COUNTY OF SAN MATEO

Inter-Departmental Correspondence

Human Resources Department

 

DATE:

June 27, 2011

BOARD MEETING DATE:

July 12, 2011

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

 

TO:

Honorable Board of Supervisors

FROM:

Donna Vaillancourt, Human Resources Director

Peter Bassett, Benefits Manager

   

SUBJECT:

Actuarial Valuation of Retirement Benefit Changes for New General and Safety Plan Members

 

RECOMMENDATION:

Accept actuarial valuation of cost savings to implement retirement benefit changes for new General and Safety Plan members.

 

BACKGROUND:

Agreements have been reached with all bargaining groups which change retirement benefits for new hires.

Government Code Section 7507(b)(2) requires that the Board, when considering changes in retirement benefits, shall secure the services of an actuary to provide a statement of the actuarial impact upon future annual costs, including normal cost and any additional accrued liability, before authorizing changes in public retirement plan benefits or other postemployment benefits.

DISCUSSION:

The current Plan 4 benefit for existing General Plan Members is 2%@55.5. Under the new agreements, General Plan Members hired on or after August 7, 2011 will not receive that benefit but instead will receive 1.725%@58. Employees in this plan will not pay the current cost share contribution, but will pay a share of the COLA cost. New General Plan members will continue to have the option of enrolling in Plan 3, the non-contributory plan.

Deputy Sheriff Association (DSA) has agreed to a different retirement benefit for new hires that requires enactment of legislation (with a tentative effective date of January 1, 2012). The current Plan 4 benefit for existing Safety Plan Members is 3%@50. Under the new agreement with DSA, new DSA members hired on or after January 8, 2012 will not receive that benefit but instead will receive 3%@55. Under this option, new DSA members will pay the current cost share contribution as well as a share of the COLA cost. New DSA members will continue to have the option of enrolling in Plan 3, the non-contributory plan.

Under the new agreement with OSS, new OSS members hired on or after January 8, 2012 will not receive the 3%@50 benefit, but will instead have the option of enrolling in one of two other retirement plans: 2%@50 or 3%@55. Members choosing the latter formula will pay an additional cost share contribution. Under both options, new OSS members will pay a share of the COLA cost. New OSS members will continue to have the option of enrolling in Plan 3, the non-contributory plan

The above-described changes constitute reductions in benefits for new hires. Based on a review by Milliman Inc., the actuarial impact of this benefit change is noted in the table below. Given that it is not possible to estimate which retirement plan option new OSS hires will choose, savings for both options are provided. However, it is important to note that the difference in cost savings between the 2%@50 and 3%@55 with cost-share is actuarially very similar.

Cost Savings for New General Plan as compared to 2%@55.5

1.725%@58

Y1 Savings: $121,000

Y10 Cumulative Savings: $25,448,000

Y20 Cumulative Savings: $113,330,000

Cost Savings for New Safety Plans for OSS as compared to current 3%@50

2%@50

Y1 Savings: $13,000

Y10 Cumulative Savings: $1,233,000

Y20 Cumulative Savings: $5,671,000

3%@55

Y1 Savings: $13,000

Y10 Cumulative Savings: $1,235,000

Y20 Cumulative Savings: $5,676,000

Cost Savings for New Safety Plan for DSA as compared to current 3%@50

3%@55

Y1 Savings: $58,000

Y10 Cumulative Savings: $5,393,000

Y20 Cumulative Savings: $26,505,000

Pursuant to Government Code 7507(c), the actuarial certification of the cost savings to implement the retirement benefit change is being presented for your acceptance at least two weeks prior to implementation of the change.

Accepting this report contributes to Shared Vision 2025 of a Prosperous Community by helping to meet current budget challenges.

 

FISCAL IMPACT:

There is no fiscal impact in accepting the actuarial valuation. The fiscal impact in making the retirement change is reflected above.