The Town of Winchester OPEB Actuarial Valuation. June 30, December, Town of Winchester OPEB Analysis Under GASB 43 & 45.

Transcription

1 The OPEB Actuarial Valuation December, OPEB report.docx

2 TABLE OF CONTENTS Section Item Page SECTION I OVERVIEW... 1 SECTION II REQUIRED INFORMATION... 3 SECTION III MEDICAL PREMIUM AND MEMBERSHIP DATA... 4 SECTION IV REQUIRED SUPPLEMENTARY INFORMATION... 7 SECTION V NET OPEB OBLIGATION... 8 SECTION VI SCHEDULE OF EMPLOYER CONTRIBUTIONS... 9 SCHEDULE A ACTUARIAL ASSUMPTIONS AND METHODS SCHEDULE B SUMMARY OF PROGRAM PROVISIONS SCHEDULE C CONSIDERATIONS OF HEALTH CARE REFORM SCHEDULE D GLOSSARY OF TERMS... 19

3 Page 1 SECTION I - OVERVIEW The has engaged Sherman Actuarial Services, LLC to prepare an actuarial valuation of their post-retirement benefits program as of. The Town provided employee data and premium information. The purposes of the valuation are to analyze the current funded position of the Town s post-retirement benefits program, determine the level of contributions necessary to assure sound funding and provide reporting and disclosure information for financial statements, governmental agencies and other interested parties. This valuation report contains information required by the Government Accounting Standards Board s Statements Nos. 43 and 45, respectively entitled Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans and Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions. Liabilities have been determined based on a 4.0% discount rate. This rate is a partial-prefunding rate, which is a blend of an 8.0% full pre-funding rate and a 3.5% no pre-funding rate. To estimate the effect of fully prefunding the obligation, we have used an alternative discount rate of 8.0%. In addition, the actuarial assumptions for mortality, healthcare trend and probability of electing coverage were modified for this valuation. If all the assumptions of the June 30, 2013 report had been met, we would have expected the Actuarial Accrued Liability to increase from $59,354,402 to $64,300,888. The difference between the expected Actuarial Accrued Liability and the actual Liability of $76,436,810 is primarily due to the changes in the coshare costs to retirees. Section II provides a summary of the principal valuation results. Section V provides a projection of funding amounts.

4 Page 2 Daniel Sherman is an Associate of the Society of Actuaries. He is a Member of the American Academy of Actuaries and meets the Qualification Standards of the Academy to render the actuarial opinions contained herein. This report has been prepared in accordance with all applicable Actuarial Standards of Practice, and we are available to answer questions about it. Respectfully Submitted, SHERMAN ACTUARIALS SERVICES, LLC December 9, 2015 Daniel Sherman, ASA, MAAA, EA CEO Date

5 Page 3 SECTION II REQUIRED INFORMATION Partial Prefunding Full Prefunding 4% 8% a) Actuarial valuation date Difference b) Actuarial Value of Assets $ 1,482,917 $ 1,482,917 $ 0 c) Actuarial Accrued Liability Active participants $ 41,119,273 $ 18,857,244 $ 22,262,029 Retired participants 37,235,922 25,982,042 11,253,880 Total $ 78,355,195 $ 44,839,286 $ 33,515,909 d) Unfunded Actuarial Liability "UAL" [ c - b ] $ 76,872,278 $ 43,356,369 $ 33,515,909 e) Funded ratio [ b / c ] 1.9% 3.3% -1.4% f) Annual covered payroll $ 54,100,000 $ 54,100,000 g) UAL as percentage of covered payroll 142.1% 80.1% h) Normal Cost for fiscal year 2015 $ 2,855,477 $ 1,010,749 $ 1,844,728 i) Amortization of UAL for fiscal year 2015 * $ 2,562,409 $ 2,369,543 $ 192,866 j) Annual Required Contribution "ARC" for fiscal year 2015 [ h + i ] $ 5,417,886 $ 3,380,292 $ 2,037,594 k) Expected benefit payments $ 2,586,417 $ 2,586,417 $ 0 * 30-year amortization, increasing 4.0% per year

