PRIVATE. August 7, Ms. Katie White Director of Fiscal Services MiraCosta Community College (MS #6) One Barnard Drive Oceanside, CA 92056

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1 530 B Street, Suite 900 San Diego, CA (p) (f ) August 7, 2015 PRIVATE Ms. Katie White Director of Fiscal Services MiraCosta Community College (MS #6) One Barnard Drive Oceanside, CA Re: MiraCosta Community College District Actuarial Valuation Dear Ms. White: We are presenting our report of the July 1, 2015 GASB actuarial valuation conducted on behalf of the MiraCosta 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 K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Indianapolis Chicago Kansas City Atlanta St. Louis San Diego Houston Denver An Alliance Benefit Group Licensee

2 MiraCosta Community College District Actuarial Valuation Retiree Health Program As of July 1, 2015 July 2015 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

3 MiraCosta Community College District Retiree Health Program GASB Actuarial Valuation As of July 1, 2015 Table of Contents Page Section I. Executive Summary... 1 Section II. Financial Results... 4 Section III. Projected Cash Flows... 7 Section IV. Funding Analysis... 9 Section V. GASB 74 and 75 Study Section VI. Benefit Plan Provisions Section VII. Valuation Data Section VIII. Actuarial Assumptions and Methods Section IX. Actuarial Certification Section X. Definitions K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx

4 SECTION I. EXECUTIVE SUMMARY Background The MiraCosta 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 retiree health benefits to 42 retired employees under age 65. There are also 54 Medicare eligible retirees who are eligible for reimbursement for the purchase of a Medicare Supplement policy to age 75. In addition, there are 475 active employees earning service credits towards eligibility for future retiree health benefits and reimbursements. To be eligible for retiree health benefits, an employee must retire from the District on or after age 55 with at least 10 years of service. In general, the District s contribution for retiree health coverage is equivalent to the contribution provided to an active employee which is subject to an annual maximum. Upon reaching age 65, the retiree is eligible for reimbursement for a Medicare supplemental policy through age 75. Section VI of the report details the plan provisions that were included in the valuation and the current premium costs for coverage. The active and retired employees are pooled together for medical coverage. GASB 45 requires that when an employer provides benefits to both active employees and retirees through the same plan, the benefits and costs for retirees should be segregated and measured independently. This requires that the valuation be based on rates that are derived for the retirees only. The difference between the premium rate for coverage and the rates based on retirees only is referred to as a rate subsidy. An estimate of the rate subsidy is included in the valuation as an additional financial obligation to the District. 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 July 1, 2015, is $33,080,034 (including $4,645,851 for the rate subsidy). This value is based on an assumed discount rate of 6%. 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 6% 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 $20,095,621 (including $2,900,806 for the rate subsidy), the current service component (normal cost or current year accrual) is $1,367,184 (including $190,885 for the rate subsidy) and the future service component (not yet accrued liability) is $11,617,229 (including $1,554,160 for the rate subsidy). Funding The District pre-funds for its retiree health benefits through the Community College League of California s retiree health benefit trust (the Trust ). The market value of assets in the Trust as of June 30, 2015 is $17,226,726. The unfunded actuarial accrued liability at July 1, 2015 is $2,868,895 representing a funded level of 87%. The results of the valuation assume that the District will continue to prefund at least a portion of its annual required contribution and that the assets in the Trust will earn on average a 6.0% rate of return. The impact of a plus or minus change in the interest rate is provided in Section II-H of the report. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 1

