BOARD OF TRUSTEES Agenda Item Description

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1 BOARD OF TRUSTEES Agenda Item Description BOARD MEETING DATE: 5/12/2016 SUBJECT: Acceptance of Napa Valley Community College District Governmental Accounting Standards Board (GASB) Actuarial Valuation and Approval of Revised Funding Plan for Other Post-Employment Benefits (OPEB) PROPOSAL: In December 2011, the Board approved establishment of a trust account through membership in the CalPERS California Employers Retiree Benefit Trust Program (CERBT) and an OPEB Funding Plan for that trust account. CERBT membership requires the District to provide an actuarial valuation of its retiree health program pursuant to GASB Statements No. 43 and 45. To comply with GASB requirements, the District contracted with Nyhart Epler to provide an actuarial valuation to measure the liability for retiree health benefits and to determine the District s accounting requirements for OPEB. The OPEB Funding Plan has been revised per the new actuarial valuation of health benefits liability. RECOMMENDATION: It is recommended that the Board of Trustees accept the Napa Valley Community College District Actuarial Valuation Report for the Retiree Health Program, dated June 30, 2015, and approve a revised OPEB Funding Plan. SUPPORTING INFORMATION: Background & Summary: The CalPERS OPEB (CERBT) Fund was established by the District in June 2011 and an OPEB Funding plan was approved by the Board in December These actions followed an audit finding from June 30, 2010 that recommended the Board adopt a formal policy regarding the funding of OPEB. The OPEB Funding Plan was developed through shared governance by the Budget Committee. The trust was opened with an initial deposit of $409,215. Subsequent deposits of $1,433,030 and interest earned have brought the account balance to $2,024,167 as of December 31, The District s liability for retiree health benefits, as of June 30, 2015, is $42.7 million. This represents the present value of all contributions and benefits projected to be paid for current and future retirees. The District s current liability reflects an increase of $3.6 million due to updated premium, plan, and census information since June of After adjustments for trust account deposits, the current unfunded actuarial accrued liability is $29.2 million. Agenda Item Transmittal Page 1 of 28 for this agenda item Page 1 of 2

2 Fiscal Impact of Proposal: If approved, the revised OPEB funding plan will indicate trust account deposits of $254,608 in fiscal year 15/16 and $334,393 in fiscal year 16/17. Submitted By: Robert W. Parker Vice President, Administrative Services Approved for Consideration By: Ronald D. Kraft, Ph.D Superintendent/President Attachments Yes No Revised OPEB Funding Plan Actuarial Valuation - Retiree Health Program - As of June 30, 2015 Agenda Item Transmittal Page 2 of 28 for this agenda item Page 2 of 2

3 Napa Valley Community College District Other Post Employment Benefit (OPEB) Liability Funding Plan An Actuarial Valuation was performed (by Nyhart) and completed in January of 2016 for the period ending June 2015 and resulted in the following OPEB data: Currently total liability as of June 30, 2015: Annual Required Contribution (ARC): ARC Calculations NVC Budget: Annual "Pay As You Go" installment $1,128,000 $ $ 42,701,202 3,271,983 Categorical & Grant Program payments Total ARC Shortfall + $472,016 = $1,600,016 - $3,271,983 = -$1,671,967 The Budget Committee proposes the following ten-year funding plan to address ongoing OPEB liabilities: 1 All categorical and grant funded programs will budget for their projected allowable OPEB costs on an annual basis. These budgeted funds will be deposited in the CERBT trust program before the end of the current fiscal year, but may be adjusted as deemed necessary. 2 All projected costs for current retiree benefits liability will be budgeted on an annual basis ("Pay As You Go") 3 The remaining un-funded portion of the ARC will be budgeted annually from un-restricted general funds in increasing percentages of 10% per year. See sample funding plan below. Sample ten-year funding plan of ARC shortfall based on June 2015 Actuarial Valuation): (Please note, the amount of ARC liability will vary based on future actuarial studies.) Year Projected Shortfall $1,671,967 $1,671,967 $1,671,967 $1,671,967 $1,671,967 $1,671,967 $1,671,967 $1,671,967 $1,671,967 % to be funded 20% 30% 40% 50% 60% 70% 80% 90% 100% Total per Year $334,393 $501,590 $668,787 $835,984 $1,003,180 $1,170,377 $1,337,574 $1,504,770 $1,671,967 PAYMENTS into CERBT Year TOTAL Amount Budgeted $1,808,294 $328,000 $490,956 $654,608 $254,608 $0 $0 $0 $0 $3,536,466 Amount Paid $409,215 $561,580 $616,842 $254,608 $0 $0 $0 $0 $0 $1,842,245 PAY as YOU GO $1,108,320 $1,092,855 $1,043,312 $1,013,902 Page 3 of 28 for this agenda item $4,258,389

4 Napa Valley Community College District Other Post Employment Benefit (OPEB) Liability Funding Plan The Budget Committee further proposes that the Board of Trustees consider the following additional funding plan options: 1 Upon acceptance of the audited financial statements of the previous fiscal year, the Board of Trustees will consider an additional deposit to CERBT equal to 1% of the prior year un-restricted general fund expenditures in any year where the un-restricted fund balance (reserve) exceeds 10%. 2 Review and revise this Funding Plan upon receipt of each updated Actuarial Valuation, as needed. Submitted for Approval to the NVC Budget Committee on April 28, 2016 Submitted for Approval to the Board of Trustees on May 12, 2016 Page 4 of 28 for this agenda item

