County of Sonoma. THE SEGAL GROUP, INC., THE PARENT OF THE SEGAL COMPANY All Rights Reserved

Transcription

1 County of Sonoma Actuarial Valuation and Review of Other Postemployment Benefits (OPEB) as of June 30, 2009 In accordance with GASB Statements No. 43 and No. 45 Copyright 2009 THE SEGAL GROUP, INC., THE PARENT OF THE SEGAL COMPANY All Rights Reserved

2 THE SEGAL COMPANY 330 North Brand Boulevard, Suite 500 Glendale, CA T F January 7, 2010 Ms. Marcia Chadbourne Risk Manager, County of Sonoma Human Resources, Risk Management Division 575 Administration Drive, Suite 116C Santa Rosa, CA Dear Board members: We are pleased to submit this Actuarial Valuation and Review of Other Postemployment Benefits (OPEB) as of June 30, 2009 under Governmental Accounting Standards Board Statements 43 and 45. The report summarizes the actuarial data used in the valuation, discloses the Net OPEB obligation (NOO) as of June 30, 2009, establishes the Annual Required Contribution (ARC) for the fiscal year, and analyzes the preceding year s experience. This report was based on the census and financial data provided by the County and the terms of the Plan. The actuarial calculations were completed under the supervision of Dave Bergerson, FCA, ASA, MAAA and Patrick Twomey, ASA, MAAA. This actuarial valuation has been completed in accordance with generally accepted actuarial principles and practices. To the best of our knowledge, the information supplied in this actuarial valuation is complete and accurate. Further, in our opinion, the assumptions used in this valution and described in Exhibit II are reasonably related to the experience of and the expectations for the Plan. The actuarial projections are based on these assumptions and the plan of benefits as summarized in Exhibit III. Sincerely, THE SEGAL COMPANY By: Thomas M. Morrison, Jr. Senior Vice President Chris Thomas

3 SECTION 1 SECTION 2 SECTION 3 SECTION 4 EXECUTIVE SUMMARY VALUATION RESULTS VALUATION DETAILS SUPPORTING INFORMATION Purpose... 1 Highlights of the Valuation... 1 Summary of Valuation Results... 2 Actuarial Certification... 3 CHART 1 Actuarial Present Value of Total Projected Benefits (APB) and Actuarial Balance Sheet... 4 CHART 2 Actuarial Accrued Liability (AAL)... 5 CHART 3 Table of Amortization Bases... 6 CHART 4 Determination of Annual Required Contribution (ARC)... 7 CHART 5 Required Supplementary Information Schedule of Employer Contributions... 9 EXHIBIT A Summary of Participant Data EXHIBIT B Cash Flow Projections EXHIBIT I Summary of Required Supplementary Information EXHIBIT II Actuarial Assumptions and Actuarial Cost Method EXHIBIT III Summary of Plan EXHIBIT IV Definitions of Terms EXHIBIT V Accounting Requirements EXHIBIT VI GASB 43/45 Concepts CHART 6 Required Supplementary Information Schedule of Funding Progress CHART 7 Required Supplementary Information Net OPEB Obligation (NOO)... 11

4 SECTION 1: Executive Summary for County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 PURPOSE This report presents the results of our actuarial valuation of Sonoma County (the Employer ) OPEB plan as of June 30, The results are in accordance with the Governmental Accounting Standards, which prescribe an accrual methodology for accumulating the value of other postemployment benefits (OPEB) over participants active working lifetimes. HIGHLIGHTS OF THE VALUATION á This report provides a valuation of the County-Paid subsidy for members hired before January 1, 2009, and the implicit subsidy, discussed in Exhibit VI, for all retirees. It does not include any projection of HRA contributions. á The unfunded actuarial accrued liability (UAAL) as of June 30, 2009 is $258,737,558, a decrease from $407,418,582, as of June 30, 2007: The decrease was mainly due to the plan change limiting the County paid subsidy to $500 per month. á As of June 30, 2009, the ratio of assets to the AAL (the funded ratio) is 3.62%. á The NOO generally increases if the contributions in relation to the ARC are less than the ARC. Chart 7 shows the detailed derivation of the NOO as of June 30, á The Annual Required Contribution (ARC) decreased to $21,767,498 for fiscal year 2009/2010. The ARC for the fiscal year was $37,039,322. As a percentage of payroll, the ARC decreased from 12.92% last year to 7.05% this year. á Employees hired after January 1, 2009 are eligible for an implicit subsidy, but not the County paid subsidy of $500/month. 1

