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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 4 About OCERS 4 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) 4 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. 5 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. 6 OCERS governance OCERS Board of Retirement –10 Trustees 4 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 7 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 8 OCERS By The Numbers 9 Pension Contributions 10 Pension Contributions •Sum of contributions & interest pay for pension benefits. 11 Pension Contributions •Three key processes in determining Pension Contributions: •Adopting a Funding Policy •Adopting Actuarial Assumptions •Developing an Investment Portfolio 12 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 13 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? 14 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% 15 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 16 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 17 December 31, 2018 Valuation Where Are Rates Going? A 20 Year Amortization Payment Plan 18 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 19 INVESTMENTS 20 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. 21 Investments Invest for the Very Long Term •30 year horizon spanning employee careers •22 years on average for General members who retired in 2018. 22 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. 23 Diversification is a protection 24 OCERS Fund Earnings – How Did We Do? 25 -25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 19 8 6 19 8 7 19 8 8 19 8 9 19 9 0 19 9 1 19 9 2 19 9 3 19 9 4 19 9 5 19 9 6 19 9 7 19 9 8 19 9 9 20 0 0 20 0 1 20 0 2 20 0 3 20 0 4 20 0 5 20 0 6 20 0 7 20 0 8 20 0 9 20 1 0 20 1 1 20 1 2 20 1 3 20 1 4 20 1 5 20 1 6 20 1 7 20 1 8 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 29 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% 30 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. 31 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 32 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! 34 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 35 Conclusion 36