CITY OF FORT COLLINS GENERAL EMPLOYEES RETIREMENT PLAN ACTUARIAL VALUATION AS OF JANUARY 1, Prepared by:

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1 ACTUARIAL VALUATION AS OF JANUARY 1, 2005 Prepared by: Patricia Ann Kahle, F.S.A., E.A. Principal and Consulting Actuary and Joel E. Stewart, E.A. Associate Actuary May 2005

2 1099 Eighteenth Street, Suite 3100 Denver, CO Tel Fax May 13, 2005 Retirement Committee Members City of Fort Collins P.O. Box 580 Fort Collins, Colorado Dear Retirement Committee Members: As requested, we have made an actuarial valuation of the City of Fort Collins General Employees Retirement Plan as of January 1, The major findings of the valuation are contained in this report. In preparing this report, Milliman relied on information supplied by employees of the City of Fort Collins that provide administrative support for the Plan. Milliman has accepted the information without audit. This information includes, but is not limited to, statutory provisions, employee data, and financial information. In our examination of these data, we have found them to be reasonably consistent and comparable with data used for other purposes. It should be noted that if any data or other information is inaccurate or incomplete, our calculations may need to be revised. On the basis of the foregoing, we hereby certify that, to the best of our knowledge and belief, this report is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices which are consistent with the principles prescribed by the Actuarial Standards Board (ASB) and the Code of Professional Conduct and Qualification Standards for Public Statements of Actuarial Opinion of the American Academy of Actuaries. We further certify that all costs, liabilities, rates of interest, and other factors for the Plan have been determined on the basis of actuarial assumptions and methods which are individually reasonable (taking into account the experience of the Plan and reasonable expectations); and which, in combination, offer our best estimate of anticipated experience affecting the Plan. Nevertheless, the emerging costs will vary from those presented in this report to the extent that actual experience differs from that projected by the actuarial assumptions. The Retirement Committee has the final decision regarding the appropriateness of the assumptions displayed in Appendix A, and has adopted them. Actuarial computations presented in this report are for purposes of determining the recommended funding amounts for the Plan. Actuarial computations under GASB Statements No. 25 and 27 are for purposes of fulfilling financial accounting requirements. The computations prepared for these two purposes may differ as disclosed in our report. The calculations in the enclosed report have been made on a basis consistent with our understanding of the Plan s funding requirements and goals, and of GASB Statements No. 25 and 27. Determinations for purposes other than meeting these requirements may be j:docs:cfc:05val pdf.doc

3 Retirement Committee Members May 13, 2005 Page 2 significantly different from the results contained in this report. Accordingly, additional determinations may be needed for other purposes. I, Patricia Ann Kahle, am a member of the American Academy of Actuaries and a Fellow of the Society of Actuaries, and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. We respectfully submit the following report, and we look forward to discussing it with you. Sincerely, Patricia Ann Kahle, F.S.A., E.A. Principal and Consulting Actuary PAK:js j:docs:cfc:05val pdf.doc

4 JANUARY 1, 2005 ACTUARIAL VALUATION TABLE OF CONTENTS SECTION PAGE 1 SUMMARY OF THE FINDINGS SCOPE OF THE REPORT PARTICIPANT DATA... 6 Table 1 Reconciliation of Participants... 7 Table 2 Summary of Active Participants... 8 Table 3 Summary of Deferred Vested Participants Table 4 Summary of Retirees, Disableds, and Beneficiaries Table 5 Number of Pensioners and Annual Pension Amount as of the End of the Each Year Table 6 Schedule of Members Eligible for Normal or Delayed Retirement in the Next Five Years FINANCIAL DATA Table 7 Statement of Market Value of Assets...16 Table 8 Change in Market Value of Assets...17 Table 9 Development of Actuarial Value of Assets DEVELOPMENT OF ANNUAL REQUIRED CONTRIBUTION Table 10 Development of Annual Required Contribution GASB NO. 25 DISCLOSURE INFORMATION Table 11 Development of Net Pension Obligation and Annual Pension Cost Table 12 Schedule of Employer Contributions, Three-Year Trend Information and Schedule of Funding Progress Table 13 Notes to Required Supplementary Information HISTORY AND PROJECTIONS Table 14 Historical Statistics Table 15 Twenty-Year Projection of Benefit Payments APPENDICES A ACTUARIAL PROCEDURES AND ASSUMPTIONS B PLAN SUMMARY January 1, 2005 Valuation (5/2005)

5 SECTION 1 SUMMARY OF THE FINDINGS This is a report of our actuarial valuation of the Plan as of January 1, The purpose and findings of our valuation are as follows: 1. Determine the Plan s funding status. The following table summarizes some of the key results of our valuation of the Plan, along with the comparable figures from the prior year valuation. January 1, 2004 January 1, 2005 Market Value of Assets (MV) $ 34,107,332 $ 36,661,730 Actuarial Value of Assets (AV) 36,208,321 36,628,565 Ratio of AV to MV 106.2% 99.9% Discount Rate for Liabilities 7.50% 7.50% Present Value of Future Benefits $ 44,235,876 $ 46,404,475 Actuarial Value of Assets (AV) 36,208,321 36,628,565 Present Value of Future Normal Costs $ 8,027,555 $ 9,775,910 Annual Required Contribution at Beginning of Year 1,107,920 1,397,352 as a Percent of Compensation* 6.35% 8.44% Present Value of Accrued Benefits $ 31,432,207 $ 34,060,670 Funded Percentage (as Percent of MV) 108.5% 107.6% GASB 25 & 27 Information Net Pension Obligation $ (1,061,902) $ (959,840) Annual Pension Cost $ 1,182,408 $ 1,476,355 * See page 4 for a detailed analysis of the rate change. One way to look at the adequacy of plan funding is to compare the value of benefits under the plan terms to the value of plan assets as of the valuation date. By this measure, the plan is fairly well funded, since the actuarial value of plan assets covers 78.9% of the present value of future benefits, and the market value of plan assets covers 79.0% of the present value of future benefits. The present value of future benefits includes benefits earned to date plus the value of benefits anticipated to be earned for all expected future service by current participants. The market value of plan assets exceeds the present value of accumulated plan benefits by 7.5%. January 1, 2005 Valuation (5/2005) 1