6 Page 4 SECTION III MEDICAL PREMIUM AND MEMBERSHIP DATA Monthly Town Shared Premiums effective July 1, 2015 Health benefits are available to retirees through a number of plans. The following rates include associated administrative fees, if applicable. Medicare Plans (Individual): Gross Premium Cost Sharing 6/30/2015 Headcount HPHC Medicare Enhanced (pre-6/30/2004) $ % 48 HPHC Medicare Enhanced (post-6/30/2004 pre-6/30/2014) $ % 26 HPHC Medicare Enhanced (post-6/30/2014) $ % 4 HPHC Medicare Enhanced Individual +1 (pre-6/30/2004) $ % 217 HPHC Medicare Enhanced Individual +1 (post-6/30/2004 pre- 6/30/2014) $ % 121 HPHC Medicare Enhanced Individual +1 (post-6/30/2014) $ % 2 Tufts Medicare Preferred $ % 14 Medicare Part B $ % 439 Harvard Medicare Supplemental - Reduced $ % 7 Non-Medicare Plans: HPHC PPO Individual $ % 8 Family $2, % 1 HPHC HMO (pre-6/30/2004) Individual $ % 26 Individual +1 $ % 1 Family $1, % 4 HPHC HMO (post-6/30/2004 / pre-6/30/2014) Individual $ % 18 Individual +1 $ % 9 Family $1, % 7 HPHC HMO (post-6/30/2014) Individual $ % 5 Family $1, % 7 As of January 1, 2016, pre-2004 HMO retirees will be will have a 30% cost sharing arrangement. As of July 1, 2017, post 2004 HMO retirees will have a 50% cost sharing arrangement.

7 Page 5 SECTION III MEDICAL PREMIUM AND MEMBERSHIP DATA (Continued) Number of Participants Assessor's Office Board of Health Building Dept. Dept. of Public Works Engineering Fire Police Recreation Dept. Actives Retirees and Beneficiaries* Total Accrued 4% Active 204, , ,935 4,347, ,988 3,977,707 2,982, ,978 Retired 547, ,212 91,620 3,860, ,050 4,189,578 3,244, ,245 Total 752, , ,555 8,208, ,038 8,167,285 6,227,187 1,019,223 Annual Required 4% Normal Cost with interest 8,822 14,148 15, ,897 14, , ,499 48,977 Amortization of UAL with interest 24,598 12,606 13, ,428 24, , ,644 33,331 Total 33,420 26,754 29, ,325 38, , ,143 82,308 Pay-as-You-Go 48,516 17,137 12, ,061 41, , ,926 18,286 Accrued 8% Active 96, , ,651 2,174, ,427 1,917,526 1,327, ,014 Retired 405, ,837 71,068 2,715, ,883 2,783,880 2,202, ,318 Total 502, , ,719 4,890, ,310 4,701,406 3,530, ,332 Annual Required 8% Normal Cost with interest 3,792 6,455 7,048 78,621 5,208 55,229 55,930 14,621 Amortization of UAL with interest 26,529 12,777 13, ,415 25, , ,560 24,749 Total 30,321 19,232 20, ,036 31, , ,490 39,370 Pay-as-You-Go 48,516 17,137 12, ,061 41, , ,926 18,286 Note: For the amortization of UAL, assets were allocated among the departments in proportion to Accrued Liablility * Participants who have elected to receive Town subsidized benefits.

8 Page 6 SECTION III MEDICAL PREMIUM AND MEMBERSHIP DATA (Continued) Number of Participants Recreation Dept. Retirement School Town Clerk Water Sewer Enterprise All Others Total Actives Retirees and Beneficiaries* Total ,363 Accrued 4% Active 724,978 57,578 24,097, ,143 1,384,447 2,430,068 41,119,273 Retired 294,245-22,020, , ,338 1,730,860 37,235,922 Total 1,019,223 57,578 46,118, ,699 1,484,785 4,160,928 78,355,195 Annual Required 4% Normal Cost with interest 48,977 7,561 2,074,154 10,580 35,672 69,700 2,855,477 Amortization of UAL with interest 33,331 1,883 1,508,175 19,939 48, ,074 2,562,409 Total 82,308 9,444 3,582,329 30,519 84, ,774 5,417,886 Pay-as-You-Go 18,286-1,536,612 23,532 11, ,088 2,586,417 Accrued 8% Active 267,014 28,135 10,574,786 70, ,412 1,352,561 18,857,244 Retired 201,318-15,478, ,438 77,257 1,218,170 25,982,042 Total 468,332 28,135 26,053, , ,669 2,570,731 44,839,286 Annual Required 8% Normal Cost with interest 14,621 3, ,564 4,499 13,287 27,801 1,010,749 Amortization of UAL with interest 24,749 1,487 1,376,779 20,442 38, ,850 2,369,543 Total 39,370 5,182 2,111,343 24,941 51, ,651 3,380,292 Pay-as-You-Go 18,286-1,536,612 23,532 11, ,088 2,586,417 Note: For the amortization of UAL, assets were allocated among the departments in proportion to Accrued Liablility * Participants who have elected to receive Town subsidized benefits.