5 530 B Street, Suite 900 San Diego, CA (p) (f ) February 3, 2016 PRIVATE Ms. Glenna Aguada Director, Fiscal Services Napa Valley Community College District 2277 Napa-Vallejo Hwy Napa, CA Re: Napa Valley Community College District GASB Actuarial Valuation Dear Ms. Aguada: We are presenting our final report of the June 30, 2015 GASB actuarial valuation conducted on behalf of the Napa Valley Community College District (the District ) for its retiree health program. The purpose of the report is to measure the District s liability for retiree health benefits and to determine the District's accounting requirements under the Government Accounting Standard Board Statements No. 43 & 45 (GASB 43 & 45) in regard to unfunded liabilities for retiree health benefits. The objective of GASB 45 is to improve the information in the financial reports of government entities regarding their postemployment benefits (OPEB) including retiree health benefits. The objective of GASB 43 is to establish uniform reporting for OPEB Plans. The Nyhart Company is an employee owned actuarial, benefits and compensation consulting firm specializing in group health and retiree health and qualified pension plan valuations. We have set forth the results of our valuation in this report. We have enjoyed working on this assignment and are available to answer any questions. Sincerely, NYHART Marilyn K Jones, ASA, MAAA, EA, FCA Consulting Actuary MKJ:rl Enclosure Indianapolis Page 5 of Chicago 28 for this Kansas agenda City Atlanta item St. Louis San Diego Houston Denver An Alliance Benefit Group Licensee

6 Napa Valley Community College District Actuarial Valuation Retiree Health Program As of June 30, 2015 January 2016 Prepared By: Nyhart 530 B Street, Suite 900 San Diego, CA (619) Indianapolis Chicago Kansas City Atlanta St. Louis San Diego Houston Denver An Alliance Benefit Group Licensee Page 6 of 28 for this agenda item

7 Napa Valley Community College District Retiree Health Program GASB Actuarial Valuation As of June 30, 2015 Table of Contents Page Section I. Executive Summary... 1 Section II. Financial Results... 3 Section III. Projected Cash Flows... 8 Section IV. Funding Analysis Section V. Benefit Plan Provisions Section VI. Valuation Data Section VII. Actuarial Assumptions and Methods Section VIII. Actuarial Certification Section IX. Definitions K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 7 of 28 for this agenda item

8 SECTION I. EXECUTIVE SUMMARY Background The Napa Valley Community College District (the District ) selected Nyhart to perform an actuarial valuation of its retiree health program. The purpose of the actuarial valuation is to measure the District s liability for retiree health benefits and to determine the District s accounting requirements for other postemployment benefits (OPEB) under Governmental Accounting Standards Board Statements No. 43 & 45 (GASB 43 & GASB 45). GASB 45 requires accrual accounting for the expensing of OPEB. GASB 43 requires additional financial disclosure for funded OPEB Plans. The District currently provides health benefits to approximately 277 active employees and 228 retirees. Eligibility for retiree health benefits varies by employee group and date of hire. The District s contractual obligation is to pay for the medical premium of the retiree only and eligible surviving spouses. At age 65 and older, eligible retirees must elect a plan that provides supplemental benefits to Medicare. A description of the benefits provided and the District s financial contribution can be found in Section V of this report. The District participates in the CalPERS Health Program for its retiree medical coverage. In general, the premium rates charged to participating employers are the same for each medical plan within each region (or community ) and are the same for both active and retired employees covered under the same medical plan. An implied rate subsidy can exist when the non-medicare rates for retirees are the same as for active employees. Since non-medicare eligible retirees are typically much older than active employees, their actual medical costs are typically higher than for active employees. GASB 45 requires that implied rate subsidies be considered in the valuation of medical costs. In past valuations the liability for the implicit rate subsidy was excluded from the valuation as the GASB had provided for an exemption for community-rated plans. This valuation includes an estimate of the liability for the implicit rate subsidy. Results of the Retiree Health Valuation We have determined that the amount of the actuarial liability for the District's retiree health plan, as of June 30, 2015, is $42,701,202 (including $3,555,871 for the rate subsidy). This value is based on an assumed discount rate of 5%. The amount represents the present value of all benefits projected to be paid by the District for current and future retirees. If the District were to place this amount in a fund earning interest at the rate of 5% per year, and all other actuarial assumptions were met, the fund would have enough to pay all expected benefits. This includes benefits for the current retirees as well as the current active employees expected to retire in the future. The valuation does not consider employees not yet hired as of the valuation date. If the amount of the actuarial liability is apportioned into past service, current service and future service components; the past service component (actuarial accrued liability) is $31,340,402 (including $2,234,299 for the rate subsidy), the current service component (normal cost or current year accrual) is $1,051,707 (including $120,938 for the rate subsidy) and the future service component (not yet accrued liability) is $10,309,093 (including $1,200,634 for the rate subsidy). Page 8 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 1