5 There are multiple ways to approach the funding of a retiree health plan. The annual required contribution (accrual expense) is one method, of many, that could be used to pre-fund benefits. Section IV of the report provides other funding alternatives for the District. Changes from Prior Valuation The results of the valuation reflect updated census, plan and premium information. The plan changed from tiered rates based on coverage election to composite rates. In addition, the mortality table applicable to Non-Faculty employees was updated to reflect the mortality improvement from the most recent PERS pension valuation. The valuation also reflects an update to the dental and vision trend rates, and changes to the spousal coverage election assumptions to reflect more recent experience of retirees electing spousal coverage. A reconciliation of the approximate change in the actuarial liability from the prior valuation is provided in the following table: July 1, 2013 $31.6 Million Increase due to passage of time 1.9 Million Increase due to new entrants 3.1 Million Decrease due to net experience gain ( 2.8 Million) Decrease due to new spousal coverage election assumptions (75% to 60%) ( 0.8 Million) Increase due to new PERS mortality rates 0.2 Million Decrease due to lowering the dental and vision trend (5% to 4%) ( 0.1 Million) July 1, 2015 $33.1 Million Annual Required Contribution (ARC) Based on the July 1, 2015 valuation results, the District s annual required contribution (accrual expense) is $1,682,394 (including $438,111 for the rate subsidy) as compared to $2,008,628 in the prior valuation. The annual required contribution amount is comprised of the present value of benefits accruing in the current fiscal year (normal cost) plus a 23-year amortization (on a level-dollar basis) of the unfunded actuarial accrued liability/(asset) at July 1, Thus, it represents a means to expense the plan's liabilities in an orderly manner. The net increase in OPEB obligation/(asset) at the end of the fiscal year will reflect any actual contributions made by the District during the period for retiree health benefits including any rate subsidy and pre-funding amounts. Actuarial Basis The actuarial valuation is based on the assumptions and methods outlined in Section VIII 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 20% 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 6%. A 1% decrease in the discount rate would increase the annual required contribution by 19%. A 1% increase in the discount rate would decrease the annual required contribution by 17%. 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 an estimate of the expected costs associated with retired employees. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 2

6 Scheduled to take effect in 2018, 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. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 3

7 SECTION II. FINANCIAL RESULTS A. Valuation Results as of July 1, 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. Faculty Employees Non-Faculty Employees District Total 1. Actuarial Liability (AL) Actives $12,336,547 $16,904,606 $29,241,153 Retirees 823,708 3,015,173 3,838,881 Total AL $13,160,255 $19,919,779 $33,080,034 Attributable to Subsidy $ 1,825,807 $ 2,820,044 $ 4,645,851 Post-65 Benefits $ 2,522,204 $ 3,528,701 $ 6,050, Actuarial Accrued Liability (AAL) Actives $ 7,314,715 $ 8,942,025 $16,256,740 Retirees 823,708 3,015,173 3,838,881 Total AAL $ 8,138,423 $11,957,198 $20,095,621 Attributable to Subsidy $ 1,144,289 $ 1,756,517 $ 2,900,806 Post 65 Benefits $ 1,718,357 $ 2,268,942 $ 3,987, Normal Cost $ 572,428 $ 794,756 $ 1,367,184 Attributable to Subsidy $ 80,040 $ 110,845 $ 190,885 Post 65 Benefits $ 93,518 $ 123,872 $ 217,390 No. of Active Employees Average Age Average Past Service No. of Retired Employees Average Age Average Retirement Age B. Development of Actuarial Value of Assets The actuarial value of assets is based on the market value of assets plus any reported contribution receivable or benefits payable. The actuarial value of assets at June 30, 2015 is $17,226,726. C. Development of Unfunded Actuarial Accrued Liability July 1, 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. 1. Actuarial Accrued Liability (AAL) $20,095, Actuarial Value of Assets ( 17,226,726) 3. Unfunded Actuarial Accrued Liability (UAAL) $ 2,868,895 K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 4