9 Page 7 SECTION IV REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS (a) (b) (b) - (a) (a) / (b) [(b)-(a)] / (c) Actuarial UAL as Actuarial Actuarial Accrued Unfunded Annual Percentage Valuation Value of Liability AAL Funded Covered of Covered Date Assets (AAL) (UAL) Ratio Payroll Payroll July 1, ,278, ,278, % 37,723, % June 30, ,000 93,333,604 92,958, % 42,210, % June 30, ,874 60,106,276 59,354, % 44,699, % 1,482,917 78,355,195 76,872, % 54,100, % These results are based on a discount rate of 3.50% for 2008 and 4.00% since 2011.

10 Page 8 SECTION V NET OPEB OBLIGATION GASB Statement No. 45 requires the development of Annual OPEB Cost and Net OPEB Obligation (NOO). This development is shown in the following table. DEVELOPMENT OF OPEB COST AND NET OPEB OBLIGATION (NOO) Year Annual Annual Change in Ending Required Interest on Amortization OPEB Cost Expected NOO June 30 Contribution NOO of NOO (1)+(2)-(3) Contribution* (4)-(5) NOO Balance (1) (2) (3) (4) (5) (6) (7) ,531, ,487, , ,397 4,623,941 2,216,893 2,407,048 22,938, ,417, , ,617 5,570,810 2,945,040 2,625,770 25,564, ,674,208 1,022, ,143 5,844,637 2,936,417 2,908,221 28,472, ,940,550 1,138, ,084 6,130,367 3,130,868 2,999,499 31,472,013 *Includes $470,000, $350,000 and $350,000 contributions to Trust for FYE15 through FYE17, respectively.

11 Page 9 SECTION VI SCHEDULE OF EMPLOYER CONTRIBUTIONS The Government Accounting Standards Board s Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions outlines various requirements of a funding schedule that will amortize the unfunded actuarial liability and cover normal costs. Amortization of the unfunded actuarial liability is to be based on a schedule that extends no longer than 30 years. The contribution towards the amortization of the unfunded actuarial liability may be made in level payments or in payments increasing at the same rate as salary increases. In the amortization schedules shown on the following pages, the amortization of the unfunded accrued liability is assumed to increase annually by 4.0%. The normal cost is expected to increase at the same rate as the assumed health care trend rate. The contributions were computed assuming that the contribution is paid at the end of the fiscal year. Projected benefit payments/employer contributions reflect only the benefit for those individuals now employed or retired, not any future entrants. Paragraph 12 of GASB 45 stipulates that valuations must be performed at least biennially.

