Independent Citizen Advisory Committee on Pension Matters. Report - June 2016

Transcription

1 Independent Citizen Advisory Committee on Pension Matters Report - June 2016

2 Meet the Committee Bob Likins, Chair - Retired Actuary Jack Atkin, Vice Chair - Retired Business Owner Larry Heiges - Retired Banker Martin Jones - Management Consultant Rebecca Jones - Retired Accountant Deborah Lauchner - Chief Financial Officer, City of Santa Rosa Richard Tracy - Management Consultant 2

3 Committee Mandate Review & evaluate the County s progress to date Review & evaluate the County s next steps Produce a brief, easy to understand description of the pension system Make any other recommendations for improvement 3

4 County Goals Goal # 1 Contain Costs Reduce pension costs to 10% of total compensation in 10 years Goal # 2 Maintain Market Competitiveness and Workforce Stability Goal # 3 Increase Accountability and Transparency 4

5 5 Insufficient Progress on Pension Reform

6 Reform Progress Projected Savings from Reforms to Date (millions) New benefit tier...$ 92 Eliminate spiking.$ 41 Eliminate County paid employee contribution $ 45 TOTAL PROJECTED SAVINGS $178 6

7 millions Perspective on Projected Savings $800 $700 $600 $500 $400 $544 Additional savings needed to achieve cost goal $300 $200 $100 $0 $178 Total projected savings 7

8 8 Cost Containment Reforms Not on Track

9 9 Sources: County s Report of the Ad-Hoc Committee on Pension Reform (Nov 2011); the County s Pension Reform Update Report (Jan 2015), and the County s Budget Hearings Pension Update Report (June 2016).

10 10 Cost in Lost Services is Massive

11 millions Annual Excess Pension Costs $80 (Costs Exceeding Goals) $70 $60 Actual $269 million Projected $741 million $50 $40 $30 $20 $10 Cost Goal $0 11

12 12 Risks to County Still Exist

13 Components of Cost (As a percentage of Pensionable Payroll) 40% 12/31/ % 30% 25% 20% 15% 10% Cost Goal POB $42 million UAAL $27 million Normal Cost $44 million 5% 0% 13

14 Risk Sharing with Employees Elusive No progress on sharing investment risks County bears virtually all risk for unfunded liabilities Current balance of unfunded pension liabilities of $831 million ($406 UAAL + $425 POB) Magnitude of debt is key driver of cost problem 14

15 millions Liabilities Sensitive to Discount Rate ( What if vs. Current Assumption 12/31/2015) $1,200 $1,000 $800 $1,140 $715 $831 UAAL POB $600 $400 $406 $572 $147 $200 $425 $425 $425 $0 Discount Rate if 6.25% Current 7.25% if 8.25% Source: SCERA GASB 67 + POB 15

16 Historical Investment Returns Annualized Returns Dec. 31, Year 1.7% 3 Year 8.7% 5 Year 8.1% 10 Year 5.5% 15 Year 5.0% 20 Year 6.9% 30Year 8.5% Source: SCERA 16

17 17 More Transparency & Public Accountability Needed

18 Transparency & Accountability Some progress Improved reporting Citizens oversight OPEB has not been considered Metrics inconsistent 18

19 Inconsistent Metrics Pension Cost as a % of Compensation 18% Total Compensation 10% Pensionable Payroll 19

20 % Funding Inconsistent Metrics Funded Ratio 90% SCERA Reported vs. Total (incl. POB) 85% 80% 75% 70% 65% 60% 85% 73% SCERA Funded Ratio County Funded Ratio 55% 50%

21 The UAAL is not like a Home Mortgage Principal changes every year Debt payment changes every year Maturity changes every year Guaranteed interest rate Fixed annual payments Fixed amortization period 21

22 22 Committee s Key Findings & Recommendations

23 Insights & Findings Generous retirement benefits can replace > 100% of income Lower Tier 2 costs help, but do not solve the problem Paying off pension liabilities and minimizing future liabilities is critical Employee extra 3% will not cover the retroactive benefits Past projections did not include sunset of 3% contribution Legal obstacles to reasonable reforms leave County with few tools 23

24 Primary Recommendations Short Term Adopt and demonstrate a higher sense of urgency Aggressively pursue cost sharing with employees Establish ongoing citizens oversight effort Establish robust, annual, well-documented reporting process 24

25 Primary Recommendations Long term Implement a new tier 3 hybrid benefit plan Half defined benefit, including social security Half defined contribution Align retirement income with Ad Hoc Report recommendation of 75%-85% of final pay Work with others to accomplish enabling legislation 25

26 No Easy Solutions All our cost saving recommendations will take political will The cost to the community demands more reform measures as soon as possible The total projected cost of foregone services from , could exceed $1 billion 26

27 Questions Comment Discussion Sonoma County Independent Citizen Advisory Committee on Pension Matters - Report 27

28 Independent Citizen Advisory Committee on Pension Matters Thank You