City of Albany Police and Fire Relief or Pension Fund

Transcription

1 City of Albany Police and Fire Relief or Pension Fund Actuarial Valuation and Information Required Under Governmental Accounting Standards Board Statements No. 67 and 68 as of June 30, 2015

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3 December 23, 2015 Board of Trustees City of Albany Police and Fire Relief or Pension Fund 1000 San Pablo Avenue Albany, California Members of the Board: This valuation provides the following information concerning the City of Albany (the City) Police and Fire Relief or Pension Fund (Pension Fund) as of June 30, 2015: Carlos Diaz Director, Retirement Actuary Buck Consultants, LLC 1801 Century Park East Suite 500 Los Angeles CA tel Funding results supporting projected Contribution rates 2. Funded status based upon actuarial value of assets as well as market value of assets 3. Financial reporting under Governmental Accounting Standards Board (GASB) Statements No. 67 and 68. This GASB Statements No. 67 and 68 are amendments of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 50, Pension Disclosures, effective for the fiscal year ending June 30, 2014 and later as well as an amendment to GASB Statement No. 27 associated with plan sponsor s financial reporting for fiscal years ending June 30, 2015 and later. We certify that the information contained in this Actuarial Report has been prepared in accordance with generally accepted actuarial principles and practices. To the best of our knowledge, the information fairly presents the actuarial position of the Pension Fund in accordance with the requirements of GASB Statements No. 67 and No. 68 as of June 30, The Board of Trustees of the Pension Fund (Board of Trustees) may use this report for the review of the operation of the Pension Fund and as a source of information for the City of Albany s financial statements, only to the portion that is attributable to the Pension Fund. The report may also be used in the preparation of the Pension Fund s audited financial statements. Use of this report for any other purpose or by anyone other than the Board of Trustees may not be appropriate and may result in mistaken conclusions because of failure to understand applicable assumptions, methods, or inapplicability of the report for that purpose. No one may make any representations or warranties based on any statements or conclusions contained in this report without Buck Consultants prior written consent. Future actuarial measurements may differ significantly from current measurements due to Pension Fund experience differing from that anticipated by the economic and demographic assumptions, increases or decreases expected as part of the natural operation of the methodology used for these measurements, and changes in Pension Fund provisions or applicable law. An analysis of the potential range of such future differences is beyond the scope of this valuation. In preparing the actuarial results, we have relied upon information provided by the City regarding Pension Fund provisions, participants, assets and other matters used in the actuarial valuation. Although we did not audit the data, we reviewed the data for reasonableness and consistency with the prior information. The accuracy of the results presented herein is dependent on the accuracy of the data. This valuation was prepared on the basis of the demographic and economic assumptions summarized in Section 3, which includes a discussion of the basis used to develop the assumptions. The assumptions include a 6.75% per annum rate of investment return and the RP-2000 mortality table with 10 years projection, applied on static basis using Scale AA, from valuation date for annuitants. We recommend a change in the projection period from seven years to ten years. The mortality improvement assumption was selected in accordance with Actuarial Standard of Practice No. 35. In our opinion, the actuarial assumptions used are appropriate for purposes of the valuation

4 and are reasonably related to the experience of the Pension Fund and to reasonable long-term expectations. This report was prepared under our supervision. We are Members of the American Academy of Actuaries. We meet the Academy s Qualification Standards to issue this Statement of Actuarial Opinion. This report has been prepared in accordance with all applicable Actuarial Standards of Practice and we are available to answer questions about it. Buck Consultants, LLC Carlos Diaz, ASA, EA, MAAA Director, Retirement Actuary

5 Table of Contents Section 1 Actuarial Valuation for Contribution Rates... 1 Section 2 GASB No. 67 and 68 Information... 4 Section 3 Actuarial Assumptions and Methods Section 4 Summary of Pension Fund Provisions Section 5 Table of Member Data... 16

