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HomeMy WebLinkAbout2006-06-15 Special Meeting- MINUTES OF THE JOINT MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE & STEERING COMMITTEE V SPECIAL MEETING -BENEFITS WORKSHOP Orange County Sanitation District Wednesday, June 15, 2006, 5:00 p.m. A joint meeting of the Finance, Administration and Human Resources Committee and the Steering Committee of the Orange County Sanitation District was held on June 15, 2006, at 5:00 p.m., in the Sanitation District's Administrative Office. (2) The roll was called and a quorum declared present, as follows: FAHR COMMITTEE MEMBERS: DIRECTORS PRESENT: Darryl Miller, Chair Mike Duvall, Vice Chair Bill Dalton Rich Freschi Phil Luebben Joy Neugebauer Mark Waldman Jim Ferryman, Vice Board Chair James W. Silva DIRECTORS ABSENT: Steve Anderson, Board Chair STAFF PRESENT: Jim Ruth, Interim General Manager Lorenzo Tyner, Director of Finance Mike White, Controller Jeff Reed, Human Resources Manager Rich Spencer, Human Resources Supervisor Paul Loehr, Human Resources Supervisor Kim Erickson, Human Resources Analyst Penny Kyle, Committee Secretary OTHERS PRESENT: Brad Hogin, General Counsel Keith Bozart Ryal Wheeler (3) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (4) PUBLIC COMMENTS There were no public comments. (5) a. ARBA Update Paul Loehr, Human Resources Supervisor, described the efforts underway by OCERS to establish a medical investment trust. He also reported staff was reviewing an actuarial report on ARBA. FILED IN THE OFFICE OF THE SECRETARY ORANGF ~ntJl'lfT" ,, H ••~•..-•l"lt,.J OlSTRICT JUL 19 2006 BY _f-4----, K-'---, -~ Social Security • fvledicare Contributions -employees hired after March 31. 1986 • Government Pension Offset -reduced spouse's benefit paid • Windfall Elimination Provision -lower Social Security benefit for government employees Service Retirement • Eligibility based on service credits (years of service) and age • Pension formula • Ventura Decision • IRS maximums • COLA Service Retirement Eligibility Age 50 10 Years of Service Age 55 Part-time Employee 5 Years of Service + 1 O Years of active employment with an employer covered byOCERS Any Age 30 Years of Service Age 70 Any Years of Service 2 Disability Retirement • Service Connected (incapacitated, work-related) • Non-Service Connected (incapacitated, not work-related) Retiree Medical Benefits 2.5 Month Premium ARBA Eligibility Hired Prior to Hired After 7 /1 /88 7/1/88 or 2.5 Month Benefit Expired Retirees 37 99 Monthly Cost $33,258 $17,000 Survivor Benefits • Active / deferred members • One-time death benefit • Service/ non-service connected death options • Retiree unmodified option • Alternatives 4 procedure, methodology an9 assumptions and amendment of the retirement plan. As follow up to the Segal report, the OCERS Board formed an ad hoc group which held public meetings and discussed the actuarial methods and assumptions used by OCERS for the past several years. Subsequently OCERS made a few adjustments to its methodology and assumptions, but did not change the demographic assumptions made by Segal. These adjustments, in addition to the change by the OCERS Board on the investment rate of return from 7.5% to 7.75%, resulted in an annual employer contribution by the County of $249 million. On July 19, 2005, your Board directed the County Executive Office to evaluate CalPERS as a possible alternative to OCERS. The Board also directed staff to evaluate other potential alternatives to OCERS such as the Los Angeles County Employees Retirement Association (LACERA), San Bernardino County Employees Retirement Association (SBCERA) and TIAA-CREF. In addition to the aforementioned, CEO staff also evaluated two other alternatives: 1) creating a Joint Retirement and Benefits Organization for Riverside and Orange Counties; and 2) establishing a Board-governed County Retirement Plan. , , Each of these options would require passage of State legislation in order for the County to leave OCERS and most of these would require legislation for the County to create or join a different retirement plan. CEO Legislative Affairs staff advised the staff team on the schedule and process for accomplishing the required passage of legislation, if any would be ultimately proposed by the Board. Since any change to a different retirement plan would constitute a change in the terms and conditions of employment, a proposed change would be subject to the meet and confer process with the employee unions pursuant to the Meyers-Milias-Brown Act (Government Code Section 3500 et seq.). Thereafter, this proposal would be subject to the vote of County employees. Specifically, under CalPERS law: 1) a general election would be held in which a majority (50+ 1) of all active County employees would be required to disapprove a proposed contract with CalPERS. If a contract were approved at this point, one option is that the County could enter CalPERS for prospective employees while maintaing the existing plan at OCERS for current employees; or 2) if by a second election an affirmative vote of at least two-thirds (2/3) of active OCERS members is attained, the County could transfer all existing assets and service records from OCERS to CalPERS. Should a change to a different retirement plan be ultimately approved, an evaluation would be required for the transfer of assets and liabilities from OCERS to the new plan. After considering all other options, staff concluded that CalPERS could most feasibly be compared with OCERS. The other retirement plan options are not feasible for the following reasons: LA CERA -this option is not feasible because it requires approval of the voters of Los Angeles County to permit Orange County representation on the LACER.I\ Board. SB CERA -this option also requires voter approval of San Bernardino County for Orange County representation on the SBCERA Board. TIJ.1.A-CREF -TIAA-CREF would change the current defined benefit (DB) pension plan to a defined contribution (DC) plan for future County employees. During the past several years, some public institutions for higher education have converted from a DB to a DC plan. Maintaining both a DB plan for active employees arid DC plan for future employees would probably be more expensive for several http://cams.ocgov.com/Web _ Pub1isher/ Agenda06 _ 06 _ 2006 _files/images/A06-000853 .HTM 5/31/2006 years at the onset, although the cost of a DC plan would be less expensive in the long term. However, it appears unlikely at this time that the labor unions would support such a conversion. Additionally, the vast majority of governmental employers offer DB retirement plans. A conversion by the County to a DC plan would be detrimental for the County's efforts to retain some of its active employees and recruit new employees in the future. Joint Retirement and Benefits Organization - a joint retirement and benefits organization such as, with Riverside County is an option for designing a plan to meet the specific needs of two jurisdictions. In order to effect this change, the costs to the County at least at the onset would be higher as compared to maintaining the current retirement plan. However, the County is currently the major sponsor in OCERS and represented on the OCERS Board. It is unknown whether the formation of a new retirement system with another county would be beneficial with respect to representation on the retirement board, or would result in reduced employer costs in the long term. Board-Governed Retirement Plan -presently the Board governs a retirement plan for employees who work part time, or on an extra help or temporary basis. Pursuant to Ait icle XVI, Section 17 of the California Constitution (Pension Protection Act of 1992) the governing board of a retir~:rnent plan must exercise their duties to primarily benefit members of the retirement system, including both active employees and retirees. Under fujs type of plan, the Board's duty to minimize employer costs is subordinate to the duty to administer the plan for the benefit of the members. Such a dual ro1e could create conflicts between duties of a retirement plan governing board on behalf of its members and the Board of Supervisors on behalf of the County as the employer and thereby, increase the likelihood of legal challenges from employee unions and others. CalPERS OpJion As the other options above were considered, CalPERS emerged as offering the most feasible option to the current OCERS retirement plan. Established in 1932, CaIPERS is a very large system which serves approximately I million active and inactive members and 500,000 retirees plus eligible families_ As of February 2006, the market value of the CaLPERS fund was approximately $207 .1 billion . CalPER administers retirement programs for the majority of State of California employees and contractually for numerous cities, counties and other governmental agencies throughotit the State. In comparison, OCERS which was established in 1945 serves approximately 24,000 active and deferred members and I 0,000 retirees plus eligible families. As of February 2006, the market value of the OCERS fund was approximately $6.4 billion. The County employees total approximately 17,000 and comprise over 70% of the OCERS plan. CEO staff confirmed that legislative change would be required to both leave OCERS and join CalPERS. Staff also established contact with representatives of CalPERS to research the transfer process and other considerations. The principal CalPERS contacts were Ken Marzion, Assistant Executive Officer, and Rick Santos, Associate Pension Actuary. At the onset CalPERS staff indicated that the County retirement benefit structure could not be accommodated in the current CalPERS pension allowance payment system. Therefore, in addition to legislation permitting the County to leave OCERS and join CalPERS, legislation would also be required for CalPERS to offer the same benefit structure and level as OCERS. After further di sc ussion , CalPERS staff agreed that they could provide information which would refle ct the cost of offering the County 's retirement benefits consistent with the CalPERS actuarial assumptions and methodology. The objective was to have the ability to make a fair comparison of costs of the http://cams.ocgov.com/Web _Publisher/ Agenda06 _ 06 _ 2006 _files/images/A06-000853 .HTM 5/31 /2006 County's benefits within the CalPERS structure and the OCERS structure. However, in order to accomplish thi s objecti ve, Ca!PERS nctu aries were required to perfonn add itional ach1arin.l calculations, using new benefit formulas not norrn aU used by Ca!PERS. This increased the cost of CalPERS' actuarial calculations, beyond the ost that was originally estimated as further discussed b elow. After this objective was established, a series of working sessions followed which addressed issues, including the following: • Legislation required for the County to leave OCERS and join CalPERS • Legislation required for CalPERS to offer County benefits • Methodology to determine amount of assets to be transferred • Other approval requirements • Review of timing of asset and liability determination • Review of process and mechanics of transfer The parties involved in working through these issues included representatives of the County Executive Office Human Resources and County Counsel; CalPERS; OCERS; and the various County labor organizations. Subsequently a core team of professional actuaries and consultants representing all of the aforementioned entities worked diligently in reviewing the actuarial and economic issues and assumptions/methodology underlying all of the cost calculations. The final product of all of the analysis and calcuJation is two hypothetical cases, one for CalPERS and one for OCERS, which compare the annual costs of each system to provide the County's current retirement benefit. Exhibit A summarizes the rates for each of the County's four rate groups and also gives an aggregate total for each of the retirement systems. The rates shown are expressed as a percentage of pay in each rate group and in total. Exhibit B summarizes the same information except that it is expressed in dollars instead of percentage of pay. Since adjustments were made for the rate calculations so that CalPERS and OCERS could be directly compared the results are hypothetical and would not be actual rates. For example the OCERS asset value is based on actual market. In the OCERS normal rate setting process, market gains and losses are phased in over five years using a smoothing methodology which is a standard actuarial practice. For the purpose of this report both systems use full market value. Additionally, the information used for the rate calculations is subject to change over time. Looking at the summary totals for the two systems as expressed in Exhibit A, the Employer rates are 24.39% for CalPERS and 23.77% for OCERS, a difference of .62% (sometimes also referred to as 62 basis points). Exhibit B reflects the difference in dollars which is $6 million. Investment_Allocation and Performance Analysis The final step in the staff analysis of the Ca!PERS option was the review of the comparative historical and projected investment earning rates for CalPERS and OCERS. An independent investment consultant, PFM Advisors, was engaged to conduct a review of both of the retirement systems. The evaluation included the following: • Analysis of the investment allocation policies • Identification of the similarities and differences • Analysis of whether the policies of each system confirm the present rate of return • Evaluation of the "social responsibility" investment criteria used by CalPERS • Conclusions and actions required to potentiaily transfer assets to CalPERS http:i/cams.ocgov .com/Web _Publisher/ Agenda06 _ 06 _ 2006 _files/images/A06-000853 .HTM 5/31/2006 REVIEWING AGENCIES: County Counsel, Human Resources EXHIBIT(S): Exhibit A -Comparison of CalPERS & OCERS Contribution Rates and Exhibit B -Comparison of CalPERS & OCERS Expected Contributions http://cams.ocgov.com/Web _Publisher/ Agenda06 _ 06 _ 2006 _files/images/ A06-000853 .HTM 5/31/2006 1 CalPERS (ll • County Rate • Normal Cost • UAL Amortization • Total o Average Member Rate • Total OCERS/Segal c2> • County Rate • Normal Cost • UAL Amortization • Total • Average Member Rate • Total Projected Payroll (I) As provided by CalPERS. (~) As provided by The Segal Company. Exhibit A Comparison of CalPERS & OCERS Contribution Rates General AFSCME 2. 7% @ 55 Probation 8.32% 10.71% 25.29% 2.09% 11.22% 9.24% 10.41% 21.93% 34.53% 6.96% [0.09% 12.44% 17.37% 32.02% 46.97% 9.19% 11.90% 20.86% 2.28% 9.70% 9.58% 11.47% 21.60% 30.44% 7.32% 10.36% 11.61 % 18.79% 31.96% 42.05% $ 43.8 $ 722.5 $ 55.8 C \Documcnls nnd Sct1111gs'Joim Bnrtcl\?-.·I~ Documc1lls\Clients\Counly orOrango\CnlPE.RS\jCalPERS OCERS Con1ribu1ion Rate~ tl(i-OJ-14 xlslEs.hibil A ... Law Enforcement 22.03% 15.07% 37.10% 11.93% 49.03% 21.12% 14.70% 35.82% 11.68% 47.50% $ 143.4 $ Total 13.12% 11.27% 24.39% 10.35% 34.74% 13.67% 10.10% 23.77% 10.49% 34.26% 965.5 B / 1) --1·"• r:1· . 4 .\. .. '·- / :··c•~·) ····I,•·1·r··· 'I c·, :, .,I...\.. .. ,\ ,.j. L , ·" . .-, Exhibit B Comparison of CalPERS & OCERS Expected Contributions General Law AFSCME 2.7%@55 Probation Enforcement Total CalPERS(tl • County Rate D Normal Cost $ 3.6 $ 77.4 $ 14.1 $ 31.6 $ 126.7 0 UAL Amortization 0.9 8 l. l 5.? 21.6 108.8 0 Total 4.6 158.5 19.3 53.2 235.5 • Estimated Average Member Rate 3.0 72.9 6.9 17.1 100.0 • Total 7.6 231.3 26.2 70.3 --335.4 OCERS/Segal <2> • Connty Rate • Normal Cost $ 4.0 $ 86.0 $ 11.6 $ 30.3 $ 132.0 • UAL Amortization 1.0 70.1 5.3 21. l 97.5 • Total 5.0 156.1 17.0 51.4 229.5 • Average Member Rate 3.2 74.9 6.5 16.7 101.3 • Total 8.2 230.9 23.5 68.1 330.8 Projected Payroll $ 43.8 $ 722.5 $ 55.8 $ 143.4 $ 965.5 <ll i-\s provided by CalPERS. <2l i\s provided by The Segal Company. C \Po~11nu.'111s anJ S.:11ini;s\folm l};u1cl\~tr Do,um~n1s\Clicn1s\Coun1~ ofOrangc\CalPERS\jCnlPERS OC'ERS Contribution R:ues Of,-11)-1-txlslE.'-ihibil B 81 IZTFL .r L s_<.)C lr\TI S. ! IC ROLL CALL JOINT FINANCE, ADMINISTRATION AND HUMAN RESOURCES AND STEERING COMMITTEES Meeting Date: May 18, 2006 Time: 5:00 p.m. Adjourn: COMMITTEE MEMBERS Darryl Miller (Chair) Mike Duvall (Vice Chair) Bill Dalton Richard Freschi Phil Luebben Joy Neugebauer James W. Silva Mark Waldman Steve Anderson (Board Chair) Jim Ferryman (Board Vice Chair) OTHERS I Brad Hagin, General Counsel I I STAFF Jim Ruth, Interim General Manager Bob Ghirelli, Director of Technical Services Lorenzo Tyner, Director of Financerrreasurer David Ludwin, Director of Engineering Jim Herberg, Director of Operations & --Management Lisa Tomko, Director of Human Resources Patrick Miles, Director of Information Technology Nick Arhontes, Director of Regional Assets & Services Mike White, Controller Lilia Kovac, Committee Secretary Jeff Reed, Human Resources Manager Paul Loehr, Human Resources Supervisor Rich Spencer, Human Resources Supervisor c: Lenora Crane AGENDA JOINT FINANCE, ADMINISTRATION AND HUMAN RESOURCES AND STEERING COMMITTEES OF THE ORANGE COUNTY SANITATION DISTRICT DISTRICT'S ADMINISTRATIVE OFFICES 10844 ELLIS AVENUE FOUNTAIN VALLEY, CA 92708 SPECIAL MEETING --BENEFITS WORKSHOP Thursday, June 15, 2006 -5:00 P.M. 1. Invocation and Pledge of Allegiance 2. Roll Call 3. Appointment of Chair pro tern, if necessary 4. Public Comments 5. Informational Items a. ARBA Update • Presentation -Paul Loehr b. OCSD Retirement Program Overview • • • • Introduction -Lisa Tomko Program Overview -Kim Erickson Actuarial Study Overview -Keith Bozarth (OCERS) Q & A -OCSD and OCERS staff 15 minutes 15 minutes 10 minutes 5 minutes 15 minutes .~, ....................... H,,•HOU•H••·••n,,,H, ................... u••····· ............................ .,. ........ ,~··-· ............................ H ............................... .,, ..................................................................................... _ j During the course of conducting the business set forth on this agenda as a special meeting of the i Committee, the Chair may convene the Committee in closed session to consider matters of pending real !,,. ·) estate negotiations, pending or potential litigation, or personnel matters, pursuant to Government Code j Sections 54956.8, 54956.9, 54957 or 54957.6, as noted. J Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) I employee actions or negotiations with employee representatives; or which are exempt from public disclosure ·i under the California Public Records Act, may be reviewed by the Committee during a permitted closed 'i session and are not available for public inspection. At such time as final actions are taken by the Committee l. on any .of.these subjects, the. minutes will. reflect all. required disclosures .of information.·········-···-··-·······················-················· Book Page 1 6. Closed Session a. Convene in closed session 06/08/06 Page2 C onference with designatea representatives Lisa Tomko, Director of Human ResourG~s; Jeff Reed, Hurnam Resources Manager; and Paul l-oehr, Human Resolllrces Supervisor, re Meet and Confer Update re contract ne~otiations-for employees rcepresented by t). Orange County Employees Association; 2). International Uniqn of Operating Engineer:-s, Local 501, and 3). Sur,,ervisors, Professional Mana@ement Team {part of Pea·ce Officers Council of California (Government Code Section 54!957.6). Q. Reconvene in regular session. 6. Adjournment Book Page 2 06/08/06 Page3 Agenda Posting: In accordance with the requirements of California Government Code Section 54956, this agenda has been posted in the main lobby of the District's Administrative offices not less than 24 hours prior to the meeting date and time above. All written materials relating to each agenda item are available for public inspection in the office of the Board Secretary. Items, Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Board for discussion and/or action, it will be done in compliance with Section 54954.2(b) as an emergency item or because there is a need to take immediate action, which need came to the attention of the Board subsequent to the posting of agenda, or as set forth on a supplemental agenda posted in the manner as above, not less than 24 hours prior to the meeting date. Public Comments: Any member of the public may address the Board of Directors on specific agenda items or matters of general interest. As determined by the Chair, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to three minutes. Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by the Board of Directors except as authorized by Section 54954.2(b). If you wish to speak, please complete a Speaker's Form (located at the table outside of the Board Room) and give it to the Board Secretary. Consent 'Calendar: All matters placed on the Consent Calendar are considered as not requiring discussion or further explanation and unless any particular item is requested to be removed from the Consent Calendar by a Director, staff member or member of the public in attendance, there will be no separate discussion of these items. All items on the Consent Calendar will be enacted by one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar. All items removed from the Consent Calendar shall be considered in the regular order of business. Members of the public who wish to remove an item from the Consent Calendar shall, upon recognition by the Chair, state their name, address and designate by number the item to be removed from the Consent Calendar. The Chair will determine if any items are to be deleted from the Consent Calendar. Items Continued: Items may be continued from this meeting without further notice to a Committee or Board meeting held within five (5) days of this meeting per Government Code Section 54954.2(b)(3). Meeting Adjournment: This meeting may be adjourned to a later time and items of business from this agenda may be-considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section 54955 (posted within 24 hours). Accommodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Board Secretary's office at (714) 593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. BookPage3 06/08/06 Page4 l ••-••-•••• .y•• •·•• .• •,,..,, -••nH••. _,,nooo-uu ................. •n',.,,,,,_,,,nnoou•••-"••U•••-••••• ....... ~,, .. ,~ .. •·•••UOUoO" ......... ,..,,,_,,, __ '°*..........,_,,•·n••••••••••nnouuuuo,•••••••••~•• .. •....,•·••·••• .. ~••••••••~••••1••••••• .. ••••••••·••••u •••••: jNOTICE TO DIRECTORS: To place items on the agenda for the Regular Meeting of the Board of j !Directors, items shall be submitted to the Board Secretary no later than the close of business 14 days ! : preceding the Board meeting. The Board Secretary shall include on the agenda all items submitted by 1 i Directors, the General Manager and General Counsel and all formal communications. I r I /Interim General Manager James D. Ruth (714) 593-7110 jruth@ocsd.com ! !Board Secretary Penny Kyle (714) 593-7130 pkyle@ocsd.com ! iDirector/Engineering David Ludwin (714) 593-7300 dludwin@0c::sd.eom !. 