Ventura County Employees' Retirement Association*

Conclusions 6

• CL1 Page 4
  It is not appropriate for VCERA's Board of Retirement to comment on the County of Ventura's labor negotiation process.
• CL2 Page 9
  It is not appropriate for VCERA's Board of Retirement to comment on the County of Ventura's POB costs.
• CL3 Page 9
  C-01: Disagree The Board of Retirement has provided details on VCERA's plan annually as part of the contribution rate setting process detailed in Government Code Sections 31453 and 31454. Please see response to F-28. C-02: Concur in Part VCERA's funding status has fallen as illustrated by the conclusion; however, the Board of Retirement believes it important to analyze the actuarial process over longer periods of time in order to gain a full perspective. For example, if one reviewed these same factors over the last 12 years one would note many of the investment and salary losses cited in the conclusion would be offset by gains in the prior six-year period from 1995- 2000.
• CL4 Page 10
  Grand Jury Responses Page 9 of 11 C-03: It is not appropriate for VCERA's Board of Retirement to comment on County of Ventura policy. C-04: Disagree The Board of Retirement has been both proactive and timely in making changes to VCERA's actuarial assumptions. For example, over the last several years changes in VCERA's investment earnings assumption, mortality assumption and disability assumptions have been accomplished. All changes were the result of careful study by the Board of Retirement following the completion of VCERA's triennial actuarial investigations. These investigations analyze the differences between VCERA's actuarial experiences and actuarial assumptions over three year periods. The "normal" process is for VCERA's actuary to identify, during the actuarial investigation, the material differences between plan assumptions and actuarial experiences. The Board of Retirement and its actuary then track these "experience" differences through a second 3-year investigation cycle in order to determine whether the differences noted are temporary or exhibit consistency. If it is believed that the differences identified will remain consistent, then the Board of Retirement's actuary will recommend a change in assumptions for adoption by the Board of Retirement. Plan contribution rates would be negatively impacted if the Board of Retirement changed its assumptions each and every year that there were noted differences between actuarial experiences and assumptions, The Board of Retirement believes it important for the Grand Jury to know that VCERA's processes regarding actuarial decisions impacting plan contribution rates have been challenged in the Courts. In a recent case, Mathews v. Ventura County Employee Retirement Association and County of Ventura, Superior Court Judge Frederick H. Bysshe found that "VCERA's decisions in allowing the County to make reduced or no contributions during the relevant time period was not the result of arbitrary and capricious decisions which lacked evidentiary support." The Court affirmed that VCERA's Board of Retirement will make changes to actuarial assumptions only after determining that the evidence supports the basis for a change in actuarial assumptions. VCERA's Board of Retirement will continue to follow the processes currently in place in order to make timely and appropriate decisions regarding VCERA's actuarial assumptions. C-05: Concur in Part VCERA's Board of Retirement concur that investment fees have increased over the last three years and as explained in F-25, most of the increase is attributable to the appreciation in VCERA's plan assets since June 30, 2004. The Board of Retirement believes it important for the Grand Jury to note that VCERA's annualized investment
• CL5
  Grand Jury Responses Page 10 of 11 return for the 3-year period ending June 30, 2006 was 11.6%. The annualized return for the period was greater than the actuarial expected return of 8%. C-06: It is not appropriate for VCERA's Board of Retirement to comment on the County of Ventura's future budgets. C-07: Disagree The implementation of VCERA's contribution rates are accomplished timely and in accordance with the law as discussed under F-28. C-08: Concur in Part VCERA's Board of Retirement believes that the positive factors of defined benefit plans outweigh the negative factors. Defined benefit plans provide an income replacement feature that is not present in defined contribution plans and offer this feature with better investment returns and with lower investment costs than defined contribution plans. If actual experience differs from expectations in a defined contribution plan, the risks of individual employees not saving enough may ultimately fall back on local governments in terms of additional social programs. C-09: Concur in Part As stated in F-20, VCERA's Board of Retirement believes it important to review actuarial assumptions over longer periods. One would note actuarial gains due to salary increases being less than expected of $63.1 million if the Grand Jury extended its analysis to include the period June 30, 1995 through June 30, 2000. C-10: Concur in Part The issuance of POBs may result in lower overall costs to taxpayers assuming the POBs are issued at a lower interest rate than the Board of Retirement's actuarial assumed earnings rate. Required Responses: R-01: Except as noted below, it has always been VCERA's practice to provide all recommended information to the Board of Supervisors and/or County Executive Office by way of the annual actuarial report, triennial actuarial investigation, Comprehensive Annual Financial Report (CAFR), and written communications. Current assumptions relating to compensation increases, investment earnings and plan demographics will continue to be important features of the actuarial report. Details of variances between
• CL6
  Grand Jury Responses Page 11 of 11 actuarial assumptions and actual experiences, along with any recommended changes based on such variances, are illustrated in the annual actuarial valuation report and in the triennial experience investigation report. The long-term forecast of VCERA's funded status remains at 100% with the knowledge that there will be a degree of variability around the long-term target. Yearly forecasts of the plan's funded status would be at best an educated guess and have minimal impact on the decision making process. Fees paid to investment advisors, and the impact of such fees on VCERA's plan performance, will continue to be reported in VCERA's Comprehensive Annual Financial Report and in each business meeting agenda. VCERA's business meeting agendas also include reports on monthly and year-to-date investment performance, net of fees. Prior to each monthly business meeting, VCERA provides to the County of Ventura a copy of the agenda. In terms of actuarial assumptions that are recommended by VCERA's actuary but not adopted by the Board of Retirement, VCERA will in the future provide written explanation as to why the recommendations were not adopted. VCERA will provide notice of any exceptions to Implementation Date: recommended actuarial assumptions following each occurrence. R-06: Based upon a thorough investigation, as detailed in the response to F-42, the Board of Retirement does not believe that it is in VCERA's best interest to return to a 10-year rolling amortization schedule. Such a move would reintroduce greater volatility into the employer contribution rate setting process and potentially lead to an intergenerational transfer among taxpayers of the current Unfunded Actuarial Accrued Liability (UAAL). The Board of Retirement and its consulting actuary contend that fixed 15-year amortization periods are the most appropriate for VCERA and the County of Ventura. Implementation Date: Will not be Implemented. R-07: VCERA will continue to follow the law and the existing process, as described in our response to F-28, in recommending new employer contribution rates on a timely basis to the Board of Supervisors. Implementation Date: Will not be Implemented.

No Responses Found 1

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