|
DATE: |
February 8, 2022 |
05 |
SUBJECT
Title
EMPLOYER AND EMPLOYEE RETIREMENT CONTRIBUTION RATES FOR FISCAL YEAR 2022-23 (DISTRICTS: ALL)
Body
OVERVIEW
California Government Code Section 31454 requires the Board of Supervisors to adjust the rates of the San Diego County employer and employee retirement contributions in accordance with the recommendations of the Board of Retirement of the San Diego County Employees Retirement Association (SDCERA). The Board of Retirement (Retirement Board) approved the employer and employee contribution rates recommended by its actuary, The Segal Group, Inc., for Fiscal Year (FY) 2022-23 on November 18, 2021.
While the employer contribution rates are different for Safety and General members, the aggregate employer rate (or weighted average rate) approved by the Retirement Board for FY 2022-23 is 44.81%, reflecting a slight decrease from the FY 2021-22 aggregate employer rate of 45.82%. Historically, there have been minor increases in employer and member contribution rates, however, this decrease primarily is due to an investment return that was greater (after “smoothing”) than the Retirement Fund’s 7.00% investment return assumption and lower-than-expected cost-of-living adjustments (COLA), balanced by the effect of amortizing the prior year’s unfunded actuarial accrued liability (UAAL) over a smaller than expected total payroll.
The average member rate as a percentage of payroll decreased from 11.84% to 11.58%. This decrease is primarily due to changes in member demographics amongst the tiers.
RECOMMENDATION
SAN DIEGO COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD OF RETIREMENT and CHIEF ADMINISTRATIVE OFFICER
Adopt the San Diego County employer and employee retirement contribution rates for Fiscal Year 2022-23 as recommended by the SDCERA actuary and approved by the Retirement Board on November 18, 2021.
EQUITY IMPACT STATEMENT
Approval of this recommendation will fully fund the County’s retirement contribution in the FY 2022-23 Operational Plan to meet the County’s obligation to provide a defined benefit pension plan for permanent employees. SDCERA’s retirement benefits support a broad community of diverse employees and retirees, providing long-term financial support well after active employment with the County of San Diego concludes. Competitive retirement benefits provided by a secure and stable retirement fund are part of ensuring the County can be competitive in attracting and retaining an appropriately sized, skilled and diverse workforce to design and implement policies, programs and services that ensure equitable opportunities.
FISCAL IMPACT
If the recommendation to adopt the rates of employer retirement contributions as recommended by the SDCERA actuary is approved, the estimated annual employer retirement contribution costs for the County and all participating employers will be approximately $655.7 million for FY 2022-23, a minor decrease of approximately $11,000 from the FY 2021-22 estimated employer contribution.
The County is obligated to fund approximately 93% of the estimated annual employer retirement contributions, or $609.8 million in FY 2022-23, a minor decrease of approximately $10,230 from the estimated annual employer retirement contributions in the prior fiscal year. Other participating employers are obligated to make the remaining 7% contribution to SDCERA. These employers include the San Diego Superior Court, the Local Agency Formation Commission, the San Dieguito River Valley Joint Powers Authority, SDCERA and the Air Pollution Control District. The County’s actual cost of retirement will differ due to the application of the contribution rates to the actual biweekly payroll as opposed to the actuary’s assumed payroll. The funding source is a combination of program specific and General Purpose Revenue. No additional staff years are required.
BUSINESS IMPACT STATEMENT
N/A
Details
ADVISORY BOARD STATEMENT
N/A
BACKGROUND
Under Section 31453 of the California Government Code, an actuarial valuation of the County’s retirement fund is required to be made at intervals not to exceed three years. It also calls for the Retirement Board to recommend to the Board of Supervisors changes in rates of interest and contribution rates. The actuarial valuation must be completed by an actuary, covering the mortality, service, and compensation experience of the members and beneficiaries, and shall evaluate the assets and liabilities of the Retirement Fund. It is SDCERA’s practice to conduct an actuarial valuation annually. Today’s recommendations are in compliance with this section of the Government Code.
By statute, members and employers are required to contribute a percentage of their covered compensation and salary to SDCERA. Rates are determined by an actuary through the actuarial valuation that incorporates actuarial assumptions about the future. The employer rates provide for both the normal cost and the amortization of any unfunded actuarial accrued liability (UAAL) of the retirement fund. The normal cost expressed as a percentage of payroll represents the annual contribution rate that, if paid annually from a member’s first year of membership through the year of retirement, would accumulate to the amount necessary to fully fund the member’s retirement-related benefits. The UAAL component expressed as a percentage of payroll represents the actuarial accrued liability of the plan in excess of the actuarial value of the plan assets, amortized over a 20-year period. The Retirement Board approved the employer and employee contribution rates for FY 2022-23 on November 18, 2021, as recommended by its actuary, The Segal Group, Inc.
The County of San Diego is one of the employers that participate in SDCERA. Other participating employers include the San Diego Superior Court, the Local Agency Formation Commission, the San Dieguito River Valley Joint Powers Authority, SDCERA and the Air Pollution Control District.