1Director/Finance/Treasurer Lorenzo Tyner (714) 593-7550 ltyner@ocsd.com t !Director/Human Resources Lisa Tomko (714) 593-7145 ltomko@ocsd.com r !Director/Information Technology Patrick Miles (714) 593-7280 pmiles@ocsd.com [ j Director/Operations & i l Maintenance Jim Herberg (714) 593-7020 jherberq@ocsd.c0m i [Director/Technical Services Bob Ghirelli (714) 593-7400 rghirelli@0csd.c::oni ! [Ac::ting Director/Public Affairs Lisa Tomko (714) 593-7145 ltomk0@ocsd.com l \ Director/Regional Assets & i lServic::es Nick Arhontes (714) 593-7210 narhontes@dc::sd.com l i General. Cou_nsel ................ -·-···· .. ··· ................ Brad Hog in ............... -... ····--(~ 14) _564-2606 ..... ~.D.9,9\n@.wss-la,~.J?9.ITT ........... _ ........... -.-·.! H:\dept\agenda\FAHR\FAHR2006\060506 Benefits Workshop\03.061506.Benefits Wrkshp Agenda.doc BookPage4 FAMR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Lisa L. Tomko, Director of Human Resources Originator: Paul Loehr, Human Resources Supervisor Meeting Date To Bd. of Dir. 06/15/06 Item Number Item NumE>er S.(a} SUBJECT: ADDITIONAL RETIREE BENEFIT ACCOUNT (ARBA) AND RETIREE PAID MEDICAL PREMIUM BENEFITS UPDATE GENERAL MANAGER'S RECOMMENDATION For information only. SUMMARY The second amended ARBA agreement was approved by the Board on May 24, 2006. The agreement will become effective once it is approved by the Orange County Employee Retirement Systems' (OCERS) Retirement Board on June 19, 2006. OCSD will immediately benefit from this agreement, which will produce an approximate net savings of $50,000 per year. This report provides an update on two items: • May 2006 OCERS Retirement Board meeting • Information on OCSD's actuarial study of retiree benefit plans This information will have significant bearing on identifying compliance requirements, determining future administration of ARBA benefits, and developing a funding strategy for both the ARBA and Retiree Paid Medical Premium benefit plans. OCERS Board Meeting On May 15, 2006, OCERS staff presented information to their Retirement Board on an alternative to the ARBA/Retiree Medical Benefit Reserve (RMBR). This alternative is a Medical Investment Trust (MIT) and is proposed to be a plan under the Internal Revenue Code (IRC) 401 (h). This regulation simply permits a pension or annuity plan to provide for payment of benefits for sickness, accident, hospitalization, and medical expenses for retired employees and their dependents. In addition, such benefits must be subordinate to pension benefits and must be established and maintained in a separate account. Page 1 Book Page 5 The MIT is limited to funds identified as medical expense funds and current plan sponsors. The MIT is funded entirely by plan sponsors who elect to participate. The presentation was an informational only report. OCERS is planning to establish the trust account upon OCERS Board approval within a few months. OCSD's current design of the ARBA benefit precludes participation in the MIT because OCSD does not require retirees to use ARBA benefits for medical expenses. As described in the May FAHR agenda report, OCSD retiree ARBA benefit payments are included in monthly OCERS retirement pension payments. OCSD staff will continue to monitor any actions taken by OCERS related to the ARBA/RMBR benefit in order to report on viable options for the Board's consideration. OCSD Actuarial Study At the beginning of May 2006, OCSD staff initiated an independent actuarial study with Demsey, Filliger & Associates to identify future retiree plan benefit funding obligations and compliance requirements. The actuarial study will be a combined report that outlines the liability and expense for both OCSD retiree benefit plans (ARBA and Retiree Paid Medical Premium Plan). A preliminary actuarial study report has been received and staff is currently reviewing the material. The actuarial report is broken down into six (6) key sections and associated calculations. These key sections are as follows: • Financial Results • GASB Compliance Issues • Funding Schedules • Actuarial Assumptions • Cash Flow • Actuarial Certification Although the actuarial report is still in the review process, OCSD staff has received some important information from the consultant related to compliance. The administration of ARBA benefits as an additional monthly cash payment to retirees and beneficiaries is not restricted to payment of medical expenses; therefore, the subsidy is considered retirement income for reporting purposes. In contrast, the Retiree Paid Medical Premium Plan provides employees hired prior to July 1, 1988 with 2.5 months of fully paid medical premiums for each year of continuous service upon retirement from OCSD. As such, this benefit may be subject to new reporting requirements under the Governmental Accounting Standard Board (GASB) 45 statute, effective July 1, 2007. When this benefit is exhausted, the retiree begins receiving ARBA benefit payments. Employees hired after July 1, 1988 are not eligible for this benefit. Note: at this time, 37 retirees are receiving Retiree Paid Medical Premium Plan benefits with a monthly cost of approximately $33,000. There are also 128 employees hired prior to July 1, 1988 who will receive this benefit if they retire. Page2 Book Page 6 Despite having similar reporting obligations with regard to liabilities, significant reporting requirements would be placed on OCSD if the retiree benefit plans are administered in-house. Staff is reviewing the implications of administering retirement plan benefits in-house and by a third-party administrator. A detailed report on the financial results from the actuarial study and recommendations on a funding strategy will be included in the July 2006 FAHR agenda report for recommended action on the future administration of OCSD retiree benefit plans. PRIOR COMMITTEE/BOARD ACTIONS • May 24, 2006: The second amended ARBA agreement was approved by OCSD's Board of Directors. • May 10, 2006: An amended agreement for the ARBA benefit was presented to the FAHR Committee to address depleting ARBA benefit funds. In addition a timeline for addressing intermediate and long term issues with retiree plan benefits was discussed. • April 2006: An informational item addressing ARBA was presented to the FAHR Committee. • December 2002: The Board of Directors approved an amended and restated ARBA agreement that established a Retiree Medical Benefit Reserve (RMBR). PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT cg] This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. D Not applicable (information item) ADDITIONAL INFORMATION A plan of action to address future issues with retiree benefit plans is under development and will be presented at upcoming FAHR Committee meetings. Items of discussion will include future costs and investment options, compliance issues and available administrative mechanisms, and optional changes to retiree benefits. These FAHR committee meetings are outlined as follows: • July 2006 FAHR Committee meeting: Detailed information on available options for intermediate and long-term issues (funding and administration) with retiree plan benefits. In addition, the issue of vested rights will be discussed in more detail. Page3 Book Page 7 • Early fall 2006 FAHR Committee meetings: Meet and Confer discussions on all benefits, including ARBA. ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS N/A Page4 Book Page 8 FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Lisa L. Tomko, Director of Human Resources Originator: Kim Erickson, Human Resources Analyst SUBJECT: OCSD Retirement Program Overview GENERAL MANAGER'S RECOMMENDATION Information only SUMMARY Meeting Date To Bel. of Dir. 06/15/06 Item Number Item Number S(b) The Orange County Employees Retirement System (OCERS) provides retirement benefits for employees of Orange County Sanitation District. OCERS operates under the County Employees Retirement Law of 1937, also known as GERL or the '37 Act. It can be found in the California Government Code, Title 3, Division 4, Part 3, Chapter 3 and 3.9, Sections 31450 through 31899.10. Providing a retirement plan to employees allows OCSD to align the benefits program with the strategic goals of the agency. The retirement benefit makes possible the recruitment and retention of a talented and successful workforce, which is critical to maintaining world-class leadership in wastewater and water resource management. The attached staff report provides a comprehensive analysis of the OCSD retirement program. PRIOR COMMITTEE/BOARD ACTIONS N/A BUDGET IMPACT D This item has been budgeted. (Line item: · ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted; will be included in budget for FY2006/2007. [gl Not applicable (information item) ADDITIONAL INFORMATION N/A Book Page 9 ALTERNATIVES NIA CEQA FINDINGS NIA ATTACHMENTS 1. Staff Report (OCSD Retirement Program) 2. OCERS Revised Actuarial Valuation and Review (12/31/04) 3. Employer Contribution History 4. Question & Answer Sheet H:ldeptlagenda\FAHRIFAHR2006\061506 Benefits Workshop\05.S(b) Retirement Program Summary.doc Revised: 8120/01 Book Page 10 Page2 OCSD Retirement Program June 15, 2006 Page - 2 -of 14 Employer and employee contributions are deposited in the OCERS Retirement Fund and interest is credited to accounts on June 30 and December 31 of each year. Interest on employee accounts is determined by the Retirement Board and is currently 5.0% per year. The combination of employer and employee contributions and investment earnings pays for the benefits retirees receive from the Retirement System. OCERS is a cost-sharing plan which is comprised of multiple entities each having a retirement plan specific to their entity. The actuarial valuations are prepared for various "pools" of employers, based on benefit formula. Currently, OCSD is pooled with one other employer which has the 2.5% @ 55 retirement formula. Each participating entity (plan sponsor) with different benefits has different employer and employee rates. Segal Company is the actuarial firm for OCERS which prepared the most recent actuarial valuation .(through December 31 , 2004). Towers Perrin was the actuarial firm for OCERS which prepared the previous actuarial valuations (through December 31, 2003). The OCERS Actuarial Valuation and Review dated December 31, 2004 is enclosed with this report. Following is a summary of the process used by the actuary in determining plan sponsor rates. • Actuarial Accrued Liability (ML): An actuary determines the amount of the Actuarial Accrued Liability (ML). This is the amount needed in order to pay the anticipated retirement costs of all employees who are employed today and of all retirees currently receiving retirement benefits. The ML does not include estimates of the growth in the number of employees as this information will be added at the next valuation date. The ML is calculated by taking a list of all employees employed today and making estimates based on actuarial assumptions. The actuarial assumptions are based on historical trends and consist of: • When each employee will retire • How many years of service will have been credited at retirement • Life expectancy after retiring • Life expectancy of beneficiaries after the retiree has deceased • Amount of the retiring employee's last three years salary (what the annual rate of increase will be between the current date and the retirement date) • The number of current employees that will leave OCSD before vesting (therefore, not leaving with a service retirement) • OCERS' return on investments during the period that benefits are paid • Funded Actuarial Accrued Liability and the Unfunded Actuarial Accrued Liability (UML): Having estimated the ML by using the actuarial assumptions, the actuaries then look at OCERS' balance sheet. The amount of assets which exist to fund the calculated liability is the funded ML. The amount of assets to be provided in the future to fund the calculated liability is the Unfunded Actuarial Accrued Liability (UML). The actuaries amended the actuarial assumptions to better reflect historical trends for the 2004 valuation; as a result, the ML was determined to be much higher than in the Book Page 12 OCSD Retirement Program June 15, 2006 Page - 4 -of 14 UAAL CALCULATION 12/31/04 (MOST RECENT VALUATION) Change as a% of the 12/31 /03 Valuation throuoh December 31, 2003 (79% funded) $1,309 M UML valuation Adjustments during calendar year 2004: Interest minus payment to UML $11M .84% Methodology and procedure changes $107M 8.17% Net (Gains)/Losses ($31M) -2.37% Assumption Changes $580M 44.31% Plan Amendments $365M 27.88% Total Adjustments During Calendar Year 2004 $1,032M Valuation through December 31, 2004 (69% funded) $2,341M These adjustments were incorporated into the employee and employer rates that were calculated for FY 2006/07. Each of the adjustments are explained below: The following information provides an explanation of the adjustments noted in the UML table above. • Interest Minus Payments to UML: Adjustments to the UML made for prior periods and amortized over 15 or more years; these adjustments are not tied to contributions or measured as a percentage of salary in the current year. This is the result of activity in prior years which resulted in a level of underfunding for that year. The adjustment during calendar year 2004 is the portion of the accumulated adjustment of those amortized amounts that is applied to this year. • Methodology and procedure changes: The result of changing actuaries. The new actuaries (Segal) re-evaluated the December 2003 UML (produced by Towers Perrin) and determined that using their (Segal's) formulae and methods of estimating the balance would have produced a higher beginning number. This does not include any actuarial assumption changes. • Net (Gains}/Losses: The return on investments for the year analyzed being higher than anticipated (8.55% was earned and 7.5% was expected) as well as losses due to unfavorable actuarial experience (e.g. actual results that varied from the actuarial assumption for a single year). • Assumption changes: This category includes the results of changes made to the actuarial assumptions which drive the UML. Examples of these include: • Changes in rates of salary increase • An increase in the estimated number of retirees each year Book Page 14 OCSD Retirement Program June 15, 2006 Page - 5 -of 14 • An increase in the number of years worked until retirement These assumption changes occurred because the actuarial firm was changed (and the new actuary's analysis of trends is different from the former actuary's analysis of trends) and because the assumptions are routinely examined and adjusted every three years. • Plan Amendments: The effect of changes to the retirement plans for the allowed age of retirement and for additional benefits to be paid to employees upon retirement. Since OCSD implemented the 2.5% at age 55 in July 2005, the employer rates for OCSD increased to fund the employees who have retired under the revised plan and for those who are due to retire within the next few years. The employee contribution rates also increased for current employees to fund their future benefit; the employee contribution rates do not include amounts to cover benefits for prior coverage. Employer Rates The employer rates are applied as a percentage of payroll and are comprised of two parts: • Normal Cost: The annual contribution rate that, if paid annually from each member's first year in the plan, would accumulate to the amount necessary to fully fund each member's retirement-related benefits. • UML Amortization: The annual contribution rate that, if paid annually over the amortization period, would accumulate to the amount necessary to fully fund the UML. This contribution rate is calculated to remain as a level percentage of future active member's payroll. The current UML is being amortized over a 30-year period. Following is a comparison of the OCSD employer rates over the past four years: EMPLOYER CONTRIBUTION RATES(%) FY 03/04 FY 04/05 FY 05/06 FY 06/07 Normal Cost 5.13 5.56 8.65 10.80 UML Amortization 3.49 6.56 6.16 9.35 Preliminary Total 8.62 12.12 14.81 20.15 Additional Contribution 0.50 0.50 0.50 0.00 Total 9.12 12.62 15.31 20.15 The large increase in the normal rate from FY 04/05 to FY 05/06 was mainly due to the plan amendments which changed the retirement formula to 2.5% at 55, thus increasing each current employee's funding requirements through retirement. OCSD's employer rate increased by 2.69%; however, 1.00% of the cost was shifted back to employees (change in employer contribution on employee's behalf from 4.50% to 3.50%). Therefore, the total OCSD contribution rate increase was 1.69% of payroll or $844,436 in FY05/06 as illustrated in the table below. Book Page 15 OCSD Retirement Program June 15, 2006 Page - 7 -of 14 As explained in the UAAL section above, the large increase in the UAAL from FY 05/06 to FY 06/07 was mainly due to changes in the actuarial assumptions. A smaller part of the increase was due to the large number of employees who retired in FY 05/06 under the enhanced retirement plan. Because the plan changed near these employee's retirement dates, the normal cost paid from the employee's inception into the original plan was based on the original plan's benefits. Consequently, the UAAL increased immediately upon these employees' retirements. Retirement Expenditures The FY 05/06 OCSD retirement program cost is approximately 2.07% of total combined expenditures as illustrated below. Annual Retirement Expenditures FTEs Total OCSD Retirement Program Operating Cost % of Total Operating Cost FY 98-98 559.75 $157,463,050 1.33% FY 98-99 537.50 $ 130,829,507 2.09% FY 99-00 518.50 $149,567,587 1.55% FY 00-01 506.00 $157,933,517 1.06% FY 01-02 568.00 $181,347,614 0.99% FY 02-03 561.70 $216,574,755 1.65% FY 03-04 589.00 $274,838,050 2.10% FY 04-05 620.00 $ 386,874,530 1.97% FY 05-06 635.00 $ 455,050,940 2.07% Retirement Formulas Legislation enacted in 2001, AB 616, allowed Counties subject to the '37 Act the option of three additional benefit formula options: 2.5% @ 55; 2.7% @ 55; and 3.0% @60. In 2002, AB 1992 gave the County of Orange and local public agencies, including OCSD, the ability to separately negotiate retirement benefits with their own employees and to reach agreement on how those benefits will be funded. In 2003, the OCSD Board of Directors approved the provisions of OCSD Memorandums of Understanding (MOU) for the new retirement benefit formula. The new formula was approved based on a sharing of costs between employees and OCSD. OCSD decreased the contribution to the employees' contribution to the retirement system from 4.5% to 3.5%. Negotiations with employee bargaining units in 2002/2003 resulted in the "2.5% @ 55" retirement benefit effective July 1, 2005. Reciprocity OCERS has established reciprocity with California State Teachers' Retirement System (CalSTRS), California State Teachers' Retirement System Defined Benefit Plan, Judges' Retirement System (JRS I and JRS II), California Public Employees' Retirement System (CalPERS), and any agency that has established reciprocity with CalPERS. Reciprocal benefits are designed to allow Book Page 17 OCSD Retirement Program June 15, 2006 Page - 8 -of 14 employees who transfer retirement systems to preserve and enhance their total retirement benefits. Upon retirement from all reciprocal retirement systems, the benefits are coordinated between OCERS and the other system(s). Service Credit Service credit is based on hours worked as an OCERS member. The hours worked are converted to years. In general, "service" means uninterrupted employment. However, if an employee is forced to automatically resign from his or her position as a result of an injury or illness and is subsequently rehired to a position within OCSD within one year, OCSD will bridge the employee's service date. Bridging service involves adding the total number of days away from work to the employee's original date of hire. Current OCERS members may purchase service credit for a break in service provided the service meets the necessary requirements. Examples of breaks of service include but are not limited to previously withdrawn OCERS service, an unpaid leave of absence, or service with OCSD as "extra help" (e.g. interns). Employees must repay ·their contributions by redepositing the total amount withdrawn/due plus the interest the account would have earned during that period. Interest continues to be charged on the unpaid balance until the total balance is fully repaid by the employee; OCSD does not pay any portion of the service credit-buy back on behalf of the employee. Options for repayment include lump sum payment, installment payments, credit, or payroll deductions. Service credit is added to the retirement account only after the total amount due has been paid. Service Retirement Eligibility: An employee must meet one of the requirements below to qualify for a Service Retirement. • Age 50, with a minimum of ten years of service credit; or • At least 30 years of service credit, regardless of age; or • A part-time employee age 55 or older with at least five years of service credit and at least ten years of active employment with an employer covered by OCERS; or • Age 70 or older, regardless of years of service credit Allowance: Retirement allowances are calculated on years of service, average monthly compensation, and the retirement formula at the time of retirement. The maximum monthly allowance an employee is eligible to receive cannot exceed 100% of his/her average monthly compensation. To determine the average monthly compensation, a number of Compensation Earnable elements are considered. The main element is the employee's base salary; however, as a result of the Ventura Decision (Ventura County Sheriff's Association v. County of Ventura) additional pay items such as shift differential, stand-by pay, pass down overtime, and investment incentive salary (IIS) are considered compensation earnable, as well as vacation, sick leave and personal leave that has been earned but not used during the 12 or 36 month reporting period. Additional items may also apply depending on the governing Memorandum of Understanding for an employee's bargaining unit. Retirement benefits under OCERS are based on years of service, final average salary, and a formula that includes an age factor. If an employee chooses to retire prior to age 55 (age 50-54), Book Page 18 