City of Richmond Heights Policemen s and Firemen s Retirement Fund GASB Statement No. 68 Employer Reporting Accounting Schedules July 1, 2017

Transcription

1 City of Richmond Heights Policemen s and Firemen s Retirement Fund GASB Statement No. 68 Employer Reporting Accounting Schedules July 1, 2017

2 December 20, 2017 Board of Trustees City of Richmond Heights Policemen s and Firemen s Retirement Fund Richmond Heights, MO The accounting schedules submitted in this report are required under the Governmental Accounting Standards Board (GASB) Statement No. 68 Employer Reporting for Pension Plans. Our actuarial calculations for this report were prepared for the purpose of complying with the requirements of GASB Statement No. 68. These calculations have been made on a basis that is consistent with our understanding of this Statement. This information is intended to assist in preparation of the financial statements of the City of Richmond Heights Policemen's and Firemen's Retirement Fund. Financial statements are the responsibility of management, subject to the auditor s review. Please let us know if the auditor recommends any changes. Our calculation of the liability associated with the benefits described in this report was performed for the purpose of satisfying the requirements of GASB Statement No. 68. The Net Pension Liability is not an appropriate measure for measuring the sufficiency of plan assets to cover the estimated cost of settling the employer s benefit obligation. The Net Pension Liability is not an appropriate measure for assessing the need for or amount of future employer contributions. A calculation of the plan s liability for purposes other than satisfying the requirements of GASB Statement No. 68 may produce significantly different results. This report may be provided to parties other than the City of Richmond Heights Policemen's and Firemen's Retirement Fund only in its entirety and only with the permission of the City and the Board. GRS is not responsible for unauthorized use of this report. This report is based upon information, furnished to us by the City, concerning retirement and ancillary benefits, active members, deferred vested members, retirees and beneficiaries, and financial data. This information was checked for internal consistency but was not audited. We are not responsible for the accuracy or completeness of the information provided by the City. This report complements the actuarial valuation report provided to the City of Richmond Heights Policemen's and Firemen's Retirement Fund and should be considered in conjunction with that report. Please see the actuarial valuation report as of July 1, 2017 for additional discussion of the nature of actuarial calculations and for more information related to participant data, economic and demographic assumptions, and benefit provisions.

3 Board of Trustees December 20, 2017 Page 2 To the best of our knowledge, the information contained within this report is accurate and fairly represents the actuarial position of the City of Richmond Heights Policemen's and Firemen's Retirement Fund. All calculations have been made in conformity with generally accepted actuarial principles and practices as well as with the Actuarial Standards of Practice issued by the Actuarial Standards Board. The signing actuaries are independent of the plan sponsor. Brad Lee Armstrong and Jeffrey T. Tebeau are Members of the American Academy of Actuaries (MAAA) and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained herein. Respectfully submitted, Brad Lee Armstrong, ASA, EA, FCA, MAAA Jeffrey T. Tebeau, ASA, EA, MAAA BLA/JTT:sc

4 Table of Contents Section A Section B Section C Executive Summary Executive Summary... 1 Discussion... 2 Financial Statements Statement of Pension Expense... 5 Statement of Outflows and Inflows Arising from Current Reporting Period... 6 Statement of Outflows and Inflows Arising from Current and Prior Reporting Periods... 7 Schedule of Changes in Net Pension Liability and Related Ratios Current Period... 8 Schedule of Changes in Net Pension Liability and Related Ratios Multiyear... 9 Schedule of Contributions Multiyear Notes to Schedule of Contributions Sensitivity of Net Pension Liability to the Single Discount Rate Assumption Calculation of the Single Discount Rate Calculation of the Single Discount Rate Projection of Contributions Projection of Plan Fiduciary Net Position Present Values of Projected Benefits Page Section D Glossary of Terms City of Richmond Heights Policemen s and Firemen s Retirement Fund

5 SECTION A EXECUTIVE SUMMARY 0

6 Executive Summary as of July 1, 2017 Actuarial Valuation Date July 1, 2017 Measurement Date of the Net Pension Liability July 1, 2017 Employer's Fiscal Year Ending Date (Reporting Date) June 30, 2017 Membership Number of - Retirees, Beneficiaries and DROP members 40 - Inactive, Nonretired Members 1 - Active Members (excluding DROP members) 62 - Total 103 Covered Payroll # $ 4,490,233 Net Pension Liability Total Pension Liability $ 43,410,026 Plan Fiduciary Net Position 53,271,765 Net Pension Liability $ (9,861,739) Plan Fiduciary Net Position as a Percentage of Total Pension Liability % Net Pension Liability as a Percentage of Covered Payroll (219.63)% Development of the Single Discount Rate Single Discount Rate 6.50% Long-Term Expected Rate of Investment Return 6.50% Long-Term Municipal Bond Rate* 3.56% Last year ending July 1 in the 2018 to 2117 projection period for which projected benefit payments are fully funded 2117 Total Pension Expense $ 1,140,773 Deferred Outflows and Deferred Inflows of Resources by Source to be Recognized in Future Pension Expenses * Source: Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 303,649 $ 952,092 Changes in assumptions 2,376,548 - Net difference between projected and actual earnings on pension plan investments 3,341,553 2,685,401 Total $ 6,021,750 $ 3,637,493 Fixed-income municipal bonds with 20 years to maturity that include only federally tax-exempt municipal bonds as reported in Fidelity Index s 20-Year Municipal GO AA Index as of June 30, In describing this index, Fidelity notes that the municipal curves are constructed using option-adjusted analytics of a diverse population of over 10,000 tax-exempt securities. # Valuation payroll as of July 1, City of Richmond Heights Policemen s and Firemen s Retirement Fund 1