5 SECTION 1: Executive Summary for County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 The key valuation results for the current and prior years are shown. SUMMARY OF VALUATION RESULTS Actuarial Accrued Liability (AAL) Actuarial Value of Assets Unfunded Actuarial Accrued Liability Funded Ratio Market Value of Assets June 30, 2009 $268,453,913 9,716, ,737, % $9,716,355 June 30, 2007 $414,418,582 7,000, ,418, % $7,000,000 Annual Required Contribution (ARC) for coming year Normal cost (beginning of year) Amortization of the unfunded actuarial accrued liability Adjustment for timing Total Annual Required Contribution, including adjustment to middle of year Covered payroll ARC as a percentage of pay $7,200,607 13,745, ,713 $21,767,498 $308,594,897 (1) 7.05% $13,971,022 21,643,711 $37,039, % Total Participants 6,278 6,669 (2) 1,424,589 Annual OPEB Cost (AOC) for Coming Year $286,742,000 Annual Required Contributions $21,767,498 $37,039,322 Interest on Net OPEB Obligations 2,761,921 0 ARC Adjustments -1,980,778 0 Total Annual OPEB Cost $22,548,641 $37,730,667 AOC as a percent of pay 7.31% 12.92% (1) This total does not include Courts. It does include consideration for the cash allowance and no offset for salary reductions due to the mandatory time off (MTO) period, as benefits are not reduced for MTO, only salary is reduced. (2) Includes court employees. These employees are no longer covered by the OPEB program. 2

6 SECTION 1: Executive Summary for County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 ACTUARIAL CERTIFICATION January 7, 2010 This is to certify that The Segal Company has conducted an actuarial valuation of certain benefit obligations of County of Sonoma s other postemployment benefit programs as of June 30, 2009, in accordance with generally accepted actuarial principles and practices. The actuarial calculations presented in this report have been made on a basis consistent with our understanding of GASB Statements 43 and 45 for the determination of the liability for postemployment benefits other than pensions. The actuarial valuation is based on the plan of benefits verified by the Employer and on participant, premium, claims and expense data provided by the Employer or from vendors employed by the Employer. The actuarial computations made are for purposes of fulfilling plan accounting and funding requirements. Determinations for purposes other than meeting financial accounting and funding requirements may be significantly different from the results reported here. Accordingly, additional determinations may be needed for other purposes, such as judging benefit security at termination of the plan, or determining short-term cash flow requirements. To the best of our knowledge, this report is complete and accurate and in our opinion presents the information necessary to comply with GASB Statements 43 and 45 with respect to the benefit obligations addressed. The signing actuaries are members of the Society of Actuaries, the American Academy of Actuaries, and other professional actuarial organizations and collectively meet their General Qualification Standards for Statements of Actuarial Opinions to render the actuarial opinion contained herein. Patrick Twomey, ASA, MAAA Assistant Actuary Dave Bergerson, FCA, ASA, MAAA Vice President and Actuary 3

7 SECTION 2: Valuation Results for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 The actuarial present value of total projected benefits uses the actuarial assumptions disclosed in Section 4 to calculate the value today of all benefits expected to be paid to current actives and retired plan members. The actuarial balance sheet shows the expected breakdown of how these benefits will be financed. CHART 1 Actuarial Present Value of Total Projected Benefits (APB) and Actuarial Balance Sheet Actuarial Present Value of Total Projected Benefits (APB) 2007 Participant Category Current retirees, beneficiaries, and dependents $180,190,755 $264,701,077 Current active members 143,275, ,729,892 Total as of June 30 $323,466,643 $547,430, Actuarial Balance Sheet The actuarial balance sheet as of the valuation date is as follows: Assets 1. Actuarial value of assets $9,716,355 $7,000, Present value of future normal costs 55,012, ,012, Unfunded actuarial accrued liability 258,737, ,418, Present value of current and future assets $323,466,643 $547,430,969 Liabilities Actuarial Present Value of total Projected Benefits $323,466,643 $547,430,969 4

8 SECTION 2: Valuation Results for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 The actuarial accrued liability shows that portion of the APB (Chart 1) allocated to periods prior to the valuation date by the actuarial cost method. CHART 2 Actuarial Accrued Liability (AAL) Participant Category Current retirees, beneficiaries, and dependents Current active members Total June 30, 2009 $180,190,755 88,263,158 $268,453,913 June 30, 2007 $264,701, ,717,505 $414,418,582 5

9 SECTION 2: Valuation Results for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 The unfunded actuarial accrued liability may be amortized over periods of up to 30 years. Amortization payments may be calculated as level dollar amounts or as amounts designed to remain level as a percent of a growing payroll base. County of Sonoma has elected to amortize unfunded actuarial accrued liability using the following rules: á 30 year open period á Level percent of payroll CHART 3 Table of Amortization Bases Date Initial Initial Annual Years Outstanding Type Established Year Amount Payment* Remaining Balance Total Unfunded 07/01/ $258,737,588 $13,745, $258,737,558 * Level percentage of pay. 6

