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Home My Public Portal About13) 7.L. Actural Valuation for Medical Benefits for Retired EmployeesDATE: April 16, 2013 AGENDA ITEM 71. ADMINISTRATIVE SERVICES DEPARTMENT TO: The Honorable City Council MEMORANDUM FROM: Jose E. Pulido, City Manager By: Tracey L. Hause, Administrative Services Director SUBJECT: ACTUARIAL VALUATION FOR MEDICAL BENEFITS FOR RETIRED EMPLOYEES DATION: 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 Post -Employment Benefits (OPEB). 3. On June 30, 2009, the City of Temple City implemented the Statement, as required. 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 Actuarial Valuation, in accordance with the Statement, was 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"). City Council April 16, 2013 v Page 2 This 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 which authorized the City's 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 the principal, and the interest earnings generated on this investment, will help to reduce the OPEB future liability. When a subsequent actuarial valuation is completed in 2014 (as required by GASB Np. 45), this future liability of OPEB will be recalculated and presented in an 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. Fill ►/e1 W&I65 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. 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 explore other options to potentially reduce the OPEB liability in the future, the Tier Benefit Ad Hoc Committee asked staff to consider alternatives for reducing the future costs of such benefits. Hence, staff completed an Actuarial Evaluation which shows the potential reduction in future OPEB costs if new City hires were to receive a reduced health benefit. However, after staff and legal counsel reviewed the State statues related to these benefits, it was determined, that with only a few exceptions (that are not relevant to the City's current situation), CalPERS requires member cities to contribute an equal amount towards medical benefits for both active employees and retirees. As a result, it is recommended the City Council receive and file the Actuarial Valuation that was prepared as part of the analysis of alternative medical plans for new hires. CONCLUSION: In light of the City Council Tier Benefit Ad Hoc Committee's request that staff explore - the possibility of reducing future OPEB costs, staff will continue to monitor the statues related to these benefits and will bring forward to the City Council alternatives for reducing future OPEB liabilities if changes in State law materialize. City Council April 16, 2013 Page 3 FISCAL IMPACT: This action does not have an impact on the FY 2012-13 City Budget. ATTACHMENTS: A. Actuarial Valuation dated February 11, 2013 B. Actuarial Valuation dated October 31, 2011 ATTACHMENT A JR -TEL / 1SSOCIATES. LLC 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 ofretirement 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 elijibility) Benefit (Post -Medicare eligibility) < 15 PEMHCA minimum PEMHCA minimtun 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 Summary 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 Ca1PERS Boards likely at medical CPI. 411 Borel Avmuc, Suite 101 • Sm Marco, Califrnua 94102 fl dn: 650/377-1600 -fax.' 650/345-&057 • web: www.Lvurtcl-assomtcs.com Tracey Hause February 11, 2013 Page 2 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 tern 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 (ABCs) 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, 2011 OPEB valuation actuarial methods and assumptions, and 4.5% annual increases in the PEMHCA minimum amount after 2013. The impact of a 2"d