 2012 -
The CCCERA Board deferred taking action due to the District's letter requesting them
not to until we can evaluate the issues and impacts. The matter has been tentatively
set for the October 12, 2011 CCCERA Board meeting. Mr. Bartel believes he can
complete the work and review of the data, assumptions and methodologies by that
time.
Item # 7 Consider and take possible action on Policy on Requests for Actuarial
Information -
The CCCERA Board adopted the CCCERA staff's recommendation. The policy,
attached, has already allowed Mr. Bartel to receive the data within a couple of days as
compared to weeks or months. District staff had written a letter in support of the policy
to delegate authority to obtain the data.
Item # 8 Update from Board Chair on meeting with Central Contra Costa Sanitary
District —
The Board Chair, Maria Theresa Viramontes, reported to the full CCCERA Board a
summary of our meeting. CCCERA staff was directed to prepare administrative
guidelines addressing several of the District's requests through letters and the meeting.
Staff will continue to monitor and evaluate this matter to ensure the Board is accepting
of their proposals and changes. I did not get the sense that all of the District's
proposals will be accepted and or implemented.
August 12, 2011 Memo from CCCERA regarding the Five -Year Projection of
Employer Contribution Rate Changes
The following projections are based upon the information provided in the Segal letter
regarding five -year projections of employer contribution rates for the District.
Fiscal Year Employer Contribution Total
2011 -2012
Current annual payment
2012 -2013
$3,502,660
2013 -2014
$ 746,760
2014 -2015
$ 711,200
2015 -2016
$ 38,100
2016 -2017
$ (210,820)
2017 -2018
$ (129,540)
$12,186,480
$15,689,140
$16,435,900
$17,147,100
$17,185,200
$16,974,380
$16,844,840
Exhibits from Segal's letter are provided below to assist with your review.
Contra Costa County Employees' Retirement Association
Estimated Employer Rate Change by Cost Group (CG) Based on
December 31, 2010 Valuation
CG #3
Enhanced
CCC Sanitary District
Tier 1
Market Value of Assets (MVA)*
$167,463,823
Projected Payroll for 2011
$24,445,315
Volatility Index (VI) = MVA/Payroll
6.85
Relative Volatility Index (VI) = CGVI/Total Plan VI
0.94
Estimated Incremental Rate Change as of 12/31/2011
2.94%
Estimated Incremental Rate Change as of 12/31/2012
2.80%
Estimated Incremental Rate Change as of 12/31/2013
0.15%
Estimated Incremental Rate Change as of 12/31/2014
- 0.83%
Estimated Incremental Rate Change as of 12/31/2015
-0.51%
Tier 1
Cumulative Rate Change as of 12/31/2011
2.94%
Cumulative Rate Change as of 12/31/2012
5.74%
Cumulative Rate Change as of 12/31/2013
5.89%
Cumulative Rate Change as of 12/31/2014
5.06%
Cumulative Rate Change as of 12/31/2015
4.55%
Reconciliation of Recommended Employer Contribution from
December 31, 2009 to December 31, 2010 Valuation
Cost Group #3
Central Contra Costa
Sanitary District
Tier 1
Recommended Employer Contribution Rate in
40.30%
December 31, 2009 Valuation
Effect on investment (gain) /loss(l)
3.23%
Effect of difference in actual versus expected contributions due
to delay in implementation of contribution rates calculated in
0.66%
12/31/2009 valuation
Effect of actual versus expected salary increase including total
1.74%
payroll growth (2)
Effect of net other experience (gains)/Losses(3)
1.81%
Effect of changes in actuarial assumptions and methods (4)
6.17%
Total Change
13-61 —%
Recommended Employer Contribution Rate in
53.91%
December 31, 2010 Valuation
August 17, 2011 CCCERA Board Meeting
The meeting focused on a review of investments and selection of another investment
management group. There was nothing significant impacting the District.
Staff will be available to answer any questions the Board may have.
Employees' Fbtirement Association
1355 willow way suite 221 concord ca 94520
925.52
RETIREMENT BOARD MEETING
FIRST MONTHLY MEETING
9:00 a.m.
August 10, 2011
1.3960 fax 925.646.5747
Retirement Board Conference Room
The Willows Office Park
1355 Willow Way
Suite 221
Concord, California
THE RETIREMENT BOARD MAY DISCUSS AND TAKE ACTION ON THE
FOLLOWING:
Pledge of Allegiance.
2. Accept comments from the public.
Approve minutes from the July 27, 2011 meeting.
4. Routine items for August 10, 2011.
a. Approve certifications of membership.
b. Approve service and disability allowances.
c. Accept disability applications and authorize subpoenas as required.
d. Approve death benefits.
Presentation from Segal regarding the December 31, 2010 Valuation Report
6. Consider and take action to adopt contribution rates effective July 1, 2012.
7. Consider and take possible action on Policy on Requests for Actuarial Information.
Update from Board Chair on meeting with Contra Costa Central Sanitary District.
CLOSED SESSION
9. The Board will go into closed session under Gov. Code Section 54957 to
consider recommendations from the Medical Advisor and/or staff regarding the
following disability retirement applications:
Member Type Sought
a. Tracy Hudson
b. James Mulhem
c. Kevin Mariolle
d. Charlene Barnes
Non - service connected
Service connected
Service connected
Non - service connected
Recommendation
Non - service connected
Service connected
Service connected
Non - service connected
The Retirement Board will provide reasonable
accommodations for persons with disabilities
planning to attend Board meetings who contact
the Retirement Office at least 24 hours before a meeting
10. The Board will continue in closed session under Govt. Code Section 54957 to
consider recommendation from the Medical Advisor and/or staff regarding the
disability application of Linda Wells.
