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HomeMy WebLinkAboutADMINISTRATION ACTION SUMMARY 07-16-14• • • Ito, ImIrf F, I A • • A •; A ACTION SUMMARY Chair McGill Member Williams Wednesday, July 16, 2014 3:00 p.m. Executive Conference Room 5019 Imhoff Place Martinez, California BOARD OF DIRECTORS: DAVID X WILLIAMS President MICHAEL R. MCGILL President Pro Ton PAUL H. CA(JSEY JAMGSA. NhVEDLY TAD J. PILECKI PHONE: (925) 228 -9500 FAX.- (925) 372 -0192 www.centralsan.org PRESENT: Chair Mike McGill, Member David Williams, General Manager Roger Bailey, Director of Administration David Heath, Finance Manager Thea Vassallo, Human Resources Manager Teji O'Malley, Finance Administrator Todd Smithey, John Bartel of Bartel Associates, LLC, and Assistant to the Secretary of the District Donna Anderson 1. Call Meeting to Order Chair McGill called the meeting to order at 3:09 p.m. 2. Public Comments None. *3. Receive presentation from John Bartel of Bartel and Associates, and continue discussion regarding (1) Contra Costa Employees Retirement Association (CCCERA) /California Public Employees' Retirement System (CalPERS), and (2) defined benefit versus defined contribution plans. (Previous discussions took place on April 2, June 18, and July 2, 2014.) John Bartel of Bartel Associates, LLC, reviewed his handout (see attached), which included several new slides prepared after the July 2 meeting that exemplify how a (1) defined contribution plan (DCP), (2) hybrid DCP /defined benefit plan (DBP), and (3) modified DBP might compare with the District's Administration Committee July 16, 2014 Page 2 current DBP under PEPRA. Mr. Bartel noted that all three hypothetical plan alternatives could only affect future hires, not current employees. He also noted that the first and second alternatives would, in his opinion, require legislative change based on the California Employees' Retirement Law (CERL). With regard to benefit formulas, Mr. Bartel said the District's current DBP as well as the alternative DBPs are set up to encourage employees to retire later, which he believes to be beneficial. In response to a question from Member Williams as to how these alternatives compare with other public agencies and companies in the private sector, Mr. Bartel said the District's California Public Employees' Pension Reform Act of 2013 (PEPRA)- compliant DBP offers a substantially higher benefit than most private companies. Mr. Bartel also said Director of Administration David Heath was correct in his assessment that if the District were to consider the third alternative of a modified DBP, no legislative change would be needed and the District would save roughly one percent on its employer contribution. In looking ahead to the 2017 labor negotiations, Chair McGill said that after reviewing the information presented over the past few meetings on the CCCERA /CalPERS and DBP /DCP issues, he was comfortable with recommending to the full Board that the District remain with CCCERA as its retirement plan administrator, and leave in place the District's current DBP. He said he was comfortable with this recommendation, regardless of any additional legal clarification as to whether legislative changes would be needed in order to consider any DCP alternatives presented by Mr. Bartel. Member Williams was comfortable with the recommendation to remain with CCCERA, but wanted to defer any recommendation on the DBP /DCP issue pending a legal opinion as to the need for legislative change to consider a DCP or a hybrid DBP /DCP. COMMITTEE ACTION: Recommended to the full Board that administration of the District's DBP remain with CCCERA; postponed making a recommendation on the DBP /DCP issue pending receipt of a legal opinion as to possible legislative impediments with