November 22, Dear Ms. Standlee:

Transcription

1 M I L W A U K E E P U B L I C S C H O O L S R E T I R E E H E A L T H C A R E A N D L I F E I N S U R A N C E P R O G R A M S A C T U A R I A L V A L U A T I O N A S O F J U L Y 1, 2015

2 November 22, 2016 Ms. Christiane T. Standlee, J.D. Senior Director of Benefits & Compensation Services Office of Human Capital Milwaukee Public Schools Administration Building 5225 West Vliet Street P.O. Box 2181 Milwaukee, WI Dear Ms. Standlee: We have performed an actuarial valuation as of July 1, 2015, of the Retiree Healthcare and Life Insurance Programs sponsored by the Milwaukee Public Schools (MPS). The actuarial valuation was performed in order to: Measure the actuarial liability as of July 1, 2015; and Develop retiree healthcare accounting expense information for fiscal years 2016 and 2017 as defined under the GASB Statement Nos. 43 and 45. The actuarial valuation was based on the following: Census data as of July 1, 2015, and premium information as provided by Milwaukee Public Schools Staff, and claims, expenses, and enrollment data for the period from August 1, 2013, to July 1, 2015, as disclosed in the plan s most recent premium rating reports prepared by the healthcare actuary and provided by Milwaukee Public Schools Staff; IRC Section 115 assets as provided by MPS staff; Actual employer contributions for fiscal year 2016 as provided by MPS staff; Plan provisions and funding policy in effect as of July 1, 2015, as provided by the Milwaukee Public Schools and summarized in Section F; Our understanding of the substantive plan in effect as currently being administered; and Actuarial assumptions and methods shown in Section G as used for the actuarial valuations of the Milwaukee Public Schools Supplemental Pension Plans for Teachers and Administrators, and the City of Milwaukee Employees Retirement System (ERS) for other labor units.

3 Ms. Christiane Standlee Milwaukee Public Schools Page 2 The actuarial valuation was based upon information furnished by Milwaukee Public Schools concerning benefits provided by the Retiree Healthcare and Life Insurance Programs, financial transactions, plan provisions and active members, terminated members, retirees and beneficiaries. We checked for internal and year-to-year consistency, but did not audit the data. We are not responsible for the accuracy or completeness of the information provided by Milwaukee Public Schools. 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 or additional cost or contribution requirements based on the plan s funded status); and changes in plan provisions or applicable law. To the best of our knowledge the information contained in this report is accurate and fairly presents the actuarial position of the Retiree Healthcare and Life Insurance Programs sponsored by the Milwaukee Public Schools as of the actuarial valuation date. All calculations have been made in conformity with generally accepted actuarial principles and practices, with the Actuarial Standards of Practice issued by the Actuarial Standards Board, and with our understanding of GASB Statements Nos. 43 (Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans) and 45 (Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pension). This report should not be relied on for any purpose other than the purpose stated. Alex Rivera and Lance J. Weiss are Members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion herein. The signing actuaries are independent of the plan sponsor. We will be pleased to review this report with you at your convenience. Respectfully submitted, Alex Rivera, FSA, EA, MAAA, FCA Senior Consultant Lance J. Weiss, EA, MAAA, FCA Senior Consultant AR: lw Enclosures L:\c2660_MilwaukeeSchools\2016\OPEB\Valuation_FYE2015\Reports\c2660_Val2015OPEB_450_Final.docx

4 TABLE OF CONTENTS Section Items Pages Transmittal Letter A Executive Summary 1-2 B Actuarial Valuation Results at 4.55% Discount and 4.5% Trend 3-7 C Asset Reconciliation 8 D GASB Accounting 9-11 E Sensitivity Projections F Plan Provisions G Actuarial Methods and Assumptions H Participant Data Milwaukee Public Schools OPEB Valuation -i-

5 SECTION A E X E C U T I V E S U M M A RY

6 EXECUTIVE SUMMARY (CONTINUED) This report presents the results of our actuarial valuation as of July 1, 2015, for the Retiree Healthcare and Life Insurance Programs sponsored by the Milwaukee Public Schools. The actuarial valuation was based on GASB Statement Nos. 43 and 45. Our actuarial valuation was based on a discount rate assumption of 4.55 percent and an ultimate healthcare trend assumption of 4.5 percent 1, as approved by Milwaukee Public Schools. Milwaukee Public Schools has established an IRC Section 115 trust to prefund retiree healthcare benefits. The current funding policy is to prefund 5 percent in addition to gross (retiree and employer) pay-as-you-go costs. Ongoing costs for the fiscal year are paid from the Section 115 trust. The discount rate of 4.55 percent reflects the plan sponsors prefunding policy. The key actuarial valuation results using the Entry Age Normal cost method are summarized below: Retiree Healthcare and Life Insurance Programs 4.55% Discount Rate and 4.50% Ultimate Trend $ in Thousands Board/ Cabinet/ ASC Building Trades 1053 Clerical/ Technical 150 Building Service 150 Food Service 1616 Education Employees 420 Engineers Actuarial Liability as of July 1, 2015 $117,904.6 $22,880.2 $43,383.0 $14,840.3 $46,243.8 $13,238.3 $31,142.8 Normal Cost for FY 2016 $246.7 $126.6 $220.7 $206.6 $526.6 $117.0 $178.3 GASB No. 45 FY 2016 Expense $7,369.8 $1,432.1 $2,776.4 $964.1 $3,041.0 $890.4 $1,883.4 (% of Payroll) 15.6% 22.3% 28.3% 13.5% 27.9% 17.5% 21.0% FY 2016 Employer Pay-go Contribution $7,041.6 $1,523.7 $2,531.1 $488.4 $1,926.4 $721.1 $1,822.4 (% of Payroll) 14.9% 23.7% 25.8% 6.9% 17.7% 14.2% 20.3% Payroll $47,176.9 $6,423.5 $9,818.6 $7,130.0 $10,890.6 $5,092.7 $8,985.0 Number of Actives Members Number of Retirees and Surviving Spouses Educational Assistants Sub Teachers Teachers PAMPS Others Total Actuarial Liability as of July 1, 2015 $75,031.6 $10,695.5 $608,240.5 $11,081.1 $2,807.9 $997,489.6 Normal Cost for FY 2016 $944.4 $0.0 $1,883.4 $64.8 $12.9 $4,527.9 GASB No. 45 FY 2016 Expense $4,796.6 $686.4 $37,559.9 $663.3 $224.2 $62,287.6 (% of Payroll) 21.6% NA 15.0% 9.0% 46.6% 16.5% FY 2016 Employer Pay-go Contribution $2,912.7 $726.8 $32,684.0 $518.2 $176.0 $53,072.4 (% of Payroll) 13.1% NA 13.0% 7.0% 36.6% 14.1% Payroll $22,242.0 $0.0 $250,750.1 $7,399.4 $480.9 $376,389.8 Number of Active Members 1, , ,184 Number of Retirees and Surviving Spouses , ,978 The details of the preceding actuarial valuation results by labor unit are included in Section B of the report. Our calculations are based on adoption of GASB Statement No. 45 requirements at July 1, 2007, and an opening transition liability of zero at that date. The Net OPEB Obligation or balance sheet liability represents the cumulative differences between Annual OPEB Costs and actual employer contributions. Milwaukee Public Schools OPEB Valuation -1-

