HAMPSHIRE COUNTY RETIREMENT SYSTEM

Transcription

1 HAMPSHIRE COUNTY RETIREMENT SYSTEM FINANCIAL REPORTING AND DISCLOSURES UNDER GASB 67 and GASB 68 as of December 31, 2017 Prepared by: KMS Actuaries, LLC 814 Elm Street, Suite 204 Manchester, NH September, 2018

2 September 19, 2018 Mr. Patrick E. Brock Chairman 99 Industrial Drive, Suite 2 Northampton, MA Dear Patrick: We are pleased to present the enclosed report providing financial reporting and disclosures under Governmental Accounting Standards Board (GASB) Statement No. 67, Financial Reporting for Pension Plans (GASB 67), and GASB Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68) for the and participating employers as of December 31, Results are based on liabilities developed in an actuarial valuation performed as of January 1, The Principal Valuation Results are provided in Section 1. The Notes to the Financial Statements and the Required Supplementary Information are provided in Sections 2 and 3, respectively. Employer Reporting Amounts Under GASB 68 are provided in Section 4. Finally, a Glossary of Terms is provided in Section 5. The financial reporting and disclosures contained in this report are based on the member data provided by the Board, asset information reported to the Public Employee Administration Commission (PERAC) by the Board and plan provisions contained in Chapter 32 of the Massachusetts General Laws. Although we did not audit the data used in the valuation and disclosure calculations, we believe that the information is complete and reliable. Liabilities presented in this report are based on a longterm investment return rate of 7.45%, net of investment expense, compounded annually. This report was completed in accordance with generally accepted actuarial standards and procedures, and conforms to the Code of Professional Conduct of the American Academy of Actuaries. The actuarial assumptions used in the determination of costs are reasonably related to the experience of the Plan and to reasonable expectations, and represent our best estimate of anticipated longterm experience under the Plan.

3 Mr. Patrick E. Brock September 19, 2018 Page 2 Future actuarial valuation results may differ significantly from the current results presented in this report. Examples of potential sources of volatility include plan experience differing from that anticipated by the economic or demographic assumptions, the effect of new entrants, changes in economic or demographic assumptions, the effect of law changes and the delayed effect of smoothing techniques. Our valuation follows generally accepted actuarial methods and we perform such tests as we consider necessary to assure the accuracy of the results. The amounts presented in this report have been appropriately determined according to the actuarial assumptions and methods stated herein. This report is intended for the sole use of the and participating employers and is intended to provide information to comply with the stated purpose of the report. It may not be appropriate for other purposes. The undersigned credentialed actuaries are Members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinion contained herein. They are available to answer any questions with regard to this report. Respectfully submitted, Linda L. Bournival, FSA Member, American Academy of Actuaries (603) Amanda J. Makarevich, ASA Member, American Academy of Actuaries (603)

4 TABLE OF CONTENTS INTRODUCTION 1 SECTION 1 PRINCIPAL VALUATION RESULTS 3 Exhibit 1.1 Plan Assets Exhibit 1.2 Actuarial Liabilities SECTION 2 NOTES TO THE FINANCIAL STATEMENTS 5 Exhibit 2.1 Plan Description Exhibit 2.2 Net Pension Liability SECTION 3 REQUIRED SUPPLEMENTARY INFORMATION 9 Exhibit 3.1 Changes in Net Pension Liability and Related Ratios Exhibit 3.2 Schedule of Employer Contributions Exhibit 3.3 Investment Returns Exhibit 3.4 Notes to Required Supplementary Information SECTION 4 EMPLOYER REPORTING AMOUNTS UNDER GASB Exhibit 4.1 Deferred Outflows and Inflows of Resources Exhibit 4.2 Pension Expense Exhibit 4.3 Proportionate Share of Contributions Exhibit 4.4 Pension Amounts by Employer SECTION 5 GLOSSARY OF TERMS 21 Appendix A CALCULATION OF MONEYWEIGHTED RATE OF RETURN 23 Appendix B SCHEDULE OF DEFERRED OUTFLOWS OF RESOURCES and 24 DEFERRED INFLOWS OF RESOURCES Appendix C Appendix D SCHEDULE OF PENSION AMOUNTS BY EMPLOYER CALCULATION OF SINGLE DISCOUNT RATE

5 INTRODUCTION GASB 67 and GASB 68 In June 2012, the GASB approved two related Statements that significantly change the way pension plans and governments account and report pension liabilities. The implemented GASB Statement No. 67, Financial Reporting for Pension Plans for the fiscal year ending December 31, GASB 67 requires defined benefit pension plans, such as the, to present a statement of fiduciary net position (pension plan assets) and a statement of changes in fiduciary net position. Further, the statement requires that notes to financial statements include descriptive information such as the types of benefits provided, the classes of plan members covered and the composition of the pension plan's retirement board. Finally, GASB 67 requires pension plans to present in required supplementary information the sources of the changes in the net pension liability and information about the actuarially determined contributions compared with the actual contributions made to the plan and related ratios. GASB 67 and GASB 68 require projected benefit payments be discounted to their actuarial present value using the single rate that reflects: (1) (2) a longterm expected rate of return on pension plan investments to the extent that the pension plan's assets are sufficient to pay benefits and pension plan assets are expected to be invested using a strategy to achieve that return and a taxexempt, highquality municipal bond rate to the extent that the conditions for use of the longterm expected rate of return are not met. The pension plan's fiduciary net position was projected to be available to make all projected benefit payments of current plan members. Therefore, the longterm expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. GASB 68 establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources and pension expense by state and local governments. Net Fiduciary Position Pension plan investments are reported at market value as of the measurement date. The fiduciary net position as of the current and prior measurement dates are shown in Exhibit 1.1. Page 1