tier is highly dependent upon the actual demographics of new employees. Future hire demographics were assumed similar to those hired under age 552 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. Rl t Botel Avenue, Sunl01 • San Mateo, California 9-402 main. 650/377-1600 -fax 650/345-8057 •WCG. wvw.bazt -..,soda c,.eom Tier 1 Tier 2 Increase/ 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, 2011 OPEB valuation actuarial methods and assumptions, and 4.5% annual increases in the PEMHCA minimum amount after 2013. The impact of a 2"d tier is highly dependent upon the actual demographics of new employees. Future hire demographics were assumed similar to those hired under age 552 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. Rl t Botel Avenue, Sunl01 • San Mateo, California 9-402 main. 650/377-1600 -fax 650/345-8057 •WCG. wvw.bazt -..,soda c,.eom Tracey Hause February 11, 2013 Page 3 (l L) Please call me (650/377-1601) with any questions about this letter or our calculations. Sincerely, iw�.1" John E. Bartel President C Deanna Van Valet, Bartel Associates, LLC o:\clients\city of temple city\projects\opeb\2011\report\ba 13-02-11 templeci calpers section 7507 -revised final docx 41113orc1 Aveun, Suite 101 'S'an Mateo, California 94402 main: 650/377-1600 •fax' 650/345-8057 ' web: www.bartel-assocx ties coin ATTACHMENT B OF TEMp�E � yt 4Mr r � i� 4 a Ui i< IIWO C�E�RORN�p CITY OF TEMPLE CITY AR L L RETIREE HEALTHCARE PLAN S, cOCINITS. 11-C — -- — _ _ 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 oAWo eMleudagy ofoeo,leolhs,o bW l4apml\In T=plwi❑-11631 Wob l lt6 jO W oosull.doo; BENEFIT SUMMARY ■ Eligibility • Retire directly from City under CalPERS (age 50 and 5 years of CalPERS service or disability) ■ Retiree Medical • Contracts with CalPERS under Public Employees' Medical and Benefit Hospital Care Act (PEMHCA) . Full premium for employee and 50% for dependents ■ Dental & Vision • Full premium for employee retired on or after 4/18/00 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 Q1 r w'lrt: canber3l,2ou BENEFIT SUMMARY ■ Other OPEB o 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 2009/10' 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 i Medical reflects 2 month CalPERS premium holiday for PPO plans. 1October31,2011ZVI PARTICIPANT STATISTICS Participant Statistics 6/30/092' '" 6/30/11 ■ Actives • Count 36 37 • Average Age n/a 45.8 • Average City Service n/a 7.9 • Average PERS Service n/a 11.0 • Average Pay $ 62,811 $ 64,128 • Total Pay (000's) 2,261 2,3733 ■ Retirees • Service Retired n/a 20 • Disabled n/a 1 • Survivor 2 4 • Total Count 23 25 • Average Age n/a 71.4 • Average Retirement Age • Service Retired n/a 60.8 • Disabled n/a 52.1 z Iaforroation from 6/30/09 AMM report by Milliman'S"GASBhetp". salary as of 6/17/11 ($91,259 for 6/4/11-6/17/11) multiplied by 26 pay periods. \'(!/Biii--`w\jeekly Lj) 3 1' 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 2 • Covered n/a 18 • Covered % n/a 90% ° Information from 6/30/09 AMM report by Millman's "GASBhelp". - B,.�J\�\J 4 1' Ocrober3l,2011 PARTICIPANT STATISTICS Medical Plan Participation Non -Waived Participants B, October 31, 2011 F7 PARTICIPANT STATISTICS Dental Plan Particivations Non -Waived Participants Retirees 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% B, October 31, 2011 F7 PARTICIPANT STATISTICS Dental Plan Particivations Non -Waived Participants Excludes self -pay and ineligible retirees. L' October3l,2011 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. L' October3l,2011 ACTUARIAL ASSUMPTIONS HIGHLIGHTS Assumption June 30, 2009 AMM Valuation ■ Valuation • June 30, 2009 Date • 2008/09 & 2009/10 ABCs • End of year valuation ■ Funding Policy ■ Discount Rate ■ Retirement, Mortality, Withdrawal, Disability • Pay-as-you-go • 2.00% • Retirement - average age 58 • Mortality - RP 2000 Mortality Table Projected 10 years • Withdrawal - Standard Turnover Assumptions (GASB 45 Paragraph 35b) • Disability - n/a ' Information from 6/30/09 AMM report by Millimm's "GASBhelp". (A 7 October 31, 2011 June 30, 2011 Valuation • June 30, 2011 0 2010/11, 2011/12 & 2012/13 ARCS • End of year valuation • Same • 4.00% -Not pre -funded, assets in City investments • CatPERS 1997-2007 Experience Study Ret Ca1PERS Exp. Benefit HireAee RetAee Misc 2.5%@55 34.8 59.9 ACTUARIAL ASSUMPTIONS HIGHLIGHTS Assumption June 30, 2009 AMM Valuation ■ Payroll 3.00% Increase ■ Participation • 100% at Retirement ■ Medical Trend L' October 31, 2011 9 June 30, 2011 Valuation • Aggregate Increases - 3.25% • Merit Increases - CalPERS 1997-2007 Experience Study • Salne Increase from Prior Year Increase from Prior Year 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%a 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% 8 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 spousal coverage ■ Family n/a • Current actives — 10% until 65 Coverage at • Current retirees — Same as Retirement current elections until 65 1 5j J 9 October 31, 2011 �4. ACTUARIAL ASSUMPTIONS HIGHLIGHTS Assumption June 30,2009 AMM Valuation ■ Medical Plan • n/a at Retirement ■ Dental Plan • n/a at Retirement June 30, 2011 Valuation, • Current actives — Weighted by current retiree non -Medicare eligible and Medicare eligible elections • Current retirees < 65: 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 10+ October 31, 2011 Method ■ Cost Method ■ Plan Assets ■ Amortization Method ACTUARiAI METHODS June 30, 2009AMM Valuation . Entry Age Normal • None • Level percent of payroll June 30, 2011 Valuation • Same • Same • Same ■ Amortization 30 -year fixed (closed) period for • Fresh Start -28 -year fixed Period UAAL as of 6/30/09 for (closed) period for UAAL as of 2008/09 ARC 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 r- 0/ October 31, 2011 ACTUARIAL METHODS I Method June 30, 2009 AMM Valuation I 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 assmnption v Retirees — No additional retirees from new hires over 10 -year projection period QOctobev 31, 2611 12 09 RESULTS Actuarial Obligations (Amounts in 000's) L.. RESULTS Annual Reauired Contribution (ARC) (Alnounts in 000's) 6/30/097 6/30/11 6/30/11 Valuation ■ Discount Rate 2.00% 4.00% 2010/11 I ■ Present Value of Benefits 2012/13 ■ Discount Rate 2.01% • Actives $ n/a $ 8,196 MARC-$ • Retirees n/a 3.338 • Total n/a 11,534 $ 808 ■ Actuarial Accrued Liability $ 528 $ 545 • UAAL Amortization10 • Actives n/a 3,143 291 • Retirees n/a 3,338 1,103 • Total 7,850 6,481 ■ Projected Payroll ■ Actuarial Assets 2,329 2,335 2,411 ■ Unfunded Actuarial Accrued Liability 7,850 6,481 ■ Normal Cost 785 511 • Normal Cost ■ Pay -As -You -Go Cost8 129 143 21.9% ' Information from 6/30/09 AMM report by Milkman's "GASBhelp". • UAAL Amortization 10.2% 12.7% s pay -go for 2008109 slid 2010/11 provided by the City. 12.1% 13.9% • Total Actual 13 BOA 47.4% 32.2% 34.0% l'October 31, 2011 ° Information from 6/30/09 AMM report by Mi liman's "GAS13help". Results for 2009110 extrapolated based L.. RESULTS Annual Reauired Contribution (ARC) (Alnounts in 000's) 6/30/09 Valuation 6/30/11 Valuation 2008/09 I 2009/10 2010/11 I 2011/12 1 2012/13 ■ Discount Rate 2.01% 4.00% MARC-$ • Normal Cost $ 785 $ 808 $ 511 $ 528 $ 545 • UAAL Amortization10 231 295 240 291 347 • Total 1,016 1,103 751 819 892 ■ Projected Payroll 2,261 2,329 2,335 2,411 2,490 MARC-% • Normal Cost 34.7% 34.7% 21.9% 21.9% 21.9% • UAAL Amortization 10.2% 12.7% 10.3% 12.1% 