Retired Employees Association of Orange County
REAOC Board Welcomes You!
Pictured Left to Right: Co-President Doug Storm, Sharon Sedgwick, Co-President Linda Robinson, and John LaRoche
Board Watch Committee
In the News
CONGRATULATIONS TOM BECKETT
Our newly elected Retiree Member on the OCERS Board
RETIREES - YOU DID IT!! Your voices were heard. Your votes counted. Our thanks to all of you who participated in this election and supported Tom Beckett. A total of 5,835 votes were cast in this election. Of those votes, 4,182 or nearly 72% were for our new OCERS Retirement Board representative, Tom Beckett. This is great news and shows the power of our members and those retirees who support the cause of protecting our hard earned pension and benefits.
HEALTH CARE PLAN RATES FOR 2014
At the Board of Supervisors' meeting on Tuesday, July 23, 2013, the new Health Plan Rates were approved on a 5-0 vote by the Board members. There are some plans that will have increased rates for 2014 as well as some plans that will have decreased rates for 2014.
The rates for 2014 do have a positive impact due to special funding applied to the rates for the year 2014 only. These special funds, known as Early Retiree Reinsurance Program (ERRP), consist of a short-term federal reimbursement program, authorized as part of the Patient Protection and Affordable Care Act (PPACA) to encourage employers to continue to provide insurance coverage to “early retirees” (ages 55 – 64) who are not eligible for Medicare. The County of Orange received $1.3 million in ERRP funds for Retiree Insured Health Plans. These funds were generated as reimbursement for actual medical and pharmacy services incurred by County early retirees in these plans and must be used no later than December 31, 2014. The County Human Resources Services received approval from the Board of Supervisors to apply a monthly credit to the rates for current early retirees enrolled in the Retiree Insured Health Plans and to adjust that credit as necessary during the 2014 Plan Year, due to changes in enrollment, to ensure all funds are spent by December 31, 2014. The reimbursement associated with the Cigna Health Plan will be applied toward the Anthem Blue Cross Health Plans which replaced Cigna through a competitive bid process. The credit will vary by health plan due to the variance in the reimbursement received for each health plan.
Please click on the links below for the charts provided by the County for the 2014 Health Plan rates and other open enrollment information:
IN THE NEWS
Many of you read the article that was in the OC Register regarding the OCERS pension system. Unfortunately the whole picture regarding our assets at OCERS was not clearly represented.
One of the primary lessons to learn from the OCERS history is that our asset allocation is, by design, different from many (most) other pension plans. For over 30 years OCERS has tried to avoid big losses in down market years, even if it means lower returns in up market years. A major example of how this works can be seen by looking at the returns for 2008. In a year when the Dow was down over 35% and other plans such as PERS lost over 30%, OCERS lost "only" 21%. That means that the OCERS asset allocation was much less risky and avoided about $1 billion in losses that year. It also means that in up market years, like 2013 OCERS will earn less than many others. A report comparing the 21 SACRS systems and 60 other plans distributed at the recent SACRS meeting, showed that OCERS had the best "risk adjusted" returns. Our risk level was much lower than other plans even though our longer term returns were comparable.
A few years ago when the County looked at moving to PERS, they compared earnings for both short and long time frames. They found that PERS often out performed in good market years but that OVERS did better in the long run. This is not an accident! We have specifically designed our investment system to accomplish this outcome.
One of the problems with this article is that the reporter appeared to be only interested in short term experience. If the reporter had focused on longer term returns, the headline and the story would have had a very different slant. Adding to that issue is the nature of the private equity and some of our hedge fund investments. These investments are designed to generate good returns after 5 to 7 years, not from day one. As a matter of fact , in the first 2 to 4 years of the investment the returns are probably going to be negative. These investments are in things like venture capital for start up companies. In the first several years the companies are spending cash building the company and often have no profit. In later years, the good companies start making money at rates much better than most companies. So OCERS does not expect to see good returns from these investments in a time frame as short as three years but expect good returns in a longer period.
All of this was explained to the reporter in great detail. However, as is often the case with reporters, he had his basic premise established before he talked to anyone at OCERS. He did not let new information get in the way of the story he wanted to write.
If you did not read the article, please click on the link below to access the article.
Additonally, OCERS published at letter regarding the OC Registrar article. Click on the link below to see the OCERS letter.
Detroit 'needs help,' is eligible for bankruptcy, judge rules
Saying that “the city needs help,” a judge ruled Tuesday that Detroit is eligible for bankruptcy protection and can cut municipal employee pensions as it reorganizes its finances. “This case was filed in good cause and should not be dismissed,” Judge Steven Rhodes of U.S. Bankruptcy Court said, to the disappointment of pensioners and other creditors, who had raised a host of objections to the city’s Chapter 9 bankruptcy filing in July. The ruling makes Detroit, burdened with $18 billion in debt, the largest U.S. city to be granted bankruptcy protection. (More)
Bankrupt Detroit can cut pensions; big implications for California
In a case with major implications for California, a judge today ruled that the bankrupt city of Detroit can impose cuts to its municipal pension plans. The ruling by U.S. Bankruptcy Judge Steven Rhodes could help bankrupt San Bernardino in a potential legal showdown with CalPERS over the sanctity of employee pensions. According to the Detroit News, the judge said pensions are essentially the same as any other contract, and “it has long been understood that bankruptcy law entails the impairment of contracts.” ------------ “This court will not lightly or casually exercise power…to impair pensions,” he said, according to the Detroit News. Spiotto said courts have generally taken the view that, while contracts can be reduced in bankruptcy, the cuts need “to be the least drastic.” Retirees need to receive “everything that can be paid practically,” he added. (More)
Fitch Ratings comments on Detroit ruling
According to Fitch Ratings, the December 3rd ruling by a federal bankruptcy court judge that the city of Detroit is eligible for Chapter 9 was not a surprise, although the ruling regarding pension obligations provided unexpected clarity to a question that has puzzled many municipal market participants. The ruling on pensions follows a similar finding by the judge in the Stockton, CA bankruptcy case, who concluded in his August 6th, 2012 opinion that even if post-employment health benefits were a vested right under the CA constitution, they would not be protected in bankruptcy. This reasoning could also be extended to pension benefits, but that remains an open question in California. (More)
CalPERS issues statement on Detroit Bankruptcy Ruling
December 3, 2013 - In response to Judge Steven Rhodes ruling today that Detroit can impair current employee and retiree pensions as it moves through the bankruptcy process, the California Public Employees' Retirement System (CalPERS) issued the following statement:
"The Detroit court failed to recognize the difference between a two party contract and the unique nature of a state public employee retirement system, which creates a three-way relationship among a public agency, its employees and the retirement system. In California, our members’ vested rights to their pensions are protected by the California constitution, statutes and case law.
"Unlike Detroit, CalPERS is not a city pension plan. CalPERS is an arm of the state and was formed to carry out the state’s policy regarding public employees. The Bankruptcy Code is clear that a federal bankruptcy court may not interfere in the relationship between a state and its municipalities. The ruling in Detroit is not applicable to state public employee pension systems like CalPERS. "The ruling is short-sighted and does not take into account the promises made in exchange for the financial and physical investments that public employees and retirees make in our communities. (More)
Detroit ruling opens door to pension cuts across the nation
A bankruptcy judge's ruling that Detroit's pension funds — like its other creditors — can take a hit might lead other financially troubled cities down the same path, experts say. (More)
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