8 D. 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) $ 2,868, Amortization Factor Amortization of UAAL $ 233,179 E. Annual Required Contribution (ARC) The table below presents the development of the annual required contribution under GASB Normal Cost at End of Year $ 1,449, Amortization of UAAL 233, Annual Required Contribution (ARC) $ 1,682,394 Attributable to Rate Subsidy $ 438,111 Attributable to Post 65 Benefits $ 554, Estimated Payroll $45,302, ARC As Percentage of Payroll 3.7% * Estimated amount of rate subsidy to be paid during the fiscal year through active premiums. F. Required Supplementary Information (Funding Date) The table below presents a sample disclosure of the funding progress as of July 1, Actuarial Accrued Liability (AAL) $20,095, Actuarial Valuation of Assets (AVA) ( 17,226,726) 3. Unfunded Actuarial Accrued Liability (UAAL) $ 2,868, Funded Ratio 86% 5. Estimated Payroll $45,302, UAAL as Percentage of Covered Payroll 6% G. 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: 1. Number of Active Employees Estimated Annual Payroll $45,302, Retiree Health Benefit Accrual without Past Service Component - Accrual Per Employee Per Year $3,050 - Accrual as % of Annual Payroll 3.2% 4. Retiree Health Benefit Accrual with Active Past Service Component - Accrual Per Employee Per Year $3,450 - Accrual as % of Annual Payroll 3.6% 5. Retiree Health Benefit Accrual with Active & Retiree Past Service Component - Accrual Per Employee Per Year $3,540 - Accrual as % of Annual Payroll 3.7% K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 5

9 H. Sensitivity Analysis: 1. The impact of a 1% 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 14% $ 4,471,456 - Actuarial Accrued Liability 10% $ 1,950,637 - Unfunded Actuarial Accrued Liability 68% $ 1,950,637 - Annual Required Contribution (Expense) 19% $ 311, The impact of a 1% 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 ($) Decrease - Actuarial Liability (11%) ($ 3,716,377) - Actuarial Accrued Liability ( 8%) ($ 1,684,272) - Unfunded Actuarial Accrued Liability (59%) ($ 1,684,272) - Annual Required Contribution (Expense) (17%) ($ 285,969) 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 13% $ 4,253,611 - Actuarial Accrued Liability 9% $ 1,820,986 - Unfunded Actuarial Accrued Liability 63% $ 1,820,986 - Annual Required Contribution (Expense) 20% $ 341,058 K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 6

10 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 67 at the latest. Employees already over age 67 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 closed-group 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. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 7

11 Projected Employer Cash Flows Representative Years Fiscal Year Future Retirees Retired Employees Total Subsidy District Total 2015/16 $ 151,290 $ 746,540 $ 897,830 $ 197,564 $ 1,095, /17 $ 458,866 $ 655,175 $ 1,114,041 $ 240,385 $ 1,354, /18 $ 757,402 $ 568,950 $ 1,326,352 $ 271,483 $ 1,597, /19 $ 1,041,773 $ 444,712 $ 1,486,485 $ 287,477 $ 1,773, /20 $ 1,215,892 $ 304,321 $ 1,520,213 $ 258,833 $ 1,779, /21 $ 1,415,396 $ 292,785 $ 1,708,181 $ 292,225 $ 2,000, /22 $ 1,691,725 $ 215,217 $ 1,906,942 $ 327,800 $ 2,234, /23 $ 1,831,178 $ 175,421 $ 2,006,599 $ 339,249 $ 2,345, /24 $ 2,049,544 $ 167,183 $ 2,216,727 $ 390,863 $ 2,607, /25 $ 2,104,656 $ 119,359 $ 2,224,015 $ 374,168 $ 2,598, /26 $ 2,246,603 $ 110,824 $ 2,357,427 $ 404,407 $ 2,761, /27 $ 2,264,327 $ 92,932 $ 2,357,259 $ 394,991 $ 2,752, /28 $ 2,272,505 $ 73,076 $ 2,345,581 $ 372,941 $ 2,718, /29 $ 2,395,066 $ 49,692 $ 2,444,758 $ 389,487 $ 2,834, /30 $ 2,480,290 $ 27,050 $ 2,507,340 $ 406,778 $ 2,914, /31 $ 2,448,436 $ 25,464 $ 2,473,900 $ 381,815 $ 2,855, /32 $ 2,475,874 $ 8,777 $ 2,484,651 $ 367,051 $ 2,851, /33 $ 2,563,581 $ 4,647 $ 2,568,228 $ 380,720 $ 2,948, /34 $ 2,696,065 $ 4,758 $ 2,700,823 $ 408,696 $ 3,109, /35 $ 2,616,280 $ 0 $ 2,616,280 $ 387,435 $ 3,003, /36 $ 2,609,736 $ 0 $ 2,609,736 $ 399,420 $ 3,009, /37 $ 2,429,750 $ 0 $ 2,429,750 $ 358,678 $ 2,788, /38 $ 2,363,404 $ 0 $ 2,363,404 $ 358,720 $ 2,722, /39 $ 2,265,436 $ 0 $ 2,265,436 $ 336,985 $ 2,602, /40 $ 2,178,378 $ 0 $ 2,178,378 $ 316,662 $ 2,495, /41 $ 1,920,878 $ 0 $ 1,920,878 $ 247,959 $ 2,168, /42 $ 1,699,605 $ 0 $ 1,699,605 $ 192,457 $ 1,892, /43 $ 1,662,195 $ 0 $ 1,662,195 $ 194,466 $ 1,856, /44 $ 1,633,064 $ 0 $ 1,633,064 $ 199,110 $ 1,832, /45 $ 1,541,165 $ 0 $ 1,541,165 $ 194,298 $ 1,735, /46 $ 1,476,365 $ 0 $ 1,476,365 $ 194,731 $ 1,671, /51 $ 716,343 $ 0 $ 716,343 $ 78,676 $ 795, /56 $ 261,331 $ 0 $ 261,331 $ 10,751 $ 272, /61 $ 76,487 $ 0 $ 76,487 $ 0 $ 76, /66 $ 7,241 $ 0 $ 7,241 $ 0 $ 7, /71 $ 0 $ 0 $ 0 $ 0 $ /76 $ 0 $ 0 $ 0 $ 0 $ 0 All Years $66,342,817 $ 4,086,883 $70,429,700 $10,512,933 $80,942,633 K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 8