6 Section 1 Actuarial Valuation for Contribution Rates 1.1 Overview We were commissioned by the Board to perform an actuarial valuation of the City of Albany Police and Fire Relief or Pension Fund as of June 30, 2015 to determine contribution rates and funded status of the Plan. The results presented herein are developed on the basis of statistical information available for the retired membership and unaudited financial statements as of June 30, 2015 and benefits for Police and Fire members under Sections 9.01(a)-(s) of the City Charter. 1.2 Funding Results The following table summarizes the principal funding valuation results from the current and previous valuations. Valuation Date June 30, 2015 June 30, 2012 Recommended contribution $ 218,723 $ 82,401 Market Value of Assets $ 8,380,543 $ 9,796,563 Actuarial Value of Assets $ 10,211,050 $ 11,922,744 Actuarial present value of liabilities $ 12,302,194 $ 12,710,552 Unfunded Actuarial liability $ 2,091,144 $ 787,798 Retired Members Number Annual Benefits 1,426,695 1,356,963 Average Monthly Benefits 5,404 4,712 Page 1

7 1.3 Total Plan Liability Valuation Date June 30, 2015 June 30, 2012 Actuarial Present Value of Benefits 1. Retirees and beneficiaries $ 12,302,194 $ 12,710, Active Total $ 12,302,194 $ 12,710, Calculation of Actuarial Value of Assets for Funding Purposes Valuation Date June 30, 2015 A. Actuarial value of assets, June 30, 2010 $ 12,519,666 B. Earnings recognized in Actuarial Value of Assets Period Ending Contributions Benefit Payments Expected Return Actual Return Additional Earnings Additional Earnings Recognized 06/30/ ,000 1,416, ,407 1,709, , ,493 06/30/ ,000 1,415, ,758 41,127 (757,631) (151,526) 06/30/ ,401 1,365, ,492 1,078, ,555 63,311 06/30/ ,401 1,384, ,927 1,287, , ,534 06/30/ ,401 1,411, ,935 (113,470) (811,405) (162,281) Total 847,203 6,992,869 3,795,519 41,531 C. Actuarial Value of Assets as of June 30, 2015 $ 10,211,050 D. Market Value of Assets as of June 30, 2015 $ 8,380,543 Page 2

8 1.5 Funding Shortfall and Shortfall Amortization Base Valuation Date June 30, 2015 June 30, 2012 A. Funding Target $ 12,302,194 $ 12,710,552 B. Actuarial Value of Assets $ 10,211,050 $ 11,922,744 C. Unfunded Actuarial Liabilities: (A) (B) $ 2,091,144 $ 787,808 D. Funded Ratio: (B) (A) 83.00% 93.8% The above funded ratios are based upon the actuarial value of assets. Were the market value of assets to be used the ratios would be materially lower as the market value is approximately 80% of the actuarial value. Neither funded status is related to the possible funded status were a settlement of the liabilities to be contemplated though annuity purchases. 1.6 Contribution Amounts The difference between the Actuarial Accrued Liability and the actuarial value of plan assets is called the Unfunded Actuarial Accrued Liability and is funded (amortized) as a level dollar amount over a 15-year period from July 1, 2015, assuming payment in the middle of the year. Date Established Type Of Base Initial Amount Years Remaining Recommended Contribution July 1, 2015 Unfunded Liability $ 2,091, $ 218,723 Page 3