7 EXECUTIVE SUMMARY (CONTINUED) Plan Experience The actuarial liabilities decreased from $1,153.0 million as of July 1, 2013, to $997.5 million as of July 1, If there were no changes and the plan s actuarial assumptions had been exactly realized during the two-year period, the actuarial liabilities would have increased to $1,154.0 million as of July 1, The key factors contributing to the unanticipated decrease in actuarial liabilities of $156.5 million include: Healthcare claims experience and healthcare-related assumption changes resulted in an estimated (decrease)/increase in actuarial liabilities of $(159.5), million; Changes in demographic assumptions resulted in no estimated change in actuarial liabilities; and Demographic and other experience resulted in a (decrease)/increase in the actuarial liabilities of approximately $3.0 million. ($ in Millions) Actuarial Liability as of July 1, 2013 a $1,153.0 Expected Liability as of July 1, 2015 $1,154.0 Increase/(Decrease) Due To: Healthcare Experience and Assumption Changes ($159.5) Changes in Demographic Assumptions 0.0 Demographic Experience 3.0 Actuarial Liability as of July 1, 2015 $997.5 a Includes estimated cost impact of Medicare Advantage program as provided in November 4, 2014, cost impact letter. Milwaukee Public Schools OPEB Valuation -2-

8 SECTION B A C T U A R I A L VA L U AT I O N R E S U LTS AT 4. 55% D I S C O U N T RAT E A N D 4. 5% T R END R ATE

9 VALUATION RESULTS AT 4.55% DISCOUNT RATE AND 4.5% TREND RATE The following tables show the results of our actuarial valuation assuming a discount rate of 4.55 percent, salary increases comprised of a wage inflation component of 3.0 percent for general employees and 2.8 percent for other employees, and seniority and merit components and an ultimate healthcare trend rate of 4.5 percent 1. We believe these assumptions are consistent with the requirements of GASB Statement Nos. 43 and 45. According to paragraph 34(c) of GASB Statement No. 43 and paragraph 13(c) of GASB Statement No. 45, plans should use a discount rate consistent with the return on assets backing retiree healthcare benefits, which for pay-as-you-go plans will usually be the return earned by the employer s general assets. Milwaukee Public Schools has established an IRC Section 115 trust to prefund retiree healthcare benefits. The current funding policy is to prefund 5 percent in addition to gross (retiree and employer) pay-as-you-go costs; that is, employer contributions equal claims less member contributions for the current retiree group plus 5 percent of actual claims. Milwaukee Public Schools has prefunded an amount in excess of 5 percent of actual claims for fiscal years 2015 and Ongoing costs for the fiscal year are paid from the Section 115 trust. The following tables are included in this section: GASB Actuarial Valuation Results as of July 1, 2015, by Labor Unit; and Projected GASB expense for fiscal year end 2016 by Labor Unit 1 Excess trend rate of 0.38% over the base healthcare trend rate beginning in 2026 for the EPO and PPO Plans applied only to pre-medicare per capita claim cost to account for the Excise Tax under Health Care Reform Act. Milwaukee Public Schools OPEB Valuation -3-

