CC - Item 8H - Post Retirement Healthcare FundingI a :Lei A
TO: THE HONORABLE MAYOR AND CITY COUNCIL
FROM: JEFF ALLRED, CITY MANAGER
DATE: DECEMBER 13, 2011
SUBJECT: POST RETIREMENT HEALTHCARE FUNDING
SUMMARY
The Government Accounting Standards Board (GASB) issued GASB Statement 45 in June
2004 which requires all government agencies to evaluate and adopt a funding plan for Other
Post Employment Benefits (OPEB). In fiscal year 2008 -09 the City Council approved
Rosemead's funding plan which included annual payments to fund the normal cost and the
amortization of the unfunded actuarial accrued liability over a five year period. These payments
began in 2009 and the current fiscal year's payment will be the third. In continuing with the
City's compliance under GASB 45, the City is required to perform a new valuation every two
years to re- evaluate funding levels.
In January 2011 PARS along with Nicolay Consulting began the development of the updated
actuarial valuation. This valuation took most of the year to complete as the final figures relied
on fiscal year -end financial figures as of June 30, 2011, and the report was just recently
received by the City. No additional action is required by the City Council other than to receive
and file the report.
Staff Recommendation
Staff recommends that the City Council receive and file the report.
ANALYSIS
The City received its first valuation report in May, 2009. In this valuation, the actuarial accrued
liability was estimated at $2,660,557 with a first year normal cost of $33,482.. On May 26,
2009, the City Council voted to approve a five year funding plan for the actuarial accrued liability
with payment amounts of $644,548 each year. These payments along with the annual normal
cost payments were intended to reduce the actuarial accrued liability to zero which would
reduce the City's future liability to only that of the normal cost.
Under GASB 45, a new valuation is required every two years to re- evaluate the City's funding
position in regards to other post - employment benefits (OPEB), which in Rosemead's case is
retiree medical. This valuation is done according to regular retirement assumptions which
include such factors as estimated retirement age, trends in healthcare costs and mortality.
Furthermore, since the City "closed" it's primary OPEB plan to new employees on July 1, 2007,
the amortization period for actuarial accrued liability must be set at 30 years for the first
valuation and must be reduced annually. This is a key point because plans that are still open to
new employees are allowed a rolling 30 year amortization period which allows for cities to
spread out their future costs over a longer period of time. The easiest way to think of this is to
A ., ..
APPROVED FOR CITY COUNCIL AGENDA:
City Council Meeting
December 13, 2011
Pape 2 of 2
equate it to a mortgage. Rather than being able to finance the cost over a 30 -year mortgage,
the city of a closed program may only finance it over the number of years left in the program
under 30. For Rosemead this translates to a 27 year amortization period. Just as with a
mortgage, the fewer the years to finance the liability, the greater the annual cost will be to the
city.
The valuation recently completed and scheduled to be used in the preparation of the 2011 -12
fiscal year annual reports reflects an increase in actuarial accrued liability. This liability is
estimated at $3,378,875, which is an increase of $718,318 over the previous valuation. There
are two driving factors which have resulted in this increase. The first factor is the continued
weakening of the economy in general. The initial valuation assumed a long -term interest rate of
7.5% and with the current valuation the interest rate has been reduced to 6.0% This 1.5%
decrease over a 27 year period has a significant impact on the liability amount as it requires the
City to provide more funding upfront as less interest will be earned down the road. A second
key component is the minimum required member contribution as required by CalPERS.
Although the City's OPEB plan is "closed" to new employees, CalPERS mandates a minimum
required annual contribution for all retirees, which for 2011 is $108 per month and will increase
to $112 per month for 2012. The original valuation did not take this payment into account as it
was understood at the time that these future amounts were not required to be included as part
of the valuation. The practice of not including this has since been modified by additional GASB
direction which requires agencies to include even those fixed amounts outside of the City's
control. This future cost of $112 per month, which increases annually by the CPI, for every
person who retires from the City creates an additional cost for not only the actuarial accrued
liability, but also to the normal cost that must be paid on an ongoing basis.
