THE STATE OF FLORIDA, DEPARTMENT OF MANAGEMENT SERVICES REQUEST FOR PROPOSAL INDEPENDENT BENEFITS CONSULTING, ACTUARIAL AND AUDITING SERVICES

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1 THE, DEPARTMENT OF MANAGEMENT SERVICES REQUEST FOR PROPOSAL INDEPENDENT BENEFITS CONSULTING, ACTUARIAL AND AUDITING SERVICES RFP No.: DMS 13/ ADDENDUM 1 The Department hereby formally provides written responses to questions received. Questions and Answers begin on the following page. FAILURE TO FILE A PROTEST WITHIN THE TIME PRESCRIBED IN SECTION (3), FLORIDA STATUTES, (as altered by section (3)(d)(4)) if applicable, OR FAILURE TO POST THE BOND OR OTHER SECURITY REQUIRED BY LAW WITHIN THE TIME ALLOWED FOR FILING A BOND SHALL CONSTITUTE A WAIVER OF PROCEEDINGS UNDER CHAPTER 120, FLORIDA STATUTES.

2 Written Responses to Questions All written questions are reproduced in the same format as submitted by the Respondent. Question 1 Answer 1 RFP (page 8 of 28) 2.2 Timeline of Events As the Auditing Services portion was not included in the prior contract (Contract No ), would the Department consider extending the deadline to submit sealed proposals and all required documents for organizations only responding to the Auditing Services portion? The deadline to submit proposals cannot be extended. Question 2 Answer 2 Question 3 Answer 3 Question 4 Answer 4 Question 5 RFP (page 11 of 28) 3.5 Mandatory Criteria G. Does Respondent s proposed personnel have a minimum of at least 10 years experience providing the commodities and services described in this RFP? We assume this question is confirming that we have team members that have more than 10 years of relevant experience rather than all team members must have more than 10 years of relevant experience. The firm or entity responding to the RFP must have 10 years experience providing the commodities and services described in the scope of work. This requirement is not specific to individuals that may be assigned to related projects. SOW (page 3) Medical Claims Audits Please provide an estimate of the number of claims included in each audit. Each audit will include an electronic review of 100% of claims processed during the audit period. Based on the results of the electronic audit tests, focused samples shall be selected targeting potential problematic areas. The size of the focused sample will be determined based on the results of electronic audit tests. Approximately claims will be reviewed onsite. SOW (page 5) Annual Pharmacy Benefits Manager (PBM) Performance and Compliance Audit - Please provide an estimate of the number of claims included in each audit. Validation and review of 100% of all retail and mail order pharmacy claims paid during the audit period to measure and report accuracy in benefit determinations and compliance with established administrative procedures, contractual requirements and benefit design for the Rx Plan Mail-Order Claims for Manual Review random sample of mail-order claims Paper Claims for Manual Review random sample of paper claims. Plans to be audited The State mentions the program offers four types of health plans: A. Self-Insured Standard Preferred Provider Organization (PPO) B. Self-Insured Heath Investor Health Plan (HIHP) PPO C. Standard Health Maintenance Organization (HMO) 1. Fully-Insured 2. Self-Insured D. HIHP HMO 1. Fully-Insured 2. Self-Insured Are these plans partially self-funded? Please describe the fully insured portion of the plans in greater detail. RFP No.: DMS 13/ REBID Addendum 1 Page 2 of 14 Group Vision Benefits Insurance

3 Answer 5 The fully-insured plans will not be audited under this contract. Question 6 What years are will the chosen vendor going to be auditing? Answer 6 Question 7 Answer 7 Audits are required to be performed annually. Audit activities begin immediately following the end of the fiscal year. Unless there are changes to statutes, contracts, or administrative rules, audits that will be performed under the five year contract term will be Fiscal Year (FY) through FY Section describes an operational review of Internal Audits. It is our experience that administrator s will not allow an operational review of their internal audits. Are we reading this differently? Please elaborate. All current vendors have participated in operational reviews previously. Question 8 Answer 8 Question 9 Answer 9 Section requests an onsite visit to conduct the PBM audit. It is our best practice that we can effectively accomplish this audit electronically. Is there a particular reason an onsite is requested? If the sample of paper claims, and all information and data necessary to validate audit findings, errors or exceptions and present recommendations for improvements can be gleaned without an onsite review, an onsite will not be required unless an operational review is included in the scope of work for a specific audit period. Timeframes you have requested that the project shall begin by July 1 and completed by October 31 each year. While this is realistic in years 2 and beyond, this may not be realistic in Is there some ability to change the timeframe if there is an audit in 2014? No, the timeframe for audits to be performed for FY cannot be changed. Question 10 Answer 10 Question 11 Answer 11 Pricing it is our best practice to provide these audits as a flat fee. Would the State be willing to accept this type of fee arrangement or possible an hourly rate with an not to exceed fee? The RFP requires a maximum hourly rate. However, during the course of a contract, the Department may ask an awarded vendor(s) for a fixed fee quote related to a more specifically defined project. The fixed fee may not exceed the hourly rate originally proposed in the RFP Price Sheet. In regards to the performance bond, if a vendor is only bidding on a portion of the project (ie audit work only) can the required amount of the bond be prorated to that amount of the project? No. Question 12 Answer 12 In light of the short time frame to develop vendor responses & the Memorial Day holiday, would the State consider extending the due date? No. Question 13 Can we propose limited changes to the State s terms and conditions to conform with our company policies for contracts of this kind, pertaining to items such as liquidated damages of $500 per day, wording of the indemnity on the issue of personal injury, RFP No.: DMS 13/ REBID Addendum 1 Page 3 of 14 Group Vision Benefits Insurance

4 Answer 13 most favored pricing and clarifying the liability limitation s per-claim structure. Our questions: (a) Does our doing so preclude our being awarded the work; and (b) May we negotiate in good faith with the knowledge that, if we do not reach agreement with the State, we will not be bound by law or contract to provide the underlying services? No. Question 14 Answer 14 Question 15 Answer 15 Who currently provides the Department of Management Services with: a. Independent Benefit Consulting; b. Actuarial Services; and c. Auditor Services? Mercer Consultants and, Milliman, and Foster and Foster have performed these contractual services during FY 13/14. Are the current services provided via a fixed fee arrangement, or on a time-andexpense basis? Fixed fee and hourly rate. Question 16 Answer 16 If the services are provided via a fixed fee arrangement, please provide the most recent fee arrangement. N/A Question 17 If the services are provided via a time-and-expense basis, please provide the hourly rates and total fees charged to the Department for the last fiscal year for: a. Independent Benefit Consulting; b. Actuarial Services; and c. Auditor Services. Answer 17 The FY approximate expenses incurred was $950, Question 18 Why is the Department putting this work out to bid via an RFP process? Answer 18 Question 19 Answer 19 Because a competitive procurement is required for a purchase over $35,000. Presently there is not an active state term contract that provides for these services. Can the Department provide a copy of the deliverables produced in the last fiscal year for: a. Independent Benefit Consulting; b. Actuarial Services; and c. Auditor Services. Providing a copy of all deliverables completed during this last fiscal year is not feasible due to time constraints of this RFP and the extensive number of projects performed during this period. Please see answers to Questions 32 and 33 for three deliverables provided during the period. If you would like to receive these documents outside of the RFP, please submit a public records request. Please be advised that there may be charges associated with the request. RFP No.: DMS 13/ REBID Addendum 1 Page 4 of 14 Group Vision Benefits Insurance

5 Question 20 Answer 20 Does the Department s current service provider collect commissions and/or referral payments from your carriers/vendors? No. Question 21 Answer 21 Will the Department allow the winning bidder to collect commissions and/or referral payments from your carriers/vendors? No. Question 22 Has the Department had any performance issues with the current carriers/vendors? Answer 22 No. Question 23 Will the Department grant preferred status to Florida-based respondents? Answer 23 Yes, pursuant to rule 60A-1.011, F.A.C., in the event of a tie. Question 24 Please provide the most recent enrollment counts, if possible, by subscriber/plan/coverage type: RFP No.: DMS 13/ REBID Addendum 1 Page 5 of 14 Group Vision Benefits Insurance

6 RFP No.: DMS 13/ REBID Addendum 1 Page 6 of 14 Group Vision Benefits Insurance

7 Answer 24 STATE EMPLOYEES' GROUP HEALTH INSURANCE PROGRAM ENROLLMENT WITH DEPENDENTS SUMMARY MAY 2014 Category/Plan/Coverage Subscribers Dependents Members FamSize Active PPO Plan 57,358 70, ,249 Single 23, ,855 Family 31,257 65,904 97, Spouse 2,252 4,981 7, Active HMO Plan 78, , ,292 Single 30, ,794 Family 43,667 97, , Spouse 3,583 8,407 11, T otal Active 135, , ,541 Single 54, ,649 Family 74, , , Spouse 5,835 13,388 19, COBRA PPO Plan Single Family COBRA HMO Plan Single Family Total COBRA Single Family Early Retiree PPO Plan 3,800 1,167 4,967 Single 3, ,026 Family 775 1,166 1, Early Retiree HMO Plan 2, ,263 Single 2, ,275 Family Total Early Retiree 6,470 1,760 8,230 Single 5, ,301 Family 1,172 1,757 2, Medicare PPO Plan 23,560 7,653 31,213 Medicare I 16, ,338 Medicare II 1,357 1,777 3, Medicare III 5,868 5,873 11, Medicare HMO Plan 5,741 1,654 7,395 Medicare I 4, ,219 Medicare II , Medicare III 1,073 1,075 2, Total Medicare 29,301 9,307 38,608 Medicare I 20, ,557 Medicare II 1,806 2,356 4, Medicare III 6,941 6,948 13, Total PPO Plan 85,015 79, ,890 Single 43, ,450 Family 39,323 74, , Spouse 2,252 4,981 7, Total HMO Plan 86, , ,191 Single 37, ,408 Family 45, , , Spouse 3,583 8,407 11, Total Enrollment 171, , ,081 RFP No.: DMS 13/ REBID Addendum 1 Page 7 of 14 Group Vision Benefits Insurance

8 Question 25 Answer 25 DSGI went out to bid in 2012 for essentially the same scope of services. The contract term for that particular RFQ was for two (2) year renewal option. There would appear to be two (2) years remaining on the contract. Please explain why DSGI is going out to bid and not executing a renewal. State Term contract number has expired. Question 26 Has there been any service issues with your current consultant? Answer 26 No. Question 27 Answer 27 Under the Timeline of Events, proposals are due May 27, 2014 (day after Memorial Day). In order to provide a comprehensive proposal response for the listed scope of services, a lengthier submission timeline is warranted for responses. Is DSGI willing to extend the proposal deadline by two weeks past the current due date? No. Question 28 Answer 28 Question 29 Answer 29 Question 30 Can you describe the interface or integration of data between the different vendors? What would the consultant's role be with the data exchange? As needed, vendors or the Department will provide consultant with full claims file and enrollment data necessary to perform needed services. Consultant must be able to receive and transmit data and information through a secured method that meets all HIPAA requirements. When is the legislative session and when should we expect most of the new legislation? The annual legislative sessions begins the first Tuesday of March and ends the first Friday of May. Please provide a contribution and funding/full rate schedule, by plan option, benefit program and coverage tier. RFP No.: DMS 13/ REBID Addendum 1 Page 8 of 14 Group Vision Benefits Insurance

9 Answer 30 Question 31 Answer 31 Can a sample of the actuary s rate development reports for 2013 and 2014 be made available? A deliverable of this nature does not exist. RFP No.: DMS 13/ REBID Addendum 1 Page 9 of 14 Group Vision Benefits Insurance

10 Question 32 Please provide the most recent OPEB valuation. Answer 32 SOF - DSGI Actuarial Valuation of Retiree Healthcare GASB Forecast Report.pdf Question 33 SOF - DSGI Actuarial Valuation of Retiree Healthcare GASB Valuation Report.pdf Please see attached reports. Please provide the most recent RDS actuarial attestations. Answer 33 Question 34 Answer 34 Question 35 Answer RDS_State of FL Equivalence Test.pdf Please see attached report. How long have the current consultant/actuary worked for DSGI? What other consultants or actuaries (if any) are under contract with DSGI? The current consultant is Mercer. They have been under contract for a number of years for a number of projects. Given the size of your program, we would recommend using our national resources. Would there be any issues in using consultants in other parts of the country, as long as all the availability requirements are met? Is there a preference for being having an office in Florida? No.; No. Question 36 Answer 36 Question 37 Can you please make available the contract for the incumbent consultant/actuary? Please indicate the fees paid for similar services and the associated hours for the last three years. The contract has expired, but here is a link: ation/state_contracts_and_agreements/state_term_contracts/archive/management_c onsulting_services_expired The rate fees are available via the link. The associated hours are not compiled into a single document that may be provided pursuant to your request. What were the fees paid for each of the scope items (Benefit Consulting, Retirement, Auditing, Actuarial Services) for 2012, 2013 and Can you provide hours associated to those some components? Answer 37 Please see the answers to number 17 and 26. The associated hours are not compiled into a single document that may be provided pursuant to your request. Question 38 How many hours do you anticipate for this engagement? Answer 38 This figure is not known. RFP No.: DMS 13/ REBID Addendum 1 Page 10 of 14 Group Vision Benefits Insurance

11 Question 39 How many on-site meetings would you anticipate in a full year? Answer 39 Minimum of six for audits; undetermined for legislative and other projects. Question 40 Will DSGI consider contractual substitutions for the following: Contract: Section 6.2 (Notice of Legal Actions): Will the State agree to limit the obligation to notify it of legal claims that have the potential to impact our ability to perform our obligations under the contract? Answer: No Section 7 (Liability and Worker s Compensation Insurance), second paragraph: We do not understand the requirement that the policy include a hold harmless provision. Will the State agree to remove the hold harmless language? Answer: No Section 7 (Liability and Worker s Compensation Insurance), sixth paragraph: It is not typically practicable (or possible) to procure additional insurance at the request of a client. Given that we meet the stated coverage amounts, will the State agree to remove the language permitting it to require greater coverage amounts? Answer: No Section 9 (Intellectual Property): As consultants, we need to retain all right, title and interest to our pre-existing intellectual capital. Accordingly, will the State agree to amend Section 9 to read as follows: Except to the extent that they incorporate Contractor s proprietary software, tools, know-how, techniques, methodologies and report formats (collectively, Contractor s Proprietary Information ), all documents, data, and other tangible materials authored or prepared and delivered by Contractor to the State under this Contract (collectively, the "Deliverables"), are the sole and exclusive property of the State once paid for by the State. To the extent Contractor s Proprietary Information is incorporated into such Deliverables, the State shall have a perpetual, nonexclusive, worldwide, royaltyfree license to use, copy, and modify Contractor s Proprietary Information as part of the Deliverables internally and for their intended purpose. Answer: No Section 18 (Background Screenings): The requirements of this Section are very broad. Will the State negotiate a reasonable compromise on the issue of background screenings? For example, but not by way of limitation, will the State agree to remove the text under the heading Self Disclosure and the language under the heading Indemnification? Answer: No Section 21 (Performance Bond): The requirement of a performance bond is highly unusual given the work at issue. Will the State agree to remove the requirement to obtain a performance bond or letter of credit? Answer: No General Contract Conditions: Section 19 (Indemnification): Will the State entertain suggested revisions to the indemnification provision? Answer: No Answer 40 Section 23 (Termination for Cause): Will the State agree to include a cure period (5 business days following receipt of written notice) before termination for cause takes effect.? Answer: No Answers are provided above for each bulleted item. Question 41 Attachment B - Contract - page 14, #21 Performance Bond, Section A: We understand that prior to the execution of a Contract, that we are being asked to deliver a Performance Bond (PB) or Irrevocable Letter of Credit (LOC) in the amount of $2 RFP No.: DMS 13/ REBID Addendum 1 Page 11 of 14 Group Vision Benefits Insurance

12 million ($2M) dollars. We have the following questions since we have not historically had such arrangements in our contracts with your agency: (1a) - If required, the SOF has historically requested a PB that reflected a smaller percentage, e.g. 10% of the annual value of estimated fees. Using the illustrative $10M figure over five years, this is $2M for all services; and 10% would be $200,000 per year. Since it is not unlikely that a Respondent will need to include additional costs into their proposal for a PB equal to 100% of fees (which we expect will add little value to SOF), can you clarify your intent or willingness to use a smaller % amount of the annual services? (1b) - To the extent a Respondent elects to bid on only some of the requested services (e.g. not all three Categories of services), how will the PB be reduced to reflect the reduced services? (1c) - Does this provision only apply to certain of the services being requested, or apply differently to each of the three Category of services? (1d) - It is our understanding that the "guarantee of at least satisfactory" performance associated with any PB or LOC will be based on Performance Measures as described in Section B, #20. Please confirm. Answer 41 (1a) The Performance Bond requirement is reduced to $1,000, (1b) The Performance Bond will not be reduced. (1c) The Performance Bond requirement is reduced to $1,000, (1d) No. Question 42 RFP Section Tab 6 Other Required Documentation C. Proof of Credit: We may be challenged to seek approval and obtain a signed letter to be physically overnighted before the holiday weekend, and we have the following questions since we have not historically had such arrangements in our contracts with your agency: (2a) - Given that the annual services are at a maximum illustrated at $2M per year, and that acceptance or timely approval may vary based on a LOC amount that so significantly exceeds annual services, can you clarify your intent or willingness to use a smaller $ figure better reflecting the annual services fees? Answer 42 Question 43 (2b) - To the extent a Respondent elects to bid on only some of the requested services (i.e. not all three Categories of services), how will the amount be reduced to reflect the reduced services?- (2a) The Performance Bond requirement is reduced to $1,000, Please see addendum 2. (2b) The Performance Bond will not be reduced. Section 2.2 Timeline of Events, states that the Department anticipates posting of answers to Respondents' questions by close of business May 21, Sealed proposals and all required documents must be delivered by 3:00pm on May 27, Given that responses to any Respondent's questions may likely influence proposals, and several requirements include external original notarized documents (and overnight delivery sent before the holiday weekend ending May 26, 2014) makes this extremely challenging couple day turnaround, is it: (3a) possible to slightly extend the overall deadline by a day or two? (3b) if not (a), can we submit an electronic copy by the May 27th deadline, and a hard copy a day or two later? RFP No.: DMS 13/ REBID Addendum 1 Page 12 of 14 Group Vision Benefits Insurance

13 (3c) if not (a) or (b), can we provide electronic scanned documents in lieu of original/notarized/form documents? Answer 43 a. No b. Yes, but should there be any differences in the electronic copy to the hard copy, the electronic copy will take precedence. The original must be received by the Department within 3 business days. c. N/A Question 44 Answer 44 Question 46 Answer 46 Question 47 Answer 47 Section 2.4 of the RFP states that, "No additional documents submitted by a Respondent will be incorporated into the Contract," while Section 3.1 B. of the RFP purposely deletes the language prohibiting additional terms from the General Instructions to Respondents - PUR a. As there may be a few items to clarify, confirm or reconcile inconsistencies, can you confirm that the State is willing to consider any final discussion or minor negotiations to the terms and conditions during the final or negotiation phase with potential vendors? b. If a respondent wishes to request negotiation or clarification of specific terms and conditions, then how should the respondent note that request in its response? a. Only minor revisions will be permitted. b. The Q&A period is the only opportunity to clarify RFP terms. Negotiations are not part of the RFP process. Certain provisions of the contract attached as Attachment B (Section 2.3 Termination for example) indicate that language is to be added, is it expected that this language will be negotiated following the award of the contract? No, only minor revisions will be permitted. We have amended the contract to reflect the termination language. Please see addendum number 2. If Respondent has a current contract with the State, may supplier request that the work under this RFP be governed by such contract or negotiated upon similar terms? The terms and conditions specified in this RFP will govern associated projects. Question 48 Answer 48 Question 49 Answer 49 If Respondent elects to bid on only some of the requested Services (i.e., not all three Categories of Services), certain of the Mandatory Criteria listed in Section 3.5 of the RFP would appear to be inapplicable, how would the State suggest that we reflect this in our submission? The respondent s proposal should reflect the categories of services and associated pricing applicable to services that will be provided. We are personally reaching out to references urgently to obtain the requested original signed and notarized PDF forms to be mailed before the weekend, but there is a risk that their internal processes and schedules will not permit completion in the next few days. Is it possible to permit electronic signed referral forms that are not notarized (or confirmed during a call or at a later date) Please see questions and answers to number 43. The scanned electronically submitted copy must be notarized. RFP No.: DMS 13/ REBID Addendum 1 Page 13 of 14 Group Vision Benefits Insurance

14 Question 50 Attachment A - Section Section provides for special projects on a fixed rate or fixed price basis acceptable to both parties. Services under Section also can fall under this category as beneficial to the SOF and more appropriate for the project (including e.g. fixed fees for online compliance technical services subscriptions). Please confirm that this option exists for all three categories of services in the RFP. Answer 50 Please see answer to question number 10. Question 51 Answer 51 Attachment A, Section 1.2 Scope of Work, Auditing Services - are the services described in Section 1.2 expected to be completed on an annual basis? Yes. Question 52 Answer 52 Question 53 Answer 53 Question 54 Answer 54 Attachment C - Price Sheet: To the extent some Respondents do not bid for all three categories of services, how will the selection of award be based, e.g. how will the "weighted value" percentages shown (40%, 30%, 30% apply to vendors proposing different combinations of categories of services. Please see addendum number 2 for the revised price sheet. The Department has removed the weighted value component from the price sheet. RFP Section 3.6, Tab 5 Pricing - since the term of the contract is for five years with possible renewals, it is not anticipated that we show 5-10 years of rates, or a fixed rate for that time period (including the risk of overstating fees beyond a term that occurs). We will provide an annual not to exceed percentage increase in the proposal. Please confirm if this or an alternative is acceptable. This is not an acceptable alternative. The hourly rate ceiling will be in effect for both the initial and renewal periods. Please see addendum number 2. Attachment C - Price Sheet: services have previously been provided with various rating by staff job title, functionality and services, e.g. benefits consultants split into benefit actuarial, specialty consulting or general benefit consulting. Also, our job descriptions and titles vary by staff even within the categories. It is our understanding that, similar to the past, we will confirm the exact scope and nature of the requested services, and clarifications made at that time of staff functions and related hourly billing rates under the Contract. Please confirm that this or an alternative is acceptable. Confirmed. Pricing for projects will be based on fees not to exceed hourly rates established in the contract. RFP No.: DMS 13/ REBID Addendum 1 Page 14 of 14 Group Vision Benefits Insurance

15 1921 Gallows Road Suite 900 Vienna, VA USA Main Fax October 16, 2013 milliman.com Ms. Celeste Pullen, Chief Bureau of Financial and Fiscal Management Division of State Group Insurance Florida Department of Management Services 4050 Esplanade Way, Suite 215 Tallahassee, FL Re: Projections of the Other Post-Employment Benefits (OPEB) Liabilities and Costs Dear Ms. Pullen: As you requested, we have completed a forecast of OPEB results for fiscal years 2014 through This forecast was done in conjunction with the valuation as of July 1, The purpose of this forecast is to estimate the annual required contributions and annual OPEB costs for Fiscal Years Ending 2014 through The State Health Insurance Program covers eight agencies and 12 state universities in addition to state employees and retirees. The assumptions and methods for this forecast are the same as those used for the July 1, 2013 valuation of other post-employment benefits (OPEB), which covers the retiree medical benefit provided by the State Employees Preferred Provider Option (PPO) and Health Maintenance Organizations (HMOs). It does not cover any other benefits, such as retiree life insurance, that may fall under the GASB statements relating to OPEB. The Government Accounting Standard Board has begun the process of reviewing the accounting standards for Other Postemployment Benefits and it is likely there will be fundamental changes in the accounting during the projection period. The final statements regarding these changes are currently scheduled to be released in June The results contained in this forecast include the changes in health costs due to the passage of the Patient Protection and Affordable Care Act that are reflected in the State Employees Group Health Self-Insurance Trust Fund s Report on the Financial Outlook

16 Ms. Celeste Pullen October 16, 2013 Page 2 presented August 8, The results also reflect the impact of the potential excise tax. This report does not reflect any potential future migration of retirees away from the plan to exchanges when they become available. The impact on future health costs due to this legislation will depend on a number of factors, including future regulations, which are not yet known. An analysis of the impact of healthcare reform on future plan costs was beyond the scope of this project. We present the results in the following exhibits: Exhibit 1 is a summary of the requirements of GASB statements 43 and 45. Exhibit 2 is a series of exhibits from Exhibit 2.01 that shows the results for the fiscal year ending June 30, 2013, through Exhibit 2.14 that shows the results for the fiscal year ending June 30, Exhibit 3 shows the estimated pay-as-you-go employer cost for each fiscal year. Exhibit 4 shows the estimated retiree contributions for each fiscal year. Exhibit 5 describes the data we used in our calculations. Exhibit 6 describes the methods and assumptions we used in our calculations. In preparing these calculations, we relied, without audit, on information (some oral and some in writing) supplied by the Division of State Group Insurance. This information includes, but is not limited to, statutory provisions, employee data, and financial information. In our examination of these data, we have found them to be reasonably consistent and comparable with data used for other purposes. Since the valuation results depend on the integrity of the data, the results can be expected to differ if the underlying data is incomplete or missing. If any data or other information is inaccurate or incomplete, our calculations may need to be revised. We certify that all costs, liabilities, trend rates, rates of interest, and other factors have been determined on the basis of actuarial assumptions and methods which are individually reasonable (taking into account the experience of the plan and reasonable expectations); and which in combination, offer our best estimate of anticipated experience affecting the plan. We further certify that, in our opinion each actuarial assumption used is reasonably related to the experience of the plan and to reasonable expectations which in combination, represent our best estimate of anticipated experience under the plan. Nevertheless, the emerging costs will vary from those presented in the exhibits to the extent actual experience differs from that projected by the actuarial assumptions. Future actuarial measurements may differ significantly from the current measurements due to such factors as plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; and changes in plan provisions or applicable law. Actuarial computations presented in the exhibits are for purposes of estimating the future GASB 45 liabilities and costs for the plan. The calculations in the exhibits have been made on a basis consistent with our understanding of the OPEB plan provisions