10 Milwaukee Public Schools Discount Rate 4.55% Retiree Healthcare and Life Insurance Programs Salary Scale % GASB 45 Actuarial Valuation as of July 1, 2015 Ultimate Trend % Entry Age Normal Cost Method Wage Inflation 3.00% Amortization: 15-year closed, level dollar for unfunded retiree liabilities as of July 1, 2011, 25-year open, level percentage of payroll for remaining liabilities. Board/ Cabinet/ ASC Building Trades 1053 Clerical/ Technical 150 Building Service 150 Food Service 1616 Education Employees 420 Engineers Educational Assistants Sub Teachers Teachers PAMPS Others 3 Total Retiree Healthcare Program I) Actuarial Liability A) Health Insurance i) Active Employees 4 $ 20,204,304 $ 3,724,344 $ 10,499,147 $ 8,301,214 $ 20,044,239 $ 3,633,710 $ 7,820,272 $ 34,929,544 $ - $ 141,302,985 $ 3,124,437 $ 402,513 $ 253,986,709 ii) Retired and Disabled Participants 5 83,597,562 17,957,473 31,195,889 6,309,382 25,684,207 8,965,116 22,065,011 38,134,412 10,308, ,908,278 7,274,086 2,302, ,702,441 iii) Total $ 103,801,866 $ 21,681,817 $ 41,695,036 $ 14,610,596 $ 45,728,446 $ 12,598,826 $ 29,885,283 $ 73,063,956 $ 10,308,236 $ 573,211,263 $ 10,398,523 $ 2,705,302 $ 939,689,150 B) Life Insurance i) Active Employees $ 1,445,906 $ 330,762 $ 463,483 $ 16,728 $ 15,239 $ 220,531 $ 418,389 $ 1,035,870 $ - $ 9,262,926 $ 315,459 $ 24,933 $ 13,550,226 ii) Retired and Disabled Participants 12,656, ,661 1,224, , , , , , ,246 25,766, ,094 77,683 44,250,252 iii) Total $ 14,102,695 $ 1,198,423 $ 1,687,944 $ 229,702 $ 515,393 $ 639,468 $ 1,257,535 $ 1,967,650 $ 387,246 $ 35,029,253 $ 682,553 $ 102,616 $ 57,800,478 B) Total Liabilities $ 117,904,561 $ 22,880,240 $ 43,382,980 $ 14,840,298 $ 46,243,839 $ 13,238,294 $ 31,142,818 $ 75,031,606 $ 10,695,482 $ 608,240,516 $ 11,081,076 $ 2,807,918 $ 997,489,628 II) Assets 6 15,228,731 2,955,246 5,603,411 1,916,795 5,972,924 1,709,878 4,022,454 9,691,196 1,381,445 78,561,266 1,431, , ,837,270 III) Unfunded Actuarial Liability (UAL) 102,675,830 19,924,994 37,779,569 12,923,503 40,270,915 11,528,416 27,120,364 65,340,410 9,314, ,679,250 9,649,827 2,445, ,652,358 IV) Net OPEB Obligation (boy) 7 59,923,679 11,628,627 22,048,916 7,542,416 23,502,916 6,728,215 15,827,990 38,133,977 5,435, ,131,463 5,631,833 1,427, ,962,986 V) Normal Cost A) Health Insurance $ 223,882 $ 117,957 $ 212,487 $ 206,522 $ 526,467 $ 111,570 $ 170,843 $ 917,614 $ - $ 1,736,792 $ 58,906 $ 12,174 $ 4,295,214 B) Life Insurance 22,802 8,609 8, ,437 7,453 26, ,625 5, ,709 C) Total $ 246,684 $ 126,566 $ 220,723 $ 206,569 $ 526,592 $ 117,007 $ 178,296 $ 944,394 $ - $ 1,883,417 $ 64,812 $ 12,863 $ 4,527,923 D) Percentage of Payroll 0.52% 1.97% 2.25% 2.90% 4.84% 2.30% 1.98% 4.25% NA 0.75% 0.88% 2.68% 1.20% VI) Annual Required Contribution (ARC) A) Normal Cost $ 246,684 $ 126,566 $ 220,723 $ 206,569 $ 526,592 $ 117,007 $ 178,296 $ 944,394 $ - $ 1,883,417 $ 64,812 $ 12,863 $ 4,527,923 B) Amortization of UAL 10,559,012 1,864,727 3,728, ,097 3,470,492 1,122,275 2,365,534 5,084,455 1,054,410 51,902, , ,652 83,320,305 C) Total $ 10,805,696 $ 1,991,293 $ 3,949,271 $ 1,201,666 $ 3,997,084 $ 1,239,282 $ 2,543,830 $ 6,028,849 $ 1,054,410 $ 53,785,512 $ 886,820 $ 364,515 $ 87,848,228 VII) Annual OPEB Cost A) ARC $ 10,805,696 $ 1,991,293 $ 3,949,271 $ 1,201,666 $ 3,997,084 $ 1,239,282 $ 2,543,830 $ 6,028,849 $ 1,054,410 $ 53,785,512 $ 886,820 $ 364,515 $ 87,848,228 B) Interest on Net OPEB Obligation 2,726, ,103 1,003, ,180 1,069, , ,174 1,735, ,332 14,065, ,248 64,933 23,066,818 C) Adjustment to ARC (6,162,452) (1,088,292) (2,176,056) (580,759) (2,025,449) (654,982) (1,380,573) (2,967,390) (615,375) (30,291,106) (479,740) (205,231) (48,627,406) D) Total $ 7,369,771 $ 1,432,104 $ 2,776,441 $ 964,087 $ 3,041,018 $ 890,434 $ 1,883,431 $ 4,796,555 $ 686,367 $ 37,559,888 $ 663,328 $ 224,217 $ 62,287,640 E) Percentage of Payroll 15.6% 22.3% 28.3% 13.5% 27.9% 17.5% 21.0% 21.6% NA 15.0% 9.0% 46.6% 16.5% VIII) Expected Employer Contributions 8 A) Expected Healthcare Benefit Payment $ 5,695,497 $ 1,363,186 $ 2,278,649 $ 442,531 $ 1,758,295 $ 646,036 $ 1,648,382 $ 2,657,643 $ 656,076 $ 29,118,865 $ 461,698 $ 158,046 $ 46,884,904 B) Expected Life Insurance Benefit Payment 854,772 54,194 75,877 11,821 33,641 24,776 46,843 51,811 20,014 1,284,572 20,317 5,662 2,484,300 C) Additional Contributions 1,487, , , , , , , , ,502 6,902, ,438 37,169 11,208,946 D) Total $ 8,037,464 $ 1,739,187 $ 2,889,105 $ 557,510 $ 2,198,783 $ 823,115 $ 2,080,114 $ 3,324,617 $ 829,592 $ 37,306,333 $ 591,453 $ 200,877 $ 60,578,150 E) Percentage of Payroll 17.0% 27.1% 29.4% 7.8% 20.2% 16.2% 23.2% 14.9% NA 14.9% 8.0% 41.8% 16.1% IX) Actual Employer Contributions 9 $ 7,041,611 $ 1,523,699 $ 2,531,141 $ 488,434 $ 1,926,351 $ 721,130 $ 1,822,385 $ 2,912,693 $ 726,804 $ 32,684,029 $ 518,171 $ 175,988 $ 53,072,439 X) Expected Retiree Contributions 10 $ 533,820 $ 213,380 $ 175,210 $ 63,533 $ 25,373 $ 113,778 $ 151,483 $ 145,270 $ (22,993) $ 2,266,406 $ 11,513 $ (1,226) $ 3,675,547 X) Payroll $ 47,176,926 $ 6,423,478 $ 9,818,599 $ 7,130,015 $ 10,890,605 $ 5,092,744 $ 8,985,043 $ 22,241,966 $ - $ 250,750,131 $ 7,399,426 $ 480,852 $ 376,389,784 XI) Covered Member Counts A) Active Employees ,072 $ - 3, ,184 5 B) Retired and Disabled Participants , ,978 C) Total 1, , , ,162 Milwaukee Public Schools OPEB Valuation -4-

11 1 Plus an additional age or service-based component. 2 Excess trend rate of 0.38% over the base healthcare trend rate beginning in 2026 for the EPO and PPO Plans applied only to pre-medicare per capita claim cost to account for the Excise Tax under Health Care Reform Act. 3 Includes participants that have life insurance only. 4 Active employees eligible for future retiree healthcare. 5 Includes Surviving Spouses. 6 Assets allocated to employee group based on total liabilities. 7 Allocated based on unfunded actuarial liability as of June 30, Expected employer contributions to finance current retiree healthcare and life insurance claims assuming pay-as-you-go funding. 9 Actual employer contributions allocated to employee group based on total expected employer contributions. 10 Expected retiree contributions are offset by projected Part B premium reimbursements. Milwaukee Public Schools OPEB Valuation -5-