9 Changes from Prior Valuation The results of the valuation reflect updated census, plan and premium information. In addition, the mortality table applicable to PERS employees was updated to reflect the mortality improvement from the recent CalPERS experience study, the initial trend rate was increased by 0.5% and the valuation includes the liability associated with the implicit rate subsidy. A reconciliation of the approximate change in the actuarial liability from the prior valuation is provided in the table below: June 30, 2013 $38.9 Million Increase due to passage of time (interest less benefits paid) 1.6 Million Decrease due to healthcare experience gain ( 1.5 Million) Decrease due to net demographic experience gain (primarily more favorable withdrawal) ( 4.4 Million) Increase due to new entrants (not included in prior valuation) 2.2 Million Increase due to updated mortality and initial healthcare trend 2.3 Million June 30, 2015 $39.1 Million Increase due to implicit rate subsidy 3.6 Million June 30, 2015 $42.7 Million Funding The District joined the California Employers Retiree Benefit Trust (CERBT). The District has made some payments since joining the CERBT but has not reported a policy to fully fund the annual required contribution on an ongoing basis. The valuation was performed using a 5% discount rate which reflects the reported CERBT assets but does not assume any future pre-funding payments. The actuarial value of assets is equal to the market value of assets at June 30, 2015 or $2,101,343. The unfunded actuarial accrued liability (UAAL) at June 30, 2015 is $29,239,059. The plan s funded ratio is 7%. The UAAL as a percentage of payroll is 154%. The District also requested the measurement of the liability and annual required contribution using a discount rate to reflect pre-funding the retiree health benefits through the California Employers Retiree Benefit Trust (CERBT). The CERBT provided participating employers with three investment allocation strategies. The expected rate of return of assets is dependent on the funding strategy of a participating employer and which investment allocation strategy is selected. For employers fully funding their annual required contribution, strategy 1 has an expected yield of 7.28%, strategy 2 has an expected yield of 6.73% and strategy 3 has an expected yield of 6.12%. The discount rates are based on the CERBT s published median rates of return without any additional margin for adverse deviation. Alternative results using these discount rates assuming the District prefunds its annual required contribution on an ongoing basis are provided in Section IV of the report. Annual Required Contribution (ARC) Under GASB 45, the District is required to expense for its retiree benefits using accrual accounting. The accrual expense or annual required contribution under GASB terminology is generally accrued over the working career of employees. The annual required contribution for the District s 2015/2016 fiscal year is $3,271,983 (including $292,629 for the rate subsidy). This amount is comprised of the present value of benefits accruing in the fiscal year (normal cost) plus a 23-year amortization (on a level-dollar basis) of the unfunded actuarial accrued liability (past service liability) at June 30, Thus, it represents a means to expense the plan's liabilities in an orderly manner. The additional net OPEB obligation at the end of the fiscal year will reflect any actual retiree health contributions or premiums including amounts associated with the rate subsidy and any GASB eligible pre-funding amounts made by the District during the period. Page 9 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 2

10 Actuarial Basis The actuarial valuation is based on the assumptions and methods outlined in Section VII of the report. To the extent that a single or a combination of assumptions is not met the future liability may fluctuate significantly from its current measurement. As an example, the healthcare cost increase anticipates that the rate of increase in medical cost will be at moderate levels and decline over several years. Increases higher than assumed would bring larger liabilities and expensing requirements. A 1% increase in the healthcare trend rate for each future year would result in an increase of 19% in the annual required contribution. Another key assumption used in the valuation is the discount (interest) rate which is based on the expected rate of return of plan assets. The valuation is based on a discount rate of 5%. A 0.5% decrease in the discount rate would increase the annual required contribution by 6%. A 0.5% increase in the discount rate would decrease the annual required contribution by 5%. GASB 45 requires that implicit rate subsidies be considered in the valuation of medical costs. An implicit rate subsidy occurs when the rates for retirees are the same as for active employees. Since pre-medicare retirees are typically much older than active employees, their actual medical costs are almost always higher than for active employees. The valuation results were determined using the higher expected costs associated with retired employees. Scheduled to take effect in 2020, the "Cadillac Tax" is a 40% non-deductible excise tax on employersponsored health coverage that provides high-cost benefits. For pre-65 retirees and individuals in highrisk professions, the threshold amounts are currently $11,850 for individual coverage and $30,950 for family coverage. For insured plans, the insurance company is responsible for payment of the excise tax. For self-funded plans, the employer is responsible for payment of the excise tax. The valuation does not include any additional liability for the Cadillac Tax. The valuation is based on the census information provided by the District. To the extent that the data provided lacks clarity in interpretation or is missing relevant information, this can result in liabilities different than those presented in the report. Often missing or unclear information is not identified until future valuations. Page 10 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 3

11 SECTION II. FINANCIAL RESULTS A. Valuation Results as of June 30, 2015 The table below presents the employer liabilities associated with the District s retiree health benefits determined in accordance with GASB 43 & 45. The actuarial liability (AL) is the present value of all benefits projected to be paid under the program. The actuarial accrued liability (AAL) reflects the amount attributable to the past service of current employees and retirees. The normal cost reflects the accrual attributable for the current period. Certificated Employees Classified Employees Management & Other Employees District Total 1. Actuarial Liability (AL) Actives $10,141,584 $12,672,288 $2,835,402 $25,649,274 Retirees 6,908,392 7,575,537 2,567,999 17,051,928 Total AL $17,049,976 $20,247,825 $5,403,401 $42,701,202 Attributable to Subsidy $ 1,205,799 $ 1,917,337 $ 432,735 $ 3,555,871 Direct Contribution $15,844,177 $18,330,488 $4,970,666 $39,145, Actuarial Accrued Liability (AAL) Actives $ 5,742,764 $ 6,808,361 $1,737,349 $14,288,474 Retirees 6,908,392 7,575,537 2,567,999 17,051,928 Total AAL $12,651,156 $14,383,898 $4,305,348 $31,340,402 Attributable to Subsidy $ 706,529 $ 1,221,701 $ 306,069 $ 2,234,299 Direct Contribution $11,944,627 $13,162,197 $3,999,279 $29,106, Normal Cost $ 423,616 $ 523,752 $ 104,339 $1,051,707 Attributable to Subsidy $ 46,722 $ 62,292 $ 11,924 $ 120,938 Direct Contribution $ 376,894 $ 461,460 $ 92,415 $ 930,769 No. of Active Employees Average Age Average Past Service No. of Retired Employees Average Age Average Retirement Age B. Reconciliation of Market Value of Plan Assets The reconciliation of Plan Assets for the last two fiscal years is presented below: 6/30/2014 6/30/ Beginning market value of assets $1,042,517 $1,850, Contributions 616, , Fund earnings (gross) 192,913 ( 2,092) 4. Benefit payments ( 0) ( 0) 5. Administrative expenses ( 1,579) ( 1,866) 6. Ending market value of assets $1,850,693 $2,101,343 C. Development of Actuarial Value of Assets The actuarial value of assets is based on the market value of assets and is equal to $2,101,343 at June 30, Page 11 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 4

