TO: HONORABLE MAYOR FROM: Roberto L. Peña
AND CITY COUNCIL
SUBJECT: SEE BELOW DATE: March 9, 2023
SUBJECT: REVIEW OF THE RETIREMENT PLANS’ PENSION AND POST-
EMPLOYMENT HEALTHCARE PLAN ACTUARIAL VALUATIONS AS
OF JUNE 30, 2022
RECOMMENDATION
It is recommended that the Council review the following actuarial valuation reports:
a. Federated City Employees’ Retirement System Actuarial Valuation (Pension) as of June 30, 2022; and
b. Federated City Employees’ Retirement System Postemployment Healthcare Plan Actuarial Valuation (OPEB) as of June 30, 2022; and
c. Police and Fire Department Retirement Plan Actuarial Valuation (Pension) as of June 30, 2022; and
d. Police and Fire Department Postemployment Healthcare Plan Actuarial Valuation (OPEB) as of June 30, 2022.
SUMMARY AND OUTCOME
Council review of the Federated City Employees’ Retirement System Actuarial Valuations for the Pension Plan and Postemployment Healthcare Plan as of June 30, 2022 and the Police and Fire Department Retirement Plan Actuarial Valuations for the Pension Plan and Postemployment Healthcare Plan as of June 30, 2022 (collectively “Valuations”) will provide relevant financial information to the Council for the two retirement plans and ensure the Council is properly informed on the retirement plans’ funding status and retirement benefit costs for the City.
BACKGROUND
The Valuations provide detailed information regarding the actuarial value of the assets and pension and Other Postemployment Employee Benefit (“OPEB”) liability of the Retirement COUNCIL AGENDA: 04/04/23
FILE: 23-462
ITEM: 3.4
HONORABLE MAYOR AND CITY COUNCIL
March 9, 2023
Subject: Review of the Retirement Plans’ Pension and Post-Employment Healthcare Plan Actuarial Valuations as of June 30, 2022
Plans as of June 30, 2022. The information is used to determine the employee and employer’s contribution rates in the next fiscal year and are generally divided into the following sections:
• A Summary Section intended to recap the most important information of the report; • Risk and Certification Sections to identify, explain and assess the risks to the plan, as well as certify the report;
• An Asset Section that details the calculation of the actuarial value of the plans’ assets; • A Liability Section that discloses the present value of all future benefits, normal cost and changes in unfunded actuarial liabilities;
• A Contribution Section that details the effects of assumption changes on the contribution rates and amortization of unfunded liabilities; and
• An Actuarial Section of the Annual Comprehensive Financial Report (“ACFR”) which contains schedules that are required reporting by the Governmental Accounting Standards Board for the ACFR.
ANALYSIS
The Valuations are prepared by the Boards’ Actuarial Consultant, Cheiron Inc. The report and its contents have been prepared in accordance with generally recognized and accepted actuarial principles and practices which are consistent with the Code of Professional Conduct and applicable Actuarial Standards of Practice set out by the Actuarial Standards Board.
The credentialed actuaries who prepared the reports meet the Qualification Standards of the American Academy of Actuaries to render the opinion contained in the reports.
For the Valuations as of June 30, 2022, the following are the key actuarial results, as compared to the results from the June 30, 2021 Valuations. Funding ratio on an actuarial valuation basis increased for both plans for pension. The increase in the funded status is mainly due to the decreases in the unfunded actuarial liability (“UAL)”. For both plans, the decrease in UAL is due to the contributions being greater than the normal cost and interest on UAL and the investment gain on actuarial value of assets offset by the liability loss from salary experience.
$ Amounts in millions Federated Police and Fire
PENSION Valuation Date 2021 2022 2021 2022
Actuarial Liability $4,563.0 $4,750.6 $5,441.7 $5,650.5 Actuarial Value $2,513.1 $2,709.6 $4,210.4 $4,495.7
UAL $2,049.9 $2,041.0 $1,231.3 $1,154.8
Funded Ratio 55.1% 57.0% 77.4% 79.6%
HONORABLE MAYOR AND CITY COUNCIL
March 9, 2023
Subject: Review of the Retirement Plans’ Pension and Post-Employment Healthcare Plan Actuarial Valuations as of June 30, 2022
The following is a summary of the contribution rates shown in the pension actuarial valuations.
Both Boards will approve contribution rates at their May meetings. Amounts shown below are contribution amounts throughout the year.