PUBLIC NOTICE PROCESS
This item has been noticed through the regular agenda notification process.
Submitted by:
Matth w E. Ha esworth
Assistant City Manager
Attachments: Actuarial Valuation
Actuarial Valuation of
Postemployment Medical Benefits
Valuation Date: January 1, 2011
NICOLAY CONSULTING GROUP
September 26, 2011
Mr.Matthew E. Hawkesworth
Assistant City Manager
City of Rosemead
8838 East Valley Blvd.
Rosemead, CA 91770
Dear Mr. Hawkesworth:
PENSION CONSULTANTS AND ACTUARIES
575 MARKET STREET
SUITE 2450
SAN FRANCISCO. CALIFORNIA 94105 -2854
TEL: 415 512-5300
FAX: 415 512 -5314
Re: Actuarial Valuation of Postemployment Medical Program
The Nicolay Consulting Group is pleased to present the results of the January 1, 2011
actuarial valuation of the City of Rosemead postemployment medical program. In
preparing this report, we relied on employee data and plan information provided by the
City. On the basis of that information, this report has been prepared in accordance with
generally accepted actuarial principles and methods. It is our opinion that the actuarial
assumptions used are reasonably related to the actual experience of the plan and to
anticipated future experience.
The financial projections presented in this report are intended for the City's internal use
in evaluating the potential cost of the retiree medical program. Because future events
frequently do not occur as expected, it should be recognized that there are usually
differences between anticipated and actual results. These differences may be material,
especially if there are significant changes in the employee or retiree population.
Consequently, we can express no assurance that the projected values will occur. We
recommend that the City obtain an updated actuarial valuation on a periodic basis.
Questions about the report should be directed to Doug Tokerud at (800) 998 -7675
x220.
Sincerely,
Nicolay Consulting Group
By:
Douglas R. Tokerud, F.S.A.
Member, American Academy of Actuaries
Actuarial Valuation of
Postemployment Medical Benefits
Valuation Date: January 1, 2011
• - me
• •
SECTION TITLE
SECTION I Introduction
SECTION II Valuation Results
SECTION III , Plan Description and Demographic Summary
SECTION IV Actuarial Method and Assumptions
PAGE
1
2
5
7
SECTION V Glossary 13
I e ,
The City of Rosemead provides postemployment medical benefits to retirees who meet
plan eligibility requirements. This report provides an estimate of the City's obligation as
of January 1, 2011, the effect of the GASB 45 accounting rule and a ten -year projection
of the pay -as- you -go cost of providing the benefits. Section II contains valuation
results. Section III describes the plans and presents a demographic summary.
Section IV lists the actuarial assumptions used to complete the valuation. Section V
contains a Glossary of several of the terms used in this report.
Accounting Requirements
In July 2004 the Governmental Accounting Standards Board issued Statement 45,
Accounting and Financial Reporting by Employers for Postemployment Benefits Other
Than Pensions. This statement requires governmental entities to account for
postemployment benefits on an accrual basis. We understand that the City adopted
GASB 45 during its 2008/09 fiscal year and elected to amortize its Unfunded Actuarial
Accrued Liability (UAAL) over a closed 30 -year period. Currently the City funds its
retiree healthcare benefits into an irrevocable trust.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 1
SECTION II
GASB 45 requires employers to recognize postemployment healthcare expense
systematically over periods approximating employees' years of service. The Actuarial
Accrued Liability represents the estimated present value of future benefits that are
associated with past service rendered by employees and retirees. The UAAL is the
excess of the Actuarial Accrued Liability (AAL) over the Actuarial Value of Assets.
