HomeMy WebLinkAbout13. Authorize a five-year contract with Foster & Foster for OPEB Actuarial ServicesItem 13.
BOARD OF DI RECTORS
POSIT ION PA PER
M E E T ING D AT E:J A NUA RY 19, 2023
S UB J E C T: A UT HO R I Z E T HE G E NE R A L MA NA G E R TO E X E C UT E A C O NT R A C T I N
A N A MO UNT NO T TO E X C E E D $213,500 W I T H F O S T E R & F O S T E R
TO P R O V I D E O T HE R P O S T-E MP L O YME NT B E NE F I T S (O P E B ) A ND
P E NS I O N A C T UA R I A L S E RV I C E S F O R A F I V E -YE A R S E RV I C E P E R I O D
S UB M I T T E D B Y:
K E V I N MI Z UNO, F I NA NC E MA NA G E R
I NI T I AT I NG D E PART M E NT:
A D MI NI S T R AT I O N-F I NA NC E
RE V IE WE D B Y:P HI L I P L E I B E R , D I R E C TO R O F F I NA NC E A ND A D MI NI S T R AT I O N
R oger S . B ailey
General Manager
IS S UE
Other post-employment benefit (O P E B) and pension actuarial services are necessary to meet C entral
San's current and long-term budgeting and financial reporting needs. W ith the expiration of C entral San's
incumbent contract for O P E B actuarial services on December 31, 2022, staff has conducted competitive
solicitation and evaluation procedures and proposes the B oard approve a new five-year contract f or
actuarial services.
B AC K G RO UND
Since the adoption of Government Accounting Standard Board S tatement No. 45 (G A S B 45) effective in
F iscal Year (F Y) 2007-08, C entral San has retained the services of a prof essional and independent
actuary to provide actuarial reports on its other post-employment benefit (O P E B) plan. T hese actuarial
reports served chief ly to comply with provisions of G A S B 45 regarding the adequate disclosure of C entral
San's O P E B plan and any related long-term obligations in the annual independently audited f inancial
statements. A dditionally, the G A S B 45 report provided C entral San's unf unded actuarially accrued liability
(UA A L ) associated with the O P E B plan and the annual contribution amount necessary to deposit into the
O P E B trust to ensure responsible amortization of the O P E B UA A L over a period of time.
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A decade later, G A S B 75 became ef f ective in F Y 2017-18 which superseded G A S B 45. G A S B 75
mandated that an agency's O P E B UA A L must be recognized on its balance sheet in full and on a market
valuation basis. T his contrasted signif icantly with G A S B 45 which only required public agencies disclose
any O P E B UA A L balances in their footnotes and calculated the O P E B UA A L on an actuarial valuation
basis, which incorporated actuarial smoothing to avoid the significant volatility in liabilities that can occur in
the f inancial markets.
Since the adoption of G A S B 75, C entral San has retained an actuary f or the following purposes:
1. C ompilation of a bi-annual "funding" actuarial report, determining the amount necessary to budget
and contribute to the O P E B trust for a two-year period,
2. C ompilation of an annual "reporting" actuarial report, necessary to comply with the provisions of
G A S B 75 in the annual independently audited f inancial statements, and
3. Additional actuarial consulting services on an as-needed basis (i.e., analyses for C alP E R S
healthcare transition, labor negotiations, O P E B/pension policy review, alternative funding scenario
calculations, etc.)
R equest for Proposal (R F P) and S election Process
I n September 2022, Central S an released an R F P for actuarial consulting services. Consistent with
C entral San's policies, the R F P instructed bidders to submit their proposals in two parts: (1) a technical
proposal and (2) a cost proposal. T he purpose of the technical proposal is to demonstrate the
qualif ications, competence and capacity of the f irm seeking to provide services in accordance with the
requirements of the R F P. T he purpose of the cost proposal is to include all of the pricing information
relative to performing the services described in the R F P, which is both submitted and evaluated separately
from the technical proposal.
I n total, the following six f irms responded to the R F P : F oster & F oster, Consulting A ctuaries I nc.; Van
I waarden Associates; Milliman; Nyhart; Cheiron, I nc.; and J efferson S olutions, I nc. C entral San evaluated
the proposals against three separate criteria specif ied in the R F P. Services requested in the R F P were
consistent with those outlined previously, including a combination of mandatory annual actuarial report and
service needs as a provision f or as-needed consulting services.