12 D. Development of Unfunded Actuarial Accrued Liability June 30, 2015 The table below presents the development of the unfunded actuarial accrued liability. The unfunded actuarial accrued liability (UAAL) is the excess of the actuarial accrued liability (AAL) over the actuarial value of eligible plan assets. Eligible assets under GASB 45 must be segregated and secured for the exclusive purpose of paying for the retiree health benefits. Direct Contribution Rate Subsidy Total 1. Actuarial Accrued Liability (AAL) $29,106,103 $2,234,299 $31,340, Actuarial Value of Assets ( 2,101,343) ( 0) ( 2,101,343) 3. Unfunded Actuarial Accrued Liability (UAAL) $27,004,760 $2,234,299 $29,239,059 E. Amortization of Unfunded Actuarial Accrued Liability The amortization of the UAAL component of the annual contribution (ARC) is being amortized over a period of 23 years on a level-dollar basis. Under the level-dollar method, the amortization payment is scheduled to remain constant in future years. 1. Unfunded AAL (UAAL) $27,004,760 $2,234,299 $29,239, Amortization Factor Amortization of UAAL $ 2,002,047 $ 165,644 $ 2,167,691 F. Annual Required Contribution (ARC) The table below presents the development of the annual required contribution (ARC) under GASB 45 for the fiscal year ending June 30, 2016 and estimated for the fiscal year ending June 30, FY2015/ Normal Cost at End of Fiscal Year $ 977,307 $ 126,985 $ 1,104, Amortization of Surplus 2,002, ,644 2,167, Annual Required Contribution (ARC) $ 2,979,354 $ 292,629 $ 3,271,983 FY2016/ Normal Cost at End of Fiscal Year $ 1,026,172 $ 133,334 $ 1,159, Amortization of Surplus 2,002, ,644 2,167, Annual Required Contribution (ARC) $ 3,028,219 $ 298,978 $ 3,327,197 G. Required Supplementary Information (Funding 30, 2015) The table below presents a sample disclosure of the funding progress as of the beginning of the fiscal year. 1. Actuarial Accrued Liability (AAL) $31,340, Actuarial Valuation of Assets (AVA) ( 2,101,343) 3. Unfunded Actuarial Accrued Liability (UAAL) $29,239, Funded Ratio 7% 5. Estimated Payroll $18,972, UAAL as Percentage of Covered Payroll 154% Page 12 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 5

13 H. Sensitivity Analysis: 1. The impact of a 0.5% decrease in the discount (interest) rate on the District s actuarial liability, actuarial accrued liability, unfunded actuarial accrued liability and the annual required contribution is provided below: Percentage (%) Increase Dollar ($) Increase - Actuarial Liability 10% $ 4,095,803 - Actuarial Accrued Liability 8% $ 2,363,536 - Unfunded Actuarial Accrued Liability 8% $ 2,363,536 - Annual Required Contribution (Expense) 6% $ 191, The impact of a 0.5% increase in the discount (interest) rate on the District s actuarial liability, actuarial accrued liability, unfunded actuarial accrued liability and the annual required contribution is provided below: Percentage (%) Decrease Dollar ($) Decrease - Actuarial Liability (8%) ($ 3,563,046) - Actuarial Accrued Liability (7%) ($ 2,105,305) - Unfunded Actuarial Accrued Liability (7%) ($ 2,105,305) - Annual Required Contribution (Expense) (5%) ($ 168,650) 3. The impact of a 1% in the healthcare trend rates on the District s actuarial liability, actuarial accrued liability, unfunded actuarial accrued liability and the annual required contribution is provided below: Percentage (%) Increase Dollar ($) Increase - Actuarial Liability 19% $ 8,318,881 - Actuarial Accrued Liability 15% $ 4,708,770 - Unfunded Actuarial Accrued Liability 16% $ 4,708,770 - Annual Required Contribution (Expense) 19% $ 617,599 I. Categorical Expenses The District may be eligible to charge some portion of the accrual for retiree health benefit costs for active employees under specific categorical programs subject to certain restrictions. Estimates of the retiree health benefit accrual with and without an accrual for past service costs and net of the estimated rate subsidy to be paid as a portion of the active premiums are provided below: Fiscal Year 2015/2016 Full Accrual 1. Number of Active Employees Estimated Annual Payroll $18,972, Retiree Health Benefit Accrual without Past Service Component - Accrual Per Employee Per Year $3,987 - Accrual as % of Annual Payroll 5.8% 4. Retiree Health Benefit Accrual with Active Past Service Component - Accrual Per Employee Per Year $7,554 - Accrual as % of Annual Payroll 11.0% 5. Retiree Health Benefit Accrual with Active & Retiree Past Service Component - Accrual Per Employee Per Year $11,812 - Accrual as % of Annual Payroll 17.3% Page 13 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 6

