HomeMy WebLinkAboutCC AG PKT 2010-08-09 #LAGENDA STAFF REPORT
DATE: August 9, 2010
TO: Honorable Mayor and City Council
THRU, David N. Carmany, City Manager
FROM: Jill R. Ingram, Assistant to the City Manager
SUBJECT: CALIFORNIA JOINT POWERS INSURANCE
AUTHORITY AGGREGATE RETROSPECTIVE
DEPOSIT EARLY REPAYMENT INCENTIVE PLAN
SUMMARY OF REQUEST:
That the City Council:
1) Authorize Budget Amendment No. 11 -02 -01 (agenda item G) to
Appropriate Funding to Transfer Funds from Reserves to the General
Fund for the California Joint Powers Insurance Authority Aggregate
Retrospective Adjustment; and
2) Authorize the City Manager to sign the attached 2010 -2011 California
JPIA Incentive Program Participation Form as appropriate.
HISTORY:
The City of Seal Beach became a member of the California Joint Powers
Insurance Authority ( CJPIA) on July 1, 2002 for participation in the liability and
workers' compensation programs. The CJPIA was created by the members, for
the members. When the insurance industry abandoned cities in the mid- 1970s, a
group of 33 progressive cities joined together to form the CJPIA for the purpose
of providing liability protection for its members. City Manager David Carmany
has had a professional relationship with the CJPIA since 1986. Today the CJPIA
is one of the largest municipal self - insurance pools in the state.
The CJPIA has an investment portfolio of over $170 million. Funds are
conservatively invested according to a policy reviewed and adopted annually by
the Executive Committee. Each year the financial records are audited, and an
independent actuarial evaluation of the reserves is conducted to ensure the
continued financial ability for the members to protect themselves.
Agenda Item L
Page 2
The members take an active role in determining the programs and services that
will be provided. Council members, city managers, finance officers and risk
managers all participate in setting the direction for the organization to ensure that
it continues to be on the cutting edge in serving the members.
A Board of Directors, consisting of one elected official appointed by each
Member Agency, governs the CJPIA. The Board elects a President, Vice
President and seven Members of the Executive Committee, which meets monthly
to supervise and conduct Authority affairs. The Executive Committee has an
advisory Managers Committee that meets monthly and a Finance Officers
Committee that meets quarterly. A full -time staff headed by a Chief Executive
Officer, employed by the Executive Committee, handles the day -to -day business
of CJPIA.
The CJPIA works with the members to reduce the frequency and severity of
claims. Through risk analysis and continuous education, the CPIA helps its
members identify exposures and prevent losses. Each CJPIA member agency is
assigned a professional Risk Consultant to serve its specific needs and to help
the agency determine its risk management strategy.
Training is a major element of CJPIA risk management philosophy and an
important asset for its members. CJPIA offers extensive year -round training in
critical issues facing agencies today such as violence in the workplace, sexual
harassment, driver's awareness, care of the back, confined space entry,
ergonomics and other specialized areas found to present large exposures to the
members.
The CJPIA is composed of and governed by 121 member agencies, including 97
cities /towns, 18 Joint Powers Authorities, and 6 special districts. The CJPIA
provides the City with liability, workers' compensation, all -risk property,
commercial crime, special events, and pollution and remediation legal liability
coverage.
BACKGROUND:
Each year the CJPIA conducts a financial audit, actuarial study, and review of
investment policy and strategy. The results of those studies over the past few
years have highlighted the current financial challenges facing the CJPIA. Some
of the major factors contributing to those challenges include higher self- insured
retentions due to difficult market conditions, multiple multi - million dollar claims,
decreased portfolio and reduced investment earnings, and sensitivity to
economic conditions impacting individual member agencies. These factors have
now placed the CJPIA in a position as creditor to the member agencies. In that
regard, the CJPIA established an Ad -Hoc Formula Review Committee with the
goal of ensuring the overall financial strength and security of the CJPIA, and
transition the CJPIA out of the role of creditor to its member agencies.
