MINUTES. 3. Minutes: Approve the minutes for the regular meeting of October 19, 2016.

Transcription

1

2

3 PASADENA FIRE & POLICE RETIREMENT SYSTEM RETIREMENT BOARD - REGULAR MEETING Wednesday, November 16, 2016 City Council Chambers S249 Pasadena City Hall, 100 N. Garfield Avenue 10:15 a.m. MINUTES 1. Call to Order The regular meeting of the Pasadena Fire & Police Retirement Board was called to order by the Chair, Mr. Keith Jones, on Wednesday, November 16, 2016 at 10:21 a.m. in the City Council Chambers at City Hall. Members - Present Not Present K. Jones, Chair P. Boyle, Vice Chair J. Brinsley J. Milligan T. Tomek (arrived at 10:28 a.m., departed at 11 :21 a.m.) Staff - Present J. Fosselman, Administrator/Secretary E. Wong, Tech. Assistant I. Safie, City Attorney Representative Not Present Others Present R. Dinnison (Verus Investments), R. Espinoza, M. Treger, P. Fuleihan, S. Lebovitz. J. Godsey and A. Ortega (Macias Gini & O'Connell) V. Erganian (City Treasury), R. Ridley (City Controller) 2. Public Comment None noted. 3. Minutes: Approve the minutes for the regular meeting of October 19, MOTION by Mr. Milligan, seconded by Mr. Boyle, to approve the Minutes for the regular meeting of October 19, (Motion unanimously carried, 4-0) Page 1 of 6

4 CONSENT CALENDAR 4. Approve the monthly retirement allowance roll of $1, 110, for October Receive and file the 3rd Quarter 2016 Asset Manager Performance Reports from the following asset managers: a. Atlanta Capital Investment Managers b. Capital Group, American Funds EuroPacific Growth Fund c. Dodge & Cox International Stock Fund d. Dodge & Cox Stock Fund e. Invesco Core Real Estate, USA - LP f. PIMCO All Asset Fund g. TCW MetWest Fixed Income Review h. Voya Senior Loan Trust Fund Review MOTION by Mr. Boyle, seconded by Mr. Brinsley, to approve items 4-5 on the Consent Calendar. (Motion unanimously carried, 4-0) CalPERS HEARINGS 7. CalPERS scheduled hearing on the Service Pending Industrial Disability Retirement application for Ronald Espinoza, Firefighter. The hearing was opened on the CalPERS Service Pending Industrial Disability Retirement application filed by Ronald Espinoza, Firefighter. The Board received the Disability Hearing Option form signed by the Applicant requesting the Retirement Board close the hearing to the general public, including the discussion of the medical reports submitted in consideration of the Retirement Board's determination. Therefore, the hearing was closed to the public. The following were present at the hearing: Patrick Fuleihan and Sam Lebovitz (City and counsel), and Ronald Espinoza and Mike Treger (Applicant and counsel). The Applicant was administered the oath of witness. By order of the Chair, the following exhibits were marked and entered into record: a. CalPERS Service Pending Industrial Disability Retirement application, filed by Ronald Espinoza, Firefighter, dated December 3, b. Verification of employment with the City of Pasadena. c. Certification Forms signed by the City and Applicant. d. Information report and recommendation from the Human Resources Department dated November 3, 2016, and the accompanying medical file, including: 1) Essential Functions Job Analysis - Firefighter I/II; 2) Dr. Gregory Heinen, M.D., PQME orthopaedic, comprehensive evaluation and report (dated ); 3) Dr. William Costigan, M.D., initial consultation report (dated ); 4) Dr. William Costigan, M.D., follow up report (dated ); 5) Dr. Jay Tsuruda, M.D., left lower extremity venous duplex (dated ); 6) Dr. Gregory Adamson, M.D., PTP progress report (dated ); 7) Dr. Gregory Adamson, M.D., PTP progress report (dated ); Page 2 of 6

5 8) Dr. Gregory Adamson, M.D., PTP progress report (dated ); 9) Dr. Gregory Adamson, M.D., PTP progress report (dated ); 1 O)Dr. Gregory Adamson, M.D., initial orthopedic evaluation for left knee injury (dated ); 11)Dr. Gregory Adamson, M.D., PTP progress report (dated ); 12)Dr. William Costigan, M.D., workers comp follow up report regarding numbness in bilateral lower extremities (dated ); 13)Dr. Gregory Adamson, M.D., left knee operative report (dated ); 14)Dr. Gregory Adamson, M.D., PTP progress report (dated ); and 15)Dr. Michael Bronshvag, M.D., QME, internal medicine evaluation and report (dated ). Following brief comments by both the Applicant's and City's counsel, a MOTION to close the hearing was made by Mr. Brinsley, seconded by Mr. Boyle. (Motion carried unanimously, 4-0) MOTION by Mr. Brinsley, seconded by Mr. Milligan, to approve the CalPERS Service Pending Industrial Disability Retirement Application filed by Ronald Espinoza, Firefighter, with a retirement date of February 28, 2016, and instruct the System's Attorney and the Secretary to prepare the necessary documentation of this Board's determination and forward same to the California Public Employees' Retirement System. (Motion carried unanimously, 4-0) Chair Jones thanked Mr. Espinoza for his 32 years of service with the Fire Department and for the City of Pasadena. ACTION ITEMS - The Board may discuss and take action on the following items: (Member Tomek arrived at 10:28 a.m.) 7. Review, discuss, and possibly take action on the annual report on SB481 funds, as submitted by City Treasury. Mr. Vic Erganian, City Treasurer provided a brief report highlighting that since the SB481 legislation has sunset, no new SB481 monies have been received by the City. The 2015 Pension Bond Debt Service fund has a balance of $3, 188, 167 as of June 30, 2016 and funds will be retained here for future payment of any actuarially required contributions to the System. In addition, approximately $39 million of SB481 receipts are the subject to a legal challenge, and have been deposited into a sequestered account with Los Angeles County. The funds will remain in the County's sequestered account until the challenge has been resolved. MOTION by Mr. Boyle, seconded by Mr. Brinsley, to receive and file the report. (Motion unanimously carried) Page 3 of 6

6 8. Review, discuss and approve the June 30, 2016 Draft Annual Report and Audited Financial Statements, as prepared by System Auditor Macias Gini & O'Connell. Engagement Partner James Godsey of Macias Gini & O'Connell ("MGO") reviewed the reports and significant information in the financial statements and notes. He reported that there were no findings, and that MGO had issued an unmodified opinion on the financial statements. Although MGO was not engaged to provide an opinion on internal controls, if they had discovered any, they would have disclosed them to the Board. No such deficiencies in internal control were found, and MGO believes that adequate checks and balances are in place to maintain control. Mr. Godsey provided an overview of new disclosure requirements for Fair Value as required by GASB Statement No. 72, and the three categorization levels of asset valuation. MOTION by Mr. Tomek, seconded by Mr. Boyle, to approve the June 30, 2016 Draft Annual Report and Audited Financial Statements. (Motion unanimously carried) 9. Discuss and possibly take action on the following investment reports submitted by Verus Investments: a. Review and approve, contract with Verus Investments for investment advisory services Riley Dinnison briefly presented the new contract with Verus Investments, highlighting that there are no substantive changes from the prior contract other than the advisory fee. Investment advisory fees will be fixed at $115,000/year for the three years beginning April 1, Following brief questions, he noted that noted that the contract had been reviewed by System counsel. MOTION by Mr. Milligan, seconded by Mr. Boyle, to approve the contract with Verus Investments effective April 1, 2017 through March 30, 2019, as reviewed by System counsel. (Motion unanimously carried) b. Receive and file, 3rd Quarter 2016 Investment Performance Review Mr. Dinnison reviewed the research report. The net change for the quarter (the difference between net cash flow and net investment change) was $982 thousand, bringing the value of the portfolio to $126,205,586 on September 30, The fund returned 3.6% net of fees (v. the benchmark of 3.0%) for the quarter). The fund's overall over-performance relative to the benchmark for the quarter was largely driven by earnings in equities, and specifically, earnings by asset manager Dodge & Cox in both the International and Domestic Equity spaces. In addition, PIMCO's outperformance (3.9% vs. the benchmark of 1.4%, or CPI + 5%) also contributed to the positive growth for the quarter. The fund's cumulative performance for the quarter ranked in the 28th 1 h percentile relative to its peer universe (lnvestorforce Public DB $50mm-$250mm Gross). MOTION by Mr. Boyle, seconded by Mr. Tomek, to receive and file the 3rd Quarter 2016 Investment Performance Review, as recommended by Verus Investments. (Motion unanimously carried) Page 4 of 6

7 c. Receive and file, October 2016 Performance Update The performance update was reviewed reflecting performance without pooled cash. The total fund returned -0.6% net of fees for October (compared to the index of -1.2%), bringing the fiscal year-to-date return to 3.0% net of fees (vs. the index of 1.8%). Domestic Equities were hardest hit in the month with cumulative earnings of -1. 7%; however, all three asset managers outperformed their respective benchmarks. Total market value at the end of October was $125.5 million, including pooled cash with the City. MOTION by Mr. Boyle, seconded by Mr. Milligan, to receive and file the October 2016 Performance Update, as recommended by Verus Investments. (Motion unanimously carried) d. Receive and file, Transaction Summary (pooled cash recommendation) Mr. Dinnison briefly reviewed the final rebalance for October's withdrawal for quarterly pension benefits and administration of $3,450,000. The majority of the withdrawal was taken from domestic equities, followed next by international equities, alternatives and fixed income. MOTION by Mr. Boyle, seconded by Mr. Brinsley, to receive and file the Transaction Summary. (Motion unanimously carried) (Member Tomek departed at 11 :21 a.m.) 10. Review, discuss and take action regarding the FPRS pension payroll system and service provider. Jill Fosselman provided the presentation and reviewed how the System's needs for a pension administration system have changed over time, becoming increasingly simple and predominantly payroll-based. MOTION by Mr. Brinsley, seconded by Mr. Boyle, to direct staff to transition to U.S. Bank's Online Benefit Payment System effective with the January 2017 pension payroll, subject to counsel review. (Motion as revised unanimously carried, 4-0) INFORMATION ITEMS 11. Staff Report - Ms. Fosselman provided a brief update on the actuarial RFP, and the upcoming board calendar for the first quarter a. October 2016 Budget/Expense Report- noted. b Board Meeting Schedule - noted. 12. Counsel Report- none noted. 13. Articles/Newsletters/Conferences - none noted. Page 5 of 6

8 COMMENTS FROM BOARD MEMBERS None noted. ADJOURNMENT MOTION by Mr. Milligan, seconded by Mr. Boyle, to adjourn the meeting at 11 :51 a.m. (Motion unanimously carried, 4-0) Respectfully submitted, jy-il~. Jill Fosselma~ Secretary to the Board/Administrator Keith Jones Chair, Retirement Board Details of this meeting are contained on a DVD recording of the meeting and will be kept in the archives for two years, per Board policy. DISTRIBUTION: Board Members City Attorney Director of Finance Fire & Police Retirees Assn. Police Chief Fire Chief Workers Compensation A. Snitzer S. Lebovitz D. Barba Page 6 of 6

9 PASADENA FIRE & POLICE RETIREMENT SYSTEM RETIREMENT BOARD - REGULAR MEETING VVednesday, December21,2016 City Council Chambers #S249, 100 N. Garfield Ave. 10:15 a.m. MINUTES The regular meeting of the Pasadena Fire & Police Retirement Board scheduled for VVednesday, December 21, 2016 at 10:15 a.m. was cancelled and posted by the Secretary to the Board as required by law. JvlL~- Jill Fosselman Secretary to the Board/Administrator Keith Jones Chair, Retirement Board Details of this meeting are contained on a DVD recording of the meeting and will be kept in the archives for two years, per Board policy. DISTRIBUTION: Board Members City Attorney Director of Finance Fire & Police Retirees Assn. Police Chief Fire Chief Workers Compensation A. Snitzer S. Lebovitz D. Barba

10

11 Investment commentary Vanguard Growth Index Fund Investor Shares Third Quarter 2016 Inception date November 2, 1992 Fund number 0009 Fund profile September 30, 2016 CUSIP number Ticker symbol VIGRX Newspaper listing Growth Expense ratio (as of April 27, 2016) 0.22% Short-Term Reserves 0.0% Stock characteristics Growth Index Fund Number of stocks 330 Median market cap $70.5B Price/earnings ratio 28.6x Price/book ratio 4.9x Return on equity 20.4% Earnings growth rate 13.2% Equity yield (dividend) 1.4% Foreign holdings 0.0% Turnover rate (fiscal year end) 9.2% Monetary policy took center stage during the third quarter of 2016 as continued low interest rates generally boosted stock and bond market returns across the globe. Federal Reserve policymakers decided at their September meeting to leave the federal funds target rate at 0.25% 0.5%. Outside the United States, the Bank of Japan implemented a yield curve control policy designed to keep the 10-year Japanese government bond yield near 0%. The CRSP US Large Cap Growth Index returned 5.15% for the third quarter ended September 30. Its value counterpart, the CRSP US Large Cap Value Index, returned 3.04% for the quarter. Technology (+13.4%), consumer services (+3.3%), and financials (+4.0%) were the top contributors. Consumer goods ( 2.7%) detracted most from performance. For the 12-month period ended September 30, 2016, the CRSP US Large Cap Growth Index returned 13.56%. Technology (+19.8%), consumer services (+12.3%), and financials (+17.5%) ranked among the top contributors. Utilities ( 13.4%) posted the weakest return. Benchmark characteristics CRSP US Large Cap Growth Index Number of stocks 320 Median market cap $70.5B Price/earnings ratio 28.6x Price/book ratio 4.9x Return on equity 19.9% Earnings growth rate 13.2% Equity yield (dividend) 1.4% Foreign holdings 0.0% Connect with Vanguard > vanguard.com For institutional use only. Not for distribution to retail investors.

12 Vanguard Growth Index Fund Investor Shares Total returns Quarter Year to date Periods ended September 30, 2016 Growth Index Fund Investor Shares (November 2, 1992) 5.11% 6.47% 13.36% 11.19% 16.38% 8.66% Spliced Growth Index 5.15% 6.61% 13.56% 11.41% 16.63% 8.87% The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month end, visit our website at vanguard.com/performance. Figures for periods of less than one year are cumulative returns. All other figures represent average annual returns. Performance figures include the reinvestment of all dividends and any capital gains distributions. All returns are net of expenses. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. Spliced Growth Index: S&P 500 Growth Index (formerly known as the S&P 500/Barra Growth Index) through May 16, 2003; MSCI US Prime Market Growth Index through April 16, 2013; CRSP US Large Cap Growth Index thereafter. One year Three years Five years Ten years Total fund volatility measures Spliced Growth Index DJ U.S. Total Market FA Index Fund r-squared Fund beta R-squared and beta are calculated from trailing 36-month fund returns relative to the associated benchmark. Ten largest stocks as % of total net assets Apple Inc. Alphabet Inc. Amazon.com Inc. Facebook Inc. Coca-Cola Co. Comcast Corp. Home Depot Inc. Visa Inc. Philip Morris International Inc. Walt Disney Co. Top ten as % of total net assets 27.9% The holdings listed exclude any temporary cash investments and equity index products. Sector diversification as % of common stock Growth Index CRSP US Large Cap Growth Index Basic Materials 1.1% 1.1% Consumer Goods Consumer Services Financials Health Care Industrials Oil & Gas Technology Telecommunications Utilities Sector categories are based on the Industry Classification Benchmark system. All funds are subject to market risk, including the possible loss of principal. For more information about Vanguard funds or to obtain a prospectus, see below for which situation is right for you. If you receive your retirement plan statement from Vanguard or log on to Vanguard s website to view your plan, visit vanguard.com or call If you receive your retirement plan statement from a service provider other than Vanguard or log on to a record keeper s website that is not Vanguard to view your plan, please call Visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Advisors: For more information about Vanguard funds, visit advisors.vanguard.com, or call , to obtain a prospectus The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. Connect with Vanguard > vanguard.com FC

13 Vanguard Growth Index Fund Product Summary Seeks to track the performance of the CRSP US Large Cap Growth Index. Large-cap growth equity. Passively managed, full-replication approach. Fund remains fully invested. Low expenses minimize net tracking error. Vanguard Style View: Large Growth Index portfolio of large-capitalization growth stocks. Market capitalization Investment style Value Blend Growth Large Mid Small Central tendency Expected range of fund holdings Quarterly Commentary Monetary policy took center stage during the third quarter of 2016 as continued low interest rates generally boosted stock and bond market returns across the globe. Federal Reserve policymakers decided at their September meeting to leave the federal funds target rate at 0.25% 0.5%. Outside the United States, the Bank of Japan implemented a yield curve control policy designed to keep the 10-year Japanese government bond yield near 0%. The CRSP US Large Cap Growth Index returned 5.15% for the third quarter ended September 30. Its value counterpart, the CRSP US Large Cap Value Index, returned 3.04% for the quarter. Technology (+13.4%), consumer services (+3.3%), and financials (+4.0%) were the top contributors. Consumer goods ( 2.7%) detracted most from performance. For the 12-month period ended September 30, 2016, the CRSP US Large Cap Growth Index returned 13.56%. Technology (+19.8%), consumer services (+12.3%), and financials (+17.5%) ranked among the top contributors. Utilities ( 13.4%) posted the weakest return. People and Process Vanguard Growth Index Fund seeks to track the investment performance of the CRSP US Large Cap Growth Index, an unmanaged benchmark representing growth stocks of large U.S. firms. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. The experience and stability of Vanguard s Equity Index Group have permitted continuous refinement of techniques for reducing tracking error. The group uses proprietary software to implement trading decisions that accommodate cash flow and maintain close correlation with index characteristics. Vanguard s refined indexing process, combined with low management fees and efficient trading, has provided tight tracking net of expenses. Vanguard Equity Index Group Launched in 1975, The Vanguard Group, Malvern, Pennsylvania, is among the world s largest equity and fixed income managers. As chief investment officer and managing director, Mortimer J. Buckley oversees Vanguard s Equity Index, Quantitative Equity, and Fixed Income Groups. Joseph Brennan, CFA, Principal and global head of Vanguard's Equity Index Group, is responsible for all equity index funds. The Equity Index Group manages indexed equity portfolios covering U.S. and international markets. It has developed sophisticated portfolio construction methodologies and efficient trading strategies that seek to deliver returns that are highly correlated with target portfolio benchmarks. The group has advised Vanguard Growth Index Fund since Investment Manager Biographies Gerard C. O'Reilly, Principal. Portfolio manager. Advised the fund since Worked in investment management since B.S., Villanova University. Walter Nejman. Portfolio manager. Advised the fund since Worked in investment management since B.A., Arcadia University. M.B.A., Villanova University. As of September 30, 2016 For institutional use only. Not for distribution to retail investors.

14 Vanguard Growth Index Fund Total Returns Quarter Year to Date 1 Year 3 Years 5 Years 10 Years Growth Index Fund Investor Shares (11/2/1992) 5.11% 6.47% 13.36% 11.19% 16.38% 8.66% Admiral Shares (11/13/2000) Institutional Shares (5/14/1998) Spliced Growth Index The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month end, visit our website at vanguard.com/performance. Figures for periods of less than one year are cumulative returns. All other figures represent average annual returns. Performance figures include the reinvestment of all dividends and any capital gains distributions. All returns are net of expenses. Note: Spliced Growth Index: S&P 500 Growth Index (formerly known as the S&P 500/Barra Growth Index) through May 16, 2003; MSCI US Prime Market Growth Index through April 16, 2013; CRSP US Large Cap Growth Index thereafter. Admiral class shareholders are required to maintain specific minimum balances and meet other special criteria. Institutional class shareholders are required to maintain a minimum balance of $5 million. As of September 30, 2016

15 Vanguard Growth Index Fund Quarterly Returns: Investor Shares Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Growth Index Spliced Growth Index Year-End Assets (Millions) % 0.98% 5.11% $2, % 3.17% 3.38% 3, , , , , , , , , ,707 Quarterly Returns: Admiral Shares Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Growth Index Spliced Growth Index Year-End Assets (Millions) % 1.02% 5.14% $18, % 3.30% 3.38% 16, , , , , , , , , ,505 As of September 30, 2016

16 Vanguard Growth Index Fund Quarterly Returns: Institutional Shares Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Growth Index Spliced Growth Index Year-End Assets (Millions) % 1.02% 5.14% $9, % 3.33% 3.38% 9, , , , , , , , , ,132 Fund Facts Investor Shares Admiral Shares Institutional Shares Fund Number Ticker VIGRX VIGAX VIGIX VUG Newspaper Listing Growth GrwthAdml GrwthInst VangdGrowth CUSIP Number Assets (millions) (Total $53,127) $2,983 $18,316 $9,916 $21,913 Inception 11/2/ /13/2000 5/14/1998 1/26/2004 Expense Ratio (as of 4/2016) 0.22% 0.08% 0.07% 0.08% ETF Volatility Measures R-Squared Beta Spliced Growth Index DJ US Total Stock Mkt Float Adj Idx R-squared and beta are calculated from trailing 36-month fund returns relative to the associated benchmark. As of September 30, 2016

17 Vanguard Growth Index Fund Equity Characteristics Growth Index CRSP US Large Cap Growth Index Number of stocks Median market cap $70.5 Billion $70.5 Billion Price/earnings ratio 28.6x 28.6x Price/book ratio 4.9x 4.9x Return on equity 20.4% 19.9% Earnings growth rate 13.2% 13.2% Equity yield (dividend) 1.4% 1.4% Foreign holdings 0.0% 0.0% Short-term reserves 0.0% Turnover rate (fiscal year end) 9.2% Sector Diversification (% of Stocks) Growth Index CRSP US Large Cap Growth Index Overweight/ Underweight Basic Materials 1.1% 1.1% 0.0 Consumer Goods Consumer Services Financials Health Care Industrials Oil & Gas Other Technology Telecommunications Utilities Total 100.0% 100.0% Sector categories are based on the Industry Classification Benchmark system. Top 10 Largest Holdings % of Total Net Assets Apple Inc. 6.2% Alphabet Inc. 5.0 Amazon.com Inc. 3.6 Facebook Inc. 3.2 Coca-Cola Co. 1.8 Comcast Corp. 1.7 Home Depot Inc. 1.7 Visa Inc. 1.7 Philip Morris International Inc. 1.6 Walt Disney Co. 1.4 Total 27.9% The holdings listed exclude any temporary cash investments and equity index products. As of September 30, 2016

18 Important information Visit our website, call , or contact your broker to obtain a product description and prospectus or if available, a summary prospectus for Vanguard ETF Shares. Investment objectives, risks, charges, expenses, and other important information are contained in these documents; read and consider them carefully before investing. For more information about Vanguard funds, visit or call , to obtain a prospectus, or if available, a summary prospectus. Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling. Investments in bond funds and ETFs are subject to interest rate, credit, and inflation risk. The Fund is subject to interest rate risk, which is the chance that bond prices overall will decline because of rising interest rates. Interest rate risk is expected to be extremely high for the Fund because it invests mainly in zero coupon long-term bonds, which have prices that are very sensitive to interest rate changes. Because the Fund invests mainly in Treasury strips with maturities ranging from 20 to 30 years, rising interest rates may cause the value of the Fund's investments to decline significantly. All investing is subject to risk, including the possible loss of the money you invest. London Stock Exchange Group companies includes FTSE International Limited ( FTSE ), Frank Russell Company ( Russell ), MTS Next Limited ( MTS ), and FTSE TMX Global Debt Capital Markets Inc ( FTSE TMX ). All rights reserved. FTSE, Russell, MTS, FTSE TMX and FTSE Russell and other service marks and trademarks related to the FTSE or Russell indexes are trade marks of the London Stock Exchange Group companies and are used by FTSE, MTS, FTSE TMX and Russell under licence. All information is provided for information purposes only. No responsibility or liability can be accepted by the London Stock Exchange Group companies nor its licensors for any errors or for any loss from use of this publication. Neither the London Stock Exchange Group companies nor any of their licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the index or the fitness or suitability of the index for any particular purpose to which it might be put. The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities. For any such funds or securities, the prospectus or the Statement of Additional Information contains a more detailed description of the limited relationship MSCI has with The Vanguard Group and any related funds. The index is a product of S&P Dow Jones Indices LLC ( SPDJI ), and has been licensed for use by Vanguard. Standard & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC ( S&P ); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ); S&P and S&P 500 are trademarks of S&P; and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Vanguard. Vanguard product(s) are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the index. The Russell Indexes and Russell are registered trademarks of Russell Investments and have been licensed for use by The Vanguard Group. The products are not sponsored, endorsed, sold or promoted by Russell Investments and Russell Investments makes no representation regarding the advisability of investing in the products. CFA and Chartered Financial Analyst are registered trademarks owned by CFA Institute. Dividend Achievers is a trademark of The NASDAQ OMX Group, Inc. (collectively, with its affiliates, NASDAQ OMX ) and has been licensed for use by The Vanguard Group, Inc. Vanguard mutual funds are not sponsored, endorsed, sold, or promoted by NASDAQ OMX and NASDAQ OMX makes no representation regarding the advisability of investing in the funds. NASDAQ OMX MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE VANGUARD MUTUAL FUNDS. Vanguard ETFs are not sponsored, endorsed, sold, or promoted by Barclays. Barclays makes no representation or warranty, express or implied, to the owners of Vanguard ETFs or any member of the public regarding the advisability of investing in securities generally or in Vanguard ETFs particularly or the ability of the Barclays Index to track general bond market performance. Barclays hereby expressly disclaims all warranties of merchantability and fitness for a particular purpose with respect to the Barclays Index and any data included therein. Barclays s only relationship to Vanguard and Vanguard ETFs is the licensing of the Barclays Index which is determined, composed, and calculated by Barclays without regard to Vanguard or the Vanguard ETFs. Barclays is not responsible for, and has not participated in, the determination of the timing of, prices of, or quantities of Vanguard ETFs to be issued. Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the Fund name refers to the approximate year (the target date) when an investor in the Fund would retire and leave the work force. The Fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in the Target Retirement Fund is not guaranteed at any time, including on or after the target date The Vanguard Group, Inc. All rights reserved. U.S. Pat. No. 8,180,695; 8,185,464; 6,879,964 B2; 7,337,138; 7,720,749; 7,925,573; 8,090,646 and 8,417,623. Vanguard Marketing Corporation, Distributor.

19 Investment commentary Vanguard Inflation-Protected Securities Fund Investor Shares Third Quarter 2016 Inception date June 29, 2000 Fund number 0119 Fund profile September 30, 2016 CUSIP number Ticker symbol VIPSX Newspaper listing InflaPro Expense ratio (as of April 26, 2016) 0.20% Short-Term Reserves 0.5% Bond characteristics Inflation-Protected Securities Fund Number of bonds 41 Average duration 8.3 years Average effective maturity 8.8 years The duration estimates the fund's percentage change in price for a given change in the real interest rates in the TIPS market. Historically, the real interest rates on TIPS have been somewhat less volatile than the nominal yields of conventional US Treasury bonds. However, the relationship varies over time and is difficult to predict. There may be periods when TIPS real yields and prices are more volatile than conventional Treasury bonds. Benchmark characteristics Bloomberg Barclays U.S. Treasury Inflation Protected Securities Index Number of bonds 37 Average duration 8.1 years Average effective maturity 8.6 years The bond market, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, returned 0.46% for the third quarter as yields moved higher, particularly in the 2- to 10-year portion of the curve. The Federal Reserve left interest rates unchanged but said the economic backdrop generally supported a near-term rate increase. In this environment, the Bloomberg Barclays U.S. Treasury Index returned 0.28% as the 10-year Treasury yield increased from 1.47% to 1.59%. The Bloomberg Barclays U.S. Treasury Inflation Protected Securities Index, the fund s benchmark, returned 0.96%. Treasury Inflation-Protected Securities (TIPS) outperformed nominal Treasury securities as TIPS prices began to reflect increased inflation expectations prompted by low unemployment statistics and pockets of wage rate inflation. The 10-year break-even inflation rate increased over the quarter from 1.44% to 1.61%. The 10-year TIPS yield fell 6 basis points, and the 5-year TIPS yield increased 5 basis points. For the quarter, Vanguard Inflation-Protected Securities Fund performed in line with its benchmark and slightly below the average return of its peers (+1.17%). The fund invests almost exclusively in TIPS, and its performance can vary from those of competing funds, which may hold other types of securities of varying durations, including short-term TIPS and other real-return assets. The fund s duration was 8.3 years, modestly higher than the benchmark s, further helping performance. The positioning reflects Vanguard s outlook for inflation to move closer to the Fed s 2% target. For the 12 months ended September 30, the Bloomberg Barclays U.S. Treasury Inflation Protected Securities Index returned 6.58%. That index led both the Bloomberg Barclays U.S. Aggregate Bond Index (+5.19%) and the Bloomberg Barclays U.S. Treasury Index (+4.09%) as the 10-year break-even inflation rate rose from 1.43% to 1.61%. The fund s return, after expenses, for the 12 months was in line with that of its benchmark and surpassed the average return of its peers (+5.78%). The fund benefited from its duration positioning in the period. Connect with Vanguard > vanguard.com For institutional use only. Not for distribution to retail investors.

20 Vanguard Inflation-Protected Securities Fund Investor Shares Total returns Quarter Year to date Periods ended September 30, 2016 Inflation-Protected Securities Fund Investor Shares (June 29, 2000) 0.95% 7.42% 6.48% 2.31% 1.78% 4.26% BloomBarc US Trsy Inflat Prtcd Idx 0.96% 7.27% 6.58% 2.40% 1.93% 4.48% Inflation Protected Bond Funds Avg 1.17% 6.44% 5.78% 1.28% 1.18% 3.42% The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance. Figures for periods of less than one year are cumulative returns. All other figures represent average annual returns. Performance figures include the reinvestment of all dividends and any capital gains distributions. All returns are net of expenses. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. BloomBarc US Trsy Inflat Prtcd Idx: Includes the inflation-indexed securities within the Bloomberg Barclays U.S. Treasury Bond Index, which represents U.S. Treasury obligations with maturities of more than 1 year. Inflation Protected Bond Funds Avg: Derived from data provided by Lipper, a Thomson Reuters Company. One year Three years Five years Ten years Total fund volatility measures Bloomberg Barclays Inflation Protected Securities Index Bloomberg Barclays US Aggregate Bond Index Fund r-squared Fund beta R-squared and beta are calculated from trailing 36-month fund returns relative to the associated benchmark. Distribution by credit quality as % of bonds U.S. Government 99.0% Aaa 1.0 Total 100.0% Credit-quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). NR is used to classify securities for which a rating is not available. NR securities may include a fund s investment in Vanguard Market Liquidity Fund or Vanguard Municipal Cash Management Fund, each of which invests in high-quality money market instruments and may serve as a cash management vehicle for the Vanguard funds, trusts, and accounts. U.S. Treasury, U.S. Agency, and U.S. Agency mortgage-backed securities appear under U.S. Government. Credit-quality ratings for each issue are obtained from Barclays using ratings derived from Moody s Investors Service (Moody s), Fitch Ratings (Fitch), and Standard & Poor s (S&P). When ratings from all three agencies are available, the median rating is used. When ratings are available from two of the agencies, the lower rating is used. When one rating is available, that rating is used. Distribution by issuer as % of bonds Treasury/Agency 99.0% Other 1.0 Total 100.0% Distribution by effective maturity as % of bonds Under 1 Year 1.0% 1-3 Years Years Years Years Years 10.8 Over 30 Years 0.0 Total 100.0% All funds are subject to market risk, including the possible loss of principal. Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer s ability to make payments. While U.S. Treasury or government agency securities provide substantial protection against credit risk, they do not protect investors against price changes due to changing interest rates. Unlike stocks and bonds, U.S. Treasury bills are guaranteed as to the timely payment of principal and interest. For more information about Vanguard funds or to obtain a prospectus, see below for which situation is right for you. If you receive your retirement plan statement from Vanguard or log on to Vanguard s website to view your plan, visit vanguard.com or call If you receive your retirement plan statement from a service provider other than Vanguard or log on to a record keeper s website that is not Vanguard to view your plan, please call Visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Advisors: For more information about Vanguard funds, visit advisors.vanguard.com, or call , to obtain a prospectus The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. Connect with Vanguard > vanguard.com FC

21 Vanguard Inflation-Protected Securities Fund Product Summary Invests primarily in Treasury inflation-protected securities. Seeks inflation protection and income consistent with Treasury inflation-protected securities. Principal and interest adjusted for inflation. Provides unique diversification benefits. Vanguard Style View: Inflation-Protected Bond Portfolio of inflation-indexed securities. Quality Trsy/ Agcy Inv Grd Corp Below Inv Grd Duration Short Medium Long Central tendency Expected range of fund holdings Quarterly Commentary The bond market, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, returned 0.46% for the third quarter as yields moved higher, particularly in the 2- to 10-year portion of the curve. The Federal Reserve left interest rates unchanged but said the economic backdrop generally supported a near-term rate increase. In this environment, the Bloomberg Barclays U.S. Treasury Index returned 0.28% as the 10-year Treasury yield increased from 1.47% to 1.59%. The Bloomberg Barclays U.S. Treasury Inflation Protected Securities Index, the fund s benchmark, returned 0.96%. Treasury Inflation-Protected Securities (TIPS) outperformed nominal Treasury securities as TIPS prices began to reflect increased inflation expectations prompted by low unemployment statistics and pockets of wage rate inflation. The 10-year break-even inflation rate increased over the quarter from 1.44% to 1.61%. The 10-year TIPS yield fell 6 basis points, and the 5-year TIPS yield increased 5 basis points. For the quarter, Vanguard Inflation-Protected Securities Fund performed in line with its benchmark and slightly below the average return of its peers (+1.17%). The fund invests almost exclusively in TIPS, and its performance can vary from those of competing funds, which may hold other types of securities of varying durations, including short-term TIPS and other real-return assets. The fund s duration was 8.3 years, modestly higher than the benchmark s, further helping performance. The positioning reflects Vanguard s outlook for inflation to move closer to the Fed s 2% target. For the 12 months ended September 30, the Bloomberg Barclays U.S. Treasury Inflation Protected Securities Index returned 6.58%. That index led both the Bloomberg Barclays U.S. Aggregate Bond Index (+5.19%) and the Bloomberg Barclays U.S. Treasury Index (+4.09%) as the 10-year break-even inflation rate rose from 1.43% to 1.61%. The fund s return, after expenses, for the 12 months was in line with that of its benchmark and surpassed the average return of its peers (+5.78%). The fund benefited from its duration positioning in the period. People and Process Vanguard Inflation-Protected Securities Fund seeks to provide inflation protection and income consistent with investments in Treasury inflation-protected securities. The fund is actively managed using a style-pure, risk-controlled approach that seeks high predictability of returns relative to the benchmark. At least 80% of assets are invested in inflation-indexed bonds issued by the U.S. government, government agencies, and corporations. The fund may invest up to 20% of assets in nominal Treasury and corporate bonds, although this option is generally not used. The managers seek to position portfolio holdings along the Treasury inflation-protected securities yield curve, exploiting bond pricing inefficiencies and changes in inflation. The fund provides unique portfolio diversification benefits due to its low correlations with nominal Treasury bonds and stocks. Vanguard Fixed Income Group Launched in 1975, The Vanguard Group, Malvern, Pennsylvania, is among the world's largest equity and fixed income managers. As chief investment officer and managing director, Mortimer J. Buckley oversees Vanguard's Equity Index, Quantitative Equity, and Fixed Income Groups. Gregory Davis, CFA, principal and global head of Fixed Income Group, has direct oversight responsibility for all money market, bond, and stable value portfolios managed by the Fixed Income Group. The Fixed Income Group offers actively managed investments in U.S. Treasury, corporate, and tax-exempt securities, as well as passively managed index portfolios. Since 1981, it has refined techniques in total-return management, credit research, and index sampling to seek to deliver consistent performance with transparency and risk control. The group has advised Vanguard Inflation-Protected Securities Fund since Investment Manager Biographies Gemma Wright-Casparius, Principal. Portfolio manager. Advised the fund since Worked in investment management since B.B.A., Bernard M. Baruch College of The City University of New York. M.B.A., Bernard M. Baruch College of The City University of New York. As of September 30, 2016 For institutional use only. Not for distribution to retail investors.

22 Vanguard Inflation-Protected Securities Fund Total Returns Quarter Year to Date 1 Year 3 Years 5 Years 10 Years Inflation-Protected Securities Fund Investor Shares (6/29/2000) 0.95% 7.42% 6.48% 2.31% 1.78% 4.26% Admiral Shares (6/10/2005) Institutional Shares (12/12/2003) Bloomberg Barclays U.S. Treasury Inflation Protected Securities Index Inflation-Protected Bond Funds Average The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month end, visit our website at vanguard.com/performance. Figures for periods of less than one year are cumulative returns. All other figures represent average annual returns. Performance figures include the reinvestment of all dividends and any capital gains distributions. All returns are net of expenses. Note: Average fund returns are derived from data provided by Lipper, a Thomson Reuters Company. Admiral class shareholders are required to maintain specific minimum balances and meet other special criteria. Institutional class shareholders are required to maintain a minimum balance of $5 million. As of September 30, 2016

23 Vanguard Inflation-Protected Securities Fund Quarterly Returns: Investor Shares Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Inflation- Protected Securities Fund Bloomberg Barclays Inflation Protected Securities Index Year-End Assets (Millions) % 1.73% 0.95% $4, % -1.83% -1.44% 4, , , , , , , , , ,440 Quarterly Returns: Admiral Shares Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Inflation- Protected Securities Fund Bloomberg Barclays Inflation Protected Securities Index Year-End Assets (Millions) % 1.76% 1.01% $12, % -1.69% -1.44% 10, , , , , , , , , ,566 As of September 30, 2016

24 Vanguard Inflation-Protected Securities Fund Quarterly Returns: Institutional Shares Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Inflation- Protected Securities Fund Bloomberg Barclays Inflation Protected Securities Index Year-End Assets (Millions) % 1.79% 1.01% $8, % -1.67% -1.44% 7, , , , , , , , , ,587 Fund Facts Investor Shares Admiral Shares Institutional Shares Fund Number Ticker VIPSX VAIPX VIPIX Newspaper Listing InflaPro InfProAd InPrSeIn CUSIP Number Assets (millions) (Total $25,289) $4,643 $12,058 $8,588 Inception 6/29/2000 6/10/ /12/2003 Expense Ratio (as of 4/2016) 0.20% 0.10% 0.07% 0 In real terms, not adjusted for projected inflation. The principal amountsand thus the interest paymentsof these securities are adjusted over time to reflect inflation. Volatility Measures R-Squared Beta BloomBarc US Trsy Inflat Prtcd Idx BloomBarc US Aggregate Bond Index R-squared and beta are calculated from trailing 36-month fund returns relative to the associated benchmark. Distribution by Credit Quality % of Portfolio U.S. Government 99.0% Aaa 1.0 Aa 0.0 A 0.0 Baa 0.0 Less Than Baa 0.0 Total 100.0% Credit-quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). ""NR"" is used to classify securities for which a rating is not available. NR securities may include a fund's investment in Vanguard Market Liquidity Fund or Vanguard Municipal Cash Management Fund, each of which invests in high-quality money market instruments and may serve as a cash management vehicle for the Vanguard funds, trusts, and accounts. U.S. Treasury, U.S. Agency, and U.S. Agency mortgage-backed securities appear under ""U.S. Government."" Credit-quality ratings for each issue are obtained from Barclays using ratings derived from Moody's Investors Service (Moody's), Fitch Ratings (Fitch), and Standard & Poor's (S&P). When ratings from all three agencies are available, the median rating is used. When ratings are available from two of the agencies, the lower rating is used. When one rating is available, that rating is used. As of September 30, 2016

25 Vanguard Inflation-Protected Securities Fund Fixed Income Characteristics Inflation- Protected Securities Fund Bloomberg Barclays Inflation Protected Securities Index Number of bonds Average effective maturity 8.8 years 8.6 years Average duration 8.3 years 8.1 years Short-term reserves 0.5% The duration listed above estimates the percentage change in the price of the fund for a given change in nominal interest rates on conventional Treasury securities. Actual inflation-protected securities (TIPS) price movements could be significantly different than implied by this estimate. The relationship of TIPS and conventional bonds varies and is difficult to predict with accuracy. Distribution by Effective Maturity % of Portfolio Under 1 Year 1.0% 1 to 3 Years 13.6% 3 to 5 Years 18.8% 5 to 10 Years 43.1% 10 to 20 Years 12.7% 20 to 30 Years 10.8% Over 30 Years 0.0% Total 100.0% Distribution by Issuer % of Portfolio Asset-Backed 0.0% Commercial Mortgage-Backed 0.0 Finance 0.0 Foreign 0.0 Government Mortgage-Backed 0.0 Industrial 0.0 Treasury/Agency 99.0 Utilities 0.0 Other 1.0 Total 100.0% As of September 30, 2016

26 Important information Visit our website, call , or contact your broker to obtain a product description and prospectus or if available, a summary prospectus for Vanguard ETF Shares. Investment objectives, risks, charges, expenses, and other important information are contained in these documents; read and consider them carefully before investing. For more information about Vanguard funds, visit or call , to obtain a prospectus, or if available, a summary prospectus. Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling. Investments in bond funds and ETFs are subject to interest rate, credit, and inflation risk. The Fund is subject to interest rate risk, which is the chance that bond prices overall will decline because of rising interest rates. Interest rate risk is expected to be extremely high for the Fund because it invests mainly in zero coupon long-term bonds, which have prices that are very sensitive to interest rate changes. Because the Fund invests mainly in Treasury strips with maturities ranging from 20 to 30 years, rising interest rates may cause the value of the Fund's investments to decline significantly. All investing is subject to risk, including the possible loss of the money you invest. London Stock Exchange Group companies includes FTSE International Limited ( FTSE ), Frank Russell Company ( Russell ), MTS Next Limited ( MTS ), and FTSE TMX Global Debt Capital Markets Inc ( FTSE TMX ). All rights reserved. FTSE, Russell, MTS, FTSE TMX and FTSE Russell and other service marks and trademarks related to the FTSE or Russell indexes are trade marks of the London Stock Exchange Group companies and are used by FTSE, MTS, FTSE TMX and Russell under licence. All information is provided for information purposes only. No responsibility or liability can be accepted by the London Stock Exchange Group companies nor its licensors for any errors or for any loss from use of this publication. Neither the London Stock Exchange Group companies nor any of their licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the index or the fitness or suitability of the index for any particular purpose to which it might be put. The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities. For any such funds or securities, the prospectus or the Statement of Additional Information contains a more detailed description of the limited relationship MSCI has with The Vanguard Group and any related funds. The index is a product of S&P Dow Jones Indices LLC ( SPDJI ), and has been licensed for use by Vanguard. Standard & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC ( S&P ); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ); S&P and S&P 500 are trademarks of S&P; and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Vanguard. Vanguard product(s) are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the index. The Russell Indexes and Russell are registered trademarks of Russell Investments and have been licensed for use by The Vanguard Group. The products are not sponsored, endorsed, sold or promoted by Russell Investments and Russell Investments makes no representation regarding the advisability of investing in the products. CFA and Chartered Financial Analyst are registered trademarks owned by CFA Institute. Dividend Achievers is a trademark of The NASDAQ OMX Group, Inc. (collectively, with its affiliates, NASDAQ OMX ) and has been licensed for use by The Vanguard Group, Inc. Vanguard mutual funds are not sponsored, endorsed, sold, or promoted by NASDAQ OMX and NASDAQ OMX makes no representation regarding the advisability of investing in the funds. NASDAQ OMX MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE VANGUARD MUTUAL FUNDS. Vanguard ETFs are not sponsored, endorsed, sold, or promoted by Barclays. Barclays makes no representation or warranty, express or implied, to the owners of Vanguard ETFs or any member of the public regarding the advisability of investing in securities generally or in Vanguard ETFs particularly or the ability of the Barclays Index to track general bond market performance. Barclays hereby expressly disclaims all warranties of merchantability and fitness for a particular purpose with respect to the Barclays Index and any data included therein. Barclays s only relationship to Vanguard and Vanguard ETFs is the licensing of the Barclays Index which is determined, composed, and calculated by Barclays without regard to Vanguard or the Vanguard ETFs. Barclays is not responsible for, and has not participated in, the determination of the timing of, prices of, or quantities of Vanguard ETFs to be issued. Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the Fund name refers to the approximate year (the target date) when an investor in the Fund would retire and leave the work force. The Fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in the Target Retirement Fund is not guaranteed at any time, including on or after the target date The Vanguard Group, Inc. All rights reserved. U.S. Pat. No. 8,180,695; 8,185,464; 6,879,964 B2; 7,337,138; 7,720,749; 7,925,573; 8,090,646 and 8,417,623. Vanguard Marketing Corporation, Distributor.

27 0~-05-17;10:35AM;From:Caipers ~~CalPERS To: ; P.O. Box 2796 Sacramento, CA 95$ CalPERS (or ) TTY: (877) I Fax: (916) # 4 DATE: 1/18/2017 ITEM # 7 California Public Employee~ Retlrnml!nt System January City of Pasadena 100 N Garfield Ave Rm 5135 Pasadena, CA CalPERS ID: Re: Darryl l Qualls Occupation: Police Chief Dear Personnel Officer, Darryl l Qualls has filed an application for service retirement pending industrial disability retirement. Your agency needs to make a determination of the member's disability in accordance with Government Code sections and You must make your determination within six months of this-request unless'the local safety member waives the requirements of this provision (Government Code section 21157). Under the California Public Employees' Retirement Law, disability means the incapacity of a member from the performance of duty in public services for permanent or extended and uncertain duration, as determined on the basis of competent medical opinion. Disability is not necessarily an inability to perform every function of a given p.osition. Rather, the courts have concluded that the test in any case is whether the employee can substantially perform his or her usual duties. Disputed questions regarding the industrial relationship of the disabling injury to the member's work will be resolved by the Workers' Compensation Appeals Board (WCAB). In the event there is no dispute, such a finding can be made by the employer. A Workers' Compensation Award is not sufficient evidence that a local safety member is disabled for retirement purposes. lhere must be a specific finding under Government Code section 21166, by the employer, with respect to the disability for which the member will be retired. If it is determined that the member is not disabled from the performance of his or her duties1 a Resolution to that effect must be filed with CalPERS. Please refer to sample Resolution No. 1 in the Public Agency and School Reference Guide - Benefits Procedures (see link below). If the member is found to be disabled, CalPERS will require the following documentation: Page 1of3

28 ;10:35AM;From:Calpers To: ; A finding that the member has been found to be substantially incapacitated from the performance of the usual duties of his or her position. 2. A finding by your agency as to whether or not the disability is industrial. a) In case of a dispute, a Findings and Award by the WCAB resolving the industrial relationship. 3. A certified statement (Resolution) by the local agency of the member's last day on payroll. In case of a dispute regarding the member's effective date of retirement, a request must be filed with the WCAB for Finding of Fact to determine on what date the member's condition became permanent and stationary. That date then becomes the effective date of retirement (Government Code section 21164). 4. A statement identifying the type of di~ability retirement determined, i.e., non-industrial disability retirement or industrial disability retirement. A member must have minimul'.1 of five years of credited service to qualify for non-industrial disability retirement. If a member does not meet the minimum service requirements for qisability retirement, they may still qualify by re-depositing previously withdrawn contributions or contributing an amount for service rendered prior to membership with CalPERS. Time during which the member is absent from State service by reason of injury or illness, which is determined within one year after the end of such absence to be jobrelated, shall be considered as time spent in State service for the purpose of qualification for retirement and death benefits. 5. A statement by the agency to the effect that there is, or is not, a possibility pf third"party liability present, if the member's disability was cau~ed by negligence or an intentional act of a party other than the employer. If a person (other tha'n the employer) caused an injury that results in certain CalPERS benefits being paid, then we have the right to recover from the responsible person up to one-half of the total retirement benefit costs payable due to this injury {Right of Sub"rogation - Government Code section 20250) Please advise.us if you are aware our member is pursuing a claim (other than a Workers' Compensation claim} against any person or entity for the same injuries that also entitle the member to a disability retirement from Cal PERS. 6. A statement identifying the disabling condition(s) and body part(s), i.e.; orthopedic (right knee), psychological, cardiovascular, internal (kidney), neurological (leg) or other. 7. If Advance Disability Pension Payments (ADPP) will be paid to the member, include the monthly amount and _the beginning date. Also, please include where the reimbursement check should be mailed. It is the employer's responsibility to report to Cal PERS the amount of ADPP paid to a member. If the employer fai Is to notify Cal PERS that ADPP is paid or if the membe.r service retires, the local agency and the employee &hall arrange for repayment. CalPERS will not reimburse the employer in these situations., Page 2 of 3

29 0' ;1Q:35AM;From:Ca\pers To: ; All such documentation submitted by your agency must be signed by the governing body or its lawful delegate (i.e., City Manager, Chief Administrative Officer, County Executive, or other comparable individual). If the governing body chooses to delegate the responsibility of making a determination, a certified copy of the delegation order of this authority must accompany the finding by such delegate in each instance. For Public Agency and Schools Reference Guide - Benefits Procedures and sample resolutions, please refer to the following two links for further information: Public Agency and Schools Reference Guide - Benefits Procedures: Sample Resolutions:. '.fhank you for your assistance. Your cooperation is appreciated. If you have any questions, please visit our website at or you may call us toll free at 888 CalPl;RS.( ).... :... \ ;. Sincerely, Stacey Olsen Retirement Program Specialist Disability Retirement Section Enclosure: LS - 1st Letter to Member cc: Darryl L Qualls Page 3 of 3

30 DATE l/18/t-t ITEM# Pasadena Fire & Police Retirement System AGENDA REPORT B TO: FROM: Chair Jones and Board Members of the Fire & Police Retirement System Elaine Wong, Senior Office Assistan~~ DATE: January 18, 2017 ITEM: Receive, discuss and possibly take action on the proposal presentations for actuarial services for the System RECOMMENDATION Upon review of the presentations and proposals, the Board may: 1. Award the contract for actuarial services and direct staff to return with the contract at the February 15, 2017 Board meeting, subject to counsel review, or 2. Other direction as provided. BACKGROUND The System's current contract with Bartel Associates expired after the completion of the June 30, 2016 actuarial valuation. A Request for Proposal (RFP) for actuarial valuation services was sent out this past fall to five prospective firms. In addition to the System's current actuary, prospective firms were identified after seeking input from the City Controller, the Controller for the Los Angeles County Employees Retirement System (LACERA), and actuarial firms previously invited to bid for prior contracts. The RFP was also posted on "Planetbid", a government RFP website. The scope of the RFP is to perform an actuarial valuation of the System for three (3) fiscal years, with the option of two (2) subsequent fiscal years. Actuarial valuation work to be performed under the scope of the RFP will consist of the following: Preparation of an annual actuarial valuation report and required disclosures for the three (3) fiscal years ending June 30, , including regular annual services, such as: development of annual assumption recommendations, determination of the cost of living adjustment, calculation of the benefit payment estimate, and response to the audit confirmation letter; and Special actuarial consulting services, as requested. Staff received a total of nine responses to the RFP. Proposals were reviewed and evaluated for compliance with the RFP. One of the proposals was deemed non-responsive due to its failure to meet the mandatory requirements and for submission after the deadline. January 18, 2017 June 30, Actuarial Services Page 1of5

31 The remaining eight responses were evaluated and scored on: 1. Experience: Firm/Consulting Actuary must show professional actuarial certifications, at least five (5) years of experience with public defined benefit plans, experience with plans that have similar issues to the FPRS pension plan; 2. Communication skills: Actuary must show ability to present complex actuarial concepts in clear, concise language; 3. Insurance: Firm must be willing to comply with insurance terms; 4. Cost: The three-year cost and hourly rates were compared between firms, taking into account services proposed and additional services proposed; 5. Sample Valuation: The sample valuation reports were judged for quality, completeness, readability, and comprehensiveness; 6. Response to the RFP: The responses from the firms were judged on whether they met the mandatory requirements and also on their readability, quality, clarity and conciseness; 7. Quality Control Measures: Firm's response to RFP demonstrate understanding, commitment and processes used to ensure accuracy with their calculations; 8. Demonstration of Quality Control: Firms' "Response to RFP" and "Sample Val" were evaluated on whether their reports show completeness, and no obvious errors (both in numbers and in the written portions); 9. Experience with California public defined benefit plans: Firms with experience with California plans were given additional points in the scoring; and 10.Additional Services offered: Firms with proposals that included additional services, beyond what was requested in the RFP, were given additional points. The following chart summarizes each proposer's initial score: Name of Proposer Initial Final Average 3-Year Cost Hourly Average Score Score Rates* Bartel Associates $49,500 Low Cavanaugh Macdonald Consulting $44,100 High Che iron $76,800 Low Gabriel Roeder Smith & Company 56.5 $42,300 High Korn Ferry Hay Group 59.5 $42,000 High Milliman $54,000 Med Nyhart Company Inc. 58 $51,000 +annual COLA Med Van lwaarden Inc. 65 $43,500 Med Non-Responsive: Clarity in Numbers NA $15,000 Low Segal Group (did not submit) NA NA NA Italicized proposers participated in follow-up phone discussions. Final Average Score was calculated after the follow-up phone discussions. *Hourly Actuary Rates for the Primary Actuary doing the work: High = Over $400/hr. Medium = Between $300 - $399/hr. Low= Below $300/hr. January 18, 2017 Page 2 of 5 June 30, Actuarial Services

32 The top four proposers, who each scored 70 or above, were called for phone interviews. The purpose of the call was to clarify and discuss their proposals, as well as evaluate their ability to verbally communicate difficult actuarial concepts clearly and concisely. Following the phone discussion and subsequent evaluation, references were called and the top three firms were invited to present to the Board at the January 18th Board meeting. Although a strong proposal was submitted, Cheiron was not invited to continue in the process due to their relative high cost compared to the other proposers. References were asked about the functions that the actuarial firms perform for their organization, including special projects. They were quizzed on the availability, timeliness, responsiveness of the firms. References discussed the accuracy, quality control, and communication from the actuarial firms. They also rated how proactive the actuaries are and how easy the actuaries are to work with. Their billing practices and costs were also discussed. All three firms received outstanding comments from all of their references. The attached Proposal Comparison Matrix (See Attachment 1) provides a side-by-side comparison of each of the finalist firms to the mandatory and general criteria specified in the RFP. BOARD INTERVIEW PROCESS The three firms invited to interview with the Board are: Bartel Associates, Cavanaugh Macdonald Consulting, and Milliman. The finalists were advised that each firm will have a maximum of 30 minutes with the Board for their presentation, including questions and discussion. They were further advised to limit the presentation portion to 15 minutes. Guidance was provided regarding the Board's expectation of their presentation. Specifically, they were asked to: 1. Introduce their firm and their team, 2. Discuss their experience with public sector pension plans/california public pension plans (or relevant experience), 3. Discuss their methods to evaluate/recommend actuarial assumptions, and 4. Highlight attributes that differentiate their firm from other actuarial firms. Each firm was invited to bring handouts of their presentation, although it was not required. The order of the presentations/interviews will be as follows: 1. Bartel Associates, 2. Cavanaugh Macdonald Consulting, and 3. Milliman. Name of Firm Final Average Score Year 1 Cost 3-Year Cost Bartel Associates 85 $16,000 $49,500 Cavanaugh Macdonald Consulting 82 $14,700 $44,100 Milliman 81 $18,000 $54,000 January 18, 2017 Page 3 of 5 June 30, Actuarial Services

33 FINALIST SNAPSHOTS Overall, staff was very pleased with the quality and the number of candidates who submitted proposals. Each of the three finalist firms has demonstrated considerable depth in experience, resources and quality of work. All of the firms are highly respected in their field, have a reputation for excellence and have received very strong references. References spoke of the firms' excellent timeliness, responsiveness, accuracy, quality control, communication and presentation skills. References also spoke of how these firms were willing to transcend expectations and find solutions to unsolvable problems. Bartel Associates (See Attachment 3) Attending: John Bartel (President), Joe D 1 Dnofrio*(Assistant Vice President, Consulting Actuary). Location where work will be performed: San Mateo, California. Small firm with one office (San Mateo). Founded in Twenty (20) employees including seventeen (17) actuaries. Firm is focused on California public plans, no private sector clients. Firm has over 250 California public plan clients, with over 400 public sector clients. Performed the actuarial valuation for FPRS since Notable comments from references: "Cheap for what they do." "Always know what is coming down the pipe and let us know." "Incredibly accurate." "Great with GASB [67]. They were part of the GASB {67} task force." 'We see them more in one year than we saw our prior actuaries in ten years!" "They found many errors committed by our prior actuary." "All of our work is special projects - really reasonably priced with that!" Cavanaugh MacDonald Consulting (See Attachment 4) Attending: Brent Banister (Principal, Chief Pension Actuary), Patrice Beckham*(Principal and Consulting Actuary), Joseph Nichols (Consulting Actuary). Location where work will be performed: Omaha, Nebraska. Small firm with three offices (Georgia, Nebraska, Florida). Founded in Thirty-three (33) employees, including eighteen (18) actuaries. Firm only works with public pension plans, no private sector clients. No current California public pension plan clients, but the actuaries have prior experience with California public plans. Notable comments from references: "Incredible presentation." "Total Quality." "Very accessible - day or night." "They wrote our funding policies." "We fired our prior actuaries just to hire them." "They negotiated with our City Council and the State Legislature." Milliman (See Attachment 5) Attending: Grant Camp*(Consulting Actuary), Daniel Wade (Principal, Consulting Actuary) via teleconference. Location where most of the work will be performed: Anaheim, California. Large, multinational firm with over 60 offices worldwide, 3,200 employees including 1,200 actuarial staff. Founded in Over 1,000 public sector pension clients, only a few California clients (but they are large, including LACERA, CalSTRS, San Mateo County). Notable comments from references: "Very proactive." "Able to produce a valuation report on a very short timeframe." "Not cheap but you get what you pay for." "Not afraid to stand firm and give bad news." "Great integrity and committed to keeping the plan solvent." *Head of the team to service the FPRS. January 18, 2017 Page 4 of 5 June 30, Actuarial Services

34 FISCAL IMPACT The contract for actuarial valuation services is a three-year contract with two optional one-year extensions. Funds for the June 30, 2017 financial valuation will be included in the Fiscal Year 2018 Budget Request. The current Fiscal Year 2017 budget is $17,000 although only $15,800 is expected to be incurred. Based on the quotes provided by the finalists, the range of the Fiscal Year 2018 budget request for actuarial services will be between $14,700 and $18,000. ATIACHMENTS 1. Proposal Comparison Matrix 2. RFP for Actuarial Valuation Services dated October 27, 2016 (without attachments) 3. Bartel Associates, proposal dated November 14, Cavanaugh Macdonald Consulting, proposal dated November 16, Milliman, proposal dated November 17, 2016 January 18, 2017 Page 5 of 5 June 30, Actuarial Services