14 Fiscal Year 2016/2017 Full Accrual 1. Number of Active Employees Estimated Annual Payroll $19,541, Retiree Health Benefit Accrual without Past Service Component - Accrual Per Employee Per Year $4,186 - Accrual as % of Annual Payroll 5.9% 4. Retiree Health Benefit Accrual with Active Past Service Component - Accrual Per Employee Per Year $7,754 - Accrual as % of Annual Payroll 11.0% 5. Retiree Health Benefit Accrual with Active & Retiree Past Service Component - Accrual Per Employee Per Year $12,012 - Accrual as % of Annual Payroll 17.0% Page 14 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 7

15 SECTION III. PROJECTED CASH FLOWS The valuation process includes the projection of the expected benefits to be paid under the District s retiree health benefits program. The expected cash flows takes into account the likelihood of each employee reaching age for eligibility to retire and receive health benefits. The projection is performed by applying the turnover assumption to each active employee for the period between the valuation date and early retirement date. Once the employees reach the earliest retirement date, a certain percent are assumed to enter the retiree group each year. All remaining employees are assumed to have retired by age 65 at the latest. Employees already over age 65 as of the valuation date are assumed to retire immediately. The per capita cost as of the valuation date is projected to increase at the applicable healthcare trend rates both before and after the employee's assumed retirement. The projected per capita costs are multiplied by the number of expected future retirees in a given future year to arrive at the cash flow for that year. Also, a certain number of retirees will leave the group each year due to expected deaths or reaching a limit age and this group will cease to be included in the cash flow from that point forward. Because this is a closedgroup valuation, the number of retirees dying each year will eventually exceed the number of new retirees, and the size of the cash flow will begin to decrease and eventually go to zero. The expected employer cash flows for selected future years are provided in the following table. Page 15 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 8

16 Projected Employer Cash Flows Representative Years Fiscal Year Future Retirees Retired Employees Total Subsidy District Total 2015/16 $ 77,760 $ 1,027,040 $ 1,104,800 $ 179,866 $ 1,284, /17 $ 197,202 $ 1,021,872 $ 1,219,074 $ 198,293 $ 1,417, /18 $ 303,781 $ 1,042,810 $ 1,346,591 $ 219,707 $ 1,566, /19 $ 365,407 $ 1,065,181 $ 1,430,588 $ 224,092 $ 1,654, /20 $ 443,582 $ 1,059,913 $ 1,503,495 $ 226,198 $ 1,729, /21 $ 496,545 $ 1,065,293 $ 1,561,838 $ 207,474 $ 1,769, /22 $ 578,295 $ 1,066,835 $ 1,645,130 $ 213,136 $ 1,858, /23 $ 663,598 $ 1,078,717 $ 1,742,315 $ 236,172 $ 1,978, /24 $ 697,980 $ 1,079,030 $ 1,777,010 $ 205,036 $ 1,982, /25 $ 742,909 $ 1,093,091 $ 1,836,000 $ 188,408 $ 2,024, /26 $ 830,709 $ 1,087,899 $ 1,918,608 $ 195,073 $ 2,113, /27 $ 910,025 $ 1,095,577 $ 2,005,602 $ 209,628 $ 2,215, /28 $ 971,365 $ 1,099,447 $ 2,070,812 $ 210,695 $ 2,281, /29 $ 1,030,007 $ 1,089,916 $ 2,119,923 $ 194,032 $ 2,313, /30 $ 1,128,944 $ 1,085,661 $ 2,214,605 $ 212,171 $ 2,426, /31 $ 1,237,934 $ 1,067,062 $ 2,304,996 $ 222,661 $ 2,527, /32 $ 1,328,270 $ 1,053,503 $ 2,381,773 $ 227,794 $ 2,609, /33 $ 1,406,153 $ 1,034,881 $ 2,441,034 $ 218,431 $ 2,659, /34 $ 1,532,146 $ 1,011,126 $ 2,543,272 $ 251,530 $ 2,794, /35 $ 1,646,573 $ 982,226 $ 2,628,799 $ 272,196 $ 2,900, /36 $ 1,759,528 $ 948,356 $ 2,707,884 $ 298,959 $ 3,006, /37 $ 1,850,267 $ 904,745 $ 2,755,012 $ 295,731 $ 3,050, /38 $ 1,928,986 $ 861,233 $ 2,790,219 $ 281,820 $ 3,072, /39 $ 1,981,543 $ 814,478 $ 2,796,021 $ 249,707 $ 3,045, /40 $ 2,048,007 $ 764,302 $ 2,812,309 $ 233,377 $ 3,045, /41 $ 2,078,327 $ 711,651 $ 2,789,978 $ 185,241 $ 2,975, /42 $ 2,120,877 $ 657,556 $ 2,778,433 $ 149,162 $ 2,927, /43 $ 2,206,891 $ 602,874 $ 2,809,765 $ 161,805 $ 2,971, /44 $ 2,255,070 $ 548,503 $ 2,803,573 $ 151,879 $ 2,955, /45 $ 2,303,774 $ 494,942 $ 2,798,716 $ 152,439 $ 2,951, /46 $ 2,349,603 $ 443,196 $ 2,792,799 $ 147,404 $ 2,940, /51 $ 2,392,783 $ 228,857 $ 2,621,640 $ 57,389 $ 2,679, /56 $ 2,280,452 $ 99,780 $ 2,380,232 $ 23,148 $ 2,403, /61 $ 1,999,047 $ 35,145 $ 2,034,192 $ 0 $ 2,034, /66 $ 1,604,052 $ 10,408 $ 1,614,460 $ 0 $ 1,614, /71 $ 1,134,150 $ 2,703 $ 1,136,853 $ 0 $ 1,136, /76 $ 699,630 $ 901 $ 700,531 $ 0 $ 700, /81 $ 363,416 $ 314 $ 363,730 $ 0 $ 363, /86 $ 142,022 $ 0 $ 142,022 $ 0 $ 142, /91 $ 35,339 $ 0 $ 35,339 $ 0 $ 35, /96 $ 2,554 $ 0 $ 2,554 $ 0 $ 2, /01 $ 0 $ 0 $ 0 $ 0 $ 0 All Years $97,634,886 $31,637,222 $129,272,108 $7,385,705 $136,657,813 Page 16 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 9

