The URL can be used to link to this page

Home My WebLink About04-04-16 Board Packet 1 OTAY WATER DISTRICT SPECIAL MEETING OF THE BOARD OF DIRECTORS DISTRICT BOARDROOM 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA MONDAY April 4, 2016 3:00 P.M. AGENDA 1. ROLL CALL 2. PLEDGE OF ALLEGIANCE 3. APPROVAL OF AGENDA 4. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA WORKSHOP 5. WORKSHOP ON OTHER POST EMPLOYEE BENEFITS ACTUARIAL VALUA- TION (BEACHEM/KOEPPEN) 6. ADJOURNMENT 2 All items appearing on this agenda, whether or not expressly listed for action, may be deliberated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the District’s website at www.otaywater.gov. Written changes to any items to be considered at the open meeting, or to any attachments, will be posted on the District’s website. Copies of the Agenda and all attachments are also available through the District Secretary by contacting her at (619) 670-2280. If you have any disability which would require accommodation in order to enable you to participate in this meeting, please call the District Secretary at 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on April 1, 2016, I posted a copy of the foregoing agenda near the regu- lar meeting place of the Board of Directors of Otay Water District, said time being at least 24 hours in advance of the special meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on April 1, 2016. /s/ Susan Cruz, District Secretary OTAY WATER DISTRICT RETIREE HEALTHCARE PLAN June 30, 2015 OPEB Actuarial Valuation Board Presentation Bartel Associates, LLC John Bartel, President Joseph R. D’Onofrio, Assistant Vice President Adam Zimmerer, Actuarial Analyst Tak Frazita, Associate Actuary April 4, 2016 O:\Clients\Otay Water District\Projects\OPEB\2015\Reports\BA OtayWD 16-04-04 OPEB 15-06-30 valuation board presentation Final.docx AGENDA Topic Page Definitions 1 Why Agencies Prefund OPEB Obligation 5 Current Benefit Design (Actives) 7 Funding Policy 8 Participants 9 Assumptions Highlights 10 Valuation Results 13 Member Contribution Study 17 April 4, 2016 1 DEFINITIONS  GASB 45  Accounting Statement for Other (than pension) Post Employment Benefits (OPEB)  Recognize OPEB costs over active service rather than pay-as-you-go when employees retire  Pre-funding prudent but not required  Likely to be modified in a similar manner to GASB 68  Normal Cost (NC)  Value of benefits allocated to current year  Actuarial Accrued Liability (AAL)  Obligation for benefits allocated to prior service  Unfunded Actuarial Accrued Liability (UAAL)  Unfunded amount of AAL  Assets must be in restricted trust to be considered for GASB 45 April 4, 2016 2 DEFINITIONS  Annual Required Contribution (ARC)  Normal Cost, plus  Amortization of UAAL  Net OPEB Obligation (NOO)  Historical difference between ARCs and actual contributions  Accumulated amount expensed but not yet funded  Annual OPEB Cost (AOC)  ARC, plus  Interest on NOO, less  NOO adjustment for amounts expensed but not funded  Entry Age Normal Funding Method  Calculates a Normal Cost for each eligible active employee  Normal Cost calculated as a level percentage of pay A April 4, 2016 DE 3 FINITIONNS April 4, 2016 4 DEFINITIONS  Present Value of Benefits (PVB)  Projected amount needed to fund all expected benefits of current actives and retirees  Market Value of Assets (MVA)  Current value of OPEB trust assets  Actuarial Value of Assets (AVA)  Value of plan assets with investment gains and losses recognized over 5 years to moderate the impact of market value fluctuations  Unfunded Actuarial Accrued Liability  AAL less AVA, the amount of AAL still needed to be funded by future contributions  Present Value of Future Normal Costs  PVB less AAL and current year’s NC, the amount of PVB expected to be funded by contributions for future years’ Normal Costs  CERBT #1  California Employers’ Retiree Benefit Trust Investment Strategy #1 April 4, 2016 5 WHY AGENCIES PREFUND OPEB OBLIGATION  Fiscally prudent to prefund:  Pension plan