OCSD Retirement Program June 15, 2006 Page - 9 -of 14 the employee will not benefit from the maximum salary percentage (2.5%), rather, the percentage will be pro-rated based on the employee's age; however, the salary percentage will never increase beyond 2.5% for employees who retire at age 55 or older. In order to achieve a retirement benefit that is equal to 100% of salary, an employee would need to be at least 55 years of age and have 40 years of service. The average OCSD employee retires at age 60 with 24 years of service which pays a 60% service retirement allowance under the current formula. Retirees receive a lifetime monthly benefit. Several options exist for providing survivor benefit. The options are discussed in detail in the Survivor Benefits section of this report; however, the most commonly selected option provides the retiree with the maximum retirement pension and a 60% continuation allowance to a surviving spouse or child. Maximum Benefit Limit: Section 415(b)(1)(A) of the Internal Revenue Code provides for dollar limitations on the amount of retirement benefits an employee can receive from a qualified pension plan such as OCERS. These limits affect certain highly paid and long-service employees. The limitation for 2006 is $175,000 per year, or less than that amount for employees who retire prior to age 62. If the pension benefit is over the $175,000 limit, then the difference between the pension amount that was earned, and the amount that may be paid by OCERS, is legally required to be funded by the employer through a Replacement Benefits Plan. Such a plan was adopted by the Board in June 2005. As of the date of this report, only one OCSD retiree receives a service retirement allowance above the IRS limitation and only after having worked for OCSD for 38 years and as a member of the Executive Management Team (EMT) for the last 16 years of employment. Maximum Compensation Limitation: The Internal Revenue Code, Section 401 (a) (17) places a limit on the amount of salary that OCERS can consider when calculating a member's benefit. The Compensation Limit for 2006 is $220,000. Cost of Living Adjustment: Retirees receive an annual cost-of-living adjustment that is determined by the average annual increase in the Consumer Price Index. The maximum adjustment is limited by the Retirement Board to 3% per year. Deferred Retirement Employees who terminate employment may leave member contributions on deposit with the Retirement System and then, when eligible, may elect to receive a retirement benefit from OCERS. The money left on deposit continues to earn interest. Eligibility: A former employee must meet one of the requirements below to qualify for a Deferred Retirement. Reciprocal benefits may be used to meet these requirements. • Age 50 or over and would have had a minimum of ten years of service credit if the individual had remained a full-time employee; or • Any age and would have had at least 30 years of service credit if the individual had remained a full-time employee; or • A part-time employee age 55 or older and would have had a minimum of five years of service credit and ten years of active employment with an employer covered by OCERS; or • Age 70 or older, regardless of years of service credit Book Page 19 OCSD Retirement Program June 15, 2006 Page -10 -of 14 Retirement Benefit: The monthly pension allowance is calculated based on years of service at termination, average monthly compensation, and the 2.5% at age 55 formula. Disability Retirement OCSD employees who become permanently disabled may be eligible for a Disability Retirement allowance. Two types of disability benefits are payable from the Retirement System, Non-Service Connected and Service Connected Disability Retirement. Non-Service Connected Disability Retirement Eligibility: Non-service connected disability retirement is available to employees who meet the requirements below. • At least five years of service credit; and • The Board of Retirement determines that the individual is permanently physically or mentally incapacitated from substantially performing the usual duties of any permanent assignment in the current job classification; and • The disability is not due to a job-related illness or injury. Retirement Benefits: • Plan G: A Non-Service Connected disability retirement pays 1.8% of the employee's average monthly compensation by years of service credit. However, if the formula provides less than 33 1/3% of the employee's average monthly compensation, the number of years remain ing until the individual's 62nd birthday is added to the years of service credit to increase the allowance not to exceed 33 1/3% of average monthly compensation. • Plan H: A Non-Service Connected disability retirement pays 1.5% of the employee's average monthly compensation by years of service credit. However, if the formula provides less than 33 1/3% of the employee's average monthly compensation, the number of years remaining until the individual's 65th birthday is added to the years of service credit to increase the allowance not to exceed 33 1 /3% of average monthly compensation. Employees eligible for a service retirement allowance will receive the greater of the disability allowance or the service retirement allowance. Service Connected Disability Retirement Eligibility: Service connected disability retirement is available to employees who meet the requirements listed below: • The Retirement Board deems the employees is permanently physically or mentally incapacitated from substantially performing the usual duties of any permanent assignment in the current job classification; and • The incapacity arose out of, and in the course of employment, and such employment contributed substantially to the incapacity. Book Page20 OCSD Retirement Program June 15, 2006 Page -11 -of 14 Retirement Benefits: A service connected disability allows for a tax exempt monthly allowance of 50% of the employee's average monthly compensation. Employees eligible for a service retirement allowance will receive the greater of the disability allowance or the service retirement allowance; however, any portion above 50% of the average monthly compensation is taxable. Social Security Offsets Retirees receiving pension benefits from a public sector retirement system will receive reduced or limited social security benefits based on the Government Pension Offset (GPO) and/or Windfall Elimination Provision (WEP). • GPO affects the Social Security spouse's/widow's/widower's benefits by reducing the benefit amount by two-thirds of the government pension. GPO Reduction Example: Retiree's Government Pension: Retiree's Spouse/Widow/Widower Benefit Less: 2/3 Pension Actual Retiree Spouse/Widow/Widower Benefit $600/month $500/month ($400/month) $100/month • WEP affects the manner in which the amount of Social Security retirement or disability benefits is calculated. Social Security benefits provide a higher benefit percentage to lower-paid workers. OCSD employees do not pay into Social Security; therefore, they appear to be lower-paid workers and would receive a higher Social Security benefit in addition to their OCERS pension. In an effort to eliminate this advantage, Congress passed the Windfall Elimination Provision. The WEP allows Social Security to use a modified formula to calculate the benefit amount of government employees, resulting in a lower Social Security benefit. Retiree Medical Benefits Employees hired prior to July 1, 1988 receive two and one-half months' premium for each year of continuous service towards the premium costs of coverage for the employee and eligible dependents under OCSD's medical plan. There are currently 37 retirees receiving this benefit; the monthly cost is approximately $33,258. Employees hired on or after July 1, 1988 and/or employees whose paid retiree medical premiums have expired, are eligible for a monthly stipend paid by the OCERS Additional Retiree Benefit Account (ARBA). The ARBA benefit is provided to offset the cost of health premiums by paying $10 per month for every year of service up to a maximum of 25 years or $250 per month. Upon the death of the retiree, the ARBA benefit is payable to the surviving spouse. OCSD retirees are permitted to continue OCSD medical insurance by electing one of the available retiree medical plans and paying the cost of the monthly premium. There are currently 99 retirees receiving this benefit; the monthly cost is approximately $17,000. Book Page 21 OCSD Retirement Program June 15, 2006 Page -12 -of 14 Survivor Benefits One-Time Death Benefit: Beneficiaries of active and deferred members with ten or more years of service or retirees will receive a one-time $1,000 death benefit upon the death of the member. Non-Service Connected Death Prior to Retirement Beneficiaries of employees with less than five years of Service Credit at time of death will receive a lump-sum benefit equal to one month's pay for each full year worked in addition to the member contributions plus interest. The eligible spouse or child of an employee with at least five years of service is provided three survivor benefit options. • Lump-sum benefit (provided the employee named an eligible spouse or eligible child as his/her beneficiary) equal to one month's pay (based on member's last 12 months of compensation earnable) for each full year worked, up to six months of pay, plus a refund of the member contributions with interest; or • Lifetime monthly allowance of 60% of the amount the employee would have received if granted a non-service connected disability retirement allowance the day after death; or • Combined benefit of a lump-sum benefit equal to one month's pay for each full year worked (based on member's last 12 months of compensation earnable), up to six months of pay, plus a reduced lifetime monthly allowance. If the employee is eligible for a service retirement allowance on the date of death, the eligible spouse has an additional survivor benefit option. Under this option, the eligible spouse or eligible child will receive a lifetime monthly allowance of 60% of the greater of the amount the employee would have received if granted a service retirement or non-service connected disability retirement allowance the day after the date of death. This benefit is calculated as though the employee had chosen the unmodified option. If the employee does not have an eligible spouse or child, the designated beneficiary will receive a lump-sum benefit equal to one-month's pay (based on member's last 12 months of compensation earnable) for each full year worked, up to six months of pay, plus a refund of member contributions with interest. Service Connected Death Prior to Retirement In the event an employee death occurs as a result of a job-related illness or injury, the eligible spouse or child are provided a choice of the following survivor benefits: • Lump-sum benefit equal to one month's pay (based on member's last 12 months of compensation earnable) for each full year worked, up to six months of pay, plus a refund of the member contributions with interest; or Book Page 22 OCSD Retirement Program June 15, 2006 Page -13 -of 14 • Lifetime monthly allowance of 50% of the employee's average monthly compensation; or • Combined benefit of a lump-sum benefit equal to one month's pay for each full year worked (based on member's last 12 months of compensation earnable), up to six months of pay, plus a reduced lifetime monthly allowance; or • If eligible, the employee's service retirement allowance. If the employee does not have an eligible spouse or child, the designated beneficiary will receive a lump-sum benefit equal to one-month's pay (based on member's last 12 months of compensation earnable) for each full year worked, up to six months of pay, plus a refund of member contributions with interest. Survivor Benefits for Retired Members Upon the death of a retiree, the spouse, children, or designated beneficiaries may be paid according to the provisions of the payment option selected at retirement. In most cases, the eligible spouse or child receive 60% of the retiree's monthly allowance upon death of the retiree. The amount is payable to the spouse for his/her lifetime. If the retiree does not have an eligible spouse at time of death, a monthly allowance is provided to the designated eligible child. If the retiree does not have an eligible spouse or child at time of death, the designated beneficiary will receive a refund of the remaining member contributions, if any. Returning to Work After Retirement Retirees who are receiving a service retirement allowance from OCERS and wish to return to work for an OCERS covered employer (OCSD) may do so by way of two methods with written approval from the General Manager. • The retiree may be paid in an "extra help" position for no greater than 120 days or 960 hours of work per fiscal, while still receiving a retirement allowance; or • The retiree may return to work in a full-time position by filing an application with the Board of Retirement to become an active member and the Board determines the retiree is physically capable of performing the job duties of the position. The retiree's service retirement allowance is suspended while a full-time position is worked and the retiree becomes an active member of OCERS for the second period of employment. Upon retirement from the second period of employment, the retiree's service retirement allowance from the first retirement, plus any cost-of-living adjustments that occurred while the allowance was suspended, will be added to the service retirement earned for the second period of employment. Early Retirement Incentives: In the event a retiree received an early retirement incentive, the individual is not eligible for rehire per OCSD policy 8150.00 (Recruitment and Selection). Book Page 23 OCSD Retirement Program June 15, 2006 Page -14 -of 14 Retirement Plan Customization Two Retirement Plan components are permitted for customization, retirement formula and final average salary (choice of 12 or 36 months). Changes to either component are subject to the meet and confer process. Retirement Plan Alternative/De.fined Contribution Plan Assembly Constitutional Amendment 5 -Richman Bill: ACA 5, introduced by Assembly member Keith Richman in December 2004, was California's first Defined Contribution Plan proposal. It requires that any person hired by a public agency on or after July 1, 2007, may only enroll in a Defined Contribution Retirement Plan and is prohibited from enrolling in a Defined Benefit Retirement Plan. The bill would also allow current public employees to transfer money from existing defined benefit plans to the employer-sponsored defined contribution plans offered to new employees. The bill generated much interest and activity when introduced; however, it did not pass the Assembly Committee on Public Employees, Retirement and Social Security. OCSD has contacted several benefits consulting firms, to include Hewitt & Associates, to obtain a quote to conduct a review of OCSD's defined benefit program, for the purpose of providing recommendations/alternatives on future retirement programs that may include defined contribution or hybrid plans. OCSD Retirement Summary The table below illustrates current OCSD retirement program summary information: OCSD RETIREMENT PLANS PlanG Plan H Member Distribution 18 employees 576 employees Final Average Salary 12 months 36 months Employee Contribution Rate (Average) 11.72% 11.31% Employer Contribution Rate 20.15% 20.15% OCSD RETIREMENT BENEFITS Average Retirement Age 60 Average Years of Service at Retirement 24 Average Service Retirement Allowance 60% $46,412* Retiree Medical: 2.5 Months Paid Premium 37 retirees $33,258 Retiree Medical: ARBA 99 retirees $17,000 *Based on average OCSD employee base salary. Book Page 24 tD 0 0 ~ ~ cg Pl,) UI Orange County Employees Retirement System Revised Actuarial Valuation and Review as of December 31, 2004 Copyright @ 2008 THE SEGAL GROUP, INC., THE PARENT OF THE SEGAL COMPANY ALL RIGHTS RESERVED tlJ 0 0 ~ 1 CD I\) C, *SEGAL The Segal Company 120 Montgomery Street, Suite 500 San Francisco, CA 94104 T 415.263.8200 F 415.263.8290 www.segalco.com March 17, 2006 Board of Retirement Orange County Employees Retirement System 2223 Wellington Avenue Santa Ana, CA 92701 Dear Board Members: We are pleased to submit this revised Actuarial Valuation and Review as of December 31, 2004 to reflect the 7. 75% investment return assumption adopted by the Board, as well as changes in the rate group classifications for some members reported to us for the December 31, 2004 valuation adopted by the Board, as provided to us by the Retirement System. It summarizes the actuarial data used in the valuation, establishes the funding requirements for fiscal 2006-2007 and analyzes the preceding year 's experience. The census information on which our calculations were based was prepared by the OCERS and the financial information was provided by the Retirement System. That assistance is gratefully acknowledged. The actuarial calculations were completed under the supervision of Andy Yeung, ASA, MA.AA, Enrolled Actuary. This actuarial valuation has been completed in accordance with generally accepted actuarial principles and practices, including Actuarial Standards of Practice (ASOPs) Nos. 4, 27 and 35. In particular, it reflects the actuary's responsibility under Section 5. 8 of ASOP No. 4 'Jar assessing the implications of the overall results, in terms of short-and long-range benefit security and expected cost progression. 11 To the best of our knowledge, the information supplied in this actuarial valuation is complete and accurate. Further, in our best professional judgment, the assumptions and methodologies as adopted by the Board of Retirement, individually and in combination, are reasonably related to the experience of and the expectations for the Plan and will not, in and of themselves, expose the retirement system to 11unsoundfinancial risk. 11 In this regard, we consider 11unsoundfinancial risk" to mean the following: IXJ 0 0 ~ ~ ~ Cl) N 00 . .-~- S EGTJ ON 1 VALUATION SUMMARY Purpose Significant Issues in Valuation Year ......................................... ii Summary of Key Valuation Results .................................... iv Summary of Key Valuation Demographic and Financial Data ......................................... v *SEGAL SECTlON 2 VALUATION RESULTS A. Member Data B. Financial lnfonnation .............. 4 C. Actuarial Experience ............... 7 D. Employer and Member Contributions ........................ 12 E. Information Required by GASB .................................... 22 SECTION 3 SUPPLEMENTAL INFORMATION EXHIBIT A Table of Plan Coverage i. General County ( other than OCTA) ...................................... 23 11. General OCTA .......................... 24 iii. Safety Law Enforcement... ........ 25 iv. Safety Probation Officers .......... 26 v. Safely Fire Authority ................ 27 EXHIBlT B Members in Active Service During Year Ended December 31. 2004 i. General County (other than ......... . OCTA) ...................................... 28 ii. General OCT A .......................... 29 iii. Safety Law Enforcement.. ......... 30 iv. Safety Probation Officers .......... 31 v. Safety Fire Authority ................ 32 EXHIBlT C Reconciliation of Member Data- December 3 I, 2003 to December 31, 2004 ..............•.......... 33 EXHIBITD Summary Statement of Income and Expenses on an Actuarial Value Basis ................................................ 34 EXHIBITE Summary Statement of Assets ......... 35 EXHIBITF Actuarial Balance Sheet.. ................. 36 EXHIBITG Summary of Reported Asset Infor- mation as of December 31, 2004 ..... 37 EXHJBITH Development of Unfunded/(Overfunded) Actuarial Accrued Liability for Year Ended December 31, 2004 ......................... 38 EXHIBIT I Section 415 Limitations ................... 39 EXHIBIT J Definitions of Pension Tem1s .......... 40 SECTION 4 REPORTING INFORMATION EXHIBIT I Supplementary Information Required by GASB -Schedule of Employer Contributions ................................... 42 EXHIBIT JI Supplementary Information Required by GASB -Schedule of Funding Progress ........................................... 43 EXHIBIT Ill Supplementary Information Required by GASB ......................................... 44 EXHIBIT IV Actuarial Assumptions and Actuarial Cost Method .................................... 45 EXHIBITV Summary of Plan Provisions ............ 60 Appendix A UAAL Amortization Schedule as of December 31, 2004 .......................... 70 Appendix B Member Contribution Rates ............. 71 i. Plans A, G, I and M .................... 71 ii. Plans B, H, J and N ..................... 73 iii. Plan E ......................................... 75 iv. Plan F ......................................... 77 Appendix C Reconciliation of the December 31, 2003 Valuation Results With Those Calculated By The System's Prior Actuary································~·········· 79 a:, 0 0 ~ ~ CQ C1) I\) co *SEGAL SECTION 1: Valuation Summary for the Orange County Employees Retirement System Purpose This revised report has been prepared by The Segal Company to present a valuation of the Orange County Employees Retirement System as of December 31, 2004 to reflect an investment return assumption of 7. 