12 Milwaukee Public Schools Discount Rate 4.55% Retiree Healthcare and Life Insurance Programs Salary Scale % GASB 45 Projected Actuarial Valuation Results as of July 1, 2016, Based on Actuarial Valuation at July 1, 2015 Ultimate Trend % Entry Age Normal Cost Method Wage Inflation 3.00% Amortization: 15-year closed, level dollar for unfunded retiree liabilities as of July 1, 2011, 25-year open, level percentage of payroll for remaining liabilities. Board/ Cabinet/ ASC Building Trades 1053 Clerical/ Technical 150 Building Service 150 Food Service 1616 Education Employees 420 Engineers Educational Assistants Sub Teachers Teachers PAMPS Others 3 Total Retiree Healthcare Program I) Actuarial Liability A) Health Insurance i) Active Employees 4 $ 21,352,518 $ 4,014,412 $ 11,194,125 $ 8,890,087 $ 21,494,563 $ 3,913,124 $ 8,350,781 $ 37,457,096 $ - $ 149,508,135 $ 3,326,830 $ 433,275 $ 269,934,947 ii) Retired and Disabled Participants 5 81,577,623 17,380,685 30,285,390 6,143,972 25,054,987 8,712,459 21,383,503 37,152,096 10,106, ,786,154 7,132,972 2,245, ,962,231 iii) Total $ 102,930,141 $ 21,395,097 $ 41,479,516 $ 15,034,060 $ 46,549,550 $ 12,625,583 $ 29,734,284 $ 74,609,192 $ 10,106,425 $ 571,294,290 $ 10,459,802 $ 2,679,240 $ 938,897,178 B) Life Insurance i) Active Employees $ 1,535,010 $ 354,614 $ 492,993 $ 17,537 $ 16,060 $ 236,124 $ 445,046 $ 1,110,385 $ - $ 9,834,313 $ 335,851 $ 26,772 $ 14,404,706 ii) Retired and Disabled Participants 12,358, ,726 1,202, , , , , , ,401 25,625, ,022 75,428 43,723,449 iii) Total $ 13,893,681 $ 1,206,341 $ 1,695,582 $ 228,115 $ 504,574 $ 648,790 $ 1,274,477 $ 2,031,584 $ 384,401 $ 35,459,537 $ 698,874 $ 102,200 $ 58,128,155 C) Total Liabilities $ 116,823,822 $ 22,601,437 $ 43,175,098 $ 15,262,175 $ 47,054,124 $ 13,274,373 $ 31,008,761 $ 76,640,775 $ 10,490,826 $ 606,753,826 $ 11,158,676 $ 2,781,440 $ 997,025,333 II) Assets 14,928,333 2,888,125 5,517,130 1,950,277 6,012,812 1,696,266 3,962,455 9,793,542 1,340,570 77,534,040 1,425, , ,404,888 III) Unfunded Actuarial Liability (UAL) 101,895,489 19,713,312 37,657,968 13,311,898 41,041,312 11,578,107 27,046,306 66,847,233 9,150, ,219,786 9,732,765 2,426, ,620,446 IV) Net OPEB Obligation (boy) 6 60,251,838 11,537,032 22,294,215 8,018,069 24,617,583 6,897,519 15,889,036 40,017,838 5,395, ,007,321 5,776,990 1,475, ,178,187 V) Normal Cost A) Health Insurance $ 210,482 $ 113,601 $ 203,151 $ 199,823 $ 508,489 $ 108,055 $ 162,336 $ 882,031 $ - $ 1,713,618 $ 56,850 $ 11,691 $ 4,170,127 B) Life Insurance 21,007 8,165 7, ,252 7,095 25, ,045 5, ,191 C) Total $ 231,489 $ 121,766 $ 210,941 $ 199,862 $ 508,593 $ 113,307 $ 169,431 $ 907,451 $ - $ 1,855,663 $ 62,469 $ 12,346 $ 4,393,318 D) Percentage of Payroll 0.51% 1.99% 2.25% 2.94% 4.90% 2.33% 1.98% 4.28% NA 0.78% 0.89% 2.69% 1.22% VI) Annual Required Contribution (ARC) A) Normal Cost $ 231,489 $ 121,766 $ 210,941 $ 199,862 $ 508,593 $ 113,307 $ 169,431 $ 907,451 $ - $ 1,855,663 $ 62,469 $ 12,346 $ 4,393,318 B) Amortization of UAL 10,821,767 1,903,108 3,824,825 1,033,672 3,589,304 1,154,965 2,418,839 5,260,567 1,078,925 53,291, , ,174 85,585,739 C) Total $ 11,053,256 $ 2,024,874 $ 4,035,766 $ 1,233,534 $ 4,097,897 $ 1,268,272 $ 2,588,270 $ 6,168,018 $ 1,078,925 $ 55,147,123 $ 907,602 $ 375,520 $ 89,979,057 VII) Annual OPEB Cost A) ARC $ 11,053,256 $ 2,024,874 $ 4,035,766 $ 1,233,534 $ 4,097,897 $ 1,268,272 $ 2,588,270 $ 6,168,018 $ 1,078,925 $ 55,147,123 $ 907,602 $ 375,520 $ 89,979,057 B) Interest on Net OPEB Obligation 2,741, ,935 1,014, ,822 1,120, , ,951 1,820, ,492 14,287, ,853 67,127 23,486,108 C) Adjustment to ARC (6,400,438) (1,114,023) (2,264,869) (622,743) (2,153,429) (688,209) (1,421,322) (3,149,915) (636,326) (31,626,963) (501,749) (220,905) (50,800,889) D) Total $ 7,394,277 $ 1,435,786 $ 2,785,284 $ 975,613 $ 3,064,568 $ 893,900 $ 1,889,899 $ 4,838,915 $ 688,091 $ 37,807,493 $ 668,706 $ 221,742 $ 62,664,274 E) Percentage of Payroll 16.4% 23.5% 29.8% 14.4% 29.5% 18.4% 22.1% 22.8% NA 15.8% 9.5% 48.4% 17.5% VIII) Expected Employer Contributions 7 A) Expected Healthcare Benefit Payment $ 5,695,422 $ 1,357,582 $ 2,298,361 $ 517,043 $ 1,935,571 $ 664,430 $ 1,664,807 $ 2,868,549 $ 659,230 $ 29,493,540 $ 499,829 $ 162,752 $ 47,817,116 B) Expected Life Insurance Benefit Payment 836,246 55,907 80,824 12,266 34,397 26,334 50,099 57,713 20,394 1,384,080 21,862 5,719 2,585,841 C) Additional Contributions 1,166, , , , , , , , ,020 6,040, ,372 33,334 9,793,641 D) Total $ 7,698,173 $ 1,691,542 $ 2,849,923 $ 635,207 $ 2,366,401 $ 826,849 $ 2,055,883 $ 3,513,783 $ 814,644 $ 36,918,326 $ 624,063 $ 201,805 $ 60,196,598 E) Percentage of Payroll 17.1% 27.6% 30.5% 9.3% 22.8% 17.0% 24.0% 16.6% NA 15.4% 8.8% 44.0% 16.8% X) Payroll $ 44,963,180 $ 6,122,060 $ 9,357,868 $ 6,795,444 $ 10,379,571 $ 4,853,770 $ 8,563,426 $ 21,198,277 $ - $ 238,983,848 $ 7,052,213 $ 458,288 $ 358,727,944 Milwaukee Public Schools OPEB Valuation -6-