funding discipline imposed by CalPERS  OPEB plan funding discipline at discretion of agency  Prevent increasing unfunded obligation and pay-as-you-go costs  Prefund NC plus UAAL amortized over appropriate number of years  Allocate current employee deferred compensation costs to current taxpayers and ratepayers  Can invest assets in more risky investments with higher expected return  Greater portion of benefits expected to be paid from investment earnings rather than cash  Allows use of a higher discount rate  Discount rate for funding reflects expected long-term return of source from which benefit payments are made  Lower obligation (PVB, AAL, UAAL) than if not prefunding  Unfunded liability will be reported on statement of position under GASB 75, effective for 2017/18  Funding plan may be looked upon favorably by credit rating agencies April 4, 2016 6 WHY AGENCIES DO NOT PREFUND OPEB OBLIGATION  Agency may not currently have available funds  District assets can be used for other purposes  Time and expense required to set up and manage OPEB trust  OPEB trust assets are restricted and cannot be used by the District for any other purpose until all benefits are paid April 4, 2016 7 CURRENT BENEFIT DESIGN (ACTIVES)  Eligibility  Full-time employees who retire directly from District under CalPERS  Current Plan Service Retirement Eligibility & Benefits  Age and service requirements1:  Represented hired < 1/1/13 - 55 and 20 years of District svc  Unrepresented hired < 1/1/13 - 55 and 15 years of District svc  Hired ≥ 1/1/13 - Age 55 and 20 years of District service  Disability Retirement - Age 50 and 10 years of District service  Retiree healthcare benefit:  Retiree - 100% retiree medical & dental premium for life, 88% spouse premium for life, 88% eligible dependent premium  Survivors - 88% spouse medical and dental premium for life, 88% eligible dependent premium  Life insurance - none  Medical Plans  SDRMA EPO, Gold PPO, HMO 15 available before Medicare eligibility  Gold PPO available after Medicare eligibility 1 Retiree benefit based on original hire date and retirement date. Directors not eligible. April 4, 2016 8 FUNDING POLICY  Current District Funding Policy  Contribute full ARC with CERBT Investment Strategy #1  In addition, District pays benefits (cash subsidy and implied subsidy) directly from District assets  Unfunded Liability amortized over 22 years for 2015/16  Recent District Contributions (‘000s) Fiscal Year Cash Subsidy PayGo Implied Subsidy PayGo CERBT Funding Total District Contrib ARC 2014/15 $929 $118 $1,413 $2,460 $1,413 2013/14 940 116 1,370 2,426 1,439 2012/13 809 86 1,287 2,182 1,287 April 4, 2016 9 PARTICIPANTS Valuation Date 6/30/09 6/30/11 6/30/13 6/30/15  Actives  Count 160 150 137 136  Average Age 44.8 46.5 46.5 47.1  Average Hire Age 36.4 36.3 37.0 37.4  Ave District Service 8.4 10.2 9.5 9.7  Average Pay $76,634 $80,784 $87,366 $93,146  Total Payroll (000’s) 11,878 12,118 11,969 12,668  Retirees  Count 69 69 80 79  Average Age 67.7 68.7 68.5 69.2  Ave Retirement Age 59.0 58.5 58.3 58.4  Retirees/Actives 43% 46% 58% 58% April 4, 2016 10 ASSUMPTIONS HIGHLIGHTS Assumption June 30, 2013 Valuation June 30, 2015 Valuation  Discount Rate  7.25% - Full ARC funding with CERBT Investment Strategy #1  Same  Medical Trend Calendar Year Increase from Prior Year Non-Medicare Medicare All Plans 2013 Premiums 2014 Premiums2015 8.0% 8.3%2016 7.5% 7.8%2017 7.0% 7.2% 2018 6.5% 6.7%2019 6.0% 6.1%2020 5.5% 5.6% 2021+ 5.0% 5.0% Calendar Year Increase from Prior Year Non-Medicare Medicare All Plans 2013 n/a2014 n/a 2015 Premiums 2016 Premiums 2017 7.0% 7.2% 2018 6.5% 6.7% 2019 6.0% 6.1% 2020 5.5% 5.6% 2021+ 5.0% 5.0%  Dental Trend  4.0% annually  Same April 4, 2016 11 ASSUMPTIONS HIGHLIGHTS Assumption June 30, 2013 Valuation June 30, 2015 Valuation  Mortality, Termination, Disability, Merit Pay  CalPERS 1997-2007 Experience Study  Mortality Improvement Scale AA  CalPERS 1997-2011 Experience Study  Modified Mortality Improvement Scale MP-2014  