75% approved by the Board, as well as changes in the rate group classifications for some members reported to us for the December 31, 2004 valuation, as reported to us by the Retirement System. The valuation was performed to determine whether the assets and contributions are sufficient to provide the prescribed benefits. The contribution requirements presented in this report are based on: > The benefit provisions of the Retirement System, as administered by the Board of Retirement; > The characteristics of covered active members, inactive vested members, and retired members and beneficiaries as of December 31, 2004, provided by the Retirement System; > The assets of the Plan as of December 31, 2004, provided by the Retirement System; > Economic assumptions regarding future salary increases and investment earnings; and > Other actuarial assumptions, regarding employee terminations, retirement, death, etc. Orange County Employees Retirement System's basic financial goal is to establish contributions which fully fund the System's liabilities, and which, as a percentage of payroll, remain as level as possible for each generation of active members. Annual actuarial valuations measure the progress toward this goal, as well as test the adequacy of the contribution rates. In preparing this valuation, we have employed generally accepted actuarial methods and assumptions to evaluate the System's assets, liabilities and future contribution requirements. Our calculations are based upon member data and financial information provided to us by the System's staff. This information has not been audited by us, but it has been reviewed and found to be consistent, both internally and with prior year's information. The contribution requirements are determined as a percentage of payroll. The System's employer rates provide for both normal cost and a contribution to amortize any unfunded or overfunded actuarial accrued liabilities. In this valuation, we have applied the Board's new funding policy to amortize the System's entire unfunded actuarial accrued liability as of December 31, 2004 over a declining 30-year period. The rates calculated in this report may be adopted by the Board for the fiscal year that extends from July 1, 2006 through June 30, 2007. OJ 0 0 ~ ~ CQ Cl) c.., c:::, *SEGAL SECTION 1: Valuation Summary for the Orange County Employees Retirement System Significant Issues in This Valuation The following key findings were the result of this revised actuarial valuation: > The ratio of the valuation value of assets to actuarial accrued liabilities decreased from 78.53% to 70.85%. The System's unfunded actuarial accrued liability has changed from $1.31 billion as of December 31, 2003 to $2.16 billion as of December 31, 2004. The increase is mainly due to a combination of benefit improvement and changes in actuarial assumptions and methods. A reconciliation of the System's unfunded actuarial accrued liability is provided in Section 3, ExhibitH. > The aggregate employer rate calculated in this valuation has increased from 18.92% of payroll (after reflecting the cost of benefit improvements that became effective for fiscal year 2005-2006) to 20.71 % of payroll. The reasons for the changes are: (i) change in membership demographics, (ii) change in actuarial methods and actuarial assumptions, (iii) adjustment to reflect 18-month delay in implementation of higher contribution rates calculated in the December 31, 2004 valuation and (iv) other actuarial losses. A reconciliation of the System's aggregate employer rate is provided in Section 2, Subsection D (see Chart 15). Please note that the 20.71 % of payroll assumes a 3-year phase-in of the contribution rate increase calculated in this valuation. The contribution rate without the 3-year phase-in is 24.29% of payroll. > The aggregate member rate calculated in this valuation has increased from 9.70% of payroll to 10.25% of payroll. The change in member rate is primarily due to the changes in actuarial assumptions. A reconciliation of the System's aggregate member rate is provided in Section 2, Subsection D (see Chart 16). > The results of this valuation reflect the adoption by the Board of changes in economic and non-economic assumptions recommended in the June 30, 2005 Triennial Experience Study. Subsequently, the Board adopted a 3.50% inflation assumption and an investment return assumption of 7.75%. The Board also adopted: (i) a change from the Projected Unit Credit funding method to the Entry Age Normal funding method, (ii) a policy to amortize the System's entire unfunded actuarial liability as of December 31, 2004 over a declining 30-year period, (iii) a change in the method that calculates the actuarial value of assets, and (iv) other changes in the methods and procedures used in prior valuations. The impact of the assumption and method changes is provided in Section 2, Subsection D (see Charts 15 and 16). The specific assumption changes can be found in Section 4, Exhibit IV. A description of the method that calculates the actuarial value of assets is provided in Section 2, subsection B (Chart 7). The other changes in methods and procedures used in prior valuations are detailed in our letter to the System dated February 3, 2005. A copy of that letter is provided in Section 4, Appendix C. ii OJ 0 0 ~ ~ CQ CD c.., ..... *SEGAL SECTION 1: Valuation Summary for the Orange County Employees Retirement System > As indicated in Section 2, Subsection B (see Chart 7) of this report, the total unrecognized investment gain as of December 31, 2004 is $145,370,000. This investment gain will be recognized in the determination of the actuarial value of assets for funding purposes in the next few years, and will serve to offset any investment losses that may occur after December 31, 2004. This implies that if the System earns the assumed rate of investment return of 7.75% per year (net of expenses) on a market value basis, that will result in investment gains on the actuarial value of assets in the next few years. Impact of F'lLture Experience on Contribution Rates Future contribution requirements may differ from those determined in the valuation because of: > difference between actual experience and anticipated experience; > changes in actuarial assumptions or methods; > changes in statutory provisions; and > difference between the contribution rates determined by the valuation and those adopted by the Board. iii a:, 0 0 ~ i Cl) ~ *SEGAL SECTION 1: Valuation Summary for the Orange County Employees Retirement System Summary of Key Valuation Results (Dollar amounts in thousands) December 31. 2004 December 31. 2003 Employer Contribution Rates: General Rate Group #1 -Plans A and B (non-OCTA) Rate Group #2 -Plans I and J (2. 7% @ 55) Rate Group #3 -Plans G and H (2.5% @ 55 -non-Rancho Santa Margarita) Rate Group #4 -Plan H (2.5%@ 55 -Rancho Santa Margarita) Rate Group #5 -Plans A and B (OCTA) Rate Group #9 -Plans Mand N (TCA) Safety Rate Group #6 -Plans E and F (Probation) Rate Group #7 -Plans E and F (Law Enforcement) Rate Group #8 -Plans E and F (Fire Authority) All GrouRs Combined Average Member Contribution Rates: General Rate Group # 1 -Plans A and B (non-OCT A) Rate Group #2 -Plans I and J (2. 7% @ 55) Rate Group #3 -Plans G and H (2.5%@ 55 -non-Rancho Santa Margarita) Rate Group #4 -Plan H (2.5%@ 55 -Rancho Santa Margarita) Rate Group #5 -Plans A and B (OCTA) Rate Group #9 -Plans Mand N (TCA) Safety Rate Group #6 -Plans E and F (Probation) Rate Group #7 -Plans E and F (Law Enforcement) Rate Group #8 -Plans E and F (Fire Authority) All Grou.12§. Combined Funded Status<41: Actuarial accrued liability Valuation value of assets Funded percentage Unfunded Actuarial Accrued Liability Key Assumptions: Total Rate<1l 13.29% 18.26% 16.59% 7.41% 13.10% 14.56% 21.00% 38.48% 33.20% 20.71% Total Rate<1l 7.08% 10.31% 10.36% 11.13% 7.97% 8.26% 11.62% 11.81% 10.61% 10.25% $7,403,972 5,245,821 70.85% $2,158,151 Estimated Annual Amount<2l $6,362 148,706 7,696 78 11,479 837 11,079 53,020 21,076 $260,333 Estimated Annual Amount<2l $3,389 83,962 4,806 117 6,984 475 6,130 16,273 6,735 $128,871 Total Rate<3) 12.12% 16.27% 14.81% 4.70% 10.95% 12.57% 14.80% 38.89% 32.88% 18.92% Total Rate<3l 6.88% 9.65% 9.73% 10.66% 7.65% 8.14% 11.37% 11.48% 10.09% 9.70% $6,099,433 4,790,099 78.53% $1,309,334 Interest rate 7.75% 7.50% Inflation rate 3.50% 4.00% Across-the-board real salary increase 0.00% 0.00% Estimated Annual Amoun{2) $5,801 132,500 6,870 50 9,595 723 7,808 53,585 20,873 $237,805 Estimated Annual Amount<2l $3,293 78,588 4,513 112 6,703 468 5,998 15,818 6,405 $121,898 (// Rates presented here assumed a three year phase-in 1vill be adopted. Please refer to Section 2, Subsection C (Chart 13) for the rates before the phase-in. ri; Based on December 31, 2004 projected annual compensation. !3! December 31, 2003 rates have been adjusted to reflect the benefit improvements that became effectiveforfiscalyear 2005 -2006. r,; December 31, 2003 funded status has not been adjusted to reflect the benefit improvements that became effective/or fiscal year 2005 -2006. IV SECTION 1: Valuation Summary for the Orange County Employees Retirement System Summary ofKe;r Valuation Demogra~hic and Financial Data December 31, 2004 December 31, 2003 Percentage Change Active Members: Number of members 22,502 22,672 -0.7% Average age 44.l 43.5 NIA Average service 11.l 10.7 3.7% Projected total compensation $1,257,085,000 $1,243,963,814 1.1% Average projected compensation $55,865 $54,864 1.8% Retired Member and Beneficiaries: Number of members: txJ Service retired 6,920 6,642 4.2% 0 Disability retired 1,172 1,134 3.4% 0 Beneficiaries 1,341 1,303 2.9% ~ ~ Total 9,433 9,079 3.9% CQ Average age 68.3 NIA NIA Cl) Average monthly benefit (ll c.., $2,057 $1,936 6.3% c.., Vested Terminated Members: Number of terminated vested members (ll 1,910 2,278 -16.2% Total Account Balance $51,841,637 $47,753,550 8.6% Summary of Financial Data (dollar amounts in thousands): Market value of assets (JJ $5,556,995 $4,959,626 12.0% Return on market value of assets 11.26% 19.80% NIA Actuarial value of assets $5,256,380 $4,811,317 9.3% Return on actuarial value of assets 8.35% NIA NIA Valuation value of assets $5,245,821 $4,790,099 9.5% Return on valuation value of assets 8.55% 1.40% NIA '11 Excludes month(v benefits payable from the RMBR and STAR COLA. (Ji This includes members who chose to leave their contributions on deposit even though they have less than.five years of service. (3! Includes County Investment Account of $155,245,000 and $143, 744,000 as of December 31, 2004 and December 31, 2003, respective(v. *SEGAL V OJ 0 0 ~ ~ CQ CD ~ A historical perspective of how the member population has changed over the past four valuations can be seen in this chart. *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System A. MEMBER DATA The Actuarial Valuation and Review considers the number and demographic characteristics of covered members, including active members. vested terminated members, retired members and beneficiaries. CHART 1 Member Population: 2001 -2004 This section presents a summary of significant statistical data on these member groups. More detailed information for this valuation year and the preceding valuation can be found in Section 3, Exhibits A, B, and C. Year Ended Active Vested Terminated Retired Members Ratio of Non-Actives December31 Members Members* and Beneficiaries to Actives 2001 22,329 1,872 8,216 0.45 2002 22,723 2,177 8,688 0.48 2003 22,672 2,278 9,079 0.50 2004 22,502 1,910 9,433 0.50 * Includes terminated members due a refimd of member contributions OJ 0 0 :,;- ~ CQ Cl) w 0o The chart shows the determination of the actuarial value of assets as of the valuation date. *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System It is desirable to have level and predictable plan costs from one year to the next. For this reason, the Board of Retirement has approved an asset valuation method that gradually adjusts to market value. Under this valuation method, the full value of market fluctuations is not recognized in a single year and, as a result, the asset value and the plan costs are more stable. CHART7 The amount of the adjustment to recognize market value is treated as income, which may be positive or negative. Realized and unrealized gains and losses are treated equally and, therefore, the sale of assets does not have an immediate effect on the actuarial value of assets. The determination of the Actuarial Value of Assets and Valuation Value of Assets is provided below. Determination of Actuarial and Valuation Value of Assets for Year Ended December 31, 2004 Plan Year Ending 2004 Total Actual Market Return (net) $544,457,000 Expected Market Return (net) $362,744,000 Investment Gain (Loss) $181,713,000 1. Net Market Value of Assets (Excludes $155,245,000 in County Investment Account) 2. Actuarial Value of Assets 3. Non-valuation Reserves (a) Unclaimed member deposit (b) Medicare medical insurance reserve (c) RMBR ( d) Subtotal 4. Valuation Value of Assets (2)-(3)(d) Deferred Factor 0.8 Deferred Return $145,370,000 $5,401,750,000 5,256,380,000 655,000 84,000 9,820,000 $10,559,000 $5,245,821,000 5 IJJ 0 0 ~ "JI CQ Cl) .1:1,,. c::, This chart provides a summary of the actuarial experience during the past year. *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System C. ACTUARIAL EXPERIENCE To calculate the required contribution, assumptions are made about future events that affect the amount and timing of benefits to be paid and assets to be accumulated. Each year actual experience is measured against the assumptions. If overall experience is more favorable than anticipated (an actuarial gain), the contribution requirement will decrease from the previous year. On the other hand, the contribution requirement will increase if overall actuarial experience is less favorable than expected (an actuarial loss). Taking account of experience gains or losses in one year without making a change in assumptions reflects the belief that the single year's experience was a short-term CHART9 development and that, over the long term, experience will return to the original assumptions. For contribution requirements to remain stable, assumptions should approximate experience. If assumptions are changed, the contribution requirement is adjusted to take into account a change in experience anticipated for all future years. The total experience gain was $31.2 million, a gain of $50.5 million from investments and a loss of $19.4 million from all other sources. A discussion of the major components of the actuarial experience is on the following pages . Actuarial Experience for Year Ended December 31, 2004 (Dollar Amounts in Thousands) 1. Net gain/(loss) from investments(!) 2. Net gain/(loss) from other experience<2l 3. Net experience gain/(loss): ( l) + (2) 01 Details in Chart 10. This also includes the impact of the change in the method.for calculating the actuarial and valuation value of assets. r,i See Section 3, Exhibit H. $50,536 (19.372) $31,164 7 a, 0 0 ~ ~ CQ CD ~ -4 This chart shows the gainl(loss) due to investment experience. *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System Investment Rate of Return A major component of projected asset growth is the assumed rate of return. The assumed return should represent the expected long-term rate of return, based on the OCERS's investment policy. For valuation purposes, the assumed rate of return on the valuation value of assets was 7.50% (based on December 31 , 2003 valuation). The actual rate of return on a valuation basis for the 2004 plan year was 8.55%. Please note that part of the actuarial gain on the valuation value of assets was due to a change in the method that calculates the actuarial and valuation value of assets. CHART10 Since the actual return for the year was greater than the assumed return, the OCERS experienced an actuarial gain during the year ended December 31, 2004 with regard to its investments. Investment Experience for Year Ended December 31, 2004 -Valuation Value and Actuarial Value of Assets Valuation Value Actuarial Value I. Actual return $411,453,073 $403,652,000 2. Average value of assets $4,812,233,427 $4,832,022,500 3. Actual rate of return: (1) + (2) 8.55% 8.35% 4. Assumed rate of return 7.50% 7.50% 5. Expected return: (2) x (4) $360,917,507 $362,401,688 6. Actuarial gain/(loss): (1) -(5) $50 535 566 $41250312 8 OJ 0 0 ~ ~ CQ (I) ~ "> *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System Because actuarial planning is long term, it is useful to see how the assumed investment rate of return has followed actual experience over time. The chart below shows the rate of return on an actuarial, valuation, and market basis for the last year. CHART 11 Based upon this experience, future expectations and discussions with the Board, the Board has acted to increase the assumed rate ofreturn from 7.50% to 7.75% for this valuation. Investment Return -Actuarial Value, Valuation Value and Market Value: (Dollar Amounts in Thousands) Year Ended December31 2004 Valuation Value Investment Return Amount Percent $411,453 8.55% (I) Net of County Investment Account. Actuarial Value Investment Return Amount Percent $403,652 8.35% Market Value Investment Return(1l Amount Percent $544,457 11.26% 9 DJ 0 0 :a;,- ~ cg .i:.. .i:.. *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System Other Experience There are other differences between the expected and the actual experience that appear when the new valuation is compared with the projections from the previous valuation. These include: > actual turnover among the participants, > retirement experience ( earlier or later than expected), > mortality (more or fewer deaths than expected), > the number of disability retirements, and > salary increases different than assumed. The net loss from this other experience for the year ended December 31, 2004 amounted to $19.4 million which is 0.26% of the actuarial accrued liability. See Exhibit Hin Section 3 for a detailed development of the Unfunded Actuarial Accrued Liability. 11 OJ 0 0 =-.,- ~ (Q CD "" QI *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System D. EMPLOYER AND MEMBER CONTRIBUTIONS Employer contributions consist of two components: Normal Cost Contribution to the Unfunded Actuarial Accrued Liability (UAAL) The annual contribution rate that, if paid annually from a member's first year of membership through the year of retirement, would accumulate to the amount necessary to fully fund the member's retirement-related benefits. Accumulation includes annual crediting of interest at the assumed investment earning rate. The contribution rate is expressed as a level percentage of the member's compensation. Please note that for members who have prior benefit service in another OCERS plan ( e.g. Probation Safety members with prior General plan service), their normal cost rate for the current plan is calculated based on the date they enter service with their current plan. The annual contribution rate that, if paid annually over the UAAL amortization period, would accumulate to the amount necessary to fully fund the UAAL. Accumulation includes annual crediting of interest at the assumed investment earning rate. The contribution ( or rate credit in the case of a negative unfunded actuarial accrued liability) is calculated to remain as a level percentage of future active member payroll (including payroll for new members as they enter the System) assuming a constant number of active members. In order to remain as a level percentage of payroll, amortization payments (credits) are scheduled to increase at the annual inflation rate of 3.50% (i.e., 3.50% inflation plus 0.00% real across-the-board salary increase). The current UAAL is being recognized over a declining 30-year period. The recommended employer contributions are provided on Chart 13. 12 u:, 0 0 ~ "J1 CQ Cl) ~ 0) *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System Member Contributions Articles 6 and 6.8 of the 1937 Act define the methodology to be used in the calculation of member basic contribution rates for General members and Safety members, respectively. The basic contribution rate is determined so that the accumulation of a member's basic contributions made in a given year until a certain age will be sufficient to fund an annuity at that age that is equal to: > 1/200 of Final Average Salary for General Plan A; > 1/120 of Final Average Salary for General Plan B; > 1/100 of Final Average Salary for General Plans G, H, I, and J; > 1/120 of Final Average Salary for General Plans Mand N; > 1/200 of Final Average Salary for Safety Plan E and; > 1/100 of Final Average Salary for Safety Plan F. The Annuity age is 60 for General Plans A, B, M, and N, 55 for Plans G, H, I, and J, and 50 for Safety Plans E and F. It is assumed that contributions are made annually at the same rate, starting at entry age. In addition to their basic contributions, members pay one-half of the total normal cost necessary to fund their cost-of-living benefits. Accumulation includes semi-annual crediting of interest at the assumed investment earning rate. Member contribution rates are provided in Appendix A. 13 tD 0 0 ~ ~ CQ CD ~ ...... *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System CHART13 Recommended Employer Contribution Rates as of December 31, 2004 (Dollar Amounts in Thousands) General Employers December 31 , 2004 Valuation December 31, 2003 Valuation Estimated Annual Rate Group #1 -Plans A and B (non-OCTA) Rate Amount(I) Rate Normal Cost 9.55% $4,571 5.56% UAALC2l 6.08% ~ 6.56% Total Contribution 15.63% $7,483 12.12% Total Contribution After 3 Year Phase-In 13.29% $6,362 NIA Rate Group #2 -Plans I and J (2.7% @ 55) l3) Normal Cost 11.74% $95,608 6.07% UAAL(2l 10.49% $85.428 10.20% Total Contribution 22.23% $181,036 16.27% Total Contribution After 3 Year Phase-In 18.26% $148.706 NIA Rate Group #3 -Plans G and H (2.5% @55-non-City of Rancho Santa Margarita) Normal Cost 10.80% $5,010 5.16% UAALC2l 9.35% $4,336 9.65% Total Contribution 20.15% $9,346 14.81% Total Contribution After 3 Year Phase-In 16.59% $7,696 NIA OJ See page 15 for projected annual compensation. fl) December 31, 2004 rate includes adjustment to reflect I 8-month delay between date of valuation and date of rate implementation. (3) For employers withfi1ture service only benefit improvement, please refer to the employer rate adjustment on page 17. Estimated Annual Amount(1l $2.661 $3,140 $5,801 NIA $49,433 $83,067 $132,500 NIA $2,394 $4,476 $6,870 NIA 14 Cb 0 0 ~ ~ CQ Cl) .a:i,. 