HomeMy WebLinkAbout04. CCCERA & OPEB Unfunded Actuarial Accrued Liability41,
Central Contra Costa Sanitary District
December 17, 2015
TO: ADMINISTRATION COMMITTEE �1
FROM: DAVID HEATH, DIRECTOR OF ADMINISTRATION +�
VIA: ROGER S. BAILEY, GENERAL MANAGER d,41
SUBJECT: CCCERA & OPEB Unfunded Actuarial Accrued Liabilities (UAAL)
When the District's audited financials for Fiscal Year (FY) 2014-15 were presented to
the Board on November 19, 2015, Member Causey asked for information on the
approach being taken to address the reported $70.0 million other post -employment
health care benefits (OPEB) unfunded liability. The Board asked staff to address the
issue during the upcoming budget process. In the interest of striving for transparency
and effectively communicating the annual costs and outstanding liabilities associated
with the District's obligations to both retired and current employees, for both pension
and OPEB, I offer the following summary derived from our most recent actuarial studies
As you are aware staff recently presented the District's annual audited financial
statements to our Board including the new GASB 68 reporting disclosures for pension
liabilities. As we discussed recently, while the District's pension liability is now included
on the District's balance sheet, the major rating agencies (Moody's, Standard & Poor's
and Fitch) have opined that there is no impact relative to determining credit ratings as
the liability has been known and disclosed in supplemental footnotes to the financial
statements previously. This requirement is an attempt to standardize how agencies
determine and report pension liabilities for comparability given that there are various
public retirement systems which use different methods and amortization periods used to
determine pension liabilities, particularly relative to how contribution amounts for funding
purposes are calculated.
CCCERA UAAL / Annual Fundina Cost
The most recent actuarial update of the District's pension liability was performed by
CCCERA's actuary Segal Consulting as of December 31, 2014. The UAAL was
determined to be $101 million. This is in contrast to the $89.5 million net pension liability
reported in the latest audited financial statement of the District, the difference being
unrecognized gains earned in excess of the assumed 7.25% investment return as a
result of stock market gains over the past four years. The FY 2015-16 current year
Annual Required Contribution (ARC)" based on CCCERA's 18 -year amortization period
is $17.8 million, $12.6 million for the UAAL and $5.2 million for normal cost.
HAUAAL Memorandum.dou
For the past three years the District has made supplemental payments toward reducing
the CCCERA UAAL, above and beyond the payments required, in the amount of $5
million in FY 2013-14, $5 million in FY 2014-15 and $2.5 million in FY 2015-16. The
Board also tentatively approved an additional payment of $2.5 million in FY 2016-17 as
part of the long-term planning and rate setting process this past spring.
OPEB UAAL /Annual Funding Cost
The most recent actuarial update of the District's OPEB liability was performed by the
District's actuarial consultant John Bartel as of July 1, 2014. The OPEB unfunded
actuarial liability was determined to be $70.0 million. The FY 2015-16 current year ARC*
is $7.9 million; $5.6 million for the UAAL and $2.3 for normal cost. The UAAL is being
amortized over 30 years and, based on current projections, is expected to be fully
funded in approximately 24 years. The District has been making annual contributions to
an OPEB trust fund since 2008. The balance in this account was $39.9 million as of
June 30, 2015.
Relative to the OPEB UAAL, the District has been funding the trust fund since 2008.
The current plan is to fully fund the trust thereby eliminating the unfunded obligation at
the end of the 30 year amortization period (approximately 24 years remaining as
previously mentioned). The District could accelerate funding the trust over an 18 -year
period similar to the CCCERA UAAL, if desired, and could potentially make
supplemental payments as well. These options would have to be taken into
consideration in the next rate making process if the Board would like to consider the
option and feels an incremental rate increase would be warranted in the interest of
accelerating the payoff of the OPEB liability.
*ARC — The level of funding that, if paid on an ongoing basis, is projected to cover
normal annual costs each year and amortize any UAAL over a period not to exceed 30
years. In the case of the District's UAAL with CCCERA members are required to
amortize over an 18 -year period. CalPERS currently requires a 30 -year amortization
period. For OPEB purposes the District is amortizing it's UAAL over a 30 -year period.
HAUAAL Memorandum.docx