Town of Medway. Copyright 2012 THE SEGAL GROUP, INC., THE PARENT OF THE SEGAL COMPANY ALL RIGHTS RESERVED

Transcription

1 Town of Medway Actuarial Valuation and Review of Other Postemployment Benefits (OPEB) as of June 30, 2011 In accordance with GASB Statements Number 43 and 45 Copyright 2012 THE SEGAL GROUP, INC., THE PARENT OF THE SEGAL COMPANY ALL RIGHTS RESERVED

2 THE SEGAL COMPANY 116 Huntingtonn Ave., 8th Floor Boston, MA T F May 24, 2012 Ms. Carol Pratt Town Accountant Office of the Town Accountant 155 Village Street Medway, MA Dear Ms. Pratt: We are pleased to submit this report on our actuarial valuation of postemployment welfare benefits as of June 30, 2011 under GASB Statements Number 43 and 45. It establishes the liabilities of the postemployment welfare benefit plan in accordance with GASB Statements Number 43 and 45 for the fiscal years beginning July 1, 2011 and and summarizess the actuarial data. This report is based on information received from the Town. The actuarial projections were based on the assumptions and methods described in Exhibit II and on the plan of benefits as summarized in Exhibit III. We look forward to discussing this material with you at your convenience. Sincerely, THE SEGAL COMPANY By: Kathleen A. Riley, FSA, MAAA, EA Senior Vice President and Actuary v1/ Daniel J. Rhodes, ASA, FCA, MAAA Consulting Actuary

3 SECTION 1 SECTION 2 SECTION 3 SECTION 4 INTRODUCTION VALUATION RESULTS VALUATION DETAILS SUPPORTING INFORMATION Purpose... 1 Highlights of the Valuation... 1 Accounting Requirements... 4 Summary of Valuation Results... 7 Department Results... 8 Funding Schedule... 9 Projection of ARC Actuarial Certification CHART 1 Required Supplementary Information Schedule of Employer Contributions CHART 2 Required Supplementary Information Schedule of Funding Progress CHART 3 Required Supplementary Information Net OPEB Obligation/(Asset) (NOO/NOA) EXHIBIT I Summary of Participant Data EXHIBIT II Actuarial Assumptions and Actuarial Cost Method EXHIBIT III Summary of Plan CHART 4 Required Supplementary Information... 15

4 SECTION 1: Introduction for Town of Medway June 30, 2011 Measurement under GASB PURPOSE This report presents the results of our actuarial valuation of the Town of Medway (the Employer ) postemployment welfare benefit 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. The accounting standard supplements 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). HIGHLIGHTS OF THE VALUATION During the fiscal year ending June 30, 2012, we project the Town will pay benefits (net of retiree contributions) on behalf of retired employees of about $773,000. This amount is less than the annual cost (the Annual Required Contribution or ARC) of $3,255,000. The GASB statements provide the method for selecting the investment return assumption (discount rate). If the benefits are fully funded, the discount rate should be based on the estimated long-term investment yield on the investments expected to be used to finance the payment of benefits. If financing continues to be primarily pay-as-you-go, the discount rate should be based on the expected yield on the assets of the employer. Because these benefits are not funded we have used a discount rate of 4.50% (referred to as the pay-as-you-go rate). For illustration purposes, we have also shown what the obligations would be on a fully funded basis, assuming an interest rate of 8.25%. In the prior valuation, the pay-as-yougo rate was 5.00% and the fully funded rate was 8.50%. The GASB statements allow the use of one of six funding methods to determine the actuarial liabilities. We have used the projected entry age normal cost method. To determine the amortization payment on the unfunded actuarial accrued liability (UAAL), an amortization period and amortization method must be selected. We have used a 30-year open amortization of the UAAL (the maximum permitted by the GASB statements), with level payments. The GASB statements allow for either an open or closed amortization period. In open amortization, the period is reset to the initial value every year and the UAAL is reamortized, while under a closed amortization, the remaining period decreases and the UAAL is eventually paid off. To be considered a fully funded plan, the contribution in relation to the ARC must equal the ARC. For example, if the ARC is $2,213,000, and the employer pays benefits to retirees of $773,000, then an additional contribution of the difference, or approximately $1,440,000 will need to be added to an OPEB trust fund during the fiscal year ending June 30, Assets set aside to fund OPEB liabilities must be held in a trust or equivalent arrangement, through which assets are accumulated and benefits are paid as they come due. Employer contributions to the plan are irrevocable, plan assets are dedicated to providing benefits to retirees and their spouses in accordance with the terms of the plan, and plan assets are legally protected from creditors of the employer. Chapter 68 of the Acts of 2011 permits municipalities, authorities and certain other government entities of the Commonwealth to establish a liability trust fund for funding retiree benefits (other than pension), also known as Other Post-Employment Benefits (OPEB). The legislation also 1

