The OPEB Actuarial Valuation December, 2015 2013 OPEB report.docx
TABLE OF CONTENTS Section Item Page SECTION I OVERVIEW... 1 SECTION II REQUIRED INFORMATION... 3 SECTION III MEDICAL PREMIUM AND MEMBERSHIP DATA... 4 SECTION IV REQUIRED SUPPLEMENTARY INFORMATION... 7 SECTION V NET OPEB OBLIGATION... 8 SECTION VI SCHEDULE OF EMPLOYER CONTRIBUTIONS... 9 SCHEDULE A ACTUARIAL ASSUMPTIONS AND METHODS... 12 SCHEDULE B SUMMARY OF PROGRAM PROVISIONS... 17 SCHEDULE C CONSIDERATIONS OF HEALTH CARE REFORM... 18 SCHEDULE D GLOSSARY OF TERMS... 19
Page 1 SECTION I - OVERVIEW The has engaged Sherman Actuarial Services, LLC to prepare an actuarial valuation of their post-retirement benefits program as of. The Town provided employee data and premium information. The purposes of the valuation are to analyze the current funded position of the Town s post-retirement benefits program, determine the level of contributions necessary to assure sound funding and provide reporting and disclosure information for financial statements, governmental agencies and other interested parties. This valuation report contains information required by the Government Accounting Standards Board s Statements Nos. 43 and 45, respectively entitled Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans and Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions. Liabilities have been determined based on a 4.0% discount rate. This rate is a partial-prefunding rate, which is a blend of an 8.0% full pre-funding rate and a 3.5% no pre-funding rate. To estimate the effect of fully prefunding the obligation, we have used an alternative discount rate of 8.0%. In addition, the actuarial assumptions for mortality, healthcare trend and probability of electing coverage were modified for this valuation. If all the assumptions of the June 30, 2013 report had been met, we would have expected the Actuarial Accrued Liability to increase from $59,354,402 to $64,300,888. The difference between the expected Actuarial Accrued Liability and the actual Liability of $76,436,810 is primarily due to the changes in the coshare costs to retirees. Section II provides a summary of the principal valuation results. Section V provides a projection of funding amounts.
Page 2 Daniel Sherman is an Associate of the Society of Actuaries. He is a Member of the American Academy of Actuaries and meets the Qualification Standards of the Academy to render the actuarial opinions contained herein. This report has been prepared in accordance with all applicable Actuarial Standards of Practice, and we are available to answer questions about it. Respectfully Submitted, SHERMAN ACTUARIALS SERVICES, LLC December 9, 2015 Daniel Sherman, ASA, MAAA, EA CEO Date
Page 3 SECTION II REQUIRED INFORMATION Partial Prefunding Full Prefunding 4% 8% a) Actuarial valuation date Difference b) Actuarial Value of Assets $ 1,482,917 $ 1,482,917 $ 0 c) Actuarial Accrued Liability Active participants $ 41,119,273 $ 18,857,244 $ 22,262,029 Retired participants 37,235,922 25,982,042 11,253,880 Total $ 78,355,195 $ 44,839,286 $ 33,515,909 d) Unfunded Actuarial Liability "UAL" [ c - b ] $ 76,872,278 $ 43,356,369 $ 33,515,909 e) Funded ratio [ b / c ] 1.9% 3.3% -1.4% f) Annual covered payroll $ 54,100,000 $ 54,100,000 g) UAL as percentage of covered payroll 142.1% 80.1% h) Normal Cost for fiscal year 2015 $ 2,855,477 $ 1,010,749 $ 1,844,728 i) Amortization of UAL for fiscal year 2015 * $ 2,562,409 $ 2,369,543 $ 192,866 j) Annual Required Contribution "ARC" for fiscal year 2015 [ h + i ] $ 5,417,886 $ 3,380,292 $ 2,037,594 k) Expected benefit payments $ 2,586,417 $ 2,586,417 $ 0 * 30-year amortization, increasing 4.0% per year
