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HomeMy WebLinkAboutMINUTES - 07292014 - D.8RECOMMENDATION(S): ACCEPT actuarial valuation of future annual costs of potential changes to Retirement Benefits, changing the pension COLA for employees in United Professional Firefighters, Local 1230 who become members of the CCCERA on or after January 1, 2015 or alternatively July 1, 2015, as provided by the County's actuary in a report dated July 8, 2014 (attached). FISCAL IMPACT: As shown in the valuation, the combined result of the retirement changes described herein for both Safety and non-Safety employees in Local 1230 would result in a savings of 2.4% 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: 07/29/2014 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYES 5 NOES ____ ABSENT ____ ABSTAIN ____ RECUSE ____ 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: July 29, 2014 David J. Twa, County Administrator and Clerk of the Board of Supervisors By: June McHuen, Deputy cc: Harjit S. Nahal, Assistant Auditor-Controller, Kurt Schneider, Deputy Chief Executive Officer, Christine Penkala, County Benefits Manager D. 8 To:Board of Supervisors From:David Twa, County Administrator Date:July 29, 2014 Contra Costa County Subject:Government Code 7507 Compliance - Retirement Benefits - United Professional Firefighters, Local 1230 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. A report from Buck Consultants, dated July 8, 2014, is attached. The report explains 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 2015, 2016, 2017, and 2018. For calendar year 2015, the start date is assumed to be either January 1, 2015 or alternatively July 1, 2015. 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 UPFF Local 1230 dated July 8, 2014 3200 N. Central Ave., Suite 2200 • Phoenix, AZ 85012-2425 602.864.3500 • 602.864.3535 fax July 8, 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 Professional Firefighters, Local 1230 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) effective on January 1, 2015 or alternatively, effective July 1, 2015. Both dates are used as potential effective dates for the proposed change for the members of the United Professional Firefighters, Local 1230 (Local 1230). We are comparing this benefit structure to the AB340 structure with a 3.00% COLA which the plan currently provides. We have analyzed the changes both combined and separating the safety and the non-safety. 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 the effective date. We show the cost impacts in the charts below assuming one Non-Safety hire per year and one Safety 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 2015, 2016, 2017, and 2018. 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 July 8, 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 and Stephen Drake. Both are Enrolled Actuaries and Members of the American Academy of Actuaries. Charlie is a Fellow and Stephen is an Associate of the Society of Actuaries. Both meet 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. We are 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 Stephen Drake, ASA, EA, MAAA Principal and Consulting Actuary Director, Retirement Actuary Ms. Lisa Driscoll July 8, 2014 Page 3 Local 1230 Combined - Non-Safety and Safety (January 1, 2015) 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 from Safety and one active employee from Non‐ safety at January 1 of each projection year.  The total of the annual valuation pay amounts at entry are  assumed to be $139,300, $144,200, and $149,200 for the 2015, 2016, and 2017 hires, respectively.   The average age at entry for new hires is assumed to be 34.  3. The maximum compensation limit for the retirement benefit is assumed to be $117,365 for non‐safety  and $140,838 (120% of $117,365) for safety for 2015 and it is expected to grow 2.00% per year.  4. The benefit multiplier is different for safety and non‐safety.  See footnote 4 of the individual safety  and non‐safety pages following for a description of the benefits.  Ms. Lisa Driscoll July 8, 2014 Page 4 Local 1230 Combined - Non-Safety and Safety (July 1, 2015 Effective Date) 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 from Safety and one active employee from Non‐safety  at July 1 of each projection year.  The total of the annual valuation pay amounts at entry are assumed to be  $139,300, $144,200, $149,200, and $154,400 for the 2015, 2016, 2017, and 2018 hires, respectively.  The  average age at entry for new hires is assumed to be 34.  3. The maximum compensation limit for the retirement benefit is assumed to be $117,365 for non‐safety and  $140,838 (120% of $117,365) for safety for 2015 and it is expected to grow 2.00% per year.  4. The benefit multiplier is different for safety and non‐safety.  See footnote 4 of the individual safety and  non‐safety pages following for a description of the benefits.      Ms. Lisa Driscoll July 8, 2014 Page 5   Local 1230 - Non-Safety (January 1, 2015 Effective Date) 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 January 1 of each projection year.  The annual  valuation pay amounts at entry are assumed to be $63,200, $65,400, and $67,700 for the 2015, 2016,  and 2017 hires, respectively.  The age at entry for new hires is assumed to be 35.  3. The maximum compensation limit for the retirement benefit is assumed to be $117,365 for 2015 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.    Ms. Lisa Driscoll July 8, 2014 Page 6   Local 1230 - Non-Safety (July 1, 2015 Effective Date) 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 $63,200, $65,400, $67,700, and $70,100 for the 2015, 2016, 2017,  and 2018 hires, respectively.  The age at entry for new hires is assumed to be 35.  3. The maximum compensation limit for the retirement benefit is assumed to be $117,365 for 2015 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.      Ms. Lisa Driscoll July 8, 2014 Page 7   Local 1230 - Safety (January 1, 2015 Effective Date) 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 $76,100, $78,800, and $81,600 for the 2015, 2016,  and 2017 hires, respectively.  The age at entry for new hires is assumed to be 33.  3. The maximum compensation limit for the retirement benefit is assumed to be 120% of $117,365, or  $140,838 for 2015 and it is expected to grow 2.00% per year.  4. In the AB340 benefit structure, the multiplier is 2.5% at 55. The multiplier increases by 0.1% for ages  above 55 to a maximum of 2.7% at 57. It decreases by 0.1% for ages below 55 to a minimum of 2.0%  at 50.    Ms. Lisa Driscoll July 8, 2014 Page 8   Local 1230 - Safety (July 1, 2015 Effective Date) 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 $76,100, $78,800, $81,600, and $84,500 for the  2015, 2016, 2017, and 2018 hires, respectively.  The age at entry for new hires is assumed to be 33.  3. The maximum compensation limit for the retirement benefit is assumed to be 120% of $117,365, or  $140,838 for 2015 and it is expected to grow 2.00% per year.  4. In the AB340 benefit structure, the multiplier is 2.5% at 55. The multiplier increases by 0.1% for ages  above 55 to a maximum of 2.7% at 57. It decreases by 0.1% for ages below 55 to a minimum of 2.0%  at 50.