The County of Del Norte Miscellaneous Classic Plan, Miscellaneous PEPRA Plan, Safety Plan and Safety PEPRA Plan (Pension Plans) are cost-sharing multiple-employer defined benefit pension plans, administered by the California Public Employees' Retirement System (CalPERS), an agent multiple-employer plan administered by Ca1PERS, which acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions under the Plans are established by State statute and Local Government resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.
Effective January 1, 2013, the County added retirement tiers for both Miscellaneous and Safety Plans for new employees as required under the Public Employee Pension Reform Act (PEPRA). New employees hired on or after January 1, 2013 will be subject to new, lower pension formulas, caps on pensionable income levels and new definitions of pensionable income. In addition, new employees will be required to contribute half of the total normal cost of the pension benefit unless impaired by an existing Memorandum of Understanding.
B. Benefits Provided
The Plans provide service retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. All qualified permanent and probationary employees are eligible to participate in the County’s Pension Plans. Benefit provisions under the Pension Plans are established by State statute and County resolution. A menu of benefit provisions as well as other requirements is established by State statutes within the Public Employees' Retirement Law. The County selects optional benefit provisions from the benefit menu by contract with Ca1PERS and adopts those benefits through local ordinance.
Classic PEPRA Classic PEPRA
Hire Date Prior to
January 1, 2013 On or after
January 1, 2013 Prior to
January 1, 2013 On or after January 1, 2013
Benefit Formula 2% @ 55 2% @ 62 2% @ 50 2.70% @ 57
Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life monthly for life Retirement age minimum 50 yrs. minimum 50 yrs. minimum 50 yrs. minimum 50 yrs.
Monthly benefits, as a
% of eligible
compensation 1.426% - 2.418% 1.00% - 2.5% 2.00% - 2.7% 2.00% - 2.7%
Required employee
contribution rates 7% 6.25% 9% 11.50%
Required employer
contribution rates 14.628% 14.628% 28.997% 28.997%
C. Contributions
Section 20814(c) of the California Public Employees’ Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for all Pension Plans are determined annually on an actuarial basis as of June 30, by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The County is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.
For the year ended June 30, 2017, the contributions recognized as part of pension expense for each plan were as Employee Contributions $ 683,187 $ 363,731 $ 93,280 $ 51,329 $ 1,191,527 Employer Proportionate
Share of Aggregate Employer
Contributions $ 2,063,516 $ 980,258 $ 309,377 $ 53,796 $ 3,406,947
D. Pension Liabilities, Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions
As of June 30, 2017, the County reported net pension liabilities for its proportionate shares of the net pension liability of each Plan as follows:
Proportionate Share of Net Pension Liability
Miscellaneous $ 34,911,766
Safety $ 7,104,054
Total $ 42,015,820
The County’s net pension liability for each of the Pension Plans is measured as the proportionate share of the net pension liability. The net pension liability of each of the plans are measured as of June 30, 2016, and the total pension liability for each Pension Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2015 rolled forward to June 30, 2016 using standard update procedures. The County’s proportion of the net pension liability was based on a projection of the County’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The County’s proportionate share of the net pension liability for Miscellaneous Plan and Safety Plans as of June 30, 2015 and 2016 was as follows:
Miscellaneous Safety Total
Proportion - June 30, 2015 0.99959% 0.13855% 0.48271%
Proportion - June 30, 2016 1.00498% 0.13716% 0.48556%
Change -Increase/(Decrease) 0.00539% -0.00139 0.00285%
County reported deferred outflows and deferred inflows of resources related to pensions as follows:
Deferred Outflows of Resources
Deferred Inflows of Resources Pension contributions subsequent to measurement date $ 3,406,947 $
-Changes in proportion 1,291,804 68,924
Differences between County's contributions and
proportionate share of contributions - 383,455
Changes of assumptions - 1,082,898
Net difference between projected and actual earnings
on pension plan investments 5,572,868
-Differences between expected and actual experiences 20,834
-Total $ 10,292,453 $ 1,535,277
$3,406,947 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows or deferred inflows of resources related to pensions will be recognized as pension expense as follows:
Year Ended June 30
Deferred
E. Actuarial Methods and Assumptions Used to Determine Total Pension Liability
For the measurement period ended June 30, 2015 (the measurement date), the total pension liability was determined by rolling forward the June 30, 2014 total pension liability. The June 30, 2014 and the June 30, 2015 total pension liability were based on the following actuarial methods and assumptions:
Actuarial Cost Method
Entry Age Normal in accordance with the requirements of GASB Statement No. 68 Actuarial Assumptions
Discount Rate 7.65%
Inflation 2.75%
Salary Increases Varies by Entry Age and Service
Investment Rate of Return 7.65% Net of Pension Plan Investment and Administrative Expenses; includes Inflation Mortality Rate Table* Derived using CalPERS’ Membership Data for all
Funds
Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter
*The mortality table used was developed based on CalPERS’ specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report on the CalPERS website.