6 INTRODUCTION Total Pension Liability The Total Pension Liability is based on liabilities developed in an actuarial valuation performed as of January 1, The Total Pension Liability is developed in Exhibit 1.2. Benefit Changes All benefit provisions remained the same from the prior measurement date. Assumption Changes The long term rate of return was decreased from 7.5% to 7.45% and the assumption to adjust for the liability for 3(8)(c) net transfers was removed. All other actuarial assumptions and methods remained the same from the prior measurement date. Pension Expense The Pension Expense for the fiscal year ending December 31, 2017 is $22,557,652 and is developed in Exhibit 4.2. Pension Expense, as well as the Net Pension Liability and Deferred Outflows of Resources and Deferred Inflows of Resources, are developed for each member unit and is shown in Appendix C. Amounts by employer are developed using a proportionate share, the proportion of each employer's contribution to the aggregate amount of employer contributions, as shown in Exhibit 4.3. Page 2

7 SECTION 1 PRINCIPAL VALUATION RESULTS Exhibit 1.1 Plan Assets Asset information was provided by the. The Trust Fund Composition, Asset Activity and the Computed Rate of Return for the current and prior fiscal years are as follows: Fiscal Year Ended December Trust Fund Composition at Fiscal YearEnd 4 Domestic Equity $ 60,890,908 $ 51,111,658 5 International Equity 87,217,586 78,805,622 6 Fixed Income Security (book value) Domestic Fixed Income 59,610,648 42,195,783 8 International Fixed Income 27,610,015 24,423,002 9 Real Estate 42,776,536 32,250, Pooled Domestic Balanced Alternatives, Private Equity and Hedge Funds 31,017,750 42,976, Prepaid Expenses Accounts Receivable 791, , Interest Due & Accrued Cash 8,213,746 2,934, Accounts Payable (1,273) (450) Total Market Value of Assets $ 318,127,580 $ 275,385,223 Asset Activity 41 Market value as of beginning of year $ 275,385,223 $ 256,905, Contributions employer 21,331,218 19,693, Contributions member 7,689,443 7,446,905 Net investment income 43,201,653 19,015,995 Benefit payments, including refunds of 45 member contributions (28,662,890) (26,880,118) 46 Administrative expenses (817,067) (796,827) 47 Other 0 0 Market Value as of end of year $ 318,127,580 $ 275,385,223 MoneyWeighted Rate of Return 15.77% 7.43% 50 (Gain) / Loss on Pension Plan Investments Projected earnings $ 20,636,668 $ 19,247,815 Actual earnings 43,201,653 19,015,995 (Gain) / Loss on pension plan investments $ (22,564,985) $ 231,820 Page 3

8 SECTION 1 PRINCIPAL VALUATION RESULTS Exhibit 1.2 Actuarial Liabilities The Total Pension Liability, developed using the Entry Age Normal funding method, is the portion of the actuarial present value of projected benefit payments that is attributed to past periods of member service. The total pension liability as of the December 31, 2017 measurement date was developed from an actuarial valuation as of January 1, The Service Cost is the portion of the actuarial present value of projected benefit payments that is attributed to a valuation year. Only active employees who have not reached the age at which the probability of retirement is 100% incur a service cost. Actuarial gains and losses arise from the difference between estimates and actual experience, excluding amounts related to benefit changes and changes in assumptions or other inputs. The development of the Total Pension Liability from the beginning of the measurement period, December 31, 2016 to the end of the measurement period, December 31, 2017 is shown below: Measurement Date December 31, Total Pension Liability, beginning of year: * a. Actives $ 495,145,477 b. Retired and Disabled Members and Beneficiaries c. Inactive Members d. Total Pension Liability at 7.5% (a. + b. + c.) $ 495,145, Service Cost $ 11,029, Benefit Payments $ (28,662,890) 4. Interest [7.5% x (1.c x 3)] $ 36,888, Changes of benefit terms $ 6. Differences between expected and actual experience $ (434,874) 7. Changes of assumptions or other inputs $ (9,996,849) 8. Total Pension Liability, end of year (1.d ) a. Actives $ 225,096,192 b. Retired and Disabled Members and Beneficiaries 272,903,768 c. Inactive Members 5,968,602 d. Total Pension Liability at 7.45% (a. + b. + c.) $ 503,968,562 * Beginning of year total pension liability by status is not available. Page 4

9 SECTION 2 NOTES TO THE FINANCIAL STATEMENTS Exhibit 2.1 Plan Description Plan administration: The (the "") is a costsharing, multipleemployer defined benefit pension plan that provides pensions for eligible employees of 37 participating employers. The is a member of the Massachusetts Contributory and is governed by Chapter 32 of the Massachusetts General Laws. The does not have the authority to amend benefit provisions. The is governed by a Board made up of five elected and appointed members. Plan membership: At December 31, 2017, pension plan membership consisted of the following: 57 Inactive plan members or beneficiaries currently receiving benefits 1, Inactive plan members entitled to but not yet receiving benefits Active plan members 2,016 3,954 Benefits provided: The provides retirement, disability and death benefits. benefits are determined as a percentage of the member's 3year (5year for members hired after April 1, 2012) final average compensation times the member's years of service. The percentage is based on the age of the member at retirement and his or her Group classification. Costofliving adjustments of 3% of the first $13,000 of the annual retirement allowance are provided at the discretion of the 's Board. A summary of the benefits is outlined in the January 1, 2018 actuarial valuation report. Contributions: Plan members are required to contribute a percentage of their annual compensation that varies according to their membership date, as follows: Prior to 1975: 5% of Salary : 7% of Salary 1984 June 30, 1996: 8% of Salary July 1, 1996 present: 9% of Salary 1979 present: An additional 2% of Salary in excess of $30,000. Group 1 members hired on 6% of Salary with 30 or more years of creditable service. or after April 2, 2012: Employer contributions are determined in accordance with the requirements set forth in Section 22D and Section 22F of Chapter 32 of the Massachusetts General Laws ("M.G.L."). The appropriation is comprised of the annual employer normal cost and amortization payments to pay the unfunded actuarial accrued liability. Page 5

