Benefits & Retirement Overview

Transcription

1 Benefits & Retirement Overview January 25, 2012 Employee Groups 7 Executive Management (Unrepresented) 17 Managers (Unrepresented) 16 Tech Svcs 18 Other (Unrepresented) Eng Admin / Clerical OCEA Supervisors Professionals 199 Local 501 (O&M) S&P 1

2 OCSD Healthcare Plans Medical Anthem POS* PPO Anthem HMO Dental 80% District Paid Delta Dental PPO Vision District Paid Anthem Blue View Kaiser HMO * Medical plan was eliminated through the meet and confer process Disability and Life Insurance District Paid Disability Short-Term Disability (All employees) Long-Term Disability (Employees with 5 or more years of service) Basic Life Insurance / AD&D $50,000 Policy (All employees) $100,000 Policy (Managers) 2

3 Voluntary Insurance Plans Employee Paid Supplemental Life Insurance Short-Term Disability Voluntary Long-Term Disability (employees with less than 5 years of service) Critical Illness Legal Plan Additional Benefits Flexible Spending Accounts Health Care Dependent Care Employee Paid 457(b) Deferred Compensation Plan Employee Paid Rideshare Program and 7 Vanpools Employee Paid Employee Assistance Program (EAP) District Paid 3

4 Anna Destrempe Alliant Insurance Services, Inc. Employer Trends Changes to cost sharing structure* Increase copays and coinsurance* Four-tier contribution structure High Deductible Health Plan (HDHP) Wellness program * subject to meet and confer 4

5 Employer Trends: 4 Tier 60% 50% 40% 30% EE only, Family 20% 10% EE Only, EE+1, Family EE only, EE+Spouse, EE+Children, Family Other 0% Employer Trends: HDHP 30% 25% 20% 15% 10% 5% 0% HSA eligible CDHP HRA eligible CDHP 5

6 Employer Trends: Health Management Programs 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Health plan standard services only Health plan optional services Contract with speciality vendor(s) Insurance Trends: Wellness 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% West Transport/Communication/Utility Government

7 Benefit Renewal Increases 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% Initial Renewal Negotiated Renewal 6.00% 4.00% 2.00% 0.00% Retirement Plan: OCERS Plan H 2.5% at 55 Average Employee Contribution: 7.88% (11.38%) EPMC: 3.5% Employer Contribution: 25.68% FAS: 36 months 567 members Plan B (second tier) 1.667% at 57.5 Average employee contribution: 8.43% EPMC: 0% Employer Contribution: 24.89% FAS: 36 months 23 members 7

8 Member Eligibility Mandatory Participation in OCERS Full-Time Employees Part-Time Employees Social Security Exempt Exception: 1.45% Medicare (after 3/31/86) Retirement Eligibility Age 50, with 10 years of service; or 30 years of service, regardless of age; or Part-time employee age 55 or older with 5 years of service and 10 years of active employment with an employer covered by OCERS; or Age 70 or older, regardless of years of service. 8

9 Retirement Eligibility Employees Eligible for Retirement 3 years: 31% 5 years: 56 % Projected Attrition Rate: 6.3% Reciprocity Designed to preserve retirement benefits earned Reciprocal Systems CA Public Employees Retirement System (CalPERS) CA State Teachers Retirement System (CalSTRS) Judges Retirement System (JRS I and JRS II) Any agency with established reciprocity with CalPERS 9

10 Retirement Allowance Years of Service Retirement Formula Pro-Rated for Early Retirees Age Factor Final Average Salary Base Salary Ventura Decision Ventura Decision Compensation Earnable Items Shift Differential Stand-By Pay Passdown Pay Investment Incentive Salary (IIS) Development Pay Vacation, Sick, Personal Leave, and Compensatory Hours Pension Spiking Controls 10

11 Service Credit Hours Worked Converted to Years Purchase of Service Credit No cost to OCSD Employee pays contributions plus interest No Air Time Provision Service Retirement IRS Maximums Benefit Limit: Section 415(b)(1)(A) 2012 Benefit Limit: $200,000 Maximum OCERS May Pay a Retiree OCSD Replacement Benefits Plan Compensation Limit: Section 401(a)(17) 2012 Compensation Limit: $250,000 11

12 Social Security Offsets Government Pension Offset Reduces the Social Security benefit amount by two-thirds of the government pension for a spouse/widow/widower Windfall Elimination Provision Results in lower Social Security retirement or disability benefit Retiree Medical Benefits Benefit Retiree Medical Premium Subsidy 2.5 months for every year of service Additional Retiree Benefit Account (ARBA) Max $250 Eligibility Hired Prior to 7/1/88 Hired After 7/1/88* or End of Medical Subsidy Retirees *OCEA members hired after 8/1/11 are not eligible for ARBA 12