Participation at Retirement  Currently covered and waived  Medical - 100%  Dental - 80%  Same  Hardship Retirements  n/a  1% liability load for active obligation  PPACA High Cost Plan Excise Tax “Cadillac Tax”  n/a  1.25% liability load A April 4, 2016 AASSUMPTI 12 ONS HIGHHLIGHTS April 4, 2016 13 VALUATION RESULTS Actuarial Obligations Actuarial Obligations (Amounts in 000’s) 6/30/13 Valuation 6/30/15 Valuation  Actuarial Accrued Liability  Actives $ 9,832 $ 10,884  Retirees 13,059 12,805  Total 22,891 23,689  Actuarial Value of Assets 11,831 16,920  Unfunded Actuarial Accrued Liability 11,060 6,769  Funded Percent 52% 71%  Normal Cost 699 761  Pay-As-You-Go Cost 1,045 1,034 April 4, 2016 14 VALUATION RESULTS 0% 20% 40% 60% 80% 100% 120% 140% 160% 6/30/07 6/30/09 6/30/11 6/30/13 6/30/15 Valuation Date Funded Percent Otay Held Funds Trust Funds April 4, 2016 15 VALUATION RESULTS Estimated Actuarial Gains & Losses (Amounts in 000’s) Actuarial Gains & Losses AAL  6/30/13 Actuarial Accrued Liability $22,891  6/30/15 Expected Actuarial Accrued Liability 25,527  Experience Losses (Gains)  Actual versus expected premiums (2,692)  Demographic & other (899)  Assumption Changes  CalPERS demographic assumptions 532  Projected mortality improvement 824  Hardship retirement assumption 105  PPACA excise tax 292  Total Changes (1,838)  6/30/15 Actuarial Accrued Liability 23,689 April 4, 2016 16 VALUATION RESULTS Annual Required Contribution (ARC) (Amounts in 000’s) Annual Required Contribution 6/30/13 Valuation 6/30/15 Valuation 2013/14 2014/15 2015/16 2016/17  ARC - $  Normal Cost $ 699 $ 722 $ 761 $ 786  UAAL Amortization 739 691 478 414  Total ARC 1,439 1,413 1,239 1,200  Estimated Payroll 11,969 12,358 13,080 13,505  ARC - %  Normal Cost 5.8% 5.8% 5.8% 5.8%  UAAL Amortization 6.2% 5.6% 3.7% 3.1%  Total ARC % 12.0% 11.4% 9.5% 8.9%  UAAL Amortization Years 24 23 22 21 April 4, 2016 17 MEMBER CONTRIBUTION STUDY  Study Methodology  Prospective study assuming OPEB change made for current actives  For prior plan results, AVA reduced by current value of prior CalPERS member contributions allocated to fund OPEB  Represented cost sharing higher than Unrepresented due to higher OPEB cost for Represented employees CalPERS Member Contributions Unrepresented Represented  CalPERS Member Classic New Classic New  Required Contributions 8.00% 6.25% 8.00% 6.25%  Additional Contributions 0.00%1.75%0.75% 2.50%  Total Member Contributions 8.00% 8.00% 8.75% 8.75%  Prior Member Contributions 1.00% 1.00% 1.00% 1.00%  Member Contributions for OPEB Funding 7.00% 7.00% 7.75% 7.75% April 4, 2016 18 MEMBER CONTRIBUTION STUDY Actuarial Obligations - Current Plan June 30, 2015 - 7.25% Discount Rate (Amounts in 000’s) Actuarial Obligations Unrepresented Represented Total  Present Value of Benefits  Actives $5,715 $12,287 $18,001  Retirees2 3,295 9,510 12,805  Total 9,010 21,797 30,806  Actuarial Accrued Liability  Actives 3,912 6,972 10,884  Retirees 3,295 9,510 12,805  Total 7,207 16,482 23,689  Actuarial Value of Assets3 5,148 11,772 16,920  Unfunded AAL 2,059 4,710 6,769  Funded Percent 71% 71% 71%  Normal Cost for 2015/16 227 533 761  Normal Cost %Pay 4.7% 6.4% 5.8% 2 Employee group information was not available for retirees. Retiree liability was allocated to Unrepresented and Represented employee groups in proportion to active counts on 6/30/15 (35 Unrepresented and 101 Represented.) 3 Actuarial Value of Assets was allocated to Unrepresented and Represented employee groups in proportion to AAL. April 4, 2016 19 MEMBER CONTRIBUTION STUDY Funding Projection - OPEB Change Additional Cost - Total (Amounts in 000’s) Fiscal Year End Change in Total ARC Member OPEB Contr. Net District Annual Savings Prior Member Contribution Study 2014 $ 937 $ 894 $ 43 Current Member Contribution Study 2016 1,007 978 30 2017 987 1,010 (22) 2018 964 1,042 (79) 2019 934 1,077 (142)  Study Results  Short-term increase in District contribution  Future employee contributions more than offset cost of enhanced OPEB