12 Page 10 SECTION VI SCHEDULE OF EMPLOYER CONTRIBUTIONS (Continued)* Assumed Partial Prefunding Interest Rate of 4% Expected Fiscal Year Amortization Benefit Unfunded Ending In Normal Cost of UAL ARC Payments Liability ,855,477 2,562,409 5,417,886 2,475,040 76,872, ,998,251 2,675,957 5,674,208 2,586,417 80,278, ,148,164 2,792,386 5,940,550 2,780,868 83,771, ,305,572 2,913,361 6,218,933 2,936,940 87,400, ,470,851 3,038,107 6,508,958 3,128,878 91,143, ,644,394 3,167,614 6,812,008 3,304,126 95,028, ,826,614 3,303,702 7,130,316 3,452,811 99,111, ,017,945 3,447,067 7,465,012 3,608, ,412, ,218,842 3,595,235 7,814,077 3,832, ,857, ,429,784 3,751,602 8,181,386 4,005, ,548, ,651,273 3,919,035 8,570,308 4,185, ,571, ,883,837 4,093,878 8,977,715 4,399, ,816, ,128,029 4,278,839 9,406,868 4,597, ,365, ,384,430 4,476,646 9,861,076 4,804, ,299, ,653,652 4,690,639 10,344,291 5,020, ,719, ,936,335 4,918,784 10,855,119 5,246, ,563, ,233,152 5,163,105 11,396,257 5,482, ,893, ,544,810 5,426,315 11,971,125 5,729, ,789, ,872,051 5,704,831 12,576,882 5,987, ,144, ,215,654 6,000,270 13,215,924 6,256, ,008, ,576,437 6,317,206 13,893,643 6,538, ,516, ,955,259 6,654,564 14,609,823 6,832, ,636, ,353,022 7,013,625 15,366,647 7,140, ,408, ,770,673 7,394,250 16,164,923 7,461, ,827, ,209,207 7,798,340 17,007,547 7,797, ,950, ,669,667 8,226,548 17,896,215 8,148, ,796, ,153,150 8,683,448 18,836,598 8,514, ,503, ,660,808 9,169,579 19,830,387 8,897, ,087, ,193,848 9,688,811 20,882,659 9,298, ,664, ,753,540 10,247,262 22,000,802 9,716, ,417, ,341,217 10,838,701 23,179,918 10,153, ,161, ,958,278 11,474,046 24,432,324 10,610, ,221,374 * The contributions were computed assuming that the contribution is paid at the end of the fiscal year.

13 Page 11 SECTION VI SCHEDULE OF EMPLOYER CONTRIBUTIONS (Continued)* Assumed Full Prefunding Interest Rate of 8% Expected Fiscal Year Amortization Benefit Unfunded Ending In Normal Cost of UAL ARC Payments Liability ,010,749 2,369,543 3,380,292 2,475,040 43,356, ,061,286 2,464,325 3,525,611 2,586,417 44,265, ,114,350 2,562,898 3,677,248 2,780,868 45,145, ,170,068 2,665,414 3,835,482 2,936,940 45,989, ,228,571 2,772,031 4,000,602 3,128,878 46,789, ,290,000 2,882,912 4,172,912 3,304,126 47,539, ,354,500 2,998,228 4,352,728 3,452,811 48,228, ,422,225 3,118,157 4,540,382 3,608,188 48,848, ,493,336 3,242,883 4,736,219 3,832,942 49,389, ,568,003 3,372,598 4,940,601 4,005,424 49,838, ,646,403 3,507,502 5,153,905 4,185,668 50,182, ,728,723 3,647,802 5,376,525 4,399,738 50,409, ,815,159 3,793,714 5,608,873 4,597,726 50,502, ,905,917 3,945,463 5,851,380 4,804,624 50,445, ,001,213 4,103,282 6,104,495 5,020,832 50,219, ,101,274 4,267,413 6,368,687 5,246,769 49,805, ,206,338 4,438,110 6,644,448 5,482,874 49,181, ,316,655 4,615,634 6,932,289 5,729,603 48,322, ,432,488 4,800,259 7,232,747 5,987,435 47,203, ,554,112 4,992,269 7,546,381 6,256,870 45,795, ,681,818 5,191,960 7,873,778 6,538,429 44,067, ,815,909 5,399,638 8,215,547 6,832,658 41,986, ,956,704 5,615,624 8,572,328 7,140,128 39,513, ,104,539 5,840,249 8,944,788 7,461,433 36,609, ,259,766 6,073,859 9,333,625 7,797,198 33,230, ,422,754 6,316,813 9,739,567 8,148,072 29,329, ,593,892 6,569,486 10,163,378 8,514,735 24,853, ,773,587 6,832,265 10,605,852 8,897,898 19,747, ,962,266 7,105,556 11,067,822 9,298,304 13,947, ,160,379 7,389,778 11,550,157 9,716,727 7,389, ,368,398-4,368,398 10,153, ,586,818-4,586,818 10,610,909 0 * The contributions were computed assuming that the contribution is paid at the end of the fiscal year.

