HomeMy Public PortalAbout06) 7.C. CHANGE OF MEDICAL BENEFITS FOR RETIRED EMPLOYEESAGENDA
ITEM 7.C.
ADMINISTRATIVE SERVICES DEPARTMENT
DATE: February 19, 2013
MEMORANDUM
TO: The Honorable City Council
FROM: Jose E. Pulido, City Manager
By: Tracey L. Hause, Administrative Services Director
SUBJECT: CHANGE IN MEDCIAL BENEFITS FOR RETIRED EMPLOYEES
RECOMMENDATION:
The City Council is requested to receive and file the attached actuarial valuation
(Attachment "A") regarding proposed changes to the amount of compensation to be
paid by the City for medical benefits for retired employees.
BACKGROUND:
1. On June 20, 1978, the City Council adopted Resolution No. 78-1747 electing to be
subject to Meyers -Geddes State Employees Medical and Hospital Care Act and
fixing the employer's contribution for each employee or annuitant (retiree) at an
amount necessary to pay the full cost of his/her enrollment, including 50% of the
cost of enrolling dependent or family members in a health plan or health plans.
2. In 2005, the Governmental Accounting Standards Board (GASB) issued Statement No.
45 (Statement) to address the liability of employee earned benefits received when their
employment ends with an agency, or more commonly known as Other
Postemployment Benefits (OPEB).
3. On June 30, 2009, the City of Temple City implemented GASB No. 45 as required by
the Statement.
4. For Fiscal Years (FY) 2008-09, 2009-10 and 2010-11, the City's contributions for
OPEB were based on a pay-as-you-go basis (i.e., as premiums become due).
5. On September 14, 2011, a draft of GASB 45 Actuarial Valuation (Actuarial Valuation)
completed by John E. Bartel (John Bartel), President of Bartel and Associates was
presented to City staff.
6. On October 31, 2011, John Bartel presented a final Actuarial Valuation that included
minor revisions to the September 14, 2011, Actuarial Valuation, (Attachment "B"). This
City Council
February 19, 2013
Page 2
Actuarial Valuation outlined the future liability of OPEB to be $9,142,000.
7. On September 4, 2012, the City Council adopted Resolution No. 12-4845 authorizing
participation in the Public Agency Retirement System (PARS) Post -Retirement Health
Care Plan Trust (Trust) and directed staff to deposit $1,000,000 in accordance with the
City's adopted General Fund Budget Reserve Policy, into the Trust. This initial deposit
of principal, and the interest earnings generated on this investment, will help to reduce
this OPEB future liability. When a subsequent actuarial valuation is completed in 2014
(required by GASB No. 45), this future liability of OPEB will be recalculated and
presented in the updated report.
8. On January 11, 2013, the Tier Benefit Ad Hoc Committee (i.e., Mayor Yu and
Councilmember Blum) met to discuss the possibility of further reducing the City's
OPEB liability by reducing retiree medical benefits for new hires.
9. On February 11, 2013, the City received an Actuarial Valuation for a retiree medical
benefit tiered system.
ANALYSIS:
In 1978, the City adopted a resolution in which it committed to contribute the full cost of
enrollment into the CalPERS medical insurance plan for each employee and retiree plus
50% of the cost of enrollment for one dependent. This contribution plan has not been
changed and remains in effect today. Because of this rich plan, the OPEB future liability
is substantial. The City has taken measures to begin reducing the future liability by
prefunding a portion of the future liability with the deposit of $1,000,000 into the PARS
Trust.
With a desire to continue to reduce the OPEB liability, the Tier Benefit Ad Hoc Committee
asked staff to consider alternatives for reducing the future costs of such benefits. The City
has determined that it could achieve potentially significant cost savings in the long term
(i.e., over the 30 to 50 years) if it were to reduce the amount of the monthly contribution
to the Public Employees Medical and Hospital Care Act (PEMHCA) to the statutory
minimum required to be paid for all employees and retirees of $115.00 per month. (The
City's participation in the CaIPERS health care system is governed by PEMHCA and it
is imperative the City work within the PEMHCA's statues.) The City would then provide
a separate amount directly to current employees and retirees outside of PEMHCA,
preserving the existing level of benefits to current employees and retirees.
If the City Council chooses to modify this benefit for all employees hired after May 1,
2013, the retiree medical benefit, for the retiree only, would be governed by the
following formulas:
City Council
February 19, 2013
Page 3
Less than 15 year of service PEMHCA minimum (currently $115.00 per month);
10 to 20 years of service PEMHCA minimum plus 50% of single premium;
20 to 25 years of service PEMHCA minimum plus 75% of the single premium; and
25 year plus PEMHCA minimum plus 100% of single premium.
Two weeks after the actuarial valuation is made public, the City Council must
subsequently adopt two resolutions:
• One resolution will reduce the amount of the contribution that the City makes
directly to CaIPERS on behalf of each employee and retiree from the full cost
of one employee plus 50% of the cost of one dependent under the 1978
resolution, to the statutory minimum, which is currently $115/month total; and
• The second resolution will provide for compensation directly from the City to
each current employee, any employees hired before May 1, 2013, and all
retirees allowing for the current benefit of providing for the full cost of one
employee's medical premium plus 50% of the cost of one dependent to
remain in effect.
After the City Council approves the resolution modifying its contribution to CalPERS on
behalf of its employees and retirees, the City must submit it to CalPERS. Since there
will not be a City Council meeting on March 5, 2013 due to the local election and the
City Council meeting on March 19, 2013, will be limited as a result of the Council re-
organization, staff is planning to bring back the two required resolutions to the City
Council on April 2, 2013. Once adopted, staff will submit the Resolution to CalPERS
with an effective date of this change of May 1, 2013.
CONCLUSION:
If the City Council desires to reduce future liability of OPEB liabilities, the recommended
actions as documented above are necessary at this time. Staff is recommending the
City Council receive and file the Actuarial Valuation provided as the first of two steps to
modifying the level and thresholds of retiree medical benefits. The remaining step of
adopting the necessary resolutions will be presented to the City Council on April 2,
2013.
FISCAL IMPACT:
Since this benefit change will only apply to new hires effective May 1, 2013, there will be
only minor savings in the next 10 years. However, when all current employees and
retirees are no longer utilizing the current benefit, the City could eventually see long
term annual savings (within possibly 30 years) in benefit costs of $464,400, calculating
retiree medical costs as a percentage of today's payroll dollars. However this type of
savings would not occur until the last person hired before May 1, 2013, is no longer
utilizing the benefit (i.e., has deceased).
City Council
February 19, 2013
Page 4
ATTACHMENTS:
A. Actuarial Valuation dated February 11. 2013
B. Actuarial Valuation dated October 31, 2011
Attachment "A"
February 11, 2013
Tracey Hause
Administrative Services Director
City of Temple City
9701 Las Tunas Drive
Temple City, CA 91780
Re: City of Temple City— New Retiree Healthcare Benefit Tier— Revised Cost Impact
Dear Ms. Hause:
Section 7507 of the California Government Code requires agencies obtain a statement of actuarial opinion
regarding the cost impact of retirement benefit changes. This letter provides the actuarial impact of the
retirement benefit changes for City of Temple City's retiree healthcare plan.
Summary of Benefit Changes
The City currently provides retiree medical benefits paying up to the full single premium and 50% of
dependent premiums. For a surviving spouse, full premium is provided, with 50% coverage for other
dependents. In addition, full single coverage is provided for dental and vision.
We understand the City is considering changing retiree healthcare benefits for new employees (hired after
Council resolution is adopted) as follows:
■ Medical Benefit:
Years of City Service Benefit (Pre -Medicare eligibility) Benefit (Post -Medicare eligibility)
< 15 PEMHCA minimum` PEMHCA minimum
15 to 20 50% of single premium PEMHCA minimum
20 to 25 75% of single premium PEMHCA minimum
25+ 100% of single premium PEMHCA minimum
■ Surviving spouse benefit:
• PEMHCA minimum only continues to spouse upon death of annuitant (provided pension paid
with survivor annuity)
■ Dental, Vision, Life Insurance, etc.
• None: no other post employment benefits
Suntneary of Cost Change
Since the City is currently not prefunding these benefits in a trust, costs are incurred when employees
retire, and savings will not be realized until employees that are hired in the future retire years later.