5 SECTION 1: Introduction for Town of Medway June 30, 2011 Measurement under GASB ensures that these entities have access to the state s investment trust, the State Retiree Benefits Trust Fund (SRBTF) for purposes of investment OPEB funds. We have included a funding schedule and a projection of the ARC on pages 9 and 10 of this report. GASB guidelines prohibit the offset of OPEB obligations by the future value of Medicare Part D subsidies. Therefore, these calculations do not include an estimate for retiree prescription drug plan federal subsidies that the Employer may be eligible to receive for plan years beginning in Employer decisions regarding plan design, cost sharing between the Employer and its retirees, actuarial cost method, amortization techniques, and integration with Medicare are just some of the decisions that affect the magnitude of OPEB obligations. We are available to assist you with any investigation of such options you may wish to undertake. The Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act create a temporary reinsurance program for eligible health care coverage for pre-medicare retirees over age 55. The program will reimburse the plan sponsor for 80% of the retiree claims between $16,000 and $93,000. Due to the short nature of this program, the limited financing, and uncertainty of qualifying and receiving payment (on February 17, 2012 it was announced that requests for reimbursements exceeding the funding appropriated by Congress had been received), we have not reflected the value of this program in the valuation. Furthermore, the valuation does not include the potential impact of any other aspects of the Acts. KEY VALUATION RESULTS The unfunded actuarial accrued liability (UAAL) as of June 30, 2011 is $31,351,000. Going forward, net unfunded plan obligations will be expected to change due to normal plan operations, which consist of continuing accruals for active members, plus interest on the total actuarial accrued liability, less expected benefit payments and contributions. Future valuations will analyze the difference between actual and expected unfunded actuarial accrued liabilities. As of June 30, 2011 the ratio of assets to the AAL (the funded ratio) is 0.00%. The Annual Required Contribution (ARC) for fiscal year 2012 is $3,255,000. The ARC is expected to remain relatively level as a percentage of payroll, as long as the ARC is fully funded each year. If the ARC is not fully funded, it may be expected to increase as a percentage of payroll over time. Plan obligations of $31,351,000 as of June 30, 2011 represent an increase of $1,735,000 from $29,616,000 as shown in the June 30, 2009 valuation. Plan obligations had been expected to increase $3,657,000 due to normal plan operations, which consist of continuing accruals for active members, plus interest on the total obligation, less expected benefit payments. The smaller than expected increase was the net effect of the following: An actuarial experience loss increased obligations by $1,193,000. This was the net result of gains and losses due to demographic changes. 2

6 SECTION 1: Introduction for Town of Medway June 30, 2011 Measurement under GASB Valuation assumption and plan changes decreased obligations by $3,115,000. This was the net result of 1) a decrease in obligations due to valuation year per capita health costs not increasing as much as projected, partially offset by 2) an increase in obligations due to a change in the future trend on per capita health care costs, 3) an increase in obligations due to a change in the discount rate assumption and 4) an increase in obligations due to a change in the mortality assumption for non-teachers and an increase in the percentage of the service connected death benefits for Group 1 and 2 employees. The complete set of assumptions is shown in Exhibit II. 3

7 SECTION 1: Introduction for Town of Medway June 30, 2011 Measurement under GASB 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 governmental entities that provide other post employment benefits (OPEB) are required to report the cost of these benefits on their financial statements. 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. These benefits, referred to as OPEB, are typically financed on a pay-as-yougo basis. The new standard introduces 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. 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. The benefits valued in this report are limited to those described in Exhibit III of Section 4. 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. 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. 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. $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Hypothetical Cost Curve Cost Projected Cost Blended Cost Age 4