10 SECTION 2: Valuation Results for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 The Annual Required Contribution (ARC) is the amount calculated to determine the annual cost of the OPEB plan for accounting purposes as if the plan were being funded through contributions to a trust fund. The GASB standards cannot require the contributions actually be made to a trust fund. The ARC is simply a device used to measure annual plan costs on an accrual basis. The calculation consists of adding the Normal Cost of the plan to an amortization payment. The resulting sum is then adjusted to the start of the accounting period and adjusted as if the annual cost were to be contributed throughout the year. The amortization payment is based on a 30-year amortization of the Unfunded Actuarial Accrued Liability on a level percent of payroll basis. CHART 4 Determination of Annual Required Contribution (ARC) Fiscal Year Beginning Fiscal Year Beginning July 1, 2009 and Ending July 1, 2007 and Cost Element June 30, 2010 Ending June 30, 2008 Percentage of Percentage of Amount Compensation Amount Compensation 1. Normal cost $7,200, % $13,971, % 2. Amortization of the unfunded actuarial accrued liability 13,745, % 21,643, % (30 years) 3. Adjustment for timing 821, % 1,424, % 4. Total Annual Required Contribution (ARC) $21,767, % $37,039, % 5. Total Compensation $308,594,897 (1) $286,742,000 (1) This total does not include Courts. It does include consideration for the cash allowance and no offset for salary reductions due to the mandatory time off (MTO) period, as benefits are not reduced for MTO, only salary is reduced. 7

11 SECTION 2: Valuation Results for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 The Annual OPEB Cost (AOC) adjusts the ARC for timing differences between the ARC and contributions in relation to the ARC. The AOC is the cost of OPEB actually booked as an expense for the Fiscal Year under GASB 45. CHART 4 (continued) Determination of Annual OPEB Cost (AOC) Cost Element Fiscal Year Beginning July 1, 2009 and Ending June 30, 2010 Percentage of Fiscal Year Beginning July 1, 2007 and Ending June 30, 2008 Percentage of Amount Compensation Amount Compensation 1. Annual Require Contribution $21,767, % $37,039, % 2. Interest on Beginning of Year Net OPEB Obligation 2,761, % % (NOO) 3. ARC adjustment -1,980, % % 4. Annual OPEB Cost $22,548, % $37,039, % 8

12 SECTION 2: Valuation Results for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 For GASB 43 (plan reporting) purposes, the schedule of employer contributions compares actual contributions to the ARC. For GASB 45 (employer reporting) purposes, the schedule of employer contributions compares actual contributions to the AOC. CHART 5 Required Supplementary Information Schedule of Employer Contributions GASB 43 Fiscal Year Ended June 30, Annual Required Contributions Actual Contributions Percentage Contributed 2008 $37,039,322 $19,543, % ,613,493 21,981, % ,767,498 N/A* N/A* Required Supplementary Information Schedule of Employer Contributions GASB 45 Fiscal Year Ended June 30, Annual OPEB Cost Actual Contributions Percentage Contributed 2008 $37,039,322 $19,543, % ,009,366 21,981, % ,548,641 N/A* N/A* *Will be updated when actual contributions become available. 9

13 SECTION 2: Valuation Results for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 This schedule of funding progress presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. CHART 6 Required Supplementary Information Schedule of Funding Progress UAAL as a Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) (b) Unfunded AAL (UAAL) (b) - (a) Funded Ratio (a) / (b) Covered Payroll (c) Percentage of Covered Payroll [(b) - (a) / (c)] 07/01/2007 7,000, ,418, ,418, % 286,742, % 07/01/2009 9,716, ,453, ,737, % 308,594,897 (1) 83.84% (1) This total does not include Courts. It does include consideration for the cash allowance and no offset for salary reductions due to the mandatory time off (MTO) period, as benefits are not reduced for MTO, only salary is reduced. 10

14 SECTION 2: Valuation Results for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 The Net OPEB obligation measures the accumulated differences between the annual OPEB cost and the actual contributions in relation to the ARC. CHART 7 Required Supplementary Information Net OPEB Obligation (NOO) Actuarial Valuation Date Fiscal Year End Annual Interest on Annual OPEB Actual Net Increase NOO Existing ARC Cost Contribution in NOO NOO Adjustment (a) + (b) + (c) Amount (d) - (e) (b) (c) (d) (e) (f) Required Contribution (a) as of Fiscal Year (g) 07/01/ /30/2008 $37,039,322 $0 $0 $37,039,322 $19,543,000 $17,496,322 $17,496,322 07/01/ /30/ ,613,493 1,399,706 (1,003,833) 39,009,366 21,981,670 17,027,696 34,524,018 07/01/ /30/ ,767,498 2,761,921 (1,980,778) 22,548,641 N/A* N/A* N/A* *Will be updated when actual contributions become available. 11

15 SECTION 3: Supplemental Valuation Details for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 This exhibit summarizes the participant data used for the current and prior valuations. EXHIBIT A Summary of Participant Data Retirees Number of retirees Average age of retirees Number of spouses Average age of spouses June 30, 2009 June 30, ,311 2, ,011 1, Surviving Spouses Number Average age Active Participants Number Average age Average years of service Average expected retirement age , ,