13 1 Plus an additional age or service-based component. 2 Excess trend rate of 0.38% over the base healthcare trend rate beginning in 2020 for the PPO Plan and 2028 for the EPO plan applied only to pre- Medicare per capita claim cost to account for the Excise Tax under Health Care Reform Act. 3 Includes approximately 450 participants that have life insurance only. 4 Active employees eligible for future retiree healthcare. 5 Includes Surviving Spouses. 6 Allocated based on expected Net OPEB Obligation as of June 30, 2013, from the interim valuation as of July 1, Expected employer contributions to finance current retiree healthcare and life insurance claims assuming pay-as-you-go funding. 8 Expected retiree contributions are offset by projected Part B premium reimbursements. Milwaukee Public Schools OPEB Valuation -7-

14 SECTION C A S S E T R E C ONCILIAT I O N

15 ASSET RECONCILIATION Milwaukee Public Schools Retiree Healthcare and Life Insurance Programs GASB 45 Actuarial Valuation Results as of July 1, 2015 Assets Available for Benefits Net Assets Held in Trust for Post-Employment Benefits, Beginning of Year For Year Ending For Year Ending June 30, 2015 June 30, 2016 $ 93,814,107 $ 128,837,270 Revenues Employer Contributions - Pay-as-you-go Contributions $ 70,961,058 $ 41,863,493 - ERRP Funds - - Medicare Part D Funds 50, EWGP Revenue - - Medicare Part D Receivables - - Pre-funding Contributions 27,922,337 11,208,946 Total $ 98,934,182 $ 53,072,439 Employee Contributions - Health Care $ 8,036,898 $ 2,421,380 - Life Insurance 258, ,066 Total $ 8,295,133 $ 2,654,446 Net Investment Income $ 511,517 $ 1,421,787 Total Contributions $ 107,740,832 $ 57,148,672 Deductions Claims and Expenses - Health Care $ 71,953,409 $ 59,899,795 - Life Insurance 764,260 (1,318,741) Total $ 72,717,669 $ 58,581,054 Total Deductions $ 72,717,669 $ 58,581,054 Net Change $ 35,023,163 $ (1,432,382) Net Assets Held in Trust for Post-Employment Benefits, End of Year $ 128,837,270 $ 127,404,888 Milwaukee Public Schools OPEB Valuation -8-

16 SECTION D G A S B A CCOUNTING This information is presented in draft form for review by the Employer s auditor. Please let us know if there are any changes so that we may maintain consistency with the Employer s financial statements.

17 GASB 45 ACTUARIAL VALUATION RESULTS AS OF JULY 1, 2015 Development of the Net OPEB Obligation for the Fiscal Year Ending June 30, 2016 Annual Required Contribution $ 87,848,228 Interest on Net OPEB Obligation 23,066,818 Adjustment to Annual Required Contribution 1 (48,627,406) Annual OPEB Cost $ 62,287,640 Medicare Part D Contributions - EWGP Revenue - Medicare Part D Receivables - MPS Contributions 53,072,439 ERRP Contributions - $ 53,072,439 Net OPEB Obligation, beginning of year $ 506,962,986 Net OPEB Obligation, end of year $ 516,178,187 1 The Adjustment to the Annual Required Contribution equals the Net OPEB Obligation at the beginning of the fiscal year divided by the factor used to amortize the unfunded actuarial liability at the beginning of the fiscal year. The adjustment is deducted from the Annual Required Contribution if the Net OPEB Obligation is positive at the beginning of the fiscal year. Milwaukee Public Schools OPEB Valuation -9-

18 GASB 45 ACTUARIAL VALUATION RESULTS AS OF JULY 1, 2015 (CONTINUED) Milwaukee Public Schools Retiree Healthcare and Life Insurance Programs GASB 45 Actuarial Valuation Results as of July 1, 2015 Schedule of Funding Progress: Actuarial Valuation GASB Value of Assets Actuarial Accrued Liability Unfunded AAL (UAAL) Funded Ratio Covered Payroll Date (a) (b) (b a) (a / b) (c) UAAL as a Percentage of [(b a)/c] July 1, 2007 $ 0 $ 2,222,673,800 $ 2,222,673, % $ 501,134, % July 1, ,398,129,645 2,398,129, % 507,339, % July 1, ,368,067 1,393,486,064 1,384,117, % 488,996, % July 1, ,258,101 1,403,017,033 1,342,488, % 431,242, % July 1, ,837, ,489, ,652, % 376,389, % Net OPEB Obligation: Year Ended Annual OPEB Cost (AOC) Employer Contributions % of AOC Contributed Net OPEB Obligation Annual Required Contribution (ARC) % of ARC June 30, 2008 $ 175,418,900 $ 44,383, % $ 131,035,465 $ 175,418, % June 30, ,432,565 59,521, % 261,946, ,880, % June 30, ,867,651 60,663, % 389,150, ,702, % June 30, ,701,424 65,251, % 520,600, ,969, % June 30, ,332,485 92,537, % 523,394, ,216, % June 30, ,693,459 79,884, % 539,203, ,503, % June 30, ,541, ,098, % 530,646, ,858, % June 30, ,250,634 98,934, % 506,962,986 96,317, % June 30, ,287,640 53,072, % 516,178,187 87,848, % Milwaukee Public Schools OPEB Valuation -10-

19 GASB 45 ACTUARIAL VALUATION RESULTS AS OF JULY 1, 2015 (CONTINUED) Milwaukee Public Schools Retiree Healthcare and Life Insurance Programs GASB 45 Actuarial Valuation Results as of July 1, 2015 GASB No. 45 Summary of Actuarial Assumptions and Methods The GASB 45 financial disclosure information for the fiscal year end 2016 was based on the following assumptions and methods. Valuation Date July 1, 2015 Actuarial Cost Method Actuarial Value of Assets Amortization Method Remaining Amortization Period Actuarial Assumptions Investment Rate of Return Wage Inflation Healthcare Trend Entry Age Normal Market Value Level Percent Open for active liability, Level Dollar Closed for unfunded retiree liability as of July 1, years closed level dollar of unfunded retiree liability as of July 1, 2011, 25 years open level percent for remaining unfunded liability 4.55% per year 3.0% per year for general employees 2.8% per year for other employees 8.5% per year graded down to 4.5% 1 per year ultimate trend in 0.5% increments Medicare Part B: Actual trend in 2016 and then 4.5% per year as ultimate trend 1 Excess trend rate of 0.38% over the base healthcare trend rate beginning in 2026 for the EPO and PPO Plans applied only to pre-medicare per capita claim cost to account for the Excise Tax under Health Care Reform Act. Milwaukee Public Schools OPEB Valuation -11-