regard to a DCP or a hybrid DBP /DCP. 4. Announcements a. Future scheduled meetings: Wednesday, July 23, 2014 at 8:00 a.m. Wednesday, August 19, 2014 at 8:00 a.m. (date changed from August 27) Wednesday, September 24, 2014 at 8:00 a.m. (Alternate for Member Williams to be determined) Administration Committee July 16, 2014 Page 3 5. Suggestions for future agenda items Chair McGill suggested that the Committee review options for developing a deferred compensation plan to address future potential recruitment issues resulting from to the pensionable wage cap under PEPRA. With regard to the policies /procedures project that staff is currently addressing, it was suggested that staff (1) develop a master list of the District's existing Board - approved policies for comparison to master lists of other agencies to determine where there may be gaps, if any, and (2) begin the process of systematically reviewing the existing Board policies with the Committee over time. 6. Adjournment — at 5:18 p.m. * Attachment CENTRAL CONTRA COSTA SANITATION DISTRICT Pension Issues Presented by John E. Bartel, President Bartel Associates, LLC July 16, 2014 Topic AGENDA CCCERA Compared to Ca1PERS Is one system safer, cheaper, etc. than the other? Pension Benefits Ability to negotiate or change benefits Defined Benefit versus Defined Contribution Sample Alternative Plan Benefit Designs V`j July 16, 2014 1 3 4 7 cC S CCCERA COMPARED TO CALPERS 1 , • Cost for any retirement system Contributions = Benefit Payments + Expenses — Investment Return • Contribution policy can result in short term volatility • Ultimately, if benefits are the same then Investment Return — Expenses drives plan cost Phly 16, 2014 1 AWL F- CCCERA COMPARED TO CALPERS Investment Return (Net of Expenses) 30.0° o - . _... _. -. ...... _.. _. 20.0 °l0 -- - -- - - -- — - 10.0 °10 = _- — - - - - -- - - - -- -- I 0.0% ` f f `I J .10.0% -20.0% CCCERA (12,31 -*- Ca1 PERS (6,' 30) 30.0% - -- - - -- ---------- .. -_. _ -_ July 16, 2014 2 v CURRENT BENEFITS I I I I F-- �A , July 16, 2014 ABILITY TO NEGOTIATE OR CHANGE BENEFITS i ■ Current Employees:1 cCCD • California Supreme Court has ruled that pension benefits are individual vested right .... this means Board cannot unilaterally or negotiate lower future benefit accruals unless each employee is given something of equal or greater value • Could negotiate to allow employees to opt into lower future accruals but: ❑ Negotiations would be very difficult and ❑ IRS has refused to rule on this when asked to do so through the private letter ruling process This is a legal issue and since Bartel Associates is not a law firm we strongly suggest the (B / 1 July 16, 2014 4 PF(,(-&ST1 Tier 1 Tier 2 Tier 3 Membership Pre 1/1/2011 Post 1/1/2011 Pre 1/1/2013 PEPRA Post 1/1/2013 • Formula • 55 • 62 • 67 2.00% 2.37% 2.42% 2.00% 2.37% 2.42% 1.3% 2.0% 2.5% • Benefit Cap 100% Comp. 100% Comp None • Post Retirement Survivor Allowance 60% Continuance 60% Continuance 60% Continuance • Cost of Living Adjustment 3% 3% 3% • Final Average Salary 12 months 12 months 36 months • Terminal Pay Unlimited 1 year None • Pensionable Wages Cap No cap No Cap 2014 $138,077 • Social Security None None None �A , July 16, 2014 ABILITY TO NEGOTIATE OR CHANGE BENEFITS i ■ Current Employees:1 cCCD • California Supreme Court has ruled that pension benefits are individual vested right .... this means Board cannot unilaterally or negotiate lower future benefit accruals unless each employee is given something of equal or greater value • Could negotiate to allow employees to opt into lower future accruals but: ❑ Negotiations would be very difficult and ❑ IRS has refused to rule on this when asked to do so through the private letter ruling process This is a legal issue and since Bartel Associates