13 Steve Delaney & Julie Wyne OCERS OCERS: Governing Law OCERS operates under CERL (County Employees Retirement Law), CA Constitution and state law One of 20 county retirement systems in CA under CERL By contrast, PERS operates under PERL (Public Employees Retirement Law), CA Constitution and state law 13

14 OCERS: Governance Governed by nine member Board (and one safety member alternate) Board has plenary authority over administration Determining benefit eligibility Defining compensation earnable Setting funding policy Investing trust assets Plan Sponsors and employee representatives negotiate retirement benefits OCERS: Benefit Eligibility Board determines service retirement eligibility Based upon age and years of service credited Board determines disability retirement Service-connected board determines permanent incapacity and service connection Nonservice-connected board determines permanent incapacity 14

15 OCERS: Benefit Cost OCERS is a multiple employer cost sharing plan Employers are categorized into Rate Groups, depending on benefit formulas Benefits are funded from employer/employee contributions and investment earnings Earnings approximately 60% Contributions approximately 40% OCERS: Benefit Cost Employee contributions are based on a member s age at entry into OCERS and plan formula Employer contributions are based on plan formula and unfunded liability of the employer s rate group Employer contributions consist of a normal cost and an amortization cost for the unfunded liability 15

16 Sanitation District: Benefit Cost The District is in Rate Group 3, with a total unfunded liability of $134,610,000 The current total employer contribution for the 2.5% at 55 plan is 25.68% (10.93% normal and 14.75% UAAL) The current total employer contribution for the 1.64% at 57 plan is 24.89% (10.14% normal and 14.75% UAAL) OCERS: Compensation Earnable Board has authority under CERL to define compensation earnable Compensation earnable is used in a retiring member s final average salary to calculate retirement benefits Board Resolution defines what is included and excluded 16

17 OCERS: Pension Spiking Controls OCERS staff carefully monitors payroll records of retiring employees to ensure only proper pay elements included in comp earnable Payoffs of vacation/annual leave/comp time limited to what is earned and cashable in a 12 month period No inclusion of termination pay No inclusion of incidental overtime OCERS: Funding Policy The Board, with system actuary, sets assumptions, amortization periods and smoothing method The earnings assumption is 7.75% It was carefully considered in 2011 and will be reviewed again in

18 OCERS: Funding Policy We are among the majority of systems with a 7.75% earnings assumption PERS, STRS, UCRS state systems Los Angeles, Sacramento, San Bernardino, and most other county systems City of San Diego, City of Los Angeles, Los Angeles Fire and Police city/county charter systems OCERS: Investing Assets Diversified portfolio Public equities Fixed income Real estate Private Equity, Alternatives Investments returned 11.7% for 12/31/10 Higher than 79% of Callan s public fund database 5,7 and 10 year returns ranked in top decile 18

19 OCERS: Funding There are generally three measures of a plan s financial health Funding level Whether the Employer is paying the Annually Required Contribution (ARC) The annual increase required as a percent of payroll to pay the ARC OCERS: Funding OCERS is 69.79% funded as of 12/31/10 OCERS has 69.79% of assets on hand to pay future benefit payments accrued through 12/31/10 Cash flow positive, which means we do not have to liquidate assets to pay current benefit payments All of our plan sponsors pay 100% of the ARC The average increase in the ARC from the last valuation is 0.9% 19

20 Summary Healthcare reforms = $2 million in savings Aligned medical plans with industry standard Two-tier pension system for all new employees = $38 million in savings Pay full contribution (average 8.43%) Eliminated employer pick up No lifetime retiree medical premium subsidy No airtime provision Pension spiking controls Girard Miller The PFM Group 20

21 Retirement Benefits Assessment Pension and retiree medical (OPEB) benefits must be: Affordable Sustainable Competitive Sufficient Legal Issues Employees have vested benefits Employers can change plans for new hires Employers can increase employee contributions in some cases Benefits and contributions are subject to collective bargaining 21

