p 3 actuaries you can understand 1 review of actuarial methodology issues november 8, 2006 p

1P3 Actuaries you can

understand

Review of Actuarial Methodology Issues

November 8, 2006

P


understand

Overview

• Determination of Member COL Contributions for Settlement

• Cost Allocation among Tiers– Employer– Member COL Contributions


understand

Member Contributions

BASIC

Regular

COLA

BASIC

Settlement

COLAValuation Based

Statutory Nature


understand

Basic

• Accumulation toward target benefit at target retirement age

• Based on:– Benefit structure– Salary increase assumption– Life expectancy at retirement– Rate of Return assumption

• Varies by Age at Entry


understand

Basic – General MembersTier 1

• 31621.5. … the normal rate of contribution … shall be such as will provide an average annuity at age 60 equal to one 200th of the final compensation of members …

BASIC31621.5


understand

Basic – General MembersTier 2 and 3

• 31621.4. … the normal rate of contribution … shall be such as will provide an average annuity at age 60 equal to one 240th of the final compensation of members …

BASIC31621.4


understand

Basic – Safety MembersTier 1 and 2

• 31639.5. The normal rate of contribution shall be such as will provide an average annuity at age 50 equal to one 200th of the final compensation…

BASIC31639.5


understand

Supplemental Contribution

• …to the extent undistributed earnings are unavailable in the future to make additional contributions on members’ behalf…then the employer and employee contribution rates shall be increased …

BASIC31627


understand

Settlement Contribution

• Lawyers not yet in agreement

• Look to proposed legislation for guidance

• Members in Tier 2 or 3 would not make Settlement Contributions

BASIC31627


understand

AB 2063 – General Members

• …the normal rates of contribution… shall be rates that provide an average annuity at age 55 years equal to the fraction of one 160th of the final compensation …

BASICAB 2063


understand

AB 2063 – Safety Members

• The normal rates of contribution… shall be rates that will provide an average annuity at age 50 years equal to the fraction of one 160th of the final compensation …

BASICAB 2063


understand

COL Contributions

• 31873. Any increases in contributions shall be shared equally between the county or district and the contributing members …

COLA


understand

Regular COL Contributions

• Determine total Basic contributions projected for year– General and Safety together– All tiers together

• Determine total COL contributions required for year

• Allocate COL contributions proportional to Basic


understand

Settlement COL Contributions

• Prior Methodology– Allocate COL contributions proportional to

Basic using same proportion as Regular Benefits


understand


• Proposed Methodology– Determine total Basic Settlement

contributions projected for year• General and Safety together

– Determine total COL Settlement contributions required for year

– Allocate COL Settlement contributions proportional to Basic


understand

COL Contributions

• FCERA Board previously decided that “Any increases in contributions” means contributions for both Normal Cost and Unfunded Actuarial Accrued Liability.


understand


• Proposed Methodology– Need to allocation Settlement Reserves

for calculation purposes• Basic vs COL – Propose allocating proportional

to liabilities each valuation• Employers vs Members – Propose using

approach similar to allocation of Regular COL Contributions

– Allocate POB contributions, amortized, to Employer– Remaining reserves get split 50/50


understand

Cost Allocation Between Tiers

• Employer

• Members


understand

Employer Cost Allocation Between Tiers

• Total required contribution will be the same each year

• Employer previously stated they preferred receiving a single contribution rate for each Classification (General and Safety)– Easier calculation– No need for separate reserves / recordkeeping


understand

Member Cost Allocation Between Tiers

• Regular Contributions– Basic is statutory– COL requires allocation decision

• Settlement– Members in Tier 2 or 3 would not make

Settlement Contributions


understand

Calculating COL Contributions

• Proposed Principles– Tier 1 + Tier 2 + Tier 3 contributions

= half COL cost– Fair to all employees– Doesn’t require unreasonable recordkeeping


understand

Alternative Approaches

• Same for both tiers

• Calculate and track tiers separately

• Other approaches could be developed if requested


understand

Same for Both Tiers

• Current approach

• Simpler recordkeeping

• Consistency between tiers


understand

Same for Both Tiers

• Example (simple numbers not based on this year’s rates)

• Tier 1– Basic Rate: 4.0%– COL load factor: 90%– COL Rate: 3.6%

– Settlement Basic: 1.0%– COL load factor: 80%– COL Rate: 0.8%

– TOTAL RATE: 9.4%


understand

Same for Both Tiers


• Tier 2 and 3– Basic Rate: 3.0%– COL load factor: 90%– COL Rate: 2.7%




understand

Calculate and Track Separately

• Alternate approach for discussion• Would allocate past UAAL to Tier 1.• Would require additional tracking of COL

contribution and benefit payments by tier.• Relationship of Tier 1, Tier 2, and Tier 3 rates

will vary in the future based on experience, investment return, demographic makeup of groups.


understand



• Tier 1– Basic Rate: 4.0%– COL load factor: 100%– COL Rate: 4.0%




understand



• Tier 2 and 3– Basic Rate: 3.0%– COL load factor: 50%– COL Rate: 1.5%




understand

Recommendation

• Retain current allocation methodology


understand

Questions

p 3 actuaries you can understand 1 review of actuarial methodology issues november 8, 2006 p

Documents