is not a law firm we strongly suggest the (B / 1 July 16, 2014 4 PF(,(-&ST1 ABILITY TO NEGOTIATE OR CHANGE BENEFITS ■ Future Employees • PEPRA members: ❑ Member on or after 1/1/13 ❑ Much lower benefit formula (2% @ 62) ❑ Cap on salaries used to determine benefit • Non PEPRA members: ❑ Membership before 1/1/13 but hired on or after 1/1/13 ❑ Same benefit as those hired before 1/1/13 ❑ Limits on compensation that can be used to determine benefit �/ 1 July 16, 2014 5 F "I c7KS D ABILITY TO NEGOTIATE OR CHANGE BENEFITS • Could negotiate to provide lower benefits to future hires Tier 12 Tier 23 Tier 34 ❑ Employer Normal Cost 21.23% 18.79% 10.92% ❑ Member Contribution Rate 11.25 11.25 11.00 ❑ Total Normal Cost 32.48 30.05 21.92 ❑ Percent of current workforce 77% 21% 2% ❑ Likely requires legislation to provide lower benefits for future PEPRA members ❑ Likely requires legislation to provide lower benefits for future hires that are not PEPRA members. This group will make up a decreasing portion of new hires (Likely decreasing to approximately 0% in about 20 years) O Would have no impact on Unfunded Liability 2 Became member before January 1, 2011. 3 Became member between January 1, 2011 and January 1, 2013. 4 Became member on or after January 1, 2013. (B PJuly 16, 2014 6 Affift, Defined Contribution DEFINED BENEFIT VERSUS DEFINED CONTRIBUTION Plan Plan Defined Contribution Plan Defined Benefit Plan Can vary from year to Usually set by statute but of base pay each year into employee's account. Nature of Promise Annuity, beginning at retirement, payable for as long as employee lives. Can vary from year to Employer Varies from one year to Whatever account balance at retirement can provide Retirement Benefit Level Benefit Formula % of Final Average Compensation based on agency service an / 1 July 16, 2014 7 Vesting DEFINED BENEFIT VERSUS DEFINED CONTRIBUTION (How much of the Employee Employee Contributions promise does employee Contributions Always 100% "own " ?) d Employer benefit factor Contributions Typically 100% after 5 or Typically 100% after 5 or 10 years. 10 ears. July 16, 2014 8 t Defined Contribution Defined Benefit Plan Plan Contribution Level Employee Can vary from year to Usually set by statute but year can be negotiated Can vary from year to Employer Varies from one year to year the next — "Whatever is Necessary" Vesting (How much of the Employee Employee Contributions promise does employee Contributions Always 100% "own " ?) d Employer benefit factor Defined Contribution Defined Benefit Plan Plan Contribution Level Employee Can vary from year to Usually set by statute but year can be negotiated Can vary from year to Employer Varies from one year to year the next — "Whatever is Necessary" Vesting (How much of the Employee Employee Contributions promise does employee Contributions Always 100% "own " ?) Always 100% Employer Retirement Benefit Contributions Typically 100% after 5 or Typically 100% after 5 or 10 years. 10 ears. Defined Contribution DEFINED BENEFIT VERSUS DEFINED CONTRIBUTION Plan Plan Defined Contribution Death Defined Benefit retirement, except Plan Employee contribution Plan with interest become 100% vested at Portability Post - retirement — death Retirement Employee can elect Very Portable Generally Very Portable while at District, distributed and not Employee takes vested protected by "salary" Employee chooses inflation if working for account balance with Who Accepts between Risk &Reward them when leaving. Employee 1. deferred retirement 2. accumulated employee Employee Significant tax contributions with benefit (benefit earned Retirement interest disadvan Inflation Employer / 1 July 16, 2014 9 DEFINED BENEFIT VERSUS DEFINED CONTRIBUTION B July 16, 2014 10 ' Defined Contribution Defined Benefit Plan