7 Discussion Accounting Standard For state and local government employers (as well as certain non-employers) that contribute to a Defined Benefit (DB) pension plan administered through a trust or equivalent arrangement, Governmental Accounting Standards Board (GASB) Statement No. 68 establishes standards for pension accounting and financial reporting. Under GASB Statement No. 68, the employer must account for and disclose the Net Pension Liability, Pension Expense, and other information associated with providing retirement benefits to their employees (and former employees) on their basic financial statements. The following discussion provides a summary of the information that is required to be disclosed under these accounting standards. A number of these disclosure items are provided in this report. However, certain information is not included in this report if it is not actuarial in nature, such as the notes to the financial statements regarding accounting policies and investments. As a result, the retirement system and/or plan sponsor is responsible for preparing and disclosing the non-actuarial information needed to comply with these accounting standards. Financial Statements GASB Statement No. 68 requires state and local government employers that contribute to DB pension plans to recognize the Net Pension Liability and the Pension Expense on their financial statements, along with the related deferred outflows of resources and deferred inflows of resources. The Net Pension Liability is the difference between the Total Pension Liability and the plan s Fiduciary Net Position. In traditional actuarial terms, this is analogous to the accrued liability less the market value of assets (not the smoothed actuarial value of assets that is often encountered in actuarial valuations performed to determine the employer s contribution requirement). Paragraph 57 of GASB Statement No. 68 states, Contributions to the pension plan from the employer subsequent to the measurement date of the collective Net Pension Liability and before the end of the employer s reporting period should be reported as a deferred outflow of resources related to pensions. The information contained in this report does not incorporate any contributions made to the City of Richmond Heights Policemen's and Firemen's Retirement Fund subsequent to the measurement date of July 1, The Pension Expense recognized each fiscal year is equal to the change in the Net Pension Liability from the beginning of the year to the end of the year, adjusted for deferred recognition of the certain changes in the liability and investment experience. City of Richmond Heights Policemen s and Firemen s Retirement Fund 2

8 Notes to Financial Statements GASB Statement No. 68 requires the notes of the employer s financial statements to disclose the total Pension Expense, the pension plan s liabilities and assets, and deferred outflows of resources and inflows of resources related to pensions. In addition, GASB Statement No. 68 requires the notes of the financial statements for the employers to include certain additional information, including: a description of the types of benefits provided by the plan, as well as automatic or ad hoc COLAs; the number and classes of employees covered by the benefit terms; for the current year, sources of changes in the Net Pension Liability; significant assumptions and methods used to calculate the Total Pension Liability; inputs to the Single Discount Rate; certain information about mortality assumptions and the dates of experience studies; the date of the valuation used to determine the Total Pension Liability; information about changes of assumptions or other inputs and benefit terms; the basis for determining contributions to the plan, including a description of the plan s funding policy, as well as member and employer contribution requirements; the Total Pension Liability, Fiduciary Net Position, Net Pension Liability, and the pension plan s Fiduciary Net Position as a percentage of the Total Pension Liability; the Net Pension Liability using a discount rate that is 1% higher and 1% lower than used to calculate the Total Pension Liability and Net Pension Liability for financial reporting purposes; and a description of the system that administers the pension plan. Required Supplementary Information The financial statements of employers also include required supplementary information showing the 10-year fiscal history of: sources of changes in the Net Pension Liability; information about the components of the Net Pension Liability and related ratios, including the pension plan s Fiduciary Net Position as a percentage of the Total Pension Liability, and the Net Pension Liability as a percent of covered-employee payroll; and a comparison of actual employer contributions to the actuarially determined contributions based on the plan s funding policy. While the first two tables may be built prospectively as the information becomes available, sufficient information is currently available for the third table. City of Richmond Heights Policemen s and Firemen s Retirement Fund 3

9 Timing of the Valuation An actuarial valuation to determine the Total Pension Liability is required to be performed at least every two years. For the employer s financial reporting purposes, the Net Pension Liability and Pension Expense should be measured as of the employer s measurement date which may not be earlier than the employer s prior fiscal year-end date. If the actuarial valuation used to determine the Total Pension Liability is not calculated as of the measurement date, the Total Pension Liability is required to be rolled forward from the actuarial valuation date to the measurement date. The Total Pension Liability shown in this report is based on an actuarial valuation performed as of July 1, 2017 and a measurement date of July 1, Single Discount Rate Projected benefit payments are required to be discounted to their actuarial present values using a Single Discount Rate that reflects (1) a long-term expected rate of return on pension plan investments (to the extent that the plan s Fiduciary Net Position is projected to be sufficient to pay benefits) and (2) taxexempt municipal bond rate based on an index of 20-year general obligation bonds with an average AA credit rating as of the measurement date (to the extent that the plan s projected Fiduciary Net Position is not sufficient to pay benefits). For the purpose of this valuation, the expected rate of return on pension plan investments is 6.50%; the municipal bond rate is 3.56% (based on the weekly rate closest to but not later than the measurement date of the 20-Year Municipal GO AA Index rate from Fidelity); and the resulting Single Discount Rate is 6.50%. Effective Date and Transition GASB Statement No. 68 was effective for an employer s fiscal years beginning after June 15, City of Richmond Heights Policemen s and Firemen s Retirement Fund 4