17 Ms. Celeste Pullen October 16, 2013 Page 3 described in our valuation report as of July 1, 2013, and of GASB Statements No. 43 and 45. Determinations for purposes other than meeting these requirements may be significantly different from the results contained in the exhibits. Accordingly, additional determinations may be needed for other purposes. The information included in this forecast was developed for the scope of work as defined in the purchase order A85141, effective July 3, 2013 and under the terms of the State Term Contract # Milliman s work product was prepared exclusively for the Florida Department of Management Services, Division of State Group Insurance for a specific and limited purpose. It is a complex technical analysis that assumes a high level of knowledge concerning the plan s operations, and uses Division data. No third party recipient of Milliman s work product should rely upon Milliman s work product. Such recipients should engage qualified professionals for advice appropriate to their own specific needs. On the basis of the foregoing, we hereby certify that, to the best of our knowledge and belief, this report is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices which are consistent with Actuarial Standards of Practice, the Code of Professional Conduct and Qualification Standards for Public Statements of Actuarial Opinion of the American Academy of Actuaries. We are members of the American Academy of Actuaries and meet the Qualification Standards to render the actuarial opinion contained herein. Respectfully submitted, Milliman, Inc. Kathryn Hunter, ASA, MAAA Associate Actuary Robert S. Dezube, FSA, EA, MAAA Consulting Actuary RSD/KH/BJ/AGG/FRH/45 P:\FRH\2013 GASB Valuation\Report\2013 Forecast Report.v2.docx

18 Ms. Celeste Pullen October 16, 2013 Page 4 Exhibit 1 Summary of GASB Statements 43 and 45 Purpose of the Requirements The Government Accounting Standards Board (GASB) issued two statements relating to accounting for postemployment benefits other than pensions (OPEB). GASB 43 defines accounting requirements for OPEB plans and GASB 45 defines accounting requirements for employers who sponsor OPEBs. This discussion will address the retiree healthcare benefit only, which is generally by far the most costly OPEB. The State of Florida Employees Group Insurance Program may provide other benefits that would be governed by GASB 43 or GASB 45, such as the State-sponsored Life Insurance Program. Prior to issuance of GASB 43 and 45, the accounting of postemployment benefits was generally on a pay-as-you-go basis. The cost of the benefit was recognized when the benefit was paid. The purpose of the statements is to require accrual accounting for OPEBs. An employee earns postemployment benefits during the period of employment. The statements match the cost of providing OPEBs with the period during which they are earned. GASB feels this provides more complete, reliable, and decision-useful reporting of the costs of the benefits. Applicability to the Division of State Group Insurance GASB 43 states in paragraph 4 that it establishes financial reporting standards for OPEB plans of all state and local governments. It defines an OPEB plan in paragraph 6a as a plan that provides postemployment healthcare benefits, and other postemployment benefits such as life insurance, separately from a defined benefit pension plan. In paragraph 9, it says that the OPEB obligation arises from an exchange of salaries and benefits for employee services. Paragraph 34a(1) states that the benefits should include all benefits to be provided by the plan in accordance with the substantive plan (the plan terms as understood by the employer and plan members). Information such as communications between the employer and the employees and an established pattern of practice with regard to sharing the benefit costs between the employer and plan members is used to determine the provisions of the substantive plan, in addition to a written plan. Thus OPEBs exists even in the absence of an irrevocable statutory obligation to continue the benefits. GASB 43 applies to the Employees Health Insurance Program, as the Plan. This work product was prepared solely for Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Milliman

19 Ms. Celeste Pullen October 16, 2013 Page 5 GASB 45 has similar provisions. Paragraph 6 says that it applies to the financial statements of all state and local governmental employers that provide OPEBs. GASB 45 defines OPEBs and the source of the OPEB obligation in paragraph 7 the same way as GASB 43 defines them. GASB 45 also uses the same language as GASB 43 to define the substantive plan. GASB 45 applies to the State of Florida, as the sponsor of the Employees Health Insurance Program. Accounting for Plans (GASB 43) and for Employers (GASB 45) GASB 43 and GASB 45 are closely related. They coordinate disclosures to avoid duplication of effort. GASB 43 applies to all OPEB plans. There are different requirements depending on whether the plan is administered through a formal trust. The plan is administered through a formal trust if: Employer contributions to the plan are irrevocable, Plan assets are dedicated to providing benefits to their retirees and beneficiaries, and Plan assets are protected from creditors of the employer and the plan administrator. If the plan is administered through a formal trust, GASB 43 requires two financial statements, two schedules of historical trend information, and other disclosures. The financial statements are (1) a statement of plan net assets, and (2) a statement of changes in plan net assets. The schedules of trend information are (1) a schedule of funding progress, and (2) a schedule of employer contributions. The schedules require a determination of the actuarial liability of the plan and the actuarially determined Annual Required Contribution (ARC). If the plan is not administered through a formal trust, GASB 43 defines simplified disclosure requirements for the plan. The plan administrator would report the fund as an agency fund, providing a statement of plan assets and liabilities at the end of the year. The administrator would also provide a plan description, a summary of accounting policies, information about contributions and reserves, and a statement that participating employers are required to provide additional disclosure and OPEB cost information. It is our understanding that a formal trust does not exist currently, so the above simplified disclosure requirements apply to the Employees Health Insurance Program. This work product was prepared solely for Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Milliman

20 Ms. Celeste Pullen October 16, 2013 Page 6 GASB 45 applies to all employers that sponsor OPEBs. There are different requirements depending on whether the plan is a sole employer plan, an agent multipleemployer plan, or a cost-sharing multiple-employer plan, and whether the plan is administered through a formal trust. For a single-employer plan the expense for the year is the actuarially determined ARC. If the plan is administered through a formal trust, the plan accounting and employer accounting are closely coordinated. An agent multiple-employer plan is an aggregation of single-employer plans with pooled investment and administrative functions. Each employer has a separate account, a separate actuarial valuation to determine the ARC, and separate disclosures. If the plan is administered through a formal trust, the plan accounting is the aggregate of the employer ARC and disclosures. A cost-sharing multiple-employer plan is a single plan with a pooling arrangement that shares all risks, rewards, and costs among the participating employers. If the plan is administered through a formal trust, the plan completes a single actuarial valuation and all employers pay the same contribution rate. The OPEB expense for the employer is the contractually required contribution rate, which may be less than the actuarially determined ARC. The employer has simplified disclosure if the plan disclosure is public. The plan accounts for the actuarially determined ARC and has separate complete disclosure. If a cost-sharing multiple-employer plan is not administered through a formal trust, the accounting requirements for an agent multiple-employer plan apply. Each employer would have a separate account, a separate actuarial valuation to determine the ARC, and separate disclosures. Our understanding is that the State Employees Health Insurance Program is currently being administered as a cost-sharing multiple-employer plan without a formal trust. Because it is not administered through a formal trust, the Program and the employers would follow the accounting requirements for an agent multiple-employer plan. If the arrangement is not changed, the Division of Group Insurance will be called on to help the employers meet the accounting requirements in one of two ways. In both cases, the Division would have to begin allocating the cost of retirees to each employer. 1. The Division could produce a separate actuarial valuation and provide separate accounting information for each employer. This work product was prepared solely for Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Milliman

21 Ms. Celeste Pullen October 16, 2013 Page 7 2. The Division could provide demographic and financial data to each employer that would permit each employer to complete its own actuarial valuation and develop its own accounting information. This report includes an allocation of liabilities and costs to each participating employer. Separate accounting information is provided for each employer. The State will have to weigh the advantages of continuing the current arrangement against the advantages of establishing a formal trust. Determining the Cost of OPEB Substantive Plan The OPEB costs are based on the terms of the plan as understood by the employer and the plan members. For the State Employees Health Insurance Program, the terms of the plan, including retiree contributions, seem to be well documented in statute and communications to employees and retirees. If Florida decides to make changes to the retiree benefits, they would be reflected in the OPEB costs when they have been communicated to employees and retirees. Retirees under Age 65 Implicit Rate Subsidy The State Employees Health Insurance Program requires retirees to pay a premium for the healthcare benefits. The premium is a legislated amount that is comparable to the total premium of benefits for active employees. Because healthcare costs increase with age and the retired population is older than the active population, retirees under age 65 are not paying the full cost of their benefits. The difference between the average cost and the retiree cost has been referred to as the implicit rate subsidy. The OPEB liability and cost for the State Employees Health Insurance Program will account for this agerelated cost of benefits provided to retirees as required in paragraph 34a(2) of Statement 43 and paragraph 13a(2) of Statement 45. Commencing January 1, 2012 four of the Program s HMOs are self-insured, and two are experience-rated fully-insured. The PPO option is also self-insured for all enrollees. Since retirees under age 65 pay a legislated amount no more than the total active premium, an implicit rate subsidy exists for retirees regardless of option election. This work product was prepared solely for Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Milliman

22 Ms. Celeste Pullen October 16, 2013 Page 8 Retirees over Age 65 The State Employees Health Insurance Program has separate premium rates for retirees over age 65 because they are eligible for Medicare. Retirees over age 65 who participate in the PPO and the self-insured HMO pay less than the full cost of the coverage, so there is an OPEB liability and cost for them. Retirees over age 65 who participate in a fully-insured HMO pay the full premium cost, so there is no OPEB liability or cost for them, assuming the negotiated premium is actuarially sufficient to pay all benefits. The majority of retirees over age 65 who participate in an HMO participate in the two fully-insured options. We assumed that the retiree contributions for retirees who participate in the fully-insured options will equal the expected cost. Investment Return Assumption The investment return assumption is one of the key assumptions the actuary uses to determine the actuarial liability and the ARC. Higher investment returns decrease the actuarial liability and ARC because the income on invested assets pays more of the future benefits. The investment return assumption is the estimated long-term yield on the investments that are expected to be used to finance the benefits. If the plan is administered through a formal trust and the employer contributes the ARC, the investment return assumption can be an expected long-term investment return. If the plan has no assets, the investment return assumption is the expected return on assets of the employer. If the plan is partially funded through a formal trust, the investment return assumption is a combination of the two. If Florida contributed the ARC to a formal trust and the assets invested were similar to the Florida Retirement System assets, the Retirement System investment return assumption of 7.75% might be appropriate. The accumulation of assets would allow the Program to make long-term investments. It may be difficult to invest in assets similar to the Retirement System assets for several years because the asset base will be much smaller and the cash flow requirements will be relatively much larger. If the retiree healthcare fund becomes part of a pooled arrangement with the Retirement System (i.e., a formal trust with separate asset accounting), the 7.75% investment return assumption may be appropriate. Because the Program has no invested assets, an investment return assumption of 3.50% to 4.50% might be appropriate. For this forecast we used 4.00%. This work product was prepared solely for Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Milliman

23 Ms. Celeste Pullen October 16, 2013 Page 9 Excise Tax for High Cost Health Plans An excise tax for high cost health coverage, sometimes referred to as the Cadillac tax, was included in the Patient Protection and Affordable Care Act (ACA) passed into law in March The provision levies a 40% tax on the value of health plan costs that exceed certain thresholds for single coverage or family coverage. The 2018 annual thresholds are $10,200 for single coverage and $27,500 for a family plan. If, between 2010 and 2018, the cost of health care insurance rises more than 55%, the threshold for the excise tax will be adjusted. GASB Statement No. 45 indicates that the projection of benefits should include all benefits to be provided to retirees in accordance with the current substantive plan. The substantive plan refers to the plan terms as understood by the employer and plan members at the time of the valuation. For this reason, we believe that the current provisions of ACA should be reflected in the projection of benefits and therefore, we do include the value of the excise tax in this valuation. We assume that there will be no changes to the current law and that there will be no changes in plan design to help mitigate the impact of the tax. Healthcare Trend Assumption The healthcare trend assumption is another key assumption the actuary uses to determine the actuarial liability and the ARC. The actuarial valuation estimates healthcare costs into the future until the youngest employee retires and dies. This covers a period of 75 years or more. The healthcare trend rate includes the change in healthcare costs from factors such as medical cost increases, changes in utilization of healthcare services, and technological advances. Estimating costs that far into the future is highly uncertain and healthcare cost increases have varied widely. In setting this assumption an actuary will look at recent trends and short-term cost estimates. The actuary will set a long-term trend rate that considers the portion of the economy that can reasonably be expected to relate to healthcare. The short-term trends will then be graded into a long-term trend that takes into account these factors. For this valuation, we have used short-term trends consistent with the trends that the Division of State Group Insurance uses for budgeting. In developing the long-term healthcare trends we used rates that were consistent with information from the Getzen Trend Model, Milliman s Health Cost Guidelines, and actuarial judgment. The trend rates do not include the effects of changes in demographics of the covered population. We developed the trend rates for the first five years using the claims and administrative cost information from the August 8, 2013 Report on the Financial Outlook of the Plan. This work product was prepared solely for Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Milliman

24 Ms. Celeste Pullen October 16, 2013 Page 10 For the PPO plan, we have used initial healthcare trend rates of 7.40%, 7.00% and 8.20% for the first three years, respectively, then 6.20% in the sixth year grading to 5.00% over the course of 70 years. For the HMO plans combined, we have used blended trend rates of 3.90%, 7.80% and 8.30% for the first three years, respectively, then 6.10% in the sixth year grading to 5.00% over the course of 70 years. After the initial five years, the trend assumptions differ for pre-medicare and post-medicare due to the different timing at which the potential excise tax may impact the benefits of the plan. We have assumed no future changes in plan provisions in order to avoid the potential excise tax. PPO Blended HMO Pre-Medicare Post-Medicare Pre-Medicare Post-Medicare FY13 to FY14 7.4% 7.4% 3.9% 3.9% FY14 to FY15 7.0% 7.0% 7.8% 7.8% FY15 to FY16 8.2% 8.2% 8.3% 8.3% FY16 to FY17 7.6% 7.6% 8.2% 8.2% FY17 to FY18 7.7% 7.7% 8.1% 8.1% FY18 to FY19 6.2% 6.2% 6.3% 6.1% Other Actuarial Assumptions Other important actuarial assumptions include mortality rates, retirement rates, turnover rates, and rates at which retirees elect coverage for themselves and their spouses. We have used the actuarial assumptions from the actuarial valuation of the Florida Retirement System wherever possible. They were developed as part of a detailed study of recent demographic experience of members of the System. We have based other actuarial assumptions on discussions with the Division of State Group Insurance and recent experience. For complete description of the assumptions used, please refer to the July 1, 2013 under GASB 43 and 45. Actuarial Cost Methods An actuarial valuation takes the current population of covered members, uses the actuarial assumptions to estimate future benefit payments, and uses the investment return assumption to discount the benefit payments to the valuation date. The actuarial cost method then allocates the value of the benefits among past and future years. GASB allows several actuarial cost methods. They differ in how they allocate costs among past and future years. For this valuation we used the entry age actuarial cost method, the same as is used for the valuation of the Florida Retirement System. This This work product was prepared solely for Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Milliman

25 Ms. Celeste Pullen October 16, 2013 Page 11 method allocates the value of a member s benefit as a level percentage of pay between entry age and retirement age. Allocating costs as a level percentage of pay, even though the benefits are not pay-related, helps with budgeting for these employee benefits costs as a percentage of payroll. Actuarial Liability and Annual Required Contribution The actuarial liability is the value of benefits allocated to years prior to the valuation date. For an active member, it is the value of benefits allocated from entry age to the valuation date. For a retired member, it is the total value of benefits. The ARC is calculated as the value of benefits allocated to the coming year, called the normal cost, plus a payment toward the amortization of the unfunded actuarial liability. We have calculated the amortization payment as the level percentage of pay that will amortize the actuarial liability over 30 years, the longest period that GASB allows. Employer Contributions and Net OPEB Obligation If an employer s contributions to a plan are less than the ARC (or less than the contractually required contribution in the case of a cost-sharing multiple-employer plan administered through a formal trust), the employer has a liability for an OPEB obligation on the financial statement. The OPEB obligation is the difference between the ARC and the employer contributions. Paragraph 13g of GASB 45 defines employer contributions as payments made directly to, or on behalf of, retirees or beneficiaries, premium payments to insurers, and contributions to a formal trust. For the State, the employer contributions will include the value of the implicit subsidy. Thus, it will be important to keep track of experience for retirees under age 65 separately from employees so that both the implicit subsidy and contributions made to pay the implicit subsidy can be tracked appropriately. For the PPO options, the Division of State Group Insurance maintains separate experience records for actives and retirees. The Division should also maintain similar experience records for the selfinsured HMO options. For the fully-insured HMO options, the HMOs may not have the information available, so it may be necessary to allocate a portion of the active premium to the retiree subsidy. Effective Date The effective date for GASB 45 was July 1, The initial financial reporting was done as of June 30, This work product was prepared solely for Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Milliman

26 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 12 Exhibit Fiscal Year Ending June 30, 2013 Valuation as of July 1, 2012 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/13 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/13 PAYGO FYE13 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/13 State Agency $ 4,875,380 $ 152,488 $ 162,513 $ 12,600 $ 327,601 $ 28,401 $ (24,615) $ 331,387 $ 101,305 $ 2,006 $ 938,113 State Board of Administration 3, (9) Florida Board of Examiners (3) West Coast Inland Navigation District (1) Florida Inland Navigation District Miami-Dade Expressway Authority (5) South Florida Regional Transportation Authority (11) Orlando Orange County Expressway Authority (1) Volunteer Florida University of Florida Gainesville 643,705 23,578 21,457 1,801 46,836 4,098 (3,552) 47,382 9, ,775 Florida State University Tallahassee 140,254 6,556 4, , (751) 11,795 3, ,013 Florida Agricultural and Mechanical University Tallahassee 43,177 1,953 1, , (251) 3,566 1, ,747 University of Central Florida Orlando 121,671 6,887 4, ,381 1,033 (895) 11,519 1, ,492 University of South Florida Tampa 232,601 10,862 7, ,360 1,637 (1,419) 19,578 3, ,528 New College of Florida Sarasota 5, (58) ,155 Florida Atlantic University Boca Raton 107,108 5,506 3, , (749) 9,554 1, ,486 University of West Florida Pensacola 38,373 2,046 1, , (249) 3, ,844 Florida International University Miami 102,444 4,770 3, , (665) 8,614 1, ,197 University of North Florida Jacksonville 63,263 3,882 2, , (466) 6, ,950 Florida Gulf Coast University Fort Myers 27,837 2, , (317) 3, ,650 Florida Polytech Grand $ 6,406,784 $ 221,688 $ 213,559 $ 17,411 $ 452,658 $ 39,249 $ (34,017) $ 457,890 $ 126,496 $ 2,503 $ 1,310,165 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

27 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 13 Exhibit Fiscal Year Ending June 30, 2014 Valuation as of July 1, 2013 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/14 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/14 PAYGO FYE14 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/14 State Agency $ 5,764,350 $ 191,126 $ 192,145 $ 15,331 $ 398,602 $ 37,525 $ (32,521) $ 403,606 $ 97,645 $ 1,934 $ 1,242,140 State Board of Administration 7, (13) Florida Board of Examiners 1, (4) West Coast Inland Navigation District (1) Florida Inland Navigation District Miami-Dade Expressway Authority (7) South Florida Regional Transportation Authority 1, (14) Orlando Orange County Expressway Authority (3) Volunteer Florida University of Florida Gainesville 663,395 23,897 22,113 1,840 47,850 5,591 (4,846) 48,595 7, ,690 Florida State University Tallahassee 233,811 9,791 7, ,288 1,201 (1,040) 18,449 4, ,279 Florida Agricultural and Mechanical University Tallahassee 67,115 2,773 2, , (338) 5,262 1, ,858 University of Central Florida Orlando 141,984 8,637 4, ,905 1,420 (1,230) 14,095 1, ,177 University of South Florida Tampa 247,391 12,338 8, ,407 2,261 (1,960) 21,708 2, ,183 New College of Florida Sarasota 7, (75) ,780 Florida Atlantic University Boca Raton 105,330 5,229 3, ,090 1,179 (1,022) 9,247 1, ,593 University of West Florida Pensacola 36,847 2,552 1, , (341) 3, ,179 Florida International University Miami 120,121 7,702 4, ,174 1,048 (908) 12,314 1, ,348 University of North Florida Jacksonville 59,373 3,580 1, , (657) 5, ,193 Florida Gulf Coast University Fort Myers 28,949 2, , (439) 3, ,310 Florida Polytech Grand $ 7,487,707 $ 271,181 $ 249,590 $ 20,829 $ 541,600 $ 52,406 $ (45,419) $ 548,587 $ 118,652 $ 2,347 $ 1,737,753 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

28 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 14 Exhibit Fiscal Year Ending June 30, 2015 Valuation as of July 1, 2014 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/15 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/15 PAYGO FYE15 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/15 State Agency $ 6,094,116 $ 198,771 $ 203,137 $ 16,076 $ 417,984 $ 49,686 $ (43,061) $ 424,609 $ 104,260 $ 2,065 $ 1,560,424 State Board of Administration 7, (24) Florida Board of Examiners 1, (7) West Coast Inland Navigation District (1) Florida Inland Navigation District (1) Miami-Dade Expressway Authority (9) South Florida Regional Transportation Authority 1, (21) Orlando Orange County Expressway Authority (5) Volunteer Florida (2) University of Florida Gainesville 707,104 24,853 23,570 1,937 50,360 7,228 (6,264) 51,324 8, ,264 Florida State University Tallahassee 249,163 10,183 8, ,228 1,771 (1,535) 19,464 4, ,374 Florida Agricultural and Mechanical University Tallahassee 71,532 2,884 2, , (480) 5,553 1, ,158 University of Central Florida Orlando 155,235 8,982 5, ,723 1,927 (1,670) 14,980 1, ,490 University of South Florida Tampa 267,065 12,832 8, ,603 3,007 (2,606) 23,004 3, ,690 New College of Florida Sarasota 7, (96) ,434 Florida Atlantic University Boca Raton 113,841 5,438 3, ,602 1,504 (1,303) 9,803 1, ,060 University of West Florida Pensacola 40,326 2,654 1, , (457) 4, ,690 Florida International University Miami 131,773 8,010 4, ,898 1,494 (1,295) 13,097 1, ,047 University of North Florida Jacksonville 64,832 3,723 2, , (839) 6, ,696 Florida Gulf Coast University Fort Myers 32,696 2,708 1, , (565) 4, ,186 Florida Polytech (1) Grand $ 7,948,241 $ 282,028 $ 264,942 $ 21,878 $ 568,848 $ 69,510 $ (60,242) $ 578,116 $ 127,948 $ 2,533 $ 2,185,388 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

29 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 15 Exhibit Fiscal Year Ending June 30, 2016 Valuation as of July 1, 2015 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/16 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/16 PAYGO FYE16 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/16 State Agency $ 6,438,278 $ 206,722 $ 214,609 $ 16,853 $ 438,184 $ 62,417 $ (54,095) $ 446,506 $ 113,611 $ 2,250 $ 1,891,069 State Board of Administration 7, (35) ,323 Florida Board of Examiners 1, (9) West Coast Inland Navigation District (1) Florida Inland Navigation District (1) Miami-Dade Expressway Authority (10) South Florida Regional Transportation Authority 2, (28) ,033 Orlando Orange County Expressway Authority (8) Volunteer Florida (5) University of Florida Gainesville 752,485 25,847 25,083 2,037 52,967 8,931 (7,740) 54,158 9, ,501 Florida State University Tallahassee 265,351 10,590 8, ,212 2,375 (2,058) 20,529 4, ,165 Florida Agricultural and Mechanical University Tallahassee 76,139 2,999 2, , (629) 5,855 1, ,618 University of Central Florida Orlando 169,118 9,341 5, ,577 2,460 (2,132) 15,905 1, ,445 University of South Florida Tampa 287,596 13,345 9, ,849 3,788 (3,283) 24,354 3, ,057 New College of Florida Sarasota 8, (119) ,117 Florida Atlantic University Boca Raton 122,714 5,656 4, ,136 1,842 (1,597) 10,381 1, ,913 University of West Florida Pensacola 43,982 2,760 1, , (579) 4, ,391 Florida International University Miami 143,976 8,330 4, ,654 1,962 (1,700) 13,916 1, ,313 University of North Florida Jacksonville 70,552 3,872 2, ,473 1,188 (1,029) 6, ,465 Florida Gulf Coast University Fort Myers 36,659 2,816 1, , (700) 4, ,287 Florida Polytech (2) Grand $ 8,428,996 $ 293,308 $ 280,966 $ 22,970 $ 597,244 $ 87,417 $ (75,760) $ 608,901 $ 140,402 $ 2,781 $ 2,651,106 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