14 Page 12 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS TOWN OF WINCHESTER, ALL GROUPS Interest: Actuarial Cost Method: Full Prefund: 8.00% per year, net of investment expenses Partial Prefund: 4.00% per year, net of investment expenses Note: the 4.00% rate is a blend of an 8.0% full prefund rate and a 3.5% no prefund rate. Projected Unit Credit Medical Care Inflation: Year Rate % % % % % % 2019 & after 4.5% Amortization Period: Participation: Marital Status: 30-year level percent of pay assuming 4.0% increasing payments, closed basis for full prefunding. The amortization period is a specific number of years that is counted from one date, declining to zero with the passage of time. Under the partial funding approach, a 30-year open basis was used for the amortization. The amortization period is 30 years for all future valuations. 75% of all active employees are assumed to participate in the retiree medical plan. 75% of current actives who terminate service after age 50 with at least 10 years of service are expected to elect medical coverage starting at age % of employees are expected to elect life insurance at retirement. 80% of male employees and 60% of female employees are assumed to have a covered spouse at retirement. Wives are assumed to be three years younger than their husbands.

15 Page 13 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS (Continued) Medical Plan Selection: Current retirees and spouses who are under age 65 are assumed to remain in their current medical plan until age 65. At age 65, they are assumed to participate in post 65 plans in the same proportions as current retirees over age 65 enrolled in Medicare plans. Current retirees and spouses over age 65 remain in their current medical plan until death. Current active employees are not valued using their current medical plan. Rather they are assumed to elect medical plans at retirement in the same proportion as current retirees. For pre-65 payments a blend of pre-65 plans is used, and for post-65 payments a blend of post-65 Medicare plans is used. Medical Premiums: Medical Plan Costs: Age-Based Morbidity: It is assumed that future retirees participate in the same manner as current retirees. Current retirees over age 65 remain in their current medical plan until death for purposes of measuring their contributions. It is assumed that future retirees are Medicare eligible. It is furthermore assumed that all current retirees under 65 will participate in the Medicare plans in the same proportion as current retirees over 65. Per capita costs were developed from the Town developed monthly costs. Amounts to be received in the future for the Medicare Part D Retiree Drug Subsidy are not reflected in the valuation. The estimated gross per capita incurred claim costs for all retirees and beneficiaries for at age 64 and 65 are $12,358 and $3,580, respectively. Medicare eligible retirees per capita claims costs at age 65 is $3,437. It is assumed that future retirees participate in the same manner as current retirees. Employee cost sharing is based on current rates. Future cost sharing is based on the weighted average of the current cost sharing of retirees and beneficiaries. Gross premiums are age-graded.

16 Page 14 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS (Continued) GROUPS 1 AND 2 (NON-TEACHERS) SEPARATIONS FROM ACTIVE SERVICE: Teacher separations are based on the same rates used by the Massachusetts Teachers Retirement Board. Representative values of the assumed annual rates of withdrawal and vesting, disability, death and service retirement are as follows for non-teachers: Service Retirement Years of Rates of Age Disability Male Female Service Withdrawal Mortality: The RP-2000 Combined Healthy Table. For the period after disability retirement, the RP-2000 Combined Healthy Table set forward 2 years is used. The healthy mortality tables were projected to 2015 using scale AA.

17 Page 15 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS (Continued) GROUPS 1 AND 2 (TEACHERS) SEPARATIONS FROM ACTIVE SERVICE: Representative values of the assumed annual rates of withdrawal and vesting, disability, death and service retirement are as follows: Age Disability Years of Service Rates of Withdrawal Male Female Service Retirement Service Retirement Age < < Teachers electing the increased benefit under Chapter 114 of the Acts of 2000 were assumed to have higher rates of retirement from ages 54 to 62 if their service was greater than 30 years. These rates are the same for males and females. The rate at age 54 is The rate increases to 0.06 at age 55, 0.18 at age 56, and 0.30 at age 57. The rate for ages 58, 59, and 62 is The rate for ages 60 and 61 is Mortality: The RP-2000 Combined Healthy Table with Projection Scale AA until For the period after disability retirement, the RP-2000 Combined Healthy Table set forward 2 years is used.