35 =- Proposal Comparison Matrix Attachment 1 Fees: Bartel Associates Cavanaugh Macdonald Consulting Milliman fees f~_!_year ~- 16,ooo.oo $ 14,?oOJJO-$ ,oOO :oo f~e!~ for y~a!_:2 --~ --~ ~0.00$ ---14, 7ool)Q $ s:ootfoo Fees_!~~ year~--- $ 11,ooO~Oo-~$ ,?0Cf.Ob- -~r a,-o-oo~oo!~-!~Lfee_!i l~_years) $-- 49, $ 44, $ ,obo.oO Hourly Rate for extra work John Bartel (President) ASA, FCA, MAAA $310; Partners $260; Joe D'Onofrio (Assistant Vice-President) FSA, EA, FCA, MAAA $230; Katherine Moore (Associate Actuary) ASA, MAAA $180; Matthew Childs (Actuarial Analyst) $160; Other Actuarial Analysts $130; Administrative Services $75; Patrice Beckham (Principal & Consulting Actuary) FSA, EA, FCA, MAAA $406; Joseph Nichols (Consulting Actuary) ASA, EA, MSPA, MAAA $369; Andrew Paine (Senior Actuary) ASA, FCA, MAAA $328; Bryan Hoge (Senior Actuary) FSA, EA, FCA, MAAA $328; Aaron Chochon (Senior Actuarial Analyst) ASA, MAAA, ACA $279;! Grant Camp (Consulting Actuary) FSA, EA, MAAA $355; Daniel Wade (Principal & Consulting Actuary) FSA, EA, MAAA $430; Technical Staff $160-$270; Support Staff $100-$120; ~ / Initial Average Score - before phone discussion (out of 100)!------~---~ Final Average Score - after phone discussion (out of 100)!------~---~ FF,,;i.;,;rm,;,;,,;Q=u;;;.a;.;.lif;.;.i;;;.ca;;;.t;.:.io;;;..;,;n;;;.s,,;;a;.:.n.;,;d:;...;;:E:;;x.i;pc.;::e..,ri;,;;e..,n;,;;c;,;;e;,;..:_ l tsc:-iz_e_o_fcc-f_i_rm~(~e_m~p_l_oy~e_e-c-s~) _0_e_m~p_lo~y~e_e_s _E_m~p_lo~y_e_e_s -+- 3_2_0 0_ e_mploy_~_s ize of Firm (Actuaries) 17 actuaries 18 Actuaries 1~QQ~~!L1_?!~s Number of Offices 1 office 3 offices 60 offices Location of Office from which the work Anaheim~-California with review- San Mateo, California Omaha, Nebraska,_w_i_ll_b_e~p_e_rf_o_r_m_e_d, d o_n_e_b_y,_?f:l~.!!'e:i.yy-~!3h_~r:i_~to_n,_c_o_m~p~a_n~y_e_s_ta_b_l_is_h_e_d ~ 20_0_3 ---l ~g_q.5 ~ ~ ~~7 _ Consulting Actuary: J_o_s_ep~h D'Onofrio J()~epti_!'!_ich~-~----- _.. Gr~rit.C::arnp_ Consulting Actuary's years of ~erience doing public db plans:. 40 years (as a pension actuary) 28 years (as a pension actuary) 13 years (of actuarial experience) --~ > Bryan Hoge (Senior Actuary) Staff to do the work: FSA, MAAA, EA, FCA; Andrew Daniel Wade (Consulting Matt Childs (Senior Actuarial Paine (Senior Actuary/Reviewer) Actuary/Reviewer) FSA, EA, Analyst) and Katherine Moore ASA, FCA, MAAA; Aaron MAAA; Grant Camp (Consulting (Associate Actuary/Reviewer) Chochon (Senior Actuarial Actuary/Project manager) FSA, ASA, MAAA Analyst/Production) ASA, MAAA, EA, MAAA; unnamed analysts. ACA; Experience level of staff: The three staff members working The-three staff members working~ Daniel Wade - 20 years; Grant on the project have over 60+ on the project have about 27 Camp _ 13 years years together. ---~y~e_a_r_s_e_a c_h_ Exclusively Public Sector clients. Number of Public Sector Clients Exclusively Public Sector clients. 63 Public Pension plans, Over 1,000 public sector pension 31 Over 400 public sector clients. Health and OPES clients. clients Selected Listing of Public Sector Clients: Alaska Railroad Corp, City of Berkeley, Charlotte Firefighters Retirement Idaho Public Employees Retirement City of Concord Retirement System, System, Cincinnati Retirement System, System (since 1965); Seattle City City of Huntington Beach, City of City of Hollywood (FL) Police Officers' Employees' Retirement System; Texas Piedmont, City of Richmond, City of Retirement System, Jefferson County County & District Retirement System; San Clemente, City of Santa Barbara, Employees Retirement System, Kansas City of Portland Fire & Police Disability & Contra Costa Water District, City Police Retirement System and Retirement; Oregon Public Employees Sacramento City Employee Retirement Police Civilians Retirement System, Retirement System s~;~_st_e_m~ Majority of clients are California clients California State Teachers' Retirement including, City of Long Beach, City of System (CalSTRS), Los Angeles County Relevant California Public Pension Santa Barbara, City of Bishop, City of Employees Retirement Association None. Clients El Segundo. City of Lancaster, City of (LACERA), San Mateo County Long Beach, City of Oxnard, City of Employees' Retirement Association Rancho Cucamonga, City of Torrance. (SAMCERA), Antelope Valley Hospital ~ References Sacramento City Employees Lincoln, Nebraska Police and Retirement System, Contra Fire Pension Fund; Wichita Costa Water District, City of Long Police and Fire Retirement Beach, City of Huntington Beach System City of Seattle Firefighters' Pension Board; Antelope Valley Hospital; City of Vancouver Acronyms: FSA(Feffow-ofihesocie!YoTActuaries ),. ASA (Associate of the Society of ACt~ar-iesI:.=._E'.A.{Enrolled-Actuary) - - ~~=~~~~- -= H (;j\jf ll!qw of_ltl~g_onsl!.!_ting Actuaries), ACA (Asso~ate ()!_9onsulting )l.~uaries). - MSPA (Member of the ASPPA Colleqe of Pension Actuaries), MAAA (Member of the American Academy of Actuaries) ~ UH. -=H=-==

36 Attachment 2 City of Pasadena Fire & Police Retirement System REQUEST FOR PROPOSAL For ACTUARIAL VALUATION AND ACTUARIAL SERVICES For the Fiscal Years Ending June 30, October 2016 Pasadena Fire & Police Retirement System 100 North Garfield Avenue, N204 Pasadena, CA (626)

37 TABLE OF CONTENTS I. Invitation for Proposals... 3 II. Introduction and Background... 3 III. Projected RFP Schedule... 6 IV. Requested Services... 6 V. Contract Period... 8 VI. Evaluation and Selection Process... 8 VII. Proposal Submission Requirements... 9 VIII. ATTACHMENTS Attachment A, Conflict of Interest Disclosure Attachment B, Proposed Fee Schedule Attachment C, Proposer Warranties IX. EXHIBITS Exhibit A, Article XV of the Charter of the City of Pasadena Exhibit B, June 30, 2016 Actuarial Valuation Report Exhibit C, Contribution Agreement No. 16,900 Exhibit D, Amended and Restated Contribution Agreement No. 20,823 Exhibit E, Settlement & Release Agreement No. 18,

38 Request For Proposal ACTUARIAL VALUATION & ACTUARIAL SERVICES I. INVITATION FOR PROPOSALS The Retirement Board of the City of Pasadena Fire & Police Retirement System seeks proposals from qualified firms to prepare an annual actuarial valuation of the Pasadena Fire & Police Retirement System and provide actuarial services for three years, beginning with the June 30, 2017 actuarial valuation. Parties interested in responding are asked to submit three (3) paper copies and one electronic copy of the proposal no later than Thursday, November 17, 2016 by 5:00 pm to: Jill Fosselman, Administrator Pasadena Fire & Police Retirement System 100 North Garfield Avenue, Rm N204 Pasadena, CA All questions and requests for clarification/interpretation regarding the RFP, scope of work, evaluation process, or any components of the proposer s submission must be directed in writing by to the Retirement Office no later than Thursday, November 3, 2016 to: Elaine Wong Senior Office Assistant elainewong@cityofpasadena.net All questions will be answered to the extent practicable in the form of an addendum. The addendum will be distributed to all intended recipients of the RFP, without divulging the source of the query, no later than Thursday, November 10, II. INTRODUCTION AND BACKGROUND The Retirement Board (Board) of the Pasadena Fire & Police Retirement System (System) seeks proposals from qualified firms to provide an annual actuarial valuation of the System for three years beginning June 30, In addition, the Board seeks general actuarial consulting services to be provided during the contract term, including: consultation and advice to the Board regarding potential changes in the actuarial assumptions used or to be studied for use in the preparation of the annual valuation; coordination with the System auditor and legal counsel regarding funding issues and

39 questions; assessment and recommendation to the Board of the annual cost of living adjustment for members; and consultation to the Board regarding reporting changes, regulations and requirements. The System is a closed, single-employer defined benefit retirement plan that provides service and disability retirement benefits and survivor benefits to approximately 255 retired employees and their beneficiaries (including 25 Domestic Relations Order payments). All members are in payment status and receive the same COLA adjustments, effective July 1 annually. There are three annuity options: Straight Life, 60% Joint and Survivor, and 100% Joint and Survivor. There is no retiree medical benefit. Benefits are administered by the Board, including, but not limited to: payment of retirement benefits, setting of employer contribution rates, investment of fund assets, and other such responsibilities traditionally performed by the fiduciary of a retirement system. The Board and the System are obligated under California law and Section 401(a) of the Internal Code to exercise its responsibilities for the sole and exclusive benefit of the members and beneficiaries of the System. The System was established by the City of Pasadena City Charter, Article XV, in the early 1900's and has been in continuous operation since. The System was closed to new members on July 1, 1977, and is exempt from the regulation of the Employee Retirement Income Security Act of 1974 (ERISA), as well as is exempt from federal income taxes and California franchise tax. The System is a custody fund which, by law, is under the exclusive control and management of the Board. The Board is comprised of five members: two are elected by retired Fire and Police members of the System; one is a member of the City Council, the legislative body of the City; and two are appointed by the legislative body. The Board contracts for an annual actuarial valuation, including developing plan sponsor contribution projections for the fund. The most recent actuarial valuation prepared by System actuary, Bartel Associates, dated June 30, 2016 determined the Actuarial Value of Assets funded percentage of the fund was 80.5%. The Actuarial Value of Assets was approximately $125,479,000 with the Actuarial Accrued Liability of $155,824,000. The actuarial assumptions used in the June 30, 2016 actuarial valuation report were: Assumption June 30, 2016 Valuation Valuation Date: June 30, 2016 Inflation: 3% Discount Rate: 6.00% annual Net of 40 bp investment expenses and 50 bp average for administrative expenses Mortality: CALPERS Experience Study Mortality Improvement Scale MP-2014 modified to converge to ultimate mortality improvement rates in

40 As of June 30, 2016 the approximate market value of net assets held in trust for pension benefits was $126,269,000 which is predominantly held in pooled investment vehicles. Verus Investments provides non-discretionary investment and asset allocation advice directly to the Board (there is no Investment Committee). The current Investment Policy Statement encompasses the following asset classes and target allocations: Domestic Core Fixed Income 35% (active manager) Large Cap Domestic Equity 16% (8% Large Cap Value, 8% Large Cap Growth) Small Cap Core Domestic Equity 4% (active manager) International Equity 20% (mutual fund shares owned in US Dollars) Private Real Estate 10% Liquid Alternative Investments 5% Bank Loans 5% TIPS 5% Contributions to the plan by the City of Pasadena are determined by Contribution Agreement No. 16,900 and Amended and Restated Contribution Agreement No. 20,823. Both agreements are attached to this RFP. Benefit Summary Participation Cost-of-Living Increases City Contributions Assumptions Contribution Timing June 30, 2016 Valuation Frozen plan with only retired members Hired >= 7/1/1977 participate in CalPERS Members are firefighters and police officers hired <7/1/1977, except those who transferred to CalPERS on 7/1/1977 and 6/2004 COLA increases effective 7/1 equal to the nearest one percent annual increase in the CPI as of the prior calendar year for the Los Angeles-Riverside-Orange County area Required when funded percentage is less than Minimum required Funded Percentage (MFP) per Amended and Restated Contribution Agreement No. 16,900. Interest rate and inflation assumptions for the actuarial valuations for 6/30/2013 and later are determined by the Board after consultation with the System s actuary, and after seeking input from the City and the System s investment consultant City will make any required supplemental payments on or before January

41 III. PROJECTED RFP SCHEDULE The System anticipates following the schedule indicated below, which will result in the approval of an actuarial services contract by February 15, However, the System reserves the right to alter the schedule at any time. Date October 27, 2016 November 3, 2016 November 17, 2016 November 17 29, 2016 December 5 8, 2016 January 18, 2017 February 15, 2017 Milestone RFP Issued Deadline for Written Questions Proposal Due Date Evaluation of Proposals Potential Candidate Interviews Potential Candidate Interviews with the Board RFP Award Notification (begin contract development) FPRS Board Contract Approval and Execution IV. REQUESTED SERVICES The System s current actuary is Bartel Associates who has served in this capacity since Bartel Associates has been invited to submit a proposal. The Board will accept proposals from qualified bidders for: A. Preparation of an annual actuarial valuation report and required disclosures for the three fiscal years ending June 30, , to include on an annual basis: 1. The required contribution amount from the City, based on Contribution Agreements No. 16,900 and No. 20,823; 2. An analysis of the participant data, including participant reconciliation chart; 3. Market Value of Assets reconciliation, Actuarial Value of Assets calculation and Actuarial Value of Assets reconciliation; 4. Historical Expense information; 5. Historical Funded Status; 6. Analysis of Actuarial Gains and Losses, showing actual changes of economic experience and demographic experience since the prior valuation; 7. Funded Status Projection, City Contribution projection and calculation of City contributions sensitivity to COLA and investment return volatility; 8. All GASB statements and disclosures that are required to be reported in the annual financial statements during the contract periods including: GASB Statement No. 67 an amendment of GASB Statement No. 25, Financial

42 Reporting for Pension Plans Statement No. 68 an amendment of GASB Statement No. 27 (but not limited to): a. Schedule of Net Pension Liability (and components of Net Pension Liability), b. Schedule of Changes in Employer s Net Pension Liability, c. Schedule of Employer s Net Pension Liability and Related Ratios, d. Schedule of Employer Contributions, e. Actuarial Assumptions used to measure Total Pension Liability, f. Schedule of Investment Returns, g. Notes to the Required Supplementary Information RSI) which includes additional information regarding total pension liability; 9. Provision of seven (7) color copies and one (1) electronic copy of the Draft Actuarial Valuation Report, including an actuarial certification; and 10. Provision of two (2) color copies and one (1) electronic copy of the Final Actuarial Valuation Report, including an actuarial certification. B. Regular annual actuarial services, including: 1. Develop annual actuarial valuation assumption recommendations for Board adoption prior to preparing the valuation (approximately in May); 2. Provide a letter to the Board, certifying the annual cost of living adjustment* for members and beneficiaries, by February each year for July 1 implementation; 3. Board Meeting attendance to present and discuss the Valuation report, no later than October following the end of the valuation year; 4. Annual benefit payment estimate; and 5. Respond to Audit confirmation letter. (*Cost of Living adjustment: Based on the Bureau of Labor Statistics Calendar Year Average Consumers Price Index- All Urban Consumers, Not Seasonally Adjusted for Los Angeles-Riverside-Orange County, CA area; rounded to the nearest whole percent.) C. Special actuarial consulting services, as requested, may include: 1. Consultation and advice to the Board regarding potential changes in the actuarial assumptions used or to be studied for use in the preparation of the annual valuation and the experience studies or stochastic modelling needed; 2. Consultation to the Board regarding GASB calculations, disclosures and other reporting changes and requirements; 3. Consultation to the Board regarding any regulatory, reporting, legal or legislative changes and trends with respect to the public pension industry or actuarial issues and the potential impact on the System s funding; 4. Periodic consultation with the System s auditor, legal counsel and other advisors on funding issues, and issues related to actuarial and plan design aspects that arise during the normal course of operation; and 5. Provide recommendations to the Board from time to time relative to possible improvements in the financing and structure of the System and to give effect to new developments in the retirement pension field

43 V. CONTRACT PERIOD The initial contract period is for three years beginning February 15, 2017, and will include a 30-day no fault termination clause. Subject to acceptable performance and costs, this contract may be extended by additional renewal periods upon mutual agreement. Proposers must be able to guarantee pricing for the first three years of the contract. Actuarial valuation reports to be prepared during the initial contract term will include: June 30, 2017 June 30, 2018 June 30, 2019 VI. EVALUATION AND SELECTION PROCESS A. General Evaluation: The merits of proposals received will be evaluated in accordance with the criteria defined below. The proposer is responsible for providing all information requested in this RFP. Failure to do so may result in disqualification of the proposal. The specifications identified in this RFP represent the minimum performance necessary to be deemed responsive. B. Mandatory Criteria: 1. As of June 30, 2016, the proposing firm or the primary Consulting Actuary must have provided actuarial valuation services for other public sector defined benefit clients for a minimum of five (5) years. 2. Identification of the actuary(ies) available for assignment as the primary Consulting Actuary on the engagement (each primary Consulting Actuary person must meet or exceed the standards as provided below): a. Fellow or Associate of the Society of Actuaries, and/or Fellow of the Conference of Actuaries in Public Practice, and/or Member of the American Academy of Actuaries (Enrolled Actuary), and/or meet standards of a qualified actuary under the provisions of the Employee Retirement Income Security Act of 1974, b. Experience as a Consulting Actuary including consulting services, experience analysis and valuation assignments for other public retirement systems, and c. Ability to discuss in laymen s terms: actuarial theory, basis for assumptions, and other actuarial matters. 3. The proposing firm must demonstrate ability to comply with the insurance terms and conditions as described in Attachment C, Proposer Warranties, of this RFP

44 C. Selection Process: 1. Proposing firms may be invited to interview with a Proposal Review Committee, and/or with the Board. Interviews will be held at City Hall, in the City of Pasadena. Each such proposer invited to interview will be notified of the specific date, time and location of their respective interview. Proposers invited to interview may do so at their own expense, which may not be included in the cost of the proposal. 2. Contact or communication with any member of the Board by the proposer or the proposer s agent will be ground for immediate dismissal from further consideration. 3. All proposals are open to the public after a contract is awarded. The Board reserves the right to accept or reject, in part or in its entirety, any or all proposals received as a result of this RFP, if it is in the best interest of the System to do so, with or without cause. 4. The Board reserves the right to make an award without further discussion of the proposals received. Therefore, it is very important that proposals are submitted in the most complete manner possible. 5. The Board shall provide written notification to the firm whose proposal is accepted. Following, the contract between the Board and the successful proposer shall be developed and executed as soon as reasonably practicable, but not later than February 15, D. Other Considerations: 1. The successful proposer, at their own expense, shall become familiar with and comply with the provisions of any and all federal, state, or municipal statutes, ordinances, charter provisions, contribution agreements, rules and regulations that may pertain to the work required under the contract. 2. The Board reserves the right to approve substitutions for assigned personnel proposed for this engagement. 3. No oral change or interpretation of the provisions contained in this RFP is valid. Written changes may be issued when deemed necessary by the Board. VII. PROPOSAL SUBMISSION REQUIREMENTS Responses to this Request for Proposal must be submitted with three (3) paper copies and one (1) electronic copy. To ensure a uniform review process and to obtain the maximum degree of comparability, proposals must be organized in the following manner: A. Title Page: Show the legal business name of the proposer, local address, telephone number, , name of contact person, date, and the subject: Request for Proposal - Actuarial Services

45 B. Table of Contents: The proposal must include a clear identification of the material included in the bid proposal by section and page number. C. Transmittal Letter: The transmittal letter should not exceed two or three pages. It must provide the names of individuals authorized to make representations for the firm and their titles, addresses and telephone numbers. It must be signed by the individual(s) authorized to bind the firm contractually. D. Conflict of Interest: The proposer must complete the Conflict of Interest Statement, Attachment A, and disclose any financial or other business relationship with the FPRS that may affect the outcome of the contract. If there are none, a statement to that effect must be included. The proposer must also list current clients who may have a financial interest in the outcome of the contract. If there are none, a statement to that effect must be included. E. Proposed Fee Schedule: Please complete the fee schedule, Attachment B. The fee quotation should be all-inclusive, with all costs related to the transition, travel, out-ofpocket expenses and other costs of the proposer included in the fee schedule for the actuarial valuation. Please note that the any adjustments to a fixed fee or hourly rates must be mutually agreed to, in advance, in writing. Payment will be made upon receipt of an invoice detailing the tasks performed and, if applicable, the hours expended for each task. 1. The proposal must state the total inclusive maximum fee for which the annual scope of work will be done. 2. The proposer must state rates for other services that are not included in the annual scope of work, such as Consultations, Experience Studies, Stochastic modelling, providing recommendations, telephone calls. 3. The proposer must state the hourly rate for the staff that would be assigned to our firm. 4. The proposal should affirm that all prices, terms and conditions would be held firm for at least 180 days after the bid is submitted. 5. The proposer must guarantee the conditions specified in the proposal for the duration of the contract. F. Firm Description: The purpose of the proposal is to demonstrate the qualifications, competence and capacity of the firm seeking to undertake the actuarial services for the System. The proposal should provide a straightforward, concise description of the proposer s capabilities to satisfy the requirements of the RFP. While additional data may be presented, the following subjects must be addressed. 1. License to Practice in California: An affirmative statement should be included that the proposer and firm are properly licensed to practice in California and are in good standing with such licensing agencies. 2. Firm Qualifications and Experience: The proposer should state the size of the firm, the size of the firm s staff, the location of the office from which the work on this engagement is to be performed and the number and nature of the professional staff

46 to be employed in this engagement. Provide a brief history and general description of your firm, including when the firm was founded, and by whom, current ownership and affiliations, names and titles of key officials and whether the firm is local, national or international. Describe the full range of services your local office provides to clients. What are the firm s specialties or areas of greatest expertise? Please note any recent changes in ownership of your firm (within the last 12 months) and any planned or anticipated changes during the next 36 months (the length of the proposal). 3. Internal Quality Control Processes and Procedures: Explain your firm s internal quality control processes and methodologies. Specifically, when preparing an actuarial valuation, identify reviewers, items reviewed and when (in the process) reviews occur. 4. Similar Engagements with other Pension Plans: For the proposer s office that will be assigned responsibility for services, list the most significant engagements that are similar to the engagement described in this RFP. Please also list the total number of public plan clients that the firm serves. 5. Disputed Reports, Studies and Other Issues: The proposal should identify any instances within the past five (5) years in which the firm and/or any individual actuary was the subject of professional disciplinary proceedings or named as a defendant in any action for professional negligence or willful misconduct and describe the outcome. 6. References: A minimum of three (3) client references for the proposer s most relevant projects within the past five (5) years must be provided. 7. Delivery Schedule: The proposal must include a time schedule of the valuation work to be performed and delivery dates for the required reports. G. Proposer Warranties: The proposer must complete the Proposer Warranties, Attachment C, providing agreement to incorporate the warranties into a proposed contract. H. Sample Work products: The proposer must include a sample actuarial valuation report for a client within the past five years. A proposal under this RFP will not be considered complete unless it contains all of the items described within this section. Further, a proposal that is not submitted in complete form by the due date of November 17, 2016 will be rejected. Emphasis should be on completeness and clarity of content. Costs for developing proposals, submission, and oral interviews are entirely the responsibility of the bidder, and shall not be charged to the System

47 VIII. ATTACHMENTS Attachment A, Conflict of Interest Disclosure Attachment B, Proposed Fee Schedule Attachment C, Proposer Warranties

48 IX. EXHIBITS Exhibit A, Article XV of the Charter of the City of Pasadena Exhibit B, June 30, 2016 Actuarial Valuation Report Exhibit C, Contribution Agreement No. 16,900 Exhibit D, Amended and Restated Contribution Agreement No. 20,823 Exhibit E, Settlement & Release Agreement No. 18,

49 Pasadena Fire & Police Retirement System Request for Proposal - Actuarial Services November 14, 2016 Bartel Associates, LLC 411 Borel Avenue, Suite 101 San Mateo, California Phone: Contact: John E. Bartel, President jbartel@bartel-associates.com

50 November 14, 2016 Jill Fosselman Administrator Pasadena Fire & Police Retirement System 100 North Garfield Avenue, Room N204 Pasadena, CA Re: Proposal for Actuarial Consulting Services Dear Ms. Fosselman: We are pleased to provide our response to the Pasadena Fire & Police Retirement System s (FPRS) Request for Proposal for actuarial consulting services. Bartel Associates is uniquely qualified to provide actuarial consulting services to FPRS: Bartel Associates was established to provide quality and cost-effective actuarial consulting services to California public agencies. Our staff includes senior actuaries with extensive experience with public sector retirement plans. We regularly present the results of our actuarial studies to retirement system boards, county boards of supervisors, city councils, and district boards of directors. Our presentations are clear, concise, and understandable to non-actuaries. As the president of Bartel Associates, I am authorized to represent the firm, submit this proposal including our fees, and sign a contract with the System. Our proposal is valid for 180 days after the closing date for submission of proposals. We guarantee the conditions specified in our proposal for the duration of the 3-year contract. Please contact Joseph D Onofrio at (jdonofrio@bartel-associates.com) or me at (jbartel@bartel-associates.com) if you have any questions regarding our proposal. Sincerely, John E. Bartel President c: Joseph D Onofrio, Bartel Associates, LLC O:\Clients\PasadenaFPRS\Proposals\2016 II\BA FPRS pension proposal.doc 411 Borel Avenue, Suite 101 San Mateo, California main: 650/ fax: 650/ web:

51

52 Contents Page Section 1 Conflict of Interest Statement... 1 Section 2 Proposed Fee Schedule... 2 Section 3 Firm Description... 6 Section 4 Proposer Warranties Appendices A. Sample Pension Clients B. Certificate of Liability Insurance Attachments A. Sample Funding Valuation Report B. Sample GASBS 67 Valuation Report

53 SECTION 1 CONFLICT OF INTEREST STATEMENT Bartel Associates, LLC 1 Pasadena FPRS

54 SECTION 2 PROPOSED FEE SCHEDULE Bartel Associates, LLC 2 Pasadena FPRS

55 SECTION 2 PROPOSED FEE SCHEDULE The contract period is for 3 years beginning February 15, 2017 and will include annual actuarial valuations as of June 30, 2017, June 30, 2018, and June 30, Our fixed fees for the Actuarial Valuations and Regular Annual Actuarial Services (described below) for the next three years are: Calendar Year Valuation Date 6/30/17 6/30/18 6/30/19 Estimated Fee $16,000 $16,500 $17,000 Our fees for Special Actuarial Consulting Services (described below) requested will be a function of the hours needed by each professional and their hourly billing rates. We will provide a fee estimate after the scope of a project is defined and before work has begun. Our hourly rates for the duration of the 3-year contract will be: Title Team Member Hourly Rate President John Bartel $310 Partner 260 Assistant Vice President Joseph D Onofrio 230 Associate Actuary Katherine Moore 180 Senior Actuarial Analyst Matt Childs 160 Actuarial Analyst 130 Administrative Support 75 Our fixed fees assume: Participant census data requested will be provided completely and accurately in an Excel spreadsheet with one record per participant. All census and financial information will be provided as requested and is internally consistent. We will have one meeting with the System Administrator, if needed, to review each year s valuation results and will provide a preliminary valuation report for the meeting. We will have one meeting with the Board to present each year s valuation results. We will prepare a final valuation report and provide copies as requested. We will invoice FPRS monthly based on time incurred, subject to the above maximum fees. Our fixed fees are inclusive of incidental expenses, such as travel and out-of-pocket expenses. Actuarial Valuations Actuarial valuation reports will be prepared annually and will include the following information: Calculation of the required City contribution per the contribution agreements between FPRS and the City. Review of participant data, participant reconciliation, and summary of participant statistics. Reconciliation of Market Value of Assets, calculation of Actuarial Value of Assets, and reconciliation of Actuarial Value of Assets. Bartel Associates, LLC 3 Pasadena FPRS

56 SECTION 2 PROPOSED FEE SCHEDULE Historical asset, liability, and funded status information. Historical City contributions and investment and administrative expense information. Analysis of actuarial gains and losses for the Actuarial Accrued Liability and Actuarial Value of Assets since the prior valuation, including economic and demographic experience and assumption changes. Projection of funded status and City contributions. Sensitivity of the City contribution for the following year to investment return and COLA volatility. Governmental Accounting Standards Board Statement (GASBS) 67 accounting information, including: Notes to Financial Statement: - Covered members - Significant actuarial assumptions - City contributions - Net Pension Liability discount rate sensitivity Required Supplementary Information (RSI): - Schedule of Changes in Total Pension Liability - Schedule of Changes in Plan Fiduciary Net Position - Schedule of Net Pension Liability and related ratios - Schedule of Employer Contributions - Schedule of Money-Weighted Rate of Return As requested, we will provide seven color copies and one electronic copy of the draft actuarial valuation report, including a draft actuarial certification, and two color copies and one electronic copy of the final actuarial valuation report, including a signed actuarial certification. Regular Annual Actuarial Services Provide actuarial valuation assumption recommendations for Board consideration and adoption annually prior to the preparation of the actuarial valuation. Such notification generally occurs in May of each year. Provide a letter annually to the Board certifying the cost-of-living adjustment for members and beneficiaries benefits effective on July 1 of each year. This letter is generally provided in January of each year after cost-of-living information is available. Attendance at a Board meeting to present and discuss the actuarial valuation results no later than the October Board meeting following the valuation date. Provide annual benefit payment estimates. Reply to audit confirmation letters. Special Actuarial Consulting Services (as requested) Consultation and advice to the Board regarding potential changes to the actuarial assumptions to be studied for use in the actuarial valuations, including experience studies or stochastic modeling recommended and requested by the Board. Consultation to the Board regarding GASB calculations, disclosures, and other reporting changes and requirements. Bartel Associates, LLC 4 Pasadena FPRS

57 SECTION 2 PROPOSED FEE SCHEDULE Non-legal consultation to the Board regarding regulatory, reporting, or legislative changes and trends with respect to the public pension industry or actuarial issues and the potential impact on the System s funding. Periodic consultation with the System s auditor, legal counsel, and other advisors on funding issues and actuarial and plan design issues that arise during the normal course of operation. Provide recommendations to the Board regarding possible improvements in the financing and structure of the System and the impact of new developments in the retirement pension field. Bartel Associates, LLC 5 Pasadena FPRS

58 SECTION 3 FIRM DESCRIPTION Qualifications and Services Bartel Associates, LLC is an actuarial consulting firm specializing in providing California counties, cities, districts, other public agencies, and retirement systems with actuarial consulting services. John Bartel founded Bartel Associates in 2003 to provide public sector clients high quality actuarial services at reasonable fees, focusing on personal attention and clear results. Our office is located in San Mateo, California. Our services include: Pension Plans - We prepare funding and GASBS 67/68 actuarial valuations and assist with the administration of defined benefit pension plans for California governments, agencies, and retirement systems. OPEB Plans - We prepare Other Postemployment Benefit actuarial studies and valuations for California counties, cities, districts, and other agencies to assist with compliance with GASBS 43/45 and 74/75. Retirement System Audits - We review actuarial valuations, experience studies, actuarial assumptions, and actuarial methods for state, county, and other retirement systems. Plan Design - We assist public agencies redesign existing retirement plans and implement new retirement benefit programs including retiree medical plans and pension plans. CalPERS - We provide CalPERS pension consulting services and have made presentations to city councils, district boards of directors, employee bargaining groups, and agency staff on CalPERS contribution rates and benefit design issues. Bartel Associates is licensed to do business in California and is in good standing. Our certificate of liability insurance is included in Appendix B. Bartel Associates has prepared FPRS actuarial valuations since We have also provided consulting services to the City of Pasadena, including CalPERS consulting and the preparation of GASBS 68 information for the reporting of FPRS on City financial statements. Employees and Team Members Bartel Associates has 20 employees, including 8 senior actuaries, 2 associate actuaries, 7 actuarial analysts, and 3 administrative staff members. Four of our actuaries are Fellows of the Society of Actuaries, 6 are Associates of the Society of Actuaries, 10 are Members of the American Academy of Actuaries, 7 are Enrolled Actuaries, and 7 are Fellows of the Conference of Consulting Actuaries. Our FPRS project team will include: John Bartel, President Joseph D Onofrio, Assistant Vice President Matt Childs, Senior Actuarial Analyst Katherine Moore, Associate Actuary Bartel Associates, LLC 6 Pasadena FPRS

59 SECTION 3 FIRM DESCRIPTION John Bartel has extensive experience with public sector retirement plans and will be available to the Board for presentations and consulting projects. John is an Associate of the Society of Actuaries, a Member of the American Academy of Actuaries, and a Fellow of the Conference of Actuaries. Joseph D Onofrio will be the System s senior actuary and primary contact. Joe is a Fellow of the Society of Actuaries, an Enrolled Actuary, a Member of the American Academy of Actuaries, and a Fellow of the Conference of Consulting Actuaries. Matt Childs is a senior actuarial analyst and has worked on the System s actuarial valuations since Katherine Moore has checked the FPRS valuation results for the last several years. Katherine is an Associate of the Society of Actuaries and a Member of the American Academy of Actuaries. Internal Quality Control Processes and Procedures Our actuarial valuation process includes the following steps: Data Collection - The System administrator will provide participant data and asset information. Data Reconciliation - Bartel Associates will review the participant data and asset information. We will provide a list of data questions, if needed. Valuation Assumptions -We will review the valuation assumptions annually. Valuation Processing - We will prepare the actuarial valuation using ProVal software, a comprehensive and widely used and respected retirement benefit valuation system developed by Winklevoss Technologies, LLC. Preliminary Results Meeting - We will meet with the System Administrator to review a preliminary valuation report, if needed. Board Meeting - We present final valuation results at a designated Board meeting. Final Valuation Report - We will prepare a final valuation report including an actuarial certification. Our procedures for quality control include the checking of computer programs and calculations by a second actuary and the review of results and presentation materials by senior actuaries. This review takes place at each step of the above valuation process. We keep client information secure by encrypting all files kept on our computers. Similar Engagements with Other Pension Plans Bartel Associates has more than 400 public sector clients. A sample of agencies for which we provide pension valuation services are included in Appendix A. Bartel Associates, LLC 7 Pasadena FPRS

60 SECTION 3 FIRM DESCRIPTION Disputed Reports, Studies, and Other Issues Bartel Associates and its actuaries have not been involved in any lawsuit, arbitration, or mediation pertaining to any consulting activities during the last 5 years nor have we ever been subject to any Federal or state investigations. No member of our firm has faced disciplinary action by the American Academy of Actuaries. Firm Ownership John bartel owns over 60% of Bartel Associates with the remainder owned entirely by other employees. There have been no significant changes in ownership over the past 12 months and none is expected over the next 36 months. Delivery Schedule Our recommended schedule for the annual actuarial valuation and routine administrative tasks required of the actuary is as follows: Annual Task COLA letter (after annual inflation information is available for the prior calendar year) Assumptions letter for upcoming valuation System Administrator provides member data to Bartel Associates (after 6/30 year-end) System Administrator provides asset information to Bartel Associates Bartel Associates meets with System Administrator to present preliminary funding and GASBS 67 valuation reports Bartel Associates presents funding valuations results to Board Bartel Associates provides formal funding and GASBS 67 valuation report Audit letter Month January May July August September October October As Requested Bartel Associates, LLC 8 Pasadena FPRS

61 SECTION 3 FIRM DESCRIPTION References We recommend that FPRS contact our references to understand the quality of our work. We can provide additional references at the System s request. Client Sacramento City Employees Retirement System Contra Costa Water District City of Long Beach City of Huntington Beach Contact Dennis W. Kauffman, Jr., CPA Finance Operations Manager 915 I Street, 5 th Floor Sacramento, CA Phone: (916) dkauffman@cityofsacramento.org Margaret Ramirez Human Resources and Risk Manager P.O. Box H2O Concord, CA Phone: (925) mramirez@ccwater.com John Gross Director of Financial Management 330 W. Ocean Blvd., 6th Floor Long Beach, CA Phone: (562) john.rross@longbeach.gov Lori Ann Farrell Harrison Director of Finance 2000 Main Street, First Floor Huntington Beach, CA Phone: (714) loriann.farrell@surfcity-hb.org Bartel Associates, LLC 9 Pasadena FPRS

62 SECTION 4 PROPOSER WARRANTIES Bartel Associates, LLC 10 Pasadena FPRS

63 APPENDIX A SAMPLE PENSION CLIENTS Our public sector pension valuation clients include: Alaska Railroad Corporation City of Berkeley City of Concord Retirement System City of Huntington Beach City of Long Beach City of Piedmont City of Richmond City of San Clemente City of Santa Barbara Contra Costa Water District East Bay Regional Park District Orange County Extra Help Plan Sacramento City Employee Retirement System San Joaquin Regional Transit District We also do actuarial valuations for supplemental pension plans for the following cities: City of Antioch City of Bishop City of El Segundo City of La Mesa City of Lancaster City of Long Beach City of Oxnard City of Rancho Cucamonga City of Redding City of Torrance City of West Covina Bartel Associates, LLC 11 Pasadena FPRS

64 APPENDIX B CERTIFICATE OF LIABILITY INSURANCE Bartel Associates, LLC 12 Pasadena FPRS

65 PASADENA FIRE & POLICE RETIREMENT SYSTEM June 30, 2016 Actuarial Valuation Final Results Bartel Associates, LLC Joseph R. D Onofrio, Assistant Vice President Matthew Childs, Senior Actuarial Analyst Katherine Moore, Associate Actuary September 21, 2016 CONTENTS Topic Page Valuation Summary 1 Participants 2 Assets 5 Valuation Results 13 Actuarial Assumptions 28 Actuarial Certification 30 Exhibits 31 O:\Clients\PasadenaFPRS\Projects\Pension\2016\Reports\BA FPRS pension final valuation results.docx

66 VALUATION SUMMARY Valuation Summary (Amounts in 000 s) Valuation Date 6/30/14 6/30/15 6/30/16 Funding Discount Rate 6.00% 6.00% 6.00% Actuarial Accrued Liability $159,516 $162,154 $155,824 Actuarial Value of Assets (AVA) 130, , ,479 AVA Unfunded Actuarial Accrued Liability 29,333 32,170 30,345 AVA Funded Percentage 81.6% 80.2% 80.5% Market Value of Assets (MVA) 148, , ,269 MVA Unfunded Actuarial Accrued Liability 11,312 22,185 29,555 MVA Funded Percentage 92.9% 86.3% 81.0% Minimum Funding Percentage 77.0% 77.5% 78.0% Contribution at Valuation Date Contribution at Following 1/ September 21, PARTICIPANTS Participants & Benefits Valuation Date 6/30/14 6/30/15 6/30/16 Service Retirees Average Age Average Monthly Benefit $5,747 $5,793 $5,889 Disability Retirees Average Age Average Monthly Benefit $4,496 $4,577 $4,595 Beneficiaries Average Age Average Monthly Benefit $3,224 $3,353 $3,425 Total Average Age Average Monthly Benefit $4,689 $4,785 $4,799 September 21,

67 PARTICIPANTS Participant Reconciliation Participants Service Retirees Disability Retirees Beneficiaries Total June 30, Deaths without Beneficiary (3) (1) (0) (4) Deaths with Beneficiary (3) ( 1) 4 - June 30, September 21, PARTICIPANTS Participants & Benefits June 30, 2016 Participants Funded Basic Unfunded Basic 1919 COLA Total Service Retirees Average Age Average Monthly Benefit $3, $2,621 $5,889 Disability Retirees Average Age Average Monthly Benefit $3,720 $1,425 - $2,570 $4,595 Beneficiaries Average Age Average Monthly Benefit $1,020 $ $2,432 $3,425 Total Average Age Average Monthly Benefit $2,777 $1,300 - $2,554 $4,799 September 21,

68 ASSETS Market Value of Assets (MVA) Reconciliation (Amounts in 000 s) Market Value of Assets 2013/ / /16 Market Value at Beginning of Year $140,173 $148,204 $139,969 Employer Contributions 1, Investment Earnings 21, , Benefit Payments (14,140) (13,645) (13,448) Investment Expenses 2 (339) (564) (554) Administrative Expenses (296) (273) (302) Market Value at End of Year 148, , ,269 Approximate Net Return % 3.8% (0.2%) MVA Expected Net Earnings 8,027 8,489 8,001 MVA Actual Net Earnings 21,008 5,409 (253) MVA Investment Loss (Gain) (12,981) 3,080 8,254 1 Includes $520,000 from Concord Asset. 2 For years 2014/15 and 2015/16, investment expenses include expenses for Voya and investment expense for Invesco previously reflected with investment earnings. 3 Approximate return net of investment and administrative expenses and not the money-weighted return provided by the System s investment advisor. September 21, ASSETS Asset Allocation (Amounts in 000 s) June 30, 2015 June 30, 2016 Asset Class Target Assets Pct Target Assets Pct US Stocks 22% $28,981 21% 20% $23,499 19% Foreign Stocks 20% 26,438 19% 20% 21,810 17% Fixed Income 33% 45,088 32% 35% 43,812 35% Bank Loans 5% 6,693 5% 5% 7,631 6% TIPs 5% 4,342 3% 5% 4,549 4% Real Estate 10% 19,145 14% 10% 17,843 14% Hedge Funds 5% 7,519 5% 5% 6,391 5% Cash Equivalents 0% 1,763 1% 0% 733 1% Market Value 100% 139, % 100% 126, % September 21,

69 ASSETS Actuarial Value of Assets (AVA) (Amounts in 000 s) Actuarial Value of Assets Loss (Gain) AVA 6/30/15 AVA 6/30/16 Market Value of Assets $139,969 $126,269 Deferred Investment Losses (Gains) 2015/16 (-0.2% net return) $ 8,254 n/a 80% 6, /15 (3.8% net return) 3,080 80% 2,464 60% 1, /14 (15.7% net return) (12,981) 60% (7,789) 40% (5,192) 2012/13 (11.6% net return) (7,434) 40% (2,974) 20% (1,487) 2011/12 (1.6% net return) 4,834 20% 967 n/a Total (4,247) (7,332) 1,772 Preliminary Actuarial Value of Assets 132, ,040 Charter Section % Reserve (2,653) (2,561) Actuarial Value of Assets 129, ,479 September 21, ASSETS Actuarial Value of Assets Reconciliation (Amounts in 000 s) Actuarial Value of Assets Preliminary AVA Final AVA 4 Actuarial Value at Beginning of Year $132,637 $129,984 Employer Contributions 0 0 Net Investment Earnings 8, ,674 Benefit Payments (13,448) (13,179) Actuarial Value at End of Year 128, ,479 Approximate Net Return 6 7.0% 7.0% AVA Expected Net Earnings 10, ,291 AVA Actual Net Earnings 8,851 8,674 AVA Investment Loss (Gain) 1, ,618 4 Preliminary Actuarial Value of Assets less Charter Section % Reserve. 5 MVA Expected Net Earnings of $8,001,000 plus 20% of outstanding deferred gains of $4,247,000 through 2015/16. 6 Approximate net return on Actuarial Value of Assets. (Smoothed return net of investment and administrative expenses.) 7 MVA Expected Net Earnings of $8,001,000 plus 20% of outstanding deferred gains of $12,501,000 through 2014/ % of 2015/16 Market Value investment loss of $8,254,000. September 21,

70 ASSETS Net Annual Return Historical Asset Information 9 (Amounts in 000 s) 10-Year Average Return 10 Deferred Losses (Gains) Prelim Actuarial Value Sec % Reserve Valuation Market Actuarial AV/MV Date Value Value 6/30/16 $126,269 (0.2%) 5.3% $ 1,772 $128,040 $2,561 $125,479 99% 6/30/15 139, % 6.4% (7,332) 132,637 2, ,984 93% 6/30/14 148, % 7.1% (15,364) 132,840 2, ,183 88% 6/30/13 140, % 7.0% (9,576) 130,597 2, ,985 91% 6/30/12 139, % 6.0% (83) 139,053 2, ,272 98% 6/30/11 104, % 5.0% 3, ,970 2, , % 6/30/10 91, % 2.8% 20, ,980 2, , % 6/30/09 87,209 (20.2%) n/a 34, ,991 2, , % 6/30/08 124,964 (7.6%) n/a 9, ,001 2, , % 6/30/07 147, % n/a (13,498) 133,813 2, ,137 89% 9 Historical information prior to 2010 from prior actuary s June 30, 2009 actuarial report. 10 Net of investment and administrative expenses. September 21, ASSETS 200 Assets 175 Market Value Actuarial Value Millions of Dollars Fiscal Year Ending September 21,

71 ASSETS Fiscal Year Ended Historical Employer Contributions 11 (Amounts in 000 s) City Required Contribution City Actual Contribution 6/30/17 $ 0 n/a 6/30/ /30/ /30/14 1,164 1,164 6/30/ /30/12 9,079 46,600 6/30/11 8,036 8,036 6/30/10 4,982 4,982 6/30/ /30/08 3,194 3, Historical information before 6/30/11 from prior actuary s June 30, 2009 actuarial valuation report. September 21, ASSETS Fiscal Year End Historical Expense Information 12 (Dollar Amounts in 000 s) Investment Expenses 13 Administrative Expenses Total Expenses 6/30/16.40%.21% ($302).61% 6/30/15.38%.18% ($273).56% 6/30/14.24%.21% ($296).45% 6/30/13.27%.19% ($271).46% 6/30/12.23%.27% ($287).50% 6/30/11.40%.26% ($242).66% 6/30/10.38%.28% ($247).66% 6/30/09.37%.17% ($211).54% 6/30/08.28%.20% ($301).48% 12 Historical information prior to 2010 from prior actuary s June 30, 2009 actuarial report. 13 As a percent of beginning-of-year market value of assets. For fiscal year ending on and after 6/30/15, investment expenses include expenses for Voya and investment expense for Invesco previously reflected with investment earnings. September 21,

72 VALUATION RESULTS Actuarial Liability & Funded Status June 30, % Discount Rate - 3.0% COLA (Amounts in 000 s) Funded Basic Unfunded Basic 1919 COLA Total Retiree Count Actuarial Accrued Liability $51,125 $12,886 - $91,813 $155,824 AAL per Retiree Actuarial Value of Assets $51,125 $12,886 - $61,468 $125,479 AVA UAAL ,345 30,345 AVA Fund% 100% 100% % 80.5% Market Value of Assets $51,125 $12,886 - $62,258 $126,269 MVA UAAL ,555 29,555 MVA Fund% 100% 100% % 81.0% September 21, VALUATION RESULTS Actuarial Liability & Funded Status June 30, % Discount Rate - 3.0% COLA (Amounts in 000 s) Funded Basic Unfunded Basic 1919 COLA Total Retiree Count Actuarial Accrued Liability $53,482 $13,216 - $95,456 $162,154 AAL per Retiree Actuarial Value of Assets $53,482 $13,216 - $63,286 $129,984 AVA UAAL ,170 32,170 AVA Fund% 100% 100% % 80.2% Market Value of Assets $53,482 $13,216 - $73,271 $139,969 MVA UAAL ,185 22,185 MVA Fund% 100% 100% % 86.3% September 21,

73 VALUATION RESULTS Historical Funded Status 14 (Amounts in 000 s) Interest Rate & Actual COLA Actuarial Actuarial Market Valuation Date Inflation Assumptions Next Year Accrued Liability Value of Assets AVA/ AAL Value of Assets MVA/ AAL 6/30/16 6.0%/3.0% 1% $155,824 $125, % $126, % 6/30/15 6.0%/3.0% 1% 162, , % 139, % 6/30/14 6.0%/3.0% 1% 159, , % 148, % 6/30/13 6.0%/3.0% 2% 168, , % 140, % 6/30/12 6.0%/3.0% 3% 174, , % 139, % 6/30/11 6.0%/3.0% 1% 179, , % 104, % 6/30/10 8.0%/3.8% (1%) 166, , % 91, % 6/30/09 8.0%/3.8% 4% 177, , % 87, % 6/30/08 8.0%/3.8% 3% 178, , % 124, % 14 Historical information prior to 2010 from prior actuary s June 30, 2009 actuarial valuation report. September 21, VALUATION RESULTS 250 Funded Status 100% % Millions of Dollars % 40% Funded Percent 50 20% Fiscal Year Ending AAL MVA AVA MVA Fund% AVA Fund% 0% September 21,

74 VALUATION RESULTS City Contribution (Amounts in 000 s) Valuation Date 6/30/15 6/30/16 City Contribution Actual 2015/16 Expected 2016/17 Actual 2016/17 (1) Actuarial Accrued Liability $162,154 $158,041 $155,824 (2) Actuarial Value of Assets 129, , ,479 (3) Funded Percentage = (2)/(1) 80.16% 80.45% 80.53% (4) Minimum Funding Percentage 77.50% 78.00% 78.00% (5) Additional Funding Percentage = Max [(4) - (3), 0] 0.00% 0.00% 0.00% (6) Funding Deficiency = (1) x (5) (7) Initial Supplemental Payment = Min [(6), $3,000)] (8) Excess Deficiency = (6) - (7) (9) Excess Funding Percentage n/a n/a n/a (10) Excess Supplemental Payment = (8) x (9) (11) Preliminary Supplemental Payment = (7) + (10) September 21, VALUATION RESULTS City Contribution (Amounts in 000 s) Valuation Date 6/30/15 6/30/16 Actual Expected Actual City Contribution 2015/ / /17 (12) Prior Year Benefit Payments 1919 Benefits $ 0 $ 0 $ 0 Unfunded Basic Benefits 1,335 1,298 1,310 COLA Benefits 7,180 7,041 7,085 Reimbursement Cap 8,515 8,339 8,395 (13) Supplemental Payment = Min (11,12) (14) City Contribution at 1/ September 21,

75 VALUATION RESULTS Estimated Actuarial Gains & Losses (Amounts in 000 s) Actuarial Gains & Losses Fund% AAL (AVA) UAAL 6/30/15 Actual 80.2% 162,154 (129,984) 32,170 6/30/16 Projected 80.5% 158,041 (127,149) 30,892 Experience Losses (Gains): Demographic (0.5%) COLA 1.6% (3,161) - (3,161) Investment (1.0%) - 1,618 1,618 Contribution 15 (0.0%) Benefit Payments 15 (0.1%) Total Changes 0.0% (2,217) 1,670 (547) 6/30/16 Actual 80.5% 155,824 (125,479) 30, Includes expected earnings to the end of the year. September 21, VALUATION RESULTS Actuarial Accrued Liability Comparison of Accounting and Funding Information (Amounts in 000 s) Actuarial Accrued Liability June 30, 2016 Discount Rate AAL AAL for Plan Accounting 6.50% $149,197 Provision for Administrative Expenses (0.50%) 6,627 AAL for Funding 6.00% 155,824 September 21,

76 VALUATION RESULTS Fiscal Year End Actuarial Accrued Liability BOY Funded Status Projection (Dollar Amounts in Millions) Actuarial Value of Assets BOY Proj Funded Percent BOY Minimum Funded Percent BOY Prelim Suppl Payment BOY Reimb Cap BOY City Contrib 1/1 Benefit Pmts 2017 $13.2 $156 $ % 78.0% $0.0 $8.4 $ % 78.5% % 79.0% % 79.5% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% September 21, VALUATION RESULTS Fiscal Year End Actuarial Accrued Liability BOY Funded Status Projection (Dollar Amounts in Millions) Actuarial Value of Assets BOY Proj Funded Percent BOY Minimum Funded Percent BOY Prelim Suppl Payment BOY Reimb Cap BOY City Contrib 1/1 Benefit Pmts 2032 $9.8 $81 $ % 80.0% $1.9 $7.1 $ % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% % 80.0% September 21,

77 VALUATION RESULTS City Contribution Preliminary Supplemental Payment Supplemental Payment (BOY) Initial Payment Millions of Dollars Millions of Dollars Fiscal Year Ending 0.0 September 21, VALUATION RESULTS 14 City Contribution & Benefit Payment Projection Benefit Payments 20% Prior Year Benefit Payments City Contribution (BOY) City Contribution Prior Valuation (BOY) Millions of Dollars Fiscal Year Ending September 21,

78 VALUATION RESULTS City Contribution Sensitivity 16 (Amounts in Millions) 2017/18 COLA = 0% 2017/18 COLA = +1% 2017/18 COLA = +2% 2017/18 COLA = +3% 2016/17 Return 1/1/18 Contrib 2016/17 Return 1/1/18 Contrib 2016/17 Return 1/1/18 Contrib 2016/17 Return 1/1/18 Contrib -19% $0.0-14% $0.0-9% $0.0-4% $0.0-20% % % 0.2-5% % % % 0.4-6% % % % 0.7-7% % % % 0.9-8% % % % 1.1-9% % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % These are estimated 2017/18 City contributions based on the June 30, 2016 actuarial valuation. Actual 2017/18 City contribution will be based on the June 30, 2017 actuarial valuation. September 21, VALUATION RESULTS September 21,

79 VALUATION RESULTS System Benefit Payment Sensitivity (Amounts in 000 s) COLA Calendar Year 2016 Benefit Payments 2017/18-1% 12,582 0% 12,709 +1% 12,836 +2% 12,963 +3% 13,090 September 21, ACTUARIAL ASSUMPTIONS Assumption June 30, 2015 Valuation June 30, 2016 Valuation Valuation Date June 30, /16 City contribution Inflation 3% Same Discount Rate % annually Net of 40 bp investment expenses and 50 bp average for administrative expenses Mortality CALPERS Experience Study Mortality Improvement Scale MP-2014 modified to converge to ultimate mortality improvement rates in 2022 June 30, /17 City contribution Same Same 17 The last review of the expected net long-term return on assets was done for the 6/30/15 actuarial valuation. The discount rate remains unchanged using the current asset mix. September 21,

80 ACTUARIAL ASSUMPTIONS Significant Actuarial Assumptions Expected Long-Term Rate of Return 6/30/16 Target Asset Expected Geometric Real Return 18 Asset Class Allocation US Stocks 20% 5.00% Foreign Stocks 20% 5.00% Fixed Income & Bank Loans 40% 0.74% TIPS 5% 0.20% Real Estate 10% 4.25% Hedge Funds 5% 3.14% Cash Equivalents 0% n/a Assumed Long-Term Rate of Inflation 3.00% Assumed Long-Term Investment Expenses 0.40% Expected Long-Term Net Rate of Return 6.50% year geometric real rates of return from CalPERS investment advisors in Expected 10-year return was increased by 56 bp, the difference between CalPERS long-term expected return and 10-year expected return. The 6/30/15 target asset allocation had 22% in US Stocks, 35% in Fixed Income & Bank Loans, and 3% in Cash Equivalents. A new stochastic asset analysis was not done. The change in the expected long-term net rate of return was estimated to be lower by less than 0.1%. September 21, ACTUARIAL CERTIFICATION This report presents the Pasadena Fire and Police Retirement System ( System ) actuarial valuation as of June 30, The purpose of this valuation is to determine the System s June 30, 2016 funded status and the City of Pasadena s 2016/17 contribution requirement. The valuation is based on participant data and financial information provided by the System and summarized in this report. We reviewed the participant data and financial information for reasonableness but did not perform an audit. The valuation was prepared using generally accepted actuarial principles and practices and the actuarial methods and assumptions summarized in this report. This report presents Bartel Associates best estimate of the System s obligations, funded status, and City contribution in accordance with our understanding of Contribution Agreement No. 20,823. The undersigned are members of the American Academy of Actuaries and meet the Academy s Qualification Standards to render the actuarial results and opinions in this report. Respectfully submitted, Joseph R. D Onofrio, FSA, EA, MAAA, FCA Assistant Vice President Bartel Associates, LLC September 21, 2016 September 21,

81 EXHIBITS Topic Page Benefit Summary E-1 Contribution Agreement No. 16,900 E-5 Settlement & Release Agreement No. 18,550 E-7 Contribution Agreement No. 20,823 E-8 Participant Statistics E-9 September 21, BENEFIT SUMMARY Participation Service Retirement Frozen plan with only retired members Hires 7/1/77 participate in CalPERS Members are firefighters and police officers hired < 7/1/77 except those who transferred to CalPERS on 7/1/77 & 6/04 Age 50 with 15 years of service or any age with 25 years of service 1/50 x Final Compensation x Years of Service x Actuarial Equivalent Factor, but no greater than 75% of Final Compensation Ret Age Factor Ret Age Factor Normal payment form is life annuity with 60% surviving spouse benefit September 21, 2016 E-1

82 BENEFIT SUMMARY Ordinary Disability Retirement Line-of -Duty Disability Retirement Vested Termination 10 years of service 1.5% Final Compensation x Years of Service If less than 25% x Final Compensation, then the lesser of 25% x Final Compensation and 1.5% x Final Compensation x Years of Service to age 55 Not less than Service Retirement benefit if eligible and elected Normal payment form is life annuity with 60% surviving spouse benefit Immediate eligibility 50% x Final Compensation Not less than Service Retirement benefit if eligible Normal payment form is life annuity with 100% surviving spouse benefit 10 years of service and employee contributions not withdrawn Payable at age 50 Same as Service Retirement benefit September 21, 2016 E-2 BENEFIT SUMMARY Withdrawal Accumulated employee contributions with interest Non-Duty Death Refund of employee contribution with interest plus prior 6 months pay if not eligible to retire 60% of Service Retirement benefit life annuity for surviving spouse if eligible to retire Line-of -Duty Death Final Compensation 50% x Final Compensation as life annuity for surviving spouse Highest consecutive 12-month average earnings September 21, 2016 E-3

83 BENEFIT SUMMARY Cost-of-Living Increases COLA increases effective 7/1 equal to the nearest one percent annual increase in the BLS CPI as of the prior calendar year for the Los Angeles-Riverside-Orange County area 1919 Benefits: Members - 1/2 of salary increase for active employees at employment level at the time of retirement Surviving spouses - 1/3 of salary increase for active employees at employment level at the time of retirement City Contributions Basic benefits None when fully funded. Supplemental Payment Required when funded percentage is less than minimum required funded percentage per Amended and Restated Contribution Agreement No. 16,900 September 21, 2016 E-4 CONTRIBUTION AGREEMENT NO. 16,900 Initial Funding Effective 3/18/99. City contributed $100 million bond proceeds to FPRS on 8/5/99 FPRS assigned 3/23/91 Prior Agreement receipts to City for use toward pension funding bond payments Bond proceeds used to fund in order: Funded Basic Benefits includes (1) Service Retirement benefits including survivor benefits and (2) Disability Retirement benefits for retirees over age 50 at Disability Retirement including survivor benefits Unfunded Basic Benefits (1) Disability Retirement Benefits for retirees under age 50 at Disability Retirement including survivor benefits and (2) survivor benefits of active employees who died while eligible to retire 1919 Benefits 1919 City Charter COLA Benefits Post-retirement benefit increases for Members and beneficiaries Basic Member contributions suspended while Basic Benefits full funded. Member 5% COLA contributions continued. September 21, 2016 E-5

84 CONTRIBUTION AGREEMENT NO. 16,900 Contributions for Funded Basic Benefits City Contributions for Unfunded Basic Benefits, 1919 Benefits, COLA Benefits No City contributions when Funded Basic Benefits are fully funded Contributions resume when Funded Basic Benefits not fully funded No City contribution when total funded percentage is greater than Minimum Funding Percentage (MFP) MFP initially 70% and increased by 0.5% per year (76.5% for 2013/14) until reaching 80% for 2020/21 City contribution ( Supplemental Payment ) is: Amount needed to bring FPRS total funded percentage up to the MFP ( Funding Deficiency ) No more than $3 million plus 20% of the difference between the Funding Deficiency and $3 million 20% increases to 40%, 60%, 80%, and 100% if prior year Supplemental Payment is less than the Funding Deficiency No more than prior year benefit payments for Unfunded Basic Benefits, 1919 Benefits, and COLA benefits ( Reimbursement Cap ) September 21, 2016 E-6 SETTLEMENT AND RELEASE AGREEMENT NO. 18,550 Initial Funding Effective 6/28/04 City contributed $40 million to FPRS including the 2004/05 Supplemental Payment Asset Corridor Contribution Timing FPRS agreed (1) not to use corridor methodology to determine the Actuarial Value of Assets for purposes of calculating Supplemental Payments and (2) to determine the Actuarial Value of Assets by using a methodology that smoothes changes in the market value of assets over a 5-year period unless: FPRS Board determines, upon advice from its actuary, that a change in smoothing methodology is necessary to comply with mandatory accounting or actuarial principles Some form of corridor methodology is adopted by a majority of 1937 Act County systems City has failed to make contributions as agreed City will make Supplemental Payment on or before January 1 September 21, 2016 E-7

85 CONTRIBUTION AGREEMENT NO. 20,823 Funding Effective 11/1/11 City contributed $46.6 million bond proceeds to FPRS including the 2011/12 Supplemental Payment due 1/2/12 Assumptions 6% interest rate and 3% inflation assumption for 6/30/12 actuarial valuation Interest rate and inflation assumption for actuarial valuations for 6/30/13 and later determined by Board after consultation with Plan s actuary after seeking input from City and Plan s investment consultant September 21, 2016 E-8 PARTICIPANT STATISTICS Retirees by Age and Years Retired Years Retired Age < Total < Total September 21, 2016 E-9

86 PARTICIPANT STATISTICS Retiree Age Distribution 6/30/15 Valuation 6/30/16 Valuation Number Age September 21, 2016 E-10 PARTICIPANT STATISTICS /30/15 Valuation 6/30/16 Valuation Years Retired 40 Number < Years Retired September 21, 2016 E-11

87 PASADENA FIRE & POLICE RETIREMENT SYSTEM GASB 67 Plan Actuarial Information Fiscal Year Ending June 30, 2016 Final Results Bartel Associates, LLC Joseph R. D Onofrio, Assistant Vice President Matthew Childs, Senior Actuarial Analyst Katherine Moore, Associate Actuary September 21, 2016 CONTENTS Topic Page Parameters Applicable Dates and Periods 1 Notes to Financial Statement Covered Members 2 Significant Actuarial Assumptions Economic and Demographic 3 Projected Cash Flow 4 Expected Long-Term Rate of Return 5 Discount Rate Calculation 6 Contributions 7 Net Pension Liability and Sensitivity 8 Required Supplementary Information 10-Year Schedule of Changes in Total Pension Liability 9 10-Year Schedule of Changes in Plan Fiduciary Net Position Year Schedule of Net Pension Liability Year Schedule of Employer Contributions Year Schedule of Money-Weighted Rate of Return 13 Schedule of Revenues by Source 14 Schedule of Expenses by Type 15 Actuarial Certification 16 Exhibits 17 O:\Clients\PasadenaFPRS\Projects\Pension\2016\Reports\BA FPRS pension GASB 67 accounting information.docx