All other actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the fiscal years 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at CaIPERS' website under Forms and Publications.
F. Discount Rate
The discount rate used to measure the total pension liability was 7.65% for each of the Pension Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the assumed 7.65% discount rate is adequate and the use of the municipal bond rate is not necessary. The long term expected discount rate of 7.65% is applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained at CalPERS’ website.
According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.65% investment return assumption used in this accounting valuation is net of administrative expenses. Using this lower discount rate has resulted in a slightly higher total pension liability and net pension liability. This difference was deemed immaterial to the Public Agency Cost-Sharing Multiple-Employer Defined Benefit Pension Plan.
The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.
In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-short-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one-quarter of one percent.
The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These geometric rates of return are net of administrative expenses.
F. Discount Rate - (Continued)
Asset Class New Strategic
Allocation Real Return Years
1 - 10* Real Return
Years 11+**
Global Equity 51% 5.25% 5.71%
Global Fixed Income 20.0 .99 2.43
Inflation Sensitive 6.0 .45 3.36
Private Equity 10.0 6.83 6.95
Real Estate 12.0 4.50 5.13
Infrastructure and
Forestland 0.0 4.50 5.09
Liquidity 1.0 (0.55) (1.05)
* An expected inflation of 2.5% used for this period.
** An expected inflation of 3.0% used for this period.
Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate
The following presents the County’s proportionate share of the net pension liability for each Pension Plan calculated using the discount rate for each Plan, as well as what the County’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1% point lower or 1% point higher than the current rate:
Net Pension Liability Employer's Net Pension Liability/(Asset) - Miscellaneous $ 50,538,037 $ 34,911,766 $ 21,997,429 Employer's Net Pension Liability/(Asset) - Safety 10,487,924 7,104,054 4,326,243 Employer's Net Pension Liability/(Asset) -Total $ 61,025,961 $ 42,015,820 $ 26,323,672 Pension Plan Fiduciary Net Position
Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports.
The Government Accounting Standards Board (GASB) issued Statement No. 45 (June 2004) which established guidelines for accounting and financial reporting by State and local governments for other post employment benefits (OPEB) other than pensions. Like pensions, OPEB arises from an exchange of salaries and benefits for employee services rendered, and constitutes part of the compensation for those services. From an accrual accounting perspective, the cost of OPEB, like the cost of pension benefits, should generally be associated with periods in which the exchange occurs, rather than with the periods when benefits are paid or provided.
The County provides medical and dental benefits for retired employees and their dependents through a self-insured trust. Composite premium rates as of the valuation date are as follows:
Coverage
Employee Only
Employee +1
Employee +2 or more Medical and dental $ 616.90 $ 1,198.16 $ 1,504.72 Post 65 dental only $ 60.00 $ 115.00 $ 165.00
The County pays partial premiums for retirees based on years of service with the County. The coverage is available to Safety employees who retire after having attained age 50 (age 52 if a PEPRA employee, or earlier in the event of approved disability retirement). Continuation of coverage in retirement also requires a minimum number of years of service with the County, based on employment date. Retirees hired before January 1, 2007 need 5 years of service, retirees hired between January 1, 2007 through October 31, 2009 need 10 years of service, and retirees hired November 1, 2009 and after need 15 years of service.
The County covers between 25% and 100% of the premium for the retiree as well as between 25% and 75% of the dependent premiums. Retirees over the age of 65 also receive the benefit of a discounted premium. The following table illustrates the premiums paid by retirees as of the valuation date, with the balance of the premiums paid by the County:
A. Plan Description (Continued)
Medical Plan Rates Charged to Retiree Effective November 1, 2009
Under 65 65 and over
Years of Service required (if hired
after 1/1/2007) Retiree Only
Retiree &
1 Dep.
Retiree & 2
or more Retiree Only
Retiree & 1 Dep.