6 2. Analyze recent plan experience and select appropriate actuarial assumptions. To value the Plan, the actuary must predict future events such as investment return, mortality, and rates of termination by means of actuarial assumptions. The validity of our valuation depends on how closely future Plan experience follows our assumptions. Experience different from that assumed gives rise to actuarial gains or losses, which affect future costs. The actuarial assumptions we used in this valuation are stated in Appendix A. The following comments address some of the more important assumptions. a. Rate of investment return The actuarial valuation was prepared assuming a 7.5% investment return. A study of actual investment performance on the market value of assets produced the following results: Annual Rate of Investment Return For One-Year Period Ending December 31 Annual Rate Period For Period Ending December 31, 2004 Average Annual Rate % 1 year 9.5% years (9.3) 3 years (4.0) 4 years (3.5) 5 years years years years years years (0.2) 11 years years 6.5 * Rates of return for 1999 and earlier as reported by the prior actuary and used without audit. The twelve-year average return of 6.5% is lower than the 7.5% expected. However, we are not recommending a change at this time since your current investment policy falls within reasonable expectation of the current market outlook. b. Termination and retirement rates The results of the January 1, 2004 valuation of the plan were based on the assumptions that all members would retire immediately upon the attainment of age 67. In addition, schedules of retirement and withdrawal rates varying by age were assumed prior to age 67. Nine of the active members on January 1, 2004 were projected to withdraw from covered employment during 2004, whereas a total of eleven active members actually January 1, 2005 Valuation (5/2005) 2

7 terminated employment during the year. Thirteen active participants were expected to retire during 2004, but only nine participants retired from active status during Since actual experience is relatively close to expected, we recommend no changes at this time. We will continue to monitor both assumptions to determine whether any changes are warranted. c. Salary increase assumption The assumed rate of future salary increases used for the valuation of the plan is a graded table based on age, as shown in Appendix A, which anticipated average salary increases during 2004 of 4.1%. Average salary increases for those participants continuing in covered employment was 0.5%, with the median salary increase from 2004 to 2005 of 0.0%, based on a comparison of actual compensation rates for 2004 and We recommend no change to this assumption. We will continue to monitor this assumption to determine whether any changes are warranted. We recommend the City accept all of our assumptions, as they represent our best estimate of the Plan s future experience. 3. Review the financial effect of experience gains and losses and changes in plan benefits. Under the aggregate cost method, the normal cost rate prior to expenses is expected to remain constant if all assumptions are met. The normal cost rate was determined to be % for the January 1, 2004 actuarial valuation of the plan. We determined the normal cost rate for January 1, 2005 to be %, an increase of %. This increase in the normal cost rate gives rise to an Annual Required Contribution of $1,397,352 for 2005, compared to the Annual Required Contribution of $1,107,920 for The Annual Required Contribution includes a provision for Plan expenses equal to the average of the prior three years of administrative expenses. If the normal cost rate had remained constant and the provision for expenses remained the same as used in the January 1, 2004 actuarial valuation of the plan, the Annual Required Contribution would have been $1,051,568 for 2005, so the net effect of all the changes for the year was an increase of $345,784 in the plan s Annual Required Contribution. There were a number of contributing factors in the change in the normal cost rate. Prior asset losses that had not yet been recognized in the actuarial value of assets offset the recognition of the asset gains for the 2004 plan year. The effect of each of these factors on the plan s normal cost rate is shown in the following table: January 1, 2005 Valuation (5/2005) 3

8 January 1, 2004 Valuation: % Changes: Asset losses from prior years % Asset gain for 2004 (0.0850) Salary changes different than assumed (0.5851) Change in disability programming Technical programming change Other, including demographic losses Total % January 1, 2005 Valuation: % 4. Calculate the plan s Annual Required Contribution and provide the disclosure information required by Government Accounting Standards Board Statement (GASB) No. 25 and No. 27. Section 5 provides the detail on the calculation of the Annual Required Contribution to the plan for the 2005 plan year. This calculation is based on the aggregate cost method. Section 6 sets forth certain information required for the plan s disclosures under GASB No. 25 and No. 27. Highlights of the 2004 plan year There were 569 members reported on January 1, 2005, 324 of whom were active members who continue to accrue benefits under the plan. The remaining 245 were inactive members retaining benefits under the plan. The plan assets earned 9.5% during the 2004 plan year on a market value basis. Over the last five years the average annual return was 1.8%, lower than the assumed rate of return of 7.5%. The average annual return over the last 12 years of 6.5% was also lower than the assumed rate of return of 7.5%. At the end of 2004, the market value of fund assets was $36,661,730. The actuarial value of fund assets was $36,628,565 as of December 31, The annual recommended contribution for 2005 is $1,397,352 as of January 1, 2005, an increase from January 1, 2005 Valuation (5/2005) 4

