HomeMy WebLinkAboutItem 5 PPP 09-11-19 Administration Committee - OCERS201120112011
OC Sanitation District
Presented on September 11, 2019 by
Steve Delaney, Chief Executive Officer
Molly Murphy, Chief Investment Officer
Brenda Shott, Assistant CEO, Finance & Internal Operations
Agenda
•About OCERS
•Funding Policy
•Actuarial Assumptions
•Investments
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About OCERS
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Who We Serve
•CITY OF SAN JUAN CAPISTRANO
•COUNTY OF ORANGE
•ORANGE COUNTY CEMETERY DISTRICT
•ORANGE COUNTY CHILDREN & FAMILIES COMMISSION
•ORANGE COUNTY DEPARTMENT OF EDUCATION(CLOSED TO NEW MEMBERS)
•ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM
•ORANGE COUNTY FIRE AUTHORITY
•ORANGE COUNTY IN-HOME SUPPORTIVE SERVICES PUBLICAUTHORITY
•ORANGE COUNTY LOCAL AGENCY FORMATION COMMISSION
•ORANGE COUNTY PUBLIC LAW LIBRARY
•ORANGE COUNTY SANITATION DISTRICT
•ORANGE COUNTY TRANSPORTATION AUTHORITY
•SUPERIOR COURT OF CALIFORNIA, COUNTY OF ORANGE
•TRANSPORTATION CORRIDOR AGENCIES
•UCI MEDICAL CENTER AND CAMPUS(CLOSED TO NEW MEMBERS)
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The County Employees’ Retirement Law of 1937
established Defined Benefit Pension plans
Retirement system is a trust fund separate from the county.
State Constitution vests the Retirement Board with exclusive authority for
management of the retirement system.
Independent and balanced position with respect to stakeholders is critical to
preserving credibility of the retirement system.
Systems feature local control through nine-member Retirement Boards
comprised of key stakeholders.
Systems administer pension benefits that are established by the county or
local governments.
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Differences Between
the 1937 Act Systems
and the State Systems
•The 1937 Act systems operate under a different set of rules governing what counts as
compensation for the purposes of determining retirement benefits.
•Systems generally do not administer health care benefits for active employees or
retirees.
–Some systems provide a subsidy toward retiree health care costs.
•Plan members or stakeholders can express concerns to the local retirement system
(as opposed to a larger,statewide entity)and to local officials or labor organizations.
•Administrative costs limited to 0.21%of plan liabilities.
•PEPRA leveled the playing field.
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OCERS governance
OCERS Board of Retirement –10 Trustees
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Trustees
Appointed by
Board of
Supervisors
No more than
1 may be
sitting
Supervisor
1
Trustee
Elected by
Retirees
2
Trustees
Elected by
Safety
Members
1 full member
1 alternate
Member
Represent
different
departments
2
Trustees
elected by
General
Members
1
Ex Officio
Trustee
County
Treasurer
Or Deputy
Designated
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OCERS GOVERNANCE
Chuck Packard -Chair1/1/2017 –12/31/2019
Roger Hilton –Vice Chair
7/1/2018 –06/30/2021
Russel Baldwin01/01/2017 –12/31/2019 Shawn Dewane
01/01/2017 –12/31/2019
Chris Prevatt
01/01/2019 –12/31/2021
Frank Eley
01/01/2017 –12/31/2019
Shari Freidenrich
Ex-Officio
Wayne Lindholm
01/01/2019 –12/31/2021
David Ball
01/01/2017 –12/31/2019
Jeremey Vallone
07/01/2018 –06/30/2021
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OCERS By The Numbers
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Pension
Contributions
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Pension Contributions
•Sum of contributions & interest pay for pension benefits.
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Pension Contributions
•Three key processes in determining Pension Contributions:
•Adopting a Funding Policy
•Adopting Actuarial Assumptions
•Developing an Investment Portfolio
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OCERS AND CALPERS –
Funding Policy
Policy Provision OCERS CalPERS OLD CalPERS New
Cost Method Entry Age Entry Age Entry Age
Asset Smoothing 5 years 17 years 5 years
Amortization 20 years closed 30 year rolling 20 year closed
Contributions Level % of Payroll Level % of Payroll Level Dollar
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Actuarial Assumptions
•Economic Assumptions
–how will market forces affect the cost of the plan?
•Demographic Assumptions
–How will participant behavior affect the cost of the plan?
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Actuarial Economic Assumptions
Assumption OCERS CalPERS
Rate of Return 7.0%7.0% (phased in over 3
years for valuations as of
June 30, 2016-June 30,
2019)
Inflation 2.75%2.5%
Salary Increases 3.25%2.75%
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Actuarial Demographic Assumptions
•When will an individual retire?