8 SECTION 1: Introduction for Town of Medway June 30, 2011 Measurement under GASB 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 Present Value of Future Benefits Future Accounting Periods Current Period Future Accruals (Actives) Normal Cost (Actives) Normal Cost + 30 Years Amortization of Unfunded Actuarial Accrued Liability Annual Required Contribution (ARC) Historical Accounting Periods Actuarial Accrued Liability (Actives + Retirees) Net OPEB Obligation = ARC1 + ARC2 + ARC3 + - Contribution1 - Contribution2 - Contribution

9 SECTION 1: Introduction for Town of Medway June 30, 2011 Measurement under GASB Actuarial computations under GASB statements are for purposes of fulfilling certain welfare plan accounting requirements. The calculations shown in this report have been made on a basis consistent with our understanding of GASB. Determinations for purposes other than meeting the financial accounting requirements of GASB may differ significantly from the results reported here. 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. Calculations are based on the benefits 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 does not incorporate the potential effect of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future. 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. 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. 6

10 SECTION 2: Valuation Results for the Town of Medway June 30, 2011 Measurement under GASB The key results and significant assumptions for the current year are shown on a funded basis and a pay-as-you-go basis. SUMMARY OF VALUATION RESULTS ALL DEPARTMENTS Funded (8.25% discount rate) Pay-as-you-go (4.50% discount rate) Actuarial Accrued Liability by Participant Category 1. Current retirees, beneficiaries and dependents $8,312,609 $12,075, Current active members 10,454,477 19,275, Total actuarial accrued liability as of June 30, 2011: (1) + (2) $18,767,085 $31,351, Actuarial value of assets as of June 30, Unfunded actuarial accrued liability (UAAL) as of June 30, 2011: (3) (4) $18,767,085 $31,351,424 Annual Required Contribution for Fiscal Year Ending June 30, Normal Cost as of June 30, 2011 $550,357 $1,342, Adjustment for timing 22,253 29, Normal Cost adjusted for timing: (6) + (7) $572,610 $1,372, year level amortization of the UAAL as of June 30, ,576,451 1,841, Adjustment for timing 63,740 40, Amortization payment adjusted for timing: (9) + (10) $1,640,191 $1,882, Total Annual Required Contribution (ARC): (8) + (11) 2,212,801 3,254, Projected benefit payments 773, ,270 Note: Assumes payment in the middle of the fiscal year. 7

11 SECTION 2: Valuation Results for the Town of Medway June 30, 2011 Measurement under GASB DEPARTMENT RESULTS Actuarial Accrued Liability (AAL) and Annual Required Contribution Pay-as-you-go (4.50% discount rate) Actuarial Accrued Liability by Participant Category School Solid Waste Teacher Town Water Total 1. Current retirees, beneficiaries and dependents $3,215,762 $0 $6,587,807 $2,272,178 $0 $12,075, Current active members 4,310, ,920 10,178,458 4,336, ,827 19,275, Total actuarial accrued liability as of June 30, 2011: (1) + (2) $7,525,894 $104,920 $16,766,266 $6,608,517 $345,827 $31,351, Actuarial value of assets as of June 30, Unfunded actuarial accrued liability (UAAL) as of June 30, 2011: (3) (4) $7,525,894 $104,920 $16,766,266 $6,608,517 $345,827 $31,351,424 Annual Required Contribution for Fiscal Year Ending June 30, Normal Cost as of June 30, 2011 $338,624 $4,169 $682,048 $301,642 $15,714 $1,342, Adjustment for timing 7, ,177 6, , Normal Cost adjusted for timing: (6) + (7) $346,159 $4,262 $697,225 $308,354 $16,064 $1,372, year level amortization of the UAAL as of June 30, ,130 6, , ,236 20,317 1,841, Adjustment for timing 9, ,918 8, , Amortization payment adjusted for timing: (9) + (10) $451,968 $6,301 $1,006,901 $396,875 $20,769 $1,882, Total Annual Required Contribution (ARC): (8) + (11) 798,127 10,563 1,704, ,229 36,833 3,254, Projected benefit payments 218,026 2, , , ,270 Note: Assumes payment in the middle of the fiscal year. 8