9 SECTION 2 SCOPE OF THE REPORT Section 1 of this report presents a summary of the findings resulting from this valuation. Section 2 discusses the Scope of the report. Section 3 contains a summary of the data we received regarding participants of the plan. Section 4 describes the basis we use in assigning values to the Fund s assets, and contains summaries of the assets in Tables 7, 8 and 9. Section 5 expands upon Section 1 in various areas of our findings, and describes the actuarial concepts and methods upon which the findings are based. Table 10 presents the related calculations. Section 6 provides the required GASB No. 25 and No. 27 disclosure information. Section 7 provides historical statistics of the Plan and a 20-year projection of benefit payments. All of the calculations of the valuation were carried out using certain assumptions as to the future experience of the plan. Appendix A summarizes these assumptions. Appendix B outlines the benefit and contribution provisions of the plan as of January 1, In preparing our report, we relied without audit upon the financial data sent to us by the finance department. We also relied upon the active and inactive member data furnished us by the human resource and finance departments. We tested the member data for missing or incomplete items such as birth dates and membership dates. Based on these tests, we believe all the data to be sufficient and reliable for the purposes of our calculations. This report has been prepared in accordance with generally recognized and accepted actuarial principles and practices. These policies are consistent with the Code of Professional Conduct of the American Academy of Actuaries, and all applicable Actuarial Standards of Practice and accompanying Interpretative Opinions of the Actuarial Standards Board. In our opinion, the assumptions used in the valuation are reasonably related to the experience of the plan. They represent our best estimate of future conditions affecting the plan. Nevertheless, the emerging costs of the plan will vary from those presented in this report to the extent that actual experience differs from that projected by the actuarial assumptions. January 1, 2005 Valuation (5/2005) 5

10 SECTION 3 PARTICIPANT DATA The actuarial valuation of the plan is based on the participant data provided to us by the City. The data includes active participants, terminated vested participants who retain benefits under the plan, and retirees and beneficiaries receiving benefits as of January 1, A total of 569 participants were reported to us and included in this valuation. Table 1 includes a reconciliation of the participant data from January 1, 2004 to January 1, The age and service characteristics of the 324 active participants in the plan as of January 1, 2005 are shown in Table 2. As indicated in Table 2, the average age of the active participants on the valuation date was 52.8, an increase from the average age of 51.9 of the active participants on January 1, The average years of service of the active participants on January 1, 2005 was 17.3, up from the 16.4 average years of service of the active participants on January 1, In addition to the active members, there were 113 inactive participants not yet in pay status retaining benefits under the plan. Table 3 contains a summary of the number of inactive participants not yet in pay status who retain benefits under the plan and the amounts of those benefits. Tables 4 and 5 summarize the information provided on the 132 members who are currently receiving monthly benefits. Table 4 contains a summary of the number of participants receiving benefits and the amounts of those benefits, while Table 5 lists the benefits being paid as of January 1 of each year from 1985 to Counts and total annual benefit amounts are separated by status and sex. Table 6 displays the list of the retirement dates and status of participants eligible for normal or delayed retirement in the next five years. Because participation in the plan was frozen as of January 1, 1999, the number of participants in the plan has declined over the years, as illustrated below: Summary of Plan Participants 1,200 1, Active Employees Retirees Vested Inactives January 1, 2005 Valuation (5/2005) 6

11 TABLE 1 RECONCILIATION OF PARTICIPANT DATA (January 1, 2004 to January 1, 2005) Actives Terminated Vested* Retired Total Included in January 1, 2004 valuation: Change due to: New entrants N/A N/A 2** 2 Rehired Termination Nonvested 0 N/A N/A 0 Vested (6) 6 N/A 0 Retirement or Disability (7) (1) 8 0 Death 0 0 (4) (4) Cash out (7) (4) 0 (11) Other 0 0 (1)*** (1) Net change (20) 1 5 (14) Included in January 1, 2005 valuation: * Includes three disabled members as of January 1, 2005 who continue to accrue benefit service. * * New beneficiaries. * ** Certain only period expired. January 1, 2005 Valuation (5/2005) 7

12 Age CITY OF FORT COLLINS TABLE 2 SUMMARY OF ACTIVE PARTICIPANTS AS OF JANUARY 1, 2005 Years of Service 1 to 5 5 to to to to to & Up Total Number of Participants Under to to to to to to to to & Up Total Compensation Under to 29-43, , to ,894 35, , to , ,483 52, , to 44 39, , , , , to , , , , ,220-2,888, to 54 32, , ,152 1,377, , , ,638 4,980, to , , , , , ,758 4,201, to , , , , , ,394 2,608, & Up 45, , ,960 96,538 53, ,194 Total 117,223 3,256,060 3,576,575 3,439,952 1,961,367 2,307,244 1,896,908 16,555,329 January 1, 2005 Valuation (5/2005) 8 purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.

13 Age CITY OF FORT COLLINS TABLE 2 (CONTINUED) SUMMARY OF ACTIVE PARTICIPANTS AS OF JANUARY 1, 2005 Years of Service 1 to 5 5 to to to to to & Up Total Average Compensation Under to 29-43, , to 34-41,556 35, , to 39-41,914 48,161 52, , to 44 39,703 40,852 44,281 49, , to 49-46,478 47,548 49,727 54,011 58,110-48, to 54 32,048 47,086 52,166 51,035 56,249 55,953 57,364 52, to 59-46,867 47,496 56,923 53,589 62,515 60,705 53, to 64-42,759 40,926 49,912 51,090 68,546 60,239 52, & Up 45,472 39, ,960 48,269 53,118 47,274 Total 39,074 44,604 47,688 51,343 54,482 60,717 59,278 51,097 HISTORICAL SUMMARY Not Vested: N/A N/A N/A Partially Vested: N/A N/A N/A Fully Vested: N/A N/A N/A Total: Total Compensation: $30,418,231 $18,911,157 $17,995,935 $18,415,270 $18,803,086 $17,723,762 $17,457,449 $16,555,329 Average Rate of Pay: $36,255 $38,673 $42,544 $45,695 $48,839 $48,961 $50,748 $51,097 Average Service: Average Age: January 1, 2005 Valuation (5/2005) 9 purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.

