Warrington Township Pension Committee 2018 in Review and Looking - - PowerPoint PPT Presentation
Warrington Township Pension Committee 2018 in Review and Looking Ahead to 2019 & Beyond Presenters: Kevin Peacock and Joseph Kirby Citizen Members June 11, 2019 Agenda u Review Membership and Service Providers u Review Pension Plan 2018
Presenters: Kevin Peacock and Joseph Kirby Citizen Members June 11, 2019
u Review Membership and Service Providers u Review Pension Plan 2018 Performance u Review 2018
u Plan Enhancements / Changes u Plan Performance
u Look Ahead to 2019 and Beyond u 2018 Valuation of Plans
u Changes to Mortality Tables u 2019 MMO u Asset Value Methodology
u Summary and Conclusions u Questions
Board of Supervisors Pension Committee Investment Consultant Actuary Custodian Bank
2018
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Kevin Peacock, Citizen Member
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Joe Kirby, Citizen Member
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Vince Formica, Citizen Member
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Fred Gaines, Chair, Board of Supervisors
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Eileen Albillar, Supervisor
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Barry P. Luber, Township Manager
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Cassandra Williams, Director of Finance
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Amy Organek, Staff Accountant
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Officer, Daniel Sadowski (alternate)
2019
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Kevin Peacock, Citizen Member
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Joe Kirby, Citizen Member
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Fred Gaines, Chair, Board of Supervisors
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Eileen Albillar, Supervisor
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Barry P. Luber, Township Manager
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Cassandra Williams, Director of Finance
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Amy Organek, Staff Accountant
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Officer Daniel Sadowski
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Sargeant, Kenneth Hawthorn (alternate)
Pension Advisory Committee Members
Representative PA Public Fund Clients
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City of Allentown
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City of Philadelphia
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City of Pittsburgh
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Delaware River Joint Toll Bridge Commission
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Municipality of Monroeville
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Port Authority of Allegheny County
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Scott Township
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Warrington Township
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Pennsylvania Public Fund Clients – Plans of all sizes Over $30 billion under advisement across 36 Pennsylvania public funds
As of May 31, 2019. It is not known whether these clients approve or disapprove of Marquette’s services. These clients were selected upon the basis of objective criteria, namely client classification, geography and size.
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US Bank is being named new Custodian
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TD Bank is being removed as custodian due to poor service quality
u Recent example was issue with
COLA calculation / check issuance
Conrad Siegel US Bank
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Under Act 205, actuarial assumptions are selected jointly by the actuary and governing body of the pension
the valuation every two years and must be within a "reasonable range" both individually and in aggregate
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Assumption changes do not impact the benefit provisions. The actual cost
impacted by the actuarial assumptions
how the pension costs are funded over time.
2016 2017 2018 MMO Requirements Uniform 748,774 769,228 805,895 Non-Uniform 97,795 93,952 87,779 Total MMO 846,569 863,180 893,674 State Aid Contribution 406,842 417,531 463,754 Net Cost after Aid 439,727 445,649 429,920 Note: State Aid Contributions are not received from the state with a break down for each plan. Uniform employees receive double the unit value and non-uniform receive a single unit value in state aid contributions.
Police Union Pension Plan
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Open Plan - accepting new employees
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Assumed Rate of Return 7.35%
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Funded Status = 91%*
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Avg Age – 42.6 Years
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Employees contribute – 5% of comp
Non Uniform Pension Plan
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Closed Plan – no new employees
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Assumed Rate of Return 6.75%
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Funded Status = 103.8%-106.4%*
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Avg Age – 52.5 Years
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Employees contribute – 1% of comp
u Changed to 2% in 2018 for plan enhancements
* As of January 1, 2018 Ad Hoc Actuarial Valuation
u Change the Assumed Rate of Return (ARR) to 6.75%
u Modified Investment Philosophy
u Recommend less aggressive investment policy u Added 2 new investment funds to diversify risk
u High Quality Real Estate Fund u Defense Equity Fund
u Enhancement to Non Uniform Pension Plan
u Change Salary Calculation from last 5 Yr Avg to last 3 Yr Avg
u Included increase in employee contribution
u Added 2 new investment fund to diversify risk
u High Quality Real Estate Fund u Defense Equity Fund
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 12/31/16 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 12/31/18 3/31/19 Net Return Assumed Return (7.5%)