10 SECTION 2 NOTES TO THE FINANCIAL STATEMENTS Exhibit 2.2 Net Pension Liability The components of the Net Pension Liability at December 31, 2017, were as follows: Total Pension Liability Fiduciary Net Position Net Pension Liability $ $ 503,968,562 (318,127,580) 185,840,982 Fiduciary Net Position as a percentage of the Total Pension Liability 63.12% Actuarial assumptions: The Total Pension Liability was determined by an actuarial valuation as of January 1, 2018, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation Salary increases Investment rate of return 3% per year Group 1: 6% 4.25%, based on service Group 4: 7% 4.75%, based on service 7.45%, net of pension plan investment expense, including inflation Mortality rates were based on the RP2000 Mortality Table (base year 2009) with full generational mortality improvement using Scale BB. For disabled lives, the mortality rates were based on the RP 2000 Mortality Table (base year 2012) with full generational mortality improvement using Scale BB. Page 6

11 SECTION 2 NOTES TO THE FINANCIAL STATEMENTS Exhibit 2.2 Net Pension Liability The longterm expected rate of return on pension plan investments was determined using a buildingblock method in which bestestimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the longterm expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of geometric real rates of return for each major asset class included in the pension plan's target asset allocation as of December 31, 2017 (see the discussion of the pension plan's investment policy) are summarized in the following table: Asset Class Target Allocation LongTerm Expected Real Rates of Return¹ Domestic Equity 20.5% 4.82% International Equity 16.5% 5.00% Emerging Markets Equity 8.0% 6.50% Domestic Fixed Income 10.0% 1.00% Emerging Fixed Income 6.0% 3.75% Global Fixed Income 3.0% 0.25% Opportunistic Fixed Income 9.0% 2.75% Private Debt 3.0% 4.75% Private Equity 10.0% 6.75% Real Estate 12.0% 3.75% Cash 2.0% 0.00% Total 100.0% ¹ Provided by NEPC, LLC. Inflation of 2.75% is added to the longterm expected real rates of return to approximate the longterm expected rate of return. Discount rate: The discount rate used to measure the Total Pension Liability is 7.45%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rates and that contributions from participating employers will be made in accordance with Sections 22D and 22F of Chapter 32 of the Massachusetts General Laws. Based on those assumptions, the pension plan's Fiduciary Net Position was projected to be available to make all projected benefit payments of current plan members. Therefore, the longterm expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability. Page 7

12 SECTION 2 NOTES TO THE FINANCIAL STATEMENTS Exhibit 2.2 Net Pension Liability The following presents the Net Pension Liability calculated using the discount rate of 7.45%, as well as what the Net Pension Liability would be if it were calculated using a discount rate 1percentage point lower (6.45%) or 1percentage point higher (8.45%) than the current rate: Current 1% Decrease Discount Rate 1% Increase (6.45%) (7.45%) (8.45%) Net Pension Liability $ 243,856,160 $ 185,840,982 $ 136,774,999 Page 8

13 SECTION 3 REQUIRED SUPPLEMENTARY INFORMATION Exhibit 3.1 Changes in Net Pension Liability and Related Ratios Fiscal Year Ended December Total Pension Liability Service cost $ 11,029,438 $ 10,605,229 $ 10,269,070 $ 9,850,427 Interest 36,888,260 34,627,268 34,842,587 33,371,689 Changes of benefit terms Differences between expected and actual experience (434,874) (4,348,735) Changes of assumptions (9,996,849) 16,610,091 Benefit payments, including refunds of member contributions (28,662,890) (26,880,118) (25,512,793) (24,412,587) Net change in Total Pension Liability $ 8,823,085 $ 30,613,735 $ 19,598,864 $ 18,809,529 Total Pension Liabilitybeginning $ 495,145,477 $ 464,531,742 $ 444,932,878 $ 426,123,349 Total Pension Liabilityending (a) $ 503,968,562 $ 495,145,477 $ 464,531,742 $ 444,932,878 Fiduciary Net Position Contributionsemployer $ 21,331,218 $ 19,693,436 $ 18,620,753 $ 17,440,375 Contributionsmember 7,689,443 7,446,905 7,322,347 7,559,814 Net investment income 43,201,653 19,015,995 (1,011,243) 12,016,956 Benefit payments, including refunds of member contributions (28,662,890) (26,880,118) (25,512,793) (24,412,587) Administrative expenses (817,067) (796,827) (929,899) (841,318) Other Net change in Fiduciary Net Position $ 42,742,357 $ 18,479,391 $ (1,510,834) $ 11,763,240 Fiduciary Net Positionbeginning 275,385, ,905, ,416, ,653,426 Fiduciary Net Positionending (b) $ 318,127,580 $ 275,385,223 $ 256,905,832 $ 258,416,666 Net Pension Liabilityending (a) (b) $ 185,840,982 $ 219,760,254 $ 207,625,910 $ 186,516,212 Fiduciary Net Position as a percentage of the Total Pension Liability 63.12% 55.62% 55.30% 58.08% Covered Payroll¹ $ 76,767,518 $ 78,914,925 $ 80,914,245 $ 77,139,934 Net Pension Liability as a percentage of Covered Payroll % % % % ¹ Covered Payroll for 2017 is the 2017 pension payroll from the January 1, 2018 funding valuation. Page 9

14 SECTION 3 REQUIRED SUPPLEMENTARY INFORMATION Exhibit 3.2 Schedule of Employer Contributions Fiscal Year Ended December Actuarially Determined Contribution $ 21,331,218 $ 19,693,436 $ 18,620,753 $ 17,349,877 Contributions in relation to the Actuarially Determined Contribution 21,331,218 19,693,436 18,620,753 17,349,877 Contribution deficiency (excess) $ $ $ $ Covered Payroll $ 76,767,518 $ 78,914,925 $ 80,914,245 $ 77,139,934 Contributions as a percentage of Covered Payroll 27.79% 24.96% 23.01% 22.49% The contribution shown above, $21,331,218, represents the actual contributions made by member units of the for the 2018 fiscal year. Page 10

15 SECTION 3 REQUIRED SUPPLEMENTARY INFORMATION Exhibit 3.3 Investment Returns Fiscal Year Ended December Annual moneyweighted rate of return, net of investment expense 15.77% 7.43% 0.68% 4.84% The moneyweighted rate of return considers the changing amounts actually invested during a period and weights the amount of pension plan investments by the proportion of time they are available to earn a return during that period. The rate of return is then calculated by solving, through an iterative process, for the rate that equates the sum of the weighted external cash flows into and out of the pension plan investments to the ending fair value of pension plan investments. Appendix A shows the details of the calculation of the moneyweighted rate of return for the current fiscal year. Page 11