Table 2 -1 contains estimates of the present value of the cost of postemployment
medical benefits attributable to current retirees and employees who are expected to
receive the benefit. The estimates are based on the Entry Age Normal actuarial cost
method. The estimates are based on a 6.0% discount rate. Table 2 -1 also includes the
City's 2011/12 Annual Required Contribution. The ARC consists of the Normal Cost
plus the current year amortization of the UAAL. The amortization method used in this
valuation is the level percentage of projected payroll method. The UAAL amortization
will occur over a closed 30 -year period that commenced in the 2008 109 fiscal year. We
assumed that 3 years of amortization have occurred and 27 years remain.
Table 2 -1
Present Value of Future Benefit Cost Attributable to Past Service,
Annual Required Contribution and Annual OPEB Cost
As of January 1, 2011
Discount Rate: 6.0%
Employees
Active Employees 63
Retirees and Surviving Spouses 17
Actuarial Accrued Liability 80
Actuarial Value of Assets
Unfunded Actuarial Accrued Liability
Normal Cost (Entry Age Normal Cost Method)
Annual level dollar Amortization of UAAL
Annual Required Contribution
Present Value
$ 1,155,454
2.223.421
$ 3,378,875
$ 615,576
$ 2.763.299
$ 100,793
209.167
306
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 2
Projected Health Benefit Costs
Table 2 -2 contains a ten -year projection of the City's pay -as- you -go cost to provide
postemployment benefits to current and future retirees.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 3
Table 2 -2
Projected Future Annual
pay -as- you -go
Postemployment Medical Benefit Cost
Estimated
Year
City Cost
2011 12012
$ 162,682
2012/2013
$ 164,554
2013/2014
$ 171,130
2014/2015
$ 180,346
2016/2016
$ 195,775
2016/2017
$ 208,748
2017/2018
$ 224,705
2018/2019
$ 240,877
2019 / 2020
$ 253,539
2020/2021
$ 257,419
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 3
SECTION III
Plan Description and D emographic
Eligibility and Contribution Requirements
The City participates in the CalPERS 2.7% @55 Public Agency Miscellaneous
Employees pension plan.
City employees are eligible for postretirement medical benefits upon reaching age 50
with a minimum of 5 consecutive years of service with the City. The City will contribute
the full medical premium each month, but not more than the 'bap', as described below.
For employees hired after July 1, 2007, the monthly cap is the CalPERS minimum
employer contribution ($108 per month in 2011, increasing to $112 in 2012). For
employees hired prior to July 2, 2007, the monthly cap is the larger of the CalPERS
minimum employer contribution, or the following amount, based on years of service at
retirement:
Less than 12 years of service: $ 0
12 -19 years of service $ 500
At least 20 years of service $ 1,000
The City does not intend to increase these caps in the future.
Medical Plans
Retirees may enroll in any of the available CalPERS- sponsored medical plans.
Duration of Benefits
City provided benefits continue for the life of the retiree and surviving spouse.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 5
a�
w
0
0
U
_N
O
N
L
w
M
Q)
N
N
Q
O
O
O
O
OD
(D
N
a
C
w
a)
L -Q
0
CL
L N
N �
C N
0-
C L
N
L
0
(- L
N O)
� O
2
L
C
U m
N N
0
Q U
T co
N N
�U
L Q
CU N
L
N a
C �
N C
N f6
� o
Q 0
M CO
CV N
C
� • N
r.
O
N
k
I
Z3
m
I D
0
az
m o
Q)
cy-
7
h �
O �
N
o m
U
U¢
c
0
to
m
0)
0
0
N N n
Cl) r O
O� 0] M OIL
W i0
O
N N N
m (O f 0
Im
(O of a N 0 I
7 N
M
P
n eF N
I�
m1� W OOm
nr�
W
0.
t D N O
N
O O O
O O J M WO V
N I
r
O
M
M`-'r M(OM
I* r
r
N
M r
f9 fA
f9 (A
r r
fA
d
O
yy
v M
^
z
e
O
.O d
•p
N
w
N
O e
w
t
MO N O
M I� O
O 1p mI M O I�
CD
M
m W O
��I
2
m W 1 �0o0
T n
d
Co 0
0
M
O
Om,
Q
N N
W N
A
r
tl 01 N
O m O)
m V N W O r
1� m
7
O
d •0
W
N
r M
N
ONM
0S.