Page 4 SECTION III MEDICAL PREMIUM AND MEMBERSHIP DATA Monthly Town Shared Premiums effective July 1, 2015 Health benefits are available to retirees through a number of plans. The following rates include associated administrative fees, if applicable. Medicare Plans (Individual): Gross Premium Cost Sharing 6/30/2015 Headcount HPHC Medicare Enhanced (pre-6/30/2004) $355.81 20.0% 48 HPHC Medicare Enhanced (post-6/30/2004 pre-6/30/2014) $355.81 41.5% 26 HPHC Medicare Enhanced (post-6/30/2014) $355.81 50.0% 4 HPHC Medicare Enhanced Individual +1 (pre-6/30/2004) $355.81 20.0% 217 HPHC Medicare Enhanced Individual +1 (post-6/30/2004 pre- 6/30/2014) $355.81 41.5% 121 HPHC Medicare Enhanced Individual +1 (post-6/30/2014) $355.81 50.0% 2 Tufts Medicare Preferred $262.00 50.0% 14 Medicare Part B $104.90 50.0% 439 Harvard Medicare Supplemental - Reduced $209.80 20.0% 7 Non-Medicare Plans: HPHC PPO Individual $904.2 50.0% 8 Family $2,441.30 50.0% 1 HPHC HMO (pre-6/30/2004) Individual $716.37 22.5% 26 Individual +1 $716.37 30.0% 1 Family $1,934.25 30.0% 4 HPHC HMO (post-6/30/2004 / pre-6/30/2014) Individual $716.37 41.5% 18 Individual +1 $716.37 41.5% 9 Family $1,934.25 41.5% 7 HPHC HMO (post-6/30/2014) Individual $716.37 50.0% 5 Family $1,934.25 50.0% 7 As of January 1, 2016, pre-2004 HMO retirees will be will have a 30% cost sharing arrangement. As of July 1, 2017, post 2004 HMO retirees will have a 50% cost sharing arrangement.
Page 5 SECTION III MEDICAL PREMIUM AND MEMBERSHIP DATA (Continued) Number of Participants Assessor's Office Board of Health Building Dept. Dept. of Public Works Engineering Fire Police Recreation Dept. Actives 3 4 5 58 5 45 39 12 Retirees and Beneficiaries* 9 3 2 59 9 51 46 4 Total 12 7 7 117 14 96 85 16 Accrued Liability @ 4% Active 204,222 212,274 329,935 4,347,313 236,988 3,977,707 2,982,710 724,978 Retired 547,943 173,212 91,620 3,860,880 506,050 4,189,578 3,244,477 294,245 Total 752,165 385,486 421,555 8,208,193 743,038 8,167,285 6,227,187 1,019,223 Annual Required Contribution @ 4% Normal Cost with interest 8,822 14,148 15,679 184,897 14,685 179,103 191,499 48,977 Amortization of UAL with interest 24,598 12,606 13,786 268,428 24,299 267,090 203,644 33,331 Total 33,420 26,754 29,465 453,325 38,984 446,193 395,143 82,308 Pay-as-You-Go 48,516 17,137 12,719 281,061 41,293 253,994 206,926 18,286 Accrued Liability @ 8% Active 96,739 108,951 177,651 2,174,267 112,427 1,917,526 1,327,388 267,014 Retired 405,269 132,837 71,068 2,715,767 378,883 2,783,880 2,202,916 201,318 Total 502,008 241,788 248,719 4,890,034 491,310 4,701,406 3,530,304 468,332 Annual Required Contribution @ 8% Normal Cost with interest 3,792 6,455 7,048 78,621 5,208 55,229 55,930 14,621 Amortization of UAL with interest 26,529 12,777 13,144 258,415 25,963 248,447 186,560 24,749 Total 30,321 19,232 20,192 337,036 31,171 303,676 242,490 39,370 Pay-as-You-Go 48,516 17,137 12,719 281,061 41,293 253,994 206,926 18,286 Note: For the amortization of UAL, assets were allocated among the departments in proportion to Accrued Liablility * Participants who have elected to receive Town subsidized benefits.