Therefore, there are not expected to be cost savings over the next 5 to 10 years and only very minor
savings over the following 10 years. The current Unfunded Actuarial Accrued Liability (UAAL) and the
The PEMHCA minimum is $108 per month for 2011, $112 for 2012, and $115 for 2013. It will increase in the future as
determined by the CalPERS Board, likely at medical CPI.
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Tracey Hause
February 11, 2013
Page 2
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Annual Required Contribution (ARC) will not change due to the new benefits. In other words, there is
zero decrease to the Actuarial Accrued Liability (AAL) as a result of the City adopting the OPEB tier 2
benefits.
One measure of the longer term savings is the Annual Required Contribution (ARC). The ARC is equal
to the employer Normal Cost (the value of benefits earned during the year), plus the amortized unfunded
liability (the value of benefits that have been earned in previous years offset by the actuarial value of plan
assets). Future Annual Required Contributions (ARCS) will slowly, over a period of many years,
decrease as more and more employees are provided the newer reduced benefits. The following exhibit
summarizes the employer normal cost (as a percentage of payroll), and shows the difference in dollar
amounts for a single hypothetical new hire.
Please note that the employer normal cost remains unchanged for employees hired before the adoption of
the Council resolution, with the new benefits and consequently new normal cost only applying to
employees hired on or after the effective date.
Effective January 1, 2009, Senate Bill 1123 requires an actuary be present at the public meeting benefit
changes are adopted, if the future costs of proposed changes exceed 0.5% of the future annual cost of
existing benefits. Because the employer normal cost decreases for employees under the new benefit, we
don't believe it is necessary for an actuary to be present at the public meeting for the above benefit
changes. However, Bartel Associates is not a law firm and we are not qualified to render a legal opinion,
so we suggest you confer with the City Attorney regarding the applicability of §7507 in this case.
Actuarial Methods, Assumptions & Data
The above calculations are based on the June 30, 3011 OPEB valuation actuarial methods and
assumptions, and 4.5% annual increases in the PEMHCA minimum amount after 2013. The impact of a
2nd tier is highly dependent upon the actual demographics of new employees. Future hire demographics
were assumed similar to those hired under age 55' by the City in the past 5 years (i.e. since June 30,
2006), including the following:
• Average age at hire: 41.3
• Percentage male 79%
• Average pay: average pay of all employees, reduced by assumed salary growth for the
difference in average age of the entire group and the new hires
Actuarial Certification
As a member of the American Academy of Actuaries, I certify the calculations are complete and accurate
and in my opinion present the information necessary to comply with the §7507 of the California
Government Code.
2 One employee hired at age 68 was excluded.
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Tier 1
Tier 2
Iaerease/
Benefits
Benefits
(Decrease)
■ 2012/13 Employer
Normal Cost
21.9%
4.7%
(17.2)%
■ Normal Cost for
Hypothetical New Hire
Earning $30,000
$ 6,570
$ 1,410
$ (5,160)
Please note that the employer normal cost remains unchanged for employees hired before the adoption of
the Council resolution, with the new benefits and consequently new normal cost only applying to
employees hired on or after the effective date.
Effective January 1, 2009, Senate Bill 1123 requires an actuary be present at the public meeting benefit
changes are adopted, if the future costs of proposed changes exceed 0.5% of the future annual cost of
existing benefits. Because the employer normal cost decreases for employees under the new benefit, we
don't believe it is necessary for an actuary to be present at the public meeting for the above benefit
changes. However, Bartel Associates is not a law firm and we are not qualified to render a legal opinion,
so we suggest you confer with the City Attorney regarding the applicability of §7507 in this case.
Actuarial Methods, Assumptions & Data
The above calculations are based on the June 30, 3011 OPEB valuation actuarial methods and
assumptions, and 4.5% annual increases in the PEMHCA minimum amount after 2013. The impact of a
2nd tier is highly dependent upon the actual demographics of new employees. Future hire demographics
were assumed similar to those hired under age 55' by the City in the past 5 years (i.e. since June 30,
2006), including the following:
• Average age at hire: 41.3
• Percentage male 79%
• Average pay: average pay of all employees, reduced by assumed salary growth for the
difference in average age of the entire group and the new hires
Actuarial Certification
As a member of the American Academy of Actuaries, I certify the calculations are complete and accurate
and in my opinion present the information necessary to comply with the §7507 of the California
Government Code.
2 One employee hired at age 68 was excluded.
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Tracey Hause
February 11, 2013
Page 3 e�
Please call rae (650/377-1601) with any questions about this letter or our calculations.
Sincerely,
John E. Bartel
President
e Deanna Van Valer, Bartel Associates, LLC
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Attachment "B"
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CITY OF TEMPLE CITY
RETIREE HEALTHCARE PLAN
June 30, 2011 GASB 45 Actuarial Valuation
Results
Presented by John E. Bartel, President
Prepared by Deanna Van Valer, Assistant Vice President & Actuary
Tak Frazita, Actuarial Analyst
Adam Zimmerer, Actuarial Analyst
Bartel Associates, LLC
October 31, 2011
AGENDA
Topic Page
Benefit Summary 1
Participant Statistics 3
Actuarial Assumptions Highlights 7
Actuarial Methods 11
Results 13
CERBT Investment Options 21
Bartel Associates GASB 45 Database 23
Other Issues 26
Exhibits 28
e mdwncilemeeiy 114ep^rt\Mhinplem 11-10.11 open ua6ao-I-0t, d-
BENEFIT SUMMARY
■ Eligibility
. Retire directly from City under Ca1PERS (age 50 and 5 years of
Dental
Ca1PERS service or disability)
■ Retiree Medical
. Contracts with CAPERS under Public Employees' Medical and
Benefit
Hospital Care Act (PEMHCA)
$ 3,170
• Full premium for employee and 50% for dependents
■ Dental & Vision
• Full premium for employee retired on or after 4/18/00
4,992
. Dependent coverage available at employee's expense
■ Surviving Spouse . Medical — Full premium for surviving spouse and 50% for other
Benefit dependents
• Dental & Vision — Available at survivor's expense
1 Octcber31,2011
1
BENEFIT SUMMARY
I I-
■ Other OPEB No City contribution for life insurance or Medicare Part B
■ Pay -As -You -Go Fiscal Year
Medical
Dental
Vision
Total
Costs 2010/11
$ 133,663
$ 6,105
$ 3,170
$ 142,938
2009/101
108,892
4,992
2,632
116,515
2008/09
122,635
4,076
2,011
128,722
2007/08
123,291
3,966
1,957
129,214
2006/07
113,607
3,540
1,794
118,941
Medical reflects 2 month CalPERS premium holiday for PPO plans
P711, October31, 2011a•"'r
PARTICIPANT STATISTICS
Participant Statistics
PARTICIPANT STATISTICS
Covered Participants
6/30/091 `
6/30/1.1'-
■ Actives
■ Actives
• Count
n/a
• Count
36
37
3
• Average Age
n/a
45.8
• Covered %
• Average City Service
n/a
7.9
• Average PERS Service
n/a
11.0
5
• Average Pay
$ 62,811
$ 64,128
• Covered
• Total Pay (000's)
2,261
2,3733
n/a
■ Retirees
■ Retirees > 65
• Service Retired
n/a
20
• Waivers
• Disabled
n/a
1
n/a
• Survivor
2
4
90%
• Total Count
23
25
t t
• Average Age
n/a
71.4
• Average Retirement Age
October 3l, 2011
Service Retired
n/a
60.8
i Disabled
n/a
52.1
' Information from 6/30/09 AMM report by Mrllimari s'GASBhelp".