88 NOTES TO FINANCIAL STATEMENT Applicable Dates and Periods Fiscal Year End June 30, 2016 June 30, 2015 Reporting Date 1 June 30, 2016 June 30, 2015 Reporting Period 2015/ /15 Valuation Date 2 June 30, 2016 June 30, 2015 Roll-Forward Date n/a n/a 1 Employer s fiscal year-end. 2 No earlier than 24 months prior to employer s fiscal year-end. September 21, NOTES TO FINANCIAL STATEMENT Covered Members Valuation Date 6/30/16 6/30/15 Inactives Currently Receiving Benefits Inactives Entitled to but not yet Receiving Benefits 0 0 Active Members 0 0 Total Covered Members Includes members, surviving spouses, and beneficiaries. September 21,

89 NOTES TO FINANCIAL STATEMENT Significant Actuarial Assumptions Economic and Demographic Reporting Date June 30, 2016 June 30, 2015 Discount Rate 6.50% 6.50% Expected Long-Term Rate of Return % 6.50% Administration Expenses % 0.50% Municipal Bond Rate 6 n/a n/a Source of Municipal Bond Rate n/a n/a General Inflation 3.00% 3.00% Aggregate Payroll Increases n/a n/a Merit Payroll Increases n/a n/a Base Mortality Rates CalPERS CalPERS Mortality Improvement Scale 7 Modified MP-2014 Modified MP Net of investment expenses. 5 Assumed long-term administration expenses as a percent of beginning year assets. (Actual administration expenses for 2015/16 were $302,000.) 6 The pension trust is projected to have sufficient assets to pay all benefits per the Plan s current funding policy. 7 Mortality Improvement Scale MP-2014 modified to converge to ultimate mortality improvement rates in September 21, NOTES TO FINANCIAL STATEMENT Significant Actuarial Assumptions Projected Cash Flow Reporting Date June 30, 2016 June 30, 2015 Contributions Discount Rate Years 8 Projected City contributions per Contribution Agreement No. 20,823 Expected long-term net rate of return - All cash flow projection years Municipal bond rate - n/a Projected City contributions per Contribution Agreement No. 20,823 Expected long-term net rate of return - All cash flow projection years Municipal bond rate - n/a 8 The pension trust is projected to have sufficient assets to pay all benefits per the Plan s current contribution policy. September 21,

90 NOTES TO FINANCIAL STATEMENT Significant Actuarial Assumptions Expected Long-Term Rate of Return 6/30/16 Target Asset Expected Geometric Real Return 9 Asset Class Allocation US Stocks 20% 5.00% Foreign Stocks 20% 5.00% Fixed Income & Bank Loans 40% 0.74% TIPS 5% 0.20% Real Estate 10% 4.25% Hedge Funds 5% 3.14% Cash Equivalents 0% n/a Assumed Long-Term Rate of Inflation 3.00% Assumed Long-Term Investment Expenses 0.40% Expected Long-Term Net Rate of Return 6.50% 9 10-year geometric real rates of return from CalPERS investment advisors in Expected 10-year return was increased by 56 bp, the difference between CalPERS long-term expected return and 10-year expected return. The 6/30/15 target asset allocation had 22% in US Stocks, 35% in Fixed Income & Bank Loans, and 3% in Cash Equivalents. A new stochastic asset analysis was not done. The change in the expected long-term net rate of return was estimated to be lower by less than 0.1%. September 21, NOTES TO FINANCIAL STATEMENT Significant Actuarial Assumptions Discount Rate Calculation (Amounts in 000 s) Present Value of Benefits June 30, 2016 Valuation Date Discount Rate Years 10 Projected Benefit Payments 11 Present Value of Benefits Present Value of Benefits Before Crossover Point % All $303,510 $149,197 After Crossover Point n/a n/a 0 0 Total 6.50% n/a 303, , See Exhibits E-4 to E Sum of expected benefit payments for all future years with no discounting. 12 The Crossover Point is the point at which the projected Fiduciary Net Position is no longer sufficient to pay projected benefit payments and at which point projected benefit payments are assumed to be paid directly from City assets. For this projection, the Fiduciary Net Position is projected to be sufficient to pay for all benefit payments. September 21,

91 NOTES TO FINANCIAL STATEMENT Contributions 2015/16 Reporting Period (Amounts in 000 s) Contributions Employer Active Employees Non- Employer Contributing Entities Trust Prefunding $0 $0 $0 Benefit Payments Outside Trust Total Contributions September 21, NOTES TO FINANCIAL STATEMENT Net Pension Liability Sensitivity June 30, 2016 Reporting Date (Amounts in 000 s) Discount Rate -1% 5.50% Assumption 6.50% +1% 7.50% Total Pension Liability $162,998 $149,197 $137,375 Plan Fiduciary Net Position 126, , ,269 Net Pension Liability $36,729 $22,928 $11,106 NPL Funded Percentage 77.5% 84.6% 91.9% September 21,

92 REQUIRED SUPPLEMENTARY INFORMATION 10-Year Schedule of Changes in Total Pension Liability 13 (Amounts in 000 s) Fiscal Year Ending Changes in Total Pension Liability 6/30/16 6/30/15 6/30/14 Discount Rate 6.50% 6.50% 6.00% Service Cost at End of Year $ 0 $ 0 $ 0 Interest on Total Pension Liability (Exh E-1) 9,644 9,162 10,185 Benefit Payments (13,448) (13,645) (14,140) Expected versus Actual Experience (2,098) (3,075) (5,310) Changes of Assumptions 0 3,141 0 Changes of Benefit Terms Net Changes (5,902) (4,417) (9,265) Total Pension Liability at Beginning of Year 155, , ,781 Total Pension Liability at End of Year 149, , , GASB 67 requires this information be reported in the Plan s Required Supplementary Information for 10 years or as many years as are available upon implementation. September 21, REQUIRED SUPPLEMENTARY INFORMATION 10-Year Schedule of Changes in Plan Fiduciary Net Position 14 (Amounts in 000 s) Fiscal Year Ending Changes in Plan Fiduciary Net Position 6/30/16 6/30/15 6/30/14 Employer Contributions $ 0 $ 0 $ 1,164 Employee Contributions Net Investment Income 50 5,683 21,303 Benefit Payments (13,448) (13,645) (14,140) Administrative Expenses (302) (273) (296) Net Changes (13,700) (8,235) 8,031 Plan FNP at Beginning of Year 139, , ,173 Plan FNP at End of Year 126, , ,204 Money-Weighted Rate of Return % 3.7% 15.4% 14 GASB 67 requires this information be reported in the Plan s Required Supplementary Information for 10 years or as many years as are available upon implementation. 15 Annual money-weighted rates of return net of investment expenses provided by the Plan s investment advisor. The moneyweighted rate of return expresses investment performance, net of investment fees, adjusted for the changing amounts actually invested. September 21,

93 REQUIRED SUPPLEMENTARY INFORMATION 10-Year Schedule of Net Pension Liability 16 (Amounts in 000 s) Fiscal Year Ending Net Pension Liability 6/30/16 6/30/15 6/30/14 Discount Rate 6.50% 6.50% 6.00% Total Pension Liability $149,197 $155,099 $159,516 Plan Fiduciary Net Position 126, , ,204 Net Pension Liability 22,928 15,130 11,312 Net Pension Liability Funded% 84.6% 90.2% 92.9% Covered Employee Payroll n/a n/a n/a Net Pension Liability %Payroll n/a n/a n/a 16 GASB 67 requires this information be reported in the Plan s Required Supplementary Information for 10 years or as many years as are available upon implementation. September 21, REQUIRED SUPPLEMENTARY INFORMATION Fiscal Year Ending 10-Year Schedule of Employer Contributions 17 (Amounts in 000 s) Actuarially Determined Contribution Covered Employee Payroll Actual Contribution Percent of Payroll Actual Contribution Deficiency (Excess) 6/30/16 $ 0 $ 0 $ 0 n/a n/a 6/30/ n/a n/a 6/30/14 1,164 1,164 0 n/a n/a 6/30/ n/a n/a 6/30/12 9,079 46,600 (37,521) n/a n/a 6/30/11 8,036 8,036 0 n/a n/a 6/30/10 4,982 4,982 0 n/a n/a 6/30/ n/a n/a 6/30/08 3,194 3,194 0 n/a n/a 6/30/07 3,839 3,839 0 n/a n/a 17 GASB 67 requires this information be reported in the Plan s Required Supplementary Information for 10 years. September 21,

94 REQUIRED SUPPLEMENTARY INFORMATION 10-Year Schedule of Annual Money-Weighted Rate of Return 18 (Amounts in 000 s) Fiscal Year Ending Annual Money-Weighted Rate of Return 19 6/30/16 0.4% 6/30/15 3.7% 6/30/ % 18 GASB 67 requires this information be reported in the Plan s Required Supplementary Information for 10 years or as many years as are available upon implementation. 19 Annual money-weighted rates of return net of investment expenses provided by the Plan s investment advisor. The moneyweighted rate of return expresses investment performance, net of investment fees, adjusted for the changing amounts actually invested. September 21, SCHEDULE OF REVENUES BY SOURCE Fiscal Year Ending Schedule of Revenues by Source 20 (Amounts in 000 s) Gross Investment Income 21 Employee Contributions City Contributions Total Revenue 6/30/16 $ 0 $ 0 $ 602 $ 602 6/30/ ,246 6,246 6/30/14 0 1,164 21,643 22,807 6/30/ ,004 16,004 6/30/ ,600 2,279 48,879 6/30/11 0 8,036 19,970 28,006 6/30/10 0 4,982 15,278 20,260 6/30/ (23,160) (22,180) 6/30/ ,194 (9,992) (6,774) 6/30/ ,839 22,343 26, Not required by GASB 67 but included in Plan s financial statements. 21 Investment income before offset for investment expenses. September 21,

95 SCHEDULE OF EXPENSES BY TYPE Schedule of Expenses by Type 22 (Amounts in 000 s) Fiscal Year Ending Benefit Payments Administrative Expenses Investment Expenses Total Expenses 6/30/16 $13,448 $302 $554 $14,303 6/30/15 13, ,482 6/30/14 14, ,775 6/30/13 14, ,967 6/30/12 14, ,678 6/30/11 14, ,989 6/30/10 14, ,554 6/30/09 14, ,575 6/30/08 14, ,572 6/30/07 14, , Not required by GASB 67 but included in the Plan s financial statements. September 21, ACTUARIAL CERTIFICATION This report presents reporting and disclosure information for the Pasadena Fire and Police Retirement System ( Plan ) for the fiscal year ending June 30, 2016 to assist the Plan and its auditor prepare financial statement information in accordance with Statement No. 67 of the Governmental Accounting Standards Board (GASB 67), Financial Reporting for Pension Plans. The actuarial information provided in this report was derived from the actuarial valuation as of June 30, The June 30, 2016 actuarial valuation and the GASB 67 financial information provided in this report were based on participant data and financial information provided by the Plan. We reviewed the participant data and financial information for reasonableness but did not perform an audit. The Plan and its auditor should change or supplement the information provided in this report as needed to properly prepare the Plan s financial statement information in accordance with GASB 67. The use of this information for any purpose other than GASB 67 financial reporting and disclosure may be inappropriate. The reporting and disclosure information provided was prepared using generally accepted actuarial principles and practices and, to the best of our knowledge, complies with the requirements of GASB 67 and Actuarial Standards of Practice. The undersigned is a member of the American Academy of Actuaries and meet the Academy s Qualification Standards to render the actuarial results and opinions in this report. Respectfully submitted, Joseph R. D Onofrio, FSA, EA, MAAA, FCA Assistant Vice President Bartel Associates, LLC September 21, 2016 September 21,

96 EXHIBITS Topic Page Accounting Results Interest on Total Pension Liability E-1 Contributions E-2 Benefit Payments E-3 Projected Fiduciary Net Position E-4 Benefit Summary E-8 Contribution Agreement No. 16,900 E-12 Settlement & Release Agreement No. 18,550 E-14 Contribution Agreement No. 20,823 E-15 September 21, ACCOUNTING RESULTS Interest on Total Pension Liability 2015/16 Reporting Period (Amounts in 000 s) Interest on Total Pension Liability Dollar Amount Discount Rate Portion of Year Interest Total Pension Liability Beginning of Year $155, % 1.0 $10,081 Service Cost at End of Year % Actual Benefit Payments (13,448) 6.50% 0.5 (437) Interest on Total Pension Liability 9,644 September 21, 2016 E-1

97 ACCOUNTING RESULTS Contributions 2015/16 Reporting Period (Amounts in 000 s) Contributions Employer Active Employees Non- Employer Contributing Entities Trust Prefunding $0 $0 $0 Benefit Payments Outside Trust Total Contributions September 21, 2016 E-2 ACCOUNTING RESULTS Benefit Payments 2015/16 Reporting Period (Amounts in 000 s) Benefit Payments Employer Active Employees Non- Employer Contributing Entities Trust Benefit Payments $13,448 $0 $0 Benefit Payments Outside Trust Total Benefit Payments 13, September 21, 2016 E-3

98 PROJECTED CASH FLOW Fiscal Year Ending Beginning Fiduciary Net Position Projected Fiduciary Net Position June 30, 2016 Reporting Date Projected City Contributions (Amounts in 000 s) Projected Benefit Payments Projected Net Earnings Projected Administrative Expenses Ending Fiduciary Net Position 2017 $126,269 $ 0 $(13,194) $7,785 $(599) $120, ,260 0 (13,090) 7,398 (570) 113, , (12,970) 7,017 (540) 108, ,187 3,639 (12,832) 6,738 (519) 105, ,214 4,799 (12,677) 6,587 (507) 103, ,417 4,349 (12,504) 6,461 (497) 101, ,225 3,286 (12,314) 6,291 (484) 98, ,004 2,432 (12,107) 6,061 (467) 93, ,923 2,330 (11,883) 5,799 (446) 89, ,723 2,274 (11,643) 5,532 (426) 85, ,460 2,234 (11,385) 5,262 (405) 81, ,166 2,186 (11,109) 4,990 (384) 76, ,848 2,131 (10,816) 4,717 (363) 72, ,518 2,079 (10,505) 4,444 (342) 68, ,193 2,009 (10,176) 4,171 (321) 63,876 September 21, 2016 E-4 PROJECTED CASH FLOW Fiscal Year Ending Beginning Fiduciary Net Position Projected Fiduciary Net Position June 30, 2016 Reporting Date Projected City Contributions (Amounts in 000 s) Projected Benefit Payments Projected Net Earnings Projected Administrative Expenses Ending Fiduciary Net Position 2032 $63,876 $1,951 $(9,830) $3,900 $(300) $59, ,596 1,892 (9,466) 3,631 (280) 55, ,373 1,817 (9,085) 3,367 (259) 51, ,213 1,743 (8,686) 3,107 (239) 47, ,138 1,668 (8,271) 2,853 (220) 43, ,167 1,586 (7,840) 2,606 (201) 39, ,318 1,508 (7,396) 2,367 (182) 35, ,615 1,419 (6,941) 2,138 (165) 32, ,067 1,331 (6,477) 1,920 (148) 28, ,693 1,246 (6,009) 1,713 (132) 25, ,510 1,153 (5,539) 1,518 (117) 22, ,525 1,065 (5,072) 1,336 (103) 19, , (4,614) 1,167 (90) 17, , (4,166) 1,012 (78) 14, , (3,734) 871 (67) 12,714 September 21, 2016 E-5

99 PROJECTED CASH FLOW Fiscal Year Ending Beginning Fiduciary Net Position Projected Fiduciary Net Position June 30, 2016 Reporting Date Projected City Contributions (Amounts in 000 s) Projected Benefit Payments Projected Net Earnings Projected Administrative Expenses Ending Fiduciary Net Position 2047 $12,714 $718 $(3,321) $743 $(57) $10, , (2,928) 629 (48) 9, , (2,559) 527 (41) 7, , (2,216) 437 (34) 6, , (1,901) 360 (28) 5, , (1,615) 292 (23) 4, , (1,358) 235 (18) 3, , (1,130) 187 (14) 2, , (929) 147 (11) 2, , (755) 114 (9) 1, , (606) 87 (7) 1, , (480) 65 (5) (374) 48 (4) (287) 35 (3) (216) 25 (2) 320 September 21, 2016 E-6 PROJECTED CASH FLOW Fiscal Year Ending Beginning Fiduciary Net Position Projected Fiduciary Net Position June 30, 2016 Reporting Date Projected City Contributions (Amounts in 000 s) Projected Benefit Payments Projected Net Earnings Projected Administrative Expenses Ending Fiduciary Net Position 2062 $320 $42 $(160) $17 $(1) $ (115) 11 (1) (81) 7 (1) (55) (37) (23) (14) (8) (4) (2) (1) September 21, 2016 E-7

100 BENEFIT SUMMARY Participation Service Retirement Frozen plan with only retired members Hires 7/1/77 participate in CalPERS Members are firefighters and police officers hired < 7/1/77 except those who transferred to CalPERS on 7/1/77 & 6/04 Age 50 with 15 years of service or any age with 25 years of service 1/50 x Final Compensation x Years of Service x Actuarial Equivalent Factor, but no greater than 75% of Final Compensation Ret Age Factor Ret Age Factor Normal payment form is life annuity with 60% surviving spouse benefit September 21, 2016 E-8 BENEFIT SUMMARY Ordinary Disability Retirement Line-of -Duty Disability Retirement Vested Termination 10 years of service 1.5% Final Compensation x Years of Service If less than 25% x Final Compensation, then the lesser of 25% x Final Compensation and 1.5% x Final Compensation x Years of Service to age 55 Not less than Service Retirement benefit if eligible and elected Normal payment form is life annuity with 60% surviving spouse benefit Immediate eligibility 50% x Final Compensation Not less than Service Retirement benefit if eligible Normal payment form is life annuity with 100% surviving spouse benefit 10 years of service and employee contributions not withdrawn Payable at age 50 Same as Service Retirement benefit September 21, 2016 E-9

101 BENEFIT SUMMARY Withdrawal Accumulated employee contributions with interest Non-Duty Death Refund of employee contribution with interest plus prior 6 months pay if not eligible to retire 60% of Service Retirement benefit life annuity for surviving spouse if eligible to retire Line-of -Duty Death Final Compensation 50% x Final Compensation as life annuity for surviving spouse Highest consecutive 12-month average earnings September 21, 2016 E-10 BENEFIT SUMMARY Cost-of-Living Increases City Contributions COLA increases effective 7/1 equal to the nearest one percent annual increase in the BLS CPI as of the prior calendar year for the Los Angeles-Riverside-Orange County area 1919 Benefits: Members - 1/2 of salary increase for active employees at employment level at the time of retirement Surviving spouses - 1/3 of salary increase for active employees at employment level at the time of retirement Basic benefits None when fully funded. Supplemental Payment Required when funded percentage is less than minimum required funded percentage per Amended and Restated Contribution Agreement No. 16,900 September 21, 2016 E-11

102 CONTRIBUTION AGREEMENT NO. 16,900 Initial Funding Effective 3/18/99. City contributed $100 million bond proceeds to FPRS on 8/5/99 FPRS assigned 3/23/91 Prior Agreement receipts to City for use toward pension funding bond payments Bond proceeds used to fund in order: Funded Basic Benefits includes (1) Service Retirement benefits including survivor benefits and (2) Disability Retirement benefits for retirees over age 50 at Disability Retirement including survivor benefits Unfunded Basic Benefits (1) Disability Retirement Benefits for retirees under age 50 at Disability Retirement including survivor benefits and (2) survivor benefits of active employees who died while eligible to retire 1919 Benefits 1919 City Charter COLA Benefits Post-retirement benefit increases for Members and beneficiaries Basic Member contributions suspended while Basic Benefits full funded. Member 5% COLA contributions continued. September 21, 2016 E-12 CONTRIBUTION AGREEMENT NO. 16,900 Contributions for Funded Basic Benefits City Contributions for Unfunded Basic Benefits, 1919 Benefits, COLA Benefits No City contributions when Funded Basic Benefits are fully funded Contributions resume when Funded Basic Benefits not fully funded No City contribution when total funded percentage is greater than Minimum Funding Percentage (MFP) MFP initially 70% and increased by 0.5% per year (76.5% for 2013/14) until reaching 80% for 2020/21 City contribution ( Supplemental Payment ) is: Amount needed to bring FPRS total funded percentage up to the MFP ( Funding Deficiency ) No more than $3 million plus 20% of the difference between the Funding Deficiency and $3 million 20% increases to 40%, 60%, 80%, and 100% if prior year Supplemental Payment is less than the Funding Deficiency No more than prior year benefit payments for Unfunded Basic Benefits, 1919 Benefits, and COLA benefits ( Reimbursement Cap ) September 21, 2016 E-13

103 SETTLEMENT AND RELEASE AGREEMENT NO. 18,550 Initial Funding Effective 6/28/04 City contributed $40 million to FPRS including the 2004/05 Supplemental Payment Asset Corridor Contribution Timing FPRS agreed (1) not to use corridor methodology to determine the Actuarial Value of Assets for purposes of calculating Supplemental Payments and (2) to determine the Actuarial Value of Assets by using a methodology that smoothes changes in the market value of assets over a 5-year period unless: FPRS Board determines, upon advice from its actuary, that a change in smoothing methodology is necessary to comply with mandatory accounting or actuarial principles Some form of corridor methodology is adopted by a majority of 1937 Act County systems City has failed to make contributions as agreed City will make Supplemental Payment on or before January 1 September 21, 2016 E-14 CONTRIBUTION AGREEMENT NO. 20,823 Funding Effective 11/1/11 City contributed $46.6 million bond proceeds to FPRS including the 2011/12 Supplemental Payment due 1/2/12 Assumptions 6% interest rate and 3% inflation assumption for 6/30/12 actuarial valuation Interest rate and inflation assumption for actuarial valuations for 6/30/13 and later determined by Board after consultation with Plan s actuary after seeking input from City and Plan s investment consultant September 21, 2016 E-15

104 Request for Proposal - Actuarial Services Due: November 17, 2016 Submitted by: Patrice Beckham, MAAA, EA, FSA, FCA Principal and Consulting Actuary PatB@CavMacConsulting.com Joseph Nichols, ASA, EA, MAAA, MSPA, FCA Consulting Actuary JosephN@CavMacConsulting.com Cavanaugh Macdonald Consulting, LLC 3906 Raynor Parkway, Suite 106 Bellevue, NE 68123

105 B. TABLE OF CONTENTS C. Transmittal Letter... I D. Conflict of Interest... 2 E. Proposed Fee Schedule... 4 F. Finn Description... 6 G. Proposer Warrantees H. Sample Work products... 36

106 Cavanaugh Macdonald CO I JSU LTING. LLC The experience and dedication you deserve C. TRANSMITTAL LETTER November 17, 2016 Ms. Jill Fosselman, Administrator Pasadena Fire & Police Retirement System 100 North Garfield Avenue, Rm N204 Pasadena, CA j fosselman@cityofpasadena.net RE: Pasadena Fire & Police Retirement System Request for Proposal for Actuarial Valuation and Actuarial Services Dear Ms. Fosselman: Cavanaugh Macdonald Consulting, LLC (CMC) is pleased to offer our proposal to provide professional actuarial services for the Pasadena Fire & Police Retirement System (FPRS) in response to your request for proposals (RFP). In our proposal, we demonstrate that our dedication to client service creates a team of professionals that are highly regarded technical consultants who effectively communicate to public pension systems -the only plans that we serve. The undersigned is authorized to bind CMC to the provisions of this proposal and to clarify the information provided. This response presents a firm and irrevocable offer to remain valid for one hundred eighty (180) days from the date of this letter. CMC welcomes this opportunity to present our capabilities and hopes that, after reviewing the proposal, the Board is interested in learning more about our actuarial services. Sincerely, Patrice Beckham. MAAA, EA, FSA, FCA Principal and Consulting Actuary (402)

107 D. CONFLICT OF INTEREST The Proposer must complete the Conflict of Interest Statement, Attachment A, and disclose any financial or other business relationship with the FPRS that may affect the outcome of the contract. If there are none, a statement to that effect must be included. The proposer must also list current clients who may have a financial interest in the outcome of the contract. If there are none, a statement to that effect must be included. The completed Conflict of Interest Statement, Attachment A, is provided on the following page. 2

108 ATTACHMENT A Pasadena Fire & Police Retirement System CONFLICT OF INTEREST DISCLOSURE All proposers are required to complete and sign this Attachment and include it with the proposal submission. If additional pages are needed, each page must be signed in the format below. 1. A list and description of any financial or other business relationship (currently and far the past five years) with the City of Pasadena or any of its component units/agencies, Fire & Police Retirement System or Board Members of the Fire & Police Retirement System, together with a statement explaining why such relationships do not constitute a conflict of interest relative to performing the proposed actuarial valuation. If there are none, a statement to that effect must be included in connection with the solicitation or award of this proposal. CMC does not currently have, or in the past five years had, any financial or other business relationship with the City of Pasadena or any of its component units/agencies, Fire & Police Retirement System or Board Members of the Fire & Police Retirement System. 2. A list and description of the proposer's current clients who may have a financial interest in the outcome of the contract, together with a statement explaining why such relationship do no constitute a conflict of interest relative to performing the proposed actuarial valuation. If there are none, a statement to that effect must be included. CMC does not have any current clients who have a :financial interest in the outcome of this contract. Cavanaugh Macdonald Consulting, LLC Name of Proposing Firm ~we;_, Authorized Signature 13.a.c~1'1'J Principal/Consulting Actuary Title Patrice Beckham Printed Name November 14, 2016 Date 3

109 E. PROPOSED FEE SCHEDULE Please complete the fee schedule, Attachment B. The fee quotation should be all -inclusive, with all costs related to the transition, travel, out-of-pocket expenses and other costs of the proposer included in the fee schedule for the actuarial valuation. Please note that the any adjustments to a fixed fee or hourly rates must be mutually agreed to, in advance, in writing. Payment will be made upon receipt of an invoice detailing the tasks performed and, if applicable, the hours expended for each task. 1. Proposal must state the total inclusive maximum fee for which the annual scope of work will be done. 2. The proposer must state rates for other services that are not included in the annual scope of work, such as Consultations, Experience Studies, Stochastic modelling, providing recommendations, telephone calls. 3. The proposer must state the hourly rate for the staff that would be assigned to our firm. 4. The proposal should affirm that all prices, terms and conditions would be held firm for at least 180 days after the bid is submitted. 5. The proposer must guarantee the conditions specified in the proposal for the duration of the contract. The completed fee schedule, Attachment B is provided on the following page. 4

110 ATTACHMENT B Pasadena Fire & Police Retirement System PROPOSED FEE SCHEDULE Fee June 30, 2017 June 30, 2018 June 30, 2019 Valuation Cost, not Valuation Cost, not Valuation Cost, not Notes, Limits to exceed to exceed to exceed Annual Actuarial Valuation and Required Disclosures (See Section $12,000 $12,000 $12,000 IV.A. for Scope of Work) B. Regular Annual Actuarial Services (See Section lv.b. for scope of work) 2,700 2,700 2,700 Total Fixed Fee Prooosal $14,700 $14,700 $14,700 C. Additional/Special Services, as requested (See Section IV.C. for scope of work) Please list (eg. Stochastic Modelling, Experience Studies, Hourly* Hourly* Hourly* Mortality Studies, etc.) *Fixed fee will be provided in advance. Per Section Vll.E. 4. Of the RFP, I affirm th prices, tenns and conditions will ~;~~ r~ fo~ lea~t,r? d~?/s from the date of the proposal submission. ~-'-""--- /~,_,,.._,... Cfo:'A./li~ nitial &'7fW7 ~k~~~ Billing Rates for Additional Services Si::ate. Proposing Finn Job Title/ Eml!loyee Name Classification Hourll:'. Rate Patrice Beckham Principal and Senior Actuary $406 Joseph Nichols Consulting Actuary $369 Andrew Paine Senior Actuary $328 Bryan Hoge Senior Actuary $328 Aaron Chochon Senior Actuarial Analyst $279 5

111 F. FIRM DESCRIPTION The purpose of the proposal is to demonstrate the qualifications, competence and capacity of the firm seeking to undertake the actuarial services for the System. The proposal should provide a straightforward, concise description of the proposer's capabilities to satisfy the requirements of the RFP. While additional data may be represented, the following subjects must be addressed. 1. License to Practice in California: An affirmative statement should be included that the proposer and firm are properly licensed to practice in California and are in good standing with such licensing agencies. CMC is properly licensed and is in good standing in the State of California. 2. Firm Qualifications and Experience: The proposer should state the size of the firm, he size of the firm's staff, the location of the office from which the work on this engagement is to be performed and the number and nature of the professional staff to be employed in this engagement. Provide a brief history and general description of your firm, including when the firm was founded, and by whom, current ownership and affiliations, names and titles of key officials and whether the firm is local, national or international. Describe the full range of services your local office provides to clients. What are the firm's specialties or areas of greatest expertise? Please note any recent changes in ownership of your firm (within the last 12 months) and any planned or anticipated changes during the next 36 months (the length of the proposal). Brief History CMC currently has 33 employees at three different office locations across the country. Our headquarters office is located at: Cavanaugh Macdonald Consulting, LLC 3550 Busbee Parkway, Suite 250 Kennesaw, GA Office: ; Fax: Our Bellevue (Omaha) office will provide the services requested in the RFP, with assistance from our Denver office, as needed. Cavanaugh Macdonald Consulting 3906 Raynor Parkway, Suite 106 Bellevue, NE Of the 33 active employees, CMC has 18 credentialed actuaries, all of whom are qualified to issue Public Statements of Actuarial Opinion as members of the American Academy of Actuaries. 6

112 F. FIRM D ESCRIPTION CMC is a wholly independent, privately held limited liability company, in good standing, organized in Florida. The current ownership is held by ten Principals, all of whom are active employees of the firm. CMC is qualified to conduct business in California and is in good standing. CMC was founded in 2005 by Torn Cavanaugh and Ed Macdonald, two leading public plan actuaries who devoted their entire careers to working with governmental plans. Ed Macdonald is President, Brent Banister is Chief Pension Actuary and Eric Gary is Chief Health Actuary. We are a national firm with over $10 million in annual revenue and have been providing actuarial consulting services exclusively to public sector benefit plans since our inception. Although the firm has provided services to public plans since our inception in 2005, our senior consultants have more than 25 years of public plan experience. There are no affiliated companies, joint ventures, subsidiaries, or business partners. Actuarial consulting services are our sole business. To be more specific, public sector actuarial consulting services are our only business. Therefore, it is the key and only component to our current and future business strategy. 100% of our revenue is derived from public sector actuarial consulting services. Range of Services The services provided to our retainer clients, which encompass all of the required services in this RFP, include the following: Pension Valuations Detailed Gain and Loss Analysis Analysis of Proposed Legislation Legislative Testimony Asset/Liability Forecasting Expense and Disclosure Requirements of GASB 16, 43, 45, 67, 68, 73, 74, and 75 Impact of Re-Employment of Retirees Retiree Health Care Valuations Medicare Part D Actuarial Attestations Health and Group Benefits Consulting Funding, Budgeting and Reserving for Self Funded Benefit Plans Plan Design Work Assistance with Policy Considerations Knowledge of National Public Sector Trends Benefit Calculations Individual Employee Benefit Statements Deferred Compensation Consulting Board of Trustee Educational Seminars Compliance Reviews Communications to Members and Other Constituents Experience Studies DROP, PLOP and Retirement Incentive Plans As a leading actuarial consulting firm to public retirement systems around the country, we have national exposure to emerging trends and possess a very broad, very deep knowledge base of issues facing public retirement systems. Our consultants frequently collaborate via telephonic and WebEx conferences to share expertise with special cases or to discuss emerging trends and issues in our industry. 7

113 F. FIRM DESCRIPTION A clear strength of our firm is the experience of our associates and their dedication to public sector actuarial consulting. Additionally, our firm's consultants are frequent speakers at national and regional public sector pension and retiree health care forums. As noted previously, CM C's primary business is the provision of actuarial and consulting services to public sector employee benefit plans. In fact, CMC works only for public sector employee benefit plans. CMC's capabilities are well recognized by the public sector community, as evidenced by our substantial client list. There are no planned changes to the organizational structure of Cavanaugh Macdonald which has always been, and will continue to be, wholly employee-owned. Below is a list of the proposed FPRS consulting team. Please note that the entire team is made up of credentialed actuaries. N<.1mc and Actuarial Credentiuls llighcst Degre~ I kid Position in Firm Patrice Beckham B.S. Math, Principal and FSA, MAAA, EA, Magna Cum Consulting FCA Laude Actuary Joseph Nichols B.S. in Consulting ASA, MAAA, EA, Actuarial Actuary MSPA, FCA Science Bryan Hoge B.S. in Senior Actuary FSA, MAAA, EA, Actuarial FCA Science Andrew Paine M.Ed. in Senior Actuary ASA, FCA, MAAA Mathematics Education Aaron Chochon B.A. in Senior Actuarial ASA, MAAA, ACA Mathematics Analyst FPRS Role Co-Lead Actuary Co-Lead Actuary Valuation Actuary Review Actuary Production Total Years of C:\ pcrience Abbreviation FSA ASA EA MAAA FCA ACA MSPA Actuarial Credential Fellow of the Society of Actuaries Associate of the Society of Actuaries Enrolled Actuary Member of the American Academy of Actuaries Fellow of the Conference of Consulting Actuaries Associate of the Conference of Consulting Actuaries Member of ASPPA College of Pension Actuaries Biographies for your proposed team members are provided on the following pages. 8

114 F. FIRM DESCRIPTION Patrice A. Beckham, FSA, EA, FCA, MAAA Principal and Consulting Actuary ):>- Role; Co-Lead Actuary ):>- Current responsibilities; Patrice has a broad range of experience in proposed legislation analysis and testimony, actuarial audits, experience studies, valuations, and the design, administration and funding of public retirement plans and postretirement health plans. Pat is responsible for the preparation of annual pension and other post-employment benefit (OPEB) valuations, proposed legislative pricing, experience studies, and modeling. ):>- Relevant experience; Patrice has been consulting to public pension systems since She has worked extensively with large statewide systems, including Colorado Public Employees Association, Iowa Public Employees Retirement System, Kansas Public Employees Retirement System, Minnesota Teachers, and Oklahoma Public Employees Retirement System, in preparing the annual valuation, developing projection models, and conducting legislative cost studies and experience studies. She also has a significant amount of experience with retirement systems for municipal system covering civilians, public safety members, and utilities. ):>- Education; BS in Mathematics from University of Nebraska- Lincoln (magna cum laude) ):>- Professional designations and memberships; and Fellow of the Society of Actuaries Enrolled Actuary under ERISA Fellow of the Conference of Consulting Actuaries Member of the American Academy of Actuaries 9

115 F. FIRM DESCRIPTION Patrice A. Beckham, FSA, EA, FCA, MAAA, co11tinued»- Relevant publications, studies, or presentations. Pat has presented at several conferences and before many legislative bodies, including: Conference of Consulting Actuaries P2F2 Annual Conference Midplains GFOA Conference Missouri Association of Public Employees Retirement System Mayor's Task Force on Pension Refonn, Omaha, Nebraska Kansas Public Employees Retirement System Study Commission Kansas House Committee on Pensions and Benefits Minnesota Legislative Commission on Pension and Retirement Colorado Legislative Audit Committee Iowa Public Retirement Systems Committee Nebraska Retirement Systems Committee Citizens Task Force, Lincoln Nebraska 10

116 F. FIRM DESCRIPTION Joseph Nichols, ASA, EA, MAAA, MSPA, FCA Consulting Actuary }> Role; Co-Lead Actuary }> Current responsibilities; Joe has a broad range of experience in working with defined benefit plans including the design, administration and funding of those plans. Joe serves as a consultant or support actuary to our clients and is responsible for ensuring the technical accuracy of the work product as well as effectively communicating the results to staff, Boards, legislative committees, and other interested parties. ~ Relevant experience; Joe has worked with regional and national actuarial firms for over 25 years and has broad experience in providing actuarial services to a variety of clients, including both small plans and large statewide retirement systems. His work has included standard actuarial work including actuarial valuations, experience studies, projection modeling, cost studies and presentation as well as some special consulting projects related to legislative proposals and testimonies as well as support in liquidity analysis. His passion is working closely with clients to assist them in achieving their goals. }> Education; BS in Business Administration/Actuarial Science from University ofnebraska, Lincoln }> Professional designations and memberships; and Associate of the Society of Actuaries Enrolled Actuary under BRISA Member of the American Academy of Actuaries Member of the American Society of Pension Professionals and Actuaries (ASPPA) Fellow of the Conference of Consulting Actuaries International Actuarial Association: Vice Chair of Branding and Communications Subcommittee Actuarial Foundation: Trustee and Chair of Development Committee President, ASPP A 11

117 F. FIRM DESCRIPTION Joseph Nichols, ASA, EA, MAAA, MSPA co11ti11ued > Relevant publications, studies, or presentations. Joe has presented at several conferences and before many legislative bodies, including: ASPP A Annual Conference Western Pension Benefits Conference Kansas Public Employees Retirement System Study Commission State of Missouri Seniors, Families and Pensions Committee Federated States of Micronesia Joint Legislative Workshop Republic of Marshall Islands Presidential Cabinet Republic of Palau Joint Session of Ways and Means Committees Pennsylvania House State Government Committee and Senate Finance Committee 12

118 F. FIRM DESCRIPTION Bryan Hoge, FSA, EA, FCA, MAAA Review Actuary» Description of their position; Valuation Actuary» Current responsibilities; Bryan has a broad range of experience in data analysis, actuarial funding and GASB valuations, experience studies, and forecasting. )!;>- Relevant experience; Bryan has been providing pension and OPEB consulting to clients since He has worked with a number of public chents including Iowa Public Employees Retirement System, Kansas Public Employees Retirement System, Minnesota Teachers Retirement Association, Nebraska Public Employees Retirement System, and Oklahoma Public Employees Retirement System, in preparing the annual funding valuations, annual GASB valuations and developing projection models. )!;>- Education; B.S. in Actuarial Science from Drake University )!;>- Professional designations and memberships; and Fellow of the Society of Actuaries Enrolled Actuary under BRISA Fellow of the Conference of Consulting Actuaries Member of the American Academy of Actuaries ~ Relevant publications, studies, or presentations. Bryan has presented before the following: Lincoln, Nebraska City Council Citizens Task Force, Lincoln Nebraska 13

119 F. FIRM DESCRIPTION Andrew A. Paine, ASA, FCA, MAAA Senior Actuary ~ Role; Review Actuary» Areas of expertise; Andy is a Senior Actuary at CMC. Andy has worked in the pension and Other Post Employment Benefits (OPEB) industry since His background includes plan redesign studies, pension and OPEB valuations and projections, and experience studies. Andy has spent his entire career providing actuarial expertise and guidance on employee benefit plans. ~ Relevant experience; Andy has performed Pension and OPEB valuations for cities, counties, and states. Andy's work with Pension and OPEB clients includes data analysis, assumption setting, the development of valuation models, and both written and oral presentations of reports. ~ Education; B.S. and M.S. degrees in Applied Mathematics from Middle Tennessee State University» Professional designations and memberships; and Associate of the Society of Actuaries Member of the American Academy of Actuaries Fellow of the Conference of Consulting Actuaries 14

120 F. FIRM DESCRIPTION Aaron Chochon, ASA, ACA, MAAA Senior Actuarial Analyst );:>- Role; Production ). Areas of expertise; Aaron has a broad range of experience in data analysis, pension valuations, pension cost studies, and pension projections. ~ Relevant experience; Aaron has provided analyst services since to many public clients, such as Kansas PERS, Nebraska PERS, Iowa PERS, Oklahoma PERS, and numerous local governmental clients. );:>- Education; B.A. in Mathematics from Hastings College ). Professional designations and memberships; Associate of the Society of Actuaries Associate of the Conference of Consulting Actuaries Member of the American Academy of Actuaries 15

121 F. FIRM DESCRTPTION 3. Internal Quality Control Processes and Procedures; Explain your firm's internal quality control processes and methodologies. Specifically, when preparing an actuarial valuation, identify reviews, items reviewed and when (in the process) reviews occur. CMC has a formal written Peer Review Policy that is adhered to by all employees. The extent of peer review required is based on the nature of the particular assignment. The higher the risk, the more stringent the internal peer review performed. The following table outlines the level of review expected for various work products. no conclusions Straightforward calculation result to client Analysis, commentary, simple reconunendation, or conclusion Substantial analysis or numerous calculations of a routine nature that has significant financial implications Report including analysis and conclusions of uncertain or non-routine nature that has substantial financial implications Checking mathematical calculations and communication of results Second opinion review Pre-release peer review of procedures, reasonable checks, and communication of results in the re ort Substantial concurrent peer review or parallel calculations and analysis. Full review of communication of results. As can be seen, peer review is expected to take place before any work product is released to the client. We recognize that circumstances may require that the work product be delivered before peer review can be completed. In those cases it is expected that a post-release review will take place as soon as practical after the work is completed. The annual valuation process at CMC involves peer review and quality control at multiple points during the project. Once the data is received, a full reconciliation from the prior valuation's data is performed. In addition, before the data is loaded into our valuation system, comparisons are made to the prior year's data for consistency and reasonableness. For example, we look for changes in dates of birth, benefit amounts, benefit options and beneficiary information and ask the client about unexpected changes. In addition, an individual gain/loss analysis is also generated and reviewed so that unexpected liability changes can be reviewed and researched in case they are created by unexpected data changes. The entire data preparation process is then peer reviewed by the valuation actuary. 16

122 F. FIRM DESCRIPTION Once the peer review of the valuation data is completed, suggested adjustment are made (if any) and the valuation liabilities are calculated, along with the actuarial value of assets and contribution requirements. A second peer review of all liabilities and contribution calculations is then completed by the valuation actuary. Any suggested changes are then discussed with the co-lead actuaries and implemented, if they concur, before the draft repo11 is created. The draft report is reviewed by the valuation actuary as well as the co-lead actuaries, then sent to the client for their review and input. After the client has approved the report, hard copies of the final report are sent to the client as well as an electronic copy. In addition to the reviews required above, an important and unique requirement of the CMC peer review process is an internal audit. Once each year a senior staff member is assigned one client they have not worked on previously and independently duplicate the most recent valuation results, based only on the original data and the statutes, ordinance, or plan document. The results of the audit are discussed with the senior staff responsible for the ongoing service to the client, with the goal of improving CMC's overall perfo1mance. Both the firm and all employees involved benefit professionally from each audit. All our consultants adhere to firm-wide standards for consistency. 4. Similar Engagements with other Pension Plans: For the proposer's office that will be assigned responsibility for services, list the most significant engagements that are similar to the engagement described in this RFP. Please also list the total number of public plan clients that the firm serves. CMC currently services 63 public pension plans and 31 health and OPEB clients of various sizes and types. All of these clients are retainer clients for whom comprehensive actuarial services are provided. Separate listings of our municipal and statewide pension clients are included on the following pages. 17

123 F. FIRM DESCRIPTION Pension Retainer Clients - Municipal \\ ork Tot:il #of s~, te111 Perfor med 1'.11 tinp:111t~ Tot:il h" h (SI I. Central Nebraska Public Power and 2010-present 153 Irrigation District Annual actuarial valuations $14.8 Million 2. Charlotte Firefighters Retirement Present 1,700 System Annual actuarial valuations and experience studies $484.6 Million 3. City of Chattanooga General Pension Present 2,500 Phm Annual actuarial valuations and experience studies $259 Million 4. Cincinnati Retirement System Present 7,300 Annual actuarial valuations and experience studies $I. 7 Billion 5. Cobb County (GA) Present I 1,300 Annual actuarial valuations, experience studies and benefit statements $526.4 Million 6. District of Columbia Retirement Board Present 9,000 Actuarial valuations, experience studies, legislation $1. 7 Billion 7. City ofenst Point Employees Present 808 Retirement Plan Annual actuarial valuations and experience studies $79 Million 18

124 F. FIRM DESCRIPTION \\or I. r otal #of System P~rforn11 tl P:1 l't ici p.1 n ts Iota I.\5,ct~ (S) 8. Gwinnett County Board of' Present 27,100 Education's Retirement System J\nnual actuarial valuations and experience studies $1.& Billion 9. Gwinnett County Retirement Systems Present 4,500 Actuarial valuations and experience studies $900 Million 10. City of Hollywood Police Officers' Present 623 Retirement System Annual actuarial valuations $173 Million 11. Jeflhson County Employees Retirement Present 4,400 System Annual actuarial valuations $1 Billion 12. Kansas City Arca Transit Authority Present 630 Retirement Plan for Salaried Employees Annual actuarial and Union Employees' Funded Pension valuations Plan $60 Million 13. Kansas City Board of Public Utilities Present 1,300 Annual actuarial valuations and experience studies, legislation $479 Million 19

125 F. FIRM DESCRIPTION \\or J. Toral /4 of S~scrrn Pl'rfornn LI l':irti~irrnnts To1:1I.\~~t-ts (S) 14. Kansas City Police Retirement System Present 3,500 and Police Civilians Retirement Sy~iem Annual actuarial valuations and experience studies, legislation $918 Million 15. Kansas City Public Schools Retirement Present 10,300 System Annual actuarial valuations and experience studies, legislation $636. l Million 16. Lexington-Fayette Urban County Present 2,200 Government Policemen's and Actuarial Firefighters' Retirement fund valuations $635 Million 17. Lincoln, Nebraska Police and Fire 20 l 5 - Present!,JOO Pension fund Annual actuarial valuations and experience studies, legislation $176.8 Million 18. Macon/Bibb County Employees Present 1,400 Retirement System Annual actuarial valuations $114.3 Million 19. Mariell11 Lights and Water Present 1,500 Annual actu11rial valuation and experience studies $97.3 Million 20. Metropolitan Utilities District of Omaha Present 1,500 Nebraska Annual actuarial valuation and experience studies $329.3 Million 20

126 F. FIRM DESCRIPTION "ork 1 otal # ot s~ stttm Prrformed l'artldt>ants 1 otnl.\sscts CS) 21. Miami General Employees' and Present 3,700 Sanitation Employees' Retirement Trust Actuarial valuations $589 Million 22. Ocean City, MD Present 659 Annual actuarial valuations, experience studies, legislation $105.3 Million 23. Omaha Employees Retirement System 2010-Present 2,600 Annual actuarial valuations and experience studies $238.7 Million 24. Omaha Schools Employees Retirement 2010-Present 12,700 System Annual actuarial valuations, experience studies, legislation $1.2 Billion 25. Omaha Police and fire Retirement Present 2,900 System Annual actuarial valuations and experience studies S599.9 Million 26. Pensacola Gc.mcral Employees' Present 874 Retirement Fund Arumal actuarial valuations and experience studies $136.8 Million 21

127 F. FIRM DESCRIPTION \\01 k 1 Ol:ll #of S~ stem l'l rformrd Partil.'iJ>:lnts Total Assl ts (S) 27. Pinellas Park General Employee's 20 l 0 - Present 551 Pension Plan Annual actuarial valuations and experience studies $69 Million 28. City of Pompano Beach General Present 896 Employees' Retirement System Annual actuarial valuations and experience studies $150.3 Million 29. Shelby County Retirement System Present 9,200 Annual actuarial valuations, experience studies, legislation $1.1 Billion 22

128 F. FIRM DESCRIPTION \\' ork Total# nf System Performed l':1rticipants Total Asset~ (S) 30. Tuscaloosa Police Officers and Present 854 Firefighters Retirement Plan Annual actuarial valuations and experience studies $60.3 Million 31. WaterOne Present 507 Annual actuarial valuations, experience studies, and consulting $37.3 Million 32. Wichita Employees' Retirement System Present 3,054 Annual actuarial valuations, experience studies, legislation $541.2 Million 33. Wichita Police and Fire Retirement Present 2,076 System Annual actuarial valuations., experience studies, legislation $592.9 Million 23

129 F. FIRM DESCRIPTION Pension Retainer Clients - Statewide \\"or!\ Total# of s ~ st41'm Prrformcd Participants Total.hscts ($) 34. Alabama: Present 372,000 Clerks and Registers Retirement Annual actuarial System valuations, Employees' Retirement System experience Judicial Retirement System studies, Teachers Retirement System legislation $22 Billion 35. Alabama Peace Officers Annuity & Present 4,600 Benefit Fund Annual actuarial valuations, legislation $22 Million 36. Colorado PERA Present 315,000 Annual actuarial valuations, experience studies, legislation $42.7 Billion 37. Connecticut Municipal Employees' Present 15,000 Retirement System Annual actuarial valuations, experience studies, legislation $2 Billion 38. Connecticut State Employees' Present 95,000 Retirement Sy.stem Actuarial valuations, experience studies, legislation $10 Billion 39. Connecticut Teachers Retirement Board Present 90,000 Actuarial valuations, experience studies, legislation $16 Billion 24

130 F. FIRM DESCRIPTION \\ ork l"ot:il #or System P~rformcd Partiripanh Total Assets ($) 40. Georgia: 19&1 - Present 266,000 Employees' Retirement System Annual actuarial Judicial Retirement System valuations, Legislative Retirement System experience Military Pension Fund studies, Public School Employees' legislation Retirement System $14.2 Billion 4l. Georgia Firefighters' Pension Fund Present 19,000 Actuarial valuations, experience studies, legislation $767.3 Million 42. Georgia Sheriffs' Retirement Fund Present 360 Actuarial valuations, experience studies, legislation $89.5 Million 43. Georgia Teachers Retirement System Present 327,114 Annual actuarial valuations and experience studies $66.8 Billion 44. Iowa Judicial Retirement Fund 20 JO - Present 403 Annual actuarial valuations and experience studies, legislation $186.2 Million 45. Iowa Peace Officers Retirement System Present 1,210 Annual actuarial valuations, experience studies and legislation $410.6 Million 46. Iowa Public Employees Retirement Present 346,000 System Annual actuarial valuation and experience sn1dies, legislation $28.4 Billon 25

131 F. FIRJ\11 DESCRIPTION \\'ork Total II of System l'hforme(i P;irtiC'ipants Total.\ssl ts (S) 47. Kansas Public Employees Retirement 20 l 0 - Present 284,912 System Annual a<.1uarial Public Employees valuations and Police and Fire experience Judges studies, legislation $16.9 Billion 48. Kentucky Retirement Systems: Present 335,426 Kentucky Employees Actuarial County Employees valuations, State Police experience studies, legislation $15.9 Billion 49. Kentucky Teachers' Retirement System Present 122,000 Annual actuarial valuations, experience studies, legislation $18 Billion 50. Mi1U1csota Teachers' Retirement Present 185,700 Association Annual actuarial valuations, experience studies, legislation 51. Mississippi:. I lighway Safety Patrol Retirement $20.4 Uillion l Present 257,220 Annual actuarial System valuations, Municipal Retirement Systems experience Public Employees Retirement studies, System legislation Supplemental Legislative Retirement Plan $25 Billion 52. Montana Public Employees' Retirement ,000 Administration Annual actuarial valuations, experience studies, legislation $6.4 Billion 53. Montana Teachers Retirement System Present 47,658 Annual a<.1uarial valuations, experience studies, legislation $3. 7 Billion 26

132 F. FIRM DESCRIPTION \\'ork T11t,1I #of s~ stem Performed Pa 1 t ici p.rn ts Total.\m t~ (S) 54. Nebraska Public Employees Retirement Present 30,371 System Arumal actuarial valuations, experience studies, legislation $1.7 Billion 55. New Mexico Public Employees' Present 96,500 Retirement Association Annual actuarial valuations, experience studies, legislation $ 14 Rillion 56. Ohio School Employees Retirement Present 204,000 System Annual actuarial valuations, experience!>tudies, legislation $12.8 Billion 57. Oklahoma Law Enforcement Retirement Present 2,700 System Annual Actuarial Valuations $895 Million 58. Oklahoma Police Pension and Present 9,000 Retirement System Annual actuarial valuations, experience studies, legislation $1.9 Billion 59. Oklahoma Public Employee Retirement Present 82,500 System Annual actuarial valuations, experience studies, legislation $8.6 Billion 60. Republic of Palau Civil Service 2008-Present 4,900 Retirement Plan Annual actuarial valuations and legislative studies $28 million 27

133 F. FIRM DESCRIPTION \\ orl, T otlll # of S)q<'111 Perfornwd l'art1< ipan l ~ To1<1I hsds (S) 61. Employees' Retirement System of the 200& - Present 19,300 Puerto Rico Electric Power Authority Actuarial valuations, experience studies, legislation $1.4 Billion 62. University of Puerto Rico Retirement Present 18,800 System Annual actuarial valuations, experience studies, legislation $ 1.3 Billion 63. Virginia Retirement System Present 733,810 Annual actuarial valuations, experience studies, legislation $66.4 Billion 5. Disputed Reports, Studies and Other Issues: The proposal should identify any instances within the past five (5) years in which the firm and/or any individual actuary was the subject of professional disciplinary proceedings or named as a defendant in any action for professional negligence or willful misconduct and describe the outcome. There have been no disputed reports, studies or other issues within the past five (5) years. 28

134 F. FIRM D ESCRIPTION 6. References: A minimum of three (3) client references for the proposer's most relevant projects within the past five (5) years must be provided. In selecting references, we have chosen clients that are similar in size and or membership. We would be happy to provide additional references if the City desires, either larger clients or specific clients selected from our entire client listing \\ orl, Total# of Contact S ~ \tem Pcrforrnc!I Pa1 tici 1n111 ts Information Tota I,\ s~ ~ h (S) Iowa Peace Officers Retirement System Present 1,210 Ms. Linda Guffey Annual actuarial POR Executive Secretary valuations, Department of Public Safety experience 2 15 E. 7th Street, 4th Floor studies and Des Moines, IA legislation S 1S $410.6 Million 2uffev(a)cfns.state. ia. us Kimsas City Police Retirement System Present 3,500 Mr. Jim Pyle and Police Civilians Retirement System Annual actuarial Pension Systems Manager valuations and 9701 Marion Park Drive, B experience Kansas City, Missouri studies, legislation $918 Million iov!c(a)kcpd.org Lincoln, Nebraska J'oliee and Fire Present 1,100 Mr. Paul Lutomski Pension Fund Annual actuarial Police and Fire Pension Officer valuations and Lincoln, NE Police and Fire Pension Fund experience 555 South I0 1 h Street, Room 302 studies, Lincoln. NE legislation $176.8 Million nlutomski(ullincoln.nc.110v Republic of Palau Civil Service 2008-Present 4,900 Mr. Presley Etibek Retirement Plan Annual actuarial Executive Director valuations and Civil Service Pension Plan legislative CSPP Office Building, 1767 Mcdalaii Rd, studies Ngesekes Koror Palau /2523 $28 million csnnl@nalaunet.eom Wichita Police and Fire Retirement Present 2,076 Ms. Pam Heim System Annual actuarial Pension Manager valuations, Wichita Retirement Systems experience 455 N. Main Street studies, Wichita, KS legislation $592.9 Million pheim~wichita.20v 29

135 F. FIRM DESCRIPTION 7. Delivery Schedule: The proposal must include a time schedule of the valuation work to be performed and delivery dates for the required reports. TRANSITION In the first year, we will need to transition from the current actuary's valuation software to that used by CMC. The transition comprises the following four steps: 1. Actuarial Valuation Data Collection. We will gather both the raw data, as provided by the City of Pasadena FPRS, and the processed (valuation) data that Bartel used for the 2016 valuation. In this step, we will review the data elements provided in the valuation data to ensure all pertinent data is being gathered and that we have a full understanding of each data element. 2. Analysis and Programming. We will analyze the benefit plan provisions and translate this analysis into programming specifications on CMC's valuation software. We will then develop and thoroughly test the valuation programs by analyzing the detailed calculations for several individual members (called sample lives). 3. Validation and Audit of Actuarial Methods and Results. After building the actuarial valuation programs in Step 2, we will use the complete valuation census data and asset information to reproduce the 2016 actuarial results for FPRS. These results will be reconciled with the results in the formal 2016 valuation. This step ensures that our valuation programs are completely tested and that any differences attributable to valuation software are quantified. In addition, this process will produce an audit of the past actuarial valuations of the System. Funded status and contribution information is compared for funding results and required disclosure information is compared for the GASB 67 and 68 disclosures. 4. Review of Validation Results with the System. In this step, we will report to the FPRS the results of our testing and validation of the 2016 actuarial valuation results. We will also comment on the current actuarial assumptions and methods used to measure the financial condition of the plans for those reports. Transition Timeline - Begins after contract execution. Since we do not charge for transition services, we suggest the conversion work begin immediately. 30

136 F. FIRM DESCRIPTION Milestone Completed by: Contract executed February 2017 Initial call with staff February 2017 Receipt of all requested material and data from 2016 valuations March2017 Completion of benefit structure and assumption programming March 2017 Perform 2016 parallel valuation April 2017 Reconcile differences in valuation results April 2017 Discuss results May 2017 WORK PLAN In addition to the transition work and associated timeline discussed above, the following table addresses our best estimate of the work to be completed in connection with the actuarial valuation in the first year of the contract. Other services, such as providing experience studies and ongoing consulting services will occur on an as needed basis. Therefore, they have not been included in the following timeline. 31

137 F. FIRM DESCRIPTION INITIAL PLANNING AND REQUESTS Develop annual actuarial valuation assumption x May2017 recommendations DATA GATHERING Send member data files for 7/1/1 7 valuation to x July 2017 actuary Send asset infonnation for FY 1 7 x August 2017 VALUATION PROCESS Review data for completeness and x August 2017 reasonableness. Reconcile data from prior to current year. Send follow up request for information to FPRS for any discrepancies or questions. Receive follow-up data from FPRS, if any, x August2017 review final data work by valuation actuary, and preparation of data for valuation software. Run valuation and summarize liability results x September 2017 Calculate actuarial value of assets and x September incorporate into funding calculations Review of results, calculate gain/loss and prepare x September 2017 draft valuation report Internal peer review x September

138 F. FIRM D ESCRIPTION REPORT AND PRESENTATION PROCESS Review and discuss draft report with FPRS x September Make final changes to report and send electronic x x September version to FPRS for final review Print and ship copies of final report x October 2017 Board presentation to FPRS x October 2017 MISCELLANOUS COMMUNICATIONS Prepare actuarial section of CAFR and send to x October 2017 FPRS Cost of Living Letter provided to Board x January 2018 Planning meeting for 2018 valuation x x February 2018 Annual Benefit Payment Estimate x TBD Respond to Audit confirmation letter x TBD 33

139 G. PROPOSER W ARRANTEES The proposer must complete the Proposer Warranties, Attachment C, providing agreement to incorporate the warranties into a proposed contract. The completed Proposer Warrantee form, Attachment C, is provided on the following page. 34

140 ATTACHMENT C Pasadena Fire & Police Retirement System PROPOSER W ARRANTEES Proposer agrees to the incorporation of the following warranties in a proposed contract: 1. Proposer warrants that it maintains or will obtain at its expense prior to fwlding an errors and omissions insurance policy providing a prudent amount of coverage for negligent or intentional acts or omissions and that such coverage is applicable to proposer's actions under the contract Further, proposer will provide a copy of the binder to FPRS. 2. Proposer warrants that all information and statements in this RFP are complete and true. Any statement or claim found to be incomplete, misleading or false will be ground for immediate disqualification or dismissal and may be subject to legal action. Cavanaugh Macdonald Consulting, LLC Name of Proposing Finn Authorized Signature Consulting Actuary Title Patrice Beck.ham November 14, 2016 Printed Name Date 35

141 .H. &\MPLE WollK: P&o:oo.crs The proposer must include a sample actuarial valuation report fo1 a client within the past five years. A sample valuation report completed within the last five years is provided on the following pages. 36

142 Police and Fire Retirement System of Wichita, Kansas Actuarial Valuation as of December 31, 2015 SAMPLE

143 TABLE OF CONTENTS Section Actuarial Certification Letter Page Section I Executive Summary 1 Section II Scope of the Report 8 Section III Assets 9 Table 1 Analysis of Net Assets at Market Value 10 Table 2 Summary of Changes in Net Assets 11 Table 3 Development of Actuarial Value of Assets 12 Section IV System Liabilities 13 Table 4 Present Value of Future Benefits (PVFB) 14 Table 5 Actuarial Liability 15 Section V Employer Contributions 16 Table 6 Derivation of Unfunded Actuarial Liability Contribution Rate 17 Table 7 Derivation of Normal Cost Rate 18 Table 8 Employer Contribution Rates 19 Table 9 Historical Summary of City Contribution Rates 20 Table 10 Derivation of System Experience Gain/(Loss) 21 Section VI Other Information 22 Table 11 Schedule of Funding Progress 23 Table 12 Schedule of Employer Contributions 24 Table 13 Solvency Test 25 Appendices A. Summary of Membership Data 26 B. Summary of Benefit Provisions 45 C. Actuarial Cost Method and Assumptions 49 D. Glossary of Terms 54 SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas

144 April 11, 2016 Cavanaugh Macdonald C O N S U L T I N G, L L C The experience and dedication you deserve The Board of Trustees Police and Fire Retirement System of Wichita, Kansas City Hall, 12 th Floor 455 N. Main Street Wichita, KS Dear Members of the Board: In accordance with your request, we have completed an actuarial valuation of the Police and Fire Retirement System of Wichita, Kansas as of December 31, The major findings of the valuation are contained in this report, including the employer contribution rate for fiscal year The plan provisions and the actuarial assumptions and methods are the same as the prior valuation. In preparing this report, we relied, without audit, on information (some oral and some in writing) supplied by the System s staff. This information includes, but is not limited to, plan provisions, member data, and financial information. We found this information to be reasonably consistent and comparable with information for the last valuation. The valuation results depend on the integrity of the data provided. If any of this information is inaccurate or incomplete, our valuation results may be different and our calculations may need to be revised. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the System s funded status); and changes in plan provisions or applicable law. Due to the limited scope of our assignment, we did not perform an analysis of the potential range of future measurements. SAMPLE Actuarial computations presented in this report are for purposes of determining the actuarial contribution rates for funding the System. The calculations in the enclosed report have been made on a basis consistent with our understanding of the System s funding requirements and goals. Determinations for purposes other than meeting these requirements may be significantly different from the results contained in this report. Accordingly, additional determinations may be needed for other purposes. For example, actuarial computations for purposes of fulfilling financial accounting requirements for the System under Governmental Accounting Standard No. 67 are provided in a separate report Raynor Pkwy, Suite 106, Bellevue, NE Phone (402) Fax (402) Offices in Englewood, CO Off Kennesaw, GA Bellevue, NE

145 Board of Trustees April 11, 2016 Page 2 The consultants who worked on this assignment are pension actuaries. CMC s advice is not intended to be a substitute for qualified legal or accounting counsel. This is to certify that the independent consulting actuaries are members of the American Academy of Actuaries and have experience in performing valuations for public retirement plans, that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement plan and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the System. The Board of Trustees has the final decision regarding the appropriateness of the assumptions and adopted them as indicated in Appendix C. We respectfully submit the following report and look forward to discussing it with you. Sincerely, Patrice A. Beckham, FSA, EA, FCA, MAAA Principal and Consulting Actuary Brent A. Banister, PhD, FSA, EA, FCA, MAAA Chief Pension Actuary SAMPLE

146 SECTION I: EXECUTIVE SUMMARY This report presents the results of the December 31, 2015 actuarial valuation of the Police and Fire Retirement System of Wichita, Kansas (WPF). The primary purposes of performing a valuation are to: estimate the liabilities for the benefits provided by the System; determine the employer contribution rate required to fund the System on an actuarial basis; disclose certain asset and liability measures as of the valuation date; monitor any deviation between actual plan experience and experience projected by the actuarial assumptions, so that recommendations for assumption changes can be made when appropriate; and analyze and report on any significant trends in contributions, assets and liabilities over the past several years. There were no changes to the actuarial assumptions and methods or the benefit provisions from the last valuation. The System had an unfunded actuarial liability of $31.0 million in the December 31, 2014 valuation, which has increased to $35.0 million in the December 31, 2015 valuation. A detailed analysis of the change in the unfunded actuarial liability from December 31, 2014 to December 31, 2015 is shown on page 3. The actuarial valuation results provide a snapshot view of the System s financial condition on December 31, The valuation results reflect net unfavorable experience for the past plan year as demonstrated by an unfunded actuarial liability that was higher than expected based on the actuarial assumptions used in the December 31, 2014 actuarial valuation. Unfavorable experience on the actuarial value of assets resulted in an actuarial loss of $9.1 million and experience on liabilities resulted in a gain of $3.3 million for a net actuarial loss of $5.8 million. The System uses an asset smoothing method in the valuation process. As a result, the System s funded status and the actuarial contribution rate are based on the actuarial (smoothed) value of assets not the market value. The investment return on the market value of assets during 2015 was - 0.1%, which was significantly less than the 7.75% assumption. As a result of the deferred (unrecognized) asset gains, the rate of return on the actuarial value of assets was 6.2%. The actuarial (smoothed) value of assets is greater than the market value by $27.2 million as of December 31, Actual returns over the next few years will determine if, and how, the $27.2 million of deferred investment loss will be recognized. For example, a return of around 13% on the market value of assets in 2016 would eliminate the deferred investment losses and result in no gain or loss on investment experience for the year. In the following pages, changes in the assets, liabilities, and contributions of the System over the last year are discussed in more detail. ASSETS SAMPLE As of December 31, 2015, the System had total assets of $592.9 million when measured on a market value basis. This was a decrease of $18.2 million from the December 31, 2014 figure of $611.1 million. The market value of assets is not used directly in the calculation of the City s contribution rate. An asset valuation method, which smoothes the effect of market fluctuations, is used to determine the value of assets used in the valuation, called the actuarial value of assets. The actuarial value of assets is equal to the expected value (calculated using the actuarial assumed rate of 7.75%) plus 25% of the difference between the actual market value and the expected value. See Table 3 for a detailed development of the actuarial value of assets. The rate of return on the actuarial value of assets was 6.2%. Due to deferred investment experience, the actuarial value of assets exceeds the market value by $27.2 million. December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 1

147 SECTION I: EXECUTIVE SUMMARY The components of the change in the market and actuarial value of assets for the System (in millions) are set forth below: Market Value ($M) Actuarial Value ($M) Assets, December 31, 2014 $611.1 $ City and Member Contributions Benefit Payments and Refunds (36.1) (36.1) - Investment Income (net of expenses) (0.7) 36.7 Assets, December 31, 2015 $592.9 $620.1 The unrecognized investment loss represents about 5% of the market value of assets. Unless offset by future investment gains or other favorable experience, the recognition of the $27.2 million deferred loss is expected to have a negative impact on the future funded ratio and actuarial contribution requirement. If the deferred loss was recognized immediately in the actuarial value of assets, the funded percentage would decrease from 95% to 91% and the actuarially determined contribution rate for the City would increase from 19.2% to 22.1% of payroll. (Millions $) 30% 20% 10% 0% 10% 20% 30% 40% Total System Assets Market Value As of 12/31 Actuarial Value Rate of Return on Assets The actuarial value of assets has both been greater than and less than the market value of assets during this period, which is expected when using a smoothing method. The rate of return on the actuarial value of assets has been less volatile than the market value return, which is the main reason for using an asset smoothing method. SAMPLE Year Ending 12/31 Actuarial Market Expected December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 2

148 SECTION I: EXECUTIVE SUMMARY LIABILITIES The actuarial liability is that portion of the present value of future benefits that will not be paid by future employer normal costs or member contributions. The difference between this liability and asset values at the same date is referred to as the unfunded actuarial liability (UAL), or (surplus) if the asset value exceeds the actuarial liability. The unfunded actuarial liability will be reduced if the employer s contributions exceed the employer s normal cost for the year, after allowing for interest earned on the previous balance of the unfunded actuarial liability. Benefit improvements, experience gains and losses, and changes in actuarial assumptions and procedures will also impact the total actuarial liability and the unfunded portion thereof. The Actuarial Liability and Unfunded Actuarial Liability for the System as of December 31, 2015 are: Actuarial Liability $655,135,667 Actuarial Value of Assets 620,148,816 Unfunded Actuarial Liability/(Surplus) $ 34,986,851 Between December 31, 2014 and December 31, 2015, the change in the unfunded actuarial liability for the System was as follows (in millions): Change in Unfunded Actuarial Liability ($M) UAL, December 31, 2014 $31.0 Expected change in UAL 0.1 Contributions more than the actuarial rate 0.0 Investment experience 9.1 Liability experience (3.3) Other experience (1.9) Change in actuarial assumptions 0.0 UAL, December 31, 2015 $35.0 The experience loss for the 2015 plan year of $5.8 million reflects the combined impact of an actuarial loss of $9.1 million on System assets (actuarial value) and an actuarial gain of $3.3 million on System liabilities. Analysis of the unfunded actuarial liability strictly as a dollar amount can be misleading. Another way to evaluate the unfunded actuarial liability and the progress made in its funding is to track the funded status, the ratio of the actuarial value of assets to the actuarial liability. This information for recent years is shown below (in millions). Longer term historical information is shown in the graph following the chart. SAMPLE 12/31/ /31/ /31/ /31/ /31/2015 Actuarial Liability ($M) $562.5 $589.1 $617.7 $631.9 $655.1 Actuarial Value of Assets ($M) Funded Ratio (Actuarial Value) 90.8% 90.5% 92.5% 95.1% 94.7% Funded Ratio (Market Value) 81.9% 86.8% 96.9% 96.7% 90.5% December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 3

149 SECTION I: EXECUTIVE SUMMARY 110% 100% 90% 80% 106% 107% 103% 101% 100% 100% The funded ratio has generally declined over this period due to various reasons including assumption changes and more significantly, investment experience. Absent investment returns above the 7.75% assumption in future years, the deferred loss will be recognized and the funded ratio will decrease moving toward the market value percentage shown in the table above. As mentioned earlier in this report, due to the asset smoothing method there is currently a $27.2 million difference between the actuarial value and the market value of assets. To the extent there is not favorable investment experience to offset the deferred loss, it will be recognized in future years and the System s funded status will decrease. The System s funded status will continue to be heavily dependent on future investment experience. CONTRIBUTION RATES Generally, contributions to the System consist of: Funded Ratio (Actuarial Value) 95% 92% 93% 91% 91% 92% 95% 95% As of 12/31 A normal cost for the portion of projected liabilities allocated to service of members during the year following the valuation date by the actuarial cost method, and An unfunded actuarial liability or (surplus) contribution for the excess of the portion of projected liabilities allocated to service to date over the actuarial value of assets. Contribution rates are computed with the objective of developing costs that are level as a percentage of covered payroll. The contribution rate for fiscal year 2017 is based on the December 31, 2015 actuarial valuation results. As of December 31, 2015, the actuarial liability exceeds the actuarial value of assets so an unfunded actuarial liability (UAL) exists. When amortized over a rolling 20-year period, the resulting contribution is 3.6% of pay. The City s contribution rate is the sum of employer normal cost rate and the UAL amortization contribution. This valuation indicates the City s contribution should be 19.2% of pay (15.6% employer normal cost rate plus 3.6% UAL contribution). SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 4

150 SECTION I: EXECUTIVE SUMMARY A summary of the City s historical contribution rate for the System is shown below: 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% COMMENTS City's Contribution Rate Fiscal Year Ending After increasing from 2010 through 2013, the City s contribution rate has stabilized in the last few years. The City s contribution rate is 18.8% and 19.2% for the fiscal years ending 12/31/2016 and 12/31/2017, respectively. The System does not use the actual market value of assets in developing the actuarial contribution rate, but utilizes an asset valuation method to smooth out the peaks and valleys in investment returns from year to year. Under the asset valuation method, the actuarial value of assets is determined as 75% of the expected value (using the actuarial assumed rate of return) and 25% of the actual market value. The net return on the market value of assets for 2015 was - 0.1%. However, due to deferred assets gains the return on the actuarial value of assets was 6.2%. Because the return on the actuarial value of assets is less than the 7.75% assumed rate, the System experienced an actuarial loss on assets of $9.1 million. This loss and the actuarial gain on liabilities of $3.3 million resulted in a net actuarial loss of $5.8 million. The deferred investment loss (market value less actuarial value of assets) is $27.2 million as of December 31, Absent investment gains in future years, the deferred investment loss of $27.2 million will eventually be reflected in the actuarial value of assets in future years. While the use of an asset smoothing method is a common procedure for public retirement systems, it is important to identify the potential impact of the deferred investment experience. This is accomplished by comparing the key valuation results from the December 31, 2015 actuarial valuation using both the actuarial and market value of assets (see table on next page). SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 5

151 SECTION I: EXECUTIVE SUMMARY Using Actuarial Value of Assets Using Market Value of Assets Actuarial Liability $655,135,667 $655,135,667 Asset Value 620,148, ,883,226 Unfunded Actuarial Liability 34,986,851 62,252,441 Funded Ratio 94.7% 90.5% Normal Cost Rate 22.6% 22.6% UAL Contribution Rate 3.6% 6.5% Total Contribution Rate 26.2% 29.1% Employee Contribution Rate (7.0%) (7.0%) Employer Contribution Rate 19.2% 22.1% The actuarial loss resulting from experience in 2015 was the main driver in increasing the City s contribution rate from 18.8% in the December 31, 2014 valuation to 19.2% in this valuation. The actuarial contribution rate to be paid by the City has been, and will continue to be, heavily impacted by investment returns from year to year. Despite the use of an asset smoothing method, actual returns that are significantly different from the 7.75% assumption tend to create some level of volatility in the City s contribution rate. SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 6

152 SECTION I: EXECUTIVE SUMMARY SUMMARY OF PRINCIPAL RESULTS 12/31/ /31/2014 % 1. PARTICIPANT DATA Valuation Valuation Change Number of: Active Members Police (3.1%) Fire % Total 1,050 1,068 (1.7%) Retired Members and Beneficiaries % Inactive Vested Members % Total Members 2,076 2, % Annual Projected Payroll Police $ 40,413,807 $ 40,422,736 (0.0%) Fire 27,901,085 27,260, % Total $ 68,314,892 $ 67,683, % Annual Retirement Payments for Retired Members and Beneficiaries $ 30,774,324 $ 29,165, % 2. ASSETS AND LIABILITIES Total Actuarial Liability $ 655,135,667 $ 631,904, % Market Value of Assets 592,883, ,087,051 (3.0%) Actuarial Value of Assets 620,148, ,860, % Unfunded Actuarial Liability/(Surplus) $ 34,986,851 $ 31,044, % Funded Ratio 94.7% 95.1% (0.4%) 3. EMPLOYER CONTRIBUTION RATES AS A PERCENT OF PAYROLL SAMPLE Normal Cost 22.6% 22.5% 0.4% Member Financed (7.0%) (7.0%) 0.0% Employer Normal Cost 15.6% 15.5% 0.6% Amortization of Unfunded Actuarial Liability or (Surplus) 3.6% 3.3% 9.1% Employer Contribution Rate 19.2% 18.8% 2.1% December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 7

153 SECTION II: SCOPE OF THE REPORT This report presents the actuarial valuation of the Police and Fire Retirement System of Wichita, Kansas (WPF) as of December 31, This valuation was prepared at the request of the System s Board of Trustees. The report is based on plan provisions, actuarial assumptions and actuarial methods that are unchanged from last year. Please pay particular attention to our cover letter, where the guidelines employed in the preparation of this report are outlined. We also comment on the sources and reliability of both the data and the actuarial assumptions upon which our findings are based. Those comments are the basis for our certification that this report is complete and accurate to the best of our knowledge and belief. A summary of the findings resulting from this valuation is presented in the previous section. Section III describes the assets and investment experience of the System. Sections IV and V describe how the obligations of the System are to be met under the actuarial cost method in use. Section VI includes additional information regarding the System s funding history. This report includes several appendices: Appendix A Schedules of valuation data classified by various categories of members. Appendix B A summary of the current benefit structure, as determined by the provisions of governing law on the valuation date. Appendix C A summary of the actuarial methods and assumptions used to estimate liabilities and determine contribution rates. Appendix D A glossary of actuarial terms. SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 8

154 SECTION III: ASSETS In many respects, an actuarial valuation can be thought of as an inventory process. The inventory is taken as of the actuarial valuation date, which for this valuation is December 31, On that date, the assets available for the payment of benefits are appraised. The assets are compared with the liabilities of the System. The actuarial process then leads to a method of determining the contributions needed by members and the employer in the future to balance the System assets and liabilities. MARKET VALUE OF ASSETS The current market value represents the snapshot or cash-out value of System assets as of the valuation date. In addition, the market value of assets provides a basis for measuring investment performance from time to time. On December 31, 2015, the market value of assets for the System was $593 million. Table 1 is a comparison, at market values, of System assets as of December 31, 2015, and December 31, 2014, in total and by investment category. Table 2 summarizes the change in the market value of assets from December 31, 2014 to December 31, ACTUARIAL VALUE OF ASSETS Neither the market value of assets, representing a cash-out value of System assets, nor the book values of assets, representing the cost of investments, may be the best measure of the System s ongoing ability to meet its obligations. To arrive at a suitable value for the actuarial valuation, a technique for determining the actuarial value of assets is used which dampens swings in the market value while still indirectly recognizing market values. This methodology, first adopted for the December 31, 2002 valuation, smoothes market experience by recognizing 25% of the difference between the expected value (based on the actuarial assumption) and the actual market value. Table 3 shows the development of the actuarial value of assets (AVA) as of December 31, SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 9

155 SECTION III: ASSETS TABLE 1 Analysis of Net Assets at Market Value As of As of December 31, 2015 December 31, 2014 Amount % of Amount % of ($ Millions) Total ($ Millions) Total Cash and Equivalents $ % $ % Government Securities Corporate Debt Mortgage Backed Securities Global Fixed Income Pooled Funds Domestic Equity International Equity Real Estate Timber Securities Lending Collateral Pool Other Receivables Liabilities (73.4) (12.4) (52.5) (8.6) Total $ % $ % SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 10

156 SECTION III: ASSETS TABLE 2 Summary of Changes in Net Assets During Year Ended December 31, 2015 (Market Value) 1. Market Value of Assets as of December 31, 2014 $ 611,087, Adjustment to Tie to Audited Financial Statements $ 4, Contributions: a. Members $ 4,603,331 b. City 13,964,379 c. Total $ 18,567, Investment Income: a. Interest and Dividends $ 13,277,548 b. Net Appreciation (Depreciation) in Fair Value (10,499,610) c. Commission Recapture 13,088 d. Net Securities Lending Income 157,908 e. Investment Expenses (3,150,461) f. Net Investment Income (Loss) $ (201,527) 5. Expenditures: a. Refunds of Member Contributions $ 448,180 b. Benefits Paid: (1) Pension and Death Benefits 30,092,151 (2) BackDROP Payments 5,550,489 c. Administrative Expenses 483,193 d. Total $ 36,574, Net Change [3(c) + 4(f) - 5(d)] $ (18,207,830) SAMPLE 7. Market Value of Assets as of December 31, 2015 [(1) + (2) + (6)] $ 592,883,226 December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 11

157 SECTION III: ASSETS TABLE 3 Development of Actuarial Value of Assets as of December 31, Actuarial Value of Assets as of December 31, 2014 $ 600,860, Actual Contributions/Disbursements a. Contributions $ 18,567,710 b. Benefit Payments and Refunds (36,090,820) c. Net $ (17,523,110) 3. Expected Value of Assets as of December 31, 2015 $ 629,237,346 [(1) * ] + [2(c) * (1.0775).5 ] 4. Market Value of Assets as of December 31, 2015 $ 592,883, Difference Between Actual and Expected Values $ (36,354,120) 6. Initial Actuarial Value of Assets $ 620,148,816 (3) + [(5) * 0.25] 7. Corridor for Actuarial Value of Assets a. 80% of Market Value of Assets $ 474,306,581 b. 120% of Market Value of Assets 711,459, Actuarial Value of Assets as of December 31, 2015 $ 620,148, Actuarial Value of Assets Divided by Market Value of Assets 104.6% 10. Market Value of Assets Minus Actuarial Value of Assets $ (27,265,590) SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 12

158 SECTION IV: SYSTEM LIABILITIES In the previous section, an actuarial valuation was compared with an inventory process, and an analysis was given of the inventory of assets of the System as of the valuation date, December 31, In this section, the discussion will focus on the commitments of the System, which are referred to as its liabilities. Table 4 contains an analysis of the actuarial present value of all future benefits (PVFB) for contributing members, inactive members, retirees and their beneficiaries. The liabilities summarized in Table 4 include the actuarial present value of all future benefits expected to be paid with respect to each member. For an active member, this value includes the measurement of both benefits already earned and future benefits to be earned. For all members, active and retired, the value extends over benefits earnable and payable for the rest of their lives and for the lives of the surviving beneficiaries. All liabilities reflect the benefit provisions in place as of December 31, ACTUARIAL LIABILITY A fundamental principle in financing the liabilities of a prefunded retirement program is that the cost of its benefits should be related to the period in which benefits are earned, rather than to the period of benefit distribution. An actuarial cost method is a mathematical technique that allocates the present value of future benefits into annual costs. In order to do this allocation, it is necessary for the funding method to breakdown the present value of future benefits into two components: 1. That which is attributable to the past and 2. That which is attributable to the future. Actuarial terminology calls the part attributable to the past the past service liability or the actuarial liability. The portion allocated to the future is known as the present value of future normal costs, with the specific piece of it allocated to the current year being called the normal cost. Table 5 contains the calculation of actuarial liability to the System. The Entry Age Normal actuarial cost method is used to develop the actuarial liability. SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 13

159 SECTION IV: SYSTEM LIABILITIES TABLE 4 Present Value of Future Benefits (PVFB) as of December 31, 2015 Plans A and B Plan C Total 1. Active Employees a. Retirement Benefit $ 4,850,268 $ 369,381,848 $ 374,232,116 b. Pre-Retirement Death Benefit 0 4,626,886 4,626,886 c. Withdrawal Benefit 0 8,470,244 8,470,244 d. Disability Benefit 0 45,978,558 45,978,558 e. Total $ 4,850,268 $ 428,457,536 $ 433,307, Inactive Vested Members $ 0 $ 9,055,417 $ 9,055, Inactive Nonvested Members $ 0 $ 6,076 $ 6, In Pay Members a. Retirees $ 145,765,586 $ 124,087,539 $ 269,853,125 b. Disabled Members 15,379,101 38,700,880 54,079,981 c. Beneficiaries 24,780,496 7,168,029 31,948,525 d. Total $ 185,925,183 $ 169,956,448 $ 355,881, Total Present Value of Future Benefits $ 190,775,451 $ 607,475,477 $ 798,250,928 1(e) (d) SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 14

160 SECTION IV: SYSTEM LIABILITIES TABLE 5 Actuarial Liability as of December 31, 2015 Plans A and B Plan C Total 1. Active Employees a. Present Value of Future Benefits $ 4,850,268 $ 428,457,536 $ 433,307,804 b. Present Value of Future Normal Costs 0 143,115, ,115,261 c. Actuarial Liability 1(a) - 1(b) $ 4,850,268 $ 285,342,275 $ 290,192, Inactive Vested Members $ 0 $ 9,055,417 $ 9,055, Inactive Nonvested Members $ 0 $ 6,076 $ 6, In Pay Members a. Retirees $ 145,765,586 $ 124,087,539 $ 269,853,125 b. Disabled Members 15,379,101 38,700,880 54,079,981 c. Beneficiaries 24,780,496 7,168,029 31,948,525 d. Total $ 185,925,183 $ 169,956,448 $ 355,881, Total Actuarial Liability $ 190,775,451 $ 464,360,216 $ 655,135,667 1(c) (d) SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 15

161 SECTION V: EMPLOYER CONTRIBUTIONS The previous two sections were devoted to a discussion of the assets and liabilities of the System. A comparison of Tables 3 and 4 indicates that current assets fall short of meeting the present value of future C.SAMPLE benefits (total liability). This is expected in all but a completely closed plan, where no further contributions are anticipated. In an active system, there will almost always be a difference between the actuarial value of assets and total liabilities. This deficiency has to be made up by future contributions and investment returns. An actuarial valuation sets out a schedule of future contributions that will deal with this deficiency in an orderly fashion. The method used to determine the incidence of the contributions in various years is called the actuarial cost method. Under an actuarial cost method, the contributions required to meet the difference between current assets and current liabilities are allocated each year between two elements: (1) the normal cost rate and (2) the unfunded actuarial liability contribution rate. The term fully funded is often applied to a system in which contributions at the normal cost rate are sufficient to pay for the benefits of existing employees as well as for those of new employees. More often than not, systems are not fully funded, either because of past benefit improvements that have not been completely funded or because of actuarial deficiencies that have occurred because experience has not been as favorable as anticipated. Under these circumstances, an unfunded actuarial liability (UAL) exists. Likewise, when the actuarial value of assets is greater than the actuarial liability, a surplus exists. DESCRIPTION OF CONTRIBUTION RATE COMPONENTS The Entry Age Normal (EAN) actuarial cost method is used for the valuation. Under this method, the normal cost for each year from entry age to assumed exit age is a constant percentage of the member s year by year projected compensation. The portion of the present value of future benefits not provided by the present value of future normal costs is the actuarial liability. The unfunded actuarial liability/(surplus) represents the difference between the actuarial liability and the actuarial value of assets as of the valuation date. The unfunded actuarial liability is calculated each year and reflects experience gains/(losses). In general, contributions are computed in accordance with a level percent-of-payroll funding objective. The contribution rates based on this December 31, 2015 actuarial valuation will be used to determine employer contribution rates to the Police and Fire Retirement System of Wichita, Kansas for fiscal year In this context, the term contribution rate means the percentage, which is applied to a particular active member payroll to determine the actual employer contribution amount (i.e., in dollars) for the group. As of December 31, 2015, the valuation assets were less than the actuarial liability so an unfunded actuarial liability exists. State statutes require any unfunded actuarial liability/(surplus) in municipal police and fire retirement systems to be amortized over a rolling 20-year period. The amortization of the UAL results in an employer contribution that is more than the employer normal cost rate. CONTRIBUTION RATE SUMMARY In Table 7, the amortization payment related to the unfunded actuarial liability/(surplus), as of December 31, 2015, is developed. Table 8 develops the normal cost rate for the System. The derivation of the total contribution rate for the City is shown in Table 9. Table 10 shows the historical summary of the City s contribution rates. Table 11 develops the experience gain/(loss) for the year ended December 31, The rates shown in this report are based on the actuarial assumptions and cost methods described in Appendix December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 16

162 SECTION V: EMPLOYER CONTRIBUTIONS TABLE 6 Derivation of Unfunded Actuarial Liability Contribution Rate 1. Actuarial Accrued Liability $ 655,135, Actuarial Value of Assets $ 620,148, Unfunded Actuarial Liability/(Surplus) $ 34,986, Payment (Adjusted to Mid-Year) to Amortize Unfunded Actuarial Liability/(Surplus) Over 20 Years* $ 2,490, Total Projected Payroll for the Year $ 68,314, Amortization Payment as a Percent of Payroll 3.6% * The UAL is amortized as a level percent of payroll over a rolling 20-year period. SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 17

163 SECTION V: EMPLOYER CONTRIBUTIONS TABLE 7 Derivation of Normal Cost Rate Normal Cost for Year End December 31, 2015 Service Pensions $ 10,462,337 Disability Pensions 2,765,414 Survivor Pensions 299,586 Termination Benefits 651,919 Total Normal Cost $ 14,179,256 Expected Payroll in 2016 for Current Actives $ 62,678,111 Total Normal Cost Rate for Year 22.6% SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 18

164 SECTION V: EMPLOYER CONTRIBUTIONS TABLE 8 Employer Contribution Rates for Fiscal Year Commencing in 2017 Contribution Requirement as a % of Payroll Normal Cost Service pensions 16.7 % Disability pensions 4.4 % Survivor pensions 0.5 % Termination pensions 1.0 % Total Normal Cost 22.6 % Unfunded Actuarial Liability Retired members and beneficiaries (1) 0.0 % Active and former members (2) 3.6 % Total UAL Contribution 3.6 % Total Contribution Requirement Member Financed Portion (3) 7.0 % City Financed Portion 19.2 % Total 26.2 % (1) Actuarial liability for retired members and beneficiaries was fully funded as of December 31, 2015 (2) The excess of the actuarial liability over actuarial value of assets is amortized as a level percent of active member payroll over a rolling 20-year period. (3) The weighted average of member contribution rates: 8.0% for Plan A and 7.0% for Plan C. SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 19

165 SECTION V: EMPLOYER CONTRIBUTIONS TABLE 9 Historical Summary of City Contribution Rates Contribution rates are computed in accordance with a level percent of payroll funding objective. As of December 31, 2015, the actuarial value of assets is less than actuarial liabilities resulting in an unfunded actuarial liability (UAL). The UAL is amortized over a rolling 20-year period. City Contributions as Percents of Active Member Pensionable Payroll Valuation Fiscal Funding Amortization Date Year Objective (Credit)/Payment 11/30/ % 0.0% 11/30/ /30/ /31/ (1) /31/ /31/ (0.7) 12/31/ (3.6) 12/31/1999 (2) (7.2) 12/31/ (8.7) 12/31/ (6.8) 12/31/ (3.0) 12/31/ (3.4) 12/31/2004 (3) /31/ /31/ (0.7) 12/31/ (1.5) 12/31/ /31/2009 (4) /31/ /31/ SAMPLE 12/31/ /31/ /31/2014 (4) /31/ (1) Reflects allocation of assets to fully fund retired life liabilities. (2) Includes benefit provision and assumption changes and 1% decrease in member contribution rate. (3) Reflects assumption changes and elimination of surplus assets. (4) Reflects assumption changes. December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 20

166 SECTION V: EMPLOYER CONTRIBUTIONS TABLE 10 Derivation of System Experience Gain/(Loss) Liabilities 1. Actuarial liability as of December 31, 2014 $ 631,904, Normal cost as of December 31, ,903, Interest at 7.75% on (1) and (2) to December 31, ,050, Benefit payments during 2015 (36,090,820) 5. Interest on benefit payments (1,372,425) 6. Expected actuarial liability as of December 31, 2015 $ 658,394,847 (1) + (2) + (3) + (4) + (5) 7. Actuarial liability as of December 31, 2015 $ 655,135,667 Assets 8. Actuarial value of assets as of January 1, 2015 $ 600,860, Contributions during ,567, Benefit payments during 2015 (36,090,820) 11. Interest on items (8), (9) and (10) 45,900, Expected actuarial value of assets as of December 31, 2015 $ 629,237,346 (8) + (9) + (10) + (11) 13. Actual actuarial value of assets as of December 31, 2015 $ 620,148,816 Gain / (Loss) 14. Expected unfunded actuarial liability (6) (12) $ 29,157, Actual unfunded actuarial liability (7) (13) $ 34,986, Actuarial Gain / (Loss) (14) (15) $ (5,829,350) 17. Actuarial Gain / (Loss) on Actuarial Assets (13) (12) $ (9,088,530) 18. Actuarial Gain / (Loss) on Actuarial Liability (6) (7) $ 3,259,180 SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 21

167 SECTION VI: OTHER INFORMATION The actuarial liability is a measure intended to help the reader assess (i) a retirement system s funded status on an on-going concern basis, and (ii) progress being made toward accumulating the assets needed to pay benefits as due. Allocation of the actuarial present value of projected benefits between past and future service was based on service using the Entry Age Normal actuarial cost method. Assumptions, including projected pay increases, were the same as used to determine the System s level percent of payroll annual required contribution between entry age and assumed exit age. Entry age was established by subtracting credited service from current age on the valuation date. The Entry Age Normal actuarial liability was determined as part of an actuarial valuation of the System as of December 31, Significant actuarial assumptions used in determining the actuarial liability include: (a) A rate of return on the investment of present and future assets of 7.75% per year compounded annually, (b) Projected salary increases of 4.00% per year compounded annually, (3.25% attributable to inflation, and 0.75% attributable to productivity), (c) Additional projected salary increases of 1.00% to 2.75% per year attributable to seniority/merit, and (d) The assumption that benefits will increase 2.00% per year of retirement, non-compounded commencing 36 months after retirement. Actuarial Liability: Active members $290,192,543 Retired members and beneficiaries currently receiving benefits 355,881,631 Nonvested terminated members due a refund 6,076 Vested terminated members not yet receiving benefits 9,055,417 Total Actuarial Liability $655,135,667 Actuarial Value of Assets (market value was $592,883,226) $620,148,816 Unfunded Actuarial Liability $ 34,986,851 During the year ended December 31, 2015, the System experienced a net increase of $23 million in the liability.sample actuarial December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 22

168 SECTION VI: OTHER INFORMATION TABLE 11 Schedule of Funding Progress Active UAL as Actuarial Actuarial Unfunded Member a Percentage of Actuarial Value of Liability AL Funded Covered Active Member Valuation Assets (AL) (UAL) Ratio Payroll Covered Payroll Date (a) (b) (b)-(a) (a)/(b) (c) [(b)-(a)]/(c) 11/30/1992 $165,132 $198,656 $33, % $25, % 11/30/ , ,966 28, , /30/ , ,596 27, , /31/1995 (1) 213, ,372 17, , /31/ , ,408 9, , /31/ , ,706 (4,109) ,502 (11.6) 12/31/ , ,900 (20,725) ,566 (56.7) 12/31/1999 (1) 330, ,633 (38,439) ,969 (101.2) 12/31/ , ,894 (45,150) ,613 (116.9) 12/31/ , ,335 (37,158) ,286 (87.9) 12/31/ , ,524 (21,163) ,696 (46.3) 12/31/ , ,444 (23,727) ,876 (51.7) 12/31/2004 (1) 392, , , /31/ , ,027 1, , /31/ , ,179 (5,319) ,530 (9.9) 12/31/ , ,115 (12,705) ,310 (22.2) 12/31/ , ,561 24, , /31/2009 (1) 480, ,934 39, ,055 (2) 62.5 (2) 12/31/ , ,908 38, , /31/ , ,488 51, , /31/ , ,074 55, , /31/ , ,748 46, , /31/2014 (1) 600, ,904 31, , /31/ , ,136 34, , Dollar amounts are in thousands. Note: Years prior to 12/31/2012 were provided by prior actuary. (1) After changes in benefits and/or actuarial assumptions and/or actuarial cost methods. (2) These amounts have been revised from the $63,479,000 and 62.0% amounts reported in the December 31, 2009 actuarial valuation report. SAMPLE Analysis of the dollar amounts of actuarial value of assets, actuarial liability, or unfunded actuarial liability in isolation can be misleading. Expressing the actuarial value of assets as a percentage of the actuarial liability provides one indication of the System s funded status on an on-going concern basis. Analysis of this percentage over time indicates whether the System is becoming financially stronger or weaker. Generally, the greater this percentage, the stronger the System s funding. The unfunded actuarial liability and annual covered payroll are both affected by inflation. Expressing the unfunded actuarial liability as a percentage of covered payroll approximately adjusts for the effects of inflation and aids analysis of the progress being made in accumulating sufficient assets to pay benefits when due. Generally, the smaller this percentage, the stronger the System s funding. December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 23

169 SECTION VI: OTHER INFORMATION TABLE 12 Schedule of Employer Contributions Actuarial Annual Fiscal Valuation Required Percent Year Date Contribution Contributed /31/1995 $6,343, % /31/1996 6,427, /31/1997 6,043, /31/1998 5,540, /31/1999 4,796, /31/2000 4,746, /31/2001 5,043, /31/2002 6,925, /31/2003 7,308, /31/2004 9,849, /31/ ,029, /31/ ,549, /31/ ,034, /31/ ,119, /31/ ,806, /31/ ,113, /31/ ,889, /31/ ,464, /31/ ,964, Note: Years prior to 2012 were provided by prior actuary. Summary of Actuarial Methods and Assumptions Valuation Date December 31, 2015 Actuarial Cost Method Amortization Method Remaining Amortization Period Asset Valuation Method Entry Age Normal Level percent of payroll, open 20 years SAMPLE Expected Value + 25% of (Market Expected Values) Actuarial Assumptions: Investment Rate of Return* 7.75% Projected Salary Increases* 5.00% to 6.75% *Includes Inflation at 3.25% Cost-of-Living Adjustment Provisions 2.00% non-compounding commencing 36 months after retirement December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 24

170 SECTION VI: OTHER INFORMATION Aggregate Actuarial Liability For TABLE 13 Solvency Test (1) (2) (3) Portion of Actuarial Active Retirants Active Members Reported Liabilities Valuation Member and (Employer Valuation Covered by Reported Assets Date Contributions Beneficiaries* Financed Portion) Assets (1) (2) (3) 12/31/1995 $19,597,012 $132,215,980 $79,559,050 $213,431, % % 77.4 % 12/31/ ,807, ,902,560 84,497, ,553, /31/ ,518, ,068,362 90,119, ,814, /31/ ,845, ,021,415 94,033, ,624, /31/ ,759, ,478,501 96,395, ,071, /31/ ,152, ,463,718 98,277, ,044, /31/ ,694, ,034, ,605, ,493, /31/ ,440, ,063, ,019, ,687, /31/ ,027, ,930, ,486, ,170, /31/ ,959, ,051, ,375, ,484, /31/ ,057, ,560, ,408, ,822, /31/ ,361, ,449, ,368, ,497, /31/ ,686, ,893, ,634, ,820, /31/ ,050, ,590, ,920, ,345, /31/ ,326, ,298, ,309, ,555, /31/ ,515, ,693, ,698, ,925, /31/ ,390, ,730, ,367, ,946, /31/ ,527, ,985, ,559, ,380, /31/ ,238, ,096, ,412, ,261, /31/ ,684, ,915, ,304, ,860, /31/ ,222, ,943, ,970, ,148, *Includes vested and nonvested terminated members During the twelve months ended December 31, 2015, the Police and Fire Retirement System of Wichita, Kansas generated a net actuarial loss of $5.8 million. This amount is 0.9% of the actuarial liability at the beginning of the year. Note: Years prior to 12/31/2012 were provided by prior Actuary. SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 25

171 APPENDIX A: SUMMARY OF MEMBERSHIP DATA MEMBER DATA RECONCILIATION December 31, 2014 to December 31, 2015 The number of members included in the valuation, as summarized in the table below, is in accordance with the data submitted by the System for members of the valuation date. Active Participants Retirees and Beneficiaries Inactive Vested Total Police Fire Police Fire Police Fire Members as of 12/31/ ,070 New Members Transfers Rehires Terminations Refunded Refund Due Deferred Vested Completion of payments to minor child Retirements Service Disability Deaths Cashed Out With Beneficiary Without Beneficiary Data Adjustments Members as of 12/31/ ,076 SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas

172 APPENDIX A: SUMMARY OF MEMBERSHIP DATA HISTORICAL ACTIVE DATA as of December 31, 2015 Number of Members Annual Covered % Increase In Valuation Total Payroll Average Average Date Plan A Plan C-79 Members ($000's) Annual Pay Annual Pay 12/31/ ,050 $52,207 $49, % 12/31/ ,021 1,080 53,530 49,565 (0.31) 12/31/ ,035 1,092 57,310 52, /31/ ,029 1,076 60,282 56, /31/ ,068 1,100 63,055 57, /31/ ,068 1,089 63,077 57, /31/ ,074 1,088 62,759 57,683 (0.41) 12/31/ ,073 1,084 64,150 59, /31/ ,076 1,085 65,306 60, /31/ ,060 1,068 64,572 60, /31/ ,045 1,050 65,560 62, SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 27

173 APPENDIX A: SUMMARY OF MEMBERSHIP DATA SUMMARY OF ACTIVE MEMBERS as of December 31, 2015 Total Number Valuation Salaries* Age Police Fire Total Police Fire Total Under $ 510,633 $ 371,932 $ 882, to ,981,904 1,947,708 4,929, to ,902,749 3,935,594 8,838, to ,296,644 4,490,459 9,787, to ,011,867 4,419,760 11,431, to ,418,425 4,679,867 14,098, to ,298,374 3,866,219 9,164, & Up ,781,141 2,636,741 5,417,882 Total ,050 $38,201,737 $26,348,280 $64,550,017 * Actual salary as reported by System for year ending 12/31/2015 Salary $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Average Salary by Age Under to to to to to to & Up SAMPLE Age December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 28

174 APPENDIX A: SUMMARY OF MEMBERSHIP DATA SUMMARY OF ACTIVE MEMBERS as of December 31, 2015 Police Number Valuation Salaries* Age Male Female Total Male Female Total Under $ 367,716 $ 142,917 $ 510, to ,540, ,683 2,981, to ,308, ,829 4,902, to ,689, ,333 5,296, to ,980,928 1,030,939 7,011, to ,643, ,028 9,418, to ,000, ,066 5,298, & Up ,581, ,821 2,781,141 Total $34,112,121 $4,089,616 $38,201,737 * Actual salary as reported by System for year ending 12/31/2015 Salary $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Average Salary by Age Under to to to to to to & Up SAMPLE Age December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 29

175 APPENDIX A: SUMMARY OF MEMBERSHIP DATA SUMMARY OF ACTIVE MEMBERS as of December 31, 2015 Fire Number Valuation Salaries* Age Male Female Total Male Female Total Under $ 371,932 $ 0 $ 371, to ,865,068 82,640 1,947, to ,840,873 94,721 3,935, to ,429,861 60,598 4,490, to ,419, ,419, to ,619,908 59,959 4,679, to ,866, ,866, & Up ,529, ,448 2,636,741 Total $25,942,914 $405,366 $26,348,280 * Actual salary as reported by System for year ending 12/31/2015 Salary $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Average Salary by Age Under to to to to to to & Up SAMPLE Age December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 30

176 APPENDIX A: SUMMARY OF MEMBERSHIP DATA DISTRIBUTION OF ACTIVE MEMBERS as of December 31, 2015 Total Years of Service Age 0 to 4 5 to 9 10 to to to to to & Up Total Under to to to to to to & Up Total , Count Count Age Distribution Under to to to to to to & Up 0 Age Service Distribution SAMPLE 0 to 4 5 to 9 10 to to to to to & Up Service December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 31

177 APPENDIX A: SUMMARY OF MEMBERSHIP DATA DISTRIBUTION OF ACTIVE MEMBERS as of December 31, 2015 Police Years of Service Age 0 to 4 5 to 9 10 to to to to to & Up Total Under to to to to to to & Up Total Count Count Age Distribution Under to to to to to to & Up 0 Age Service Distribution SAMPLE 0 to 4 5 to 9 10 to to to to to & Up Service December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 32

178 APPENDIX A: SUMMARY OF MEMBERSHIP DATA DISTRIBUTION OF ACTIVE MEMBERS as of December 31, 2015 Fire Years of Service Age 0 to 4 5 to 9 10 to to to to to & Up Total Under to to to to to to & Up Total Count Count Age Distribution Under to to to to to to & Up Age Service Distribution SAMPLE 0 to 4 5 to 9 10 to to to to to & Up Service December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 33

179 APPENDIX A: SUMMARY OF MEMBERSHIP DATA BackDROP Experience for the 2015 Plan Year Total Number Electing BackDROP Distribution of BackDROP Election Period Final Benefit as a Proportion of Final Average Pay Age Under 55% 55%-60% 60%-65% 65%-70% 70%-75% Total Under & Up Total Number Electing Months Elected SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 34

180 APPENDIX A: SUMMARY OF MEMBERSHIP DATA BackDROP Experience for the 2015 Plan Year Police Number Electing BackDROP Distribution of BackDROP Election Period Final Benefit as a Proportion of Final Average Pay Age Under 55% 55%-60% 60%-65% 65%-70% 70%-75% Total Under & Up Total Number Electing Months Elected SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 35

181 APPENDIX A: SUMMARY OF MEMBERSHIP DATA BackDROP Experience for the 2015 Plan Year Fire Number Electing BackDROP Distribution of BackDROP Election Period Final Benefit as a Proportion of Final Average Pay Age Under 55% 55%-60% 60%-65% 65%-70% 70%-75% Total Under & Up Total Number Electing Months Elected SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 36

182 APPENDIX A: SUMMARY OF MEMBERSHIP DATA SUMMARY OF INACTIVE VESTED MEMBERS as of December 31, 2015 Total By Group Number* Current Annual Benefit at Retirement Age Police Fire Total Police Fire Total Under $ 0 $ 0 $ 0 25 to to to ,950 73, , to ,084 22, , to ,053 82, , to ,031 24, , & Up Total $994,118 $202,423 $1,196,541 * Includes 2 Inactive Vested members who have elected to receive a refund of contributions, but have not been paid yet. Count Age Distribution Under to to to to to to & Up SAMPLE Age December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 37

183 APPENDIX A: SUMMARY OF MEMBERSHIP DATA SUMMARY OF INACTIVE VESTED MEMBERS as of December 31, 2015 Total By Gender Number* Current Annual Benefit at Retirement Age Male Female Total Male Female Total Under $ 0 $ 0 $ 0 25 to to to ,580 29, , to ,035 65, , to ,459 82, , to , , & Up Total $1,019,445 $177,096 $1,196,541 * Includes 2 Inactive Vested members who have elected to receive a refund of contributions, but have not been paid yet. Count Age Distribution Under to to to to to to & Up SAMPLE Age December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 38

184 APPENDIX A: SUMMARY OF MEMBERSHIP DATA DISTRIBUTION OF IN-PAY MEMBERS as of December 31, 2015 Amount of Non- Recalc. Monthly Service Service Service Benefit Disability QDRO 1 Disability Service Disability Survivor Total $ > Total Qualified Domestic Relations Order SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 39

185 APPENDIX A: SUMMARY OF MEMBERSHIP DATA RETIRANTS AND BENEFICIARIES ADDED TO AND REMOVED FROM ROLLS Removed Added to Rolls from Rolls End of Year Rolls Annual Pensions Percentage Valuation Annual Annual Annual Average Increase Date No. Pensions 1 No. Pensions 1 No. Pensions 1 Pension (Decrease) 12/31/ $704, $213, $17,829,449 $21, % 12/31/ , , ,349,917 21, /31/ , , ,777,464 22, /31/ , , ,492,053 23, /31/ ,959, , ,357,569 24, /31/ ,439, , ,570,141 25, /31/ ,615, , ,030,607 26, /31/ ,201, , ,226,219 27, /31/ ,938, , ,143,376 28, /31/ ,400, , ,165,652 30, /31/ ,652, , ,774,324 31, Values are estimated based on annualized pension amounts. SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 40

186 APPENDIX A: SUMMARY OF MEMBERSHIP DATA SUMMARY OF RETIRED MEMBERS as of December 31, 2015 Total By Group Number Current Monthly Benefit at Retirement Age Police Fire Total Police Fire Total Under $ 70,287 $ 9,645 $ 79, to ,483 80, , to , , , to , , , to , , , to ,634 99, , to ,054 64, , to ,458 88, , to ,043 26,632 43, to ,671 5,178 10, & Up , ,208 Total $1,171,990 $1,095,598 $2,267,588 Count Age Distribution SAMPLE Under to to to to to to to to to & Up Age December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 41

187 APPENDIX A: SUMMARY OF MEMBERSHIP DATA SUMMARY OF RETIRED MEMBERS as of December 31, 2015 Total By Gender Number Current Monthly Benefit at Retirement Age Male Female Total Male Female Total Under $ 40,377 $ 39,555 $ 79, to ,774 7, , to ,471 35, , to ,368 6, , to ,565 4, , to ,917 3, , to ,540 6, , to ,086 2, , to , , to , , & Up , ,208 Total $2,160,830 $106,758 $2,267,588 Monthly Benefit $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Average Benefit SAMPLE Under to to to to to to to to to & Up Age December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 42

188 APPENDIX A: SUMMARY OF MEMBERSHIP DATA SUMMARY OF BENEFICIARIES as of December 31, 2015 Total By Group Number Current Monthly Benefit at Retirement Age Police Fire Total Police Fire Total Under $ 6,890 $ 6,550 $ 13, to ,296 7,321 12, to ,775 16,312 26, to ,199 19,503 34, to ,497 18,004 36, to ,518 17,475 39, to ,562 25,096 50, to ,529 23,232 39, to ,394 11,296 22, to ,341 8,839 15, & Up ,829 3,481 5,310 Total $139,830 $157,109 $296,939 Count Age Distribution SAMPLE Under to to to to to to to to to & Up Age December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 43

189 APPENDIX A: SUMMARY OF MEMBERSHIP DATA SUMMARY OF BENEFICIARIES as of December 31, 2015 Total By Gender Number Current Monthly Benefit at Retirement Age Male Female Total Male Female Total Under $2,084 $ 11,356 $ 13, to ,617 12, to ,087 26, to ,702 34, to ,345 34,156 36, to ,993 39, to ,658 50, to ,761 39, to ,690 22, to ,180 15, & Up ,310 5,310 Total $4,429 $292,510 $296,939 Monthly Benefit $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Average Benefit SAMPLE Under to to to to to to to to to & Up Age December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 44

190 APPENDIX B: SUMMARY OF BENEFIT PROVISIONS Summary of Benefit Provisions Plan A is applicable to members who entered the System between January 1, 1965 and December 31, 1978 and members who entered prior to January 1, 1965 and elected Plan A coverage. Plan B is applicable to members who entered the System prior to January 1, 1965 and elected Plan B coverage. Plan C is applicable to members entering the System after December 31, SERVICE RETIREMENT Eligibility Plan A and Plan B: 20 years of service, regardless of age. Eligibility Plan C: 30 years of service, regardless of age; or 20 years of service at age 50; or 10 years of service, but less than 20 years at age 55. Amount of Pension all plans: Service times 2.5% of Final Average Salary to a maximum of 75% of Final Average Salary. Final Average Salary all plans: Average for the 3 consecutive years of service which produce the highest average and which are within the last 10 years of service. DEFERRED RETIREMENT (VESTED TERMINATION) Eligibility all plans: 10 years of service; 20 years of service required to be eligible for survivor benefits. Amount of Pension all plans: 2.5% of Final Average Salary times years of service with payments deferred until age 55 (age 50 for Plan C members with 20 or more years of service). Vested deferred pensions for Plan C are adjusted during the deferral period based on changes in National Average Earnings, up to 5.5% annual adjustments (effective for post-1999 terminations). SERVICE-CONNECTED DISABILITY Eligibility all plans: Permanent inability to perform the duties of position; no service requirement. Amount of Pension all plans: 75% of final salary rate if accident, 50% if disease. SAMPLE Miscellaneous Conditions all plans: Pension plus earnings from gainful employment cannot exceed current salary for rank held at time of disability. Pension recomputed at age 55 using service retirement formula, updated final average salary and service credit for period of disability. December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 45

191 APPENDIX B: SUMMARY OF BENEFIT PROVISIONS NON-SERVICE DISABILITY Eligibility all plans: Permanent inability to perform duties of position; requires 7 years of service and under age 55. Amount of Pension all plans: 30% of Final Average Salary plus 1% of Final Average Salary times service over 7 years; maximum is 50% of Final Average Salary. Miscellaneous Conditions all plans: Pension plus earnings from gainful employment cannot exceed current salary for rank held at time of disability. SERVICE-CONNECTED DEATH Eligibility all plans: Death resulting directly from service-connected causes; no service requirement. Amount of Pension all plans: Surviving spouse 50% of final Salary plus 10% of final Salary for each child under age 18 to a maximum of 75% of final Salary; terminates upon remarriage prior to age 40 for pensions effective prior to January 1, Children (no surviving spouse s pension payable) 20% of final Salary for each child under age 18 to a maximum of 60% of final Salary. NON-SERVICE DEATH Eligibility Plan A and Plan C: Death after 3 years of service. Eligibility Plan B: Death after 20 years of service. Amount of Pension Plan A and Plan C: Surviving spouse 35% of Final Average Salary plus 1% of Final Average Salary for each year of service over 3 to a maximum of 50% of Final Average Salary, plus 10% of Final Average Salary for each child under age 18 to an overall maximum of 66 2/3% of Final Average Salary; terminates upon remarriage prior to age 40 for pensions effective prior to January 1, Children (no surviving spouse s pension payable) 15% of Final Average Salary for each child under age 18 to a maximum of 50% of Final Average Salary. Amount of Pension Plan B: Surviving spouse 50% of final Salary. SAMPLE Children (no surviving spouse s pension payable) children under 18 share equally a benefit of 50% of final Salary. December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 46

192 APPENDIX B: SUMMARY OF BENEFIT PROVISIONS DEATH AFTER RETIREMENT Eligibility all plans: Surviving spouse must have been married to retired employee for one year or more at time of death, if retired after January 1, If retired prior to January 1, 2000, must have been married to retired employee at retirement. Member must have retired with at least 20 years of service. Amount of Pension Plan A and Plan C: Surviving spouse 35% of Final Average Salary plus 1% of Final Average Salary times Service over 3 years to a maximum of 50% of Final Average Salary, plus 10% of Final Average Salary for each child under 18 to an overall maximum of 66 2/3% of Final Average Salary. Post-retirement adjustments are granted from date of retirement to date of death. Terminates upon remarriage prior to age 40 for those retiring prior to January 1, Children (no surviving spouse s pension payable) 15% of Final Average Salary for each child under age 18 to a maximum of 50% of Final Average Salary. Amount of Pension Plan B: Surviving spouse 50% of final Salary. Children (no surviving spouse s pension payable) children under 18 share equally a benefit of 50% of final Salary. NON-VESTED TERMINATION Eligibility all plans: Termination of employment and no pension is or will become payable. Amount of Benefit all plans: Refund of member s contributions plus 5% annual interest. FUNERAL BENEFIT Eligibility Plan A and Plan C: Death of member who retired after November 21, Eligibility Plan B: Death of retired member Amount of Benefit Plan A and Plan C: $750 Amount of Benefit Plan B: $100 if member retired on or prior to November 21, 1973; $750 if member retired after November 21, POST-RETIREMENT ADJUSTMENTS OF PENSIONS SAMPLE Eligibility all plans: Completion of 36 months of retirement. Annual Amount all plans: 2% of the original base amount of benefit (simple COLA). December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 47

193 APPENDIX B: SUMMARY OF BENEFIT PROVISIONS BACKDROP (DEFERRED RETIREMENT OPTION PLAN) Eligibility: Member must be eligible to retire under service retirement provisions at the effective date of the BackDROP. Amount: Under the BackDROP, the member may elect a benefit based on a retirement date up to 60 months prior to the current date. The monthly benefit is computed based on service, Final Average Salary and benefit formula at the selected prior date. The DROP account available to the retiring member is the computed benefit multiplied by the number of months of BackDROP plus applicable post-retirement adjustments and 5% annual interest, compounded monthly. Members are eligible to elect a sixty month BackDROP beginning January 1, EMPLOYEE CONTRIBUTIONS Plan A: 8% of Salary Plan B: 6% of Salary Plan C: 7% of Salary These member contribution rates include the 1% decrease effective in 1998 in recognition of the full funding of actuarial liabilities. CITY CONTRIBUTIONS Actuarially determined amounts sufficient to satisfy K.S.A Suppl UNUSED SICK LEAVE Each bi-weekly service credit of accumulated unused sick leave is converted to a service credit for the purpose of computing annual benefit amounts. SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 48

194 APPENDIX C: ACTUARIAL COST METHOD AND ASSUMPTIONS ACTUARIAL COST METHOD The actuarial cost method is a procedure for allocating the actuarial present value of pension benefits and expenses to time periods. The method used for the valuation is known as the Entry Age Normal actuarial cost method, and has the following characteristics: (i) (ii) The annual normal costs for each individual active member are sufficient to accumulate the value of the member s pension at time of retirement. Each annual normal cost is a constant percentage of the member s year-by-year projected covered compensation. The Entry Age Normal actuarial cost method allocates the actuarial present value of each member s projected benefits on a level basis over the member s assumed pensionable compensation rates between the entry age of the member and the assumed exit ages. The portion of the actuarial present value allocated to the valuation year is called the normal cost. The portion of the actuarial present value not provided for by the actuarial present value of future normal costs is called actuarial liability. Deducting actuarial assets from the actuarial liability determines the unfunded actuarial liability or (surplus). The unfunded actuarial liability/(surplus) is financed as a level percent of member payroll over an open 20-year period. ACTUARIAL ASSUMPTIONS Retirement System contribution requirements and actuarial present values are calculated by applying experience assumptions to the benefit provisions and membership information of the Retirement System, using the actuarial cost method. The principal areas of risk which require experience assumptions about future activities of the Retirement System are: (i) (ii) (iii) (iv) (v) (vi) Long-term rates of investment return to be generated by the assets of the System Patterns of pay increases to members Rates of mortality among members, retirees and beneficiaries Rates of termination of employment of active members SAMPLE Rates of disability among active members The age patterns of actual retirements December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 49

195 APPENDIX C: ACTUARIAL COST METHOD AND ASSUMPTIONS In making a valuation, the monetary effect of each assumption is calculated for as long as a present current member survives a period of time which can be as long as a century. Actual experience of the Retirement System will not coincide exactly with assumed experience. Each valuation provides a complete recalculation of assumed future experience and takes into account all past differences between assumed and actual experiences. The result is a continual series of adjustments (usually small) to the computed contribution rate. From time to time, one or more of the assumptions are modified to reflect experience trends (but not random or temporary year-to-year fluctuations). A complete review of the actuarial assumptions was completed in The use of updated assumptions was first effective with the December 31, 2014 valuation. Investment Rate of Return (net of administrative expenses): This assumption is 7.75% a year, compounded annually and consists of 3.25% long-term price inflation and a 4.50% real rate of return over price inflation. This assumption, used to equate the value of payments due at different points in time, was adopted by the Board and was first used for the December 31, 1980 valuation, although the allocation between inflation and real return has changed periodically, most recently in Salary Increase Rates: These rates are used to project current salary amounts to those upon which a benefit will be based. Annual Rate of Salary Increase for Sample Service Durations Years of Service Inflation Component Productivity Component Merit and Longevity Total % 0.75% 2.75% 6.75% The assumption was first used for the December 31, 2014 valuation. The salary increase assumptions are expected to produce 4.00% annual increases in active member payroll (the inflation and productivity base rate) given a constant active member group size. This is the same payroll growth assumption used to amortize the unfunded actuarial liability. The real rate of return over assumed wage growth is 3.75% per year. SAMPLE Changes actually experienced in average pay and total payroll have been as follows: 5 Year (Average) Year Ended Compounded 12/31/15 12/31/14 12/31/13 12/31/12 12/31/11 Annual Increase Average Payroll 2.7% (0.2%) 2.0% (0.3%) 0.2% 0.9% Total Payroll 0.9% (1.7%) 2.1% (0.7%) 0.1% 0.1% December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 50

196 APPENDIX C: ACTUARIAL COST METHOD AND ASSUMPTIONS Mortality Table: This assumption is used to measure the probabilities of members dying. Healthy Retirees And Beneficiaries: Disabled Retirees: Active Members: RP-2000 Healthy Annuitant Table for Males and Females RP-2000 Disabled Table for Males and Females RP-2000 Employee Table for Males and Females The RP-2000 Tables are used with generational mortality. Present Value of Future Life Sample $1 Monthly for Life Expectancy (Years) Ages (1) Men Women Men Women 50 $ $ (1) Reflects values from the basic table based on ages in 2000 This table was first used for the December 31, 2004 actuarial valuation. Rates of Retirement and BackDROP (Deferred Retirement Option Plan) Elections: This assumption is used to measure the probability of eligible members retiring from active employment and applicable elections under the BackDROP program. Percent Retiring within Year Plans A & B Plan C Less Than 30 YOS 30 or More YOS Service of Age of Member Police Fire Member Police Fire Police Fire 28 or less 5% 5% 50 10% 10% 10% 20% Over Over SAMPLE These rates were first used for the December 31, 2014 valuation. December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 51

197 APPENDIX C: ACTUARIAL COST METHOD AND ASSUMPTIONS In addition, we assumed members who retire under service retirement provisions elect a BackDROP of up to 60 months which maximizes the actuarial value of the retirement benefit determined as of the retirement date. For the determination of actuarial value, the funding valuation assumptions are used. Rates of Separation from Active Membership: This assumption measures the probabilities of a member terminating employment. The rates do not apply to members who are eligible to retire. Years of Percent Separating Within Year Service Police Fire % 3.00% Over These rates were first used for the December 31, 2014 valuation. Forfeiture of Vested Benefits: The assumption is that a percentage of the actuarial present value of vested termination benefits will be forfeited by a withdrawal of accumulated contributions. Years of Percent Service Forfeiting % or more 0 This table were first used for the December 31, 2014 actuarial valuation. Rates of Disability: This assumption measures the probabilities of a member becoming disabled. % of Active Members Becoming Sample Disabled During Next Year Ages Police Fire % 0.07% SAMPLE These rates were first used for the December 31, 2014 valuation. Rates of Recovery from Disability: Assumed to be zero. December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 52

198 APPENDIX C: ACTUARIAL COST METHOD AND ASSUMPTIONS Administrative Expenses: Assumed to be paid from investment earnings. Active Member Group Size: Assumed to remain constant. Vested Deferred Pensions: Amounts for Plan C are assumed to increase during the deferral period at 4.0% per year, compounded annually. This assumption was changed with the December 31, 2009 valuation. MISCELLANEOUS AND TECHNICAL ASSUMPTIONS Marriage Assumption: 80% of non-retired participants are assumed to be married for purposes of death benefits. In each case, the male was assumed to be three years older than the female. Service Related Death and Disability: All active member deaths and 75% of active member disablements are assumed to be service related. Decrement Timing: Decrements of all types are assumed to occur mid-year. Eligibility Testing: Eligibility for benefits is determined based upon the age nearest birthday and service nearest whole year at the start of the year in which the decrement is assumed to occur. Benefit Service: Service calculated to the nearest month, as of the decrement date, is used to determine the amount of benefit payable. Other: The termination of employment decrement does not operate during retirement eligibility. Miscellaneous Loading Factors: The calculated normal retirement benefits were increased by 3% to account for the inclusion of unused sick leave in the calculation of Service. This assumption was first used for the December 31, 2014 valuation. SAMPLE December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 53