10 SECTION B FINANCIAL STATEMENTS 5

11 Statement of Pension Expense Under GASB Statement No. 68 Fiscal Year Ended June 30, 2017 A. Expense 1. Service Cost $ 1,062, Interest on the Total Pension Liability 2,673, Current-Period Benefit Changes - 4. Employee Contributions (made negative for addition here) (130,672) 5. Projected Earnings on Plan Investments (made negative for addition here) (3,294,965) 6. Pension Plan Administrative Expense 20, Other Changes in Plan Fiduciary Net Position - 8. Recognition of Outflow (Inflow) of Resources due to Liabilities 217, Recognition of Outflow (Inflow) of Resources due to Assets 592, Total Pension Expense $ 1,140,773 City of Richmond Heights Policemen s and Firemen s Retirement Fund 5

12 Statement of Outflows and Inflows Arising from Current Reporting Period Fiscal Year Ended June 30, 2017 A. Outflows (Inflows) of Resources due to Liabilities 1. Difference between expected and actual experience of the Total Pension Liability (gains) or losses $ 356, Assumption Changes (gains) or losses $ 2,632, Recognition period for Liabilities: Average of the expected remaining service lives of all employees {in years} Outflow (Inflow) of Resources to be recognized in the current pension expense for the difference between expected and actual experience of the Total Pension Liability $ 52, Outflow (Inflow) of Resources to be recognized in the current pension expense for Assumption Changes $ 391, Outflow (Inflow) of Resources to be recognized in the current pension expense due to Liabilities $ 444, Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses for the difference between expected and actual experience of the Total Pension Liability $ 303, Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses for Assumption Changes $ 2,241, Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses due to Liabilities $ 2,545,185 B. Outflows (Inflows) of Resources due to Assets 1. Net difference between projected and actual earnings on pension plan investments (gains) or losses $ (3,356,751) 2. Recognition period for Assets {in years} Outflow (Inflow) of Resources to be recognized in the current pension expense due to Assets $ (671,350) 4. Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses due to Assets $ (2,685,401) City of Richmond Heights Policemen s and Firemen s Retirement Fund 6

13 Statement of Outflows and Inflows Arising from Current and Prior Reporting Periods Fiscal Year Ended June 30 A. Outflows and Inflows of Resources due to Liabilities and Assets to be Recognized in Current Pension Expense Outflows Inflows Net Outflows of Resources of Resources of Resources 1. Due to Liabilities $ 481,709 $ 264,337 $ 217, Due to Assets 1,264, , , Total $ 1,745,910 $ 935,687 $ 810,223 B. Outflows and Inflows of Resources by Source to be Recognized in Current Pension Expense Outflows Inflows Net Outflows of Resources of Resources of Resources 1. Differences between expected and actual experience $ 52,997 $ 264,337 $ (211,340) 2. Assumption Changes 428, , Net Difference between projected and actual earnings on pension plan investments 1,264, , , Total $ 1,745,910 $ 935,687 $ 810,223 C. Deferred Outflows and Deferred Inflows of Resources by Source to be Recognized in Future Pension Expenses Deferred Outflows Deferred Inflows Net Deferred Outflows of Resources of Resources of Resources 1. Differences between expected and actual experience $ 303,649 $ 952,092 $ (648,443) 2. Assumption Changes 2,376,548-2,376, Net Difference between projected and actual earnings on pension plan investments 3,341,553 2,685, , Total $ 6,021,750 $ 3,637,493 $ 2,384,257 D. Deferred Outflows and Deferred Inflows of Resources by Year to be Recognized in Future Pension Expenses Year Ending July 1 Net Deferred Outflows of Resources 2018 $ 810, , , (363,652) ,224 Thereafter 324,066 Total $ 2,384,257 City of Richmond Heights Policemen s and Firemen s Retirement Fund 7

14 Schedule of Changes in Net Pension Liability and Related Ratios Current Period Fiscal Year Ended June 30, 2017 A. Total pension liability 1. Service cost $ 1,062, Interest on the total pension liability 2,673, Changes of benefit terms - 4. Difference between expected and actual experience of the total pension liability 356, Changes of assumptions 2,632, Benefit payments, including refunds of employee contributions (1,946,297) 7. Net change in total pension liability $ 4,779, Total pension liability beginning 38,630, Total pension liability ending $ 43,410,026 B. Plan fiduciary net position 1. Contributions employer $ 934, Contributions employee 130, Net investment income 6,651, Benefit payments, including refunds of employee contributions (1,946,297) 5. Pension plan administrative expense (20,205) 6. Other - 7. Net change in plan fiduciary net position $ 5,749, Plan fiduciary net position beginning 47,521, Plan fiduciary net position ending $ 53,271,765 C. Net pension liability $ (9,861,739) D. Plan fiduciary net position as a percentage of the total pension liability % E. Covered-employee payroll # $ 4,490,233 F. Net pension liability as a percentage of covered-employee payroll (219.63)% # Valuation payroll as of the valuation date. City of Richmond Heights Policemen s and Firemen s Retirement Fund 8

