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HomeMy WebLinkAboutMINUTES - 11122002 - C63 C.63 THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY,CALIFORNIA Adopted this Order on November 12, 2002 by the following vote: AYES: Supervisors Uilkema, Gerber, DeSaulnier, Glover and Gioia NOES: None ABSENT: None ABSTAIN: None RECEIVED THE REPORT FROM THE Grand Jury Report No. 0301, "Under Funded Employee Benefits Threaten the County's Financial Stability". 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:November 12.2002 John Sweeten,Clerk of the Board of Supervisors and County Administrator By: �._: Deputy Clerk Cc: County Administrator A REPORT BY THE 2000-01 CONTRA COSTA COUNTY GRAND JURY 725 Court Street Martinez,California 94553 Report No. 0301 UNDER FUNDED EMPLOYEE BENEFITS THREATEN THE COUNTY'S FINANCIAL STABILITY APPROVED BY THE GRAND JURY: Date. i71. k O A. ARDS GFOREMAN ACCEPTED FOR FILING. Date: Alrr JJUDGETER L. SPINEffA E OF THE SfJPERIOR COURT 4/1 CONTRA COSTA COUNTY REPORT NO.0301 Under Funded Employee Benefits Threaten the County's Financial Stability TO: Contra Costa County Board of Supervisors BACKGROUND The Contra Costa County Employees Retirement Association(CCCERA)is a cost sharing multiple employer defined benefit pension plan. It is governed by the California State County Employees Retirement Act of 1937. The plan covers essentially all of the employees of the County,many special districts,the housing authority and other agencies within the County. At this time there are approximately 16,150 members,including active employees and retirees. The County has approximately 90%of the participants while the other agencies have approximately 10%. The plan provides for retirement,disability and death and survivor benefits in accordance with the law. Annual cost of living allowances(COLAs)to retirement benefits have been granted by the Association as provided for in State law. The retirement plan is administered by a nine-member board consisting of four members representing retirees and employees, four members appointed by the Board of Supervisors,plus the County Treasurer/Tax Collector, a member by virtue of that office. FINDINGS 1. The County's total outstanding liability for financing pensions was over$832 million as of January 1,2002 as follows: • $370 million. Unfunded accrued actuarial liabilities(UAAL). UAAL is money owed to the plan by participants and is based on assumptions recommended by actuaries and adopted by the plan board. This number appears in the Actuarial Valuation Deport as of December 31,2001,prepared by William M. Mercer,Inc. • $297 million. Outstanding balance of pension bonds as shown in the County's last Comprehensive Annual Financial Report. These bonds were sold by the County in 1994 for a total of$ 337 million and were used to retire the County's portion of the URAL. • $85 million. Balance yet to be funded of the benefit improvements identified in the Ventura Decision and Paulson litigation settlement.* These cases required the County to enhance benefits and, in the absence of full funding by the CCCERA board, added to the liabilities of the plan. This was reported by the actuary, William M. Mercer, Inc. in January 2002. *Ventura County Deputy sheriffs Association v.Board of Retirement of Ventura County Employees'Retirement Association- 1997. Cases consolidated into one case,entitled Vernon D.Paulson, et al.v.Board of Retirement of the Contra Costa County Employees Retirement Association. « $80 million. Estimated future costs outlined in the Active and Retired Experience Study by William M. Mercer,Inc. for the period 12/31/97 through 12/31/00. Following the experience study,the actuaries recommended that five changes be made in the actuarial assumptions. Three of these assumptions* were not adopted by the Association. Assuming the actuary's assumptions are correct,this action caused a potential increase in unrecognized future liability. *Changes in mortality tables,marital status analysis and final year's salary calculations. 2. In fiscal year 2002/2003,the pension cost to the County,prior to the benefit increases granted by the Board of Supervisors on October 1,2002,would have been approximately$109 million. « $43 million. The County Auditor/Controller's estimated normal cost. « $35 million.The Pension Band debt service. « $14 million. The Cost of Living Allowance(COLA)subsidy for the period 7/1/02 through 12/31/02. « $17 million COLA for the period 1/1/03 through 6/30/03. (County estimate). The above figures did not include the County's costs for retiree health benefits, which the actuary estimates to be approximately$17 million for the fiscal year 2002/2003. 