Page 3
Retrospective Deposits
Each year on July 1 the City makes an initial contribution, and at the end of the
year, the CJPIA retroactively reviews the loss history and issues a partial refund
or requests an additional deposit based on actual claims activity. On a pool -wide
basis, claims that were incurred in 2003 -04 and 2004 -05 have experienced
significant adverse development over the past three years. Additional funding
(retrospective adjustments) for these and other coverage years was not collected
in full at the time these funding short-falls were initially identified. Member
agencies were allowed to make partial payments, while the majority of each
retrospective adjustment was deferred. The aggregation of these deferred
amounts over the course of several years is equal to the City's current
outstanding balance, which is referred to as the aggregate retrospective deposit
balance.
Therefore, the aggregate retrospective adjustment for the liability and workers'
compensation programs is in addition to the CJPIA annual insurance contribution
currently budgeted for general liability, workers' compensation, and
environmental liability programs. For FY 2010 -11, the total amount paid for
insurance contribution is as follows:
Annual Contribution 2010 -2011:
Liability Program $ 567,501
Workers' Compensation Program $ 609,323
Environmental Liability Insurance Program $ 6,041
TOTAL $1,182,865
CJPIA Ad -Hoc Formula Review Committee
The CJPIA Ad -Hoc Formula Review Committee created an early repayment
incentive plan to encourage early repayment of outstanding retrospective
deposits. As outstanding retrospective deposits are collected, the CJPIA's liquid
net asset position will continue to improve, which will in turn lessen their position
as creditor to the member agencies. As various retrospective deposit repayment
scenarios were considered in the design and drafting of the repayment plan, an
overall sensitivity to the current difficult economic environment played an
important role in the process. Under the repayment plan, it is anticipated that the
CJPIA will be able to accomplish its liquidity goals within a reasonable time
frame, while also allowing each member agency the flexibility of deciding which
repayment option is most appropriate. This is accomplished by offering a
combination of incentives for retrospective deposit repayment, and disincentives
for longer repayment terms. This aggregate retrospective deposit repayment
plan was reviewed by the Formula Review Ad -Hoc Committee, Managers
Committee, Finance Officers Committee, and approved by the Executive
Committee on May 26, 2010.
Page 4
Early Repayment Incentive Plan
Over the next three to five years, the CJPIA's liability and workers' compensation
programs will transition from the current retrospective funding model to a
prospective funding model. During the transition period, the annual contribution
is expected to build until it reaches the targeted confidence funding level of 75 %.
Based on current claims data and actuarial projections, this is expected to take
three years for the liability program and five years for the workers' compensation
program. During the transition period, and as CJPIA cash flow allows,
retrospective deposit payments are planned to be temporarily suspended.
During the transition period, no fees will accrue or be charged, and instead,
incentives for early repayment will be offered. After the transition period,
however, fees will be charged on outstanding retrospective deposit balances.
The early repayment incentive plan is set up on a sliding scale with the highest
discount offered for the first year, and then the discount progressively decreases
throughout the remainder of the anticipated transition period as indicated below
in Table 1:
Table 1
Early Repayment Incentive Plan Discount Rates
During anticipated transition years:
2010 -11 (year 1)
Liability = 6%
Workers' Compensation = 10%
2011 -12 (year 2)
Liability = 4%
Workers' Compensation = 8%
2012 -13 (year 3)
Liability = 2%
Workers' Compensation = 6%
2013 -14 (year 4)
Liability = n/a
Workers' Compensation = 4%
2014 -15 (year 5)
Liability = n/a
Workers' Compensation = 2%
For example, a member agency who owes $100,000 in the Liability program may
decide to take advantage of the 6% retrospective deposit reduction incentive in
year one of the transition period, and make a payment of $94,000 on
September 1, 2010. In this situation the $6,000 payment shortage would be
forgiven, and the full $100,000 retrospective deposit would be satisfied. The
CJPIA can then invest the $94,000 received, and over the course of several
years earn interest income in an amount that will approximately compensate for
the $6,000 shortage the CJPIA realized in collecting less than 100% of the total
amount due. In this way the CJPIA is made whole and the member agency
benefits from the discount as well.
