HomeMy Public PortalAboutExhibit MSD 18A5 Milliman Letter dated 090210Milliman
September 2, 2010
Ms. Vicki T,,a ior-Edwards
Metroix 1 tan St. Louis Sewer District
235P'viarket Street
.t'. Louis, MO 63103
RE: Metropolitan St. Louis Sewer District Employees' Pension Plan —
Section 105.665 Cost Statement
Dear Ms. Edwards:
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The purpose of this letter is to provide the Board Members of the Metropolitan St. Louis Sewer
District Employees' Pension Plan with a cost statement that may be required under the Missouri
Revised Statute Section 105.665.
The proposed "changes in plan benefits" that are subject to this statement are as follows:
The pension plan will be closed to new members effective December 31, 2010. Employees hired
after that date will participate in a defined contribution plan. In addition, employees with less
than 10 years of vesting service under the defined benefit pension plan will be given a one-time
irrevocable choice to remain in the defined benefit plan or transfer to the defined contribution
plan.
The present value of benefits transferred to the defined contribution plan for those employees
with less than 10 years of vesting service who elect to change plans will be based on the plan's
definition of Actuarial Equivalence. The lump sum value of the deferred Normal Retirement
Benefit based on service and earnings through December 31, 2010 will be transferred to the
defined contribution plan. The lump sum present value will not include any consideration for
future increases in the monthly amount.
The most recent periodic actuarial valuation of the plan was prepared as of December 31, 2009.
The cost statement is based on that report.
Our cost statement, numbered to correspond with Section 105.665, follows below:
1. The level normal cost of plan benefits currently in effect is 12.55% of covered payroll, as
presented in the December 31, 2009 actuarial valuation.
2. The contribution for unfunded accrued liabilities in the 2009 actuarial valuation is 7A7%
of payroll using a closed 20 year level -dollar amortization.
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Milliman
September 2, 2010
Ms. Vicki Taylor -Edwards
Page 2
3. The total contribution rate from items one and two above is 19.72% of covered payroll.
4. The District is currently paying the total contribution rate.
5. The total contribution rate required to fund the proposed plan change is 20.69% of
covered payroll (assuming 50% of members with less than 10 years of service elect to
transfer to the DC plan).
6. N/A. The total dollar amount of contributions is expected to decrease.
7. As long as the District continues to contribute the full contribution requirement, the
proposed changes will not impact the ability of the Plan to meet its obligations.
8. The actuarial assumptions used in the December 31, 2009 actuarial valuation are shown
in Exhibit II.
9. In our opinion, the actuarial assumptions, method and techniques used in the December
31, 2009 actuarial valuation produce results which in the aggregate are reasonable.
10. The actuarial cost method used in the December 31, 2009 actuarial valuation is described
in Exhibit II.
11. N/A. The total dollar amount of contributions is expected to decrease.
10 Year Projections
Since the Statute is not drafted to anticipate this type of plan change, we have also included 10
year projections of the total contribution requirements to help provide a better understanding of
the potential long term impact of the proposed changes on the District's combined retirement
plan costs.
The cost impact of the proposed change will be realized gradually over time, since initially most
employees will be members of the current Plan. To illustrate how the pattern of cost under the
proposed change compares to the current pension plan, we have included 10 year projections of
contribution requirements in the attached exhibits using a range of participation assumptions.
The projections are based on the results of the December 31, 2009 valuation. For purposes of the
projections, we have assumed that the changes are implemented effective January 1, 2011, active
head count remains level and the MSD payroll will grow at a rate of 4.0% per year. All other
assumptions are the same as used for the December 31, 2009 Actuarial Valuation.
As time goes on, a greater and greater portion of the active population will be covered by the less
expensive Defined Contribution plan. These costs are represented in the attached exhibits by the
green bars. Since overall program contributions will be lower under the proposed alternative, the
average level of benefits will also be lower. Also, since the amount of matching contributions
and the number of employees electing to switch plans are unknown, we have provided three
charts to show a range of possible results. The following summarizes the projection scenarios:
Scenario 1 — Proposed DC plan includes newly hired employees only. DC plan participants
receive an annual 7% employer contribution plus up to a 2% match on their own deferrals.