Plan Pre - retirement -Same as Death Pre - retirement — retirement, except Employee contribution employer contributions with interest become 100% vested at Post - retirement — death Employee can elect tage for amounts while at District, distributed and not protected by "salary" "rolled over" < age 591/2. inflation if working for Who Accepts most CA public Risk &Reward agencies) or Employee Investment Return 2. accumulated employee Employee Mortality contributions with Employee Retirement interest Defined Contribution Defined Benefit Plan Plan Pre - retirement -Same as Death Pre - retirement — retirement, except Employee contribution employer contributions with interest become 100% vested at Post - retirement — death Employee can elect lower benefit to provide survivor continuance Who Accepts Risk &Reward Employee Investment Return Employer Employee Mortality Employer Employee Retirement Employer Employee Inflation Employer DEFINED BENEFIT VERSUS DEFINED CONTRIBUTION ■ Studies consistently show defined contribution plans earn 1 to 2 percentage points less (net of expenses) than defined benefit plans • DC plan investments tend to be more conservative • DC plan expenses tend to be higher as a percentage of assets ■ For individual to be certain they get benefit for life they must: • buy an annuity • accumulate more than is necessary on average or • run the risk of outliving balance (B 1 July 16, 2014 11 COST IF TARGET BENEFIT AT RETIREMENT IS THE SAME i ■ If target is to replace 60% of earnings at age 65 retirement • DB plan does this with 13% of pay (7% assumed earnings) • DC plan does this with 18% of pay (6% assumed earnings) • DC plan does this with 21% of pay (5% assumed earnings) July 16, 2014 12 7aK C, S D I BENEFIT AT RETIREMENT IF CONTRIBUTION IS THE SAME ]� ■ If contribution each year is 10% of earnings the benefit for age 65 retirement • DB plan gets to 50% of pay replacement (7% assumed earnings) • DC plan gets to 35% of pay replacement (6% assumed earnings) • DC plan gets to 30% of pay replacement (5% assumed earnings) (B / 1 July 16, 2014 13 PIC"'Cul-'k-cs BENEFIT AT RETIREMENT IF CONTRIBUTION IS THE SAME i (B/1) 1 July 16, 2014 14 P171-cw*'-cs Alternative Tier 3 1 2 3 PEPRA DC Plan Hybrid DB • Formula • 55 • 62 • 67 1.3% 2.0% 2.5% N/A 0.65% 1.00% 1.25% 1.3% 2.0% 2.5% • Benefit Cap None N/A None None • PRSA 60% N/A None None • COLA 3% N/A 2% 2% • Final Average Salary 36 months N/A 36 months 36 months • Terminal Pay None N/A None None • DB Member Contribution 50% NC None 50% NC 50% NC (B/1) 1 July 16, 2014 14 P171-cw*'-cs BENEFIT AT RETIREMENT IF CONTRIBUTION IS THE SAME i qJuly 16, 2014 15 BENEFIT AT RETIREMENT IF CONTRIBUTION IS THE SAME i �C S Alternative Tier 3 1 2 3 PEPRA DC Plan Hybrid DB • CCCSD DC Contribution • Guaranteed N/A 4% 2% N/A • Match - 100% up to 100% up - • Member DB Contr. 11.00 6% to 3% 10.00 • Member DC Contr. 11.00 Member Member - • Total Cost 21.92% Contr. Contr. 20.00% • Contribution Vesting • Member Always Always Always Always 100% 100% 100% 100% • District (DC only) N/A 100% at 5 100% at 5 N/A ears years qJuly 16, 2014 15 BENEFIT AT RETIREMENT IF CONTRIBUTION IS THE SAME i �C S ■ Likely requires legislation to provide lower benefits for future • PEPRA members • hires that are not PEPRA members. ■ Would have no impact on Unfunded Liability July 16, 2014 16 cC S Alternative Tier 3 1 2 3 PEPRA DC Plan Hybrid DB ■ • CCCSD DB Normal Cos 10.92% - 5.00% 10.00% • CCCSD DC Contributio - 10.0% 5.00 - • Member DB Contr. 11.00 - 5.00 10.00 • Member DC Contr. 11.00 4.0 3.00 - • Total Cost 21.92% 14.0% 18.00% 20.00% ■ Likely requires legislation to provide lower benefits for future • PEPRA members • hires that are not PEPRA members. ■ Would have no impact on Unfunded Liability July 16, 2014 16 cC S