22 Pension Benefits Analysis District participates in OCERS 2.5% multiplier at age 55 as standard benefit pre MOU 1.66% multiplier at age 57-1/2 hereafter Employees contribute, but not the maximum Long-term trend: Expect to see more hybrid DB-DC plans for future new hires Retiree Medical (OPEB) Benefits were dialed back in 1988 Current benefit has a cap of $250/month In the low-middle range in the spectrum of municipal OPEB benefits At this level, retirees bear major health care costs Benefit may not be sufficient Trend toward defined contribution retiree health savings plan or HSA Revisit the funding of the current OPEB benefit (trust vs pay-go) 22

23 Employee Health Benefits: National Trends Shift more costs to active employees as plan-wide costs skyrocket Trends to mitigate employer costs Higher deductibles and co-pays More focus on single-employee coverage as baseline, less on family coverage as singleemployer expense More use of high-deductible HMOs More use of HSAs January 25, 2012 John E. Bartel 23

24 Agenda OCSD Pensions Compared to Others OCSD OPEB Compared to Others Governor s Proposal 47 OCSD Pensions Compared to Others Reasons why direct comparisons are hard Benefits Funded Status Contribution Rates 48 24

25 Why Direct Comparisons Are Hard Benefits Demographics/Behavior Formulas Pensionable Wages Final Average Earnings Member Contribution Rates Retiree COLAs Benefit Cap Post Retirement Survivor Allowance 49 Why Direct Comparisons Are Hard Funded Status/Contribution Rates Valuation timing Actuarial Assumptions: Discount Rate (Investment Return) Inflation Salary Increases Retirement Rates Actuarial Methods Asset Smoothing Unfunded Liability Amortization 50 25

26 OCSD Benefit Formulas 3.0% 2.5% 2.0% Factor 1.5% 1.0% 0.5% Tier 1a Tier 1b Tier 2 0.0% Retirement Age 51 Other Pension Benefits Issues Pensionable Wages Includes Terminal Pay Items Final Average Earnings Tier 1a Highest Year Tiers 1b & 2 Average of Highest 3 Years Member Contribution Rates Based on Entry/Hire 52 26

27 Other Pension Benefits Issues Retiree COLAs 3% Benefit Cap 100% Post Retirement Survivor Allowance Includes 60% Automatic Continuance to Surviving Spouse 53 Conclusion Tier 1a & Tier 1b Generally more valuable than other agencies Tier 2 Generally less valuable than other agencies Where most agencies would like to be 54 27

28 Actuarial Basis Unfunded Liability Funded Status December 31, 2010 $134 million Funded Ratio 67% Market Value Basis Unfunded Liability $145 million Funded Ratio 64% 55 Contribution Rates 2011/12 Fiscal Year District Rate Tier 1 Tier 2 Normal Cost 10.93% 10.14% Unfunded Liability Total 25.68% 24.89% Average Member Rate Total 38.37% 32.81% 56 28

29 Actuarial basis Conclusion Funded Status Generally lower than others Results in: Higher contribution rates Longer term higher funded status Market basis Consistent with agencies that have enhanced formulas Lower than agencies without enhanced formulas 57 Conclusion OCSD Contribution Rates Generally higher than others Particularly so for agencies without enhanced formulas 58 29

30 Conclusion Member Contribution Rates Generally higher than CalPERS CalPERS set in statute as fixed rate, regardless of entry age, service, etc. OCERS member rates Based on sharing cost and Lower for those hired at younger ages and higher for those hired at older ages 59 OCSD OPEB Compared to Others Benefits 2½ Months of premiums Implied subsidy ARBA Funded Status 0% Funded - Not currently pre-funding Annual Required Contribution 2½ Months of premiums & Implied Subsidy 1.8% ARBA 1.7% 60 30

31 Benefits Conclusion OPEB Generally less valuable than other agencies Where most agencies would like to be Funded Status Many agencies are starting to pre-fund Particularly so for Special Purpose Agencies ARC Generally lower than most agencies Could be lower if prefunding 61 Governor s Pension Proposals 1. Members pay 50% of Normal Cost New Employees: 2. Hybrid Risk-Sharing Pension Plan 3. Increase Retirement Ages 4. Require Three-Year Final Compensation 5. Calculate Benefits Based on Regular, Recurring Pay 62 31

32 Governor s Pension Proposals All Employees & Employers: 6. Limit Post-Retirement Employment 7. Prohibit Pension Benefits for those Convicted of Work Related Felony 8. Prohibit Retroactive Pension Increases 9. Prohibit Contribution Holidays 10. Eliminate Airtime Purchase 63 Governor s Pension Proposals Governance: 11. Increase Pension Board Independence and Expertise State: 12. Reduce Retiree Health Care Costs: State Employees 64 32

33 QUESTIONS? 33