18 Page 16 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS (Continued) GROUP 4 SEPARATIONS FROM ACTIVE SERVICE: Representative values of the assumed annual rates of disability, service retirement, and withdrawal are as follows: Service Years of Rates of Age Disability Retirements Service Withdrawal % % % Mortality: The RP-2000 Combined Healthy Table. For the period after disability retirement, the RP-2000 Combined Healthy Table set forward 2 years is used. Both the healthy and disabled mortality tables were projected to 2015 using scale AA.

19 Page 17 SCHEDULE B - SUMMARY OF PROGRAM PROVISIONS Benefit Types: Medical Insurance: Medical and prescription drug benefits are provided to all eligible retirees through a variety of plans as summarized in Section III. Life Insurance: The contributes a portion per month in the amount of $3.28 for retirees receiving the $4,000 basic life insurance. Premiums: Dependent Coverage: The gross premiums and the cost sharing for the various plans are outlined in Section III. Spouse benefits are payable for the lifetime of the spouse for those retired from active service. Eligibility: Retirement: Age 55 with 10 years of service, or 20 years of service. For a Group 1 employee hired on or after April 2, 2012, attainment of age 60 and completion of ten years of service. For a Group 2 employee hired on or after April 2, 2012, attainment of age 55 and completion of ten years of service. For a Group 4 employee hired on or after April 2, 2012, attainment of age 55. Termination: 50 with 10 years of service. Eligible for deferred commencement of benefits at age 65. Disability: 10 years of service and under age 55 for Ordinary. No age or service requirements for Accidental. Chapter 32B, Section 18 The has adopted Section 18, which requires all Medicareeligible retirees and spouses to transfer to a Medicare extension plan.

20 Page 18 SCHEDULE C CONSIDERATION OF HEALTH CARE REFORM Summary of Effects of Selected Provisions Early Retiree Reinsurance Program Effective 6/1/2010: Due to the short-term nature of the payments expected to be received under this program, there is no impact on long-term GASB 45 liabilities. Removal of Lifetime Maximum: This does not apply since the current medical plans have no lifetime maximums. Medicare Advantage Plans - Effective 1/1/2011: The law provides for reductions to the amounts that would be provided to Medicare Advantage plans starting in The Tufts plan is a Medicare Advantage plan, but the impact was not material due to the low number of participants. Expansion of Child Coverage to Age 26: Since few retirees cover children on retiree health plans, this provision will likely have a relatively small effect on the gross benefit cost. We have not reflected the impact of any cost increase due to the expansion of coverage. Medicare Part D Subsidy - Shrinking Medicare Prescription Drug Donut Hole - Starting 1/1/2011: RDS payments are not reflected as on ongoing offsetting item in GASB 45 valuations, and so no impact is reflected. Excise Tax on High-Cost Employer Health Plans (aka Cadillac Tax) - Effective 1/1/2018: There is considerable uncertainty about how the tax would be applied, and considerable latitude in grouping of participants for tax purposes. We have estimated the impact and included an estimated tax in the liabilities. Other: We have not identified any other specific provision of health care reform that would be expected to have a significant impact on the measured obligation. As additional guidance on the legislation is issued, we will continue to monitor any potential impacts.