12 SECTION IV. FUNDING ANALYSIS There are multiple ways to approach the funding of a retiree health benefits program. The annual required contribution (accrual expense) is one method, of many, that could be used to pre-fund benefits. The annual required contribution amount will fluctuate from year to year based on the asset performance and as the population matures. Presented below are other alternatives to pre-fund the District s obligation (the present value of projected benefits or actuarial liability net of plan assets and net of the rate subsidy) for its current active employees and retirees using both level-dollar and level-percentage of pay methods. 6.0% Discount Rate Level Dollar Equivalent Level Percentage of Pay* 20 Years 25 Years 30 Years 20 Years 25 Years 30 Years Fund Present Value of Projected Benefits ($15.9M) at July 1, 2015: $1.4M $1.1M $1.2M 2.4% 2.0% 1.8% Fund Present Value of Projected Benefits Less Rate Subsidy ($11.2M) at July 1, 2015: $1.0M $0.9M $0.8M 1.7% 1.4% 1.3% * Eligible employees only; assumes pay roll increases 3.0% per year 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. 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. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 9

13 SECTION V. GASB 74 AND 75 STUDY This study analyzes the impact of the recently issued GASB Statements No. 74 and 75 (GASB 74 and GASB 75) on plan and employer financial statements and comments on the increased disclosure requirements. GASB 74 is effective for fiscal years beginning after June 15, GASB 75 is effective for fiscal years beginning after June 15, Actuarial valuations are required to be performed at least once every two years to calculate the net OPEB liability. Plans with less than 100 active and inactive employees can utilize an alternative measurement method, instead of an actuarial valuation, to calculate the net OPEB liability. GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, focuses on the accounting for OPEB within employers financial statements and is similar to GASB 68 applicable to governments with defined benefit pension plans. GASB 75 will require the District to accrue the net OPEB liability on its financial statements. The net OPEB liability (NOL) is calculated as the actuarial accrued liability (AAL) using a specific cost method less OPEB plan s fiduciary net position (GASB eligible assets). The two major changes under the new accounting standards that we studied include: 1. The NOL is required to be determined using the Entry Age Normal Level % of Pay Cost Method (EAN) to determine the liability and the market value of assets (MVA). For most employers, this cost method yields a higher unfunded liability than the Projected Unit Credit (PUC) Cost Method. 2. The required discount rate may be lower if projected OPEB assets do not cover projected benefit payments based on the employer s funding policy and current workforce. The projection of future benefit payments include discretionary ad hoc benefit changes and COLAs, to the extent such changes are made regularly, and certain taxes or other assessments expected to be imposed on the benefit payment. The table below presents the impact on the determination of the unfunded actuarial accrued liability if GASB 75 were effective at June 30, Change 1 Change 2 Assumptions Current Cost Method Discount Rate* Discount Rate: 6.0% 6.0% 6.0% Cost Method: Projected Unit Entry Age Entry Age Assumed Funding Policy: Credit Fund at least the ARC Under PUC % of Pay Fund at least the ARC Under PUC % of Pay Fund at least the ARC Under PUC Impact OPEB Liability (AAL): $20,095,621 $21,894,031 $21,894,031 Net Fiduciary Position (MVA): ( 17,226,726) ( 17,226,726) ( 17,226,726) Net OPEB Liability(NOL): $ 2,868,895 $ 4,667,305 $ 4,667,305 Current Net OPEB Obligation*: $ 314,207 $ 314,207 Impact on Financial Statement: $ 4,353,098 $ 4,353,098 *Based on the District s current funding and investment policy using current assets, projected contributions and expected earnings, the trust is expected to remain positive in future years. Thus, the discount rate is not required to be blended with a 20 year municipal high quality bond rate. **Current (June 30, 2015) Net OPEB Obligation/(Asset) is an estimated amount based on the June 30, 2014 Net OPEB Obligation. Under GASB 74 and 75, once the NOL is recognized on the District s financial statement, future annual OPEB expense determination requires a specified cost method, immediate recognition of the service cost and interest cost and any benefit changes and requires (shorter) amortization periods for assumptions changes and experience gain losses. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 10