Page 6 SECTION III MEDICAL PREMIUM AND MEMBERSHIP DATA (Continued) Number of Participants Recreation Dept. Retirement School Town Clerk Water Sewer Enterprise All Others Total Actives 12 1 530 3 16 43 764 Retirees and Beneficiaries* 4-372 6 4 34 599 Total 16 1 902 9 20 77 1,363 Accrued Liability @ 4% Active 724,978 57,578 24,097,910 133,143 1,384,447 2,430,068 41,119,273 Retired 294,245-22,020,161 476,556 100,338 1,730,860 37,235,922 Total 1,019,223 57,578 46,118,071 609,699 1,484,785 4,160,928 78,355,195 Annual Required Contribution @ 4% Normal Cost with interest 48,977 7,561 2,074,154 10,580 35,672 69,700 2,855,477 Amortization of UAL with interest 33,331 1,883 1,508,175 19,939 48,556 136,074 2,562,409 Total 82,308 9,444 3,582,329 30,519 84,228 205,774 5,417,886 Pay-as-You-Go 18,286-1,536,612 23,532 11,254 135,088 2,586,417 Accrued Liability @ 8% Active 267,014 28,135 10,574,786 70,387 649,412 1,352,561 18,857,244 Retired 201,318-15,478,240 316,438 77,257 1,218,170 25,982,042 Total 468,332 28,135 26,053,026 386,825 726,669 2,570,731 44,839,286 Annual Required Contribution @ 8% Normal Cost with interest 14,621 3,695 734,564 4,499 13,287 27,801 1,010,749 Amortization of UAL with interest 24,749 1,487 1,376,779 20,442 38,401 135,850 2,369,543 Total 39,370 5,182 2,111,343 24,941 51,688 163,651 3,380,292 Pay-as-You-Go 18,286-1,536,612 23,532 11,254 135,088 2,586,417 Note: For the amortization of UAL, assets were allocated among the departments in proportion to Accrued Liablility * Participants who have elected to receive Town subsidized benefits.
Page 7 SECTION IV REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS (a) (b) (b) - (a) (a) / (b) [(b)-(a)] / (c) Actuarial UAL as Actuarial Actuarial Accrued Unfunded Annual Percentage Valuation Value of Liability AAL Funded Covered of Covered Date Assets (AAL) (UAL) Ratio Payroll Payroll July 1, 2008 0 110,278,479 110,278,479 0.00% 37,723,250 292.3% June 30, 2011 375,000 93,333,604 92,958,604 0.40% 42,210,838 220.2% June 30, 2013 751,874 60,106,276 59,354,402 1.25% 44,699,816 132.8% 1,482,917 78,355,195 76,872,278 1.89% 54,100,000 142.1% These results are based on a discount rate of 3.50% for 2008 and 4.00% since 2011.
Page 8 SECTION V NET OPEB OBLIGATION GASB Statement No. 45 requires the development of Annual OPEB Cost and Net OPEB Obligation (NOO). This development is shown in the following table. DEVELOPMENT OF OPEB COST AND NET OPEB OBLIGATION (NOO) Year Annual Annual Change in Ending Required Interest on Amortization OPEB Cost Expected NOO June 30 Contribution NOO of NOO (1)+(2)-(3) Contribution* (4)-(5) NOO Balance (1) (2) (3) (4) (5) (6) (7) 2013 20,531,475 2014 4,487,062 821,276 684,397 4,623,941 2,216,893 2,407,048 22,938,523 2015 5,417,886 917,541 764,617 5,570,810 2,945,040 2,625,770 25,564,293 2016 5,674,208 1,022,572 852,143 5,844,637 2,936,417 2,908,221 28,472,514 2017 5,940,550 1,138,901 949,084 6,130,367 3,130,868 2,999,499 31,472,013 *Includes $470,000, $350,000 and $350,000 contributions to Trust for FYE15 through FYE17, respectively.
Page 9 SECTION VI SCHEDULE OF EMPLOYER CONTRIBUTIONS The Government Accounting Standards Board s Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions outlines various requirements of a funding schedule that will amortize the unfunded actuarial liability and cover normal costs. Amortization of the unfunded actuarial liability is to be based on a schedule that extends no longer than 30 years. The contribution towards the amortization of the unfunded actuarial liability may be made in level payments or in payments increasing at the same rate as salary increases. In the amortization schedules shown on the following pages, the amortization of the unfunded accrued liability is assumed to increase annually by 4.0%. The normal cost is expected to increase at the same rate as the assumed health care trend rate. The contributions were computed assuming that the contribution is paid at the end of the fiscal year. Projected benefit payments/employer contributions reflect only the benefit for those individuals now employed or retired, not any future entrants. Paragraph 12 of GASB 45 stipulates that valuations must be performed at least biennially.