16 SECTION 3 REQUIRED SUPPLEMENTARY INFORMATION Exhibit 3.4 Notes to the Required Supplementary Information Changes of benefit terms: None. Changes of assumptions: The longterm rate of return was decreased from 7.5% to 7.45%. Methods and assumptions used in calculations of Actuarially Determined Contributions: The Actuarially Determined Contributions in the schedule of employers' contributions are calculated as of July 1 of the fiscal year in which contributions are reported. The following actuarial methods and assumptions were used to determine contributions reported in that schedule: Actuarial cost method Entry Age Normal Amortization method UAAL: 2002 & 2003 ERI Increasing dollar amount at 4% to reduce the Unfunded Actuarial Accrued Liability to zero on or before June 30, Level dollar amount to reduce the 2002 and 2003 ERI Actuarial Accrued Liability to zero on or before June 30, Asset valuation method The Actuarial Value of Assets is the market value of assets as of the valuation date reduced by the sum of: a) 80% of gains and losses of the prior year, b) 60% of gains and losses of the second prior year, c) 40% of gains and losses of the third prior year and d) 20% of gains and losses of the fourth prior year. Investment gains and losses are determined by the excess or deficiency of the expected return over the actual return on the market value. The actuarial valuation of assets is further constrained to be not less than 90% or more than 110% of market value. Inflation Salary increases Payroll growth Investment rate of return 3% per year Group 1: 6% 4.25%, based on service Group 4: 7% 4.75%, based on service 4% per year 7.45%, net of pension plan investment expense, including inflation. Page 12

17 SECTION 4 EMPLOYER REPORTING AMOUNTS UNDER GASB 68 Exhibit 4.1 Deferred Outflows of Resources and Deferred Inflows of Resources Deferred Outflows of Resources and Deferred Inflows of Resources arising from differences between expected and actual experience are recognized in Pension Expense over the average expected remaining service life of all active and inactive members. Balances at December 31, 2017 Experience Losses Experience Gains Amounts Recognized in Pension Expense through December 31, 2017 Deferred Outflows of Resources Deferred Inflows of Resources Year (a) (b) (c) (a) (c) (b) (c) 2014 $ $ $ $ $ ,348,735 (1,705,386) 2,643, ,874 (64,046) 370,828 $ $ 3,014,177 Deferred Outflows of Resources and Deferred Inflows of Resources arising from changes of assumptions are recognized in Pension Expense over the average expected remaining service life of all active and inactive members. Increases in the Total Pension Liability Decreases in the Total Pension Liability Amounts Recognized in Pension Expense through December 31, 2017 Deferred Outflows of Resources Balances at December 31, 2017 Deferred Inflows of Resources Year (a) (b) (c) (a) (c) (b) (c) 2014 $ $ $ $ $ ,610,091 6,513,762 10,096, ,996,849 (1,472,290) 8,524,559 $ 10,096,329 $ 8,524,559 Page 13

18 SECTION 4 EMPLOYER REPORTING AMOUNTS UNDER GASB 68 Exhibit 4.1 Deferred Outflows of Resources and Deferred Inflows of Resources Deferred Outflows of Resources and Deferred Inflows of Resources arising from differences between projected and actual earnings on Pension Plan investments are recognized in Pension Expense over five years. Investment Earnings Less Than Projected Investment Earnings Greater Than Projected Amounts Recognized in Pension Expense through December 31, 2017 Deferred Outflows of Resources Balances at December 31, 2017 Deferred Inflows of Resources Year (a) (b) (c) (a) (c) (b) (c) 2014 $ 7,397,011 $ $ 5,917,608 $ 1,479,403.0 $ ,341,884 12,805,131 $ 8,536,753.0 $ ,820 92,728 $ 139,092.0 $ ,564,985 (4,512,997) $ $ 18,051,988.0 Subtotal $ 10,155,248 $ 18,051,988 Net $ $ 7,896,740 Deferred Outflows of Resources and Deferred Inflows of Resources arising from changes in proportion and differences between employer contributions and proportionate share of contributions are recognized in Pension Expense over the average expected remaining service life of all active and inactive members. Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions (Outflows) Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions (Inflows) Amounts Recognized in Pension Expense through December 31, 2017 Deferred Outflows of Resources Balances at December 31, 2017 Deferred Inflows of Resources Year (a) (b) (c) (a) (c) (b) (c) 2015 $ 3,057,911 $ 3,057,911 $ 1,730,894 $ 1,327,017 $ 1,327, $ 2,001,045 $ 2,001,045 $ 784,724 $ 1,216,321 $ 1,216, $ 2,338,865 $ 2,338,865 $ 344,457 $ 1,994,408 $ 1,994,408 $ 4,537,746 $ 4,537,746 Page 14

19 SECTION 4 EMPLOYER REPORTING AMOUNTS UNDER GASB 68 Exhibit 4.1 Deferred Outflows of Resources and Deferred Inflows of Resources Amounts reported as Deferred Outflows of Resources and Deferred Inflows of Resources will be recognized in Pension Expense as follows: Year ended December $ 2,148, $ 669, $ (3,598,781) 2021 $ (5,808,917) 2022 $ (1,536,336) Thereafter $ (1,213,707) Page 15