Discounted incentive payments will be accepted in any amount for partial or full
retrospective deposit reduction at the discretion of each member agency.
However, incentive payments must be received by September 1, 2010. Attached
to this staff report as Attachment A is an exhibit of aggregate retrospective
deposit balances as of March 31, 2010 for each CJPIA member agency, as well
Page 5
as an illustration of the applicable discount for each program, assuming full
repayment of outstanding balances by September 1, 2010. Illustrated below in
Table 2 are the retrospective deposits owed for the City of Seal Beach for the
liability and workers' compensation programs as of March 31, 2010 and the
applicable discounts:
Table 2
Retrospective Deposits
The incentive early repayment program is voluntary and member agencies may
choose to make no payment at this time, a full payment, or a partial payment. In
the case of partial payments, the discount rate will be applied to the amount of
the partial payment. Member agencies who do not wish to participate in the early
repayment incentive plan will simply have their aggregate retrospective deposit
balances carried forward to the next year. Again, there is no penalty or fee
associated with choosing to temporarily defer payment at this time.
Once the transition years are complete, the discount incentives illustrated in
Table 1 will no longer be available. Member agencies with an aggregate
retrospective deposit balance at the beginning of the post- transition period will be
given the opportunity to select a repayment option at that time. While not yet
determined, these options will likely link the duration of the term to a fee which
will increase incrementally with the addition of each year, up to a maximum
period of time. This concept of disincentives if member agencies elect to finance
retrospective balances after the transition period was approved by the CJPIA
Executive Committee on May 26, 2010 with the specific fees to be determined
through future Executive Committee action.
Aggregate retrospective balances will be re- evaluated each year as part of the
pool's retrospective computation process. These amounts may increase or
decrease as a result of updated development on claims submitted against the
member agencies. While the CJPIA transitions from a retrospective funding
model to a prospective funding model, each member agency's retrospective
deposit balances will change with every annual computation. Therefore, all
coverage years up to and including the final transition period year, will continue
to receive retrospective deposit adjustments annually, until all claims are closed
2010 -11
Aggregate
Retrospective
Balance
Payment
Amount if
Paid in Full
b 9/1/10
Savings if
Paid in Full
l
by 9/1/10
Liability
$1,088,043
1,022,760
$65,283
Workers' Comp
$214,871
$193,384
$21,487
Total 1
$1,302,914
$1,216,144
$86,770
The incentive early repayment program is voluntary and member agencies may
choose to make no payment at this time, a full payment, or a partial payment. In
the case of partial payments, the discount rate will be applied to the amount of
the partial payment. Member agencies who do not wish to participate in the early
repayment incentive plan will simply have their aggregate retrospective deposit
balances carried forward to the next year. Again, there is no penalty or fee
associated with choosing to temporarily defer payment at this time.
Once the transition years are complete, the discount incentives illustrated in
Table 1 will no longer be available. Member agencies with an aggregate
retrospective deposit balance at the beginning of the post- transition period will be
given the opportunity to select a repayment option at that time. While not yet
determined, these options will likely link the duration of the term to a fee which
will increase incrementally with the addition of each year, up to a maximum
period of time. This concept of disincentives if member agencies elect to finance
retrospective balances after the transition period was approved by the CJPIA
Executive Committee on May 26, 2010 with the specific fees to be determined
through future Executive Committee action.
Aggregate retrospective balances will be re- evaluated each year as part of the
pool's retrospective computation process. These amounts may increase or
decrease as a result of updated development on claims submitted against the
member agencies. While the CJPIA transitions from a retrospective funding
model to a prospective funding model, each member agency's retrospective
deposit balances will change with every annual computation. Therefore, all
coverage years up to and including the final transition period year, will continue
to receive retrospective deposit adjustments annually, until all claims are closed
Page 6
for those coverage years on a pool -wide basis. Historically this has taken
approximately 6 -8 years in the liability program, and significantly longer in the
workers' compensation program.
As aggregate retrospective deposit balances change each year, the early
repayment incentive plan will remain the same as described above, with the only
difference being the new balances. For example, in the liability program a
member agency may choose to repay their current, full outstanding balance of
$100,000 on September 1, 2010 and receive the associated 6% discount.