15 Schedules of Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios Multiyear Ultimately 10 Fiscal Years Will Be Displayed Fiscal year ending June 30, Total Pension Liability Service Cost $ 1,062,741 $ 1,031,787 $ 1,087,127 Interest on the Total Pension Liability 2,673,241 2,551,238 2,683,410 Benefit Changes Difference between Expected and Actual Experience 356,646 - (1,745,103) Assumption Changes 2,632, ,466 Benefit Payments (1,946,297) (1,764,927) (1,390,595) Refunds Net Change in Total Pension Liability 4,779,095 1,818, ,305 Total Pension Liability - Beginning 38,630,931 36,812,833 35,930,528 Total Pension Liability - Ending (a) $ 43,410,026 $ 38,630,931 $ 36,812,833 Plan Fiduciary Net Position Employer Contributions $ 934,079 $ 978,275 $ 974,032 Employee Contributions 130, , ,032 Pension Plan Net Investment Income 6,651,716 (668,404) 1,322,687 Benefit Payments (1,946,297) (1,764,927) (1,390,595) Refunds Pension Plan Administrative Expense (20,205) (27,493) (16,304) Other Net Change in Plan Fiduciary Net Position 5,749,965 (1,354,924) 1,018,852 Plan Fiduciary Net Position - Beginning 47,521,800 48,876,725 47,857,873 Plan Fiduciary Net Position - Ending (b) $ 53,271,765 $ 47,521,801 $ 48,876,725 Net Pension Liability - Ending (a) - (b) (9,861,739) (8,890,870) (12,063,892) Plan Fiduciary Net Position as a Percentage of Total Pension Liability % % % Covered-Employee Payroll # $ 4,490,233 $ 4,195,622 $ 4,195,622 Net Pension Liability as a Percentage of Covered-Employee Payroll (219.63)% (211.91)% (287.54)% Notes to Schedule: # Valuation payroll as of the valuation date. City of Richmond Heights Policemen s and Firemen s Retirement Fund 9

16 Schedule of Contributions Multiyear Ultimately 10 Fiscal Years Will Be Displayed Actuarially Contribution Actual Contribution FY Ending Determined Actual Deficiency Covered as a % of June 30, Contribution Contribution (Excess) Payroll # Covered Payroll 2015 $ 944,580 $ 974,032 $ (29,452) $ 4,195, % , ,275 (84,550) 4,195, % , ,079 (13,542) 4,490, % # Valuation payroll as of the valuation date. City of Richmond Heights Policemen s and Firemen s Retirement Fund 10

17 Notes to Schedule of Contributions Valuation Date: July 1, 2015 Notes Actuarially determined contribution rates are calculated as of July 1 of odd numbered years, which is zero months prior to the beginning of the 2016 fiscal year and 12 months prior to the beginning of the 2017 fiscal year, which contributions are reported. Methods and Assumptions Used to Actuarially Determine Contribution Rates: Actuarial Cost Method Individual Entry Age Normal Amortization Method Level percentage of payroll, open for positive Unfunded Actuarial Accrued Liability (UAAL), zero if negative. Remaining Amortization Period 30 years Asset Valuation Method 4-Year smoothed market; 20% corridor Inflation 2.50% Salary Increases 5.00% including inflation Investment Rate of Return 7.00% Retirement Age Age and Service-based table of rates that are specific to the type of eligibility condition. Mortality The RP-2014 Blue Collar Health Annuitant Mortality Table projected 2 years after the valuation, with MP-2014 Mortality Improvement Scale. The margin for future mortality improvement is the projection 2 years after the valuation date. Other Information: Notes Assumption Changes are reflected in the TPL as of July 1, Cost-of-Living Adjustments Participants and beneficiaries in pay status prior to July 1, 1987 are assumed to receive 4.0% cost-of-living increases per year. After July 1, 1987, 5.0% to SS NRA for retirees. Surviving Spouse annual benefit City of Richmond Heights Policemen s and Firemen s Retirement Fund 11

18 Regarding the sensitivity of the Net Pension Liability to changes in the Single Discount Rate, the following presents the plan s Net Pension Liability, calculated using a Single Discount Rate of 6.50%, as well as what the plan s Net Pension Liability would be if it were calculated using a Single Discount Rate that is one percent lower or one percent higher: Sensitivity of Net Pension Liability to the Single Discount Rate Assumption Current Single Discount 1% Decrease Rate Assumption 1% Increase 5.50% 6.50% 7.50% $(4,071,176) $(9,861,739) $(14,679,768) City of Richmond Heights Policemen s and Firemen s Retirement Fund 12

19 SECTION C CALCULATION OF THE SINGLE DISCOUNT RATE 13

20 Calculation of the Single Discount Rate GASB Statement No. 68 includes a specific requirement for the discount rate that is used for the purpose of the measurement of the Total Pension Liability. This rate considers the ability of the fund to meet benefit obligations in the future. To make this determination, employer contributions, employee contributions, benefit payments, expenses and investment returns are projected into the future. The Plan Net Position (assets) in future years can then be determined and compared to its obligation to make benefit payments in those years. As long as assets are projected to be on hand in a future year, the assumed valuation discount rate is used. In years where assets are not projected to be sufficient to meet benefit payments, the use of a municipal bond rate is required, as described in the following paragraph. The Single Discount Rate (SDR) is equivalent to applying these two rates to the benefits that are projected to be paid during the different time periods. The SDR reflects (1) the long-term expected rate of return on pension plan investments (during the period in which the Fiduciary Net Position is projected to be sufficient to pay benefits) and (2) tax-exempt municipal bond rate based on an index of 20-year general obligation bonds with an average AA credit rating as of the measurement date (to the extent that the contributions for use with the long-term expected rate of return are not met). For the purpose of this valuation, the expected rate of return on pension plan investments is 6.50%; the municipal bond rate is 3.56%; and the resulting Single Discount Rate is 6.50%. The tables in this section provide background for the development of the Single Discount Rate. The Projection of Contributions table shows the development of expected contributions in future years. Normal Cost contributions for future hires are not included (nor are their liabilities). The Projection of Plan Fiduciary Net Position table shows the development of expected asset levels in future years. The Present Values of Projected Benefit Payments table shows the development of the Single Discount Rate (SDR). It breaks down the benefit payments into present values for funded and unfunded portions and shows the equivalent total at the SDR. City of Richmond Heights Policemen s and Firemen s Retirement Fund 13