13.9% • Total 44.9% 47.4% 32.2% 34.0% 35.8% ° Information from 6/30/09 AMM report by Mi liman's "GAS13help". Results for 2009110 extrapolated based on 3% payroll increase assumption. ° 30 -year amortization of 2009 UAAL beginning 2008/09; 28 year Fresh Start amortization of 2011 UAL beginning in 2010/11. B/ 14:wy,a . /October 31,2011 ^" Information from 6/30/09 AMM report by Milkman's' GAS13help". B 5 October 3l, 2017 RESULTS Amortization Bases (Amounts in 000's) 6/30/09 Valuation 6/30/11 Valuat'on 6/30/09 6/30/10 6/30/11 6/30/12 6/30/13 ■ Outstanding Balance • Initial UAAL $ 7,850 $ 7,777 • Contribution Loss 887 • 2011 Fresh Start UAAL $ 6,113 $ 6,108 $ 6,094 • (Gains)/Losses & Assumption Changes - 610 1,251 • Total 7,850 8,664 6,11312 6;718 7,345 rs UAAL adjusted for contribution and nomial cost sauce end of year valuation. 16 /� October 31. 2011 RESULTS Schedule of Funding ProEress (Amounts in 000's) Entry Age Unfunded UAAL as Actuarial Actuarial Actuarial Percentage Actuarial Value of Accrued Accrued Funded Covered of Covered Valuation Assets Liability Liability Ratio Payroll Payroll Date (a) (b) (b -a) (a/b) (c) ((b-a)/c) 6/30/0911 $ - $ 7,850 $ 7,850 0.0% $ 2,261 347.2% 6/30/11 6,481 6,481 0.0% 2,315 277.6% Information from 6/30/09 AMM report by Milkman's' GAS13help". B 5 October 3l, 2017 RESULTS Amortization Bases (Amounts in 000's) 6/30/09 Valuation 6/30/11 Valuat'on 6/30/09 6/30/10 6/30/11 6/30/12 6/30/13 ■ Outstanding Balance • Initial UAAL $ 7,850 $ 7,777 • Contribution Loss 887 • 2011 Fresh Start UAAL $ 6,113 $ 6,108 $ 6,094 • (Gains)/Losses & Assumption Changes - 610 1,251 • Total 7,850 8,664 6,11312 6;718 7,345 rs UAAL adjusted for contribution and nomial cost sauce end of year valuation. 16 /� October 31. 2011 RESULTS Amortization Pavments (Amounts in 000°s) 6/30/09 Valuation 6/30/11 Valuation 2008/09 2009/10 2010/11 2011/12 2012/13 ■ Amortization Payment - $ • InitialLAAL" $ 231 • Contribution LoSS14 • 2011 Fresh Stark L AAL15 • (Gains)/Losses & Assumption Changes 14 • Total 231 ■ Minimum Required Tota116 231 13 Amortized over' 0 -year closed period beginning 2008/09. 14 Amortized over 15 -year closed periods. r' Amortized over 28 -year closed period beginning 2010/11. PHI 17 October 31, 2011 $ 238 56 RESULTS $ 240 $ 248 $ 256 43 91 295 240 291 347 n/a 226 n/a n/a Estimated Net OPEB Obligation (NOO) Illustration (Amounts in 000's) ■ NOO at Beginning of Year ■ Annual OPEB Cost (AOC) • Annual Required Contribution • Interest on NOO • Amortization of NOO • Annual OPEB Cost ■ Contributions • Benefit Payments and Fees17 • Trust Pre -Funding • Total Contribution ■ NOO at End of Year CAFR Estimated 2008/09 2009/10 2010/11 2011/12 2012/13 $ - $ 887 $ 1,786 $ 2,395 $ 3,032 1,016 1,016 751 819 892 - - 71 96 121 70 115 165 1,016 1,016 752 799 848 129 117 143 163 180 129 117 143 163 180 887 1,786 2,395 3,032 3,700 15 30 -year amortization of total URAL. " Estimated cash payments shown for 2010111,201t/12 & 2012/13. Actual cash payments should be used for OPEB footnote. R / Oetober 31,2b11 B• CERBT RESULTS No Pre -Funding #1 #2 Estimated No Pre -Funding Illustration 7.25% 6.75% 6.25% 4.00% 2.00% 4.00 % Discount Rate $ 6,618 $ 7,251 $ 11,534 $ 18,944 4,059 4,332 4,635 (Amounts in 000's) 9,142 4,059 4,332 4,635 6,481 Beginning 261 Annual C-)ntribut n 825 ARC Contrib FYE of Year 255 OPEB 513 545 751 as as June Net OPEB 32.2% 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% 19 October 31, 2011 �. I RESULTS Discount Rate Sensitivity June 30, 2011 (Amounts in 000's) ■ Discount Rate ■ Present Value of Benefits ■ Funded Status • Actuarial Accrued Liability • Actuarial Value of Assets • Unfunded AAL ■ ARC 2010/11 • Normal Cost • UAAL Amortization • Total • ARC % of Payroll Poctober31,2011 CERBT No Pre -Funding #1 #2 #3 7.25% 6.75% 6.25% 4.00% 2.00% $ 6,064 $ 6,618 $ 7,251 $ 11,534 $ 18,944 4,059 4,332 4,635 6,481 9,142 4,059 4,332 4,635 6,481 9,142 261 287 317 511 825 224 226 228 240 255 485 513 545 751 1,080 20.8% 22.0% 23.4% 32.2% 46.2% 20 18 Confidence Limits—Actual Bq21 CERBT INVESTMENT OPTIONS indicated probabilities, rates vary by year. a a ■ Additional CERBT asset allocations and revised discount rate assumption • Agency selects one option effective July 1, 2011 ■ Target asset allocations Asset Classifications Option 1 Option 2 Option Global Equity 66.0%v 50.1% 31.6% US Nominal Bonds 18.0% 23.9% 42.4% REITs 8.0% 8.0% 8.0%n 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" 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% 18 Confidence Limits—Actual Bq21 Return will exceed the given rate with indicated probabilities, rates vary by year. a a October 31,2011 CERBT INVESTMENT OPTIONS ■ CalPERS discount rate development: • let 10 year expected returns — based on asset advisors 10 year projections • Significantly higher returns assumed after 10 years q based on long term historical returns implies actuarial losses in 1" 10 years 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 I Option 2 1 Option 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%) B5,q 22 October31,2611 x- 1' October 3t, 2011 BARTEL ASSOCIATES GASB 45 DATABASE GASB 45 Retiree Medical Benefits Comparison Sample Percentile Graph 0%- 90% of 55% —tooth Pc'.wc 50%- — 95th Percentile 45'/. a 40%. —75WPerren61e T within 3l- this this 50th Perceable a 25%- range 2P% .-25th Percenfile 8°h Percent of Pay to-/. «5WPertenQo Sl - �Oth Percentile 0% 50% or 90% of 100%of recults results mulls ore a We within within within this this this range range range 23 BARTEL ASSOCIATES GASB 45 DATABASE GASB 45 Retiree Medical Benefits Comparison Normal Cost &Annual Required Contribution - Discount Rate = 4.00%, Amortization Period = 28 Yeers u / L' October 31, 2011 Miscellaneous NC ARC 95LLx Pereenrile 204% 33.0% 75thPer eotile 13-.8% 21?%u 50th Percentile 5.9% 45% 25th PereeaGle 2$% 3.6% 5th Pe¢en01e 0.9>% IS% Percent of Pay 21.9% 32.2% Percentile 97% 93% - Discount Rate = 4.00%, Amortization Period = 28 Yeers u / L' October 31, 2011 BARTEL ASSOCIATES GASB 45 DATABASE 7k 60[ . 5N,t 4 40: aro F P . QOctober 31, 2011 GASB 45 Retiree Medical Benefits Comparison Actuarial Accrued liability Miscellaneous 95th PB ceO6le 372% 95th Percentile 232% 50th Puoeud]e 116% 25th Percentile 36% 5th Percentile 12% Percent of Pay 261 8% Perremile 80.6% Discount Rol4 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 > Likely effective for 2013/14 fiscal year • Major issues: > Unfunded liability on balance sheet r 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 "a 1 (I, I J 245 October 31, 2011 OTHERISSUES ■ Current Valuation—for 2010/11, 2011/12 & 2012/13 ARCS or for 2011/12, 2012/13 & 2013/14 RRCs based on use of Milliman report ■ Timing: • Present preliminary results September 14, 2011 • Updated GASB 45 database October 31, 2011 B,q October 31, 2011 zz ' EXIIHSITS Topic Page Premiums E- I Data Summary E- 4 Actuarial Assumptions E-17 Definitions E-24 . lD)t'�I 28 �'�%. 