16 SECTION 3: Supplemental Valuation Details for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 EXHIBIT B Cash Flow Projections The ARC generally exceeds the current pay-as-you-go ( paygo ) cost of an OPEB plan. Over time the paygo cost will tend to grow and may even eventually exceed the ARC in a well funded plan. The following table projects the paygo cost as the projected net fund payment over the next twenty years. Year Ending Projected Number of Retirees* Projected Benefit Payments (Net Paid by County) June 30, Current Future Total Current Future Total , ,659 $ 21,881,546 $ 1,259,889 $ 23,141, , ,767 20,411,174 2,380,042 22,791, , ,900 19,179,779 3,564,705 22,744, , ,039 18,351,851 4,960,711 23,312, ,129 1,045 4,174 17,745,590 6,567,791 24,313, ,040 1,251 4,291 17,368,911 7,918,033 25,286, ,949 1,464 4,413 17,019,755 9,309,951 26,329, ,856 1,671 4,527 16,503,087 10,661,546 27,164, ,762 1,875 4,637 15,869,018 12,022,142 27,891, ,666 2,070 4,736 15,228,846 13,258,600 28,487, ,569 2,253 4,822 14,659,075 14,423,891 29,082, ,471 2,412 4,883 14,036,517 15,562,770 29,599, ,371 2,551 4,922 13,435,986 16,481,084 29,917, ,270 2,673 4,943 12,783,059 17,245,105 30,028, ,169 2,775 4,944 12,257,749 18,020,820 30,278, ,066 2,863 4,929 11,727,477 18,599,437 30,326, ,963 2,938 4,901 11,237,134 19,027,485 30,264, ,860 3,000 4,860 10,634,257 19,477,702 30,111, ,756 3,048 4,804 10,089,702 19,794,707 29,884, ,653 3,084 4,737 9,542,325 20,054,318 29,596,643 *Includes spouses of retirees. 13

17 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement under GASB Statements No. 43 and 45 EXHIBIT I Summary of Required Supplementary Information Valuation date June 30, 2009 Actuarial cost method Projected Unit Credit Amortization method 30-year Open, Level Percent of Payroll Remaining amortization period 30 years Asset valuation method Market Value Actuarial assumptions: Investment rate of return 8.00% Projected payroll increases 4.25% Self-funded Medical cost trend rate 10.0% graded down to ultimate rate of 5.0% over 5 years HMO Medical/Drug and Prescription Drug cost 9.0% graded down to ultimate rate of 5.0% over 8 years trend rates Plan membership: June 30, 2009 June 30, 2007 Current retirees, beneficiaries, and dependents 3,464 3,588 Current active participants 3,825 4,215 (1) Total 7,289 7,803 (1) Includes court employees. These employees are no longer covered by the OPEB program. 14

18 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement under GASB Statements No. 43 and 45 EXHIBIT II Actuarial Assumptions and Actuarial Cost Method Post-Retirement Mortality Rates: Healthy Retirement: Disabled Retirement: For General RP-2000 Combined Healthy Mortality Table set back one year. For Safety RP-2000 Combined Healthy Mortality Table set back one year. For General RP-2000 Female Disabled Retiree Mortality Table. For Safety 1981 Safety Disability Mortality Table set back four years. The following are sample rates (%): Healthy Life Mortality* Disabled Life Mortality* General Safety General Safety Age Female Male Male * Mortality rates as used in the Sonoma County Retirement Valuation Report Female

19 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement under GASB Statements No. 43 and 45 Termination Rates Before Retirement: Mortality Rates: The following are sample rates (%): Non Service Connected Service Connected General Safety Safety Age Male Female

20 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement under GASB Statements No. 43 and 45 Disability Rates: Rate (%) General Safety Age Non Service Connected Service Connected Non Service Connected Service Connected

21 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement under GASB Statements No. 43 and 45 Withdrawal Rates: Rate (%) Withdrawal (< 5 Years of Service) Years of Service General Safety Withdrawal (5+ Years of Service) Age General Safety

22 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement under GASB Statements No. 43 and 45 Rate (%) Vested Termination (5+ Years of Service) Age General Safety

23 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement under GASB Statements No. 43 and 45 Retirement Rates: Rate (%) Retirement Probability Age General Safety Before 55&30 On or After 55&30 Before 30 Years On or After 30 Years

24 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement under GASB Statements No. 43 and 45 Future Benefit Accruals: Unknown Data for Members: Definition of Active Members: Net Investment Return: 1.0 year of service per year. Same as those exhibited by members with similar known characteristics. If not specified, members are assumed to be male. First day of pay period following employment. 8.00%; net of administration and investment expenses. Cost-of-Living Adjustment for Retirees: Not applicable. 21

25 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement under GASB Statements No. 43 and 45 Salary Scale: Annual Rate of Compensation Increase Inflation: 3.75% per year; plus Across the Board salary increases of 0.50% per year; plus Merit and Longevity as follows: Age General Safety % 4.30% Actuarial Value of Assets: Market value of assets 22

26 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Actuarial Assumptions and Actuarial Cost Method (continued) Data: Actuarial Cost Method: Detailed census data and financial data for postemployment benefits were provided by the County of Sonoma. Projected Unit Credit Measurement Date June 30, 2009 Census Date: June 30, 2009 Discount Rate: 8.00% Annual Inflation Rate: 3.75% Annual Payroll Growth 4.25% Administrative Expenses: HMOs Administrative expenses were included in the premiums, not valued separately. County Plan An annual ASO fee for Fiscal Year of $357 per retired life was valued. Other We include any expense associated with benefits (ASO, for example) or any administrative fees paid out of an OPEB trust. On the included expenses in the GASB Implementation Manual it is addressed and is indicated that it does not include County personnel or system costs to operate the plan. Marital Status: Spouse Age Difference: Participation: At the time of retirement, 70% of male employees and 35% of female employees are assumed to have spouses who elect coverage. Husbands are assumed to be 3 years older than their wives. 95% of the current active employees with medical coverage are assumed to continue medical coverage at retirement. 23