21 Single Discount Rate Development Projection of Contributions Ending June 30, 2067 Year Payroll for Current Employees Contributions from Current Employees Service Cost Contributions Administrative Expense Contributions UAAL Contributions Total Contributions 0 $ 4,490, ,586,415 $ 137,592 $ 1,052,934 $ 20,269 $ (441,677) $ 769, ,467, ,026 1,028,152 22,751 (423,946) 760, ,325, , ,885 23,294 (427,779) 723, ,268, , ,992 24,321 (486,425) 649, ,197, , ,277 25,845 (501,018) 618, ,125, , ,578 26,332 (516,048) 582, ,987, , ,750 29,382 (531,530) 534, ,804, , ,621 30,220 (547,476) 473, ,649, , ,859 32,690 (563,900) 422, ,441, , ,027 34,934 (580,817) 358, ,332,697 99, ,283 34,839 (598,241) 314, ,195,381 95, ,058 38,597 (616,189) 263, ,004,255 90, ,074 39,106 (634,674) 191, ,840,689 85, ,757 42,207 (653,715) 129, ,581,507 77, ,821 44,620 (590,821) 122, ,426,260 72, ,286 44,842 (551,286) 117, ,267,823 68, ,189 48,263 (515,189) 116, ,105,444 63, ,000 47,851 (478,000) 111, ,034,373 61, ,706 49,487 (461,706) 110, ,875,262 56, ,061 51,519 (426,061) 107, ,710,010 51, ,294 52,021 (388,294) 103, ,588,913 47, ,088 52,908 (360,088) 100, ,461,991 43, ,906 53,645 (328,906) 97, ,354,764 40, ,481 53,534 (301,481) 94, ,217,867 36, ,589 55,076 (270,589) 91, ,597 28, ,392 57,412 (211,392) 85, ,612 20, ,284 57,295 (154,284) 78, ,632 17, ,986 56,576 (127,986) 74, ,745 13,042 94,847 58,800 (94,847) 71, ,898 8,127 58,507 57,822 (58,507) 65, ,955 6,119 43,508 57,411 (43,508) 63, ,092 4,923 34,638 56,337 (34,638) 61, ,648 3,949 27,704 55,812 (27,704) 59, ,109 2,823 19,557 54,670 (19,557) 57, ,897 1,887 12,875 53,693 (12,875) 55, ,872 1,166 7,844 52,270 (7,844) 53, , ,294 50,819 (5,294) 51, , ,172 49,158 (3,172) 49, , ,153 47,271 (2,153) 47, , ,689 45,464 (1,689) 45, , ,573 (666) 43, ,561-41, ,578-39, ,553-37, ,520-35, ,504-33, ,511-31, ,549-29, ,623-27, ,739-25,739 City of Richmond Heights Policemen s and Firemen s Retirement Fund 14