11. The Board will continue in closed session pursuant to Govt. Code Section 54956.9(c).
OPEN SESSION
12. Consider and take possible action on staff recommendation on Goldman Sachs Credit
Opportunity Portfolio.
13. Consider and take possible action on recommendation from Milliman regarding
Medley Opportunity Fund H LP.
14. Consider and take possible action on recommendation from Milliman regarding an
investment in Selene Residential Mortgage Opportunity Fund H LP.
15. Report from staff on semi- annual rebalancing.
16. Consider authorizing the attendance of Board and/or staff.
a- Roundtable for Consultants and Institutional Investors, Institutional Investor,
October 17 —19, 2011, Chicago, IL.
b. 57h Annual Conference, IFEBP, October 29 — November 2, 2011, New
Orleans, LA.
c. Certificate of Achievement in Public Plan Policy Part 1, IFEBP, October 29 —
30, 2011, New Orleans, LA.
d. PIMCO Conference, PIMCO, September 8, 2011, San Francisco, CA.
e. Annual Conference, Public Pension Financial Forum, October 2 — 5, 2011,
Portland, OR-
f. 21 ' Annual Northern California Public Retirement Seminar, Public Agency
Coalition, October 13, 2011, Sacramento, CA.
17. Miscellaneous
a. Staff Report
b. Outside Professionals' Report
c. Trustees' comments
The Retirement Board will provide reasonable
accommodations for persons with disabilities
planning to attend Board meetings who contact
the Retirement Office at least 24 hours before a meeting
Item #5
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As of December 31, 2010
AvaiCa6Ce at tivtivtiv.cccera.orq or at
Board,'lleeting
Memorandum
Date: August 2, 2011
To: Board of Retirement
Marilyn Leedom, Retirement Chief Executive Officer
From: Karen Levy, General Counsel
Subject: Policy On Handling Requests For Actuarial Information
Recommendation
MEETING DATE
AUG 10 2015
ITEM
Consider adoption of the enclosed Policy On Handling Requests For Actuarial Information, as
requested by the Board of Retirement.
Background
The Retirement Board has requested that guidelines and procedures be established for handling
requests for the release of actuarial information from the Board's actuary. Recently, the Board
authorized such the release of actuarial data to actuaries retained by participating employers in
relation to the depooling process as well as in response to the County's request. Enclosed is a
Policy On Handling Requests For Actuarial Information, as requested by the Board-
-A F, W E CONTRA COSTA COUNTY
ENIPLC}YEES' RETIREMENT ASSOCIATION
1355 willow way, Suite 221, Concord, CA 94524 -5728
TeleRhone: (925) 521 -3960 Fax: (925) 646 -5747
CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION
POLICY ON HANDLING REQUESTS FOR ACTUARIAL INFORMATION
(Adopted
011=91--
The Board of Retirement ( "Board ") of the Contra Costa County
Employees' Retirement Association ( "CCCERA ") adopts this policy to establish
guidelines and procedures for handling requests for authorizing the release of actuarial
information from the Board's actuary.
The Board recognizes that from time to time, Contra Costa County and
other participating employers (each, an "Employer ") and employee representative
bargaining units (each, an, "Employee Group ") may request that actuarial information be
released to their respective actuaries (each, a "Third Party Actuary") for their own
purposes.
The Board is willing to consider providing access to CCCERA's actuarial
information to such Third Party Actuary, provided that members' personal confidential
information is protected from disclosure in the process, and provided that the cost of the
release of such actuarial information does not exceed the incidental cost of redacting
confidential information and transferring the remaining data to the Third Party Actuary.
To the extent personal confidential information is requested and necessary for the Third
Party Actuary to accomplish its task, the Third Party Actuary must confirm in writing that
it will strictly maintain the confidentiality of the information.
The Board wishes to establish these guidelines for CCCERA to follow
when a request is made for actuarial information, and to publish those guidelines for the
benefit of Employers and Employee Groups who may request such information.
All appropriate staff should be familiar with these guidelines so that the
process of responding to requests is efficient, consistent and compliant with all
applicable laws. In many circumstances, these guidelines will enable staff to respond to
requests without the need for substantial analysis or the assistance of legal counsel.
However, situations will likely arise where a simple application of the general guidelines
will not provide a definitive answer. When such a situation arises, the Chief Executive
Officer should seek guidance from CCCERA's legal counsel.
In addition, to the extent that any requests made to CCCERA under the
Public Records Act pertain to records in the possession of CCCERA (rather than the
Board's actuary), responses to such requests should follow the guidelines set forth in
CCCERA's Accessibility of Records Policy.
II. GUIDELINES
A request of an Employer or Employee Group to authorize the Board's
actuary to release actuarial information must be made in writing to CCCERA's Chief
Executive Officer. Staff should always be aware that a request, no matter how informal
it may appear, must be analyzed under the principles outlined in this Policy (or analyzed
by legal counsel in more complex situations). The general guidelines for the Policy may
be summarized as follows:
1. Confidentiality of an individual member's records must be
protected. In accordance with Government Code section 31532, applicable court
rulings, and the Board's Accessibility of Records Policy, the following information is
not public information and shall not be disclosed: a member's, beneficiary's or
annuitant's social security number, date of birth, address, telephone and facsimile
numbers, email addresses, age at entry into service, spouse's and /or beneficiary's
names, disability application, medical records, or other personal information provided by
the member or beneficiary.