30 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 16 Exhibit Fiscal Year Ending June 30, 2017 Valuation as of July 1, 2016 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/17 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/17 PAYGO FYE17 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/17 State Agency $ 6,794,939 $ 214,991 $ 226,498 $ 17,660 $ 459,149 $ 75,643 $ (65,557) $ 469,235 $ 125,962 $ 2,495 $ 2,231,847 State Board of Administration 8, (46) ,655 Florida Board of Examiners 1, (12) West Coast Inland Navigation District (1) Florida Inland Navigation District (2) Miami-Dade Expressway Authority (12) South Florida Regional Transportation Authority 2, (36) ,263 Orlando Orange County Expressway Authority (11) Volunteer Florida (7) University of Florida Gainesville 799,545 26,881 26,652 2,141 55,674 10,700 (9,273) 57,101 11, ,265 Florida State University Tallahassee 282,241 11,014 9, ,239 3,007 (2,606) 21,640 5, ,552 Florida Agricultural and Mechanical University Tallahassee 80,908 3,119 2, , (784) 6,170 1, ,228 University of Central Florida Orlando 183,647 9,715 6, ,470 3,018 (2,615) 16,873 2, ,012 University of South Florida Tampa 308,991 13,879 10, ,146 4,602 (3,989) 25,759 4, ,222 New College of Florida Sarasota 9, (143) ,829 Florida Atlantic University Boca Raton 131,977 5,882 4, ,692 2,197 (1,904) 10,985 1, ,137 University of West Florida Pensacola 47,828 2,870 1, , (707) 4, ,269 Florida International University Miami 156,748 8,663 5, ,444 2,453 (2,126) 14,771 1, ,125 University of North Florida Jacksonville 76,538 4,027 2, ,841 1,419 (1,229) 7, ,489 Florida Gulf Coast University Fort Myers 40,848 2,929 1, , (842) 4, ,618 Florida Polytech (4) Grand $ 8,928,013 $ 305,040 $ 297,601 $ 24,107 $ 626,748 $ 106,045 $ (91,906) $ 640,887 $ 156,609 $ 3,101 $ 3,132,283 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

31 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 17 Exhibit Fiscal Year Ending June 30, 2018 Valuation as of July 1, 2017 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/18 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/18 PAYGO FYE18 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/18 State Agency $ 7,161,871 $ 223,591 $ 238,729 $ 18,493 $ 480,813 $ 89,274 $ (77,371) $ 492,716 $ 137,261 $ 2,718 $ 2,584,584 State Board of Administration 8, (57) ,992 Florida Board of Examiners 1, (15) West Coast Inland Navigation District (1) Florida Inland Navigation District (3) Miami-Dade Expressway Authority (14) South Florida Regional Transportation Authority 2, (44) ,508 Orlando Orange County Expressway Authority (14) Volunteer Florida (10) University of Florida Gainesville 848,146 27,956 28,272 2,249 58,477 12,531 (10,860) 60,148 12, ,773 Florida State University Tallahassee 299,732 11,455 9, ,304 3,662 (3,174) 22,792 5, ,661 Florida Agricultural and Mechanical University Tallahassee 85,828 3,244 2, ,349 1,089 (944) 6,494 1, ,996 University of Central Florida Orlando 198,791 10,104 6, ,399 3,600 (3,120) 17,879 2, ,263 University of South Florida Tampa 331,191 14,434 11,040 1,019 26,493 5,449 (4,722) 27,220 5, ,290 New College of Florida Sarasota 9, (167) ,573 Florida Atlantic University Boca Raton 141,612 6,117 4, ,270 2,565 (2,223) 11,612 1, ,755 University of West Florida Pensacola 51,852 2,985 1, , (841) 5, ,339 Florida International University Miami 170,068 9,010 5, ,266 2,965 (2,570) 15,661 2, ,535 University of North Florida Jacksonville 82,781 4,188 2, ,225 1,660 (1,438) 7,447 1, ,806 Florida Gulf Coast University Fort Myers 45,267 3,046 1, ,737 1,145 (992) 4, ,183 Florida Polytech (5) Grand $ 9,442,667 $ 317,242 $ 314,755 $ 25,280 $ 657,277 $ 125,292 $ (108,585) $ 673,984 $ 171,461 $ 3,395 $ 3,631,411 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

32 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 18 Exhibit Fiscal Year Ending June 30, 2019 Valuation as of July 1, 2018 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/19 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/19 PAYGO FYE19 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/19 State Agency $ 7,540,901 $ 232,535 $ 251,363 $ 19,356 $ 503,254 $ 103,383 $ (89,599) $ 517,038 $ 150,443 $ 2,979 $ 2,948,200 State Board of Administration 8, (69) ,337 Florida Board of Examiners 1, (19) West Coast Inland Navigation District (1) Florida Inland Navigation District (3) Miami-Dade Expressway Authority (16) South Florida Regional Transportation Authority 2, (52) ,765 Orlando Orange County Expressway Authority (17) Volunteer Florida (13) University of Florida Gainesville 898,506 29,074 29,950 2,361 61,385 14,431 (12,507) 63,309 13, ,908 Florida State University Tallahassee 317,951 11,913 10, ,411 4,346 (3,767) 23,990 6, ,495 Florida Agricultural and Mechanical University Tallahassee 90,909 3,374 3, ,660 1,280 (1,109) 6,831 1, ,919 University of Central Florida Orlando 214,623 10,508 7, ,368 4,211 (3,649) 18,930 2, ,202 University of South Florida Tampa 354,298 15,011 11,810 1,073 27,894 6,332 (5,487) 28,739 5, ,263 New College of Florida Sarasota 10, (193) ,355 Florida Atlantic University Boca Raton 151,644 6,362 5, ,874 2,950 (2,557) 12,267 2, ,761 University of West Florida Pensacola 56,069 3,104 1, ,172 1,134 (982) 5,324 1, ,605 Florida International University Miami 183,990 9,370 6, ,123 3,501 (3,035) 16,589 2, ,562 University of North Florida Jacksonville 89,318 4,356 2, ,626 1,912 (1,657) 7,881 1, ,401 Florida Gulf Coast University Fort Myers 49,920 3,168 1, ,025 1,327 (1,150) 5, ,991 Florida Polytech (6) Grand $ 9,975,449 $ 329,930 $ 332,514 $ 26,497 $ 688,941 $ 145,255 $ (125,888) $ 708,308 $ 188,670 $ 3,737 $ 4,147,312 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

33 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 19 Exhibit Fiscal Year Ending June 30, 2020 Valuation as of July 1, 2019 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/20 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/20 PAYGO FYE20 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/20 State Agency $ 7,930,951 $ 241,836 $ 264,365 $ 20,248 $ 526,449 $ 117,928 $ (102,204) $ 542,173 $ 161,675 $ 3,202 $ 3,325,496 State Board of Administration 9, (81) ,693 Florida Board of Examiners 1, (22) West Coast Inland Navigation District (1) Florida Inland Navigation District (4) Miami-Dade Expressway Authority (18) South Florida Regional Transportation Authority 3, (61) ,036 Orlando Orange County Expressway Authority (20) Volunteer Florida (15) University of Florida Gainesville 950,509 30,237 31,684 2,477 64,398 16,396 (14,210) 66,584 15, ,023 Florida State University Tallahassee 336,903 12,390 11, ,565 5,060 (4,385) 25,240 6, ,223 Florida Agricultural and Mechanical University Tallahassee 96,146 3,509 3, ,983 1,477 (1,280) 7,180 2, ,054 University of Central Florida Orlando 231,145 10,928 7, ,378 4,848 (4,202) 20,024 3, ,929 University of South Florida Tampa 378,315 15,611 12,611 1,129 29,351 7,251 (6,284) 30,318 6, ,260 New College of Florida Sarasota 11, (220) ,173 Florida Atlantic University Boca Raton 162,065 6,616 5, ,499 3,350 (2,904) 12,945 2, ,189 University of West Florida Pensacola 60,482 3,228 2, ,454 1,304 (1,130) 5,628 1, ,086 Florida International University Miami 198,533 9,745 6, ,018 4,062 (3,521) 17,559 2, ,294 University of North Florida Jacksonville 96,135 4,530 3, ,044 2,176 (1,886) 8,334 1, ,304 Florida Gulf Coast University Fort Myers 54,818 3,295 1, ,327 1,520 (1,317) 5, ,060 Florida Polytech (8) Grand $ 10,525,186 $ 343,126 $ 350,842 $ 27,761 $ 721,729 $ 165,892 $ (143,773) $ 743,848 $ 203,348 $ 4,026 $ 4,683,786 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

34 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 20 Exhibit Fiscal Year Ending June 30, 2021 Valuation as of July 1, 2020 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/21 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/21 PAYGO FYE21 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/21 State Agency $ 8,334,822 $ 251,509 $ 277,827 $ 21,173 $ 550,509 $ 133,020 $ (115,284) $ 568,245 $ 173,755 $ 3,441 $ 3,716,545 State Board of Administration 9, (93) ,055 Florida Board of Examiners 2, (25) West Coast Inland Navigation District (1) Florida Inland Navigation District (4) Miami-Dade Expressway Authority (20) South Florida Regional Transportation Authority 3, (71) ,321 Orlando Orange County Expressway Authority (24) Volunteer Florida (19) University of Florida Gainesville 1,004,506 31,446 33,484 2,597 67,527 18,441 (15,982) 69,986 16, ,097 Florida State University Tallahassee 356,752 12,886 11, ,769 5,809 (5,034) 26,544 6, ,849 Florida Agricultural and Mechanical University Tallahassee 101,596 3,649 3, ,317 1,682 (1,458) 7,541 2, ,398 University of Central Florida Orlando 248,459 11,365 8, ,433 5,517 (4,782) 21,168 3, ,468 University of South Florida Tampa 403,362 16,235 13,445 1,187 30,867 8,210 (7,116) 31,961 6, ,284 New College of Florida Sarasota 12, , (249) 1, ,032 Florida Atlantic University Boca Raton 172,911 6,881 5, ,151 3,768 (3,265) 13,654 2, ,056 University of West Florida Pensacola 65,111 3,357 2, ,748 1,483 (1,286) 5,945 1, ,782 Florida International University Miami 213,782 10,135 7, ,951 4,652 (4,032) 18,571 3, ,743 University of North Florida Jacksonville 103,261 4,711 3, ,479 2,452 (2,125) 8,806 1, ,546 Florida Gulf Coast University Fort Myers 59,977 3,427 1, ,643 1,722 (1,493) 5, ,397 Florida Polytech (9) Grand $ 11,095,668 $ 356,850 $ 369,855 $ 29,068 $ 755,773 $ 187,351 $ (162,372) $ 780,752 $ 219,219 $ 4,339 $ 5,240,980 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

35 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 21 Exhibit Fiscal Year Ending June 30, 2022 Valuation as of July 1, 2021 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/22 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/22 PAYGO FYE22 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/22 State Agency $ 8,752,588 $ 261,569 $ 291,753 $ 22,133 $ 575,455 $ 148,662 $ (128,840) $ 595,277 $ 187,100 $ 3,705 $ 4,121,017 State Board of Administration 10, (106) ,421 Florida Board of Examiners 2, (29) West Coast Inland Navigation District (1) Florida Inland Navigation District (5) Miami-Dade Expressway Authority (22) South Florida Regional Transportation Authority 3, (80) ,621 Orlando Orange County Expressway Authority 1, (28) Volunteer Florida 1, (22) University of Florida Gainesville 1,060,478 32,704 35,349 2,722 70,775 20,564 (17,822) 73,517 18, ,171 Florida State University Tallahassee 377,505 13,401 12,584 1,039 27,024 6,594 (5,715) 27,903 7, ,334 Florida Agricultural and Mechanical University Tallahassee 107,258 3,795 3, ,665 1,896 (1,643) 7,918 2, ,970 University of Central Florida Orlando 266,587 11,820 8, ,534 6,219 (5,390) 22,363 3, ,828 University of South Florida Tampa 429,444 16,884 14,315 1,248 32,447 9,211 (7,983) 33,675 7, ,402 New College of Florida Sarasota 13, , (278) 1, ,939 Florida Atlantic University Boca Raton 184,197 7,156 6, ,828 4,202 (3,642) 14,388 3, ,362 University of West Florida Pensacola 69,957 3,491 2, ,056 1,671 (1,448) 6,279 1, ,690 Florida International University Miami 229,752 10,540 7, ,926 5,270 (4,567) 19,629 3, ,947 University of North Florida Jacksonville 110,727 4,899 3, ,934 2,742 (2,376) 9,300 1, ,132 Florida Gulf Coast University Fort Myers 65,405 3,564 2, ,974 1,936 (1,678) 6, ,004 Florida Polytech (11) Grand $ 11,687,060 $ 371,121 $ 389,568 $ 30,428 $ 791,117 $ 209,639 $ (181,686) $ 819,070 $ 236,651 $ 4,688 $ 5,818,711 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

36 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 22 Exhibit Fiscal Year Ending June 30, 2023 Valuation as of July 1, 2022 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/23 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/23 PAYGO FYE23 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/23 State Agency $ 9,183,918 $ 272,032 $ 306,131 $ 23,127 $ 601,290 $ 164,841 $ (142,862) $ 623,269 $ 200,996 $ 3,981 $ 4,539,309 State Board of Administration 10, (119) ,795 Florida Board of Examiners 2, (32) ,039 West Coast Inland Navigation District (1) Florida Inland Navigation District (6) Miami-Dade Expressway Authority 1, (25) South Florida Regional Transportation Authority 3, (91) ,939 Orlando Orange County Expressway Authority 1, (32) ,043 Volunteer Florida 1, (26) University of Florida Gainesville 1,118,466 34,012 37,282 2,852 74,146 22,767 (19,731) 77,182 19, ,327 Florida State University Tallahassee 399,124 13,937 13,304 1,090 28,331 7,413 (6,425) 29,319 7, ,766 Florida Agricultural and Mechanical University Tallahassee 113,150 3,947 3, ,028 2,119 (1,836) 8,311 2, ,769 University of Central Florida Orlando 285,541 12,293 9, ,683 6,953 (6,026) 23,610 4, ,060 University of South Florida Tampa 456,624 17,559 15,221 1,311 34,091 10,256 (8,889) 35,458 8, ,620 New College of Florida Sarasota 14, , (310) 1, ,884 Florida Atlantic University Boca Raton 195,925 7,442 6, ,532 4,654 (4,034) 15,152 3, ,098 University of West Florida Pensacola 75,015 3,631 2, ,377 1,868 (1,619) 6,626 1, ,825 Florida International University Miami 246,479 10,962 8, ,945 5,918 (5,129) 20,734 3, ,921 University of North Florida Jacksonville 118,537 5,095 3, ,408 3,045 (2,639) 9,814 1, ,058 Florida Gulf Coast University Fort Myers 71,103 3,707 2, ,320 2,160 (1,872) 6, ,905 Florida Polytech (13) Grand $ 12,299,171 $ 385,965 $ 409,973 $ 31,838 $ 827,776 $ 232,750 $ (201,717) $ 858,809 $ 254,836 $ 5,047 $ 6,417,637 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

37 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 23 Exhibit Fiscal Year Ending June 30, 2024 Valuation as of July 1, 2023 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/24 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/24 PAYGO FYE24 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/24 State Agency $ 9,629,211 $ 282,913 $ 320,974 $ 24,155 $ 628,042 $ 181,572 $ (157,363) $ 652,251 $ 215,199 $ 4,262 $ 4,972,099 State Board of Administration 10, (132) ,162 Florida Board of Examiners 2, (36) ,151 West Coast Inland Navigation District (1) Florida Inland Navigation District (6) Miami-Dade Expressway Authority 1, (27) South Florida Regional Transportation Authority 4, (102) ,272 Orlando Orange County Expressway Authority 1, (36) ,174 Volunteer Florida 1, (30) University of Florida Gainesville 1,178,551 35,372 39,285 2,986 77,643 25,053 (21,713) 80,983 21, ,548 Florida State University Tallahassee 421,696 14,494 14,057 1,142 29,693 8,271 (7,168) 30,796 8, ,235 Florida Agricultural and Mechanical University Tallahassee 119,269 4,105 3, ,404 2,351 (2,037) 8,718 2, ,797 University of Central Florida Orlando 305,369 12,785 10, ,883 7,722 (6,693) 24,912 4, ,194 University of South Florida Tampa 484,910 18,261 16,164 1,377 35,802 11,345 (9,832) 37,315 8, ,944 New College of Florida Sarasota 15, , (343) 1, ,865 Florida Atlantic University Boca Raton 208,085 7,740 6, ,263 5,124 (4,441) 15,946 3, ,287 University of West Florida Pensacola 80,301 3,776 2, ,711 2,073 (1,797) 6,987 1, ,198 Florida International University Miami 263,979 11,400 8, ,007 6,597 (5,717) 21,887 4, ,678 University of North Florida Jacksonville 126,690 5,299 4, ,903 3,362 (2,914) 10,351 2, ,328 Florida Gulf Coast University Fort Myers 77,096 3,855 2, ,682 2,396 (2,077) 7, ,089 Florida Polytech (15) Grand $ 12,932,658 $ 401,403 $ 431,090 $ 33,300 $ 865,793 $ 256,706 $ (222,480) $ 900,019 $ 273,663 $ 5,420 $ 7,038,573 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

38 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 24 Exhibit Fiscal Year Ending June 30, 2025 Valuation as of July 1, 2024 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/25 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/25 PAYGO FYE25 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/25 State Agency $ 10,089,148 $ 294,230 $ 336,305 $ 25,221 $ 655,756 $ 198,884 $ (172,366) $ 682,274 $ 230,607 $ 4,567 $ 5,419,199 State Board of Administration 11, (144) ,524 Florida Board of Examiners 2, (40) ,262 West Coast Inland Navigation District (1) Florida Inland Navigation District (7) Miami-Dade Expressway Authority 1, (30) South Florida Regional Transportation Authority 4, (113) ,618 Orlando Orange County Expressway Authority 1, (41) ,310 Volunteer Florida 1, (34) ,098 University of Florida Gainesville 1,240,718 36,787 41,357 3,126 81,270 27,422 (23,766) 84,926 23, ,906 Florida State University Tallahassee 445,311 15,074 14,844 1,197 31,115 9,169 (7,947) 32,337 8, ,634 Florida Agricultural and Mechanical University Tallahassee 125,619 4,269 4, ,794 2,592 (2,246) 9,140 2, ,068 University of Central Florida Orlando 326,102 13,296 10, ,133 8,528 (7,391) 26,270 5, ,225 University of South Florida Tampa 514,307 18,991 17,144 1,445 37,580 12,478 (10,814) 39,244 9, ,435 New College of Florida Sarasota 16, , (377) 1, ,880 Florida Atlantic University Boca Raton 220,701 8,050 7, ,023 5,611 (4,863) 16,771 4, ,938 University of West Florida Pensacola 85,826 3,927 2, ,060 2,288 (1,983) 7,365 1, ,815 Florida International University Miami 282,264 11,856 9, ,116 7,307 (6,333) 23,090 4, ,215 University of North Florida Jacksonville 135,187 5,511 4, ,418 3,693 (3,201) 10,910 2, ,966 Florida Gulf Coast University Fort Myers 83,372 4,009 2, ,060 2,644 (2,291) 7, ,562 Florida Polytech (17) Grand $ 13,588,339 $ 417,459 $ 452,944 $ 34,818 $ 905,221 $ 281,543 $ (244,005) $ 942,759 $ 294,116 $ 5,823 $ 7,681,393 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

39 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 25 Exhibit Fiscal Year Ending June 30, 2026 Valuation as of July 1, 2025 (Dollars in Thousands) Net AL Employer NC Amortization of AL Interest Total ARC on 6/30/26 Interest on Prior Net OPEB Obligation Adjusment to the ARC Net OPEB Cost as of 6/30/26 PAYGO FYE26 Half Year Interest on PAYGO Net OPEB Obligation on 6/30/26 State Agency $ 10,563,539 $ 305,999 $ 352,118 $ 26,325 $ 684,442 $ 216,768 $ (187,866) $ 713,344 $ 245,393 $ 4,860 $ 5,882,290 State Board of Administration 11, (157) ,909 Florida Board of Examiners 2, (44) ,378 West Coast Inland Navigation District (1) Florida Inland Navigation District (8) Miami-Dade Expressway Authority 1, (33) ,038 South Florida Regional Transportation Authority 4, (125) ,977 Orlando Orange County Expressway Authority 1, (45) ,451 Volunteer Florida 1, (38) ,229 University of Florida Gainesville 1,305,038 38,258 43,501 3,270 85,029 29,876 (25,893) 89,012 25, ,319 Florida State University Tallahassee 469,863 15,677 15,662 1,254 32,593 10,105 (8,758) 33,940 9, ,030 Florida Agricultural and Mechanical University Tallahassee 132,215 4,440 4, ,201 2,843 (2,464) 9,580 3, ,580 University of Central Florida Orlando 347,735 13,828 11,591 1,017 26,436 9,369 (8,120) 27,685 5, ,132 University of South Florida Tampa 544,877 19,751 18,163 1,517 39,431 13,657 (11,836) 41,252 10, ,159 New College of Florida Sarasota 17, , (412) 1, ,938 Florida Atlantic University Boca Raton 233,781 8,372 7, ,812 6,118 (5,302) 17,628 4, ,043 University of West Florida Pensacola 91,595 4,084 3, ,422 2,513 (2,178) 7,757 1, ,651 Florida International University Miami 301,331 12,330 10, ,269 8,049 (6,975) 24,343 4, ,595 University of North Florida Jacksonville 144,054 5,731 4, ,954 4,039 (3,500) 11,493 2, ,977 Florida Gulf Coast University Fort Myers 89,936 4,169 2, ,454 2,902 (2,515) 7,841 1, ,341 Florida Polytech (19) Grand $ 14,266,090 $ 434,155 $ 475,536 $ 36,388 $ 946,079 $ 307,256 $ (266,289) $ 987,046 $ 314,315 $ 6,223 $ 8,347,901 Net AL = Actuarial Liability after subtracting the value of retiree contributions. Employer NC = Normal Cost after subtracting the value of retiree contributions. Amortization of AL = payment to amortize the AL over 30 years with a new 30-year period beginning each year. Interest = Interest at 4% on the net AL and employer NC to the end of the fiscal year. Total ARC = Annual Required Contribution defined by GASB 45 (NC plus amortization plus interest). Interest on Prior Net OPEB Obligation = interest charge defined by GASB 45 (4% of the prior year's OPEB obligation). Adjustment to the ARC = adjustment defined by GASB 45 to take into acount the part of the AL that has already been expensed in prior years. Net OPEB Cost = the accounting charge for the fiscal year defined by GASB 45 (the ARC plus interest on the net OPEB obligation plus the adustment to the ARC). PAYGO = estimated benefit payments during the fiscal year to retirees, after subtracuting expected contributions from retirees. Interest on PAYGO = interest credit to reflect benefit payments made throughout the fiscal year. Net OPEB Obligation = liability for OPEB at the end of the fiscal year as defined by GASB 45; the prior year's OPEB Obligation plus net OPEB Cost minus PAYGO with interest. may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other MILLIMAN

40 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 26 Exhibit 3 Pay-as-You-Go Costs (Dollars in Thousands) FYE14 FYE15 FYE16 FYE17 FYE18 FYE19 FYE20 FYE21 FYE22 FYE23 FYE24 FYE25 FYE26 FYE27 State Agency $ 97,645 $ 104,260 $ 113,611 $ 125,962 $ 137,261 $ 150,443 $ 161,675 $ 173,755 $ 187,100 $ 200,996 $ 215,199 $ 230,607 $ 245,393 $ 259,783 State Board of Administration Florida Board of Examiners West Coast Inland Navigation District Florida Inland Navigation District Miami-Dade Expressway Authority South Florida Regional Transportation Authority Orlando Orange County Expressway Authority Volunteer Florida University of Florida Gainesville 7,531 8,580 9,728 11,117 12,395 13,899 15,169 16,584 18,085 19,637 21,339 23,110 25,102 27,099 Florida State University Tallahassee 4,102 4,284 4,646 5,151 5,573 6,036 6,386 6,784 7,274 7,734 8,165 8,764 9,359 9,926 Florida Agricultural and Mechanical University Tallahassee 1,129 1,229 1,368 1,530 1,692 1,871 2,005 2,154 2,300 2,463 2,638 2,813 3,008 3,245 University of Central Florida Orlando 1,383 1,635 1,912 2,261 2,577 2,933 3,233 3,559 3,925 4,293 4,685 5,137 5,666 6,174 University of South Florida Tampa 2,994 3,429 3,910 4,505 5,052 5,654 6,198 6,802 7,410 8,080 8,816 9,564 10,324 11,216 New College of Florida Sarasota Florida Atlantic University Boca Raton 1,118 1,310 1,498 1,727 1,955 2,217 2,468 2,733 3,022 3,350 3,684 4,040 4,435 4,843 University of West Florida Pensacola ,037 1,125 1,225 1,344 1,462 1,583 1,714 1,884 2,032 Florida International University Miami 1,140 1,371 1,618 1,921 2,207 2,512 2,772 3,061 3,358 3,687 4,050 4,465 4,867 5,334 University of North Florida Jacksonville ,108 1,261 1,403 1,534 1,681 1,851 2,041 2,228 2,434 2,665 Florida Gulf Coast University Fort Myers ,041 1,174 Florida Polytech Grand $ 118,652 $ 127,948 $ 140,402 $ 156,609 $ 171,461 $ 188,670 $ 203,348 $ 219,219 $ 236,651 $ 254,836 $ 273,663 $ 294,116 $ 314,315 $ 334,365 MILLIMAN