12 SECTION 2: Valuation Results for the Town of Medway June 30, 2011 Measurement under GASB FUNDING SCHEDULE 30 Years Closed (8.25% discount rate) Fiscal Year Ended June 30 (1) Projected Benefit Payments (2) Normal Cost with Interest (3) Amortization of UAAL (4) Total Funding Requirement (3) + (2) (5) Additional Funding (4) - (1) (6) Assets at End of Year (7) AAL at End of Year (8) UAAL at End of Year (7) (6) 2012 $773,270 $572,610 $1,640,191 $2,212,801 $1,439,531 $1,497,735 $20,106,597 $18,608, , ,241 1,640,191 2,241,432 1,342,155 3,017,720 21,455,305 18,437, , ,303 1,640,191 2,271,494 1,278,356 4,596,725 22,848,903 18,252, ,117, ,868 1,640,191 2,303,059 1,185,416 6,209,300 24,260,775 18,051, ,216, ,011 1,640,191 2,336,202 1,119,457 7,886,287 25,720,500 17,834, ,343, ,812 1,640,191 2,371,003 1,027,449 9,605,897 27,204,924 17,599, ,469, ,353 1,640,191 2,407, ,756 11,374,055 28,718,494 17,344, ,571, ,721 1,640,191 2,445, ,494 13,222,267 30,291,114 17,068, ,643, ,007 1,640,191 2,486, ,665 15,189,840 31,960,359 16,770, ,730, ,307 1,640,191 2,528, ,925 17,273,189 33,720,768 16,447, ,851, ,722 1,640,191 2,572, ,317 19,448,709 35,546,705 16,097, ,944, ,358 1,640,191 2,619, ,373 21,755,908 37,475,480 15,719, ,041,385 1,028,326 1,640,191 2,668, ,132 24,203,259 39,513,187 15,309, ,143,454 1,079,742 1,640,191 2,719, ,479 26,799,815 41,666,304 14,866, ,250,627 1,133,729 1,640,191 2,773, ,293 29,555,251 43,941,717 14,386, ,363,158 1,190,415 1,640,191 2,830, ,448 32,479,907 46,346,749 13,866, ,481,316 1,249,936 1,640,191 2,890, ,811 35,584,840 48,889,188 13,304, ,605,382 1,312,433 1,640,191 2,952, ,242 38,881,871 51,577,320 12,695, ,735,651 1,378,055 1,640,191 3,018, ,595 42,383,646 54,419,962 12,036, ,872,433 1,446,958 1,640,191 3,087, ,716 46,103,694 57,426,498 11,322, ,016,055 1,519,306 1,640,191 3,159, ,442 50,056,490 60,606,918 10,550, ,166,858 1,595,271 1,640,191 3,235,462 68,604 54,257,528 63,971,858 9,714, ,325,200 1,675,035 1,640,191 3,315,226 (9,974) 58,723,397 67,532,651 8,809, ,491,460 1,758,787 1,640,191 3,398,978 (92,482) 63,471,856 71,301,365 7,829, ,666,033 1,846,726 1,640,191 3,486,917 (179,116) 68,521,926 75,290,861 6,768, ,849,335 1,939,062 1,640,191 3,579,253 (270,082) 73,893,983 79,514,847 5,620, ,041,802 2,036,015 1,640,191 3,676,206 (365,596) 79,609,859 83,987,936 4,378, ,243,892 2,137,816 1,640,191 3,778,007 (465,885) 85,692,950 88,725,711 3,032, ,456,087 2,244,707 1,640,191 3,884,898 (571,189) 92,168,335 93,744,790 1,576, ,678,891 2,356,942 1,640,191 3,997,133 (681,758) 99,062,899 99,062,899 - Notes: Assumes payment in the middle of the fiscal year. Amortization payments calculated to be level. 9

