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HomeMy WebLinkAbout05.a. CCCERA ReportCentral Contra Costa Sanitary District ' BOARD OF DIRECTORS POSITION PAPER Board Meeting Date: December 22, 2010 (Continued from'December 16, 2010.) sub /ect: RECEIVE REPORT ON CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION (CCCERA) DE- POOLING AND 2009 RATE CALCULATIONS AND PROVIDE DIRECTION TO ACCEPT OR REJECT CCCERA'S POSITION 6a, Submitted By: Initiating DeptJDiv.: RANDALL M. MUSGRAVES ADMINISTRATION DIRECTOR OFADMINISTRATION REVIEWED AND RECOMMENDED BOARD ACTION: im"s lm ISSUE: The Contra Costa County Employees' Association (CCCERA) Board approved de- pooling at the employer level on October 14, 2009. The 2009 retirement contribution rates are effective July 1, 2011. The District hired an Actuary to validate the data, methodology and assumptions used to ensure a fair and accurate allocation of pooled assets to the District. The Board should provide CCCERA.its position regarding de- pooling, retroactive implementation of de- pooling and the 2009 rates for their January 12, 2011 Board meeting. The implementation of the 2009 rates is scheduled for action at that meeting. RECOMMENDATION: Receive the report and (1) accept or oppose the de- pooling methodology and calculations; (2) accept or oppose the retroactive de- pooling implementation as of December 31, 2002 and (3) accept or oppose the 2009 retirement contribution rates. FINANCIAL IMPACTS: The implementation of de- pooling would increase the District's Unfunded Actuarial Accrued Liability (UAAL) by $20,037,235 as of December 31, 2009. The de- pooling impact equates to an approximate additional annual payment of $1,800,000 payment, increased each year by the annual payroll inflation rate, currently 4.25 %. The allocated District assets as of December 31, 2008 are approximately $189,500,000. Retroactive implementation of de- pooling to December 31, 2002 reduces the District's assets to approximately $175,000,000, a $14,500,000 reduction. This asset reduction results in increased rates as compared to rates calculated based on the District assets at the time the de- pooling decision was made by CCCERA. ALTERNATIVES /CONSIDERATIONS: The Board could accept or reject the asset allocation performed by CCCERA's Actuary, Segal Company and accept or contest the retroactive implementation of de- pooling back to December 31, 2002. POSITION PAPER Board Meeting Date: November 4, 2010 subject. RECEIVE REPORT ON CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION (CCCERA) DE- POOLING AND 2009 RATE CALCULATIONS AND PROVIDE DIRECTION TO ACCEPT OR REJECT CCCERA'S POSITION BACKGROUND: On October 14, 2009 the CCCERA Board voted to de -pool the retirement system's assets at the employer level. Prior to this action the system's assets were pooled for both safety and general employees, and all retired members. No other California County Act retirement system that we are aware of places all employee categories and member agencies in a single pool. Most pools separate safety and general employees and then by retirement benefit plan level. CCCERA's Actuary, Segal Company, was directed to perform calculations allocating the pooled assets to each employer with retroactive implementation to December 31, 2002. De- pooling impacts were to be implemented as part of the 2009 contribution rates development. Data for the calculations was found to contain errors and was audited by CCCERA staff to correct the errors and provide accurate data. This caused a delay in the development of the 2009 rates. District staff requested various data from CCCERA throughout the process in order to perform a thorough evaluation of the data, methodology and assumptions. The District had obtained the commitment that the CCCERA Board would not take action on the 2009 rates until the employers received and have had the opportunity to audit Segal's work. The District's Actuary, Mr. John Bartel, received the final data and information Wednesday morning on December 9, 2010. Mr. Bartel concluded his review with the following findings. 1. The methodology and assumptions used by Segal Company are actuarially sound and provided a reasonable allocation of pooled assets to the District. 2. The methodology and assumptions used accurately and fairly addressed the use of Pension Obligation Bonds (POB) by the County and some Fire Districts. 3. The methodology and assumptions used accurately addressed the implications of the Paulsen Settlement. 4. The calculations and allocation methodology for de- pooled assets as of December 31, 2002 are actuarially sound and acceptable from a purely actuarial standpoint. 5. To his knowledge, the retroactive approach to implementation of de- pooling is unique to CCCERA. The District's Actuary is not aware of de- pooling efforts performed by other California County Act retirement systems. POSITION PAPER Board Meeting Date: November 4, 2010 subiect. RECEIVE REPORT ON CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION (CCCERA) DE- POOLING AND 2009 RATE CALCULATIONS AND PROVIDE DIRECTION TO ACCEPT OR REJECT CCCERA'S POSITION Overall, Segal's work is fair and actuarially sound. The appropriateness of CCCERA implementing de- pooling using a retroactive date for allocation of assets presents legal and fairness questions. A Closed Session to consider whether to initiate or further review potential litigation against CCCERA is scheduled for the December 16, 2010 meeting. At the November 4, 2010 Board meeting staff presented the impact of the investments losses for 2008 and 2009, the demographic assumption impact and the de- pooling impact to the District's Unfunded Actuarial Accrued Liability (UAAL), below. Beginning Balance UAAL 12/31/2008 Investment Loss 12/31/2009 Investment Loss Demographic Assumption Changes De- pooling Total UAAL $35,151,461 $ 3,708,278 $10,118,261 $ 2,003,000 $20,037,235 $71,018,235 The impact to the District's annual retirement contributions in as follows: 2009 -2010 (actual) $ 8,801,926 2010 -2011 (budgeted) $ 9,850,000 2011 -2012 (estimated) $12,600,000 Staff, the District's Actuary and District Counsel will be available to answer questions. RECOMMENDED BOARD ACTION: Receive the report and provide direction to staff as to whether to (1) accept or oppose the de- pooling methodology and calculations; (2) accept or oppose the retroactive de- pooling implementation as of December 31, 2002 and (3) accept or oppose the 2009 retirement contribution rates. 1560775.2