Bt -weekly salary as of 6/17/11 ($91,259 for 6/4/11-6/17(11)
multiplied by 26 pay periods
tl
3
October 31, 2011
PARTICIPANT STATISTICS
Covered Participants
6/30/094
6/30%11- -- -
■ Actives
• Count
n/a
37
• Waivers
n/a
3
• Covered
n/a
34
• Covered %
n/a
92%
■ Retirees < 65
• Count
n/a
5
• Waivers
n/a
-
• Covered
n/a
5
• Covered %
n/a
100%
■ Retirees > 65
• Count
n/a
20
• Waivers
n/a
1)
• Covered
n/a
18
• Covered %
n/a
90%
4 Information from 6/30/09 AN/IM report by Milliman's
"GASBhelp".
t t
1 7.1
October 3l, 2011
PARTICIPANT STATISTICS
Medical Plan Participation
Non -Waived Participants
Y;.be
5,
5
October 31, 2071 1�m�•*'f
PARTICIPANT STATISTICS --
Dental Plan Participations -
Non -Waived Participants
- Retirees
Dental Plan Actives < 65 - ? 65
Delta Dental DPO 69% 60% 100%
DeltaCare 31% 40% - 0%
Total 100% 100% 100%
Excludes self=pay and ineligible retirees =
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October 31, 2011
Retirees
Medical Plan
Actives
< 65 -
> 65
Blue Shield
38%
0%
6%
Blue Shield NetValue
6%
20%
0%
Kaiser
38%
60%
11%
PERS Choice
9%
0%
- 6%
PERSCare
9%
20%
77%
Total
100%
100%
100%
Y;.be
5,
5
October 31, 2071 1�m�•*'f
PARTICIPANT STATISTICS --
Dental Plan Participations -
Non -Waived Participants
- Retirees
Dental Plan Actives < 65 - ? 65
Delta Dental DPO 69% 60% 100%
DeltaCare 31% 40% - 0%
Total 100% 100% 100%
Excludes self=pay and ineligible retirees =
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October 31, 2011
ACTUARIAL ASSUMPTIONS HIGHLIGHTS
Assumption June 30,2009 AMM Valuation
■ Valuation • June 30, 2009
Date • 2008/09 & 2009/10 ARCS
• End of year valuation
■ Funding
• Pay-as-you-go
Policy
Non -Medicare
■ Discount
• 2.00%
Rate
2010
■ Retirement,
• Retirement - average age 58
Mortality,
• Mortality - RP 2000 Mortality
Withdrawal,
Table Projected 10 years
Disability
• Withdrawal - Standard Turnover
7.0%
Assumptions (GASB 45
6.0%
Paragraph 35b)
2014
• Disability - n/a
6 Information from 6/30/09 AMD4 report by M1111MM'a `GASBhelp".
7
i October 31. 2011
June 30, 2011- Valuation
• June 30, 2011
• 2010/11, 2011/12 & 2012/13
ARCS
End of year valuation
• Same
• 4.00% - Not pre -funded, assets
in City investments
• CalPERS 1997-2007 Experience
Study -
Ret Ca1PERS Exp.
Benefit Hire Ave RetAg
Mist; 2.5%@55 34.8 59.9
ACTUARIAL ASSUMPTIONS HIGHLIGHTS
Assumption June 30, 2009 AMM Valuation6 June 30, 2011 Valuation
■ Payroll 3.00% • Aggregate Increases - 3.25%
Increase • Merit Increases - Ca1PERS
1997-2007 Experience Study
■ Participation • 100%
at Retirement
■ Medical
Trend
• Same
Increase from Prior Year
Year
Non -Medicare
Medicare
2009
Premiums
2010
2010
9.0%
9.0%
2011
8.0%
8.0%
2012
7.0%
7.0%
2013
6.0%
6.0%
2014
5.8%
5.8%
2015
5.6%
5.6%
2016
5.6%
5.6%
2017
5.5%
5.5%
2018
5.5%
5.5%
2019+
4.7%
4.7%
• Same
8
5J
i October 31, 2011 �:,1�
Increase from Prior Year
Year
Non -Medicare Medicare
2009
n/a
2010
n/a
2011
Premiums
2012
Premiums
2013
9.0%
9.4%
2014
8.5%
8.9%
2015
8.0%
8.3%
2016
7.5%
7.8%
2017
7.0%
7.2%
2018
6.5%
6.7%
2019
6.0%
6.1%
2020
5.5%
5.6%
2021+
5.0%
5.0%
8
5J
i October 31, 2011 �:,1�
ACTUARIAL ASSUMPTIONS HIGHLIGHTS
Assumption June 30, 2009 AMM Valuation June 30, 2011 Valuation-
■ Actuarial n/a • 5.0% load
Load • PEMHCA PPO premium
increases below per capita
claims increases
■ Dental Trend
• 2010 — 4.00%
• 4.50%
• 2011 — 3.50%
. 2012 and later — 3.00%
■ Vision Trend
• 3.00%
• Same
■ Spousal
• n/a
• Currently, covered — Same as
Coverage at
current elections
Retirement
• Currently waived — 80% elect
spousalcoverage
■ Family
• n/a
• Current actives — 10% until 65
Coverage at
• Current retirees — Same as
Retirement
current elections until 65
9
1 October 31, 2011
ACTUARIAL ASSUMPTIONS HIGHLIGHTS
Assumption June 30, 2009 AMM Valuation
■ Medical Plan • n/a
at Retirement
■ Dental Plan n/a
at Retirement
1
!
10
October 31, 2011
June 30,2011 Valuation
• Current actives — Weighted by
current retiree non -Medicare
eligible and Medicare eligible
elections
• Current retirees < 65:
i Pre -65 — Same as current
election
Post -65 — Weighted by retiree
Medicare eligible elections
• Current retirees > 65 — Same as
current election
• Pre -65:
> Currently covered — Same as
current election
> Currently waived — Weighted
current retiree pre -65 elections
• Post -65 — Delta Dental DPO
Method - -
■ Cost Method
■ Plan Assets
■ Amortization
Method
■ Amortization
Period
�!
7 -
October 31, 2011
ACTUARIAL METHODS
June 30, 2009 AMM Valuation
• Entry Age Normal
• None
• Level percent of payroll
• 30 -year fixed (closed) period for
UAAL as of 6/30/09 for
2008/09 ARC
June 30; 2011 Valuation
• Same
• Same
• Same -
• Fresh Start — 28 -year fixed
(closed) period for UAAL as of
6/30/11 for 2010/11 ARC
• Future Method Changes,
Assumption Changes and
Gains/Losses — 15 -year fixed
(closed) period
• Maximum 30 -year combined
period
ACTUARIAL METHODS
Method
June 30,2009 2009 AMM Valuation June 30, 2011 Valuation-=
■ "Implied • Employer cost for allowing retirees to participate at active rates
Subsidy" • Community rated plans are not required to value an implied subsidy
if active rates are independent of number of retirees
• PEMHCA is a community rated plan for most employers
• Valuation does not include an implied subsidy
■ Future New • Valuation Results — Closed group, no new hires
Entrants • Projections — Simplified open group projection:
Actives — Total pay increased in accordance with aggregate
payroll assumption
r Retirees — No additional retirees from new hires over 10 -year
projection period
xh
12 �Y.
October 31, ^_011-
RESULTS
Actuarial ObliLFations
(Amounts in 000's)
6/30/097
■ Discount Rate _
■ Present Value of Benefits
• Actives
• Retirees
• Total
■ Actuarial Accrued Liability
• Actives
• Retirees
• Total
■ Actuarial Assets
■ Unfunded Actuarial Accrued Liability
■ Normal Cost
■ Pay -As -You -Go Costs
' Information from 6/30/09 AMM report by Milkman's "GAS13hzlp
" Actual pav-go for 2008/09 and 2010/11 provided by the CO.
3
October 31, 2011
RESULTS
2.00% --
$ n/a
n/a
n/a
n/a
n/a
7,850
7,850
785
129
Annual Required Contribution (ARC)
(Amounts in 000's)
• Discount Rate -
■ARC -$
• Normal Cost
• UAAL Amortizationlu
• Total
■ Projected Payroll
■ ARC -%
• Normal Cost
• UAAL Amortization
• Total
6130/11
$ 8,196
3,338
11,534
3,143
3,338
6,481
6,481
511
143
r.'.
6/30/09 Valuation
6/30/11 Valuation=-°- - _=)
2008/09 L
2009/10
2010/11
2011/12 _-1
2012/13
2.01% - -
4.00%
$ 785
$ 808
$ 511
$ 528
$ 545
231
295
240
291
347
1,016
1,103
751
819
892
2,261
2.329
2,335
2,411
2,490
34.7%
34.7%
21.9%
21.9%
21.9%
10.2%
12.7%
10.3%
12.1%
13.9%
44.9%
47.4%
32.2%
34.0%
35.8%
Information from 6/30/09 AMM report by Millman's "GASBhelp". Results for 2009/10 extrapolated based on 3% pavroll
increase assumption.
