ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM

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ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM n MEMORANDUM DATE: March 11, 2005 TO: FROM: SUBJECT: Members, Board of Retirement James Buck, Assistant CEO, External Operations Orange County Fire Authority

Orange County Fire Authority 12.12% 15.74% b) Orange County Sanitation District 12.12% 14.

1 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM n MEMORANDUM DATE: March 11, 2005 TO: FROM: SUBJECT: Members, Board of Retirement James Buck, Assistant CEO, External Operations Orange County Fire Authority and Orange County Sanitation District Recommendation: Adopt the new employer contribution rates commensurate with the enhanced retirement benefit formulas as follows: Agency Current Rate New Rate a) Orange County Fire Authority 12.12% 15.74% b) Orange County Sanitation District 12.12% 14.81% ) These contribution rates are calculated by The Segal Company based upon information prepared by the data supplied by the Towers Perrin cost study. The attached is the documentation from Segal. Submitted by: / James Buck Assistant CEO, External Operations Attachments: Orange County Fire Authority General Member Contribution Rates Orange County Sanitation District General Member Contribution Rates

2 FEB =25 FROM The Segal Compan~ TO P.02 X-sEGAL THE SEGA~ COMPANY 120 Montgomcfy Slreet Suite 500 San F<ancisco, CA g T F www. egalco.com Chief Executive Officer 2223 Wellington Avenue Santa Ana, CA Re: Orange County Fire Authority Dear Keith: Pursuant to your request, and based on information prepared by Towers Perrin, we have calculated the Orange County Fire Authority General employer contribution rates to reflect the 2. 7% at 55 benefit formula improvement effective July We understand that the Fire Authority completed their MOUs after the last valuation as of December 31, Therefore, the rates for fiscal year 2005/2006 will for the first time reflect the enhanced formula. The Fire Authority's percent of payroll contribution rates before and after the benefit improvement are as follows: 1. Fire Authority General employer rate before improvement calculated in the December 31, 2003 valuation by Towers Perrin 2. Additional contribution rate* to reflect 2.7% at 55 benefit improvement calculated in benefit improvement study by Towers Perrin using December 31, 2002 membership data 3. Fire Authority General employer rate after improvement 12.12% 3.62% 15.74% Out of the total increase, 3.41 % is the increase in the UAAL rate and 0.21 % is the increase in the Normal Cost rate. The following points should be considered by the Retirement System before the rate in item 3. is adopted by the Retirement Board: 1. The Fire Authority General employer rate in item I was calculated by the System's prior actuary, Towers Perrin, in their latest actuarial valuation as of December 31, That rate was adopted by the Board for the 2004/2005 fiscal year. iji:-nef11$, Ccmpensalion 11nd HR Consulting AYl,.AN(A 1:H)S'fON Ctf!CACO Clli:Yf;;L-'INO O~NYliR HARTFORD HOVSTON LOS /\NGELES MIMNEl\POLIS NEW Of-ilf.ANS N~W YORK PHl~A0!;LPHIA PHOF,Nll SAN F~ANCISCO SEAHL~. TORONTO WASHINGTON, DC Moltin;11i()r\t1\ Group a( Actu&riee and Consu!Hu\lSc AMSTERDAM BAHCELON... i:'.>~nf:ya HAMEll.JRC j!)hannessljrg LONDON MELBOURNE MEXICO CITY OSLO PARIS