2. Notwithstanding Par. 1 above, the Board recognizes that certain
confidential personal member information may be necessary for the Third Party
Actuary's analysis. Examples may include age at entry into the system, or age at a
certain time period. In such cases, the necessary confidential personal member
information may be provided solely to the Third Party Actuary upon its written
commitment not to disclose the information to any other person or entity, pursuant to a
an executed confidentiality agreement between CCCERA and the Third Party Actuary in
the form attached hereto.
3. The logistics of providing the requested data should be worked out
by CCCERA Staff on a case -by -case basis in cooperation with the Employer or
Employee Group making the request and the Board's actuary.
4. incidental costs incurred in connection with the CCCERA's
actuary's preparing and transmitting the requested information, not to exceed $1,000,
shall be borne by CCCERA. Any costs beyond that amount must be paid for by the
party requesting the release of actuarial information on or before obtaining the
information.
5. For consistency and efficiency, the Chief Executive Officer shall be
the responsible individual for requests for actuarial information. Staff shall promptly refer
all requests to the Chief Executive Officer, or his or her designee(s).
-2-
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement is entered into by ( "Third Party Actuary ') and the
Contra Costa County Employees' Retirement Association ( "CCCERA "), and is effective on the date it is
last signed by one of the parties hereto.
Recitals. has engaged Third Party Actuary to perform certain actuarial services
with reference to . Third Party Actuary has requested and CCCERA has
agreed to permit CCCERA's actuary, the Segal Company ( "Segal ") to make certain electronic data files
and other information available to Third Party Actuary for review (the "Data "). Third Party Actuary and
CCCERA anticipate that the Data may contain information regarding current or former members or
beneficiaries of CCCERA that contain confidential personal information, including a member's,
beneficiary's or annuitant's date of birth and age at entry into service, that is protected from disclosure
under applicable laws and regulations, and CCCERA's Accessibility of Records Policy (collectively,
"Protected Information "). Third Party Actuary and CCCERA are mindful of CCCERA's statutory
obligation to maintain the confidentiality of such Protected Information under Section 31532 of the
California Government Code. Third Party Actuary and CCCERA wish to insure that Third Party Actuary
does not disclose any Protected Information contained in the Data to anyone other than CCCERA and its
designated agents and representatives.
Agreement. Third Party Actuary represents, warrants and agrees, on behalf of itself and each of its
officers, employees, agents and representatives that they will treat any and all Protected Information
which comes into any of their possession or knowledge as strictly confidential and shall not disclose it at
any time, to any other person or entity, including the party that engaged Third Party Actuary and that
party's agents or representatives, other than to (a) CCCERA and its agents, representatives and attorneys
or (b) in response to an order of a court of competent jurisdiction.
Third Party Actuary further agrees to take all necessary and reasonable precautions to prevent the
unintended disclosure of Protected Information
Third Party Actuary represents, warrants and agrees, on behalf of itself and each of its officers,
employees, agents and representatives that they will use the Protected Information solely for the purpose
of performing its agreed -upon services for the party that engaged it. At the conclusion of its services,
Third Party Actuary agrees to destroy any and all Protected Information in its possession, in whatever
manner or media it is maintained; provided, however, that Third Party Actuary may retain an archival
copy of such Protected Information for evidentiary and record retention purposes, such to remain subject
to the terms of this Agreement until returned or destroyed.
Dated:
I' M
Dated: CONTRA COSTA COUNTY EMPLOYEES'
RETIREMENT ASSOCIATION
Central
Sanitary District
MEETING DATE LOARD OF DIRECTORS
Contra Costa County Employees' Retirement Association PHONE: (925) 228 -9500
F
1355 Willow Way, Suite 221 wFAX. (925) 11
nvw. cPntraisan. fsan. org
Concord, CA 94520
Dear Members of the Board:
The Central Contra Costa Sanitary District (District) Board of Directors appreciated
Board President Maria Theresa Viramontes' attention to the District's views and policy
issues at the July 20th meeting, and how they may be addressed. The Contra Costa
County Employees' Retirement Association's ( CCCERA) consideration of the District's
concerns is important to the District. We further appreciate your plans to bring our
concerns to your full Board on August 10, 2011, and to agendize a discussion of the
implications of AB340. We also reiterate our position that draft policy language should
be considered by your Board to address the issues we have raised, and that we are
willing to work with CCCERA to accomplish that.
As a general rule, we firmly believe that the CCCERA Board should be required to meet
and confer with member agencies before there are changes made in settled policy.
This would ensure CCCERA is able to administer a retirement system that is fiscally
and politically sustainable by its member agencies and better provide member agencies
with an adequate planning horizon.
We appreciate the open dialogue between CCCERA and the District. We thank you in
advance for working with us as we seek to address these issues.
Sincerely,
im e s A. N e 'edly, Ch it
CCCERA Ad Hoc Committee
JMK:sIc
Michael R. McGill, Member
CCCERA Ad Hoc Committee
J"X"'4 D. HOCKM.