Milliman
September 2, 2010
Ms. Vicki Taylor -Edwards
Page 3
Scenario 2 — Proposed DC plan includes newly hired employees and 100% of employees with
less than 10 years of service elect to move to the DC plan. DC plan participants receive an
annual 7% employer contribution plus up to a 2% match on their own deferrals.
Scenario 3 — Proposed DC plan includes newly hired employees and 50% of employees with
less than 10 years of service elect to move to the DC plan. DC plan participants receive an
annual 7% employer contribution plus 100% of the employees receive a 2% match on their own
deferrals.
In preparing this report, we relied, without audit, on information (some oral and some in
writing) supplied by the Metropolitan St. Louis Sewer District. This information includes, but
is not limited to, Plan documents and provisions, employee data, and financial information.
In our examination of these data, we have found them reasonably consistent and comparable
with data used for other purposes.
Since the valuation results are dependent on the integrity of the data supplied, the results can
be expected to differ if the underlying data is incomplete or missing. It should be noted that if
any data or other information is inaccurate or incomplete, our calculations may need to be
revised.
On the basis of the foregoing, we hereby certify that, to the best of our knowledge and belief,
this report is complete and accurate and has been prepared in accordance with generally
recognized and accepted actuarial principles and practices which are consistent with the
principles prescribed by the Actuarial Standards Board and the Code of Professional Conduct
and Qualification Standards for Public Statements of Actuarial Opinion of the American
Academy of Actuaries. We are members of the American Academy of Actuaries and meet
the Qualification Standards to render the actuarial opinion contained herein.
Actuarial computations included in this report are for the exclusive purposes cited in this report.
Determinations for purposes other than those specifically referenced in this report may be
significantly different. Accordingly, additional determinations may be needed for other
purposes, such as judging benefit security on a settlement basis.
These cost estimates are subject to the uncertainties of a regular actuarial valuation; the costs are
inexact because they are based on assumptions that are themselves necessarily inexact, even
though we consider them reasonable. Thus, the emerging costs may vary from those presented
in this letter to the extent actual experience differs from that projected by the actuarial
assumptions.
We have not explored any legal issues with respect to the proposed plan changes. We are not
attorneys and cannot give legal advice on such issues. We suggest that you review this proposal
with counsel.
Milliman
September 2. 2010
Ms. Vicki Taylor -Edwards
Page 4
This report has been prepared for the internal use of and is only to be relied upon by the
Metropolitan St. Louis Sewer District and it's auditors; it is not for the use or benefit of any third
party for any purpose. No portion of this report may be disclosed to any other party (other than
Missouri State regulatory personnel) without Milliman's prior written consent. In the event such
consent is given, the report must be provided in its entirety, unless prior written consent is
obtained from Milliman. We recommend that any such party have its own actuary or other
qualified professional review this report to ensure that the party understands the assumptions and
uncertainties inherent in our estimates. We respectfully submit the following exhibits, and we
look forward to discussing them with you.
We are available to address any questions that you may have.
Sincerely,
Michael J. Z -ner, FSA
Consulting • uary
MJZ/giy
cc: Steve E. Brown
Karl Tyrinski
Enclosures
Exhibit I
Metropolitan St. Louis Sewer District
Employees' Pension Plan
December 31, 2009
Actuarial Proposed
Valuation Change*
1. Present Value of Future Benefits*
a. Active Participants $172,729,891 $153,780,346
b. Retired and Beneficiaries 90,067,380 90,067,380
c. Survivors of Deceased Actives 9,573,529 9,573,529
d. Terminated Vested Participants 4,378,215 4,378,215
e. Total 276,749,015 257,799,470
2. Present Value of Future Normal Costs 53,685,939 39,696,022
3. Actuarial Value of Assets 185,753,000 184,411,734
4. Entry Age Unfunded Accrued Liability: (le) - (2) - (3) 37,310,076 33,691,714
5. Entry Age Noiiiial Cost at End of Year 6,560,727 5,334,700
6. Amortization Payment of prior changes in (4) 3,746,012 3,391,079
7. Recommended Contribution at End of Year: (5) + (6) 10,306,739 8,725,779
8. Expected Contribution 10,306,739 8,725,779
9. Covered Payroll 52,267,378 42,164,044
10. Recommended Contribution as a Percentage of Payroll
Normal Cost 12.55% 12.65%
Amortization Payment 7.17% 8.04%
Total 19.72% 20.69%
11. Necessary Increase in Contributions
column 2 (8) - column 1 (8)
N/A ($1,580,960)
* For comparison purposes, assumes that the change is effective 1/1/2010 and 50% of active employees
with less than 10 years of service elect to transfer to the defined contribution plan.