20 SECTION 4 EMPLOYER REPORTING AMOUNTS UNDER GASB 68 Exhibit 4.2 Pension Expense The Pension Expense and deferred outflows and inflows of resources primarily result from changes in the components of the net pension liability (NPL). Most changes in the NPL are included in the Pension Expense in the period of the change, including service cost, interest on total pension liability, changes in benefit terms and projected earnings on the pension plan's investments. Other changes in the net pension liability are included in Pension Expense over the current and future periods. These include the effects on the total pension liability of changes of economic and demographic assumptions and differences between expected and actual experience. In addition, the effect on the net pension liability of differences between the projected earnings on pension plan investments and actual experience with regard to those earnings are included in Pension Expense over the current and future periods. The Pension Expense for the reporting period ending December 31, 2017 is presented below: Fiscal Year Ended December Service cost $ 11,029, Interest on the total pension liability a. Total Pension Liability, beginning of year 495,145,477 b. Service cost, beginning of year 11,029,438 c. Benefit payments, including refunds of employee contributions (28,662,890) d. Interest on Total Pension Liability $ 36,888, Differences between expected and actual experience $ (916,739) 4. Changes of benefit terms $ 5. Changes of assumptions $ 1,784, Employee contributions $ (7,689,443) 7. Projected earnings on pension plan investments a. Fiduciary Net Position, beginning of year 275,385,223 b. Employer contributions 21,331,218 c. Employee contributions 7,689,443 d. Benefit payments, including refunds of employee contributions (28,662,890) e. Administrative expenses and other (817,067) f. Total projected earnings $ (20,636,668) 8. Differences between projected and actual earnings on plan investments $ 1,281, Pension plan administrative expenses $ 817, Other changes in Fiduciary Net Position $ 11. Total Pension Expense $ 22,557,652 Page 16

21 SECTION 4 EMPLOYER REPORTING AMOUNTS UNDER GASB 68 Exhibit 4.3 Proportionate Share of Contributions The basis of an employer's allocation of the collective pension amount is consistent with the manner in which contributions to the plan are made. The schedule of employer allocations for 2017 and 2016, based on employer contributions made for the 2018 fiscal year and 2017 fiscal year, respectively, shows the proportionate relationship of each employer to all employers and each employer's allocation percentage Entity Employer Contribution Proportionate Share of Total Employer Contribution Employer Contribution Proportionate Share of Total Employer Contribution 1 Hampshire Council of Governments 264, % 221, % 2 Amherst 5,761, % 5,289, % 3 AmherstPelham Regional School District 1,260, % 1,157, % 4 Amherst Housing Authority 149, % 151, % 5 Belchertown 2,736, % 2,537, % 6 Belchertown Housing Authority 29, % 25, % 7 Belchertown Water District 39, % 45, % 8 Chesterfield 83, % 70, % 9 ChesterfieldGoshen Regional School District 80, % 64, % 10 Cummington 43, % 40, % 11 Foothills Health District 12, % 9, % 12 Gateway Regional School District 548, % 529, % 13 Goshen 60, % 59, % 14 Granby 908, % 876, % 15 Granby Housing Authority 26, % 24, % 16 Hadley 1,057, % 929, % 17 Hadley Housing Authority 8, % 7, % 18 Regional Housing Authority 8, % 5, % 19 Hampshire Regional School District 474, % 447, % 20 Hatfield 552, % 468, % 21 Hatfield Housing Authority 12, % 11, % 22 Huntington 118, % 109, % 23 Middlefield 43, % 40, % 24 Pelham 199, % 185, % 25 Plainfield 66, % 61, % 26 Quabbin Health District 53, % 50, % 27 Southampton 674, % 614, % 28 South Hadley 2,787, % 2,674, % 29 South Hadley Housing Authority 53, % 47, % 30 South HadleyGranbyEton Veteran's District 14, % 13, % Page 17

22 SECTION 4 EMPLOYER REPORTING AMOUNTS UNDER GASB 68 Exhibit 4.3 Proportionate Share of Contributions The basis of an employer's allocation of the collective pension amount is consistent with the manner in which contributions to the plan are made. The schedule of employer allocations for 2017 and 2016, based on employer contributions made for the 2018 fiscal year and 2017 fiscal year, respectively, shows the proportionate relationship of each employer to all employers and each employer's allocation percentage Entity Employer Contribution Proportionate Share of Total Employer Contribution Employer Contribution Proportionate Share of Total Employer Contribution 31 South Hadley Fire District No.1 531, % 512, % 32 South Hadley Fire District No.2 249, % 227, % 33 Ware 1,808, % 1,660, % 34 Ware Housing Authority 53, % 47, % 35 Westhampton 186, % 162, % 36 Williamsburg 257, % 219, % 37 Worthington 116, % 92, % Total 21,331, % 19,693, % Page 18

23 SECTION 4 EMPLOYER REPORTING AMOUNTS UNDER GASB 68 Exhibit 4.4 Pension Amounts by Employer The schedule of Pension Amounts by Employer is provided in Appendix C. The schedule shows the Net Pension Liability, the various categories of Deferred Outflows of Resources and Deferred Inflows of Resources and Pension Expense for each employer. The schedule includes the differences between expected and actual economic experience, differences between projected and actual investment earnings and changes of assumptions. Further, each employer is required to recognize Deferred Outflows of Resources and Deferred Inflows of Resources related to (1) the net impact from changes in proportion between periods and (2) differences between actual contributions made by an employer and their proportionate share of contributions. Each employer's allocation of Pension Expense and Net Pension Liability can be based on the proportion of its contributions to the aggregate amount of employer contributions. Under GASB 68, gains and losses (investment, experience or assumption changes) and changes in employer's proportionate shares related to pensions are recognized in Pension Expense systematically over time. The first amortized amounts are recognized in Pension Expense for the year the gain or loss occurs. The remaining amounts are categorized as Deferred Inflows and Deferred Outflows to be recognized in future Pension Expense. The amortization period differs depending on the source of the gain or loss: Difference between projected and actual earnings All other amounts 5 year straightline amortization Straightline amortization over the average expected remaining service lives of all members that are provided with benefits (actives, inactives and retirees) as of the beginning of the measurement period For 2017: Net Pension Liability, Deferred Outflows of Resources, Deferred Inflows of Resources and Pension Expense are allocated to each employer based on its proportionate share of Total Employer Contribution shown in Exhibit 4.3. Note that for 2016, the proportionate share of the Net Pension Liability is based on those disclosed in the report prepared by Stone Consulting. The difference between expected and actual experience is amortized over the average of the expected future service lives of all participants, with the first amortized amount recognized in Pension Expense in the current year. Similar Deferred Outflows of Resources and Deferrred Inflows of Resources were established during prior years, with the fist amortized amount recognized in Pension Expense in Net difference between projected and actual investment earnings (gain on pension plan investments for 2017) is amortized over 5 years, with the first amortized amount recognized in Pension Expense in the current year. Similar Deferred Outflows of Resources and Deferred Inflows of Resources were established during prior years, with the first amortized amount recognized in Pension Expense in Page 19

