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Home My WebLink About2016-06-16 NEERB MINUTES' ' • • • NONEMERGENCY EMPLOYEES RETIREMENT SPECIAL BOARD MEETING June 16, 2016 Chairperson Woodward called the special meeting of the Englewood NonEmergency Employees Retirement Plan Board to order at 4:03 p .m. in the Public Works Conference Room of the Civic Center, 1000 Englewood Parkway, Englewood, Colorado . Members Present: Members Absent: Others Present: A quorum was present. David Henderson, Employee Representative John Moore, Council Appointee Mahendra Patel, Employee Representative (Arrived 4:05 p .m.) James Phelps, Council Appointee (Arrived 4 : 12 p.m.) Kathleen Rinkel , Director of Finance and Administrative Services Jim Woodward, Chairperson , Council Appointee Carol Wescoat, Recording Secretary Steven Yates , Council Member (No notice) Jerry Huggins, Innovest Portfolio Solutions Leslie Thompson , Gabriel Roeder Smith and Company (GRS) Kerry Bush * * * * * Gabriel Roeder Smith and Company Pr es entation of th e Actuarial Studies Ms . Thompson reviewed the details of the three actuarial assumption studies that the Board requested . The studies are : I. Change the assumed rate of return from 7 .0% to 6 .5% and amortize the base due to the assumption change over 15 years . 2 . Change the assumed rate of return from 7 .0% to 6 .5% and amortize the entire unfunded accrued liability (UAL) over 15 years so that as of the 2016 report there would be only one amortization base . 3 . Change the assumed rate ofreturn from 7 .0% to 6 .5% and amortize the entire unfunded accrued liability (UAL) over the years necessary to keep the total contribution at 25 % of pay. As of the 2016 report , there would be only one amortization base . Mr. Patel arrived at 4 :05 p.m . Ms . Thompson said the Exhibit 1 shows the impact on the funded ratio when the discount rate is changed . The funded ratio goes form 83.3 % to 79 .3% without any other change in assumptions . The Board discussed the three scenarios on Exhibit 2 and the potential results of each . Mr. Moore outlined his review of the studies and possibility of a solution that is reasonable for the Plan and the City 's budget. He prefers to reduce the discount rate to 6.5% and he does not recommend that the investment advisors move toward investments with more risk in an effort to achieve a higher percent return. He is concerned that ifthe Board does not make assumption changes, the City's contributions may expect to increase each year because of the prior losses . The five year smoothing method is an appropriate assumption and helps to even out the gains or losses . He suggested that since the Board is revisiting the assumptions perhaps there is an opportunity to change the discount rate and reset the liability by resetting the actuarial value of assets to market value, so that, at this point in time, it is a true liability, and would keep the smoothing process going forward . These factors are justification for him to make the assumption changes that would extend the amortization base and help maintain the path that the Board has been on to fund the Plan . Mr. Moore commented that the Plan's mortality table is a little out of date . The actuaries are not seeing the losses in the Plan that would indicate a more current mortality table is necessary. His preference is to move to a more recent mortality table, lower the discount rate and reset the asset liability to see where the Plan's funding would be at that point. He reviewed the impact from the GRS scenarios and considered the overall possible increase of contribution costs to the Plan . He compared the current costs, which may continue to increase if no changes are made, to the results of adding the discount rate reduction and adjusting the amortization changes. These changes provide the expectation of an increased contribution for 2017 and remove the known increase going forward because of not amortizing prior losses . His preference is to not extend the amortization period, but he is willing to do so to get a better measure of the assets. He suggested omitting the improvement of mortality table assumption at this time , but feels