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Home My WebLink AboutMINUTES - 09092014 - D.6RECOMMENDATION(S): ACCEPT actuarial valuation of future annual costs of potential changes to Retirement Benefits, changing the pension COLA for employees in United Chief Officers' Association 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 August 26, 2014 (attached). FISCAL IMPACT: As shown in the valuation, the combined result of the retirement changes described herein for Safety employees in the United Chief Officers' Association would result in a savings of 3.7% 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: 09/09/2014 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS 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: September 9, 2014 David Twa, County Administrator and Clerk of the Board of Supervisors By: , Deputy cc: Robert Campbell, Auditor-Controller, Christine Penkala, County Benefits Manager, Gail Strohl, Chief Executive Officer/CCCERA D.6 To:Board of Supervisors From:David Twa, County Administrator Date:September 9, 2014 Contra Costa County Subject:Government Code 7507 Compliance - Retirement Benefits - United Chief Officers' Association 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 safety members of the Contra Costa County Employees’ Retirement Association (CCCERA) on or after January 1, 2013, PEPRA requires a pension formula of 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 August 26, 2014, is attached. The report explains that this proposed change would affect 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 UCOA dated August 26, 2014 3200 N. Central Ave., Suite 2200 • Phoenix, AZ 85012-2425 602.864.3500 • 602.864.3535 fax August 26, 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 Chief Officers Association 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 on July 1, 2015. Both dates are used as potential effective dates for the proposed change for the members of United Chief Officers Association. We are comparing this benefit structure to the AB340 structure with a 3.00% COLA which the plan currently provides. In this analysis, the county is assumed to promote one Safety employee into UCOA at the beginning of each projection year. The assumed age at the promotion is 45, while the assumed age at hire is 26. The cost impact due to the age difference is believed to be insignificant and is ignored. Because this change affects only future entrants, it will have no effect on the unfunded actuarial accrued liabilities of Contra Costa County Employees’ Retirement Association (CCCERA) as of the effective dates. We show the cost impacts on the enclosed charts per one entrant 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 August 26, 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 projections. The report was prepared under the supervision of Charlie Chittenden and Stephen Drake, who are both 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 August 26, 2014 Page 3 United Chief Officers Association – 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 for the Safety members. 2. The county is assumed to promote one Safety employee into UCOA at January 1, of each projection year. The assumed age at the promotion is 45, and the annual valuation pay amounts are assumed to be $137,100, $141,900, and $146,900 for the 2015, 2016, and 2017 new entrants, respectively. 3. The assumed hire age is 26, and the cost impact due to the difference in the assumed ages at hire and promotion is believed to be insignificant and is ignored in this analysis. 4. 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. 5. 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. Calendar Year 2015 2016 2017 Valuation Pay $124,100 $255,300 $394,300 Annual Cost AB340 with 3.00% COLA i) $$45,300 $93,000 $143,200 ii) % of Pay 36.5%36.4%36.3% AB340 with 2.00% COLA i) $$40,700 $83,600 $128,800 ii) % of Pay 32.8%32.7%32.7% Saving/(Cost) i) $$4,600 $9,400 $14,400 ii) % of Pay 3.7%3.7%3.6% $0 $50,000 $100,000 $150,000 $200,000 2015 2016 2017 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Contra Costa County -AB340 with 3.00 COLA vs. AB340 with 2.00 COLA Annual Cost by Plan Year ($) 0.0% 10.0% 20.0% 30.0% 40.0% 2015 2016 2017 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Annual Cost by Plan Year (% of Pay) Ms. Lisa Driscoll August 26, 2014 Page 4 United Chief Officers Association – July 1, 2015 Notes: 1. The methods and assumptions used to determine the savings were the same as those used for the December 31, 2012, valuation for the Safety members. 2. The county is assumed to promote one Safety employee into UCOA at July 1, of each projection year. The assumed age at the promotion is 45, and the annual valuation pay amounts are assumed to be $137,100, $141,900, $146,900, and $152,000 for the 2015, 2016, 2017, and 2018 new entrants, respectively. 3. The assumed hire age is 26, and the cost impact due to the difference in the assumed ages at hire and promotion is believed to be insignificant and is ignored in this analysis. 4. The maximum compensation limit for the retirement benefit is assumed to be 120% of $117,365, or $140,838 for 2015 and it is expected to grow 2.00% per year. 5. In the AB340 benefit structure, the multiplier is 2.5% at 55. The multiplier increases by 0.1% for ages above 55 to a maximum of 2.7% at 57. It decreases by 0.1% for ages below 55 to a minimum of 2.0% at 50. Calendar Year 2015 2016 2017 2018 Valuation Pay $62,100 $194,200 $334,000 $482,000 Annual Cost AB340 with 3.00% COLA i) $$22,700 $70,800 $121,500 $175,200 ii) % of Pay 36.6%36.5%36.4%36.3% AB340 with 2.00% COLA i) $$20,400 $63,700 $109,200 $157,500 ii) % of Pay 32.9%32.8%32.7%32.7% Saving/(Cost) i) $$2,300 $7,100 $12,300 $17,700 ii) % of Pay 3.7%3.7%3.7%3.6% $0 $50,000 $100,000 $150,000 $200,000 2015 2016 2017 2018 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Contra Costa County -AB340 with 3.00 COLA vs. AB340 with 2.00 COLA Annual Cost by Plan Year ($) 0.0% 10.0% 20.0% 30.0% 40.0% 2015 2016 2017 2018 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Annual Cost by Plan Year (% of Pay)