Afterward, their balance will remain at zero, but only until the next retrospective
computation occurs. In this case, the next computation is scheduled to occur in
October 2010. If this subsequent computation yields an additional deposit due of
$10,000, then the member agency must either elect to allow this balance to
remain temporarily suspended, or on July 1, 2011, make a partial or full payment.
If the member elects to make a full payment, the amount due would be $9,600
and the full $10,000 retrospective deposit would be satisfied, reflecting the 4%
discount applicable in year two of the anticipated transition period. In this
manner, the decision regarding participation in the early repayment plan must be
made annually, by each member agency, throughout the entire transition period.
Therefore, each year prior to July 1, staff will come back to the City Council for
direction based upon the re- evaluation of retrospective deposit balances
throughout the transition period.
In the fortunate circumstance that there is a refund due based upon the re-
evaluation of retrospective deposit balances, refunds will be credited to member
agencies on their annual invoice at a rate which is determined each year by the
Executive Committee during the transition period. On the CJPIA's annual invoice
for 2010 -11, member agencies with a refund were credited % of their total refund
balance, with the remaining portion of the refund carried forward to be applied to
the next annual retrospective computation. This retrospective refund process is
expected to continue throughout the duration of the transition period. After the
transition period, any member agency with a refund balance will receive the full
amount of their refund balance as a credit against other charges on their annual
invoice. This is expected to occur in the first coverage year following the
transition period, and every year thereafter.
Incentive program payments throughout the transition period will typically be due
on July 1. However, in the initial year of the program, payments are not due until
September 1. This deadline extension in the first year of the program is intended
to provide member agencies with sufficient time to consider the various options.
The CJPIA requires complete records indicating which payment option each
member agency selects, including a signed form from all member agencies,
which is attached to this staff report as Attachment B. The signed form is
required even if the City Council elects not to participate in the incentive program.
Page 7
The form and any incentive program payments, if authorized by the City Council,
are due no later than September 1, 2010.
FISCAL IMPACT:
The total aggregate retrospective deposit currently due if paid in fully by
September 1, 2010 through the incentive early repayment program is as follows:
$1,022,760 Liability
$ 193.384 Workers' Compensation
$1,216,144 TOTAL
The aggregate retrospective deposit is not budgeted in the FY 2010 -11 budget,
and therefore, a full payment or partial payment option for year 1 of the transition
period due September 1, 2010 would require the adoption of the attached
resolution in Attachment C to authorize a budget amendment.
RECOMMENDATION:
That the City Council:
1) Authorize Budget Amendment No. 11 -02 -01 (agenda item G) to
Appropriate Funding to Transfer Funds from Reserves to the General
Fund for the California Joint Powers Insurance Authority Aggregate
Retrospective Adjustment; and
2) Authorize the City Manager to sign the attached 2010 -2011 California
JPIA Incentive Program Participation Form as appropriate.
SUBMITTED BY:
Ji lair In
ssnt to the City anager
NOTED AND APPROVED:
�a
David N. Carmany
City Manager
Attachments:
A. California JPIA Discount Incentives for Early Repayment of Aggregate Retrospective
Deposit Balance
B. California JPIA 2010 -2011 Incentive Program Participation Form
ATTACHMENT "A"
California JPIA
Discount Incentives for Early Repayment
of Aggregate Retrospective Deposit Balances
This exhibit assumes that the full amount of all aggregate retrospective deposits owed, will be paid by 9/1/2010• Please note, the incentive program is
voluntary and members may choose to make no payment at this time, a full payment, ore partial payment. In the case of partial payments, the discount
rate will be applied to the amount of the partial payment. This exhibit is only intended to illustrate one of the options under the discount incentive plan
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California JPIA
Discoant Incentives for Early Repayment
of Aggregate Retrospective Deposit Balances
This exhibit assumes that the full amount of all aggregate retrospective deposits owed, will be paid by 911/2010. Please note, the incentive program is
voluntary and members may choose to make no payment at this time, a full payment, or a partial payment In the case of partial payments, the discount
rate will be applied to the amount of the partial payment. This exhibit is only intended to illustrate one of the options under the discount incentive plan,
3/31/1D
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Aggregate
Retrospective
Payment Amount
Retrospective
Payment Amount
Balance 313U2010
if Paid in Full by
6%
Balance 3/31/2010
if Paid in Full by
10%
Member
(Deposits)/Refunds
911/2010
Savings
(Deposits)/Refunds
9/1/2010
savings
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11,680
V
".3 ilKV
76 Monterey Peninsula RP
64,467
4,115
...... 6,757)
15081
,
1,676
M rk
oar
. pa
503 501
OA
7.