24 SECTION 4 EMPLOYER REPORTING AMOUNTS UNDER GASB 68 For 2017 (continued): Exhibit 4.4 Pension Amounts by Employer The change in Total Pension Liability as a result of changes in assumptions is amortized over the average of the expected future service lives of all participants, with the first amortized amount recognized in Pension Expense in the current year. Similar Deferred Outflows of Resources and Deferred Inflows of Resources were established during prior years, with the first amortized amount recognized in Pension Expense in There are no differences between employer contributions and the proportionate share of contributions because the Plan utilizes employer contributions as the method of allocation. The net effect of the change in the employer's proportionate shares of the collective Net Pension Liability, collective Deferred Outflows and Deferred Inflows is amortized over the average expected remaining service lives of all members, with the first amortized amount recognized in Pension Expense in the current year. Similar Deferred Outflows of Resources and Deferred Inflows of Resources were established during prior years, with the first amortized amount recognized in No adjustments have been made for employer contributions made subsequent to the measurement date as defined in paragraph 57 of GASB 68. Page 20

25 SECTION 5 GLOSSARY OF TERMS Actuarial Assumptions Assumptions, based upon past experience or standard tables, used to predict the occurrence of future events affecting the commencement, amount and duration of pension benefits, such as: changes in compensation, mortality, withdrawal, disablement and retirement; rates of investment earnings and asset appreciation or depreciation; and any other relevant items. Actuarial Cost Method (or Funding Method) A procedure for allocating the Actuarial Present Value of projected benefit payments to the current year (Service Cost) and the past (Total Pension Liability). Actuarial Gain or Loss (or Experience Gain or Loss) A measure of the difference between actual experience and that expected based upon the set of Actuarial Assumptions during the period between the valuation date and the most recent immediately preceding valuation date. Actuarial Present Value of Projected Benefit Payments The dollar value on the valuation date of all benefits expected to be paid to current members based upon the Actuarial Assumptions and the terms of the Plan. Actuarially Determined Contribution A target or recommended contribution to a defined benefit pension plan for the reporting period, determined in conformity with Actuarial Standards of Practice based on the most recent measurement available when the contribution for the reporting period was adopted. Actuarial Valuation Date The date as of which an actuarial valuation is performed. This date may be up to 24 months prior to the measurement date and up to 30 months prior to the employer's reporting date. Deferred Inflow of Resources Acquisition of resources by a government that is applicable to future reporting periods. Under GASB 68, deferred inflows of resources are made up of experience gains, assumption changes reducing the Total Pension Liability and investment gains that are recognized in future reporting periods. Deferred Outflow of Resources Consumption of resources by a government that is applicable to future reporting periods. Under GASB 68, deferred outflows of resources are made up of experience losses, assumption changes increasing the Total Pension Liability and investment losses that are recognized in future reporting periods. Entry Age Normal Actuarial Cost Method A method under which the actuarial present value of the projected benefits of each individual in an actuarial valuation is allocated on a level basis over the earnings or service of the individual between entry age and assumed exit age. Fiduciary Net Position The fair market value of assets as of the measurement date. Funded Ratio The Actuarial Value of Assets expressed as a percentage of the Actuarial Accrued Liability. Page 21

26 SECTION 5 GLOSSARY OF TERMS GASB Governmental Accounting Standards Board. Measurement Date The date as of which the Total Pension Liability and Fiduciary Net Position are measured. Net Pension Liability The liability of the employer for benefits provided through a defined benefit pension plan. It is calculated as the Total Pension Liability less the Fiduciary Net Position. Present Value of Future Benefits The actuarial present value of the cost to finance benefits payable in the future, discounted to reflect the expected effects of the time value of money and the probabilities of payment. Reporting Date The last day of the Plan or employer's fiscal year. Service Cost The portion of the actuarial present value of projected benefit amounts that is attributed to a valuation year. Total Pension Liability The portion of the actuarial present value of projected benefit amounts that is attributed to past periods of employee service. Unfunded Actuarial Accrued Liability The excess of the Actuarial Accrued Liability over the Actuarial Value of Assets. Page 22

27 APPENDIX A CALCULATION OF MONEYWEIGHTED RATE OF RETURN Plan Investments/ Net External Cash Flows (a) Periods Invested (b) Period Weight (c)=(b) 12 (d)=(a) x (1+r mw ) (c) Beginning value January 1, 2017 $ 275,385, $ 318,808,087 Monthly net external cash flows: January (2,189,078) (2,503,519) February (1,749,927) (1,977,017) March (1,655,819) (1,848,010) April (1,693,531) (1,867,178) May (1,494,129) (1,627,352) June (1,380,925) (1,485,814) July 17,467, ,566,797 August (1,505,152) (1,580,435) September (1,842,371) (1,911,060) October (1,643,843) (1,684,451) November (1,791,016) (1,813,003) December (949,465) (949,465) Ending value December 31, 2017 $ 318,127,580 $ 318,127,580 Moneyweighted rate of return 15.77% Note: Beginning and ending values are based on amounts reported in the 's 2017 Annual Statement and monthly cash flows are based on amounts provided by the.