10 30 -year amortization of 2009 UAAL beginning 2008/09; 28 year Fresh Start amortization of 2011 UAL beginnmg in
2010/11.
e
14
October 31, 2011
RESULTS
Schedule of Fundinu Proeress
(Amounts in 000's)
Unfunded
Entry Age
UAAL as --
Actuarial
Actuarial
Actuarial
Value of
Accrued
Valuation
Assets
Liability
Date
(a)
(b)
6/30/0911
$ -
$ 7,850
6/30/11
((b-a)/c)-
6,481
Unfunded
UAAL as --
Actuarial
Percentage
Accrued
-Funded
-_Covered
of Covered
Liability
Ratio
Payroll
Payroll
(b -a)_
(a/b)
m (c) '
((b-a)/c)-
$ 7,850
0.0%
$ 2,261
347.2%
6,481
0.0%
2,335
277.6%
a
Information from 6/30/09 AM1v1 report by Milliman's "GASBhelp"
Pl 15
�� i
- i October 31, 2011
■ Outstanding Balance
• Initial UAAL
• Contribution Loss
• 2011 Fresh Start
UAAL
• (Gains)/Losses &
Assumption Changes
• Total
RESULTS
Amortization Bases
(Amounts in 000's)
6/30/09 Valuation _-_ = 6/30/11 Valuation
6130/09 6/30/10 6/30/11 ° °=6/30/12 - 6/30/13 -
$ 7,850 $ 7,777
- 887
7,850 8,664
$ 6,113 _ $ 6,108 $ 6,094
t` URAL adjusted for contribution and normal cost since end of year valuation.
p' 6
1 October 31, 2011
610 1,251
6,113'2 6,718 7,345
1t 7;'r
RESULTS
Amortization Payments
(Amounts in 000's)
6/30/09 Valuation
6/30/11Valuation
2008/09 2009/10
2010/11
2011/12
2012/13
■ Amortization Payment - $
• Initial UAAL13
$ 231 $ 238
• Contribution Loss14
- 56
• 2011 Fresh Start UAAL15
$ 240
$ 248
$ 256
• (Gains)/Losses &
Assumption Changes 14
43
91
• Total
231 295
240
291
347
■ Minimum Required Totally
231 n/a
226
n/a
n/a
ii Amortized over 30-year closed periodbeginning 2008/09
14 Amortized over 15-year closed periods,
' Amortized over 28-year closed period beginning 2010/11.
17
} October31,2011
`•�•^"
RESULTS
-
Estimated Net OPEB
Obligation (NOO) Illustration
(Amounts in 000's)
CAFR
- - - -"
Estimated
= _
2008/09 2009/10
` 2010/11
201-1/12
2012/13
■ NOO at Beginning of Year
$ - $ 887
$ 1,786
$ 2,395
$ 3,032
■ Annual OPEB Cost (AOC)
• Annual Required Contribution
1,016 1,016
751
819
892
• Interest on NOO
- -
71
96
121
• Amortization of NOO
-
70
115
165
• Annual OPEB Cost
1,016 1,016
752
799
848
■ Contributions
• Benefit Payments and Fees 17
129 117
143
163
180
• Trust Pre-Funding
• Total Contribution
129 117
143
163
180
■ NOO at End of Year
887 1,786
2,395
3,032
3,700
m 30-vear amortization of total UAAL.
17 Estimated cash pavments shown for 2010/11,
1
I� !
i Octobei 31, 2011
2011/12 & 2012/13, Actual cash
lg
payments should
be used for OPEB
footnote.
srv,
+�.;
' 17
� ! October 31, 2011
19
RESULTS
Discount Rate Sensitivitv
June 30, 2011
(Amounts in 000's)
CERBT
#1 #2-- #3 No Pre -Funding
■ Discount Rate 7.25% 6.75% 6.25% ` 4.00% 2.00%
■ Present Value of Benefits $ 6,064 $ 6,618 $ 7,?51 $ 11,534 $ 18,944
■ Funded Status
• Actuarial Accrued Liability
• Actuarial Value of Assets
• Unfunded AAL
■ ARC 2010111
• Normal Cost
• UAAL Amortization
• Total
• ARC % of Payroll
i October3l,2011
4,059 4,332
4,059 4,332
4,635 6,481 9,142
4,635- 6,481 9,142
261
287
317
511
224
RESULTS
228
240
485
513
545
751
20.8%
Estimated
No Pre -Funding
Illustration
4.00 % Discount Rate
(Amounts in 000's)
Beginning
-=
Annual
C-)ntributi
m ,
ARC
Contrib_
FYE
of Year
OPEB
as --
as =-
June
Net-OPEB
Cost -
Benefit Pre- = -'
Total
% of
` - % of
30,
Obligation
ARC
(AOC)
Pmts Funding Contrib
=Payroll
Payroll
Payroll
2011
$ 1,786
$ 751
$ 752
$ 143 $ -
$ 143
$ 2,335
32.2%
6.1%
2012
2,395
819
799
163 -
163
2,411
34.0%
6.8%
2013
3,032
892
848
180 -
180
2,490
35.8%
7.2%
2014
3,700
971
898
203 -
203
2,571
37.8%
7.9%
2015
4,394
1,058
950
228 -
228
2,654
39.9%
8.6%
2016
5,117
1,152
1,004
249 -
249
2,740
42.0%
9.1%
2017
5,871
1,255
1,060
275 -
275
2,829
44.4%
9.7%
2018
6,656
1,368
1,118
306 -
306
2,921
46.8%
10.5%
2019
7,468
1,493
1,179
336 -
336
3,016
49.5%
11.1%
2020
8,311
1,629
1,241
365 -
365
3,114
52.3%
11.7%
' 17
� ! October 31, 2011
19
RESULTS
Discount Rate Sensitivitv
June 30, 2011
(Amounts in 000's)
CERBT
#1 #2-- #3 No Pre -Funding
■ Discount Rate 7.25% 6.75% 6.25% ` 4.00% 2.00%
■ Present Value of Benefits $ 6,064 $ 6,618 $ 7,?51 $ 11,534 $ 18,944
■ Funded Status
• Actuarial Accrued Liability
• Actuarial Value of Assets
• Unfunded AAL
■ ARC 2010111
• Normal Cost
• UAAL Amortization
• Total
• ARC % of Payroll
i October3l,2011
4,059 4,332
4,059 4,332
4,635 6,481 9,142
4,635- 6,481 9,142
261
287
317
511
224
226
228
240
485
513
545
751
20.8%
22.0%
23.4%
32.2%
20
825
255
1,080
46.2%
.w.i1
CERBT INVESTMENT OPTIONS
■ Additional CERBT asset allocations and revised discount rate assumption
• Agency selects one option effective July 1, 2011
■ Target asset allocations
Asset Classifications
Option I
Option 2
Option 3
Global Equity
66.0%
50.1%
31.6%
US Nominal Bonds
18.0%
23.9%
42.4%
REIT's
8.0%
8.0%
8.0%
U.S. Inflation Linked Bonds
5.0%
15.0%
15.0%
Commodities
3.0%
3.0%
3.0%
Total
100.0%
100.0%
100.0%
■ Ca1PERS reported expected returns
(20 year period):
Option 1
Option 2
Option 3
75% Confidence Limit's
5.80%
5.60%
5.25%
50% Confidence Limit
7.61%
7.06%
6.39%
25% Confidence Limit
9.43%
8.52%
7.47%
Standard Deviation
11.73% 9.46% 7.27%
Confidence Limits — Actual Return will exceed the given rate with indicated probabilities, rates vary by year
21 n
I October 31, 20l 1 �` ^_• '
CER -BT INVESTMENT OPTIONS
■ Ca1PERS discount rate development:
• 1st 10 year expected returns —based on asset advisors 10 year projections
• Significantly higher returns assumed after 10 years
based on long term historical returns
r implies actuarial losses in 1" 10 years
i achievable?
