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HomeMy WebLinkAbout01- Human Resources CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS: NNE 30, 1998 SAFETY PLAN FOR CITY OF SAN.BERNARDINO EMPLOYER NUMBER 61 Benefit Description: 21363.1,3%@ 55 Formula The table below shows the change in the total present value of benefits for the proposed plan amendment. The present value of benefits represents the total dollars needed today to fund all future benefits for current members of the plan, i.e. without regard to future employees. The difference between this amount and current plan assets must be paid by future employee and employer contributions. As such, the change in the present value of benefits due to the plan amendment represents the"cost"of the plan amendment. However, for plans with excess assets some or all of this"cost" may already be covered by current excess assets. Change Due to Pre-Amendment Plan Amendment Post-Amendment Total Present Value of Benefits S 271.721.349 S 15.117,556 S 286.838,905 Actuarial Value of Plan assets 233.539,859 I 0 233.339.859 Present Value of Future Employer and Employee Contributions S 38.181.490 S 13.117.556 S 51299.046 It is not required, nor necessarily desirable, to have accumulated assets sufficient to cover the total present value of benefits until every member has left employment. Instead, the actuarial funding process calculates a regular contribution schedule of employee contributions and employer contributions (called normal costs) which are designed to accumulate with interest to equal the total present value of benefits by the time every member has left employment. As of each June 30, the actuary calculates the "desirable" level of plan assets as of that point in time by subtracting the present value of scheduled future employee contributions and future employer normal costs from the total present value of benefits. The resulting"desirable" level of assets is called the accrued liability. A plan with assets exactly equal to the plan's accrued liability is simply"on schedule" in funding that plan, and only future employee contributions and future employer normal costs are needed. A plan with assets below the accrued liability is "behind schedule", or is said to have an unfunded liability, and must temporarily increase contributions to get back on schedule. A plan with assets in excess of the plan's accrued liability is "ahead of schedule", or is said to have excess assets, and can temporarily reduce future contributions. A plan with assets in excess of the total present value of benefits is called super-funded, and neither future employer nor employee contributions are required. Of course, events such as plan amendments and investment or demographic gains or losses can change a plan's condition from year to year. For example, a plan amendment could cause a plan to move all the way from being super-funded to being in an unfunded position. Fntnred into Record at ilil;MAPVCms Mtg: S zla v rE Agenoa heal City ClerklCDC Secy / January 21, 2000 Gify Page 1 of 3 J 10:05 ANI 0 5���© 0 CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS: JUNE 30, 1998 SAFETY PLAN FOR CITY OF SAiYBERNARDINO EMPLOYER NUMBER 61 Benefit Description: 21363.1,3% @ 55 Formula The changes in your plan's accrued liability, unfunded accrued liability, and the funded ratio as of June 30, 1998 due to the plan amendment are shown in the table below. Change Due to Pre-Amendment Plan Amendment Post-Amendment Accrued Liability S 219,771,354 S 11,262.162 S 231,033,516 Assets 233,539,859 0 233,539,859 Unfunded Liability $ (13,768,505) S 11,262,162 $ (2,506,343) Funded Ratio 106.3% 101.1% While the tables above give the changes in the "cost"and funded status of the plan due to the amendment, there remains the question of what will happen to the employer contribution rate because of the change in plan provisions. Ca1PERS policy is to implement rate changes due to plan amendments immediately on the effective date of the change in plan benefits. In general, the policy also provides that the change in unfunded liability due to the plan amendment will be separately amortized over a period of 20 years from the effective date of the amendment and all other components of the plan's unfunded liability/excess assets will continue to be amortized separately. However, special rules have to be applied to plans with a current employer contribution rate of zero. The pre-amendment excess assets in these plans were sufficient to cover the employer's normal cost for one or more years into the future. A plan amendment will use up some or all of the pre-amendment excess assets. If there is still excess assets(i.e. if the plan is still ahead of schedule)after the plan amendment, the remaining excess assets were spread over the greater of 5 years or the number of years for which the excess assets would keep the employer rate equal to zero. If the amendment uses up all excess assets and creates an unfunded liability(i.e. from being ahead of schedule to behind schedule), the post-amendment unfunded liability was amortized over 20 years. The table below shows the immediate short-term change in your plan's employer contribution rate due to the plan amendment. Rate Change Due to Component I Pre-Amendment Plan Amendment Post-Amendment Normal Cost i 12.9269'0 2.273% 15.199% Unfunded/Escess Asset Cost (7.853)% 4.198% (3.655)% 1959 Survivor 0.000% 0.0009'4 0.000% I Total Employer Rate 5.0739'0 6.1'19'0 11.544% Amortization Period Multiple Years 1 20 Years I Multiple Years January 21. 