AUG 1 Q 2011
He$ -&H1
July 27, 2011
NEZEMY
AGENDA ITEM
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MfRIOM. MFNEWHI
DAM RUJAMS
Honorable Members of the Board
Contra Costa County Employees' Retirement Association PHONE: (925) 228 -9500
F
1355 Willow Way, Suite 221 wFAX. (925) 11
nvw. cPntraisan. fsan. org
Concord, CA 94520
Dear Members of the Board:
The Central Contra Costa Sanitary District (District) Board of Directors appreciated
Board President Maria Theresa Viramontes' attention to the District's views and policy
issues at the July 20th meeting, and how they may be addressed. The Contra Costa
County Employees' Retirement Association's ( CCCERA) consideration of the District's
concerns is important to the District. We further appreciate your plans to bring our
concerns to your full Board on August 10, 2011, and to agendize a discussion of the
implications of AB340. We also reiterate our position that draft policy language should
be considered by your Board to address the issues we have raised, and that we are
willing to work with CCCERA to accomplish that.
As a general rule, we firmly believe that the CCCERA Board should be required to meet
and confer with member agencies before there are changes made in settled policy.
This would ensure CCCERA is able to administer a retirement system that is fiscally
and politically sustainable by its member agencies and better provide member agencies
with an adequate planning horizon.
We appreciate the open dialogue between CCCERA and the District. We thank you in
advance for working with us as we seek to address these issues.
Sincerely,
im e s A. N e 'edly, Ch it
CCCERA Ad Hoc Committee
JMK:sIc
Michael R. McGill, Member
CCCERA Ad Hoc Committee
cc: Central Contra Costa Sanitary District Board of Directors
Contra Costa County Employees' Retirement Association
Kenton Aim, District Counsel
Scott Kivel, Special Counsel
Jim Kelly, General Manager
Randall Musgraves, Director of Administration
Debbie Ratcliff, Controller
Marilyn Leedom, CCCERA Chief Executive Officer
Karen Levy, CCCERA General Counsel
Harvey Leiderman, Reed Smith LLP Fiduciary Counsel
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Employees'
1355 willow way
925.52
1
August 12, 2011
Retirement Association
suite 221 concord ca 94520
.3960 fax 925.646.5747
Randy Musgraves
Central Contra Costa Sanitary District
5019 Imhoff Place
Martinez, CA 94553
Re: Five -Year Projection of Employer Contribution Rate Changes
Dear Randy Musgraves,
At the August 10, 2011 Board meeting, The Segal Company presented the Actuarial Valuation and
Review as of December 31, 2010. After this report was accepted by the Board of Retirement, The
Segal Company provides our office with the Five -Year Projection of Employer Contribution Rate
Change, derived from the December 31, 2010 actuarial valuation. As provided last year this document
includes additional information by cost group, due to the depooling approved by the Board of
Retirement in October 2009.
In addition, this year The Segal Company has provided an additional document, showing the Employer
Contribution Rate Reconciliation by Cost Group, which is also based on the December 31, 2010
actuarial valuation.
We have provided copies of both documents with this letter. Again, please note that both of these
documents are based on figures from the December 31, 20010 actuarial valuation results.
Please let me know if you have any questions on this information.
Sincerely,
Marilyn LUdom
Retirement Chief Executive Officer
-IT
THE SEGAL COMPANY
100 Montgomery Street Suite 500 San Francisco, CA 94104 -4308
T 415.263.8260 F 415.263.8290 www.segalco.com
August 11, 2011
Ms. Marilyn Leedom
Chief Executive Officer
Contra Costa County Employees' Retirement Association
1355 Willow Way, Suite 221
Concord, CA 94520
John W. Monroe, ASA, MAAA, EA
Vice President & Associate Actuary
jmonroe @segalco.com
Re: Contra Costa County Employees' Retirement Association
Five -Year Projection of Employer Contribution Rate Changes
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, 2010 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
differencel,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, 2010 valuation. These rate
changes become effective 18 months following the actuarial valuation date shown in the table.
Benefits, Compensation and HR Consulting Offices throughout the United States and Canada
M G
Founding Member of the Multinational Group of Actuaries and Consultants, a global affiliation of independent firms
A C
Ms. Marilyn Leedom
August 11, 2011
Page 2
The rate changes shown below represent the average rate for the aggregate plan.
Rate Change
Component
Valuation Date (12/31)
2011
2012
2013
2014
2015
(1) Deferred (Gains)/Losses
2.43%
2.56%
-0.06%
-0.91%
-0.46%
(2) Loss of Investment
Income on Difference
0.22%
0.03%
-0.12%
-0.09%
-0.02%
Between AVA and MVA
(3) 18 Month Rate Delay
0.48%
0.39%
0.34%
0.12%
-0.06%
Incremental Rate Change
3.13%
2.98%
0.16%
-0.88%
-0.54%
Cumulative Rate Change
3.13%
6.11%
6.27%
5.39%
4.85%
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 of the group's assets to
payroll is sometimes referred to as the volatility index (VI). A higher VI results in more
volatile 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 group may differ from those shown in the exhibit, even if the plan -
wide average rate changes are close to those shown above.
5144786v1/05337.001
Ms. Marilyn Leedom
August 11, 2011
Page 3
Key Assumptions and Methods
The projection is based upon the following assumptions and methods:
> December 31, 2010 non - economic assumptions remain unchanged.
> December 31, 2010 retirement benefit formulas remain unchanged.
> December 31, 2010 1937 Act statutes remain unchanged.
> UAAL amortization method remains unchanged (i.e., 18 -year layers, level percent of
pay).
> December 31, 2010 economic assumptions remain unchanged, including the 7.75%
investment earnings assumption.
> 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 December 31, 2010. 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, 2010 Actuarial
Valuation and is assumed to stay constant during the projection period.
> All other actuarial assumptions used in the December 31, 2010 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.