9 Section II GASB No. 67 and 68 Information 2.1 Notes to the Financial Statements for the Year Ended June 30, 2015 Summary of Significant Accounting Policies Method used to value investments. Investments are reported at fair value. Pension Fund Description Pension Fund administration. The Police and Fire Relief or Pension Fund (Pension Fund) is governed by Section 9.01 of the Charter of the City of Albany (the City) and is a sole employer defined benefit pension plan for the City's police and fire department employees hired before July 1, The Pension Fund is closed to new participants. Benefit provisions and other requirements are established by City Charter. Pension Fund membership. Pension Fund membership consisted of the following: June 30, 2015 June 30, 2014 Inactive members or beneficiaries currently receiving benefits Inactive members entitled to but not yet receiving benefits 0 0 Active members 0 0 Total Benefits provided. Please see Section 4 Summary of Pension Fund Provisions. Contributions. The City Charter requires an annual contribution to the Pension Fund equal to 18 percent of the gross wages of active members; however, there are no active members and the Pension Fund is closed to new participants. The funding policy of the Board of Trustees is to make a minimum contribution upon completion of the actuarial valuation, as required to amortize any unfunded liability over the expected life of the Pension Fund. The unfunded Actuarial Liability is funded as a level dollar amount over a 15 year period from July 1, Investments Rate of return. For the year ended June 30, 2015, the annual money-weighted rate of return on Pension Fund investments, net of Pension Fund investment expense, was 2.22% 1. The moneyweighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Receivables N/A. 1 Provided by the City Page 4

10 Net Pension Liability The components of the net pension liability are as follows: June 30, 2015 June 30, 2014 Total pension liability $13,597,656 $12,493,334 Fiduciary net position (8,298,142) (9,577,360) Net pension liability $5,299,514 $2,915,974 Fiduciary net position as a percentage of the total pension liability 61.03% 76.66% Actuarial assumptions The total pension liability as of June 30, 2015 was determined the Pension Fund membership as of that date and using the following actuarial assumptions, applied to all periods included in the measurement. All other methods and assumptions used to determine the total pension liability are set forth in Section 3 Actuarial Assumptions and Methods. Actuarial cost method Entry Age Normal (see Note) Note: The level dollar method is used because there are no active members and the Pension Fund is closed to new participants. Best estimates of arithmetic long-term expected rates of return for each major asset class included in the Pension Fund s target asset allocation as of June 30, 2015 are summarized in the following table (note that the rates shown below include the inflation component): Long-Term Expected Asset Class Rate of Return 2 Equity 12.0% Fixed income 5.7% Short Term and Receivables 1.5% Discount rate: The discount rate used to measure the total pension liability was 5.33%. The projection of cash flows used to determine the discount rate assumed that contributions will continue to follow the current funding policy. Based on those assumptions, the Pension Fund's fiduciary net position was projected to be available to make projected future benefit payments of current members through The discount rate was determined by blending the expected return on assets (6.75%) with the weighted average yield of S&P Municipal Bond 20-year High Grade Rate Index as of June 30, 2015 (3.73%). The assumed discount rate has been determined in accordance with the method prescribed by GASB Statement No. 67. We believe this assumption is reasonable for the purposes of the measurements required by the Statement. 2 Provided by the City Page 5

11 Sensitivity of the net pension liability to changes in the discount rate. The following presents the net pension liability, calculated using the discount rate of 5.33%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (4.33%) or 1- percentage-point higher (6.33%) than the current rate: 1% Decrease (4.33%) Current Discount Rate (5.33%) 1% Increase (6.33%) Net Pension Liability $ 6,373,479 $ 5,299,514 $ 4,362, Schedules of Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios Total pension liability Service cost $ 0 $ 0 Interest 667, ,708 Changes of benefit terms 0 0 Differences between expected and actual experience 1,348,531 0 Changes of assumptions 499, ,018 Benefit payments (1,411,164) (1,384,481) Net change in total pension liability $ 1,104,322 $ 335,245 Total pension liability-beginning $ 12,493,334 $ 12,158,089 Total pension liability-ending (a) $ 13,597,656 $ 12,493,334 Fiduciary net pension Contributions-employer $ 0 $ 82,401 Contributions-employee 0 0 Net investment income 131,946 1,287,597 Benefit payments, including refunds of employee (1,411,164) (1,384,481) contributions Administrative expense 0 0 Other 0 0 Net change in fiduciary net position $ (1,279,218) $ (14,483) Fiduciary net position-beginning $ 9,577,360 $ 9,591,843 Fiduciary net position-ending (b) $ 8,298,142 $ 9,577,360 Net pension liability-ending (a)-(b) $ 5,299,514 $ 2,915,974 Fiduciary net position as a percentage of the total pension liability 61.03% 76.66% Page 6

