To: Board of County Commissioners
Through: Rich Harris, Chairperson, Arapahoe County Retirement Board
Prepared By:
prepared
Ben Colussy, Retirement Plan Administrator
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presenter
Presenter: Dana Woolfrey, Chief Actuary, Gabriel Roeder Smith; Dale Conners, Investment Consultant, CAPTRUST; Rich Harris, Arapahoe County Retirement Board Chair; Ben Colussy, Retirement Plan Administrator; Cindy Birley, Chief Legal Counsel, Davis Graham & Stubbs
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Subject:
title
2:00 PM *Annual Arapahoe County Retirement Plan Update
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Purpose and Request:
recommended action
The purpose of this study session is to provide the Board of County Commissioners with an update regarding the Plan’s financial status. The Plan’s actuary, Gabriel, Roeder, Smith, and Company (GRS) will provide a presentation showing the updated results as of January 1, 2024. The plan’s actuary’s study and quantify the plan’s liabilities (benefit obligations). The Plan’s Investment Consultant, CAPTRUST, will present on the investments and focus on the Plan’s assets under management.
In addition, the Plan’s Legal Counsel, Davis Graham & Stubbs, Retirement Plan Administrator, and Retirement Board Chair will attend to answer any questions from the Board of County Commissioners as appropriate.
The purpose of the actuarial presentation is to bring all participants up to date with the financial health of the Plan. This past year, the contribution level increased by .25% with the County providing the .25% increased contribution. The employee contribution remained at 9.0%. Investment experience was positive this past year, making the last 4 out of 5 years positive for investment performance. The 5-year investment performance is above the actuarial assumed rate of return 7.25%. Performance above 7.25% contributes to “paying off” the plan’s unfunded financial liability. However, reliance on investment performance alone is not the best approach for this Plan to improve its financial position. The fact remains that the even with the recent positive performance the Plan funding only increased from 60% to 62%. Thus, there needs to be continued discussion for increased contributions, including possibly implementing a step increase at 0.25% a year, with the goal of increasing the employer contribution rates to 10.75% in 2029 (for a combined contribution rate of 19.75%).
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Background and Discussion: Offering a 401(a) Defined Benefit Pension is a unique and special benefit for County employees. Instead of accumulating an account balance, eligible employees accrue Service Credit. Service Credit helps determine the monthly lifetime benefit for Vested Employees who retire from the County, (paycheck for life). Generally speaking, the more Service Credit the higher the monthly payment. In addition, research has shown the Defined Benefit Retirement Plan supports the County’s strategic initiative of encouraging a diverse, equitable, and inclusive workforce. As highlighted in a recent New York Times article, the most popular retirement savings account, the 401(k), hasn’t delivered on providing adequate retirement savings for all individuals across different backgrounds and certain income levels. In contrast, the National Institute on Retirement Security (NIRS) has studied the impact a Defined Benefit Plan has in reducing retirement inequality. A link to a podcast episode highlighting the NY Times article is being provided as well as a digital copy of the report from NIRS.
There are 5 counties out of 64 in the state that provide a traditional Defined Benefit Pension to employees. They are Adams, Arapahoe, El Paso, Pueblo, and Weld County. When compared to the other 4 counties, the Arapahoe County contributions are the lowest and will remain the lowest, even if the matching contributions were to increase to 10.75% by 2029. As it stands today, 10.75% would tie with Weld County as the lowest.
The increased contribution rates (specifically the County contributions) have proved to be the most effective way in helping the Plan’s situation. Due to the .25% increase in County contributions, in addition to the growth in payroll from the new Health Department, the contribution shortfall continued to go down from 2.29% in 2023 to 1.3% in 2024. This is the lowest shortfall the plan has experienced in over a decade. Looking at 30-year projections with actuarial assumptions met every year, assuming 18.5% of pay contributions, the Plan’s funded ratio increases gradually over the next couple of decades. However, we know Plan experience can and will deviate from assumptions and we can’t just rely on the growth in payroll going forward.
Given the Plan’s current funded status, the Retirement Board wishes to be particularly vigilant and responsive over these next few years. Although the Retirement Board feels the combined employee/employer 18.5% contribution rate has been helpful for the Plan’s funded status, it is believed that the Plan should make strides to incrementally increase the total combined employee/employer contribution rate to 19.75% over the next five years. This would be accomplished over a five-year period by increasing the employer contribution rates a quarter of one percent (0.25%) per year, culminating in 2029 at a 10.75% contribution rate for employer and 9% for each eligible employee.
Fiscal Impact: Estimated $530,000 if the County contribution is increased by 0.25%.
Alternatives: N/A
Alignment with Strategic Plan:
☒Be fiscally sustainable
☒Provide essential and mandated service
☐Be community focused
Staff Recommendation: N/A
Concurrence: N/A