3 FEB :25 FROM The Segal Compan~ TO P.03 Orange County Fire Authority Page2 Segal has not adjusted the rate calculated by the System's prior actuary for deviations due to: (a) the difference between the Segal's and the prior actuary's valuation software and methods, and (b) the difference between projected and actual actuarial experience during calendar year For example, the employer rate may increase (or decrease) if the System's valuation assets earn less (or more) than the assumed return of 7.50% during In determining the contribution rate increase under item 2., we have relied on the results from the benefit improvement study performed by the System's prior actuary using membership data from the December 3 l, 2002 valuation. We have not verified or made any adjustments to those results_ In particular, we have not adjusted those results to reflect differences that may arise from changes in membership demographics after the December 31, 2002 valuation. We understand the results in that study were approved by the Board. 3. The System should be aware that the rate after the benefit improvement in item J _ does not include any: (a) "reverse employee pickup", (b) funding of the RMBR account or (c) any other funding of retiree health benefits. 4. December 3 l, 2004 is the date of the System's next triennial experience study. We expect the contribution rate in item 3. to change in the December 31, 2004 valuation as we reflect any differences in valuation software, actuarial experience during 2004 and new actuarial assumptions from the triennial experience study. 5. With this update, the System will change from its practice of relying on results from a valuation performed six months before to 18 months before the beginning of the fiscal year. It is our understanding that the System is permitted to set the employer's contribution rate based on a valuation that was perfonned as of a date not more than 24 months before the beginning of the employer's fiscal year. However, as this has not been the past practice at the System, the System may want to consult with its auditor and possibly its legal counsel. The rates in this report are based on the December 3 I, 2003 valuation. Other Considerations The System should also be aware that under the System's funding methodology (i.e., the Projected Unit Credit Method), unless we have younger employees entering the plan each year to maintain the average attained age for the active workforce at the level for 2003, the dollar Normal Cost of the active members calculated in the December 31, 2003 valuation is expected to increase in each future valuation as a function of survivorship and interest However, that increase will be offset somewhat by the 4.0% annual inflation assumption when the Normal Cost is expressed as a percent of payroll. In addition, the System currently expresses the contributions to the Unfunded Actuarial Accrued Liability (UAAL) as a

4 FEB :26 FROM The Segal Company TO P.04 Orange County Fire Authority Page3 level dollar amount and it is anticipated that the contributions to the UAAL will decrease in each future valuation when the UAAL contribution is expressed as a percent of payroll. We have not made any adjustments in determining the rate provided in item 3 for these or other timing effects. Please let us know if you have any questions. Sincerely, An~~.~~ Associate Actuary AYY/jc 18l 790i I

5 FEB :26 FROM The Segal Compan~ TO P.05 rx-segal THE SEGAL COMPANY 120 Montgomery Straet Suite 500 San Francisco, CA T F Chief Executive Officer 2223 Wellington Avenue Santa Ana, CA Re: Orange County Sanitation District General Member Contribution Rate~ for Fiscal Year 2005/2006 Dear Keith: Pursuant to your request, and based on infonnation prepared by Towers Perrin, we have calculated the Orange County Sanitation District General employer contribution rates to reflect the 2-5% at 55 benefit fonnula improvement effective July The Sanitation District's percent of payroll contribution rates before and after the benefit improvement are as follows: I_ Sanitation District General employer rate before improvement calculated in the December 31, 2003 valuation by Towers Perrin 12.12% 2. Additional contribution rate" to reflect 2.5% at 55 benefit improvement calculated in benefit improvement study by Towers Perrin using December 31, 2002 membership data J _ Sanitation District General employer rate after improvement 2.69% 14.81% Out of the total increase, 3.09% is the increase in the UAAL rate and 0.40% is the decrease in the Nonnal Cost rate. The following poin!s should be considered by the Retirement System before the rate in item 3. is adopted by the Retirement Board: I. The Sanitation District General employer rate in item I was calculated by the System's prior actuary, Towers Perrin, in their latest actuarial valuation as of December 31, That rate was adopted by the Board for the 2004/2005 fiscal year. 6ene1ltS, Comi:iense11fon snd Hlft Consulting ATLANTA BOSTON Cl-!ICAGO CLEVl!LAND OfNllER HARTFORD HQIJSTON LO::! A.NOtLCS Ml="JNC:A.~Ol.IS Nf".W QRL AN$ NEW VOi::!IC PHILAOl!ll'HIA Pl1()F.N1>.'. SAN FflANCl~(.;Q REATTLE TORONTO W' 'SHINGTON, OC 7- ~~ Mulcinatianal Group of Actuaries and Consultan1s AMSTERDAM DARCELONA OENEVA HAMEIURG JOHANNE:;i8URG LONlH.lN M<:'.L~OU((NI:: MF.lr:ICCl CITY r;l$lo PARI~