12 Notes to Schedule: Benefit changes since June 30, 2014: Changes of assumptions since June 30, 2014: None (other than Cost of Living adjustments under the terms of the Plan). Change in discount rate from 5.66% (as of June 30, 2014) to 5.33% (as of June 30, 2015). Change in mortality assumptions from RP-2000, projected seven years from the valuation date on a static basis to RP-2000, projected 10 years from the valuation date on a static basis. Schedule of Contributions Actuarially determined contribution $82,401 $82,401 Contributions related to the actuarially determined contribution 0 82,401 Contribution deficiency (excess) $82,401 $0 Notes to Schedule Valuation date: An actuarial valuation of the Pension Fund is performed as frequently as deemed necessary by the Board of Trustees, but not less than every three years. However, the actuarial valuation can be performed no less than every two years in accordance with GASB Statement No. 67. The next actuarial valuation will be as of June 30, The methods and assumptions used to determine the actuarially determined contributions to the Pension Fund are set forth in Section 3 Actuarial Assumptions and Methods. Schedule of Investment Returns Annual money-weighted rate of return, net of investment expenses % 15.57% 3 Provided by the City Page 7

13 2.3 GASB Statement No. 68 GASB No. 68 sets forth certain items of information to be disclosed in the financial statements of the Plan in addition to the information disclosed for GASB Statement No. 67. Following is the pension expense for year ended June 30, 2015 based upon the GASB 67 report as of June 30,2014 as provided for in Paragraph 20 of GASB 68: 2015 Pension Expense Service cost $ 0 Interest cost 774,708 Expected return on assets (600,723) Current period effect of benefit changes 0 Member contributions 0 Administrative expenses 0 Current period difference between expected and actual experience 1 0 Current period effect of changes in assumptions 1 945,018 Current period difference between projected and actual investment (137,375) earnings 2 Current period recognition of prior years deferred outflows of resources 0 Current period recognition of prior years deferred inflows of resources $ 0 Total Pension Expense 981, GASB 68 allows these amounts to be recognized over the average expected remaining years of service of the active population. Since no member is active, all amounts must be recognized immediately. 2. Under GASB 68, difference between projected and actual investment earnings are recognized over five years. Actual earnings were greater than expected during 2014 by $686,874. Following is a schedule of changes in Net Pension Liability: Change in Net Pension Liability 2015 Balance at beginning of year $2,566,246 Service cost $0 Interest cost 774,708 Projected earnings on plan investments (600,723) Employer contributions (82,401) Member contributions 0 Administrative expenses 0 Current period effect of benefit changes 0 Current period difference between expected and actual experience 0 Current period effect of changes in assumptions 945,018 Current period difference between projected and actual investment earnings (686,874) Net changes $349,728 Balance at end of year $2,915,974 Page 8