Retiree &
2 or more
Less than 10 Cobra coverage for up to 18 months
At least 10,but less than 16
$ 386.06 $ 748.89 $ 1,127.20 $ 225.00 $ 4,398.91 $ 555.15 At least 16, but less
than 21 $ 257.25 $ 559.76 $ 875.02 $ 200.00 $ 414.91 $ 530.15
At least 21, but less than 25
$ 128.68 $ 343.59 $ 458.83 $ 175.00 $ 389.91 $ 505.15
At least 25 or more $ 0.00 $ 214.91 $ 344.50 $ 150.00 $ 364.91 $ 480.15 As of July 01, 2013, approximately 93 retirees were eligible to receive benefits.
B. Funding Policy
The ARC is calculated in accordance with certain parameters, and includes (1) the Normal Cost for one year, and (2) a component for amortization of the total unfunded actuarial accrued liability (UAAL) over a period not to exceed 30 years.
In accordance with the County's budget, the annual required contribution (ARC) is to be funded by (a) making payments for retiree benefit premiums, (b) making payments for retiree claims and (b) prior to fiscal year end, depositing the remaining amount of the ARC, if any, to the OPEB trust. Concurrent with implementing Statement No. 45, the County Board passed a resolution to participate in the California Employers Retirees Benefit Trust (CERBT), an irrevocable trust established to fund OPEB. CERBT is administered by CaIPERS, and is managed by an appointed board not under the control of the County Board. This Trust is not considered a component unit of the County and has been excluded from these financial statements. Separately issued financial statements for CERBT may be obtained from CalPERS at P.O. Box 942709, Sacramento, CA 94229-2709.
C. Annual OPEB Cost and Net OPEB Obligation
The following table shows the components of the County’s annual OPEB cost for the year, the amount actually contributed to the plan, and the resulting net OPEB obligation.
Annual required contribution $ 9,340,175
Interest on prior year net OPEB obligation 1,129,951
Amortization of prior year net OPEB obligation (1,475,210)
Annual OPEB Cost 8,994,916
Contribution made: (1,366,210)
Change in net OPEB obligation 7,628,706
Net OPEB Obligation - Beginning 27,932,463
Prior year pay-as-you-go contributions 316,311
Net OPEB Obligation - Beginning, Restated 28,248,774
Net OPEB Obligation - Ending $ 35,877,480
The County’s annual OPEB cost, the actual contributions, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the current year and prior two years are as follows:
Fiscal Year
Ended Annual OPEB Cost
Actual
June 30, 2015 $ 5,295,321 $ 881,729 16.65 % $ 17,681,205
June 30, 2016 5,306,140 198,793 3.75 % 23,927,215
June 30, 2017 8,994,916 1,366,210 15.19 % 35,877,480
D. Funded Status and Funding Progress
As of July 01, 2015, the most recent actuarial valuation date, the plan was 3.80% funded. The actuarial accrued liability for benefits was $74,847,146 and the actuarial value of assets was $707,979, resulting in an unfunded actuarial accrued liability (UAAL) of $74,139,167. The covered payroll (annual payroll of employees covered by the plan) was $17,896,269, and the ratio of the UAAL to the covered payroll was 414.3%.
D. Funded Status and Funding Progress (Continued)
Actuarial valuations of an ongoing plan involve estimates of the value of expected benefit payments and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Actuarial amounts determined regarding the funded status of the plan and the annual required contributions of the County are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The Schedule of Funding Progress, presented as required supplementary information (RSI) following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
E. Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
The most recent valuation was performed as of July 1, 2015. The assumptions used for this valuation are in accordance with CalPERS’ “OPEB Assumption Model”, which describes guidelines to be used for retiree healthcare valuations for plans intending to pre-fund benefits through California Employers’ Retiree Benefit Trust (CERBT).
In the July 1, 2013 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions included a 4% investment rate of return, payroll increases of 3.25%, and assumed health inflation of 3.00%. The OPEB plan’s unfunded actuarial liability is being amortized over a closed, 30-year amortization period and level percent of pay basis beginning in the 2008/09 fiscal year.