21 Page 19 SCHEDULE D - GLOSSARY OF TERMS Actuarial accrued liability That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present Value of OPEB benefits and expenses which is not provided for by future Normal Costs and therefore is the value of benefits already earned. Actuarial assumptions Assumptions as to the occurrence of future events affecting OPEB costs, such as: mortality, withdrawal, disablement and retirement; changes in compensation and Government provided OPEB benefits; rates of investment earnings and asset appreciation or depreciation; procedures used to determine the Actuarial Value of Assets; characteristics of future entrants for Open Group Actuarial Cost Methods; and other relevant items. Actuarial cost method A procedure for determining the Actuarial Present Value of OPEB benefits and expenses and for developing an actuarially equivalent allocation of such value to time periods, usually in the form of a Normal Cost and an Actuarial Accrued Liability. Actuarial experience gain or 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. Amortization (of unfunded actuarial accrued liability) That portion of the OPEB plan contribution which is designed to pay interest on and to amortize the Unfunded Actuarial Accrued Liability or the Unfunded Frozen Actuarial Accrued Liability. Annual OPEB cost An accrual-basis measure of the periodic cost of an employer s participation in a defined benefit OPEB plan. Annual required contributions of the employer (ARC) The employer s periodic expense to a defined benefit OPEB plan, calculated in accordance with the parameters. It is the value of the cash contributions for a funded plan and the value of the expense entry in the profit and loss section of the financial statements. Closed amortization period (closed basis) A specific number of years that is counted from one date and, therefore, declines to zero with the passage of time. For example, if the amortization period initially is thirty years on a closed basis, twenty-nine years remain after the first year, twenty-eight years after the second year, and so forth. In contrast, an open amortization period (open basis) is one that begins again or is recalculated at each actuarial valuation date. Within a maximum number of years specified by law or policy (for example, thirty years), the period may increase, decrease, or remain stable.

22 Page 20 Covered payroll Annual compensation paid to active employees covered by an OPEB plan. If employees also are covered by a pension plan, the covered payroll should include all elements included in compensation on which contributions to the pension plan are based. For example, if pension contributions are calculated on base pay including overtime, covered payroll includes overtime compensation. Defined benefit OPEB plan An OPEB plan having terms that specify the benefits to be provided at or after separation from employment. The benefits may be specified in dollars (for example, a flat dollar payment or an amount based on one or more factors such as age, years of service, and compensation), or as a type or level of coverage (for example, prescription drugs or a percentage of healthcare insurance premiums). Funded ratio The actuarial value of assets expressed as a percentage of the actuarial accrued liability. Funding policy The program for the amounts and timing of contributions to be made by plan members, employer(s), and other contributing entities (for example, state government contributions to a local government plan) to provide the benefits specified by an OPEB plan. Healthcare cost trend rate The rate of change in per capita health claims costs over time as a result of factors such as medical inflation, utilization of healthcare services, plan design, and technological developments. Investment return assumption (discount rate) The rate used to adjust a series of future payments to reflect the time value of money. Level dollar amortization method The amount to be amortized is divided into equal dollar amounts to be paid over a given number of years; part of each payment is interest and part is principal (similar to a mortgage payment on a building). Because payroll can be expected to increase as a result of inflation, level dollar payments generally represent a decreasing percentage of payroll; in dollars adjusted for inflation, the payments can be expected to decrease over time. Level percentage of projected payroll amortization method Amortization payments are calculated so that they are a constant percentage of the projected payroll of active plan members over a given number of years. The dollar amount of the payments generally will increase over time as payroll increases due to inflation; in dollars adjusted for inflation, the payments can be expected to remain level.

23 Page 21 Net OPEB obligation The cumulative difference since the effective date of this Statement between annual OPEB cost and the employer s contributions to the plan, including the OPEB liability (asset) at transition, if any, and excluding (a) short-term differences and (b) unpaid contributions that have been converted to OPEB-related debt. It will be included as a balance sheet entry on the financial statements. Normal cost That portion of the Actuarial Present Value of OPEB benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method. It is the value of benefits to be accrued in the valuation year by active employees. OPEB-related debt All long-term liabilities of an employer to an OPEB plan, the payment of which is not included in the annual required contributions of a sole or agent employer (ARC) or the actuarially determined required contributions of a cost-sharing employer. Payments generally are made in accordance with installment contracts that usually include interest. Examples include contractually deferred contributions and amounts assessed to an employer upon joining a multiple-employer plan. Other postemployment benefits Postemployment benefits other than pension benefits. Other postemployment benefits (OPEB) include postemployment healthcare benefits, regardless of the type of plan that provides them, and all postemployment benefits provided separately from a pension plan, excluding benefits defined as termination offers and benefits. Pay-as-you-go A method of financing a OPEB plan under which the contributions to the plan are generally made at about the same time and in about the same amount as benefit payments and expenses becoming due. Required supplementary information (RSI) Schedules, statistical data, and other information that are an essential part of financial reporting and should be presented with, but are not part of, the basic financial statements of a governmental entity.