This work product was prepared solely for the MSD for the purposes described herein and may not be
appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability
to other parties who receive this work.
Sce nari o
Metropolitan St . L ouis Sewer District Employees' Pension Plan
Pr oje cti on of A nnual Req uired Contributions (7% Pr ofit Share, 50% m atch up to 4%)
DC Plan Incl ud es N ew Hires Only (100% Receive F ull Match)
Annu al Required Contribution
$15,000,000
$14,500,000 $14,000,000
$13,500,000 —
$13,000,000 —
$12,500,000
$12,000,000 —
$11,500,000 —
$11,000,000 —
$10,500,000 —
$10,000,000 —
$9,500,000 —
$9,000,000 $8,500,000 —
$8,000,000 —
$7,500,000 —
$7,000,000 —
$6,500,000 —
$6,000,000 —
$5,500,000 —
$5,000,000
•
•
•
•
•
•
2010 2011 2012 2013 2014 2015 2016
Fiscal Ye ar End
2017 2018 2019 2020
I• DB a nd proposed DC plan
--k— New Hires remain in Defined Benefit Plan
2010 2011
DB Co ntributions 10,300,000 11,700,000
DB/DC Pla n Contributions 10,300,000 11,600,000
Differe nce 0 100,000
2012 2013 2014 2015
11,500,000 11,800,000 12,100,000 12,400,000
11,300,000 11,500,000 11,700,000 11,800,000
200,000 300,000 400,000 600,000
2016 2017 2018 2019 2020 T otal
12, 700, 000 13,100, 000 13, 500, 000 13,900,000 14, 300, 000 137, 300, 000
12,100,000 12,300,000 12,500,000 12,800,000 13,000,000 130,900,000
600,000 800,000 1,000,000 1,100,000 1,300,000 6,400,000
This work pro duct was prepare d solely fo r the MSD for the purpo ses described herein and may not be appro priate to u se fo r other purpos es . Millim an does not intend to benefit and assumes no
du ty or liability to othe r parties who receive this work.
Scenari o 2
Metr opolitan St. Louis Sew er District Empl oyees' Pension Plan
Pr ojecti on of Annual Required Contributions (7% Pr ofit Share, 50% match up to 4%)
All Empl oyees with < 10 Years of Service Elect DC Plan (100% Receive Full Mat ch)
A nnual Required Contribution
$15,000,000
$14,500,000
$14,000,000
$13,500,000
$13,000,000
$12,500,000
$12,000,000
$11,500,000
$11,000,000
$10,500,000
$10,000,000
$9,500,000
$9,000,000
$8,500,000
$8,000,000
$7,500,000
$7,000,000
$6,500,000
$6,000,000
$5,500,000
$5,000,000
2010 2011 2012 2013 2014 2015 2016
Fiscal Year End
2017
2018
2019
2020
2010
DB Contributions 10,300,000
DB/DC Plan Contributions 10,300,000
Difference 0
DB a nd proposed DC plan --a-- New Hires rem ain in Defined Benefit Plan
2011
11,700,000
10,500,000
1,200,000
2012
11,500,000
10,100,000
1,400,000
2013
11,800,000
10,300,000
1,500,000
2014
12,100,000
10,500,000
1,600,000
2015
12,400,000
10,700,000
1,700,000
2016
12,700,000
10,900,000
1,800,000
2017
13,100,000
11,100,000
2,000,000
2018
13,500,000
11,300,000
2,200,000
2019
13,900,000
11,500,000
2,400,000
2020
14,300,000
11,800,000
2,500,000
Total
137,300,000
119,000,000
18,300,000
This work product was prepared so lely for the MSD for the purposes described herein an d may no t be appro priate to use for other purpos es. Millima n d oes n ot i nte nd to benefit a nd ass umes no
duty or liability to other parties who receive this wo rk.