S
0v
0
M
N
(gyp
p
j,
O
v') r N
fR fR
iA fR
r r
Vi
F- O
se
p
A
e N
U
Q c
m
c
•�
O'
E
w
o °o
m
N
N
N
H
_
r
y
O
N w m
M r O
O r n O M
W
N
w m
O
fr f� OI
N N
m cD t0
rrm
(O �O
mr
rOf
(O
P
W
- 01N
N
W N M
O mm
mM Ow
Gf f�
N
j
o
r co
n
000
OSNWu
.-n
0
m
P
M w f�
N
rNM
M M<OM
t� O
d
A
d
e
h
T J
7
O
R
j
CM
i
c
C_
O
N
q J
O
Q
Q CO O
c
V Z,m
O
zi
a
o
o m
$
i
a
s N O
e
d
a .� y
m W
O
r
Q
O
J Q
N
J O
o m F m
0 O
O
"O
W
N
Z
mm
0
O
�0QU�0
m
a
2 o
d
Q
¢
0.
CO
O tli
N C 0 0 .
Q C c e
O O
Q> v
rn°
m
m c c d o c
_
m m
a
_O
A A d
E
•e
U N d'
d' O 00
''�.
z •c 'o
�N
m E'm m
a s
H
t
> mw�,,, w
00
m
a
u v c
v
o E c
� y c o 0
0 m
°
ti
¢¢m
o:
z¢¢
QS¢QUS
z
d
+
r.
O
N
k
I
Z3
m
I D
0
az
m o
Q)
cy-
7
h �
O �
N
o m
U
U¢
Demographic Data
Tables 3 -1 and 3 -2 contain summaries of the demographic information provided by the
City.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 6
Table 3 -2
Table 3 -1
Age and Sex Table for All Retirees
Receiving Benefits
Age and Service Table for
Acme
Female Male
Total
Under 55
0 0
Active Employees
55 -59
0 1
1
60 -64
1 5
6
as of January 2011
1 5
6
70 -74
0 2
2
75 -79
Years of Service
0
80+
1 1
Aqe
0-4
5
1010 ® 14 15 -19
2020 = 24
25+
Total
Under25
1
0
0 0
0
0
1
25 -29
8
0
0 0
0
0
8
30 -34
9
1
0 0
0
0
10
35 -39
8
1
1 0
0
0
10
40-44
5
1
0 0
0
0
6
45 -49
4
1
1 0
2
0
8
50 -54
3
3
1 0
0
1
8
55 -59
3
0
3 0
2
0
8
60 -64
2
0
0 1
0
0
3
65 -69
0
0
0 1
0
0
1
70 -74
0
0
0 0
0
0
0
Total
43
7
6 2
4
1
63
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 6
Table 3 -2
Age and Sex Table for All Retirees
Receiving Benefits
as of January 2011
Acme
Female Male
Total
Under 55
0 0
0
55 -59
0 1
1
60 -64
1 5
6
65 -69
1 5
6
70 -74
0 2
2
75 -79
0 0
0
80+
1 1
2
Total
3 14
17
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 6
•' ►
Actuarial • • and Assumptio
In order to project the City's liabilities into the future, a number of economic,
demographic, and baseline cost assumptions are necessary. We used the same
actuarial assumptions that were used in the most recent California PERS pension
valuations.