Page 10 SECTION VI SCHEDULE OF EMPLOYER CONTRIBUTIONS (Continued)* Assumed Partial Prefunding Interest Rate of 4% Expected Fiscal Year Amortization Benefit Unfunded Ending In Normal Cost of UAL ARC Payments Liability 2015 2,855,477 2,562,409 5,417,886 2,475,040 76,872,278 2016 2,998,251 2,675,957 5,674,208 2,586,417 80,278,720 2017 3,148,164 2,792,386 5,940,550 2,780,868 83,771,565 2018 3,305,572 2,913,361 6,218,933 2,936,940 87,400,840 2019 3,470,851 3,038,107 6,508,958 3,128,878 91,143,212 2020 3,644,394 3,167,614 6,812,008 3,304,126 95,028,418 2021 3,826,614 3,303,702 7,130,316 3,452,811 99,111,052 2022 4,017,945 3,447,067 7,465,012 3,608,188 103,412,003 2023 4,218,842 3,595,235 7,814,077 3,832,942 107,857,044 2024 4,429,784 3,751,602 8,181,386 4,005,424 112,548,057 2025 4,651,273 3,919,035 8,570,308 4,185,668 117,571,053 2026 4,883,837 4,093,878 8,977,715 4,399,738 122,816,351 2027 5,128,029 4,278,839 9,406,868 4,597,726 128,365,162 2028 5,384,430 4,476,646 9,861,076 4,804,624 134,299,393 2029 5,653,652 4,690,639 10,344,291 5,020,832 140,719,183 2030 5,936,335 4,918,784 10,855,119 5,246,769 147,563,519 2031 6,233,152 5,163,105 11,396,257 5,482,874 154,893,164 2032 6,544,810 5,426,315 11,971,125 5,729,603 162,789,442 2033 6,872,051 5,704,831 12,576,882 5,987,435 171,144,943 2034 7,215,654 6,000,270 13,215,924 6,256,870 180,008,112 2035 7,576,437 6,317,206 13,893,643 6,538,429 189,516,166 2036 7,955,259 6,654,564 14,609,823 6,832,658 199,636,924 2037 8,353,022 7,013,625 15,366,647 7,140,128 210,408,753 2038 8,770,673 7,394,250 16,164,923 7,461,433 221,827,506 2039 9,209,207 7,798,340 17,007,547 7,797,198 233,950,203 2040 9,669,667 8,226,548 17,896,215 8,148,072 246,796,431 2041 10,153,150 8,683,448 18,836,598 8,514,735 260,503,443 2042 10,660,808 9,169,579 19,830,387 8,897,898 275,087,358 2043 11,193,848 9,688,811 20,882,659 9,298,304 290,664,332 2044 11,753,540 10,247,262 22,000,802 9,716,727 307,417,859 2045 12,341,217 10,838,701 23,179,918 10,153,980 325,161,036 2046 12,958,278 11,474,046 24,432,324 10,610,909 344,221,374 * The contributions were computed assuming that the contribution is paid at the end of the fiscal year.