20 SECTION E S E N S I T I V I T Y P R O J E C T I O NS

21 SENSITIVITY PROJECTIONS One of the key objectives of GASB 45 is to accrue an expense, for the value of future retiree healthcare and life insurance benefits, during the working lifetime of an active employee. This objective requires a systematic means of spreading the present value of benefits over the person s working career. Actuarial cost methods are specifically designed to meet this objective. It is important to note that GASB 45 does not require that a plan sponsor pre-fund retiree healthcare benefits during an employee s working career. GASB 45 only requires accruing an expense for retiree healthcare benefits and reporting a balance sheet liability representing the cumulative difference between annual expense and employer contributions. However, sponsors who pre-fund retiree healthcare benefits may experience a significant reduction in the annual expense and balance sheet liability. The table below compares the annual expense (Annual OPEB Cost) and the balance sheet liability (Net OPEB Obligation) assuming the current funding policy under which benefits are discounted at 4.55 percent and on a fully funded basis under which benefits are discounted at 7.5 percent. The current funding policy is to prefund 5 percent in addition to gross (retiree and employer) pay-asyou-go costs; that is, employer contributions equal claims less member contributions for the current retiree group plus 5 percent of actual claims. Our projections also assume that healthcare trend for future retirees will be fresh-started beginning in the 2017 valuation. The key results are outlined below ($ in millions): Entry Age Normal Current Funding 4.55% discount Full Funding 7.50% discount FYE Annual OPEB Cost $ 62.4 $ 82.8 $ 50.2 $ 65.6 Annual OPEB Cost (% Pay) 16.6% 31.9% 13.3% 25.3% Employer Contributions 1 $ 60.6 $ 75.0 $ 72.3 $ 93.1 Net OPEB Obligation $ $ $ $ Funded Ratio 12.92% 21.70% 17.88% 48.22% MPS made significant changes to the benefit provisions which reduced both the annual expenses and growth of the liability. Based on the EAN cost method, the annual expense is projected to increase from $62.4 million in FY2016 to $82.8 million in FY2025 under the current funding policy (which is mainly pay-as-you-go funding) and from $50.2 million to $65.6 million under the full funding policy. The annual employer contribution is projected to increase from $60.6 million to $75.0 million under the current funding policy and from $72.3 million to $93.1 million under the full funding policy. 1 MPS pre-funded an amount in excess of the funding policy for FY2016. The FY2016 employer contribution shown in the table is based on the funding policy for comparison purposes with future years. In FY2016, MPS prefunded approximately 20% of expected employer pay-as-you-go health care cost. For purposes of the projection we have assumed this relationship will continue in the future. A full funding policy would be to contribute 100 percent of the Annual Required Contribution. Milwaukee Public Schools OPEB Valuation -12-

22 KEY OBSERVATIONS SENSITIVITY PROJECTIONS (CONTINUED) Pre-funding benefits has several key advantages including the use of a higher discount rate which produces lower expense, and more stable costs. However, pre-funding would require additional nearterm financing sources. Milwaukee Public Schools OPEB Valuation -13-

23 SENSITIVITY PROJECTIONS, CURRENT (MAINLY PAY-AS-YOU-GO) FUNDING Milwaukee Public Schools Discount Rate 4.55% Retiree Healthcare and Life Insurance Programs Salary Scale % GASB 45 Actuarial Valuation as of July 1, 2015 Ultimate Trend % Entry Age Normal Cost Method Wage Inflation 3.00% Ten-year GASB Projection for All Labor Units ( $ in Millions) Amortization: 15-year closed, level dollar for unfunded retiree liabilities as of July 1, 2011, 25-year open, level percentage of payroll for remaining liabilities. Valuation Date 07/01/15 07/01/16 07/01/17 07/01/18 07/01/19 07/01/20 07/01/21 07/01/22 07/01/23 07/01/24 Retiree Healthcare and Life Insurance Programs A) Actuarial Liability $ $ $ 1,033.7 $ 1,071.2 $ 1,110.1 $ 1,150.2 $ 1,191.5 $ 1,234.1 $ 1,278.1 $ 1,324.9 B) Assets C) Unfunded Actuarial Liability (UAL) , ,037.5 D) Funded Ratio 12.92% 12.78% 13.86% 14.95% 16.05% 17.17% 18.29% 19.43% 20.58% 21.70% E) Net OPEB Obligation (eoy) F) Annual Required Contribution (ARC) i) Normal Cost $ 4.5 $ 4.4 $ 4.4 $ 4.3 $ 4.1 $ 3.9 $ 3.7 $ 3.5 $ 3.3 $ 3.1 ii) Amortization of UAL iii) Total $ 87.9 $ 90.0 $ 93.3 $ 96.6 $ 99.9 $ $ $ $ $ G) Annual OPEB Cost i) ARC $ 87.9 $ 90.0 $ 93.3 $ 96.6 $ 99.9 $ $ $ $ $ ii) Interest on Net OPEB Obligation iii) Adjustment to ARC (48.6) (50.8) (51.8) (52.8) (53.9) (55.0) (56.3) (57.5) (58.9) (60.4) iv) Total $ 62.4 $ 62.7 $ 65.1 $ 67.5 $ 69.8 $ 72.4 $ 74.7 $ 77.4 $ 80.0 $ 82.8 v) Percentage of Payroll 16.6% 17.5% 18.7% 19.8% 21.2% 22.8% 24.6% 26.7% 29.1% 31.9% H) Expected Contributions 4 i) Employer Health Care Benefit Payments $ 46.9 $ 47.8 $ 49.8 $ 51.4 $ 53.1 $ 55.0 $ 56.9 $ 58.9 $ 59.4 $ 59.9 ii) Employer Life Insurance Benefit Payments iii) Employer Additional Contributions iv) Total Employer Contributions $ 60.6 $ 60.2 $ 62.6 $ 64.6 $ 66.7 $ 69.0 $ 71.3 $ 73.7 $ 74.4 $ 75.0 v) Percentage of Payroll 16.1% 16.8% 18.0% 19.0% 20.3% 21.8% 23.5% 25.5% 27.0% 28.9% I) Payroll $ $ $ $ $ $ $ $ $ $ J) Active Member Counts 7,184 6,627 6,180 5,791 5,401 5,025 4,653 4,295 3,951 3,614 K) Retired Member Counts 6,978 7,158 7,231 7,228 7,226 7,208 7,167 7,160 7,154 7,144 (includes survivors and disabled retirees) L) Ratio of Actives to Retirees Plus an additional age or service-based component. 2 Excess trend rate of 0.38% over the base healthcare trend rate beginning in 2020 for the PPO Plan and 2028 for the EPO plan applied only to pre-medicare per capita claim cost to account for the Excise Tax under Health Care Reform Act. 3 Reflects actual asset value at June 30, Employer Benefit Payments adjusted for 2 months lag in retirements for future retirees. Milwaukee Public Schools OPEB Valuation -14-