17 SECTION IV. FUNDING ANALYSIS The District also requested the measurement of the liability and annual required contribution using a discount rate to reflect pre-funding the retiree health benefits through the California Employers Retiree Benefit Trust (CERBT). The District has joined the CERBT and has made contributions to the CERBT. The CERBT provides three investment allocation strategies. The expected rate of return of assets is dependent on the funding strategy of a participating employer and the investment allocation strategy selected. For employers fully funding their annual required contribution, strategy 1 has a CERBT median yield of 7.28%, strategy 2 has a CERBT median yield of 6.73% and strategy 3 has a CERBT median yield of 6.312%. The table below presents the valuation results assuming the District establishes a funding policy to fully fund its annual required contribution under each of the CERBT available investment allocation strategies. Discount Rate Liabilities 7.28% 6.73% 6.12% 1. Actuarial Liability (AL) Actives $16,004,956 $17,792,494 $20,123,044 Retirees 13,640,960 14,348,342 15,211,644 Total AL $29,645,916 $32,140,836 $35,334, Actuarial Accrued Liability (AAL) Actives $ 9,716,488 $10,596,673 $11,719,249 Retirees 13,640,960 14,348,342 15,211,644 Total AAL $23,357,448 $24,945,015 $26,930, Actuarial Value of Assets ( 2,101,343) ( 2,101,343) ( 2,101,343) 4. Unfunded AAL (UAAL) $21,256,105 $22,843,672 $24,829, Amortization Factor (23 years/level dollar) Amortization of UAAL $ 1,931,025 $ 1,980,057 $ 2,039,887 FY2015/16 Annual Required Contribution (ARC) 1. Normal Cost at End of Year $ 712,375 $ 785,976 $ 881, Amortization of UAAL at End of Year 1,931,025 1,980,057 2,039, Annual Required Contribution (ARC) $ 2,643,400 $ 2,766,033 $ 2,921, Estimated Payroll $18,972,000 $18,972,000 $18,972, ARC as % of Payroll 13.9% 14.6% 15.4% FY2016/17 Annual Required Contribution (ARC) 1. Normal Cost at End of Year $ 764,236 $ 838,872 $ 935, Amortization of UAAL at End of Year 1,931,025 1,980,057 2,039, Annual Required Contribution (ARC) $ 2,695,261 $ 2,818,929 $ 2,975, Estimated Payroll $19,541,000 $19,541,000 $19,541, ARC as % of Payroll 13.8% 14.4% 15.2% We have listed below some financial advantages that may be achieved pre-funding retiree health benefits. Of course, pre-funding will have to be weighed against alternative uses of the contribution amounts. Napa Valley College Board of Trustees The earlier contributions are made; the less District contributions in aggregate will have to be made to fulfill its obligations. Depending on the investment strategy for funds, higher discount rate may be used for the actuarial valuation resulting in lower OPEB liabilities. Pre-funding can mitigate any resulting adverse impact on credit rating that could result from disclosure of OPEB liabilities. Pre-funding may provide additional benefit security to current and future retirees. Page 17 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 10

18 SECTION V. BENEFIT PLAN PROVISIONS This study analyzes the postretirement health benefit plans provided by the District. The postretirement health plans and the District s obligation vary by employee group as described below. Faculty, Administration and Confidential Employees The District provides medical coverage to the eligible retiree and any eligible dependent as a continuation of the medical plans for the District s active employees. At age 65 and older, eligible retirees must elect a plan that provides supplemental benefits to Medicare. No District-paid dental or vision benefits are provided upon retirement. For employees hired prior to November 1, 2005, eligibility for retiree medical benefits requires retirement under PERS or STRS and at least 5 years of eligible service at retirement. For employees hired after October 31, 2005, eligibility for retiree medical benefits requires retirement under PERS or STRS and at least 15 years of eligible service at retirement. Effective July 1, 2010, employees hired into the Superintendent/president classification are eligible after 5 years of eligible service at retirement. Retirees can elect medical coverage from a menu of options for themselves and their dependents. The District s contractual obligation is to pay for the coverage of the retiree only regardless of the medical plan he/she elects for coverage. The retiree is responsible for any coverage elected for his/her eligible dependents. Upon the death of the retiree, an eligible spouse may continue medical coverage. While under CalPERS, the District s contractual obligation is to pay for the full cost of the continuation of coverage for an eligible spouse if the spouse is receiving a PERS or STRS pension under the retiree s name, and qualifies for this CalPERS benefit. Classified Employees The District provides medical coverage to the eligible retiree and any eligible dependent as a continuation of the medical plans for the District s active employees. At age 65 and older, eligible retirees must elect a plan that provides supplemental benefits to Medicare. No District-paid dental or vision benefits are provided upon retirement. For employees hired prior to December 13, 2005, eligibility for retiree medical benefits requires retirement under PERS and at least 5 years of eligible service at retirement. For employees hired after December 12, 2005, eligibility for retiree medical benefits requires retirement under PERS and at least 15 years of eligible service at retirement. Retirees can elect medical coverage from a menu of options for themselves and their dependents. The District s contractual obligation is to pay for the coverage of the retiree only regardless of the medical plan he/she elects for coverage. The retiree is responsible for any coverage elected for his/her eligible dependents. Upon the death of the retiree, an eligible spouse may continue medical coverage. While under CalPERS, the District s contractual obligation is to pay for the full cost of the continuation of coverage for an eligible spouse if the spouse is receiving a PERS or STRS pension under the retiree s name, and qualifies for this CalPERS benefit. Page 18 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 11