it should be reviewed in the next year or two. The studies being done by the Actuarial Society for the public sector plans may reflect an indication that the current mortality tables are sufficient. Board discussion ensued regarding the average age, retirement ages, the Plan 's experience and other issues. The Board evaluated the projected contribution costs. Ms. Thompson said the cost of providing discount rate reduction, asset lost and mortality table all at once would be projected at 26 .7%. She said that with making the discount rate change to 6.5% improves the probably of meeting the assumption and that improves the probably of having a more stable contribution rate. Mr. Moore said that the current contribution is 23 .8% and the draft report indicates that ifthere are no assumption changes the contribution is 25 .0%. Chairperson Woodward asked Ms. Rinkel about the City 's expected budget increase . Ms. Rinkel said the budget increase target is 3 % overall. Mr. Moore said that it is necessary for the Board to be sensitive to the City's budget and maintains their responsibility is to the Plan to make sure there it has actuarially sound funding. Discussion followed regarding the Board 's fiduciary responsibility to the Plan. Chairperson Woodward pointed out that it appears the Plan may not see the continued long term increase of contributions ifthe assumptions are changed and the Plan is able to attain the 6 .5% return as well as the other factors . Mr. Moore commented that he wants to have a Plan that would be fully funded in fifteen years. He thinks that lower expectations on the discount rate is a step to dealing with the losses that have been incurred so he can be comfortable deviating from the past policy of using a ten year amortization each year. He would not be comfortable changing the amortization assumption to more than fifteen years to pay for benefits that were already accrued . Discussion followed related to the expectation that the rate of return for investments will to be lower. Ms. Thompson suggested with the changes the Board is making and potentially looking at changing the mortality tables next year that the Board may, in two years, consider evaluating the demographic assumptions . If there is a sustained period of economic downturn with lower investment returns, there will also be a period of stable salaries with lower retirement rates because more people will delay retirement. She suggested that in two years there may be better data to use when looking at demographic assumptions. She commented that moving forward with the reduced discount rate , resetting the market value provides the trade-off and the stabilization of the contribution rate going forward . MR. MOORE MOVED TO APPROVE ASSUMPTION CHANGES FOR THE 2016 ACTUARIAL VALUATION : I. REDUCE THE DISCOUNT RATE FROM 7 .0% TO 6.5% 2 . RESET THE ACTUARIAL VALUE OF ASSETS TO EQUAL THE MARKET VALUE OF ASSETS AS OF JANUARY 1, 2016 AND MAINTAINING THE CURRENT FIVE YEAR SMOOTHING OF ASSETS METHOD GOING FORWARD 3. THE ENTIRE UNFUNDED LIABILITILY AS OF JANUARY 1, 2016, AFTER THE ABOVE CHANGES, WILL BE AMORTIZED OVER A FIFTEEN YEAR PERIOD WHILE MAINTAINING THE CURRENT 10 YEAR AMORTfZATION METHOD FOR FUTURE GAINS AND LOSSES (ONLY 2016 WILL BE RESET TO FIFTEEN YEARS AMORITIZA TION) 4 . IT IS THE BOARD 'S INTENTION TO DO AN EXPERIENCE STUDY DURING THE NEXT YEAR OR TWO TO REVIEW THE CURRENT DEMOGRAPHIC ASSUMPTIONS, INCLUDING THE MORTALITY, TERMINATIONS, RETIREMENTS , AND SALARIES Non Eme rge ncy Empl oyees Retire ment Board Meeting 2 o f 3 ' . • • • • • • MS . RINKEL SECONDED. Ayes: Nays: Henderson, Moore, Patel, Phelps, Rinkel, Woodward None Absent: Yates The motion carried . Approval of the January 1, 2016 Actuarial Report The Board discussed the potential contribution rate of25.4% with the revised actuarial report. GRS will prepare the final actuarial report for the Board 's approval. The Board agreed to an email/phone poll to approve the final actuarial report when completed. Members ' Choice No items were discussed . The Board adjourned at 5:00 p.m . ~d t..JUt cHd- Carol Wescoat Recording Secretary NonEmerge ncy E mployees Retirement Board Meetin g 3 of 3