5144786v1 /05337.001
Ms. Marilyn Leedom
August 11, 2011
Page 4
Unless otherwise noted, all of the above calculations are based on the December 31, 2010
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, n"p�
?*-
John Monroe
CZI/hy
Enclosure
cc: Rick Koehler
5144786v1/05337.001
Exhibit
Contra Costa Countf Employees' Retirement Association
Estimated Employer Rate Change b`- Cost Group (CG) Based on December 31, 2010 Valuation
* Excludes Post Retirement Death Benefit reserve.
These rates do not include any employer subvention of member contributions or any member subvention of employer contributions.
Total
Plan
55,013.007,758
S687,443,206
719
1.00
3.1346
2.9846
0.1640
- 0.8845
-0.54%
3.1346
6.11010
6.27010
5.390A
4.85%
CGttl & CG 92
Combined
CG#-3
CG 44
CG#5
CG"
Enhanced
Enhanced
Enhanced
Enhanced
*ton - Enhanced
General
CCCSanitaryDistrict
Housing Authority
CCCFPD
District
Tier 1& 3
Tier 1
Tier 1
Tier 1
Tier 1
Market Value of Assets( IVA)*
Projected Payroll for 2011
S2,764,282,879
5498,826,811
$167,463,823
$24,455,315
S32 ;33,750
$5;334,523
534,471,858
54,010,138
53,784,636
5725,188
Volatility Index (NT)= 11VA/Payroll
Relative Volatility Index T = CG 11 I Total Plan 17
554
0.76
6.85
0.94
6.10
0.84
8.60
1.18
5.22
0.72
Volatility Index (11) = EI'VA/Payroll
11.90
17.29
14.63
9.99
3.43
Estimated Incremental Rate Change as of 12/31/2011
2.3896
2.9490
2.62%
3.69%
2.240/6
Estimated Incremental Rate Change as of 12/31/2012
2.2650
2.80110.
2.4990
3-91010
2.1340
Estimated Incremental Rate Change as of 12/3112013
0.120/6
0.1590
013%
0.19%
0.1140
Estimated Incremental Rate Change as of 12/31/2014
- 0.670/5
- 0.8345
. 0.7445
- 1.0440
- 0.6335
Estimated Incremental Rate Change as of 12131/2015
-OAI"
-0.51"
-0.450/o
-0.640/o
-03946
Estimated Incremental Rate Change as of 12 /31/2014
- 1.444xo
- 2.0940
- 1.77%
- 111%
- 1.02015
Cumulative Rate Change as of 12 /31/2011
2380/o
2.940/b
2.624b
3.694b
2.2446
Cumulative Rate Change as of 12/31/2012
4.64"
5.744/b
5.1190
7.204%
43745
Cumulative Rate Change as of 12 /31/2013
4.76110
5.894'0
51440
739%
4.4840
Cumulative Rate Change as of 12/31/2014
Cumulative Rate Change as of 12 /31/2015
4.090/a
3.68%
5.0690
4.55%
4SO0/0
4.0540
6 1590
5.7106
3.35010
3.4646
* Excludes Post Retirement Death Benefit reserve.
These rates do not include any employer subvention of member contributions or any member subvention of employer contributions.
Total
Plan
55,013.007,758
S687,443,206
719
1.00
3.1346
2.9846
0.1640
- 0.8845
-0.54%
3.1346
6.11010
6.27010
5.390A
4.85%
CG97 & CG 09
Combined
CG#S
CG #10
CG#11
CG912
Enhanced
Enhanced
Enhanced
Enhanced
Non- Enhanced
County
CCCFPD/East CCCEPD
b-toraga- Orinda ED
San Ramon Pallet ED
Rodeo - Hercules FPD
Safety Tier A & C
Safety Tier A
Safer- Tier A
Safety Tier A
Safety- Tier A
'Market Value of Assets (SR :3)*
Si,038,683,813
5642,267,640
5115.535,117
S194942,706
$19,041,536
Projected Payroll for 2011
$37,286,098
$37,147,936
57,894,991
Sl9_G04,281
52457,925
Volatility Index (11) = EI'VA/Payroll
11.90
17.29
14.63
9.99
3.43
Relative Volatility Index I) = CG V1 /Total Plan 17
1.63
2 37
2.01
1.37
1.16
Estimated Incremental Rate Change as of 12 /31/2011
5.1146
7A2 4b
6.28010
4190/6
3.6246
Estimated Incremental Rate Change as of 12/31/201'
4.8646
7.07010
5.980/b
4.08%
3.4545
Estimated Incremental Rate Change as of 12/31/2013
0.260/0
0.380/b
032%
012%
0.1946
Estimated Incremental Rate Change as of 12 /31/2014
- 1.444xo
- 2.0940
- 1.77%
- 111%
- 1.02015
Estimated Incremental Rate Change as of 12/31/2015
0.8840
- 1.28410
- 1.09%
- 0.74110
- 0.62016
Cumulative Rate Change as of 1213112011
S lI "o
7.42 " /o
6 28"
4190/6
3.6240
Cumulative Rate Change as of 12/31/2012
9.9746
14.4946
12.2695
8.3790
7.0740
Cumulative Rate Change as of 12/31/2013
Cumulative Rate Change as of 12 /31/2014
10.2346
8.7946
14.87 0
12.784/0
11.5846
10.8145
8.5995
7380 6
7.2646
614%
Cumulative Rate Change as of 12/31/2015
7.910:5
11.50%
9.73010
6.6445
5.6245
* Excludes Post Retirement Death Benefit reserve.