14 TABLE 3 SUMMARY OF DEFERRED VESTED AND DEFERRED DISABLED PARTICIPANTS AS OF JANUARY 1, 2005 Age Number Total Annual Benefit Average Monthly Benefit $ 0 $ , , , , , , & Up 2 14, Total 113 $767,822 $ 566 HISTORICAL SUMMARY Deferred Vested* Number: Total Annual Benefit: $837,446 $719,418 $580,374 $560,540 $636,065 $645,553 $701,049 Average Monthly Benefit: $472 $483 $448 $453 $486 $498 $531 Average Age: N/A Deferred Disabled Number: N/A N/A Total Annual Benefit: N/A N/A $100,059 $98,496 $98,496 $76,393 $66,773 Average Monthly Benefit: N/A N/A $1,390 $1,368 $1,368 $1,592 $1,855 Average Age: N/A N/A * Includes Deferred Disabled prior to January 1, 2005 Valuation (5/2005) 10

15 TABLE 4 SUMMARY OF RETIREES, DISABLEDS, AND BENEFICIARIES AS OF JANUARY 1, 2005 Retirees Disabled Retirees Beneficiaries Total Age Number Annual Benefit Average Monthly Benefit Number Annual Benefit Average Monthly Benefit Number Annual Benefit Average Monthly Benefit Number Annual Benefit Average Monthly Benefit $ 41, , $ $ 0 $ 0 1 $ 2,594 $ $ 43,789 $ , , , , , , , , , , , , , , , , , , Above , , , Total 110 $1,023,216 $ $ 51,307 $ $ 89,944 $ $ 1,164,467 $ 735 HISTORICAL SUMMARY Retirees* Number: Total Annual Benefit: $628,684 $728,420 $726,662 $786,970 $800,014 $885,832 $964,937 $1,023,216 Average Monthly Benefit: $546 $594 $624 $683 $687 $724 $759 $775 Average Age: N/A N/A Disabled Number: N/A N/A Total Annual Benefit: N/A N/A $43,461 $46,331 $57,589 $57,589 $51,307 $51,307 Average Monthly Benefit: N/A N/A $517 $552 $600 $600 $611 $611 Average Age: N/A N/A Beneficiaries Number: Total Annual Benefit: $53,611 $56,699 $64,531 $75,335 $75,335 $71,623 $80,597 $89,944 Average Monthly Benefit: $406 $394 $414 $448 $448 $459 $480 $500 Average Age: N/A N/A *Includes Disabled Retirees from January 1, 2005 Valuation (5/2005) 11 purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.

16 TABLE 5 NUMBER OF PENSIONERS AND AMOUNT OF ANNUAL ANNUITY AS OF THE END OF EACH YEAR Retirement* Beneficiaries* Disability** Male Female Male Female Male Female All Year No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount $130,578 $ 5 $ 5,643 $ $ $ 51 $136, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,015, , , , , , , ,096, , , , , , , ,164,467 * Male and female splits are not available prior to ** Retirement and disability splits are not available prior to January 1, 2005 Valuation (5/2005) 12 purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.

17 TABLE 6 SCHEDULE OF MEMBERS ELIGIBLE FOR NORMAL OR DELAYED RETIREMENT IN THE NEXT FIVE YEARS Normal Retirement Date Current Status 08/01/99 Active 09/01/00 Terminated Vested 10/01/01 Active 02/01/03 Active 10/01/04 Active 03/01/05 Active 04/01/05 Active 06/01/05 Active 06/01/05 Active 06/01/05 Terminated Vested 08/01/05 Active 11/01/05 Active 01/01/06 Active 02/01/06 Terminated Vested 04/01/06 Deferred Disabled 07/01/06 Active 07/01/06 Terminated Vested 10/01/06 Active 10/01/06 Active 12/01/06 Active 12/01/06 Active 01/01/07 Active 01/01/07 Active 02/01/07 Active 06/01/07 Active 08/01/07 Active 09/01/07 Active 09/01/07 Terminated Vested 01/01/08 Active 02/01/08 Active 02/01/08 Terminated Vested 05/01/08 Active 06/01/08 Active 07/01/08 Active 07/01/08 Active 07/01/08 Active 08/01/08 Active 08/01/08 Active 09/01/08 Active 09/01/08 Active January 1, 2005 Valuation (5/2005) 13

18 TABLE 6 (CONTINUED) SCHEDULE OF MEMBERS ELIGIBLE FOR NORMAL OR DELAYED RETIREMENT IN THE NEXT FIVE YEARS Normal Retirement Date Current Status 09/01/08 Active 09/01/08 Terminated Vested 11/01/08 Active 12/01/08 Active 12/01/08 Active 01/01/09 Active 01/01/09 Terminated Vested 03/01/09 Active 03/01/09 Active 03/01/09 Terminated Vested 04/01/09 Active 05/01/09 Active 06/01/09 Active 06/01/09 Active 07/01/09 Deferred Disabled 08/01/09 Active 09/01/09 Active 09/01/09 Active 09/01/09 Active 10/01/09 Active 11/01/09 Active 12/01/09 Active 01/01/10 Terminated Vested January 1, 2005 Valuation (5/2005) 14