00 *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System CHART 13 (Continued) Recommended Employer Contribution Rates as of December 31, 2004 (Dollar Amounts in Thousands) General Employers December 31, 2004 Valuation December 31, 2003 Valuation Rate Group #4-Plan H (2.5% @ 55 -City of Rancho Santa Margarita) Normal Cost UAAL<2J Total Contribution Total Contribution After 3 Year Phase-In Rate Group #5 -Plans A and B (OCTA) Normal Cost UAALC2> Total Contribution Total Contribution After 3 Year Phase-In Rate Group #9 -Plans Mand N (TCA) Normal Cost UAAL<2J Total Contribution Total Contribution After 3 Year Phase-In (J) Based on December 31, 2004 projected annual compensation (also in thousands): Rate Group# 1 $47,868 Rate Group# 2 814,380 Rate Group# 3 46,387 Rate Group# 4 1,051 Rate Group # 5 8 7,627 Rate Group# 9 5 747 Total $1,003,060 Rate 10.53% 2.30% 12.83% 7.41% 11.71% 5.68% 17.39% 13.10% 11.45% 7.09% 18.54% 14.56% Estimated Annual Amount<') Rate $111 1.77% .ru 2.93% $135 4.70% $78 NIA $10,261 4.41% $4,977 6.54% $15,238 10.95% $11,479 NIA $658 5.65% $407 6.92% $1,065 12.57% $837 NIA fl! December 31, 2004 rate includes aqjustment to reflect 18-month delay between date of valuation and date of rate implementation. Estimated Annual Amount<1J $19 .ru $50 NIA $3,864 $5,731 $9,595 NIA $325 $398 $723 NIA 15 0J 0 0 ~ ~ CQ CD ,Iii,, C0 *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System CHART 13 (Continued) Recommended Employer Contribution Rates as of December 31, 2004 (Dollar Amounts in Thousands) Safety Employers December 31, 2004 Valuation December 31, 2003 Valuation Rate Group #6 -Plans E and F (Probation) Rate Normal Cost 21.37% UAAL(2l 12.04% Total Contribution 33.41% Total Contribution After 3 Year Phase-In 21.00% Rate Group #7 -Plans E and F (Law Enforcement) Normal Cost 20.43% UAAL<2l 17.22% Total Contribution 37.65% Total Contribution After 3 Year Phase-In 38.48% Rate Group #8 -Plans E and F (Fire Authority) Normal Cost 20.33% UAAL<2l 13.52% Total Contribution 33.85% Total Contribution After 3 Year Phase-In 33.20% General and Safety Employers Combined Rate Groups #1-#9 Total Contributions 24.29% Total Contributions After 3 Year Phase-in 20.71% (JJ Based on December 31, 2004 projected annual compensation (also in thousands): Rate Group # 6 Rate Group # 7 Rate Group # 8 Total $52,757 $137,787 $63,481 $254,025 Estimated Annual Amoun{1J Rate $11,274 6.57% $6,351 8.23% $17,625 14.80% $11,079 NIA $28,150 16.86% $23,730 22.03% $51,880 38.89% $53,020 NIA $12,906 17.98% $8,581 14.90% $21,487 32.88% $21,076 NIA $305,295 18.92% $260,333 NIA (lJ December 31, 2004 rate includes adjustment to reflect 18-month delay between date of valuation and date of rate implementation. Estimated Annual Amount(!) $3,466 $4,342 $7,808 NIA $23,231 $30,354 $53,585 NIA $11,414 $9,459 $20,873 NIA $237,805 NIA 16 tD 0 0 ~ ~ cg u, 0 *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System CHART 13 (Continued) Recommended Employer Contribution Rates as of December 31, 2004 (Dollar Amounts in Thousands) December 31, 2004 Rate Adjustment for General Employers with 2.7%@ 55 Future Service Only Benefit Improvement (Plans I and J) Reduction to UAAL Rate Calculated in December 31, 2004 Valuation Reduction to Total Contribution/Reduction to Total Contribution After 3 Year Phase-In (I) Based on December 31, 2004 projected annual compensation (also in thousands): Retirement System $1,402 Local Agency Formation Commission Children & Family Commission Total 544 942 $2,888 December 31, 2004 Rate Adjustment for General Employers with 2.5%@ 55 Future Service Only Benefit Improvement (Plans G and H) Reduction to UAAL Rate Calculated in December 31, 2004 Valuation Reduction to Total Contribution/Reduction to Total Contribution After 3 Year Phase-In (21 Based on December 31, 2004 projected annual compensation (also in thousands): Law Library $1,075 Rate -3.24% Rate -4.05% Estimated Annual Amounl1l -$94 Estimated Annual Amount<2> -$44 17 a, 0 0 ~ ~ (Q Cl) (JI ..,. *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System CHART14 "Pick -Up" -Discount Percentages For every dollar of member contribution "picked up" by the employer and not deposited in the member's contribution account, the employer can contribute less than a dollar. This is because the "pick-up" amount is not deposited in the member's contribution account and so is not payable to a member who withdraws his or her contributions following termination of employment, and is not payable as an additional death benefit. The contribution discount percentages have changed since the prior valuation as a result of the changes in the actuarial assumptions that anticipate lower incidence of contribution refunds. They are as follows: Ge11eral Members Rate Group #1 (non-OCTA) Rate Group #2 (2.7%@ 55) Rate Group #3 (2.5%@ 55 -non-Rancho Santa Margarita) Rate Group #4 (2.5% @ 55 -Rancho Santa Margarita) Rate Group #5 (OCT A) Rate Group #9 (TCA) Safety Members Rate Group #6 (Probation) Rate Group #7 (Law Enforcement) Rate Group #8 (Fire Authority) December 31, 2004 Valuation Pick-Up Percentage Plan A: 99.66% Plan I: 99.59% Plan G: 99.50% NIA Plan A: 99.59% Plan M: 97.14% Plan E: 99.49% Plan E: 100.00% Plan E: 100.00% Plan B: 97.26% Plan J: 97.60% Plan H: 97.96% Plan H: 96.92% Plan B: 97.43% Plan N: 97.14% Plan F: 96.37% Plan F: 99.57% Plan F: 99.63% December 31, 2003 Valuation Pick-Up Percentage Plan A: 90.42% Plan I: 90.42% Plan G: 90.42% NIA Plan A: 78.40% Plan M: 100.00% Plan E: 89.52% Plan E: 99.47% Plan E: 99.01% Plan B: 83.28% Plan J: 83.28% Plan H: 83.28% Plan H: 86.52% Plan B: 79.48% Plan N: 83.43% Plan F: 79.18% Plan F: 97.88% Plan F: 98.36% 18 DJ 0 0 ~ i Ct> ~ *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System CHART 14 (Continued) "Pick-Up" -Average Entry Age The following table provides the average entry age by employer used in determining the "pick-up" contributions under Section 31581.1. Employer General Orange County Cemetery District Law Library Vector Control District Retirement System Fire Authority Department of Education Transportation Corridor Agency City of San Juan Capistrano Sanitation District OCTA U.C.I. (Bi-weekly) U.C.I. (Monthly) Children & Families Commision Local Agency Formation Commission City of Rancho Santa Margarita Superior Court IHSS Public Authority Sa/e(v Probation Law Enforcement Fire Authority Code 101 102 103 104 105 106 108 109 110 111 112 113 114 118 119 120 121 122 101 101 106 Average Entry Age 33 32 40 34 35 32 25 37 35 34 37 23 22 28 32 40 32 45 28 26 26 19 a, 0 0 ~ ~ (Q CD ~ The chart reconciles the contribution from the prior valuation to the amount determined in this valuation. *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System The contribution rates as of December 31, 2004 are based on all of the data described in the previous sections, the actuarial assumptions described in Section 4, and the Plan provisions adopted at the time of preparation of the Actuarial Valuation. They include all changes affecting future costs, adopted benefit changes, actuarial gains and losses and changes in the actuarial assumptions. CHART15 Reconciliation of Recommended Contribution The chart below details the changes in the recommended contribution from the prior valuation to the current year's valuation. Reconciliation of Recommended Contribution from December 31, 2003 to December 31, 2004 (Dollars in Thousands) Contribution Estimated Recommended Contribution Rate as of December 31 , 2003 After Reflecting Plan Amendments Effective for FY 2005-2006 Effect of methodology and procedure changes<2l Effect of investment gain Effect of lower than expected salary increase Effect of higher normal cost from change in membership demographics Effect of changes in actuarial assumptions recommended in December 31, 2004 Triennial Experience Study Effect of adjustment for 18-month delay in implementation of higher contribution rates Effect of change to Entry Age Normal, 3 .5% inflation, and 30 year level dollar amortization schedule Effect of change in investment return assumption to 7. 75% Effect of other experience (gain)/loss Total change Recommended Contribution Rate as of December 31 , 2004 Recommended Contribution Rate as of December 31 , 2004 After 3 Year Phase-in '11 Based on December 31 , 2004 projected compensation of$1,257,085,000. '11 See Appendix C for the detail of these changes. Rat~ 18.92% 2.86% -0.44% -0.36% 0.47% 6.02% 1.74% -4.04% -2.03% 1.15% 5.37% 24.29% 20.71% Amount (1) $237,805 $35,953 -5,531 -4,526 5,908 75,677 21,873 -50,665 -25,656 14,457 $67,490 $305,295 $260,333 20 OJ 0 0 ~ ~ CQ Cl) ~ The chart reconciles the member contributionfi'om the prior valuation to the amount determined in this valuation. *SEGAL SECTION 2: Valuation Results for the Orange County Employees Retirement System The member contribution rates as of December 31, 2004 are based on all of the data described in the previous sections, the actuarial assumptions described in Section 4, and the Plan provisions adopted at the time of preparation of the Actuarial Valuation. They include all changes affecting future costs, adopted benefit changes, actuarial gains and losses and changes in the actuarial assumptions. Reconciliation of Recommended Contribution Rate The chart below details the changes in the recommended member contribution rate from the prior valuation to the current year's valuation. CHART16 Reconciliation of Average Recommended Member Contribution from December 31, 2003 to December 31, 2004 (Dollar Amounts in Thousands) Average Recommended Contribution Rate as of December 31, 2003 After Reflecting Plan Amendments Effective for FY 2005 -2006. Effect of change in actuarial assumptions Average Recommended Contribution Rate as of December 31, 2004 OJ Based 011 December 31, 2004 projected compensation o/$1,257,085,000. Contribution Rate 9.70% 0.55% 10.25% Estimated Amount<1l $121,898 $6,973 $1281871 21 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBIT A Table of Plan Coverage i. General County (other than OCTA) Year Ended December 31 Category 2004 2003 Active members in valuation Number 16,880 17,000 Average age 44.5 42.l Average service 10.7 10.6 Projected total compensation(!) $915,432,956 $899,473,663 Projected average compensation $54,235 $52,910 Account balances $676,555,330 Not Available OJ Total active vested members 11,649 Not Available 0 Vested terminated members 0 Number 1,588 1,953 ~ ~ Average age 44.9 Not Available Total account balance $43,095,905 $39,957,126 (Q Retired members Cl) u, Number in pay status 5.782 7,420 0, Average age 70.4 Not Available Avera!l;e monthly benefit $1,948 $1,712 Disabled members Number in pay status 631 Included above Average age 61.9 Included above Average monthly benefit $1,688 Included above Beneficiaries Number in pay status 1,151 Included above Average age 71.6 Included above Average monthly bc:nefi1 $1 ,071 Included above (1) For members without a salary reported for the December 31, 2004 valuation, we have assigned them an annual salary of $51,414. *SEGAL Change From Prior Year -0.7% NIA 0.9% 1.8% 2.5% NIA NIA -18.7% NIA 7.9% 1.9% (Total) NIA 4.7% (Total) NIA NIA NIA NIA NIA NIA 23 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBIT A Table of Plan Coverage ii. General OCTA Year Ended December 31 Change From Category 2004 2003 Prior Year Active members in valuation Number 2,048 2,023 1.2% Average age 46.1 45.9 NIA Average service 8.7 9.1 -4.4 Projected total compensation(ll $87,627,026 $86,061,172 1.8% Projected average compensation $42,787 $42,541 0.6% Account balances $68,734,751 Not Available NIA Total active vested members 1,063 Not Available NIA OJ Vested terminated members 0 Number 175 190 -7.9% 0 ~ Average age 47.3 Not Available NIA ~ Total account balance $5,656,978 $5,065,832 11.7% (Q Retired members (I) Number in pay status 351 560 11.3% (Total) UI Average age 66.0 Not Available NIA ..... Average monthly benefit $1,417 $1,402 4.3% (Total) Disabled members Number in pay status 194 Included above NIA Average age 57.9 Included above NIA Avera!!ie monthly benefit $1 ,761 Included above NIA Beneficiaries Number in pay status 78 Included above NIA Average age 66.1 Included above NIA Average monthly benefit $918 Included above NIA (1) For members without a salary reported for the December 31, 2004 valuation, we have assigned them an annual salary of $51,414. *SEGAL 24 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBIT A Table of Plan Coverage iii. Safety Law Enforcement Year Ended December 31 Change From Category 2004 2003 Prior Year Active members in valuation Number 1,828 1.846 -1.0% Average age 40.6 40.2 NIA Average service 13.1 12.9 1.6% Projected total compensation(!) $137,787,931 $141,377,525 -2.5% Projected average compensation $75,376 $76,586 -1.6% a, Account balances $108,085,839 Not Available NIA 0 Total active vested members 1,602 Not Available NIA 0 Vested terminated members ::,;- ~ Number 100 87 14.9% (Q Average age 40.1 Not Available NIA C1) Total account balance $2,107,072 $1,940,181 8.6% u, Retired members 00 Number in pay status 607 921 8.6% (Total) Average age 63.2 Not Available NIA Average monthly benefit $4,766 $3,772 6.0% (Total) Disabled members Number in pay status 289 Included above NIA Average age 55.5 Included above NIA Average monthly benefit $3,147 Included above NIA Beneficiaries Number in pay status 104 Included above NIA Average age 67.3 Included above NIA Average monthly benefit $1,867 Included above NIA (1) For members without a salary reported for the December 31, 2004 valuation, we have assigned them an annual salary of $71,478. *SEGAL 25 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBIT A Table of Plan Coverage iv. Safety Probation Year Ended December 31 Change From Category 2004 2003 Prior Year Active mem hers in valuation Number 955 1,008 -5 .3% Average age 37.5 37.l NIA Average service 9.2 8.9 3.4% Projected total compensation(!) $52,756,126 $54,612,276 -3.4% Projected average compensation $55,242 $54,179 2.0% tD Account balances $37,001,635 Not Available NIA 0 Total active vested members 619 Not Available NIA 0 Vested terminated members :ii.-- ~ Number 38 34 11.8% CQ Average age 36.9 Not Available NIA CD Total account balance $692,520 $509,553 35.9% u, Retired members CD Number in pay status 90 51 84.3% (Total) Average age 59.7 Not Available NIA Average monthly benefit $4,313 $3,927 6.6% {Total) Disabled members Number in pay status 3 Included above NIA Average age 38.5 Included above NIA Average monthly benefit $1 ,785 Included above NIA Beneficiaries Number in pay status 1 Included above NIA Average age 46.4 Included above NIA Average monthly benefit $101 Included above NIA (1) For members without a salary reported for the December 31, 2004 valuation, we have assigned them an annual salary of $71,478. *SEGAL 26 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBIT A Table of Plan Coverage v. Safety Fire Authority Year Ended December 31 Change From Category 2004 2003 Prior Year Active members in valuation Number 791 795 -0.5% Average age 44.8 44.6 NIA Average service 15.0 14.5 3.4% Projected total compensation(') $63,480,172 $62,439,478 1.7% Projected average compensation $80,253 $78,540 2.2% OJ Account balances $59,150,833 Not Available NIA 0 Total active vested members 701 Not Available NIA 0 Vested terminated members :Ill" ~ Number 9 14 -35.7% (Q Average age 45.1 Not Available NIA Cl) Total account balance $289,163 $280,858 3.0% 0) Retired members 0 Number in pay status 90 127 19.7% (Total) Average age 59.7 Not Available NIA Average month]~ benefit $3,708 $3,201 11.3% (Total) Disabled members Number in pay status 55 Included above NIA Average age 56.2 Included above NIA Average monthly benefit $3.427 Included above NIA Beneficiaries Number in pay status 7 Included above NIA Average age 49.4 Included above NIA Average monthly benefit $2,784 Included above NIA (1) For members without a salary reported for the December 31, 2004 valuation, we have assigned them an annual salary of $71,478. *SEGAL 27 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBITS Members in Active Service and Projected Average Compensation as of December 31, 2004 By Age and Years of Service i. General (other than OCTA) Years of Service Age Total 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40 & over Under 25 460 450 JO 33,088 32.982 37.849 25 -29 1,437 1,094 340 3 40,433 39,997 41,845 39,313 30 • 34 2.070 1,024 768 268 10 47,778 45,251 50,653 48,652 62,368 IJJ 35 · 39 2.336 753 683 684 215 1 0 52,907 47.205 55,616 55,975 54,441 $68,447 0 40 · 44 2,411 553 530 625 517 173 13 ~ ~ 56,292 49,406 56,399 57,535 62,213 55,466 $60,590 CQ 45-49 2,350 485 416 490 491 324 135 9 Cl) 58.030 48,551 56,158 57,457 62,967 65,171 64,983 $55,742 0) 50-54 2,341 394 396 418 427 315 258 126 7 --a. 60,782 51,067 58,311 57,163 63,713 66,179 70,937 66,224 $69,587 55-59 1,974 300 295 371 311 220 207 231 38 1 61,292 47,876 57,719 58,088 61,036 64,101 74,879 72,732 68,271 $70,990 60 · 64 1,047 145 162 225 221 122 65 74 31 2 57,772 52,384 54,423 52,339 56.711 60,764 70,096 71,140 74,545 110,564 65 · 69 338 33 51 93 83 42 20 12 3 52,951 40,557 51,975 54,542 55,345 50,175 53,832 59,261 75,736 119,831 70 & over 116 17 15 24 31 15 11 3 50,831 39,214 47,165 53,952 53.608 50.761 57.010 59,028 Total 16,880 5,248 3,666 3,201 2,306 1,212 709 455 79 4 $54,235 $44,864 $53,748 $55,965 $60,878 $62,714 $69.989 $69.889 $71,133 $102.987 *SEGAL 28 SECTION 3: Supplen:iental Information for the Orange County Employees Retirement System EXHIBITS Members in Active Service and Projected Average Compensation as of December 31, 2004 By Age and Years of Service ii. General OCT A Years of Service Age Total 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40 & over Under25 21 21 $30,756 $30,756 25 -29 128 110 18 32,967 31,912 $39,414 30 -34 161 107 44 10 37,775 35,420 41,456 $46,781 Ill 35-39 255 166 54 24 II 0 40,046 35,067 48,035 52.128 $49,603 0 40-44 358 203 62 46 41 6 ~ ~ 42,032 35,553 46,767 54,638 51.449 $51,297 ~ 45-49 345 132 59 54 47 39 13 ff) 44.941 36.833 47.636 49.085 51,530 51 ,026 $55,313 $50,558 0) 50-54 356 125 49 42 51 39 45 5 N 45,296 39,974 42.051 48,599 52,303 43,434 51,484 69,764 55-59 253 78 39 42 31 25 31 7 47,490 50,292 40.393 51,196 43,508 38,653 47,902 80,948 60-64 135 36 19 15 22 14 21 7 44,669 35,175 41,291 48,377 44.264 56,451 47,591 54.387 $109,560 65-69 28 7 9 4 2 3 3 46,809 25,002 51,007 58,856 47,073 45,914 69,758 70 & over 8 2 2 I 2 54,336 42,534 50,658 42,579 81,696 42,330 Total 2,048 987 355 238 207 127 113 20 $42)87 $36,770 $44,558 $50,747 $49.877 $46.680 $50,703 $67.336 $0 $109.560 *SEGAL 29 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBITS Members in Active Service and Projected Average Compensation as of December 31, 2004 By Age and Years of Service iii. Safety Law Enforcement Years of Service Age Total 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35 & over Under 25 14 13 $55,405 $54,284 $69,980 25-29 140 78 62 63,128 58,586 68.843 30-34 322 62 183 77 68,698 62,142 70,646 $69,349 OJ 35-39 411 33 97 190 91 0 73,546 63 ,374 71,483 74,270 $77,922 0 40-44 435 19 25 73 248 70 ~ ~ 78.211 68.144 70,229 72,366 79,863 $84,035 '0 45-49 273 7 12 30 76 102 45 I CD 80,212 68,221 72,843 73,513 76,043 82,075 $91,038 $93,095 CS) 50-54 158 6 3 6 37 30 66 10 w 85,822 74,107 87,118 74,844 76,230 85,058 90,342 106,994 55-59 70 8 6 6 15 13 17 3 2 85,004 74,482 86,433 92,692 83,632 82,916 87,026 78,536 $116,125 60-64 5 1 1 2 I 79,308 81,901 75,033 73,255 93 ,095 65-69 -- Total 1,828 226 390 382 468 215 130 14 3 $75,376 $62,089 $71.005 $73.153 $78.688 ~,180 $89.887 $99,903 $108.448 *SEGAL 30 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBITS Members in Active Service and Projected Average Compensation as of December 31, 2004 By Age and Years of Service iv. Safety Probation Years of Service Age Total 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40 & over Under 25 17 17 $38,711 $38,711 25 -29 219 178 40 44.450 42.164 $54,416 $52,732 30-34 236 79 136 20 I 54.174 45,559 58,238 60,646 $52,676 OJ 35-39 176 37 65 62 12 0 56.127 44,764 54,449 63,170 63,863 0 40-44 93 9 21 30 29 4 ~ ~ 60,077 46,953 50,139 62,152 68.061 $68,350 tQ 45-49 91 6 14 16 25 21 9 CD 63,989 49,424 55,446 64,120 62,273 71,306 $74,448 0) SO-54 61 7 9 8 II 9 11 6 ~ 65,556 43,597 55,615 70,514 63,597 66,968 77,949 $78,224 55-59 52 3 3 4 12 8 9 12 70,911 50,497 54,485 63,719 62,332 75,01 I 69,336 89,769 $68,214 60-64 9 l I 2 2 2 l 59,584 52,732 67,382 64,077 67,382 37,139 78,947 65-69 l 1 67,382 67,382 70 & over Total 955 336 289 142 93 44 31 19 I $55,242 $43,436 $55 994 $63,092 $64,437 $70,645 $71,799 $85,554 $68,214 *SEGAL 31 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBITB Members in Active Service and Projected Average Compensation as of December 31, 2004 By Age and Years of Service v. Safety Fire Authority Years of Service Age Total 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40 & over Under 25 5 5 $56,462 $56,462 25 -29 44 33 II 58,605 56,700 $64,319 30 -34 63 19 28 15 I 0:1 68,480 61,471 70,571 $73,225 $71,935 0 35 -39 112 18 16 53 25 0 ~ 73,543 67,912 69,919 74.414 78,068 ~ 40-44 159 10 10 30 75 34 lQ 78,873 66,282 71,058 77,880 79,953 $83,369 CD 45-49 181 3 3 19 29 91 34 2 0) 84,429 68,121 74,027 80,205 79,494 85,543 $90,203 $87,354 Ut 50-54 137 I 3 6 6 49 31 35 6 86,859 48,569 74,535 80,568 77,440 84,101 87,672 93,246 $96,190 55-59 78 5 I 15 21 27 8 92,791 87,017 161,380 83,094 85,585 100,811 98,473 $87,862 60-64 11 l 3 l l 4 1 88,843 75,531 89,484 94,130 94,127 82,481 115,111 65-69 70 & over 130,939 130.939 Total 791 90 79 123 137 190 87 68 16 1 $80,253 $61,500 $71 ,671 $76,309 $79,938 $84,634 $88,232 $95,443 $100,686 $87.862 *SEGAL 32 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBITC Reconciliation of Member Data -December 31, 2003 to December 31, 2004 Active Vested Former Members Members Pensioners Disableds Beneficiaries Total Number as of December 31. 2003 22,672 2,278 6,642 1,134 1,303 34,029 New members l.159 77 0 0 l ll 1,347 Terminations -with vested rights -341 341 0 0 0 0 Contributions Refunds -456 -750 0 0 0 -1,206 Retirements -382 -79 461 0 0 0 New disabilities -41 -4 -23 68 0 0 IJJ Return to work 32 -32 0 0 0 0 0 0 Deaths -118 -10 ::,;--198 -24 -62 -412 ~ Data adjustments -23 89 38 -6 -11 87 IQ Number as of December 31, 2004 22,502 1,910 6,920 1,172 1,341 33,845 (l) 0, 0, *SEGAL 33 tD 0 0 ~ i C1) 0) ..... *SEGAL SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBITD Summary Statement of Income and Expenses on an Actuarial Value Basis Contribution income: Employer contributions Employee contributions Transfer from County Investment Account Net contribution income Investment income: Interest, dividends and other income Recognition of capital appreciation Less investment and administrative fees Net investment income Total income available for benefits Less benefit payments Change in reserve for future benefits Year Ended December 31, 2004 $194,430,000 81,931,000 3,579,000 $127,8 lO,000 303,044,000 -27,202,000 $279,940,000 403,652,000 $683,592,000 -$238,529,000 $445,063,000 34 SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBIT E Summary Statement of Assets Year Ended December 31, 2004 Year Ended December 31, 2003 Cash equivalents $287,076,000 $550,646,000 Accounts receivable: Contributions $15,813,000 $13,176,000 Tnvestment Income 20,266,000 13,585,000 Securities Settlements 10.740,000 6,615.000 Total accounts receivable 46.819,000 33,376,000 Investments: OJ Investments $5,356,914,000 $4,421,845,000 0 Security Lending Collateral 809,189,000 290,166,000 0 ~ Fixed Assets Net Depreciation 3.558.000 4,231.000 "J1 Total investments at market value 6,169,661,000 4,716,242,000 (Q (I) Total assets $6,503,556,000 $5,300,264,000 0, 00 Less accounts payable: Securities Settlements -$111,514,000 -$24,318,000 Security Lending Liability -809, 189,000 -290, 166,000 All other -25.858,000 -26, 154,000 Total accounts payable -$946,561,000 -$340,638,000 Net assets at market value<11 $5 556 225 000 $4 252 626 QQQ Net assets at actuarial value $5 256 380 QOQ $4811317,QQQ Net assets at valuation value $5 245 821 000 $_4 720 02.2.QQQ (I! Includes County Investment Account of $155,245,00() and $143,744,000 as of December 31, 2004 and December 31, 2003, respectively. *SEGAL 35 llJ 0 0 ~ ~ CQ Cl) 0) (0 *SEGAL SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBIT F Actuarial Balance Sheet An overview of your Plan's funding is given by an Actuarial Balance Sheet. In this approach, we first determine the amount and timing of all future payments that will be made by the Plan for current participants. We then discount these payments at the valuation interest rate to the date of the valuation, thereby determining their present value. We refer to this present value as the "liability" of the Plan. Assets 1. Total valuation assets 2. Present value of future contributions by members 3. Present value of future employer contributions for: a. entry age normal cost b. unfunded actuarial accrued liability 4. Total current and future assets Liabilities 5. Present value of retirement allowance payable to present retired members 6. Present value of retirement allowances to be granted 7. Total actuarial liabilities Second, we determine how this liability will be met. These actuarial "assets" include the net amount of assets already accumulated by the Plan, the present value of future member contributions, the present value of future employer normal cost contributions, and the present value of future employer amortization payments. $5,245,821,000 $831,059,000 $1,665,459,000 $2. 