These rates do not include any employer subvention of member contributions or any member subvention of employer contributions.
Total
Plan
55,013.007,758
S687,443,206
719
1.00
3.1346
2.9846
0.1640
- 0.8845
-0.54%
3.1346
6.11010
6.27010
5.390A
4.85%
-A-SEGAL
THE SEGAL COMPANY
100 Montgomery Street Suite 500 San Francisco, CA 94104 -4308
T 415.263.8283 F 415.263.8290 www.segalco.com
August 11, 2011
Ms. Marilyn Leedom
Chief Executive Officer
Contra Costa County Employees' Retirement Association
1355 Willow Way, Suite 221
Concord, CA 94520
Re: Contra Costa County Employees' Retirement Association
Employer Contribution Rate Reconciliation by Cost Group
December 31, 2010 Actuarial Valuation
Dear Marilyn:
As requested, we are providing a reconciliation of employer contribution rate changes
separately for each of the twelve cost groups. The attached exhibit details the changes in the
recommended employer contribution rates for each cost group from the December 31, 2009
valuation to the December 31, 2010 valuation.
OBSERVATIONS
> The average employer rate increased from 30.49% of payroll as of December 31, 2009
to 34.49% of payroll as of December 31, 2010. As discussed in our December 31, 2010
actuarial valuation report, this increase was primarily due to the investment return on
actuarial value that fell short of the 7.75% assumed rate. This investment loss increased
the average employer contribution rate by 3.44% of payroll. This loss was allocated to
each cost group in proportion to the assets for each cost group. The estimated impact of
this loss varies by cost group with the Safety cost groups experiencing larger rate
increases.
> The changes to the terminal pay assumptions increased the average employer
contribution rate by 0.28% of payroll. The terminal pay assumptions were changed to
be now based on cost groups and are generally based on the actual terminal pay
experience by cost group during the three -year period from 2008 to 2010. Here again,
the impact varies by cost group with some cost groups experiencing no impact, while
other cost groups like Cost Group #3 (Central Contra Costa Sanitary District)
experiencing a significant rate change.
Benefits, Compensation and HR Consulting Offices throughout the United States and Canada
*MCC; Founding Member of the Multinational Group of Actuaries and Consultants, a global affiliation of independent firms
Ms. Marilyn Leedom
August 11, 2011
Page 2
> Note that there were also changes in the employer rates caused by the 18 -month delay
in implementation of the contribution rates calculated in the December 31, 2009
valuation and the effect of actual versus expected salary increases including the impact
of total payroll growth.
Please let us know if you have any questions, and we look forward to discussing this with your
Board.
Sincerely,
Paul Angelo, FSA, EA, MAAA
Senior Vice President and Actuary
AW/bgb
5144768v1/05337.001
M(i I I
John Monroe, ASA, EA, MAAA
Vice President and Associate Actuary
EXHIBIT
Reconciliation of Recommended Employer Contribution
from December 31, 2009 to December 31, 2010 Valuation
Cost Group #1
Cost Group #2
Cost Group #3
Cost Group #4
Cost Group #5
Cost Group #6
General
General
Central Contra
Contra Costa
Contra Costa
Small Districts
County and
County and
Costa Sanitary
Housing
County Fire
Non - enhanced
Small
Small
District
Authority
Protection
Tier 1
Districts
Districts
Tier 1
Tier 1
District
Tier 1
Tier 3
Tier 1
Recommended Employer Contribution Rate in
26.06%
23.77%
40.30%
34.94%
20.44%
23.85%
December 31, 2009 Valuation
Effect of investment (gain) /losslll
2.62%
2.62%
3.23%
2.88%
4.07%
2.61%
Effect of difference in actual versus expected contributions
due to delay in implementation of contribution rates
0.27%
0.27%
0.66%
0.32%
0.48%
-0.28%
calculated in 12/31/2009 valuation
Effect of actual versus expected salary increase including
o
-0.35 /o
-0.35%
1.74%
-0.04%
-0.46%
1.76%
total payroll growth(2)
Effect of net other experience (gains) /losses(3)
0.67%
0.19%
1.81%
-1.27%
1.29%
-0.57%
Effect of changes in actuarial assumptions and methods (4)
-0.11%
0.00%
6.17%
-2.87%
-0.11%
0.00%
Total Change
3.10%
233%
13.61%
-0.98%
527%
3.52%
Recommended Employer Contribution Rate in
29.16%
26.50%
53.91%
33.96%
25.71%
27.37%
December 31, 2010 Valuation
Note: These rates do not include any employer subvention of member contributions, or member subvention of employer contributions.
(1) Return on the valuation value of assets of 1.80% was less than the 7.75% assumed in the valuation.
(z) This item represents the net impact of lower than expected individual salary increases and total payroll growth. Lower individual salary increases decrease cost while lower
total payroll growth increases the UAAL contribution rate, since the remaining UAAL is amortized over a lower payroll.
Other differences in actual versus expected experience including (but not limited to) mortality, disability, withdrawal, retirement and terminal pay experience.
(4) The Board approved changes in actuarial assumptions. Terminal pay assumptions are now based on cost groups.