73 Morro Bay
(292,104)
274,578
17,526
251,100
.79:
(�tSgQ
419 937�
so Norwalk
(2,951,818)
2,680,709
171,109
(1,766,365)
1
176,636
15 Ol..7.-.-
. ..
. . .......
• 414
n Palm Desert
(746,367)
701,585
44,732
389,104
r.
A
P9)
7.. z i.
Ora-
94 Palos Verdes TA
(6,178)
5,807
371
-.2f,
via
MIA
.35 ammount
3
86 Paso Robles
(1,911,625),
1,796,928
114,697
445,835
3/31/1D
2aO
California JPIA
Discount Incentives for Early Repayment
of Aggregate Retrospective Deposit Balances
This exhibit assumes that the full amount of all aggregate retrospective deposits owed, will be paid by 9/1/2010, Please note, the incentive program is
voluntary and members may choose to make no payment at this time, a full payment, or a partial payment. In the case of partial payments, the discount
rate will be applied to the amount of the partial payment. This exhibit is only intended to illustrate one of the options under the discount incentive plan,
:........•.. I:iabilit :..., . ..... . ..:...:... ..:....,. .
:..:.
-- y .�. ; :;::::. .orkers: Comncnsatlon::. :
Aggregate
Retrospective Payment Amount
Balance 3/31 /2010 if Paid in Full by
Member (DepositsyRefunds 9/1/2010
PICO'RlV
as Pismo Beach (
(1,409;
:o
.. P
Aggmgate
Retrospective Payment Amount
6% Balance 3/31/2010 if Paid in Full by 10%
Savings (Deposits)/Refunds 1 9/1/2010 1 Savings
0
9. 82' 61' 93
7. ... 9.� 352
21 � - - -
20) 1,324,855 84,565 152,319 Ufa ak
_' -
38'
30) 386,462 24,668 323 .14 WA
616 ;373. '.::.': -' *: °'.39,33:. i "':•`:':`c_.(380,002) :: -•_ <_' 3 ::::;:x:::`::3$,409 ::
29 ,✓. n/a 77,155 aJa ah
...) • •. •..:.... 1'78. ' :::_'�. �� : '-3841
42) 46,475 2,967 7 ° 6
83) :''.: •:...249,648.: 1'98:` ` 'r' ='i g '':pia i✓.
44) 522,963 33,381 (163,207) 146,886 16,321
04' 1`• 3
3•:
z•i7
98) 115,994 7,404 218 A
5 223 2
...) .. .... "... 11' .. ' 1'�7" •.4.:1'15. �'do
...,:.....402,759 : -:: .25,708 ::.: .::. µ(21,I50) ;.::::.:•:;..:e: :, 19,035 ..... ...
14) .3.346,977: `:.. ::213,b37,
4) 1,809,382 115,492 - n/a ,✓a
'..857'35 4
I) 1,003,949 64,082 174,147 da da
- -2;545 ;557; •`162'452; :685 `I"
09' d
_ , ... `
3) 785,481 50,137 339,542 are „la
.. ._ 9 083
1,022,760 _ 65,283 :. : T : X214,871) : 4 193,384 21,487
S) 439. =`:426:
Y.. :.....
t) 68,312 4,360 - a r m
r 961 `241'
:'.12t518G: ' 3D
3;320) , . <':27288-; 30,33j�:
I) 45 28 313,998
1 -
185785
..... ,
0) 45,316 2,893 121,197 v/a
- :10944.