Actuarial Cost Method
The valuation was completed using the Entry Age Normal Cost Method. An Actuarial
Cost Method is a procedure for allocating the actuarial present value of benefits and
expenses and for developing an actuarially equivalent allocation of such value to time
periods, usually in the form of a Normal Cost and an Actuarial Accrued Liability. The
Entry Age Normal cost method allocates the present value of future benefits on a level
basis over the earnings or service (in this case earnings) of each employee between
the hire date and assumed retirement age. The portion of the present value of future
benefits allocated to a valuation year is called the Normal Cost. The portion allocated
to all prior years is called the Actuarial Accrued Liability.
Valuation Date
The valuation date is January 1, 2011. This date is the starting point from which current
health premium costs are increased according to the assumed annual rates of health
care cost trend. The City's census is projected from the valuation date to the date of
the final benefit payment for each employee and retiree on the census. After
calculating future costs for the projected retiree and dependent population, all liabilities
are discounted back to the valuation date to obtain the present value of future costs.
The valuation results as of January 1, 2011 were used to determine the ARC, assumed
to stay constant, for the 2011 -2012, 2012 -2013 and 2013 -2014 fiscal years.
Economic Assumptions
Discount Rate
Valuation results were computed based on a 6.00% discount rate. The City has
indicated this is the expected rate of return it anticipates over the long -term on the
funds that will be used to pay retiree benefits.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 7
Baseline Cost
Estimates of retiree health benefit obligations are normally based on current costs for a
one year period. We refer to this as the baseline cost. The components of baseline
cost, such as average per capita cost, and the current plan population are projected
into the future to estimate the cost of future benefits.
Table 4 -1 contains the 2011 CaIPERS Los Angeles area premium rates.
Contributions
The retiree is responsible for any premium cost in excess of the Maximum City
contribution.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 8
Table 4 -1
City of Rosemead Monthly Retiree Medical Premium
Rates
for January
2011 through December 2011
Retiree Only
Two Party
Younger than age 65
Blue Shield Access
$ 496.93
$ 993.86
Blue Shield NetValue
$ 427.58
$ 855.16
Kaiser
$ 434.00
$ 868.00
PERS Choice
$ 496.15
$ 992.30
PERS Select
$ 433.87
$ 867.74
PERS Care
$ 787.24
$1,574.48
Age 65 and older
Blue Shield Access
$ 337.88
$ 675.76
Blue Shield NetValue
$ 337.88
$ 675.76
Kaiser
$ 282.30
$ 564.60
PERS Choice
$ 375.88
$ 751.76
PERS Select
$ 375.88
$ 751.76
PERS Care
$ 433.66
$ 867.32
Contributions
The retiree is responsible for any premium cost in excess of the Maximum City
contribution.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 8
Health Care Trend
The rate of increase in per capita health care costs is commonly referred to as the
health care trend rate. Based on our experience with postemployment health plans, we
selected the following annual premium trend rates for use in this valuation:
Table 4 -2
Annual Premium
Trend Rate Assumption
the Calendar Year
Estimated
Beginning
Increase
January 1, 2012
7.6%
January 1, 2013
7.2%
January 1, 2014
6.8 %
January 1, 2015
6.4%
January 1, 2016
6.0%
January 1, 2017
5.6 %
January 1, 2018
5.3 %
January 1, 2019 and thereafter
5.0%
Administrative Expenses
We assumed that there are no administrative fees other than those included in the
premium rates.
Payroll Increases
In this valuation we assumed a 3.25% annual rate of increase in payroll. This rate is a
component of the Entry Age Normal Actuarial Cost Method.
Amortization Methodology
GASB 45 allows amortization of the Unfunded Actuarial Accrued Liability based on a
level dollar approach or as a level percentage of covered payroll. The maximum
amortization period is 30 years. This valuation is based on a closed 30 -year
amortization of the Unfunded Actuarial Accrued Liability as a level dollar amount.
Plan Assets
We understand that the City has commenced a pre- funding program and plans to fund
the Unfunded Actuarial Accrued Liability over the next three years.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 9
Demographic Assumptions
In estimating this obligation, a number of demographic assumptions are needed.