41 State of Florida Division of State Group Insurance Forecast of Retiree Healthcare Benefit Costs Page 27 Exhibit 4 Retiree Contributions (Dollars in Thousands) FYE14 FYE15 FYE16 FYE17 FYE18 FYE19 FYE20 FYE21 FYE22 FYE23 FYE24 FYE25 FYE26 FYE27 State Agency $ 163,442 $ 168,935 $ 180,152 $ 195,825 $ 209,135 $ 224,572 $ 236,383 $ 248,884 $ 261,896 $ 275,079 $ 288,494 $ 302,645 $ 315,657 $ 327,534 State Board of Administration Florida Board of Examiners West Coast Inland Navigation District Florida Inland Navigation District Miami-Dade Expressway Authority South Florida Regional Transportation Authority Orlando Orange County Expressway Authority Volunteer Florida University of Florida Gainesville 14,385 15,746 17,639 19,975 22,022 24,283 25,990 27,785 29,592 31,323 33,148 34,971 36,820 38,598 Florida State University Tallahassee 5,646 5,912 6,380 7,024 7,514 8,032 8,368 8,725 9,123 9,485 9,809 10,267 10,684 11,055 Florida Agricultural and Mechanical University Tallahassee 1,702 1,817 1,985 2,192 2,370 2,562 2,684 2,815 2,936 3,067 3,202 3,337 3,467 3,621 University of Central Florida Orlando 2,540 2,875 3,305 3,849 4,317 4,803 5,160 5,540 5,962 6,362 6,768 7,231 7,721 8,184 University of South Florida Tampa 5,605 6,135 6,862 7,764 8,540 9,369 10,013 10,711 11,395 12,084 12,819 13,533 14,237 15,005 New College of Florida Sarasota Florida Atlantic University Boca Raton 2,182 2,454 2,791 3,206 3,592 4,005 4,327 4,649 4,982 5,353 5,706 6,068 6,459 6,831 University of West Florida Pensacola 1,178 1,233 1,319 1,438 1,546 1,657 1,752 1,861 1,981 2,092 2,206 2,343 2,489 2,607 Florida International University Miami 2,123 2,423 2,796 3,256 3,653 4,058 4,353 4,677 5,000 5,336 5,689 6,072 6,432 6,813 University of North Florida Jacksonville 1,142 1,277 1,459 1,682 1,868 2,084 2,266 2,432 2,607 2,799 2,989 3,168 3,351 3,546 Florida Gulf Coast University Fort Myers ,052 1,182 1,295 1,434 1,582 1,713 1,852 Florida Polytech Grand $ 200,540 $ 209,524 $ 225,560 $ 247,272 $ 265,801 $ 286,863 $ 302,893 $ 319,846 $ 337,415 $ 355,086 $ 373,141 $ 392,162 $ 410,026 $ 426,710 parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional MILLIMAN

42 Ms. Celeste Pullen October 16, 2013 Page 28 Exhibit 5 Data We used the data and premium information provided for the July 1, 2013 Actuarial Valuation of Retiree Healthcare Benefits under GASB 43 and 45. This included census data provided in an Excel file named Census Data for DSGI 2013 GASB 45 Valuation and claims and enrollment data provided in an Excel file named FY11-12 and Claims Information, both provided by the Division of State Group Insurance. Exhibit 6 Assumptions and Methods We used the results from the July 1, 2013 Actuarial Valuation of Retiree Healthcare Benefits under GASB 43 and 45. We estimated the total value of liabilities of the plan for subsequent fiscal years by adjusting the liabilities from the July 1, 2013 valuation using standard actuarial roll-forward techniques to provide an estimate of the cost in future years for each participating employer. For information about other actuarial assumptions and methods, please refer to the July 1, 2013 under GASB 43 and 45 for the State of Florida Division of State Group Insurance. This work product was prepared solely for Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional when reviewing the Milliman work product. Milliman

43 Actuarial Valuation of Retiree Healthcare Benefits under GASB 43 and GASB 45 As of July 1, 2013 October 2013

44 TABLE OF CONTENTS Section Page Transmittal Letter I. Summary of OPEB Accounting Requirements... I-1 II. III. IV. Summary of Results... II-1 Liabilities and Costs... III-1 GASB Disclosure Information... IV-1 V. Development of Claim Costs... V-1 VI. VII. VIII. IX. Summary of Benefits... VI-1 Summary of Data... VII-1 Actuarial Assumptions and Methods... VIII-1 Glossary of Terms... IX-1

45 1921 Gallows Road Suite 900 Vienna, VA Tel Fax October 16, 2013 milliman.com Ms. Celeste Pullen, Chief Bureau of Financial and Fiscal Management Division of State Group Insurance Florida Department of Management Services 4050 Esplanade Way, Suite 215 Tallahassee, FL Re: as of July 1, 2013 Dear Ms. Pullen: At your request, we have completed our actuarial valuation of the State of Florida Division of State Group Insurance Retiree Healthcare Benefits as of July 1, The purpose of the valuation is to develop liability and cost information for the disclosure items required by GASB 45 for the fiscal year ending June 30, The major findings of the valuation are contained in the following report. All costs and liabilities shown in this report have been determined on the basis of actuarial assumptions and methods described in Section VIII. The demographic assumptions used in performing this valuation are consistent with those that will be used in the July 1, 2013 actuarial valuation of the Florida Retirement System, and have been recommended by the actuary and adopted by the Actuarial Assumption Conference based on Milliman s most recent review of the Florida Retirement System s (FRS) experience for the period July 1, 2003, through June 30, 2008, as modified by the February 16, 2010 study on House Bill 479 and the July 1, 2011 study on Senate Bill 2100, both of which were enacted into law. We believe these assumptions are reasonable for purposes of disclosures required by the Government Accounting Standards Board (GASB) Statements No. 43 and No. 45. We made additional assumptions relating to healthcare trend and benefit elections at retirement, based on recent experience and expectations. Differences between our projections and actual amounts depend on the extent to which future experience conforms to the assumptions used in this valuation. It is certain that actual experience will not conform exactly to the assumptions used in this valuation. Actual amounts will differ from projected amounts to the extent that actual experience deviates from expected experience.

46 Ms. Celeste Pullen October 16, 2013 Page 2 Actuarial computations under GASB Statements No. 43 and No. 45 are for purposes of fulfilling financial accounting requirements. The calculations have been made on a basis consistent with our understanding of GASB Statements No. 43 and No. 45. Determinations for purposes other than meeting these requirements may be significantly different from the results contained in this report. Accordingly, additional determinations may be needed for other purposes. This report covers the retiree medical benefit provided by the State Employees Preferred Provider Option (PPO) and Health Maintenance Organizations (HMOs). It does not cover any other benefits, such as retiree life insurance, that may fall under the GASB statements relating to other post-employment benefits (OPEB). The results contained in this report include the changes in health costs due to the passage of the Patient Protection and Affordable Care Act that are reflected in the State Employees Group Health Self-Insurance Trust Fund s Report on the Financial Outlook presented August 8, The results also reflect the impact of the potential excise tax. This report does not reflect any potential future migration of retirees away from the plan to exchanges when they become available. The impact on future health costs due to this legislation will depend on a number of factors, including future regulations, which are not yet known. An analysis of the impact of healthcare reform on future plan costs was beyond the scope of this project. In preparing our report we relied, without audit, on information (some oral and some written) supplied by the Division of State Group Insurance. This information includes, but is not limited to, statutory provisions, employee census, and healthcare financial information. In our examination of these data, we have found them to be reasonably consistent and comparable with data used for other purposes. Since the valuation results are dependent on the integrity of the data supplied, the results can be expected to differ if the underlying data is incomplete or missing. It should be noted that if any data or other information is inaccurate or incomplete, our calculations may need to be revised. We certify that all costs, liabilities, rates of interest, and other factors for the retiree healthcare benefits program have been determined on the basis of actuarial assumptions and methods which are individually reasonable (taking into account the experience of the program and reasonable expectations); and which, in combination, offer our best estimate of anticipated experience under the program. Nevertheless, the

47 Ms. Celeste Pullen October 16, 2013 Page 3 emerging costs will vary from these presented in this report to the extent actual experience differs from that projected by the actuarial assumptions. The information included in this report was developed for the scope of work as defined in the purchase order A85141, effective July 3, 2013 and under the terms of the State Term Contract # Milliman s work product was prepared exclusively for the Florida Department of Management Services, Division of State Group Insurance for a specific and limited purpose. It is a complex technical analysis that assumes a high level of knowledge concerning the plan s operations, and uses Division data. No third party recipient of Milliman s work product should rely upon Milliman s work product. Such recipients should engage qualified professionals for advice appropriate to their own specific needs. On the basis of the foregoing, we hereby certify that, to the best of our knowledge and belief, this report is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices which are consistent with Actuarial Standards of Practice, the Code of Professional Conduct and Qualification Standards for Public Statements of Actuarial Opinion of the American Academy of Actuaries. We are members of the American Academy of Actuaries and meet the Qualification Standards to render the actuarial opinion contained herein. Respectfully submitted, Milliman, Inc. Kathryn Hunter, ASA, MAAA Associate Actuary Robert S. Dezube, FSA, EA, MAAA Consulting Actuary P:\FRH\2013 GASB Valuation\Report\2013 Report Final.docx

48 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS Assignment This report presents the results of the July 1, 2013, actuarial valuation of the retiree healthcare benefits provided to retired employees of the State of Florida, State Universities, and other entities. The primary purpose of the valuation is to estimate the cost and liabilities of the current plan under the Government Accounting Standards Board s accounting rules for postemployment benefits other than pensions. Purpose of the Requirements The Government Accounting Standards Board (GASB) issued two statements relating to accounting for postemployment benefits other than pensions (OPEB). GASB 43 defines accounting requirements for OPEB plans and GASB 45 defines accounting requirements for employers who sponsor OPEBs. This discussion will address the retiree healthcare benefit only, which is generally by far the most costly OPEB. The State of Florida Employees Group Insurance Program may provide other benefits that would be governed by GASB 43 or GASB 45, such as the State-sponsored Life Insurance Program. Prior to issuance of GASB 43 and 45, the accounting of postemployment benefits was generally on a pay-as-you-go basis. The cost of the benefit was recognized when the benefit was paid. The purpose of the statements is to require accrual accounting for OPEBs. An employee earns postemployment benefits during the period of employment. The statements match the cost of providing OPEBs with the period during which they are earned. GASB feels this provides more complete, reliable, and decision-useful reporting of the costs of the benefits. Applicability to the Division of State Group Insurance GASB 43 states in paragraph 4 that it establishes financial reporting standards for OPEB plans of all state and local governments. It defines an OPEB plan in paragraph 6.a. as a plan that provides postemployment healthcare benefits, and other postemployment benefits such as life insurance, separately from a defined benefit pension plan. In paragraph 9, it says that the OPEB obligation arises from an exchange of salaries and benefits for employee services. Paragraph 34.a.(1) states that the benefits should include all benefits to be provided by the plan in accordance with the substantive plan (the plan terms as understood by the employer and plan members). Information such as communications between the employer and the employees and an established pattern of practice with regard to sharing the benefit costs between the employer and plan members is used to determine the provisions of the substantive plan, I-1

49 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS in addition to a written plan. Thus OPEB liabilities exist even in the absence of an irrevocable statutory obligation to continue the benefits. GASB 43 applies to the Employees Health Insurance Program, as the Plan. GASB 45 has similar provisions. Paragraph 6 says that it applies to the financial statements of all state and local governmental employers that provide OPEBs. GASB 45 defines OPEBs and the source of the OPEB obligation in paragraph 7 the same way as GASB 43 defines them. GASB 45 also uses the same language as GASB 43 to define the substantive plan. GASB 45 applies to the State of Florida, as the sponsor of the Employees Health Insurance Program. Accounting for Plans (GASB 43) and for Employers (GASB 45) GASB 43 and GASB 45 are closely related. They coordinate disclosures to avoid duplication of effort. GASB 43 applies to all OPEB plans. There are different requirements depending on whether the plan is administered through a formal trust. The plan is administered through a formal trust if: Employer contributions to the plan are irrevocable, Plan assets are dedicated to providing benefits to their retirees and beneficiaries, and Plan assets are protected from creditors of the employer and the plan administrator. If the plan is administered through a formal trust, GASB 43 requires two financial statements, two schedules of historical trend information, and other disclosures. The financial statements are (1) a statement of plan net assets, and (2) a statement of changes in plan net assets. The schedules of trend information are (1) a schedule of funding progress, and (2) a schedule of employer contributions. The schedules require a determination of the actuarial liability of the plan and the actuarially determined Annual Required Contribution (ARC). If the plan is not administered through a formal trust, GASB 43 defines simplified disclosure requirements for the plan. The plan administrator would report the fund as an agency fund, providing a statement of plan assets and liabilities at the end of the year. The administrator would also provide a plan description, a summary of accounting policies, information about contributions and reserves, and a statement that participating employers are required to provide additional disclosure and OPEB cost information. It is our understanding that a formal trust does not exist currently, so the above simplified disclosure requirements apply to the Employees Health Insurance Program. I-2

50 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS GASB 45 applies to all employers that sponsor OPEBs. There are different requirements depending on whether the plan is a sole employer plan, an agent multipleemployer plan, or a cost-sharing multiple employer plan, and whether the plan is administered through a formal trust. For a sole employer plan the expense for the year is the actuarially determined ARC. If the plan is administered through a formal trust, the plan accounting and employer accounting are closely coordinated. An agent multiple-employer plan is an aggregation of single-employer plans with pooled investment and administrative functions. Each employer has a separate account, a separate actuarial valuation to determine the ARC, and separate disclosures. If the plan is administered through a formal trust, the plan accounting is the aggregate of the employer ARC and disclosures. A cost-sharing multiple-employer plan is a single plan with a pooling arrangement that shares all risks, rewards, and costs among the participating employers. If the plan is administered through a formal trust, the plan completes a single actuarial valuation and all employers pay the same contribution rate. The OPEB expense for the employer is the contractually required contribution rate, which may be less than the actuarially determined ARC. The employer has simplified disclosure if the plan disclosure is public. The plan accounts for the actuarially determined ARC and has separate complete disclosure. If a cost-sharing multiple-employer plan is not administered through a formal trust, the accounting requirements for an agent multiple-employer plan apply. Each employer would have a separate account, a separate actuarial valuation to determine the ARC, and separate disclosures. Our understanding is that the State Employees Health Insurance Program is currently being administered as a cost-sharing multiple-employer plan without a formal trust. Because it is not administered through a formal trust, the Program and the employers would follow the accounting requirements for an agent multiple-employer plan. If the arrangement is not changed, the Division of State Group Insurance will be called on to help the employers meet the accounting requirements in one of two ways. In both cases, the Division would have to begin allocating the cost of retirees to each employer. 1. The Division could produce a separate actuarial valuation and provide separate accounting information for each employer. I-3

51 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS 2. The Division could provide demographic and financial data to each employer that would permit each employer to complete its own actuarial valuation and develop its own accounting information. This report includes an allocation of liabilities and costs to each participating employer. Separate accounting information is provided for each employer. The State will have to weigh the advantages of continuing the current arrangement against the advantages of establishing a formal trust. Determining the Cost of OPEB Substantive Plan The OPEB costs are based on the terms of the plan as understood by the employer and the plan members. For the State Employees Health Insurance Program, the terms of the plan, including retiree contributions, seem to be well documented in statute and communications to employees and retirees. If Florida decides to make changes to the retiree benefits, they would be reflected in the OPEB costs when they have been communicated to employees and retirees. Retirees under Age 65 Implicit Rate Subsidy The State Employees Health Insurance Program requires retirees to pay a premium for the healthcare benefits. The premium is a legislated amount of no more than the total premium cost of benefits for active employees. Because healthcare costs increase with age and the retired population is older than the active population, retirees under age 65 are not paying the full cost of their benefits. The difference between the average cost and the retiree cost has been referred to as the implicit rate subsidy. The OPEB liability and cost for the State Employees Health Insurance Program will account for this agerelated cost of benefits provided to retirees as required in paragraph 34.a.(2) of Statement 43 and paragraph 13.a.(2) of Statement 45. Commencing January 1, 2012 four of the Program s HMOs are self-insured, and two are experience-rated fully-insured. The PPO option is also self-insured for all enrollees. Since retirees under age 65 pay a legislated amount no more than the total active premium, an implicit rate subsidy exists for retirees regardless of option election. Retirees over Age 65 The State Employees Health Insurance Program has separate premium rates for retirees over age 65 because they are eligible for Medicare. Retirees over age 65 who participate in the PPO and the self-insured HMO pay less than the full cost of the I-4

52 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS coverage, so there is an OPEB liability and cost for them. Retirees over age 65 who participate in a fully-insured HMO pay the full premium cost, so there is no OPEB liability or cost for them, assuming the negotiated premium is actuarially sufficient to pay all benefits. The majority of retirees over age 65 who participate in an HMO participate in the two fully-insured options. We assumed that the retiree contributions for retirees who participate in the fully-insured options will equal the expected cost. Investment Return Assumption The investment return assumption is one of the key assumptions the actuary uses to determine the actuarial liability and the ARC. Higher investment returns decrease the actuarial liability and ARC because the income on invested assets pays more of the future benefits. The investment return assumption is the estimated long-term yield on the investments that are expected to be used to finance the benefits. If the plan is administered through a formal trust and the employer contributes the ARC, the investment return assumption can be an expected long-term investment return. If the plan has no assets, the investment return assumption is the expected return on assets of the employer. If the plan is partially funded through a formal trust, the investment return assumption is a combination of the two. If Florida contributed the ARC to a formal trust and the assets invested were similar to the Retirement System assets, the Retirement System investment return assumption of 7.75% might be appropriate. The accumulation of assets would allow the Program to make long-term investments. It may be difficult to invest in assets similar to the Retirement System assets for several years because the asset base would be much smaller and the cash flow requirements will be relatively much larger. If the retiree healthcare fund becomes part of a pooled arrangement with the Retirement System (i.e., a formal trust with separate asset accounting), the 7.75% investment return assumption may be appropriate. Because the Program has no invested assets, an investment return assumption of 3.50% to 4.50% might be appropriate. For this valuation we used 4.00%. Excise Tax for High Cost Health Plans An excise tax for high cost health coverage, sometimes referred to as the Cadillac tax, was included in the Patient Protection and Affordable Care Act (ACA) passed into law in March The provision levies a 40% tax on the value of health plan costs that exceed certain thresholds for single coverage or family coverage. The 2018 annual thresholds are $10,200 for single coverage and $27,500 for a family plan. If, between I-5

53 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS 2010 and 2018, the cost of health care insurance rises more than 55%, the threshold for the excise tax will be adjusted. GASB Statement No. 45 indicates that the projection of benefits should include all benefits to be provided to retirees in accordance with the current substantive plan. The substantive plan refers to the plan terms as understood by the employer and plan members at the time of the valuation. For this reason, we believe that the current provisions of ACA should be reflected in the projection of benefits and therefore, we do include the value of the excise tax in this valuation. We assume that there will be no changes to the current law and that there will be no changes in plan design to help mitigate the impact of the tax. Healthcare Trend Assumption The healthcare trend assumption is another key assumption the actuary uses to determine the actuarial liability and the ARC. The actuarial valuation estimates healthcare costs into the future until the youngest employee retires and dies. This covers a period of 75 years or more. The healthcare trend rate includes the change in healthcare costs from factors such as medical cost increases, changes in utilization of healthcare services, and technological advances. Estimating costs that far into the future is highly uncertain and healthcare cost increases have varied widely. In setting this assumption an actuary will look at recent trends and short-term cost estimates. The actuary will set a long-term trend rate that considers the portion of the economy that can reasonably be expected to relate to healthcare. The short-term trends will then be graded into a long-term trend that takes into account these factors. For this valuation, we have used short-term trends consistent with the trends that the Division of State Group Insurance uses for budgeting. In developing the long-term healthcare trends we used rates that were consistent with information from the Getzen Trend Model, Milliman s Health Cost Guidelines, and actuarial judgment. The trend rates do not include the effects of changes in demographics of the covered population. We developed the trend rates for the first five years using the claims and administrative cost information from the August 8, 2013 Report on the Financial Outlook of the Plan. After the initial five years, the trend assumptions differ for pre-medicare and post- Medicare due to the different timing at which the potential excise tax may impact the benefits of the plan. The table below shows the healthcare trend rates for the first six years. The trend rates grade down from the sixth year trend to an ultimate rate of 5.00% over the course of 70 years. A complete summary of trend rates for all years is included in Section V. I-6

54 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS PPO Blended HMO Pre-Medicare Post-Medicare Pre-Medicare Post-Medicare FY13 to FY14 7.4% 7.4% 3.9% 3.9% FY14 to FY15 7.0% 7.0% 7.8% 7.8% FY15 to FY16 8.2% 8.2% 8.3% 8.3% FY16 to FY17 7.6% 7.6% 8.2% 8.2% FY17 to FY18 7.7% 7.7% 8.1% 8.1% FY18 to FY19 6.2% 6.2% 6.3% 6.1% Other Actuarial Assumptions Other important actuarial assumptions include mortality rates, retirement rates, turnover rates, and rates at which retirees elect coverage for themselves and their spouses. We have used the actuarial assumptions used for the actuarial valuation of the Florida Retirement System wherever possible. They were developed as part of a detailed study of recent demographic experience of members of the System. We have based other actuarial assumptions on discussions with the Division of State Group Insurance and recent experience. Actuarial Cost Methods An actuarial valuation takes the current population of covered members, uses the actuarial assumptions to estimate future benefit payments, and uses the investment return assumption to discount the benefit payments to the valuation date. The actuarial cost method then allocates the value of the benefits among past and future years. GASB allows several actuarial cost methods. They differ in how they allocate costs among past and future years. For this valuation we used the entry age actuarial cost method, the same as is used for the valuation of the Florida Retirement System. This method allocates the value of a member s benefit as a level percentage of pay between entry age and retirement age. Allocating costs as a level percentage of pay, even though the benefits are not pay-related, helps with budgeting for these employee benefit costs as a percentage of payroll. Actuarial Liability and Annual Required Contribution The actuarial liability is the value of benefits allocated to years prior to the valuation date. For an active member, it is the value of benefits allocated from entry age to the valuation date. For a retired member, it is the total value of benefits. I-7

55 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS The following table summarizes the actuarial accrued liabilities under the two investment return assumptions. July 1, 2013 Actuarial Liability for Retiree Healthcare (Dollars in Millions) 4.00% Investment Return 7.75% Investment Return Total Healthcare Benefits $ 15,490 $ 8,288 Retiree Contributions 8,003 4,513 Net Healthcare Benefits $ 7,487 $ 3,775 +1% Trend on Net Amount $ 9,435 $ 4,494 1% Trend on Net Amount $ 6,041 $ 3,212 The ARC is calculated as the value of benefits allocated to the coming year, called the normal cost, plus a payment toward the amortization of the unfunded actuarial liability. We have calculated the amortization payment as the level percentage of pay that will amortize the actuarial liability over 30 years, the longest period that GASB allows. The following table summarizes the ARC for Fiscal Year under the two investment return assumptions. FY Annual Required Contribution for Retiree Healthcare (Dollars in Millions) 4.00% Investment Return 7.75% Investment Return Net Healthcare Benefits $ 542 $ % Trend $ 724 $ 283 1% Trend $ 413 $ 185 See Section III for development of the results shown above. Employer Contributions and Net OPEB Obligation If an employer s contributions to a plan are less than the ARC (or less than the contractually required contribution in the case of a cost-sharing multiple-employer plan administered through a formal trust), the employer has a liability for an OPEB obligation on the financial statement. The Net OPEB obligation is the difference between the ARC and the employer contributions on a cumulative basis. I-8

56 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS Paragraph 13.g. of GASB 45 defines employer contributions as payments made directly to, or on behalf of, retirees or beneficiaries, premium payments to insurers, and contributions to a formal trust. For Florida, the employer contributions will include the value of the implicit subsidy. Thus, it will be important to keep track of experience for retirees under age 65 separately from employees so that both the implicit subsidy and contributions made to pay the implicit subsidy can be tracked appropriately. For the PPO and self-insured HMO options, the Division of State Group Insurance maintains separate experience records for actives and retirees. For the fully-insured HMO options, the HMOs may not have the information available, so it may be necessary to allocate a portion of the active premium to the retiree subsidy. Effective Date The effective date for GASB 45 was July 1, The initial financial reporting was done as of June 30, Key Decisions to Consider If Florida wants to make changes to the State Employees Group Insurance Program, the governing statutes will have to be amended. The first two issues listed below relate to establishing a formal trust and funding the benefits. We completed a more detailed analysis of these issues in a paper titled Establishing a Formal Trust for Retiree Health Benefits dated November 17, Refer to that paper for more information on these issues. Does Florida want to establish a formal trust for retiree healthcare benefits? Advantages If Florida provides advance funding, having a trust will reduce measured OPEB liabilities and costs. It simplifies employer accounting because the actuarial valuation and disclosure requirement would be provided by the Program. The Program would be able to set the contractual amount for the employers at less than the actuarially determined amount, allowing the employers to step up to the full cost over time. If employers pay the ARC (or the contractual amount in a cost-sharing multipleemployer plan), employers will have no net OPEB obligation. I-9