19 SECTION 4 FINANCIAL DATA Table 7 displays a Statement of the Market Value of Assets, and Table 8 presents a summary of the changes in the market value of assets. During 2004, the market value of the plan assets increased by $2,554,398. Benefit payments for 2004 were $1,730,646, an increase from $1,471,914 during the preceding year. For the purpose of the actuarial valuation, the investment income of the Fund consists of interest and dividends as well as realized and unrealized gains and losses on investments. During 2004, investment gains totaled $3,221,582. The fund earned 9.5% on a market value basis and 3.0% on an actuarial value basis. The fund returned 18.8% on a market value basis for For funding purposes, gains and losses over our 7.5% assumed rate of return are recognized over a five-year period. The development of the actuarial value of assets is shown in Table 9. January 1, 2005 Valuation (5/2005) 15

20 TABLE 7 STATEMENT OF MARKET VALUE OF ASSETS FOR THE PLAN YEARS 2004 AND 2003 December 31, 2004 December 31, 2003 CASH & CASH EQUIVALENTS $ 0 $ 0 INVESTMENTS: Domestic Mutual Funds $ 17,310,800 $ 14,576,096 International Mutual Funds 5,791,008 3,907,376 Fixed Income Funds 13,166,002 15,544,983 Total $ 36,267,811 $ 34,028,455 RECEIVABLES Employer Contributions $ 300,000 $ 0 Accrued Interest and Dividends 94,993 78,877 Total $ 394,993 $ 78,877 LIABILITIES Expenses and Benefits Payable $ 1,074 $ 0 Investment Transaction 0 0 Total $ 1,074 $ 0 TOTAL MARKET VALUE OF ASSETS $ 36,661,730 $ 34,107,332 January 1, 2005 Valuation (5/2005) 16

21 TABLE 8 CHANGE IN MARKET VALUE OF ASSETS FOR THE PLAN YEARS 2004 AND Market value at beginning of year $34,107,332 $29,081,432 Income: Contributions $ 1,080,346 $ 1,063,786 Investment income 1,107, ,245 Realized and unrealized appreciation/(depreciation) 2,114,510 4,507,025 Total $ 4,301,928 $ 6,516,056 Disbursements: Benefit payments: Periodic Payments $ 1,133,324 $ 1,057,243 Lump Sum Distributions 597, ,671 Expenses 16,884 18,242 Total $ 1,747,530 $ 1,490,156 Net income: $ 2,554,398 $ 5,025,900 Market value at end of year $36,661,730 $34,107,332 January 1, 2005 Valuation (5/2005) 17

22 GAIN/(LOSS) CITY OF FORT COLLINS TABLE 9 DEVELOPMENT OF ACTUARIAL VALUE OF ASSETS Actuarial value at beginning of year: $ 36,208,321 Contributions: 1,080,346 Disbursements: (1,730,646) Expected Interest: 2,691,238 Expected actuarial value at end of year: $ 38,249,259 Unrecognized asset gain/(loss) as of end of prior year: (2,100,989) Expected actuarial value plus prior year's unrecognized gain/(loss): $ 36,148,270 Actual market value at end of year: $ 36,661,730 Gain/(loss) for Year: $ 513,460 ASSET GAIN/(LOSS) RECOGNIZED Original Amount Recognized This Year Recognized in Prior Years To Be Recognized in the Future 2000 $ (3,543,061) $ (708,612) $ (2,834,449) $ (3,845,731) (769,146) (2,307,439) (769,146) 2002 (5,642,119) (1,128,424) (2,256,847) (2,256,848) ,413, , ,796 2,648, , , ,768 Total $ (8,103,468) $ (1,620,694) $ (6,515,939) $ 33,165 ACTUARIAL VALUE OF ASSETS 1. Expected actuarial value as of December 31, 2004 $ 38,249, Gain/(loss) to be recognized this year (1,620,694) 3. Initial Actuarial Value of Assets ( ) $ 36,628, % of Market Value $ 29,329, % of Market Value $ 43,994, Actuarial Value of Assets (3., but not less than 4. or greater than 5.) $ 36,628,565 January 1, 2005 Valuation (5/2005) 18

23 SECTION 5 DEVELOPMENT OF ANNUAL REQUIRED CONTRIBUTION A fundamental principle in financing a benefit program is that the cost of its benefits should be related to when those benefits are earned, rather than to when they are paid. Various methods are used by actuaries to determine costs that satisfy this principle. This and the prior actuarial valuations were prepared using the aggregate cost method. The cost method allocates the total cost of the Plan over time: the normal cost is that portion of the cost allocated to the current period. The present value of future normal costs is equal to the excess of the present value of projected benefits over the actuarial value of assets. The normal cost accrual rate is equal to the present value of future normal costs divided by the present value of future covered payroll for current active participants. The normal cost is the covered current payroll multiplied by the normal cost accrual rate. The present value of projected benefits is the present value of all future benefits expected to be paid to current plan members. Most of this liability is for active members of the plan, as illustrated below: Present Value of Projected Benefits 71% 7% 22% Actives Vested Inactive Retirees The plan s annual required contribution (ARC) is actuarially determined in accordance with Statement No. 25 of the Governmental Accounting Standards Board (GASB No. 25). Under the method adopted by the City, the ARC is the normal cost under the aggregate normal cost method plus a provision for expenses, and is shown in Table 10. January 1, 2005 Valuation (5/2005) 19