Scenario 3
Metropolita n St. Louis Sewer District Employees' P ensio n Pla n
Pr oj ection of An nual Required Contributions (7% Pr ofit Share, 50% match up to 4 %)
50 % of Empl oyees with < 10 Years of Ser vice Ele ct DC Plan (100% Receive Full Match)
Annual Required Contribution
$15,000,000
$14,500,000 —
$14,000,000 —
$13,500,000 —
$13,000,000 —
$12,500,000 —
$12,000,000 —
$11,500,000 —
$11,000,000 —
$10,500,000 —
$10,000,000 —
$9,500,000 —
$9,000,000 —
$8,500,000 —
$8,000,000 —
$7,500,000 —
$7,000,000 —
$6,500,000 —
$6,000,000 —
$5,500,000 —
$5,000,000
2010
2011
2012
2013
2014
2015 2016
Fiscal Year End
2017
2018
I, 4 DB and propo sed DC plan New Hires remain in Defined Benefit Plan
2019 2020
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total
DB Contributions 10,300,000 11,700,000 11,500,000 11,800,000 12,100,000 12,400,000 12,700,000 13,100,000 13,500,000 13,900,000 14,300,000 137,300,000
DB/DC Plan Contributions 10,300,000 11,100,000 10,700,000 10,900,000 11,100,000 11,300,000 11,500,000 11,700,000 11,900,000 12,200,000 12,400,000 125,100,000
Diffe rence 0 600,000 800,000 900,000 1,000,000 1,100,000 1,200,000 1,400,000 1,600,000 1,700,000 1,900,000 12,200,000
This work produ ct was prepa red solely for the MSD for the purposes described he rein and may no t be appropriate to use for other purposes. Milliman does not i ntend to be nefit and assumes no
duty or liability to o ther parties who receive this wo rk.
Exhibit II
Metropolitan St. Louis Sewer District
Employees' Pension Plan
December 31, 2009 Actuarial Valuation
Actuarial Assumptions and Methods
Interest
7.5% per annum, compounded annually
Salary Increases
Select and ultimate rates based on years of service are:
Years of Service
0 10.0%
1 7.5%
2 5.0%
3+ 4.5%
Social Security Wage Base
Assumed to increase at a rate of 4.0% per annum
Inflation
3.0% per annum
Mortality
Healthy Lives, pre -retirement: RP -2000 Employees Mortality Table, male and female rates.
Rates at selected ages are:
Age Male Female
25 .04 .02
35 .08 .05
40 .11 .07
45 .15 .11
55 .30 .25
65 .76 .58
Healthy Lives, post -retirement: RP -2000 Healthy Annuitant Mortality Table, male and
female rates. Rates at selected ages are:
Age Male Female
55 0.59 0.35
65 1.34 1.04
75 3.78 2.81
80 6.44 4.59
This work product was prepared solely for the Metropolitan St. Louis Sewer District for the purposes described herein and may not be appropriate
10 use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.
1
Exhibit II
Disabled Lives: RP -2000 Disabled Mortality Table, male and female rates. Rates at
selected ages are:
Age Male Female
45 2.26 0.75
55 3.54 1.65
65 5.02 2.80
Withdrawal
Select rates based on service, ultimate rates based on attained age. Ultimate rates are from the
Sarason T-1 Table. Rates at selected ages are:
Select Rates Ultimate Rates
Percent Percent
Years of Service Terminating Age Terminating
0 20 20 5.5
1 12 30 3.7
2 7.5 40 1.1
50 & over 0.0
Retirement
Rates vary by age as follows:
Percent Retiring
Before After
Age 75 Points 75 Points
55 1% 10%
56 2 10
57 2 10
58 2 10
59 3 10
60 4 15
61 5 15
62 20 35
63 10 25
64 20 25
65 100 100
This work product was prepared solely for the Metropolitan St. Louis Sewer District for the purposes described herein and may not be appropriate
to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.