57 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS Disadvantages It requires a formal trust arrangement with legal documentation. It requires the Program to issue plan-level financial accounting, actuarial cost, and disclosure information. Once an amount is deposited in the trust, it cannot be returned to the employer. Members may view the benefit more as a right, making it difficult to change benefits or discontinue the trust. Does Florida want to provide advance funding for retiree healthcare benefits? Advantages: Advance funding will reduce OPEB liabilities if the Program is administered through a formal trust. Investment income will pay a portion of future benefits. The formal trust provides members with benefit security. It helps pay for retiree costs during the period the member is working. It helps align the accounting costs with the financing costs. Disadvantages It costs more money now. Members may view the benefit more as a right, making it more difficult to make plan design changes. Does Florida want to reduce or eliminate the implicit subsidy by changing the way retiree contributions are determined? Advantages It would reduce or eliminate the OPEB costs and liabilities. Disadvantages It would be necessary to amend Florida statutes to allow the higher contribution for retirees. It may not be possible to make the change for current retirees or members close to retirement. It would be viewed negatively by the members. It may be difficult to explain to members why retiree costs are higher than active costs for the same benefits. I-10

58 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS Does Florida want to reduce the OPEB cost by adding retiree options or changing retiree plan features? Advantages It would reduce the OPEB liabilities and costs. Disadvantages It may be necessary to amend Florida statutes to provide different benefits to retirees. It would require separate plan design and administration for retirees. It may not be possible to make the change for current retirees or members close to retirement. It would be viewed negatively by the members. Does Florida want to provide active employees a way to save towards the cost of retiree medical coverage? Advantages It would make it easier for future retirees to pay higher retiree contributions. Retiree premium contributions paid from the accounts would not be taxable. Disadvantages Accounts would require additional administration, investment decisions, and communication. Employees may not have enough disposable income to make contributions to an account. Would it be advantageous for Florida to finance benefits for Medicare-eligible members through a group Medicare product, commonly known as an Employer Group Waiver Insurance Program (EGWP)? EGWPS may be offered as a Medicare-qualified Prescription Drug Plan (PDP), a Medicare Advantage only plan (medical only) or a Medicare Advantage Prescription Drug Plan (MAPD). Advantages In some circumstances, an EGWP can reduce net costs to the Program. The value of the Medicare Part D subsidy will be reflected in an immediately lower claim cost and will reduce the GASB 45 liabilities and ARC determinations. Florida has enough Medicare-eligible members in the self-funded programs so that a PDP or MAPD carrier would be willing to offer the current benefit design and members would see virtually no difference in benefits if an EGWP were offered. The two existing fully insured HMOs already offer EGWPs to Florida. I-11

59 I. SUMMARY OF OPEB ACCOUNTING REQUIREMENTS The EGWP could continue to be a voluntary election by the member similar to the current Medicare offerings. An MAPD can be established using a PPO product to minimize potential network disruption to those retirees currently in the PPO. Disadvantages If the EGWP replaces the corresponding benefits in the current PPO; members may perceive that they are being forced into a new program. There is some ongoing uncertainty regarding the future of the overall Medicare Advantage program. As such, some employers have been hesitant to adopt an EGWP solution for their Medicare eligible retirees. I-12

60 II. SUMMARY OF RESULTS A. Demographic Data We received coverage election data from the Division of State Group Insurance as of July, We compared it to the data we received for the prior valuation as of July 1, 2011, and found that it is reasonably consistent. Enrollment declined between July 1, 2011 and July 1, We have taken into account the change in enrollment in this valuation. The following table summarizes the data we used in our valuation. Data Used for Retiree Healthcare Valuation July 1, 2011 July 1, 2013 Active Subscribers 1 139, ,705 Retired and Inactive Subscribers 36,215 36,485 Total Subscribers 176, ,190 No Coverage Actives 1 19,584 15,264 Total Eligible Members 195, ,454 B. Medical Cost and Enrollment Data For the PPO option we used healthcare cost data for fiscal years ending 2012 and 2013 from the Division of State Group Insurance. For the self-insured HMO options we used healthcare cost data for the fiscal year ending For both the self-insured HMO and the PPO options the claims cost data was increased by the fiscal year ending 2014 anticipated administrative expenses, as noted in Exhibit II of the Report on the Financial Outlook. For the fully-insured HMO options we used the Calendar Year (CY) 2013 premium rates contained in the Report on the Financial Outlook, adjusted by the anticipated CY 2014 medical loss ratio. Fiscal Year Fiscal Year Medical PPO $600,188,000 $596,292,000 Pharmacy PPO (gross of rebates) 259,374, ,344,000 TPA and PBM administration costs 2 19,098,000 19,098,000 PPO Total $878,660,000 $874,734,000 Medical Self-Insured HMO $509,197,000 Pharmacy HMO (gross of rebates) 157,428,000 TPA and PBM administration costs 2 32,445,000 Self-Insured HMO Total $699,070,000 1 Members in DROP are included in Active counts. 2 Administrative costs are reflective of the fiscal year ending II-1

61 II. SUMMARY OF RESULTS We developed age-related costs using the Milliman Health Cost Guidelines to take into account the relatively larger medical costs incurred by members as they age. In the above table, we show a summary of the healthcare cost data on a paid basis used to develop the age-related costs used in the valuation. The costs shown above exclude COBRA members because they are not included in this valuation. We received summary enrollment data as of July 2013 from the Division of State Group Insurance. The 2013 column of the following table shows average enrollment during fiscal year for the PPO and self-insured HMO plans, but snapshot enrollment as of July 1, 2013 for subscribers in the fully-insured HMO plans. Enrollment July 1, 2011 July 1, 2013 PPO 90,878 86,670 HMO Self-Insured N/A 52,342 Fully-Insured 85,160 31,410 Grand Total 176, ,422 C. Benefits and Retiree Contributions We received the Summary of Plan Description Material Modification effective January 1, It includes comprehensive descriptions of the PPO benefits. We also received a Benefit Summary for the HMO Health Plan effective January 1, The Division confirmed that the benefits have not changed materially since then. We received information on the retiree-paid portion of the premium separately for non- Medicare retirees (single and family), Medicare retirees (single and family), and combined non-medicare and Medicare (family). Medicare retirees who elect fullyinsured HMO coverage pay the entire HMO premium, so there is no State cost for them, assuming the negotiated premium is actuarially sufficient to pay all the benefits. D. Actuarial Methods and Assumptions We used the same demographic assumptions that we use for the GASB 25 and 27 reporting of the Florida Retirement System. We used medical trend rates consistent with the August 8, 2013 Report on the Financial Outlook of the Plan. After the initial five years, the trend assumptions differ for pre-medicare and post-medicare due to the different timing at which the potential excise tax may impact the benefits of the plan. We II-3

62 II. SUMMARY OF RESULTS have assumed no future changes in plan provisions in order to mitigate the impact of the potential excise tax. The GASB statements require the use of an investment return assumption that is the estimated long-term investment yield on the investments that are expected to be used to finance the payment of benefits. For this purpose, the investments are (1) plan assets for plans where the employer s funding policy is to contribute the Annual Required Contribution (ARC), (2) assets of the employer for plans with no assets, or (3) a combination of (1) and (2) for plans that are partially funded. Consistent with prior valuations and per the request of the Division of State Group Insurance, we have used an investment return assumption of 7.75%, the assumed rate of return on Retirement System assets, for full funding of the ARC and 4.00% for no assets. Since the plan is not pre-funded, the 7.75% results are for illustrative and comparative purposes only. E. Liabilities and Costs We have developed two sets of liabilities and costs using the two assumed rates of investment return. For each rate of investment return, we have tested the sensitivity of the results to a 1% change in the assumed medical trend rate. The 1% change in trend rate applies to the starting rate, the ultimate rate and the rates applicable to each year during which the starting rate is graded down to the ultimate rate. We determined the total liabilities for medical benefits provided by the plan as of July 1, We then subtracted the value of retiree contributions that will be used to pay a portion of the cost to determine the net liabilities and costs of the plan. The following table summarizes the actuarial accrued liabilities under the two investment return assumptions. July 1, 2013 Actuarial Liability for Retiree Healthcare (Dollars in Millions) 4.00% Investment Return 7.75% Investment Return Total Healthcare Benefits $ 15,490 $ 8,288 Retiree Contributions 8,003 4,513 Net Healthcare Benefits $ 7,487 $ 3,775 +1% Trend on Net Amount $ 9,435 $ 4,494 1% Trend on Net Amount $ 6,041 $ 3,212 The ARC is equal to the normal cost plus the amortization of any unfunded actuarial liability. The normal cost represents the ongoing annual cost of the benefits II-3

63 II. SUMMARY OF RESULTS being earned by active employees. The unfunded actuarial liability equals the total actuarial liability minus any assets to fund the benefits. The following table summarizes the ARC for Fiscal Year under the two investment return assumptions. FY Annual Required Contribution for Retiree Healthcare (Dollars in Millions) 4.00% Investment Return 7.75% Investment Return Net Healthcare Benefits $ 542 $ % Trend $ 724 $ 283 1% Trend $ 413 $ 185 II-4

64 III. LIABILITIES AND COSTS On the following pages we show the development of the actuarial liability and ARC for the fiscal year beginning July 1, We show the development using investment return assumptions of 4.00% (unfunded plan) and 7.75% (funded plan). We have also estimated the Net OPEB Cost and Net OPEB Obligation as of June 30, 2014, and June 30, The following table shows the total liabilities for medical benefits provided by the plan. These liabilities are funded by payments from employers and retirees. We subtracted the value of retiree contributions that will be used to pay a portion of the cost to determine net employer liabilities and costs of the plan. We have compared the results of this valuation as of July 1, 2013 with the results of the prior valuation as of July 1, The July 1, 2011 valuation is the most recent prior valuation that included detailed demographic and claims data and detailed actuarial calculations. The July 1, 2012 update produced estimated results based on the July 1, 2011 valuation with approximate adjustments for subsequent changes. Neither the July 1, 2011 valuation nor the July 1, 2012 update included expectation of the impact of the potential excise tax. In addition to the payments from employers and retirees, the Division of State Group Insurance receives annually a payment representing the Medicare Part D prescription drug subsidy. According to proposed GASB Technical Bulletin No a, the OPEB liabilities and costs are determined without reduction for Medicare Part D subsidy payments. Similarly, our calculations are exclusive of the Early Retiree Reinsurance Program payments provided by the Affordable Care Act. We calculated the ARC as the normal cost plus 30-year amortization of the actuarial liability, using an open 30-year period. We determined the amortization as a level percentage of pay, using 4% assumed payroll growth, consistent with the Florida Retirement System. We have provided summary results for each of the participating entities using the 4.00% investment return assumption. These are the results each entity should use because the Program is a cost-sharing multiple employer plan without a formal trust. We have developed an analysis of the change in the actuarial liability from our prior valuation as of July 1, We have determined the actuarial gains and losses from changes in the covered members and changes in healthcare costs. We have also determined the change in actuarial liability from changes in retiree contributions and the changes in assumptions. III-1

65 III. LIABILITIES AND COSTS A. Healthcare Liabilities and Costs Valuation as of July 1, % Investment Return Participant Counts Valuation as of July 1, % Investment Return (Dollars in Millions) 7.75% Investment Return Number of employees 159, , ,924 Number of employees in DROP N/A 3 7,469 7,469 Number of retirees & Beneficiaries 36,215 36,420 36,420 Number of spouses of retirees 8,920 10,171 10,171 Total participants 204, , ,984 Actuarial Liability Actuarial Liability Employees & DROP $ 6,556 $ 8,748 $ 3,976 Retirees & Dependents Pre-Medicare Post-Medicare 5,706 6,185 3,830 Total 12,774 15,490 8,288 Actuarial Liability Paid by Retiree Contributions Employees & DROP 3,417 4,511 2,186 Retirees & Dependents Pre-Medicare Post-Medicare 2,603 3,122 2,008 Total 6,358 8,003 4,513 Actuarial Liability Paid by Employer Contributions Employees & DROP 3,139 4,237 1,790 Retirees & Dependents Pre-Medicare Post-Medicare 3,103 3,063 1,822 Total 6,416 7,487 3,775 Employer Actuarial Liability Sensitivity Increase trend 1% $ 7,919 $ 9,435 $ 4,494 Decrease trend 1% 5,279 6,041 3,212 3 Members in DROP included with Active count in III-2

66 III. LIABILITIES AND COSTS Valuation as of July 1, % Investment Return Valuation as of July 1, % Investment Return Annual Required Contribution (ARC) (Dollars in Millions) 7.75% Investment Return Employer Normal Cost $ 224 $ 271 $ 85 Amortization of Actuarial Liability Interest ARC for Fiscal Year End $ 456 $ 542 $ 227 ARC Sensitivity $ Increase trend 1% $ 595 $ $ Decrease trend 1% $ 356 $ III-3

67 III. LIABILITIES AND COSTS We have estimated the actuarial liability, ARC, and net OPEB obligation for the next year as shown in the following table. Florida had a net OPEB obligation arising from the fact that employer contributions for retiree healthcare benefits have been less than the ARC. Subsequent annual OPEB costs are equal to the ARC, plus an adjustment to the ARC to take into account the net OPEB obligation. These are estimates of the valuation results if the state continues to use pay-as-you-go financing of the benefits. We derived the Net OPEB Obligation as of June 30, 2013, consistent with the figures reported in the June 30, 2012, Florida Comprehensive Annual Financial Report (CAFR) of the State Agency and State Board of Administration. Forecast Valuation Results (Dollars in Millions) July 1, 2013 Net OPEB Obligation as of June 30, 2013 $ 1, % Investment Return Total ARC as of June 30, Interest on June 30, 2013 Net OPEB Obligation 52 Adjustment to the ARC (45) Net OPEB Cost as of June 30, Estimated net retiree healthcare payments (119) Interest on healthcare payments (2) Increase Net OPEB Obligation 428 Estimated Net OPEB Obligation as of June 30, 2014 $ 1,738 July 1, 2014 Actuarial Liability to be Paid by Employer Contributions $ 7,948 Employer Normal Cost 282 Amortization of Actuarial Liability 265 Interest 22 Total ARC as of June 30, Interest on June 30, 2014 Net OPEB Obligation 69 Adjustment to the ARC (60) Net OPEB Cost as of June 30, Estimated net retiree healthcare payments (128) Interest on healthcare payments (3) Increase Net OPEB Obligation 447 Estimated Net OPEB Obligation as of June 30, 2015 $ 2,185 III-4

68 III. LIABILITIES AND COSTS The net OPEB cost is the accounting charge under GASB 45 for the retiree medical benefits. For comparison, the estimated pay-as-you-go cost for these benefits is shown in the following table. Forecast Pay-as-You-Go Costs (Dollars in Millions) FY FY FY Medical costs and expenses $320 $338 $366 Retiree contributions Net employer costs $119 $128 $140 We show below the forecast net pay-as-you-go costs (after subtracting retiree contributions) for each entity participating in the Program. Forecast Net Pay-as-You-Go Costs by Agency (Dollars in Thousands) FY FY FY State Agency $ 97,645 $ 104,260 $ 113,611 State Board of Administration Florida Board of Examiners West Coast Inland Navigation District Florida Inland Navigation District Miami-Dade Expressway Authority South Florida Regional Transportation Authority Orlando Orange County Expressway Authority Volunteer Florida University of Florida Gainesville 7,531 8,580 9,728 Florida State University Tallahassee 4,102 4,284 4,646 Florida Agricultural and Mechanical Univ. Tallahassee 1,129 1,229 1,368 University of Central Florida Orlando 1,383 1,635 1,912 University of South Florida Tampa 2,994 3,429 3,910 New College of Florida Sarasota Florida Atlantic University Boca Raton 1,118 1,310 1,498 University of West Florida Pensacola Florida International University Miami 1,140 1,371 1,618 University of North Florida Jacksonville Florida Gulf Coast University Fort Myers Florida Polytech University Total $ 118,652 $ 127,948 $ 140,402 III-5

69 III. LIABILITIES AND COSTS We show below the Net OPEB Obligation as of June 30, 2013, for each entity participating in the Program. Net OPEB Obligation as of June 30, 2013 (Dollars in Thousands) NOO State Agency $ 938,113 State Board of Administration 385 Florida Board of Examiners 112 West Coast Inland Navigation District 26 Florida Inland Navigation District 2 Miami-Dade Expressway Authority 197 South Florida Regional Transportation Authority 412 Orlando Orange County Expressway Authority 81 Volunteer Florida - University of Florida Gainesville 139,775 Florida State University Tallahassee 30,013 Florida Agricultural and Mechanical Univ. Tallahassee 9,747 University of Central Florida Orlando 35,492 University of South Florida Tampa 56,528 New College of Florida Sarasota 2,155 Florida Atlantic University Boca Raton 29,486 University of West Florida Pensacola 9,844 Florida International University Miami 26,197 University of North Florida Jacksonville 18,950 Florida Gulf Coast University Fort Myers 12,650 Florida Polytech University - Total $ 1,310,165 B. Results by Agency We have developed separate results as of July 1, 2013, and July 1, 2014, for the entities participating in the Program. These results are based on the 4.00% investment return. We assume the future and past contributions made by the Program are equal to the projected Pay-As-You-Go Cost from the applicable valuations. III-6

70 III. LIABILITIES AND COSTS Net Actuarial Liability (AL) Employer Normal Cost Valuation as of July 1, 2013 (Dollars in Thousands) Amortization of AL Total ARC as of June 30, 2014 Interest on FY12 Net OPEB Obligation Net OPEB Cost as of June 30, 2014 Estimated Net OPEB Obligation as of June 30, 2014 Adjustment Interest to the ARC State Agency $5,764,350 $191,126 $192,145 $15,331 $398,602 $37,525 $(32,521) $403,606 $1,242,140 State Board of Administration 7, (13) Florida Board of Examiners 1, (4) West Coast Inland Navigation District (1) - 26 Florida Inland Navigation District Miami-Dade Expressway Authority (7) South Florida Regional Trans. 1, (14) Orlando Orange Co. Expressway Auth (3) Volunteer Florida University of Florida Gainesville 663,395 23,897 22,113 1,840 47,850 5,591 (4,846) 48, ,690 Florida State University Tallahassee 233,811 9,791 7, ,288 1,201 (1,040) 18,449 44,279 Florida Ag. and Mech. Univ. 67,115 2,773 2, , (338) 5,262 13,858 University of Central Florida Orlando 141,984 8,637 4, ,905 1,420 (1,230) 14,095 48,177 University of South Florida Tampa 247,391 12,338 8, ,407 2,261 (1,960) 21,708 75,183 New College of Florida Sarasota 7, (75) 696 2,780 Florida Atlantic University Boca Raton 105,330 5,229 3, ,090 1,179 (1,022) 9,247 37,593 University of West Florida Pensacola 36,847 2,552 1, , (341) 3,984 13,179 Florida International University Miami 120,121 7,702 4, ,174 1,048 (908) 12,314 37,348 University of North Florida Jacksonville 59,373 3,580 1, , (657) 5,882 24,193 Florida Gulf Coast University Fort 28,949 2, , (439) 3,779 16,310 Florida Polytech University Total $7,487,707 $271,181 $249,590 $20,829 $541,600 $52,406 $(45,419) $548,587 $1,737,753 III-7 may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

71 III. LIABILITIES AND COSTS Employer Normal Cost Forecast as of July 1, 2014 (Dollars in Thousands) Amortization of AL Total ARC as of June 30, 2015 Interest on FY13 Net OPEB Obligation Net OPEB Cost as of June 30, 2015 Estimated Net OPEB Obligation as of June 30, 2015 Net Actuarial Liability (AL) Interest Adjustment to the ARC State Agency $6,094,116 $198,771 $203,137 $16,076 $417,984 $49,686 $(43,061) $424,609 $1,560,424 State Board of Administration 7, (24) Florida Board of Examiners 1, (7) West Coast Inland Navigation District (1) - 26 Florida Inland Navigation District (1) Miami-Dade Expressway Authority (9) South Florida Regional Trans. Authority 1, (21) Orlando Orange Co. Expressway Auth (5) Volunteer Florida (2) University of Florida Gainesville 707,104 24,853 23,570 1,937 50,360 7,228 (6,264) 51, ,264 Florida State University Tallahassee 249,163 10,183 8, ,228 1,771 (1,535) 19,464 59,374 Florida Ag. and Mech. Univ. Tallahassee 71,532 2,884 2, , (480) 5,553 18,158 University of Central Florida Orlando 155,235 8,982 5, ,723 1,927 (1,670) 14,980 61,490 University of South Florida Tampa 267,065 12,832 8, ,603 3,007 (2,606) 23,004 94,690 New College of Florida Sarasota 7, (96) 741 3,434 Florida Atlantic University Boca Raton 113,841 5,438 3, ,602 1,504 (1,303) 9,803 46,060 University of West Florida Pensacola 40,326 2,654 1, , (457) 4,228 16,690 Florida International University Miami 131,773 8,010 4, ,898 1,494 (1,295) 13,097 49,047 University of North Florida Jacksonville 64,832 3,723 2, , (839) 6,248 29,696 Florida Gulf Coast University Fort Myers 32,696 2,708 1, , (565) 4,037 20,186 Florida Polytech University (1) Total $7,948,241 $282,028 $264,942 $21,878 $568,848 $69,510 $(60,242) $578,116 $2,185,388 III-8 may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

72 III. LIABILITIES AND COSTS C. Change in Actuarial Liability We have analyzed the change in the actuarial liability from the July 1, 2011 valuation to the actuarial liability determined as of July 1, We have based our analysis of results using the investment rate of return for an unfunded plan, 4.00%. In our analysis, we followed these steps. 1. Calculate the actuarial liability we would have expected as of July 1, 2013, based on the results of our July 1, 2011, actuarial valuation. This calculation is based on the assumptions made in the July 1, 2011 actuarial valuation and does not take into account actual experience different from the assumptions that occurred after July 1, The differences between actual experience and the assumptions are recognized separately in the subsequent steps. 2. Determine the effect of the actual changes in demographic data, demographic assumptions, and the methodology change concerning DROP members. In the July 1, 2011, valuation of this plan, DROP members were valued the same as other active plan participants. For the July 1, 2013 valuation of this plan, we refined the calculations concerning DROP members, valuing deferred benefits for each participant as commencing concurrent with their exit from DROP. Since the July 1, 2011 valuation, the retirement rates and retirement eligibility criteria were updated to reflect the effect of (2011) Senate Bill 2100, which was enacted into law. The bill established new FRS retirement eligibility criteria for members initially enrolled on and after July 1, Additionally, the number of total participants we included in the valuation decreased by 3.2% from July 1, 2011, to July 1, Determine the effect of the change in healthcare costs before reflecting the post- 65 HMO costs. The PPO plan experienced healthcare cost increases that were less than what we had assumed would occur during the period July 1, 2011 to June 30, See Section V(A) for a discussion of the healthcare costs. The experience decreased the actuarial liability and normal cost. 4. Determine the effect of changes in the retiree contributions before reflecting the contributions made by HMO retirees over age 65 participating in the self-insured HMO. The increase to the retiree contribution rates between July 1, 2011 and June 30, 2013 was less than the increase we assumed in the July 1, 2011 valuation for that period, meaning a greater portion of total healthcare costs was paid by the state. Monthly retiree contribution rates are summarized on page VI-2 of this report. The experience increased the actuarial liability and normal cost. III-9

73 III. LIABILITIES AND COSTS 5. Determine the net effect of healthcare costs less retiree contributions for post-65 retirees electing the self-funded HMO. This shows the impact of four previously fully-insured HMO plans becoming self-insured effective January 1, In the prior valuation, no State cost was determined for HMO retirees after age 65 because such retirees paid the entire HMO premium and negotiated premiums were assumed to be actuarially sufficient to pay all the benefits. The July 1, 2013 valuation reflects that retirees over age 65 who participate in the self-insured HMO options now pay less than the full cost of the coverage, resulting in an implicit subsidy, and an OPEB liability for them. This plan change increased the actuarial liability and normal cost. 6. Determine the effect of the changes in trend assumptions. We changed the trend for the first five years to reflect the assumed trend in the August 8, 2013 Report on the Financial Outlook. The long-term trend rates are developed by the Getzen trend model. The Getzen trend model used for the July 1, 2013 valuation reflects the impact of the potential excise tax, which is significant for this plan. See Section V(B) for a discussion of these changes. These changes increased estimated costs of future retiree healthcare benefits, and increased the actuarial liability and normal cost. a. First we show the impact of changes in the trend model prior to inclusion of the potential excise tax. This component reflects changes in short term trend used in the Report on the Financial Outlook as well as changes to the Getzen model that reflect certain provider fees associated with Healthcare reform law. The impact of these changes is minimal, increasing the actuarial liability some and decreasing the normal cost slightly. b. Next we show the impact of changes in trend anticipated due to the projected effect of the excise tax. The self-insured HMO plan is expected to first be subject to the excise tax in 2019, and the PPO plan is expected to first be subject to the excise tax in We have assumed no future changes in plan provisions in order to avoid the potential excise tax. III-10