Page 11 SECTION VI SCHEDULE OF EMPLOYER CONTRIBUTIONS (Continued)* Assumed Full Prefunding Interest Rate of 8% Expected Fiscal Year Amortization Benefit Unfunded Ending In Normal Cost of UAL ARC Payments Liability 2015 1,010,749 2,369,543 3,380,292 2,475,040 43,356,369 2016 1,061,286 2,464,325 3,525,611 2,586,417 44,265,772 2017 1,114,350 2,562,898 3,677,248 2,780,868 45,145,563 2018 1,170,068 2,665,414 3,835,482 2,936,940 45,989,278 2019 1,228,571 2,772,031 4,000,602 3,128,878 46,789,773 2020 1,290,000 2,882,912 4,172,912 3,304,126 47,539,162 2021 1,354,500 2,998,228 4,352,728 3,452,811 48,228,750 2022 1,422,225 3,118,157 4,540,382 3,608,188 48,848,964 2023 1,493,336 3,242,883 4,736,219 3,832,942 49,389,271 2024 1,568,003 3,372,598 4,940,601 4,005,424 49,838,099 2025 1,646,403 3,507,502 5,153,905 4,185,668 50,182,741 2026 1,728,723 3,647,802 5,376,525 4,399,738 50,409,258 2027 1,815,159 3,793,714 5,608,873 4,597,726 50,502,373 2028 1,905,917 3,945,463 5,851,380 4,804,624 50,445,352 2029 2,001,213 4,103,282 6,104,495 5,020,832 50,219,880 2030 2,101,274 4,267,413 6,368,687 5,246,769 49,805,926 2031 2,206,338 4,438,110 6,644,448 5,482,874 49,181,594 2032 2,316,655 4,615,634 6,932,289 5,729,603 48,322,962 2033 2,432,488 4,800,259 7,232,747 5,987,435 47,203,915 2034 2,554,112 4,992,269 7,546,381 6,256,870 45,795,948 2035 2,681,818 5,191,960 7,873,778 6,538,429 44,067,973 2036 2,815,909 5,399,638 8,215,547 6,832,658 41,986,094 2037 2,956,704 5,615,624 8,572,328 7,140,128 39,513,373 2038 3,104,539 5,840,249 8,944,788 7,461,433 36,609,569 2039 3,259,766 6,073,859 9,333,625 7,797,198 33,230,865 2040 3,422,754 6,316,813 9,739,567 8,148,072 29,329,567 2041 3,593,892 6,569,486 10,163,378 8,514,735 24,853,774 2042 3,773,587 6,832,265 10,605,852 8,897,898 19,747,031 2043 3,962,266 7,105,556 11,067,822 9,298,304 13,947,948 2044 4,160,379 7,389,778 11,550,157 9,716,727 7,389,783 2045 4,368,398-4,368,398 10,153,980 0 2046 4,586,818-4,586,818 10,610,909 0 * The contributions were computed assuming that the contribution is paid at the end of the fiscal year.
Page 12 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS TOWN OF WINCHESTER, ALL GROUPS Interest: Actuarial Cost Method: Full Prefund: 8.00% per year, net of investment expenses Partial Prefund: 4.00% per year, net of investment expenses Note: the 4.00% rate is a blend of an 8.0% full prefund rate and a 3.5% no prefund rate. Projected Unit Credit Medical Care Inflation: Year Rate 2013 6.5% 2014 6.0% 2015 5.5% 2016 5.0% 2017 4.5% 2018 4.5% 2019 & after 4.5% Amortization Period: Participation: Marital Status: 30-year level percent of pay assuming 4.0% increasing payments, closed basis for full prefunding. The amortization period is a specific number of years that is counted from one date, declining to zero with the passage of time. Under the partial funding approach, a 30-year open basis was used for the amortization. The amortization period is 30 years for all future valuations. 75% of all active employees are assumed to participate in the retiree medical plan. 75% of current actives who terminate service after age 50 with at least 10 years of service are expected to elect medical coverage starting at age 65. 50% of employees are expected to elect life insurance at retirement. 80% of male employees and 60% of female employees are assumed to have a covered spouse at retirement. Wives are assumed to be three years younger than their husbands.
