FROM: Amy McInerny, Chief Financial Officer
SUBJECT: Actuary & Audit Policy No. 002 (Interest Crediting Procedures and Undesignated Excess Earnings Allocation)
RECOMMENDATION:
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Approve and adopt updates to Actuary & Audit Policy No. 002 (Interest Crediting Procedures and Undesignated Excess Earnings Allocation).
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BACKGROUND:
General Policy No. 005 involves the periodic review of Board Policies and indicates that the Administrative Committee shall review administration policies every three years.
Pursuant to General Policy No. 005, staff has conducted a review of Actuary & Audit Policy No. 002 (Interest Crediting Procedures and Undesignated Excess Earnings Allocation). At the Administrative Committee on July 18, 2024, the Committee was split on whether the policy should be substantially changed in a way that would allow a greater probability of having "excess earnings" and therefore, the possibility to apply an ad hoc cost of living adjustment (COLA) to retirees with significant COLA banks. Given the complexity associated with the question, the Board Chair requested that this item be brought to the full Board for a discussion that includes representatives from SBCERA's actuaries from Segal.
Subsequent to the Administrative Committee meeting, in discussions with Segal, there are some minor changes recommended regarding how the Contra account is applied to reserves. This minor changes ultimately impact how the rates are set between the base rate and the COLA rate elements; while there is no impact to the overall rate, the adjustment will allow for an improved allocation in future actuarial studies.
Todd Tauzer and Molly Calcagno of Segal will review the presentation which is attached as Exhibit B to further discuss how the policy is applied, and the implications for making significant changes to the way excess earnings are calculated under our policy.
Staff maintains its recommendation to approve the policy, with the redlined chan...
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