14 Both GASB 74 and 75 will require governmental employers to present much more extensive note disclosure and Required Supplementary Information (RSI) about their OPEB liabilities. GASB 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, sets forth requirements for OPEB plan financial statements that are similar to the requirements set forth in GASB 67 for pension plan financial statements. GASB 74 does not require that the underfunded status of the plan be reported as a liability on the plan s financial statements. However, the actuarially determined OPEB liability is required to be disclosed in the footnotes to the financial statements and required supplementary information (RSI), as well as the actuarial assumptions utilized in calculating the liability and various other ratios and disclosures of the composition of the OPEB liability. Additionally, the RSI is to be presented for the past 10 years under GASB 74, as opposed to the past six years as currently required. GASB 75 requires a statement of fiduciary net position and a statement of changes in fiduciary net position. In addition, GASB 75 requires various footnote disclosures and RSI, including a description of the benefits provided and classes of members covered, the significant assumptions and inputs utilized in calculating the net OPEB liability, the components of the net OPEB liability, and other related ratios. Similar to GASB 74, RSI is required for the past 10 years. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 11

15 SECTION VI. BENEFIT PLAN PROVISIONS This study analyzes the postretirement health benefit plans provided by the District. The postretirement health plans are only provided to age 65 (Medicare eligibility) and are basically continuations of the plans for the District s active employees. In addition, the District provides reimbursement for the purchase of a Medicare Supplement Policy to retirees subject to a maximum reimbursement amount and a maximum reimbursement period. A description of the benefits is provided below: Early (Under Age 65) Coverage The District provides health coverage for the retiree and any eligible dependents at the same level as that of current active employees until the retiree reaches age 65. To be eligible to receive retiree health coverage, the employee must be at least age 55 and have 10 years of eligible service at retirement. Retirees can elect health coverage from a menu of options for themselves and their dependents. The District pays for this coverage up to an annual maximum. For 2015, the annual maximum is based on the medical, dental and vision plan elected by the retiree ($22,287 for the PPO and $18,555 for the HMO). The retiree must pay the cost for any benefits elected that result in total costs above the annual maximum, if any. Post Age 65 Coverage After reaching age 65, early retirees who retired from the District on or after June 30, 2004 and eligible active employees who retire on or after age 65 are eligible to receive reimbursement for premiums paid for a Medicare Supplement Policy. The District will reimburse the retiree up to an annual maximum ($2,500 for retiree only/$5,000 for retiree and spouse/domestic partner for 2015). The annual maximum is based on the average cost of Medicare Supplement policies according to AARP and may be updated each year. The dollar amount has not change in past years. This benefit is payable only to the retiree and only through the earlier of age 75 or death. Medical Plans and Premium Rates The District currently provides several health plans as listed below. All of the plans are partially experience rated and community rated. Kaiser HMO Consortium Health Plan PPO DeltaCare PMI Delta Dental Vision Service Plan K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 12