■ Requirement that discount rate cannot be greater than 50% confidence limit rate
■ Bartel Associates Recommendation: select rate at 55% or 60% confidence limit
Option 1 1 Option 2 1 Option 3
55% Confidence Limit
Discount Rate 7.25% 6.75% 6.25%
Maximum Discount Rate 7.61% 7.06% 6.39%
Margin for Adverse Deviation (0.36%) (0.31%) (0.14%)
60% Confidence Limit
Discount Rate 7.00% 6.50% _ 6.00%
Maximum Discount Rate 7.61% 7.06% 6.39%
Margin for Adverse Deviation (0.61%) (0.56%) (0.39%)
/T�i\
z
}_ 22
October 31, 2011 x
x•.�.�t
BARTEL ASSOCIATES GASB 45 DATABASE
GASB 45
Retiree Medical Benefits Comparison
Sample Percentile Graph
s".1.
"%"
55%-
«IOONPerrenNe
50%-
-95th PerccnWe
45%
are
40%
^]5th Percentile
T
a 35% -
Nu
e 3a%
501I5 N,ec.Ne
v
range
y 25%
201%
~25th Permnlile
15%.
10•4
lstnrar«mar
5%
�Oth PercenWe
0%
Pcnvnt of Pae
50%of
"%"
100%0f
,.We
restate
rn'ulfs
NC ARC
are
anthin
Within
this
Nu
Wo
d,
u
range
ra nge
range
r„
t October 3 t, 201 t23
BARTEL ASSOCIATES GASB 45 DATABASE
GASB 45
Retiree Medical Benefits Comparison
Normal Cost & Annual Required Contribution
Miacellanenns
NC ARC
95th Percentile
20 4°rn 330%
75th Percentile
138% 215%
50nr Percentile
59°rn 95%
25th PercentJe
2 3% 3 b%
Sth Percentile
09% 15%
Pcnvnt of Pae
..' 11
P¢rttnhld
9315
Discount Rte = 4 009'., Amortization Peuod =28 Years
I October 31, 2011
24
le t
)r
BARTEL ASSOCIATES GASB 45 DATABASE
GASB 45
Retiree Medical Benefits Comparison
Actuarial Accrued Liability
95N Pacennle
75th Percentile
50th Percentile
'_5th Vercentile
5th Percentile
P, tuf Pa,
ro annl,
P!,
s �. i
! October 3l, ^_till
Miscellaneous
3T%
332%
116%
36%
1^_%
'nI 84
FD c"4 `
Discount Rate = 4 00%
25
OTHER ISSUES
■ GASB Pension Accounting
• Exposure Draft for pension accounting changes issued 7/8/2011:
Usually the last public document issued before issuing final statement
Similar views expected for OPEB
Comment deadline 9/30/11
r Likely effective for 2013/14 fiscal year
• Major issues:
> Unfunded liability on balance sheet
Lower discount rate if funding less than ARC
Immediate recognition of:
o Service & Interest Cost
o Benefit changes
o Inactive gains/losses & assumption changes
Deferred recognition of:
o Active gains/losses & assumption changes, over (future working lifetime)
closed period
o Asset gains/losses, over 5 years
• Entry age normal cost method
■ National Health Care Reform — Too early to know impact
L.` s 26E;`
f�f
OTHER ISSUES
■ Current Valuation — for 2010/11, 2011/12 & 2012/13 ARCS or for 2011/12, 2012/13 &
2013/14 ARCS based on use of Milliman report
■ Timing:
• Present preliminary results September 14, 2011
• Updated GASB 45 database October 31, 2011
,.
27
October 31, 2011
E%HIBITS
Topic Page
Premiums E- 1
Data Summary E- 4
Actuarial Assumptions E-17
Definitions E-24
it 28 {.
October 31, 2011
PREMIUMS
2011 PEMHCA Monthlv Premiums
Los Angeles Area
- '
Non -Medicare Eligible
Medicare Eligible
Medical Plan
Single
2 -Party
Family
Single
2 -Party
Family
Blue Shield
$496.93
$993.86
$1,292.02
$337.88
$675.76
$1,013.641
Blue Shield NetValue
427.58
855.16
1,111.71
337.88
675.76
1,013.641
Kaiser
434.00
868.00
1,128.40
282.30
564.60
846.901
PERS Choice
496.15
992.30
1,289.99
375.88
751.76
1,127.641
PERS Select
433.87
867.74
11,128.06
375.88
751.76
1,127.641
PERSCare
787.24
1,574.48
2,046.82
433.66
867.32
1,300.981
429.22
858.44 1,115.97
E-1
766.88
1,150.321
PERSCare
906.39
i October 31, 2011
432.43
864.86
1,297.291
- '
PREMIUMS
-
---
2012 PEMHCA Monthlv Premiums
Los Angeles Area
Non -Medicare
Eligible -- -
Medicare Eligible
Medical Plan -
Single
2 -Party Family
Single
2 -part,
Family -
1 Blue Shield Access+
$510.72
$1,021.44 $1,327.87
$337.99
$675.98
$1,013.971
Blue Shield NetValue
439.25
878.50 1,142.05
337.99
675.98
1,013.971
Kaiser
465.63
93126 1,210.64
277.81
555.62
833.431
PERS Choice
505.63
1,011.26 1,314.64
383.44
766.88
1,150.321
PERS Select
429.22
858.44 1,115.97
383.44
766.88
1,150.321
PERSCare
906.39
1,812.78 2,356.61
432.43
864.86
1,297.291
E-2 '
October 31, 2011"'
PREMIUMS
Renewal on 7/1 each year.
.n';F o,
E-3 S ,,R
October 3l,'--011
1
DATA SUMMARY
Active Medical Coverage
Dental & Vision Monthlv Premiums 19
Medical Plan
2010/11
-2-Party
Family Waived
2011/12
Blue Shield
-Dental Plan
Single-
2 -Party
Family-
Singlc
2 -Party
Family
Delta Dental DPO
$40.93
$76.61
$125.43
$42.88
$80.27
$131.43
DeltaCare
16.93
27.92
41.28
16.93
27.92
4128
-
-
2010/11
Waived
-
2011/12
- 3
Vision Plan-
Single
2 -Party
Family -
Single
2 -Party
Family -
VSP
19.21
27.80
49.57
19.21
27.80
49.57
Renewal on 7/1 each year.
.n';F o,
E-3 S ,,R
October 3l,'--011
1
DATA SUMMARY
Active Medical Coverage
�9 October31,2011 �q"w:
s
Medical Plan
Single -
-2-Party
Family Waived
Total.
Blue Shield
5
2
6 -
13
Blue Shield NetValue
-
-
2 -
2
Kaiser
5
1
7 -
13
PERS Choice
-
3
- -
3
PERSCare
3
-
-
3
Waived
-
-
- 3
3
Total
13
6
15 3
37
�9 October31,2011 �q"w:
DATA SUMMARY
Active Dental & Vision Coverage
Dental Plan
Single
2 -Party
Family
Waived
Total
Delta Dental DPO
13
1
10
24
DeltaCare
4
3
4
-
11
Waived
-
-
-
2
2
Total
17
4
14
2
37
Vision Plan
Single= -
2 -Party -
_ Family
Waived
.Total
VSP
22
6
8
1
37
( October 31, 2011
Medical Plan
Blue Shield
Blue Shield NetValue
Kaiser
PERS Choice
PERSCare
Waived
Total
E-5
DATA SUMMARY
Retiree Medical Coverage
Under Age 65
Single 2 -Party Family-.- >=Waived Total
1 1
1 2 3
1 1
2 3 5
October 31, 2011 �".
-
-
_- - Single .
DATA SUMMARY
Total
-
Retiree Dental & Vision Coverage
-
1
Blue Shield NetValue
Under Age 65
Dental Plan
Single
2 -Party Family- _Self -Pay Ineligible -
Total
Delta Dental DPO
1
2
3
DeltaCare
1
1
2
(Ineligible
Waived
-
-
Total
2
3
5
VisionPlanSingle
=
2 -Party Family - Self -Pay Ineligible
Total
VSP
3
2
5
October31,2011'
DATA SUMMARY
Retiree Medical Coveraee
Age 65 & Over
Medical Plan -__
_- - Single .
