HomeMy WebLinkAbout06.a.1) Rept. re 9-8-10 CCCERA Bd. Mtg.�. a. 1)
Central Contra Costa Sanitary District
September 16, 2010
TO: HONORABLE BOARD OF DIRECTORS
VIA: JAMES M. KELLY, GENERAL MANAGER
FROM: RANDALL M. MUSGRAVES, DIRECTOR OF ADMINISTRATION RA
SUBJECT: CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT
ASSOCIATION ( CCCERA) UPDATE
The CCCERA Board met on September 8, 2010 and discussed Segal's de- pooling report,
attached. This report was prepared to support the October 14, 2009 CCCERA Board's
vote to de -pool the CCCERA employers with over 50 employees. The Actuary, Segal, and
staff were directed to evaluate the 12/31/2002 through 12/31/2008 data and determine the
future impact upon rates. Rates would not be adjusted until July 1, 2011. Employers will
be allowed to audit Segal's work to both understand the assumptions and determine if the
methodology used is fair and equitable.
The District has contracted with John Bartel, the District's actuary, to review the data,
assumptions, estimates and methodology used to determine the future impact to the
District. In addition, Mr. Bartel has been asked to validate and explain why the District's
2002 -2008 experience would yield an increase of first reported 3.94% and now 4.87% of
salary cost. A 3.94% increase would yield an approximate $1,000,000 additional annual
contribution by the District. A 4.87% will yield an approximate $1,270,000 additional
annual contribution.
The most significant issue to staff is the methodology used to allocate or distribute the
District's assets. Basically liabilities can be easily calculated and applied to the District
because each employee is identified with an employer. Liabilities — Assets = Unfunded
Accrued Actuarial Liability. Both the liability and asset calculations have a direct impact
upon the UAAL determination and therefore on employer contribution rates.
In addition, staff is seeking an understanding as to how the 2002 -2008 experience will be
used in the future. Spiking began in 1998 when CCCERA implemented the Ventura
Decision. CCCERA staff met with District staff and identified by pay code the additional or
enhanced payments to employees that would then be used in the final twelve highest
consecutive months. On March 10, 2010 the CCCERA Board voted to remove significant
"spiking" for members, or employees, hired on or after January 1, 2011. With the passage
of AB 1987, currently awaiting the Governor's signature, "spiking" or salary enhancement
will also be significantly reduced on July 1, 2011. Therefore there will be fourteen years of
significant salary enhancement for all CCCERA members, and District employees, retired
or retiring during that period of time. CCCERA has taken six of those years (2002 -2008) for
an experience factor for future employer contributions. Mr. Bartel is addressing if Segal's
work is a fair and equitable.
Mr. Bartel has been provided some initial data by the Segal staff, so the process has
begun. However, staff has many other concerns and issues but must wait until Mr. Bartel
has reviewed and analyzed the data, assumptions and methodology in order to provide the
Board with options and recommendations.
A Closed Session has been scheduled on this matter if the Board wishes further
discussion.
Y
YTS SEGAL
THE SEGAL COMPANY
100 Montgomery Street, Suite 500 San Francisco, CA 94104 -4308
T 415.263.8273 F 415.263.8290 www.segalco.com
Paul Angelo, FSA, MAAA, FCA
Senior Vice President & Actuary
pangelo @segalco.com
MEETING DATE
August 31, 2010
Ms. Marilyn Leedom
Chief Executive Officer
Contra Costa County Employees' Retirement Association
1355 Willow Way, Suite 221
Concord, CA 94520
SEP 0 8 2010
DA ITEM
Re: Contra Costa County Employees' Retirement Association
Illustration of Impact on Employer Contribution Rates from December 31, 2008
Actuarial Valuation Due to Depooling — Updated to Reflect New Data
Dear Marilyn:
This letter provides an illustration of the impact on employer contribution rates resulting from
the Board's action to depool CCCERA's assets, Actuarial Accrued Liabilities (AAL) and
Normal Cost by employer. Appendix I shows the current cost groups analyzed, the employers
included in each cost group and the active counts as of December 31, 2008, while Appendix II
shows the employer contribution rates from the December 31, 2008 actuarial valuation both
before and after depooling. The rest of this letter contains background information on the action
taken by the Board and how the illustrative employer contribution rates after depooling have
been determined.