158.151.000 $9.900,490,000 $2.896,397,000 $7.004,093.000 $9.900,490,000 36 OJ 0 0 ~ 1 Cl) ~ *SEGAL SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBITG Summary of Reported Asset Information as of December 31, 2004 Reserves Included in Valuation Value of Assets Active Members Reserve (Book Value) Retired Members Reserve (Book Value) Employer Advanced Reserve (Book Value) Unrealized Appreciation Included in Valuation Value of Assets Subtotal: Valuation Value of Assets Not Included in Valuation Value of Assets RMBR Unclaimed Member Deposit Medicare Medical Insurance Reserve Subtotal: Actuarial Value of Assets Unrecognized Investment Income (Loss) Subtotal: Market Value of Assets (Net of County Investment Account) County Investment Account Total: Gross Market Value of Assets $1,007,576,000 2,655,699,000 1,422,602,000 $159,944,000 $5,245,821,000 $9,820,000 655,000 84.000 $5,256,380,000 145.370.000 $5,401,750,000 155.245.000 $5,556,995,000 37 OJ 0 0 ~ ~ CQ CD ..... -.a. *SEGAL SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBITH Development of Unfunded/(Overfunded) Actuarial Accrued Liability for Year Ended December 31, 2004 I. 2. 3. 4. 5. 6. 7. 8. Unfunded actuarial accrued liability at beginning of year, prior to benefit improvements Changes in methods and procedures Total normal cost at middle of year Actual employer and member contributions Interest Expected unfunded actuarial accrued liability Actuarial (gain)/loss and other changes: (a) Gain on investment retum<1> (b) Other experience (gain)/ loss (c) Benefit improvements (d) Change in actuarial assumptions recommended in the December 31, 2004 triennial experience study (e) Change to 3.5% inflation assumption and Entry Age Normal funding method (f) Change in investment return assumption to 7.75% (g) Total changes Unfunded actuarial accrued liability at end of year -$50,536,000 19,372,000 365,409,000 579,681,000 33,129,000 -215,847,000 (I) This also includes the impact of the change in the method for calculating the valuation value of assets. $1,309,334,000 106,630,000 188,163,000 -279,940,000 I 02. 756.000 $).426 943 000 731.208.000 $2 )58 151 000 38 OJ 0 0 ~ ~ CQ (I) ~ *SEGAL SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBIT I Section 415 Limitations Section 415 of the Internal Revenue Code (IRC) specifies the maximum benefits that may be paid to an individual from a defined benefit plan and the maximum amounts that may be allocated each year to an individual's account in a defined contribution plan. A qualified pension plan may not pay benefits in excess of the Section 415 limits. The ultimate penalty for non- compliance is disqualification: active participants could be taxed on their vested benefits and the IRS may seek to tax the income earned on the plan's assets. In particular, Section 415(b) of the IRC limits the maximum annual benefit payable at the Normal Retirement Age to a dollar indexed for inflation. That limit is $170,000 for 2005 and $175,000 for 2006. Normal Retirement Age for these purposes is age 62. These are the limits in simplified terms. They must be adjusted based on each participant's circumstances, for such things as age at retirement, fonn of benefits chosen and after tax contributions. Benefits in excess of the limits may be paid through a qualified governmental excess plan that meets the requirements of Section 415(m ). Legal Counsel's review and interpretation of the law and regulations should be sought on any questions in this regard. Contributions rates detern1ined in this valuation have not been reduced for the Section 415 limitations. Actual limitations will result in gains as they occur. 39 tb 0 0 ~ ~ CQ CD c:j *SEGAL SECTION 3: Supplemental Information for the Orange County Employees Retirement System EXHIBIT J Definitions of Pension Terms The following list defines certain technical terms for the convenience of the reader: Assumptions or Actuarial Assumptions: Normal Cost: Actuarial Accrued Liability For Actives: Actuarial Accrued Liability For Pensioners: Unfunded Actuarial Accrued Liability: The estimates on which the cost of the Plan is calculated including: (a) Investment return -the rate of investment yield that the Plan will earn over the long-term future; (b) Mortality rates -the death rates of employees and pensioners; life expectancy is based on these rates; ( c) Retirement rates -the rate or probability of retirement at a given age; (d) Turnover rates -the rates at which employees of various ages are expected to leave employment for reasons other than death, disability, or retirement. The amount of contributions required to fund the level cost allocated to the current year of service. The equivalent of the accumulated normal costs allocated to the years before the valuation date. The single sum value of lifetime benefits to existing pensioners. This sum takes account of life expectancies appropriate to the ages of the pensioners and the interest that the sum is expected to earn before it is entirely paid out in benefits. The extent to which the actuarial accrued liability of the Plan exceeds ( or is exceeded by) the assets of the Plan. There is a wide range of approaches to paying off the unfunded or overfunded actuarial accrued liability, from meeting the interest accrual only to amortizing it over a specific period of time. 40 O'J 0 0 :a:- ~ CQ Cl) ~ *SEGAL SECTION 3: Supplemental Information for the Orange County Employees Retirement System Amortization of the Unfunded (Overfunded) Actuarial Accrued Liability: Investment Return: Payments made over a period of years equal in value to the Plan's unfunded or overfunded actuarial accrued liability. The rate of earnings of the Plan from its investments, including interest, dividends and capital gain and loss adjustments, computed as a percentage of the average value of the fund. For actuarial purposes, the investment return often reflects a smoothing of the capital gains and losses to avoid significant swings in the value of assets from one year to the next. 41 a:, 0 0 ~ ~ CQ CD ~ *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System EXHIBIT I Supplementary Information Required by GASB -Schedule of Employer Contributions Plan Year Annual Required Actual Ended December 31 Contributions Contributions 1999 $17,591,000 $17,591,000 2000 15,561 ,000 15,561,000 2001 12,060.000 12,060,000 2002 13,289,000 13,289,000 2003 124,243,000 124,243,000 2004 194,430,000 194,430,000 Note: The above contributions do not inclztde transfers from the Coztnty Investment Account. Percentage Contributed 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 42 SECTION 4: Supplemental Information for the Orange County Employees Retirement System EXHIBIT II Supplementary Information Required by GASB -Schedule of Funding Progress Unfunded/ UAAL as a Actuarial Valuation Actuarial (Overfunded) Percentage of Valuation Value Accrued Liability AAL Funded Covered Covered Date of Assets (AAL) (UAAL) Ratio Payroll Payroll* December 31 (a) (b) (b) -(a) (a) / (b) (c) [(b) -(a)/ (c)] 1999 $3,931,744,000 $4,017,279,000 $85,535,000 97.87% $912,490,000 9.37% 2000 4,497,362,000 4,335,025,000 -162,337,000 103.74% 994,669,000 -16.32% 2001 4,586,844,000 4,843,899,000 257,055,000 94.69% 1,122,763,000 22.89% tD 2002 4,695,675,000 5,673,754,000 978,079,000 82.76% I ,242,348,000 78.73% 0 0 2003 4,790,099,000 6,099,433,000 1,309,334,000 78.53% 1,243,964,000 105.25% ~ ~ 2004 5,245,821,000 7,403,972,000 2,158,151,000 70.85% 1,257,085,000 171.68% CQ Cl) ~ 0, *SEGAL 43 a:, 0 0 ~ ~ CQ Cl) ..... ..... *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System EXHIBIT Ill Supplementary Information Required by GASB Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Actuarial assumptions: Investment rate of return Inflation rate Real across-the-board salary increase Projected salary increases • Cost of living adjustments Plan membership: Retired members and beneficiaries receiving benefits Terminated members entitled to, but not yet receiving benefits Active members Total * See Ethibit IV for these increases. December 31. 2004 Entry Age Normal Actuarial Cost Method Level percent of payroll for total unfunded liability (3.50% payroll growth assumed) 30 years closed (declining) for all UAAL Market value of assets less unrecognized returns in each of the last five years. Unrecognized return is equal to the difference between the actual and the expected return on a market value basis, and is recognized over a five-year period. The Valuation Value of Assets is the Actuarial Value of Assets reduced by the value of the non-valuation reserves. 7.75% 3.50% 0.00% 4.10% to 10.50% for General members; 3.50% to 9.50% for Safety members based on age. 3.00% 9,433 1,910 22,502 33,845 44 lJJ 0 0 ~ l ~ *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System EXHIBIT IV Actuarial Assumptions and Actuarial Cost Method Post -Retirement Mortality Rates: Healthy: Disabled: Employee Contribution Rates and Optional Benefits: For General Members and Beneficiaries: 1994 Group Annuity Mortality Table set forward one year. For Safety Members and Beneficiaries: 1994 Group Annuity Mortality Table set forward one year. For General Members and Safety members: 1994 Group Annuity Mortality Table set forward five years. For General Members: 1994 Group Annuity Mortality Table set fotWard one year weighted 40% male and 60% female. For Safety and Probation Members: 1994 Group Annuity Mortality Table set forward one year weighted 80% male and 20% female. 45 SECTION 4: Supplemental Information for the Orange County Employ~es Retirement System Termination Rates Before Retirement: Rate(%) Mortality General Safety Age Male Female Male Female - 25 0.07 0.03 0.07 0.03 30 0.08 0.04 0.08 0.04 a, 35 0.09 0.05 0.09 0.05 0 0 ~ 40 ~ 0.12 0.08 0.12 0.08 CQ 45 0.17 0.10 0.17 0.10 CD ~ co 50 0.29 0.16 0.29 0.16 55 0.49 0.26 0.49 0.26 60 0.90 0.51 0.90 0.51 65 1.62 0.97 1.62 0.97 All pre-retirement deaths are assumed to be non-service connected. *SEGAL 46 a:, 0 0 ~ ~ (Q (!) 00 0 *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System Termination Rates Before Retirement (continued): General all Age otherr1> - 20 0.00 25 0.03 30 0.08 35 0.13 40 0.18 45 0.20 50 0.23 55 0.31 60 0.41 Rate(%) Disability General OCTAr2l 0.00 0.00 0.03 0.08 0.28 0.58 0.76 0.92 1.30 Safety -Law & Firef3l 0.05 0.08 0.16 0.32 0.52 0.72 0.98 2.24 3.60 Safety- Probation14l 0.00 0.06 0.16 0.20 0.20 0.20 0.20 0.20 0.08 <1l 60% of General all other disabilities are assumed to be duty disabilities. The other 40% are assumed to be ordinary disabilities. <2l 70% of General -OCTA disabilities are assumed to be duty disabilities. The other 30% are assumed to be ordinary disabilities. <3l 85% of Safety -Law Enforcement and Fire disabilities are assumed to be duty disabilities. The other 15% are assumed to be ordinary disabilities. (4l 85% of Safety -Probation disabilities are assumed to be duty disabilities. The other 15% are assumed to be ordinary disabilities. 47 a, 0 0 ~ "Jl tQ (I) Co ..... *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System Termination Rates Before Retirement (Continued): Rate(%) Withdrawal(< 5 Years of Service) Years of General all General Safety-Law Safety- Service other OCTA & Fire Probation 0 10.0 10.0 3.0 11.0 1 8.0 7.0 2.0 10.0 2 6.0 6.0 2.0 8.0 3 6.0 5.0 1.0 6.0 4 5.0 4.0 1.0 5.0 Withdrawal (5+ Years of Service) 111 Age General all General Safety-Law Safety- other OCTA & Fire Probation 20 5.0 3.0 1.0 5.0 25 5.0 3.0 1.0 5.0 30 5.0 3.0 1.0 5.0 35 4.4 3.0 0.9 4.4 40 3.5 3.0 0.6 3.7 45 2.5 3.0 0.5 2.9 50 2.0 2.7 0.2 2.2 55 1.0 1.9 0.0 1.4 60 0.0 0.6 0.0 0.4 (I) 15% of all terminated vested members will choose a refund of contributions and 85% will choose a deferred vested benefit. 48 SECTION 4: Supplemental Information for the Orange County Employees Retirement System Retirement Rates: Rate(%) Age General Safety -Law and Fire(tl Safety-ProbationC1l 50 3.0 10.0 4.0 51 3.0 15.0 6.0 52 3.0 20.0 8.0 53 3.0 20.0 10.0 54 3.0 20.0 15.0 CD 55 4.0 25.0 20.0 0 56 5.0 25.0 25.0 0 ~ 57 6.0 30.0 25.0 ~ 58 7.0 30.0 30.0 CQ (I) 59 9.0 40.0 30.0 00 ~ 60 11.0 100.0 40.0 61 13.0 100.0 50.0 62 15.0 100.0 60.0 63 17.0 100.0 100.0 64 19.0 100.0 100.0 65 25.0 100.0 100.0 66 20.0 100.0 100.0 67 20.0 100.0 100.0 68 20.0 100.0 100.0 69 20.0 100.0 100.0 70 100.0 100.0 100.0 (I) Retirement rate is 100% after a member accrues a benefit of 100% of final average earnings. *SEGAL 49 Ill 0 0 ~ 1 (I) 00 Co) *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System Retirement Age and Benefit for Deferred Vested Members: Liability Calculation for Current Deferred Vested Members: Future Benefit Accruals: Unknown Data for Members: Percent Married: Age of Spouse: Net Investment Return: Employee Contribution Crediting Rate: Consumer Price Index: For future deferred vested members, we make the following retirement assumption: General Age: 5 7 Safety Age: 53 We assume that 40% of future General and Safety deferred vested members are reciprocal. For reciprocals, we assume 5 .1 % compensation increases per annum. Liability for a current deferred vested member is estimated at 3.35 times the member's total basic plus cola member contribution account balance. 1.0 year of service per year for the full-time employees. Continuation of current partial service accrual for part-time employees. There is no assumption to anticipate conversion of unused sick leave at retirement. Same as those exhibited by members with similar known characteristics. If not specified, members are assumed to be male. 80% of male members and 50% of female members are assumed to be married at retirement or time of pre-retirement death. Female (or male) spouses are four years younger (or older) than their spouses. 7.75%; net of investment and administrative expenses. 5.00%, compounded semi-annually. Increase of 3.50% per year, retiree COLA increases due to CPI subject to a 3.0% maximum change per year. 50 Ill 0 0 "-"' ~ CQ Cl) ~ *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System Salary Increases: Annual Payoffs Assumptions: Inflation: Age 20 25 30 35 40 45 50 55 60 65+ Annual Rate of Compensation Increase(%) 3.50%, plus the following Merit and Longevity increases: General Safe_!y 7.0 6.0 5.2 5.1 3.4 2.2 1.7 1.6 1.4 0.9 0.6 0.6 3.6 1.8 0.7 0.5 0.5 0.5 0.0 There are assumed to be no "across the board" salary increases (other than inflation). Additional payoffs are expected to be received during a member's final average earnings period. The percentages used in this valuation are: Final One Final Three Year Salary Year Salary General Members 4.50% 2.10% Safety -Probation 4.50% 2.10% Safety-Law 9.30% 6.30% Safety -Fire 5.10% 2.40% Please note that the annual payoffs assumptions are the same for service and disability retirements. 51 OJ 0 0 ~ l C1) 00 u, *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System Actuarial Value of Assets: Valuation Value of Assets: Actuarial Cost Method: Market value of assets less unrecognized returns in each of the last five years. Unrecognized return is equal to the difference between the actual and the expected return on a market value basis, and is recognized over a five-year period. The Valuation Value of Assets is the Actuarial Value of Assets reduced by the value of the non-valuation reserves. Entry Age Normal Actuarial Cost Method. Entry Age is the age at the member's hire date. Nornrnl Cost and Actuarial Accrued Liability are calculated on an individual basis and are allocated by salaries, with Normal Cost determined as a level percentage of individual salary, as if the current benefit accrual rate had always been in effect. The total unfunded Actuarial Accrued Liability is amortized over a declining 30-year period. Please note that for members who have prior benefit service in another OCERS plan ( e.g. Probation Safety members with prior General plan service), the normal cost rate for the current plan is calculated based on the date they enter service with their current plan. 52 a, 0 0 :ii:- ~ IQ CD 00 0) *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System Changes in Actuarial Assumptions and Methods Post -Retirement Mortality Rates: Healthy: Disabled: Employee Contribution Rates and Optional Benefits: Based on the May 6, 2005 review of economic and non-economic assumptions, several assumptions were changed. Previously, those assumptions were as follows: General and Probation males and Safety members: 1983 Group Annuity Mortality Table for males. General and Probation females and Safety beneficiaries: 1983 Group Annuity Mortality Table for females. For General members: 60% of the CHE 1981 General Disability Mortality Table. For Safety members: 60% of the 1981 Safety Disability Mortality Table. For General members: 1983 Group Annuity Mortality Table 50% male and 50% females. For Safety members: 1983 Group Annuity Mortality Table for males. 53 SECTION 4: Supplemental Information for the Orange County Employees Retirement System Change in Actuarial Assumptions and Methods (Previous Assumptions Continued): Termination Rates Before Retirement: General (Non-OTCA) -Male Ordinary Vested Ordinary Duty Ordinary ~ Withdrawal Withdrawal Disability Disability Death 25 12.56% 0.70% 0.00% 0.01% 0.05% 30 8.88% 0.90% 0.01% 0.04% 0.06% 35 6.16% 1.00% 0.02% 0.10% 0.09% 40 4.32% 1.10% 0.04% 0.10% 0.12% 45 3.28% 0.74% 0.06% 0.14% 0.22% 50 2.64% 0.41% 0.11% 0.16% 0.39% 55 2.16% 0.16% 0.21% 0.19% 0.61% 60 0.00% 0.00% 0.52% 0.19% 0.92% tlJ 65 0.00% 0.00% 0.00% 0.00% 1.56% 0 0 ~ ~ General (Non-OTCA) -Female CQ CD Ordinary Vested Ordinary Duty Ordinary 00 ~ Withdrawal Withdrawal Disability Disability Death ..... 25 9.90% 0.20% 0.00% 0.00% 0.03% 30 7.20% 0.80% 0.01% 0.04% 0.03% 35 5.51% 1.00% 0.03% 0.05% 0.05% 40 4.44% 1.02% 0.06% 0.06% 0.07% 45 3.54% 1.18% 0.10% 0.14% 0.10% 50 2.53% 0.60% 0.15% 0.16% 0.16% 55 1.86% 0.28% 0.21% 0.19% 0.25% 60 0.00% 0.00% 0.26% 0.19% 0.42% 65 0.00% 0.00% 0.00% 0.00% 0.71% *SEGAL 54 SECTION 4: Supplemental Information for the Orange County Employees Retirement System Change in Actuarial Assumptions and Methods (Previous Assumptions Continued): Termination Rates Before Retirement (Continued): General (OTCA) -Male Ordinary Vested Ordinary Duty Ordinary !ill Withdrawal Withdrawal Disability Disability Death 25 15.07% 0.70% 0.00% 0.01% 0.05% 30 10.66% 0.90% 0.01% 0.02% 0.06% 35 7.39% 1.00% 0.02% 0.04% 0.09% 40 5.18% 1.10% 0.04% 0.05% 0.12% 45 3.94% 0.74% 0.06% 0.15% 0.22% 50 3.17% 0.41% 0.11% 0.22% 0.39% 55 2.59% 0.16% 0.21% 0.40% 0.61% 60 0.00% 0.00% 0.52% 0.63% 0.92% Cb 65 0.00% 0.00% 0.00% 0.00% 1.56% 0 0 :ii;- ~ General (OTCA) -Female IQ Ordinary Vested Ordinary Duty Ordinary Cl) !ill Withdrawal Withdrawal Disability Disability Death 00 25 17.00% 0.20% 0.00% 0.00% 0.03% 00 30 15.10% 0.80% 0.01% 0.04% 0.03% 35 12.00% 1.00% 0.03% 0.05% 0.05% 40 7.50% 1.02% 0.06% 0.10% 0.07% 45 4.73% 1.18% 0.10% 0.90% 0.10% 50 3.38% 0.60% 0.15% 1.00% 0.16% 55 2.48% 0.28% 0.21% 1.00% 0.25% 60 0.00% 0.00% 0.26% 1.00% 0.42% 65 0.00% 0.00% 0.00% 0.00% 0.71% *SEGAL 55 SECTION 4: Supplemental Information for the Orange County Employees Retirement System Change in Actuarial Assumptions and Methods (Previous Assumptions Continued): Termination Rates Before Retirement (Continued): Safety -Law Enforcement Ordinary Vested Ordinary Duty Ordinary ~ Withdrawal Withdrawal Disability Disability Death 25 1.75% 0.34% 0.00% 0.11% 0.05% 30 1.18% 0.29% 0.01% 0.13% 0.06% 35 0.67% 0.25% 0.02% 0.32% 0.09% 40 0.26% 0.26% 0.04% 0.66% 0.12% 45 0.00% 0.22% 0.12% 0.66% 0.22% 50 0.00% 0.15% 0.23% 0.66% 0.39% 55 0.00% 0.00% 0.00% 1.00% 0.61% 60 0.00% 0.00% 0.00% 0.00% 0.92% tD 65 0.00% 0 0.00% 0.00% 0.00% 0.00% 0 ~ ~ Safety -Fire Authority CQ Ordinary Vested Ordinary Duty Ordinary CD 00 ~ Withdrawal Withdrawal Disability Disability Death CC) 25 1.75% 0.34% 0.00% 0.03% 0.05% 30 1.18% 0.29% 0.01% 0.04% 0.06% 35 0.67% 0.25% 0.02% 0.05% 0.09% 40 0.26% 0.26% 0.04% 0.09% 0.12% 45 0.00% 0.22% 0.12% 0.50% 0.22% 50 0.00% 0.15% 0.23% 1.20% 0.39% 55 0.00% 0.00% 0.00% 2.00% 0.61% 60 0.00% 0.00% 0.00% 0.00% 0.92% 65 0.00% 0.00% 0.00% 0.00% 0.00% *SEGAL 56 SECTION 4: Supplemental Information for the Orange County Employees Retirement System Change in Actuarial Assumptions and Methods (Previous Assumptions Continued): Termination Rates Before Retirement (Continued): Safety-Probation Officers -Male Ordinary Vested Ordinary Duty Ordinary ~ Withdrawal Withdrawal Disability Disability Death 25 12.56% 0.70% 0.00% 0.01 % 0.05% 30 8.88% 0.90% 0.01% 0.04% 0.06% 35 6.16% 1.00% 0.02% 0.10% 0.09% 40 4.32% 1.10% 0.04% 0.20% 0.12% 45 3.28% 0.74% 0.06% 0.28% 0.22% so 2.64% 0.41% 0.11% 0.32% 0.39% 55 2.16% 0.16% 0.21% 0.38% 0.61% 60 0.00% 0.00% 0.52% 0.38% 0.92% a, 65 0.00% 0 0.00% 0.00% 0.00% 1.56% 0 ~ ~ Safety -Probation Officers -Female tQ Ordinary Vested Ordinary Duty Ordinary CD (0 ~ Withdrawal Withdrawal Disability Disability Death c:::, 25 9.90% 0.20% 0.00% 0.00% 0.03% 30 7.20% 0.80% 0.01% 0.04% 0.03% 35 5.51% 1.00% 0.03% 0.05% 0.05% 40 4.44% 1.02% 0.06% 0.12% 0.07% 45 3.54% 1.18% 0.10% 0.28% 0.10% so 2.53% 0.60% 0.15% 0.32% 0.16% 55 1.86% 0.28% 0.21% 0.38% 0.25% 60 0.00% 0.00% 0.26% 0.38% 0.42% 65 0.00% 0.00% 0.00% 0.00% 0.71% *SEGAL 57 SECTION 4: Supplemental Information for the Orange County Employees Retirement System Change in Actuarial Assumptions and Methods (Previous Assumptions Continued): Retirement Rates: General Members Law Enforcement and and Safe!}'. Probation Officers Fire Authori!}'. ~ Male Female 50 2.00% 2.93% 26.60% 51 1.44% 1.90% 20.00% 52 1.90% 2.03% 20.00% 53 2.15% 2.29% 20.00% 54 2.37% 2.25% 20.00% 55 3.26% 4.05% 20.00% 56 4.10% 3.70% 20.00% DJ 57 4.86% 5.14% 20.00% 0 58 5.08% 5.23% 20.00% 0 59 5.95% 5.58% 20.00% ~ 60 6.32% 7.21% 100.00% ~ 61 8.29% 9.25% 100.00% tQ 62 11.98% 13.00% 100.00% CD CC) 63 11.44% 11.52% 100.00% ..... 