FROM: James D. Herberg, General Manager
Originator: Lorenzo Tyner, Assistant General Manager
SUBJECT:
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ELIMINATION OF UNFUNDED ACTUARIAL ACCRUED LIABILITY (UAAL) AND NET PENSION LIABILITY (NPL) WITHIN THE ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM
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GENERAL MANAGER'S RECOMMENDATION
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RECOMMENDATION: Recommend to the Board of Directors to:
Direct staff to pay off the following amounts in the Orange County Sanitation District's defined pension plan administered by the Orange County Employees' Retirement System (OCERS) in an amount not to exceed $38 million:
* Unfunded Actuarial Accrued Liability (UAAL) in the amount of $9 million for pension benefits
* Net Pension Liability (NPL) in the amount of $29 million for deferred investment loss
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BACKGROUND
As of July 1, 2014, the Orange County Sanitation District (Sanitation District) had an UAAL in its defined pension plan administered by OCERS of $194 million. The Sanitation District made advanced payments to eliminate the UAAL and maintain a fully funded plan. In 2017, the Sanitation District had a credit with OCERS.
However, for the year ended December 31, 2018, OCERS' actuarial assumed rate of return was 7.00 percent, but actual investment returns were a loss of approximately two percent. The Sanitation District's allocated share of this shortfall resulted in a UAAL and NPL of $9 million and $29 million, respectively.
Over the last 20 years, OCERS' annual rate of return exceeded the Sanitation District's 70% of the time. Due to their ability to invest in the equity market, staff believes that, over the long-term, OCERS will consistently outperform the Sanitation District's return on investments. Therefore, staff recommends reducing its investment portfolio to fund its current total UAAL and NPL of approximately $38 million.
RELEVANT STANDARDS
* Ensure the public's money is wisely spent
* Resolution No. OCSD 18-23 - Sanitation District's adopted Investment Policy - p...
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