T he selection criteria specif ied in the R F P to be included in the technical proposal were based on the
following:
1. P roposed Approach and Work Plan 50%
2. P roposed S taffing and Project Organization 30%
3. F irm Qualif ications, E xperience and
Ref erences 20%
Total: 100%
T he proposal scored highest by three Central S an staf f was from F oster & F oster. F oster & F oster is a
highly regarded national firm that provides all of the needed actuarial consulting services specified in the
R F P to a multitude of public agencies, many of which are located in California and similar to C entral San.
Additionally, in 2022, F oster & F oster acquired Central S an's incumbent actuary f irm, B artel & A ssociates,
increasing their firm size to 106 consultants, including 33 credentialed actuaries and 10 F ellows of the
Society of Actuaries (F S A), which is the highest distinction an actuary can gain. I n their proposal, F oster &
F oster committed to retaining the same consulting staff Central S an staf f has previously worked with
ef f ectively over the past several years.
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T erm
T he R F P requested, and the contract provides for a total f ive-year term, consisting of three guaranteed
years, with an option to extend an additional two years. S ervices can be terminated by C entral San at any
time. Costs are discussed in the F inancial I mpact section of this paper.
Next Steps
Once the contract is approved, staf f will immediately begin working with F oster & F oster to produce the
biennial f unding actuarial report, which is necessary to determine the plan's f unded status and the
actuarially determined contribution to be included in the upcoming F Y 2023-24 budget. S taff is hopef ul to
have those results no later than March 2023 to ensure the timely completion of the F Y 2023-24 budget.
ALT E RNAT I V E S /C O NS I D E RAT IO NS
Actuarial consulting services are typically used by public agencies who need expert advice on managing
O P E B and pension plans and their associated long-term obligations. W hile staf f could attempt to perform
some of these calculations internally using of f the shelf software solutions, this is not recommended as it is
a best practice to obtain independent advice on such important and complex f iscal matters and to
supplement staf f knowledge with experts involved in actuarial consulting services on a f ull time basis with a
level of expertise that cannot be realistically replicated by in-house staf f who do not possess actuarial
credentials, experience, and education.
T he B oard may also direct staf f to reject F oster & F oster's bid for any valid reason and direct staf f to
evaluate the next highest scored bidder. T his is not advisable as staf f is confident F oster & F oster
possesses, the knowledge, expertise, experience, and staf f ing to meet C entral San's needs, and as their
cost proposal is within foreseeable budget constraints over the five-year term of the contract.
F I NANC IAL I M PAC T S
T he costs for actuarial consulting work for a f ive-year period are estimated at $213,500 comprised of the
following elements:
1. $69,500 - Biennial Actuarial Funding Reports - C entral San would obtain three such actuarial
reports over the term of the contract, with the f irst one providing the actuarially determined
contributions for F Y 2023-24 and F Y 2024-25.
2. $20,000 - Annual GASB 75 Reports - C entral San would obtain f ive such actuarial reports over the
term of the contract, with the f irst one providing the necessary f ootnote disclosures and amounts
specified by G A S B 75 for the annual comprehensive f inancial report (A C F R) f or F Y 2022-23.
3. $124,000 - Other As-Needed Actuarial Consulting Services - T his represents funding f or 80
hours of as-needed actuarial services on an annual basis to be billed in accordance with a specif ied
hourly rate schedule. T he hourly rate schedule specif ies rates ranging f rom $200-250 f or an
Actuarial A nalyst to $475 for a S enior C onsulting Actuary. A s it is uncertain which level staf f will be
needed for the various as-needed consulting services, an estimated weighted average hourly rate of
$310 was used for purposes of calculating the cost ceiling. As-needed other actuarial consulting
services can include, but is not limited, to the f ollowing: periodic evaluation of existing O P E B and
pension policies, calculation of alternative funding scenario projections and related impacts to plan
funded status, alternate scenario forecasting f or long-range financial planning and/or labor
negotiations, etc.
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C O M M I T T E E RE C O M M E ND AT IO N
T he F inance C ommittee reviewed this matter at its D ecember 19, 2022 meeting and recommended
Board approval.
RE C O M M E ND E D B O ARD AC T I O N
Authorize the General Manager to execute a contract with F oster & F oster in an amount not to exceed
$213,500 to provide actuarial consulting services over a f ive-year period, the last two of which are option
years.
Strategic Plan Tie-I n
G O A L FO U R : G overnance and Fiscal R esponsibility
Strategy 1 - Promote and uphold ethical behavior, openness, and accessibility, Strategy 3 - Maintain financial stability
and sustainability
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