13 SECTION 2: Valuation Results for the Town of Medway June 30, 2011 Measurement under GASB PROJECTION OF ARC 30 Years Open (4.50% discount rate) Fiscal Year Ended June 30 (1) Projected Benefit Payments (2) (3) Normal Cost Amortization with Interest of UAAL (4) ARC (3) + (2) (5) Additional Funding (4) - (1) (6) Assets at End of Year (7) AAL at End of Year (8) UAAL at End of Year (7) (6) 2012 $773,270 $1,372,064 $1,882,814 $3,254,878 $24,954 $24,954 $33,374,357 $33,349, ,277 1,440,667 2,002,804 3,443,471-27,013 35,429,640 35,402, ,138 1,512,700 2,126,111 3,638,811-29,242 37,555,097 37,525, ,117,643 1,588,335 2,253,622 3,841,957-31,654 39,726,242 39,694, ,216,745 1,667,752 2,383,865 4,051,617-34,265 41,974,966 41,940, ,343,554 1,751,140 2,518,756 4,269,896-37,092 44,280,495 44,243, ,469,788 1,838,697 2,657,045 4,495,742-40,152 46,650,235 46,610, ,571,418 1,930,632 2,799,176 4,729,808-43,465 49,116,703 49,073, ,643,533 2,027,164 2,947,102 4,974,266-47,051 51,719,122 51,672, ,730,573 2,128,522 3,103,175 5,231,697-50,933 54,453,287 54,402, ,851,596 2,234,948 3,267,143 5,502,091-55,135 57,295,567 57,240, ,944,176 2,346,695 3,437,584 5,784,279-59,684 60,285,344 60,225, ,041,385 2,464,030 3,616,862 6,080,892-64,608 63,430,234 63,365, ,143,454 2,587,232 3,805,433 6,392,665-69,938 66,738,248 66,668, ,250,627 2,716,594 4,003,777 6,720,371-75,708 70,217,805 70,142, ,363,158 2,852,424 4,212,396 7,064,820-81,954 73,877,760 73,795, ,481,316 2,995,045 4,431,820 7,426,865-88,715 77,727,420 77,638, ,605,382 3,144,797 4,662,606 7,807,403-96,034 81,776,572 81,680, ,735,651 3,302,037 4,905,339 8,207, ,957 86,035,507 85,931, ,872,433 3,467,139 5,160,634 8,627, ,533 90,515,044 90,402, ,016,055 3,640,496 5,429,138 9,069, ,817 95,226,557 95,104, ,166,858 3,822,521 5,711,531 9,534, , ,182, ,050, ,325,200 4,013,647 6,008,528 10,022, , ,393, ,251, ,491,460 4,214,329 6,320,880 10,535, , ,875, ,721, ,666,033 4,425,045 6,649,376 11,074, , ,640, ,473, ,849,335 4,646,297 6,994,847 11,641, , ,704, ,523, ,041,802 4,878,612 7,358,165 12,236, , ,081, ,885, ,243,892 5,122,543 7,740,248 12,862, , ,788, ,576, ,456,087 5,378,670 8,142,059 13,520, , ,842, ,612, ,678,891 5,647,604 8,564,613 14,212, , ,260, ,011,623 Notes: Assumes payment in the middle of the fiscal year. Amortization payments calculated to be level. Reflects contribution of $24,954 into the OPEB Trust Fund on May 14,

14 SECTION 2: Valuation Results for the Town of Medway June 30, 2011 Measurement under GASB May 24, 2012 ACTUARIAL CERTIFICATION This is to certify that The Segal Company has conducted an actuarial valuation of certain benefit obligations of the Town of Medway other postemployment benefit programs as of June 30, 2011, 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 Number 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 Town and on participantt data and premiums provided by the Town or from vendors employed by the Town. The actuarial computations made are for purposes of fulfilling plan accountingg requirements. Determinations for purposes other than meeting financial accounting 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 or adequacy of funding an ongoing plan. 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 Number 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 Opinion to render the actuarial opinion contained herein. Further, in our opinion, the assumptions as approved by the Town are reasonably related to the experience and expectations of the postemployment benefit programs. Kathleen A. Riley, FSA, MAAA Senior Vice President and Actuary Howard Atkinson, Jr., ASA, MAAA, FCA Vice President and Health Actuary 11