In January 2010 we had previously provided the impact on only the General contribution rates.
At that time we did not include the Safety contribution rates due to the prior inclusion of
various fire districts data in County payroll. This letter now contains the updated impact on the
General contribution rates as well as the impact on Safety contribution rates. All results reflect
revised data received from the Retirement Association.
In particular, this revised data is based on the Retirement Association verifying last employer
and tier codes for virtually all members who received a benefit payment at any time during the
period from January 1, 2003 through December 31, 2008 and active members as of
December 31, 2009. We have used each member's last known employer and tier code to
allocate liabilities and benefit payments throughout this period.
Benefits, Compensation and HR Consulting Offices throughout the United States and Canada
+ 14G Founding Member of the Multinational Group of Actuaries and Consultants, a global affiliation of independent firms
Ms. Marilyn Leedom
August 31, 2010
Page 2
Background
At its October 14, 2009 meeting, the Board took action to depool CCCERA's assets, AAL and
Normal Cost by employer for determining employer contribution rates. However, the smaller
employers (those with less than 50 active members) will be pooled with the applicable County
tier.
Due to a statutory requirement, the Superior Court will continue to be pooled with the County
regardless of how many members the Court has.
The three employers that terminated participation with CCCERA in the last decade and still
have nonactive members in CCCERA were pooled with the applicable County tier. These
employers are subject to additional contributions depending on their funded status that is
measured every three years. Overall, there is little impact on employer contribution rates either
way (pooled or not pooled) due to the small size of the assets and liabilities associated with
these employers. In the future, consideration could be given to including these employers in
their own cost group.
Appendix I shows the resulting twelve cost groups and the employers included in each cost
group, along with the active member counts as of December 31, 2008.
The Board action also included a retroactive application of the depooling back to December 31,
2002. This retroactive approach would not involve recalculation of employer rates prior to
December 31, 2008. However, it would involve reflecting the separate experience of the
employers in each individual cost group back to December 31, 2002.
Note that in these calculations we have used an implementation date of December 31, 2008 to
illustrate the effect of this depooling as if it were implemented on that date, on a retroactive
basis. In practice, the implementation date will be December 31, 2009, so as to avoid changing
the rates that were already adopted based on the already completed December 31, 2008
valuation. The first actual employer rates affected by depooling would be those in the
December 31, 2009 valuation.
There were also two specific cost sharing adjustments that will be removed as of the
implementation date of December 31, 2009. These adjustments are for General Tier 1 and
Safety Tier A as follows:
> Non - enhanced General Tier 1 and Non - enhanced Safety Tier A members shared their
combined member COLA normal costs in proportion to their basic member contribution
rates.
> General Tier 1 and Safety Tier A employers shared COLA normal cost in the same way
that member COLA contributions are shared (i.e., by allocating COLA normal costs in
proportion to basic normal costs). These costs were shared equally among member
classifications with comparable benefit levels (i.e., enhanced versus non - enhanced).
5096463x3/05337.013
Ms. Marilyn Leedom
August 31, 2010
Page 3
Note that the first adjustment affects member contribution rates and has not been determined as
part of this study. However, this will only impact the fewer than 30 active members that are in
either Non - enhanced General Tier 1 or Non - enhanced Safety Tier A.
Closed Cost Groups and Pooling of Unfunded Actuarial Accrued Liability (UAAL)
There are two cost groups that currently have active members, but are generally closed to new
members. As listed in Appendix I, these are cost groups number 1 (County General Tier 1
Enhanced) and number 7 (County Safety Tier A Enhanced).