27 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Health Care Cost Subsidy Trend Rates: Health care trend measures the anticipated overall rate at which health plan costs are expected to increase in future years. Trend rates are used to increase the stated subsidies into the future. For example, if the County Plan medical cost for the plan year was $1,000, the assumed cost for would be $1,100 [($1,000 x (1+10.0%)]. PacifiCare County Plan Plan Year 65 and 65 and Ending June 30 Under 65 Over Under 65 Over Medical Drugs ASO Fees % 9.00% 9.00% 9.00% 10.00% 9.00% 5.00% Kaiser & Later Plan Design: Development of plan liabilities was based on the substantive plan of benefits in effect as described in Exhibit III. 24

28 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Per Capita Cost Development: Blue Cross (Medical and Drugs) HMO Plan (Medical and Drugs) Other Per capita claims costs were based on actual paid claim experience furnished by the Fund Office for the period July 1, 2006 through June 30, Claims were separated by plan year and participant status (Medicare vs. Non-Medicare), then adjusted as follows: á paid claims were multiplied by a factor to yield an estimate of incurred claims, á total claims were divided by the number of adult members to yield a per capita claim, á the per capita claim was trended to the midpoint of the valuation year at assumed trend rates, and á the per capita claim was adjusted for the effect of any plan changes. Per capita claims for each plan year were then combined by taking a weighted average. The weights used in this average account for a number of factors including each plan year s volatility of claims experience and distance to the valuation year. Actuarial factors were then applied to the weighted average cost to estimate individual retiree and spouse costs by age and by gender. Per capita costs were based on the actual HMO monthly premiums. Actuarial factors were applied to the non-medicare premiums to estimate individual retiree and spouse costs by age and by gender. For the County Plan (Blue Cross), an annual ASO fee for Fiscal Year of $357 per retired life was valued. The monthly Medicare Part B premium for calendar year 2009 was $96.40, resulting in a Fiscal Year premium of $1,

29 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Per Capita Costs (continued) Kaiser PacifiCare Age Retiree Spouse Retiree Spouse Male Female Male Female Male Female Male Female $ 6,061 $ 6,904 $ 4,234 $ 5,543 $ 8,866 $ 10,099 $ 6,193 $ 8,109 7,198 7,432 5,665 6,417 10,529 10,871 8,287 9,386 8,549 8,010 7,584 7,442 12,505 11,718 11,094 10,886 9,808 8,498 9,574 8,376 14,346 12,430 14,005 12,252 3,807 3,807 3,807 3,807 4,647 4,647 4,647 4,647 3,807 3,807 3,807 3,807 4,647 4,647 4,647 4,647 3,807 3,807 3,807 3,807 4,647 4,647 4,647 4,647 3,807 3,807 3,807 3,807 4,647 4,647 4,647 4,647 Age Medical County Plan Drug Retiree Spouse Retiree Spouse Male Female Male Female Male Female Male Female $ 5,486 $ 6,249 $ 3,832 $ 5,018 $ 2,298 $ 2,618 $ 733 $ 960 6,516 6,727 5,128 5,808 2,730 2, ,111 7,738 7,251 6,865 6,736 3,242 3,038 1,313 1,289 8,878 7,692 8,666 7,582 3,719 3,222 1,658 1,450 1,492 1,268 1,492 1,268 3,850 3,272 1,758 1,494 1,729 1,366 1,729 1,366 4,462 3,526 2,038 1,610 1,863 1,471 1,863 1,471 4,808 3,796 2,196 1,733 2,006 1,586 2,006 1,586 5,178 4,092 5,178 4,092 26

30 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Retiree Health Insurance Premiums Used in the June 30, 2009 Valuation For retirees in pay status, we use the relevant premiums provided on participant records. In cases where the carrier elections are unknown, we will assume the participant elects carriers in the same proportion as current retirees in that group. The table below shows the distribution of medical insurance carriers for retirees as of June 30, 2009 and premium rates for the premium year ending May 31, Election Percent Under Age 65 Single Party Premium Participant + 1 Family Carrier Recommended Observed County Health Value Plus Plan 55% 54% $ $1, $1, County Health Value Plan 0% 1% $ $1, $1, PacifiCare (Under 65) 10% 9% $ $1, $2, Kaiser Permanente (California) 35% 36% $ $ $1, Age 65 and Over Election Percent Single Party Over 65 Carrier Recommended Observed County Health Value Plus Plan 70% 68% $ Miscellaneous Others 0% 2% N/A Secure Horizons 5% 5% $ (PacifiCare over 65) Kaiser Senior Advantage (over 65) 25% 25% $