15 SECTION 3: Valuation Details for the Town of Medway June 30, 2011 Measurement under GASB CHART 1 Required Supplementary Information Schedule of Employer Contributions Fiscal Year Ended June 30, Annual OPEB Costs Actual Contributions Percentage Contributed 2008 $3,951,903 $930, % ,951,903 1,063, % ,458, , % ,747, , % ,097, , % ,251, , % Notes: 2012 information reflects a contribution of $24,954 effective May 14, 2012 into the OPEB Trust Fund information assumes there will be no plan changes. 12

16 SECTION 3: Valuation Details for the Town of Medway June 30, 2011 Measurement under GASB 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 2 Required Supplementary Information Schedule of Funding Progress 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) UAAL as a Percentage of Covered Payroll [(b) - (a) / (c)] 6/30/2007 $0 $37,604,481 $37,604, % N/A N/A 6/30/ ,616,372 29,616, % N/A N/A 6/30/ ,351,424 31,351, % - - Note: Enter covered payroll for fiscal year

17 SECTION 3: Valuation Details for the Town of Medway June 30, 2011 Measurement under GASB CHART 3 Required Supplementary Information Net OPEB Obligation/(Asset) (NOO/NOA) Fiscal Year Ended June 30, Annual Required Contribution (a) Interest on Existing NOO/(NOA) (b) ARC Adjustment (c) Annual OPEB Cost (a) + (b) + (c) (d) Actual Contribution Amount (e) Net Increase in NOO/(NOA) (d) - (e) (f) NOO/(NOA) as of Following Date (g) 2008 $3,951,903 $0 $0 $3,951,903 $930,078 $3,021,825 $3,021, ,951, ,951,903 1,063,712 2,888,191 5,910, ,124, ,895 3,458, ,930 2,679,725 8,589, ,311,288 0 (563,483) 2,747, ,346 1,856,459 10,446, ,254, ,079 (627,348) 3,097, ,224 2,299,385 12,745, ,443, ,551 (765,438) 3,251, ,277 2,352,307 15,097,892 Notes: 2012 information reflects a contribution of $24,954 effective May 14, 2012 into the OPEB Trust Fund information assumes there will be no plan changes. 14

18 SECTION 3: Valuation Details for the Town of Medway June 30, 2011 Measurement under GASB CHART 4 Required Supplementary Information Valuation date June 30, 2011 Actuarial cost method Entry Age Normal Amortization method Level payments Remaining amortization period 30 years open Asset valuation method Market value Actuarial assumptions: Investment rate of return 4.5% Medical/drug cost trend rate 9.0% decreasing by 0.5% for 8 years to an ultimate level of 5.0% per year. Plan membership: Current retirees, beneficiaries, and dependents 198 Current active members 302 Total

19 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB This exhibit summarizes the participant data used for the current and prior valuations. EXHIBIT I Summary of Participant Data July 1, 2011 July 1, 2009 Active employees covered for medical benefits Number of employees Male Female Total Average age Average service Retired employees, spouses and beneficiaries covered for medical benefits Number of individuals* Average age Number receiving reimbursement for Medicare Part B Penalty 7 8 * Includes one grandfathered employee with post-employment benefits. 16

20 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB EXHIBIT II Actuarial Assumptions and Actuarial Cost Method Data: Actuarial Cost Method: Per Capita Cost Development: Detailed census data, premium rates, and summary plan descriptions for postemployment welfare benefits were provided by the Town of Medway. Entry Age Normal Per capita costs were based on the fully-insured premium rates effective July 1, Premiums were combined by taking a weighted average based on the number of participants in each plan and were then trended to the midpoint of the valuation year at assumed trend rates. For plans that are not community rated, actuarial factors were applied to the premium to estimate individual retiree and spouse costs by age and by gender. Measurement Date: June 30, 2011 Discount Rate: 8.25% funding (previously 8.50%) and 4.50% pay-as-you-go (previously, 5.00%) Mortality Rates: Pre-Retirement (Non-Teachers) RP-2000 Combined Healthy Mortality Table projected 10 years with Scale AA (previously, RP-2000 Combined Healthy Mortality Table) Healthy (Non-Teachers) RP-2000 Combined Healthy Mortality Table projected 10 years with Scale AA (previously, RP-2000 Combined Healthy Mortality Table) Disabled (Non-Teachers) RP-2000 Combined Healthy Mortality Table set forward 2 years Pre-Retirement (Teachers) RP-2000 Healthy Employee Mortality Table projected 10 years with Scale AA Healthy (Teachers) RP-2000 Healthy Annuitant Mortality Table projected 10 years with Scale AA Disabled (Teachers) RP-2000 Healthy Annuitant Mortality Table set forward 3 years for males 17