199 APPENDIX D: GLOSSARY OF TERMS Actuarial Liability Actuarial Assumptions Accrued Service Actuarial Equivalent Actuarial Cost Method Experience Gain (Loss) Actuarial Present Value Amortization Normal Cost Unfunded Actuarial Liability The difference between the actuarial present value of system benefits and the actuarial present value of future normal costs. Also referred to as accrued liability or actuarial liability. Estimates of future experience with respect to rates of mortality, disability, turnover, retirement, rate or rates of investment income and salary increases. Decrement assumptions (rates of mortality, disability, turnover and retirement) are generally based on past experience, often modified for projected changes in conditions. Economic assumptions (salary increases and investment income) consist of an underlying rate in an inflation-free environment plus a provision 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 singe amount or series of amounts, computed on the basis of appropriate assumptions. A mathematical budgeting procedure for allocating the dollar amount of the actuarial present value of retirement system benefit between future normal cost and actuarial liability; sometimes referred to as the actuarial funding method. The difference between actual experience and actuarial assumptions anticipated experience during the period between two actuarial valuation dates. The amount of funds currently required to provide a payment or series of payments in the future. It is determined by discounting future payments at predetermined rates of interest and by probabilities of payment. Paying off an interest-discounted amount with periodic payments of interest and principal, as opposed to paying off with lump sum payment. The actuarial present value of retirement system benefits allocated to the current year by the actuarial cost method. SAMPLE The difference between actuarial liability and the valuation assets. Most retirement systems have unfunded actuarial liability. They arise each time new benefits are added and each time an actuarial loss is realized. The existence of unfunded actuarial liability is not in itself bad, anymore than a mortgage on a house is bad. Unfunded actuarial liability does not represent a debt that is payable today. What is important is the ability to amortize the unfunded actuarial liability and the trend in its amount. December 31, 2015 Actuarial Valuation Police and Fire Retirement System of Wichita, Kansas 54

200 Request for Proposal Actuarial Services Prepared for Pasadena Fire & Police Retirement System November 17, East Katella Avenue Suite 660 Anaheim, CA Tel milliman.com Proposal submitted by: Grant Camp, FSA, EA, MAAA Consulting Actuary Tel Daniel Wade, FSA, EA, MAAA Principal & Consulting Actuary Tel

201 Table of Contents Transmittal Letter... 1 Conflict of Interest... 4 Proposed Fee Schedule... 5 Firm Description... 6 Proposer Warranties Sample Work Products Appendix Appendix 1: Mandatory Criteria Appendix 2: Milliman Consultant Biographies Appendix 3: Sample Milliman Consulting Services Agreement

202 Transmittal Letter November 17, 2016 Ms. Jill Fosselman, Administrator Pasadena Fire & Police Retirement System 100 North Garfield Avenue, Rm N204 Pasadena, CA Re: Request for Proposal for Actuarial Services Dear Ms. Fosselman, Milliman is pleased to provide this proposal for actuarial services to the Pasadena Fire & Police Retirement System ( System ) for your review and consideration. Our Milliman team is confident that we can meet the actuarial valuation, disclosure, and consulting needs for the System. We are committed to high quality work and look forward to bringing value to the System. Project scope We understand that the System is looking for an actuarial consulting firm that can provide more than just the numbers. Beyond completing the standard annual actuarial valuations and providing the required Governmental Accounting Standards Board (GASB) disclosures, the System requires consultants with expertise in the development of assumptions and analyzing the sensitivity of both the current and projected results to those assumptions. Additionally, the System is looking to partner with an actuarial consulting firm that can work collaboratively with members of the Board and the other service providers, and a firm that has the depth of knowledge and experience to keep all parties apprised of changes in the retirement field that may impact the System. Why Milliman is the best match for the System s needs Although there are many qualified actuarial firms that can accurately calculate the liabilities, at Milliman we pride ourselves on looking beyond the numbers and providing our clients the insight and analysis required to understand the numbers. Since our founding in 1947, Milliman has provided actuarial consulting services to public pension plans beginning when the Washington State Employee Retirement System retained our firm s founder, Wendell Milliman, to provide actuarial advice to its new Retirement Board. For nearly 70 years, we have focused on providing independent unbiased advice in order to help our clients make informed decisions about issues that face their retirement systems. 1

203 As such, we feel it is important that the System understand the sensitivity of the results to both short term and long term economic expectations when examining the COLA and investment return assumptions given the structure of the funding arrangement the System has with the City of Pasadena ( City ). Although the System is projected to continue making benefit payments to retirees and beneficiaries for approximately 50 years, over half of those payments are expected to be made in the next years. In partnership with your investment advisor, Milliman can help the System analyze how differences in short term and long term economic expectations for both investment returns and inflation could impact the projected funded percentage and City contribution requirements. Milliman s mission is to serve our clients to protect the health and financial wellbeing of people everywhere. We believe that no firm can match our public pension experience and expertise. We have the resources necessary to perform and complete the project and are uniquely positioned and invested in serving the System for its consulting needs. While we have included specific details outlining how Milliman meets the Mandatory Criteria requested by the System in Appendix 1, our key strengths include the following: Experience. Milliman has extensive experience working with fire and police funds and also works with many California public retirement plans such as the Los Angeles County Employees Retirement System, San Mateo County Employees Retirement Association and Antelope Valley Hospital. Length of Relationships. We have worked with many public sector systems for more than 20 years and some relationships extend beyond 40 years. Our team believes that this reflects the quality of our service to our clients and their continued satisfaction. Responsiveness. We strive to exceed your expectations with respect to our accessibility and responsiveness. Milliman s timeline to deliver a valuation report fits the System s schedule. Assuming the contract award is finalized in February 2017, we will perform a replication of the prior actuary s results for June 30, 2016, prior to beginning work on the June 30, 2017 valuation. We do not charge for this replication work as we view it as an investment in our relationship with the System. The replication also serves as an effective audit of the prior year results. For the June 30, 2017 and future valuations, we will be able to present our draft valuation report within eight weeks of receipt of the data. The valuations will be completed in accordance with generally accepted actuarial procedures. Communication. Time after time, our team has been complimented for its ability to explain complicated topics to Boards and staff. By speaking with clarity and by using visual examples, we have gained the confidence of many clients who declare, Now we understand. One Milliman client stated that Their strength is translating complex data into understandable concepts that we can share with those who are not as familiar with how the whole process works. Please see the Sample Work Products section of this proposal for our samples of valuation reports. These reports provide examples of the written communication we provide to our clients. Additionally, we publish a newsletter (PERiScope) specifically aimed at public sector plans. Consultants on the proposed Milliman service team have been published in this newsletter on many occasions. Members of the proposed team have also supported the publication of several books on public retirement systems and continue to regularly present at educational seminars regarding public systems. 2

204 Integrity. We provide truly independent, non-biased advice reflecting all stakeholders interests. Quality. Milliman has built a reputation for work of the highest standards. We preserve this reputation through strict internal quality control procedures. Technical excellence is Milliman s most outstanding characteristic. Senior consultants participate in the development of the work product. Milliman is providing you with a highly qualified and specialized team of retirement consultants. We see the bigger picture and provide knowledge beyond the numbers, offering value to our clients for a reasonable fee. Stability. Many employees start and complete their entire careers with Milliman. We support the professional growth and development of all our employees and have very low turnover. This ensures long, successful relationships with our clients. The Milliman team is qualified, responsible, and capable of performing the requested actuarial valuation services. We truly believe that Milliman is the right choice to serve the System for its pension actuarial needs. We look forward to discussing our proposal in greater detail with you and to developing a relationship with the System. As a principal of Milliman, Daniel Wade has the authority to make representations for and bind the firm contractually. Please note, however, that submission of Milliman s proposal is not an acceptance of the System s terms and conditions, and the firm will not be obligated to perform any services until a mutually acceptable contract is executed. Our proposal is valid for a period of 180 days. Please do not hesitate to contact us if you have any questions or would like to discuss any aspect of this proposal. We look forward to hearing from you soon. Sincerely, Grant Camp, FSA, EA, MAAA Consulting Actuary Tel grant.camp@milliman.com Daniel Wade, FSA, EA, MAAA Principal & Consulting Actuary Tel daniel.wade@milliman.com 3

205 Conflict of Interest ATTACHMENT A Pasadena Fire & Police Retirement System CONFLICT OF INTEREST DISCLOSURE All proposers are required to complete and sign this Attachment and include it with the proposal submission. If additional pages are needed, each page must be signed in the format below. 1. A list and description of any financial or other business relationship (currently and for the past five years) with the City of Pasadena or any of its component units/agencies, Fire & Police Retirement System, or Board Members of the Fire & Police Retirement System, together with a statement explaining why such relationships do not constitute a conflict of interest relative to performing the proposed actuarial valuation. If there are none, a statement to that effect must be included in connection with the solicitation or award of this proposal. We are unaware of any such relationship. 2. A list and description of the proposer s current clients who may have a financial interest in the outcome of the contract, together with a statement explaining why such relationships do not constitute a conflict of interest relative to performing the proposed actuarial valuation. If there are none, a statement to that effect must be included. We are unaware of any such relationship. Milliman Name of Proposing Firm Authorized Signature Principal & Consulting Actuary Title Daniel Wade November 17, 2016 Printed Name Date 4

206 Proposed Fee Schedule ATTACHMENT B Pasadena Fire & Police Retirement System PROPOSED FEE SCHEDULE Fee A. Annual Actuarial Valuation Report and Required Disclosures (See Section IV. A. for scope of work) B. Regular Annual Actuarial Services (See Section IV. B. for scope of work) June 30, 2017 Valuation Cost, not to exceed June 30, 2018 Valuation Cost, not to exceed June 30, 2019 Valuation Cost, not to exceed Notes, Limits See (1) below Total Fixed Fee Proposal $18,000 $18,000 $18,000 C. Additional/Special Services, as requested (See Section IV. C. for scope of work) Please list: (eg. Stochastic Modelling, Experience Studies, Mortality Studies) See (2) below (1) We believe that the most of the services outlined in Section IV. B. are integral to the production and communication of the valuation results outlined in Section IV. A. We would not propose completing Section IV. A. without also providing the services listed in Section IV. B. and therefore have not broken out fees by section. Our proposed fee includes attendance and travel expense for the lead consulting actuary to attend one in-person Board meeting to present and discuss valuation results. Additional meetings where our presence is requested by the System will be billed at an additional fee. Meetings requested by Milliman will be covered by the fixed fee outlined above. (2) Because the scope can vary widely for additional services, it is difficult to estimate a fixed fee before discussing the project with the System and determining the goals of the project. For all projects not included in the standard scope of service (Section IV A and B of the RFP) Milliman will present a not-to-exceed fee proposal to the System for approval. Please see our hourly rates below. Per Section VII.E.4 of the RFP, I affirm that all prices, terms and conditions will be held firm for at least 180 days from the date of the proposal submission. Initial Billing Rates for Additional Services Signature, Proposing Firm Employee Name Job Title/Classification Estimated 2017 Hourly Rate Grant Camp Consulting Actuary $355 Daniel Wade Principal & Consulting Actuary $430 Technical Staff Actuary / Actuarial Analyst $ Support Staff Administrative Assistant $

207 Milliman Actuarial Services Proposal Firm Description 1. License to Practice in California: An affirmative statement should be included that the proposer and firm are properly licensed to practice in California and are in good standing with such licensing agencies. Milliman is fully licensed, and in good standing, to conduct business in the state of California. (Federal Employer Tax Identification # ; California Entity Number C ; CA Consolidated Seller s # ). There is no license requirement for individuals specific to California to perform actuarial work. All key professional are members of the American Academy of Actuaries and qualified to render actuarial opinions. Therefore, we believe we satisfy this requirement. 2. Firm Qualifications and Experience: The proposer should state the size of the firm, the size of the firm s staff, the location of the office from which the work on this engagement is to be performed and the number and nature of the professional staff to be employed in this engagement. Provide a brief history and general description of your firm, including when the firm was founded, and by whom, current ownership and affiliations, names and titles of key officials and whether the firm is local, national or international. Describe the full range of services your local office provides to clients. What are the firm s specialties or areas of greatest expertise? Please note any recent changes in ownership of your firm (within the last 12 months) and any planned or anticipated changes during the next 36 months (the length of the proposal). About Milliman Milliman provides a full range of actuarial and related consulting services to our clients in the areas of employee benefits, investment consulting, healthcare, property & casualty insurance, as well as life insurance and financial services. The firm employs approximately 3,200 people in 60 offices worldwide, including a professional staff of more than 1,600 qualified actuaries and consultants. The System will be served by a team of consultants out of the Anaheim and Seattle offices which specialize in employee benefits consulting services offering highly effective solutions in the retirement, healthcare, benefit administration, compensation, talent management, and communications arenas. Milliman also has an office in Pasadena which specializes in property & casualty insurance. Milliman is wholly owned and managed by approximately 400 principals, who have been elected in recognition of their technical, professional, and business achievements and no individual owns more than 1% of the firm. There have been no changes within the past 12 months, nor are there planned changes to the ownership or organizational structure of the firm during the next 36 months or otherwise. In fact, significant changes in ownership structure are unlikely to occur. In addition to ensuring our independence, our ownership structure provides long-term relationships with clients without disruption of services due to a merger, acquisition by another other firm, a change in focus, or cessation of operations due to litigation. Milliman is a corporation with its Chief Executive Officer, Chief Financial Officer, and most corporate staff located in Seattle. Milliman s Board of Directors includes its Chairman, CEO, four global Practice Directors, and five at-large members who are also principals of the firm. On the following page, we have included an organizational chart of the firm s leadership, including our Chairman, C-level executives and practice directors. Prepared for Pasadena Fire & Police Retirement System 6 November 17, 2016

208 Milliman Actuarial Services Proposal Providing public pension consulting since 1947 As discussed in our Transmittal Letter, Milliman has provide actuarial services to public pension clients for nearly 70 years. We provide services strictly on a fee-for-service basis to approximately 9,000 public and private sector clients, including more than 4,500 pension clients. We are known for our client-centered approach and technical expertise. Milliman has a group of highly experienced public plan consultants who operate as a team. This team holds frequent conference calls with each other to discuss public plan issues. The members frequently represent Milliman at major public plan organizational meetings and have worked as part of several task forces formed by the Governmental Accounting Standards Board (GASB). In addition, Milliman has contacts throughout governmental and industry bodies that will assist the service team in keeping updated of new developments in the retirement industry and their effects on public clients and bring information as needed to the System. We have active participation in public retirement organizations including the following: National Association of State Retirement Administrators (NASRA) National Council on Teacher Retirement (NCTR) National Conference on Public Employee Retirement Systems (NCPERS) National Institute on Retirement Security (NIRS) International Foundation of Employee Benefits Plans (IFEBP) State (California) Association of County Retirement Systems (SACRS) California Association of Public Retirement Systems (CALAPRS) Prepared for Pasadena Fire & Police Retirement System 7 November 17, 2016

209 Milliman Actuarial Services Proposal Extensive GASB expertise GASB Statements No. 67 and 68 are new financial reporting standards for state and local governmental pension plans that are administered through trusts or equivalent arrangements. Milliman will prepare all actuarial figures for the System as required under GASB 67 and 68. The team assigned to this project has had extensive experience providing GASB 67 and 68 reporting. In addition to our GASB 67 and 68 reporting experience, Milliman formed a GASB 67/68 Task Force to address the issues with implementing the GASB 67 and 68 standards. The GASB 67/68 Task Force produced a series of articles in PERiScope, Milliman s public plan newsletter. The series is available on the Milliman website as GASB 67/68: The Series. Members of the service team have given presentations regarding the new GASB Statements 67 and 68. When GASB Statements 43 and 45 were first issued, they also gave multiple presentations for clients and other public finance officers. Milliman Service Team The System will be served jointly by a team of qualified and dedicated consultants out of the Anaheim and Seattle offices of Milliman, pictured at right. These offices are part of Milliman s West Region Employee Benefits practice. Grant Camp will serve as the project manager and primary consulting actuary from the Anaheim office. Grant will coordinate the work of the local team of actuarial analysts and ensure all deadlines are met. Daniel Wade will serve as the primary consulting actuary from the Seattle office. Daniel specializes in serving public retirement systems and can provide a broad perspective on issues the System might face. Daniel will also perform the internal peer review for all work done for the System. With two lead consultants, we provide a team with an exceptional amount of public plan experience combined with local office accessibility. We work as a team, so if Grant or Daniel are not available the other will easily be able to assist. We are committed to ensuring that the Board and System decision makers have all the necessary information communicated to them in a manner which allows for the best possible resolutions. Anaheim office Included on the following page is an organizational chart of the consulting team. Biographies for key consultants are included in Appendix 2. Seattle office Prepared for Pasadena Fire & Police Retirement System 8 November 17, 2016

210 Milliman Actuarial Services Proposal 3. Internal Quality Control Processes and Procedures: Explain your firm s internal quality control processes and methodologies. Specifically, when preparing an actuarial valuation, identify reviewers, items reviewed and when (in the process) reviews occur. Milliman has built a national reputation of integrity and work of the highest standards. The firm s emphasis on preserving this reputation is demonstrated by our internal quality control procedures. We have had quality control features since the founding of the firm, with a formal policy in place for more than 30 years. Under our formal pre-release peer review program, client assignments are subject to an internal pre-release peer review by another Milliman professional, which in the System s case will be Daniel Wade. Specific to Milliman s valuation, we have included a description of our quality control processes and procedures in our response to Question 7. Peer review is the 6 th step in our annual valuation process and we anticipate it occurring at the end of August. The detailed review process can only be satisfied by actuaries who have met the firm's stringent qualification requirements. An internal committee monitors the practices and procedures of all Milliman consultants in relation to the established professional standards. Additionally, a team of peers periodically reviews work products, methods, and documentation of assignments that have been recently completed. The objective of these post-release peer reviews is to verify that Milliman's standards of practice, as well as those of the American Academy of Actuaries, are being followed by every consulting actuary. Prepared for Pasadena Fire & Police Retirement System 9 November 17, 2016

211 Milliman Actuarial Services Proposal 4. Similar Engagements with other Pension Plans: For the proposer s office that will be assigned responsibility for services, list the most significant engagements that are similar to the engagement described in this RFP. Please also list the total number of public plan clients that the firm serves. As we previously mentioned, Milliman has a great deal of experience providing actuarial services to municipal and state pension plans, including fire and police retirement systems. Milliman consultants serve more than 1,000 public sector pension and retiree medical clients. Below we have included a representative list of entities currently served by the offices in the West Region Employee Benefits practice. Public Employee Retirement Systems First Year Retained Milliman Idaho Public Employees Retirement System Municipal Police & Fire Systems in the state of Washington 1970 Tacoma Employees Retirement System 1976 California State Teachers Retirement System 1985 Seattle City Employees Retirement System 1991 Los Angeles County Employees Retirement Association 1999 Texas County & District Retirement System 1999 San Mateo County Employees Retirement Association 2006 Antelope Valley Hospital 2008 City of Portland Fire & Police Disability & Retirement 2012 Oregon Public Employees Retirement System Disputed Reports, Studies and Other Issues: The proposal should identify any instances within the past five (5) years in which the firm and/or any individual actuary was the subject of professional disciplinary proceedings or named as a defendant in any action for professional negligence or willful misconduct and describe the outcome. None of the members of the proposed service team have ever been the subject of professional disciplinary proceedings or named as a defendant in any action for professional negligence or willful misconduct. Given the size of the firm, it is not Milliman's practice to provide information about claims or litigation unrelated to the consultants, office or practice involved in a proposal. Prepared for Pasadena Fire & Police Retirement System 10 November 17, 2016

212 Milliman Actuarial Services Proposal 6. References: A minimum of three (3) client references for the proposer s most relevant projects within the past five (5) years must be provided. Milliman s proposed team provides similar services requested in this RFP for the following public sector clients. In addition to the actuarial valuations, we have done work to project contribution amounts and show sensitivity to alternative assumptions. We also provide the information required for financial reporting under the appropriate standards. City of Seattle Firefighters Pension Board th Ave, Suite 820 Seattle, WA Milliman Client: present Steve Brown, Executive Secretary Tel: stevenw.brown@seattle.gov Antelope Valley Hospital 1600 West Avenue J Lancaster, CA Milliman Client: present Janis Maher, Controller Tel: janis.maher@avhospital.org City of Vancouver 415 West 6 th Street Vancouver, WA Milliman Client: present Christine Smith, Accounting Manager Tel: christine.smith@cityofvancouver.us 7. Delivery Schedule: The proposal must include a time schedule of the valuation work to be performed and delivery dates for the required reports. An actuarial valuation of plan assets and liabilities is a complex and multi-step process. In the following pages, we have outlined the major steps in an actuarial valuation and included a timeline for completion of each step. We have also listed our data requests from the System in the Data section. Note that any delay in the receipt of the necessary data may delay the delivery of draft valuation reports. A slightly accelerated time schedule could be provided if required by the System, but the following provides our typical project timeline. Prepared for Pasadena Fire & Police Retirement System 11 November 17, 2016

213 Milliman Actuarial Services Proposal Project Timeline Timing Step 1: Signed contract February 2017 Step 2: Match prior actuary s valuation results An important part of the process is to match the calculations for actuarial liabilities given the data provided, assumptions and methodologies used, and plan provisions as of the prior actuarial valuation. This is an important step to ensure that all steps of the process are understood. The results do not need to match precisely, but the reasons for any significant discrepancies will need to be resolved. Between signed contract and beginning of work for the first valuation Step 3: Choosing actuarial assumptions July 2017 Our data request letter will include proposed actuarial assumptions. If those assumptions are acceptable to the System, the System can indicate that with the response to the data request. If the System has alternative assumptions or would like to further discuss the standard assumptions, we will be happy to have that discussion. Actuarial assumptions will be set for items such as expected future rates of mortality, the investment return assumption (discount rate), and the Consumer Price Index (CPI). Step 4: Data checking and preliminary processing We will send a data request letter in spring We work with the System to obtain the demographic and financial data required for an actuarial valuation as of June 30, The data are checked for reasonableness and consistency. Questions concerning outlier data are provided to the System s staff for verification. All member information is treated as confidential. See below for our data requirements. Two weeks after receipt of data files from the System Step 5: Liability calculations for June 30, 2017 For each valuation, we determine the actuarial present value of all future benefits payable from the System. These calculations rely on member data, assumptions, and the appropriate provisions of the System. Liability calculations are checked for accuracy and reasonableness on both an individual and aggregate basis. A gain/loss analysis will be done to reconcile with the results of the prior actuarial valuation. Step 6: Peer review Four weeks after receipt of data files from the System August 25, 2017 Peer review is an ongoing process throughout the valuation. We review and check our work at every step to provide assurances that the highest quality standards are being maintained at all times. Each valuation will be reviewed in full by Daniel Wade. Reviews may also be periodically performed by qualified professionals in other offices to ensure high quality and accuracy. The peer reviewers review the assumptions, methods, and results for reasonableness, and ensure that we are complying with actuarial standards set by the American Academy of Actuaries. Prepared for Pasadena Fire & Police Retirement System 12 November 17, 2016

214 Milliman Actuarial Services Proposal Project Timeline Timing Step 7: GASB disclosures September 1, 2017 We will develop the information required to be disclosed by Statements No. 67 and 68 of the GASB as well as the potential successors. Similar information is required to be disclosed to meet the Guidelines of the Government Finance Officers Association (GFOA) regarding a Comprehensive Annual Financial Report (CAFR). Step 8: Production of actuarial valuation report The report is a critical element of the valuation process since it is the communication the City must rely on to understand our findings. Our report will include a summary of findings with a clear description of our conclusions regarding the financial condition of the Fund. It will also include discussion of the calculations, GASB disclosures, descriptions of the benefit provisions found in applicable laws and summaries of assumptions and data. Draft: September 8, 2017 Discussion and final report: September 15, 2017 Our reports include cash flow projections with a graphical depiction to help the Board address the liquidity needs of the System. We will also provide a projection of contribution rates based on the City s contribution agreement. Step 9: Presentation of results to Board Grant and Daniel will attend the Board Meeting to present the valuation report highlighting the most significant results, including any changes from the prior year s valuation, and answer questions from the Board and staff. No later than the end of October 2017 Assumptions The setting of actuarial assumptions is of critical importance to an actuarial valuation. The actuarial valuation is dependent upon the assumptions we use to project the future benefit payments and then to discount the value of future benefits to determine the present values. There are two broad categories of actuarial assumptions: demographic assumptions and economic assumptions. The demographic assumptions tend to be based upon plan-specific data, while the economic assumptions are based upon expectations for the national and global economy. DEMOGRAPHIC ASSUMPTIONS: For setting demographic assumptions, it is best practice to use the results of an investigation of the recent actuarial experience. Although past history is no guarantee of future results, recent experience of the plan is the best predictor we have for future demographic experience in most cases. For actuarial valuations in the state of California that will not have a sufficient population to conduct a credible study of its own experience, it is best to use the assumptions from the experience studies done by CalPERS or the Los Angeles County Employees Retirement Association. Prepared for Pasadena Fire & Police Retirement System 13 November 17, 2016

215 Milliman Actuarial Services Proposal ECONOMIC ASSUMPTIONS: The Actuarial Standards Board has adopted Actuarial Standard of Practice (ASOP) No. 27, Selection of Economic Assumptions for Measuring Pension Obligations. This standard provides guidance to actuaries giving advice on selecting economic assumptions for measuring obligations under defined benefit plans. Because no one knows what the future holds, the actuary must use professional judgment to estimate possible future economic outcomes. These estimates are based on past experience, future expectations and professional judgment. The actuary should consider a number of factors, including the purpose and nature of the measurement, and appropriate recent and long-term historical economic data. However, the standard explicitly advises the actuary not to give undue weight to recent experience. Our assumptions for salary increases and future changes in the CPI will consider all of the following: Projections by the Social Security Administration Market-based measures of inflation expectations based upon prices of index-linked financial securities, such as Treasury Inflation Protected Securities (TIPS) Historical Data both on a national and local level Discussions with the System regarding future expectations GASB requires that the investment return assumption (discount rate) should be the estimated long-term investment yield on investments that are expected to be used to finance the payment of benefits with consideration given to the nature and mix of current and expected investments. Under GASB s new accounting and financial reporting standards for pension plans, the discount rate will be based on yields on long-term AA-rated, tax-free municipal bonds instead of investment return assumptions after the plan s assets are exhausted if there is expected to be a depletion date. Current bond yields for AA-rated bonds are approximately 3.50%. Data Milliman will require financial information and census data information from the System. The income statement and balance sheet information typically provide the financial information we need. The census data consists of name, identification number (or other identifier), date of retirement, date of birth, marital status, type of retirement, basic benefit level (without COLA), identification of Funded and Unfunded Basic Benefits (as described in Contribution Agreement No. 20,823), and amount of COLA benefit (or total benefit level). Our systems are flexible enough to accept any common data submission from the System. Flat text files with the layouts work well. Our only requirement is that the data be transmitted in a secure format. Security We know that security of the System s data are important and Milliman maintains physical, electronic, and managerial safeguards to prevent unauthorized access to confidential, sensitive and personal information. Milliman s data sensitivity policy requires that all confidential data be transmitted using an approved, secure method. In addition, we will comply with any written standards communicated to us by our clients. Our preferred data transmittal method is to use Milliman s SFTP server. This method only requires that the user be able to access the Prepared for Pasadena Fire & Police Retirement System 14 November 17, 2016

216 Milliman Actuarial Services Proposal internet through an internet browser. No software needs to be installed on the user s computer. Milliman will issue the user a user name, a password, and provide the Internet address for the SFTP site. Using Milliman s SFTP server ensures that user names, passwords, and data files are encrypted while traveling through the internet. Milliman has other alternatives available, which can also include using file encryption or a client-provided encrypted method. Once data have been securely obtained by Milliman, we undertake extensive precautions to ensure the continuing security of sensitive information. Milliman has strict policies and procedures in place to ensure that sponsor and participant data are protected at all times. This includes physical security, anti-malware software, employee security protocols, personal firewalls, and secure encryption on all personal computers and laptops used by Milliman staff. In addition, we maintain physical security measures for building and file storage facilities, and we maintain internal policies to ensure privacy for sensitive member data including physical retention and destruction policies. Milliman personnel are restricted from communicating plan information to any party outside of the Milliman administration unit and designated plan representatives. We do not contract with a separate entity for computer services. Prepared for Pasadena Fire & Police Retirement System 15 November 17, 2016

217 Proposer Warranties ATTACHMENT C Pasadena Fire & Police Retirement System PROPOSER WARRANTIES Proposer agrees to the incorporation of the following warranties in a proposed contract: 1. Proposer warrants that it maintains or will obtain at its expense prior to funding an errors and omissions insurance policy providing a prudent amount of coverage for negligent or intentional acts or omissions and that such coverage is applicable to proposer s actions under the Contract. Further, proposer will provide a copy of the binder to FPRS. We certify that Milliman maintains errors and omissions coverage appropriate for a consulting firm of our size, commensurate with the services described in this Request for Proposal. While it is contrary to Milliman s standard practice to provide copies of our insurance policies, we agree to provide certificates of insurance evidencing such coverage to FPRS. 2. Proposer warrants that all information and statements in this RFP are complete and true. Any statement or claim found to be incomplete, misleading or false will be ground for immediate disqualification or dismissal and may be subject to legal action. Agree. Milliman Name of Proposing Firm Authorized Signature Principal & Consulting Actuary Title Daniel Wade November 17, 2016 Printed Name Date 16

218 Milliman Actuarial Services Proposal Sample Work Products The following pages contain samples of valuation reports performed for the City of Vancouver (WA) and the Tacoma Employees Retirement System. Prepared for Pasadena Fire & Police Retirement System 17 November 17, 2016

219 ACTUARIAL VALUATION of Firefighters' Pension Fund and Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 Prepared by Daniel R. Wade, FSA, EA, MAAA Fellow, Society of Actuaries Member, American Academy of Actuaries and Robert F. Busey, ASA, EA, MAAA Associate, Society of Actuaries Member, American Academy of Actuaries

220 1301 Fifth Avenue Suite 3800 Seattle, WA USA July 1, 2015 Tel Fax milliman.com Christine L. Smith Accounting Manager City of Vancouver P.O. Box 1995 Vancouver, WA Re: 2015 Actuarial Valuation Report As requested, we performed an Actuarial Valuation of the City of Vancouver Firefighters' Pension Fund and Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees as of January 1, The major findings of the valuation are contained in this report. This report reflects the benefit provisions in effect as of the valuation date. In preparing this report, we relied, without audit, on information (some oral and some in writing) supplied by the City. 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. Since the valuation results are dependent on the integrity of the data supplied, the results can be expected to differ if the underlying data is incomplete or missing. It should be noted that if any data or other information is inaccurate or incomplete, our calculations may need to be revised. All costs, liabilities, rates of interest, and other factors for the Fund have been determined on the basis of actuarial assumptions and methods which are individually reasonable (taking into account the experience of the Fund and reasonable expectations); and which, in combination, offer our best estimate of anticipated experience affecting the Fund. 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. This valuation report is only an estimate of the Fund s financial condition as of a single date. It can neither predict the Fund s future condition nor guarantee future financial soundness. Actuarial valuations do not affect the ultimate cost of Fund benefits, only the timing of Fund contributions. While the valuation is based on an array of individually reasonable assumptions, other assumption sets may also be reasonable and valuation results based on those assumptions would be different. No one set of assumptions is uniquely correct. Determining results using alternative assumptions is outside the scope of our engagement. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Due to the limited scope of our assignment, we did not This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo Offices in Principal Cities Worldwide

221 City of Vancouver July 1, 2015 Page 2 perform an analysis of the potential range of future measurements. The Board has the final decision regarding the appropriateness of the assumptions. Actuarial computations presented in this report are for purposes of determining the recommended funding amounts for the Fund. Actuarial computations presented in this report under GASB Statements No. 27, 43, 45, 50 and 67 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 Fund s funding requirements and goals and GASB Statements No. 27, 43, 45, 50 and 67. Determinations for purposes other than meeting these requirements may be significantly different from the results contained in this report. Accordingly, additional determinations may be needed for other purposes. Milliman s work is prepared solely for the internal business use of the City of Vancouver. To the extent that Milliman's work is not subject to disclosure under applicable public records laws, Milliman s work may not be provided to third parties without Milliman's prior written consent. Milliman does not intend to benefit or create a legal duty to any third party recipient of its work product. Milliman s consent to release its work product to any third party may be conditioned on the third party signing a Release, subject to the following exceptions: (a) The City may provide a copy of Milliman s work, in its entirety to the Fund's professional service advisors who are subject to a duty of confidentiality and who agree to not use Milliman s work for any purpose other than to benefit the Fund. (b) The City may provide a copy of Milliman s work, in its entirety, to other governmental entities, as required by law. No third party recipient of Milliman's work product should rely upon Milliman's work product. Such recipients should engage qualified professionals for advice appropriate to their own specific needs. The consultants who worked on this assignment are pension actuaries. Milliman s advice is not intended to be a substitute for qualified legal or accounting counsel. The signing actuaries are independent of the plan sponsor. We are not aware of any relationship that would impair the objectivity of our work. 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. We are members of the American Academy of Actuaries and meet the Qualification Standards to render the actuarial opinion contained herein. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo

222 City of Vancouver July 1, 2015 Page 3 We would like to express our appreciation to staff members of the City of Vancouver, who gave substantial assistance in supplying the data on which this report is based. We respectfully submit the following report, and we look forward to discussing it with you. Sincerely, Daniel R. Wade, FSA, EA, MAAA Robert F. Busey, ASA, EA, MAAA Consulting Actuary Actuary Enrolled Actuary Number Enrolled Actuary Number DRW/RFB/nlo This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo

223 Actuarial Valuation of Firefighters' Pension Fund and Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 Table of Contents Page SUMMARY: Scope of the Report... 1 Part I PENSION FUND VALUATION REPORT SECTION 1 Conclusions and Recommendations... 7 SECTION 2 Valuation of Pension Benefits... 9 TABLE 1 Actuarial Present Value of All Future Pension Benefits Not Provided by LEOFF System TABLE 2 Derivation of Contributions Required for Pension Benefits SECTION 3 Actuarial Information for Accounting Purposes TABLE 3 GASB Statement No. 67 Schedule of Employer Contributions TABLE 4 GASB Statement No. 67 Money-Weighted Rate of Return TABLE 5 GASB Statement No. 67 Long-Term Expected Rate of Return TABLE 6 GASB Statement No. 67 Calculation of the Discount Rate TABLE 7 GASB Statement No. 67 Net Pension Liability TABLE 8 GASB Statement No. 67 Changes in Net Pension Liability TABLE 9 GASB Statement No. 67 Schedule of Changes in Net Pension Liability and Related Ratios TABLE 10 GASB Statement No. 27 Annual Pension Cost and Net Pension Obligation.. 24 TABLE 11 GASB Statement Nos. 27 and 50 Schedule of Funding Progress TABLE 12 GASB Statement No. 27 Three-Year Trend Information TABLE 13 GASB Statement No. 27 Annual Development of Pension Cost SECTION 4 Supplemental Information TABLE 14 Projection of Future Excess Pension Benefits APPENDIX A Actuarial Procedures and Assumptions TABLE A-1 Summary of Valuation Assumptions TABLE A-2 Actuarial Assumptions Display for Notes to Financial Statements APPENDIX B Provisions of Governing Law APPENDIX C Valuation Data TABLE C-1 Firefighters Retired for Service TABLE C-2 Firefighters Disabled in Line of Duty TABLE C-3 Firefighters Disabled Not in Line of Duty TABLE C-4 Survivors of Firefighters APPENDIX D Glossary This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo i

224 Table of Contents (Continued) Part II RETIREE MEDICAL AND LONG-TERM CARE VALUATION Page SECTION 1 Conclusions and Recommendations SECTION 2 Benefits Liability TABLE 1 Summary of Retiree Medical and Long-Term Care Liabilities SECTION 3 Actuarial Information for Accounting Purposes TABLE 2 GASB Statement No. 45 Annual OPEB Cost and Net OPEB Obligation TABLE 3 GASB Statement No. 43 and No. 45 Schedule of Funding Progress TABLE 4 GASB Statement No. 43 Schedule of Employer Contributions TABLE 5 GASB Statement No. 45 Percentage of Annual OPEB Cost Contributed TABLE 6 GASB Statement No. 45 Annual Development of OPEB Cost SECTION 4 Supplemental Information TABLE 7 Estimated Total Pay-As-You-Go Costs for LEOFF 1 Members APPENDIX A Summary of Valuation Assumptions TABLE A-1 Summary of Valuation Assumptions TABLE A-2 Annual Rates - Service Retirement TABLE A-3 Annual Rates - Disability TABLE A-4 Actuarial Assumptions Display for Notes to Financial Statements APPENDIX B Plan Summary APPENDIX C Retiree Medical Costs APPENDIX D Valuation Data TABLE D-1 Retired Firefighters Eligible for Retiree Medical and Long-Term Care Benefits This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo ii

225 Actuarial Valuation of Firefighters' Pension Fund and Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 SUMMARY Scope of the Report This report presents the results of an actuarial valuation of the City's Firefighters' Pension Fund (FPF) and Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees. When valuing the pension fund liabilities, particular attention is given to the cost of providing the excess benefit, a benefit under FPF available to active members as of March 1, On that date, the Washington Law Enforcement Officers' and Firefighters' System (LEOFF) was established. Under the terms of governing law, active members of the City's FPF on that date are entitled to payment from the FPF of the excess of benefits calculated under the FPF law over those calculated under the LEOFF law. The City's FPF also pays the entire pensions of those members retired prior to March 1, 1970 and their survivors. The employer costs given in the report are those that are the responsibility of the City. They exclude pension costs payable under the LEOFF system. This report also presents the cost of providing retiree medical and long-term care benefits to members eligible for these benefits. This includes eligible firefighters hired prior to the March 1, 1970 establishment of LEOFF, as well as eligible members of LEOFF hired prior to October 1, In addition to the summary information presented in this section, you will find two complete valuation reports one for the Pension Fund, and the second covering the retiree medical and long-term care benefits. Each separate valuation report first gives the conclusions and recommendations resulting from the valuation. Section 2 gives a brief description of the implications of the method employed in carrying out the valuation. It also contains a presentation of the computations discussed in Section 1. Section 3 gives the disclosure required by the Governmental Accounting Standards Board (GASB). Section 4 of Part I shows the projected cash payments the City will be required to pay under the pension obligations of the FPF and Section 4 of Part II shows the projected cash payments for retiree medical and longterm care benefits as required under both FPF and LEOFF. There are appendices attached to each report. The actuarial assumptions used in the valuation are summarized in Appendix A. Appendix B gives a summary of the benefit provisions of both FPF and LEOFF, as interpreted for the purposes of this study. Appendix C of Part I contains tables showing the distribution of the retirees with their monthly pensions by age. Appendix D of Part I contains a glossary of terms. Appendix C of Part II presents the retiree medical costs used in the valuation. Appendix D of Part II contains a table showing the distribution of the active members and retirees by age. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 1

226 Excise Tax for High Cost or Cadillac Health Plans in 2018 and Beyond An excise tax for high cost health coverage, or Cadillac health plans was included in the Affordable Care Act (ACA) passed into law in March The provision levies a 40% tax on the value of health plan costs that exceed certain thresholds for single coverage or family coverage. The 2018 annual thresholds for qualified retirees aged 55 to 64 or workers in high risk professions such as firefighters and police officers are $11,850 for single coverage and $30,950 for a family plan. If, between 2010 and 2018, the cost of health care insurance rises more than 55%, the threshold for the excise tax will be adjusted. GASB Statement No. 45 indicates that the projection of benefits should include all benefits to be provided to retirees in accordance with the current substantive plan. The substantive plan refers to the plan terms as understood by the employer and plan members at the time of the valuation. For this reason, we believe that the current provisions of the ACA should be reflected in the projection of benefits and therefore, we do include the value of the excise tax in this valuation. We assume that there will be no changes to the current law and that there will be no changes in plan design to help mitigate the impact of the tax. Changes in Accounting Standards GASB released new accounting standards for public pension plans and participating employers in These standards, GASB Statements No. 67 and 68, have substantially revised the accounting requirements previously mandated under GASB Statements No. 25 and 27. The most notable change is the distinct separation of funding from financial reporting. The Annual Required Contribution (ARC) has been eliminated under GASB 67 and 68 and is no longer relevant for financial reporting purposes. As a result, Plan Sponsors have been encouraged to establish a formal funding policy that is separate from financial reporting calculations. GASB 67 applies to financial reporting for public pension plans and is required to be implemented for plan fiscal years beginning after June 15, Note that a plan's fiscal year might not be the same as the employer's fiscal year. Even if the Plan does not issue standalone financial statements, but rather is considered a pension trust fund of a government, it is subject to GASB 67. Under GASB 67, enhancements to the financial statement disclosures are required, along with certain required supplementary information. GASB 68 governs the specifics of accounting for public pension plan obligations for participating employers and is required to be implemented for employer fiscal years beginning after June 15, GASB 68 requires a liability for pension obligations, known as the Net Pension Liability, to be recognized on the balance sheets of participating employers. Changes in the Net Pension Liability will be immediately recognized as Pension Expense on the income statement or reported as deferred inflows/outflows of resources depending on the nature of the change. This report does not include any disclosures under GASB 68, as reporting under that standard will not apply until December 31, 2015 for employers with fiscal years based on calendar years. GASB released two exposure drafts in 2014 for Postemployment Benefits Other than Pension Plans, or OPEB. On June 29, 2015 the GASB released the final versions, available on the GASB website. The new GASB Statements 74 and 75 will replace GASB 43 and 45. GASB 74 is effective for fiscal years beginning after June 15, 2016, and GASB 75 is effective for fiscal years beginning after June 15, This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 2

227 Actuarial Valuation of Firefighters' Pension Fund and Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 Findings The following table presents an analysis of the actuarial present value of future pension benefits to be paid by the City's FPF. The entire pension benefit of members retiring before the establishment of the LEOFF System is paid by the City. The City's pension benefits for members retiring after establishment of LEOFF are only for excess pension benefits, which can be substantial. The actuarial present values of the retiree medical and long-term care benefits expected to be paid under the FPF and LEOFF I provisions are also shown below. The impact of the excise tax for Cadillac health plans is included with the liabilities for retiree medical benefits. The Actuarial Accrued Liability (AAL) is the portion of the present value of benefits attributed to past service only. The portion attributed to future employee service is excluded. For retirees, this is equal to the present value of benefits. For active employees, the actuarial present value of the projected benefits of each individual is allocated as a level percentage of expected salary for each year of employment between entry age (defined as age at hire) and assumed exit (until maximum retirement age). The portion attributed to service between entry age and the valuation date is the actuarial accrued liability. The Unfunded Actuarial Accrued Liability (UAAL) is the AAL offset by any assets set aside to provide benefits. Medical Pension Benefits Retiree Medical Benefits Long-Term Care Benefits Subtotal Total Present value of benefits $ 7,825,761 $ 12,703,000 $ 14,841,000 $ 27,544,000 $ 35,369,761 Present value of future normal costs Actuarial accrued liability $ 7,825,761 $ 12,703,000 $ 14,841,000 $ 27,544,000 $ 35,369,761 Assets $ 7,949,189 $ 0 $ 0 $ 0 $ 7,949,189 Unfunded actuarial accrued liability $ (123,428) $ 12,703,000 $ 14,841,000 $ 27,544,000 $ 27,420,572 Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 3

228 Actuarial Valuation of Firefighters' Pension Fund and Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 Projection of Future Excess Pension, Retiree Medical and Long-Term Care Benefits The following table illustrates the projected excess annual pension payments for members eligible for retirement benefits under FPF. Also shown are the projected annual benefit payments for those members eligible for retiree medical and long-term care coverage. See Appendix B and Appendix C for additional information on benefit provisions and eligible members. The table is based on the actuarial assumptions stated in Appendix A. The page following the chart graphically illustrates the projected cash flow payments. Year Pension Retiree Medical Long-Term Care Grand Total 2015 $ 567,000 $ 698,000 $ 119,000 $ 1,384, , , ,000 1,467, , , ,000 1,486, , , ,000 1,573, , , ,000 1,557, , , ,000 1,559, , , ,000 1,524, , , ,000 1,562, , , ,000 1,599, , , ,000 1,639, , , ,000 1,676, , , ,000 1,724, , , ,000 1,756, , , ,000 1,794, , , ,000 1,831, , , ,000 1,867, , , ,000 1,900, , , ,000 1,931, , , ,000 1,956, , ,000 1,014,000 1,980, , ,000 1,071,000 1,999, , ,000 1,123,000 2,010, , ,000 1,171,000 2,011, , ,000 1,210,000 1,997, , ,000 1,241,000 1,973, , ,000 1,260,000 1,933, , ,000 1,266,000 1,879, , ,000 1,255,000 1,807, , ,000 1,228,000 1,719, , ,000 1,185,000 1,617,000 This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 4

229 Actuarial Valuation of Firefighters' Pension Fund and Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 Expected Future Benefit Payments $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $ Pension Retiree Medical Long-Term Care This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 5

230 Actuarial Valuation of Firefighters' Pension Fund and Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 Summary of Changes in Plan Net Assets for the Years Ended December 31, 2013 and December 31, 2014 Below is a summary of changes in Firefighters' Pension Fund assets for the past two years. RECEIPTS Employer contributions $ 1,756,000 $ 1,755,996 Tax revenue from fire insurance premium 171, ,104 Miscellaneous revenue 0 16,815 Total receipts $ 1,927,821 $ 1,957,915 INVESTMENT EARNINGS Investment income $ 32,728 $ 35,317 DISBURSEMENTS Pension benefit payments $ 489,558 $ 477,190 Medical payments 20,266 24,845 Medical insurance payments 781, ,578 Long-term care insurance payments 220, ,606 Administrative expenses 43,364 29,206 Total disbursements $ 1,554,498 $ 1,430,425 CHANGE IN NET ASSETS $ 406,051 $ 562,807 Market Value of Net Assets BOY $ 6,980,331 $ 7,386,382 Market Value of Net Assets EOY $ 7,386,382 $ 7,949,189 This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 6

231 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 Part I PENSION FUND VALUATION REPORT SECTION 1 Conclusions and Recommendations The City's obligations under the FPF are limited to the benefits provided to firefighters who retired prior to March 1, 1970, plus payments of excess retirement benefits to active members as of that date. To meet these obligations, the City may contribute annually to the Fund the amount raised by levying all or part of a tax of up to $0.45 (only $0.225 of which can be in excess of the property tax limit pursuant to Revised Code of Washington (RCW) ) per $1,000 of true and fair market value, the maximum provided by law for maintaining the Fund. Contributions also include donations and income from the state fire insurance premium collection. As of January 1, 2015, the actuarial present value of future excess pension benefits to be provided by the City is $7,825,761. As of January 1, 2013 (the date of our last valuation), the present value of excess pension benefits was determined to be $6.556 million. The expected value as of January 1, 2015 based upon our 2013 valuation was $5.931 million. The actual present value of $7.826 million was 32% higher than expected for reasons summarized in the following chart: Liability Increase (Decrease) as a Reason Percentage Demographic experience (4%) Changes in benefit amounts compared to expectations 21% Changes in economic assumptions 0% Changes in mortality assumptions 15% Total 32% The plan liabilities are greater than we projected based on our last valuation. The main source of the liability increase was due to the fact that FPF benefits increased more than anticipated over the past two years. The changes in assumptions for future morality also led to a large increase in liabilities. The mortality table used was changed to match the most recent experience study by the State Actuary. This resulted in increased life expectancies and therefore, higher liabilities. Partly offsetting these increases was the fact that the plan experienced higher than expected actual mortality. Changes in the economic assumptions were mostly offsetting and did not have a significant impact on liabilities. The plan remains sensitive to demographic experience that deviates from expectations due to the small size of the plan membership. The plan also remains highly sensitive to both deviations in the excess benefit amounts from expectations and the assumptions used for wage increases and CPI. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 7

232 This page intentionally left blank. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 8

233 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 SECTION 2 Valuation of Pension Benefits Income from the FPF comes from the following sources, as described in RCW : 1. Bequests, fees, gifts, emoluments, or donations. 2. Forty-five percent of all monies received by the State from taxes on fire insurance premiums, prior to January 1, Twenty-five percent after January 1, Taxes paid pursuant to the provisions of R.C.W (see below). 4. Interest on the investments of the Fund. 5. Contributions by firefighters as provided herein. The provisions referred to in item (3) require that each municipality levy up to $0.45 (only $0.225 of which can be in excess of the property tax limit pursuant to RCW ) per $1,000 of assessed valuation, based on reports by a qualified actuary, to maintain the Fund. At the time that the LEOFF System was installed, the state assumed the major portion of the obligation to provide future retirement benefits for members still in active service at the date of the inception of LEOFF, March 1, Each of the cities maintaining an FPF retained the responsibility for all benefits payable to members (or to their survivors) who retired prior to that date. In addition, each city retained the responsibility for a portion of the benefits payable to members who were active on that date. These members are entitled to benefits under either the FPF formula or the LEOFF formula, whichever is greater. If the FPF benefit is greater, the City's FPF must meet the cost of the excess of the FPF benefit over the LEOFF benefit. Upon the establishment of LEOFF, the total pension liability of each FPF was expected to decrease rapidly from year to year because of the closed, diminishing nature of the group of retirees and survivors. However, the excess pension benefits paid by each city's FPF have generally been much larger than anticipated. This is largely due to the way postretirement adjustments to benefits are calculated. For those retired after 1970, the City must pay the excess of the FPF benefit over the LEOFF benefit. The LEOFF benefits increase with the CPI for Seattle, while most of the FPF benefits increase with wages of the current active firefighters in the rank the members held at retirement. For this reason, the benefits are highly sensitive to the spread between wage increases and CPI increases. Wages have typically grown at a faster rate than CPI and are expected to continue to do so in the future. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 9

234 Small changes in the assumptions for wage increases or CPI have a magnified impact on the liabilities calculated. To see why this magnification occurs, consider the following example. Suppose that a person has an FPF benefit of $4,000 per month and a LEOFF benefit of $3,500 per month. The city-paid benefit is $500 per month. If wages increase at 3.25%, while CPI increases at 2.25%, the benefit increases will look like the following: Current Year Increase Following Year FPF $ 4, % $ 4, LEOFF 3, % 3, City-Paid Benefit $ % $ As you can see, the city-paid benefit increased 10.25% despite the fact that the total benefit paid to the member increased by only 3.25%. Consider the same example, but with a 3.50% increase to wages. Current Year Increase Following Year FPF $ 4, % $ 4, LEOFF 3, % 3, City-Paid Benefit $ % $ In the second example, the wages and total benefit increased by 0.25% more (3.50% %) than in the first example. However, the city-paid portion of the benefit increased by 2.00% more (12.25% %) than in the first example. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 10

235 Under LEOFF, the benefit is adjusted after retirement in proportion to the change in the CPI. Under FPF, most adjustments are based on the change in salary for the active firefighters in the rank the members held at retirement. Wages have nearly always increased more rapidly than prices. The pattern is illustrated by the following table: Geometric Average Increase in National Average CPI for Previous Period of Years Period Ending 10 years 20 years 50 years 88 years % 2.3% 4.1% 3.0% % 3.0% 4.0% % 5.4% 4.4% % 6.3% 4.2% % 3.4% % 2.9% % 3.5% Geometric Average Increase in National Average Wages for Previous Period of Years Period Ending 10 years 20 years 50 years 88 years % 3.4% 4.8% 4.4% % 4.0% 5.0% % 5.6% 5.0% % 6.5% 6.2% % 4.8% % 4.1% % 7.0% Geometric Average Increase in National Average Wages Minus Geometric Average Increase in National Average CPI for Previous Period of Years Period Ending 10 years 20 years 50 years 88 years % 1.1% 0.7% 1.4% % 1.0% 1.0% % 0.2% 0.6% % 0.2% 2.0% % 1.4% % 1.2% % 3.5% The wage information is based on statistics from the Social Security System back to 1951 and the Total Private Nonagricultural Wages prior to The CPI figures are based on the national Consumer Price Index, U.S. City Average and All Urban Consumers. Over all years considered, wages have increased 1.4% faster than CPI. For the past 20 years, wages have grown at a rate of 1.1% higher than CPI. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 11

236 In addition to historical data, we reviewed current economic forecasts to find an economic forecast with a time frame suited to our purposes. We looked at the expected increase in the CPI used by the Office of the Chief Actuary for the Social Security Administration. In the 2014 Trustees Report, the ultimate projected annual increase in the CPI under the intermediate cost assumptions was 2.7%. The reasonable range was stated as 2.0% to 3.4%. The ultimate projected annual growth rate in U.S. earnings was 3.8% for the intermediate assumptions, with a range of 2.5% to 5.2%. Since the U.S. Treasury started issuing inflation indexed bonds (TIPS), it is possible to determine the approximate rate of inflation anticipated by the financial markets over the next 30 years by comparing the yields on inflation-indexed bonds with traditional fixed government bonds. In a speech in 2004, current U.S. Federal Reserve Chairman Ben Bernanke said that inflation-indexed securities would appear to be the most direct source of information about inflation expectations. This analysis implies expectations of inflation rates of about 1.9% as of January Capital market assumptions by investment advisors tend to range somewhere between the implied inflation rate and the inflation rate used by the Office of the Chief Actuary for the Social Security Administration. For this valuation, we assume that in the long-term wages increase 3.25% per year and CPI increases at 2.25%, reflecting both historical data and economic forecasts. The actuarial assumptions are monitored for reasonableness and periodic changes are made when appropriate. Table 1 presents an analysis of the actuarial present value of future pension benefits to be paid by the FPF. The entire pension benefit of members retiring before the establishment of the LEOFF System is paid by the City. The City's actuarial accrued liability for members retiring after establishment of LEOFF is only for excess pension benefits, which can be substantial. Table 2 develops the Fund s actuarial deficiency for pension benefits, which is zero. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 12

237 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 1 Actuarial Present Value of All Future Pension Benefits Not Provided by LEOFF System Active Members Hired Prior to March 1, 1970: $ 0 Retirees and survivors: Retirements prior to March 1, 1970 $ 107,840 Retirements since March 1, ,717,921 $ 7,825,761 Total Present Value of Future Benefits $ 7,825,761 This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 13

238 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 2 Derivation of Contributions Required for Pension Benefits A. Actuarial present value of all future pension benefits not provided by the LEOFF System (Table 1): For active members $ 0 For retirees and survivors 7,825,761 $ 7,825,761 B. Assets of the Fund: Market Value Cash $ 5,124,319 Investments 2,761,104 Other Assets 68,030 $ 7,953,453 Less liabilities (4,264) Net Assets $ 7,949,189 C. Actuarial deficiency: Actuarial present value of amount to be funded from City appropriations, beginning in 2015 [A-B, not less than zero]: $ 0 This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 14

239 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 SECTION 3 Actuarial Information for Accounting Purposes Overview of GASB Statements No. 67 and 68 GASB released new accounting standards for public pension plans and participating employers in These standards, GASB Statements No. 67 and 68, have substantially revised the accounting requirements previously mandated under GASB Statements No. 25 and 27. The most notable change is the distinct separation of funding from financial reporting. The Annual Required Contribution (ARC) has been eliminated under GASB 67 and 68 and is no longer relevant for financial reporting purposes. As a result, Plan Sponsors have been encouraged to establish a formal funding policy that is separate from financial reporting calculations. GASB 67 applies to financial reporting for public pension plans and is required to be implemented for plan fiscal years beginning after June 15, Note that a plan's fiscal year might not be the same as the employer's fiscal year. Even if the Plan does not issue standalone financial statements, but rather is considered a pension trust fund of a government, it is subject to GASB 67. Under GASB 67, enhancements to the financial statement disclosures are required, along with certain required supplementary information. GASB 68 governs the specifics of accounting for public pension plan obligations for participating employers and is required to be implemented for employer fiscal years beginning after June 15, GASB 68 requires a liability for pension obligations, known as the Net Pension Liability, to be recognized on the balance sheets of participating employers. Changes in the Net Pension Liability will be immediately recognized as Pension Expense on the income statement or reported as deferred inflows/outflows of resources depending on the nature of the change. This report does not include any disclosures under GASB 68, as that standard will not apply until December 31, This report contains disclosures under GASB 27, as that standard continues to apply for December 31, Relationship between Valuation Date, Measurement Date, and Reporting Date The Valuation Date is January 1, This is the date as of which the actuarial valuation is performed. The Measurement Date is December 31, This is the date as of which the net pension liability is determined. The Reporting Date is December 31, This is the Plan's and/or employer's fiscal year ending date. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 15

240 Actuarially Determined Contribution As mentioned in the Overview, GASB Statement 67 has separated funding from financial reporting. Paragraph 32c of GASB Statement 67 provides guidance for a schedule of an actuarially determined contribution, if such a contribution is calculated. For this report, the actuarially determined contribution shown is equal to the Annual Required Contribution previously reported under GASB 25. Changes of Net Pension Liability GASB Statement 67 requires a schedule of changes in Net Pension Liability from year to year. In the year of transition to the new Statement, the beginning of year Net Pension Liability was not previously calculated. Question 99 of the Guide to Implementation of GASB Statement 67 states that both the beginning of year and end of year amounts can be calculated based on the actuarial valuation as of the end of year. For this report, both the December 31, 2013 and December 31, 2014 amounts in this schedule are based on the January 1, 2015 actuarial valuation. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 16

241 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 3 GASB Statement No. 67 Schedule of Employer Contributions Fiscal Year Actuarially Actual Contribution Contribution Ending Determined Employer Deficiency Covered as a % of December 31 Contribution Contribution* (Excess) Payroll Covered Payroll 2005 $276,853 $415,438 ($138,585) $0 N/A ,853 $509,504 ($232,651) 0 N/A ,278 $880,664 ($587,386) 0 N/A ,278 $1,011,852 ($718,574) 0 N/A ,222 $828,112 ($563,890) 0 N/A ,222 $715,161 ($450,939) 0 N/A ,240 $845,054 ($741,814) 0 N/A ,240 $766,006 ($662,766) 0 N/A 2013 (32,656) $864,488 ($897,144) 0 N/A 2014 (32,656) $1,017,071 ($1,049,727) 0 N/A *Employer contributions for pensions are total contributions to the Fund net of disbursements from the Fund for medical expenses under RCW It includes revenues from fire insurance premium taxes. Prior to 2014, administrative expenses were also subtracted from employer contributions. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 17

242 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 4 GASB Statement No. 67 Money-Weighted Rate of Return Fiscal Year Ending December 31 Net Money-Weighted Rate of Return 2005 N/A 2006 N/A 2007 N/A 2008 N/A 2009 N/A 2010 N/A 2011 N/A 2012 N/A 2013 N/A % Calculation of Money-Weighted Rate of Return The money-weighted rate of return considers the changing amounts actually invested during a period and weights the amount of pension plan investments by the proportion of time they are available to earn a return during that period. External cash flows are determined on a monthly basis and are assumed to occur at the beginning of each month. External cash inflows are netted with external cash outflows, resulting in a net external cash flow in each month. The money-weighted rate of return is calculated net of investment expenses. Net External Net External Periods Period Cash Flows Cash Flows Invested Weight With Interest Beginning Value - January 1, 2014 $7,386, $7,420,310 Monthly net external cash flows: January 1, ,708 February 30, ,687 March 37, ,339 April 42, ,987 May 225, ,081 June 54, ,181 July 12, ,340 August (15,820) (15,850) September 38, ,148 October 29, ,872 November 23, ,597 December 47, ,789 Ending Value - December 31, ,949,189 7,949,189 Money-Weighted Rate of Return 0.46% This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 18

243 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 5 GASB Statement No. 67 Long-Term Expected Rate of Return The best-estimate range for the long-term expected rate of return is determined by combining expected inflation to expected long-term real returns and reflecting expected volatility and correlation. The capital market assumptions are per Milliman's investment consulting practice as of December 31, Asset Class Cash Short-Term Bonds Long-Term Bonds Index Citigroup 90-Day T-Bills Citigroup 1-3 Year Gov/Cred Barclays Long Gov/Cred Long-Term Expected Real Rate of Return 0.54% 1.52% 2.99% Assumed Inflation - Mean Long-Term Expected Rate of Return 2.25% 3.50% This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 19