These assumptions are the same as those used in the most recent California PERS
valuation.
Withdrawal
This valuation is based on withdrawal rates used in the most recent California PERS
Public Agency Miscellaneous retirement plan valuations. Selected rates are shown
below.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 10
Table
4 -3
Annual Withdrawal Rates for Non - Safety Employees
------------------------
Age - -° ---------------
- ---
Service
20
25
30
35
40
45
50
0
0.17420
0.16740
0.16060
0.15370
0.14680
0.14000
0.13320
1
0.15590
0.14910
0.14230
0.13530
0.12850
0.12170
0.11470
2
0.13760
0.13080
0.12380
0.11700
0.11020
0.10340
0.09640
3
0.11930
0.11250
0.10550
0.09870
0.09190
0.08490
0.07810
4
0.10100
0.09400
0.08720
0.08040
0.07350
0.06660
0.05980
5
0.09460
0.08680
0.07900
0.07110
0.06320
0.05540
0.01160
6
0.08450
0.07650
0.06870
0.06080
0.05290
0.01070
7
0.08200
0.07430
0.06630
0.05830
0.05040
0.00970
8
0.07980
0.07180
0.06370
0.05580
0.04790
0.00880
9
0.07730
0.06930
0.06120
0.05330
0.04520
0.00800
10
0.07490
0.06680
0.05870
0.05070
0.04270
0.00710
15
0.05810
0.05030
0.04240
0.03470
0.00320
20
0.04500
0.03700
0.02900
0.00210
25
0.03120
0.02290
0.00110
30
0.01610
0.00050
35
0.00010
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 10
Retirement Rates
For Miscellaneous employees we used the retirement rates in Table 4 -4. These rates
match Service Retirement rates used in the most recent California PERS Public Agency
Miscellaneous 2.7% @55 pension valuation.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 11
Table 4 -4
Non - Safety Employees
Annual Rates of Retirement
--------- ------------
-- -Years of Service---------- ------ ------ --
Age
5
10
15 20
25
30
35
50
0.02750
0.03500
0.04250 0.05000
0.05750
0.06500
0.07250
55
0.09080
0.11550
0.14030 0.16500
0.18980
0.21450
0.23930
60
0.08800
0.11200
0.13600 0.16000
0.18400
0.20800
0.23200
65
0.14580
0.18550
0.22530 0.26500
0.30480
0.34450
0.38430
70
0.12880
0.16380
0.19900 0.23400
0.26920
0.30420
0.33940
75
1.00000
1.00000
1.00000 1.00000
1.00000
1.00000
1.00000
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 11
Mortality
The mortality rates used in this valuation are the rates used in the most recent
California PERS pension valuations. Annual mortality rates for selected ages are
shown in Table 4 -5.
Table 4 -5
Sample Mortality Rates
Retired Employees
Male
Active Employees
Ace
Male
Female
55
0.260%
0.176%
60
0.395%
0.266%
65
0.608%
0.419%
70
0.914%
0.649%
75
80
85
90
Retired Employees
Male
Female
0.474%
0.243%
0.720%
0.431%
1.069%
0.775%
1.675%
1.244%
3.080%
2.071%
5.270%
3.749%
9.775%
7.005%
16.747%
12.404%
Disability Retirement
Because of the expected low incidence of disability retirements for non - safety
employees we did not value disability retirement for non -safety employees.
Health Plan Participation
We assumed that 100% of future eligible retirees will enroll in one of the CalPERS
medical plans. We assumed that future retirees will enroll a spouse if they currently are
covering a spouse, and that female spouses are 3 years younger than male spouses.
Future retirees are assumed to elect the same medical plan coverage after retirement
that they have now. Employees with no current medical coverage are assumed to elect
Blue Shield employee -only coverage upon retirement.