28 APPENDIX B SCHEDULE OF DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES Year Differences between Expected and Actual Experience Recognition Period (Years) $ $ $ (4,348,735) 5.10 (852,693) (852,693) (852,693) (852,693) (852,693) (85,270) 2017 $ (434,874) 6.79 (64,046) (64,046) (64,046) (64,046) (64,046) (64,046) (50,598) Net Increase (Decrease) in Pension Expense (852,693) (916,739) (916,739) (916,739) (916,739) (149,316) (64,046) (50,598) Year Changes of Assumptions Recognition Period (Years) $ $ $ 16,610, ,256,881 3,256,881 3,256,881 3,256,881 3,256, , $ (9,996,849) 6.79 (1,472,290) (1,472,290) (1,472,290) (1,472,290) (1,472,290) (1,472,290) (1,163,109) Net Increase (Decrease) in Pension Expense 3,256,881 1,784,591 1,784,591 1,784,591 1,784,591 (1,146,604) (1,472,290) (1,163,109) Year Differences between Projected and Actual Earnings on Pension Plan Investments Recognition Period (Years) $ 7,397, ,479,402 1,479,402 1,479,402 1,479,402 1,479, $ 21,341, ,268,377 4,268,377 4,268,377 4,268,376 4,268, $ 231, ,364 46,364 46,364 46,364 46, $ (22,564,985) 5 (4,512,997) (4,512,997) (4,512,997) (4,512,997) (4,512,997) Net Increase (Decrease) in Pension Expense 1,479,402 5,747,779 5,794,143 1,281,146 1,281,146 (198,256) (4,466,633) (4,512,997)

29 APPENDIX C SCHEDULE OF PENSION AMOUNTS BY EMPLOYER Hampshire Council of Governments Current Proportionate Share % Prior Proportionate Share % $ 219,760,254 $ 2,497,787 $ 185,840,982 $ 2,302,598 Differences Between Expected and Actual Experience $ $ Changes of Assumptions 10,096, ,095 4,537, ,281 Total Deferred Outflows of Resources $ 14,634,075 $ 354,376 Differences Between Expected and Actual Experience $ 3,014,177 $ 37,346 7,896,740 97,842 Changes of Assumptions 8,524,559 $ 105,621 4,537,746 $ 122,118 Total Deferred Inflows of Resources $ 23,973,222 $ 362,927 Proportionate Share of Plan Pension Expense $ 22,557,652 $ 279,493 (4,520) Total Employer Pension Expense $ 22,557,652 $ 274,973 $ 76,710,943 $ 902,861 Current discount rate: 7.45% $ 185,840,982 $ 2,302,598 1% decrease in the discount rate: 6.45% $ 243,856,160 $ 3,021,415 1% increase in the discount rate: 8.45% $ 136,774,999 $ 1,694, $ 2,148,998 $ 22, $ 669,596 $ 3, $ (3,598,781) $ (11,941) 2021 $ (5,808,917) $ (40,787) 2022 $ (1,536,336) $ 10,220 Thereafter $ (1,213,707) $ 8,074 C 1

30 APPENDIX C SCHEDULE OF PENSION AMOUNTS BY EMPLOYER Amherst Current Proportionate Share % Prior Proportionate Share % $ 219,760,254 $ 58,771,711 $ 185,840,982 $ 50,191,937 Differences Between Expected and Actual Experience $ $ Changes of Assumptions 10,096,329 2,726,815 4,537, ,062 Total Deferred Outflows of Resources $ 14,634,075 $ 3,261,877 Differences Between Expected and Actual Experience $ 3,014,177 $ 814,069 7,896,740 2,132,753 Changes of Assumptions 8,524,559 $ 2,302,313 4,537,746 $ 365,012 Total Deferred Inflows of Resources $ 23,973,222 $ 5,614,147 Proportionate Share of Plan Pension Expense $ 22,557,652 $ 6,092, Total Employer Pension Expense $ 22,557,652 $ 6,092,636 $ 76,710,943 $ 21,047,666 Current discount rate: 7.45% $ 185,840,982 $ 50,191,938 1% decrease in the discount rate: 6.45% $ 243,856,160 $ 65,860,679 1% increase in the discount rate: 8.45% $ 136,774,999 $ 36,940, $ 2,148,998 $ 580, $ 669,596 $ 181, $ (3,598,781) $ (1,001,423) 2021 $ (5,808,917) $ (1,505,109) 2022 $ (1,536,336) $ (339,396) Thereafter $ (1,213,707) $ (268,123) C 2

31 APPENDIX C SCHEDULE OF PENSION AMOUNTS BY EMPLOYER AmherstPelham Regional School District Current Proportionate Share % Prior Proportionate Share % $ 219,760,254 $ 12,990,090 $ 185,840,982 $ 10,980,092 Differences Between Expected and Actual Experience $ $ Changes of Assumptions 10,096, ,524 4,537,746 Total Deferred Outflows of Resources $ 14,634,075 $ 596,524 Differences Between Expected and Actual Experience $ 3,014,177 $ 178,087 7,896, ,565 Changes of Assumptions 8,524,559 $ 503,659 4,537,746 $ 31,827 Total Deferred Inflows of Resources $ 23,973,222 $ 1,180,138 Proportionate Share of Plan Pension Expense $ 22,557,652 $ 1,332,780 (10,511) Total Employer Pension Expense $ 22,557,652 $ 1,322,269 $ 76,710,943 $ 4,673,070 Current discount rate: 7.45% $ 185,840,982 $ 10,980,092 1% decrease in the discount rate: 6.45% $ 243,856,160 $ 14,407,818 1% increase in the discount rate: 8.45% $ 136,774,999 $ 8,081, $ 2,148,998 $ 116, $ 669,596 $ 29, $ (3,598,781) $ (220,661) 2021 $ (5,808,917) $ (344,601) 2022 $ (1,536,336) $ (91,543) Thereafter $ (1,213,707) $ (72,320) C 3

32 APPENDIX C SCHEDULE OF PENSION AMOUNTS BY EMPLOYER Amherst Housing Authority Current Proportionate Share % Prior Proportionate Share % $ 219,760,254 $ 1,701,079 $ 185,840,982 $ 1,302,747 Differences Between Expected and Actual Experience $ $ Changes of Assumptions 10,096,329 70,775 4,537,746 Total Deferred Outflows of Resources $ 14,634,075 $ 70,775 Differences Between Expected and Actual Experience $ 3,014,177 $ 21,129 7,896,740 55,356 Changes of Assumptions 8,524,559 $ 59,757 4,537,746 $ 175,138 Total Deferred Inflows of Resources $ 23,973,222 $ 311,380 Proportionate Share of Plan Pension Expense $ 22,557,652 $ 158,129 (41,127) Total Employer Pension Expense $ 22,557,652 $ 117,002 $ 76,710,943 $ 608,844 Current discount rate: 7.45% $ 185,840,982 $ 1,302,747 1% decrease in the discount rate: 6.45% $ 243,856,160 $ 1,709,434 1% increase in the discount rate: 8.45% $ 136,774,999 $ 958, $ 2,148,998 $ (26,063) 2019 $ 669,596 $ (36,434) 2020 $ (3,598,781) $ (58,920) 2021 $ (5,808,917) $ (62,554) 2022 $ (1,536,336) $ (31,639) Thereafter $ (1,213,707) $ (24,995) C 4