Page 13 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS (Continued) Medical Plan Selection: Current retirees and spouses who are under age 65 are assumed to remain in their current medical plan until age 65. At age 65, they are assumed to participate in post 65 plans in the same proportions as current retirees over age 65 enrolled in Medicare plans. Current retirees and spouses over age 65 remain in their current medical plan until death. Current active employees are not valued using their current medical plan. Rather they are assumed to elect medical plans at retirement in the same proportion as current retirees. For pre-65 payments a blend of pre-65 plans is used, and for post-65 payments a blend of post-65 Medicare plans is used. Medical Premiums: Medical Plan Costs: Age-Based Morbidity: It is assumed that future retirees participate in the same manner as current retirees. Current retirees over age 65 remain in their current medical plan until death for purposes of measuring their contributions. It is assumed that future retirees are Medicare eligible. It is furthermore assumed that all current retirees under 65 will participate in the Medicare plans in the same proportion as current retirees over 65. Per capita costs were developed from the Town developed monthly costs. Amounts to be received in the future for the Medicare Part D Retiree Drug Subsidy are not reflected in the valuation. The estimated gross per capita incurred claim costs for all retirees and beneficiaries for 2015-16 at age 64 and 65 are $12,358 and $3,580, respectively. Medicare eligible retirees per capita claims costs at age 65 is $3,437. It is assumed that future retirees participate in the same manner as current retirees. Employee cost sharing is based on current rates. Future cost sharing is based on the weighted average of the current cost sharing of retirees and beneficiaries. Gross premiums are age-graded.
Page 14 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS (Continued) GROUPS 1 AND 2 (NON-TEACHERS) SEPARATIONS FROM ACTIVE SERVICE: Teacher separations are based on the same rates used by the Massachusetts Teachers Retirement Board. Representative values of the assumed annual rates of withdrawal and vesting, disability, death and service retirement are as follows for non-teachers: Service Retirement Years of Rates of Age Disability Male Female Service Withdrawal 25.0002 0.150 30.0003 1.120 35.0006 2.100 40.0010 3.090 45.0015 4.080 50.0019.01.015 5.076 55.0024.02.055 10.054 60.0028.12.050 15.033 62.0030.30.150 20.022 65.0030.40.150 25.010 69.30.200 30+.000 Mortality: The RP-2000 Combined Healthy Table. For the period after disability retirement, the RP-2000 Combined Healthy Table set forward 2 years is used. The healthy mortality tables were projected to 2015 using scale AA.
Page 15 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS (Continued) GROUPS 1 AND 2 (TEACHERS) SEPARATIONS FROM ACTIVE SERVICE: Representative values of the assumed annual rates of withdrawal and vesting, disability, death and service retirement are as follows: Age Disability Years of Service Rates of Withdrawal 25.0002 0.150 30.0003 1.120 35.0006 2.100 40.0010 3.090 45.0015 4.080 50.0019 5.076 55.0024 10.054 60.0028 15.033 62.0030 20.020 65.0030 25.010 69 30+.000 Male Female Service Retirement Service Retirement Age <20 20+ <20 20+ 50 0.00 0.01 0.00 0.01 55 0.02 0.03 0.02 0.04 60 0.12 0.20 0.12 0.16 61 0.15 0.30 0.15 0.20 62 0.18 0.35 0.18 0.25 63 0.15 0.35 0.15 0.25 64 0.25 0.30 0.25 0.30 65 0.40 0.50 0.40 0.40 66 0.40 0.30 0.40 0.30 67 0.40 0.30 0.40 0.25 68 0.40 0.30 0.40 0.35 69 0.40 0.40 0.40 0.35 70 1.00 1.00 1.00 1.00 Teachers electing the increased benefit under Chapter 114 of the Acts of 2000 were assumed to have higher rates of retirement from ages 54 to 62 if their service was greater than 30 years. These rates are the same for males and females. The rate at age 54 is 0.035. The rate increases to 0.06 at age 55, 0.18 at age 56, and 0.30 at age 57. The rate for ages 58, 59, and 62 is 0.40. The rate for ages 60 and 61 is 0.35. Mortality: The RP-2000 Combined Healthy Table with Projection Scale AA until 2015. For the period after disability retirement, the RP-2000 Combined Healthy Table set forward 2 years is used.
Page 16 SCHEDULE A - ACTUARIAL ASSUMPTIONS AND METHODS (Continued) GROUP 4 SEPARATIONS FROM ACTIVE SERVICE: Representative values of the assumed annual rates of disability, service retirement, and withdrawal are as follows: Service Years of Rates of Age Disability Retirements Service Withdrawal 25 0.20% 0 15.0% 30 0.30 1 15.0 35 0.30 2 15.0 40 0.30 3 15.0 45 1.00 1.0% 4 15.0 50 1.25 2.0 5 15.0 55 1.20 15.0 6 15.0 60 0.85 20.0 7 15.0 62 0.75 25.0 8 15.0 65 0.00 100.0 9 15.0 69 10 15.0 11+ 0.0 Mortality: The RP-2000 Combined Healthy Table. For the period after disability retirement, the RP-2000 Combined Healthy Table set forward 2 years is used. Both the healthy and disabled mortality tables were projected to 2015 using scale AA.