The market pull back in Q4 2018 will directly impact the plan valuations Currently the plan uses a “snap shot” at the end of the year to value assets The committee is currently considering a recommendation to perform asset smoothing to reduce valuation variability / funded status
Q4 2018
u Police Pension Plan Loss: -$1.5M u Police Pension Plan Return:-9.4%; Benchmark: -9.6% u Non-Uniform Pension Plan:-$459K u Non-Uniform Pension Plan Return:-7.7%; Benchmark: -8.1%
Since Inception (November 1, 2014):
u Police Pension Plan Gain: $2.3M u Police Pension Plan Return: 4.6% (Rank: 30th); Benchmark: 4.5% u Non-Uniform Pension Plan Gain: $1M u Non-Uniform Pension Plan Return:5.1% (Rank: 4th); Benchmark: 4.9% u Low investment management fees: 0.41% (Police); 0.37% (Non-Uniform)
Q1-2019 Investment Returns:
u Police Pension Plan Gains: $1.35M u Police Pension Plan: 9.4% (Gross); Benchmark: 9.4%; u Non-Uniform Pension Plan Gains: $456K u Non-Uniform Pension Plan: 8.6% (Gross); Benchmark: 8.7%:
Since Inception (November 1, 2014):
u Police Pension Plan Gain: $3.7M u Police Pension Plan Return:6.5% (Rank: 22nd); Benchmark: 6.4% u Non-Uniform Pension Plan Gain: $1.5M u Non-Uniform Pension Plan Return:6.8% (Rank: 12th); Benchmark: 6.6% u Low investment management fees: 0.42% (Police); 0.38% (Non-Uniform)
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The Society of Actuaries (SOA) recently released new mortality tables based
mortality vary by job classification within the public sector which is why separate tables have been drafted for:
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Safety employees (covering police, fire, and correctional officers), General employees, and Teachers
2016 2017 2018 2019 MMO Requirements Uniform 748,774 769,228 805,895 1,060,318 Non-Uniform 97,795 93,952 87,779 156,998 Total MMO 846,569 863,180 893,674 1,217,316 State Aid Contribution 406,842 417,531 463,754 Not Available Net Cost after Aid 439,727 445,649 429,920 N/A Note: State Aid Contributions are not received from the state with a break down for each plan. Uniform employees receive double the unit value and non-uniform receive a single unit value in state aid contributions. Pension Committee is currently discussing the possibility of recommending that the pension plans start to utilize asset smoothing as part of the valuation process Smoothing of assets reduces volatility of MMO contribution
u Current service providers Marquette and Conrad Seigel are performing very well u Committee is looking forward to better custodial service with US Bank u New investment vehicles have been added to diversify risk u Low investment management fees: 0.42% (Police); 0.38% (Non-Uniform) u Non-uniform Plan (closed) is being managed more conservatively
u Lowered annual rate of return assumption u More conservative investment mix
u Police Pension Plan
u Governed by the collective bargaining agreement u Further diversification will be explored as needed / allowed u Potentially look to lower the assumed rate of return
u Implication to MMO / funded status
u Committee may recommend switching from “snap shot” valuation to
“asset smoothing” to reduce volatility of MMO budgeting
u Recommendation would be finalized at next pension meeting
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Act 44: On September 18, 2009, the Pennsylvania General Assembly enacted Act 44 of 2009 which amended Act 205 (governing municipal pension plans). Section 702-A of Act 44 requires that all municipal pension plans adopt procedures for selecting the most qualified person to enter into a professional services contract, including, but not limited to, advertisement for professional services, review of proposals, disclosures, conflicts of interest, public information, increases in the costs of professional services contracts, and notice and summary of factors that resulted in an award. Recommended reading: The Changing World of Public Pensions.
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GASB: Governmental Accounting Standards Board: Organization that formulates accounting standards for governmental units.
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MINIMUM MUNICIPAL OBLIGATIONS (MMO): In the United States, the state-mandated smallest amount a municipality must contribute to any pension plan established for its employees. The amount is calculated using actuarial science to ensure that municipal pension plans are sufficiently funded. The Township, regardless of the amount contributed by it, is also required to keep the pension plan solvent. If the pension funds become insufficient to meet
policy against under-contributions by employees or poor performance of pension fund
MMO and the sum of contributions the Township makes for each employee as a percentage of that employee's wages, plus realized earnings on the pension fund investments.
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FUNDED STATUS: The Funded Status of a pension plan is represented by the fair market value
will have to pay in the future. In a fully funded pension plan, the fair market value of plan assets is enough to cover at least 100% of current benefits earned by employees.
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Decreasing Interest Rate Assumptions
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Updates to the Life Expectancy Figures (Mortality Table)
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Downturn in Pension Investments during 2018 4th Quarter (Asset Smoothing Techniques)
Non-Uniformed Pension Plan
Changes Decrease interest rate assumption to 6.75% Pay average from 60 months to 36 months Prior Analysis at January 1, 2018 -- Estimated 2020 MMO to be $161,000 2020 estimated MMO
161,000 Prior Estimate 70,000 Impact of 2018 Investment Results (Assumes -5%) 40,000 Impact of New Life Expectancy 271,000 New Estimate As of January 1, 2019
215,000 New Estimate As of January 1, 2019 - Smoothed Police Pension Plan
Changes None? Prior Analysis at January 1, 2018 -- Estimated 2020 MMO to be $782,000 2020 estimated MMO
782,000 Prior Estimate 238,000 Impact of 2018 Investment Results (Assumes -5%) 50,000 Impact of New Life Expectancy 1,070,000 New Estimate As of January 1, 2019
950,000 New Estimate As of January 1, 2019 - Smoothed