2 -Party Family Waived
Total
Blue Shield
1
1
Blue Shield NetValue
-
Kaiser
1
1
2
PERS Choice
-
1 -
1
PERSCare
10
3 1 -
14
Waived
2
2
Total
12
5 1 2
20
(� E_g
J , October3l,2011{
DATA SUMMARY
Retiree Dental & Vision Coverage
Age 65 & Over
Dental Plan
Single
2 -Party
Family Self -Pay-
Ineligible'-
Total-,>-
Delta Dental DPO
8
2
2
12
DeltaCare
-
-
-
-
-
(Ineligible
-
-
-
8
8
Total
8
2
2
8
20
j
Vision Plan
Single - =
2 -Party
Family ` ' Self-Pav -
Ineligible-
Total-
VSP
7
3
2
8
20
E-9
- S'October 31, 2011
DATA SUMMARY
This page intentionally blank
' ,} October 31, 2011 '� u
DATA SUMMARY
Actives by Age and Citv Service
Miscellaneous
This page intentionally blank
E-12 1
' !' October 31, 2017
City Service
j
Age
<1
1-4
5-9- 10-14'-` 15-19_ 20-24--
> 25 -
Total
<25
-
-
- - - -
-
25-29
1 —
-
1
30-34
-
,
1 -
3
35-39
2
1
7 1
11
40-44
1
-
1 - 1
-
3
45-49
1
2
2 -
1
6
50-54
-
1
1 2
-
4
55-59
3
- 1 -
1
5
60-64
-
-
2 1
-
3
>65
1
-
- - -
-
1
Total
5
10
12 6 2
2
37
E-11
t
October 3 t,
2011
DATA SUMMARY
This page intentionally blank
E-12 1
' !' October 31, 2017
DATA SUMMARY
Active ALFe Distribution
Miscellaneous
12
10
8 - ------------- --- ---- ------ -- ------ ---- ---- --------
.a
6 —
z -
4 --
2 n
0
<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-65 >65
Age
n..
t
E-13
October 31,2011
DATA SUMMARY
Active Service Distribution
Miscellaneous
16
14 - ----- - --------------------------------
--- ------------
12
10 --------------- - ------------------- ------------------
8 --
z6 ------- --------
4
2 I n I n
0
0-4 5-9 10-14 15-19 20-24 >25
Service
+Gs.
' ?_ E-ld '
;' October 37, 2077 t
-- DATA SUMMARY - -I
Retiree Medical Coverage by Age Group
Miscellaneous
Age Single 2-Party Family = Waived -. - Total -
Under 50
50-54
55-59 1 2 3
60-64 1 1 - 2
65-69 3 4 1 - 8
70-74 2 - - 1 3
75-79 4 - 1 5
80-84 2 1 - 3
Over 85 1 - - - 1
Total 14 8 1 2 25
Average Age 73.9 67.0 65.1 74.6 71.4
OmM 31, 2011
DATA SUMMARY
Retiree Age Distribution
Miscellaneous
9
8 —
7 - --------------------------- ------------- --- - -------------
6
0 5 —
s~
Z 4
3 — —
2
1
0
<50 50-54 55-59 60-64 65-69 70-74 75-79 80-84 >85
Age
E-16 .. { r.�•
�' October 31.:011 �.v%j
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2009 AMM- Valuation20 June 30,-2011 Valuation
■ Valuation
• June 30, 2009
• June 30, 2011
Date
9 2008/09 & 2009/10 ARCS
• 2010/11, 2011/12 & 2012/13
Prior Year
• End of year valuation
ABCs
Year
Non -Medicare
• End of year valuation
■ Funding
• Pay-as-you-go
• Same
Policy
2009 n/a
■ Discount
• 2.00%
• 4.00% -Not pre -funded, assets
Rate
2010 n/a
in City investments
■ General
• 3.00%
• Same
Inflation
2012
■ Payroll
• 3.00%
• Aggregate Increases - 3.25%
Increase
2013
• Merit Increases - CalPERS
6.0%
2013 9.0% 9.4%
1997-2007 Experience Study
20 Infonnation from 6/30/09 AMM report by Milliman's "GASBhelp".
P`�_; E-17
' October 31, '_071
ACTUARIAL ASSUMPTIONS
Assumption
June 30, 2009 AMM Valuation20
June 30, 2011 Valuation
■ Medical
Increase from
Prior Year
Increase from Prior Year
Trend
Year
Non -Medicare
Medicare
Year Non -Medicare Medicare
2009
Premiums
2009 n/a
2010
9.0%
- 9.0%
2010 n/a
2011
8.0%
8.0%
2011 Premiums
2012
7.0%
7.0%
2012 Premiums
2013
6.0%
6.0%
2013 9.0% 9.4%
2014
5.8%
5.8%
2014 8.5% 8.9%
2015
5.6%
5.6%
2015 8.0% 8.3%
2016
5.6%
5.6%
2016 7.5% 7.8%
2017
5.5%
5.5%
2017 7.0% 7.2%
2018
5.5%
5.5%
2018 6.5% 6.7%
2019+
4.7%
4.7%
2019 6.0% 6.1%
2020 5.5% 5.6%
2021+ 5.0% 5.0%
■ Actuarial
n/a
• 5.0% load
Load
• PEMIICA PPO premium
increases below per capita
claims increases
-dµ..
i October 31, 2011
ACTUARIAL ASSUMPTIONS
Assumption- = = June 30, 2009 AMM Valuation 20 - June 30, 2011 Valuation
■ Dental Trend . 2010 — 4.00% 4.50%
• 2011 — 3.50%
• 2012 and later — 3.00%
■ Vision Trend • 3.00%
■ Service • n/a
Retirement
■ Mortality,
Withdrawal,
Disability
r t-
i 1-1)
October31,2011
Assumption
■ Medicare
Eligibility
• Mortality — RP 2000 Mortality
Table for Males and Females
Projected 10 years
• Withdrawal — Standard Turnover
Assumptions (GASB 45
Paragraph 35b)
• Disability — n/a
E-19
• Same
• CalPERS 1997-2007 Experience
Study
CalPERS Exp.
Benefit Hire Age Ret Age
Misc 2.5%@55 34.8 59.9
• CalPERS 1997-2007 Experience
Study
ACTUARIAL ASSUMPTIONS
June 30, 2009 AMM Valuation 20
• n/a
■ Participation • 100%
at Retirement
■ Waived • n/a
Retiree Re-
election
June 30, 2011Valuation
100%
Everyone eligible for Medicare
will elect Part B coverage
• Same
• Pre -65 — n/a
• Post -65 — 0%
.;.
October 31, 2011
ACTUARIAL ASSUMPTIONS
Assumption June 30, 2009 AMM Valuation20
■ Medical Plan • n/a
at Retirement
i
, October 31, 3011
E-21
June 30, 2011 _Valuation -
• Current actives — Weighted
current retiree non -Medicare
eligible and Medicare eligible
elections
• Current retirees < 65:
v Pre -65 — Same as current
elections
> Post -65 — Weighted current
retiree Medicare eligible
elections
• Current retirees > 65 — Same as
current elections
ACTUARIAL ASSUMPTIONS
t 3°
Assumption -- June 30, 2009 AMM Valuation 20 -June 30,2011 Valuation
■ Dental Plan n/a Pre -65:
at Retirement i Currently covered — Same as
current elections
Currently waived — Weighted
current retiree pre -65 elections
• Post -65 --Delta Dental DPO
■ Spousal • n/a • Currently covered — Same as
Coverage at current elections
Retirement • Currently waived — 80% elect
spousal coverage
■ Spouse Age • n/a
• Current actives — Males 3 years
older than females
• Current retirees — Males 3 years
older than females if spouse
birth date not available
r,
I�
i October31,2011
ACTUARIAL ASSUMPTIONS
Assumption-- June 30, 2009 AMM Valuation20 June 30, 2011 Valuation-
■ Surviving • n/a • 100%
Spouse
Participation
■ Family • n/a • Current actives — 10% until 65
Coverage at • Current retirees — Same as
Retirement current elections until 65
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k
- October 31, 2011
DEFINITIONS
■ GASB 45 .
Project future employer-provided benefit cash flows for current active
Accrual
employees and current retirees
Accounting .
