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Home My WebLink AboutMINUTES - 09152015 - FPD D.4RECOMMENDATION(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, 2016 or alternatively July 1, 2016, as provided by the County's actuary in a report dated September 8, 2015 (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 4.2% 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: 09/15/2015 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:Candace Andersen, Director Mary N. Piepho, Director Karen Mitchoff, Director ABSENT:John Gioia, Director Federal D. Glover, Director 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 15, 2015 David Twa, County Administrator and Clerk of the Board of Supervisors By: June McHuen, Deputy cc: Ann Elliott, Employee Benefits Manager, Jeff Carman, Chief CCCFPD D.4 To:Contra Costa County Fire Protection District Board of Directors From:David Twa, County Administrator Date:September 15, 2015 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). The District has negotiated a 2.00% COLA to the pension benefit for those United Chief Officers who become members of CCCERA on or after January 1, 2016. A 7507 report from Buck Consultants, dated September 8, 2015, 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 2016, 2017, and 2018. For calendar year 2016, the start date is assumed to be either January 1, 2016 or alternatively July 1, 2016. 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. After a two week window, on October 6, 2015, the CCC Fire District Board of Directors may consider and may take formal action with respect to a proposed change in the COLA to the pension benefit. The Board of Directors is taking no action today other than accepting the report. On October 6, 2015, an actuary will be present to answer any questions that the Board or public poses regarding the savings associated with the pension change. CONSEQUENCE OF NEGATIVE ACTION: Possible in the future implementation of the pension COLA reduction, resulting in loss of savings. CLERK'S ADDENDUM ATTACHMENTS 7507 Report for UCOA dated September 8, 2015 September 8, 2015 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, 2016 or alternatively, effective July 1, 2016. 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 47, 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 (results are averages of one male and one female). 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 2016, 2017 and 2018 (2019 is also included for the July 1, 2016 effective date). 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. On the exhibit for the July 1, 2016 effective date, results shown for 2016 are for the six month period July 1 through December 31. Buck Consultants, LLC 353 Sacramento Street Suite 800 San Francisco, CA 94111 tel 415.392.0616 fax 415.392.3991 Ms. Lisa Driscoll September 8, 2015 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 pote ntial range of such future measurements has not been performed. The methods and assumptions used are the same as those used in the December 31, 2014, actuarial valuation of CCCERA. The demographic as well as the economic assumptions with respect to investment yield, salary increase and inflation set forth in the December 31, 2014 valuation have been based upon a review of the existing portfolio structure as well as recent and anticip ated experience. Information on our new entrant profile is given in Note 2 of the enclosed projections. The report was prepared under the supervision of David Kershner and Stephen Drake, who are both Enrolled Actuaries and Members of the American Academy of Actuaries. David Kershner is a Fellow of the Society of Actuaries and Stephen Drake 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, David J. Kershner, FSA, EA, MAAA Stephen Drake, ASA, EA, MAAA Principal and Consulting Actuary Director, Retirement Actuary Ms. Lisa Driscoll September 8, 2015 Page 3 United Chief Officers Association – January 1, 2016 Notes: 1. The methods and assumptions used to determine the savings were the same as thos e used for the December 31, 2014 valuation for the Safety members. 2. The County is assumed to promote one Safety employee into UCOA at January 1 of each projection year (we have averaged results for one male and one female). The assumed age at the promotion is 47, and the annual salary is assumed to be $155,300, $160,700, and $166,300 for the 2016, 2017, and 2018 new entrants, respectively. These assumptions were provided by the County . 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 $120,870, or $145,044, for 2016 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 2016 2017 2018 Valuation Pay $140,100 $287,100 $441,800 Annual Cost AB340 with 3.00% COLA i) $$57,400 $117,200 $179,900 ii) % of Pay 41.0%40.8%40.7% AB340 with 2.00% COLA i) $$51,500 $105,200 $161,400 ii) % of Pay 36.8%36.6%36.5% Saving/(Cost) i) $$5,900 $12,000 $18,500 ii) % of Pay 4.2%4.2%4.2% $0 $50,000 $100,000 $150,000 $200,000 2016 2017 2018 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Contra Costa County -AB340 with 3.00 COLA vs. AB340 with 2.00 COLA Annual Cost by Plan Year ($) 0.0% 20.0% 40.0% 60.0% 2016 2017 2018 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Annual Cost by Plan Year (% of Pay) Ms. Lisa Driscoll September 8, 2015 Page 4 United Chief Officers Association – July 1, 2016 Notes: 1. The methods and assumptions used to determine the savings were the same as those used for the December 31, 2014 valuation for the Safety members. 2. The County is assumed to promote one Safety employee into UCOA at July 1 of each projection year (we have averaged results for one male and one female). The assumed age at the promotion is 47, and the annual salary is assumed to be $155,300, $160,700, $166,300, and $172,100 for the 2016, 2017, 2018, and 2019 new entrants, respectively. These assumptions were provided by the County. 3. The assumed hire age is 26, and the cost impact due to the difference in the assumed ages at hire and promotion is believed to be insignificant and is ignored in this analysis. 4. The maximum compensation limit for the retirement benefit is assumed to be 120% of $120,870, or $145,044, for 2016 and it is expected to grow 2.00% per year. 5. In the AB340 benefit structure, the multiplier is 2.5% at 55. The multiplier increases by 0.1% for ages above 55 to a maximum of 2.7% at 57. It decreases by 0.1% for ages below 55 to a minimum of 2.0% at 50. 6. Results for 2016 are for six months only (July 1 through December 31). Calendar Year 2016 2017 2018 2019 Valuation Pay $70,000 $218,700 $374,800 $539,000 Annual Cost AB340 with 3.00% COLA i) $$28,700 $89,400 $152,800 $219,700 ii) % of Pay 41.0%40.9%40.8%40.8% AB340 with 2.00% COLA i) $$25,700 $80,200 $137,100 $197,000 ii) % of Pay 36.7%36.7%36.6%36.5% Saving/(Cost) i) $$3,000 $9,200 $15,700 $22,700 ii) % of Pay 4.3%4.2%4.2%4.3% $0 $50,000 $100,000 $150,000 $200,000 $250,000 2016 2017 2018 2019 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Contra Costa County -AB340 with 3.00 COLA vs. AB340 with 2.00 COLA Annual Cost by Plan Year ($) 0.0% 20.0% 40.0% 60.0% 2016 2017 2018 2019 Saving/(Cost)AB340 with 3.00% COLA AB340 with 2.00% COLA Annual Cost by Plan Year (% of Pay)