If the UAAL for these two cost groups is not pooled with another cost group that is open to
new active members then the UAAL rate for these generally closed cost groups would increase
substantially in future years. This is because the UAAL for CCCERA is amortized as a level
percent of payroll and the payroll growth for the generally closed cost group would be less than
the payroll growth assumption (currently 4.25 %).
For County General Tier 1 Enhanced this would ultimately lead to large UAAL rates being
borne by the very small district employers in that Tier. This is due to the payroll growth issue
mentioned above caused by the closed group nature of the County in Tier 1. However, the
small district employers in that tier still continue to add new active members and eventually
will represent the bulk of the active members in that tier. Combining this with the large retired
member liability in that tier that is mostly from former County employees leads to the
impractical result that the small district employers would bear the potential impact of the
volatility in rates associated with the large County retiree liability.
In order to avoid associating a large County retiree liability with the small district payroll, we
have pooled the UAAL for County General Tier 1 Enhanced and County General Tier 3
Enhanced (cost groups 1 and 2) in the determination of the employer contribution rates (in the
after depooling scenario). Normal Cost rates for these cost groups will not be pooled since they
will not be affected as much by the issues mentioned above.
Note that the benefit formulas for General Tier 1 Enhanced and General Tier 3 Enhanced differ
only because of the disability benefit paid. Therefore, there will be a small amount of cross -
subsidization occurring because of this pooling.
For County Safety Tier A Enhanced, there are few new active members entering this tier. Both
this cost group and the County Safety Tier C cost group only have the County as an employer.
Therefore, in order to produce more stable UAAL rates for the County Safety Tier A Enhanced
cost group, we have pooled the UAAL for County Safety Tier A Enhanced and County Safety
Tier C Enhanced (cost groups 7 and 9). Normal Cost rates for those cost groups will not be
pooled.
5096463v3/05337.013
Ms. Marilyn Leedom
August 31, 2010
Page 4
There are some substantial differences between the Safety Tier A Enhanced and Safety Tier C
Enhanced benefits, such as the period over which final average salaries are determined and the
COLA. However, since the County is the only employer in these two cost groups, they will be
the only employer affected by this particular pooling.
Process Used in Determining Illustrative Employer Contribution Rates (After Depooling)
There are three key stages in the process used to determine the illustrative employer
contribution rates as of December 31, 2008 after depooling. Those stages are as follows:
> Initial allocation of assets by employer at December 31, 2002
> Roll forward of assets for each employer from December 31, 2002 through
December 31, 2008
> Calculation of illustrative employer contribution rates at December 31, 2008
Information on each of the stages is described below.
Initial Allocation of Assets by Employer at December 31, 2002
To determine the initial allocation of assets for each employer as of December 31, 2002 we had
to first determine the December 31, 2002 liabilities as of that date for every employer. This
allocation was based on the member's last employer and tier code. In addition, this required
obtaining data from the Retirement Association that denotes the employer for each retired
member as this data did not exist in the original December 31, 2002 data used for that
valuation.
We then used our valuation software to determine liabilities for each employer as of
December 31, 2002 in a manner consistent with the liabilities determined in the December 31,
2002 actuarial valuation. Once the December 31, 2002 liabilities by employer were determined,
we then allocated enough assets to each cost group in such a way as to result in the same
UAAL contribution rate that was already determined in the December 31, 2002 valuation for
every employer.
Roll forward of assets for each employer from December 31, 2002 through December 31,
2008
The assets that were allocated to each employer at December 31, 2002 were then "rolled
forward" by adding in contributions and allocated investment income and subtracting benefit
payments. This was done on an annual basis for the 2003 through 2008 calendar years.
The contribution and benefit payment information was provided by the Retirement Association
and accepted by Segal without audit. Benefit payments were allocated based on each member's
last employer and tier code.
5096463v3/05337.013
Ms. Marilyn Leedom
August 31, 2010
Page 5
Calculation of employer contribution rates at December 31, 2008
The assets as of December 31, 2008 for each employer were then combined into the twelve cost
groups. Liabilities as of the same date were also separated into the twelve cost groups based on
the actual current members in each group.
