SAMPLE CITY. Actuarial Valuation Report Defined Benefit Pension Plan GASB 68. For Year Ending: June 30, 2014

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1 SAMPLE CITY Actuarial Valuation Report Plan GASB 68 For Year Ending: June 30, 2014 MARCH

2 Ted N. Price CEO Sample City (213) Actuarial Report Defined Benefit Pension Plan GASB 68 Jasmine E. Nachtigall President (213) Marv J. Paull Head of Actuarial Services (213)

3 Table of Contents 4 ACTUARIAL CERTIFICATION 5-9 EXECUTIVE SUMMARY & RESULTS ANALYSIS AND METRICS ACTUARIAL ASSUMPTIONS 17 PLAN PROVISIONS 3

4 P Certification We have completed the Roll-Forward Actuarial Valuation for the Sample City Defined Benefit Plan as of June 30, The purpose of this report is to summarize the valuation results of the liabilities and annual costs to fund the program. The results shown in this report are based upon the employee data and the financial information that was provided by Sample City. This valuation was performed in accordance with generally accepted actuarial principles and practices under the rules of GASB 68. In my opinion, the valuation utilizes reasonable actuarial assumptions and reflects our best estimate of anticipated experience. To the best of my knowledge, the Roll-Forward valuation fairly discloses the actuarial position of the plan. Respectively submitted, Marvin J. Paull; FSA, EA, MAAA Managing Director GovInvest, Inc. 4

5 EXECUTIVE SUMMARY This report summarizes key results of the roll-forward actuarial valuation as of 6/30/14. Plan changes will include: Changes in Assumptions: The following valuation assumptions have changed since the previous valuation: (1) Mortality: TBD (2) Interest Discount: TBD (3) Salary Scale: TBD (4) Turnover: TBD (4) Other: TBD 5

ACTIVE RETIRED TOTAL DEMOGRAPHIC 201 178 379 From the above table we can see, there are 379 participants of which retirees represent 47% as

6 efits Demographic Summary EXECUTIVE SUMMARY (continued) To aid in understanding the nature of plan costs, the following table and graph summarizes the number of plan participants. ACTIVE RETIRED TOTAL DEMOGRAPHIC From the above table we can see, there are 379 participants of which retirees represent 47% as of 6/30/14. The number of retirees will likely increase significantly over the next ten years as the active employees become eligible for retirement and before there is a relatively stationary retired group when the retiree count stabilizes. 6

Additionally below is a breakout of the total required costs borne by the employer and the employee. Both of these costs have been steadily rising.

7 Key Results EXECUTIVE SUMMARY (continued) Below is a graphical summary of the key results from the analysis. As is evident, the Net Pension Liability (Unfunded Liability) has been steadily increasing over time, in excess of the Market Value of assets (Liabilities growing faster than assets). Additionally below is a breakout of the total required costs borne by the employer and the employee. Both of these costs have been steadily rising. The total employer cost (unfunded liability amortization plus normal cost) is the total dollar amount the employer must fund, while the employee normal cost is the total dollar amount the employee must pay to fund his or her portion of his or her liability. See pg. 13 for a breakout of the data and explanation of terms. Historical Annual Required Contribution Analysis Employee Normal Cost Employer Normal Cost Unfunded Liability Contribution Historical Liability Analysis Net Pension Liability Market Value of Assets 7

8 Key Results EXECUTIVE SUMMARY (continued) Net Pension Liability Normal Cost Amortization UAAL Total Annual Required Contribution Actives $7,636,000 $1,278,000 $307,000 $1,585,000 Retirees 12,685,000 N/A 510, ,00 Total $20,321,000 $1,278,000 $817,000 $2,095,000 Assets -5,411,000 As a % of Payroll: 18.20% Net Pension Liability $14,910,000 Contributions Employee Employer Total Contribution Rate 5.80% 18.20% 24.0% Payroll $11,512,000 $11,512,000 $11,512,000 Employer Contribution $2,095,000 Employee Contribution $668,000 Total Contribution $2,763,000 Average Age & Service Actives Retirees Combined Avg. Age Avg. Service 10.6 N/A 8

9 Conclusions Cash Flow: Assets of the shared pool are currently substantial in dollars but are only 36% of the total liability. Funding Progress: Assets as a percent of Net Pension Liability have increased from 30% in 2005 to 36% in This is reasonable considering the severe economic downturn in 2008 through Gains / Losses: Since 2010, there have been steady gains due to favorable experience, changes in valuation assumptions, investment earnings, and the percentage share of contributions. Other: With a cost-sharing plan, the city is subject the experience of all other cities in the cost-sharing pool. Consequently, the effect on cost and liabilities will usually be different than on a stand along basis. 9