244 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 6 GASB Statement No. 67 Calculation of the Discount Rate GASB 67 generally requires that a blended discount rate be used to measure the Total Pension Liability (the Actuarial Accrued Liability calculated using the Individual Entry Age Normal Cost Method). The long-term expected return on plan investments may be used to discount liabilities to the extent that the Plan s Fiduciary Net Position (fair market value of assets) is projected to cover benefit payments and administrative expenses. A 20-year high quality (AA/Aa or higher) municipal bond rate must be used for periods where the Fiduciary Net Position is not projected to cover benefit payments and administrative expenses. Determining the discount rate under GASB 67 will often require that the actuary perform complex projections of future benefit payments and asset values. We believe that the assumption of 3.50% as of December 31, 2014 is an appropriate long-term expected rate of return on investments such as those in the City's trust. The Bond Buyer General Obligation 20-bond municipal bond index for bonds that mature in 20 years is 3.56% as of December 31, Rounding this to the nearest 1/4% results in a discount rate of 3.50%. Using 3.50% for both the long-term expected rate of return and the bond index will mean that 3.50% could be used as the single discount rate. This will need to be re-evaluated as of later valuation dates. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 20

245 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 7 GASB Statement No. 67 Net Pension Liability Net Pension Liability December 31, 2013 December 31, 2014 Total pension liability $8,031,342 $7,825,761 Fiduciary net position 7,386,382 7,949,189 Net pension liability 644,960 (123,428) Fiduciary net position as a % of total pension liability 91.97% % Covered payroll 0 0 Net pension liability as a % of covered payroll N/A N/A The total pension liability was determined by an actuarial valuation as of the valuation date, calculated based on the discount rate and actuarial assumptions below. There were no significant changes during this period. Any significant changes would need to be reflected as prescribed by GASB 67. Discount Rate Discount rate 3.50% 3.50% Long-term expected rate of return, net of investment expense 3.50% 3.50% Municipal bond rate N/A 3.50% Other Key Actuarial Assumptions Valuation Date January 1, 2015 January 1, 2015 Measurement Date December 31, 2013 December 31, 2014 Inflation 2.25% 2.25% Salary increases including inflation 3.25% 3.25% Mortality Actuarial cost method RP-2000 Mortality Table (combined healthy) with generational projection using 100% of Projection Scale BB, with ages set back one year for males and forward one year for females. (set forward two years for disabled members) Entry Age Normal RP-2000 Mortality Table (combined healthy) with generational projection using 100% of Projection Scale BB, with ages set back one year for males and forward one year for females. (set forward two years for disabled members) Entry Age Normal This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 21

246 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 8 GASB Statement No. 67 Changes in Net Pension Liability Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability Changes in Net Pension Liability (a) (b) (a) - (b) Balances as of December 31, 2013 $8,031,342 $7,386,382 $644,960 Changes for the year: Service cost 0 0 Interest on total pension liability 271, ,609 Effect of plan changes 0 0 Effect of economic/demographic gains or losses 0 0 Effect of assumptions changes or inputs 0 0 Benefit payments (477,190) (477,190) 0 Medical payments from fund (924,029) 924,029 Employer contributions 1,755,996 (1,755,996) Contributions from state fire insurance premium tax 185,104 (185,104) Net investment income 35,317 (35,317) Prior period adjustment 16,815 (16,815) Adminstrative expenses (29,206) 29,206 Balances as of December 31, ,825,761 7,949,189 (123,428) Sensitivity Analysis The following presents the net pension liability of the City, calculated using the discount rate of 3.50%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (2.50%) or 1 percentage point higher (4.50%) than the current rate. 1% Current 1% Decrease Discount Rate Increase 2.50% 3.50% 4.50% Total pension liability $8,639,355 $7,825,761 $7,133,194 Fiduciary net position 7,949,189 7,949,189 7,949,189 Net pension liability 690,166 (123,428) (815,995) This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 22

247 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 9 GASB Statement No. 67 Schedule of Changes in Net Pension Liability and Related Ratios (in 1,000s) Fiscal Year Ending December Total Pension Liability Service cost $0 N/A N/A N/A N/A N/A N/A N/A N/A N/A Interest on total pension liability 272 N/A N/A N/A N/A N/A N/A N/A N/A N/A Effect of plan changes 0 N/A N/A N/A N/A N/A N/A N/A N/A N/A Effect of economic/demographic gains or (losses) 0 N/A N/A N/A N/A N/A N/A N/A N/A N/A Effect of assumption changes or inputs 0 N/A N/A N/A N/A N/A N/A N/A N/A N/A Benefit payments (477) N/A N/A N/A N/A N/A N/A N/A N/A N/A Net change in total pension liability (206) N/A N/A N/A N/A N/A N/A N/A N/A N/A Total pension liability, beginning 8,031 N/A N/A N/A N/A N/A N/A N/A N/A N/A Total pension liability, ending (a) 7,826 N/A N/A N/A N/A N/A N/A N/A N/A N/A Fiduciary Net Position Employer contributions $1,756 N/A N/A N/A N/A N/A N/A N/A N/A N/A Contributions from state fire insurance premium tax 185 N/A N/A N/A N/A N/A N/A N/A N/A N/A Investment income net of investment expenses 35 N/A N/A N/A N/A N/A N/A N/A N/A N/A Prior period adjustment 17 Benefit payments (477) N/A N/A N/A N/A N/A N/A N/A N/A N/A Medical payments from fund (924) N/A N/A N/A N/A N/A N/A N/A N/A N/A Administrative expenses (29) N/A N/A N/A N/A N/A N/A N/A N/A N/A Net change in plan fiduciary net position 563 N/A N/A N/A N/A N/A N/A N/A N/A N/A Fiduciary net position, beginning 7,386 N/A N/A N/A N/A N/A N/A N/A N/A N/A Fiduciary net position, ending (b) 7,949 N/A N/A N/A N/A N/A N/A N/A N/A N/A Net pension liability, ending = (a) - (b) ($123) N/A N/A N/A N/A N/A N/A N/A N/A N/A Fiduciary net position as a % of total pension liability % N/A N/A N/A N/A N/A N/A N/A N/A N/A Covered payroll $0 N/A N/A N/A N/A N/A N/A N/A N/A N/A Net pension liability as a % of covered payroll N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A This schedule is presented to illustrate the requirement to show information for 10 years. However, recalculations of prior years are not required, and if prior years are not reported in accordance with the current GASB standards, they should not be reported. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 23

248 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 10 GASB Statement No. 27 Annual Pension Cost and Net Pension Obligation Annual required contribution (ARC) Fiscal Year Ending 12/31/ /31/ /31/ Annual Normal Cost (BOY) $ 0 $ 0 $ 0 2. Amortization of UAAL (BOY) 99,269 (31,476) (31,476) 3. Interest to EOY [(1)+(2)]x(i )* 3,971 (1,180) (1,180) 4. ARC at EOY [(1)+(2)+(3)] $ 103,240 $ (32,656) $ (32,656) 5. Interest on NPO $ (142,604) $ (154,105) $ (182,031) 6. Adjustment to ARC (261,002) (306,563) (377,163) 7. Annual pension cost (APC) [(4)+(5)-(6)] $ 221,638 $ 119,802 $ 162, Employer Contributions** 766, , , Change in NPO [(7)-(8)] (544,368) (744,686) (825,389) 10. NPO at BOY [(11) prior year] $ (3,565,100) $ (4,109,468) $ (4,854,154) 11. NPO at EOY [(9)+(10)] $ (4,109,468) $ (4,854,154) $ (5,679,543) * 'i' is the assumed interest rate that year: 4.0% in 2012, 3.75% in 2013, 3.75% in ** Employer contributions for pensions are total contributions to the Fund net of disbursements from the Fund for medical expenses under RCW and administrative expenses. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 24

249 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 11 GASB Statement Nos. 27 and 50 Schedule of Funding Progress (in 1,000s) Valuation Date Actuarial Value of Assets Actuarial Accrued Liabilities Unfunded Actuarial Accrued Liabilities (UAAL) Funded Ratio Covered Payroll UAAL As A Percentage of Covered Payroll January 1, 1997 $ 4,914 $ 8,161 $ 3, % $ 109 2,979 % January 1, ,134 10,116 4, ,908 January 1, ,108 10,313 5, N/A January 1, ,993 9,233 3, N/A January 1, ,620 9,224 3, N/A January 1, ,458 9,505 4, N/A January 1, ,225 10,043 3, N/A January 1, ,491 7,895 1, N/A January 1, ,978 6,556 (422) N/A Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 25

250 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 12 GASB Statement No. 27 Three-Year Trend Information Fiscal Year Ending Annual Pension Cost (APC) Contribution as a Percentage of APC Net Pension Obligation (NPO) December 31, 2012 $ 221, % $ (4,109,468) December 31, , (4,854,154) December 31, , (5,679,543) This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 26

251 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 13 GASB Statement No. 27 Annual Development of Pension Cost Fiscal Year Ending ARC at EOY Interest on NPO ARC Adjustment Annual Pension Cost (APC) Total Employer Contributions Change in NPO NPO Balance (Gain)/Loss Amort. Factor* Amort. of (Gain)/Loss Ending Balance (1) (2)= [prior yr (7)] x int. rate (3)= [prior yr (7)] / (9) (4)= (1)+(2)-(3) (5) (6)=(4)-(5) (7)=(6)+ [prior yr (7)] (8)=(1)-(5) (9) (10)= [prior yr (11)] / (9) (11)=(7) 12/31/2009 $ 264,222 $ (80,963) $ (134,676) $ 317,935 $ 828,112 $ (510,177) $ (2,534,247) $ (563,890) $ (134,676) $ (2,534,247) 12/31/ ,222 (101,370) (173,694) 336, ,161 (378,615) (2,912,862) (450,939) (173,694) (2,912,862) 12/31/ ,240 (116,514) (206,090) 192, ,054 (652,238) (3,565,100) (741,814) (206,090) (3,565,100) 12/31/ ,240 (142,604) (261,002) 221, ,006 (544,368) (4,109,468) (662,766) (261,002) (4,109,468) 12/31/2013 (32,656) (154,105) (306,563) 119, ,488 (744,686) (4,854,154) (897,144) (306,563) (4,854,154) 12/31/2014 (32,656) (182,031) (377,163) 162, ,865 (825,389) (5,679,543) (1,020,521) (377,163) (5,679,543) * Based on a 30-year closed amortization as of January 1, Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 27

252 This page intentionally left blank This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 28

253 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 SECTION 4 Supplemental Information Cash-Flow Projections The table on the next page illustrates the projected excess annual pension payments for retired members eligible for retirement benefits under FPF. The table is based on the actuarial assumptions stated in Appendix A. See Appendix B for a summary of plan provisions. A summary of valuation data is found in Appendix C. Appendix D contains a glossary of terms. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 29

254 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE 14 Projection of Future Excess Pension Benefits Year Ending December 31 Total Estimated Payouts 2015 $ 567, , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 30

255 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 APPENDIX A Actuarial Procedures and Assumptions The actuarial procedures and assumptions used in this valuation are described in this appendix. Note that since all active members have retired, some of these assumptions, such as termination rates, are not applicable. The actuarial assumptions are intended to estimate the future experience of the members of the City's FPF. Any variations in future experience from that expected under these assumptions will result in corresponding changes in the estimated costs of the System's benefits. Since our last valuation, the economic assumptions have changed. The discount rate, salary inflation, and CPI assumptions have each decreased 0.25%. In addition, the mortality assumptions have been changed to match the Office of the State Actuary's most recent experience study for the LEOFF system. Table A-1 gives a brief summary of the assumptions. Table A-2 provides a summary of actuarial assumptions for use in the notes to the financial statements. Actuarial Cost Method We are using the Entry Age Normal Cost Method. This funding method meets the parameters required for GASB disclosure purposes. Records and Data The data regarding active members, retirees and survivors and the financial information used in this valuation were supplied by the City and are accepted for valuation purposes without audit. Replacement of Terminated Members The City's FPF is a closed group. No new members are permitted. Valuation of Assets (where applicable) All assets are carried on a market value basis. GASB No. 27 Amortization Period The UAAL is amortized over a closed 30-year period as of January 1, 2001 and an open 30- year period prior to January 1, Investment Earnings The future investment earnings of the assets of the City's FPF are assumed to accrue at an annual rate of 3.50%. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 31

256 Appendix A (continued) Postretirement Benefit Increases Certain benefits increase at the same rate as the salaries for active members of the same rank the retiree had attained at retirement. These salaries were assumed to increase at the rate of 3.25% per annum in the long term. Other benefits increase at the same rate as the CPI. The CPI was assumed to increase at the rate of 2.25% per annum. Service Retirement N/A Disability N/A Other Terminations of Employment N/A Mortality The mortality assumptions used in this valuation are based on the Experience Study for the LEOFF Retirement System prepared by the Office of the State Actuary. Mortality rates are expected to continue to decrease in the future, and the resulting longevity should be anticipated in the actuarial valuation. This is done through the use of a generational mortality table. A generational mortality table anticipates future improvements in mortality by using a different static mortality table for each year of birth, with the tables for later years of birth assuming lower mortality than the tables for earlier years of birth. Members Retired from Service and Spouses: Disabled Members: The mortality rates are based on the RP-2000 Mortality Table (combined healthy) with generational projection using 100% of Projection Scale BB, with ages set back one year for males and forward one year for females. The mortality rates are based on the RP-2000 Mortality Table (combined healthy) with generational projection using 100% of Projection Scale BB, with ages set forward two years. Family Composition All active members are assumed to be married with no children when they retire. Marital status of retirees was supplied by the City. Wives are assumed to be three years younger than their husbands. Surviving spouses are assumed not to remarry. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 32

257 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE A-1 Summary of Valuation Assumptions I. Economic assumptions A. Salary increases (inflation only) 3.25% B. Investment return assumption (discount rate) 3.50% C. Growth in membership 0.0% D. Postretirement benefit increases 1. Related to salaries 3.25% 2. Related to consumer price index 2.25% II. Noneconomic assumptions A. Service retirement n/a B. Disability n/a C. Other Terminations of Employment n/a D. Mortality 1. Service-retired RP-2000 Mortality Table (combined healthy) members and spouses with generational projection using 100% of Projection Scale BB, with ages set back one year for males and set forward one year for females. 2. Disabled members RP-2000 Mortality Table (combined healthy) with generational projection using 100% of Projection Scale BB, with ages set forward two years. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 33

258 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE A-2 Actuarial Assumptions Display for Notes to Financial Statements Valuation Date January 1, 2015 Actuarial Cost Method Entry Age Normal Amortization Method 30-year, closed as of January 1, 2001 Remaining Amortization Period Asset Valuation method 16 years Fair market value Actuarial assumptions Investment Rate of Return (Discount Rate) 3.50% Projected Salary Increases 3.25% Inflation 2.25% Cost-of-living adjustments Based upon salary increase assumption when appropriate, for FPF benefits. Based upon inflation assumption for some FPF benefits and all LEOFF benefits. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 34

259 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 APPENDIX B Provisions of Governing Law All actuarial calculations are based on our understanding of RCW and 41.18, the statutes establishing FPF, and RCW 41.26, the statute establishing the Washington Law Enforcement Officers' and Firefighters' Retirement System. Each firefighter in service on March 1, 1970 receives the greater of the benefit payable under the Washington Law Enforcement Officers' and Firefighters' Retirement System and the benefits available under the provisions of prior law. Where benefits under the old law exceed those under the new for any firefighter, the excess benefits are paid from the FPF of the city employing him on March 1, The benefit provisions of the FPF are summarized briefly below for reference purposes. This summary does not attempt to cover all of the detailed provisions of the laws. For comparative purposes, the bracketed statements describe the corresponding LEOFF law. Definitions Salary: Spouse: Basic salary attached to rank of firefighter at time of retirement. (RCW (1)) [Same if he had the rank for at least 12 months; otherwise, the highest 24-month average from the last 10 years of service. (RCW (15a))] Surviving spouse who was married to, or in a state-registered domestic partnership with, a disabled firefighter at time of disability or to a retired firefighter for five years prior to retirement. (RCW (14)). [Same, except marriage to retired firefighter for one year prior to retirement qualifies. (RCW (33))] Child: Firefighter s unmarried child under age 18. (RCW (4)) [Firefighter s unmarried child under age 18 or up to age 20 years 11 months while attending an educational institution accredited or approved by the state of Washington. (RCW (6))] This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 35

260 Appendix B (continued) Service Retirement Benefit Member s Benefit: Eligibility Amount of benefit Age 50 and 25 years of service. (RCW ) [Age 50 and five years of service. (RCW )] 50% of salary plus an additional 2% for each year of service in excess of 25 years. Maximum benefit of 60% of salary. (RCW ) [2% of salary for each year of service if 20 or more years; 1½% of salary for each year of service if at least 10 but less than 20 years of service; 1% of salary for each year of service if at least five but less than 10 years of service. For those retiring prior to July 1, 2006 the maximum initial benefit of 60% of salary. That maximum does not apply for those retiring after July 1, (RCW )] Survivor s Benefit: Eligibility Spouse or child (RCW ). [Same. (RCW )] Amount of benefit Continuation of firefighter s benefit. (RCW ) [If spouse - same plus additional 5% of salary per child. If no spouse - 30% of salary for first child, 10% for each additional child. Maximum benefit in either case - 60% of salary. (RCW )] Duty Disability Retirement Benefit Member s Benefit: Eligibility Amount of benefit Recovery from disability Survivor s Benefit: Disabled after six-month waiting period, during which time salary is payable from the Fund. (RCW ) [Same, except salary is payable by City during the waiting period. (RCW )] Determined same as Service Retirement Benefit. (RCW ) [50% of salary plus an additional 5% for each child; maximum benefit of 60% of salary. (RCW (1))] Restoration to service. (RCW ) [Upon recovery before age 50, restoration to service with full credit for service while disabled. Upon recovery after age 50, benefit continues as the greater of service retirement benefit or current benefit. (RCW (3))] See Survivor s Benefit section under Service Retirement. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 36

261 Appendix B (continued) Non-Duty Disability Retirement Benefit Member s Benefit: Eligibility Amount of benefit Recovery from disability Limitations Disabled after 90-day waiting period, during which time salary is payable from the Fund. (RCW ) [Disabled after six-month waiting period, during which time salary is payable by the City. (RCW )] 50% of salary, or service retirement benefit, if greater. (RCW ) [50% of salary plus an additional 5% for each child; maximum benefit of 60% of salary, or service retirement benefit, if greater. (RCW (1))] See section under Duty Disability Retirement. No benefits payable if firefighter employed elsewhere when disabled. (RCW ) [All benefits are reduced by Workers Compensation, Social Security, or insurance provided by another employer. Allowance cannot exceed difference between wage from current gainful employment and salary currently attached to rank held at retirement. (RCW (4))] Survivor s Benefit: Eligibility Spouse or child. (RCW ) [Same. (RCW )] Amount of benefit Percentage of salary, as follows: 33.3% to widow only 45.8% to widow and one child 47.6% to widow and two children 50.0% to widow and three children 33.3% to children only Duty Death Benefit (RCW ) [Determined same as under Service Retirement Survivor s Benefit. (RCW )] Eligibility Spouse or child. (RCW ) [Same. (RCW )] Amount of benefit 50% of salary. (RCW ) [If spouse 50% of salary plus an additional 5% of salary per child; maximum benefit 60% of salary. If no spouse - 30% of salary for first child; 10% for each additional child. Maximum benefit in either case of 60% of salary. (RCW )] This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 37

262 Appendix B (continued) Non-Duty Death Benefit Provisions same as Survivor s Benefit under Non-Duty Disability Retirement. (RCW ) [Provisions same as Survivor s Benefit under Duty Death Retirement. (RCW )] Special Provisions Under disability or death benefits, a surviving spouse may elect a lump-sum payment of $5,000 in lieu of future monthly benefits. (RCW ) [If firefighter s contributions are not exhausted by payments to survivors, the balance goes to the firefighter s legal heirs. Applies to service, disability and death benefits. (RCW (3) and (3))] Vesting Eligibility Deferred Benefit Commences Amount of benefit Death while vested prior to commencement of benefits: Withdrawal Eligibility Benefit Termination after 20 years of service. (RCW ) [Termination after five years of service. (RCW )] When firefighter would have had 25 years of service. (RCW ) [Age 50. (RCW (2))] 2% of salary for each year of service. (RCW ) [Same, if at least 20 years of service; 1.5% of salary for each year of service if at least 10 but less than 20 years of service; 1% of salary for each year of service if at least five but less than 10 years of service. (RCW and RCW )] Payment of firefighter s deferred benefit to his spouse or child. (RCW ) [a. Firefighter with 20 or more years of service: If spouse - firefighter s deferred benefit plus an additional 5% of salary per child. If no spouse - 30% of salary for first child, 10% for each additional child. Maximum benefit in either case - 60% of salary. (RCW ) b. Firefighter with less than 20 years of service: Payment to spouse or estate of accumulated contributions less any payments made to firefighter. (RCW )] Termination with no other benefit. (RCW ) [Same. (RCW )] Return of accumulated contributions less any benefit paid. (RCW ) [Same. (RCW )] This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 38

263 Appendix B (continued) Postretirement Increase Type 1. Escalation by salary in proportion to current salary of rank from which firefighter retired. (RCW ) 2. Increase proportionate to the increase in the Seattle-area CPI, with change computed annually. Regardless of the increase (or decrease) in the CPI, the benefits are increased at least 2% each year. (RCW ) [Increase or decrease proportionate to the increase or decrease in the Seattle-area CPI, with change computed annually. No benefit may decrease below original amount. (RCW )] Applicability Escalation Type 1 applies to firefighters who retired from service after 1969, their survivors, and to firefighters who retired for duty disability (but not their survivors) after The second type applies to all other types of monthly benefits. (RCW ) [All monthly benefits. (RCW )] Minimum Benefit After April 25, 1973, a minimum benefit of $300 per month to all retired firefighters and their survivors. This minimum is increased by the CPI. (RCW ) [No provision under RCW ] Funeral Benefit $500 to defray funeral expenses. (RCW ) [No provision under RCW ] This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 39

264 This page intentionally left blank. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 40

265 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 APPENDIX C Valuation Data This valuation is based on the membership of the City's FPF as of January 1, It is our understanding that, as of the valuation date, the only liabilities for future benefits to present or retired firefighters or their survivors are those allocable to the persons included in Tables C-1 through C-4. Tables C-1 through C-4 show the distributions of retirees and surviving spouses of retirees receiving service and disability retirement pensions and the amount of the monthly benefits received. Active Members Retired Members and Survivors Monthly Pensions Number Annual Salaries Average Annual Salaries Number Paid by City Paid by LEOFF 0 $ 0.00 $ $ 47, $ 155, This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 41

266 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE C-1 Firefighters Retired for Service Monthly Pension Age Number Paid by City Paid by LEOFF $ 3, $ 22, , , , , , Totals 14 $ 10, $ 53, TABLE C-2 Firefighters Disabled in Line of Duty Monthly Pension Age Number Paid by City Paid by LEOFF $ $ 2, , , , , , , Totals 8 $ 8, $ 24, This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 42

267 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 TABLE C-3 Firefighters Disabled Not in Line of Duty Monthly Pension Age Number Paid by City Paid by LEOFF $ $ 2, , Totals 3 $ 1, $ 9, TABLE C-4 Survivors of Firefighters Monthly Pension Age Number Paid by City Paid by LEOFF $ 1, $ 6, , , , , , , , , , , , Totals 22 $ 27, $ 68, This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 43

268 This page intentionally left blank This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 44

269 Actuarial Valuation of Firefighters' Pension Fund City of Vancouver January 1, 2015 APPENDIX D Glossary Actuarially Determined Contribution Discount Rate Fiduciary Net Position Long-Term Expected Rate of Return Money-Weighted Rate of Return Municipal Bond Rate Net Pension Liability Projected Benefit Payments Service Cost Total Pension Liability A target or recommended contribution to a defined benefit pension plan for the reporting period, determined based on the funding policy and most recent measurement available when the contribution for the reporting period was adopted. Single rate of return that, when applied to all projected benefit payments, results in an actuarial present value of projected benefit payments equal to the sum of: 1) The actuarial present value of benefit payments projected to be made in future periods where the plan assets are projected to be sufficient to meet benefit payments, calculated using the Long-Term Expected Rate of Return. 2) The actuarial present value of projected benefit payments not included in (1), calculated using the Municipal Bond Rate. Equal to market value of assets. Long-term expected rate of return on pension plan investments expected to be used to finance the payment of benefits, net of investment expenses. The internal rate of return on pension plan investments, net of investment expenses. Yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher. Total Pension Liability minus the Plan's Fiduciary Net Position. All benefits estimated to be payable through the pension plan to current active and inactive employees as a result of their past service and expected future service. The portion of the actuarial present value of projected benefit payments that is attributed to a valuation year. The portion of actuarial present value of projected benefit payments that is attributable to past periods of member service using the Entry Age Normal cost method based on the requirements of GASB 67 and 68. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 45

270 This page intentionally left blank. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 46

271 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 Part II RETIREE MEDICAL AND LONG-TERM CARE VALUATION SECTION 1 Conclusions and Recommendations Total liabilities for the retiree medical and long-term care benefits are estimated as follows. Note that for both 2013 and 2015, the total present value of expected retiree medical benefits includes liabilities for the excise tax for high cost or Cadillac health plans. See below for further information. Valuation Date 01/01/ /01/2015 Total present value of expected retiree medical benefits (excluding long-term care) $ 16,328,000 $ 12,703,000 Total present value of expected long-term care benefits 11,466,000 14,841,000 Total Benefits $ 27,794,000 $ 27,544,000 For comparison purposes, the above table contains the liabilities from our 2013 valuation of retiree medical benefits. Note that throughout the report, we have used the phrase LEOFF 1 employees, but we have also included employees who retired prior to March 1, 1970 who are eligible for retiree medical benefits under RCW chapters or This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 47

272 Excise Tax for High Cost or Cadillac Health Plans in 2018 and Beyond An excise tax for high cost health coverage, or Cadillac health plans was included in the Affordable Care Act (ACA) passed into law in March The provision levies a 40% tax on the value of health plan costs that exceed certain thresholds for single coverage or family coverage. The 2018 annual thresholds for qualified retirees aged 55 to 64 or workers in high risk professions such as firefighters and police officers are $11,850 for single coverage and $30,950 for a family plan. If, between 2010 and 2018, the cost of health care insurance rises more than 55%, the threshold for the excise tax will be adjusted. GASB Statement No. 45 indicates that the projection of benefits should include all benefits to be provided to retirees in accordance with the current substantive plan. The substantive plan refers to the plan terms as understood by the employer and plan members at the time of the valuation. For this reason, we believe that the current provisions of the ACA should be reflected in the projection of benefits and therefore, we do include the value of the excise tax in this valuation. We assume that there will be no changes to the current law and that there will be no changes in plan design to help mitigate the impact of the tax Summary of Changes As of January 1, 2013 (the date of our last valuation), the present value of retiree medical benefits was determined to be $ million. The expected value as of January 1, 2015 based upon our 2013 valuation was $ million. The total present value of $ million was 1% higher than expected for reasons summarized in the following chart: Liability Increase (Decrease) as a Reason percentage Demographic experience (1%) Changes in economic assumptions 3% Changes in demographic assumptions 20% Changes in medical costs compared to expectations (18%) Changes in medical trend assumption (3%) Total 1% The plan liabilities are slightly greater than we projected based on our last valuation. The main source of the increase was due to the change in assumptions for future mortality. The mortality table used was changed to match the most recent experience study by the State Actuary. This resulted in increased life expectancies and therefore higher liabilities. Also increasing liabilities was the change in economic assumptions. The discount rate was lowered from 3.75% to 3.50%. A lower discount rate results in a higher present value of liability. Largely offsetting these increases was the fact that medical costs have not increased for the City as much as previously expected. Further decreasing liabilities was the change in the medical trend assumption. There was also a small demographic experience gain. Retiree Medical As of January 1, 2015, the actuarial present value of future retiree medical benefits to be provided by the City is $12,704,000. Long-Term Care Benefits As of January 1, 2015, the actuarial present value of future long-term care benefits to be provided by the City is $14,841,000. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 48

273 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 Introduction SECTION 2 Benefits Liability Summaries of the retiree medical and long-term care liabilities are displayed in Table 1. Table 1 gives the breakdown of liabilities according to actives and retirees. The liabilities for retiree medical benefits include liabilities for the excise tax for Cadillac health plans. It is our understanding that the City is operating on a pay-as-you-go basis. If the City decides to fund the obligations, we can provide funding schedules in accordance with the needs of the City. The retiree medical and long-term care benefits received by members are described in Appendix B. The promise is to provide full retiree medical benefits for life, without retiree cost sharing. For this study, current and future retirees are assumed to receive Medicare, with the City reimbursing their Part B premiums. The estimated monthly costs for retiree medical and long-term care benefits are shown in Appendix C. Summaries of the members eligible for retiree medical and long-term care benefits are contained in Appendix D. The City provided the data to us. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 49

274 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 TABLE 1 Summary of Retiree Medical and Long-Term Care Liabilities (in 1,000s) Present Value of Benefits Benefits Under Age 65 Retiree Medical Benefits Over Age 65 Long-Term Care Total Retirees $ 996 $ 11,707 $ 14,841 $ 27,544 Actives Total $ 996 $ 11,707 $ 14,841 $ 27,544 Discount Rate: 3.50% Long-Term Care Inflation Rate: 4.75% Medical Inflation Rate: Based on the Getzen Model, see Appendix A This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 50

275 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 SECTION 3 Actuarial Information for Accounting Purposes GASB reporting standards are required for Postemployment Benefit Plans Other than Pension Plans, or OPEB, (Statement No. 43). The City has chosen to adopt the reporting standards. The requirements for Statement No. 43 include certain supplementary information to the financial statements. These include: (1) A Schedule of Funding Progress, and (2) A Schedule of Employer Contributions. The Schedule of Funding Progress compares the amount of UAAL from year to year, and measures the progress of the employer s contributions in reducing this amount. In the case of a plan that is not funded, the contributions will simply equal the benefit payments. The required Schedule of Employer Contributions compares the employer contributions based on the actuarial required contribution, or ARC, with those employer contributions actually made. Please note that for contributions to qualify as contributions under GASB Statements Nos. 43 and 45, they must be made to a trust or equivalent arrangement in which a. Employer contributions are irrevocable b. Assets are dedicated to providing benefits to retirees c. Assets are legally protected from creditors of the employer GASB Statement No. 45 is required for OPEB accounting by state and local governmental employers. The disclosures include the measurement of an Annual OPEB Cost (AOC). For the first year, the AOC is equal to the employer s ARC, as actuarially determined by the funding methods and assumptions for OPEB benefits used for GASB purposes. If the City is required to make a contribution and does not make a contribution equal to the ARC, then a Net OPEB Obligation (NOO) amount would be established and the AOC would reflect adjustments made to the NOO, as well as the ARC. As of December 31, 2014, the City has a positive NPO as a result of the City paying less than its Annual OPEB Cost on a cumulative basis. This results in a net obligation. It is our understanding that this obligation should be recorded in the government-wide statement of net assets. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 51

276 For GASB purposes, the ARC must be calculated based on certain parameters required for disclosure purposes. We have used the Entry Age Normal Cost Method, one of the acceptable actuarial funding methods under these parameters. Under this method the projected benefits are allocated on a level basis as a percentage of salary over the earnings of each individual between entry age and assumed exit age. The amount allocated to each year is called the Normal Cost and the portion of the Actuarial Present Value of all benefits not provided for by future Normal Cost payments is called the Actuarial Accrued Liability. Since all members have already retired, the amount of the Normal Cost is zero. The UAAL is the Actuarial Accrued Liability (AAL) minus the actuarial value of the Fund s assets. In the case of a plan with no assets, the UAAL is simply equal to the AAL. For GASB reporting purposes, Table 2 presents the annual Normal Cost and the ARC as of the valuation date, assuming the UAAL is amortized as a level dollar amount over a closed 30-year period beginning January 1, As of January 1, 2015, the UAAL is amortized over 22 years. The estimated NOO at the end of the period December 31, 2015 is based on an assumed employer contribution as described in the footnote. Actual employer contributions will be different and the determination of the NOO at the end of the year should be redetermined based on the actual amounts contributed by the City. The UAAL and the percentage funded by assets are shown in Table 3, the Schedule of Funding Progress. Amounts shown in Table 4, the Schedule of Employer Contributions and in Table 5, the Three-Year Trend information should also be updated to reflect actual employer contributions. After the first year, the redetermination of the NOO for future years, as shown in Table 6, Annual Development of OPEB Cost will require the use of an amortization factor. We can assist the City in this determination at the end of the year. Annual redeterminations of the NOO are required by GASB No. 45, but only triennial actuarial valuations are needed to determine the ARC. GASB released two exposure drafts in 2014 for Postemployment Benefits Other than Pension Plans, or OPEB. On June 29, 2015 the GASB released the final versions, available on the GASB website. The new GASB Statements 74 and 75 will replace GASB 43 and 45. GASB 74 is effective for fiscal years beginning after June 15, 2016, and GASB 75 is effective for fiscal years beginning after June 15, This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 52

277 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 TABLE 2 GASB Statement No. 45 Annual OPEB Cost and Net OPEB Obligation Annual required contribution (ARC) Fiscal Year Ending 12/31/ /31/ /31/ Annual Normal Cost (BOY) $ 0 $ 0 $ 0 2. Amortization of UAAL (BOY) 1,712,347 1,712,347 1,754, Interest to EOY [(1)+(2)]x(i )* 64,213 64,213 61, ARC at EOY [(1)+(2)+(3)] $ 1,776,560 $ 1,776,560 $ 1,816, Interest on Net OPEB Obligation $ 109,383 $ 135,103 $ 153, Adjustment to ARC 179, , , Annual OPEB Cost [(4)+(5)-(6)] $ 1,706,238 $ 1,683,680 $ 1,690, Employer Contributions 1,020, , ,000 ** 9. Change in Net OPEB Obligation [(7)-(8)] 685, , ,363 ** 10. Net OPEB Obligation at BOY [(11) prior year] $ 2,916,881 $ 3,602,740 $ 4,377, Net OPEB Obligation at EOY [(9)+(10)] $ 3,602,740 $ 4,377,822 $ 5,251,185 ** * 'i' is the assumed interest rate that year: 3.75% in 2013, 3.75% in 2014, 3.50% in ** Estimated employer contributions based on expected benefit payments. Estimated amounts will be replaced at year end with actual amounts. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 53

278 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 TABLE 3 GASB Statement No. 43 and No. 45 Schedule of Funding Progress (rounded to thousands) Valuation Date Actuarial Value of Assets Actuarial Accrued Liabilities Unfunded Actuarial Accrued Liabilities (UAAL) Funded Ratio Covered Payroll UAAL As A Percentage of Covered Payroll January 1, 2007 $ 0 $ 16,244 $ 16,244 0 % N/A N/A % January 1, ,587 21,587 0 N/A N/A January 1, ,545 26,545 0 N/A N/A January 1, ,794 27,794 0 N/A N/A January 1, ,544 27,544 0 N/A N/A Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 54

279 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 TABLE 4 GASB Statement No. 43 Schedule of Employer Contributions Fiscal Year Ending Employer Contributions Annual Required Contribution (ARC) Percentage of ARC Contributed December 31, 2010 $ 980,562 $ 1,367, % December 31, ,030,446 1,660, December 31, ,113,771 1,660, December 31, ,020,379 1,776, December 31, ,598 1,776, December 31, ,000 * 1,816, * * Estimated employer contributions based on expected benefit payments. Estimated amounts will be replaced at year end with actual amounts. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 55

280 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 TABLE 5 GASB Statement No. 45 Percentage of Annual OPEB Cost Contributed Fiscal Year Ending Annual OPEB Cost Contribution as a Percentage of Annual OPEB Cost Net OPEB Obligation December 31, 2013 $ 1,706, % $ 3,602,740 December 31, ,683, ,377,822 December 31, ,690, * 5,251,185 * * Estimated employer contributions based on expected benefit payments. Estimated amounts will be replaced at year end with actual amounts. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 56

281 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 TABLE 6 GASB Statement No. 45 Annual Development of OPEB Cost Fiscal Year Ending ARC at EOY Interest on Net OPEB Obligation ARC Adjustment Annual OPEB Cost Total Employer Contributions Change in Net OPEB Obligation Net OPEB Obligation Balance (Gain)/Loss Amort. Factor* Amort. of (Gain)/Loss Ending Balance (1) (2)= [prior yr (7)] x int. rate (3)= [prior yr (7)] / (9) (4)= (1)+(2)-(3) (5) (6)=(4)-(5) (7)=(6)+ [prior yr (7)] (8)=(1)-(5) (9) (10)= [prior yr (11)] / (9) (11)=(7) 12/31/2010 $ 1,367,846 $ 58,755 $ 86,492 $ 1,340,109 $ 980,562 $ 359,547 $ 1,828,416 $ 387, $ 86,492 $ 1,828,416 12/31/2011 1,660,869 73, ,999 1,624,007 1,030, ,561 2,421, , ,999 2,421,977 12/31/2012 1,660,869 96, ,073 1,608,675 1,113, ,904 2,916, , ,073 2,916,881 12/31/2013 1,776, , ,705 1,706,238 1,020, ,859 3,602, , ,705 3,602,740 12/31/2014 1,776, , ,983 1,683, , ,082 4,377, , ,983 4,377,822 12/31/2015 1,816, , ,878 1,690, ,000 ** 873,363 ** 5,251,185 ** 999,017 ** ,878 5,251,185 ** * Based on a 30-year closed amortization as of January 1, ** Estimated employer contributions based on expected benefit payments. Estimated amounts will be replaced at year end with actual amounts. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 57

282 This page intentionally left blank. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 58

283 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 SECTION 4 Supplemental Information Cash-Flow Projections Table 7 illustrates the projected retiree medical and long-term care payments for members eligible for these benefits under RCW. The cash-flow projections are based on the actuarial assumptions stated in Appendix A. See Appendix B and Appendix C for additional information regarding benefit provisions and expected costs. A summary of valuation data is found in Appendix D. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 59

284 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 TABLE 7 Estimated Total Pay-As-You-Go Costs for LEOFF 1 Members Year Retiree Medical Long-Term Care Total Payout 2015 $ 698,000 $ 119,000 $ 817, , , , , , , , ,000 1,033, , ,000 1,027, , ,000 1,038, , ,000 1,013, , ,000 1,061, , ,000 1,109, , ,000 1,159, , ,000 1,208, , ,000 1,268, , ,000 1,313, , ,000 1,365, , ,000 1,417, , ,000 1,469, , ,000 1,520, , ,000 1,570, , ,000 1,616, ,000 1,014,000 1,661, ,000 1,071,000 1,704, ,000 1,123,000 1,739, ,000 1,171,000 1,765, ,000 1,210,000 1,777, ,000 1,241,000 1,778, ,000 1,260,000 1,763, ,000 1,266,000 1,733, ,000 1,255,000 1,683, ,000 1,228,000 1,616, ,000 1,185,000 1,532,000 This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 60

285 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 APPENDIX A Summary of Valuation Assumptions The actuarial procedures and assumptions used in this valuation are described in this appendix. The actuarial assumptions are intended to estimate the future experience of the members. Since the last valuation, the investment return assumption (discount rate) was decreased 0.25%. The medical cost assumptions have been updated to better reflect recent experience and current expectations. In addition, the mortality assumptions have been changed to match the Office of the State Actuary's most recent experience study for the LEOFF system. Excise Tax for High Cost or Cadillac Health Plans in 2018 and Beyond An excise tax for high cost health coverage, or Cadillac health plans was included in the Affordable Care Act (ACA) passed into law in March The provision levies a 40% tax on the value of health plan costs that exceed certain thresholds for single coverage or family coverage. The 2018 annual thresholds for qualified retirees aged 55 to 64 or workers in high risk professions such as firefighters and police officers are $11,850 for single coverage and $30,950 for a family plan. If, between 2010 and 2018, the cost of health care insurance rises more than 55%, the threshold for the excise tax will be adjusted. GASB Statement No. 45 indicates that the projection of benefits should include all benefits to be provided to retirees in accordance with the current substantive plan. The substantive plan refers to the plan terms as understood by the employer and plan members at the time of the valuation. For this reason, we believe that the current provisions of the ACA should be reflected in the projection of benefits and therefore, we do include the value of the excise tax in this valuation. We assume that there will be no changes to the current law and that there will be no changes in plan design to help mitigate the impact of the tax. Medical Trends Our assumptions for medical trend have been updated to better reflect current expectations. As part of a recent review, we evaluated the Society of Actuaries (SOA) recently published report on long-term medical trend. That report includes detailed research performed by a committee of economists and actuaries (including a Milliman representative) and proposes the use of the Getzen Model named after the professor who developed the model. We believe that the research and the model are fundamentally and technically sound and will advance the body of knowledge available to actuaries to more accurately project long-term medical trends. At this time, we believe this model is the industry standard for projecting longterm medical trends. Milliman has decided to use that model as the foundation for the trend that it recommends to our clients for OPEB valuations. These trend rates assume that over time, deductibles and out of pocket maximums will be periodically increased as medical trends increase. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 61

286 Appendix A (continued) Following is a summary of our medical trend assumptions. Medical Trend Year Pre-65 Post % 5.5% % 5.7% % 5.2% % 5.3% % 5.2% % 5.1% % 5.0% Grading down to an ultimate of 4.0% in 2071 and beyond. The excise tax is projected to impact the City of Vancouver in In order to value the impact of the excise tax, we adjusted the medical trend to capture the increase in total costs for the City of Vancouver. We applied the trend to retiree benefit payments. The resulting trends were as follows: Medical Trend Year Pre-65 Post % 5.2% % 5.3% % 5.2% % 5.2% After 2020, the total trend with excise tax is assumed to generally grade downward until achieving the ultimate rate of 4.2%. Actuarial Cost Method The liabilities are calculated according to the Entry Age Normal (level percentage of pay) funding method. Records and Data The data regarding active members, retirees, survivors and the financial information used in this valuation were supplied by the City and are accepted for valuation purposes without audit. Replacement of Terminated Members The City's FPF and LEOFF 1 are closed groups. No new members are permitted. Valuation of Assets As of the valuation date, there are no assets in an irrevocable trust to pay for these benefits. Therefore, there are no assets recognized for GASB purposes. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 62

287 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 I. Economic Assumptions TABLE A-1 Summary of Valuation Assumptions A. Investment Rate of Return (Discount rate) 3.50% B. Medical Trend C. Long-Term Care Trend Rate 4.75% Medical Trend Year Pre-65 Post % 5.5% % 5.7% % 5.2% % 5.3% % 5.2% % 5.1% % 5.0% Grading down to an ultimate of 4.0% in 2071 and beyond. II. Noneconomic Assumptions A. Service Retirement Table A-2 B. Disability Table A-3 C. Mortality 1. Active and service-retired members RP-2000 Mortality Table (combined healthy) with generational projection using 100% of Projection Scale BB, with ages set back one year for males and set forward one year for females. 2. Disabled members RP-2000 Mortality Table (combined healthy) with generational projection using 100% of Projection Scale BB, with ages set forward two years. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 63

288 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 TABLE A-2 Annual Rates - Service Retirement Age Rate 50 7% * *Immediate retirement is assumed for every person who attains age 66. TABLE A-3 Annual Rates - Disability Age Rate % This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 64

289 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 TABLE A-4 Actuarial Assumptions Display for Notes to Financial Statements Valuation Date January 1, 2015 Actuarial Cost Method Entry Age Normal Amortization Method 30-year, closed as of January 1, 2007 Remaining Amortization Period 22 years Actuarial assumptions: Investment Rate of Return 3.50% Medical Trend Medical Trend Year Pre-65 Post % 5.5% % 5.7% % 5.2% % 5.3% % 5.2% % 5.1% % 5.0% Long-Term Care Trend Rate 4.75% Grading down to an ultimate of 4.0% in 2071 and beyond. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 65

290 This page intentionally left blank This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 66

291 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 APPENDIX B Plan Summary All actuarial calculations are based on our understanding of RCW and 41.18, the statutes establishing the FPF, and RCW 41.26, the statute establishing the Washington Law Enforcement Officers' and Firefighters' Retirement System. Retiree Medical Benefits Under RCW law, retiree medical, hospital, and nursing care as long as a disability exists are covered for any active firefighter hired prior to March 1, For any retired firefighter hired prior to March 1, 1970, retiree medical, hospital, and nursing care are covered at the discretion of the Retirement Board. Members retired prior to 1961 for reasons other than duty disability are not eligible for retiree medical benefits during retirement. Under LEOFF Law, the necessary hospital, retiree medical, and nursing care expenses not payable by Workers Compensation, Social Security, etc. are covered for any active or retired LEOFF 1 member. The employer may pay for such benefits for firefighters from its FPF. We assume that the City will reimburse the Medicare Part B premiums for all retirees who are over age 65. Eligibility Employees are eligible to receive lifetime retiree medical benefits upon service retirement after age 50 with at least five years of service. If they are not eligible to retire when leaving LEOFF, but have 20 years of service credit, they are eligible for retiree medical benefits when pension benefits commence. Employees also receive lifetime benefits upon disability. Retiree Premiums No retiree contributions toward the cost of retiree medical benefits are required. Spouse Benefits None. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 67

292 This page intentionally left blank. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 68

293 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 APPENDIX C Retiree Medical Costs Retiree Medical Costs To account for the fact that per member health costs vary depending on age, we calculated Per Member Per Month (PMPM) costs that vary by age based on the age distribution of covered members and based on relative age cost factors. Health costs tend to be higher at older ages, but Medicare pays much of the cost for those over age 65. The relative age cost factors were developed from Milliman s Health Cost Guidelines database. Based on the City s historical retiree medical cost experience from 2012 through 2014, 2015 premium rates, and the relative age cost factors assumptions, we developed age adjusted monthly PMPM health costs for Here is a sample of the costs developed: Age Monthly Costs 55 $1, $1, $1, $ $ $ $ $ The above costs also include administrative costs. In addition, we assume that the City reimburses Medicare Part B premiums for all members over age 65. For 2015, those premiums were assumed to be $ per member per month, the standard Medicare Part B premium, unless the City provided a higher premium to us. The City is not required by Washington State law to provide retiree medical coverage to spouses of retired firefighters. Spouses are not studied nor are any liabilities for them included in the figures shown in this report. Retiree medical costs listed above are for hospital and medical benefits only. Costs specifically projected to be paid for nursing care (long-term care costs) are calculated separately in this report. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 69

294 Appendix C (continued) Long-Term Care Costs In general, assumptions related to long-term care benefits were taken from internal Milliman research. Data sources include limited insurance data and published and unpublished noninsured data. These assumptions include probability of commencement of benefits, length of stay, distribution, marriage probability and inflation. These costs are based on the results of Milliman research. Eligibility for Paid Benefits: Medical necessity. Treatment must be prescribed by a physician. Periodical re-certification of care is required. Probability of Commencing Long-Term Care Benefits: Institutional Non-institutional Age Care Care Average Length of Stay (in months): Institutional Non-institutional Age Care Care This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 70

295 Appendix C (continued) Covered Care - Institutional: Care provided in a nursing home or wing of a hospital designed to provide nursing care services or an assisted living facility, including: Skilled includes nursing and rehabilitation services that can only be performed by skilled medical personnel: must be under orders of a physician and provided on a 24 hour basis. Intermediate includes continuous treatment not meeting all the requirements for skilled care. Custodial includes assistance in carrying out daily living activities. Covered Care - Non institutional: Includes all home health and adult day-care services. Monthly Cost Per Covered Person (2013 Levels): Average Monthly Cost $7,583* Institutional Care $4,649** Non-Institutional Care * Blending of the following: $6,645 x 20% of Institutional Care assumed to be in Assisted Living Facilities + $7,817 x 80% of Institutional Care assumed to be in Nursing Facility The assumed average monthly cost for care was based on Milliman research. No offsets due to Medicare or other insurance plans were assumed. ** Includes the monthly benefit times assumed days per month utilization $5,469*0.85 = $4,649. Annual Increase in Long-Term Care Costs: 4.75% per year. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 71

296 This page intentionally left blank. This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 72

297 Actuarial Valuation of Retiree Medical and Long-Term Care Benefits for LEOFF 1 Employees City of Vancouver January 1, 2015 APPENDIX D Valuation Data TABLE D-1 Retired Firefighters Eligible for Retiree Medical and Long-Term Care Benefits Age Number Totals 71 This work product was prepared solely for the City of Vancouver for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Fqs0033.docx FQS 38 / FQS / DRW/RFB/nlo 73

298 Milliman Actuarial Valuation Tacoma Employees Retirement System January 1, 2016 Actuarial Valuation Prepared by: Mark C. Olleman, FSA, EA, MAAA Consulting Actuary Daniel R. Wade, FSA, EA, MAAA Consulting Actuary Julie D. Smith, FSA, EA, MAAA Actuary Milliman, Inc Fifth Avenue, Suite 3800 Seattle, WA Tel milliman.com Issued May 4, 2016

299 1301 Fifth Avenue Suite 3800 Seattle, WA USA Tel Fax May 4, 2016 milliman.com Retirement Board Tacoma Employees Retirement System 3628 South 35 th Street Tacoma, Washington Re: January 1, 2016 Actuarial Valuation Dear Members of the Board: As requested, we performed an actuarial valuation of the Tacoma Employees' Retirement System as of January 1, Our findings are set forth in this actuarial valuation. This report reflects the benefit provision and contribution rates currently in effect. Milliman has performed 23 actuarial valuations for the Tacoma Employees' Retirement System since January 1, Biennial valuations occurred from 1985 through 2011 and one additional valuation was performed in Beginning in 2012, annual actuarial valuations have been performed. In preparing this report, we relied, without audit, on information (some oral and some in writing) supplied by the System s staff. This information includes, but is not limited to, statutory provisions, member census data, and financial information. We found this information to be reasonably consistent and comparable with information used for other purposes. The valuation results depend on the integrity of this information. If any of this information is inaccurate or incomplete, our results may be different and our calculations may need to be revised. All costs, liabilities, rates of interest, and other factors for the System have been determined on the basis of actuarial assumptions and methods which are individually reasonable (taking into account the experience of the System and reasonable expectations) and which, in combination, offer our best estimate of anticipated experience affecting the System. Further, in our opinion, each actuarial assumption used is reasonably related to the experience of the Plan and to reasonable expectations which, in combination, represent our best estimate of anticipated experience under the System. This valuation report is only an estimate of the System s financial condition as of a single date. It can neither predict the System s future condition nor guarantee future financial soundness. Actuarial valuations do not affect the ultimate cost of System benefits, only the timing of System contributions. While the valuation is based on an array of individually reasonable assumptions, other assumption sets may also be reasonable and valuation results based on those assumptions would be different. No one set of assumptions is uniquely correct. Determining results using alternative assumptions is outside the scope of our engagement. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Due to the limited scope of our assignment, we did not perform an This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. taca0600.docx TAC 38 / 003.TAC / MCO/DRW/JDS/nlo Offices in Principal Cities Worldwide

300 Tacoma Employees' Retirement System May 4, 2016 Page 2 analysis of the potential range of future measurements. The Board of Trustees has the final decision regarding the appropriateness of the assumptions and adopted them as indicated in Appendix A. Actuarial computations presented in this report are for purposes of determining the recommended funding amounts for the System. Actuarial computations presented for financial reporting in a separate report under GASB Statements No. 67 and 68 are for purposes of assisting the System and participating employers in fulfilling their 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 System s funding requirements and goals. Determinations for purposes other than meeting these requirements may be significantly different from the results contained in this report. Accordingly, additional determinations may be needed for other purposes. Milliman s work is prepared solely for the use and benefit of the System and its Trustees and employees (for their use in administering the Fund). To the extent that Milliman's work is not subject to disclosure under applicable public records laws, Milliman s work may not be provided to third parties without Milliman's prior written consent. Milliman does not intend to benefit or create a legal duty to any third party recipient of its work product. Milliman s consent to release its work product to any third party may be conditioned on the third party signing a Release, subject to the following exceptions: (a) The System may provide a copy of Milliman s work, in its entirety, to the System's professional service advisors who are subject to a duty of confidentiality and who agree to not use Milliman s work for any purpose other than to benefit the System. (b) The System may provide a copy of Milliman s work, in its entirety, to other governmental entities, as required by law. No third party recipient of Milliman's work product should rely upon Milliman's work product. Such recipients should engage qualified professionals for advice appropriate to their own specific needs. The consultants who worked on this assignment are pension actuaries. Milliman s advice is not intended to be a substitute for qualified legal or accounting counsel. The signing actuaries are independent of the plan sponsor. We are not aware of any relationship that would impair the objectivity of our work. 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. We are members of the American Academy of Actuaries and meet the Qualification Standards to render the actuarial opinion contained herein. We would like to express our appreciation to Tim Allen, Retirement System Director, and to members of his staff who gave substantial assistance in supplying the data on which this report is based. This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. taca0600.docx TAC 38 / 003.TAC / MCO/DRW/JDS/nlo

301 Tacoma Employees' Retirement System May 4, 2016 Page 3 We respectfully submit the following report, and we look forward to discussing it with you. Sincerely, Mark C. Olleman, FSA, EA, MAAA Consulting Actuary Daniel R. Wade, FSA, EA, MAAA Consulting Actuary Julie D. Smith, FSA, EA, MAAA Actuary MCO/DRW/JDS/nlo This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. taca0600.docx TAC 38 / 003.TAC / MCO/DRW/JDS/nlo

302 2016 Actuarial Valuation Tacoma Employees Retirement System Table of Contents Page Section 1 Summary of the Findings... 1 Exhibit 1 Summary of Key Valuation Results Exhibit 2 TERS Retirement Board Funding and Benefits Policy Section 2 Scope of the Report Section 3 Assets Exhibit 3 Statement of Plan Net Position at Fair Value Exhibit 4 Statement of Changes in Plan Net Position Exhibit 5 Investment Return History Exhibit 6 Actuarial Assets Section 4 Actuarial Liabilities Exhibit 7 Actuarial Present Value of Future Benefits for Contributing Members, Former Contributing Members, and Their Survivors Section 5 Employer Contributions Exhibit 8 Normal Cost Contribution Rates as Percentages of Salary Exhibit 9 Unfunded Actuarial Accrued Liability / Funding Reserve Exhibit 10 Contribution Rate Adequacy Section 6 Actuarial Gains or Losses Exhibit 11 Analysis of Actuarial Gains or Losses (1) Exhibit 12 Analysis of Change in Unfunded Actuarial Accrued Liability Section 7 Supplemental Information Exhibit 13 Schedule of Funding Progress Exhibit 14 Funding Ratios Exhibit 15 Actuarial Present Value of Accumulated Vested Plan Benefits Exhibit 16 Schedule of Retirees and Beneficiaries Added to and Removed from Rolls Exhibit 17 Asset and Liability Volatility Ratios Exhibit 18 Cash Flow History and Projections taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. i

303 2016 Actuarial Valuation Tacoma Employees Retirement System Table of Contents Appendix A Actuarial Procedures and Assumptions Exhibit A-1 Summary of Valuation Assumptions Exhibit A-2 Future Salaries Exhibit A-3 Service Retirement Exhibit A-4 Disability Exhibit A-5 Mortality Exhibit A-6 Other Terminations of Employment Among Members Not Eligible to Retire Appendix B Provisions of Governing Law Appendix C Valuation Data Exhibit C-1 Summary of Membership Data Exhibit C-2 Members Receiving Service Retirement Benefits Exhibit C-3 Members Receiving Disability Retirement Benefits Exhibit C-4 Survivors Receiving Benefits Exhibit C-5 Number of Employees and Monthly Salaries - By Age Group Appendix D Comparative Schedules Exhibit D-1 Membership Data Exhibit D-2 Contribution Rates Exhibit D-3 Historical Funding Summary Exhibit D-4 Changes in Economic Assumptions Exhibit D-5 Significant Changes in Benefits, Contributions, and Assumptions Exhibit D-6 Actuarial Project Schedule Appendix E Glossary taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. ii

304 2016 Actuarial Valuation Tacoma Employees Retirement System Section 1 Summary of the Findings We have completed the actuarial valuation of the Tacoma Employees' Retirement System as of January 1, The actuarial valuation tests whether the scheduled contribution rates are sufficient to satisfy future obligations. The following chart summarizes the various metrics used to assist in making that determination. Results are shown for both the current and prior valuations. Valuation Results (Dollars in Millions) 2016 Valuation 2015 Valuation (A) Actuarial Accrued Liability $ 1,542.2 $ 1,468.2 (B) Actuarial Assets (AVA) 1, ,402.7 (C) Fair Value of Assets (FVA) 1, ,478.5 Unfunded Actuarial Accrued Liability (UAAL)/(Funding Reserve) Actuarial Assets [A - B] $ 40.5 $ 65.5 Fair Value of Assets [A - C] $ 93.4 $ (10.3) Actuarial Assets Funding Ratio [B A] 97.4% 95.5% Fair Value of Assets Funding Ratio [C A] 93.9% 100.7% Actuarial Asset Amortization Period 21.3 years 52.3 years Fair Value of Asset Amortization Period Does not amortize N/A - Funding Reserve 30-Year Amortization of UAAL based on AVA, not less than the current contribution rate (Basis for Actuarially Determined Contribution) 30-Year Amortization of UAAL based on FVA, not less than the current contribution rate 20.00% of pay 20.41% of pay 21.03% of pay 20.00% of pay If only calculations using the Actuarial Value of Assets (AVA) are used, the Funding Ratio of 97.4% is between 95% and 120%. Also, the current contribution rate continues to exceed the Normal Cost rate. The Board s Funding and Benefits Policy states that no action will be taken when the Funding Ratio is in that range and the contribution rate exceeds the Normal Cost rate. However, the Board s Funding and Benefits Policy states that calculations based on the fair value of assets and long-term funding projections should also be considered. Measures based on actuarial assets and fair value of assets can provide different interpretations of the System s funding. Using fair value of assets, the Funding Ratio of 93.9% is below 95% and the current contribution rate is not projected to amortize the Unfunded Actuarial Accrued Liability (UAAL). Funding projections based on future returns of 7.25% show a need to increase contribution rates to amortize the unfunded liability. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 1

305 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Amortization Period Although the AVA Funding Ratio of 97.4% is close to 100%, the amortization period of the UAAL is 21.3 years due to the fact that the portion of the contribution rate for UAAL amortization is only 1.13%. No contribution rate increase would be needed based on actuarial asset calculations since the amortization period is already under 30 years. This means that the current contribution rate is the Actuarially Determined Contribution Rate (ADC), which is based on AVA. Based on fair value of assets, the Funding Ratio is 93.9% and the UAAL is not projected to be amortized. A contribution rate of 21.03% of pay starting January 1, 2017 is projected to amortize the UAAL over 30 years after the valuation date on a fair-value basis. With the cushion between the contribution rate and the Normal Cost rate small, the length of the amortization period is very sensitive to small changes in the UAAL. For example, based on the actuarial assumptions and the 20.00% of pay contribution rate, the amortization periods for different funding ratios vary as follows: Funding Ratio Length of Amortization 94.5% or lower Never amortizes 97.4% (current actuarial value) 21.3 years 96.7% 30 years 100% or higher No years Normal Cost Rate The Normal Cost Rate increased from 18.84% of pay to 18.87% of pay from the prior actuarial valuation. Therefore, the portion of the total 20.00% of pay contribution rate available to amortize the UAAL after Normal Costs are financed decreased from 1.16% of pay at January 1, 2015 (20.00% %) to 1.13% of pay at January 1, 2016 (20.00% %). Actuarial Value of Assets The $1,501.7 million actuarial assets are currently 104% of the $1,448.8 fair value of assets. This difference is due to the actuarial assets recognition of gains and losses over four years. This means only one fourth of the loss from 2015, two fourths of the gain from 2014, and three fourths of the gain from 2013 have been recognized in the actuarial assets as of January 1, $52.9 million of losses have not been recognized in the actuarial assets. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 2

306 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Funding Ratio Investment gains and losses can cause large fluctuations in the Funding Ratio in a single year, as shown by the System s history. Over each of the last four years, the System s Funding Ratios have increased slightly on an actuarial-value basis. Even with a negative return in the last year, the Funding Ratio on an actuarial-value basis increased from 2015 to 2016 since only one fourth of the loss from 2015 was recognized. As shown in the graph below, the Funding Ratio based on fair value of assets has decreased from 101% at January 1, 2015 to 94% at January 1, 2016 due to the negative 0.4% return in The underlying numbers to the following graph can be seen in Exhibit D-3. The System s investment return history since 1980 can be seen in Exhibit % 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Historical Funding Ratios Fair Value of Assets Actuarial Assets Contribution Rates As per sections and of the Tacoma Municipal Code, the current contribution rate is 20.00%, split 10.80% to the employer and 9.20% to the member. The following chart shows the history of the contribution rates since Actual Contribution Rates as a Percent of Member Pay (Set in Tacoma Municipal Code) Employer Member Total % 8.89% 19.33% % 7.68% 16.70% % 6.44% 14.00% % 7.36% 16.00% % 8.28% 18.00% % 8.74% 19.00% 2012 and on 10.80% 9.20% 20.00% taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 3