2
Exhibit II
Disability
Rates at selected ages are:
Percent
Becoming
Age Disabled
20 0.056
30 0.064
40 0.102
50 0.311
Expenses
Expenses paid from the trust are assumed to be $600,000 per year.
Marriage
80% of members are assumed to be married at the time of withdrawal, retirement, death or
disability. Males are assumed to be 3 years older than their spouses.
Form of Payment
All members are assumed to elect the 5 Year Certain and Life Annuity.
Actuarial Cost Method
The Entry Age Normal Cost Method on a closed group basis was used. Normal costs are
computed as a level percent of pay. Changes in the Entry Age Normal Unfunded Accrued
Liability (UAL) are amortized over a 20 year period. For the 12/31/2008 valuation, the
amortization period for outstanding bases was reset to 20 years.
Asset Valuation Method
The Actuarial Value of Assets is equal to the average of the Adjusted Market Values for the
current and two previous valuation dates. The Adjusted Market Value for the current valuation
date is equal to the Market Value of Assets. The Adjusted Market Values for the two previous
valuation dates are equal to the Market Values as of the respective valuation dates increased for
contributions and expected return on Actuarial Assets and decreased for benefit payments and
expenses.
This work product was prepared solely for the Metropolitan St. Louis Sewer District for the purposes described herein and may not be appropriate
to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.
3
Exhibit II
Metropolitan St. Louis Sewer District
Employees' Pension Plan
December 31, 2009 Actuarial Valuation
Summary of Plan Provisions
A summary of the current primary provisions of the Plan is presented below. A complete
description of the provisions can be found in Ordinance 12818.
Effective Date
Originally effective November 1, 1967; most recently restated effective February 12, 2009.
Eligibility
Members become eligible after their first hour of employment.
Employee
Employed on a regular, full-time permanent basis; 1,000 hours deemed full-time. Does not
include technical personnel employed on special occasions.
Earnings
Base pay excluding unpaid leaves of absence (other than on account of military service),
bonuses, overtime and any other additional compensation, determined without regard to salary
reductions under Sections 125, 132, or 457. Does not include unused sick leave.
Final Average Earnings (FAE)
Prior to August 1, 2004, the sum of A and B divided by 3:
A. Highest 78 consecutive pay periods out of the last 260 pay periods,
B. 1.25% of the cash amount paid to a member with respect to unused sick leave,
multiplied by the member's years of Credited Service.
After August 1, 2004, the average of the highest 78 consecutive pay periods out of the last 260
pay periods.
If a member has less than 78 pay periods, FAE is calculated by dividing the total pay by the
actual number of pay periods and then multiplying by 26.
This work product was prepared solely for the Metropolitan St. Louis Sewer District for the purposes described herein and may not be appropriate
to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.
4
Exhibit II
Continuous Service
Elapsed time from date of hire to date of termination including authorized leaves of absence, the
imputed employment period solely for determining early retirement reductions, military leave
and other absences that do not constitute a termination of employment under the District's Civil
Service Rules.
Credited Service
Elapsed time from date of hire to date of termination including military leave but not including
leaves of absence.
Vesting
A member becomes 100% vested upon completion of 60 months of Continuous Service.
Normal Retirement Date (NRD)
First of the month coincident with or next following age 65 and 60 months of Continuous
Service.
Normal Retirement Benefit
Prior to August 1, 2004:
1.45% of FAE multiplied by years and complete months Credited Service, plus 0.4% of
FAE in excess of Covered Compensation multiplied by years and complete months of
Credited Service, with a maximum of 35 years.
After August 1, 2004:
1.7% of FAE multiplied by years and complete months Credited Service, plus 0.4% of
FAE in excess of Covered Compensation multiplied by years and complete months of
Credited Service, with a maximum of 35 years.
The formula in effect prior to August 1, 2004 based on service, earning and sick leave as of June
1, 2009 is protected as a minimum benefit for certain members for which the prior formula
produced higher benefit as of June 1, 2009.