10 ANALYSIS AND METRICS Proportionate Share of Net Pension Liability The below table represents the city s share of the total Net Pension Liability in the cost-sharing system, along with key ratios to assess the health of the pension obligation. ($ in Thousands) City s % Share of NPL 0.21% 0.20% 0.19% 0.20% City s Prop. Share of NPL $10,870 $12,352 $13,495 $14,910 City s Employee Payroll 7,959 8,790 9,553 11,512 City s Share of NPL as % of Payroll % % % % Fiduciary Net Portion as % of Liability % 91.78% 76.53% 81.38% 10

11 Benefits Contribution and Payroll ANALYSIS AND METRICS (continued) The below table shows the required employer contribution in dollar amounts and as a percentage of payroll. ($ in Thousands) Required Contribution $1,082 $820 $1,649 $2,095 Actual Contribution 1, ,649 2,095 Employee Payroll 7,959 8,709 9,553 11,512 Req. Contr. As % of Payroll 13.59% 9.42% 17.26% 18.20% Projections of Future Retiree Health Costs 11

change in assumed discount rate by +/- 1%. 1% Decrease Valuation Rate 7.

12 Benefits Discount Rate Sensitivity ANALYSIS AND METRICS (continued) The below table and graphic show the sensitivity of the Net Pension Liability to a change in assumed discount rate by +/- 1%. 1% Decrease Valuation Rate 7.0% 1% Increase City s Share of Net Pension Liability $16,476,000 $14,910,000 $13,091,000 12

13 Benefits GASB 68 Costs and Liabilities ANALYSIS AND METRICS (continued) The below table shows the breakdown of the Costs and Liabilities associated with the pension plan. The required employer contribution is the sum of the Normal Cost (cost to fund liabilities for all future services) and the Unfunded Liability Contribution (cost to amortize the unfunded portion of the accrued liability for past services rendered). The employee contribution is the Normal Cost the employee must pay to fund his or her portion liabilities for all future services. The total contribution is the sum of the required employer contribution and the employee contribution. The Total Pension Liability is the liability associated with all past services rendered (normal cost is assumed to fund all future services rendered). The Net Pension Liability (previously unfunded liability) is the Total Pension Liability minus the market value of assets that support the liability in the trust, and comprises the unfunded obligation your agency has. ($ in Thousands) Normal Cost $530 $435 $940 $1,278 Unfunded Liability Contribution Employer Annual Contribution $1,082 $820 $1,649 $2,095 Employee Contribution Total Contribution $1,544 $1,325 $2,203 $2,763 Total Pension Liability $14,139 $16,472 $18,583 $20,321 Less Assets 3,269 4,120 5,088 5,411 Net Pension Liability $10,870 $12,352 $13,495 $14,910 13

14 efits Deferred Inflows and Outflows ANALYSIS AND METRICS (continued) The below table shows the accounting measures for Deferred Outflows and Inflows of funds based on the difference between expected and actual results since the prior valuation. Deferred Outflows Deferred Inflows Actual less expected experience $2,657,000 $142,000 Change in assumptions 1,714, ,000 Actual less projected earnings - 2,188,000 Change in proportion & difference between actual & proportional share of contribution 747, ,000 Contributions after measurement date 1,065,000 - Total $6,183,000 $2,613,000 Amount of Outflows & Inflows Fiscal Year Amounts 2010 $(269,000) , , , ,000 Thereafter 1,300,000 14

15 ets ACTUARIAL ASSUMPTIONS & PLAN PROVISIONS Actuarial Assumptions Interest Discount: Mortality: Termination Prior to Retirement: Age at Retirement: 7.00% per annum RP 2014 Mortality Table See Table A 62 or age +1 if later. Spouse Age for actives: Employee age -2 Percent Married at retirement: 70% Medical Cost Paid by the City: See Plan Provision Summary Valuation Date: June 30, 2014 Assets: $ 5,250,000 Cost Method: Entry Age Normal Cost Method where Normal Cost is determined on the basis of Entry Age at date of hire to the date of retirement for calculating cost. The Unfunded Actuarial Accrued Liability is determined as the proportion of benefits not paid for by future Normal Cost and equal to the accumulation of past Normal Costs had cost allocations begun at date of hire. 15

16 Table A Rate of Termination Attained Age Rate of Termination % % % 50+ 0% 16

17 Plan Provisions Eligibility for regular benefits: Full time employees may retire as early as age 50 with 5 years of service with the City and if they retire from PERS. Eligibility for disability benefits: Physician approved disability if disability results from job requirements. Covered Participants: Eligible retirees. Coverage after death: After the death of the retiree, spouse continues to receive the monthly benefits paid to the retiree depending on benefit election. Benefits: 2.0% of final average pay. Vesting of 50% at 5 years graded to 100% at 10 years of service. Early retirement can commence at age 55 with normal retirement at age 65. Reduced benefit if retire early and increased benefits if retire after age

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