6 FEB =26 FROM The Se9al Compan~ TO 98171d P.06 Orange County Sanitation District General Member Contribution Rates fo..- Fiscal Year 2005/2006 Page 2 Segal has not adjusted the rate calculated by the System's prior actuary for deviations due to: (a) the difference between the Segal's and the prior actuary's valuation software and methods, and (b) the difference between projected and acmal actuarial experience during calendar year For example, the employer rate may increase (or decrease) if the System's valuation assets earn less (or more) than the assumed return of7.50% during In determining the contribution rate increase under item 2., we have relied on the results from the benefit improvement study performed by the System's prior actuary using membership data from the December 3 1, 2002 valuation. We have not verified or made any adjustments to those results. In particular, we have not adjusted those results to reflect differences that may arise from changes in membership demographics after the December 31, 2002 valuation. We understand the results in that study were approved by the Board. 3. The System should be aware that the rate after the benefit improvement in item 3. does not include any: (a) "reverse employee picknp", (b) funding of the RMBR account or (c) any other funding of retiree health benefits. 4. December 31, 2004 is the date of the System's next triennial experience study. We expect the contribution rate in item 3. to change in the December 31, 2004 valuation as we reflect any differences in valuation software, actuarial experience during 2004 and new actuarial assumptions from the triennial experience study. 5. With this update, the System will change from its practice of relying on results from a valuation performed six months before to 18 months before the beginning of the fiscal year. ft is our understanding that the System is permitted to set the employer's contribution rate based on a valuation that was performed as of a date not more than 24 months before the beginning of the employer's fiscal year. However, as this has not been the past practice at the System, the System may want to consult with its auditor and possibly its legal counsel. The rates in this report are based on the December 3 I, 2003 valuation. Other Considerations The System should also be aware that under the System's funding methodology (i.e., the Projected Unit Credit Method), unless we have younger employees entering the plan each year to maintain the average attained age for the active workforce at the level for 2003, the dollar Normal Cost of the active members calculated in the December 3 I, 2003 valuation is expected to increase in each future valuation as a function of survivorship and interest. However, that increase will be offset somewhat by the 4.0% annual inflation assumption when the Normal Cost is expressed as a percent of payroll. In addition, the System currently expresses the contributions to the Unfunded Actuarial Accrued Liability (UAAL) as a level

7 FEB :27 FROM The Segal Company TO P.07 Orange County Sanitation District Page3 dollar amount and it is anticipated that the contributions to the: UAAL will decrease in each future valuation when the UAAL contribution is expressed as a percent of payroll. We have not made any adjustments in determining the rate provided in item 3 for these or other timing effects. Please let us know if you have any questions. Sincerely, 4tf~ Andy Yeung, ASA, MAAA Associate Actuary AYY/jc I

Or9Age County Employees Retirement System June 20, 2005 Regu lar Board Meeting - Minutes Page 14 The Chair announced that the Closed Session Item would be heard during lunch in the Executive

9 (One potential case) No reportable action taken. ****END CLOSED SESSION AGENDA**** The Board reconvened at 1 :55 p.m. 1-5 EARLY PAYMENT OF EMPLOYER CONTRIBUTIONS Mr.