16 The following table summarizes the current monthly COBRA rates (premiums and funding rates plus 2%) for applicable health plan coverage. All rates are effective from January 1, 2015 to December 31, Medical Premiums Kaiser Consortium Health Plan Composite $1, $1, Dental and Vision Premiums DeltaCare PMI Delta Dental VSP Vision Employee (EE) Only $19.60 $64.82 $13.00 EE + 1 Dependent $35.18 $ $23.64 EE + Children N/A N/A NA EE + Family $52.05 $ $33.10 The active and retired employees are pooled together for medical coverage. GASB 45 requires that when an employer provides benefits to both active employees and retirees through the same plan, the benefits to retirees should be segregated and measured independently. This requires that the valuation be based on rates that are derived for the retiree only. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 13

17 SECTION VII. 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 Faculty Non-Faculty All Retirees Age Pre-65 Post-65 Total Pre-65 Post-65 Total Pre-65 Post-65 Total < Grand Total Average Age Average Retirement Age Age/Service Distribution of Active Eligible Employees Service Age Total Total Average Age 48.6 Average Service 11.4 Average Earnings $95,373 K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 14

18 Age/Service Distribution of Active Eligible Faculty Employees Service Age Total Total Average Age 50.9 Average Service 13.3 Average Earnings $124,126 Age/Service Distribution of Active Eligible Non-Faculty Employees Service Age Total Total Average Age 47.2 Average Service 10.3 Average Earnings $77,671 K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 15

19 SECTION VIII. 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: July 1, 2015 Inflation Rate: Discount Rate: Return on Assets: Pre-retirement Turnover: Mortality Rates: 3.0% per annum 6.0% per annum 6.0% per annum 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% K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 16

20 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: Participation Rates: Spouse Coverage: Incidences of disability are deferred to expected retirement. Age Percent Retiring* % % % % % % % % % % % * 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. 100% of active employees meeting eligibility requirements are assumed to elect retiree health coverage at retirement. Of those electing coverage, 55% are assumed to elect the Consortium PPO plan and 45% the Kaiser HMO plan. Actual plan coverage is used for current retirees. 60% of future retirees are assumed to elect coverage for their spouse. Female spouses are assumed to be the same age as male spouses. Actual spouse age is used for current retirees. [The prior valuation assumed 75%] Dependent Coverage: Not explicitly valued. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 17

21 Average Claim Costs: Medical Trend Rate: Dental & Vision Trend Rates: The valuation was based on the premiums and funding rates furnished by the District. These costs include medical and prescription drug for both active and retired employees. A claim cost curve was developed using an assumption for aging. This results in an expected claim cost at every age. Sample annual medical/rx costs are provided in the table below. The average annual dental and vision cost for a single employee was determined to be $780 for dental and $155 for vision. Age PPO Kaiser 55 $10,070 $ 7, $11,775 $ 8, $13,750 $10,190 Year PPO HMO % 7.0% % 6.5% % 6.0% % 5.5% % 5.0% % 5.0% Year Trend % [The prior valuation used a 1% higher trend rate] Annual Maximum: Medicare Supplement Actuarial Cost Method: Assumed to increase similar to increases in health costs. Starting cost $2,500 per covered Medicare participant assumed to increase 5% per year. Percentage of reimbursement is assumed to be 50%. 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: Any assets of the plan will be valued on a market value basis. Amortization of UAAL: The unfunded actuarial accrued liability is being amortized over an initial 30 years using a level-dollar amortization method. The outstanding unfunded liability at July 1, 2015 is amortized over 23 years. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 18