31 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Dental Subsidy Medicare Part B Subsidy Because most retirees are assumed to pay the full cost of dental insurance, dental benefits will not be included in this valuation. County paid dental coverage will not be valued as the number of current and future retirees eligible for this benefit is de-minimis. We have assumed that the County of Sonoma will reimburse the basic monthly premium of $96.40 for 2009 and thereafter with no future increases. We have assumed that retirees will pay any additional premium. 28

32 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 EXHIBIT III Summary of Plan This exhibit summarizes the major benefit provisions as included in the valuation. To the best of our knowledge, the summary represents the substantive plans as of the measurement date. It is not intended to be, nor should it be interpreted as, a complete statement of all benefit provisions. Eligibility: Participant must retire from County service, covered under a medical plan of the County at the time of retirement, and be eligible to receive a monthly pension from the Sonoma County s Employees Retirement Association (SCERA) defined benefit pension plan at the time of retirement. For retirees hired prior to 1/1/1990, retirees receive retiree + family coverage without any service requirements. 1 For retirees hired on or after 1/1/1990: á 10 years of service is required to receive County-subsidized retiree only medical coverage. á 20 years of service is required to receive County-subsidized retiree + one dependent medical coverage. The retiree bears the full cost of premiums for covering additional dependents. Effective April 10, 2007, disability retirees are subject to the same service requirements as regular retirees. 2 In the case of a line-of-duty death, dependents of the deceased DSA member(s) are eligible to receive County-subsidized medical coverage. 1 SCLEA:DEA 7/1/90 ESC, Local 39, SCLEMA, DSLEM, SLPDIA 1/1/91 2 DSA retirees that were offered medical benefits prior to 2007 were allowed to keep this coverage, even if they did not meet the 10 year requirement. 29

33 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Benefit Types: Duration of Coverage: Dependent Benefits: Dependent Coverage: Retiree Contributions: Retirees are eligible for medical and drug benefits provided under two self-insured PPO indemnity plans administered by Blue Cross (County Health Value Plus Plan #2 or County Health Value Plan #3) or two HMOs (Kaiser and PacifiCare). Medicare Part B premiums are reimbursed by the County to eligible retired members, but not dependents. Effective June 1, 2009, Medicare Retirees will be offered a Medicare supplement insurance plan from UHC AARP in addition to the current plans. In addition, retirees are eligible for dental benefits from Delta Dental at full cost to the retiree. Since these benefits are fully paid by the retirees, they have been excluded from this valuation. Lifetime, subject to continuing support by the Board of Supervisors Same as retirees Benefits are available for dependents. However, the County does not subsidize coverage for all dependents, except as noted in footnote 2 on first page of Exhibit III. As of April 2007, disabled retirees qualify for dependent coverage the same as regular retirees. Effective June 1, 2009, the County will begin to phase in a contribution maximum toward the cost of the plan over a 5-year period. Retirees and the County share in the cost of monthly premium for medical coverage. The fiscal year County contribution will be adjusted incrementally each year until it reaches a $500 per month maximum contribution. Employees may elect to enroll in any County offered medical plan and shall pay for all costs in excess of the County contribution dollar amount. For plans with premiums under $500, the County will pay the full cost of the coverage. All retirees are responsible for the full cost of dental coverage. Therefore, no retiree dental costs have been reflected in this valuation. 30

34 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Medicare Integration for the PPO Plan: Benefit Descriptions: Carve-out method in which the plan benefit is first determined without regard to Medicare payments, and is then reduced by the amount of such payments. Medicare and Non-Medicare Retirees Medical PacifiCare Kaiser Permanente Annual Deductible None None Out-of-Pocket Limit Non-Medicare: $2,000 per Individual (x3 Family) $1,500 per Individual (x2 Family) Medicare: Unlimited Maximum Lifetime Benefit Unlimited Unlimited Physicians and Routine Services Physician Office Visits Retail Prescription Drugs Home Delivery (Mail Order) Prescription Hospital or Outpatient Facility $10 copay Specialist visits must be authorized by the primary care physician 30 days supply $5 copay generic $15 copay brand name formulary $30 copay brand name non-formulary 3 month supply $10 copay generic $30 copay brand name formulary $60 copay brand name non-formulary $10 copay Up to 100-day supply $5 copay generic $10 copay brand name formulary Up to 100-day supply $5 copay generic $10 copay brand name formulary Inpatient No copay (if directed by a plan physician) No copay (if directed by a plan physician) Diagnostic X-ray and Lab No copay (if authorized by primary care physician) No copay Emergency Room Treatment $50 copay (waived if admitted) $50 copay (waived if admitted) 31