Medicare Coverage
We assumed that all future retirees will be eligible for Medicare when they reach age
65.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 12
• Accrual Accounting — A method of matching the cost of an employee's service,
including long term obligations such as OPEB, to that employee's period of active
service.
• Actuarial Accrued Liability (AAL) — The Actuarial Present Value of all
postemployment benefits attributable to past service. Note: the AAL is sometimes
referred to as the Past Service Liability.
• Actuarial Cost Method — A procedure for allocating the actuarial present value of
benefits and expenses and for developing an actuarially equivalent allocation of
such value to time periods, usually in the form of a Normal Cost and an Actuarial
Accrued Liability.
• Actuarial Present Value — The value of an amount or series of amounts payable or
receivable at various times. Each such amount or series of amounts is:
a. adjusted for the probable financial effect of certain intervening events (such
as changes in compensation levels, marital status, etc.)
b. multiplied by the probability of the occurrence of an event (such as survival,
death, disability, termination of employment, etc.) on which the payment is
conditioned, and
c. discounted according to an assumed rate (or rates) of return to reflect the
time value of money
• Actuarial Valuation — The determination, as of a valuation date, of the Normal Cost,
Actuarial Accrued Liability, Actuarial Value of Assets and related Actuarial Present
Values.
Actuarial Value of Assets — The value of cash, investments and other property
belonging to a plan. These are amounts that may be applied to fund the Actuarial
Accrued Liability. Note: assets must be segregated and placed in a Trust in order
to be considered OPEB assets
• Amortization Payment — That portion of the Annual OPEB cost which is designed to
pay interest on and to amortize the Unfunded Actuarial Accrued Liability.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 13
In the year that Statement 45 becomes effective an employer is allowed to
commence amortization of the Unfunded Actuarial Accrued Liability, over a period
not to exceed 30 years.
• Annual Other Postemplovment Benefit Cost (OPEB) cost - An accrual - basis
measure of the periodic cost of an employer's participation in a defined benefit
OPEB plan. The annual OPEB cost is the amount that must be calculated and
reported as an expense.
When an employer has no net OPEB obligation (e.g., in the year of implementation)
the annual OPEB cost is equal to the Annual Required Contribution (ARC).
In subsequent years the Annual OPEB cost will include
• the ARC (equal to the Normal Cost plus one year's amortization of the
Unfunded Actuarial Accrued Liability);
• one year's interest on the net OPEB obligation at the beginning of the
year using the valuation discount rate; and
• an adjustment to the ARC. This adjustment is intended to provide a
reasonable approximation of that portion of the ARC that consists of
interest associated with past contribution deficiencies. GASB Statement
No. 45 specifies that this adjustment should be equal to an amortization
of the discounted present value of the net OPEB obligation at the
beginning of the year. The amortization should be calculated using the
same amortization method and period used in determining the ARC for
that year. If the net OPEB obligation is positive the adjustment should
be deducted from the ARC.
• Note: As long as the net OPEB obligation is zero, there will not be any
interest charge or adjustment to the ARC. However, if an employer does
not contribute the full amount of the ARC, a net OPEB obligation will
emerge.
• Annual required contributions of the employer (ARC) - The employer's periodic
required contributions to a defined benefit OPEB plan, calculated in accordance
with the parameters.
• Defined benefit OPEB plan - An OPEB plan having terms that specify the benefits
to be provided at or after separation from employment. The benefits may be
specified in dollars (for example, a flat dollar payment or an amount based on one
or more factors, such as age, years of service, and compensation), or as a type or
level of coverage (for example, prescription drugs or a percentage of healthcare
insurance premiums).