Page 17 SCHEDULE B - SUMMARY OF PROGRAM PROVISIONS Benefit Types: Medical Insurance: Medical and prescription drug benefits are provided to all eligible retirees through a variety of plans as summarized in Section III. Life Insurance: The contributes a portion per month in the amount of $3.28 for retirees receiving the $4,000 basic life insurance. Premiums: Dependent Coverage: The gross premiums and the cost sharing for the various plans are outlined in Section III. Spouse benefits are payable for the lifetime of the spouse for those retired from active service. Eligibility: Retirement: Age 55 with 10 years of service, or 20 years of service. For a Group 1 employee hired on or after April 2, 2012, attainment of age 60 and completion of ten years of service. For a Group 2 employee hired on or after April 2, 2012, attainment of age 55 and completion of ten years of service. For a Group 4 employee hired on or after April 2, 2012, attainment of age 55. Termination: 50 with 10 years of service. Eligible for deferred commencement of benefits at age 65. Disability: 10 years of service and under age 55 for Ordinary. No age or service requirements for Accidental. Chapter 32B, Section 18 The has adopted Section 18, which requires all Medicareeligible retirees and spouses to transfer to a Medicare extension plan.
Page 18 SCHEDULE C CONSIDERATION OF HEALTH CARE REFORM Summary of Effects of Selected Provisions Early Retiree Reinsurance Program Effective 6/1/2010: Due to the short-term nature of the payments expected to be received under this program, there is no impact on long-term GASB 45 liabilities. Removal of Lifetime Maximum: This does not apply since the current medical plans have no lifetime maximums. Medicare Advantage Plans - Effective 1/1/2011: The law provides for reductions to the amounts that would be provided to Medicare Advantage plans starting in 2011. The Tufts plan is a Medicare Advantage plan, but the impact was not material due to the low number of participants. Expansion of Child Coverage to Age 26: Since few retirees cover children on retiree health plans, this provision will likely have a relatively small effect on the gross benefit cost. We have not reflected the impact of any cost increase due to the expansion of coverage. Medicare Part D Subsidy - Shrinking Medicare Prescription Drug Donut Hole - Starting 1/1/2011: RDS payments are not reflected as on ongoing offsetting item in GASB 45 valuations, and so no impact is reflected. Excise Tax on High-Cost Employer Health Plans (aka Cadillac Tax) - Effective 1/1/2018: There is considerable uncertainty about how the tax would be applied, and considerable latitude in grouping of participants for tax purposes. We have estimated the impact and included an estimated tax in the liabilities. Other: We have not identified any other specific provision of health care reform that would be expected to have a significant impact on the measured obligation. As additional guidance on the legislation is issued, we will continue to monitor any potential impacts.
Page 19 SCHEDULE D - GLOSSARY OF TERMS Actuarial accrued liability That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present Value of OPEB benefits and expenses which is not provided for by future Normal Costs and therefore is the value of benefits already earned. Actuarial assumptions Assumptions as to the occurrence of future events affecting OPEB costs, such as: mortality, withdrawal, disablement and retirement; changes in compensation and Government provided OPEB benefits; rates of investment earnings and asset appreciation or depreciation; procedures used to determine the Actuarial Value of Assets; characteristics of future entrants for Open Group Actuarial Cost Methods; and other relevant items. Actuarial cost method A procedure for determining the Actuarial Present Value of OPEB benefits and expenses and for developing an actuarially equivalent allocation of such value to time periods, usually in the form of a Normal Cost and an Actuarial Accrued Liability. Actuarial experience gain or loss A measure of the difference between actual experience and that expected based upon a set of Actuarial Assumptions, during the period between two Actuarial Valuation dates, as determined in accordance with a particular Actuarial Cost Method. Amortization (of unfunded actuarial accrued liability) That portion of the OPEB plan contribution which is designed to pay interest on and to amortize the Unfunded Actuarial Accrued Liability or the Unfunded Frozen Actuarial Accrued Liability. Annual OPEB cost An accrual-basis measure of the periodic cost of an employer s participation in a defined benefit OPEB plan. Annual required contributions of the employer (ARC) The employer s periodic expense to a defined benefit OPEB plan, calculated in accordance with the parameters. It is the value of the cash contributions for a funded plan and the value of the expense entry in the profit and loss section of the financial statements. Closed amortization period (closed basis) A specific number of years that is counted from one date and, therefore, declines to zero with the passage of time. For example, if the amortization period initially is thirty years on a closed basis, twenty-nine years remain after the first year, twenty-eight years after the second year, and so forth. In contrast, an open amortization period (open basis) is one that begins again or is recalculated at each actuarial valuation date. Within a maximum number of years specified by law or policy (for example, thirty years), the period may increase, decrease, or remain stable.