24 SENSITIVITY PROJECTIONS, FULL FUNDING Milwaukee Public Schools Discount Rate 7.50% Retiree Healthcare and Life Insurance Programs Salary Scale % GASB 45 Actuarial Valuation as of July 1, 2015 Ultimate Trend % Entry Age Normal Cost Method Wage Inflation 3.00% Ten-year GASB Projection for All Labor Units ( $ in Millions) Amortization: 15-year closed, level dollar for unfunded retiree liabilities as of July 1, 2011, 25-year open, level percentage of payroll for remaining liabilities. Valuation Date 07/01/15 07/01/16 07/01/17 07/01/18 07/01/19 07/01/20 07/01/21 07/01/22 07/01/23 07/01/24 Retiree Healthcare and Life Insurance Programs A) Actuarial Liability $ $ $ $ $ $ $ $ $ $ 1,044.1 B) Assets C) Unfunded Actuarial Liability (UAL) D) Funded Ratio 17.88% 17.55% 21.39% 25.21% 29.05% 32.89% 36.73% 40.55% 44.36% 48.22% E) Net OPEB Obligation (eoy) ` F) Annual Required Contribution (ARC) i) Normal Cost $ 2.2 $ 2.1 $ 2.0 $ 2.0 $ 1.9 $ 1.8 $ 1.7 $ 1.6 $ 1.5 $ 1.4 ii) Amortization of UAL iii) Total $ 72.3 $ 74.8 $ 76.9 $ 79.1 $ 81.3 $ 83.6 $ 85.9 $ 88.3 $ 90.7 $ 93.1 G) Annual OPEB Cost i) ARC $ 72.3 $ 74.8 $ 76.9 $ 79.1 $ 81.3 $ 83.6 $ 85.9 $ 88.3 $ 90.7 $ 93.1 ii) Interest on Net OPEB Obligation iii) Adjustment to ARC (60.1) (60.3) (59.5) (58.5) (57.4) (56.2) (54.8) (53.2) (51.4) (49.4) iv) Total $ 50.2 $ 51.7 $ 52.9 $ 54.3 $ 55.8 $ 57.3 $ 59.1 $ 61.1 $ 63.2 $ 65.6 v) Percentage of Payroll 13.3% 14.4% 15.2% 16.0% 17.0% 18.1% 19.5% 21.1% 23.0% 25.3% H) Expected Contributions 4 i) Employer Health Care Benefit Payments $ 46.9 $ 47.9 $ 49.9 $ 51.5 $ 53.3 $ 55.2 $ 57.1 $ 59.1 $ 59.7 $ 60.1 ii) Employer Life Insurance Benefit Payments iii) Employer Additional Contributions iv) Total Employer Contributions $ 60.6 $ 74.8 $ 76.9 $ 79.1 $ 81.3 $ 83.6 $ 85.9 $ 88.3 $ 90.7 $ 93.1 v) Percentage of Payroll 16.1% 20.9% 22.2% 23.2% 24.7% 26.4% 28.3% 30.5% 33.0% 35.9% I) Payroll $ J) Active Member Counts 7,184 6,627 6,180 5,791 5,401 5,025 4,653 4,295 3,951 3,614 K) Retired Member Counts 6,978 7,158 7,231 7,228 7,226 7,208 7,167 7,160 7,154 7,144 (includes survivors and disabled retirees) L) Ratio of Actives to Retirees Plus an additional age or service-based component. 2 Excess trend rate of 0.38% over the base healthcare trend rate beginning in 2020 for the PPO Plan and 2028 for the EPO plan applied only to pre-medicare per capita claim cost to account for the Excise Tax under Health Care Reform Act. 3 Reflects actual asset value at June 30, Employer Benefit Payments adjusted for 2 months lag in retirements for future retirees. Milwaukee Public Schools OPEB Valuation -15-

25 SECTION F P L A N P R O V ISIONS

26 PLAN PROVISIONS PLAN MEMBERS Milwaukee Public School (hereinafter referred to as MPS or the Board) employees can qualify to continue healthcare benefits as a retiree for themselves and their eligible dependents if they satisfy the eligibility requirements and were enrolled in an MPS health plan as an active subscriber at the time of retirement. Members hired or rehired on or after July 1, 2013, are not eligible to continue healthcare benefits as a retiree. Board members can qualify to continue healthcare benefits for themselves and their eligible dependents upon leaving the Board provided they are at least age 55 years of age and have served a minimum of eight full years on the Board. This provision terminated for all Board members on and after the 2001 Board organizational meeting except for previous Board members who already qualified for this benefit and Board members who were in office as of January 25, 2000, who met the eligibility requirements as of September 1, Access to the MPS PPO/Indemnity Health Plan was eliminated as a plan option for active employees in the following units: Building Trades Effective September 1, 2010 ASC Unit Effective November 1, 2011 MTEA-Substitute Teacher Unit Effective September 1, 2011 Access to the MPS PPO/Indemnity Health Plan was eliminated as an option for retiree health insurance effective with dates of retirement on or after the dates indicated below for the following units: Building Trades Retirement dates on/after September 1, 2010 ASC Unit Retirement dates on/after November 1, 2011 MTEA-Substitute Teacher Unit Retirement dates on/after August 1, 2011 Active health benefits were eliminated for employees in the following units including the eligibility to retire with retiree health benefits on/after the following effective dates: Local 150-FS Unit 775 hourly Effective September 1, 2011 MTEA-Substitute Teachers Unit Effective September 1, 2012 Local 1053 Part-time clericals Effective February 1, 2013 Part-time employees* Effective July 1, 2012* Seasonal Laborers (rehire or layoff) Effective July 1, 2012 (*Note: The eligibility provisions for active health benefits for part-time classified employees was changed to positions regularly scheduled for 30 or more hours per week or positions that are scheduled at 75% or more of a full-time position effective July 1, 2012 in the following units: Local 150 Building Service Unit, Local 150 Food Service Unit, MTEA-Educational Assistant Unit, Local 1053 Unit, MTEA-School Bookkeeper Unit, Local 950 Unit, Local 1616 Unit and Building Trades. A group of active classified employees currently working in positions regularly scheduled for 20 hours but less than 30 hours were grandfathered through August 31, Milwaukee Public Schools OPEB Valuation -16-