2000 Page 2 of 3 10:05 .ail Now CONTRACT AMENDMENT COST ANALYSIS- VALUATION BASIS:JUNE 30, 1998 SAFETY PLAN FOR CITY OF SAN-BERNARDINO EMPLOYER NUMBER 61 Benefit Description: 21363.1,3% g 55 Formula Note that the change in normal cost in the table above may be much more indicative of the long term change in the employer contribution rate due to the plan amendment. The plan's unfunded liability/excess asset cost shown in the table above is a temporary adjustment to the employer contribution to"get the plan back on schedule". This temporary adjustment to the employer rate varies in duration from plan to plan. For example, a plan with initial excess assets being amortized over a short period of time will typically experience a large rate increase when excess assets are fully amortized. While a plan amendment for such a plan may produce little or no increase in the employer contribution rate now, the change in normal cost due to the plan amendment will become fully reflected in the employer contribution rate as soon as initial excess assets are fully amortized. If your agency is requesting cost information for two or more benefit changes, the cost of adopting more than one of these changes may not be obtained by adding the individual costs. Instead, a separate valuation should be done to provide a cost analysis for the combination of benefit changes. If the proposed plan amendment applies to only some of the employees in the plan,the rate change due to the plan amendment still applies to the entire plan, and is still based on the total plan payroll. Please note that the cost analysis provided in this document may not be relied upon once the CalPERS actuarial staff have completed the next annual valuation, that is, the annual valuation as of June 30, 1999. If you have not taken action to amend your contract, and we have already mailed the June 30, 1999 annual valuation report, you must contact our office for an updated cost analysis, based on the new annual valuation. This actuarial valuation for this proposed plan amendment is based on the participant, benefits, and asset data used in the June 30, 1998 annual valuation, with the benefits modified if necessary to reflect what is currently provided under your contract with CalPERS, and further modified to reflect the proposed plan amendment. Descriptions of the actuarial methodologies, actuarial assumptions, and plan benefit provisions may be found in the appendices of the June 30, 1998 annual report. Please note that the results shown here are subject to change if any of the data or plan provisions changes from what was used in this study. It is our opinion that the valuation has been performed in accordance with generally accepted actuarial principles, in accordance with standards of practice prescribed by the Actuarial Standards Board, and that the assumptions and methods are internally consistent and reasonable for this plan, as prescribed by the CalPERS Board of Administration according to provisions set forth in the California Public Employees' Retirement Law. Gale D. Patrick. F.S.A., M.A.A.A. Enrolled Actuary Senior Pension Actuary, CalPERS Fin Process (ds: Annual-37622 Base-38741 Proposal-38742 January 21. 2000 Page ; of; 10:05 Mvt CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS: JUNE 30, 1998 SAFETY PLAN FOR CITY OF SAN-BERNARDINO E14PLOYER NUMBER 61 Benefit Description: 21362.2,3%@ 50 Formula The table below shows the change in the total present value of benefits for the proposed plan amendment. The present value of benefits represents the total dollars needed today to fund all future benefits for current members of the plan, i.e. without regard to future employees. The difference between this amount and current plan assets must be paid by future employee and employer contributions. As such,the change in the present value of benefits due to the plan amendment represents the"cost"of the plan amendment. However, for plans with excess assets some or all of this "cost" may already be covered by current excess assets. Change Due to Pre-Amendment Plan Amendment Post-Amendment Total Present Value of Benefits S 271,721,3 39 S 27,539,186 I S 299 260,535 Actuarial Value of Plan Assets 233.539.859 0 233.539.859 Present Value of Future Employer and Employee Contributions I S 38.181.490 S 37.539.186 ! S 65.720.676 It is not required, nor necessarily desirable, to have accumulated assets sufficient to cover the total present value of benefits until every member has left employment. Instead, the actuarial funding process calculates a regular contribution schedule of employee contributions and employer contributions (called normal costs) which are designed to accumulate with interest to equal the total present value of benefits by the time every member has left employment. As of each June 30, the actuary calculates the "desirable" level of plan assets as of that point in time by subtracting the present value of scheduled future employee contributions and future employer normal costs from the total present value of benefits. The resulting"desirable" level of assets is called the accrued liabilitv. A plan with assets exactly equal to the plan's accrued liability is simply"on schedule" in funding that plan, and only future employee contributions and future employer normal costs are needed. A plan with assets below the accrued liability is"behind schedule", or is said to have an unfunded liability, and must temporarily increase contributions to get back on schedule. A plan with assets in excess of the plan's accrued liability is "ahead of schedule", or is said to have excess assets, and can temporarily reduce future contributions. A plan with assets in excess of the total present value of benefits is called super-funded, and neither future employer nor employee contributions are required. Of course,events such as plan amendments and investment or demographic gains or losses can change a plan's condition from year to year. For example, a plan amendment could cause a plan to move all