307 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Funding and Benefits Policy Exhibit 2 is a copy of the Board s Funding and Benefits Policy, most recently updated at the February 2013 Board meeting. The objective of the Funding and Benefits Policy states in part, The Funding & Benefits Policy is meant to assist in establishing a contribution rate which is relatively stable over the long term. That objective is reflected in the following interpretation of the valuation results using the guidance of the Funding and Benefits Policy. Funding Ratios from 95% to 120% suggest the Retirement Board maintain the current contribution rate: The January 1, 2016 Funding Ratio is 97.4% using actuarial assets and 93.9% using fair value of assets. On an actuarial-value basis, the Board s Funding and Benefits Policy indicates no action is needed. The Policy also states that Calculations based on the Market Value of Assets will also be considered. On that basis, the Retirement Board might consider an increase in the contribution rates. Amortization Period: The Policy states, Contribution increases should consider amortizing any Unfunded Actuarial Accrued Liability over a period of 30 years or less. On an actuarial-value basis, the amortization period is 21.3 years. No contribution rate increases would be needed since the amortization period is already under 30 years. As noted previously in this report, the length of the amortization period is very sensitive to changes in the UAAL, since the contribution rate and Normal Cost rate are close to each other. The Policy also states that Calculations based on the Market Value of Assets will also be considered. On that basis, since the UAAL is not projected to be amortized, the Board might consider increasing the 20% contribution rate. A contribution rate of 21.03% of pay starting January 1, 2016 is projected to amortize the UAAL over 30 years on a fair-value basis. 20% Contribution Rate is greater than 18.87% Normal Cost Rate: The Policy states, There is a long-term goal of maintaining a Contribution Rate greater than or equal to the Normal Cost Rate. The 20% of pay contribution rate is consistent with the goal of being greater than or equal to the Normal Cost Rate. Long-term Funding Projections: The Policy states Long-term funding projections will also be considered. The baseline in Projection 1 shown later in this summary demonstrates that if experience in all future years matches the actuarial assumptions, including 7.25% investment returns, the Funding Ratio on an AVA basis is projected to decline as the past year s actuarial loss is recognized. After a few years, the Funding Ratio falls beneath 95% and the current contribution rate is insufficient to amortize the UAAL. Projection 2 provides a downside scenario showing that adverse investment experience similar to what the System experienced in 2006 to 2008 could require contribution rates to increase as high as 32.49% of pay to amortize the UAAL over 30 years. Projection 3 provides an upside scenario. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 4

308 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Asset Gains and Losses Although the System is funded over a long period of time, the measurement of the System s funding status can vary widely from year-to-year due to asset returns. The following chart summarizes the System s asset returns in recent years and compares the fair value gains and losses to the AAL at the following valuation date. Until 2013, the assumed returns were 7.75%, so the comparisons to expectations are based on that 7.75% assumption. Returns greater than the 7.75% actuarial assumption were gains; returns less than the 7.75% actuarial assumption were losses. In 2013 the assumption was 7.50%. In 2014 and in future years, the assumption is 7.25%. Year Fair Value % Return* Fair Value $ Gain / (Loss) compared to expected End of Year Actuarial Accrued Liability (AAL) Gain / (Loss) as a % of next AAL % $ 8,500, % % $ 102,800,000 $ 895,800, % % $ (42,200,000) (4.2)% 2008 (32.0)% $ (451,000,000) $ 1,002,300,000 (45.0)% % $ 147,700, % % $ 60,200,000 $ 1,132,900, % % $ (69,900,000) $ 1,185,500,000 (5.9)% % $ 68,700,000 $ 1,306,600, % % $ 100,000,000 $ 1,400,000, % % $ 11,500,000 $ 1,468,200, % 2015 (0.4)% $ (111,600,000) $ 1,542,200,000 (7.2)% * The fair value returns shown above are net of investment expenses, but not administrative expenses. They are based on the System s annual financial statements, but may have some variance from calculations performed by other parties due to methodology. The AVA recognizes these fair value gains and losses in four equal pieces starting at the end of the year in which they occur. Gains in good years are needed to offset losses in bad years. The $451 million fair value loss in 2008 was equal to 45% of the System s AAL and was fully recognized in the actuarial assets as of January 1, Long-Term Funding Projections The Funding and Benefits Policy states that Long-term funding projections will also be considered. The future funding status of the System and any changes in future contribution rates will be determined by the System s experience. In the future, the System s actual investment returns, salary increases, and retirement, withdrawal, disability, and mortality rates will all impact the funding status of the System. Investment returns are expected to cause the largest variation in the future funding status of the System. Therefore, the three deterministic projections on the following pages project the System s funding for 20 years based on three different investment return scenarios. All other experience is assumed to match the valuation assumptions. The inputs at the bottom of each page show (a) investment returns; (b) the UAAL amortization period used to produce the Calculated Total Contribution Rate graph; and (c) the total contribution rate which is assumed to be paid 54% by the City and 46% by members. The inputs are shown for both the current bars in blue and the red baseline. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 5

309 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Baseline: 7.25% Returns in All Future Years The red baseline is the same in all projections. It projects experience based on 7.25% investment returns in all years. The red baseline shows a rapid increase in the amortization period over the next three years as the deferred investment losses from the past year are recognized. The Funding Ratio steadily decreases. After the full recognition of the asset losses, the Funding Ratio is below 95% and the current contribution rate of 20.00% from the Tacoma Municipal code is insufficient to amortize the UAAL. For illustrative purposes, we assume that under such a scenario, the contribution rate would be increased in order to amortize the UAAL over a period of 30 years. Projection 1: 2016 Actuarial Valuation Assumption Projection 1 is the same as the baseline. Projection 2: Downside Repeat of Returns from Projection 2 demonstrates a potential downside based on the assumption that the System s actual returns from 2016 through 2018 match the actual returns from 2006 to 2008, followed by 7.25% in future years. It is estimated that, under these circumstances, total contributions would be required to grade up to 32.49% of pay if the UAAL were to be amortized over 30 years. Projection 3: Upside Repeat of Returns from Projection 3 demonstrates an upside based on the assumption that the System s actual returns from 2016 through 2018 match the actual returns from 2003 to Once again, returns in years after 2018 are assumed to be 7.25%. It is estimated that under these circumstances the System would attain a Funding Ratio of 115.3% based on actuarial assets and 125.2% based on fair value of assets at the end of the three-year period. A Funding Reserve is created and continues to grow throughout the projections. These projections demonstrate the sensitivity of the System s funding to investment returns. Projection 4: Stochastic Projection To give an idea of the potential range of future contribution rates and funding ratios, we ran a stochastic projection. This type of projection allows the assessment of the likelihood of certain events in the 1,000 scenarios modeled. The stochastic projection uses a random number generator, the System s asset allocation, and Milliman s capital market assumptions to generate a probability distribution of future contribution rates and funding ratios based on 1,000 random scenarios. The median is shown by a diamond. Half of the results are above the median, and half of the results are below the median. The top of the blue bars is the 95 th percentile. The top of the green bars is the 75 th percentile. The bottom of the yellow bars is the 25 th percentile, and the bottom of the red bars is the 5 th percentile. Based on the projection assumptions, there is a 25% chance of being above the green bars and another 25% chance of being below the yellow bars. The projection shows that after 10 years the median contribution rate increases to 23.2%. Note that 63% of the scenarios resulted in contribution rates above 20% after 10 years in this year s projection. In last year s projections, 49% of the scenarios resulted in contribution rates above the current 20% rate. The median funding ratio is a little higher than 94%. In the last year s projections, the median funding ratio was slightly higher than 100% at the end of the projection period. The median results are informative; however, the extremes are just as important. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 6

310 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings After 10 years: 5% of the scenarios had a contribution rate over 34%, which corresponded to a Funding Ratio of under 55%. 75% of the scenarios had a contribution rate below 28% of pay. The middle 50% of the scenarios had a Funding Ratio between 77% and 120%. Future contribution rates and funding ratios are heavily dependent on the return on plan assets. For the purpose of the stochastic projection, we used the following decision parameters to simulate the System s Funding and Benefits Policy: The contribution rate is only decreased if the funding ratio is over 120%. If the funding ratio is over 120%, the contribution rate is set equal to the normal cost rate. If the funding ratio is between 95% and 120%, there is no change to the contribution rate. If the funding ratio is below 95% and the amortization period is over 30 years, the contribution rate is set to produce a 30-year amortization period based on the greater of fair value of assets or actuarial assets. The 54%/46% employer/employee contribution rate split is maintained. The total employer plus employee contribution rate is never increased by more than 2% in one year. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 7

311 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Deterministic Projection Actuarial Valuation Percent Funding Ratio = Actuarial Assets / AAL 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% Years Amortization Period Current Baseline Current Baseline Percent Funding Ratio = Fair Value of Assets / AAL 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% Percent Calculated Total Contribution Rate 30% 25% 20% 15% 10% Current Baseline Current Baseline Current Input Portfolio Actual Return Actual Salary Increases UAAL Amortization Period Total Rate % (54% ER, 46% EE) BASELINE NUMBERS BELOW HERE Current Input Portfolio Actual Return Actual Salary Increases UAAL Amortization Period Total Rate % (54% ER, 46% EE) taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 8

312 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Deterministic Projection 1b Numerical Summary of Results 2016 Actuarial Valuation (Dollar Amounts in Millions) Year Actuarial Accrued Liability Actuarial Value of Assets Funding Ratio = Fair Value of AVA / AAL Assets Funding Ratio = FVA / AAL Normal Cost Rate Contribution Rate Minus Normal Cost Rate Amortization Period Current Rate Greater of Current Rate or 30 Year Amort Rate , , % 1, % 18.87% 1.13% % 20.00% , , % 1, % 18.87% 1.13% % 20.00% , , % 1, % 18.87% 1.13% % 20.42% , , % 1, % 18.87% 1.13% UAAL Grows 20.00% 21.05% , , % 1, % 18.87% 2.16% % 21.02% , , % 1, % 18.87% 2.16% % 21.02% , , % 1, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 2, % 18.87% 2.16% % 21.02% , , % 3, % 18.87% 2.16% % 21.02% , , % 3, % 18.87% 2.16% % 21.02% , , % 3, % 18.87% 2.16% % 21.02% , , % 3, % 18.87% 2.16% % 21.02% taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 9

313 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Deterministic Projection 2 Downside Repeat of Returns from Percent Funding Ratio = Actuarial Assets / AAL 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% Years Amortization Period Current Baseline Current Baseline Percent Funding Ratio = Fair Value of Assets / AAL 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% Percent Calculated Total Contribution Rate 30% 25% 20% 15% 10% Current Baseline Current Baseline Current Input Portfolio Actual Return Actual Salary Increases UAAL Amortization Period Total Rate % (54% ER, 46% EE) BASELINE NUMBERS BELOW HERE Current Input Portfolio Actual Return Actual Salary Increases UAAL Amortization Period Total Rate % (54% ER, 46% EE) taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 10

314 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Deterministic Projection 2b Numerical Summary of Results Downside Repeat of Returns from (Dollar Amounts in Millions) Year Actuarial Accrued Liability Actuarial Value of Assets Funding Ratio = Fair Value of AVA / AAL Assets Funding Ratio = FVA / AAL Normal Cost Rate Contribution Rate Minus Normal Cost Rate Amortization Period Current Rate Greater of Current Rate or 30 Year Amort Rate , , % 1, % 18.87% 1.13% % 20.00% , , % 1, % 18.87% 1.13% % 20.00% , , % 1, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 1, % 18.87% 1.13% UAAL Grows 20.00% 22.18% , , % 1, % 18.87% 3.13% UAAL Grows 22.00% 25.76% , , % 1, % 18.87% 5.13% UAAL Grows 24.00% 29.81% , , % 1, % 18.87% 7.13% UAAL Grows 26.00% 33.21% , , % 1, % 18.87% 9.13% % 33.17% , , % 1, % 18.87% 11.13% % 33.03% , , % 1, % 18.87% 13.13% % 32.78% , , % 1, % 18.87% 13.62% % 32.49% , , % 1, % 18.87% 13.62% % 32.49% , , % 1, % 18.87% 13.62% % 32.49% , , % 1, % 18.87% 13.62% % 32.49% , , % 1, % 18.87% 13.62% % 32.49% , , % 2, % 18.87% 13.62% % 32.49% , , % 2, % 18.87% 13.62% % 32.49% , , % 2, % 18.87% 13.62% % 32.49% , , % 2, % 18.87% 13.62% % 32.49% , , % 2, % 18.87% 13.62% % 32.49% , , % 2, % 18.87% 13.62% % 32.49% taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 11

315 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Deterministic Projection 3 Upside Repeat of Returns from Percent Funding Ratio = Actuarial Assets / AAL 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% Years Amortization Period Current Baseline Current Baseline Percent Funding Ratio = Fair Value of Assets / AAL 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% Percent Calculated Total Contribution Rate 30% 25% 20% 15% 10% Current Baseline Current Baseline Current Input Portfolio Actual Return Actual Salary Increases UAAL Amortization Period Total Rate % (54% ER, 46% EE) BASELINE NUMBERS BELOW HERE Current Input Portfolio Actual Return Actual Salary Increases UAAL Amortization Period Total Rate % (54% ER, 46% EE) taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 12

316 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Deterministic Projection 3b Numerical Summary of Results Upside Repeat of Returns from (Dollar Amounts in Millions) Year Actuarial Accrued Liability Actuarial Value of Assets Funding Ratio = Fair Value of AVA / AAL Assets Funding Ratio = FVA / AAL Normal Cost Rate Contribution Rate Minus Normal Cost Rate Amortization Period Current Rate Greater of Current Rate or 30 Year Amort Rate , , % 1, % 18.87% 1.13% % 20.00% , , % 1, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 2, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 2, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 2, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 2, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 2, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 2, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 2, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 3, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 3, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 3, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 3, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 3, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 3, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 4, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 4, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 4, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 4, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 5, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% , , % 5, % 18.87% 1.13% Rsrv Grows 20.00% 20.00% taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 13

317 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Projection 4 Stochastic Projection* Total Contribution Rate Funding Ratio = AVA / AAL * Refer to pages 6-7 for a description of Projection 4. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 14

318 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Sensitivity to Assumptions The valuation results are projections based on the actuarial assumptions. Actual experience will differ from these assumptions, either increasing or decreasing the ultimate cost. Of the assumptions, the investment return generally has the biggest impact. The following table provides an analysis on how the short-term costs are affected by the investment return assumption. Note that the long-term cost of the plan will be largely driven by actual investment returns and other experience. The assumptions impact the timing of contributions, but the three scenarios below illustrate the ultimate long-term employer cost variance that depends on actual investment returns. Investment Rate of Return: 6.25% 7.25% 8.25% Normal Cost Rate: 23.44% 18.87% 15.44% Actuarial Accrued Liability: $1,738.7M $1,542.2M $ M Funding Ratio (AVA basis) 86.4% 97.4% 109.1% Funding Ratio (FVA basis) 83.3% 93.9% 105.2% Conclusions The 2015 fair value investment return of -0.4% was significantly less than the 7.25% assumption for 2015, resulting in asset levels lower than expected. This also causes projected contribution levels to be higher and projected Funding Ratios to be lower than the corresponding projections in last year s report. The System s current Funding Ratio is 97.4% on an actuarial basis. The Board s Funding and Benefits policy suggests the Board maintain the current contribution rate when the funding ratio is between 95% and 120%. The Policy also states, Contribution increases should consider amortizing any Unfunded Actuarial Accrued Liability over a period of 30 years or less. Based on actuarial assets, no contribution rate increase would be needed since the amortization period is already under 30 years. This means that the current contribution rate is the Actuarially Determined Contribution Rate (ADC). Based on the fair value of assets, a contribution rate increase would be needed since the Funding Ratio of 93.9% is below 95% and the UAAL is not projected to be amortized. A contribution rate of 21.03% of pay starting January 1, 2017 is projected to amortize the UAAL over 30 years after the valuation date, on a fairvalue basis. Projection 4 shows that there is a 63% probability of contribution rates being above the current 20% of pay 10 years from now. The additional guidelines to the Funding and Benefits policy provide additional considerations for whether or not to recommend a contribution rate increase, as well as the timing and amount of potential increases. It is expected that future experience such as investment returns above or below the 7.25% assumption will continue to have an important impact on the funding of the Retirement System. The table on the following page summarizes the key valuation results. The complete Funding and Benefits Policy is on the page following the key valuations results. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 15

319 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Exhibit 1 Summary of Key Valuation Results Percentage Valuation Valuation Change 1. Total Membership A. Contributing Members 2,927 2, % B. Annuitants Currently Receiving Benefits 2,234 2, % C. Vested Terminated Members % D. Non-vested Terminated Members (4.7) % E. Total Membership 5,805 5, % 2. Annual Salaries A. Annual Total ($Thousands) $ 234,597 $ 222, % B. Annual Average per Active Member $ 80,149 $ 77, % 3. Average Annual Allowance Payable A. Service Retirement $ 32,623 $ 31, % B. Disability Retirement $ 16,643 $ 17,133 (2.9) % C. Survivors & Beneficiaries $ 18,280 $ 17, % D. All Payees $ 30,277 $ 29, % 4. Actuarial Accrued Liability ($Millions) A. Active Members $ $ % B. Terminated Members $ 99.8 $ % C. Retired Members and Beneficiaries $ $ % D. Total AAL $ 1,542.2 $ 1, % 5. Value of System Assets ($Millions) A. Fair Value $ 1,448.8 $ 1,478.5 (2.0) % B. Smoothing Unrecognized Loss / (Reserve) $ 52.9 $ (75.8) C. Actuarial Value $ 1,501.7 $ 1, % D. Ratio of Actuarial Value to Fair Value 103.7% 94.9% 6. Funded Status ($Millions) A. Funding Reserve or (Funding Shortfall) $ (40.5) $ (65.5) (5C - 4D) B. Actuarial Funding Ratio ( 5C 4D ) 97.4% 95.5% C. Fair Value Funding Ratio ( 5A 4D ) 93.9% 100.7% 7. Contribution Rates (percent of salaries) A. Total Contribution Rate 20.00% 20.00% B. Normal Cost Rate 18.87% 18.84% C. Contribution Rate minus Normal Cost Rate 1.13% 1.16% ( 7A 7B ) D. Amortization Period (Period over which Funding Reserve is projected to be depleted or Funding Shortfall is projected to be depleted by the difference between the Contributions and the Normal Costs) years 52.3 years taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 16

320 2016 Actuarial Valuation Tacoma Employees Retirement System Summary of the Findings Exhibit 2 TERS Retirement Board Funding and Benefits Policy Objective A sustainable pension plan is able to pay the promised benefits to members now and in the future. This policy is intended to provide guidance as to when adjustments to TERS contributions and benefits should be considered. The Funding & Benefits Policy is meant to assist in establishing a contribution rate which is relatively stable over the long term while the System provides its members sustainable retirement income. Policy When the Funding Ratio is: (a) Above 120% - Investment de-risking will be considered, and then the potential for recommendations to Council on contribution reductions and/or benefit improvements will be reviewed, provided the Retirement System s funding status is expected to remain stable after the changes. (b) Between 95% and 120% - There will be no action, provided that either: 1. The Contribution Rate is greater than or equal to the Normal Cost Rate, or 2. There is a Funding Reserve which is projected to be amortized over not less than 20 years. If neither of these conditions is met, then the Retirement Board will consider an increase in the contribution rates. (c) Between 80% and 95% - The Retirement Board will consider an increase in the contribution rates. (d) Under 80% - The Funding and Benefits Policy will be reviewed and reevaluated. Additional Guidelines (a) There is a long-term goal of maintaining a Contribution Rate greater than or equal to the Normal Cost Rate so that if the Funding Reserve is lost due to adverse experience, there will not be a sudden increase in the calculated required contribution (b) Increases in the contribution rate may be made in small increments. (c) Requests for increases in the contribution rate should be made at least one-year prior to the beginning of the financial biennium. (d) Contribution increases should consider amortizing any Unfunded Actuarial Accrued Liability over a period of 30 years or less. (e) Calculations based on the Market Value of Assets will also be considered. (f) Long-term funding projections will also be considered. Terminology (a) The Funding Ratio is calculated by dividing the System s Actuarial Value of Assets by the Actuarial Accrued Liability. (b) The Funding Reserve is the dollar amount by which the System s Actuarial Value of Assets exceeds the Actuarial Accrued Liability. (c) Unfunded Actuarial Accrued Liability is the dollar amount by which the System s Actuarial Accrued Liability exceeds the Actuarial Value of Assets. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 17

321 This page intentionally left blank. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 18

322 2016 Actuarial Valuation Tacoma Employees Retirement System Section 2 Scope of the Report This report presents the actuarial valuation of the Tacoma Employees' Retirement System as of January 1, A summary of the findings resulting from this valuation is presented in the previous section. Section 3 describes the assets of the System. Sections 3, 4, and 5 describe how the obligations of the System are to be met under the actuarial cost method in use. Section 6 provides analysis of actuarial gains and losses and the impact on the Unfunded Actuarial Accrued Liability. Section 7 provides supplemental information regarding funding progress, funding ratios, cash flow, and volatility ratios. The actuarial procedures and assumptions used in this valuation are presented in Appendix A. The current benefit structure, as determined by the provisions of the governing law on January 1, 2016, is summarized in Appendix B. Schedules of valuation data classifying the data used in the valuation by various categories of contributing members, former contributing members, and beneficiaries make up Appendix C. Appendix D provides a brief summary of the System's historical experience. Comparative statistics are presented on the System's membership, contribution rates, assets, and changes affecting actuarial valuations. Appendix E is a glossary of actuarial terms used in this report. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 19

323 This page intentionally left blank. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 20

324 2016 Actuarial Valuation Tacoma Employees Retirement System Section 3 Assets In many respects, an actuarial valuation can be considered an inventory process. The inventory is taken as of the actuarial valuation date, which for this valuation is January 1, On that date, the assets available for the payment of benefits are appraised. These assets are compared with the actuarial liabilities, which are generally well in excess of the assets. The actuarial process thus leads to a method of determining what contributions by members and their employers are needed to strike a balance. This section of the report deals with the asset determination. In the next section, the actuarial liabilities will be discussed. Section 5 will deal with the process for determining required contributions based upon the relationship between the assets and actuarial liabilities. Exhibit 3 summarizes the financial resources of the System on the valuation date. The fair value of net position available to pay pension benefits at the end of the last two years are compared and broken down by investment category. Exhibit 4 summarizes the changes in the fair value of net position available to pay benefits. The System is mature. Benefits and administrative expenses are larger than contributions. The System must now rely on investment income to pay part of its benefits and expenses. Exhibit 5 provides the historical returns since 1980 as calculated by Milliman on a fair-value basis. Exhibit 6 summarizes the determination of the Actuarial Value of Assets. The actuarial asset method smoothes fair value gains and losses over a four-year period. It was adopted for the January 1, 1997 valuation, with the Actuarial Value of Assets set equal to the fair value of assets at January 1, A complete description of the method is given in Appendix A. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 21

325 2016 Actuarial Valuation Tacoma Employees Retirement System Assets Exhibit 3 Statement of Plan Net Position at Fair Value December 31, 2015 December 31, 2014 Assets Cash and short-term investments $ 23,508,989 $ 30,248,201 Receivables Contributions and other receivables $ 708,505 $ 2,028,216 Interest and dividends 2,235,870 2,399,351 Investment Sales 3,693,017 5,626,766 Total receivables $ 6,637,392 $ 10,054,333 Investments, at fair value Equities $ 786,115,649 $ 830,573,980 Fixed income 501,034, ,846,934 Other assets - 19,631 Real estate 74,245,008 65,266,574 Venture capital and partnerships 78,269,131 68,105,888 Total investments $ 1,439,664,687 $ 1,466,813,007 Securities lending collateral 41,071,697 66,465,559 Capital assets, net of accumulated depreciation 11,817 12,661 Other assets 110,820 - Total assets $ 1,511,005,402 $ 1,573,593,761 Liabilities Refunds payable and other accrued expenses $ 1,864,373 $ 1,639,521 Investments purchased 19,297,997 26,941,873 Securities lending collateral 41,071,697 66,465,559 Total liabilities $ 62,234,067 $ 95,046,953 Net position held in trust for pension benefits $ 1,448,771,335 $ 1,478,546,808 taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 22

326 2016 Actuarial Valuation Tacoma Employees Retirement System Assets Exhibit 4 Statement of Changes in Plan Net Position (Plan years ended December 31, 2015 and December 31, 2014) Additions Contributions Employer $ 24,557,390 $ 23,903,892 Plan Member 21,258,474 20,698,886 Total contributions $ 45,815,864 $ 44,602,778 Investment income Net appreciation (depreciation) in fair value of investments $ (26,880,643) $ 89,876,818 Interest & dividends 27,191,360 26,519,510 Investment management fees (5,565,827) (4,929,774) Securities lending - agent fees (47,802) (48,663) Securities lending - broker rebates (29,699) 7,943 Net investment income (loss) $ (5,332,611) $ 111,425,834 Miscellaneous 40,387 - Total additions (reductions) $ 40,523,640 $ 156,028,612 Deductions Benefits $ 66,132,411 $ 62,485,606 Refunds of contributions 2,475,363 2,151,028 Administrative expenses 1,691,339 1,716,124 Total deductions $ 70,299,113 $ 66,352,758 Net increase (decrease) (29,775,473) 89,675,854 Net position held in trust for pension benefits Beginning of year 1,478,546,808 1,388,870,954 End of year $ 1,448,771,335 $ 1,478,546,808 taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 23

327 2016 Actuarial Valuation Tacoma Employees Retirement System Assets Exhibit 5 Investment Return History (TERS Investment Returns on Total Fund Calculated by Milliman) Period Since Ended 1 Year 5 Years 10 Years 15 Years /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/ taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 24

328 2016 Actuarial Valuation Tacoma Employees Retirement System Assets Exhibit 6 Actuarial Assets (January 1, 2016) Part A Determination of Recognized Investment Gains and Losses - Four-Year Smoothing A. Expected investment return $ 106,307,126 B. Actual investment return $ (5,292,224) C. Gains/(losses) [B - A] $ (111,599,350) D. Gains/(losses) 2014 $ 11,521,127 E. Gains/(losses) 2013 $ 100,044,450 F. Gains/(losses) 2012 $ 68,655,467 G. Gains/(losses) recognized at January 1, 2016 [1/4C + 1/4D + 1/4E + 1/4F]* $ 17,155,426 Part B Determination of Actuarial Assets Note: Actuarial value of assets January 1, 2015 $ 1,402,719,869 Net cash flow $ (24,483,249) Expected investment return $ 106,307,126 Recognized investment gains(losses) $ 17,155,426 $ 98,979,303 Actuarial value of assets January 1, 2016 $ 1,501,699,172 The AVA is equal to the expected fair value of assets plus a four-year smoothing of fair value gains and losses. The actuarial asset method was adopted January 1, 1997, with AVA set equal to fair value of assets at January 1, * Includes rounding adjustment. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 25

329 This page intentionally left blank. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 26

330 2016 Actuarial Valuation Tacoma Employees Retirement System Section 4 Actuarial Liabilities In the previous section, an actuarial valuation was described as an inventory process, and an analysis was given of the inventory of assets of the System as of the valuation date. In this section, the discussion will focus on the commitments of the System, which are its actuarial liabilities. Exhibit 7 contains an analysis of the actuarial present value of all future benefits for contributing members, for former contributing members, and for beneficiaries. The analysis is given by type of benefit. The actuarial liabilities summarized in Exhibit 7 include the actuarial present value of all future benefits expected to be paid with respect to each member. For an active member, this value includes a measure of both benefits already earned and future benefits to be earned. Thus, for all members, active and retired, the value extends over benefits earnable and payable for the rest of their lives. If an optional benefit is chosen, the value even extends over the lives of the surviving beneficiaries. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 27

331 2016 Actuarial Valuation Tacoma Employees Retirement System Actuarial Liabilities Exhibit 7 Actuarial Present Value of Future Benefits for Contributing Members, Former Contributing Members, and Their Survivors (All Amounts in Millions) January 1, 2016 January 1, 2015 Active participants Service and early retirement $ $ Vested termination and return of member contributions Disability retirement Survivors' benefits Total $ 1,047.1 $ 1,001.0 Inactive and retired participants and beneficiaries Service retirement $ $ Disability retirement Survivors' benefits Terminated vested benefits Total $ $ Grand Total $ 1,910.3 $ 1,814.6 taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 28

332 2016 Actuarial Valuation Tacoma Employees Retirement System Section 5 Employer Contributions In an active system, there will always be a difference between the actuarial present value of future benefits and the assets. This difference has to be funded with future contributions. An actuarial valuation sets a schedule of future contributions that will deal with this funding in an orderly fashion. The method used to determine the incidence of the contributions in various years is called the actuarial cost method. For this valuation, the entry age actuarial cost method has been used. Under this method, or essentially any actuarial cost method, the contributions required to meet the difference between current assets and present value of future benefits are allocated each year between two elements: A Normal Cost amount, which ideally is relatively stable as a percentage of salary over the years; and Whatever amount is left over, which is used to amortize what is called the Unfunded Actuarial Accrued Liability (UAAL). The two items described above, Normal Cost and UAAL, are the keys to understanding the actuarial cost method. Let us first discuss the Normal Cost. The Normal Cost is the theoretical contribution rate that will meet the ongoing costs of a group of average new employees. Suppose that a group of new employees was covered under a separate fund from which all benefits and to which all contributions and associated investment return were paid. Under the entry age actuarial cost method, the Normal Cost contribution rate is that level percentage of pay which would be exactly right to maintain this fund on a stable basis. If experience were to follow the actuarial assumptions exactly, the fund would be completely liquidated with the last payment to the last survivor of the group. We have determined the Normal Cost rates separately by type of employee and by type of benefit for the System. We have also determined the dollar amounts corresponding to the Normal Cost rates. These are summarized in Exhibit 8. We assume that the contributions will be paid with each pay period. Exhibit 9 shows the development of the UAAL. Line A shows the actuarial present value of all future benefit payments for present and former members and their survivors. Line B shows the portion that is expected to be paid from future Normal Cost contributions, both employer and employee. The remainder, the AAL, is shown on Line C. Line D shows the AVA, $1,501.7 million, to be smaller than the AAL on Line C, $1,542.2 million. Consequently, the System has an UAAL. Exhibit 10 shows that the total contribution rate, starting January 1, 2016, of 20.00% on Line C is 1.13% more than the total Normal Cost rate of 18.87% on Line D. Line F shows contributions are projected to amortize the UAAL over a 21.3-year period. Line G provides the contribution rate necessary to amortize the UAAL over a 30-year period, but not lower than the current contribution rate. Lines H and I provide information on a fair-value basis. The assumptions for active members used in this valuation were developed in 2012 based on the System s experience in the four years and will be reviewed again in The retired mortality assumptions were also revised in 2012 based on the System s experience in the six years and will also be reviewed later in The UAAL or Funding Reserve at any date after establishment of a system is affected by any actuarial gains or losses arising when the actual experience of the system varies from the experience anticipated by the actuarial assumptions used in the valuations. To the extent actual experience differs from the assumptions used, the actual emerging costs will differ from the estimated costs. An analysis of the System's experience is discussed in Section 6, Actuarial Gains or Losses. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 29

333 2016 Actuarial Valuation Tacoma Employees Retirement System Employer Contributions Exhibit 8 Normal Cost Contribution Rates as Percentages of Salary January 1, 2016 January 1, 2015 Percentage Dollar Amount in thousands Percentage Dollar Amount in thousands Service and early retirement 14.92% 35, % 33,076 Vested termination and return of member contributions , ,465 Disability retirement Survivors' benefits , Administrative Expenses , ,888 Total 18.87% 44, % 41,851 taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 30

334 2016 Actuarial Valuation Tacoma Employees Retirement System Employer Contributions Exhibit 9 Unfunded Actuarial Accrued Liability / Funding Reserve (Dollar Amounts in Millions) January 1, 2016 January 1, 2015 A. Actuarial present value of all future benefits for present and former members and their 1, ,814.6 survivors (Exhibit 7) B. Actuarial present value of total future normal costs for present members C. Actuarial Accrued Liability [A - B] 1, ,468.2 D. Actuarial value of assets available for benefits (Exhibit 6) 1, ,402.7 E. Funding Reserve / (Unfunded Actuarial Accrued Liability) [D - C] (40.5) (65.5) F. Funding ratio [D C] 97.4% 95.5% Fair Value Calculations* G. Fair value of assets 1, ,478.5 H. Fair value funding reserve / (Unfunded Actuarial Accrued Liability) [G - C] (93.4) 10.3 I. Fair value funding ratio [G C] 93.9% 100.7% * The Retirement Board s Funding and Benefits Policy specifies that calculations based on the fair value of assets should be considered as well as calculations based on the actuarial assets which smooth gains and losses over four years. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 31

335 2016 Actuarial Valuation Tacoma Employees Retirement System Employer Contributions Exhibit 10 Contribution Rate Adequacy January 1, 2016 January 1, 2015 A. Employer contribution rate 10.80% 10.80% B. Member contribution rate 9.20% 9.20% C. Total contribution rate 20.00% 20.00% D. Less total normal cost rate (Table 5) 18.87% 18.84% E. Excess of contribution rate over normal cost rate [C - D] 1.13% 1.16% F. Amortization period from Valuation Date 21.3 years 52.3 years G. 30-Year Amortization of Funding Shortfall on an AVA Basis, not lower than the current contribution rate % 20.41% Fair Value Calculations* H. Amortization period from Valuation Date Does not amortize N/A - Funding Reserve I. 30-Year Amortization of Funding Shortfall on an FVA Basis, not lower than the current contribution rate % 20.00% * The Retirement Board s Funding and Benefits Policy specifies that calculations based on the fair value of assets should be considered as well as calculations based on the actuarial assets which smooth gains and losses over four years. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 32

336 2016 Actuarial Valuation Tacoma Employees Retirement System Section 6 Actuarial Gains or Losses An analysis of actuarial gains or losses is performed in conjunction with all regularly scheduled valuations. The results of our analysis of the financial experience of the System in the three recent regular actuarial valuations are presented in Exhibit 11. Each gain or loss shown represents our estimate of how much the given type of experience caused the UAAL or Funding Reserve to change in the period since the previous actuarial valuation. Gains and losses shown due to demographic sources are approximate. Demographic experience is analyzed in greater detail in our periodic assumption studies. Non-recurring gains and losses in the 2013 period were from a change in the investment return assumption. Exhibit 12 provides an analysis of the change in the UAAL between the prior and current valuations. It shows the AAL, AVA and the difference between, the UAAL. It shows the amounts at the prior valuation and the expected changes, including the impact of the new assumptions, the Normal Cost, interest, contributions, benefit payments, and administrative expenses. It then shows the deviation from expectations based on gains and losses to the asset values and liability amounts. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 33

337 2016 Actuarial Valuation Tacoma Employees Retirement System Actuarial Gains or Losses Exhibit 11 Analysis of Actuarial Gains or Losses (1) (Dollar Amounts in Millions) Gain/(Loss) For Period Investment Income Investment Income was greater (less) than expected. Based on actuarial value of assets. $ 42.2 $ 34.2 $ 22.7 Pay Increases Pay increases were less (greater) than expected (0.4) Age & Service Retirements Members retired at older (younger) ages or with less (greater) final average pay than expected Disability Retirements Disability claims were less (greater) than expected Death-in-Service Benefits Survivor claims were less (greater) than expected Withdrawal From Employment More (Less) reserve was released by withdrawals than expected. (4.4) (1.4) (2.8) Death After Retirement Retirees died younger (lived longer) than expected Other Miscellaneous gains and losses resulting from data adjustments Membership Growth (Additional) liability for new members. (1.0) (1.0) (1.4) Total Gain or (Loss) During Period From Financial Experience $ 59.2 $ 40.5 $ 25.5 Non-Recurring Items Changes in actuarial assumptions caused a gain (40.4) - - (loss). Changes in benefits caused a gain (loss) Composite Gain (Loss) During Period $ 18.8 $ 40.5 $ 25.5 (1) Effects related to losses are shown in parentheses. Numerical results are expressed as a decrease (increase) in the UAAL. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 34

338 2016 Actuarial Valuation Tacoma Employees Retirement System Actuarial Gains or Losses Exhibit 12 Analysis of Change in Unfunded Actuarial Accrued Liability (Dollar Amounts in Millions) (a) - (b) (a) (b) Unfunded Actuarial Actuarial Actuarial Accrued Value of Accrued Liability Assets Liability January 1, 2015 Actuarial Valuation $ 1,468.2 $ 1,402.7 $ 65.5 Interest on Beginning of Year Amounts Normal Cost Contributions (45.8) Benefit Payments (Includes Return of Contributions) (68.6) (68.6) - Administrative Expenses - (1.7) 1.7 Interest on Cash Flow Amounts and Normal Cost (1.0) (0.9) (0.1) Expected January 1, 2016 Actuarial Valuation $ 1,545.0 $ 1,479.0 $ 66.0 Recognized Asset Gain/(Loss) Gain/(Loss) from (50.6) Gain/(Loss) from (27.9) 27.9 Total Asset Gain/(Loss) (22.7) Liability (Gain)/Loss (2.8) - (2.8) Actual January 1, 2016 Actuarial Valuation $ 1,542.2 $ 1,501.7 $ 40.5 taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 35

339 This page intentionally left blank. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 36

340 2016 Actuarial Valuation Tacoma Employees Retirement System Section 7 Supplemental Information Historical Funding Exhibits The first four exhibits in this section provide historical funding information. Exhibit 13, the Schedule of Funding Progress, and Exhibit 14, Funding Ratios, provide a history of the System s funding based on the Actuarial Value of Assets and the Actuarial Accrued Liability. Exhibit 15, Actuarial Present Value of Accumulated Vested Plan Benefits, provides a history of the System s funding based on the Actuarial Value of Assets and the Actuarial Present Value of Accumulated Plan Benefits. Exhibit 16 is a schedule of retirees and beneficiaries added to and removed from rolls. Asset and Liability Volatility Ratios As a retirement system becomes more mature (i.e., a greater percentage of the obligation is attributable to benefits already earned), it tends to be subject to increased volatility in the contributions needed. Specifically for TERS, there may be significant swings in the additional revenue needed from year to year due to the actual investment return. One indicator of this potential volatility is the Asset Volatility Ratio (AVR), which is equal to the fair value of assets divided by total payroll. As assets grow compared to payroll, any percentage gain or loss on those assets will be larger compared to payroll. This causes any resulting changes in required contributions from those gains or losses to also be larger when measured as a percent of payroll. Therefore, plans with a high AVR will be subject to a greater level of volatility in required contributions. The AVR is a current measure since it is based on the current level of assets and will vary from year to year. The current AVR for TERS is 6.2. The AVR grew from 1.4 in 1976 to a high of 6.7 in The following chart provides an illustration of how increases in the AVR increase the volatility of contributions from asset gains and losses. A return of -2.75% is a 10% loss for TERS because it is 10% below the 7.25% investment return assumption. As shown in the chart, if a return of -2.75% is not offset by future gains and the AVR is 1.4, the loss is expected to increase contributions by 0.8% of pay if amortized over 30 years and 1.2% of pay if amortized over 15 years. However, with the AVR of 6.2, the same return is expected to increase contributions by 3.2% of payroll if amortized over 30 years and 5.2% of pay if amortized over 15 years. In both cases this assumes there is no buffer such as a reserve or an amortization period below 30 years to absorb some of the adverse experience. The total increases would be slightly larger after an adjustment for higher returns of member contributions. Approximate eventual increases in contributions for an asset return 10% below the assumption if not offset by future gains Asset Volatility Ratio 30-Year 15-Year = Assets / Payroll Amortization Amortization 1.4 (1976) 0.8% of payroll 1.2% of payroll 6.2 (current) 3.2% of payroll 5.2% of payroll The graph at the top of Exhibit 17 shows how the System matured during the last 25 years of the 20th century, as represented by the increasing AVR. In this century so far, the year-to-year variance in the AVR has increased. Another measure of a system s maturity is the Liability Volatility Ratio (LVR), which is equal to the AAL divided by the total payroll. This ratio provides an indication of the longer-term potential for contribution volatility for any given level of investment volatility. In addition, this ratio provides an indication of the potential contribution volatility due to liability experience (gains and losses) and liability re-measurements (assumption changes). For TERS, the current LVR is 6.6. The graph at the bottom of Exhibit 17 shows the historical LVR since It is a similar pattern to the Asset Volatility Ratio, except the increase is more gradual and the year-to-year variance is significantly less. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 37

341 2016 Actuarial Valuation Tacoma Employees Retirement System Supplemental Information Historical and Projected Cash Flows Exhibit 18 summarizes the System s historical cash flows for the last 10 years and the projected cash flows for the next 10 years. The projected cash flows are based on the actuarial assumptions as stated in Appendix A. Contributions include both employer and member contributions. The total contribution rate increased to 20.00% of pay at January 1, 2012, consistent with the Tacoma Municipal Code. The projections assume this rate continues throughout the projection period. Graphs of Exhibit 18 are on the facing page. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 38

342 2016 Actuarial Valuation Tacoma Employees Retirement System Supplemental Information Exhibit 13 Schedule of Funding Progress (Dollar Amounts in Millions) Actuarial Valuation Date Actuarial Value of Assets Actuarial Accrued Liabilities (AAL) (1) Unfunded Actuarial Accrued Liabilities (UAAL) (2) Funded Ratio Funding Ratio Increase (Decrease) Over Prior Valuation Covered Payroll (3) UAAL as a Percentage of Covered Payroll January 1, 1997 $ $ $ (4.8) % 7.9 % $ (4.1) % January 1, 1998 (4) (8.1) (7.0) January 1, 1999 (5) (33.8) (27.6) January 1, 1999 (6) (33.1) (0.1) (27.1) January 1, (95.0) (71.2) January 1, (53.3) (7.9) (34.6) January 1, (53.0) (0.8) (30.7) January 1, , (125.5) (71.7) January 1, , ,002.3 (95.0) (4.5) (48.1) January 1, , , (14.6) January 1, , , (4.8) January 1, , , January 1, , , January 1, , , January 1, , , (1) Actuarial present value of benefits less actuarial present value of future normal costs based on Entry Age Actuarial Cost Method. (2) Actuarial accrued liabilities less actuarial value of assets. (3) Covered Payroll includes compensation paid to all active employees on which contributions were made in the year preceding the valuation date. (4) A special actuarial valuation was performed as of January 1, (5) Results of January 1, 1999 Actuarial Valuation. (6) January 1, 1999 results adjusted for inclusion of benefit percentage in portability, removal of overtime contributions and removal of 90-day waiting period. This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 39 taca0600.docx

343 2016 Actuarial Valuation Tacoma Employees Retirement System Supplemental Information Actuarial Valuation Date (1) Exhibit 14 Funding Ratios (Dollar Amounts in Millions) Actuarial Accrued Liabilities for A B C D Active Members Inactives, (Employer- Retirees and Financed Beneficiaries Portion) Active Member Contribution Actuarial Portion of Actuarial Accrued Liabilities Value of Covered by Assets Total Assets A B C D January 1, 1997 $ $ $ $ $ % 100.0% 100.0% 101.0% January 1, % 100.0% 100.0% 101.6% January 1, 1999 (2) % 100.0% 100.0% 106.3% January 1, 1999 (3) % 100.0% 100.0% 106.2% January 1, % 100.0% 100.0% 115.7% January 1, % 100.0% 100.0% 107.8% January 1, % 100.0% 100.0% 107.0% January 1, , % 100.0% 100.0% 114.0% January 1, , , % 100.0% 100.0% 109.5% January 1, , , % 100.0% 82.2% 94.9% January 1, , , % 100.0% 64.1% 90.1% January 1, , , % 100.0% 64.0% 90.9% January 1, , , % 100.0% 72.2% 92.6% January 1, , , % 100.0% 82.9% 95.5% January 1, , , % 100.0% 89.8% 97.4% (1) See Exhibit D-5 for significant changes affecting the valuation results. (2) Results of January 1, 1999 Actuarial Valuation. (3) January 1, 1999 results adjusted for inclusion of benefit percentage in portability, removal of overtime contributions and removal of 90-day waiting period. This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 40 taca0600.docx

344 2016 Actuarial Valuation Tacoma Employees Retirement System Supplemental Information Exhibit 15 Actuarial Present Value of Accumulated Vested Plan Benefits (Dollar Amounts in Millions) Portion of Active Members Accumulated Vested Plan Actuarial Retired Inactive Member Employer- Actuarial Value Benefits Covered Valuation Date (1) Members Vested Contributions Financed Portion Total of Assets by Actuarial Assets January 1, 1997 $ $ 5.7 $ $ $ $ % January 1, % January 1, 1999 (2) % January 1, 1999 (3) % January 1, % January 1, % January 1, % January 1, , % January 1, , % January 1, , , % January 1, , , % January 1, , , % January 1, , , % January 1, , , % January 1, , , % (1) See Exhibit D-5 for significant changes affecting the valuation results. (2) Results of January 1, 1999 Actuarial Valuation. (3) January 1, 1999 results adjusted for inclusion of benefit percentage in portability, removal of overtime contributions and removal of 90-day waiting period. This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 41 taca0600.docx

345 2016 Actuarial Valuation Tacoma Employees Retirement System Supplemental Information Exhibit 16 Schedule of Retirees and Beneficiaries Added to and Removed from Rolls Valuation Date January 1 Added to Rolls Removed from Rolls Rolls Percent Increase in Annual Annual Annual Annual No. Allowances (1) No. Allowances No. Allowances Allowances Average Annual Allowance Percent Increase in Average Annual Allowances ,439 $ 14,868, % $ 10, % $ 2,430, $ 929,000 1,438 16,369, , ,677, ,000 1,453 18,107, , ,700, ,000 1,622 23,864, , ,533, ,242,000 1,582 25,156, , ,057, ,535,000 1,599 27,677, , ,714, ,220,000 1,646 31,171, , ,271, ,964,000 1,734 36,478, , ,952, ,575,000 1,819 41,855, , ,061, ,473,000 1,894 47,443, , ,172, ,558,000 1,950 51,057, , ,224, ,461,000 2,106 57,820, , ,614, ,621,000 2,119 59,813, , ,437, ,758,000 2,167 63,492, , ,080, ,933,000 2,234 67,639, , (1) Includes post-retirement increases. Note: The numbers added to rolls and removed from rolls were for two-year periods for valuations dated 2011 and earlier, but for one-year periods for valuations dated after This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 42 taca0600.docx

346 2016 Actuarial Valuation Tacoma Employees Retirement System Supplemental Information Exhibit 17 Asset and Liability Volatility Ratios Asset Volatility Ratios Fair Value of Assets / Payroll Liability Volatility Ratios AAL / Payroll taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 43

347 2016 Actuarial Valuation Tacoma Employees Retirement System Supplemental Information Cash Flow History Millions of Dollars Contributions Benefits and Admin. Expenses Net Cash Flow Cash Flow Projections Millions of Dollars Contributions Benefits and Admin. Expenses Net Cash Flow taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 44

348 2016 Actuarial Valuation Tacoma Employees Retirement System Supplemental Information Exhibit 18 Cash Flow History and Projections (Dollar Amounts in Millions) Historical Cash Flows Benefits & Administrative Net Year Contributions Expenses Cash Flow (3) $ (11) (14) (17) (18) (13) (10) (12) (16) (21) (22) (24) Projected Cash Flows Benefits & Administrative Net Year Contributions (1) Expenses (2) Cash Flow (3) 2016 $ 47 $ 75 $ (28) (32) (35) (39) (43) (47) (51) (55) (60) (64) (1) Contributions are based on the current total contribution rate of 20.00%. (2) Administrative expenses are based on the current actuarial assumption of 0.85% of pay. (3) Due to rounding, net cash flow may not match contributions minus disbursements. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 45

349 This page intentionally left blank. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 46

350 2016 Actuarial Valuation Tacoma Employees Retirement System Appendix A Actuarial Procedures and Assumptions This section of the report describes the actuarial procedures and assumptions used in this valuation. The economic and non-economic active member assumptions were changed for the January 1, 2013 valuation. The changes in assumptions were discussed and approved by the Board in 2012 based on the System s experience in the four years The retired mortality assumptions were discussed and approved by the Board in 2012 based on the System s experience in the six years The actuarial assumptions used in the valuation are intended to estimate the future experience of the members of the System and of the System itself in areas that affect the projected benefit flow and anticipated investment earnings. Any variations in future experience from that expected from these assumptions will result in corresponding changes in the estimated costs of the System's benefits. Exhibit A-2 presents expected annual rates of salary increases. The other exhibits in this section give probabilities of decrement. The probabilities of decrement are referred to in actuarial literature as the absolute rate of decrement or qx. Actuarial Cost Method The actuarial valuation was prepared using the entry age actuarial cost method. Under this method, the actuarial present value of the projected benefits of each individual included in the valuation is allocated as a level percentage of the individual's projected compensation between entry age and assumed exit. The portion of this actuarial present value allocated to a valuation year is called the Normal Cost. The portion of this actuarial present value not provided for at a valuation date by the sum of (a) the actuarial value of the assets and (b) the actuarial present value of future normal costs is called the UAAL. The UAAL is amortized as a level percentage of the projected salaries of present and future members of the System. The Normal Cost for the valuation year was calculated separately for each individual, based on his or her age at entry into the System. The individual normal costs were then aggregated and divided by the total current compensation of the individuals included in the valuation to determine the Normal Cost rate as a percentage of compensation (adopted 1/1/1976). Records and Data The data used in the valuation consist of financial information and records of age, service, and income of contributing members, former contributing members, and their survivors. All of the data were supplied by the System and are accepted for valuation purposes without audit (adopted 1/1/1976). Replacement of Terminated Members The ages at entry and distribution by sex of future members are assumed to average the same as those of the present members they replace. If the number of active members should increase, it is further assumed that the average entry age of the larger group will be the same, from an actuarial standpoint, as that of the present group. Under these assumptions, the Normal Cost rates for active members will not vary with the termination of present members (adopted 1/1/1976). Change in Membership No change in the membership of the System is assumed (adopted 1/1/1985). Employer Contributions The Tacoma Municipal Code specifies a total employer contribution rate of 10.80% of members salaries in 2012 and beyond. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 47

351 2016 Actuarial Valuation Appendix A Tacoma Employees Retirement System Actuarial Procedures and Assumptions Administrative Expenses The annual contribution assumed to be necessary to meet administrative expenses of the System is 0.85% of members' salaries. This figure is included in the calculation of the Normal Cost rate (adopted 1/1/2013). Valuation of Assets Assets are valued based on their fair value, with a four-year smoothing of all fair value gains and losses. The expected return is determined for each year based on the beginning of year fair value and actual cash flows during the year. Any difference between the expected fair value return and the actual fair value return is recognized evenly over a period of four years. (The method used to value assets was adopted 1/1/1997). Investment Earnings The annual rate of investment earnings based on the actuarial value of the assets of the System are assumed to be 7.25% per year, compounded annually and net of investment expenses (adopted 1/1/2014). Investment Expenses It is assumed that future investment expenses will be funded by increased investment return of 0.35% on all assets of the fund (adopted 1/1/2009). Postretirement Benefit Increases It is assumed that the Consumer Price Index will continue to increase at a rate of 3.00% per year; thus, retirement allowances are assumed to increase at a rate of 2.125% per year plus an additional amount to bring the members indexed benefits to at least 50% of original purchasing power as provided by the System (adopted 1/1/2005). Future Salaries Exhibit A-2 shows a portion of the scale of relative salary values, which is used to estimate future salaries for the purpose of the valuation. In addition to increases in salary due to promotion and longevity, this scale includes an annual rate of increase in the wage growth assumption of 4.00% (adopted 1/1/2013). Service Retirement Exhibit A-3 shows the assumed annual rates of retirement among members eligible for service retirement or reduced retirement (adopted 1/1/2013). Disability The rates of disability used in this valuation are illustrated in Exhibit A-4 (adopted 1/1/2009). The rates are for members with five or more years of service. Duty disabilities that occur for members with less than five years of service are recognized as they occur. No specific provision is made for these benefits, as none have occurred during the past 10 years. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 48

352 2016 Actuarial Valuation Appendix A Tacoma Employees Retirement System Actuarial Procedures and Assumptions Mortality The mortality rates used in this valuation are illustrated in Exhibit A-5. Contributing Members, Retired Members and Beneficiaries: Disabled Members: Basis RP-2000 Combined Healthy Mortality projected by Scale AA for respective sexes, as adjusted: Group Adjustment Adopted Males -1 year 1/1/2013 Females -1 1/1/2007 RP-2000 Disabled Male Retiree Mortality projected by Scale AA set back one year (adopted 1/1/2013). Other Terminations of Employment The rates of assumed future withdrawal from active service for reasons other than death, disability, or service retirement are shown for representative ages in Exhibit A-6 (adopted 1/1/2013). Vesting We assume all members who terminate with less than five years of service withdraw their accumulated contributions. For members who terminate with five or more years of service, we assume they will elect a deferred retirement benefit, payable at age 60. Interest on Member Contributions A portion of employee contributions into the retirement fund is credited with interest at a specified rate set by the Retirement Board. That portion is equal to all contributions made before February 1, 2009 and contributions made up to 6.44% of pay after February 1, Interest on that portion of member contributions is assumed to accrue at an annual rate of 1.5% per quarter, compounded quarterly. This is equivalent to 6.136% per annum, compounded annually (adopted 1/1/1979). Portability The estimated cost of portability with other public retirement systems was included in this valuation. The available data to measure the costs of portability is small. As data on portability retirements continues to be collected, more accurate measurements will be possible in the future. For now, we are assuming: 20% of all members retiring will be eligible for portability benefits; The average number of years a member will have with another system will be 15 years with an average of 5% salary increase per year; Portability service will increase the benefit percentage factor by 33%; and Members retiring from active service with TERS, who are eligible for a retirement benefit based on the full 2.0% benefit percentage factor without portability, will not have their benefits changed by portability. Probability of Eligible Survivors for Death Benefits of Active Members For members not currently in pay status, all members are assumed to have eligible survivors (spouses or qualified domestic partners). Survivors are assumed to be three years younger than male members and three years older than female members. Survivors are assumed to be of the opposite sex as the member. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 49

353 2016 Actuarial Valuation Appendix A Tacoma Employees Retirement System Actuarial Procedures and Assumptions Exhibit A-1 Summary of Valuation Assumptions (January 1, 2016) I. Economic Assumptions - Annual Rates of Growth A. Wage inflation 4.00% B. Investment return 7.25% C. Membership increase 0% D. Benefits (postretirement) 2.125% E. Member contribution accounts 6.136% F. Price inflation 3.00% II. Non-economic Assumptions A. Salary increases due to promotion and longevity Exhibit A-2 B. Service retirement Exhibit A-3 C. Disability Exhibit A-4 D. Mortality among contributing members, service retired members and beneficiaries Exhibit A-5 Basis RP-2000 Combined Healthy Mortality projected by Scale AA for respective sexes, as adjusted: Group Adjustment Males -1 year Females -1 E. Mortality among disabled members Exhibit A-5 RP-2000 Disabled Male Retiree Mortality projected by Scale AA set back one year F. Other terminations of employment Exhibit A-6 taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 50

354 2016 Actuarial Valuation Appendix A Tacoma Employees Retirement System Actuarial Procedures and Assumptions Exhibit A-2 Future Salaries Annual Rate of Increase Years of Service Promotion and Longevity Total* % 8.94% % 8.16% % 7.64% % 7.12% % 6.60% % 6.24% % 6.03% % 5.72% % 5.56% % 5.40% % 5.25% % 5.09% % 5.04% % 4.99% % 4.94% % 4.88% % 4.83% % 4.78% % 4.75% % 4.72% % 4.69% % 4.66% % 4.62% % 4.60% % 4.58% % 4.56% % 4.54% 28 and over 0.50% 4.52% *Including a 4.00% general wage increase assumption. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 51

355 2016 Actuarial Valuation Appendix A Tacoma Employees Retirement System Actuarial Procedures and Assumptions Exhibit A-3 Service Retirement Eligible for Reduced Benefits Males Eligible for Full Benefits Eligible for Reduced Benefits Females Eligible for Full Benefits Age 45 or younger 1.0% 16.5% 2.0% 14.0% % 16.5% 2.2% 14.0% % 16.5% 2.4% 14.0% % 16.5% 2.6% 14.0% % 16.5% 2.8% 14.0% % 16.5% 5.0% 14.0% % 13.5% 4.0% 11.0% % 13.5% 4.0% 11.0% % 13.5% 4.0% 11.0% % 13.5% 4.0% 11.0% % 13.5% 8.0% 11.0% % 13.5% 6.5% 12.0% % 13.5% 6.5% 12.0% % 13.5% 6.5% 12.0% % 13.5% 6.5% 12.0% % 12.0% % 20.0% % 20.0% % 16.0% % 16.0% % 35.0% % 30.0% % 30.0% % 30.0% % 30.0% 70 or older 100.0% 100.0% taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 52

356 2016 Actuarial Valuation Appendix A Tacoma Employees Retirement System Actuarial Procedures and Assumptions Exhibit A-4 Disability Annual Probabilities Age Males and Females 22.02% taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 53

357 2016 Actuarial Valuation Appendix A Tacoma Employees Retirement System Actuarial Procedures and Assumptions Exhibit A-5 Mortality Annual Probabilities Contributing Members, Retired Members and Beneficiaries Disabled Members Projection Scale AA Age Males Females Males and Females Males Females Disabled Members % 0.44% 4.10% 1.60% 0.50% 1.60% taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 54

358 2016 Actuarial Valuation Appendix A Tacoma Employees Retirement System Actuarial Procedures and Assumptions Exhibit A-6 Other Terminations of Employment Among Members Not Eligible to Retire Annual Probabilities Years of Service Males Females % 20.0% % 10.0% 3 6.5% 8.5% 4 4.5% 7.0% 5 3.6% 5.5% 6 3.2% 5.3% 7 3.0% 5.0% 8 2.8% 4.8% 9 2.6% 4.5% % 4.2% % 3.9% % 3.6% % 3.3% % 2.9% % 2.6% % 2.2% % 1.9% 18 or more 1.5% 1.5% taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 55

359 This page intentionally left blank. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 56

360 2016 Actuarial Valuation Tacoma Employees Retirement System Appendix B Provisions of Governing Law All actuarial calculations are based upon our understanding of the Tacoma Employees Retirement System, Chapter 1.30 of the Tacoma City Code. The benefit and contribution provisions of this law are summarized briefly below for reference purposes, along with corresponding references to the City code. This summary encompasses the major provisions of the System. It does not attempt to cover all the detailed provisions. Effective Date The effective date of the Retirement System was January 1, (Section ) Members' Mandatory Contribution Rate The members' mandatory contribution rate is currently 9.20% for (Sections and ) City Contribution Rate The City contribution rate is the amount which is determined by actuarial investigation to be necessary to fund membership service, prior service, and basic service pensions on an actuarially sound basis. It has been established at 10.80% of salary for (Sections and ) Normal Accumulated Contributions An employee s normal accumulated contributions are based on contributions compounded quarterly at 6.00%. Effective February 1, 2009, the accumulated contributions used in determining benefits changed. The outline below specifies which contribution amounts are used in benefit calculations. A = accumulated contributions earned up until Feb. 1, 2009 B = accumulated contributions based on 6.44% of pay starting Feb. 1, 2009 and running into the foreseeable future C = accumulated contributions based on the excess of the normal rate (currently 9.20%) over 6.44% of pay I = accumulated interest on only A and B 1. If a member terminates employment, but does not have five years of service and requests a refund of contributions: The member will be entitled to a payment of (A + B + C + I) 2. If a member terminates employment, has five years or more of service, and requests a refund of contributions: The member will be entitled to a payment of: C x (A + B + I) 3. The 200% of employee contributions with interest retirement benefit will be based on (A + B + I). 4. The 10-year death benefit will be based on 200% of (A + B + I). 5. The contribution amount that the reduction for Benefit Options A and B will be based on is (A + B + C + I). Overtime Contributions Effective January 1, 2000, neither member nor City contributions are collected on overtime pay. Prior overtime contributions are eligible for a 50% employer match at time of either termination or retirement. (Sections ) taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 57

361 2016 Actuarial Valuation Appendix B Tacoma Employees Retirement System Provisions of Governing Law Service Retirement Eligibility years of service; or Normal Form Optional Forms 2. Age 60; or 3. Age 55 and 10 years of service; or 4. Age 40 and 20 years of service. Straight life benefit. Actuarial equivalent according to the mortality and interest basis adopted by the Retirement Board for such purposes. Amount of Allowance The total monthly allowance is the product of the following items: 1. Total years of service; 2. Average final compensation*; and 3. A percentage determined as follows: Age Creditable Service N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A In the event a member s age plus years of credited service equals 80 or more, the percentage amount is 2.00% *Average final compensation is based on greatest compensation during any consecutive 24-month period (Section ). Maximum Years of Membership Service Effective January 1, 1976, any member with 30 or more years of membership service shall receive no further membership service credit. Minimum Benefit Based on Member Contributions (Sections , , and ) The monthly retirement allowance for members retiring from City service on and after January 1, 1997 will not be less than the actuarial equivalent of 200% of the member s accumulated normal contributions. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 58