Employer contribution rates were then calculated for each cost group following substantially
the same process used in the annual actuarial valuation. Any change in the December 31, 2008
UAAL due to depooling was amortized over 18 years.
Please note that district contribution rates still reflect the fact that they did not issue pension
obligation bonds (POBs) when the County did. The contribution rates for the Moraga - Orinda
Fire District or the Contra Costa County Fire Protection District also reflect any POBs or
special contributions that were deposited in prior years by those employers.
Summary of Results
Appendix II shows the employer contribution rate from the December 31, 2008 actuarial
valuation and the illustrative employer contribution rate determined on the same valuation date
after depooling. The rates are shown for each employer in CCCERA.
As noted above, in these calculations we have used an implementation date of December 31,
2008 to illustrate the effect of this depooling as if it were implemented on that date, on a
retroactive basis. In practice the implementation date will be December 31, 2009, so as to avoid
changing the rates that were already adopted based on the already completed December 31,
2008 valuation.
It is important to note that the results of depooling depend critically on the employer by
employer contribution and benefit payment data, and on the employer by employer member
data reported to us.
The results shown in Appendix II can be used to estimate the impact that depooling will have
once it is implemented in the December 31, 2009 actuarial valuation. However, the actual
impact of depooling will not be known until it is implemented in that actuarial valuation.
Note that this "retroactive" approach did not require or involve recalculation of employer
rates prior to December 31, 2008. Only employer contribution rates on and after the
implementation date would be affected, but now those rates would reflect the separate
experience of the cost groups back to December 31, 2002.
5096463v3105337.013
Ms. Marilyn Leedom
August 31, 2010
Page 6
These calculations were based on the December 31, 2002 and 2008 actuarial valuations for
CCCERA, member data as of December 31, 2002, 2008 and 2009 provided by CCCERA and
contribution and benefit payment information from January 1, 2003 through December 31,
2008 that was also provided by CCCERA. The December 31, 2008 actuarial valuation and
these calculations were completed under the supervision of John Monroe, ASA, MAAA,
Enrolled Actuary.
If there is any additional information you require, please let us know.
Sincerely,
Paul Angelo
JZM/kek
Enclosures
5096463v3/05337.013
APPENDIX I
Summary of Cost Groups and Employers
GENERAL
Cost
Group Code
Employer Name
Benefit Structure
(1) N/A
County General
Tier 1 Enhanced
0356
Local Agency Formation Commission
Tier 1 Enhanced
3301
CC Mosquito and Vector Control District
Tier 1 Enhanced
3770
Bethel Island Municipal District
Tier 1 Enhanced
4181
First 5 - Children & Families Commission
Tier 1 Enhanced
4980
Contra Costa County Employees' Retirement Association
Tier 1 Enhanced
9500
Superior Court
Tier 1 Enhanced
7060
East Contra Costa Fire Protection District
Tier 1 Enhanced
7274
Moraga - Orinda Fire District
Tier 1 Enhanced
7800
Rodeo - Hercules Fire Protection District
Tier 1 Enhanced
7830
San Ramon Valley Fire District
Tier 1 Enhanced
(2) N/A County General
0508 In -Home Supportive Services Authority
3301 Contra Costa Mosquito and Vector Control District
9500 Superior Court
(3) 3406 Central Contra Costa Sanitary District
(4) 9990 Contra Costa Housing Authority
(5) 7300 Contra Costa County Fire Protection District
(6) 3414 Rodeo Sanitary District
3603 Byron Brentwood Cemetery
Tier 3 Enhanced
Tier 3 Enhanced
Tier 3 Enhanced
Tier 3 Enhanced
Tier 1 Enhanced
Tier 1 Enhanced
Tier 1 Enhanced
Tier 1 Non - Enhanced
Tier 1 Non - Enhanced
Number of Active
Members as of
December 31, 2008
430
2
5
3
16
39
35
2
7
1
29
6,356
13
32
383
265
94
59
8
4
5096463v3/05337.013 - 1- S E G A L
APPENDIX I
Summary of Cost Groups and Employers (continued)
5096463v3/05337.013 -2- S E G A L
SAFETY
Number of Active
Cost
Members as of
Group
Code
Employer Name
Benefit Structure
December 31, 2008
(7)
N/A
County Safety
Tier A Enhanced
940
(8)
7300
Contra Costa County Fire Protection District
Tier A Enhanced
296
7060
East Contra Costa Fire Protection District
Tier A Enhanced
50*
(9)
N/A
County Safety
Tier C Enhanced
76
(Deputy Sheriff new
hires)
(10)
7274
Moraga - Orinda Fire District
Tier A Enhanced
66
(11)
7830
San Ramon Valley Fire District
Tier A Enhanced
154
(12)
7800
Rodeo - Hercules Fire Protection District
Tier A Non - Enhanced
20
* It is our understanding that two of these members retired in early 2009 and there are 48 active
members at this employer as of December 31, 2009.