64 12.00% 12.07% 100.00% 65 15.00% 19.40% 100.00% 66 13 .12% 19.46% 100.00% 67 14.55% 20.89% 100.00% 68 21.14% 20.94% 100.00% 69 21.42% 37.25% 100.00% 70 100.00% 100.00% 100.00% *SEGAL 58 a:, 0 0 ~ l Cl) ~ *SEGAL SECTION 4: Supplemental Information for the Orange County Employees Retirement System Change in Actuarial Assumptions and Methods (Previous Assumptions Continued): Retirement Age and Benefit for Deferred Vested Members: Net Investment Return: Consumer Price Index: Salary Increases: Actuarial Value of Assets: Actuarial Cost Method: For future deferred vested members, we make the following retirement assumption: General Age: 57 Safety Age: 50 7.50%; net of investment and administrative expenses. Increase of 4.0% per year. Annual Rate of ColllE_ensation Increase Inflation: 4.0%; plus the following Merit and Longevity increase: Age General Safe!i: 25 0.5% 0.5% 30 0.5% 0.5% 35 0.5% 0.5% 40 0.5% 0.5% 45 0.5% 0.5% 50 0.5% 0.5% 55 0.5% 0.5% 60 0.5% 0.5% 65 0.5% 0.5% There are assumed to be no "across the board" salary increases (other than inflation). The Actuarial Value of Assets is determined by applying the average ratio of the market value of assets to the book value of assets during the last five years to the book value of assets as of the date of the valuation. Projected Unit Credit 59 a, 0 0 ~ ~ CQ CD cc (,.) *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System EXHIBITV Summary of Plan Provisions This exhibit summarizes the major provisions of the OCERS included in the valuation. It is not intended to be, nor should it be interpreted as, a complete statement of all plan provisions. Membership Eligibility: Membership with OCERS begins with the day of employment in an eligible position by the County or a participating employer. General Plans 2. 5%@ 55 Plans (City of Rancho Santa Margarita, Orange County Sanitation District and Law Librar/1J) Plan G General members hired before September 21, 1979. Plan H General members hired on or after September 21, 1979 2. 7%@ 55 Plans (City of San Juan Capistrano, Orange County Employees except bargaining unit AFSCME members, Orange County Superior Court, Orange Coimty Local Agency Formalion Commissioi'J, Orange County Employees Ret.irement System(2), Children and Family Commission(3J and Orange County Fire Authority) Plan/ PlanJ General members hired before September 21, 1979. General members hired on or after September 21, 1979. (JJ Improvement is prospective only for service after June 23, 2005. ri; Improvement for management employees is prospective only for service after June 30, 2005. (3J Improvement is prospective only for service after December 22, 2005. 2.0%@55 Plans (Transportation Corridor Agency) Plan M General members hired before September 21, 1979. Plan N General members hired on or after September 21, 1979. All Other General Employers Plan A PlanB General members hired before September 21, 1979. General members hired on or after September 21, 1979. 60 a:, 0 0 :Ill" ~ (Q CD f *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System Safety Plans Law Eriforcement, Fire Protection and Probation Members Plan E Safety members hired before September 21, 1979. PlanF Final Compensation for Benefit Determination: Plans A, E, G, I and M Plans B, F, H, J and N Service: Service Retirement Eligibility: General Safety and Probatfon Benefit Formula: General Plans 2.5%@55 Plan G (§31676.18) Safety members hired on or after September 21, 1979. Highest consecutive twelve months of compensation earnab le. ( § 31462 .1) (FAS 1) Highest consecutive thirty-six months of compensation earnable. (§31462) (F AS3) Years of service. (Yrs) Age 50 with 10 years of service, or age 70 regardless of service, or after 30 years, regardless of age. (§31672) Age 50 with 10 years of service, or after 20 years, regardless of age. (§31663 .25) All part time employees over age 55 with 10 years of employment may retire with 5 years of service. Retirement Age 50 55 60 62 65 Benefit Formula (2.00¾xFASl xYrs) (2.50% x FASl x Yrs) (2.50% x FASl x Yrs) (2.62%xFAS1 xYrs)* (2.62% x FASl x Yrs)* * Reflects benefit factors from Plan A as they provide a better benefit than those under 2.5%@ 55. Plan H (§31676.18) 50 55 (2.00% x FAS3 x Yrs) (2.50% x FAS3 x Yrs) 61 SECTION 4: Reporting Information for the Orange County Employees Retirement System Benefit Formula (continued): Plan H (§31676.18) (Cont'd) Retirement Age Benefit Formula 60 (2.50% x FAS3 x Yrs) 62 (2.50% x FAS3 x Yrs) 65 (2.50% x FAS3 x Yrs) 2.7%@55 Retirement Age Benefit Formula Plan I (§31676.19) 50 (2.00% x FASl x Yrs) 55 (2.70% x FASl x Yrs) Ill 60 (2.70% x FASl x Yrs) 0 0 ~ 62 (2.70% x FASl x Yrs) ~ 65 (2.70% x FASl x Yrs) CQ Ct) cc <JI Plan J (§31676.19) 50 (2.00% x FAS3 x Yrs) 55 (2.70% x FAS3 x Yrs) 60 (2.70% x FAS3 x Yrs) 62 (2.70% x FAS3 x Yrs) 65 (2.70% x FAS3 x Yrs) *SEGAL 62 a, 0 0 ~ ~ (Q (1) co 0) *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System Benefit Formula (continued): 2.0%@55 Plan M (§31676.16) Plan N (§31676.16) All Other General Members Plan A (§31676.12) Retirement Age 50 55 60 62 65 50 55 60 62 65 Retirement Age 50 55 60 62 65 Benefit Formula (1.43% x FASl x Yrs) (2.00% x FASl x Yrs) (2.34% x FASl x Yrs)** (2.62% x FASl x Yrs)** (2.62% x FASl x Yrs)** (1.43% x FAS3 x Yrs) (2.00% x FAS3 x Yrs) (2.26% x FAS3 x Yrs) (2.37% x FAS3 x Yrs) (2.43% x FAS3 x Yrs)*** Benefit Formula (1.34% x FASl x Yrs) (1.77% x FASl x Yrs) (2.34% x FASl x Yrs) (2.62% x FASl x Yrs) (2.62% x FASl x Yrs) ** Reflects benefit factors from Plan A as they provide a better benefit than those under 2. 0%@ 55. *** Reflects benefit factors from Plan Bas they provide a better benefit than those under 2.0%@ 55. 63 a, 0 0 ~ ~ CQ Cl) co "' *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System Benefit Formula (continued): Plan B (§31676.1) Safety Plans Plan E (§31664.1) Plan F (§31664.1) Maximum Benefit: Ordinary Disability: General Plans Plans A, B, G, H, I, J, Mand N Eligibility Retirement Age Benefit Formula 50 ( 1.18% x F AS3 x Yrs) 55 (1.49% x FAS3 x Yrs) 60 (1.92% x FAS3 x Yrs) 62 (2.09% x FAS3 x Yrs) 65 (2.43% x FAS3 x Yrs) Retirement Age Benefit Formula 50 (3.00% x FASl x Yrs) 55 (3.00% x FASl x Yrs) 60 (3.00% x FASl x Yrs) 50 (3.00% x FAS3 x Yrs) 55 (3.00% x FAS3 x Yrs) 60 (3.00% x FAS3 x Yrs) 100% of Highest Average Compensation. (§31676.1, §31676.12, §31676.16, §31676.18, §31676.19, §31664.1) Five years of service. (§31720) 64 tlJ 0 0 ~ ~ lQ Cl) C0 cc, *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System Benefit Formula Safety Plans Plans E and F Eligibility Benefit Formula Line-of-Duty Disability: All Members Eligibility Benefit Formula Plans A, G, I and M: 1.8% per year of service, and if the benefit does not exceed one-third of Final Compensation, the service is projected to 62, but the total benefit cannot be more than one-third of Final Compensation. (§31727 .2) Plans B, H, J and N: 1.5% per year of service, and if the benefit does not exceed one-third of Final Compensation, the service is projected to 65, but the total benefit cannot be more than one-third of Final Compensation. (§31727.1) Five years of service. (§31720) 1.8% per year of service. If the benefit does not exceed one-third of Final Compensation, the service is projected to 55, but the total benefit cannot be more than one-third of Final Compensation. (§3172 7) For all members, 100% of the Service Retirement benefit will be paid, if greater. No age or service requirements. (§31720) 50% of the Final Compensation or 100% of Service Retirement benefit, if greater. (§31727.4) 65 a, 0 0 ~ ~ CQ CD cc cc *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System Pre-Retirement Death: All Members Eligibility Benefit Death in line of duty Vested Members Eligibibty Benefit Death After Retirement: All Members Service or Ordinary Disability Retirement Line-of-Duty Disability None. Refund of employee contributions with interest plus one month's compensation for each year of service to a maximum of six month's compensation. (§31781) A lump sum benefit in the amount of $1,000 is payable upon the death of a member (with 10 years of service) to his/her eligible beneficiary. (§31790) 5 0% of Final Compensation or 100% of Service Retirement benefit, if greater, payable to spouse or minor-children. (§31787) OR Five years of service. 60% of the greater of Service or Ordinary Disability Retirement benefit payable to eligible surviving spouse (§31765.1, §31781.1), in lieu of §31781. 60% of member's unmodified allowance continued to eligible spouse. (§31760.1) A lump sum benefit in the amount of $1,000 is payable upon the death of a member (with 10 years of service) to his/her eligible beneficiary. (§31790) An eligible spouse is a surviving spouse who was married to the member at least one year prior to the date ofretirement. (§31760.1) 100% of member's allowance continued to eligible spouse. (§31786) A lump sum benefit in the amount of $1,000 is payable upon the death of a member (with 10 years of service) to his/her eligible beneficiary. (§31790) 66 QJ 0 0 ~ l (I) ..... 0 0 *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System Withdrawal Benefits: Less than Five Years of Service Five or More Years of Service Post-retirement Cost-of-Living Benefits: Supplemental Benefit: Member Contributions: General Plans Plan A Basic Cost-of-Living PlanB Basic Cost-of-Living Plans G, H, I and J Basic Cost-of-Living Refund of accumulated employee contributions with interest or earned benefit at age 70. (§31628) Effective January 1, 2003, A member may also elect to leave their contributions on deposit in the retirement fund. (§31629.5) If contributions left on deposit, entitled to earned benefits commencing at any time after eligible to retire. (§31700) Future changes based on Consumer Price Index to a maximum of 3% per year, excess "banked." (§31870.1) Non-vested supplemental COLA and medical benefits are also paid by the System to eligible retirees and survivors. These benefits have been excluded from this valuation. Please refer to Appendix A for the specific rates. Provide for an average annuity payable at age 60 equal to 1/200 of FAS 1. (§31621.5) Provide for one-half of future Cost-of-Living costs. Provide for an average annuity payable at age 60 equal to 1/120 of FAS3. (§31621) Provide for one-half of future Cost-of-Living costs. Provide for an average annuity payable at age 55 equal to 1/100 ofFAS3 (FASl for Plans G and I). (§31621.8) Provide for one-half of future Cost-of-Living costs. 67 OJ 0 0 ~ ~ CQ ct) ~ 0 ~ *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System PlanM Basic Cost-of-Livi11g PlanN Basic Cost-of Living Safety Plans: Plans E Basic Cost-of Living Plans F Basic Cost-of Living Other Information: Provide for an average annuity payable at age 60 equal to 1/120 ofFASl. (§31621) Provide for one-half of future Cost-of-Living costs. Provide for an average annuity payable at age 60 equal to 1/120 ofFAS3. (§31621) Provide for one-half of future Cost-of-Living costs. Provide for an average annuity payable at age 50 equal to 1/200 FAS 1. (§31639.5) Provide for one-half of future Cost-of-Living costs. Provide for an average annuity payable at age 50 equal to 1/100 ofFAS3. (§31639.25) Provide for one-half of future Cost-of-Living costs. Safety members with 30 or more years of service are exempt from paying member contributions. The same applies for General members hired on or before March 7, 1973. 68 OJ 0 0 :ii;- ~ (Q Ct) ..... ~ *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System Changes in Plan Provisions The following plan changes are included in this valuation: NOTE: (a) Probation adopted 3.0% of final average pay at age 50 on service earned after June 30, 2005. (b) The Orange County Sanitation District and City of Rancho Santa Margarita adopted 2.5% of final average pay at age 55 on all service. (c) The General employees of Orange County (with the exception of bargaining unit AFSCME), Orange County Superior Court, Orange County Fire Authority and City of San Juan Capistrano all adopted 2. 7% of final average pay at age 5 5 on all service. (d) (e) The Orange County Local Agency Fonnation Commission adopted 2.7% of final average pay at age 55 on service earned after June 23, 2005. Orange County Employees ~etirement System (management employees) adopted 2.7% of final average pay at 55 on service earned after June 30, 2005. Children and Family Commission adopted 2.7% of final average pay at 55 on service earned after December 22, 2005. The Law Library adopted 2.5% of final average pay at age 55 on service earned after June 23, 2005. (f) Transportation Corridor Agency adopted 2.0% of final average pay at age 55 on all service. The summary of major plan provisions is designed to outline principle plan benefits as interpreted for purposes of the actuarial valuation. If the System should find the plan summary not ;n accordance with the actual provisions, the System should alert the actuary so that both can be sure the proper provisions are valued 69 SECTION 4: Reporting Information for the Orange County Employees Retirement System Appendix A UAAL Amortization Schedule as of December 31, 2004 Date Amortization Years Remaining Rate Groups Established Initial Base Amount Remaining Base General Members Rate Group #I -Non-OCTA 12/31/2004 $45,292,000 $2,653,000 30 $45,292,000 Rate Group #2-2.7%@ 55 12/31/2004 1,331,507,000 78,008,000 30 1,331,507,000 Rate Group #3 -2.5%@55 (non-Rancho Santa 12/31/2004 67,595,000 3,960,000 30 67,595,000 txJ Margarita) 0 0 Rate Group #4 -2.5%@ 55 (Rancho Santa Margarita) 12/31/2004 191,000 11,000 30 191,000 ~ "Ji Rate Group #5 -OCTA 12/31/2004 70,302,000 4,119,000 30 70,302,000 (Q Rate Group #9 -TCA 12/31/2004 6,061,000 355,000 30 6,061,000 Ct) ...-. 0 c.., Safety Members Rate Group #6 -Probation 12/31/2004 82,839,000 4,853,000 30 82,839,000 Rate Group #7 -Law Enforcement 12/31/2004 409,515,000 23,992,000 30 409,515,000 Rate Group #8 -Fire Authority 12/31/2004 144.849.000 8,486,000 30 144,849,000 Total 12/31/2004 $2, 158.J 51 QQQ $126431 QQ0 $2 158 15] QQQ *SEGAL 70 SECTION 4: Reporting Information for the Orange County Employees Retirement System Appendix B Members Contribution Rates General Plans A (OCTA and Non-OCTA), G, I and M Members' Contribution Rates from the December 31, 2004 Actuarial Valuation (Expressed as a Percentage of Monthly Payroll) Calculated Under Adopted Assumptions Plan I (2. 7% @ 55) Plan G (2.5% @ 55) Plan M (2.0% @ 55) Plan A (OCT A) Plan A (Non-OCTA) Entry Age Normal Total Normal Total Normal Total Normal Total Normal Total 15 7.35% 9.89% 7.35% 9.76% 5.07% 7.17% 3.04% 5.16% 3.04% 4.90% 16 7.35% 9.89% 7.35% 9.76% 5.07% 7.17% 3.04% 5.16% 3.04% 4.90% 17 7.34% 9.88% 7.34% 9.75% 5.07% 7.17% 3.04% 5.16% 3.04% 4.90% OJ 18 7.33% 9.87% 7.33% 9.75% 5.08% 7.18% 3.05% 5.17% 3.05% 4.91% 0 0 19 7.33% 9.87% 7.33% 9.75% 5.08% 7.18% 3.05% 5.17% 3.05% 4.91% ::I;- ~ 20 7.34% 9.88% 7.34% 9.75% 5.09% 7.19% 3.05% 5.17% 3.05% 4.91% (Q 21 7.35% 9.89% 7.35% 9.76% 5.11% 7.21% 3.06% 5.19% 3.06% 4.93% Cl) 22 7.37% 9.92% 7.37% 9.79% 5.12% 7.24% 3.07% 5.21% 3.07% 4.95% ..... ~ 23 7.39% 9.95% 7.39% 9.83% 5.15% 7.27% 3.09% 5.23% 3.09% 4.97% 24 7.43% 10.00% 7.43% 9.87% 5.18% 7.31% 3.11% 5.26% 3.11% 5.00% 25 7.47% 10.06% 7.47% 9.93% 5.21% 7.36% 3.13% 5.30% 3.13% 5.03% 26 7.52% 10.12% 7.52% 10.00% 5.25% 7.42% 3.15% 5.34% 3.15% 5.07% 27 7.58% 10.20% 7.58% 10.07% 5.30% 7.48% 3.18% 5.38% 3.18% 5.12% 28 7.64% 10.29% 7.64% 10.16% 5.35% 7.55% 3.21% 5.43% 3.21% 5.16% 29 7.71% 10.38% 7.71% 10.25% 5.40% 7.63% 3.24% 5.49% 3.24% 5.21% 30 7.79% 10.49% 7.79% 10.35% 5.46% 7.71% 3.27% 5.55% 3.27% 5.27% 31 7.87% 10.59% 7.87% 10.46% 5.52% 7.79% 3.31% 5.61% 3.31% 5.33% 32 7.96% 10.71% 7.96% 10.57% 5.58% 7.88% 3.35% 5.67% 3.35% 5.39% 33 8.05% 10.83% 8.05% 10.70% 5.65% 7.98% 3.39% 5.74% 3.39% 5.46% 34 8.14% 10.96% 8.14% 10.82% 5.72% 8.08% 3.43% 5.82% 3.43% 5.53% 35 8.24% 11.10% 8.24% 10.96% 5.80% 8.19% 3.48% 5.89% 3.48% 5.60% 36 8.35% 11.24% 8.35% 11.10% 5.87% 8.30% 3.52% 5.97% 3.52% 5.67% 37 8.46% 11.38% 8.46% 11.24% 5.95% 8.41% 3.57% 6.05% 3.57% 5.75% *SEGAL 71 SECTION 4: Reporting Information for the Orange County Employees Retirement System General Plans A (OCTA and Non-OCTA), G, I and M Members' Contribution Rates from the December 31, 2004 Actuarial Valuation (Expressed as a Percentage of Monthly Payroll) Calculated Under Adopted Assumptions Plan I (2. 7% @ 55) Plan G (2.5% @ 55) Plan M (2.0% @ 55) Plan A (OCTA) Plan A (Non-OCTA) Entry Age Normal Total Normal Total Normal Total Normal Total Normal Total 38 8.57% 11.53% 8.57% 11.39% 6.04% 8.52% 3.62% 6.13% 3.62% 5.83% 39 8.68% 11.68% 8.68% l l.54% 6.12% 8.64% 3.67% 6.22% 3.67% 5.91% 40 8.80% 11.84% 8.80% 11.69% 6.21% 8.76% 3.72% 6.31% 3.72% 5.99% 41 8.91% 12.00% 8.91% 11.85% 6.29% 8.89% 3.78% 6.40% 3.78% 6.08% 42 9.04% 12.16% 9.04% 12.01% 6.38% 9.02% 3.83% 6.49% 3.83% 6.16% 43 9.16% 12.33% 9.16% 12.17% 6.48% 9.14% 3.89% 6.58% 3.89% 6.25% 44 9.28% 12.50% 9.28% 12.34% 6.57% 9.28% 3.94% 6.67% 3.94% 6.34% 45 9.41% 12.67% 9.41% 12.51% 6.66% 9.41% 4.00% 6.77% 4.00% 6.43% OJ 46 9.54% 0 12.84% 9.54% 12.68% 6.76% 9.55% 4.06% 6.87% 4.06% 6.53% 0 47 9.67% 13.02% 9.67% 12.85% 6.86% 9.69% 4.12% 6.97% 4.12% 6.62% ~ 13.04% 6.96% 9.83% 4.18% 7.08% 4.18% 6.72% ~ 48 9.81% 13.20% 9.81% (Q 49 9.94% 13.39% 9.94% 13.22% 7.07% 9.98% 4.24% 7.18% 4.24% 6.82% Cl) 50 10.08% 13.58% 10.08% 13.40% 7.17% 10.13% 4.30% 7.29% 4.30% 6.93% ~ C) UI 51 10.23% 13.77% 10.23% 13.59% 7.28% 10.29% 4.37% 7.40% 4.37% 7.03% 52 10.37% 13.96% 10.37% 13.79% 7.40% 10.45% 4.44% 7.52% 4.44% 7.14% 53 10.53% 14.17% 10.53% 13.99% 7.51% 10.61% 4.51% 7.64% 4.51% 7.26% 54 10.69% 14.38% 10.69% 14.20% 7.64% 10.78% 4.58% 7.76% 4.58% 7.37% 55 10.69% 14.38% 10.69% 14.20% 7.76% 10.96% 4.66% 7.89% 4.66% 7.49% 56 10.69% 14.38% 10.69% 14.20% 7.89% 11.14% 4.73% 8.02% 4.73% 7.62% 57 10.69% 14.38% 10.69% 14.20% 8.02% 11.32% 4.81% 8.15% 4.81% 7.74% 58 10.69% 14.38% 10.69% 14.20% 8.15% 11.51% 4.89% 8.28% 4.89% 7.87% 59 10.69% 14.38% 10.69% 14.20% 8.28% 11.70% 4.97% 8.42% 4.97% 8.00% 60 10.69% 14.38% 10.69% 14.20% 8.28% 11.70% 4.97% 8.42% 4.97% 8.00% COLA Loading: 34.62% 32.92% 41.22% 69.37% 60.95% Interest: 7.75% Sa/a,y Increases: See Exhibit IV. page 51 Mortality: See Exhibit IV, page 45 *SEGAL 72 SECTION 4: Reporting Information for the Orange County Employees Retirement System General Plans B (OCTA and Non-OCTA), H, J and N Members' Contribution Rates from the December 31, 2004 Actuarial Valuation (Expressed as a Percentage of Monthly Payroll) Calculated Under Adopted Assumptions Plan J (2.7% @55) Plan H (2.5% @ 55) Plan N (2.0% @ 55) Plan B (OCTA) Plan B (Non-OCTA) Entry Age Normal Total Normal Total Normal Total Normal Total Normal Total 15 7.03% 9.46% 7.03% 9.34% 4.87% 6.87% 4.87% 6.89% 4.87% 6.65% 16 7.03% 9.46% 7.03% 9.34% 4.87% 6.87% 4.87% 6.89% 4.87% 6.65% 17 7.02% 9.45% 7.02% 9.33% 4.87% 6.87% 4.87% 6.89% 4.87% 6.65% 18 7.01% 9.44% 7.01% 9.32% 4.87% 6.87% 4.87% 6.89% 4.87% 6.65% 19 7.01% 9.44% 7.01% 9.32% 4.87% 6.87% 4.87% 6.89% 4.87% 6.65% 20 7.02% 9.45% 7.02% 9.33% 4.88% 6.90% 4.88% 6.92% 4.88% 6.67% 21 7.03% 9.46% 7.03% 9.34% 4.90% 6.91% 4.90% 6.93% 4.90% 6.69% lJJ 22 7.05% 9.48% 7.05% 9.37% 4.91% 6.94% 4.91% 6.96% 4.91% 6.71% 0 23 7.07% 9.52% 7.07% 9.40% 4.94% 6.97% 4.94% 6.99% 4.94% 6.74% 0 ~ 24 7.10% 9.56% 7.10% 9.44% 4.96% 7.01% 4.96% 7.03% 4.96% 6.78% ~ 25 7.14% 9.62% 7.14% 9.50% 5.00% 7.06% 5.00% 7.08% 5.00% 6.83% CQ 26 7.19% 9.68% 7.19% 9.56% 5.04% 7.11% 5.04% 7.13% 5.04% 6.88% Cl) ..... 27 7.25% 9.76% 7.25% 9.63% 5.08% 7.17% 5.08% 7.19% 5.08% 6.94% 0 0, 28 7.31% 9.84% 7.31% 9.72% 5.13% 7.24% 5.13% 7.26% 5.13% 7.00% 29 7.38% 9.93% 7.38% 9.81% 5.18% 7.31% 5.18% 7.33% 5.18% 7.07% 30 7.45% 10.03% 7.45% 9.90% 5.23% 7.39% 5.23% 7.41% 5.23% 7.15% 31 7.53% 10.13% 7.53% 10.00% 5.29% 7.47% 5.29% 7.49% 5.29% 7.23% 32 7.61% 10.24% 7.61% 10.11% 5.35% 7.56% 5.35% 7.58% 5.35% 7.31% 33 7.70% 10.36% 7.70% 10.23% 5.42% 7.65% 5.42% 7.68% 5.42% 7.40% 34 7.79% 10.48% 7.79% 10.35% 5.49% 7.75% 5.49% 7.77% 5.49% 7.50% 35 7.88% 10.61% 7.88% 10.48% 5.56% 7.85% 5.56% 7.87% 5.56% 7.59% 36 7.98% 10.75% 7.98% 10.61% 5.63% 7.96% 5.63% 7.98% 5.63% 7.69% 37 8.09% 10.89% 8.09% 10.75% 5.71% 8.06% 5.71% 8.09% 5.71% 7.80% *SEGAL 73 SECTION 4: Reporting Information for the Orange County Employees Retirement System General Plans B (OCTA and Non-OCTA), H, J and N Members' Contribution Rates from the December 31, 2004 Actuarial Valuation (Expressed as a Percentage of Monthly Payroll) Calculated Under Adopted Assumptions Plan J (2. 7% @ 55) Plan H (2.5% @ 55) Plan N (2.0% @ 55) Plan B (OCTA) Plan B (Non-OCT A) Entry Age Normal Total Normal Total Normal Total Normal Total Normal Total 38 8.19% 11.03% 8.19% 10.89% 5.79% 8.17% 5.79% 8.20% 5.79% 7.91% 39 8.30% 11.17% 8.30% 11.03% 5.87% 8.29% 5.87% 8.31% 5.87% 8.02% 40 8.41% 11.32% 8.41% 11.18% 5.95% 8.40% 5.95% 8.43% 5.95% 8.13% 41 8.53% 11.48% 8.53% 11.33% 6.04% 8.52% 6.04% 8.55% 6.04% 8.24% 42 8.64% 11.63% 8.64% 11.49% 6.12% 8.65% 6.12% 8.67% 6.12% 8.36% 43 8.76% 11.79% 8.76% 11.64% 6.21% 8.77% 6.21% 8.79% 6.21% 8.48% 44 8.88% 11.95% 8.88% 11.80% 6.30% 8.90% 6.30% 8.92% 6.30% 8.60% a, 45 9.00% 12.11% 9.00% 11.96% 6.39% 9.02% 6.39% 9.05% 6.39% 8.73% 0 46 9.12% 12.28% 9.12% 12.\3% 6.48% 9.16% 6.48% 9.18% 6.48% 8.85% 0 :ii;-47 9.25% 12.45% 9.25% 12.29% 6.58% 9.29% 6.58% 9.32% 6.58% 8.99% ~ 48 9.38% 12.63% 9.38% 12.47% 6.68% 9.43% 6.68% 9.46% 6.68% 9.12% CQ 49 9.51% 12.80% 9.51% 12.64% 6.78% 9.57% 6.78% 9.60% 6.78% 9.26% Cl) -.\ 50 9.64% 12.98% 9.64% 12.82% 6.88% 9.72% 6.88% 9.74% 6.88% 9.40% 0 ...... 51 9.78% 13.17% 9.78% 13.00% 6.99% 9.86% 6.99% 9.89% 6.99% 9.54% 52 9.92% 13.35% 9.92% \3.19% 7.09% 10.02% 7.09% 10.05% 7.09% 9.69% 53 10.30% 13.86% 10.30% 13.68% 7.21% 10.18% 7.21% 10.21% 7.21% 9.84% 54 10.69% 14.38% 10.69% 14.20% 7.32% 10.34% 7.32% 10.37% 7.32% 10.00% 55 10.69% 14.38% 10.69% 14.20% 7.44% 10.51% 7.44% 10.54% 7.44% 10.16% 56 10.69% 14.38% 10.69% 14.20% 7.57% 10.68% 7.57% 10.71% 7.57% 10.33% 57 10.69% 14.38% 10.69% 14.20% 7.69% 10.86% 7.69% 10.89% 7.69% 10.50% 58 10.69% 14.38% 10.69% 14.20% 7.98% 11.27% 7.98% 11.30% 7.98% 10.90% 59 10.69% 14.38% 10.69% 14.20% 8.28% 11.70% 8.28% 11.73% 8.28% 11.31% 60 10.69% 14.38% 10.69% 14.20% 8.28% 11.70% 8.28% 11.73% 8.28% 11.31% COLA Loading: 34.62% 32.92% 41.22% 41.62% 36.57% Interest: 7.75% Salary Increases: See Exhibit IV, page 51 Mortality: See Exhibit IV, page 45 *SEGAL 74 SECTION 4: Reporting Information for the Orange County Employees Retirement System Safety Plan E (Fire, Law and Probation) Members' Contribution Rates from the December 31, 2004 Actuarial Valuation (Expressed as a Percentage of Monthly Payroll) Calculated Under Adopted Assumptions Plan E (Fire Authority) Plan E (Law Enforcement) Plan E (Probation) Entry Age Normal Total Normal Total Normal Total 15 3.77% 8.56% 3.77% 8.46% 3.77% 8.20% 16 3.77% 8.56% 3.77% 8.46% 3.77% 8.20% 17 3.77% 8.56% 3.77% 8.46% 3.77% 8.20% 18 3.77% 8.56% 3.77% 8.46% 3.77% 8.20% 19 3.77% 8.56% 3.77% 8.46% 3.77% 8.20% 20 3.78% 8.57% 3.78% 8.48% 3.78% 8.21% 21 3.78% 8.59% 3.78% 8.50% 3.78% 8.21% a, 22 3.79% 8.61% 3.79% 8.52% 3.79% 8.25% 0 0 23 3.81% 8.64% 3.81% 8.55% 3.81% 8.28% ~ 24 3.83% 8.68% 3.83% 8.59% 3.83% 8.32% ~ 25 3.85% 8.73% 3.85% 8.64% 3.85% 8.37% CQ 26 3.87% 8.79% 3.87% 8.69% 3.87% 8.42% Cl) .... 