35 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Medical (continued) PacifiCare Kaiser Permanente Mental Health Care and Substance Abuse Treatment Inpatient mental health care Non-Medicare: No copay, maximum 30 days per year Medicare: No copay, maximum 190 days per lifetime (combined with inpatient substance abuse) Outpatient mental health care Non-Medicare: $10 copay/visit (up to 30 visits per year) Medicare: $10 copay/visit Inpatient substance abuse treatment Outpatient substance abuse treatment Non-Medicare: No copay Maximum per year $25,000/individual $35,000/lifetime (combined with outpatient substance abuse) Medicare: No copay, maximum 190 days per lifetime (combined with inpatient mental health) Non-Medicare: No copay Maximum per year $25,000/individual $35,000/lifetime (combined with inpatient substance abuse) Medicare: $10 copay Non-Medicare: No copay, maximum 45 days per year Medicare: No copay, first 190 days per lifetime as covered by Medicare, maximum 45 days per year thereafter Non-Medicare: $10/ individual session; $5/ group session (up to 20 visits per year) Medicare: $10/ individual session; $5/ group session No copay, hospitalization for detox only $10/ individual session; $5/ group session 32

36 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Benefit Descriptions: Medicare and Non-Medicare Retirees Medical County Health Value Plus Plan (CHVPP) #2 County Health Value Plan (CHVP) #3 In-Network / Out-of-Network In-Network / Out-of-Network Annual Deductible $300 per Individual (x3 Family) $500 per Individual (x3 Family) Out-of-Pocket Limit $2,000 per Individual (x2 Family) $5,000 per Individual (x2 Family) Maximum Lifetime Benefit $3,000,000 $3,000,000 Physicians and Routine Services Physician Office Visits $20 copay (Deductible waived) / 60% $30 copay (Deductible waived) / 60% Retail Prescription Drugs Home Delivery (Mail Order) Prescription Hospital or Outpatient Facility Inpatient 34 days or 100-unit doses $5 generic $15 brand name formulary $30 brand name non-formulary 3 months supply $5 generic $15 brand name formulary $30 brand name non-formulary Preauthorization required $125 per admission copay + 90% / 60% Diagnostic X-ray and Lab 90% / 60% 80% / 60% Emergency Room Treatment 90% / 70% (Emergency ambulance services paid at 90%) 34 days or 100-unit doses $10 generic $20 brand name formulary $45 brand name non-formulary 3 months supply $10 generic $20 brand name formulary $45 brand name non-formulary Preauthorization required $250 per admission copay + 80% / 60% 80% / 60% (Emergency ambulance services paid at 80%) 33

37 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Medical (continued) County Health Value Plus Plan (CHVPP) #2 In-Network / Out-of-Network County Health Value Plan (CHVP) #3 In-Network / Out-of-Network Mental Health Care and Substance Abuse Treatment Inpatient mental health care Outpatient mental health care Inpatient substance abuse treatment Outpatient substance abuse treatment Maximum 20 days per year, pre-authorization required 90% / 70% Maximum 24 visits per year 90% / 70% Maximum 20 days per year, pre-authorization required 90% / 70% Maximum 20 visits per year 90% / 70% Maximum 10 days per lifetime, preauthorization required 80% / 60% Maximum 24 visits per year 80% 50% after 10 visits / 60% 50% after 10 visits No maximum, pre-authorization required 80% / 60% Maximum $1,000/individual 80% / 60% Plan Changes since Prior Valuation: Effective June 1, 2009, Medicare Retirees will be offered a Medicare supplement insurance plan from AARP in addition to the plans outlined above. Effective June 1, 2009, the retiree self-pay rates were changed to those outlined above. All employees hired after 1/1/2009 are not eligible for County paid retiree medical. 34

38 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 EXHIBIT IV Definitions of Terms The following list defines certain technical terms for the convenience of the reader: Assumptions or Actuarial Assumptions: Actuarial Present Value of Total Projected Benefits (APB): Normal Cost: Actuarial Accrued Liability For Actives: Actuarial Accrued Liability For Retirees: The estimates on which the cost of the Plan is calculated including: (a) Investment return the rate of investment yield that the Plan will earn over the long-term future; (b) Mortality rates the death rates of employees and pensioners; life expectancy is based on these rates; (c) Retirement rates the rate or probability of retirement at a given age; (d) Turnover rates the rates at which employees of various ages are expected to leave employment for reasons other than death, disability, or retirement. Present value of all future benefit payments for current retirees and active employees taking into account assumptions about demographics, turnover, mortality, disability, retirement, health care trends, and other actuarial assumptions. The amount of contributions required to fund the benefit allocated to the current year of service. The equivalent of the accumulated normal costs allocated to the years before the valuation date. The single sum value of lifetime benefits to existing retirees. This sum takes account of life expectancies appropriate to the ages of the retirees and of the interest which the sum is expected to earn before it is entirely paid out in benefits. 35

