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FCERA Benefits and Reserves

January 11, 2006

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Syllabus

• FCERA Benefits– Valuation– Non-valuation

• FCERA Reserves

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Valuation Benefits

• Guaranteed by County• Included in contribution rates• Two Classifications

– General– Safety

• Two Tiers

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Valuation Benefits

• Regular Benefits– Basic– COL

• Settlement Benefits– Supplemental (Section 6)– $15 Retiree (Section 8)– Retiree Health (Section 9)

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Non-Valuation Benefits

• No guarantee• Not vested• Retirement Board discretion• Paid from “Excess Earnings”

– Earnings not credited to other reserves

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Reserves

• What they are

• How they work

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FCERA Reserves• Valuation Reserves

• Contingency Reserve

• Non-Valuation Reserves

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Valuation Reserves• Member Accumulated Contributions

– Basic, COL, and Settlement

• Employer Contributions– Basic, COL and Settlement

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Non-Valuation Reserves• Nonvested Retiree Health

• Purchasing Power COLA

• Undistributed Earnings

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Rough Balances(in Millions) – 6/30/2005

• Valuation $ 2,314

• Contingency ($ 49)

• Non-Valuation $ 72

• Total $ 2,337

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Cash Flow

1937 Act Pension Fund

Member Contributions

Employer Contributions

Basic Benefits

COLA Benefits

Supplemental Benefits

Settlement Benefits

Earnings

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Reserves

VALUATION

CONTINGENCY

NON

VAL

Member Contributions

Employer Contributions

Basic Benefits

COLA Benefits

Supplemental Benefits

UNDISTRIBUTED

Settlement Benefits

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Allocating Earnings

• 31591 (a) Regular interest shall be credited semiannually on June 30th and December 31st to all contributions in the retirement fund which have been on deposit for six months immediately prior to that date. …

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Credit Regular Interest

CONTINGENCY

NON

VAL

UNDISTRIBUTED

VALUATION

Investment Return Assumption

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Fill Contingency Reserve

CONTINGENCY

NON

VAL

UNDISTRIBUTED

VALUATION

COLAUp to 3%

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Undistributed Earnings

CONTINGENCY

NON

VAL

UNDISTRIBUTED

VALUATION

COLAUp to 3%

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Undistributed Earnings

• AKA Excess Earnings– Earnings available after:

• Crediting regular interest• Filling Contingency Reserve

– Calculated on smoothed basis– Limited expectations for near future

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Undistributed Earnings

• Acceptable Uses under 37 Act– Save it (Bigger Contingency Reserve)– Pay for current benefits

• Regular benefits• Settlement benefits

– Pay for COL contributions– Create Additional Benefits

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Additional Benefits

• Generally temporary (as long as money lasts)

• Reconfirmed by Retirement Board each year

• Examples– Purchasing Power COLA– Dollars for Retiree Health

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Purchasing Power COLA

• Originally paid to retirees and beneficiaries who had lost 25% or more of purchasing power since beginning benefit payments

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Purchasing Power COLA

• Retired on or before April 1, 1981

• Approximately 575 retirees and beneficiaries

• FCERA Board decided to freeze benefits at current level

• Expected Assets needed: $12 million

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Current Retiree Health Benefits

• Two Pieces– Settlement Section 9– Non-guaranteed benefits

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Settlement Section 9

• $3 per year of service• Maximum: $90

• Guaranteed

• Additional amounts when additional undistributed earnings are available

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Non-Guaranteed Benefits

• If member prior to 1990:– $45 plus– $3.50 per year of service

• If member after 1989:– $5 per year of service

• Maximum: $150

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Current Features

• Paid to all annuitants

• Paid from the date of retirement

• Paid for life of member

• Same amount continues to beneficiary upon member’s death

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Estimated Funded Percentage as of 6/30/2005

– Current Retiree Health Benefits

$ in Millions

RetireeHealth

Benefits

Present Value Current Benefits $ 86.4

Actuarial Assets $ 60.5

Unfunded Projected Liability $ 25.9

Funded Percentage 70%

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Questions