22 SECTION IX. ACTUARIAL CERTIFICATION This report summarizes the GASB actuarial valuation for the MiraCosta 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: August 7, 2015 Consulting Actuary K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 19

23 SECTION X. DEFINITIONS The definitions of the terms used in GASB actuarial valuations are noted below. Actuarial Liability (also referred to as Present Value of Future Benefits) Total projected benefits include all benefits estimated to be payable to plan members (retirees and beneficiaries, terminated employees entitled to benefits but not yet receiving them, and current active members) as a result of their service through the valuation date and their expected future service. The actuarial present value of total projected benefits as of the valuation date is the present value of the cost to finance benefits payable in the future, discounted to reflect the expected effects of the time value (present value) of money and the probabilities of payment. Expressed another way, it is the amount that would have to be invested on the valuation date so that the amount invested plus investment earnings will provide sufficient assets to pay total projected benefits when due. Actuarial Accrued Liability That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present Value of plan benefits and expenses which is not provided for by the future Normal Costs. Actuarial Assumptions Assumptions as to the occurrence of future events affecting health care costs, such as: mortality, turnover, disablement and retirement; changes in compensation and Government provided health care benefits; rates of investment earnings and asset appreciation or depreciation; procedures used to determine the Actuarial Value of Assets; characteristics of future entrants for Open Group Actuarial Cost Methods; and other relevant items. Actuarial Cost Method A procedure for determining the Actuarial Present Value of future benefits and expenses and for developing an actuarially equivalent allocation of such value to time periods, usually in the form of a Normal Cost and an Actuarial Accrued Liability. Actuarial Present Value The value of an amount or series of amounts payable or receivable at various times, determined as of a given date by the application of a particular set of Actuarial Assumptions. Annual OPEB Cost An accrual-basis measure of the periodic cost of an employer s participation in a defined benefit OPEB plan. Annual Required Contribution (ARC) The employer s periodic required contributions to a defined benefit OPEB plan, calculated in accordance with the parameters. Explicit Subsidy The difference between (a) the amounts required to be contributed by the retirees based on the premium rates and (b) actual cash contribution made by the employer. Funded Ratio The actuarial value of assets expressed as a percentage of the actuarial accrued liability. Healthcare Cost Trend Rate The rate of change in the per capita health claims costs over time as a result of factors such as medical inflation, utilization of healthcare services, plan design, and technological developments. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 20

24 Implicit Rate Subsidy In an experience-rated healthcare plan that includes both active employees and retirees with blended premium rates for all plan members, the difference between (a) the age-adjusted premiums approximating claim costs for retirees in the group (which, because of the effect of age on claim costs, generally will be higher than the blended premium rates for all group members) and (b) the amounts required to be contributed by the retirees. Net OPEB Obligation The cumulative difference since the effective date of this Statement between annual OPEB cost and the employer s contributions to the plan, including the OPEB liability (asset) at transition, if any, and excluding (a) short-term differences and (b) unpaid contributions that have been converted to OPEB-related debt. Normal Cost The portion of the Actuarial Present Value of plan benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method. Pay-as-you-go A method of financing a benefit plan under which the contributions to the plan are generally made at about the same time and in about the same amount as benefit payments and expenses becoming due. Per Capita Costs The current cost of providing postretirement health care benefits for one year at each age from the youngest age to the oldest age at which plan participants are expected to receive benefits under the plan. Select and Ultimate Rates Actuarial assumptions that contemplate different rates for successive years. Instead of a single assumed rate with respect to, for example, the healthcare trend rate assumption, the actuary may apply different rates for the early years of a projection and a single rate for all subsequent years. For example, if an actuary applies an assumed healthcare trend rate of 6.5% for year 20W0, 6.0% for 20W1, 5.5% for 20W2, then 5.0% for 20W3 and thereafter, then 6.5%, 6% and 5.5% are select rates, and 5% is the ultimate rate. Substantive Plan The terms of an OPEB plan as understood by the employer(s) and plan participant. K:\Retmed\MCCD\2015\Actuarial Valuation Report MCCD 2015.docx Page 21