19 Premium Costs The District participates in the CalPERS Health Program, a community-rated program for its medical coverage. The following tables summarize the 2015 and 2016 monthly premiums for the primary medical plans in which the retirees are enrolled Bay Area Kaiser BS HMO BS NVP HMO PERS Care PERS Choice PERS Select Retiree Only $ $ $ $ $ $ Retiree Plus Spouse $1, $1, $1, $1, $1, $1, Retiree Plus Family $1, $2, $2, $2, $1, $1, Retiree Only- Medicare $ $ $ $ $ $ Retiree Plus Spouse Medicare $ $ $ $ $ $ Bay Area (Continued) UHC HMO Anthem HMO Select Anthem HMO Traditional Retiree Only $ $ $ Retiree Plus Spouse $ 1, $1, $1, Retiree Plus Family $2, $1, $2, Retiree Only- Medicare $ $ $ Retiree Plus Spouse Medicare $ $ $ Out of State Kaiser PERS Care PERS Choice Retiree Only $ $ $ Retiree Plus Spouse $1, $1, $1, Retiree Plus Family $2, $1, $1, Retiree Only- Medicare $ NA NA Retiree Plus Spouse Medicare $ NA NA 2016 Bay Area Kaiser BS HMO BS NVP HMO PERS Care PERS Choice PERS Select Retiree Only $ $1, $1, $ $ $ Retiree Plus Spouse $1, $2, $2, $1, $1, $1, Retiree Plus Family $1, $2, $2, $2, $2, $1, Retiree Only- Medicare $ N/A N/A $ $ $ Retiree Plus Spouse Medicare $ N/A N/A $ $ $ Bay Area (Continued) UHC HMO Anthem HMO Select Anthem HMO Traditional Retiree Only $ $ $ Retiree Plus Spouse $1, $1, $1, Retiree Plus Family $2, $1, $2, Retiree Only- Medicare $ N/A N/A Retiree Plus Spouse Medicare $ N/A N/A 2016 Out of State Kaiser PERS Care PERS Choice Retiree Only $ $ $ Retiree Plus Spouse $1, $1, $1, Retiree Plus Family $2, $1, $1, Retiree Only- Medicare $ $ $ Retiree Plus Spouse Medicare $ $ $ Page 19 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 12

20 SECTION VI. VALUATION DATA The valuation was based on the census furnished to us by the District. The following tables display the age distribution for retirees and the age/service distribution for active employees as of the Measurement Date. Age Distribution of Eligible Retired Participants & Beneficiaries Age Management & Certificated Classified Others Total < Total: Average Age: Average Retirement Age: Age/Service Distribution of Active Eligible Employees Service Age Total Total: Average Age: 48.4 Average Service: 10.8 Average Hire Age: 37.6 Annual Payroll: $18,972,000 Page 20 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 13

21 Age/Service Distribution of Active Eligible Certificated Employees Service Age Total Total: Average Age: 49.9 Average Service: 11.8 Average Hire Age: 38.1 Annual Payroll: $8,541,000 Age/Service Distribution of Active Eligible Classified Employees Service Age Total Total: Average Age: 46.9 Average Service: 9.9 Average Hire Age: 37.0 Annual Payroll: $6,942,000 Page 21 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 14

22 Age/Service Distribution of Active Eligible Management/Confidential/Supervisory Employees Service Age Total Total: Average Age: 50.4 Average Service: 11.9 Average Hire Age: 38.5 Annual Payroll: $3,489,000 Page 22 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 15

23 SECTION VII. ACTUARIAL ASSUMPTIONS AND METHODS The liabilities set forth in this report are based on the actuarial assumptions described in this section. Fiscal Year: July 1 st to June 30 th Fiscal Years Covered: FY2015/16 and FY2016/17 Valuation Date: June 30, 2015 Funding Policy: Discount Rate: Pay-as-you-go 5%, reflects primarily pay-as-you-go funding Alternative rates of 7.28%, 6.73% and 6.12% per annum. These discount rates assume the District pre-funds the annual required contribution within the CERBT with an investment allocation strategy 1, 2 or 3 yielding a comparable rate of return on plan assets. Sensitivity analysis showing a 0.5% increase or decrease in the discount rate is also provided. Inflation: Payroll Increases: Pre-retirement Turnover: Mortality Rates: 2.8% per annum 3.0% per annum, in aggregate According to the Crocker-Sarason T-5 turnover table less mortality. Sample rates are as follows: Age Males Females % 7.9% Mortality rates are based on the most recent rates used by CalPERS and STRS for the pension valuations. Sample rates are as follows: CalPERS Actives Retirees Age Males Females Males Females % 0.023% % 0.025% % 0.035% % 0.050% % 0.071% % 0.100% % 0.138% 0.599% 0.416% % 0.182% 0.710% 0.436% % 0.257% 0.829% 0.588% % 0.993% % 1.722% % 2.902% Page 23 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 16