69, 860; > '� "•�'::�- :;'��859776.- �:: :.�:. <�'�r.
1) 111,045 7,088 119,421 a/a da
- - --
:.
138
,) ... 847
1) 50,810 3,243 3,138 da aA
3 '3
6
=`1
, . 3 � � •:. =rte :•:..1,OL8=
1,666,127 106,348 112,954 101,659 11,295
I) 373,142 23,818 6,352
Total 1 (75352.61
Total (Deposits) (75,653,854)
Total Refunds 301,242
F1
(9,227,448)
15,613,569
331/10
3 oF3
4) 1,809,382 115,492 - n/a ,✓a
'..857'35 4
I) 1,003,949 64,082 174,147 da da
- -2;545 ;557; •`162'452; :685 `I"
09' d
_ , ... `
3) 785,481 50,137 339,542 are „la
.. ._ 9 083
1,022,760 _ 65,283 :. : T : X214,871) : 4 193,384 21,487
S) 439. =`:426:
Y.. :.....
t) 68,312 4,360 - a r m
r 961 `241'
:'.12t518G: ' 3D
3;320) , . <':27288-; 30,33j�:
I) 45 28 313,998
1 -
185785
..... ,
0) 45,316 2,893 121,197 v/a
- :10944.
69, 860; > '� "•�'::�- :;'��859776.- �:: :.�:. <�'�r.
1) 111,045 7,088 119,421 a/a da
- - --
:.
138
,) ... 847
1) 50,810 3,243 3,138 da aA
3 '3
6
=`1
, . 3 � � •:. =rte :•:..1,OL8=
1,666,127 106,348 112,954 101,659 11,295
I) 373,142 23,818 6,352
Total 1 (75352.61
Total (Deposits) (75,653,854)
Total Refunds 301,242
F1
(9,227,448)
15,613,569
331/10
3 oF3
Total 1 (75352.61
Total (Deposits) (75,653,854)
Total Refunds 301,242
F1
(9,227,448)
15,613,569
331/10
3 oF3
ATTACHMENT "B"
CALIFORNIA
J P • I , A
2010 -2011 Incentive Program Participation Form
for Payment of Aggregate Retrospective Deposits Owed to the California JPIA
Member Agency Name:
Liability Program
❑ A. We do NOT wish to participate in the incentive program this year. We elect to carry
the retrospective deposit balance forward to the following year, and keep it temporarily
suspended, as Authority cash flow allows, with NO payment to be made at this time.
❑ B. We elect to make pg1jial payment by September 1, 2010 in the amount of
The discount rate is 6% and the amount of the discount is
This payment reduces the amount of retrospective deposits owed by
❑ C. We elect to make full payment by September 1, 2010 in the amount of
The discount rate is 6% and the amount of the discount is
This payment reduces the amount of retrospective deposits owed by
❑ D. Our agency has a refund balance, thus this does not apply.
Workers' Compensation Program
$
❑ A. We do NOT wish to participate in the incentive program this year. We elect to carry
the retrospective deposit balance forward to the following year, and keep it temporarily
suspended, as Authority cash flow allows, with NO payment to be made at this time.
❑ B. We elect to make vartial payment by September 1, 2010 in the amount of $
The discount rate is 10% and the amount of the discount is $
This payment reduces the amount of retrospective deposits owed by $
❑ C. We elect to make full payment by September 1, 2010 in the amount of $
The discount rate is 10% and the amount of the discount is $
This payment reduces the amount of retrospective deposits owed by $
❑ D. Our agency has a refund balance, thus this does not apply.
Approved by (print name)
Approved by (signature)
Title
Date:
Pleaso submit the completed form by faxing to (562) 467 -8798, or scan and e-mail to asmid�Cdr ci nia.ore no later than September 1. 2010. If your agency has
elected to make a payment, the payment is also due by September 1, 2010. Please note: your agency's aggregate retrospective depositor refund ba lance in both
programs will change annually with each retrospective computation. Full repayment at this time, does not eliminate the possibility of additional retrospective
deposits in the future, which may arise as a result of adverse claims development on a pool -wide basis. Thank you.