The following table compares the actuarial results as of the SDCERA June 30, 2020 valuation to the latest June 30, 2021 actuarial valuation, and identifies the major components affecting the change in valuation as reported. Components affecting the decrease in the UAAL over the past year include: the effect of current year normal costs, employee and employer contributions and interest earned (column b); changes in investment returns, notably an investment return after “smoothing” that was greater than the Retirement Fund’s 7.00% investment return assumption (column c); the impact of non-investment experience (column d) which includes COLA increases that were lower than expected, actual contributions that were less than expected resulting from a smaller than projected total payroll, and higher than expected individual salary increases; and changes in actuarial assumptions (column e).
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|
Valuation Results: June 30, 2020 compared to June 30, 2021 (in millions) |
|
|
June 30, 2020 |
Current Year Normal Costs, Contributions and Interest |
Greater than Expected Investment Returns |
Non-Investment Experience |
Changes in Actuarial Assumptions |
June 30, 2021 |
|
|
(a) |
(b) |
(c) |
(d) |
(e) |
(a)+(b)+(c) +(d)+(e) |
|
UAAL(1) |
$4,025.3 |
($178.1) |
($64.3) |
($114.5) |
$0.0 |
$3,668.4 |
|
|
Source: SDCERA Actuarial Valuation and Review as of June 30, 2021, pg 30 (1)Unfunded Actuarial Accrued Liability (UAAL) |
The following table shows the FY 2022-23 recommended employer retirement contribution rates for General and Safety members for all Tiers as approved by the Retirement Board on November 18, 2021.
|
FY 2022-23 Employer Contribution Rates for All Tiers |
|
Contributions for: |
General Tier 1, A-D |
Safety Tier A-D |
|
Normal Cost |
12.29% |
20.69% |
|
UAALa |
27.57% |
40.67% |
|
Total |
39.86% |
61.36% |
|
Aggregate Rate |
44.81% |
|
Sources: SDCERA Actuarial Valuation and Review as of June 30, 2021, pgs. 34-35 aUnfunded Actuarial Accrued Liability (UAAL) |
Attachment A provides the detail and history of employer contribution rates since FY 2013-14. Attachment B provides the recommended FY 2022-23 employee contribution rates by Tier as approved by the Retirement Board on November 18, 2021.
The County has aggressively managed its retirement-related costs through a combination of issuing pension obligation bonds (POBs), making voluntary additional contributions to SDCERA to address the UAAL of the retirement fund and other actions. The County has taken advantage of past decreases in retirement contribution rates along with available resources to accelerate pay down of the POBs. Approximately $264.0 million of POB principal has been prepaid to date.
The outstanding balance for the County’s POBs, as of the June 30, 2021 audited financial statement, was $400.1 million. To support the debt service costs of the County’s POBs, the County set aside a total of $383.0 million in General Fund fund balance from FY 2016-17 through 2019-20. This fund balance serves as an alternative funding source for a portion of existing POB costs that was previously supported by General Purpose Revenue. Beginning in FY 2017-18, portions of this fund balance have been and will be appropriated over a ten-year period until exhausted, through final maturity of the POBs, which will be in FY 2026-27. Appropriations for this purpose total $42.8 million in FY 2021-22 and are estimated at $42.8 million in FY 2022-23 and annually through final maturity of the POBs.
Further, additional voluntary payments have been made in the past to SDCERA to manage increases in retirement costs and to mitigate fluctuations in the employer contribution rates. Section 113.5(b) of the San Diego County Administrative Code directs that any one-time over-realized revenue generated by greater than anticipated assessed value growth shall be used to reduce the pension fund’s UAAL. However, on April 21, 2020 (15) the Board of Supervisors suspended this section as well as Section 113.5(a) of the Administrative Code for the duration of the ongoing local emergency declared due to the COVID-19 pandemic. The following table details the history of the County’s additional voluntary payments to SDCERA since FY 2004-05.
|
Additional Voluntary Payments to SDCERA (in millions) |
|
Fiscal Year |
Amount |
|
2004-05 |
$24.9 |
|
2005-06 |
$40.0 |
|
2006-07 |
$26.9 |
|
2010-11 |
$29.6 |
|
2012-13 |
$14.2 |
|
2017-18 |
$22.5 |
|
2018-19 |
$13.8 |
|
2019-20 |
$10.0 |
|
2020-21 |
$0.0 |
|
2021-22 |
$0.0 |
|
Total |
$181.9 |
LINKAGE TO THE COUNTY OF SAN DIEGO STRATEGIC PLAN
Today’s proposed action supports the Strategic Initiatives of Sustainability, Equity, Empower, Community, and Justice in the County of San Diego’s Fiscal Year 2022-27 Strategic Plan.
Respectfully submitted,
HELEN N. ROBBINS-MEYER
Chief Administrative Officer
ATTACHMENTS
Attachment A: History of San Diego County Employees Retirement Association Employer Contribution Rates
Attachment B: San Diego County Employees Retirement Association Member Contribution Rates for Fiscal Year 2022-23