24 TABLE 10 DEVELOPMENT OF ANNUAL REQUIRED CONTRIBUTION AS OF JANUARY 1, 2005 AND JANUARY 1, 2004 January 1, 2005 January 1, Present Value of Projected Benefits a. For retirees and beneficiaries: $ 10,178,873 $ 9,631,939 b. For vested terminated participants: 3,259,025 2,909,569 c. For active participants: 32,966,577 31,694,368 d. Total [(a) + (b) + (c)] $ 46,404,475 $ 44,235, Actuarial Value of Assets: $ 36,628,565 $ 36,208, Present Value of Future Normal Costs [(1) - (2)] $ 9,775,910 $ 8,027, Present Value of Future Compensation: $ 116,553,666 $ 128,305, Normal Cost Rate [(3) (4)] % % 6. Current Compensation for Employees Under Age 67: $ 16,423,067 $ 17,323, Normal Cost [(5) x (6)] $ 1,377,485 $ 1,083, Expected Expenses: $ 19,867 $ 24, Annual Required Contribution [(7) + (8)] $ 1,397,352 $ 1,107, Annual Required Contribution as a Percentage of Total Compensation*: 8.44% 6.35% * Total Compensation includes compensation for those participants over the assumed retirement age (age 67). This amount is $16,555,329 for 2005, and $17,457,449 for January 1, 2005 Valuation (5/2005) 20

25 SECTION 6 DISCLOSURE INFORMATION REQUIRED BY GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT NO. 25 AND NO. 27 Tables 11 and 12 provide the disclosure information required by Government Accounting Standards Board (GASB) Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and Statement No. 27, Accounting for Pensions by State and Local Governmental Employees. The assumptions and methods used for these funding disclosures meet the parameters set forth in GASB No. 25 and No. 27, and, other than those described below, are outlined in Table 13 and Appendix A of this report. GASB 25 generally requires two schedules of historical trend information for the plan: a schedule of funding progress and a schedule of employer contributions as they relate to the plan s Annual Required Contribution (ARC). The chart below provides historical information on the plan s ARC. Although the amount of plan s ARC has varied over the years, it has remained fairly level as a percent of payroll until 2003, as shown in the following table. The rate increased out of the previous range primarily due to the decline in the stock market % 8.00% 6.00% 4.00% 2.00% 0.00% 4.03% 4.41% 4.30% Annual Required Contribution (as a Percent of Compensation) 4.46% 4.72% 4.22% 3.98% 4.31% 5.69% 6.35% % Annual Required Contribution Actual Contribution The required schedule of employer contributions is included as Table 12 along with the schedule of funding progress. Plans that utilize the aggregate cost method are not required to present a schedule of funding progress but merely need to disclose the use of the aggregate cost method. The pension cost is the ARC plus an amortization of the net pension obligation. The net pension obligation is the cumulative difference between the ARC and the employer contribution to the plan. In this context, the net pension obligation will decrease if contributions exceed the ARC and will increase if the entire ARC is not contributed each year. Table 11 shows the calculation of the net pension obligation and annual pension cost. January 1, 2005 Valuation (5/2005) 21

26 TABLE 11 CALCULATION OF NET PENSION OBLIGATION AND PENSION COST (1) (2) (3) (4) (5) (6) (7) (8) (9) Fiscal Year Annual Required Contribution (ARC) (a) Net Pension Obligation (NPO) as of January 1 Interest on NPO to End of Year Amortization Factor ARC Adjustment Annual Pension Cost (APC) Actual Employer Contribution Net Pension Obligation at End of Year $ 989,308 $ 0 $ $ 0 $ 989,308 $ 943,914 $ 45,394 1,183,591 45,394 3, ,006 1,181,990 1,166,520 60,864 1,223,824 60,864 4, ,781 1,221,608 1,292,790 (10,318) 1,357,123 (10,318) (774) (1,160) 1,357,509 1,451,382 (104,191) 891,830 (104,191) (7,814) (12,805) 896, ,305 (23,675) 760,075 (23,675) (1,776) (3,061) 761,360 1,480,525 (b) (742,840) 733,342 (742,840) (55,713) (97,786) 775, ,884 (822,309) 809,796 (822,309) (61,673) (110,994) 859,117 1,105,967 (1,069,159) 1,008,352 (1,069,159) (80,187) (142,878) 1,071,043 1,063,786 (1,061,902) 1,107,920 (1,061,902) (79,643) (154,131) 1,182,408 1,080,346 (959,840) 1,397,352 (959,840) (71,988) (145,391) 1,470,755 (a) The annual pension cost is the annual required contribution computed under the aggregate cost method plus an amortization of the net pension obligation from the beginning of the prior year as a level percent of the current members future expected salaries. (b) The contributions for 2000 include $635,726 in contributions made to cover the cost-of-living adjustments. January 1, 2005 Valuation (5/2005) 22 purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.

27 TABLE 12 SCHEDULE OF EMPLOYER CONTRIBUTIONS, THREE-YEAR TREND INFORMATION AND SCHEDULE OF FUNDING PROGRESS SCHEDULE OF EMPLOYER CONTRIBUTIONS Fiscal Year Annual Required Contribution Employer Contribution Percent Contributed ,357,123 1,451, % , , % ,075 1,480,525 (1) 194.8% , , % ,796 1,105, % ,008,352 1,063, % ,107,920 1,080, % (1) The contributions for 2000 include $635,726 in contributions made to cover the cost-of-living adjustments. THREE-YEAR TREND INFORMATION Fiscal Year Annual Pension Cost (APC) Percent of APC Contributed Net Pension Obligation , % (1,069,159) ,071, % (1,061,902) ,182, % (959,840) SCHEDULE OF FUNDING PROGRESS The actuarial cost method used for this valuation is the aggregate actuarial cost method. A schedule of funding progress is not required for plans using this cost method as noted in GASB 25, paragraph 33, footnote 17. January 1, 2005 Valuation (5/2005) 23