22 Single Discount Rate Development Projection of Plan Fiduciary Net Position Ending June 30, 2067 Year Projected Beginning Plan Net Position Projected Total Contributions Projected Benefit Payments Projected Administrative Expenses Projected Investment Earnings at 6.50% Projected Ending Plan Net Position (a) (b) (c) (d) (e) (f)=(a)+(b)-(c)-(d)+(e) 1 $ 53,271,765 $ 769,118 $ 1,952,471 $ 20,269 $ 3,424,163 $ 55,492, ,492, ,983 2,191,584 22,751 3,560,510 57,599, ,599, ,158 2,243,827 23,294 3,694,576 59,750, ,750, ,931 2,342,790 24,321 3,828,825 61,861, ,861, ,024 2,489,624 25,845 3,960,316 63,924, ,924, ,639 2,536,491 26,332 4,091,756 66,036, ,036, ,231 2,830,312 29,382 4,217,963 67,928, ,928, ,486 2,911,052 30,220 4,336,423 69,797, ,797, ,130 3,148,902 32,690 4,448,554 71,486, ,486, ,395 3,365,088 34,934 4,549,319 72,994, ,994, ,861 3,355,929 34,839 4,646,222 74,564, ,564, ,328 3,717,928 38,597 4,734,945 75,806, ,806, ,633 3,766,989 39,106 4,811,779 77,003, ,003, ,470 4,065,663 42,207 4,877,963 77,903, ,903, ,065 4,298,125 44,620 4,928,684 78,611, ,611, ,630 4,319,538 44,842 4,973,871 79,338, ,338, ,298 4,649,036 48,263 5,010,441 79,767, ,767, ,014 4,609,391 47,851 5,039,467 80,260, ,260, ,518 4,766,945 49,487 5,066,420 80,621, ,621, ,777 4,962,693 51,519 5,083,438 80,798, ,798, ,321 5,011,059 52,021 5,093,238 80,931, ,931, ,575 5,096,477 52,908 5,099,065 80,982, ,982,080 97,505 5,167,464 53,645 5,099,939 80,958, ,958,415 94,177 5,156,770 53,534 5,098,640 80,940, ,940,929 91,612 5,305,348 55,076 5,092,620 80,764, ,764,737 85,990 5,530,380 57,412 5,073,714 80,336, ,336,649 78,223 5,519,066 57,295 5,046,006 79,884, ,884,517 74,025 5,449,845 56,576 5,018,720 79,470, ,470,841 71,842 5,664,072 58,800 4,984,837 78,804, ,804,649 65,949 5,569,836 57,822 4,944,392 78,187, ,187,332 63,530 5,530,241 57,411 4,905,469 77,568, ,568,678 61,260 5,426,776 56,337 4,868,528 77,015, ,015,353 59,761 5,376,201 55,812 4,834,148 76,477, ,477,249 57,493 5,266,246 54,670 4,802,653 76,016, ,016,480 55,580 5,172,149 53,693 4,775,683 75,621, ,621,901 53,436 5,034,990 52,270 4,754,400 75,342, ,342,476 51,621 4,895,250 50,819 4,740,696 75,188, ,188,723 49,646 4,735,262 49,158 4,735,809 75,189, ,189,759 47,604 4,553,456 47,271 4,741,687 75,378, ,378,323 45,714 4,379,407 45,464 4,759,509 75,758, ,758,674 43,665 4,197,268 43,573 4,790,053 76,351, ,351,551 41,561 4,003,507 41,561 4,834,785 77,182, ,182,829 39,578 3,812,421 39,578 4,894,931 78,265, ,265,339 37,553 3,617,426 37,553 4,971,531 79,619, ,619,445 35,520 3,421,556 35,520 5,065,814 81,263, ,263,703 33,504 3,227,330 33,504 5,178,904 83,215, ,215,276 31,511 3,035,400 31,511 5,311,895 85,491, ,491,771 29,549 2,846,399 29,549 5,465,913 88,111, ,111,285 27,623 2,660,898 27,623 5,642,116 91,092, ,092,503 25,739 2,479,401 25,739 5,841,701 94,454,802 City of Richmond Heights Policemen s and Firemen s Retirement Fund 15

23 Single Discount Rate Development Present Values of Projected Benefits Ending June 30, 2117 Year (a) Projected Beginning Plan Net Position Projected Benefit Payments Funded Portion of Benefit Payments Unfunded Portion of Benefit Payments Present Value of Funded Benefit Payments using Expected Return Rate (v) Present Value of Unfunded Benefit Payments using Municipal Bond Rate (v f ) Present Value of Benefit Payments using Single Discount Rate (sdr) (b) (c) (d) (e) (f)=(d)*v^((a)-.5) (g)=(e)*vf ^((a)-.5) (h)=((c)/(1+sdr)^(a-.5) 1 $ 53,271,765 $ 1,952,471 $ 1,952,471 $ - $ 1,891,950 $ - $ 1,891, ,492,306 2,191,584 2,191,584-1,994,039-1,994, ,599,464 2,243,827 2,243,827-1,916,970-1,916, ,750,077 2,342,790 2,342,790-1,879,359-1,879, ,861,723 2,489,624 2,489,624-1,875,256-1,875, ,924,594 2,536,491 2,536,491-1,793,950-1,793, ,036,166 2,830,312 2,830,312-1,879,585-1,879, ,928,666 2,911,052 2,911,052-1,815,214-1,815, ,797,303 3,148,902 3,148,902-1,843,688-1,843, ,486,395 3,365,088 3,365,088-1,850,015-1,850, ,994,087 3,355,929 3,355,929-1,732,375-1,732, ,564,403 3,717,928 3,717,928-1,802,107-1,802, ,806,151 3,766,989 3,766,989-1,714,448-1,714, ,003,468 4,065,663 4,065,663-1,737,447-1,737, ,903,031 4,298,125 4,298,125-1,724,685-1,724, ,611,035 4,319,538 4,319,538-1,627,490-1,627, ,338,156 4,649,036 4,649,036-1,644,729-1,644, ,767,596 4,609,391 4,609,391-1,531,177-1,531, ,260,836 4,766,945 4,766,945-1,486,868-1,486, ,621,342 4,962,693 4,962,693-1,453,450-1,453, ,798,345 5,011,059 5,011,059-1,378,042-1,378, ,931,825 5,096,477 5,096,477-1,315,993-1,315, ,982,080 5,167,464 5,167,464-1,252,885-1,252, ,958,415 5,156,770 5,156,770-1,173,983-1,173, ,940,929 5,305,348 5,305,348-1,134,093-1,134, ,764,737 5,530,380 5,530,380-1,110,043-1,110, ,336,649 5,519,066 5,519,066-1,040,162-1,040, ,884,517 5,449,845 5,449, , , ,470,841 5,664,072 5,664, , , ,804,649 5,569,836 5,569, , , ,187,332 5,530,241 5,530, , , ,568,678 5,426,776 5,426, , , ,015,353 5,376,201 5,376, , , ,477,249 5,266,246 5,266, , , ,016,480 5,172,149 5,172, , , ,621,901 5,034,990 5,034, , , ,342,476 4,895,250 4,895, , , ,188,723 4,735,262 4,735, , , ,189,759 4,553,456 4,553, , , ,378,323 4,379,407 4,379, , , ,758,674 4,197,268 4,197, , , ,351,551 4,003,507 4,003, , , ,182,829 3,812,421 3,812, , , ,265,339 3,617,426 3,617, , , ,619,445 3,421,556 3,421, , , ,263,703 3,227,330 3,227, , , ,215,276 3,035,400 3,035, , , ,491,771 2,846,399 2,846, , , ,111,285 2,660,898 2,660, , , ,092,503 2,479,401 2,479, , ,785 City of Richmond Heights Policemen s and Firemen s Retirement Fund 16