21 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB The RP-2000 Combined Healthy Mortality Table projected 10 years with Scale AA was determined to contain sufficient provision to reasonably reflect mortality improvement, based on a review of the mortality experience as of the measurement date. Termination Rates before Retirement: Group 1 (excluding Teachers) - Rate (%) Mortality Male Female Age Current Previously Current Previously Disability Notes: 60% (previously, 55%) of the disability rates shown represent accidental disability. 60% (previously, 55%) of the death rates shown represent accidental death. 18

22 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB Group 4 Rate (%) Mortality Male Female Age Current Previously Current Previously Disability Notes: 90% of the disability rates shown rates represent accidental disability. 90% of the death rates shown represent accidental death. 19

23 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB Teachers - Rate (%) Mortality Disability Age Male Female Notes: 35% of the disability rates shown rates represent accidental disability. 55% of the death rates shown represent accidental death. Withdrawal Rates: Rate per year (%) Years of Service Groups 1 and 2 Years of Service Group

24 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB Years of Service Groups 1 and Years of Service Teachers Withdrawal Rate (%) 5 9 Years of Service 10+ Years of Service Age Male Female Male Female Male Female

25 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB Retirement Rates: Rate per year (%) Age Group 1 (excluding Teachers) Group 4 Male Female

26 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB Teachers - Rate per year (%) Years of Service Less than or more Age Male Female Male Female Male Female Dependents: Demographic data was available for spouses of current retirees. For future retirees, husbands were assumed to be three years older than their wives and 65% were assumed to have an eligible spouse who also opts for health coverage at that time. 23

27 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB Per Capita Health Costs: Fiscal 2012 medical and prescription drug claims costs are shown in the table below for retirees and for spouses at selected ages. These costs are net of deductibles and other benefit plan cost sharing provisions. Non-Medicare Plans Medicare Supplement Retiree Spouse Retiree Spouse Age Male Female Male Female Male Female Male Female 45 $6,488 $8,139 $4,024 $6,075 N/A N/A N/A N/A 50 7,700 8,771 5,378 7,042 N/A N/A N/A N/A 55 9,145 9,441 7,197 8,152 N/A N/A N/A N/A 60 10,860 10,177 9,635 9,454 N/A N/A N/A N/A 65 12,898 10,963 12,898 10,963 $3,568 $3,033 $3,568 $3, ,949 11,815 14,949 11,815 4,135 3,268 4,135 3, ,110 12,717 16,110 12,717 4,456 3,518 4,456 3, ,348 13,711 17,348 13,711 4,799 3,793 4,799 3,793 24

28 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB Health Care Cost Trend Rates: Health care trend measures the anticipated overall rate at which health plan costs are expected to increase in future years. The rates shown below are net and are applied to the net per capita costs shown above. The trend shown for a particular plan year is the rate that must be applied to that year s cost to yield the next year s projected cost. Year Ending June 30 Medical/Drug % % % % % % % % 2020 and later 5.0% Retiree Contribution Increase Rate: Retiree contributions are expected to increase with medical trend. Participation and Coverage Election: 100% of active employees with coverage are assumed to elect retiree coverage. 100% of retirees over age 65 are assumed to remain in their current medical plan for life. For future retirees hired prior to 1986 and current retires under age 65, 90% are assumed to be eligible for Medicare, 10% are assumed to be ineligible for Medicare and remain enrolled in a non-medicare plan. For future retirees hired in 1986 or later, 100% are assumed to enroll in a Medicare Supplement Plan upon reaching age 65. Plan Design: Development of plan liabilities was based on the substantive plan of benefits in effect as described in Exhibit III. Administrative Expenses: Administrative expenses for fully insured plans were assumed to be included in the fully insured premium rates. 25