•How many will retire in a given year?
•How many will be disabled?
•Termination of Employment
–Refund of contributions?
•Mortality
–Active/Retired
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Causes Of UAAL
Actual experience which is less favorable than assumed. Such as:
•Higher salary increases
•Earlier retirement date(s)
•Lower death rates
•Lower rates of investment earnings
•Lower rates of non-death terminations
•Change in actuarial assumptions
Experience is measured annually
Assumptions are updated triennially
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December 31, 2018 Valuation
Where Are Rates Going?
A 20 Year Amortization Payment Plan
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Where Are OC Sanitation
Rates Going?
A 20 Year Amortization Payment Plan
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037
Projected Employer Rates for Rate Group # 3Sanitation District
0% in 2019 - 7% all future years 7% in all future years 14% in 2019 - 7% all future years
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INVESTMENTS
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Saving To Pay That Benefit
The Board of
Retirement is
undertaking a savings
task similar to that
performed by many of
you in saving for your
kid’s college
education.
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Investments
Invest for the Very Long Term
•30 year horizon spanning employee
careers
•22 years on average for General
members who retired in 2018.
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Investments
How are investment decisions made?
•Trustees oversee pensions and have a fiduciary obligation to ensure the plan is operating in the best interest of workers and retirees.
•OCERS hire professional asset managers to steer investments.
•OCERS maintains a balanced portfolio of stocks, bonds, alternatives (such as private equity, real estate, hedge funds) and cash. This is consistent with modern portfolio theory.
•Public pensions are prudent investors in both bear and bull markets.
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Diversification is a protection
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OCERS Fund Earnings –
How Did We Do?
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-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
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6
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8
7
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8
19
8
9
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9
0
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9
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9
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9
9
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0
0
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0
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20
0
2
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0
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20
0
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0
5
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0
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0
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0
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0
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0
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1
1
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1
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16.15%
2.88%
11.53%
18.40%
1.02%
20.25%
5.78%
13.88%
-2.29%
23.26%
13.29%
17.07%
12.77%
15.68%
3.28%
-3.22%
-5.46%
19.84%
11.40%
8.83%
13.55%
10.44%
-20.95%
18.34%
11.21%
0.53%
11.95%
10.86%
4.73%
-0.11%
8.52%
14.51%
-1.67%
OCERS Fund Performance
RV Kuhn’s Report: How Do We Compare?
As of June 30, 201826
RV Kuhn’s Report: How Do We Compare?
As of December 31, 201827
RV Kuhn’s Report: How Do We Compare?
As of December 31, 201828
PUTTING IT ALL
TOGETHER
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All The Pieces Together:
As of December 31, 2018 Total OCERS OC Sanitation District
Actuarial Accrued Liability
(The Promise)
$20,703,349,000 $710,877,000
Assets (Valuation)$14,994,420,000 $703,124,000
Assets (Market)$14,349,705,000 $672,895,767
Unfunded Actuarial Accrued
Liability (valuation)
$5,708,929,000 $7,753,000
Funded Ratio (valuation)72.43%98.9%
Unfunded Actuarial Accrued
Liability (market)
$6,353,644,000 $37,981,233
Funded Ratio (market)69.31%94.7%
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All The Pieces Together:
The Long Term Plan –Funded
Ratio
•We’ve grown to full funding before, we are on
track to do so again over the next 20 years, that is
how Pension Systems work.
•OC Sanitation District has continued to fund their full
promise by accelerating their UAAL payment (last
payment made Monday, September 9/9/19 to pay
full UAAL (valuation) as of 12/31/2018.
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Challenges remains
Two Key Issues:
•How long will our members live
(mortality)
•How much will the OCERS Portfolio
earn over the next 30-70 years
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Long term promises
LIFETIME GUARANTEE = CIVIL WAR VETERANS
PENSION RECIPIENT 150 YEARS LATER
33
Long term promises
2020 = 75 years of service
Our Longest Termed Member
MS. ANNA CROSSON
Employed by the
County of Orange
in April 1946!
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The Opportunities Ahead
1.OCERS is still cash flow positive
2.Conservative assumptions
3.20 year amortization plan
4.An oversight Board concerned with volatility
5.PEPRA (2013) reduced benefit costs over the long term
6.Comprehensive Final Average Salary review ensures accuracy
7.Employers efforts to accelerate the payment of UAAL:
–OC Sanitation District -Cemetery District
–OCFA -Children and Families Commission
–OC Public Law Library
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Conclusion
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