1 Oaaber 31, 2011 Medical Plan Blue Shield Blue Shield NetValue Kaiser PERS Choice PERS Select PERSCare QOctober31,2011 Medical Plan Blue Shield Access+ Blue Shield NetVal ue Kaiser PERS Choice PERS Select PERSCare B5/L� October 31, 2011 W : 1T l 1W 2011 PEMHCA Monthlv Premiums Los Angeles Area Non- Medicare Eligible Medicare Eligible Single 2 -Party Family Single 2 -Party Family $496.93 $993.86 $1,292.02 $337.88 $675.76 $1,013.641 427.58 855.16 1,111.71 337.88 675.76 1,013.641 434.00 868.00 1,128.40 282.30 564.60 846.901 496.15 992.30 1,289.99 375.88 751.76 1,127.641 433.87 867.74 1,128.06 375.88 751.76 1,127.641 787.24 1,574.48 2,046.82 433.66 867.32 1,300.981 lei PREMMMS 2012 PEMHCA Monthlv Premiums Los Angeles Area Non- _Medicare Eligible Medicare Eli ;ible Single 2 -Party Family Single 2 -Party Family $510.72 $1,021.44 $1,327.87 $337.99 $675.98 $1,013.97 439.25 878.50 1,142.05 337.99 675.98 1,013.97 465.63 931.26 1,210.64 277.81 555.62 833.43 505.63 1,011.26 1,314.64 383.44 766.88 1,150.32 429.22 858.44 1,115.97 383.44 766.88 1,150.32 906.39 1,812.78 2,356.61 432.43 864.86 1,297.29 E-2 a' PREMIUMS Dental & Vision Monthlv Premiums 19 DATA SUMMARY Active Medical Coverage Medical Plan Single 2010/11 Family Waived Total 2011/12 5 Dental Plan Single 2 -Party Family Single 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 41.28 - 3 2010/11 - - 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 E -3:a � October 31, 2011 , DATA SUMMARY Active Medical Coverage 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 �l--�. E-4p7,L October 3I, 301 I 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 POctober 31, 2011 DATA SUMMARY Retiree Medical Coverage Under Age 65 Medical Plan Single 2 -Party Family Waived Total Blue Shield - Blue Shield NetValue - 1 1 Kaiser 1 2 3 PERS Choice - - - PERS Care 1 - - 1 Waived - - - Total 2 3 - 5 �� E-6 October 31, 2011 a DATA SUMMARY Retiree Dental & Vision Coveraue Under Age 65 Dental Plan Single 2 -Party Family Self -Pay Ineligible Total Delta Dental DPO 1 2 3 DeltaCare 1 1 2 Ineligible - - - Total 2 3 5 Vision Plan Single 2 -Party Family Self -Pay Ineligible Total VSP 3 2 5 ll 12 1-7 2 20 October 31, 2011 DATA SUMMARY Retiree Medical Coverage 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 OcmUer31,2011 Dental Plan Delta Dental DPO DeltaCare Ineligible Total Vision Plan VSP B�{Ocrober 3l, 201] DATA SUMMARY Retiree Dental & Vision CoveraEe Age 65 & Over Single 2 -Party Family Self -Pay Ineligible Total 8 2 2 12 8 2 2 8 20 Single 2 -Party Family Self -Pay Ineligible Total 7 3 2 8 20 L-9 DATA SUMMARY This page intentionally blank 0 B54G -I0 �� ' Octobcr 31, 2011 DATA SUMMARY Actives by Aue and City Service Miscellaneous DATA SUMMARY This page intentionally blank B,�-1i E-12 9October 31,'2011 City Service Age < 1 1-4 5-9 10-14 15-19 20-24 > 25 Total <25 - - - - - - - 25-29 1 - 1 30-34 - 2 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 T� OcwbOr 31, 2011 DATA SUMMARY This page intentionally blank B,�-1i E-12 9October 31,'2011 DATA SUMMARY Active Ade Distribution Miscellaneous 12 10 ------- ----------------- - - 8 z — 4 --------- -- — 2 - n n 0 <25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-65 >65 Age J 1' October 31, 2011 DATA SUMMARY Active Service Distribution Miscellaneous 16 14 - - 12 - -- ------------- -- 10 10 - - ------------- -- 8 z6 - ----------- -- - 4 - ---- - 2 0 0-4 5-9 10-14 15-19 20-24 >25 Service e-14 -< October3L2011 DATA SUMMARY 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 BJ� October 31, 2011E -M DATA SUMMARY Retiree Age Distribution Miscellaneous 9 8 7 6 ------- 5 4 ------------ --- --- -- 3 ------------------ ----- — ----- ---- -- 2 2 ----- ----- ------------- 1- <50 50-54 55-59 60-64 65-69 70-74 75-79 80-84 >85 Age I E-16 �f��` / ortob�31,3011 Assumption ■ Valuation Date ■ Funding Policy ■ Discount Rate ■ General Inflation ■ Payroll Increase ACTUARIAL ASSUMPTIONS June 30, 2009 AMM Valuation 20 • June 30, 2009 • 2008/09 & 2009/10 ARCS • End of year valuation • Pay-as-you-go • 2.00% • 3.00% 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 • Same • 3.00% • Aggregate Increases - 3.25% • Merit Increases - CalPERS 1997-2007 Experience Study 30 Infatuation from 00/09 