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Home My WebLink AboutMINUTES - 03112014 - D.8RECOMMENDATION(S): ACCEPT actuarial valuation of future annual costs of potential changes to Retirement Benefits, changing the pension COLA for employees in United Clerical, Technical & specialized Employees, AFSCME, Local 2700 (Local 2700) who become members of the CCCERA on or after July 1, 2014, as provided by the County's actuary in a report dated March 5, 2014 (attached). FISCAL IMPACT: As shown in the valuation, the result of the retirement changes described herein for employees in Local 2700 would result in a savings of 2.1% of annual pensionable pay with the first hire in year one. Future valuation results will change with demographic and cost updates. These projections do accurately measure the direction of the proposed plan change costs. Over time, as more employees are hired into the new PEPRA tier at a 2% COLA, the savings will become more significant. It should be noted that the figures presented in this report represent the savings associated only with the negotiation of a 2% COLA. The savings described in the valuation report do not include the savings resulting from the implementation of PEPRA. APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 03/11/2014 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:John Gioia, District I Supervisor Candace Andersen, District II Supervisor Mary N. Piepho, District III Supervisor Karen Mitchoff, District IV Supervisor Federal D. Glover, District V Supervisor Contact: Lisa Driscoll, County Finance Director, 335-1023 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: March 11, 2014 David Twa, County Administrator and Clerk of the Board of Supervisors By: June McHuen, Deputy cc: Robert Campbell, Auditor-Controller D.8 To:Board of Supervisors From:David Twa, County Administrator Date:March 11, 2014 Contra Costa County Subject:Government Code 7507 Compliance - Retirement Benefits - AFSCME Local 2700 BACKGROUND: Government Code, Section 7507 requires with regard to local legislative boards, that the future costs of changes in retirement benefits or other post employment benefits as determined by the actuary, shall be made public at a public meeting at least two weeks prior to the adoption of any changes in public retirement plan benefits or other post employment benefits. The code also requires that an actuary be present to provide information as needed at the public meeting at which the adoption of a benefit change shall be considered. Assembly Bill 340 (AB340), known as the California Public Employees' Pension Reform Act of 2013 (PEPRA), took effect January 1, 2013. Generally, for employees who become miscellaneous members of the Contra Costa County Employees’ Retirement Association (CCCERA) on or after January 1, 2013, PEPRA requires a pension formula of 2% at age 62, 36 month final compensation averaging, and a maximum salary amount used for pension calculation of $110,100 (plus CPI). Under PEPRA the safety retirement benefit is generally 2.7% at age 57, 36 month final compensation averaging, and a maximum salary amount used for pension calculation of $132,000 (plus CPI). PEPRA does not address Cost of Living Adjustments (COLAs). In the future, the Board of Supervisors may consider and may take formal action with respect to a proposed change in the COLA to the pension benefit. The Board of Supervisors is taking no action today other than accepting the report. Should an agreement be negotiated in regards to this and other bargaining issues, the Board of Supervisors will be able to more quickly adopt the resulting Memorandum of Understanding with Local 2700, without an additional two week delay for compliance with Government Code Section 7507. A report from Buck Consultants, dated March 5, 2014, is attached. The report explain that this change affects only future employees; it will have no effect on the unfunded actuarial accrued liabilities of CCCERA. The expressed savings are in annual dollar amounts and as percentages of covered payroll for calendar years 2014, 2015, 2016, and 2017. For calendar year 2014, the start date is assumed to be July 1, 2014; therefore the savings are shown for a six month period. The savings shown are combined employee and employer normal costs. The savings are equal to the excess of the normal cost for the PEPRA structure and a 3.00% COLA to the pension benefit over the normal cost of a PEPRA structure and a 2.00% pension COLA. CONSEQUENCE OF NEGATIVE ACTION: Possible delay in the adoption of memorandum of understanding and in the future implementation of the pension COLA reduction, resulting in loss of savings. CHILDREN'S IMPACT STATEMENT: None. ATTACHMENTS 7507 Report for Local 