33 APPENDIX C SCHEDULE OF PENSION AMOUNTS BY EMPLOYER Belchertown Current Proportionate Share % Prior Proportionate Share % $ 219,760,254 $ 28,210,049 $ 185,840,982 $ 23,837,881 Differences Between Expected and Actual Experience $ $ Changes of Assumptions 10,096,329 1,295,059 4,537, ,051 Total Deferred Outflows of Resources $ 14,634,075 $ 1,613,110 Differences Between Expected and Actual Experience $ 3,014,177 $ 386,629 7,896,740 1,012,917 Changes of Assumptions 8,524,559 $ 1,093,448 4,537,746 $ 284,716 Total Deferred Inflows of Resources $ 23,973,222 $ 2,777,710 Proportionate Share of Plan Pension Expense $ 22,557,652 $ 2,893,477 (16,984) Total Employer Pension Expense $ 22,557,652 $ 2,876,493 $ 76,710,943 $ 9,743,580 Current discount rate: 7.45% $ 185,840,982 $ 23,837,881 1% decrease in the discount rate: 6.45% $ 243,856,160 $ 31,279,506 1% increase in the discount rate: 8.45% $ 136,774,999 $ 17,544, $ 2,148,998 $ 258, $ 669,596 $ 68, $ (3,598,781) $ (396,836) 2021 $ (5,808,917) $ (737,624) 2022 $ (1,536,336) $ (199,839) Thereafter $ (1,213,707) $ (157,874) C 5

34 APPENDIX C SCHEDULE OF PENSION AMOUNTS BY EMPLOYER Belchertown Housing Authority Current Proportionate Share % Prior Proportionate Share % $ 219,760,254 $ 279,924 $ 185,840,982 $ 253,306 Differences Between Expected and Actual Experience $ $ Changes of Assumptions 10,096,329 13,762 4,537,746 64,425 Total Deferred Outflows of Resources $ 14,634,075 $ 78,187 Differences Between Expected and Actual Experience $ 3,014,177 $ 4,108 7,896,740 10,763 Changes of Assumptions 8,524,559 $ 11,619 4,537,746 $ Total Deferred Inflows of Resources $ 23,973,222 $ 26,490 Proportionate Share of Plan Pension Expense $ 22,557,652 $ 30,747 24,051 Total Employer Pension Expense $ 22,557,652 $ 54,798 $ 76,710,943 $ 115,334 Current discount rate: 7.45% $ 185,840,982 $ 253,306 1% decrease in the discount rate: 6.45% $ 243,856,160 $ 332,382 1% increase in the discount rate: 8.45% $ 136,774,999 $ 186, $ 2,148,998 $ 26, $ 669,596 $ 24, $ (3,598,781) $ 4, $ (5,808,917) $ (5,342) 2022 $ (1,536,336) $ 456 Thereafter $ (1,213,707) $ 360 C 6

35 APPENDIX C SCHEDULE OF PENSION AMOUNTS BY EMPLOYER Belchertown Water District Current Proportionate Share % Prior Proportionate Share % $ 219,760,254 $ 516,784 $ 185,840,982 $ 343,782 Differences Between Expected and Actual Experience $ $ Changes of Assumptions 10,096,329 18,677 4,537,746 56,143 Total Deferred Outflows of Resources $ 14,634,075 $ 74,820 Differences Between Expected and Actual Experience $ 3,014,177 $ 5,576 7,896,740 14,608 Changes of Assumptions 8,524,559 $ 15,769 4,537,746 $ 82,978 Total Deferred Inflows of Resources $ 23,973,222 $ 118,931 Proportionate Share of Plan Pension Expense $ 22,557,652 $ 41,729 3,779 Total Employer Pension Expense $ 22,557,652 $ 45,508 $ 76,710,943 $ 111,797 Current discount rate: 7.45% $ 185,840,982 $ 343,782 1% decrease in the discount rate: 6.45% $ 243,856,160 $ 451,102 1% increase in the discount rate: 8.45% $ 136,774,999 $ 253, $ 2,148,998 $ 7, $ 669,596 $ 5, $ (3,598,781) $ (2,877) 2021 $ (5,808,917) $ (23,266) 2022 $ (1,536,336) $ (17,173) Thereafter $ (1,213,707) $ (13,567) C 7

36 APPENDIX C SCHEDULE OF PENSION AMOUNTS BY EMPLOYER Chesterfield Current Proportionate Share % Prior Proportionate Share % $ 219,760,254 $ 796,708 $ 185,840,982 $ 723,745 Differences Between Expected and Actual Experience $ $ Changes of Assumptions 10,096,329 39,319 4,537,746 57,045 Total Deferred Outflows of Resources $ 14,634,075 $ 96,364 Differences Between Expected and Actual Experience $ 3,014,177 $ 11,739 7,896,740 30,753 Changes of Assumptions 8,524,559 $ 33,198 4,537,746 $ 56,988 Total Deferred Inflows of Resources $ 23,973,222 $ 132,678 Proportionate Share of Plan Pension Expense $ 22,557,652 $ 87,849 (13,046) Total Employer Pension Expense $ 22,557,652 $ 74,803 $ 76,710,943 $ 247,377 Current discount rate: 7.45% $ 185,840,982 $ 723,745 1% decrease in the discount rate: 6.45% $ 243,856,160 $ 949,681 1% increase in the discount rate: 8.45% $ 136,774,999 $ 532, $ 2,148,998 $ (4,676) 2019 $ 669,596 $ (10,438) 2020 $ (3,598,781) $ (9,717) 2021 $ (5,808,917) $ (14,531) 2022 $ (1,536,336) $ 1,703 Thereafter $ (1,213,707) $ 1,345 C 8