Discount projected cash flow to valuation date using discount rate (assumed
return on assets used to pay benefits) and other actuarial assumptions to
determine present value of projected future benefits (PVB)
•
Allocate PVB to past, current, and future periods using the actuarial cost
method
•
Actuarial cost method used for this valuation is the Entry Age Normal Cost
method which determines Normal Cost as a level percentage of payroll (same
method used by CalPERS)
•
Normal Cost is amount allocated to current fiscal year
•
Actuarial Accrued Liability (AAL) is amount allocated to prior service with
employer
•
Unfunded AAL (URAL) is AAL less plan assets pre -funded in a segregated
and restricted trust
IS PayGo Cost a
Cash subsidy is the pay-as-you-go employer benefit payments for retirees
•
Implied subsidy is the difference between the actual cost of retiree benefits
and retiree premiums subsidized by active employee premiums
E-24
i October 31, 2011",_w.f
DEFINITIONS
Present Value of Benefits
Present Value of Benefits Present Value of Benefits
(without Plan Assets) (With Plan Assets)
% Future \
Normal
Costs
Norms) Cost
Unfunded Actuarial
Accrued Liability
E-25
October 3l, 201 l
DEFINITIONS
Future
Normal
Costs
Unfunded_, _
Actuarial Accrued
■ Annual
• "Required contribution" for the current period including:
Required
1, Normal Cost
Contribution
Amortization of:
(ARC)
- Initial UAAL
- AAL for plan, assumption, and method changes
- Experience gains/losses (difference between expected and actual)
- Contribution gains/losses (difference between ARC and contributions)
• ARC in excess of pay-as-you-go costs not required to be funded
■ Net OPEB
• Net OPEB Obligation is the accumulated amounts expensed but not funded
Obligation
• Net OPEB Asset if amounts funded exceed those expensed
(NOO)
■ Annual OPEB
o Expense for the current period including:
Cost (AOC)
> ARC
• Interest on NOO
• Adjustment of NOO
• NOO adjustment prevents double counting of expense since ARCS include an
amortization of prior contribution gains/losses previously expensed
7 fr A" n
I October 31, '_011
ADMINISTRATIVE SERVICES DEPARTMENT
DATE: February 19, 2013
TO: The Honorable City Council
MEMORANDUM
FROM: Jose E. Pulido, City Manager
Via: Tracey L. Hause, Administrative Services Director
SUBJECT: CHANGE IN MEDCIAL BENEFITS FOR RETIREED EMPLOYEES
RECOMMENDATION:
The City Council is requested to receive and file the attached actuarial evaluation
(Attachment "A") regarding proposed changes to the amount of compensation to be
paid for medical benefits for retired employees.
BACKGROUND:
1. On June 20, 1978, the City Council adopted Resolution No. 78-1747 electing to be
subject to Meyers -Geddes State Employees Medical and Hospital Care Act and
fixing the employer's contribution for each employee or annuitant (retiree) at an
amount necessary to pay the full cost of his/her enrollment, including 50% of the
cost of enrolling dependent or family members in a health plan or health plans.
2. In 2005 the Governmental Accounting Standards Board (GASB) issued Statement No.
45 (Statement) to address the liability of employee earned benefits received when
their employment ends with an agency, or more commonly known as Other
Postemployment Benefits (OPEB).
3. On June 30, 2009, the City of Temple City implemented GASB No. 45 as required by
the Statement.
4... For Fiscal Years 2008-09, 2009-10 and 2010-11, contributions for OPEB were based
on a pay-as-you-go basis (i.e., as premiums become due).
5. On September 14, 2011, a draft of GASB 45 Actuarial Valuation (Actuarial Valuation)
completed by John E Bartel (John Bartel), President of Bartel and Associates was
presented to City staff. An actuarial valuation is required by the Statement every three
years for employers who have less than 200 participants.
City Council
February 19, 2013
Page 2
6. On October 31, 2011, John Bartel presented a final Actuarial Valuation that included
minor revisions to the September 14, 2011 Actuarial Valuation, (Attachment "B").
7. On January 11, 2013, the Tier Benefit Ad Hoc Committee (i.e., Mayor Yu and
Councilmember Blue) met to discuss the possibility of reducing the City's OPEB liability
by reducing retiree health benefits for new hires.
ANALYSIS:
Just as pension obligations are reported in the current financial statements of each
government agency, it was GASB's determination that future obligations for OPEB is
just as much a part of the reportable cost of providing public services today as pensions
and should be included in the financial statements as well. For the City of Temple City,
the obligations are related to health insurance coverage that is offered to employees
once they have retired from service with the City.
In order to determine the value of the City's OPEB liability, an actuarial valuation was
completed by staff for financial reporting purposes for the FY 2008-09. Since this was
the only actuarial evaluation on file and the City was interested in pre -funding a portion
of the OPEB liability, it was prudent to have a new actuarial valuation completed as of
June 30, 2011 by an independent outside actuarial. The City contracted with Bartel and
Associates and on October 31, 2011, received an Actuarial Valuation outlining the future
liability of OPEB in the amount of $9,142,000. The City currently finances the OPEB plan
on a pay-as-you-go basis with an annual rate of approximately $143,000.
In 1978, the City adopted a resolution in which it committed to contribute the full cost of
enrollment for each employee or retiree plus 50% of the cost of enrollment for one
dependent. The resolution specified that the contribution should not be considered a
vested benefit and was subject to modification by the Council at any time. Consistent
with the PEMHCA, the resolution did not tie eligibility for contribution to any minimum
number of years of City service.
With a desire to potentially reduce the OPEB liability in the future, the Tier Benefit Ad Hoc
Committee asked staff to consider alternatives, reducing the future costs of such benefits.
The City has determined that it could achieve potentially significant cost savings if it
were to reduce the amount of the monthly contribution required to be paid for all
employees and retirees to the statutory minimum and to provide a separate amount
directly to some retirees who have worked a certain minimum number of years at the
City.
With only a few exceptions, PEMHCA requires contracting agencies to contribute an
equal amount toward medical benefits for both active employees and retirees, and
requires the employer contribution to be at least a minimum amount (currently $115 per
month, and increasing annually based on the Consumer Price Index).
City Council
February 19, 2013
Page 3
Contracting agencies may choose to make contributions greater than the statutory
amount specified in PEMHCA as long as the amounts are equal for active and retired
employees. Although the non -vesting language from the initial resolution affords some
protection to the City against claims that such changes impair a vested benefit, as a
matter of fairness as well as caution, the City has identified a maximum additional
amount that approximates the value of the contribution under the 1978 resolution.
Many agencies have used similar mechanisms to "work around" the PEMHCA statute to
tie eligibility for other forms of compensation that may be used for medical purposes to
years of City service. The most common approach is to adopt a PEMHCA resolutions
electing the equal benefits option, and specifying that the employer will pay the
minimum contribution required by law (currently $115/month). Then separately, the
local agencies agree to provide an additional amount that can be used toward medical
benefits for active employees (and in some cases for retirees) through a flexible benefits
plan or similar mechanism.
Under Section 7507 of the Government Code, 'local legislative bodies," such as the City
Council must retain an actuary when considering "changes in retirement benefits or
other postemployment benefits, such as retiree medical benefits. The actuary must
provide an analysis regarding the "actuarial impact upon future annual costs" from
making the proposed change compared to the future cost of continuing current
practices. The impact should be reflected in dollar amounts involved annually, as well
as in total, if possible. In addition, the impact should take into account any change in
"accrued liability." The required actuarial analysis is attached (Attachment "B").
Two weeks after the actuarial report is made public, the City must adopt two resolutions:
• One resolution will reduce the amount of the contribution that the City
makes directly to CalPERS on behalf of each employee and retiree from
the full cost of one employee + 50% of the cost of one dependent under
the 1978 resolution to the statutory minimum, which is currently
$115/month total.
• The second resolution will provide for compensation to be provided
directly from the City to each retired employee, with amounts to increase
based on years of City service. The resolution will retain the existing
language providing that the compensation is not a vested benefit and may
The City must submit to CalPERS the resolution modifying its contribution to CalPERS
on behalf of its employees and retirees.be modified by Council. Since there will not be
a City Council meeting on March 5, 2013 due to the local election and the City Council
meeting on March 19, 2013 will be limited as a result of the Council re -organization,
staff is planning to bring back the two required Resolutions the City Council on April 2,
2013. Once adopted, staff will submit the Resolution to CalPERS with an effective date
of this change of May 1, 2013 .