5144768v1/05337.001 - I - SEGAL
EXHIBIT
Reconciliation of Recommended Employer Contribution
from December 31, 2009 to December 31, 2010 Valuation
Cost Group #7
Cost Group #8
Cost Group #9
Cost Group #10
Cost Group #11
Cost Group #12
Total Average
Safety County
Contra Costa
Safety County
Moraga-
San Ramon
Rodeo-
Recommended
Tier A
and East Fire
Tier C
Orinda Fire
Valley Fire
Hercules Fire
Rate
Protection
District
District
Protection
Districts
Safety A
Safety A
District
Tier A
Non - enhanced
Safety A
Recommended Employer Contribution Rate in
52.42%
43.98%
45.88%
37.72%
56.24%
46.02%
30.49%
December 31, 2009 Valuation
Effect of investment (gain) /loss(i)
5.62%
8.16%
5.62%
6.89%
4.72%
3.98%
3.44%
Effect of difference in actual versus expected contributions
due to delay in implementation of contribution rates
0.84%
1.63%
0.84%
0.88%
0.02%
1.13%
0.43%
calculated in 12/31/2009 valuation
Effect of actual versus expected salary increase including
0.33 /
-0.06 /
0.33 /
- 0.21%
- 0.67%
1.21%
-0.23 /
total payroll growth l2)
Effect of net other experience (gains) /losses(3)
-0.32%
-0.28%
-0.64%
- 2.37%
-0.11%
2.22%
0.08%
Effect of changes in actuarial assumptions and methods (4)
-0.02%
-0.65%
0.00%
1.79%
3.35%
3.48%
0.28%
Total Change
6.45%
8.80%
6.15%
6.98%
7.31%
RMN R °
4.00%
Recommended Employer Contribution Rate in
December 31, 2010 Valuation
58.87%
52.78%
52.03%
44.70%
63.55%
58.04%
34.49%
Note: These rates do not include any employer subvention of member contributions, or member subvention of employer contributions.
(1) Return on the valuation value of assets of 1.80% was less than the 7.75% assumed in the valuation.
(Z) This item represents the net impact of lower than expected individual salary increases and total payroll growth. Lower individual salary increases decrease cost while lower
total payroll growth increases the UAAL contribution rate, since the remaining UAAL is amortized over a lower payroll.
(3) Other differences in actual versus expected experience including (but not limited to) mortality, disability, withdrawal, retirement and terminal pay experience.
(4) The Board approved changes in actuarial assumptions. Terminal pay assumptions are now based on cost groups.
5144768vl/05337.001 - 2 - SEGAL
ro
Employees' Retirement Association
1355 willow way suite 221 concord ca 94520
925.521.3960 fax 925.646.5747
RETIREMENT BOARD MEETING Retirement Board Conference Room
SPECIAL MEETING The Willows Office Park
9 :00 a.m. 1355 Willow Way
Suite 221
August 17, 2011 Concord, California
* ** *AMENDED * * **
THE RETIREMENT BOARD MAY DISCUSS AND TAKE ACTION ON THE
FOLLOWING:
1. Pledge of Allegiance.
2. Accept comments from the public.
3. Small Cap Value Equity Manager Presentations:
9:00 a.m. — 9:15 a.m. Introduction and overview by Milliman
9:15 a.m. —10:00 a.m. William Blair & Co. LLC
10:05 a.m. —10:50 a.m. Brandywine Global Asset Management
10:50 a.m. — 11:05 a.m. Break
11:05 a.m. — 11:50 a.m. Wellington Management Company
11:55 a.m. — 12:40 p.m. Ceredex Value Advisors LLC
4. Consider and take possible action on Small Cap Value Equity Manager.
5. Consider and take possible action on staff recommendation regarding the expansion
of office space.
CLOSED SESSION
6. The Board will go into closed session pursuant to Govt. Code Section 54956.9(c).
OPEN SESSION
7. Miscellaneous
a. Staff Report
b. Outside Professionals' Report
c. Trustees' comments
The Retirement Board will provide reasonable accommodations for
persons with disabilities planning to attend Board meetings who
contact the Retirement Office at least 24 hours before a meeting.
Central Contra Costa Sanitary District
August 9, 2011
T O: HONORABLE MEMBERS OF THE BOARD
VIA: JAMES M. KELLY, GENERAL MANAGER
ANN FARREL, DEPUTY GENERAL MANAGER FROM: RANDALL M. MUSGRAVES, DIRECTOR OF ADMINISTRATION �AA
SUBJECT: MEMO REGARDING THE CONTRA COSTA COUNTY EMPLOYEES'
RETIREMENT ASSOCIATION (CCCERA) ACTUARIAL VALUATION
REPORT FOR JULY 1, 2012 RATES
District staff reviewed the CCCERA Actuarial Valuation and Review Report on Friday,
August 5 and Monday, August 8, 2011. This report is used to set retirement rates for July 1,
2012 (fiscal year 2012 - 2013).
Upon our review, we were surprised to find that the CCCERA Actuary, Segal Company, is
recommending another $29.5 million increase in the District's unfunded liability (UAAL). This
means that the District's UAAL has gone from $35 million to $71 million to now $100 million
over a two year period.
The District's UAAL increase is due to two factors; (1) Investment losses spread to the
District of $18,178,489 and (2) Assumption Change of $11,479,648. The investment losses
were understandable and were previously reported at the June 15, 2011 CCCERA meeting
under the Market Stabilization Account item. However, we are struggling to understand the
$11.5 million for "Assumption Changes ".
According to the Actuary, the change is that "terminal pay assumptions are now based on
cost groups." It appears to us that it is an additional cost or component of de- pooling that
the Actuary never raised in prior de- pooling discussions. If it is de- pooling costs, then the
total cost of de- pooling to the District is $31,504,719 not the $20,037,235 discussed up to
this point.
