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Home My WebLink AboutMINUTES - 04132010 - SD.3RECOMMENDATION(S): ACCEPT 2010 Other Post Employment Benefits (OPEB) Valuation Report as of January 1, 2010 and Annual Required Contributions for the Fiscal Year Ending June 30, 2010. FISCAL IMPACT: The attached 2010 Other Post Employment Benefit Plan (OPEB) Valuation Report is required per Governmental Accounting Standards Board (GASB) Statements 43 and 45 to be completed, by a County the size of Contra Costa, every two years. The report presents a calculation of liability and has no specific fiscal impact on its own. The County’s ability to continue to reduce the liability has had and will have significant future impact on the County’s overall fiscal stability and ability to deliver services. BACKGROUND: In 2004, due to growing concern over the potential magnitude of government employer obligations for post-employment benefits, the Government Accounting Standards Board enacted Statement 45. The main reason for the Statement was to establish uniform accrual accounting and reporting of these governmental liabilities much like under the Financial Accounting Standards Board (FASB) rules that already applied to the private sector for APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 04/13/2010 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:John Gioia, District I Supervisor Gayle B. Uilkema, District II Supervisor Mary N. Piepho, District III Supervisor Susan A. Bonilla, District IV Supervisor Federal D. Glover, District V Supervisor Contact: Lisa Driscoll, County Finance Director I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. ATTESTED: April 13, 2010 David J. Twa, County Administrator and Clerk of the Board of Supervisors By: June McHuen, Deputy cc: Stephen Ybarra, County Auditor-Controller, William Pollacek, County Treasurer-Tax Collector, Lisa Driscoll, County Finance Director, Patrick Godley, Chief Financial Officer/Health Services SD. 3 To:Board of Supervisors From:David Twa, County Administrator Date:April 13, 2010 Contra Costa County Subject:Other Post Employment Benefits (OPEB) - 2010 Valuation Report OPEBs (and GASB 25 and 27 statements that already applied to governmental pension liabilities). Accrual accounting was needed to report the cost of providing government services over the working lifetime of employees providing the services rather than just the "pay-as-you-go" (paygo) cost that was not realized until after those employees retired. Additionally, an intended audience of these GASB 45 results was the bond markets to better assess levels of government solvency in issuing debt. Although plan solvency was not the main impetus behind Statement 45, GASB 45 is considered 'funding friendly' because it adds some security for those receiving the benefits, if those benefits are actually pre-funded. Because Statement 45 requires the public sector to account for total long term OPEB costs over the active service life of benefit-earning employees, rather than reporting current year OPEB costs only for existing retirees, it is thought that shining the light on these long term liabilities will force the public sector to address, and hopefully avoid, the collapses in benefit plans that have occurred in the private sector. Pursuant to GASB 45 requirements, Contra Costa County ordered its initial actuarial report in 2006. The 2006 report valued the County’s unfunded liability for retiree medical costs at $2.6 billion based upon a cash discount rate. This outstanding liability, if fully amortized over the following 30 years, would have necessitated an Annual Required Contribution (ARC) of $216 million. At that point in time, $216 million would have been six times the amount that the County was paying toward retiree health care costs on a paygo basis. As is described in the attached 2010 report and in the table below, the County has taken significant actions to address GASB 45 and to reduce its OPEB liability since the initial report of 2006. Interim valuation results have been presented to the Board of Supervisors, pursuant to California Government Code 7507, since the 2008 report. However, for comparison purposes, the table below compares bi-annual GASB 45 valuation results at fiscal year end (FYE). BACKGROUND: (CONT'D) FYE 2006 FYE 2008 FYE 2010 4.5% Discount Rate 4.5% Discount Rate 6.32% Discount Rate Total Accrued Actuarial Liability $2,571,650,000 $2,367,274,000 $1,047,028,000 Assets -0--0-25,048,000 Unfunded Accrued Act Liability $2,571,650,000 $2,367,274,000 $1,021,980,000 Normal Cost $130,604,000 $116,102,000 $29,232,000 30 Year Amortization of UAAL 85,721,000 78,909,000 34,066,000 Annually Required Contribution $216,325,000 $195,011,000 $63,298,000 Active Employees 8,438 8,563 8,013 Retirees and Survivors 5,216 5,813 5,251 Total Actives, Retirees, Survivors 13,654 14,376 13,264 Beginning in the 2008/09 fiscal year, all results have reflected a 6.32% discount rate to reflect the County’s adopted discount rate assumption based on $20 million in partial pre-pay into an OPEB trust fund, plus paygo funding. Both the 2006 and 2008 valuation reports used a 4.5% discount rate, reflecting the County’s funding policy at that time. It follows that should the contribution to the trust be eliminated, the discount rate would drop back to the cash rate of 4.5%, the liability would increase to $1.3 billion, and the ARC would increase to $89 million. The attached report includes a Schedule of Funding Progress. As of January 1, 2010, the actuarial value of assets was $25,048,000. Although the County has made great strides towards reducing the liability, the current funded ratio is only 2%. Additionally, the UAAL as a percentage of covered payroll, is still high at 163%. Throughout the last two years through labor negotiations, the County has worked with employees to adopt and implement the County’s OPEB goals. Through the efforts of the majority of our employees the County has adopted an OPEB financing plan that begins to balance our requirement to provide public services with our desire to provide competitive health care benefits to our employees; fully complies with GASB 45; and pursues legislative change. It is important to note that the significant improvement in the County’s OPEB liability could not have been achieved without the support of our employees. These efforts will not only help to ensure the County’s overall fiscal stability and ability to deliver services, but will also help to ensure that health care benefits are available to our employees in the future. A reconciliation of the County's valuation changes breaks out in the following way: 2006 to 2008 • Updated Contra Costa County Employees' Retirement Association (CCCERA) pension valuation assumptions where applicable (valuation assumption) • Better overall medical and dental plan trend and renewals over the two years than originally assumed (demographic gain) • Fewer new retirements than originally assumed, which delayed the onset of benefits (demographic gain) • Overall cleaner and more complete data than was available in 2006 • Effective 2008, the County contribution for non-represented retirees was set at the 2009 level for future years 2008 to 2010 • Reduced liability due to the negotiated plan change savings over time. See Appendix B of attached report (Summary of Plan Provisions), for details regarding plan changes made for the majority of County employees. The impact from this change was more than expected due to conservative plan change assumptions and up to date bargaining unit coding. • Migration to lower cost plans as a result of the plan changes and a resulting lower subsidy amount (active rates subsidizing retiree rates). • Demographic gains: • This was due to both active and retiree counts being lower than in the 2008 valuation, • Fewer new retirements than expected, • Fewer continuing retirees than expected, and • Fewer active employees than in 2008. Summary Over the last four years, the County has reduced its OPEB UAAL by 60%, Normal Cost by 78%, 30 year amortization of UAAL by 60%, and annually required contribution by 71%. None of these reductions could have been achieved without the support and cooperation of our employees. Continued negotiations toward Countywide health care cost containment strategies and the redirection of designated future resources remain key to resolving the OPEB dilemma. The Board of Supervisors continues to make significant progress toward a solution for one of the biggest fiscal challenges the County has faced to date. Detailed information on the Board’s actions, including all of the County’s OPEB reports, is available on the County’s web-site at www.cccouny.us . ATTACHMENTS GASB 45 - 2010 OPEB Valuation Report