74 III. LIABILITIES AND COSTS (Dollars in Millions) Actuarial Liability Normal Cost Comment Actual amount 7/1/11 $6,416 $224 From 7/1/11 actuarial valuation 1) Expected amount 7/1/13 $7,161 $242 Calculated as if all actuarial assumptions a) Expected Change were exactly realized. Changes due to: 2) Demographic data, demographic assumptions and methodology 3) Healthcare costs exclusive of post-65 HMO costs 4) Retiree contributions exclusive of post-65 HMO 5) Inclusion of post-65 HMO implicit subsidy (254) (37) Due to the difference between actual Program membership and expected membership, and change in retirement assumptions and DROP methodology. (1,947) (54) Due to the difference between current healthcare costs, exclusive of post-65 HMO, and those expected from the actuarial assumptions Due to the difference between current contribution rates, exclusive of post-65 HMO, and the assumed rates. 1, Due to post-65 HMO implicit subsidy that now exists under the self-funded HMO 6) Trend Assumptions a) Change to model b) Impact of excise tax (2) 44 Total change $1,071 $47 Due to changes in trend assumptions Impact of excise tax on trend assumptions Actual amount 7/1/13 $7,487 $271 III-11

75 III. LIABILITIES AND COSTS D. Discussion of Results Demographic Data We received individual data about the medical coverage of members enrolled in the Employees Group Insurance Program in an Excel file named, Census Data for DSGI 2013 GASB 45 Valuation. We matched that data with the demographic data we received from the Division of Retirement ( Pension data ) for completion of the FRS defined benefit plan valuation to determine membership class and agency affiliation. Active Employees The active census data provided by DSGI did not include membership class. We matched the active members provided by DSGI with the Pension data to determine membership class. We treated members of the Employees Group Insurance Program for whom we did not find matching records in the Pension data as members of the Regular class and State agency. The active data provided by DSGI included members who are not enrolled in the Employees Group Insurance Program now, but will be eligible for the retiree health benefit at retirement. For each no coverage member, we randomly assigned him/her to either the PPO or HMO proportionate to the elections of the current active population. Volunteer Florida and Florida Polytech University joined the Employees Group Insurance Program effective March 1, 2012 and April 1, 2013, respectively. As such, this was the first valuation in which they were included. Retirees The retiree census data provided by DSGI did not include membership class or agency affiliation. We matched the retired members provided by DSGI with the FRS data to determine membership class and agency affiliation. We treated members of the Employees Group Insurance Program for whom we did not find matching records in the Pension data as members of the Regular class and State agency. The number of retirees and beneficiaries for whom membership class and agency affiliation was unknown increased from 3,426 in the 2011 valuation to 3,922 in this valuation. III-12

76 III. LIABILITIES AND COSTS Health Investor Health Plan Members Retirees can elect to participate in Health Investor Health Plans. These options provide benefits after a high deductible, but have a lower premium cost. There is low participation in these options. We combined the experience and enrollment of the Health Investor PPO Plan with the standard PPO plan to develop one overall PPO rate. Similarly, we combined the enrollment of the Health Investor HMO plans with the standard HMO plans. Closed FRS classes We used Regular class demographic assumptions for members in the closed FRS classes, TRS, SCOERS, and IFAS. DROP Members DROP members receive medical and dental benefits as active members, with benefits commencing at completion of the DROP period. As such, we have valued a deferred benefit for members in DROP using future election assumptions consistent with those used for all other actives. The census data identified DROP members separately and included the DROP end dates. The census data did not include membership class or agency affiliation. All DROP members were run as members of the Regular class and their costs were allocated to agency in proportion with active members not in DROP. Coverage Election at Retirement We estimated the percentage of members electing health coverage at retirement by looking at the number of retirements of eligible employees during the last two fiscal years and the number who enrolled in the retiree healthcare plan. Consistent with the prior valuation, we assumed 50% of eligible members will elect coverage at point of retirement. We assumed that active members in the PPO who elect coverage at retirement would elect PPO coverage. We assumed that active members in an HMO who elect coverage at retirement would elect HMO coverage. We assumed that active members who have no medical coverage as actives and elect coverage at retirement would elect PPO or HMO coverage in proportion with the active members who have coverage. HMO III-13

77 III. LIABILITIES AND COSTS elections into the self-insured or fully-insured options were assumed to be consistent with the elections of the current population. We estimated the percentage of members electing family coverage at point of retirement by looking at the percentage of retirees under age 65 with family coverage. These percentages were not substantially different from those noted in the July 1, 2011 valuation. Thus, we did not change the assumptions for percentage of members electing family coverage at retirement. We assumed 35% of PPO members, and 25% of HMO members will elect family coverage at point of retirement. Investment Plan Retirement Assumption We assumed that members of the Investment Plan (formerly the Public Employee Optional Retirement Program or, PEORP) retire at the same rates as other members in the same membership class. Demographic Assumptions The demographic assumptions are consistent with those used in the July 1, 2013 valuation of the Florida Retirement System (FRS). Since the July 1, 2011 valuation, the retirement rates and eligibility criteria were updated to reflect (2011) Senate Bill 2100, which was enacted into law. The bill established new FRS retirement eligibility criteria for members initially enrolled on and after July 1, Trend Assumptions Effective January 1, 2009, Milliman adopted the Getzen trend model for retiree healthcare valuations. Research for the Getzen model was sponsored by the Society of Actuaries and completed by Professor Thomas Getzen at Temple University. The model takes into account the percentage of Gross Domestic Product represented by healthcare and recognizes the limits on the growth of healthcare as a percentage of GDP. The result is a long-term trend assumption that starts at current healthcare trend rates and grades down over 70 years. Medical costs have historically grown faster than the rest of the economy. They have grown from 4% of GDP in 1950 to over 16% of GDP today. Although healthcare trend has consistently been higher than either inflation or GDP growth, it cannot continue to exceed inflation adjusted GDP growth forever. However, there is little evidence to suggest that we are at or very near that limit. The Getzen model considers long-term healthcare trends in the framework of what US citizens will accept for healthcare as a III-14

78 III. LIABILITIES AND COSTS percentage of total GDP output/consumption. These assumptions, then, limit the range of long-term trend assumptions. The medical trends developed by the Getzen model are aggregate trends that include both medical and pharmacy costs. In recent years the trend has been similar for the two and in the long term the trend will likely be similar for both medical and pharmacy. Whether they are similar or not, the theory of the Getzen model is to consider the combined medical and pharmacy expenses as a percent of total domestic spending. We used trends for the first five years consistent with the trends used in the August 8, 2013 Report on the Financial Outlook of the State Employees Group Health Self- Insurance Fund. For subsequent years, we used trends from the Getzen model. The change in trend assumptions increased estimated actuarial liabilities and costs, primarily due to the impact of the potential excise tax. III-15

79 IV. GASB DISCLOSURE INFORMATION A. Schedule of Funding Progress Schedule of Funding Progress (Dollars in Thousands) Actuarial Valuation Date Actuarial Value of Assets Net Actuarial Liability (AL) Unfunded Net Actuarial Liability (UAL) Funded Ratio July 1, 2007 $0 $3,081,834 $3,081,834 0% July 1, 2009 $0 $4,831,107 $4,831,107 0% July 1, 2011 $0 $6,415,754 $6,415,754 0% July 1, 2013 $0 $7,487,708 $7,487,708 0% B. Schedule of Employer Contributions Interest on Previous Year s Net OPEB Obligation Schedule of Employer Contributions (Dollars in Thousands) Contribution as a Percentage of Net OPEB Cost Fiscal Year Annual Required Contribution Adjustment to ARC Net OPEB Cost Actual Contribution* Net OPEB Obligation $200,973 $0 $0 $200,973 $87, % $113, $186,020 $4,529 $(3,905) $186,644 $101, % $198, $336,419 $7,938 $(6,616) $337,741 $103, % $432, $313,415 $17,292 $(14,412) $316,295 $103, % $645, $455,584 $25,823 $(22,382) $459,025 $123, % $981, $452,658 $39,249 $(34,017) $457,890 $128, % $1,310, $541,600 $52,406 $(45,419) $548,587 $120, % $1,737,753 *Assumes that contributions made were the same as the Pay-As-You-Go Costs projected in previous forecasts. One-half year of interest is included in the contribution. IV-1 may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

80 IV. GASB DISCLOSURE INFORMATION C. Supplemental Information The complete descriptions of the actuarial methods and assumptions are provided in Section VIII of this report. Valuation Date: July 1, 2013 Actuarial Cost Method: Entry Age Normal Amortization Method: Level percentage of projected payroll Amortization Period 30 years, open Asset Valuation Method: NA Actuarial Assumptions: Investment Rate of Return: 4.00% Health Cost Trend Assumption: Short term trends based on DSGI forecast, long term trends based on the Getzen trend model. See Section V. Includes Inflation of: 3.00% Payroll Growth: 4.00% IV-2

81 V. DEVELOPMENT OF CLAIMS COSTS A. Age-Related Claim Costs Using the same premium rate for active employees and retirees under age 65 is a common practice. Medical costs generally increase with age, so the result is the premium rate for actives is higher than their true underlying cost and the premium rate for retirees is lower than their true underlying cost. The GASB statements address this practice by requiring the plan sponsor to determine the liabilities and costs for retiree benefits after reflecting the effect of any implicit rate subsidies. The net cost of the plan is equal to the true underlying cost minus the premium cost paid by the retiree. We used the Program s experience, as contained in the Report on the Financial Outlook adopted August 8, 2013, and the latest Milliman Health Cost Guidelines to estimate the true underlying costs of each medical option, and used these estimated costs to calculate the GASB liabilities and costs. We describe below the procedure we used to develop the age-related underlying costs. 1. Claims Experience a. PPO: We used PPO experience for fiscal years and to produce expected experience for fiscal year We trended the claim amounts from the PPO experience to fiscal year using trends consistent with those shown in Section V(B). below. We weighted the fiscal year experience by 75%, and the fiscal year experience by 25%. The calculation was done separately for the Medicare-eligible members and non-medicare eligible members. b. HMO: For the fully-insured HMO option, we used HMO premium rates for calendar year 2013 to produce expected total liability for fiscal year We trended these amounts from the HMO experience period to fiscal year using trends consistent with those shown in Section V(B). below. c. HMO: For the self-insured HMO option, we used the HMO self-insured experience for fiscal year to produce expected experience for fiscal year We trended the claim amounts from the HMO selfinsured experience to fiscal year using trends consistent with those shown in Section V(B). The calculation was done separately for the Medicare-eligible members and non-medicare eligible members. 2. Administrative Expenses a. PPO: Based on information contained within Exhibit II of the Report on the Financial Outlook we estimated the PPO administrative expenses for fiscal year using a contractual rate of $18.20 per contract per month. We added $200,000 of pharmacy administrative expenses each year V-1

82 V. DEVELOPMENT OF CLAIMS COSTS based on the estimate noted within Exhibit II of the Report on the Financial Outlook. b. HMO: The self-insured HMO administrative expenses were calculated in a similar manner to that used for the PPO. For the fully-insured HMO it was not necessary to separate the administrative expenses from the claim amounts in order to obtain the total liability to the plan. 3. Enrollment a. PPO: We used current PPO enrollment information to develop the number of members covered by single and family contracts and the gender distribution in each quinquennial age group separately for Medicare and non-medicare members. b. HMO: We used current HMO enrollment information to develop the number of members covered by single and family contracts and the gender distribution in each quinquennial age group for non-medicare members. We did not develop age-related costs for Medicare-eligible members under the fully insured HMOs because we assumed the HMO premium rates reflect that the Medicare-eligible members pay the entire cost of coverage. (See discussion on page I-4.) 4. Age Related Costs a. PPO: We used age and gender relative cost information in the Guidelines to develop preliminary age-related cost tables separately for Medicare and non-medicare PPO members. We adjusted the PPO age-related costs of members not eligible for Medicare to take into account the expected additional cost which retired members incur compared to active members the same age. We adjusted the PPO age-related costs of Medicareeligible members to reflect the mix of services between Part D prescription drug claim costs and non-part D prescription drug claim costs (i.e. Part A, B, and non-medicare eligible claim costs). We did not subtract the Part D subsidy from the drug experience since the Part D subsidy is not recognized under the GASB valuation rules. b. HMO: We developed age-related costs for HMO members not eligible for Medicare using the same methodology as we used for PPO members. For the fully-insured HMOs we did not develop age-related costs for Medicareeligible HMO members because we assumed the HMO premium rates reflect that the Medicare-eligible members pay the entire cost of coverage. V-2

83 V. DEVELOPMENT OF CLAIMS COSTS 5. Consistency Test a. PPO and HMO: We reviewed the age and gender costs separately for the PPO and the HMOs to ensure they are consistent with the expected fiscal year claims and expenses. We verified that the overall claims and expenses we expect to be paid by the State of Florida is consistent with the redistributed cost obtained using the age gender amounts we calculated. Because we received detailed demographic information from the State of Florida, we incorporated Medicare II experience (family coverage where at least one member is eligible for Medicare and at least one member is not eligible for Medicare) to determine our age-related claim cost for the PPO and self-insured HMO options. We excluded COBRA members from the analysis. The following tables illustrate the age-related costs for each option. Retirees pay a set premium to the Program. The Program s liability is the difference between actual projected medical costs by age and the premium paid by the retiree. Retirees under age 65 generally incur higher medical expenses than employees the same age, correlating with the fact that some retire early due to poor health. The extra cost for retirees ranges from 47% under age 50 to 13% for ages 60 and over. We have assumed that spouses of retirees have similar claim costs as spouses of employees the same age and sex. This allows us to recognize that some employees retire because of health issues and experience higher morbidity. Costs for Non-Medicare Eligible Retirees (Subscribers) FY Self-Insured HMO Fully Insured HMO Male Female Male Female $ $ $ $ $ $1, $ $ $1, $1, $ $ $1, $1, $ $ $1, $1, $ $ V-3

84 V. DEVELOPMENT OF CLAIMS COSTS Costs for Non-Medicare Eligible Retirees (Dependents) FY Self-Insured HMO Fully Insured HMO Male Female Male Female $ $ $ $ $ $ $ $ $ $ $ $ $1, $1, $ $ $1, $1, $ $ The age-related costs for the HMO self-insured and fully-insured options were blended to create a single table of age-related costs for retirees electing HMO coverage. Current elections reflect a substantial difference before and after Medicare eligibility in the proportion of HMO retirees electing a self-insured HMO option. Considering plan design differences between pre-medicare and post-medicare offerings, we expect future elections to be similar to current elections between self-insured and fully-insured HMO offerings. Below we show the age-related costs for the HMO plan after blending between the self-insured and fully-insured offerings. Blended HMO Costs for Non-Medicare Eligible Retirees FY Subscribers Dependents Male Female Male Female $ $ $ $ $ $ $ $ $ $1, $ $ $1, $1, $ $ $1, $1, $1, $1, V-4

85 V. DEVELOPMENT OF CLAIMS COSTS Costs for PPO Non-Medicare Eligible Retirees FY Subscribers Dependents Male Female Male Female $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Costs for Medicare-Eligible Retirees (Subscribers and Dependents) FY PPO Blended HMO Male Female Male Female $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Disabled 4 $ $ $ $ Retirees over age 65 who participate in a self-insured HMO pay a retiree contribution that is expected to somewhat offset the expected cost of the self-insured HMOs. Overall, the retiree contributions in the self-insured HMOs do not appear to be targeted to entirely offset the liability, resulting in an OPEB liability for these retirees. Retirees over age 65 who participate in a fully-insured HMO pay the full premium. Assuming the premiums are sufficient to pay all the benefits, there is no post-65 liability for retirees in the fully-insured HMO options. Blended costs shown in the table above reflect no fullyinsured cost, and a proportion of the self-insured cost equal to the current proportion of post-medicare HMO retirees electing a self-insured HMO option. There is a small population of Retired Teachers who are not covered by Medicare. Based on a reasonable estimate of cost-sharing with Medicare, we estimated the cost for PPO retirees over age 65 that are not covered by Medicare by using Medicare costs and adding $600 per month. We estimated the cost for HMO retirees over age 65 that 4 Disabled rate for pre-65 retirees V-5

86 V. DEVELOPMENT OF CLAIMS COSTS are not covered by Medicare as $357 per month, which includes the weighting reflective of post-65 retirees in a self-insured HMO plan. We assumed that spouses over age 65 associated with retirees over age 65 that are not covered by Medicare are covered by Medicare. We assumed the spouses under age 65 associated with retirees over age 65 that are not covered by Medicare would be Medicare-eligible at age 65. B. Trend Rates The healthcare trends used in this valuation are based on long term healthcare trends generated by the Getzen Model. The Getzen Model is the result of research sponsored by the Society of Actuaries and completed by a committee of economists and actuaries. This model is the current Milliman standard for projecting long term medical trends. Inputs to the model are consistent with the assumptions used in deriving the discount rate used in the valuation, and include the potential excise tax due to Healthcare Reform. We used medical trend rates consistent with the August 8, 2013 Report on the Financial Outlook of the Plan along with information from the Getzen Model, Milliman s Health Cost Guidelines and actuarial judgment. The trend rates for the HMO self-insured and fully-insured options were blended to create a single trend assumption for retirees electing HMO coverage. The trend assumptions differ for the PPO and HMO plans and differ for pre-medicare and post-medicare due to the different timing at which the potential excise tax may impact the benefits of the plan. The first five trend rates shown in the following table were developed using the claims and administrative cost information from the August 8, 2013 Report on the Financial Outlook of the Plan. We adjusted the claims information to remove the effect of changes due to the Affordable Care Act that affect the active (non-retiree) population only. In addition, as noted in Section V.A.2.b., we adjusted the HMO administrative costs to reflect the transition of HMO funding for some of the HMO options to a self-insured arrangement. Because we include aging in our valuation model, the trend rates shown above are 0.50% less than the trend rates used in the latest Report on the Financial Outlook of the Plan. V-6

87 V. DEVELOPMENT OF CLAIMS COSTS The pre-medicare healthcare trend rates are as follows: PPO HMO FY13 to FY14 7.4% FY13 to FY14 3.9% FY14 to FY15 7.0% FY14 to FY15 7.8% FY15 to FY16 8.2% FY15 to FY16 8.3% FY16 to FY17 7.6% FY16 to FY17 8.2% FY17 to FY18 7.7% FY17 to FY18 8.1% FY18 to FY22 6.2% FY18 to FY19 6.3% FY22 to FY23 6.1% FY19 to FY21 6.4% FY23 to FY25 6.5% FY21 to FY22 6.8% FY25 to FY26 7.0% FY22 to FY23 7.3% FY26 to FY27 7.6% FY23 to FY24 7.4% FY27 to FY28 7.8% FY24 to FY25 7.3% FY28 to FY29 7.7% FY25 to FY26 7.2% FY29 to FY30 7.6% FY26 to FY30 7.1% FY30 to FY32 7.5% FY30 to FY32 7.0% FY32 to FY33 7.4% FY32 to FY34 6.9% FY33 to FY34 7.3% FY34 to FY36 7.0% FY34 to FY35 7.2% FY36 to FY37 6.8% FY35 to FY36 7.1% FY37 to FY38 6.7% FY36 to FY37 6.9% FY38 to FY39 6.6% FY37 to FY38 6.8% FY39 to FY41 6.5% FY38 to FY39 6.7% FY41 to FY43 6.4% FY39 to FY40 6.6% FY43 to FY45 6.3% FY40 to FY42 6.5% FY45 to FY49 6.2% FY42 to FY44 6.4% FY49 to FY52 6.1% FY44 to FY46 6.3% FY52 to FY58 6.0% FY46 to FY49 6.2% FY58 to FY63 5.9% FY49 to FY52 6.1% FY63 to FY67 5.8% FY52 to FY57 6.0% FY67 to FY71 5.7% FY57 to FY62 5.9% FY71 to FY74 5.6% FY62 to FY66 5.8% FY74 to FY75 5.5% FY66 to FY72 5.7% FY75 to FY77 5.4% FY72 to FY74 5.6% FY77 to FY78 5.3% FY74 to FY76 5.5% FY78 to FY80 5.2% FY76 to FY77 5.4% FY80 to FY82 5.1% FY77 to FY79 5.3% Thereafter 5.0% FY79 to FY81 5.2% FY81 to FY83 5.1% Thereafter 5.0% V-7

88 V. DEVELOPMENT OF CLAIMS COSTS The Medicare healthcare trend rates are as follows: PPO HMO FY13 to FY14 7.4% FY13 to FY14 3.9% FY14 to FY15 7.0% FY14 to FY15 7.8% FY15 to FY16 8.2% FY15 to FY16 8.3% FY16 to FY17 7.6% FY16 to FY17 8.2% FY17 to FY18 7.7% FY17 to FY18 8.1% FY18 to FY22 6.2% FY18 to FY26 6.1% FY22 to FY27 6.1% FY26 to FY27 6.3% FY27 to FY28 6.6% FY27 to FY28 6.8% FY28 to FY29 7.0% FY28 to FY31 6.9% FY29 to FY31 6.9% FY31 to FY32 7.3% FY31 to FY34 6.8% FY32 to FY33 7.6% FY34 to FY35 7.0% FY33 to FY34 7.5% FY35 to FY36 7.3% FY34 to FY35 7.4% FY36 to FY37 7.2% FY35 to FY36 7.3% FY37 to FY38 7.1% FY36 to FY37 7.1% FY38 to FY39 7.0% FY37 to FY38 6.9% FY39 to FY40 6.9% FY38 to FY39 6.8% FY40 to FY41 6.8% FY39 to FY41 6.7% FY41 to FY42 6.7% FY41 to FY42 6.6% FY42 to FY44 6.6% FY42 to FY44 6.5% FY44 to FY46 6.5% FY44 to FY46 6.4% FY46 to FY48 6.4% FY46 to FY49 6.3% FY48 to FY51 6.3% FY49 to FY52 6.2% FY51 to FY54 6.2% FY52 to FY56 6.1% FY54 to FY58 6.1% FY56 to FY60 6.0% FY58 to FY62 6.0% FY60 to FY64 5.9% FY62 to FY66 5.9% FY64 to FY68 5.8% FY66 to FY70 5.8% FY68 to FY73 5.7% FY70 to FY74 5.7% FY73 to FY75 5.6% FY74 to FY75 5.6% FY75 to FY76 5.5% FY75 to FY77 5.5% FY76 to FY78 5.4% FY77 to FY78 5.4% FY78 to FY80 5.3% FY78 to FY80 5.3% FY80 to FY81 5.2% FY80 to FY82 5.2% FY81 to FY86 5.1% FY82 to FY91 5.1% Thereafter 5.0% Thereafter 5.0% V-8

89 V. DEVELOPMENT OF CLAIMS COSTS Pre-Medicare retirees pay the same contribution to the program regardless of plan election. Post-Medicare retirees in the PPO and self-insured HMO plans also pay the same retiree contribution. Thus, we developed a single assumption for retiree premium costs increases that is consistent with the trend rates shown above. We assumed that the retiree contributions for Medicare-eligible members electing fully insured HMO coverage would increase at the same rate as the HMO premiums. Thus, these members would continue paying the full cost of the benefits. Retiree Premium Retiree Premium FY13 to FY14 5.4% FY38 to FY39 6.7% FY14 to FY15 7.4% FY39 to FY40 6.6% FY15 to FY16 8.2% FY40 to FY42 6.5% FY16 to FY18 7.9% FY42 to FY43 6.4% FY18 to FY21 6.3% FY43 to FY45 6.3% FY21 to FY22 6.6% FY45 to FY49 6.2% FY22 to FY23 6.9% FY49 to FY52 6.1% FY23 to FY24 7.0% FY52 to FY57 6.0% FY24 to FY25 6.9% FY57 to FY62 5.9% FY25 to FY26 7.1% FY62 to FY66 5.8% FY26 to FY27 7.3% FY66 to FY72 5.7% FY27 to FY28 7.4% FY72 to FY74 5.6% FY28 to FY30 7.3% FY74 to FY76 5.5% FY30 to FY32 7.2% FY76 to FY77 5.4% FY32 to FY35 7.1% FY77 to FY79 5.3% FY35 to FY36 7.0% FY79 to FY81 5.2% FY36 to FY37 6.9% FY81 to FY83 5.1% FY37 to FY38 6.8% Thereafter 5.0% V-9