Page 20 Covered payroll Annual compensation paid to active employees covered by an OPEB plan. If employees also are covered by a pension plan, the covered payroll should include all elements included in compensation on which contributions to the pension plan are based. For example, if pension contributions are calculated on base pay including overtime, covered payroll includes overtime compensation. Defined benefit OPEB plan An OPEB plan having terms that specify the benefits to be provided at or after separation from employment. The benefits may be specified in dollars (for example, a flat dollar payment or an amount based on one or more factors such as age, years of service, and compensation), or as a type or level of coverage (for example, prescription drugs or a percentage of healthcare insurance premiums). Funded ratio The actuarial value of assets expressed as a percentage of the actuarial accrued liability. Funding policy The program for the amounts and timing of contributions to be made by plan members, employer(s), and other contributing entities (for example, state government contributions to a local government plan) to provide the benefits specified by an OPEB plan. Healthcare cost trend rate The rate of change in per capita health claims costs over time as a result of factors such as medical inflation, utilization of healthcare services, plan design, and technological developments. Investment return assumption (discount rate) The rate used to adjust a series of future payments to reflect the time value of money. Level dollar amortization method The amount to be amortized is divided into equal dollar amounts to be paid over a given number of years; part of each payment is interest and part is principal (similar to a mortgage payment on a building). Because payroll can be expected to increase as a result of inflation, level dollar payments generally represent a decreasing percentage of payroll; in dollars adjusted for inflation, the payments can be expected to decrease over time. Level percentage of projected payroll amortization method Amortization payments are calculated so that they are a constant percentage of the projected payroll of active plan members over a given number of years. The dollar amount of the payments generally will increase over time as payroll increases due to inflation; in dollars adjusted for inflation, the payments can be expected to remain level.
Page 21 Net OPEB obligation The cumulative difference since the effective date of this Statement between annual OPEB cost and the employer s contributions to the plan, including the OPEB liability (asset) at transition, if any, and excluding (a) short-term differences and (b) unpaid contributions that have been converted to OPEB-related debt. It will be included as a balance sheet entry on the financial statements. Normal cost That portion of the Actuarial Present Value of OPEB benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method. It is the value of benefits to be accrued in the valuation year by active employees. OPEB-related debt All long-term liabilities of an employer to an OPEB plan, the payment of which is not included in the annual required contributions of a sole or agent employer (ARC) or the actuarially determined required contributions of a cost-sharing employer. Payments generally are made in accordance with installment contracts that usually include interest. Examples include contractually deferred contributions and amounts assessed to an employer upon joining a multiple-employer plan. Other postemployment benefits Postemployment benefits other than pension benefits. Other postemployment benefits (OPEB) include postemployment healthcare benefits, regardless of the type of plan that provides them, and all postemployment benefits provided separately from a pension plan, excluding benefits defined as termination offers and benefits. Pay-as-you-go A method of financing a OPEB plan under which the contributions to the plan are generally made at about the same time and in about the same amount as benefit payments and expenses becoming due. Required supplementary information (RSI) Schedules, statistical data, and other information that are an essential part of financial reporting and should be presented with, but are not part of, the basic financial statements of a governmental entity.