14 Table 1 Projection of Fiduciary Net Position Page 9

15 Table 1 Projection of Fiduciary Net Position Page 10

16 Table 2 Actuarial Values of Projected Benefit Payments Page 11

17 Table 2 Actuarial Values of Projected Benefit Payments Page 12

18 Section 3 Actuarial Assumptions and Methods To perform an actuarial valuation of the assets and liabilities of your System, the actuary must first make assumptions with respect to each of the following items: Noneconomic assumptions The mortality rates to be experienced among retired persons. Economic assumptions Investment earnings to be realized on the funds over many years in the future. 3.1 Non-Economic Assumptions Mortality after Retirement The current tables used to predict mortality after retirement is RP-2000 table with 10 years projection, applied on static basis using Scale AA, from valuation date for annuitants. Recent valuations for the System reflected the RP-2000 table with seven year projection, applied on static basis, from valuation date for annuitants. Due to the small size of the System s population, there is insufficient data available to thoroughly test the mortality experience of the group. Based on Actuarial Standard of Practice, we recommend that the mortality be changed (as of June 30, 2015) to RP-2000 table with 10 years projection, applied on static basis using Scale AA, from valuation date for annuitants. 3.2 Economic Assumptions In setting the economic assumptions for June 30, 2012 actuarial valuation, we reviewed long-term historical inflation averages (as well as recent trends) and various empirical studies on real rates of return for the System s target asset allocation. In reviewing the economic assumptions as of June 30, 2015, we used the GEMS (General Economy and Market Simulator) Economic Scenario Generator from Conning and Company. GEMS uses a multifactor model to create internally consistent, realistic economic scenarios (paths) that reflect the current economic environment as a starting point. The model is calibrated to current economic and market conditions, and trends to a state of equilibrium. Some of the other distinguishing features of GEMS include the following: Asset class correlations may vary from year to year (just as in the real world), as well as from path to path. Results that are not normally distributed, with fatter tails, and should therefore estimate the possibility of rare events (such as the market turmoil of ) more realistically than a mean-variance model. Inflation is an output from this model, rather than an input to it. The model forecasts relatively low inflation for the current year but higher rates over longer periods of time. Page 13

19 The model generated the following average returns for the portfolio as of June 30, 2015: Asset Class Allocation 10 year Expected Return 15 year Expected Return 20 year Expected Return 25 year Expected Return 30 year Expected Return Cash 1.8% 2.51% 3.13% 3.56% 3.86% 4.08% Aggregate Bonds 42.2% 2.62% 3.56% 4.24% 4.72% 5.07% Long Corporate 56.0% 9.94% 10.52% 10.91% 11.25% 11.41% Expected Nominal Return 6.72% 7.45% 7.96% 8.36% 8.60% Inflation 2.38% 2.63% 2.79% 2.93% 3.04% On the basis of the short duration of the liabilities, we recommend no change to the current long-term investment return and inflation rate assumptions. Assumption Annual Rate Long-term investment return 6.75% Inflation rate 2.50% 3.3 Summary of Assumptions and Methods Assumptions Interest Rate: 6.75% per annum, compounded annually (adopted as of June 30, 2012). The components are 2.50% for inflation and 4.25% for the real rate of return. Inflation: 2.50% per annum. Death after Retirement: RP-2000 mortality table for annuitants with a 10-year projection, applied on static basis using Scale AA, from valuation date. Methods Asset Valuation Method for Pension Funding: The expected value of assets plus 20 percent of the difference between expected and actual earnings. Actuarial Cost Method for Pension Funding: Entry Age Normal Cost Method Amortization of Unfunded Actuarial Accrued Liability: The unfunded actuarial accrued liability is amortized on a level dollar basis over a rolling 15-year period. Page 14

20 Section 4 Summary of Pension Fund Provisions 4.1 Membership Employees of the Police and Fire Departments hired before July 1, Benefits Service Retirement Eligibility Amount Age 50 with 25 years of service, or 30 years of service regardless of age. A percentage (based on years of service) applied to average yearly salary: Years of Service Percentage of Average Yearly Salary % % % % % % Average yearly salary means the average yearly salary for the rank in the three years prior to retirement. Death Benefit Eligibility Amount Death after retirement. A percentage (based on marital status at retirement) of the member s retirement benefit to surviving spouse until death or remarriage. Years Married At Retirement Percentage of Average Yearly Salary Less than five 16.67% At least five 50.00% Cost of Living Benefits are payable to eligible children if there is no spouse eligible for death benefits. A member s pension for service retirement or duty-related disability increases during the member s lifetime in conjunction with increases in salary for the rank used in the benefit determination. Page 15

21 Section 5: Table of Member Data Distribution of Annual Benefits by Age and Gender as of June 30, 2015 Male Female Age Number Benefits Number Benefits 67 2 $ 122, , , , $ 54, , , , , , , , , , ,227 Total 18 $ 1,277,210 4 $ 149,484 Page 16