Memorandum. Recommendation. Background/Discussion

Transcription

1 Memorandum DATE: January 30, 2017 TO: Members of the Board of Retirement FROM: Suzanne Jenike, Assistant CEO, External Operations SUBJECT: 2017 COST OF LIVING ADJUSTMENT Recommendation Adjust all applicable benefit allowances, effective April 1, 2017, in accordance with Government Code Section , resulting from the change in CPI, as follows: 1. For benefit recipients who began receiving benefits on or before April 1, 1971 through April 1, 1982, increase applicable benefit allowances by 2%, and reduce COLA banks by 1%, for a tal benefit adjustment of 3%. 2. For benefit recipients who began receiving benefits or will begin receiving benefits between April 2, 1982 and April 1, 2017, increase applicable benefit allowances by 2% with no reduction in COLA banks. Background/Discussion Per Government Code Section OCERS Board of Retirement is required annually adjust the benefit allowances relative the increase or decrease in the Consumer Price Index (CPI). This adjustment, known as a Cost of Living Adjustment (COLA), is effective April 1 st of each year. This year, there was an increase in the CPI for year-end 2016 of. To determine the change in CPI, Segal compares the Bureau of Labor Statistics annual average CPI for All Urban Consumers for the Los Angeles-Riverside-Orange County area for each of the past two years and derives the percentage change between the two. This is done in accordance with Government Code Section , which is the COLA section operative in Orange County. That section also states that any increase or decrease in the CPI is be rounded the nearest one-half of one percent ( rounded 2%) and provides that a maximum COLA of 3% shall be granted on every retirement allowance, optional death allowance, or annual death allowance payable or on account of any member of the system. For years in which the COLA exceeds 3%, the amount over 3% is banked for future years when the COLA is less than 3%, which happens be this year. For our benefit recipients who began receiving benefits on or before April 1, 1971 through April 1, 1982, their allowances will be increased by the 2% COLA and 1% will be deducted from their COLA banks, since they have accumulated enough in their banks provide the maximum 3% tal COLA adjustment. For all remaining benefit recipients, who began or will begin receiving benefits on or after April 2, 1982 through April 1, 2017, their allowances will be increased by 2% since their COLA banks are presently at zero. I Cost of Living Adjustment 1 of 2 Regular Board Meeting

2 COLA Hisry and Options: Often a discussion of COLA raises questions as its background, and legal ol sets or options available plan sponsors, the County of Orange in particular, or even OCERS as a governing body. Mr. Harvey Leiderman has provided a thorough encapsulation of those pics in an attached memo, dated February 4, 2014, a copy of which is included in this item for informational purposes. In addition, the question of the measurement period used measure Consumer Price Index (CPI) changes is also raised when discussing COLA. Currently the Board measures the change in CPI using the average annual index method which compares the annual change in inflation from one year the next. By contrast there is also a December December index as used by some CERL systems such as LACERA which measures the CPI change at a specific point in time, i.e. December December. It is our understanding that either method is actuarially and legally acceptable. In speaking with Segal Consulting they have done analysis for other CERL clients and come the following conclusion: Our general conclusion is that the two methods are numerically equivalent as their expected longterm benefit impacts. We have noticed that there is some volatility in the month--month changes in the CPI. In particular there is a pattern of decreases between November December CPI and then increases in the following year. While this may not impact the December over December change in CPI each year used determine the COLA, some of the volatility could be eliminated by using the average annual index method which is more stable since it is based on a twelve-month average. Submitted by: S. J. APPROVED Suzanne Jenike Assistant CEO, External Operations I Cost of Living Adjustment 2 of 2 Regular Board Meeting

3 lf Segal Consulting 100 Montgomery Street Suite 500 San Francisco, CA wr'vw.segalco.com AndyYeung, ASA! MAAA, FCA, EA Vice President & Actuary ayeung@segalco.com VIA & USPS January 19,2017 Mr. Steve Delaney Chief Executive Officer Orange County Employees Retirement System 2223 Wellingn Avenue Santa Ana, CA Re: Orange County Employees Retirement System Cost-of-Living Adjustments (COLA) as of April 1,2017 Dear Steve: We have determined the cost-oêliving adjustments for the System in accordance with Section , as provided in the enclosed exhibit. Pursuant Section , the cost-oêliving facr be used by the System on April l,20il is determined by comparing the Bureau of Labor Statistics' annual average CPI for All Urban Consumers for the Los Angeles-Riverside-Orange County Area (with as the base period) in each of the past two years. The ratio of the past two annual indices, in2016 and in2015, is The County Law section cited above indicates that the resulting percentage change of l.89yo should be rounded the nearest one-half percent, which is. Please note the above cost-of-living adjustment calculated using established procedures for OCERS may result in adjustments different from those calculated using alternative procedures by other systems. The actual cost-of-living adjustment is dependent on date of retirement. The CPI adjustment be applied on April 1,2017 is provided in Column (4) of the enclosed exhibit. The COLA bank on April l,20il is provided in Column (5). Benefits, Compensation and HR Consulting. Member of The Segal Group. Offices throughout the United States and Canada

4 Mr. Steve Delaney January 19,2017 Page2 Please give us a call if you have any questions Sincerely, Yeung V TJH/hy Enclosure cc: Suzanne Jenike Brenda Shott 546'1962v1/

5 Orange County Employees Retirement System Cost-Of-Living Adjustment As of April 1,2017 (1) (2) (3) (4) (5) Retirement Date April 1,2016 Accumulated Carry-over Bank 2017 cpr Chanqe* 2017 cpt Rounded** 2017 cpl Used.*. April 1,2017 Accumulated Carry-over Bank**** All Members Section Maximum Annual COLA 3.0o/o On 04t02t t02t t t02t t02t t02t t02t t02t t02t t t02t t02t t02t t02t t o t02t t02t t02t t02t t02t t02t t02t t02t t02t or Before t01t t01t t01t t01t / t01t /01/'t t01t t t01t /01/ o /01/ t t01t /01/ t01t t01t o t01t t01t o t01t t01t t01t o/o 48.0o/o 47.50/o 47.5o/o 47.0o/o 41.5o/o 36.0% 32.5o/o 28.5o/o 23.5o/o 16.0To 5.5Yo Q.0o/o 1.89To 1.89Vo 1.897o 1.89Vo 1.89To 1.89Vo 1.B9Yo B9% 89% 89o/o 89% 89To 89% 89Yo 89Yo 89Yo B9o/o 89o/o 1.B9% 1.B9Yo 2.îYo 2.ÙYo 2.0Vo 2.1Yo 2.00/o 2.ÙYo 2.OYo 2.îVo 2.00/o 3.jYo 3.j 3.jYo 3.jYo 3.QYo 3.lYo 3.0o/o 2.00/o 2.ÙYo 2.0Yo o 2.ÙVo 2.lYo o 2.ÙVo o 2.îVo 2,0% 47.Qo/o 47.0o/o 46.5o/o 46.5% 46.0o/o 40.5o/o 35.0olo 31.íYo 27.5o/o 22.5o/o 15.0% 4.5o/o 0.QYo 0.0olo 0.9Yo 0.0olo Based on ratio of 2016 annual average CPI annual average CPI for the Los Angeles - Riverside - Orange County Area Based on CPI change rounded nearest one-half percent. These are the cost-of-living adjustment facrs be applied on April 1,2017. These are the carry-over ofthe cost-of-living adjustments that have not been used on April 1, v SEGAL CONSULTING

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