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North Central Fire Protection District’s Payment of UAAL

North Central Fire Protection District’s Payment of UAAL. Presentation to the FCERA Board of Retirement June 18, 2008 Harvey L. Leiderman Jeffrey R. Rieger Reed Smith, LLP. What is Happening?.

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North Central Fire Protection District’s Payment of UAAL

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  1. North Central Fire Protection District’s Payment of UAAL Presentation to the FCERA Board of Retirement June 18, 2008 Harvey L. Leiderman Jeffrey R. Rieger Reed Smith, LLP

  2. What is Happening? • District’s active employees have terminated employment with the District and become Fresno City employees • Employee and employer contributions (and returns thereon) staying on deposit with FCERA to pay benefits • District will continue to exist and have an income stream • FCERA has liabilities associated with benefits owed to the District’s former employees • District is responsible by law to adequately fund benefits owed to its former employees

  3. Protecting the System • District contributions ordinarily stated as a % of payroll • The District will have no payroll • Board should assure that the District pays its fair share of the system’s UAAL to adequately fund benefits owed to the District’s former employees

  4. Example(1) Two member system; 1 fire and 1 law, with same salary and benefits (2) UAAL of $100,000, amortized over 10 years in 2005(3) Fire member leaves, without being replaced, in 2007(4) If the Board takes no action, law Employer UAAL contribution would double for the remaining eight years of the amortization period

  5. Board’s Authority • CERL sec. 31453.5: “the board may determine county or district contributions on the basis of a normal contribution rate which shall be computed as a level percentage of compensation … The portion of liability not provided by the normal contribution rate shall be amortized over a period not to exceed 30 years.”

  6. Board’s Authority • CERL sec. 31564.5: From the beginning of a district’s participation in FCERA, the Board may charge “appropriate additional sums,” above and beyond the regular contributions expressed as a percent of payroll • CERL sec. 31580.1: Each year, the Board may charge different amounts to different districts “to cover the costs of administering its retirement system as such costs affect the active and retired employees of that district”

  7. Board’s Authority • CERL sec. 31564.2(a): In an analogous situation, a “withdrawing” district “shall remain liable to the retirement system for [its] share of any unfunded actuarial liability of the system which is attributable to [its] officers and employees” • CERL sec. 31564.2(b): Default methodology used unless another method is “developed by an actuarial source and approved by the board” • CERL sec. 31564.2(d): “[N]o contracting agency shall fail or refuse to pay the employer's contribution …. In dealing with a withdrawing district, the board of retirement shall take whatever action needed to ensure the actuarial soundness of the retirement system”

  8. Segal’s Calculations • If liability can be re-valued triennially, based on experience, then District’s liability is $5,117,000, as of July 1, 2007 • If liability cannot be re-valued in the future based on experience, then District’s liability is $22,840,000, as of July 1, 2007

  9. Recommendations • Adopt the $5,117,000 figure, and re-value at each triennial experience study • Demand payment by June 30, 2008. With one year of interest, at 8%, this results in a liability of $5,526,360

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