5096463v3/05337.013 -2- S E G A L
APPENDIX II
Summary of Employer Contribution Rates from December 31, 2008 Actuarial Valuation
Before and After Depooling
Cost
Group
(1)
(2)
(3)
(4)
(5)
(6)
GENERAL
Employer Name
Employer
Employer
Contribution Rate
Contribution Rate
Before Depooling
After Depooling
23.21%
22.08%
30.94%
30.33%
30.94%
30.33%
30.94%
30.33%
30.94%
30.33%
30.94%
30.33%
Change in
Employer
Contribution Rate
- 1.13%
-0.61%
-0.61%
-0.61%
-0.61%
-0.61%
County General (Tier 1 Enhanced)
Local Agency Formation Commission
Contra Costa Mosquito and Vector Control District
Bethel Island Municipal District
First 5 - Children & Families Commission
Contra Costa County Employees' Retirement
Association
Superior Court
East Contra Costa Fire Protection District
Moraga - Orinda Fire District
Rodeo - Hercules Fire Protection District
San Ramon Valley Fire District
County General (Tier 3 Enhanced)
In -Home Supportive Services Authority
Contra Costa Mosquito and Vector Control District
Superior Court
Central Contra Costa Sanitary District
Contra Costa Housing Authority
Contra Costa County Fire Protection District
Rodeo Sanitary District
Byron Brentwood Cemetery
5096463v3/05337.013
23.21%
22.08%
- 1.13%
30.94%
30.33%
- 0.61%
19.27%
18.66%
- 0.61%
30.94%
30.33%
-0.61%
30.94%
30.33%
-0.61%
20.90%
20.67%
-0.23%
29.10%
28.92%
- 0.18%
29.10%
28.92%
-0.18%
20.90%
20.67%
- 0.23%
30.94%
35.81%
+4.87%
30.94%
32.17%
+1.23%
13.90%
16.82%
+2.92%
30.64%
22.38%
- 8.26%
30.64%
22.38%
- 8.26%
-3 SEGAL
APPENDIX II
Summary of Employer Contribution Rates from December 31, 2008 Actuarial Valuation
Before and After Depooling (continued)
SAFETY
Employer Employer Change in
Cost Contribution Rate Contribution Rate Employer
Group Employer Name Before Depooling After Depooling Contribution Rate
(7) County Safety (Tier A Enhanced) 42.80% 44.90% +2.10%
(8) Contra Costa County Fire Protection District
East Contra Costa Fire Protection District
(9) County Safety (Tier C Enhanced)
(10) Moraga- Orinda Fire District
(11) San Ramon Valley Fire District
(12) Rodeo - Hercules Fire Protection District
25.33% 27.17% +1.84%
58.55% 60.54% +1.99%
36.72% 38.61% +1.89%
26.87% 27.27% +0.40%
58.55% 51.95% -6.60%
37.41% 35.54% -1.87%
5096463v3/05337.013 -4- S E G A L