2700 dated March 5, 2014 3200 N. Central Ave., Suite 2200 • Phoenix, AZ 85012-2425 602.864.3500 • 602.864.3535 fax March 5, 2014 Ms. Lisa Driscoll Finance Director Contra Costa County 651 Pine Street, 10th floor Martinez, CA 94553 Re: Complying with California Government Code Section 7507 Regarding Changes to Pension Benefits of United Clerical, Technical & Specialized Employees, AFSCME, Local 2700 as of July 1, 2014 Dear Ms. Driscoll: We have been asked to estimate the effect on the County’s current and future unfunded actuarial accrued liabilities and Annual Required Contributions resulting from a new tier of benefits in the structure of Assembly Bill 340 (AB340) with a 2.00% Cost of Living Adjustment (COLA). July 1, 2014 was used as the effective date for the proposed change for the members of United Clerical, Technical & Specialized Employees, AFSCME, Local 2700. We are comparing this benefit structure to the AB340 structure with a 3.00% COLA which the plan currently provides. Because this change affects only future employees, it will have no effect on the unfunded actuarial accrued liabilities of Contra Costa County Employees’ Retirement Association (CCCERA) as of July 1, 2014. We show the cost impacts on the enclosed charts per one hire per year. The costs shown are combined employee and employer normal costs. By going from a 3.00% COLA to a 2.00% COLA, the County will realize a savings. The savings are equal to the excess of the normal cost for an AB340 structure with a 3.00% COLA over the normal cost of an AB340 structure with a 2.00% COLA. We have expressed the savings in annual dollar amounts and as percentages of covered payroll for calendar years 2014, 2015, 2016, and 2017. These results are merely illustrative and the actual impact will depend upon the actual demographic characteristics of the employees as well as the pattern of future hiring. Ms. Lisa Driscoll March 5, 2014 Page 2 Future actuarial measurements may differ significantly from the current measurement presented in this report due to such factors as: plan experience different from that anticipated by the economic and demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements; and changes in plan provisions or applicable law. Due to the limited scope of this report, an analysis of the potential range of such future measurements has not been performed. The methods and assumptions used are the same as those used in the December 31, 2012, actuarial valuation of CCCERA. Information on our new entrant profile is given in Note 2 of the enclosed projections. The report was prepared under the supervision of Charlie Chittenden, an Enrolled Actuary, a Fellow of the Society of Actuaries, and a Member of the American Academy of Actuaries, who met the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in this report. This report has been prepared in accordance with all Applicable Actuarial Standards of Practice. I am available to answer any questions on the material contained in the report, or to provide explanations or further details as may be appropriate. Sincerely, Charles E. Chittenden, FSA, EA, MAAA Joseph Son, FSA, EA, MAAA Principal and Consulting Actuary Senior Consultant, Retirement Actuary Enc. Ms. Lisa Driscoll March 5, 2014 Page 3 AFSCME, Local 2700 Notes: 1. The methods and assumptions used to determine the savings were the same as those used for the December 31, 2012, valuation. 2. The county is assumed to hire one active employee at July 1 of each projection year. The annual valuation pay amounts at entry are assumed to be $41,400, $42,800, $44,300, and $45,900 for the 2014, 2015, 2016, and 2017 hires, respectively. The age at entry for new hires is assumed to be 38. 3. The maximum compensation limit for the retirement benefit is $115,064 for 2014 and it is expected to grow 2.00% per year. 4. In the AB340 benefit structure, the multiplier is 2% at 62. The multiplier increases by 0.1% for ages above 62 to a maximum of 2.5% at 67. It decreases by 0.1% for ages below 62 to a minimum of 1.0% at 52. Calendar Year 2014 2015 2016 2017 Valuation Pay $18,600 $57,900 $98,700 $141,000 Annual Cost AB340 with 3.00% COLA i) $$4,000 $12,500 $21,300 $30,400 ii) % of Pay 21.5%21.6%21.6%21.6% AB340 with 2.00% COLA i) $$3,600 $11,300 $19,300 $27,500 ii) % of Pay 19.4%19.5%19.6%19.5% Saving/(Cost) i) $$400 $1,200 $2,000 $2,900 ii) % of Pay 2.1%2.1%2.0%2.1% $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 2014 2015 2016 2017 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Contra Cost County -AB340 with 3.00 COLA vs. AB340 with 2.00 COLA Annual Cost by Plan Year ($) 0.0% 10.0% 20.0% 30.0% 2014 2015 2016 2017 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Annual Cost by Plan Year (% of Pay)