City Council
February 19, 2013
Page 4
CONCLUSION:
If the City Council desires to reduce future liability of OPEB liabilities, the recommended
actions as documented above are necessary. Staff is recommending the City Council
receive and file the actuarial valuation amending the level of health benefits received by
retirees, as the first step of modifying the level and thresholds of retiree health benefits.
FISCAL IMPACT:
Since this benefit change will only apply to new hires after May 1, 2013, at the time of
their retirement (if they do indeed retire from Temple City) yeas later. As a result, there
will be only minor savings in the next 20 years. However, when all current employees
and retirees are no longer utilizing the current benefit, the City could see an annual
savings in benefit costs of $464,400, calculating payroll costs in today's dollars.
ATTACHMENTS:
A. Actuarial Valuation dated
B. Actuarial Valuation dated October 31, 2011
ADMINISTRATIVE SERVICES DEPARTMENT
DATE: February 19, 2013
TO: The Honorable City Council
MEMORANDUM
FROM: Jose E. Pulido, City Manager
Via: Tracey L. Hause, Administrative Services Director
SUBJECT: CHANGE IN MEDCIAL BENEFITS FOR RETIREED EMPLOYEES
RECOMMENDATION:
The City Council is requested to receive and file the attached actuarial evaluation
(Attachment "A") regarding proposed changes to the amount of compensation to be
paid for medical benefits for retired employees.
BACKGROUND:
1. On June 20, 1978, the City Council adopted Resolution No. 78-1747 electing to be
subject to Meyers -Geddes State Employees Medical and Hospital Care Act and
fixing the employer's contribution for each employee or annuitant (retiree) at an
amount necessary to pay the full cost of his/her enrollment, including 50% of the
cost of enrolling dependent or family members in a health plan or health plans.
2. In 2005 the Governmental Accounting Standards Board (GASB) issued Statement No.
45 (Statement) to address the liability of employee earned benefits received when
their employment ends with an agency, or more commonly known as Other
Postemployment Benefits (OPEB).
3. On June 30, 2009, the City of Temple City implemented GASB No. 45 as required by
the Statement.
4... For Fiscal Years 2008-09, 2009-10 and 2010-11, contributions for OPEB were based
on a pay-as-you-go basis (i.e., as premiums become due).
5. On September 14, 2011, a draft of GASB 45 Actuarial Valuation (Actuarial Valuation)
completed by John E Bartel (John Bartel), President of Bartel and Associates was
presented to City staff. An actuarial valuation is required by the Statement every three
years for employers who have less than 200 participants.
City Council
February 19, 2013
Page 2
6. On October 31, 2011, John Bartel presented a final Actuarial Valuation that included
minor revisions to the September 14, 2011 Actuarial Valuation, (Attachment "B").
7. On January 11, 2013, the Tier Benefit Ad Hoc Committee (i.e., Mayor Yu and
Councilmember Blue) met to discuss the possibility of reducing the City's OPEB liability
by reducing retiree health benefits for new hires.
ANALYSIS:
Just as pension obligations are reported in the current financial statements of each
government agency, it was GASB's determination that future obligations for OPEB is
just as much a part of the reportable cost of providing public services today as pensions
and should be included in the financial statements as well. For the City of Temple City,
the obligations are related to health insurance coverage that is offered to employees
once they have retired from service with the City.
In order to determine the value of the City's OPEB liability, an actuarial valuation was
completed by staff for financial reporting purposes for the FY 2008-09. Since this was
the only actuarial evaluation on file and the City was interested in pre -funding a portion
of the OPEB liability, it was prudent to have a new actuarial valuation completed as of
June 30, 2011 by an independent outside actuarial. The City contracted with Bartel and
Associates and on October 31, 2011, received an Actuarial Valuation outlining the future
liability of OPEB in the amount of $9,142,000. The City currently finances the OPEB plan
on a pay-as-you-go basis with an annual rate of approximately $143,000.
In 1978, the City adopted a resolution in which it committed to contribute the full cost of
enrollment for each employee or retiree plus 50% of the cost of enrollment for one
dependent. The resolution specified that the contribution should not be considered a
vested benefit and was subject to modification by the Council at any time. Consistent
with the PEMHCA, the resolution did not tie eligibility for contribution to any minimum
number of years of City service.
With a desire to potentially reduce the OPEB liability in the future, the Tier Benefit Ad Hoc
Committee asked staff to consider alternatives, reducing the future costs of such benefits.
The City has determined that it could achieve potentially significant cost savings if it
were to reduce the amount of the monthly contribution required to be paid for all
employees and retirees to the statutory minimum and to provide a separate amount
directly to some retirees who have worked a certain minimum number of years at the
City.
With only a few exceptions, PEMHCA requires contracting agencies to contribute an
equal amount toward medical benefits for both active employees and retirees, and
requires the employer contribution to be at least a minimum amount (currently $115 per
month, and increasing annually based on the Consumer Price Index).
City Council
February 19, 2013
Page 3
Contracting agencies may choose to make contributions greater than the statutory
amount specified in PEMHCA as long as the amounts are equal for active and retired
employees. Although the non -vesting language from the initial resolution affords some
protection to the City against claims that such changes impair a vested benefit, as a
matter of fairness as well as caution, the City has identified a maximum additional
amount that approximates the value of the contribution under the 1978 resolution.
Many agencies have used similar mechanisms to "work around" the PEMHCA statute to
tie eligibility for other forms of compensation that may be used for medical purposes to
years of City service. The most common approach is to adopt a PEMHCA resolutions
electing the equal benefits option, and specifying that the employer will pay the
minimum contribution required by law (currently $115/month). Then separately, the
local agencies agree to provide an additional amount that can be used toward medical
benefits for active employees (and in some cases for retirees) through a flexible benefits
plan or similar mechanism.
Under Section 7507 of the Government Code, 'local legislative bodies," such as the City
Council must retain an actuary when considering 'changes in retirement benefits or
other postemployment benefits, such as retiree medical benefits. The actuary must
provide an analysis regarding the "actuarial impact upon future annual costs" from
making the proposed change compared to the future cost of continuing current
practices. The impact should be reflected in dollar amounts involved annually, as well
as in total, if possible. In addition, the impact should take into account any change in
"accrued liability." The required actuarial analysis is attached (Attachment "B").
Two weeks after the actuarial report is made public, the City must adopt two resolutions:
One resolution will reduce the amount of the contribution that the City
makes directly to CalPERS on behalf of each employee and retiree from
the full cost of one employee + 50% of the cost of one dependent under
the 1978 resolution to ;the statutory minimum, which is currently
$115/month total.
The second resolution will provide for compensation to be provided
directly from the City to each retired employee, with amounts to increase
based on years of City service. The resolution will retain the existing
language providing that the compensation is not a vested benefit and may
The City must submit to CalPERS the resolution modifying its contribution to CaIPERS
on behalf of its employees and retirees.be modified by Council. Since there will not be
a City Council meeting on March 5, 2013 due to the local election and the City Council
meeting on March 19, 2013 will be limited as a result of the Council re -organization,
staff is planning to bring back the two required Resolutions the City Council on April 2,
2013. Once adopted, staff will submit the Resolution to CaIPERS with an effective date
of this change of May 1, 2013 .
City Council
February 19, 2013
Page 4
CONCLUSION:
If the City Council desires to reduce future liability of OPEB liabilities, the recommended
actions as documented above are necessary. Staff is recommending the City Council
receive and file the actuarial valuation amending the level of health benefits received by
retirees, as the first step of modifying the level and thresholds of retiree health benefits.
FISCAL IMPACT:
Since this benefit change will only apply to new hires after May 1, 2013, at the time of
their retirement (if they do indeed retire from Temple City) yeas later. As a result, there
will be only minor savings in the next 20 years. However, when all current employees
and retirees are no longer utilizing the current benefit, the City could see an annual
savings in benefit costs of $464,400, calculating payroll costs in today's dollars.
ATTACHMENTS:
A. Actuarial Valuation dated
B. Actuarial Valuation dated October 31, 2011