24 STRS Actives Retirees* Age Males Females Males Females % 0.013% % 0.014% % 0.018% % 0.034% % 0.041% % 0.063% % 0.093% 0.164% 0.118% % 0.179% 0.300% 0.254% % 0.368% 0.596% 0.468% % 0.864% % 1.451% % 2.759% * Rates applicable to future retirees include a 2 year setback. [The PERS mortality rates have been updated to reflect those used in the 2014 PERS pension valuation which reflect additional mortality improvement experience] Disability Rates: Retirement Rates: Incidences of disability are deferred to expected retirement. Percent Retiring* Age STRS Employees PERS Employees % 2.0% % 2.0% % 25.0% % 15.0% % 10.0% % 10.0% % 10.0% % 50.0% % 25.0% % 50.0% % 25.0% % 25.0% % 100.0% * Of those having met eligibility to receive District paid benefits. The percentage refers to the probability that an active employee who has reached the stated age will retire within the following year. Retirement Eligibility Age: The earliest retirement age assumed for employees who participate in STRS is age 55. The earliest retirement age assumed for employees who participate in PERS is age 50. Page 24 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 17

25 Participation Rates: Spouse Coverage: Dependent Coverage: Claim Cost Development: Medical Trend Rates: 50% of future retirees are assumed to elect Blue Shield HMO or Kaiser HMO coverage with the remaining 50% electing PERS Choice PPO or PERSCare PPO coverage. Actual plan coverage is used for current retirees. Beginning in 2016, participants in the non-kaiser HMOs are assumed to elect the United Healthcare Medicare HMO upon reaching Medicare eligibility. 70% of future retirees are assumed to elect coverage for themselves only and 30% are assumed to elect coverage for themselves and their spouse. Spouses are assumed to be same age as retiree. Actual spouse coverage is used for current retirees. Not explicitly valued. The valuation claim costs are based on the premiums paid for medical insurance coverage. The District participates in CalPERS, a community rated plan. Past valuations assumed the District was exempt from the valuation of any medical plan implicit rate subsidy. An implicit rate subsidy can exist when the non-medicare rates for retirees are the same as for active employees. Since non-medicare eligible retirees are typically much older than active employees, their actual medical costs are typically higher than for active employees. The current valuation contains an estimate of the implicit rate subsidy. Medical costs are adjusted in future years by the following trends: Year PPO HMO % 6.5% % 6.0% % 5.5% % 5.0% % 5.0% [The prior valuation assumed 0.5% lower initial trend rates] Actuarial Cost Method: The actuarial cost method used was Projected Unit Credit with service prorate. Under this method, the Actuarial Accrued Liability is the present value of projected benefits multiplied by the ratio of benefit service as of the valuation date to the projected benefit service at retirement, termination, disability or death. The Normal Cost for a plan year is the expected increase in the Accrued Liability during the plan year. All employees eligible as of the measurement date in accordance with the provisions of the Plan listed in the data provided by the District were included in the valuation. Actuarial Value of Assets: Market value of assets including any receivables for fiscal years ending at Measurement Date. Amortization of UAAL: The unfunded actuarial accrued liability is being amortized over an initial 30 years using the level-dollar method. The remaining period at June 30, 2015 is assumed to be 23 years. Page 25 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 18

26 SECTION VIII. ACTUARIAL CERTIFICATION This report summarizes the GASB actuarial valuation for the Valley Napa Valley Community College District (the District ) as of June 30, To the best of our knowledge, the report presents a fair position of the funded status of the plan in accordance with GASB Statements No. 43 (Financial Reporting for Post- Employment Benefit Plans Other Than Pension Plans) and No. 45 (Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions). The valuation is also based upon our understanding of the plan provisions as summarized within the report. The information presented herein is based on the actuarial assumptions and substantive plan provisions summarized in this report and participant information and asset information furnished to us by the Plan Sponsor. We have reviewed the employee census provided by the Plan Sponsor for reasonableness when compared to the prior information provided but have not audited the information at the source, and therefore do not accept responsibility for the accuracy or the completeness of the data on which the information is based. When relevant data may be missing, we may have made assumptions we feel are neutral or conservative to the purpose of the measurement. We are not aware of any significant issues with and have relied on the data provided. The discount rate and other economic assumptions have been selected by the Plan Sponsor. Demographic assumptions have been selected by the Plan Sponsor with the concurrence of Nyhart. In our opinion, the actuarial assumptions are individually reasonable and in combination represent our estimate of anticipated experience of the Plan. All calculations have been made in accordance with generally accepted actuarial principles and practice. 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); and changes in plan provisions or applicable law. While some sensitivity analysis was provided in the report, we did not perform an analysis of the potential range of future measurements due to the limited scope of our engagement. To our knowledge, there have been no significant events prior to the current year's measurement date or as of the date of this report that could materially affect the results contained herein. Neither Nyhart nor any of its employees has any relationship with the plan or its sponsor that could impair or appear to impair the objectivity of this report. Our professional work is in full compliance with the American Academy of Actuaries Code of Professional Conduct Precept 7 regarding conflict of interest. The undersigned meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Should you have any questions please do not hesitate to contact me. Certified by: Marilyn K. Jones, ASA, EA, MAAA, FCA Date: February 3, 2016 Consulting Actuary Page 26 of 28 for this agenda item K:\Retmed\NVCCD\2015\Actuarial Valuation Report NVCCD 2015.docx Page 19