8 Or9Age County Employees Retirement System June 20, 2005 Regu lar Board Meeting - Minutes Page 14 The Chair announced that the Closed Session Item would be heard during lunch in the Executive Conference Room. The Board!broke for lunch at 12:55 p.m. CLOSED SESSION AGENDA S-E-1 CONFERENCE WITH LEGAL COUNSEL -ANTICIPATED LITIGATION Discussion of whether to initiate litigation pursuant to subdivision (c) of Section (One potential case) No reportable action taken. ****END CLOSED SESSION AGENDA**** The Board reconvened at 1 :55 p.m. 1-5 EARLY PAYMENT OF EMPLOYER CONTRIBUTIONS Mr. Bozarth reviewed this item and reported it was limited to cash payments. Mr. Moorlach wanted to know what the incentive was for early payments. Mr. Bozarth responded that OCERS can invest the fund early and it also allows for cash planning. Following discussion, a motion was made by Mr. Lightvoet, seconded by Mr. Moorlach to approve an early payment policy with respect to employer contributions as described, with the specific provision that a discount be provided only for cash payments, not for transfers from the Investment Account. The motion carried unanimously. i-6 DRAFT STRATEGIC PLANNING AGENDA Mr. Bozarth reviewed the Draft Strategic Planning Agenda. Mr. Eley would like for the Investment section to provide an overview of things such as leverage and risk issues in the portfolio, etc. Ms. Silbar would like a written legislative report. 1-7 REPLACEMENT BENEFIT PLANS UNDER IRC 415 Ms. Wyne reviewed the agreements regarding Replacement Benefit Plans under IRC 415. f:board/agenda/ Board Minutes

Wyne. Following discussion, a motion was made by Ms. Silbar, seconded by Mr.

9 ' ~. June 20, 2005 Regu lar Board Meeting - Minutes Page 15 Ms. Silbar reviewed the agreements and sees two different agreements. Since these are not benefits OCERS will be responsible for, the agreements are not clear as to who will be making the determination. Ms. Silbar would like to discuss some drafting changes with Ms. Wyne. Following discussion, a motion was made by Ms. Silbar, seconded by Mr. Lightvoet to authorize the CEO to enter into agreements with the County an ' the Sanitation DistriG for OCERS to administer the 415 plans for each entity subject to some modifications to the agreements. The motion carried unanimously. 1-8 PETITION FOR REASSIGNMENT OF REFEREE - DISABILITY RETIREMENT APPLICATION OF DORIS KIRKLEY Ms. Parker reviewed the petition for reassignment of Referee. Following discussion, a motion was made by Ms. Silbar, seconded by Mr. Eley to allow reassignment of referee for the disability retirement application of Doris Kirkley. The motion carried unanimously. * * * * * i: * i: END OF INDIVIDUAL ITEMS AGENDA * * * * * * * * PUBLIC COMMENTS: None BOARD MEMBERS COMMENTS: Mr. Royalty complimented staff on how well they handled the difficult issues that came before the Board this morning. Mr. Moorlach questioned whether Mr. Bozarth responded concerning Mr. Beckett's memo, as it stated in the minutes from the Board meeting on May 16, Mr. Bozarth responded that he had not done that yet. Mr. Moorlach also questioned whether the Audit Committee Meeting on July 8, 2005 would be at 8:30 a.m. or 1 :30 p.m. The Chair responded that had not been discussed, but assumed it would be at 8:30 a.m. Ms. Neebe announced that she would be retiring from the County of Orange after 35 years of service as of August 5, CHIEF EXECUTIVE OFFICER/STAFF COMMENTS: Mr. Bozarth thanked the Board for getting through today's agenda. COUNSEL COMMENTS: f:board/agenda/ Board Minutes

FRESNO COUNTY EMPLOYEES RETIREMENT ASSOCIATION

FRESNO COUNTY EMPLOYEES RETIREMENT ASSOCIATION Audit of Valuation Results for June 30, 2005 Copyright 2006 THE SEGAL GROUP, INC., THE PARENT OF THE SEGAL COMPANY ALL RIGHTS RESERVED THE SEGAL COMPANY 120