HomeMy WebLinkAbout03.b. (Handout) Unfunded Actuarial Accrued Liability (UAAL) AssumptionsAgenda Item 3.b
Unfunded Actuarial Accrued Liability
(UAAL) and Other Unfunded
Liabilities
November 17, 2014
Presented by: Thea Vassallo, CPA, CMA
Finance Manager
Central Contra Costa Sanitary District
Unfunded
and Other
Liabilities
($ 000 Millions)
FYE Audit
13/14
12/13
Diff
Valuation Date
2013
2012
CCCERA
$120.8
$142.5
($21.7)
GASB 45 OPEB
72.6
75.8
(3.2)
(New Valuation due in Jan
2015)
Debt (2009 Bonds /SRF)
40.6
44.5
(3.9)
Accrued Comp Absence
3.8
3.8
0.0
Total
Rates Effective
$237.8 $266.6 ($28.8)
15/16 14/15
3 b.
(
1
Review of Major Events by Year
2007 Total pooled pension fund 90%
funded
2008 Huge market loss (28.35 %)
Missed assumed earnings rate of
7.80% by (36.15 %)
Mortgage and foreclosure downturn
Extraordinary losses spread over
5 valuations (smoothing)
Review of Major Events By Year
2009 CCCERA depools participating agencies by
cost group - Part 1
Assumed earnings rate lowered from
7.80% to 7.75%
2010 Terminal compensation depooled
Depooling Part 2 - CCCSD being the
highest (12% to 24% of Salary)
I
Review of Major Events by Year
2011 Lower returns than assumed rate of
7.75
2012 Economic & Experience Study assumption
changes ($15.8M/$6.7M)
Assumed earnings rate lowered from
7.75% to 7.25
Inflation rate lowered 3.50% to 3.25%
Terminal Cashout lowered from 24% to
8.75% if hired on or after 1/1/11
Last year recognizing 2008 smoothing
of losses
Current 2013 Valuation
Major Events
2013 Leave Cashout Terminal Pay assumption
reduced:
24% to 6.5% (If hired prior to 1/1/11)
8.75% to 6.5% (if hired on or after 1/1/11
and prior to 1/1/13)
8.75% to Zero (if hired after 1/1/13)
3
CCCSD UAAL Amortization Plus Normal Rate
Employer Bears UAAL Burden
The Unfunded AtcruedActuanal liability ( UAAL) has a significant impart on rotes because a portion of the rote is used to pay -down the UAAL annually The infamanon below
d,spkys the Normal Cost and UAAL Annual Amortisation rote factors
Valuation Date
12/31/2008
12(31/2009
12/31/2010
12/31/2011
12/31/2012
12/3112013
Etvloyer Total Contribution Rate&eakdown
60% or below
Rate Representing UAAL Annual Amortisation
11.86%
21.31%
35.77%
39.53%
5302%
17.12%
CCCSD Total Employer Contributmn Rate
30 va.%
4001.
5191%
5136%
7791%
6051'.
UAAL %uf Tot4l Employer Rate
47.38%
60.32%
65.47%
67.71%
71.72%
71.20E
TotaICCLSDUalundedbob;ity
$39779.000
71,018,235
99.941.380
109,168,803
147523,565
120792,362
DaUkt Funded %afUAAL
N/A
N/A
6412%
6250%
5638%
6312%
CCCERA Total Pool Funded %ofUAAL
88.15%
63.77%
80.28%
7847%
70.619
76.41%
Sawce Seel Anusnal Repot Rate Supsb —knl out MAL Canponent, then percent
applied to Totd EmploverConmbuaon Rate
8omR --
71—
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soaa%
.31M
som%
looms
looms
om%
— 'NamaIBUAAE Rate components MCClSO Et%gloyesAvraseRile —"' '_°°--
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How Funded Should the UAAL Be?
Credit Rate Agency Benchmarks
Standard & Poors: Pension Funded Ratio
Strong
90% or above
Above Average
80% to 90%
Below Average
60% to 80%
Weak
60% or below
Fitch Ratin s: Pension Funded Ratio
Ade uate
70% or above
Weak
60% or below
Fitch also states that "the funded ratio is one of
many factors considered in Fitch's analysis of
pension obligations.
4
American Academy of Actuaries
"The 80% Pension Funding Myth ", July 2012
• Frequent unchallenged references to 80% funding as a healthy level
threaten to create a mythic standard.
• No single level of funding should be identified as a defining line
between a "healthy" and an "unhealthy" pension plan.
• Funded ratios are a point -in -time measurement. The movement or
trend of the funded ratio is as important as the absolute level.
• Most plans should have the objective of accumulating assets equal
to 100% of a relevant pension obligation.
• The financial health of a pension plan depends on many factors in
addition to funded status — particularly the size of any shortfall
compared with the resources of the plan sponsor.
Closing Summary
• District CCCERA UAAL (2013 valuation) $120.8M
• CCCERA Total Pool Funded 76.41%
• District Portion Funded 63.12%
5
Questions /Comments?