the way from being super-funded to being in an unfunded position. January 21, 2000 Page l of 3 9:06 AM CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS: JUNE 30, 1998 SAFETY PLAN FOR CITY OF SAN-BERNARDINO EMPLOYER NUMBER 61 Benefit Description: 21362.2,3% @ 50 Formula The changes in your plan's accrued liability,unfunded accrued liability, and the funded ratio as of June 30, 1998 due to the plan amendment are shown in the table below. Change Due to Pre-Amendment Plan Amendment Post-Amendment Accrued Liability S 219,771,354 $ 21,541,202 S 241,315,556 Assets 233,539,859 0 233,539,859 Unfunded Liability S (13,768,505) S 21,544,202 7,775,697 Funded Ratio 106.3% 96.8% While the tables above give the changes in the "'cost,"and funded status of the plan due to the amendment, there remains the question of what will happen to the employer contribution rate because of the change in plan provisions. Ca1PERS policy is to implement rate changes due to plan amendments immediately on the effective date of the change in plan benefits. In general, the policy also provides that the change in unfunded liability due to the plan amendment will be separately amortized over a period of 20 years from the effective date of the amendment and all other components of the plan's unfunded liability/excess assets will continue to be amortized separately. However, special rules have to be applied to plans with a current employer contribution rate of zero. The pre-amendment excess assets in these plans were sufficient to cover the employer's normal cost for one or more years into the future. A plan amendment will use up some or all of the pre-amendment excess assets. If there is still excess assets (i.e. if the plan is still ahead of schedule) after the plan amendment, the remaining excess assets were spread over the greater of 5 years or the number of years for which the excess assets would keep the employer rate equal to zero. If the amendment uses up all excess assets and creates an unfunded liability(i.e. from being ahead of schedule to behind schedule), the post-amendment unfunded liability was amortized over 20 years. The table below shows the immediate short-term change in your plan's employer contribution rate due to the plan amendment. Rate Change Due to Component Pre-Amendment Plan Amendment Post-Amendment Normal Cost 12.926% 4.641% 17.56710 Unfunded/Excess Asset Cost (7.353)% 8.076% 0.223°0 1959 Survivor 0.000% 0.000% 0.0000% Total Employer Rate 5.073% 12.1117/6 17.79()% Amortization Period Multiple Years 20 Years Multiple Years January 21, '_000 Pave = of 9:06 ANI CONTRACT AMENDMENT COST ANALYSIS- VALUATION BASIS: JUNE 30, 1998 SAFETY PLAN FOR CITY OF SAM-BERNARDINO EMPLOYER NUMBER 61 Benefit Description: 21362.2,3%@ 50 Formula Note that the change in normal cost in the table above may be much more indicative of the long term change in the employer contribution rate due to the plan amendment. The plan's unfunded liability/excess asset cost shown in the table above is a temporary adjustment to the employer contribution to"get the plan back on schedule". This temporary adjustment to the employer rate varies in duration from plan to plan. For example, a plan with initial excess assets being amortized over a short period of time will typically experience a large rate increase when excess assets are fully amortized. While a plan amendment for such a plan may produce little or no increase in the employer contribution rate now, the change in normal cost due to the plan amendment will become fully reflected in the employer contribution rate as soon as initial excess assets are fully amortized If your agency is requesting cost information for two or more benefit changes, the cost of adopting more than one of these changes may not be obtained by adding the individual costs. Instead, a separate valuation should be done to provide a cost analysis for the combination of benefit changes. If the proposed plan amendment applies to only some of the employees in the plan, the rate change due to the plan amendment still applies to the entire plan, and is still based on the total plan payroll. Please note that the cost analysis provided in this document may not be relied upon once the CaIPERS actuarial staff have completed the next annual valuation, that is, the annual valuation as of June 30, 1999. If you have not taken action to amend your contract, and we have already-mailed the June 30, 1999 annual valuation report, you must contact our office for an updated cost analysis, based on the new annual valuation. This actuarial valuation for this proposed plan amendment is based on the participant, benefits, and asset data used in the June 30, 1998 annual valuation,with the benefits modified if necessary to reflect what is currently provided under your contract with Ca1PERS,and further modified to reflect the proposed plan amendment. Descriptions of the actuarial methodologies, actuarial assumptions, and plan benefit provisions may be found in the appendices of the June 30, 1998 annual report. Please note that the results shown here are subject to change if any of the data or plan provisiL-s changes from what was used in this study. It is our opinion that the valuation has been performed in accordance with generally accepted actuarial principles, in accordance with standards of practice prescribed by the Actuarial Standards Board, and that the assumptions and methods are internally consistent and reasonable for this plan, as prescribed by the CaIPERS Board of Administration according to provisions set forth in the California Public Employees' Retirement Law. Gale D. Patrick, F.S.A.. VI.A.A.A. Enrolled Actuary Senior Pension Actuary, CaIPERS ; Fin Process Ids: Annual-37622 Base-38731 Proposal-38735 January :1. 2000 Page 3 of 9:06 A Ni