28 TABLE 13 NOTES TO REQUIRED SUPPLEMENTARY INFORMATION The information presented in required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation follows: Valuation date January 1, 2005 Actuarial cost method Amortization method Remaining amortization period Asset valuation method Actuarial assumptions: Aggregate N/A. The Aggregate actuarial cost method does not identify or separately amortize the unfunded actuarial accrued liabilities. N/A An expected actuarial value is determined equal to the prior year s actuarial value of assets plus cash flow (excluding realized and unrealized gains or losses) for the year ended on the valuation date and assuming 7.5% interest. The unrecognized gain or loss is then added to the expected value. Any difference between this amount and the market value of assets is set up as a gain or loss base and amortized over five years. The expected actuarial value plus the amortization of prior gain or losses is constrained to a value of 80% to 120% of the market value of assets at the valuation date in order to determine the final actuarial value of assets. Investment rate of return* 7.5% Projected salary increases* * Includes inflation at 2.5% Age Total % January 1, 2005 Valuation (5/2005) 24

29 SECTION 7 HISTORY AND PROJECTIONS Table 14 shows seven years of the more important Plan statistics. Participant Statistics: Changes, if any, in the active and inactive participants characteristics over time can cause significant changes in costs. Investment Return: Investment return often represents the largest sources of actuarial gain or loss. Present Value of Projected Benefits: This represents the present value of benefits earned currently, plus all benefits expected to be earned in the future. Assumptions: Changes, if any, in the assumptions used to value plan liabilities can have a dramatic effect. Several key assumptions are shown in Table 13. Table 15 provides a projection of benefit payments over the next twenty years. This can be useful for the investment manager in planning future liquidity requirements, although this exhibit does not attempt to predict future lump sum payments to terminating employees. January 1, 2005 Valuation (5/2005) 25

30 TABLE 14 HISTORICAL STATISTICS Assets Market Value of Assets $ 29,782,371 $ 35,090,863 $ 33,833,764 $ 32,062,446 $ 29,082,465 $ 34,107,332 $ 36,661,730 Actuarial Value of Assets $ 27,956,716 $ 30,729,463 $ 33,661,863 $ 35,448,598 $ 34,898,958 $ 36,208,321 $ 36,628,565 Ratio 93.9% 87.6% 99.5% 110.6% 120.0% 106.2% 99.9% Market Value Return 8.8% 21.1% (3.5)% (4.0)% (9.3)% 18.8% 9.5% Annual Required Contribution $ 891,830 $ 760,075 $ 733,342 $ 809,796 $ 1,008,352 $ 1,107,920 $ 1,397,352 As a Percent of Pay 4.7% 4.2% 4.0% 4.3% 5.7% 6.4% 8.4% Present Value of Projected Benefits For retirees and beneficiaries $ 6,574,469 $ 7,044,688 $ 7,639,043 $ 7,769,365 $ 8,627,830 $ 9,631,939 $ 10,178,873 For terminated vested participants 2,870,486 2,404,756 2,385,122 2, 405,103 2,775,952 2,909,569 3,259,025 For active participants 25,776,545 27,062,512 29,147,407 31,431,446 31,379,826 31,694,368 32,966,577 Total $ 35,221,500 $ 36,511,956 $ 39,171,572 $ 41,605,914 $ 42,783,608 $ 44,235,876 $ 46,404,475 Participant Statistics Retired Participants Number Average Monthly Benefits $ 573 $ 594 $ 647 $ 653 $ 688 $ 720 $ 735 Vested Inactive Participants Number Average Monthly Benefits $ 472 $ 483 $ 497 $ 504 $ 532 $ 537 $ 566 Active Participants Number of Participants Average Compensation $ 38,673 $ 42,544 $ 45,695 $ 48,839 $ 48,961 $ 50,748 $ 51,097 Average Years of Service Average Age Actuarial Assumptions Interest 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% Salary Growth Table Table Table Table Table Table Table Mortality Table Utilized 83GAM 83GAM 83GAM 83GAM 83GAM 94GAM 94GAM January 1, 2005 Valuation (5/2005) 26 purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.

31 TABLE 15 TWENTY-YEAR PROJECTION OF BENEFIT PAYMENTS Plan Year Estimated Annual Benefit Payments ,323, ,483, ,657, ,860, ,156, ,440, ,707, ,999, ,288, ,684, ,059, ,401, ,704, ,044, ,395, ,658, ,889, ,043, ,156, ,169,000 January 1, 2005 Valuation (5/2005) 27

32 APPENDIX A ACTUARIAL PROCEDURES AND ASSUMPTIONS The actuarial assumptions used in the valuation are intended to estimate future experience affecting projected benefit flow and investment earnings. Any variations in future experience from that expected from these assumptions will result in corresponding changes in the estimated costs of the plan s benefits. The tables in this section give rates of decrement, referred to in actuarial notation by the general symbol q'. The underlying theory is described more fully in Jordan, Life Contingencies, Society of Actuaries (Second Edition, 1967), page 277. Any age referred to in a table is always the age of the person at his or her nearest birthday. Actuarial Cost Method The actuarial cost method we use to calculate the funding requirements of the Plan is called the aggregate actuarial cost method. The actuarial cost method is used to calculate the normal cost. The normal cost plus a provision for expenses is the Annual Required Contribution. The cost method allocates the total cost of the Plan over time: the normal cost is that portion of the cost allocated to the current period. The present value of future normal costs is equal to the excess of the projected benefit liability over the actuarial value of assets. The normal cost accrual rate is equal to the present value of future normal costs divided by the present value of future covered payroll for current active participants. The normal cost is the covered current payroll multiplied by the normal cost accrual rate. Under the aggregate cost method, normal costs will be a level percent of payroll when all assumptions are met. Variations in actual experience will result in increases or decreases in the normal cost accrual rate. Actuarial Value of Assets An expected actuarial value is determined equal to the prior year's actuarial value of assets plus cash flow (excluding realized and unrealized gains or losses) for the year ended on the valuation date and assuming 7.5% interest. The unrecognized gain or loss is then added to the expected value. Any difference between this amount and the market value of assets is set up as a gain or loss base and amortized over five years. The expected actuarial value plus the amortization of prior gain or losses is constrained to a value of 80% to 120% of the market value of assets at the valuation date in order to determine the final actuarial value of assets. Investment Earnings 7.50% per annum, compounded annually. January 1, 2005 Valuation (5/2005) 28