Alternative Retirement Date (ARD)
Attainment of 80 points upon Separation from Service where points are defined as the sum of the
member's age and Continuous Service. For early retirement reduction, ARD is the date 80 points
would have been achieved if service continued to ARD.
This work product was prepared solely for the Metropolitan St. Louis Sewer District for the purposes described herein and may not be appropriate
to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.
5
Exhibit II
Early Retirement Date (ERD)
First of the month coincident with or next following age 55 and 60 months of Continuous
Service.
Early Retirement Benefit
1. The benefit is unreduced if the member has 75 points as of Separation from Service.
2. If the member does not have 75 points as of Separation from Service, the benefit is
reduced 2% per year to age 60 and 1% per year to age 55 from the earlier of the member's
Normal Retirement Date or Alternative Retirement Date.
Postponed Retirement Date (PRD)
First of the month coincident with or next following Separation from Service after Normal
Retirement Date.
Postponed Retirement Benefit
The greater of:
1. Accrued Benefit calculated at Postponed Retirement Date, or
2. Normal Retirement Benefit plus the Actuarial Equivalent of the amount that would have
been paid from NRD to PRD accumulated at 4.0%.
Disability Benefit
If a member becomes disabled while in employment after completing three years of service and
qualifies for disability under Social Security, an immediate monthly benefit will be payable equal
to the greater of:
1. Accrued Benefit calculated at disability date, or
2. 25% of monthly earnings.
The disability benefit may not exceed the projected Normal Retirement Benefit calculated using
average earnings at the disability date. The disability benefit is payable to age 65 as long as the
member remains disabled.
This work product was prepared solely for the Metropolitan St. Louis Sewer District for the purposes described herein and may not be appropriate
to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.
6
Exhibit II
Death Benefit
If a member dies while in employment after completing five years of service, an immediate
monthly benefit will be payable to his or her beneficiary equal to the greatest of:
1. 50% of the Accrued Benefit calculated at the date of death, or
2. 15% of monthly earnings, or
3. Accrued Benefit payable in a reduced amount under the 100% Contingent Annuitant
Option.
If the beneficiary is the member's surviving spouse, the benefit will be payable for the spouse's
lifetime. Otherwise, the benefit will be payable to the beneficiary for a period of sixty months
without the adjustment for the Contingent Annuitant Option.
Lump Sum Death Benefit
If a member dies after early or normal retirement, there is a $5,000 death benefit payable to the
member's beneficiary from the Plan only if no life insurance has been paid from another District
program. This death benefit is in addition to any monthly survivor benefits that would be
payable to the member's beneficiary under the payment option elected at the time of the
member's retirement.
Post Retirement Medical Coverage
The District provides individual medical coverage under the same terms as active employees for
members who retire after attaining 75 points or age 62. Such coverage shall continue until the
member becomes eligible for Medicare or becomes covered under another group medical plan.
This benefit is not paid from the Pension Trust.
Cost -of -Living Adjustment (COLA)
For years after January 1, 2001, an annual COLA based on the Consumer Price Index with a
maximum annual increase of 3% or $50/month, and a lifetime maximum of 45% or $750/month.
Retirees, beneficiaries and disabled members first become eligible for the COLA on the third
January 1st following retirement.
Normal Form of Payment
Five -Year Certain and Life Annuity
This work product was prepared solely for the Metropolitan St. Louis Sewer District for the purposes described herein and may not be appropriate
to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.
7
Exhibit II
Optional Forms of Payment
Ten -Year Certain and Life Option
Life Annuity Option
Social Security Option
Contingent Annuitant Options (100%, 75%, 66 2/23% or 50%)
Contingent Annuitant Options with "Pop-up" (100%, 75%, 66 2/23% or 50%)
A member may elect to take 10% of the value of his or her monthly benefit as a lump sum
payment with the balance of the benefit payable in one of the forms described above. The lump
sum is based on the Plan's definition of Actuarial Equivalence.
This work product was prepared solely for the Metropolitan St. Louis Sewer District for the purposes described herein and may not be appropriate
to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.
8