24 Single Discount Rate Development Present Values of Projected Benefits Ending June 30, 2117 (Concluded) Year (a) Projected Beginning Plan Net Position Projected Benefit Payments Funded Portion of Benefit Payments Unfunded Portion of Benefit Payments Present Value of Funded Benefit Payments using Expected Return Rate (v) Present Value of Unfunded Benefit Payments using Municipal Bond Rate (vf) Present Value of Benefit Payments using Single Discount Rate (sdr) (b) (c) (d) (e) (f)=(d)*v^((a)-.5) (g)=(e)*vf ^((a)-.5) (h)=((c)/(1+sdr)^(a-.5) 51 $ 94,454,802 $ 2,302,341 $ 2,302,341 $ - $ 95,723 $ - $ 95, ,218,376 2,130,074 2,130,074-83,155-83, ,404,359 1,962,909 1,962,909-71,952-71, ,034,943 1,801,143 1,801,143-61,993-61, ,133,455 1,645,073 1,645,073-53,166-53, ,724,434 1,494,995 1,494,995-45,367-45, ,833,704 1,351,213 1,351,213-38,501-38, ,488,459 1,214,053 1,214,053-32,481-32, ,717,321 1,083,851 1,083,851-27,228-27, ,550, , ,933-22,667-22, ,019, , ,614-18,729-18, ,158, , ,181-15,352-15, ,001, , ,864-12,475-12, ,587, , ,829-10,045-10, ,955, , ,167-8,009-8, ,147, , ,880-6,319-6, ,208, , ,871-4,931-4, ,186, , ,920-3,804-3, ,133, , ,682-2,900-2, ,103, , ,700-2,183-2, ,155, , ,420-1,621-1, ,354, , ,222-1,188-1, ,766,701 82,444 82, ,466,454 62,417 62, ,532,360 46,479 46, ,048,998 34,004 34, ,107,091 24,412 24, ,803,859 17,178 17, ,243,382 11,835 11, ,536,988 7,976 7, ,803,661 5,253 5, ,170,478 3,378 3, ,773,073 2,119 2, ,756,135 1,296 1, ,273, ,490, ,582, ,734, ,147, ,032, ,614, ,057,134, ,125,847, ,199,027, ,276,964, ,359,967, ,448,365, ,542,509, ,642,772, ,749,552, Totals $ 54,768,227 $ - $ 54,768,227 City of Richmond Heights Policemen s and Firemen s Retirement Fund 17

25 SECTION D GLOSSARY OF TERMS 18

26 Glossary of Terms Actuarial Accrued Liability (AAL) Actuarial Assumptions Accrued Service Actuarial Equivalent Actuarial Cost Method Actuarial Gain (Loss) Actuarial Present Value (APV) Actuarial Valuation Actuarial Valuation Date Actuarially Determined Contribution (ADC) or Annual Required Contribution (ARC) The AAL is the difference between the actuarial present value of all benefits and the actuarial value of future normal costs. The definition comes from the fundamental equation of funding which states that the present value of all benefits is the sum of the Actuarial Accrued Liability and the present value of future normal costs. The AAL may also be referred to as "accrued liability" or "actuarial liability." These assumptions are estimates of future experience with respect to rates of mortality, disability, turnover, retirement, rate or rates of investment income and compensation increases. Actuarial assumptions are generally based on past experience, often modified for projected changes in conditions. Economic assumptions (compensation increases, payroll growth, inflation and investment return) consist of an underlying real rate of return plus an assumption for a long-term average rate of inflation. Service credited under the system which was rendered before the date of the actuarial valuation. A single amount or series of amounts of equal actuarial value to another single amount or series of amounts, computed on the basis of appropriate actuarial assumptions. A mathematical budgeting procedure for allocating the dollar amount of the actuarial present value of the pension trust benefits between future normal cost and actuarial accrued liability. The actuarial cost method may also be referred to as the actuarial funding method. The difference in liabilities between actual experience and expected experience during the period between two actuarial valuations is the gain (loss) on the accrued liabilities. The amount of funds currently required to provide a payment or series of payments in the future. The present value is determined by discounting future payments at predetermined rates of interest and probabilities of payment. The actuarial valuation report determines, as of the actuarial valuation date, the service cost, Total Pension Liability, and related actuarial present value of projected benefit payments for pensions. The date as of which an actuarial valuation is performed. A calculated contribution into a defined benefit pension plan for the reporting period, most often determined based on the funding policy of the plan. Typically the Actuarially Determined Contribution has a normal cost payment and an amortization payment. City of Richmond Heights Policemen s and Firemen s Retirement Fund 18