29 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB Annual Maximum Benefits: Lifetime Maximum Benefits: Missing Participant Data: Health Care Reform Assumption: Assumption Changes Since Prior Valuation: No increase in the annual maximum benefit levels was assumed. No information was available regarding accumulations toward lifetime maximum benefits and no such accumulations were assumed. A missing census item for a given participant was assumed to equal the average value of that item over all other participants of the same status for whom the item is known. The Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act create a temporary reinsurance program for eligible health care coverage for pre-medicare retirees over age 55. The program will reimburse the plan sponsor for 80% of the retiree claims between $16,000 and $93,000. Due to the short nature of this program, the limited financing, and uncertainty of qualifying and receiving payment (on February 17, 2012 it was announced that requests for reimbursements exceeding the funding appropriated by Congress had been received), we have not reflected the value of this program in the valuation. Furthermore, the valuation does not include the potential impact of any other aspects of the Acts. The funding discount rate decreased from 8.50% to 8.25% based on lower long-term market assumption. The pay-as-you-go discount rate was decreased from 5.00% to 4.50% based on lower long-term market assumptions. Per capita health costs were updated to reflect current experience. The medical and prescription drug trend assumptions were revised to reflect current experience and future expectations. The mortality assumption for non-teacher healthy lives was changed from the RP Combined Healthy Mortality Table to the RP-2000 Combined Healthy Mortality Tabled projected 10 years with Scale AA. The percentage of service connected death benefits for Group 1 and 2 employees increased from 55% to 60%. 26

30 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB 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: Benefit Types: Duration of Coverage: Retired and receiving a pension from the Norfolk County Retirement System or the Massachusetts Teachers Retirement System. Group 1 (including Teachers): Retirees with at least 10 years of creditable service are eligible at age 55; Retirees with at least 20 years of creditable service are eligible at any age. Group 4: Retirees with at least 10 years of creditable service are eligible at age 45; Retirees with at least 20 years of creditable service are eligible at any age. Disability: Retirees on Ordinary (non-job-related) or Accidental (job-related) Disability are eligible at any age. Ordinary Disability requires 10 years of creditable service. Pre-Retirement Death: Surviving spouses of members who die in active service on Accidental (job-related) Death are eligible at any age. Surviving spouses of members who die in active service on Ordinary (non-job related) Death are eligible after two years of service. Post-Retirement Death: Surviving spouse is eligible. The Town participates in the West Suburban Health Group. Medical and prescription drug benefits are provided to all eligible retirees through a variety of plans offered by Harvard Pilgrim Health Care. (Dental coverage and life insurance are offered but are 100% retire paid and therefore have no impact on this valuation.) The Medicare Part B penalty is paid by the Town for 7 retirees. Lifetime. 27

31 SECTION 4: Supporting Information for the Town of Medway June 30, 2011 Measurement under GASB Dependent Benefits: Medical and Prescription Drugs. Dependent Coverage: Benefits are payable to a spouse for their lifetime, regardless of when the retiree dies. MGL Chapter 32B, Section 18: Adopted May, Retiree Contributions: Premium rates and retiree contributions as of July 1, 2012 are summarized below: Non-Medicare Actives and Retirees Subscribers Active Retiree Total Retirees 65 and over* Monthly Premium (eff. 7/1/2012) Town Cost Retiree cost Retiree Cost % Harvard Pilgrim HMO Individual $ $ $ % Family $1, $ $ % Harvard Pilgrim POS Individual $ $ $ % Family $1, $ $ % Harvard Pilgrim PPO Individual $1, $ $ % Family $2, $1, $1, % Non-Medicare Total Subscribers Active Retiree Total Monthly Premium (eff. 7/1/2012) Town Cost Retiree cost Retiree Cost % Medicare Supplement Plans Harvard Pilgrim Medicare Preferred N/A $ $ $ % Retiree Total** * 13 of 97 over-65 retirees are in a non-medicare plan. ** In addition, there are 67 spouses of retirees covered under an individual or family policy. Plan Changes since last valuation: v1/ There are no plan changes since the prior valuation. 28