33 Earnings Progression Annual salary increases are based on a table graded by age, as displayed below: Age Percentage Increase at Age Merit Inflation Total % 2.5% 8.2% COLA None. Retirement The following table sets forth the probability of retirement according to age. Rates begin at age 55 with 6 years of service and produce an average retirement age of 62. Age Probability of Retirement 55 10% & Over 100 Deferred Vested participants were assumed to retire at age 65. January 1, 2005 Valuation (5/2005) 29

34 Expenses The average of the prior three year's expenses: Year Expenses 2004 $ 16, , ,475 Total $ 59,601 Average $ 19,867 Disablement Graduated rates are used. See table below for sample rates. Mortality Healthy and Disabled: The 1994 Group Annuity Mortality Table for males and females is used for actuarial valuation purposes only. This table is not used to determine actuarial equivalence. Withdrawal Rates Graduated rates are used. Sample rates are as follows: Age at Withdrawal Termination Male Female Disability % 15.41% 0.15% Marriage Rates 85% of all active and terminated participants not currently receiving benefits are assumed to be married. Male spouses are assumed to be three years older than their female spouses. Future Credited Service The Future Credited Service rate is equal to the member s Full Time Equivalent (FTE) rate as of December 31 preceding the current valuation year. Changes in Actuarial Assumptions and Methods as of January 1, 2005 None. January 1, 2005 Valuation (5/2005) 30

35 APPENDIX B PLAN SUMMARY All actuarial calculations are based upon our understanding of the provisions of City of Fort Collins General Employees Retirement Plan, as adopted and in effect on January 1, This summary does not attempt to cover all of the detailed provisions. Plan Year The Plan Year is the 12-month period beginning January 1 and ending December 31. Effective Date The original effective date of the plan is January 1, The plan was most recently restated effective December 31, 2001 and amended effective July 1, Eligible Employee Classification All persons employed to fill a classified position defined by the city, excluding police officers and firefighters, shall become a member of the Plan on the later of the Effective Date of the Plan or Date of Hire. The Plan was frozen to new entrants as of January 1, Accrued Benefit The Accrued Benefit for each Member is the Member's Normal Retirement Benefit calculated using Average Monthly Compensation and Credited Service as of the calculation date. In no event will a Member s Accrued Benefit be less than the Accrued Benefit earned as of June 30, Average Monthly Compensation A Member s Average Monthly Compensation, as of a given date, is the average of the highest 60 consecutive months of considered compensation during the last 120 months of Credited Service. In the event that a participant was employed on a part time basis during any portion of this period, the compensation will be converted to a full time equivalent for purposes of calculating the Average Monthly Compensation. Compensation Compensation is the gross compensation included as taxable income on Form W-2, excluding bonuses, compensatory time recorded as additional hours, overtime pay, workers' compensation accrued vacation pay, taxable fringe benefits, but including any amounts contributed by the City to a salary reduction agreement including Code Sections 125, 132(f)(4), 402(a)(8), 403(b), 402(a), and 457. January 1, 2005 Valuation (5/2005) 31

36 Credited Service A Year of Service is credited for each plan year a member works 2,080 hours. If the member works less than 2,080 hours, a partial Year of Service will be credited on a prorate basis based on the number of hours for which compensation is paid. Service is credited while a member is on long-term disability as long as no benefits are being paid from the plan. Vested Accrued Benefit A Participant's Vested Accrued Benefit as of a given date is equal to the product of his Accrued Benefit multiplied by his Vested Percentage as of that same date. Vesting Schedule Members become vested in their Accrued Benefit according to the following schedule: Years of Percent Credited Service Vested Less than 2 0% 2 40% 3 60% 4 80% 5 and over 100% Normal Retirement Date A Participant s Normal Retirement Age is the first of the month coincident with or next following the attainment of age 65. Normal Retirement Benefits Each Member who becomes eligible for a Normal Retirement Benefit under the plan will be entitled to receive a monthly retirement pension benefit beginning at the Member's Normal Retirement Date and payable in the Normal Benefit Form equal to: 1.5% of Average Monthly Compensation, multiplied by Credited Service. Normal Benefit Form Life Annuity - Monthly pension benefit payable for the lifetime of the Member. Early Retirement (a) (b) Early Retirement Date A Member's Early Retirement Date is the first day of the month so elected by the Member which coincides with or next follows the date upon which the Member attains age 55 and completes 2 Years of Service. Early Retirement Benefit A Member's Early Retirement Benefit is a monthly pension benefit equal to his Accrued Benefit determined as of his Early Retirement Date, reduced by 1/15 th for the first 5 years and 1/30 th for each of the next 5 years payments commence prior to age 65. January 1, 2005 Valuation (5/2005) 32