1/27/2014 Yuba City Actuarial Information Todd Tauzer, ASA, MAAA January 28, 2014 1 Overview • Actuarial concept review • New smoothing and amortization policy Yuba City’s pension profile • Issues impacting future rates • 2 1
1/27/2014 Key Actuarial Concepts • Present Value of Benefits Accrued Liability • Plan Assets • Normal Cost • 3 Present Value of Benefits (PVB) Total dollars needed on valuation date to fully fund all expected benefits for current members in the plan (both past and future service) • Example: – Say an employee is half way through a career of 30 years – PVB is the amount of money needed to fully fund both the 15 years of service accrued to date and the expected 15 future years of service 4 2
1/27/2014 Accrued Liability (AL) The value of benefits earned on the valuation date by members currently in the plan (past service only) • From our previous example: – AL is the present value of the benefit the employee has earned for the 15 years of service already worked 5 Assets The amount of money invested as of the valuation date which supports the plan liabilities. • Therefore whatever difference there is between the plan assets and the AL results in the Unfunded Accrued Liability (UAL) or Surplus • The ratio of the AL and plan assets is the Funded Status 6 3
1/27/2014 Normal Cost (NC) Annual cost associated with one year of service accrual • Dependent on plan provisions and assumptions including expected investment return, average age members entered plan, and salary growth 7 Putting it all together: Future Future NC Future NC Contributions Contributions Contributions CY Normal Cost Unfunded Unfunded Liability Present Value Liability CY Amortization of Benefits Accrued Liability Assets Assets 8 4
1/27/2014 New Amortization and Smoothing Policy • Background • Changes • Impact 9 Background: Assets • In the past, assets were measured by market value and actuarial value – Market Value of Assets (MVA) measured the true dollar amount of actual investments – Actuarial Value of Assets (AVA) was used in the valuation to smooth rates, protecting from volatility in investment returns 10 5
1/27/2014 Background: Amortization • Previous valuations used the following smoothing techniques: – Investment returns: 15 years – Experience gains and losses: rolling 30 years 11 Changes • Starting in the June 30, 2013 valuation setting employer rates for 2015-2016: – There will no longer be AVA, only MVA – Instead of 15 year investment smoothing between AVA and MVA, there will be 5 year direct rate smoothing – Experience gains and losses will be amortized on a fixed or declining 30 year period instead of rolling • The impact of these changes will be phased in over 5 years 12 6
1/27/2014 Impact • Results in higher employer contributions in the short term, but lower contributions ultimately as the UAL gets completely paid off • Agencies now make significant progress towards being fully funded • Eliminates confusion between two sets of asset values 13 Impact: Yuba City Miscellaneous Employer Rates 35.000% 30.000% 25.000% 20.000% 15.000% 10.000% 5.000% 0.000% 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/2022 1/1/2023 1/1/2024 1/1/2025 1/1/2026 1/1/2027 1/1/2028 1/1/2029 1/1/2030 1/1/2031 1/1/2032 1/1/2033 1/1/2034 1/1/2035 1/1/2036 1/1/2037 1/1/2038 1/1/2039 1/1/2040 1/1/2041 1/1/2042 1/1/2043 Current Method New Method 14 7
$10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 Impact: Yuba City Miscellaneous Unfunded Liability • Funded Status • Contribution Rates Yuba City: CalPERS profile $0 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020 Current UAL 1/1/2021 1/1/2022 1/1/2023 1/1/2024 1/1/2025 New UAL 1/1/2026 1/1/2027 1/1/2028 1/1/2029 1/1/2030 1/1/2031 1/1/2032 1/1/2033 1/1/2034 1/1/2035 1/1/2036 1/1/2037 1/1/2038 1/1/2039 1/1/2040 1/1/2041 1/1/2042 1/1/2043 16 15 1/27/2014 8
1/27/2014 Yuba City Employer Contribution Rates Miscellaneous Safety T1 Safety T2 2013-2014 23.595% 30.068% 29.087% 2014-2015 24.815% 31.721% 30.753% 2015-2016* 26.3% 33.8% 32.8% 2016-2017* 27.8% 35.9% 34.9% 2017-2018* 29.3% 38.0% 37.0% 2018-2019* 30.8% 40.0% 39.0% 2019-2020* 32.4% 42.1% 41.1% *Projected 17 Public Agency Employer Rate Comparison Miscellaneous Safety Yuba City Average* Yuba City T1 Yuba City T2 Average* 2013-2014 23.6% 15.3% 30.1% 29.1% 32.0% 2014-2015 24.8% 15.6% 31.7% 30.8% 31.8% *Includes all public agency benefit formulas in this category 18 9
1/27/2014 Public Agency Funded Status Comparison Miscellaneous Safety Yuba City Average* Yuba City T1 Yuba City T2 Average* 2013-2014 71.4% 74.8% 78.9% 78.9% 73.1% 2014-2015 67.3% 71.1% 73.7% 73.7% 70.0% *Includes all public agency benefit formulas in this category 19 Items that could impact rates • Experience Study Results • New Proposed Pension Reform Bill • Pooling changes 20 10
1/27/2014 Experience Study • Going before the Board for approval in February • Biggest impact is from higher projected life expectancy: – male longevity increased by 2.1 years – female longevity increased by 1.6 years • Largest salary growth seen in County Peace Officers • Impact to rates will be phased in over five years • No anticipated change in discount rate 21 Anticipated Rate Changes from Proposed Assumptions Normal Cost Total Rate Total Rate Increase Change (Year 1) Change (Year 5) Safety Fire 0.0% to 0.5% 1.2% to 1.9% 6.3% to 7.2% Safety Police 1.1% to 1.7% 1.9% to 3.3% 5.3% to 9.3% Misc 2% at 55 0.2% to 0.3% 0.4% to 1.3% 1.3% to 5.1% Misc 2.7% at 55 0.4% to 0.7% 0.9% to 1.9% 3.1% to 6.5% 22 11
1/27/2014 Pension Reform Bill • Proposed by the mayor of San Jose • Would allow employers to negotiate and change future pension and health benefit accruals for current employees • Will be voted on in November 2014 23 Upcoming pooling changes • Resulting from PEPRA implementation, current pooled plans will have declining payroll • But the UAL of each plan and pool is a dollar amount – The result of spreading a dollar amount over less payroll would be accelerated growth of contribution rates • For example: Expected Payroll Growth Declining Payroll Payment Payroll Rate Payment Payroll Rate $ 200,000 1,000,000 20% $ 200,000 1,000,000 20% $ 206,000 1,030,000 20% $ 206,000 900,000 23% 24 12
1/27/2014 Upcoming pooling changes • Therefore, in the 2013 valuation to set 2015-2016 rates, the plan is to join all pooled miscellaneous plans into a single pool and all pooled safety plans into a single pool – Surcharges will be applied based on benefit formulas and optional benefits • Additionally, we are looking at allocating each pool’s UAL on a plan specific basis • All pooling changes are pending board approval (March or April) 25 Questions? 26 13
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