AMM report by Milliman's "GASBhelp'. E-17 October 37, 2011 Assumption ■ Medical Trend ■ Actuarial Load PO lobe! 1, 2Vll ACTUARIAL ASSUMPTIONS June 30, 2009 AMM Valuation20 June 30, 2011 Valuation 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% June 30, 2011 Valuation n/a • 5.0% load • PEMHCA PPO premium increases below per capita claims increases 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%e 7.2% 2018 6.5% 6.7% 2019 6.0% 6.1% 2020 5.5% 5.6% 2021+ 5.0% 5.0% n/a • 5.0% load • PEMHCA PPO premium increases below per capita claims increases ACTUARIAL ASSUMPTIONS Assumption June 30, 2009 AMM Valuation 20 ■ Dental Trend 2010 — 4.00% • 2011— 3.50% • 2012 and later — 3.00% ■ Vision Trend 3.00% ■ Service n/a Retirement ■ Mortality, Withdrawal, Disability 1' October 31, 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 June 30, 2011 Valuation • 4.50% • Same • CalPERS 1997-2007 Experience Study CalPERS Exp. Benefit Hire Age Ret A e 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, 2011 Valuation • 100% • Everyone eligible for Medicare will elect Part B coverage • Same • Pre -65 — n/a • Post -65 — 0% B, L-20 7 _ . I� October 31, 2011 R ACTUARIAL ASSUMPTIONS Assumption June 30, 2009 AMM Valuation 20 ■ Medical Plan • n/a at Retirement flOctober 97, 2011 Assumption ■ Dental Plan at Retirement E-21 June 30, 2011 Valuation • Current actives — Weighted current retiree non -Medicare eligible and Medicare eligible elections • Current retirees < 65: Pre -65 — Same as current elections Post -65 —Weighted current retiree Medicare eligible elections • Current retirees > 65 — Same as current elections ACTUARIAL ASSUMPTIONS June 30, 2009 AMM Valuation 20 n/a ■ Spousal n/a Coverage at Retirement ■ Spouse Age • n/a B, 1 October 37, 2011 E-22 June 30, 2011 Valuation • Pre -65: Currently covered — Same as current elections Currently waived —Weighted current retiree pre -65 elections • Post -65 — Delta Dental DPO • Currently covered— Same as current elections • Currently waived — 80% elect spousal coverage • Current actives — Males 3 years older than females • Current retirees — Males 3 years older than females if spouse birth date not available a ACTUARIAL ASSUMPTIONS Assumption June 30, 2009 AMM Valuation 20 June 30, 2011 Valuation ■ Surviving • n/a • 100% Spouse Participation Is Family • n/a • Current actives — 10% until 65 Coverage at • Current retirees — Same as Retirement current elections until 65 E 23 I'DOctober 31, 2011 DEFINITIONS ■ GASB 45 • Project future employer-provided benefit cash flows for current active Accrual employees and current retirees Accounting a 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 Nominal 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 (UAAL) is AAL less plan assets pre -funded in a segregated and restricted trust ■ PayGo Cost • 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 B5,��E-24 Ocrober 31, 2011 DEFINITIONS Present Value of Benefits, Present Value of Benefits (without Plan Assets) Future Normal Costs Normal Cost Unfunded Actuarial Accrued Liability , October31,2011 E-25 DEFINITIONS Present Value of Benefits (With Plan Assets) Future \ Normal Costs Normal Cost Unfunded Actuarial Accrued ■ Annual • "Required contribution" for the current period including: Required ➢ 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 tw cAjj�,.� ,d but not funded Obligation . Net OPEB Asset if amounts funded exceed those expensed (NOO) ■ Annual OPEB • Expense for the current period including: Cost (AOC) ➢ ARC • Interest on NOO r Adjustment of NOO • NOO adjustment prevents double counting of expense since ARCS include an amortization of prior contribution gains/losses previously expensed 6,q E-26 6$'i October 31, 2011