27 3.90% 8.86% 3.90% 8.76% 3.90% 8.48% 0 00 28 3.93% 8.93% 3.93% 8.84% 3.93% 8.56% 29 3.97% 9.02% 3.97% 8.92% 3.97% 8.64% 30 4.02% 9.12% 4.02% 9.02% 4.02% 8.73% 31 4.06% 9.22% 4.06% 9.12% 4.06% 8.84% 32 4.12% 9.34% 4.12% 9.24% 4.12% 8.95% 33 4.17% 9.47% 4.17% 9.37% 4.17% 9.08% 34 4.24% 9.62% 4.24% 9.51% 4.24% 9.21% 35 4.30% 9.77% 4.30% 9.66% 4.30% 9.36% 36 4.38% 9.93% 4.38% 9.82% 4.38% 9.52% 37 4.45% 10.11% 4.45% 10.00% 4.45% 9.68% *SEGAL 75 SECTION 4: Reporting Information for the Orange County Employees Retirement System Safety Plan E (Fire, Law and Probation) Members' Contribution Rates from the December 31, 2004 Actuarial Valuation (Expressed as a Percentage of Monthly Payroll) Calculated Under Adopted Assumptions Plan E (Fire Authority) Plan E (Law Enforcement) Plan E (Probation) Entry Age Normal Total Normal Total Normal Total 38 4.53% 10.29% 4.53% 10.18% 4.53% 9.86% 39 4.61% 10.48% 4.61% 10.36% 4.61% 10.04% 40 4.70% 10.67% 4.70% 10.55% 4.70% 10.22% 41 4.79% 10.87% 4.79% 10.75% 4.79% 10.41% 42 4.88% 11.07% 4.88% 10.95% 4.88% 10.60% 43 4.97% 11.28% 4.97% 11.15% 4.97% 10.80% 44 5.06% 11.49% 5.06% 11.36% 5.06% 11.00% tXJ 45 5.15% 11.70% 5.15% 11.57% 5.15% I 1.21% 0 46 5.25% 11.91% 5.25% I 1.78% 5.25% 11.41% 0 ~ 47 5.34% 12.13% 5.34% 12.00% 5.34% I 1.62% ~ 48 5.44% 12.35% 5.44% 12.21% 5.44% I 1.83% (Q Cl) 49 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% ~ 50 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% c:::, C0 51 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% 52 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% 53 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% 54 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% 55 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% 56 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% 57 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% 58 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% 59 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% 60 5.54% 12.57% 5.54% 12.43% 5.54% 12.04% COLA Loading: 127.03% 124.53% 117.49% Interest: 7.75% Salary Increases: See Exh,:bit n: page 51 Mortality: See fahibit IV, page 45 *SEGAL 76 SECTION 4: Reporting Information for the Orange County Employees Retirement System Safety Plan F (Fire, Law and Probation) Members' Contribution Rates from the December 31, 2004 Actuarial Valuation (Expressed as a Percentage of Monthly Payroll) Calculated Under Adopted Assumptions Plan F (Fire Authority) Plan F (Law Enforcement) Plan F (Probation) Entry Age Normal Total Normal Total Normal Total 15 7.25% 11.86% 7.25% 11.77% 7.25% 11.51% 16 7.25% 11.86% 7.25% 11.77% 7.25% 11.51% 17 7.25% 11.86% 7.25% 11.77% 7.25% 11.51% 18 7.25% 11.86% 7.25% I 1.77% 7.25% 11.51% 19 7.26% 11.87% 7.26% 11.78% 7.26% 11.52% 20 7.27% 11.88% 7.27% 11.79% 7.27% 11.54% 21 7.28% 11.91% 7.28% 11.81% 7.28% 11.56% a, 22 7.30% 11 .94% 7.30% 11.85% 7.30% 11.59% 0 23 7.33% 11.98% 7.33% 11 .89% 7.33% 11.63% 0 ~ 24 7.36% 12.03% 7.36% 11.94% 7.36% 11.68% ~ 25 7.40% 12.10% 7.40% 12.01% 7.40% 11.75% CQ 26 7.45% 12.18% 7.45% 12.09% 7.45% 11.83% (I) -.a. 27 7.51% 12.27% 7.51% 12.18% 7.51% 11.92% -.a. 0 28 7.57% 12.38% 7.57% 12.29% 7.57% 12.02% 29 7.64% 12.50% 7.64% 12.40% 7.64% 12.14% 30 7.73% 12.63% 7.73% 12.54% 7.73% 12.27% 31 7.82% 12.78% 7.82% 12.69% 7.82% 12.41% 32 7.92% 12.95% 7.92% 12.85% 7.92% 12.57% 33 8.03% 13.13% 8.03% 13.03% 8.03% 12.75% 34 8.15% 13.33% 8.15% 13.22% 8.15% 12.94% 35 8.28% 13.54% 8.28% 13.43% 8.28% 13.14% 36 8.42% 13.77% 8.42% 13.66% 8.42% 13.36% 37 8.57% 14.01% 8.57% 13 .90% 8.57% 13.60% *SEGAL 77 SECTION 4: Reporting Information for the Orange County Employees Retirement System Safety Plan F (Fire, Law and Probation) Members' Contribution Rates from the December 31, 2004 Actuarial Valuation (Expressed as a Percentage of Monthly Payroll) Calculated Under Adopted Assumptions Plan F (Fire Authority) Plan F (Law Enforcement) Plan F (Probation) Entry Age Normal Total Normal Total Normal Total 38 8.72% 14.26% 8.72% 14.15% 8.72% 13.84% 39 8.88% 14.52% 8.88% 14.41% 8.88% 14.10% 40 9.04% 14.79% 9.04% 14.67% 9.04% 14.35% 41 9.21% 15.06% 9.21% 14.95% 9.21% 14.62% 42 9.38% 15.34% 9.38% 15.22% 9.38% 14.89% 43 9.56% 15.63% 9.56% 15.51% 9.56% 15.17% 44 9.73% 15.92% 9.73% 15.80% 9.73% 15.45% ti, 45 9.91% 16.21% 9.91% 16.09% 9.91% 15.74% 0 46 10.10% 16.51% 10.10% 16.38% 10.10% 16.03% 0 :II;" 47 10.28% 16.81% 10.28% 16.68% 10.28% 16.32% ~ 48 10.67% 17.45% 10.67% 17.31% 10.67% 16.94% IQ CD 49 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% ~ 50 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% ~ ~ 51 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% 52 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% 53 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% 54 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% 55 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% 56 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% 57 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% 58 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% 59 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% 60 11.08% 18.11% 11.08% 17.97% 11.08% 17.58% COLA Loading: 63.52% 62.27% 58.75% Interest: 7.75% Salary Increases: See Exhibit IV, page 51 Mortality: See Exhibit IV, page 45 *SEGAL 78 tD 0 0 :Ii;' ~ CQ en -a. -a. N *SEGAL SECTION 4: Reporting Information for the Orange County Employees Retirement System Appendix C Reconciliation of the December 31, 2003 Valuation Results with Those Calculated by the System's Prior Actuary 194348/05794.012 79 *SEGAL THE SEGAL COMPANY 120 Montgomery Street. Suite 500 San Francisco, CA 94104-4308 T 415.263.8200 F 415.263.8290 www.segalco.com VIA E-MAIL AND U.S. MAIL February 3, 2005 Mr. Keith Bozarth Chief Executive Officer Orange County Employees Retirement System 2223 Wellington A venue Santa Ana, CA 92701 Re: Orange County Employees Retirement System Segal's Reconciliation of the December 31, 2003 Valuation Results with those Calculated by Towers Perrin Dear Keith: In this letter, we have documented Segal's reconciliation of the December 31, 2003 valuation results with those calculated by Towers Perrin (TP) in their actuarial report dated July 16, 2004. This reconciliation was carried out as part of the transition of actuarial services to Segal to ensure that we could independently replicate the actuarial values and contribution requirements as determined by TP for the employer and the members using the plan provisions and actuarial assumptions adopted by the Board for the December 31, 2003 valuation. Membership Data Membership data used in our reconciliation was provided by TP. Please note that we did not attempt to audit or reconcile the TP data back to the source data originally supplied by the System. A summary of the number of members included in the valuation is set forth in the table below. Segal TP Segal Total/ General Safety Total General Safety Total TPTotal Membership Count Active Members 19,003 3,645 22,648 19,022 3,649 22,671 99.9% Inactive Members 2,143 135 2,278 2,143 135 2,278 100.0% Retirees and 7,967 1,099 9,066 7,980 1,099 9,079 99.9% Beneficiaries Total 29,113 4,879 33,992 29,145 4,883 34,028 99.9% Benefits, Compensation and HR Consulting ATLANTA BOSTON CHICAGO CLEVELAND DENVER HARTFORD HOUSTON LOS ANGELES MINNEAPOLIS NEW ORLEANS NEW YORK PHILADELPHIA PHOENIX SAN FRANCISCO SEATTLE TORONTO WASHINGTON, D.C. Mullinotionol Group of Actuaries ood Consultoots AMSTERDAM BARCELONA GENEVA HAMBURG JOHANNESBURG LONDON MELBOURNE MEXICO CITY OSLO PARIS Book Page 113 Mr. Keith Bozarth Orange County Employees Retirement System Segal's Reconciliation of the December 31, 2003 Valuation Results With those Calculated by Towers Perrin February 3, 2005 Page 2 Statistical Information The statistical information was reproduced on the Segal system and compares to that presented in the December 31, 2003 valuation as shown in the table below. Segal TP Segal Total/ General Safety Total General Safety Total TP Total Active Members -Average Attained Age 44.2 40.3 43.6 44.1 40.4 43.5 100.2% -Average Service 10.1 12.1 10.4 10.4 12.1 10.7 97.2% Retirees and Beneficiaries -Average Pension $1,692 $3,696 $1,935 $1,691 $3,713 $1,936 100.0% Actuarial Liability Results In our reconciliation, we compared the following actuarial values: > The total actuarial accrued liabilities for active members (the equivalent of the accumulated normal costs allocated to the years before the valuation date) and inactive members (the single sum value of the lifetime benefits to current pensioners, beneficiaries and deferred vested members); > The actuarial value of assets; and > The next year's employee, employer and total normal cost (the amount of contributions required to fund the dollar normal cost allocated to the current year of service). The valuation programs used by two different actuaries rarely produce identical results. This can be due to differences in decrement timing (such as, exactly when will a member expected to retire at a given age actually retire: beginning, middle or end of that year) or other differences in methodology. Even though there is no generally accepted actuarial principle that provides guidance on what is considered an acceptable difference, a variance of 5% or less is generally considered acceptable. The comparisons of these results are set forth in the table on the following page. Book Page 114 Mr. Keith Bozarth Orange County Employees Retirement System Segal's Reconciliation of the December 31, 2003 Valuation Results With those Calculated by Towers Perrin February 3, 2005 Page 3 (In Thousand Dollars) Segal -----------'='--------General Safety General TP Actuarial Accrued Liability (AAL) $4,241,070 $1,964,994 $6,206,064 $4,143,155 $1,956,278 $6,099,433 Actuarial Value of Assets $3,493,884 $1,296,215 $4,790,099 $3,493,884 $1,296,215 $4,790,099 Next Year's Employee Normal Cost* $68,785 Next Year's Employer Normal Cost** $56,070 Next Year's Total Normal Cost $124,855 $28,099 $96,884 $36,802 $92,872 $64,901 $189,756 $68,785 $28,099 $96,884 $53,514 $37,247 $90,761 $122,299 $65,346 $187,645 Segal Total/ TPTotal 101.7% 100.0% 100.0% 102.3% 101.1% * The TP employee normal costs included above are actually those calculated by Segal's valuation software. Even though the aggregate employee normal costs are not provided in the TP December 31, 2003 valuation report, TP has provided Segal with the employee normal cost for each member in OCTA. Segal has reproduced TP's employee normal cost for members in that group. That leads us to conclude that there are no material differences in how the two valuation programs calculate employee normal cost. ** Segal's employer normal costs are calculated using a method that we believe to be consistent with that used by TP. See Segal's recommendations below on suggested changes to the current method for the upcoming benefit improvement studies and annual valuation. We observe that our system produced a higher actuarial accrued liability and a higher total normal cost when compared to TP. Since our results were within 5% of those produced by TP, we believe that the liabilities calculated by TP in the December 31, 2003 valuation were reasonable, accurate and in accordance with generally accepted actuarial principles, and that they reflect the plan provisions and actuarial assumptions adopted by the Board for the December 31, 2003 valuation. Observations and Recommendations Calculation of the UAAL Rate We recommend that the current UAAL rate calculation methodology be continued for the benefit improvement studies. We further recommend that the System consider the following changes be considered for incorporation into the December 31, 2004 valuation. 1. There is a difference of $106.6 million in UAAL produced by Segal's valuation software. This is about 1.7% of the total AAL. The higher UAAL will be combined with the System's other actuarial Book Page 115 Mr. Keith Bozarth Orange County Employees Retirement System Segal's Reconciliation of the December 31, 2003 Valuation Results With those Calculated by Towers Perrin February 3, 2005 Page4 gains or losses during calendar year 2004 and used to set the System's UAAL rate in the December 31, 2004 valuation. 2. As part of our reconciliation, we have also compared the total outstanding balance of all the amortization layers ($1,184.8 million) with the System's UAAL as of December 31, 2003 ($1,309.3 million). The difference is $124.5 million. We believe the difference arises from the methodology that was applied in calculating the new actuarial gains or losses in previous valuations. We propose that the difference between the current UAAL payment and the amount required to amortize the full UAAL be included in setting the System's new UAAL rate in the December 31, 2004 valuation. 3. The current UAAL rate has been calculated assuming that employer UAAL contributions would be made at the end of the year. We believe an adjustment can be made to more accurately align the employer UAAL rate to reflect that, on the average, UAAL contributions are paid at the middle of the year. This will result in a reduction in the current UAAL rate. Calculation of the Emplover Nonna I Cost Rate TP has provided Segal with the total, employer and employee normal cost for each member in OCT A. From those cost calculations, we make the following observations and suggested changes for the upcoming benefit improvement studies requested by certain employers in advance of the December 31, 2004 valuation, as well as for the December 31, 2004 valuation: 1. Currently, employee normal cost is calculated by taking the current year's salary and multiplying that times the employee rate. Implicit in that calculation was the assumption that all active employees as of December 31, 2003 would remain employed during calendar year 2004 and there would be no termination until the end of the year. We propose that this methodology be continued for the benefit improvement studies but believe it should be reviewed as part of the December 31, 2004 valuation. 2. Currently, employer normal cost was calculated by taking the difference between the total normal cost and the employee normal cost described above. Since terminal pay was not programmed into TP's valuation software, TP made a normal cost adjustment outside of their valuation software by multiplying the expected percentage of terminal pay times the net employer normal cost to approximate the impact of including terminal pay. We believe this method could understate the employer normal cost as we believe that the total normal cost should be adjusted by the terminal pay percentage before netting out the employee normal cost contributions. We propose that this new methodology be applied in both the benefit improvement studies and the December 31, 2004 valuation. 3. We understand that the current total normal cost was calculated assuming that the contributions would be made by the employer and the employee as of the beginning of the year. We propose that the current methodology be continued for the improvement studies. However, an adjustment to reflect that, on the average, normal cost contributions are paid at the middle of the year should be included in the December 31, 2004 valuation. Book Page 116 Mr. Keith Bozarth Orange County Employees Retirement System Segal's Reconciliation of the December 31, 2003 Valuation Results With those Calculated by Towers Perrin February 3, 2005 Page 5 With the above normal cost adjustments, we estimate that the total employer normal cost calculated in the December 31, 2003 valuation would have increased from $93 million to about $104 million. Please let us know if you have any questions. Sincerely, p~a_~ Paul Angelo, FSA, MAAA Vice President and Actuary AYY/gxk:jc cc: James W. Buck Stephen Cadena 183452/05794.002 Book Page 117 Andy Yeung, ASA, MAAA Associate Actuary 6115106 History of Employer (ER) Contribution Rates for OCERS Yr Ended 6130 Tier I Tier II 1978 6.72% NIA 1979 8.41% NIA 1980 11.30% 9.89% 1981 14.37% 13.66% 1982 15.43% 15.43% 1983 15.16% 15.16% 1984 15.12% 15.12% 1985 14.40% 14.40% 1986 14.40% 14.40% 1987 13.95% 13.95% 1988 13.73% 13.73% 1989 6.42% 6.42% started year at 13. 72% but reduced for County on 211189 1990 10.63% 10.63% 1991 10.81% 10.81% 1992 2.55% 2.55% 1993 2.55% 2.55% 1994 2.55% 2.55% 1995 3.93% 3.93% 1996 5.36% 5.36% 1997 5.36% 5.36% 1998 6.82% 6.82% 1999 1.86% 1.86% 2000 2.00% 2.00% 2001 0.96% 0.96% 2002 0.96% 0.96% 2003 5.66% 5.66% 2004 9.15% 9.15% 2005 12.62% 12.62% 2006 15.31% 15.31% Sum Number Average 2007 20.15% 20.15% 139.38% 20 6.9690 Book Page 118 FAHR Committee Questions from Benefits Workshop May 18, 2006 1. Are PERS and CalPERS the same? o In California, PERS and CalPERS are the same. Other states have their own PERS systems. 2. Cost Projection: What is the liability for OCSD over the next 10 years? o Mike White, Controller: Projecting the future costs of OCERS to OCSD over the next ten years is similar to predicting what the Federal Reserve Board's plans are for future Fed rate increases. There are three predominant underlying drivers that will affect the District's future OCERS retirement costs: 1. Impacts on contribution rates as a result of future actuarial valuations; 2. Performance results of the current pension assets; and 3. Future staffing and compensation levels. A ten-year forecast is provided below with the following underlying assumptions: 1. The are no changes in the underling assumptions used in the most recent actuarial valuation in future actuarial valuations; 2. The performance results of pension assets over the next ten years are in line with the current yields assumed in the most recent actuarial valuation; and 3. Staffing levels remain at 644 FTE's over the next ten years with salary increases of three percent per year. The resulting ten-year forecast is the budgeted OCERS premiums contained in the FY 2006-07 and FY 2007-08 Proposed Budget, and increased at a rate of three percent per year thereafter since the OCERS premium is a percentage of salaries. Three percent is based on an estimate of CPI over time. Increase Over the Prior Year FY 06/07 $11,768,700 25.22% (1) FY 07/08 $12,575,600 6.86% (2) FY 08/09 $12,952,900 3.00% FY 09/10 $13,341,500 3.00% FY 10/11 $13,741,700 3.00% FY 11/12 $14,154,000 3.00% FY 12/13 $14,578,600 3.00% FY 13/14 $15,016,000 3.00% FY 14/15 $15,466,500 3.00% FY 15/16 $15,930,500 3.00% Book Page 119 1. Based on recently revised OCERS actuarial assumptions, lower than expected yields earned on pension assets in recent years, and enhanced retirement plan benefits. 2. Based on projected compensation levels within existing M.O.U.'s. 3. Is there a "sliding" scale to the benefits? o Pension amounts are determined by years of service, average monthly compensation, and the retirement formula at the time of retirement. The average monthly compensation (final average salary) is either based on 12 or 36 months depending on the plan (Plan G: 12 months; Plan H: 36 months). Additionally, the benefits are affected by the IRS limits set forth in sections 415(b)(1)(A) and 401(a)(17) of the Internal Revenue Code. If an employee chooses to retire prior to age 55 (age 50 -54), the employee will not benefit from the maximum salary percentage (2.5%), rather, the percentage will be pro-rated based on the employee's age; however, the salary percentage will never increase beyond 2.5% for employees who retire at age 55 or older. o Staff Report Reference: Pages 8-9, "Service Retirement" 4. Do OCERS benefit programs have a "menu" of options to choose from as PERS does? o OCERS permits customization to two retirement components, retirement formula and final average salary (plan sponsor has the option of choosing to determine FAS based on employee's last 12 or 36 months of compensation). CalPERS offers additions to their basic benefit from which a plan sponsor may choose to enhance their benefits. The CalPERS basic benefit structure is similar to, but not the same as, that offered by OCERS. For example, the annual OCERS COLA is capped at 3%. PERS has a similar cap but a sponsor can choose (and pay) to have a higher COLA cap. o Staff Report Reference: Page 14, "Retirement Plan Customization" 4(a) Can we set caps? o Plan sponsors are not permitted to set caps on retirement outside of adjustments to the retirement formula. o Staff Report Reference: Page 14, "Retirement Plan Customization" 4(b) Can choices be made with regard to survivor benefits, etc? o No, OCERS provides for standard survivor benefit options that are not subject to customization by the plan sponsor. o Staff Report Reference: Page 12 -13, "Survivor Benefits" Book Page 120 4{c) Maximum monthly allowance on survivor benefits? o OCERS sets monthly allowance maximums for retirees; those amounts are not subject to customization by plan sponsors. o Staff Report Reference: Page 12 -13, "Survivor Benefits" 5. Perhaps we should hire a benefit consultant to provide an overview of OCSD's benefit progam. o OCSD has contacted several benefits consulting firms, to include Hewitt & Associates, to obtain a quote to conduct a review of OCSD's defined benefit program, for the purpose of providing recommendations/alternatives on future retirement programs that may include defined contribution or hybrid plans. o Staff Report Reference: Page 14, "Retirement Plan Alternative/Defined Contribution Plan" 6. When would a member hit the benefit level of 100% of their salary (40 years)?" o Based on the current retirement formula, an employee would need to be at least 55 years of age and have 40 years of service to achieve a retirement benefit that is equal to 100% of salary. o Staff Report Reference: Page 8-9, " Service Retirement/Allowance" 7. Average retirement benefit for OCSD retirees. o The average OCSD employee retires at age 60 with 24 years of service which pays a 60% service retirement allowance under the current formula. o Staff Report Reference: Page 8-9, " Service Retirement/Allowance" 8. Ventura -2% @ 60 with a cap -proposed legislation -status. o The Ventura Decision had a significant impact on retirement allowances by including other pay items in addition to base pay as compensation earnable. o Neither OCERS nor their legal department is aware of proposed legislation for a retirement formula of 2% @ 60 with a cap. o Staff Report Reference: Page 8, " Service Retirement/Allowance" Book Page 121