362 2016 Actuarial Valuation Appendix B Tacoma Employees Retirement System Provisions of Governing Law 1997 Early Retirement Window Provision A member actively at work on January 1, 1997 who met one of the following requirements, on or before December , was eligible to receive greater retirement benefits, as long as retirement occurred on or before January 1, In addition, the administrative forms had to be completed to receive this benefit. Eligibility: - Age 52 or older with no less than 22 years of service - Age 57 or older - 27 years of service Benefit: Add three years to the member s creditable service plus three years to the member s age if under age 60. The maximum number of years of service is 30. The service retirement benefit is computed, as described above, using the additional years of service and age. Disability Retirement Service Requirements Normal Form Optional Forms Amount of Allowance Five years of service credited within the 10 years preceding disability retirement. If disabled while on the job, there is no service requirement. Modified cash refund annuity. Actuarial equivalent according to the mortality and interest basis adopted by the Retirement Board for such purposes. The total monthly disability allowance is the product of the following items: 1. Total years of service that could have been earned to age 65; 2. Average final compensation; and %. The maximum disability retirement allowance is 1/3 of average final compensation or, if greater, 1.5% times completed years of service times average final compensation. The minimum disability allowance is $100 per month. (Sections and ) taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 59

363 2016 Actuarial Valuation Appendix B Tacoma Employees Retirement System Provisions of Governing Law Death Benefits Retired Members Active Members Withdrawal Benefits Form Death benefits to retired members are payable according to the form of retirement allowance elected. 1. Payment of accumulated contributions, including additional contributions to the beneficiary in a lump sum refund or in installments not to exceed five years; or 2. If, at the time of death, the member had completed five years of service, the beneficiary may elect to receive, in place of (1) above, a monthly allowance, payable for 10 years, having the same value as twice the accumulated normal member contributions, with interest as of February 1, 2009 plus twice the accumulated normal contributions after such date, up to a rate of 6.44% of compensation; or 3. In lieu of (2) above, the spouse may elect to defer receipt of an immediate monthly allowance and elect to commence payment at a later date. The value of the deferred death benefit is equal to the value of the benefit payable immediately. 4. If, at the time of death, the member was eligible for service retirement and had elected his spouse as beneficiary, the spouse may receive, in place of (1) above, a monthly allowance, for life, equal to the benefit she would have received had the member retired, on the day before he died, with a 100% contingent annuitant option in force; or 5. In lieu of (4) above, the spouse may elect to receive a lump-sum cash payment, not to exceed one-half of the deceased member's accumulated contributions and accumulated additional contributions, and a retirement allowance based on a 100% contingent annuitant option, reduced by the value of the cash payment. (Section ) Payment of accumulated contributions, including member overtime, and additional contributions. (Section ) Vested Withdrawal Benefits Service Five years of service. Requirements Options: 1. Amount of allowance is the same as service retirement benefit. Benefits commence at age If the member terminates employment after December 31, 1996, the member may elect payment of 1.5 times the member s accumulated normal contributions and any overtime contributions, plus any additional contributions. This benefit is in lieu of the deferred retirement benefit in (1) above. (Section ) taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 60

364 2016 Actuarial Valuation Appendix B Tacoma Employees Retirement System Provisions of Governing Law Postretirement Cost-of-Living Increases Provisions As of July 1st of each year, every monthly retirement allowance less the portion provided by additional contributions is automatically increased 2.125% provided the Consumer Price Index (Seattle Area-all items) has increased 2.125% or more over the preceding calendar year. This increase is granted to any member of the Retirement System whose retirement or death occurred on or before July 1st of the preceding year. The 2.125% rate was effective January 1, The amount of any cost-of-living increase or decrease in any year which is in excess of the maximum annual retirement allowance adjustment of 2.125% shall be accumulated from year to year and included in the computation of increases or decreases in succeeding years. After applying the above adjustment, if the member s inflation-adjusted monthly retirement allowance is less than 50% of the purchasing power of the monthly retirement allowance at date of retirement determined using the same index described above (the indexed benefit), then the monthly retirement allowance will be further increased so that it shall not be less than 50% of the indexed benefit. (Section ) Portability Benefits TERS participates in the portability of public retirement benefits in Washington State public retirement systems. As contemplated under Chapter RCW, this allows a member to use all years of service with qualified Washington systems to determine eligibility for benefits under TERS. Effective in 1999, TERS expanded the state provisions to include these years for determining the benefit percentage factor for retirement benefits. (Section ) taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 61

365 This page intentionally left blank. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 62

366 2016 Actuarial Valuation Tacoma Employees Retirement System Appendix C Valuation Data This valuation is based upon the membership of the System as of January 1, Membership data were supplied by the Tacoma Employees' Retirement System and accepted for valuation purposes without audit. The data for all contributing members, former contributing members, and their survivors are summarized in Exhibit C-1. Exhibits C-2 through C-4 present distributions of members receiving service retirement benefits, members receiving disability retirement benefits, and beneficiaries receiving benefits. Shown in the tables are the numbers of persons receiving benefits, the total annual benefits received, and the average annual benefit per recipient. Exhibit C-5 contains a summary of the data for contributing members. Values shown in the table are the numbers of members and their total annual salaries. The valuation also includes liabilities attributable to vested members who have terminated employment but have neither retired nor withdrawn their contributions. There are 483 such members. In addition, there are also 161 members who have terminated and are not vested. Their total accumulated employee contributions are $0.7 million. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 63

367 2016 Actuarial Valuation Appendix C Tacoma Employees Retirement System Valuation Data Exhibit C-1 Summary of Membership Data Contributing Members Annuitants Annual Average Annual Average Number Salaries Annual Number Benefits Annual Males Females Total ($1,000) Salaries Males Females Total ($1,000) Benefits January 1, ,777 1,150 2,927 $ 234,597 $ 80,149 1,234 1,000 2,234 $ 67,639 $ 30,277 January 1, ,756 1,128 2,884 $ 222,139 $ 77,025 1, ,167 $ 63,492 $ 29,300 January 1, ,755 1,126 2,881 $ 214,517 $ 74,459 1, ,119 $ 59,813 $ 28,227 January 1, ,725 1,136 2, ,845 72,648 1, ,106 57,820 27,455 January 1, ,842 1,196 3, ,566 71,615 1, ,950 51,057 26,183 This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 64 taca0600.docx

368 2016 Actuarial Valuation Appendix C Tacoma Employees Retirement System Valuation Data Exhibit C-2 Members Receiving Service Retirement Benefits January 1, 2016 < Totals Number of Persons Male ,189 Female Total ,872 Annual Benefits $ 21,847 $ 503,088 $ 4,141,014 $ 13,112,498 $ 18,777,357 $ 10,794,451 $ 6,351,332 $ 3,723,944 $ 2,094,663 $ 1,549,284 $ 61,069,479 Average Annual Benefits 21,847 38,699 42,691 36,627 33,894 32,222 29,818 25,333 24,936 22,133 32,623 This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 65 taca0600.docx

369 2016 Actuarial Valuation Appendix C Tacoma Employees Retirement System Valuation Data Exhibit C-3 Members Receiving Disability Retirement Benefits January 1, 2016 < Totals Number of Persons Male Female Total Annual Benefits $ 35,905 $ 50,505 $ 122,871 $ 127,530 $ 81,670 $ 31,539 $ 14,538 $ - 2,671 $ 15,421 $ 482,649 Average Annual Benefits 17,953 16,835 17,553 18,219 16,334 15,770 14,538 2,671 15,421 16,643 This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 66 taca0600.docx

370 2016 Actuarial Valuation Appendix C Tacoma Employees Retirement System Valuation Data Exhibit C-4 Survivors Receiving Benefits January 1, 2016 < Totals Number of Persons Male Female Total Annual Benefits $ 331,394 $ 162,843 $ 623,391 $ 759,156 $ 960,105 $ 627,449 $ 532,975 $ 663,849 $ 751,555 $ 674,559 $ 6,087,274 Average Annual Benefits 12,746 18,094 22,264 22,328 23,417 20,240 18,378 18,440 15,031 13,767 18,280 This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 67 taca0600.docx

371 2016 Actuarial Valuation Appendix C Tacoma Employees Retirement System Valuation Data Exhibit C-5 Number of Employees and Monthly Salaries - By Age Group January 1, 2016 Number of Employees - By Age Group Nearest Year of Service < Totals Totals ,927 Annual Salaries - By Age Group Nearest Year of Service < Totals 0 986,844 2,871,960 2,589,336 3,189,324 2,528,520 1,486,548 1,583,712 1,326, ,872 90,984 43,164 16,803, ,952 2,268,780 2,067,972 1,867,236 1,544,028 1,326,720 1,348, , , ,680 12,172, ,580 1,330,200 1,770,876 1,799,952 1,672,860 1,299,924 1,825, , ,812 95,268 10,697, , ,964 2,588,868 2,500,752 1,996,008 1,954,596 2,477,580 1,322,652 1,111, ,184 15,260, ,235,112 6,376,500 10,173,732 8,414,220 8,441,544 7,429,332 7,898,664 3,859,992 1,443, ,020 55,414, ,596 1,944,756 5,493,708 7,110,948 8,377,332 8,102,796 5,422,104 4,114,716 1,021,200 59,652 41,741, ,512 4,649,520 6,554,448 7,981,776 8,799,408 3,034,968 1,181, ,868 33,271, ,044,828 2,771,400 6,307,308 6,322,344 4,656,024 1,032,864 72,756 22,207, ,784 4,682,148 5,457,984 3,675,348 1,933,440 16,312, , ,708 2,388,084 3,005, ,872 6,644, ,443,732 2,125, ,156 3,746, ,536 74, ,540 Totals 0 1,608,132 8,532,612 17,338,308 25,944,216 28,960,932 32,858,316 42,293,808 41,762,448 26,584,092 8,172, , ,597,108 This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 68 taca0600.docx

372 2016 Actuarial Valuation Tacoma Employees Retirement System Appendix D Comparative Schedules This section contains tables that summarize the experience of the System since January 1, Earlier data are not available. Exhibit D-1 shows a summary of the contributing members and the annuitants covered as of the various valuation dates. Exhibit D-2 summarizes the contribution rates used by each annual actuarial valuation and the resulting amortization period. Exhibit D-3 presents a history of the System's funding progress since Exhibit D-4 shows a summary of the history of the Economic Assumptions. Any review of these comparative schedules should be made in the light of Exhibit D-5, which shows the significant changes affecting the actuarial valuations in recent years. Exhibit D-6 shows the prior and future four-year cycles of actuarial projects. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 69

373 2016 Actuarial Valuation Appendix D Tacoma Employees Retirement System Comparative Schedules *Excludes survivors and disabled members before **Not calculated. Active Members Exhibit D-1 Membership Data Annuitants Valuation Annual Average Annual Average Date Salaries Average Average Years of Benefits in Annual Average (Jan. 1) Number in Millions Annual Salary Age Service Number Thousands Benefit Age* ,088 $31 $ 15, $ 2,457 $ 3,221 ** , , ,898 4, , , ,110 5,743 5, , , ,244 8,410 6, , , ,315 10,098 7, , , ,378 11,899 8, , , ,425 13,353 9, , , ,439 14,868 10, , , ,438 16,369 11, , , ,453 18,107 12, , , ,653 23,520 14, , , ,622 23,864 14, , , ,582 25,156 15, , , ,599 27,678 17, , , ,646 31,171 18, , , ,734 36,491 21, , , ,819 41,866 23, , , ,894 47,443 25, , , ,950 51,057 26, , , ,106 57,820 27, , , ,119 59,813 28, , , ,167 63,492 29, , , ,234 67,639 30, This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 70 taca0600.docx

374 2016 Actuarial Valuation Appendix D Tacoma Employees Retirement System Comparative Schedules Exhibit D-2 Contribution Rates Valuation Date Normal Amortization Funding (Jan. 1) Member Employer Total Cost Rate UAAL Rate (Years) Ratio % 9.21% 15.71% 12.78% 2.93% % % 11.77% 19.33% 15.39% 3.94% % % 10.44% 19.33% 15.72% 3.63% % % 10.44% 19.33% 14.44% 4.89% % % 10.44% 19.33% 14.81% 4.52% % % 10.44% 19.33% 16.25% 3.08% % % 10.44% 19.33% 16.96% 2.37% % % 10.44% 19.33% 17.24% 2.09% % % 10.44% 19.33% 16.28% 3.05% % % 9.02% 16.70% 16.84% -0.14% Over % % 9.02% 16.70% 16.96% -0.26% Over % % 9.02% 16.70% 17.04% -0.34% Over % % 7.56% 14.00% 17.65% -3.65% % % 7.56% 14.00% 17.67% -3.67% % % 7.56% 14.00% 16.25% -2.25% % % 7.56% 14.00% 17.37% -3.37% % % 9.72% 18.00% 17.16% 0.84% Does not amortize 109.5% % 10.80% 20.00% 17.33% 2.67% % % 10.80% 20.00% 17.34% 2.66% % % 10.80% 20.00% 17.80% 2.20% % % 10.80% 20.00% 18.79% 1.21% Does not amortize 92.6% % 10.80% 20.00% 18.84% 1.16% % % 10.80% 20.00% 18.87% 1.13% % This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 71 taca0600.docx

375 2016 Actuarial Valuation Appendix D Tacoma Employees Retirement System Comparative Schedules Exhibit D-3 Historical Funding Summary (A) (B) (C) (A) - (C) (A) / (C) (B) - (C) (B) / (C) FVA AVA Fair Value Actuarial Value Actuarial Funding FVA Funding AVA of Assets of Assets Accrued Reserve/ Funding Reserve/ Funding January 1, (FVA) (AVA) Liability* (Shortfall) Ratio (Shortfall) Ratio 1985 $ 125,400,000 $ 134,700,000 $ 189,200,000 $ (63,800,000) 66% $ (54,500,000) 71% ,200, ,900, ,500,000 (51,300,000) 77% (30,600,000) 86% ,000, ,400, ,100,000 (46,100,000) 81% (40,700,000) 83% ,100, ,400, ,700,000 (62,600,000) 78% (51,300,000) 82% ,600, ,100, ,600,000 (46,000,000) 87% (41,500,000) 88% ,400, ,100, ,500,000 (41,100,000) 90% (27,400,000) 93% ,800, ,700, ,900,000 8,900, % 4,800, % ,500, ,800, ,700,000 37,800, % 8,100, % ,400, ,700, ,600,000 58,800, % 33,100, % ,700, ,700, ,700, ,000, % 95,000, % ,200, ,100, ,800,000 (75,600,000) 89% 53,300, % ,000, ,300, ,300, ,700, % 53,000, % ,117,600,000 1,021,300, ,800, ,800, % 125,500, % ,600,000 1,097,300,000 1,002,300,000 (238,700,000) 76% 95,000, % ,081,100,000 1,074,800,000 1,132,900,000 (51,800,000) 95% (58,100,000) 95% ,082,900,000 1,068,300,000 1,185,500,000 (102,600,000) 91% (117,200,000) 90% ,218,700,000 1,187,100,000 1,306,600,000 (87,900,000) 93% (119,500,000) 91% ,388,900,000 1,297,000,000 1,400,000,000 (11,100,000) 99% (103,000,000) 93% ,478,500,000 1,402,700,000 1,468,200,000 10,300, % (65,500,000) 96% ,448,800,000 1,501,700,000 1,542,200,000 (93,400,000) 94% (40,500,000) 97% * Actuarial Accrued Liability values are calculated at a 7.25% discount rate after For 2013, a 7.50% discount rate was used. discount rate was used. From 2001 to 2012, a 7.75%. From 1997 to 2001, a 7.50% discount rate was used. For 1995 and before, a discount rate of 7.00% was used. 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Historical Funding Ratios Fair Value of Assets Actuarial Assets taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 72

376 2016 Actuarial Valuation Appendix D Tacoma Employees Retirement System Comparative Schedules Exhibit D-4 Changes in Economic Assumptions (a) (b) (b) - (a) (c) (c) - (a) (c) - (b) Actuarial Price Wage Real Wage Discount Real Valuation Date Inflation (1) Inflation Inflation Rate Investment Spread % 7.00% 2.00% % (2) 7.00% (2) 2.00% % 7.00% 2.50% % 5.00% 0.50% 7.50% 3.00% 2.50% % 4.50% 0.50% 7.75% 3.75% 3.25% % 4.00% 0.75% 7.75% 4.50% 3.75% % 4.25% 1.00% 7.75% 4.50% 3.50% % 4.00% 1.00% 7.50% 4.50% 3.50% % 4.00% 1.00% 7.25% 4.25% 3.25% (1) (2) There was no explicit assumption for price inflation until the January 1, 1997 Valuation. A select and ultimate assumption was used. The ultimate rate is displayed here. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 73

377 2016 Actuarial Valuation Appendix D Tacoma Employees Retirement System Comparative Schedules Exhibit D-5 Significant Changes in Benefits, Contributions, and Assumptions Valuation Date* Change 1976 The actuarial assumptions related to the rate of investment return and the rate of increase in the general wage level were changed from those used by the System s previous actuary All actuarial assumptions except those related to the rate of investment return and the rate of increase in the general wage level were changed Four-year select and ultimate assumptions were adopted for investment return and general wage level. Employer contribution rates were decreased and employee contribution rates were increased; both are now set by law Almost all actuarial assumptions were changed Select and ultimate assumptions for investment return and general wage level were dropped. The net administrative expense assumption was increased 0.05% Almost all non-economic actuarial assumptions were changed. In addition, select economic assumptions were adopted for the next four-year period The mortality assumption for service retirees and beneficiaries was changed. In addition, select economic assumptions were adopted for the next four-year period Almost all non-economic actuarial assumptions were changed Changed actuarial assumption for rate of increase in the general wage level. Certain retired members benefits were increased All economic and non-economic actuarial assumptions except the mortality rates were changed. Benefits were improved. Contribution rates were lowered. The actuarial asset valuation method was changed The mortality assumption for service retirees, beneficiaries, and disabled members was changed All economic and non-economic actuarial assumptions except the retirement and mortality rate were changed. Benefits were improved in both 1999 and Contribution rates were lowered effective January 1, The mortality assumption for service retirees and beneficiaries was changed Wage inflation, price inflation and all active demographic assumptions were changed The mortality assumption for contributing members, service retirees, beneficiaries, and disabled members was changed Wage inflation, investment expenses, and all active demographic assumptions were changed. Contribution rates were increased effective February 1, Contribution rates were increased effective January 1, Contribution rates were increased effective January 1, The discount rate (investment return assumption) was lowered, along with price and wage inflation. Most active demographic assumptions were changed. The mortality assumption for contributing members, service retirees, beneficiaries, and disabled members was changed The discount rate (investment return assumption) was lowered. *Valuations as of January 1. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 74

378 2016 Actuarial Valuation Appendix D Tacoma Employees Retirement System Comparative Schedules Year Exhibit D-6 Actuarial Project Schedule (Four-Year Cycle) Regular Annual Projects in the Four-Year Period Ending with the Current Valuation Project 2013 January 1, 2013 Actuarial Valuation 2014 January 1, 2014 Actuarial Valuation 2015 January 1, 2015 Actuarial Valuation 2016 January 1, 2016 Actuarial Valuation 2016 Experience Study for four years Year Regular Annual Projects in the Four-Year Period Following the Current Valuation Project 2017 January 1, 2017 Actuarial Valuation 2018 January 1, 2018 Actuarial Valuation 2019 January 1, 2019 Actuarial Valuation 2020 January 1, 2020 Actuarial Valuation 2020 Experience Study for four years taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 75

379 This page intentionally left blank. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 76

380 2016 Actuarial Valuation Tacoma Employees Retirement System Appendix E Glossary The following definitions are from a glossary adopted by the Actuarial Standards Board. In some cases, the definitions have been modified for specific applicability to the Tacoma Employees Retirement System. Defined terms are capitalized throughout this Appendix. Actuarial Assumptions Assumptions as to the occurrence of future events affecting pension costs, such as: mortality, withdrawal, disability, and retirement; changes in compensation; rates of investment earnings and asset appreciation or depreciation; procedures used to determine the Actuarial Value of Assets; and other relevant items. Actuarial Cost Method A procedure for determining the Actuarial Present Value of pension plan benefits and expenses and for developing an actuarially equivalent allocation of this value to time periods, usually in the form of a Normal Cost and an Actuarial Accrued Liability. Actuarial Accrued Liability That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present Value of pension plan benefits and expenses which is not provided for by future Normal Costs. Actuarial Present Value The value of an amount or series of amounts payable or receivable at various times, determined as of a given date by the application of a particular set of Actuarial Assumptions. Actuarial Valuation The determination, as of a valuation date, of the Normal Cost, Actuarial Accrued Liability, Actuarial Value of Assets, and related Actuarial Present Values for a pension plan. Actuarial Value of Assets The value of cash, investments, and other property belonging to a pension plan, as used by the actuary for the purpose of an Actuarial Valuation. Actuarially Equivalent Of equal Actuarial Present Value, determined as of a given date with each value based on the same set of Actuarial Assumptions. Amortization Payment That portion of the pension plan contribution that is designed to pay interest on and to amortize the Unfunded Actuarial Accrued Liability. Credited Projected Benefit That portion of the projected benefit allocated to each individual's service to date, determined in accordance with the terms of the pension plan and based on future compensation as projected to retirement. Entry Age Actuarial Cost Method A method under which the Actuarial Present Value of the Projected Benefits of each individual included in an Actuarial Valuation is allocated on a level basis over the earnings of the individual between entry age and assumed exit ages. The portion of this Actuarial Present Value allocated to a valuation year is called the Normal taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 77

381 2016 Actuarial Valuation Appendix E Tacoma Employees Retirement System Glossary 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 called the Actuarial Accrued Liability. Experience Gain (Loss) A measure of the difference between actual experience and that expected based upon a set of Actuarial Assumptions, during the period between two Actuarial Valuation dates, as determined in accordance with a particular Actuarial Cost Method. Funding Reserve or Funding Excess If the Actuarial Value of Assets exceeds the Actuarial Accrued Liability, the Unfunded Actuarial Accrued Liability is a negative amount and may be referred to as the Funding Reserve. Normal Cost That portion of the Actuarial Present Value of pension plan benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method. Projected Benefits Those pension plan benefit amounts which are expected to be paid at various future times under a particular set of Actuarial Assumptions, taking into account such items as the effect of advancement in age and past and anticipated future compensation and service credits. Unaccrued Benefit The excess of an individual's Projected Benefits over the Nonforfeitable Benefit as of a specified date. Unfunded Actuarial Accrued Liability The excess of the Actuarial Accrued Liability over the Actuarial Value of Assets. taca0600.docx This work product was prepared solely for Tacoma Employees Retirement System for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. 78

382 Milliman Actuarial Services Proposal Appendix 1: Mandatory Criteria 1. As of June 30, 2016, the proposing firm or the primary Consulting Actuary must have provided actuarial valuation services for other public sector defined benefit clients for a minimum of five (5) years. Milliman has provided actuarial valuation services to public sector defined benefit clients since Identification of the actuary(ies) available for assignment as the primary Consulting Actuary on the engagement (each primary Consulting Actuary person must meet or exceed the standards as provided below): Grant Camp and Daniel Wade will jointly serve the System as primary consulting actuaries. Their complete biographies are included in Appendix 2. a. Fellow or Associate of the Society of Actuaries, and/or Fellow of the Conference of Actuaries in Public Practice, and/or Member of the American Academy of Actuaries (Enrolled Actuary), and/or meet standards of a qualified actuary under the provisions of the Employee Retirement Income Security Act of 1974, Grant and Daniel are both Fellows of the Society of Actuaries, Enrolled Actuaries under ERISA and Members of the American Academy of Actuaries. b. Experience as a Consulting Actuary including consulting services, experience analysis and valuation assignments for other public retirement systems, and Grant and Daniel are both consulting actuaries with 13 and 20 years of experience, respectively. Daniel primarily serves public sector clients. His current and past projects include work for 10 large county retirement systems throughout the state of California, 20 municipal plans in the Washington state fire and police systems, the Florida Retirement System and the Oregon Public Employees Retirement System. c. Ability to discuss in laymen s terms: actuarial theory, basis for assumptions, and other actuarial matters. One of Milliman s key strengths is our keen ability to communicate actuarial theory, assumptions, results and other actuarial matters clearly and effectively in terms understandable by all stakeholders. We will not consider our job complete until you understand the work we have performed. 3. The proposing firm must demonstrate ability to comply with the insurance terms and conditions as described in Attachment C, Proposer Warranties, of this RFP. As listed in our response to Attachment C, Milliman maintains errors and omissions coverage appropriate for a consulting firm of our size, commensurate with the services described in this Request for Proposal. We agree to provide certificates of insurance evidencing such coverage to the System. Prepared for Pasadena Fire & Police Retirement System November 17, 2016

383 Milliman Actuarial Services Proposal Appendix 2: Milliman Consultant Biographies Prepared for Pasadena Fire & Police Retirement System November 17, 2016

384 Milliman Bio ` Grant Camp FSA, EA, MAAA Consulting Actuary CURRENT RESPONSIBILITY Grant is a consulting actuary with the Anaheim office of Milliman. He joined the firm in EXPERIENCE Grant assists clients with many aspects of defined benefit plans, including actuarial valuations, financial reporting, cost projections, asset-liability modeling, plan design studies, and pension administration. Additionally, Grant has experience performing postretirement medical plan valuations. Grant s recent projects include: Consulting on retirement plan design issues, including the projected funding and financial reporting impact of plan changes. Performing benefit comparison studies to examine the impact of alternative plan designs. Completing an asset-liability modeling project that resulted in higher expected returns for less risk. Working with clients to respond to changes in legislation. Workign with clients to develop funding and benefit strategies and policies. PROFESSIONAL DESIGNATIONS Fellow, Society of Actuaries Enrolled Actuary under ERISA Member, American Academy of Actuaries AFFILATIONS Member, International Foundation of Employee Benefit Plans PRESENTATIONS AND PUBLICATIONS Milliman Sustainable Income Plan : A 21 st century retirement solution that equitably balances risk presented via webcast to clients on May 18, 2016 Variable Annuity Pension Plan: A balanced approach to retirement risk presented at the 33 rd Annual ISCEBS Symposium Making the case for Variable Annuity Pension Plans: The series published on Milliman.com EDUCATION B.S., Mathematics and Economics, University of Washington 2400 E. Katella Avenue, Suite 660 Anaheim, CA Tel Fax grant.camp@milliman.com milliman.com

385 Milliman Bio Daniel Wade FSA, EA, MAAA Principal, Consulting Actuary CURRENT RESPONSIBILITY Daniel is a principal and consulting actuary with the Seattle office of Milliman. He joined the firm in EXPERIENCE Daniel has 20 years of experience in the employee benefits field, primarily serving public sector clients, including 10 large county retirement systems throughout the state of California. He currently manages pension valuations for more than 20 municipal plans in the Washington state fire and police systems. He also manages LEOFF I retiree medical benefit valuations for many of these same cities, as well as for two counties. In addition, Daniel is lead technical actuary for the Florida Retirement System and the external office peer review actuary for the Oregon Public Employees Retirement System. He has assisted clients with many aspects of defined benefit plans, including: Experience studies Projections of future contribution rates Valuation of pension and retiree medical benefits Benefit calculations Preparation of actuarial cost estimates for plan changes Analysis of pension plan funding policies Actuarial audits PROFESSIONAL DESIGNATIONS Fellow, Society of Actuaries Enrolled Actuary, ERISA Fellow, Conference of Consulting Actuaries Member, American Academy of Actuaries AFFILIATIONS Member, Annual Meeting Program Committee for the Conference of Consulting Actuaries PRESENTATIONS AND PUBLICATIONS Daniel s recent presentations include: Actuarial and GASB issues for public plans (How can an actuary help you?) to the National Association of Public Plan Attorneys Plan redesign: Debating the pros and cons of current proposals to the Public Fund Boards Forum Who created America s public pension problems? Can actuaries help lead the way out? to Conference of Consulting Actuaries GASB 67 and 68: The new world of public pension plan accounting GASB 74 and 75 His recent publications include: Case study: Maintaining a healthy funded status in defined benefit retirement systems Setting the discount rate for valuing pension liabilities Overview of GASB Statements 73, 74 and 75 EDUCATION B.S. (Phi Beta Kappa), Mathematics, Stanford University 1301 Fifth Avenue, Suite 3800 Seattle, WA Tel Fax daniel.wade@milliman.com milliman.com

386 Milliman Actuarial Services Proposal Appendix 3: Sample Milliman Consulting Services Agreement Prepared for Pasadena Fire & Police Retirement System November 17, 2016

387 CONSULTING SERVICES AGREEMENT This Agreement is entered into between Milliman, Inc. ( Milliman ) and ( Company ) as of [Date 1]. Company has engaged Milliman to perform consulting services as described in the letter dated [Date 2] and attached hereto. Such services may be modified from time to time and may also include general actuarial consulting services. These terms and conditions will apply to all subsequent engagements of Milliman by Company unless specifically disclaimed in writing by both parties prior to the beginning of the engagement. In consideration for Milliman agreeing to perform these services, Company agrees as follows. 1. BILLING TERMS. Company acknowledges the obligation to pay Milliman for services rendered, whether arising from Company s request or otherwise necessary as a result of this engagement, at Milliman s standard hourly billing rates for the personnel utilized plus all out-of-pocket expenses incurred. Milliman will bill Company periodically for services rendered and expenses incurred. All invoices are payable upon receipt. Milliman reserves the right to stop all work if any bill goes unpaid for 60 days. In the event of such termination, Milliman shall be entitled to collect the outstanding balance, as well as charges for all services and expenses incurred up to the date of termination. 2. TOOL DEVELOPMENT. Milliman shall retain all rights, title and interest (including, without limitation, all copyrights, patents, service marks, trademarks, trade secret and other intellectual property rights) in and to all technical or internal designs, methods, ideas, concepts, know-how, techniques, generic documents and templates that have been previously developed by Milliman or developed during the course of the provision of the Services provided such generic documents or templates do not contain any Company Confidential Information or proprietary data. Rights and ownership by Milliman of original technical designs, methods, ideas, concepts, know-how, and techniques shall not extend to or include all or any part of Company s proprietary data or Company Confidential Information. To the extent that Milliman may include in the materials any pre-existing Milliman proprietary information or other protected Milliman materials, Milliman agrees that Company shall be deemed to have a fully paid up license to make copies of the Milliman owned materials as part of this engagement for its internal business purposes and provided that such materials cannot be modified or distributed outside the Company without the written permission of Milliman or except as otherwise permitted hereunder. 3. LIMITATION OF LIABILITY. Milliman will perform all services in accordance with applicable professional standards. In the event of any claim arising from services provided by Milliman at any time, the total liability of Milliman, its officers, directors, agents and employees to Company shall not exceed five million dollars ($5,000,000). This limit applies regardless of the theory of law under which a claim is brought, including negligence, tort, contract or otherwise. In no event shall Milliman be liable for lost profits of Company or any other type of incidental or consequential damages. The foregoing limitations shall not apply in the event of the intentional fraud or willful misconduct of Milliman. 4. DISPUTES. In the event of any dispute arising out of or relating to the engagement of Milliman by Company, the parties agree that the dispute will be resolved by final and binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall take place before a panel of three arbitrators. Within 30 days of the commencement of the arbitration, each party shall designate in writing a single neutral and independent arbitrator. The two arbitrators designated by the parties shall then select a third arbitrator. The arbitrators shall have a background in either insurance, actuarial science or law. The arbitrators shall have the authority to permit limited discovery, including depositions, prior to the arbitration hearing, and such discovery shall be conducted consistent with the Federal Rules of Civil Procedure. The

388 arbitrators shall have no power or authority to award punitive or exemplary damages. The arbitrators may, in their discretion, award the cost of the arbitration, including reasonable attorney fees, to the prevailing party. Any award made may be confirmed in any court having jurisdiction. Any arbitration shall be confidential, and except as required by law, neither party may disclose the content or results of any arbitration hereunder without the prior written consent of the other parties, except that disclosure is permitted to a party s auditors and legal advisors. 5. CHOICE OF LAW. The construction, interpretation, and enforcement of this Agreement shall be governed by the substantive contract law of the State of New York without regard to its conflict of laws provisions. In the event any provision of this agreement is unenforceable as a matter of law, the remaining provisions will stay in full force and effect. 6. NO THIRD PARTY DISTRIBUTION. Milliman's work is prepared solely for the internal business use of Company. Milliman's work may not be provided to third parties without Milliman's prior written consent, which consent may be conditioned on execution by the third party of Milliman s standard Third Party Release Agreement; provided, however, Company may share Milliman's work with its parent or affiliates, but only if either (a) the Company has the full power and authority to bind such parent or affiliate to the terms of this agreement and does bind such affiliate to the terms, or (b) the parent or affiliate acknowledges in writing that the work of Milliman is subject to certain limitations and restrictions contained in this Agreement and that the parent or affiliate acquires no greater rights than are possessed by Company under this Agreement. Milliman does not intend to benefit any third party recipient of its work product, even if Milliman consents to the release of its work product to such third party. 7. CONFIDENTIALITY. In connection with this Agreement, each party hereto (a disclosing party ) may disclose its confidential and proprietary information to the other party (a receiving party ). Subject to the exceptions listed below, a disclosing party s Confidential Information shall be defined as information disclosed by the disclosing party to the receiving party under this Agreement that is either: (i) clearly marked or otherwise clearly designated as confidential or proprietary; or (ii) should be reasonably understood by the receiving party to be the confidential or proprietary information of the disclosing party. Confidential Information shall include, without limitation, the terms of this Agreement. During the term of this Agreement and after its expiration or termination, a receiving party shall not disclose to any third party, a disclosing party s Confidential Information without the prior written consent of the disclosing party. In addition, each party agrees to take reasonable measures to protect the other party s Confidential Information and to ensure that such Confidential Information is not disclosed, distributed, or used in violation of the provisions of this Agreement (which measures shall be no less than that which a reasonable person would take with respect to like confidential, proprietary, or trade secret information). Notwithstanding anything to the contrary, the obligations of the receiving party set forth in this paragraph shall not apply to any information of the disclosing party which: (i) is or becomes a part of the public domain through no wrongful act of the receiving party; (ii) was in the receiving party s possession free of any obligation of confidentiality at the time of the disclosing party s communication thereof to the receiving party; (iii) is developed by the receiving party completely independent from the Confidential Information of the disclosing party; or (iv) is required by law or regulation to be disclosed, but only to the extent and for the purpose of such required disclosure after providing the disclosing party with advance written notice if reasonably possible such that the disclosing party is afforded an opportunity to contest the disclosure or seek an appropriate protective order. 8. GENERAL. This Agreement and any amendment hereto or thereto may be executed in two or more counterparts (including by facsimile or attachment), each of which will be considered an original but all of which together will constitute one agreement. This Agreement shall not be deemed or construed to be modified, amended, or waived, in whole or in part, except as set forth herein or by a separate written agreement duly executed by the parties to this Agreement. No

389 document, purchase order, or any handwritten or typewritten text which purports to alter or amend the printed text of this Agreement shall alter or amend any provision of this Agreement or otherwise control, unless Milliman and Company both specify in writing that such terms or conditions shall control. Neither party shall be liable for any delay or failure to perform due to causes beyond its reasonable control. Milliman and Company are independent contractors and this Agreement will not establish any relationship of partnership, joint venture, employment, franchise, or agency between Milliman and Company. Neither Milliman nor Company will have the power to bind the other or incur obligations on the other party s behalf without the other party s prior written consent, except as otherwise expressly provided in this Agreement. Failure to enforce any term or condition of this Agreement shall not be deemed a waiver of the right to later enforce such term or condition or any other term or condition of this Agreement. MILLIMAN, INC. By: Name: Title: Date: By: Name: Title: Date:

390 Pasadena Fire & Police Retirement System Executive Summary - Preliminary (Net of Fees) Period Ending: December 31, 2016 Market Value % of Portfolio 1 Mo 3 Mo Fiscal YTD Total Fund 122,786, Policy Index Total Domestic Equity 24,278, S&P Vanguard Growth Index Ins 9,162, Spliced Vanguard Large Cap Growth Index YTD 1 Yr MSCI US Prime Market Growth Dodge & Cox Stock 10,088, Russell 1000 Value Atlanta Capital Management Company 5,028, Russell Russell Total International Equity 22,914, MSCI EAFE MSCI ACWI ex USA Dodge & Cox Intl Stock 11,723, MSCI ACWI ex USA American Funds Europacific Growth R6 11,190, MSCI ACWI ex USA Total Domestic Fixed 54,564, BBgBarc US Aggregate TR Metropolitan West Core Plus Fixed Income 42,121, BBgBarc US Aggregate TR Voya Senior Loan Fund 7,971, S&P/LSTA Leveraged Loan Index Vanguard Inflation-Protected Securities Adm 4,472, BBgBarc US TIPS TR Domestic Equity Large Cap Growth Domestic Equity Large Cap Value Domestic Equity Small Cap Core Current % Policy % _ $9,162, % $9,822, % $10,088, % $9,822, % $5,028, % $4,911, % International Equity $22,914, % $24,557, % Domestic Fixed Income Core Domestic Fixed Income Bank Loans Domestic Fixed Income Real Return $42,121, % $42,975, % $7,971, % $6,139, % $4,472, % $6,139, % Real Estate $15,194, % $12,278, % Alternative Investment $5,812, % $6,139, % Cash and Equivalents $22, % $0 0.0% Total $122,786, % $122,786, % Policy Index as of 3/1/2016: 8% Russell 1000 Value, 8% Spliced Vanguard Large Growth, 4% Russell 2000, 20% MSCI EAFE, 35% BBgBarc US Aggregate, 5% BBgBarc US TIPS, 5% S&P/LSTA Leveraged Loan, 10% NCREIF-ODCE, 5% CPI + 5%. Pooled Cash not included in Total Fund calculation. CPI LOCAL (LA) includes Los Angeles-Riverside-Orange County. FY: 6/30. All manager returns shown net of fees. Effective 3/1/2015 Atlanta SMID Cap strategy changed to Atlanta Small Cap Core strategy. First American Treasury Obligation underwent share class change on 2/18/2016. Vanguard Inflation-Protected Securities underwent share class change on 4/27/2016. Invesco Core Real Estate market value as of 9/30/2016. All data is preliminary. Pasadena Fire & Police Retirement System 1

391 Pasadena Fire & Police Retirement System Executive Summary - Preliminary (Net of Fees) Period Ending: December 31, 2016 Market Value % of Portfolio 1 Mo 3 Mo Fiscal YTD Total Real Estate 15,194, N/A N/A N/A N/A 6.0 NCREIF-ODCE N/A N/A N/A N/A 6.5 NCREIF Property Index N/A N/A N/A N/A 6.1 Invesco Core Real Estate 15,194, N/A N/A N/A N/A 6.0 NCREIF-ODCE N/A N/A N/A N/A 6.5 Total Alternatives 5,812, CPI + 5% N/A N/A N/A N/A 6.7 CPI (UNADJUSTED) N/A N/A N/A N/A 2.0 CPI LOCAL (LA) N/A N/A N/A N/A 1.8 PIMCO All Asset Ins 5,812, CPI + 5% N/A N/A N/A N/A 6.7 HFRI Fund of Funds Composite Index N/A N/A N/A N/A -0.4 Cash 22, Citi 3mth Treasury Bill First American Treasury Obligation Z 22, Citi 3mth Treasury Bill XXXXX YTD 1 Yr Policy Index as of 3/1/2016: 8% Russell 1000 Value, 8% Spliced Vanguard Large Growth, 4% Russell 2000, 20% MSCI EAFE, 35% BBgBarc US Aggregate, 5% BBgBarc US TIPS, 5% S&P/LSTA Leveraged Loan, 10% NCREIF-ODCE, 5% CPI + 5%. Pooled Cash not included in Total Fund calculation. CPI LOCAL (LA) includes Los Angeles-Riverside-Orange County. FY: 6/30. All manager returns shown net of fees. Effective 3/1/2015 Atlanta SMID Cap strategy changed to Atlanta Small Cap Core strategy. First American Treasury Obligation underwent share class change on 2/18/2016. Vanguard Inflation-Protected Securities underwent share class change on 4/27/2016. Invesco Core Real Estate market value as of 9/30/2016. All data is preliminary. Pasadena Fire & Police Retirement System 2

392 Pasadena Fire & Police Retirement System Executive Summary with Pooled Cash - Preliminary Period Ending: December 31, 2016 Total Fund Total Domestic Equity Total Market Value % of Portfolio Domestic Equity Large Cap Growth Vanguard Growth Index Ins $9,162, % $9,162,207 Domestic Equity Large Cap Value Dodge & Cox Stock $10,088, % $10,088,162 Domestic Equity Small Cap Core Atlanta Capital Management Company $5,028, % $5,028,106 Total International Equity International Equity Dodge & Cox Intl Stock $11,723, % $11,723,945 American Funds Europacific Growth R6 $11,190, % $11,190,140 Total Domestic Fixed _ Domestic Fixed Income Core Metropolitan West Core Plus Fixed Income $42,121, % $42,121,430 Domestic Fixed Income Bank Loans Voya Senior Loan Fund $7,971, % $7,971,157 Domestic Fixed Income Real Return Vanguard Inflation-Protected Securities Adm $4,472, % $4,472,012 Total Real Estate Real Estate Invesco Core Real Estate $15,194, % $15,194,001 Total Alternatives Cash Alternative Investment PIMCO All Asset Ins $5,812, % $5,812,814 Cash and Equivalents First American Treasury Obligation Z $22, % $22,409 Pooled Cash $1,234, % $1,234,000 Total $124,020, % $9,162,207 $10,088,162 $5,028,106 $22,914,085 $42,121,430 $7,971,157 $4,472,012 $15,194,001 $5,812,814 $1,256,409 XXXXX Pasadena Fire & Police Retirement System 3

393 Pasadena Fire and Police Retirement Plan January 9, 2017 Asset Class Manager Name Ticker Symbol CUSIP Actual $ Actual % Targets % Domestic Equity Above / Under Target % Target $ Re Balance Estimate Re Balance Actual New $ New % Large Cap Value Dodge & Cox Stock DODGX $ 10,274, % 8.0% 0.1% $ 9,849,314 $ (424,956) (925,000) $ 9,349, % 0.4% Large Cap Growth Vanguard Growth Index VIGIX $ 9,403, % 8.0% 0.6% $ 9,849,314 $ 445,702 (100,000) $ 9,303, % 0.4% Small Cap Core Atlanta Capital Management n/a n/a $ 5,008, % 4.0% 0.0% $ 4,924,657 $ (84,313) (375,000) $ 4,633, % 0.2% Total Domestic $ 24,686, % 20.0% 0.5% $ 24,623,285 $ (63,567) (1,400,000) $ 23,286, % 1.1% Variance to Targets (%) International Equity International Value Dodge & Cox Int'l Stock DODFX $ 12,056, % 10.0% 0.5% $ 12,311,642 $ 255,365 (250,000) $ 11,806, % 0.4% International Growth American Funds EuroPacific Growth RERGX $ 11,423, % 10.0% 1.0% $ 12,311,642 $ 887,960 $ 11,423, % 0.7% Total International $ 23,479, % 20.0% 1.4% $ 24,623,285 $ 1,143,325 (250,000) $ 23,229, % 1.1% Total Equity $ 48,166, % 40.0% 1.9% $ 49,246,570 1,079,758 (1,650,000) $ 46,516, % 2.2% Fixed Income Core Fixed MetWest Core Plus n/a n/a $ 44,836, % 35.0% 0.4% $ 43,090,748 $ (1,745,344) (1,800,000) $ 43,036, % 0.0% Senior Bank Loans Voya Senior Bank Loan CIT n/a n/a $ 7,983, % 5.0% 1.3% $ 6,155,821 $ (1,828,102) $ 7,983, % 1.5% Real Return Vanguard Inflation Protected Securities VIPIX $ 4,487, % 5.0% 1.5% $ 6,155,821 $ 1,668,014 $ 4,487, % 1.4% Total Fixed $ 57,307, % 45.0% 0.3% $ 55,402,391 $ (1,905,432) (1,800,000) $ 55,507, % 0.1% Real Estate Real Estate Invesco Core Real Estate n/a n/a $ 15,194, % 10.0% 2.0% $ 12,311,642 $ (2,882,359) $ 15,194, % 2.3% Total Real Estate $ 15,194, % 10.0% 2.0% $ 12,311,642 $ (2,882,359) 0 $ 15,194, % 2.3% Liquid Alternatives Liquid Alternatives PIMCO All Asset PAAIX $ 5,875, % 5.0% 0.4% $ 6,155,821 $ 280,448 $ 5,875, % 0.2% Total Alternatives $ 5,875, % 5.0% 0.4% $ 6,155,821 $ 280,448 0 $ 5,875, % 0.2% Cash First American Treasury Obligations FUZXX BA6 $ 22, % 0.0% 0.0% $ $ (22,415) $ 22, % 0.0% Total Assets $ 126,566, % 100% 0% $ 123,116,424 $ (3,450,000) $ (3,450,000) $ 123,116, % 0%

394 CHIDMS1/ Invesco Core Real Estate U.S.A., L.P. Ratification of Advisory Committee Members 2017 Per section 12.1 of the Amended and Restated Limited Partnership Agreement for Invesco Core Real Estate U.S.A., L.P., the following is a list of the Advisory Committee Members appointed by the General Partner for the year Arkansas Public Employees Retirement System Callan Associates Los Angeles City Employees Retirement System Russell Investment Advisors San Mateo County Employees Retirement Association California State Teachers Retirement System Blue Sky Group The Employees Retirement Fund of the City of Dallas Texas Permanent School Fund Employees Retirement System of Texas Sovereign Wealth Fund ATP Real Estate Hewitt Ennis Knupp Illinois Municipal Retirement Fund Ohio Bureau of Workers Compensation PGGM M&G Real Estate SEI Saskatchewan Healthcare Employees' Pension Plan Los Angeles Department of Water and Power Retirement Plan Approve All

395 By checking the relevant boxes and executing the signature page, the undersigned Limited Partner hereby ratifies the Advisory Committee Members for the year Please return via or facsimile to the attention of Melissa Neckar at or by February 3, Please direct any questions to: Melissa Neckar at [Signature Page follows] Date: Pasadena Fire & Police Retirement System (Print or Type Name of Member) By: Name: Keith Jones Title: Chair, Retirement Board CHIDMS1/

396 Pasadena Fire & Police Retirement System AGENDA REPORT DATE 1/18/2017 ITEM # 10 TO: FROM: Chair Jones and Board Members of the Fire & Police R Jill Fosselman, Secretary to the Board DATE: January 18, 2017 ITEM: Amendment to the Custody Agreement with U.S. Bank for Retiree Payroll RECOMMENDATION Upon review of the report and presentation, the Board may: 1. Approve Amendment #1 to the custody agreement with U.S. Bank to issue monthly pension payments and tax withholding for retirees, and 2. Approve Exhibit C, Tax Duties, to the custody agreement with U.S. Bank to direct U.S. Bank to withhold the tax requirement from benefit distributions, and 3. Approve the Benefits Payment Services Pricing schedule with U.S. Bank. BACKGROUND At the November 16, 2016 Board meeting, the Board directed staff to initiate the transfer of payroll processing to System custodian U.S. Bank {U.S. Bank Online Benefit Payment System) beginning with the January 2017 pension payment, subject to counsel review. Following such review and successful negotiation of terms related to indemnity, staff initiated the data transfer and reconciliation of all current payee data in early December. At this time, all payee data has been reconciled, the transition team is working on running a non-active December test run, and staff is undergoing training in the new PIVOT system at U.S. Bank. The first payroll disbursement from U.S. Bank will be on January 31 to ensure a clean transition for tax reporting purposes. System staff will submit all state and federal tax withholding reports for 2016, and will issue the Rs. Following, U.S. Bank is directed to handle all payroll tax reporting and filing for 2017 and forward. Retirees were notified of the change in payroll processing in the December newsletter, and will also receive additional information this month. As discussed with the Board in November, System staff will maintain administrative access to update member files electronically, as well as to review/approve final monthly payroll files. All reports needed to document monthly payroll and tax withholding will be available through PIVOT. Amendment #1 to the custody agreement and all supporting documents have been reviewed by the System's counsel, Isabel Safie and Glen Price {Best, Best & Krieger). January 18, 2017 U.S. Bank Contract Ammendment for Benefits Payments Page 1of2

397 FISCAL IMPACT The remaining Fiscal Year 2017 Adopted Budget includes funding for in-house payroll provision for the current fiscal year (paper, postage and PensionGold maintenance for a total of $8,300). The estimated cost for six months of U.S. Bank payroll services is $4,300, so savings are anticipated this fiscal year. The Fiscal Year 2018 Recommended Budget will be adjusted to reflect the new pricing and budget needs. ATTACHMENTS 1. Amendment #1, Custody Agreement with U.S. Bank 2. Exhibit C Tax Duties, Custody Agreement with U.S. Bank 3. Benefit Payment Services Pricing, U.S. Bank January 18, 2017 Page 2 of 2 U.S. Bank Contract Ammendment for Benefits Payments

398 Attachment 1 PASADENA FIRE AND POLICE RETIREMENT SYSTEM CUSTODY AGREEMENT -AMENDMENT# 1 This amendment (the "Amendment") is between the Pasadena Fire and Police Retirement System Retirement Board (such Board, the "Customer"), and U.S. Bank National Association, a national banking association organized under the laws of the United States with offices in Minneapolis, Minnesota (the "Bank"); and WHEREAS, the Customer and the Bank are parties to an agreement entitled Custody Agreement dated November 20, 2015 (the "Custody Agreement"); and the Customer desires to utilize the Bank for issuance of monthly pension payments, and tax withholding for retirees; NOW THEREFORE, the parties hereby agree to amend the Custody Agreement as follows: 1. Section 9.2 shall be replaced in its entirety with the following language: 9.2. Indemnification The Customer will promptly indemnify and release each Indemnified Person and hold each Indemnified Person harmless from and against, and an Indemnified Person will incur no liability to any person for, any Harm that may be imposed on, incurred by, or asserted against an Indemnified Person by reason of the Indemnified Person's action or omission in connection with this Agreement or the Account (including, but not limited to, an action or omission that is consistent with directions provided hereunder), except to the extent that a court of competent jurisdiction has made a final judgment that the Harm resulted directly from the Indemnified Person's willful misconduct, gross negligence, bad faith, or to the extent that the Harm resulted directly from the Bank's failure to maintain the physical, electronic, and procedural Safeguards described in Exhibit C The foregoing provisions will survive the Indemnified Person's termination as such and the termination of this Agreement. 2. Exhibit C, which is attached herewith, will be added as an Exhibit to the Custody Agreement. 3. Fee Schedule. The Benefit Payment Pricing, attached herewith, shall be included as part of the Fee Schedule. 4. Counterparts and Duplicates. This Amendment may be executed in any number of counterparts, each of which, without production of the others, will be deemed to be an original, but all of which together will constitute the same instrument. This Amendment, and any direction, notice, or other communication given hereunder, may be proved either by an executed original or by a reproduced copy thereof (including, but not limited to, an electronic file copy thereof). 5. Effective Date. This Amendment will become effective when all parties have signed it. The date of this Amendment will be the date this Amendment is signed by the last party to sign it (as indicated by the date associated with that party's signature).

399 IN WITNESS WHEREOF, an authorized officer of each party hereby executes this Agreement on the date stated beneath that party's signature. PASADENA BOARD By: Its: Dated: By: Its: Dated: By: Its: Dated: and and FIRE AND Keith Jones Chair Peter Boyle Vice Chair Isabel C. Saf'ie Counsel POLICE RETIREMENT SYSTEM U.S. BANK NATIONAL ASSOCIATION By: Its: Barbara C Mitchell Vice President and Relationship Manager

400 Attachment 2 PASADENA FIRE AND POLICE RETIREMENT SYSTEM CUSTODY AGREEMENT Exhibit C Tax Duties Plan: The plan listed in the Custody Agreement's Exhibit A (Covered Plan) l. Direction to Withhold Tax. The Plan Administrator hereby directs the Bank to withhold the tax required to be withheld under Code Section 3405 from benefit distributions from the Account to any Participant or Beneficiary (each, a "Payee"), pursuant to Temporary Treasury Regulations Section T, Q&A E-2. The Plan Administrator may revoke such direction by notice to the Bank, and the Bank may resign from such duty by notice to the Plan Administrator. 2. Information Necessary to Compute Withholding. The Plan Administrator will provide the Bank with all information necessary to compute correctly the withholding tax liability with respect to each Payee. To that end, the Plan Administrator will explicitly inform the Bank of the information that would be reportable on the Form 1099-R or that such information is not applicable to a particular Payee or to any payments under the Plan. Without limiting the generality of the foregoing, the Plan Administrator will provide the Bank with the following information with respect to each Payee: 2.1. Name, address, and Social Security Number of the Payee and, if applicable, the Payee's spouse or other Beneficiary Existence and amount of any employee contributions Amount of any accumulated deductible employee contributions Payee's cost basis in any employer securities and the current fair market value of the securities Existence and amount of any premiums paid for the current cost of life insurance that were previously includible in income Statement of the reason (for example, death, disability, or retirement) for the distribution Date on which distributions commence and the amount, frequency, and payment period of distributions Age of the Payee and, if applicable, of the Payee's spouse or other Beneficiary Any other information required by Form 1099-R, including, but not limited to, the applicable distribution codes Citizenship status of the Payee and, if applicable, the Payee's spouse or other Beneficiary (that is, U.S. citizen, resident alien, or non-resident alien) Whether the distribution is periodic or non-periodic; whether the distribution is an eligible rollover distribution; which portion of the distribution is a direct rollover; and, for any direct

401 rollover, the name of the recipient plan (or IRA) and such plan's (or IRA' s) trustee or custodian, as the case may be States of the United States in which the Payee is subject to income-tax withholding (but not any political subdivision, agency, or instrumentality of such states) (the "States") Other information as the Bank may reasonably require to carry out the direction to withhold. 3. Updates to Information Necessary to Compute Withholding. The Plan Administrator will timely notify the Bank of any changes to the information described above, including, but not limited to, the death of any individual whose death (i) affects the period over which periodic distributions are to be made or the amount of such distributions or (ii) requires a change in Payee. 4. On-line Benefit-Payment System. If the Plan Administrator has established an account in the Bank's on-line benefit-payment system, then the Plan Administrator will enter the information described above into the system, print a pending-payment register therefrom for each payment-date, and, by the deadline set forth in the system, deliver such register outside the system (such as by ) to the Bank. The Plan Administrator hereby acknowledges that any failure to deliver by such deadline (i) is deemed to be a direction to the Bank to print the register for the applicable payment-date and treat such register as delivered and (ii) may result in termination of such account. If the system is unavailable or such account has been terminated or no such account was ever established, the Plan Administrator will make other arrangements for providing the information described above. 5. Withholding, Reporting, and Remitting. To the extent the Plan Administrator has provided the information described above, the Bank will: 5.1. Withhold income tax from benefit distributions from the Account to each Payee Report such distributions on Form 1099-R (Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.) and on comparable information returns that are required with respect to the States Remit such tax to the Internal Revenue Service and to the taxing authorities of the States and file Form 945 (Annual Return of Withheld Federal Income Tax: For Withholding Reported on Forms 1099 and W-2G) and comparable returns that are required with respect to the States. 6. Notice of the Right to Elect Not to Have Withholding Apply. In the case of periodic distributions, pursuant to Temporary Treasury Regulations Section T, Q&A D-4 and D-20: 6.1. Within six months before the first distribution, the Plan Administrator (on behalf of the Bank) will give the Payee notice of the right to elect not to have withholding apply At least once each calendar year thereafter, the Bank will give the Payee notice of the right to elect not to have withholding apply and to revoke the election. 7. In-plan Roth Rollover. To the extent the Plan Administrator notifies the Bank that a Participant has made an in-plan Roth rollover directly from a non-roth account in the Plan to a designated Roth account in the Plan, the Bank will report such rollover on Form 1099-R (Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.) and on comparable information returns that are required with respect to the States.

402 8. Safeguards. The Bank shall maintain physical, electronic, and procedural safeguards that are designed to (a) maintain the security and confidentiality of Personal Data; (b) protect Personal Data against anticipated threats or hazards to the security or integrity of Personal Data; and ( c) prevent unauthorized access to or use of such Personal Data that could result in substantial harm or inconvenience to the applicable Customer. 9. Effective Date. This Exhibit will become effective when all parties have signed it. The date of this Exhibit will be the date this Exhibit is signed by the last party to sign it (as indicated by the date associated with that party's signature). IN WITNESS WHEREOF, an authorized officer of each party hereby executes this Exhibit on the date stated beneath that party's signature. THE PLAN ADMINISTRATOR By: Its: Dated: U.S. BANK NATIONAL ASSOCIATION By: Its: Vice President and Relationship Manager Dated:

403 Attachment 3 Pasadena Fire and Police Retirement System Benefit Payment Services Pricing Conversion Fees: Setup Payment Accounts, load retiree data, and training of PFPRS personnel via WebEx. No charge if electronic files are provided; otherwise $25/payee setup Benefit Distributions: Distribute Account assets, for monthly periodic benefit distributions and distributions in payment of plan deductions for medical withholding, union dues, etc.: Periodic payment (per ACH payment), without call center access for retirees Periodic payment (per ACH payment), with call center access for retirees Print & Mail monthly ACH advice (per advice) ACH reversal/reissue (per occurrence) Special payments (per payment) $2.00 $2.25 $.75 (includes postage) $5.00 $3.50 Other Services: Federal and State tax withholding and filing with tax authorities Annual tax solicitation to retirees Annual 1099R issuance and filing ACH or Check issuance of deduction amounts to service providers Standard Reports (payments, changes, history) Payment File Extracts Quarterly death benefit comparisons Included Included Included $3.00 each payment Included No charge if standard report or file download; otherwise $SO/programming hour Included Fee Assumptions: Pasadena Fire & Police Retirement System staff will either input payment changes directly or provide electronic spreadsheets, no manual directives Fees will be billed or charged to the account monthly or quarterly. Domestic ACH payments only, no checks Fixed retiree population, except beneficiary payouts and QDROs Fees are guaranteed for at least three years. Accepted and Approved Pasadena Fire and Police Retirement System By: Its: Dated:

404 ~ ~ , Fire and Police Retirement Board --fjafc:-l-a-5-fiot q-,- -- Administration and Operating Expenses ITEM # ----f-t?\ FY Comparison of Actual to Budget For the Month and Year Ended December 31, , ~ I------~ T ~ A Acct# / / , 1!!_1_1_ ~ ,1?_ j ~ Descriptions System Revenue: Concord Asset Income Miscellaneous Cash/Income City Cash Contributions Total System Revenues Expenses: Personnel Costs Retiree Payroll Subtotal Pers./Retiree Payroll Services & Supplies: Materials and Supplies Small Equipment Purchases Outside Printing & Duplication Equip. Lease Payments Computer Related Supplies - Software Reference Materials - Subscriptions Water Dues and Memberships Conferences/Meetings - Board/Staff Insurance Contract Services Misc Services B Actuarial Services Asset Managers Auditinq Services PensionGold Svs Custodial Bank Svs Investment Consultant Svs Outside Leqal Counsel Berwvn Group Subtotal Contract Services Investment Expenses Misc/Other Fees Custodial Bank Svs Investment Consultant Svs Subtotal Investment Exoenses Subtotal Services & Supplies Internal Service Charges: Printing Postage Mail Services IS-Applic. Devel. & Support IS-PC Network Suooort Subtotal Int. Service Charges -- ~. c D E F G H Actual Budget Variance Actual Budget Variance For For For Year To Year To Year To Month Month Month Date Date Date ----! ~ !._ t _o_ ~ ,674 Q_.._._5_,f)_Z~_ ~- 8,067_ ~-- _!3.Q67 _ , ,674_,_. 8, , I ,500 16,483 1,983 97, ,900 1,343 1,105,747 1,100,000 (5,747) 6,666,710 6,600,000 (66,710) 1,120,247 1,116,483 (3,764) 6,764,267 6,698,900 (()~367) ~ _ 725 > ~ Q_ ,050_ Q_ (1) ~-~=:= _Q (500) ( _Q_ 3, ~ 00_()_ 0 jl_ 0 18,441 C ,441 Q_ , ,235 6, ,235 8, ,876 2,000 9,167 9,167 11,043 11, ,984 20, e ~ ,495_, _,QQQ ,000 15,800 19, ~,?00_ , ~2.~~8 48,000 ll_ o Q ~---- Q_ 0 ~-----_Q_ ,000 t ~._QQ_Q_ t--- 4,598 63,593 77,300. TI,701_ ,235 12,ooo ~ (0) 55,000 55,000 (O) ,235 67, , , ,508 '1?~±~ I , _Q ' , ~ Page 1 of 2 1/10/2017 3:33 PM FPRS Adopted Budget FY 2017 linked December