27 PLAN PROVISIONS (CONTINUED) The eligibility provisions for active health benefits for part-time classified and certificated employees was changed to positions regularly scheduled for 30 hours or more hours per week or positions that are scheduled at 75% or more of a full-time position effective July 1, 2013 in the following units ASC Unit, MTEA-Teachers Unit, PAMPS Unit, Local 1053 exempts, ASC exempts, Office of Board Governance, Office of Accountability and Efficiency and Cabinet-Level Employees.) ELIGIBLE SERVICE Eligible Service includes service with Milwaukee Public Schools as an active employee and service accrued while on leave, paid or unpaid, for represented employees in accordance with applicable collective bargaining agreement and plan provisions, or, when such bargaining agreement provisions expire, in accordance with Board policy and plan provisions; for non-represented employees in accordance with Board policy and plan provisions. With regard to Local 1053, only regular full-time service with Milwaukee Public Schools is included for Eligible Service. In addition, service while covered under the City of Milwaukee Employees Retirement System (ERS) counts as Eligible Service for the following groups, for represented employees in accordance with applicable collective bargaining agreement and plan provisions, or, when such bargaining agreement provisions expire, in accordance with Board policy and plan provisions; for non-represented employees in accordance with Board policy and plan provisions: ASC Unit including exempts; Building Trades; Cabinet-Level employees; Local 950 Unit; Local 1053 Unit including exempts; Local 1616 Unit; Office of Board Governance; Office of Accountability and Efficiency; and Superintendent. NORMAL RETIREMENT Eligibility conditions: Age 55 and 15 years of Eligible Service for dates of retirement before July 1, Effective with dates of retirement on/after July , whichever of the following occurs earlier: Age 60 and 20 years of Eligible Service; OR Age 55 or older with 30 or more years of Eligible Service until sunset on July 1, Benefit: On a self-paid basis, continuation in an MPS retiree health plan in single or family coverage status that the employee was enrolled in at time of retirement. Represented employees who satisfy the eligibility requirements at the time of retirement may receive a Board-paid subsidy in accordance with applicable collective bargaining agreement and plan provisions, or, when such bargaining agreement provisions expire, in accordance with Board policy and plan provisions; non-represented employees who satisfy the eligibility requirements at the time of retirement may receive a Board-paid subsidy in accordance with Board policy and plan provisions. Milwaukee Public Schools OPEB Valuation -17-

28 DUTY DISABILITY RETIREMENT PLAN PROVISIONS (CONTINUED) Eligibility Conditions: An MPS employee, who retires on duty-incurred disability pension due to a compensable workers compensation injury or illness, may continue in an MPS health plan. No age or service requirements apply. Benefit: Coverage is Board-paid for five years after the workers compensation settlement; five years after date of duty incurred disability retirement for Local 150 Building Service Helpers; and five years after the date of the workers compensation incident for Local 950, Local 1616 and Building Trades. After the five-year period, the retiree may continue on a self-paid basis. This benefit does not apply to Local 150 Food Service, MTEA Substitute Teachers and Board Members. NOTE: Eligibility for this duty disability retirement provision ended June 30, DISABILITY RETIREMENT (NON-DUTY) Eligibility Conditions: The following groups are eligible for continuation in an MPS health plan on a self-paid basis as a retiree if they apply and qualify for a disability pension under the Wisconsin Retirement System (WRS) or ERS and have 15 years of Eligible Service (20 years of Eligible Service effective July 1, 2013): ASC Unit including exempts; Cabinet-Level employees; Superintendent; Office of Board of Governance; Office of Accountability and Efficiency; and MTEA-Teachers Unit. MEDICARE Retirees and eligible spouses are required to enroll in Medicare Part B upon attainment of age 65 or when first eligible due to a disability. Plan Members who participated in Social Security while working are also required to enroll in Medicare Part A. The Board provides retiree healthcare benefits that are secondary to Medicare for Medicare eligible retirees and dependents. MPS has applied for and is receiving the Medicare Part D subsidy as available under the Medicare Modernization Act. Effective January 1, 2014, MPS has implemented a self-funded Employer Group Waiver Plan with a Commercial Wrap. Effective January 1, 2015, all Medicare eligible retirees and their Medicare eligible spouses have been enrolled in the MPS Group Medicare Advantage Plan that includes a group Medicare Part D pharmacy benefit. For non-medicare retirees and active employees, effective January 1, 2015, the District added a High Deductible Health Plan (HDHP) with a health savings account (HSA). The HSA is available only to active employees with an employer contribution of $400 for a single HDHP and $800 for a family HDHP annually. The HDHP was offered to all active employees with a lower premium share ranging from 2% to 9% based on their annual salary. Milwaukee Public Schools OPEB Valuation -18-

29 EMPLOYER FUNDING POLICY PLAN PROVISIONS (CONTINUED) MPS finances net retiree claims in excess of retiree contributions directly from its general fund. MPS has also established an IRC Section 115 trust to prefund retiree healthcare and life insurance benefits and contributes 105 percent of actual retiree healthcare claims and retiree life insurance premiums beginning in fiscal year Trust assets are invested in fixed income securities after a percentage of pay-as-you-go costs for the following month are invested in cash equivalents. PREMIUM COST SHARING RETIREES WITH DATES OF RETIREMENT BEFORE JULY 1, 2013 An eligible employee who meets the age and service requirements with 70 percent or more of the maximum accumulated sick leave at the time of retirement will receive a monthly Board subsidy at the Board s share of the PPO/Indemnity Health Plan active single plan or family plan premium rate in effect as of the employee s date of retirement in accordance with applicable collective bargaining agreement and plan provisions for represented employees, or, when such bargaining agreement provisions expire, in accordance with Board policy and plan provisions; for non-represented employees in accordance with Board policy and plan provisions. (Note: The Board s share of the applicable active plan premium rate is net of the employee required premium contribution in effect as of the employee s retirement date for all groups except MTEA-Teachers and PAMPS.) For dates of retirement on or after July 1, 2013, an eligible employee who meets the age and service requirements with 90 percent or more of the maximum accumulated sick leave at the time of retirement will receive a monthly Board subsidy at the Board s share of the average of the PPO/Indemnity Health Plan and EPO Health Plan active single plan or family plan premium rate in effect as of the employee s date of retirement in accordance with applicable collective bargaining agreement and plan provisions for represented employees, or, when such bargaining agreement provisions expire, in accordance with Board policy and plan provisions; for non-represented employees in accordance with Board policy and plan provisions. (Note: The Board s share of the applicable active plan premium rate is net of the employee required premium contribution in effect as of the employee s retirement date.) The Board s share of the EPO Health Plan is used for the monthly Board subsidy for Building Trades employees who retire on or after September 1, 2010, and for MTEA Substitute Teachers who retire during the period of August 1, 2011, through June 30, (Note: For the MTEA-Substitute Teachers Unit, active health insurance ended August 31, 2012, and eligibility for retiree health insurance ended with dates of retirement on or after July 1, 2012.) 10-month employees in the MTEA Teachers, Educational Assistants, Accountants/Bookkeepers Units, ASC Unit (represented and exempt), PAMPS Unit, Local 1053 Unit including exempts and Cabinet Level employees who submit a retirement notice by March 1 and Substitute Teachers who submit a retirement notice by April 1 will receive the greater of the June 30 or July 1 premium rate as their monthly Board subsidy in accordance with applicable collective bargaining agreement and plan provisions for represented employees, or, when such bargaining agreement provisions expire, in accordance with Board policy and plan provisions; non-represented employees who satisfy the Milwaukee Public Schools OPEB Valuation -19-