It was District staff's understanding that the purpose of the December 31, 2009 calculation
and report was to establish an accurate accounting for employer, or Cost Group, assets,
liabilities and UAAL as a benchmark for which to go forward. However, it appears that
terminal pay was calculated at the tier level and NOT the cost group or employer level.
Staff is sending a letter to the CCCERA Board stating the District's concerns. We have been
very clear that we must know the cost of CCCERA's actions. It is extremely difficult to
address financial planning, District options, benefits and rates when we are provided only
partial information.
We want to understand the calculations and /or methodologies used to determine that the
District's UAAL should triple to $100 million within a one to two year period of time.
However, given the limited time to review the report and the lack of supporting data, we have
not been able to conduct a thorough review.
The District is formally requesting from CCCERA to receive all of the data needed for the
District's Actuary to perform the evaluation described above in a timely manner. In addition,
the District is requesting the CCCERA Board to seriously consider contracting with the
Actuary to provide a five to ten year forecast of assets, liabilities and UAAL at the cost group,
or employer, level to enable us to more accurately plan for the future.
Staff will be attending the August 10, 2011 meeting and will also verbally ask the CCCERA
Board not to implement the rates until we have had an opportunity to evaluate the data,
calculations and methodologies used.
cc: Kenton Alm, District Counsel
Ann Farrell, Deputy General Manager
Elaine Boehme, Secretary of the District
Central Contra
Sanitary District
PHONE: (925) 228 -9500
FAX- (925) 676 -7211
www.centralsan.org
August 9, 2011 JAMES M. KELLY
Genera! Manager
KENTON L. ALM
Counsel for the District
Honorable Members of the Board (510) 808 -2000
Contra Costa County Employees' Retirement Association SeELApryoft eDEHMfi
1355 Willow Way, Suite 221
Concord, CA 94520
Dear Members of the Board:
The Central Contra Costa Sanitary District (District) is strongly requesting the Contra Costa
County Employees' Retirement Association (CCCERA) Board not adopt contribution rates at its
August 10, 2011 meeting. The Actuarial Valuation Report, available Thursday, August 4, 2011,
has only superficially been reviewed by District staff. The District's Actuary, John Bartel, was
unavailable to assist and a change of this magnitude requires a thorough evaluation.
Quite frankly, we were surprised to find that the CCCERA Actuary, Segal Company, is
recommending another $29.5 million increase in the District's unfunded liability (UAAL). This
means that the District's UAAL has gone from $35 million to $71 million to now $100 million.
The District's UAAL is proposed to increase by $29.5 million due to two factors; (1) Investment
losses spread to the District of $18,178,489 and (2) Assumption Change of $11,479,648. The
investment losses are understandable and were previously reported at the June 15, 2011
meeting under the Market Stabilization Account item. However, we are struggling to
understand the $11.5 million increase in the District's UAAL for "Assumption Changes ". Pages
iii and 75 of the actuarial report indicate that it is due to the change of "terminal pay
assumptions are now based on cost groups." This sounds like an additional cost or component
of de- pooling that the Actuary never raised in the discussions. If it is de- pooling costs, then the
total cost of de- pooling to the District is $31,504,719, not the $20,037,235 discussed up to this
point.
Was terminal pay by employer used to determine the cost of de- pooling? If not, why? It was
our understanding that the purpose of the December 31, 2009 calculation and report was to
establish an accurate accounting for employer, or Cost Group, assets, liabilities and UAAL as a
benchmark for which to go forward. However, it appears that terminal pay was calculated at the
tier level and NOT the cost group or employer level. The District is VERY CONCERNED with
the information being received from CCCERA and your Actuary. The District was and has been
very clear that we must know the cost of your actions, not piecemeal but in total. It is extremely
difficult to address financial planning, our options, benefits and rates when we are provided only
partial information.
® Recycled Paper
Something is wrong with the data, calculations or methodologies used to determine that the
District's UAAL should triple to $100 million within a one to two year period of time. However,
given the limited time to review the report, we are not sure if our understandings are correct.
Again, the District is requesting the CCCERA Board NOT adopt the rates until we have had the
opportunity to receive and review the data. After review, we would like to meet with the Segal
staff, CCCERA staff, Mr. Bartel, and District staff to ensure an understanding of the data and
findings.
The District is formally requesting to receive all of the data needed for the District's Actuary to
perform the evaluation described above in a timely manner. In addition, the District is
requesting the CCCERA Board to seriously consider contracting with the Actuary to provide a
five to ten year forecast of assets, liabilities, and UAAL at the cost group, or employer, level.
On July 20, 2011, two District Board Members, District Counsel, and staff met with CCCERA
Board President, Counsel, and staff and the meeting provided a forum to discuss several of the
District's concerns. We clearly attempted to communicate that there should not be any more
financial surprises. Unfortunately, we already face another multi- million dollar surprise.
Sincerely,
s� a
Randall M. Musgraves
Director of Administration
cc: Central Contra Costa Sanitary District Board of Directors
Kenton Alm, District Counsel
Scott Kivel, Special Counsel
Jim Kelly, General Manager
Ann Farrell, Deputy General Manager
Elaine Boehme, Secretary of the District
John Bartel, Actuary
Marilyn Leedom, CCCERA Chief Executive Officer
Karen Levy, CCCERA Counsel
Harvey Leiderman, Reed Smith LLP
Member Agencies Board of Directors and General Manager /Executive Officer
LAFCO Board of Directors