90 V. DEVELOPMENT OF CLAIMS COSTS Healthcare trends for Medicare-eligible members are as follows: Retiree Premium Retiree Premium FY13 to FY14 7.2% FY42 to FY44 6.6% FY14 to FY15 7.0% FY44 to FY46 6.5% FY15 to FY16 8.2% FY46 to FY48 6.4% FY16 to FY18 7.7% FY48 to FY51 6.3% FY18 to FY22 6.2% FY51 to FY54 6.2% FY22 to FY27 6.1% FY54 to FY58 6.1% FY27 to FY28 6.6% FY58 to FY62 6.0% FY28 to FY29 7.0% FY62 to FY66 5.9% FY29 to FY31 6.9% FY66 to FY70 5.8% FY31 to FY34 6.8% FY70 to FY74 5.7% FY34 to FY35 7.0% FY74 to FY75 5.6% FY35 to FY36 7.3% FY75 to FY77 5.5% FY36 to FY37 7.2% FY77 to FY78 5.4% FY37 to FY38 7.1% FY78 to FY80 5.3% FY38 to FY39 7.0% FY80 to FY82 5.2% FY39 to FY40 6.9% FY82 to FY91 5.1% FY40 to FY41 6.8% Thereafter 5.0% FY41 to FY42 6.7% V-10

91 VI. SUMMARY OF BENEFITS Eligibility Members who leave employment with the State and begin to receive retirement benefits immediately are eligible to continue enrollment as retirees. Eligibility for immediate retirement benefits for members hired prior to July 1, 2011 requires six years of service. However, the retirement benefit is reduced 5% for each year prior to age 62 for non-special Risk class members and age 55 for Special Risk class members. New eligibility provisions: Eligibility for immediate retirement benefits for members hired on or after July 1, 2011 requires eight years of service. The retirement benefit is reduced 5% for each year prior to age 65 for non-special Risk class members and age 60 for Special Risk class members. Members of the Investment Plan must meet the requirements for normal retirement under the Florida Retirement System, except that the age requirement is 59½ rather than 62. Disabled members are eligible for an immediate benefit. Survivors of deceased active members are eligible for COBRA coverage; they are not covered by the retiree plan. Survivors of deceased retired members are eligible to continue coverage for life, or until re-marriage. Medical Options Non-Medicare PPO Standard and HIHP HMO Standard and HIHP, depending on service area Medicare PPO Standard and HIHP HMO Standard and HIHP, depending on service area VI-1 This work product was prepared solely for the Florida Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

92 VI. SUMMARY OF BENEFITS Retiree Contributions Retirees pay the contribution depending on the family coverage elected and Medicare eligibility. Monthly retiree contributions effective May 2013 for standard coverage are listed below. Members who are eligible for Medicare and elect fully-insured HMO coverage pay the HMO premium. Non-Medicare Retiree Single (all plans) Non-Medicare Retiree Family (all plans) Medicare I Retiree Single (self-insured plans) Medicare II Retiree Family coverage with at least one Medicare and one or more non-medicare (self-insured plans) Medicare III Retiree Two Medicare (self-insured plans) Monthly $ , VI-2 This work product was prepared solely for the Florida Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

93 VII. SUMMARY OF DATA Total Membership by Agency Actives DROP Retirees & Beneficiaries Spouses of Retirees State Agency 99,605 29, State Board of Administration Florida Board of Examiners West Coast Inland Navigation District Florida Inland Navigation District Miami-Dade Expressway Authority South Florida Regional Transportation Authority Orlando Orange County Expressway Authority Volunteer Florida University of Florida Gainesville 13,189 2, Florida State University Tallahassee 6,232 1, Florida Agricultural and Mechanical University Tallahassee 1, University of Central Florida Orlando 4, University of South Florida Tampa 6, New College of Florida Sarasota Florida Atlantic University Boca Raton 2, University of West Florida Pensacola 1, Florida International University Miami 4, University of North Florida Jacksonville 1, Florida Gulf Coast University Fort Myers 1, Florida Polytech University Members in DROP 5-7, Total 143,924 7,469 36,420 10,171 5 Agency was not identified for DROP participants; costs were allocated to agency in proportion with active members not in DROP. VII-1 may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

94 VII. SUMMARY OF DATA Active Participants Years of Service Age < 5 5 to 9 10 to to to to to to & up Total < 25 3, , TO 29 9,009 3, , TO 34 6,978 7,151 1, , TO 39 4,819 5,657 3,610 1, , TO 44 4,293 5,220 3,559 3,391 1, , TO 49 3,645 4,344 3,118 3,084 2,953 1, , TO 54 3,455 4,034 3,185 3,002 2,953 3, , TO 59 2,878 3,606 2,771 2,678 2,478 2,892 1, , TO 64 1,676 2,483 1,949 1,713 1,614 1, , & UP 726 1,364 1, ,292 TOTALS 40,830 37,553 21,176 16,172 12,095 10,648 3,404 1, ,924 Age Inactive Participants Retirees & Beneficiaries Spouses of Retirees < , ,549 1, ,502 2, ,379 2, ,652 1, , , , Total 36,420 10,171 VII-2 may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

95 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Tables A-1 and A-2 summarize the assumptions we used for the valuation. They are consistent with the assumptions that will be used in the July 1, 2013 valuation of the Florida Retirement System. We made additional assumptions that are needed for the valuation of retiree healthcare benefits. We used the same retirement rates as are used for GASB disclosure purposes in the annual valuations of the FRS. These retirement rates include an assumption for members entering the Deferred Retirement Option Program (DROP). The rates of retirement are described in Table A-3 and the probabilities of entering DROP upon first eligibility are described in Table A-4. The pre- and post-retirement mortality rates are taken from the sources listed. The other rates were developed from the experience of the FRS and are illustrated in Tables A-2 through A-10, as noted. The actuarial assumptions are intended to estimate the future experience of the members of the State Employees Health Insurance Program. Any variations in future experience from that expected from these assumptions will result in corresponding changes in the estimated costs of the Program s benefits. The FRS assumptions are based on the most recent experience study of the period from July 1, 2003 through June 30, 2008, as modified by the February 16, 2010 Study on House Bill 479 (2009) and the July 1, 2011 Study on Senate Bill 2100 (2011), both of which were enacted into law. The additional assumptions are based on recent past and expected future experience of the State Employees Health Insurance Program. All tables in this section give independent rates of decrement expressed as percentages. The independent rates of decrement are referred to by the general symbol "q " in actuarial notation. The underlying theory is described more fully in Life Contingencies, by C. Wallace Jordan, Society of Actuaries (Second Edition, 1967), page 278. Actuarial Cost Method The actuarial valuation is prepared using the entry age actuarial cost method. Under the principles of this method, the actuarial present value of the projected benefits of each individual included in the valuation is allocated as a level percentage of projected compensation between entry age and assumed exit. For this purpose we have used the assumed annual increase in the average wage level of the membership, and did not include salary increases due to promotion and longevity. The portion of this actuarial present value allocated to a valuation year is called the normal cost. The portion of this actuarial present value not provided for at a valuation date by the sum of (a) the actuarial value of the assets, and (b) the actuarial present value of future normal costs, is called the unfunded actuarial liability (UAL). VIII-1

96 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Since the plan is currently not administered through a formal trust, the entire Actuarial Liability shown in this report is considered Unfunded Actuarial Liability. We amortized the UAL as a level percentage of the projected payroll (salaries of present and future members of the Program) over 30 years. The normal cost for the valuation year was calculated separately for each individual, based on his or her age at entry into the FRS. The individual normal costs were then aggregated to determine the total normal cost. Records and Data The data used in this valuation consist of healthcare cost information and records of age, service and healthcare coverage of active members, annuitants and other inactive members. All of the data was supplied by the Division of State Group Insurance and FRS, and was accepted for valuation purposes without audit. Replacement of Terminated Members The ages and relative salaries at entry of future members are assumed to follow a new entrant distribution based on the current active population. Growth in Membership The active membership of the plan is assumed not to grow. Administrative Expenses We have included claims administration expenses as part of the total PPO and selfinsured HMO costs. Any investment expenses would be paid from investment earnings. The illustrative scenario showing the liabilities if the plan were funded through a formal trust assumes that investments would yield 7.75% as the valuation assumption, net of investment expenses. If the plan does not have a formal trust, we have assumed there will be no investment expenses. Valuation of Assets The Program currently has no assets in a formal trust, so we have used no assets to offset the actuarial liabilities. VIII-2

97 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Investment Earnings Because assets are not invested in a formal trust, we have assumed future investment earnings of 4.00%, compounded annually. We have also shown results if assets were invested in a formal trust and invested in a manner similar to what is done for FRS. We have assumed the future investment earnings of 7.75%, compounded annually, net of investment and administrative expenses under this scenario Future Salaries To be consistent with the assumptions used by FRS, we have assumed a 4.00% per annum rate of increase in the average wage level of the membership. This assumption is used to allocate the costs during an employee s period of employment. FRS uses additional assumptions about pay increases due to merit and longevity that we did not use for this valuation. Although the retiree healthcare benefits are not pay-related, allocating costs as a level percentage of pay during the member s working lifetime helps with budgeting for these costs. Service Retirement Members are assumed to take unreduced retirement at the rates shown in Table A-3. These rates represent the probability of retiring or entering the Deferred Retirement Option Program (DROP) at the specified ages. Table A-4 shows the proportion of decrementing members assumed to elect DROP at first retirement eligibility. The same probabilities are assumed for Tier I and Tier II members. We have assumed members who enter DROP in the future will elect an average DROP period of 54 months. We have valued the retiree medical benefits after exiting the DROP. Rates of reduced early retirement are included in rates of other terminations of employment shown in Table A-10. All members who have attained age 80 in active service are assumed to retire immediately. Disability The frequency of disability reflects not only the impairments but also the policies underlying the approval of claims and the administration of disability benefits. The more liberal the administration or conditions under which an employee may qualify for disability, the greater the expected incidence of disability. VIII-3

98 VIII. ACTUARIAL METHODS AND ASSUMPTIONS We have assumed that all disabled members are eligible for Social Security disability benefits. This means that Medicare will be the primary payer of medical benefits for these members. Line-of-Duty Disability Incidence Rates The rates used to estimate the likelihood of line-of-duty disability were initially based on Social Security disability experience reported in the Social Security Administration's disability study published as Actuarial Study Number 74, adjusted to recognize the FRS line-of-duty disability incidence experience. Not-in-Line-of-Duty Disability Incidence Rates The rates used to estimate the likelihood of not-in-line-of-duty disability were initially based on Social Security disability experience reported in the Social Security Administration's disability study published as Actuarial Study Number 74, adjusted to recognize the FRS not-in-line-of-duty disability incidence experience. The rates of disablement used in the valuation are illustrated in Tables A-5 and A-6. Pre-Retirement Mortality Mortality rates for members who die in service are based on the RP 2000 Employee Mortality tables for males and females. Table A-7 shows these rates at representative ages. To allocate active member deaths between duty and non-duty death, the following percentages of total active member deaths were assumed to be duty deaths. FRS-Special Risk FRS-All Other Groups Age Men Women Men Women 37 60% 60% 25% 15% VIII-4

99 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Post-Retirement Mortality Mortality rates for all members once in retirement status are based on the RP-2000 Healthy White Collar tables for males and females, with generational projection using Projection Scale AA, adjusted by the following percentages: Males Females Regular and Special Risk Classes 90.9% 95.8% All Other Classes 82.4% 56.7% Table A-8 shows these rates for representative ages. Disability Mortality Rates Disability mortality rates are based on the RP 2000 Disabled Retiree Table for males, and the PBGC Disabled with Social Security Table for females, adjusted by the following percentages: Adjustment Factor Males Under age % Age 51 and over 73.9% Ages are interpolated between the two factors Females Under age % Age 65 and over 88.1% Representative rates of disability mortality are illustrated in Table A-9. Other Terminations of Employment Table A-10 shows, for representative ages, the rates assumed in this valuation for future withdrawal from active service for reasons other than death, disability or retirement with an unreduced benefit. These rates contain the probability of retiring with a reduced immediate pension. Eligible Survivors Survivors of deceased active members are eligible for COBRA coverage. We did not include a cost for them in this valuation. VIII-5

100 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Military Service and Out-of-State Service Credits Each member is assumed to have the following additional years of service credit purchased: FRS-Special Risk FRS-All Other Groups Type of Service Credit Men Women Men Women Military Service Credit 1) Out-of-State Service Credit ) Pre-1987 hires only. I. Economic Assumptions TABLE A-1 Summary of Valuation Assumptions July 1, 2013 A. General Wage Increases B. Investment Earnings C. Growth in Membership D. Medical Cost Increase Rate E. Retiree Contribution Increase Rate 4.00%* 7.75%* (funded) or 4.00%* (unfunded) 0.00% Summarized in Section V Summarized in Section V *Including a 3.0% inflation assumption. VIII-6

101 VIII. ACTUARIAL METHODS AND ASSUMPTIONS TABLE A-2 Summary of Valuation Assumptions July 1, 2013 II. Non-Economic Assumptions A. Service Retirement B. Probability of DROP Entry C. Disablement D. Pre-Retirement Mortality Table A-3 Table A-4 Tables A-5 and A-6 RP 2000 Mortality Tables for males and females. Table A-7 E. Post-Retirement Mortality F. Disabled Termination (Mortality and Recovery) G. Other Terminations of Employment H. Coverage Elections I. Dependent Coverage RP 2000 Healthy White Collar Tables for males and females, using generational Projection and Scale AA. Table A-8 Table A-9 Table A-10 50% of members elect to have coverage at retirement. Retiring members remain in the same coverage option they had as active members. Members who elected no coverage as active members would elect coverage at retirement in the same proportion as members with coverage as active members. 65% of PPO retirees and 75% of HMO retirees who elect coverage will elect single coverage. 35% of PPO retirees and 25% of HMO retirees who elect coverage will elect family coverage. VIII-7

102 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-3 Unreduced Retirement Annual Rates Tier I Members REGULAR Male Female Age Retirement at First Eligibility Retirement Beyond First Eligibility Retirement at First Eligibility Retirement Beyond First Eligibility % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 3.0% 23.7% 1.7% % 9.5% 35.9% 6.2% % 9.1% 44.8% 7.6% % 10.4% 57.7% 14.6% % 11.0% 49.3% 19.0% ELECTED OFFICERS GROUPS: ECO, ESO * Male Female Age Retirement at First Eligibility Retirement Beyond First Eligibility Retirement at First Eligibility Retirement Beyond First Eligibility % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 12.8% 1.2% % 0.7% 22.8% 1.2% % 1.5% 30.4% 4.0% % 4.9% 22.8% 7.2% % 9.6% 24.9% 10.7% * Rates for the ECO and ESO groups differ only at age 64, retirement at first eligibility for males. Otherwise, the tables are identical. JUDICIAL Male Female Retirement at First Eligibility Retirement Beyond First Eligibility Retirement at First Eligibility Retirement Beyond First Eligibility Age % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 12.8% 1.2% % 0.7% 22.8% 1.2% % 1.5% 30.4% 4.0% % 4.9% 32.0% 7.2% % 9.6% 26.4% 10.7% VIII-8

103 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-3 (cont.) Unreduced Retirement Annual Rates Tier I Members Retirement at First Eligibility SENIOR MANAGEMENT SERVICE Male Retirement Beyond Retirement at First Eligibility First Eligibility Female Retirement Beyond First Eligibility Age % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 2.1% 21.3% 0.4% % 11.1% 33.2% 5.9% % 10.3% 41.2% 6.6% % 14.9% 59.5% 12.8% % 21.5% 53.1% 21.4% SPECIAL RISK Retirement at First Eligibility Male Retirement Beyond First Eligibility Retirement at First Eligibility Female Retirement Beyond First Eligibility Age % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.9% 2.4% 0.9% % 0.9% 5.9% 4.7% % 4.5% 23.8% 4.4% % 4.7% 21.4% 4.8% % 4.9% 28.2% 7.9% % 14.5% 38.3% 10.6% SPECIAL RISK ADMINISTRATIVE SUPPORT Male Female Age Retirement at First Eligibility Retirement Beyond First Eligibility Retirement at First Eligibility Retirement Beyond First Eligibility % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 22.5% 0.0% % 4.5% 31.5% 4.5% % 5.8% 83.7% 5.8% % 11.6% 56.2% 11.6% % 56.0% 83.1% 56.0% VIII-9

104 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-3 Unreduced Retirement Annual Rates Tier II Members REGULAR Male Female Age Retirement at First Eligibility Retirement Beyond First Eligibility Retirement at First Eligibility Retirement Beyond First Eligibility % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 3.0% 23.7% 1.7% % 9.5% 35.9% 6.2% % 9.1% 44.8% 7.6% % 10.4% 57.7% 14.6% % 11.0% 58.4% 19.0% ELECTED OFFICERS GROUPS: ECO, ESO Male Female Age Retirement at First Eligibility Retirement Beyond First Eligibility Retirement at First Eligibility Retirement Beyond First Eligibility % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 12.8% 1.2% % 0.7% 22.8% 1.2% % 1.5% 30.4% 4.0% % 4.9% 22.8% 7.2% % 9.6% 32.9% 10.7% JUDICIAL Male Female Retirement at First Eligibility Retirement Beyond First Eligibility Retirement at First Eligibility Retirement Beyond First Eligibility Age % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 12.8% 1.2% % 0.7% 22.8% 1.2% % 1.5% 30.4% 4.0% % 4.9% 32.0% 7.2% % 9.6% 34.4% 10.7% VIII-10

105 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-3 (cont.) Unreduced Retirement Annual Rates Tier II Members Retirement at First Eligibility SENIOR MANAGEMENT SERVICE Male Retirement Beyond Retirement at First Eligibility First Eligibility Female Retirement Beyond First Eligibility Age % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 2.1% 21.3% 0.4% % 11.1% 33.2% 5.9% % 10.2% 41.2% 6.6% % 14.9% 59.5% 12.8% % 21.5% 61.7% 21.4% SPECIAL RISK Male Female Age Retirement at First Eligibility Retirement Beyond First Eligibility Retirement at First Eligibility % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.9% 2.4% 0.9% % 0.9% 5.9% 4.7% % 4.5% 23.8% 4.4% % 4.7% 33.9% 4.8% % 4.9% 28.2% 7.9% % 14.5% 38.3% 10.6% SPECIAL RISK ADMINISTRATIVE SUPPORT (Same rates as applied to Tier I members) Retirement at First Eligibility Male Retirement Beyond First Eligibility Retirement at First Eligibility Female Retirement Beyond First Eligibility Retirement Beyond First Eligibility Age % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 0.0% 0.0% % 0.0% 22.5% 0.0% % 4.5% 31.5% 4.5% % 5.8% 83.7% 5.8% % 11.6% 56.2% 11.6% % 56.0% 83.1% 56.0% VIII-11

106 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Age Age Age Table A-4 Proportion of Unreduced Retirement Decrement Attributable to DROP Entrants 1) REGULAR Male Female 45 76% 89% 50 73% 78% 55 74% 81% 60 75% 77% 65 76% 82% 70 46% 50% 75 42% 45% 80 13% 19% SPECIAL RISK Male Female 45 82% 60% 50 80% 77% 55 71% 74% 60 66% 80% 65 27% 35% 70 16% 17% 75 16% 17% 80 16% 17% LEGISLATIVE GROUPS: ECO, ESO Male Female % 78% 50 91% 88% 55 89% 88% 60 88% 79% 65 42% 60% 70 42% 61% 75 42% 61% 80 23% 84% 1) DROP election permitted at First Eligibility only. VIII-12

107 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Age Age Age Table A-4 (cont.) Proportion of Unreduced Retirement Decrement Attributable to DROP Entrants 1) JUDICIAL Male Female % 78% 50 91% 88% 55 87% 88% 60 80% 85% 65 33% 63% 70 33% 44% 75 33% 44% 80 17% 72% SENIOR MANAGEMENT SERVICE Male Female 45 75% 87% 50 69% 74% 55 72% 77% 60 71% 66% 65 45% 67% 70 53% 55% 75 49% 50% 80 13% 16% SPECIAL RISK ADMINISTRATIVE SUPPORT Male Female % 100% 50 86% 86% 55 90% 65% 60 69% 48% 65 32% 33% 70 29% 29% 75 29% 29% 80 29% 29% 1) DROP election permitted at First Eligibility only. VIII-13

108 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-5 Line-of-Duty Disability Annual Rates REGULAR Age Male Female % 0.000% % 0.001% % 0.001% % 0.003% % 0.005% % 0.008% % 0.010% % 0.016% % 0.022% % 0.020% ELECTED OFFICERS, SENIOR MANAGEMENT SERVICE Age Male Female % 0.001% % 0.001% % 0.001% % 0.002% % 0.003% % 0.005% % 0.007% % 0.011% % 0.014% % 0.013% SPECIAL RISK, SPECIAL RISK ADMINISTRATIVE SUPPORT Age Male Female % 0.008% % 0.008% % 0.016% % 0.037% % 0.068% % 0.106% % 0.153% % 0.152% % 0.151% % 0.143% VIII-14

109 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-6 Non-Duty Disability Annual Rates REGULAR Age Male Female % 0.000% % 0.010% % 0.026% % 0.049% % 0.070% % 0.114% % 0.184% % 0.294% % 0.419% % 0.105% ELECTED OFFICERS, SENIOR MANAGEMENT SERVICE Age Male Female % 0.002% % 0.002% % 0.017% % 0.030% % 0.047% % 0.096% % 0.151% % 0.162% % 0.162% % 0.106% SPECIAL RISK, SPECIAL RISK ADMINISTRATIVE SUPPORT Age Male Female % 0.036% % 0.036% % 0.046% % 0.075% % 0.118% % 0.209% % 0.254% % 0.328% % 0.328% % 0.328% VIII-15

110 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-7 Pre-Retirement Mortality Annual Rates REGULAR, ECO, ESO, JUDGES, SENIOR MANAGEMENT Male Female Age Duty Death Non-Duty Death Duty Death Non-Duty Death % 0.03% 0.00% 0.02% % 0.03% 0.00% 0.02% % 0.03% 0.00% 0.02% % 0.06% 0.01% 0.04% % 0.08% 0.01% 0.06% % 0.13% 0.01% 0.10% % 0.18% 0.02% 0.14% % 0.21% 0.02% 0.18% % 0.33% 0.03% 0.28% % 0.52% 0.05% 0.42% % 0.68% 0.06% 0.55% % 1.04% 0.09% 0.81% % 1.77% 0.15% 1.33% SPECIAL RISK, SPECIAL RISK ADMINISTRATIVE SUPPORT Male Female Age Duty Death Non-Duty Death Duty Death Non-Duty Death % 0.01% 0.01% 0.01% % 0.02% 0.01% 0.01% % 0.02% 0.02% 0.01% % 0.03% 0.03% 0.02% % 0.06% 0.03% 0.04% % 0.11% 0.03% 0.08% % 0.16% 0.04% 0.13% % 0.23% 0.06% 0.17% % 0.29% 0.08% 0.24% % 0.46% 0.12% 0.35% % 0.60% 0.15% 0.46% % 0.92% 0.23% 0.68% % 1.57% 0.37% 1.11% VIII-16

111 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-8 1) Post-Retirement Mortality Annual Rates REGULAR AND SPECIAL RISK Age Male Female % 0.01% % 0.02% % 0.03% % 0.05% % 0.09% % 0.14% % 0.23% % 0.33% % 0.54% % 0.87% % 1.46% % 2.46% % 4.13% % 7.11% % 12.09% % 18.64% % 22.76% % 28.09% % 34.94% % 38.33% % 95.83% ELECTED OFFICERS, SENIOR MANAGEMENT SERVICE, SPECIAL RISK, SPECIAL RISK ADMINISTRATIVE SUPPORT Age Male Female % 0.01% % 0.01% % 0.02% % 0.03% % 0.05% % 0.09% % 0.14% % 0.20% % 0.32% % 0.52% % 0.86% % 1.46% % 2.44% % 4.21% % 7.15% % 11.03% % 13.46% % 16.62% % 20.67% % 22.68% % 56.70% 1 ) Rates are shown for Rates are projected to the valuation date using projection Scale AA. VIII-17

112 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-9 Disabled Termination (Mortality and Recovery) All Groups Age Male Female % 2.18% % 2.18% % 1.96% % 1.77% % 1.73% % 1.86% % 2.13% % 2.44% % 2.74% % 3.26% % 3.62% % 4.33% % 6.57% % 9.93% % 14.81% % 22.24% % 33.37% % 50.05% VIII-18