27 Glossary of Terms Amortization Payment Amortization Method Cost-of-Living Adjustments Cost-Sharing Multiple- Employer Defined Benefit Pension Plan (cost-sharing pension plan) Covered-Employee Payroll Deferred Retirement Option Program (DROP) Deferred Inflows and Outflows Discount Rate The amortization payment is the periodic payment required to pay off an interest-discounted amount with payments of interest and principal. The method used to determine the periodic amortization payment may be a level dollar amount, or a level percent of pay amount. The period will typically be expressed in years, and the method will either be open (meaning, reset each year) or closed (the number of years remaining will decline each year). Postemployment benefit changes intended to adjust benefit payments for the effects of inflation. A multiple-employer defined benefit pension plan in which the pension obligations to the employees of more than one employer are pooled and pension plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan. The payroll of employees that are provided with pensions through the pension plan. A program that permits a plan member to elect a calculation of benefit payments based on service credits and salary, as applicable, as of the DROP entry date. The plan member continues to provide service to the employer and is paid for the service by the employer after the DROP entry date; however, the pensions that would have been paid to the plan member are credited to an individual member account within the defined benefit pension plan until the end of the DROP period. Other variations for DROP exist and will be more fully detailed in the plan provision section of the valuation report. The deferred inflows and outflows of pension resources are amounts used under GASB Statement No. 68 in developing the annual Pension Expense. Deferred inflows and outflows arise with differences between expected and actual experiences; changes of assumptions. The portion of these amounts not included in Pension Expense should be included in the deferred inflows or outflows of resources. For GASB purposes, the discount rate is the single rate of return that results in the present value of all projected benefit payments to be equal to the sum of the funded and unfunded projected benefit payments, specifically: 1. The benefit payments to be made while the pension plans Fiduciary Net Position is projected to be greater than the benefit payments that are projected to be made in the period; and 2. The present value of the benefit payments not in (1) above, discounted using the municipal bond rate. City of Richmond Heights Policemen s and Firemen s Retirement Fund 19

28 Glossary of Terms Entry Age Actuarial Cost Method (EAN) GASB Fiduciary Net Position Long-Term Expected Rate of Return Money-Weighted Rate of Return Multiple-Employer Defined Benefit Pension Plan Municipal Bond Rate Net Pension Liability (NPL) Non-Employer Contributing Entities Normal Cost The EAN is a cost method for allocating the costs of the plan between the normal cost and the accrued liability. The actuarial present value of the projected benefits of each individual included in an actuarial valuation is allocated on a level basis (either level dollar or level percent of pay) over the earnings or service of the individual between entry age and assumed exit ages(s). The portion of the actuarial present value allocated to a valuation year is the normal cost. The portion of this actuarial present value not provided for at a valuation date by the actuarial present value of future normal costs is the actuarial accrued liability. The sum of the accrued liability plus the present value of all future normal costs is the present value of all benefits. The Governmental Accounting Standards Board is an organization that exists in order to promulgate accounting standards for governmental entities. The Fiduciary Net Position is the market value of the assets of the trust dedicated to the defined benefit provisions. The long-term rate of return is the expected return to be earned over the entire trust portfolio based on the asset allocation of the portfolio. The money-weighted rate of return is a method of calculating the returns that adjusts for the changing amounts actually invested. For purposes of GASB Statement No. 67, money-weighted rate of return is calculated as the internal rate of return on pension plan investments, net of pension plan investment expense. A multiple-employer plan is a defined benefit pension plan that is used to provide pensions to the employees of more than one employer. The Municipal Bond Rate is the discount rate to be used for those benefit payments that occur after the assets of the trust have been depleted. The NPL is the liability of employers and non-employer contributing entities to plan members for benefits provided through a defined benefit pension plan. Non-employer contributing entities are entities that make contributions to a pension plan that is used to provide pensions to the employees of other entities. For purposes of the GASB accounting statements, plan members are not considered non-employer contributing entities. The portion of the actuarial present value allocated to a valuation year is called the normal cost. For purposes of application to the requirements of this Statement, the term normal cost is the equivalent of service cost. City of Richmond Heights Policemen s and Firemen s Retirement Fund 20

29 Glossary of Terms Other Postemployment Benefits (OPEB) Real Rate of Return Service Cost Total Pension Expense All postemployment benefits other than retirement income (such as death benefits, life insurance, disability, and long-term care) that are provided separately from a pension plan, as well as postemployment healthcare benefits regardless of the manner in which they are provided. Other postemployment benefits do not include termination benefits. The real rate of return is the rate of return on an investment after adjustment to eliminate inflation. The service cost is the portion of the actuarial present value of projected benefit payments that is attributed to a valuation year. The total Pension Expense is the sum of the following items that are recognized at the end of the employer s fiscal year: 1. Service Cost 2. Interest on the Total Pension Liability 3. Current-Period Benefit Changes 4. Employee Contributions (made negative for addition here) 5. Projected Earnings on Plan Investments (made negative for addition here) 6. Pension Plan Administrative Expense 7. Other Changes in Plan Fiduciary Net Position 8. Recognition of Outflow (Inflow) of Resources due to Liabilities 9. Recognition of Outflow (Inflow) of Resources due to Assets Total Pension Liability (TPL) Unfunded Actuarial Accrued Liability (UAAL) Valuation Assets The TPL is the portion of the actuarial present value of projected benefit payments that is attributed to past periods of member service. The UAAL is the difference between actuarial accrued liability and valuation assets. The valuation assets are the assets used in determining the unfunded liability of the plan. For purposes of GASB Statement Nos. 67 and 68, the valuation assets are equal to the market value of assets. City of Richmond Heights Policemen s and Firemen s Retirement Fund 21