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 14
• Defined contribution plan - A pension or OPEB plan having terms that (a) provide
an individual account for each plan member and (b) specify how contributions to an
active plan member's account are to be determined, rather than the income or other
benefits the member or his beneficiaries are to receive at or after separation from
employment. Those benefits will depend only on the amounts contributed to the
member's account, earnings on investments of those contributions, and forfeitures
of contributions made for other members that may be allocated to the member's
account. For example, an employer may contribute a specified amount to each
active member's postemployment healthcare account each month. At or after
separation from employment, the balance of the account may be used by the
member or on the member's behalf for the purchase of health insurance or other
healthcare benefits.
• Discount rate - the estimated long -term investment yield on the investments that
are expected to be used to finance the payment of benefits. The discount rate is
used to calculated the present value of future benefits.
• Employer's contributions - Contributions made in relation to the annual required
contributions of the employer (ARC). An employer has made a contribution in
relation to the ARC if the employer has (a) made payments of benefits directly to or
on behalf of a retiree or beneficiary, (b). made premium payments to an insurer, or
(c) irrevocably transferred assets to a trust, or an equivalent arrangement, in which
plan assets are dedicated to providing benefits to retirees and their beneficiaries in
accordance with the terms of the plan and are legally protected from creditors of the
employer(s) or plan administrator.
• Healthcare cost trend rate - The rate of change in per capita health claims costs
over time as a result of factors such as medical inflation, utilization of healthcare
services, plan design, and technological developments.
• Investment return assumption (discount rate) - The rate used to adjust a series of
future payments to reflect the time value of money.
• Mortality rates — the assumed probability of dying at a specified age. In this
valuation the rates are a function of age and gender.
• Net OPEB obligation - The cumulative difference since the effective date of GASB
Statement 45 between annual OPEB cost and the employer's contributions to the
plan, including the OPEB liability (asset) at transition, if any, and excluding (a)
short-term differences and (b) unpaid contributions that have been converted to
OPEB - related debt.
If an employer contributes the annual OPEB cost to the plan each year, and there
are no actuarial or investment gains or losses then the net OPEB Obligation will
remain zero.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 15
• Normal Cost - That portion of the Actuarial Present Value of benefits and expenses
which is allocated to a valuation year by the Actuarial Cost Method. Another
interpretation is that the Normal Cost is the present value of future benefits that are
"earned" by employees for service rendered during the current year.
• OPEB assets - The amount recognized by an employer for contributions to an
OPEB plan greater than OPEB expenses..
• OPEB expense - The amount recognized by an employer in each accounting period
for contributions to an OPEB plan on the accrual basis of accounting.
• Other postemployment benefits (OPEB) - Postemployment benefits other than
pension benefits. Other postemployment benefits (OPEB) include postemployment
healthcare benefits, regardless of the type of plan that provides them, and all
postemployment benefits provided separately from a pension plan, except benefits
defined as special termination benefits.
• Plan assets - Resources, usually in the form of stocks, bonds, and other classes of
investments, that have been segregated and restricted in a trust, or in an equivalent
arrangement, in which (a) employer contributions to the plan are irrevocable, (b)
assets are dedicated to providing benefits to retirees and their beneficiaries, and (c)
assets are legally protected from creditors of the employer(s) or plan administrator,
for the payment of benefits in accordance with the terms of the plan.
• Present Value — See Actuarial Present Value.
• Proiected Unit Credit Cost Method — An actuarial cost method under which the
projected benefits of each individual included in an Actuarial Valuation are
separately calculated and allocated to each year service by a consistent formula.
• Retirement rates — the annual rate of retirement. In this valuation the rates are a
function of retirement age and years of service at retirement.
• Substantive plan - The terms of an OPEB plan as understood by the employer(s)
and plan members.
• Unfunded Actuarial Accrued Liability (UAAL) — The excess of the Actuarial Accrued
Liability over the Actuarial Value of Assets.
• Valuation date — The date as of which the postretirement benefit obligation is
determined.
• Withdrawal rates — the annual rate of withdrawal from service. In this valuation the
rates are a function of age at hire and years of service.
City of Rosemead
Actuarial Valuation Date: January 1, 2011 Page 16