HomeMy Public PortalAboutExhibit MSD 74 - Milliman 090210 Letter - MSD Employees' Pension PlanExhibit MSD 74
Milkman
September 2, 2010
Ms. Vicki or -Edwards
Metro. tan St. Louis Sewer District
235! arket Street
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 suzn 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 Ievel 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 7.17%
of payroll using a closed 20 year level -dollar amortization.
Offices in Principal Cities Worldwide
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.
tially
The cost impact of the pr-oposed ge will Plane. realizedTaillustrate holy over time, since es the pattern of costrunder the
employees will be members of the current
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.
Nfilliman
September 2, 2010
Ms. Vicki Taylor -Edwards
Page 3
Scenario 2 — Proposed DC plan includes newly hired employees and 100% of ernployees with
less than 10 years of service elect -to move to the DC plan. DC plan participants receive an
annual 7% ernployer 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 1.0 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.
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