HomeMy WebLinkAbout06.b. Receive information fo Contra Costa County Employees' Retirement Association's (CCCERA) valuation as of December 31, 2020, and 2021 Governmental Accounting Standards (GAS) 68 Financial Valuation HighlightsPage 1 of 3
Item 6.b.
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December 21, 2021
TO: FINANCE COMMITTEE
FROM: KEVIN MIZUNO, FINANCE MANAGER
REVIEWED BY: PHILIPLEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION
ROGER S. BAILEY, GENERAL MANAGER
SUBJECT: RECEIVE INFORMATION ON CONTRA COSTA COUNTY EMPLOYEES'
RETIREMENT ASSOCIATION'S (CCCERA) VALUATION AS OF
DECEMBER 31, 2020, AND 2021 GOVERNMENTAL ACCOUNTING
STANDARDS (GAS)68 FINANCIAL VALUATION HIGHLIGHTS
On August 11, 2021, the Board of Retirement (Board) for the Contra Costa County Employees'
Retirement Association (CCCERA) received the system's Actuarial Valuation as of December 31, 2020.
The valuation, commonly referred to as the "funding valuation," analyzes that year's actual experience and
then uses that data to establish required contribution rates for the upcoming fiscal year, which in this case
is Fiscal Year (FY) 2022-23. On September 22, 2021, the CCCERA Board also received the
Governmental Accounting Standards (GAS) 68 Valuation report as of June 30, 2021, commonly referred
to as the "GASB 68" or "financial reporting valuation". The reporting valuation will be used for reporting
our net pension liability in the annual comprehensive financial report (ACFR) for the year ended June 30,
2021. These actuarial reports are quite long, and while not not included in this memo, they are made
publicly -available on CCCERA's website at www.cccera.org.
CCCERA Plan Highlights
The overall investment return for CCCERA for calendar year 2020 was 9.57% on a market value basis,
and 6.62% on a valuation value basis. The latter return results in an small actuarial loss when measured
against the assumed long-term rate of return of 7.0%, which increased the average employer contribution
rate by 0.27% of pay. The system's overall funded status increased from 90.6% to 91.8% on a "valuation
value" basis (with application of the actuarial assumptions such as smoothing, etc.), and the funded status
increased from 91.7% to 95.6% on a "market value" basis. In terms of dollars, the unfunded actuarial
accrued liability (UAAL) of the total plan decreased from $947 million to $859 million on a valuation value
basis. This decrease in the funding valuation UAAL is primarily due to contributions paying down a portion
of the UAAL, offset to some degree by an investment return (after asset smoothing) less than the 7.0%
assumed rate. The net impact of these changes resulted in the average employer contribution rate
dropping slightly from 35.66% (FY 2021-22) of payroll to 35.26% (FY 2022-23), and the average
employee rate decreasing from 11.97% (FY 2021-22) to 11.85% (FY 2022-23).
Funding Valuation Basis Impact to Central San
Ultimately, the actuarially -smoothed funding valuation is more relevant than the financial reporting valuation
as it has direct and immediate budgetary impacts. From FY 2021-22 to FY 2022-23, the funding valuation
reported a drop in Central San's UAAL from $70.8 million to $63.7 million. CCCERA's actuarial
valuations do not publish a funded percentage that is specific to Central San, or any participating employer
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for that matter. However, the funded percentage can be derived based on the Central San specific
Actuarial Value of Assets (AVA) and UAAL figures which are included in the report. When taking into
consideration Central San's Section 115 pension pre -funding trust assets, which are excluded CCCERA's
valuation, the funded rate calculated internally by Central San staff increases from 85.8% on December
31, 2019 to 88.4% on December 31, 2020 (excluding the UAAL payoff made subsequently). CCCERA
actuarial valuations do not take into account restricted assets held by participating employers in Section
115 trusts as employers have discretion over when and how to use the trust assets for pension plan
contributions, impacting actuarial assumptions. Central San had $11.9 million in its Section 115
Prefunding Pension Trust as of December 31, 2020.
As described previously, Central San made a large prepayment in the amount of $70.76 million toward its
UAAL in conjunction with the issuance of $58 million in low -interest rate Certificates of Participation in
June 2021. This effectively eliminated Central San's UAAL on July 1, 2021, which is not reflected in the
calendar year 2020 actuarial report. The actuarial report does however reflect Central San's revised
employer contribution rates for FY 2021-22 following this payoff in the employer contribution table on page
38 of the report.
Following this UAAL payoff, the FY 2021-22 contribution rates for the Legacy tier decreased from 51.46%
to 17.12% and decreased for the PEPRA tier from 45.74% to 11.40% respectively. These revised rates
assume anew UAAL rate of only 0.16% for administrative recovery purposes. The FY 2022-23
contribution rates for the Legacy and PEPRA tiers are 17.04% and 11.46% respectively.
Financial Reporting Valuation Basis Impact to Central San
The financial reporting valuation (GAS 68) publishes Central San's Net Pension Liability (NPL) necessary
for financial reporting in Central San's FY 2020-21 ACFR. This report uses data from the preceding
valuations and projects it forward using the plans economic and demographic assumptions. Importantly, it
also removes the five-year smoothing method used in the funding valuation. The elimination of this
"smoothing effect" makes the reporting valuation similar to stating Central San's UAAL on a market value
basis thereby exposing the year-to-year funded position to significantly increased market volatility risk. To
demonstrate this volatility, the following are the past four year's NPLs on a market value reporting basis:
• FY 2017-18 - $63.8 million
• FY 2018-19 - $90.4 million
• FY 2019-20 - $64.1 million
• FY 2020-21 - $48.9 million
As noted previously, this valuation is necessary for compliance with GAS B accounting pronouncements
and ACFR reporting purposes only, and has no direct impact on Central San's required contribution rate
for the upcoming fiscal year. Importantly, the NPL does not reflect Central San's UAAL payoff in June
2021, as that transaction was effectuated after the reports' December 31, 2020 measurement date.
Staff note that with respect to the commitment to provide periodic reports to the Board regarding the actual
realized savings from the pension paydown completed in June 2021, that this 12/31/20 valuation report
does not yet provide information that is relevant to that calculation. Only when returns for the periods after
the pension pay down are available will it begin to be possible to provide such updated cost savings
estimates.
Staff will address any questions on this matter at the Finance Committee meeting.
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Strategic Plan Tie -In
GOAL THREE: Fiscal Responsibility
Strategy 1— Maintain financial stability and sustainability, , Strategy 2 — Ensure integrity and transparency in financial
management
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