PENSION Federated Police Fire
FY23-24 FY23-24 FY23-24
Member Contribution Rates
Tier 1 Member 7.34% 11.09% 12.00%
Tier 2 Member 8.01% 14.35% 15.11%
City Contributions
Tier 1 UAL Payment $168.8 million
$72.0 million $69.2 million
Tier 1 Normal Cost / Admin $26.0 million
20.16%
$24.7 million
33.84%
$22.3 million
34.25%
Tier 2 Contribution $21.4 million
8.01%
$14.0 million
14.35%
$5.4 million
15.11%
Total City Contribution $216.1 million
54.61%
$110.7 million
64.90%
$96.9 million
96.20%
While the funding ratio for pension increased from the Valuations as of June 30, 2021 to the Valuations as of June 30, 2022, the funding ratio for both plans for OPEB decreased. The increase in UAL for both plans is due to the investment and liability experience. The liability experience is mainly due to lower-than-expected premiums for Medicare eligible health plans.
$ Amounts in thousands Federated Police Fire
OPEB Valuation Date 2021 2022 2021 2022 2021 2022
Actuarial Liability $590.4 $579.2 $439.2 $430.8 $254.3 $252.6 Assets $384.6 $349.1 $180.0 $171.4 $96.3 $93.9
UAL $205.8 $230.1 $259.2 $259.4 $158.0 $158.7
Funded Ratio 65.1% 60.3% 41.0% 39.8% 37.9% 37.2%
With the implementation of Measure F in 2017, health contribution rates were fixed at 7.5% of pensionable pay for Federated members and 8.0% of pensionable pay for Police and Fire members. The City’s contribution toward the explicit subsidy is actuarially determined on an annual basis; and the City will also pay the implicit subsidy based on a pay-as-you-go basis as a part of active health premiums. In addition, the City has an option to limit its contribution to 14% of pensionable payroll for Federated and 11% of pensionable payroll for Police and Fire.
HONORABLE MAYOR AND CITY COUNCIL
March 9, 2023
Subject: Review of the Retirement Plans’ Pension and Post-Employment Healthcare Plan Actuarial Valuations as of June 30, 2022
OPEB Federated Police Fire
FY23-24 FY23-24 FY23-24
Member Contribution Rates
Federated Member 7.50% N/A N/A
Police and Fire Member N/A 8.0% 8.0%
Explicit Subsidy Members $8.6 million $5.2 million $4.6 million City Contribution Rates
Estimated City Optional Cap
(Explicit Subsidy – 14% for Fed and
11% for PF of pensionable payroll)
$52.0 million $29.8 million
Actuarially Determined Amount
(Explicit Subsidy)
$19.1 million $18.1 million $11.3 million
City’s Implicit Subsidy Payment $6.0 million $2.7 million $1.3 million City’s Total Payment for Healthcare
(Explicit + Implicit Subsidy)
$25.1 million $20.8 million $12.6 million
EVALUATION AND FOLLOW
The Office of Retirement Services staff will present the Retirement Plans’ Valuations on an annual basis to the City Council per the recommendation of the City Auditor’s report on Pension Sustainability (Audit #10-10) to update the Council on the financial status of the Retirement Plans.
COORDINATION
Production of the Valuations was coordinated with the Board of Administration for the Federated City Employees Retirement System, the Board of Administration for the Police and Fire Department Retirement Plan, the City Manager’s Office, and the City Manager’s Office of Employee Relations.
PUBLIC OUTREACH
This memorandum will be posted on the City’s Council Agenda website for the April 4, 2023 City Council meeting.
These Valuations and audits of the Valuations were presented to the Federated System and Police and Fire Boards at their meetings from October through February, which were open to the public.
HONORABLE MAYOR AND CITY COUNCIL
March 9, 2023
Subject: Review of the Retirement Plans’ Pension and Post-Employment Healthcare Plan Actuarial Valuations as of June 30, 2022
COMMISSION RECOMMENDATION AND INPUT
No commission recommendation or input is associated with this action.
CEQA
Not a Project, File No. PP17-009, Staff Reports, Assessments, Annual Reports, and Informational Memos that involve no approvals of any City action.
PUBLIC SUBSIDY REPORTING
This item does not include a public subsidy as defined in section 53083 or 53083.1 of the California Government Code or the City’s Open Government Resolution.
Roberto L Peña
Chief Executive Officer
Office of Retirement Services
ATTACHMENTS:
1. Federated City Employees’ Retirement System Actuarial Valuation (Pension) as of 6/30/22
2. Federated City Employees’ Retirement System Postemployment Healthcare Plan Actuarial Valuation as of 6/30/22
3. Police and Fire Department Retirement Plan Actuarial Valuation (Pension) as of 6/30/22
4. Police and Fire Department Postemployment Healthcare Plan Actuarial Valuation as of 6/30/22