3. Under present labor agreements,the County contributes approximately 80% of the annual cost of the pension plan and the employees contribute 20%. 4. The County and the participating districts are responsible for 100% of the URAL. The County alone is responsible for 100% of the pension obligation bonds. 5. There are no longer "excess earnings". Historically,the Association has enjoyed favorable returns on investments. The County has used these returns, "excess earnings",to defray a portion of the County's and employees' pension contributions,rather than using them to reduce t the expanding unfunded liability. Investment market conditions suggest that these earnings will not be realized in the foreseeable future. 2 x 6. The Board of Supervisors had been considering changes to the pension plan for more than six months. These changes would increase the County's UAAL as well as the County's required annual contribution. - On January 17, 2002,County representatives entered into a tentative Memorandum of Understanding(MOU)with most county employee unions and organizations,which included certain changes to the retirement plan. - There was no clear estimate of what the total cost of these benefit changes would be. The Association, on recommendation of the County,tentatively agreed to allocate $100 million from the pension fund's "excess earnings" to partially defray the cost of the so called 3%at 50 and 2% at 55*benefits included in this MOU. However,the County has made no provision for the other benefit increases. *3%times final year's salary times years of service for safety employees at age 50 and 2%at 55 years of age using the same formula but applied to non safety employees. (A 50-year-old safety employee with 30 years service could retire at 90%of salary.) On October 1,2002,the Board of Supervisors voted to approve and finalize this Memorandum of Understanding thereby significantly increasing the UAAL. 7. Earlier this year a$200 per month increase for all who retired prior to December 31,2001 was proposed. - In addition to the increases noted in 6 above,this increase,if approved,would initially cost an estimated$127 million. ® On October 1,2002,the Board of Supervisors did approve a$200 monthly increase for those who retired before 1983. This action, according to the actuary, will increase the UAAL by an estimated$23.7 million. 8. The County's annual contribution to the CCCERA will increase irrespective of the benefits adopted by the Board of Supervisors on October 1,2002. Actuarial and administrative costs are rising and excess earnings formerly used to offset COLA and benefits costs are uncertain. CONCLUSIONS 1. Under funded employee benefits threaten the County's financial stability. 2. With the October 1,2002 decision to approve benefit increases,the Board of Supervisors has approved agreements that increase the already severe underfunding of the retirement plan. This action has placed additional liabilities on the County and insures a serious drain on future County finances. 3 3. By approving these increases, the Board of Supervisors is spending money it does not have. It is adding to the horrendous amount of pension plan unfunded liabilities totaling more than $832 million without any idea of how to pay for it. 4. Because the.Association did not adopt all of the actuary's recommendations in the experience study, the employees have been relieved of their 20%obligation for the unrecognized costs. The total obligation will shift to the County and member districts. This action will result in further increases to the UAAL. 5. The total obligation of the County to the pension plan is almost equal to the annual budget of the County. 6. Present and future taxpayers of Contra Costa County will have to pay for these pension obligations. How that will be done is unknown. It was not provided for in the October 1,2002 action taken by the Board of Supervisors. This leaves a very serious problem for the citizens of the County. RECOMMENDATIONS The 2002-2003 Grand Jury makes the following recommendations to the County Board of Supervisors: 1. Neither approve nor adopt any new pension benefit Improvements that would require additional funding or add further to the retirement plan Indebtedness. 2. Develop a plan of action,with schedules and checkpoints,to immediately reduce the unfunded liability of the County's retirement plan. 3. Apply any excess earnings either to reserves to offset market losses or to pay down the unfunded liabilities of the plan. They should not be used to offset County and employee contributions to the plan. 4. Recommend to their appointed CCCERA trustees that the Association reconsider and adopt the three unadopted actuarial assumptions as set forth In finding number 1,to more adequately track and appropriately fund the UAAL. t 4