113 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-10 Other Terminations of Employment Annual Rates REGULAR Male Combined Attained Age Years of Service % 27.2% 25.8% 25.8% 24.4% 24.4% 23.4% 27.4% 27.4% 27.4% % 18.5% 15.4% 14.3% 12.6% 12.5% 12.2% 12.2% 12.2% 12.2% % 17.2% 14.0% 12.8% 12.0% 11.6% 10.7% 10.7% 10.7% 10.7% % 14.6% 13.2% 12.6% 10.7% 10.3% 9.4% 9.3% 9.3% 9.3% % 12.7% 11.8% 10.9% 9.0% 8.8% 7.9% 7.8% 7.8% 7.8% % 9.7% 8.8% 8.5% 7.4% 6.8% 6.0% 6.8% 6.8% 6.8% % 8.5% 7.8% 7.5% 6.7% 6.5% 5.5% 5.4% 5.4% 5.4% % 8.4% 7.1% 6.8% 6.2% 6.0% 5.3% 5.2% 5.1% 5.1% % 7.7% 6.4% 6.2% 5.8% 5.1% 4.6% 4.4% 4.3% 4.3% % 6.3% 5.5% 5.3% 5.3% 5.1% 4.6% 4.3% 4.2% 4.2% 10 or more 9.8% 6.2% 4.7% 4.2% 3.0% 2.7% 3.0% 4.5% 5.3% 3.7% REGULAR Female Combined Attained Age Years of Service % 26.6% 25.4% 25.4% 24.4% 24.4% 23.2% 23.2% 23.2% 23.2% % 19.8% 16.9% 15.9% 14.0% 13.9% 13.4% 13.4% 13.4% 13.4% % 17.1% 14.5% 13.5% 12.1% 11.9% 11.0% 11.0% 11.0% 11.0% % 13.0% 11.6% 11.2% 10.0% 9.8% 8.8% 8.7% 8.7% 8.7% % 12.9% 11.3% 10.9% 9.1% 8.8% 8.4% 8.3% 8.3% 8.3% % 10.7% 9.4% 9.0% 7.0% 6.7% 6.2% 6.1% 6.1% 6.1% % 9.7% 8.7% 8.0% 6.5% 6.5% 5.9% 5.8% 5.8% 5.8% % 9.2% 8.1% 7.8% 6.3% 6.1% 5.5% 5.4% 5.4% 5.4% % 7.8% 7.1% 6.8% 6.1% 5.8% 5.5% 5.4% 5.4% 5.4% % 7.1% 6.5% 6.2% 5.0% 4.7% 4.6% 4.5% 4.5% 4.5% 10 or more 11.6% 5.3% 5.4% 4.6% 3.3% 3.0% 3.0% 3.0% 3.0% 3.0% ELECTED COUNTY OFFICERS - Male Combined Attained Age Years of Service % 8.2% 8.2% 8.2% 8.2% 8.2% 8.2% 8.2% 8.2% 8.2% 1 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 2 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 1.9% 3 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% % 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 5 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 6 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 7 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% % 13.8% 13.8% 13.8% 13.8% 13.8% 13.6% 13.4% 13.3% 11.5% 9 4.8% 4.8% 4.8% 4.8% 4.8% 4.8% 4.6% 4.4% 4.3% 2.5% 10 or more 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.6% 5.3% 5.2% 3.5% VIII-19

114 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-10 (cont.) Other Terminations of Employment Annual Rates ELECTED COUNTY OFFICERS Female Combined Attained Age Years of Service % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 3 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% % 18.1% 18.1% 18.1% 18.1% 18.1% 18.1% 18.1% 18.1% 18.1% 5 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 6 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 7 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% % 12.0% 12.0% 12.0% 12.0% 12.0% 11.9% 11.7% 11.6% 10.2% 9 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.1% 2.8% 2.7% 1.0% 10 or more 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.1% 3.9% 3.8% 2.4% ELECTED STATE OFFICERS Male Combined Attained Age Years of Service % 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 1 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% % 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 11.7% 3 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% % 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 5 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% % 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 7 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% % 20.2% 20.2% 20.2% 20.2% 20.8% 20.0% 18.7% 18.4% 16.7% 9 6.6% 6.6% 6.6% 6.6% 6.6% 7.2% 6.4% 5.2% 4.9% 3.1% 10 or more 6.7% 6.7% 6.7% 6.7% 6.7% 7.1% 6.6% 5.7% 5.5% 4.2% ELECTED STATE OFFICERS Female Combined Attained Age Years of Service % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1 9.1% 9.1% 9.1% 9.1% 9.1% 9.1% 9.1% 9.1% 9.1% 9.1% % 15.9% 15.9% 15.9% 15.9% 15.9% 15.9% 15.9% 15.9% 15.9% 3 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% % 16.3% 16.3% 16.3% 16.3% 16.3% 16.3% 16.3% 16.3% 16.3% 5 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% % 17.8% 17.8% 17.8% 17.8% 18.4% 17.6% 16.3% 16.0% 14.3% 9 3.5% 3.5% 3.5% 3.5% 3.5% 4.1% 3.3% 2.1% 1.8% 0.0% 10 or more 10.8% 10.8% 10.8% 10.8% 10.8% 11.4% 10.6% 9.4% 9.1% 7.3% VIII-20

115 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-10 (cont.) Other Terminations of Employment Annual Rates JUDICIAL - Male Combined Attained Age Years of Service % 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 1 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 2 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 3 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 4 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 5 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 6 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 7 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 8 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 9 1.3% 1.3% 1.3% 1.2% 1.2% 1.2% 1.1% 0.8% 0.7% 0.5% 10 or more 2.0% 2.0% 2.0% 1.9% 1.9% 1.9% 1.7% 1.3% 1.1% 0.7% JUDICIAL Female Combined Attained Age Years of Service % 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 2 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 3 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 4 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 5 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 6 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 7 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 8 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 9 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.4% 1.1% 1.0% 0.8% 10 or more 2.9% 2.9% 2.9% 2.7% 2.7% 2.7% 2.4% 2.0% 1.8% 1.4% SENIOR MANAGEMENT SERVICE Male Combined Attained Age Years of Service % 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% % 23.3% 20.7% 19.4% 18.9% 18.8% 18.8% 18.8% 18.8% 18.8% % 21.4% 19.3% 18.0% 17.2% 16.9% 16.8% 16.8% 16.8% 16.8% % 18.5% 17.7% 17.1% 16.7% 16.4% 16.2% 16.0% 16.0% 16.0% % 14.9% 14.5% 13.6% 12.9% 12.6% 12.4% 12.3% 12.2% 12.2% % 10.5% 10.0% 9.7% 9.3% 8.6% 8.2% 8.1% 8.0% 8.0% % 10.3% 9.8% 9.3% 9.0% 8.7% 8.4% 8.3% 8.1% 8.1% % 10.2% 9.7% 9.2% 8.8% 8.5% 8.3% 8.1% 8.0% 8.0% 8 9.6% 9.5% 9.1% 8.8% 8.5% 8.3% 8.1% 8.0% 7.9% 7.8% 9 6.6% 6.6% 6.3% 6.1% 5.9% 5.7% 5.6% 5.4% 5.3% 5.3% 10 or more 4.8% 4.8% 4.1% 3.6% 3.2% 2.9% 3.0% 3.1% 3.5% 2.6% VIII-21

116 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-10 (cont.) Other Terminations of Employment Annual Rates SENIOR MANAGEMENT SERVICE Female Combined Attained Age Years of Service % 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% % 21.7% 19.6% 18.5% 18.1% 18.0% 18.0% 18.0% 18.0% 18.0% % 20.0% 18.3% 17.3% 16.7% 16.5% 16.4% 16.4% 16.4% 16.4% % 18.0% 17.3% 16.7% 16.2% 15.9% 15.7% 15.6% 15.6% 15.6% % 14.0% 13.5% 13.0% 12.7% 12.4% 12.1% 12.0% 11.8% 11.8% % 11.3% 10.5% 9.9% 9.4% 9.0% 8.7% 8.6% 8.5% 8.5% % 10.6% 10.1% 9.7% 9.4% 9.1% 8.8% 8.7% 8.5% 8.5% % 10.1% 9.6% 9.2% 8.8% 8.6% 8.4% 8.2% 8.1% 8.1% 8 7.7% 7.6% 7.1% 6.8% 6.5% 6.2% 6.0% 5.9% 5.8% 5.7% 9 7.4% 7.4% 6.9% 6.5% 6.1% 5.8% 5.5% 5.3% 5.1% 5.1% 10 or more 4.8% 4.8% 3.9% 3.2% 2.7% 2.4% 2.1% 1.9% 1.9% 1.9% SPECIAL RISK Male Combined Attained Age Years of Service % 20.6% 20.6% 20.6% 20.6% 20.6% 20.6% 20.6% 20.6% 20.6% % 9.8% 9.5% 8.8% 8.0% 7.3% 6.5% 5.8% 5.3% 5.3% 2 8.6% 8.1% 7.7% 7.4% 6.8% 6.0% 5.3% 4.7% 4.7% 4.7% 3 8.4% 7.9% 7.5% 7.2% 6.7% 6.0% 5.3% 4.7% 4.7% 4.7% 4 7.5% 7.0% 6.7% 6.5% 6.0% 5.5% 5.0% 4.6% 4.6% 4.6% 5 5.3% 5.3% 5.3% 5.3% 4.8% 4.3% 3.8% 3.3% 3.3% 3.3% 6 5.2% 5.2% 5.2% 5.1% 4.6% 4.1% 3.6% 3.2% 3.2% 3.2% 7 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 8 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 9 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 10 or more 2.3% 2.3% 2.1% 2.0% 1.9% 1.8% 1.8% 1.8% 1.8% 1.8% SPECIAL RISK Female Combined Attained Age Years of Service % 21.3% 21.3% 21.3% 21.3% 21.3% 21.3% 21.3% 21.3% 21.3% % 14.2% 13.2% 12.2% 11.2% 10.2% 9.2% 8.4% 8.4% 8.4% % 11.6% 10.6% 9.6% 8.6% 7.6% 6.6% 5.8% 5.8% 5.8% % 9.8% 9.3% 8.8% 8.3% 7.6% 6.6% 5.6% 5.6% 5.6% 4 9.7% 9.2% 8.7% 8.4% 7.6% 7.0% 6.4% 5.4% 5.4% 5.4% 5 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 5.3% 5.3% 5.3% 6 5.9% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9% 5.1% 5.1% 5.1% 7 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 8 4.2% 4.2% 4.2% 4.2% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 9 4.2% 4.2% 4.2% 4.1% 4.1% 4.1% 4.0% 4.0% 4.0% 4.0% 10 or more 1.9% 1.9% 1.7% 1.5% 2.5% 2.5% 1.6% 4.0% 4.0% 4.0% VIII-22

117 VIII. ACTUARIAL METHODS AND ASSUMPTIONS Table A-10 (cont.) Other Terminations of Employment Annual Rates SPECIAL RISK ADMINISTRATIVE SUPPORT Male Combined Attained Age Years of Service % 13.9% 13.9% 13.9% 13.9% 13.9% 13.9% 13.9% 13.9% 13.9% % 10.8% 10.3% 9.9% 9.7% 9.5% 9.4% 9.4% 9.4% 9.4% % 9.7% 9.3% 8.9% 8.7% 8.5% 8.4% 8.4% 8.4% 8.4% 3 9.7% 9.1% 8.7% 8.3% 7.9% 7.8% 7.7% 7.6% 7.6% 7.6% 4 8.8% 8.3% 8.0% 7.8% 7.6% 7.4% 7.4% 7.4% 7.4% 7.4% 5 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 6 4.4% 4.4% 4.4% 4.2% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 7 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 8 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 9 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 10 or more 3.9% 3.9% 3.6% 3.4% 3.2% 3.3% 3.6% 7.5% 7.5% 7.5% SPECIAL RISK ADMINISTRATIVE SUPPORT Female Combined Attained Age Years of Service % 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% % 18.0% 17.1% 16.5% 16.1% 15.9% 15.7% 15.7% 15.7% 15.7% % 16.9% 16.5% 16.2% 15.9% 15.8% 15.7% 15.7% 15.7% 15.7% % 19.8% 19.3% 19.0% 18.7% 18.6% 18.4% 18.4% 18.4% 18.4% % 20.2% 19.8% 19.4% 19.0% 18.8% 18.7% 18.7% 18.7% 18.7% % 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% % 18.7% 18.7% 18.7% 18.7% 18.7% 18.7% 18.7% 18.7% 18.7% % 17.9% 17.9% 17.9% 17.9% 17.9% 17.9% 17.9% 17.9% 17.9% % 17.8% 17.7% 17.7% 17.7% 17.6% 17.6% 17.6% 17.6% 17.6% % 17.8% 17.8% 17.8% 17.7% 17.7% 17.6% 17.6% 17.6% 17.6% 10 or more 18.4% 18.4% 18.1% 17.8% 17.6% 17.7% 18.0% 21.0% 21.0% 21.0% VIII-23

118 IX. GLOSSARY OF TERMS Actuarial assumptions Assumptions as to the occurrence of future events affecting retiree healthcare costs, such as: mortality, withdrawal, disablement, and retirement; changes in medical costs; rates of investment earnings, and asset appreciation or depreciation; and other relevant items. Actuarial cost method A procedure for determining the actuarial present value of retiree healthcare 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 liability. Actuarial liability That portion of the actuarial present value of retiree healthcare benefits and expenses which is allocated to years prior to the valuation date by the actuarial cost method. Agent multiple-employer plan An aggregation of single-employer plans with pooled investment and administrative functions. Each employer has a separate account, a separate actuarial valuation to determine the ARC, and separate disclosures. Annual required contribution, or ARC The actuarially determined cost of retiree healthcare benefits allocated to the current year by the actuarial cost method, consisting of the normal cost and a payment to amortize the actuarial liability. Cost-sharing multiple-employer plan A single plan with a pooling arrangement that shares all risks, rewards, and costs among the participating employers. If the plan is administered through a formal trust, the plan completes a single actuarial valuation and all employers pay the same contribution rate. Employer contribution Payment of benefits directly to or on behalf of a retiree or beneficiary, premium payments to an insurer, or assets irrevocably transferred to a formal trust or equivalent arrangement. Formal trust An arrangement in which assets are dedicated to providing benefits to retirees and their beneficiaries and are legally protected from creditors of the employers and plan administrator. Fully-insured plan A plan that pays eligible medical claims and expenses for members in return for a fixed premium that is determined in advance of the period of coverage. GASB The Governmental Accounting Standards Board. The mission of the Governmental Accounting Standards Board is to establish and improve standards of IX-1 This work product was prepared solely for the Florida Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

119 IX. GLOSSARY OF TERMS state and local governmental accounting and financial reporting that will result in useful information for users of financial reports and guide and educate the public, including issuers, auditors, and users of those financial reports. GASB 43 The statement that establishes financial reporting standards for postemployment benefit plans other than pension plans. GASB 45 The statement that establishes financial reporting standards for employers that sponsor postemployment benefits other than pensions. Health Cost Guidelines Milliman s proprietary tool that allows detailed modeling of healthcare benefits and costs, including costs by age. Specifically, this refers to the Commercial Rating Structures Health Cost Guidelines and the Over 65 Rating Structures Health Cost Guidelines. Health Maintenance Organization or HMO An organization that provides healthcare services through a network of healthcare providers for a fixed premium cost, usually with set copayments. If services are obtained outside the network, usually the HMO does not pay for them. Implicit rate subsidy A measure of the amount by which healthcare costs for retirees under age 65 are higher than the healthcare costs for active employees and retirees under age 65 combined. The healthcare costs for retirees are higher because healthcare costs tend to increase with age. Normal cost That portion of the actuarial present value of retiree healthcare benefits and expenses which is allocated to a valuation year by the actuarial cost method. Other postemployment benefit or OPEB Postemployment benefits other than pension benefits. These benefits include medical, dental, life insurance, and other benefits offered to retirees. Pension benefits are covered by similar accounting rules. Preferred Provider Organization or PPO An organization that provides healthcare services through a network of providers who charge a discounted fee. If services are obtained outside the network, usually the patient pays a higher share of the cost as compared to services obtained in the network. Self-insured plan A plan that pays eligible medical claims for members and is reimbursed for the claim payments plus an administrative fee. IX-2 This work product was prepared solely for the Florida Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

120 IX. GLOSSARY OF TERMS Sole employer plan A plan that covers the current and former employees, including beneficiaries, of only one employer. Trend rate The rate of increase in per-person health costs paid by a plan as a result of factors such as price increases, utilization of healthcare services, plan design, and technological developments. IX-3 This work product was prepared solely for the Florida Department of Management Services for the purposes described herein and may not be appropriate to use for other purposes. Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work. Milliman recommends that third parties be aided by their own actuary or other qualified professional

121 80 Lamberton Road Windsor, CT USA Tel Fax milliman.com August 23, 2013 Ms. Celeste Pullen, MBA Bureau Chief Financial & Fiscal Management Division of State Group Insurance 4050 Esplanade Way, Suite 215E Tallahassee, FL RE: Actuarial Equivalence Testing State of Florida Dear Ms. Pullen: Thank you for allowing Milliman to conduct the actuarial equivalence testing for the State of Florida retiree pharmacy benefits for the plan year beginning January 1, This analysis is necessary to establish eligibility for the Retiree Drug Subsidy. In order to qualify for the federal subsidy, an application must be submitted to the Centers for Medicare and Medicaid Services (CMS) along with an electronic actuarial attestation certifying that these retiree pharmacy benefits qualify for the subsidy. The results of the analysis, as well as guidance on both the subsidy application and the required creditable coverage notification, are contained in this letter. Please read this report in its entirety, in particular, note the section describing CMS disclosure requirements. Qualifications I, Stephen J. Kaczmarek, am a Principal and Consulting Actuary for Milliman. I am a member of the American Academy of Actuaries and I meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Findings The benefits tested provide creditable coverage. Therefore, the benefits are at least as rich as the standard Medicare Prescription Drug (Medicare Rx) benefit. The benefits tested are at least actuarially equivalent to the standard Medicare Rx benefit as long as the Health Insurance Subsidy can be used to reduce members net contribution amount. Therefore, not only do the benefits provide creditable coverage, but they are also at least as rich as the standard Medicare Rx benefit when the beneficiaries contributions are taken into account. Retirees are eligible for a Health Insurance Subsidy of $5 per month for every year of service

122 Ms. Celeste Pullen, MBA August 23, 2013 Page 2 accumulated before retirement. Our current estimate of the value of this subsidy is $112 per month on average with a range of $30 to $150. We have reduced the premiums by this amount for this testing. The estimated calendar year 2014 Retiree Drug Subsidy is $17.7 million (or approximately $700 per RDS eligible member per year). As of June 2013, there are approximately 25,157 Medicareeligible members with pharmacy coverage through the State of Florida. This excludes retirees that are not eligible for the RDS because they have enrolled in a Medicare Advantage plan with pharmacy coverage through the State of Florida. Any of the 25,157 Medicare-eligible retirees or their dependents that receive pharmacy benefits through Medicare (e.g., enroll in an individual Medicare Part D plan) will also not be eligible for the RDS. Benefit Options Tested Milliman was provided information for four plans, the Standard HMO, Standard PPO, Health Investor HMO and Health Investor PPO. The Standard HMO and Standard PPO have the same pharmacy benefits, and therefore can be treated as one benefit option when applying for the RDS. In addition, the Health Investor HMO and Health Investor PPO have the same pharmacy benefits, and therefore can be treated as one benefit option when applying for the RDS. While the premiums have varied in the past based on the health insurer for the medical plan, in 2014 the Standard HMO and PPO options will have the same premium, the Health Investor HMO and PPO will have the same premium. Therefore, one application needs to be completed for two benefit options. Table A Plan Name and Benefit Option Names Plan Name Benefit Option 1 Benefit Option 2 State of Florida Standard Plan Health Investor Plan

123 Ms. Celeste Pullen, MBA August 23, 2013 Page 3 Table B Benefit Options Tested Cost Sharing Provisions for the Plan Year Ending in 2014 Benefit Option 1 Standard Plan Benefit Option 2 Health Investor Plan Average Monthly Premium Rates 1 Medicare I: $ $ Medicare II: $ $ Medicare III: $ $ Medical and Medical Only Pharmacy Combined In Network Single Deductible $0 (HMO)/$250 (PPO) $1,250 In Network Family Deductible $0 (HMO)/$500 (PPO) $2,500 In Network Single OOP Max. $1,500 (HMO)/$2,500 (PPO) $3,000 In Network Family OOP Max. $3,000 (HMO)/$5,000 (PPO) $6,000 Retail Prescription Drug Copay Arrangement: Generic $7 30% Brand Preferred $30 30% Non-Preferred $50 50% Mail-Order Prescription Drug Copay Arrangement: Generic $14 30% Brand Preferred $60 30% Non-Preferred $100 50% Coordination of Benefits Method: Plan pays up to the amount it would have paid without Medicare A/B Plan pays up to the amount it would have paid without Medicare A/B 1 Rates effective 3/1/2014. These rates were averaged with the prior year s rates for the first two months of 2014 for the purposes of RDS testing. Please contact Milliman immediately if Table B does not accurately describe the benefits and contributions that will be in place for the plan year ending in 2014 or if different names are used in the application than those listed in Table A. Coordination of Benefits If the Medicare-eligible beneficiaries enrolled in this plan do not enroll in a Medicare Part D plan, the beneficiaries must be able to receive the full pharmacy benefits stated in this plan. In other words, the plan's pharmacy benefits must not be reduced for persons who are eligible to enroll in a Medicare Part D plan but have not enrolled in a Medicare Part D plan.

124 Ms. Celeste Pullen, MBA August 23, 2013 Page 4 If the plan benefits are reduced for Medicare-eligible beneficiaries who have not enrolled in a Medicare Part D plan, please contact Milliman immediately. Creditable Coverage Notification Milliman determined that the benefits provide creditable coverage as defined by CMS. Medicare-eligible beneficiaries covered under this plan must be notified of this creditability status at the following times: Prior to the Medicare Rx Annual Coordinated Election Period (October 15 th through December 7 th of each year). Prior to each individual s Initial Enrollment Period for Medicare Rx. Prior to the effective date of coverage for any Medicare-eligible individual that joins the plan. Whenever a change is made to the prescription drug coverage that alters the status of creditability. Upon a beneficiary s request. The regulations also require that the plan sponsor disclose the plan s creditability status to CMS. However, if all of the plan s Medicare-eligible beneficiaries are subject to the subsidy, then the plan sponsor is exempt from this required disclosure to CMS. If any of the plan s Medicare-eligible beneficiaries are not subject to the subsidy (e.g., the plan has active Medicare-eligible beneficiaries, there are Medicare-eligible beneficiaries covered by a benefit option that did not qualify for the subsidy), then the plan sponsor must comply with the disclosure requirement. The disclosure to CMS must be made on an annual basis and upon any change that alters the status of creditability. CMS has released model language for the notification to beneficiaries and a form for the required disclosure to CMS. These documents can be found at the following website: Disclosure to CMS After the creditable coverage notice has been distributed to all Medicare-eligible beneficiaries covered under the plan, CMS must be notified that the creditable coverage notice was sent out. The Disclosure to CMS Form must be completed at the following times: The Disclosure to CMS Form must be provided within 60 days after the beginning date of the Plan Year for which the entity is providing the Disclosure to CMS Form; Within 30 days after the termination of the prescription drug plan; and Within 30 days after any change in the creditable coverage status of the prescription drug plan. The Disclosure to CMS Form may be located at:

125 Ms. Celeste Pullen, MBA August 23, 2013 Page 5 Subsidy Application If you applied for the 30-day extension for your RDS application, please make sure your initial application AND your Covered Retiree List (CRL) file are both submitted to the RDS website by October 31, Otherwise the deadline to submit these two items to the RDS website is September 30, The official website to apply for the subsidy can be found at A new application must be submitted each year no later than 90 days prior to the start of the plan year. A 30-day extension is available to those who apply for the subsidy at least 90 days prior to the start of the plan year. The information from the attachment in this report may be used to complete much of the Retiree Drug Subsidy application. The attachment includes samples of the screen shots from the online application and the information to complete the required fields. Please review the attachment prior to filling out the Benefit Option and Add Actuary sections of the application process. Milliman recommends monitoring the following website for further updates on the subsidy application process: Approach Using data from Milliman s Ages 65 and Over Health Cost Guidelines, a proprietary database that develops pharmacy spending patterns for a senior population, Milliman compared the gross and net financial values of the standard Part D benefit to the gross and net financial values of the benefits provided by the plan. Milliman performed the analysis using generally accepted actuarial methods. Caveats This report has been prepared for the specific purpose of determining if the State of Florida pharmacy plans qualify for the Retiree Drug Subsidy in This information may not be appropriate, and should not be used, for any other purpose. This report has been prepared solely for the internal business use of, and is only to be relied upon by, the management of the State of Florida. No portion of this report may be provided to any other party without Milliman's prior written consent. Milliman does not intend to benefit or create a legal duty to any third party recipient of its work even if we permit the distribution of our work product to such third party. The results presented herein are estimates based on carefully constructed actuarial models. Differences between our estimates and actual amounts depend on the extent to which future experience conforms to the assumptions made for this analysis. It is certain that actual experience will not conform exactly to the assumptions used in this analysis. Actual amounts will differ from projected amounts to the extent that actual experience deviates from expected experience In performing this analysis, we relied on data and other information provided by the State of Florida. We have not audited or verified this data and other information but reviewed it for general reasonableness. If the underlying data or information is inaccurate or incomplete, the results of our analysis may likewise be inaccurate or incomplete.

126 Ms. Celeste Pullen, MBA August 23, 2013 Page 6 ϖ ϖ ϖ ϖ ϖ Please let me know if you have any questions concerning Milliman s analysis or the findings presented in this letter. Thank you for allowing Milliman to be of service to the State of Florida. Sincerely, Stephen J. Kaczmarek, FSA, MAAA Principal & Consulting Actuary

127 Attachment Sample Application Screens During the application process, the following screens will have to be completed. These screen shots and the information in red show where to input certain information during the application process. Several other screens that will have to be completed are not shown here. Select ID Entered Earlier in Application State of Florida Enter *Plan Start: January 1, 2014 Enter *Plan End: December 31, 2014 Milliman was provided information for two plan designs. Therefore, one application needs to be completed for two benefit options.

128 (Enter Benefit Option Names) (You choose this number for your own records) Self Insured or Fully Insured State of Florida