39 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Actuarial Value of Assets (AVA): Funded Ratio: Unfunded Actuarial Accrued Liability (UAAL): Amortization of the Unfunded Actuarial Accrued Liability: Investment Return (discount rate): Covered Payroll: ARC as a Percentage of Covered Payroll: Health Care Cost Trend Rates: Annual Required Contribution (ARC): The value of assets used by the actuary in the valution. These may be at market value or some other method used to smooth variations in market value from one valuation to the next. The ratio AVA/AAL. The extent to which the actuarial accrued liability of the Plan exceeds the assets of the Plan. There is a wide range of approaches to paying off the unfunded actuarial accrued liability, from meeting the interest accrual only to amortizing it over a specific period of time. Payments made over a period of years equal in value to the Plan s unfunded actuarial accrued liability. The rate of earnings of the Plan from its investments, including interest, dividends and capital gain and loss adjustments, computed as a percentage of the average value of the fund. For actuarial purposes, the investment return often reflects a smoothing of the capital gains and losses to avoid significant swings in the value of assets from one year to the next. If the plan is funded on a pay-as-you-go basis, the discount rate is tied to the expected rate of return on day-to-day employer funds. Annual reported salaries for all active participants on the valuation date. The ratio of the annual required contribution to covered payroll. The annual rate of increase in net claims costs per individual benefiting from the Plan. The ARC is equal to the sum of the normal cost and the amortization of the unfunded actuarial accrued liability. 36

40 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 Net OPEB Obligation (NOO): The NOO is the cumulative difference between the ARC and actual contributions made. If the plan is not pre-funded, the actual contribution would be equal to the annual benefit payments less retiree contributions. There are additional adjustments in the NOO calculations to adjust for timing differences between cash and accrual accounting, and to prevent double counting of OPEB plan costs. 37

41 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 EXHIBIT V Accounting Requirements The Governmental Accounting Standards Board (GASB) issued Statement Number Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and Statement Number 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. Under these statements, all state and local government entities that provide other post employment benefits (OPEB) are required to report the cost of these benefits on their financial statements. The accounting standards supplement cash accounting, under which the expense for postemployment benefits is equal to benefit and administrative costs paid on behalf of retirees and their dependents (i.e., a pay-as-you-go basis). The statements cover postemployment benefits of health, prescription drug, dental, vision and life insurance coverage for retirees; long-term care coverage, life insurance and death benefits that are not offered as part of a pension plan; and long-term disability insurance for employees. The benefits valued in this report are limited to those described in Exhibit III of Section 4, which are based on those provided under the terms of the substantive plan in effect at the time of the valuation and on the pattern of sharing costs between the employer and plan members. The projection of benefits is not limited by legal or contractual limits on funding the plan unless those limits clearly translate into benefit limits on the substantive plan being valued. The new standards introduce an accrual-basis accounting requirement, thereby recognizing the employer cost of postemployment benefits over an employee s career. The standards also introduce a consistent accounting requirement for both pension and non-pension benefits. The total cost of providing postemployment benefits is projected, taking into account assumptions about demographics, turnover, mortality, disability, retirement, health care trends, and other actuarial assumptions. These assumptions are summarized in Exhibit II of Section 4. This amount is then discounted to determine the actuarial present value of the total projected benefits (APB). The actuarial accrued liability (AAL) is the portion of the present value of the total projected benefits allocated to years of employment prior to the measurement date. The unfunded actuarial accrued liability (UAAL) is the difference between the AAL and actuarial value of assets in the Plan. Once the UAAL is determined, the Annual Required Contribution (ARC) is determined as the normal cost (the APB allocated to the current year of service) and the amortization of the UAAL. This ARC is compared to actual contributions made and any difference is reported as the Net OPEB Obligation (NOO). In addition, Required Supplementary Information (RSI) must be reported, including historical information about the UAAL and the progress in funding the Plan. Exhibits IV and VI of Section 38

42 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 4 contain a definition of terms as well as more information about GASB 43/45 concepts. The calculation of an accounting obligation does not, in and of itself, imply that there is any legal liability to provide the benefits valued, nor is there any implication that the Employer is required to implement a funding policy to satisfy the projected expense. Actuarial calculations reflect a long-term perspective, and the methods and assumptions use techniques designed to reduce short term volatility in accrued liabilities and the actuarial value of assets, if any. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and the actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future v2/

43 SECTION 4: Supporting Information for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 EXHIBIT VI GASB 43/45 Concepts The following graph illustrates why a significant accounting obligation may exist even though the retiree contributes most or all of the blended premium cost of the plan. The average cost for retirees is likely to exceed the average cost for the whole group, leading to an implicit subsidy for these retirees. The accounting standard requires the employer to identify and account for this implicit subsidy as well as any explicit subsidies the employer may provide. Hypothetical Cost Curve $500 $450 $400 $350 Cost $300 $250 $200 Projected Cost Blended Cost $150 $100 $50 $ Age 40

44 SECTION 4 : Supporting Informat ion for the County of Sonoma June 30, 2009 Measurement Under GASB 43 and 45 This graph shows how the actuarial present value of the total projected benefits (APB) is broken down and allocated to various accounting periods. The exact breakdown depends on the actuarial cost method and amortization methods selected by the employer. GASB 43/45 Measurement Elements Using Actuarial Cost Methods Present Value of Future Benefits Future Accounting Periods Future Accruals (Actives) Current Period Historical Accounting Periods Normal Cost (Actives) Actuarial Accrued Liability (Actives + Retirees) Normal Cost + 30 Years Amortization of Unfunded Actuarial Accrued Liability Annual Required Contribution (ARC) Net OPEB Obligation = ARC1 + ARC2 + ARC3 + - Contribution1 - Contribution2 - Contribution