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HomeMy WebLinkAbout10 - Retiree Medical Programs • c 5� CITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT MT6 Agenda Item No. 10 February 12, 2008 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Service Depat Dennis Danner, Director 9491644 -3123 or ddanner@city.nePo6each.ca.us SUBJECT: Retiree Medical Program ISSUE: Should the City fund the remainder of the liability for the former Retiree Medical Program through the California Employers' Retiree Medical Benefit Trust Fund (CEBRT) offered by CaIPERS. RECOMMENDATION: Authorize the Mayor, City Manager and City Clerk to execute the attached documents initiating participation in CEBRT, with the intention of budgeting sufficient funds to fully satisfy the remaining liability over a twenty year period. DISCUSSION: The City's Retiree Medical Program has been converted from a defined benefit plan to a defined contribution plan. This new plan is being phased in over a period of several years. There is virtually no unfunded liability with the new plan. Since no additional participants are being added to the old plan, the unfunded liability connected with that plan is essentially fixed. It will slowly decrease over an extended period. The subject of Other Post Employment Benefits (OPEB) has become a matter of increased scrutiny over recent years; and appropriately so. The Government Accounting Standards Board (GASB) has instituted increased OPEB disclosure requirements in the financial reports of government entities. Many agencies are grappling with significant unfunded liabilities. For local governments collectively, one of the most significant aspects of this overall liability is for retiree medical programs. Newport Beach is fortunate to have been able to sharply limit the growth of this liability by converting its long- standing program to a defined contribution basis. The final step in the conversion process; and in the process of complying with the intent of the GASB reporting requirements, is to provide funding for the remainder of the 0 0 existing liability. To the extent an entity is able to do so, the convention is to fund such liability over the approximate period of time while the employees participating in the plan are still actively employed by the City. In consultation with the actuary, a 20 year fixed horizon has been agreed upon as the appropriate time frame. The Actuarially Required Contribution (ARC) was therefore calculated to fund the liability over that period. The current proposed action is to establish a Trust Relationship with CalPERS CERBT, and to open an account which will serve as a repository for these funds. This course of action offers two distinct advantages. 1. By so doing, the liability takes on a reduced level of significance in the City's financial structure. If the facilities replacement program moves forward as currently envisioned, we will be relying on external financing (Certificates of Participation) at a level unprecedented in the City's history. The cost of the capital needed to accomplish this program will be significantly impacted by how rating agencies and insurers view our financial strength, to include the discipline with which we address liabilities of this nature. This action sets the right precedent and sends exactly the right message in that regard. 2. Compared to other potential external organizations with which we could enter into a similar contractual arrangement, CalPERS provides the right blend of higher long -term investment returns, security, and flexibility. FUNDING AVAILABILITY There is no up -front administrative cost connected with participating in CEBRT. The annual cost of the program itself will almost certainly be decreased by this action, as opposed to holding the funds locally. Submitted by: Al Q�, Dennis C. Danner 6 Administrative Services Director • 0 City of Newport Beach BJ KT E L Retiree Healthcare Plan sscx771 rs. I i.r. Actuarial Valuation as of June 30, 2006 For Fiscal Year 2007/08 GASB 45 Information October 2007 Bartel Associates, LLC 411 Borel Avenue, Suite 445 San Mateo, California 94402 Phone: 650/377 -1600 Fax: 650/345 -8057 Email: jbartel(abartel- associates.com 0 B RTE L SSOCIATES, LLC AGTUARuL VALUAnoN CERT cAmN This report presents the June 30, 2006 actuarial valuation for the City of Newport Beach Retiree Healthcare Plan ( "Plan"). The purpose of this valuation is to: • determine the Plan Benefit Obligations as of June 30, 2006 pursuant to Governmental Accounting Standards Board Statement No. 45 (GASB 45), • determine the Plan Benefit Obligations as of June 30, 2007 based on an actuarial roll - forward of the June 30, 2006 valuation results, • calculate the Annual Required Contribution for the 2007 /08 fiscal year assuming GASB 45 is adopted for the 2007 /08 fiscal year, and • provide estimated financial disclosure information for the fiscal year ending June 30, 2008. This report includes the following sections: • Section I presents an executive summary of the GASB 45 valuation results. • Section 2 provides financial accounting information for the fiscal year ending June 30, 2008. • Section 3 provides detailed June 30, 2007 results. • Sections 4, 5, and 6 summarize the census data, Plan provisions, funding methods, and actuarial assumptions that form the basis for the actuarial valuations. • Section 7 includes a summary of GASB 45. This report presents Bartel Associates' best estimate of the City of Newport Beach Retiree Healthcare Plan liabilities and costs in accordance with accepted actuarial principles and our understanding of GASB 45. The undersigned is a member of the American Academy of Actuaries and meets Academy Qualification Standards to render the actuarial results and opinions in this report. Respectfully submitted, 13,Z, C', tk, Bianca Lin, ASA, MAAA, EA Assistant Vice President Bartel Associates, LLC 110M M9NN%M0 John E. Bartel, ASA, MAAA, EA President Bartel Associates, LLC October 2007 111 K"'I A. eu.,;, gym«, II.; •tim VLUU l.ih h mii,'1111�' mama ,;O1 10oc, •has: Gi ;l;.xr�g- 0 i Section Page 1 Executive Summary 1 2 Accounting Information 3 3 Actuarial Valuation Results 5 4 Demographic Information 11 5 Plan Provisions 17 6 Actuarial Methods and Assumptions 22 7 GASB OPEB Summary 25 • AAL — Actuarial Accrued Liability • AOC — Annual OPEB Cost • ARC — Annual Required Contribution • EAN — Entry Age Normal Cost Method • GASB 45 — Governmental Accounting Standards Board Statement No. 45 • NOO — Net OPEB Obligation • OPEB — Other (than pensions) Post Employment Benefits • PVB — Present Value of Benefits • UAAL — Unfunded Actuarial Accrued Liability City of Newport Beach [> June 30, 2006 Valuation E.� 1 i • SECTION 1 EXECUTIVE SUMMARY On June 21, 2004, the Governmental Accounting Standards Board approved Statement No. 45 (GASB 45), Accounting Standards for Other (than Pensions) Post Employment Benefits (OPEB). The information presented in this report is based on the financial reporting standards established under GASB 45. GASB 45 is phased in similar to GASB 34. For Phase 1 governments, GASB 45 is effective for fiscal years beginning after December 15, 2006. GASB 45 is therefore first effective for the City of Newport Beach for the fiscal year beginning on July 1, 2007. The City of Newport Beach provides postretirement healthcare benefits to eligible employees who retire directly from the City. Effective December 31, 2005 the City established the Medical Expense Reimbursement Plan ( "MERP'). The MERP is an individual account defined contribution plan established to replace the City's old retiree healthcare defined benefit plan ("Old Plan'). The benefit provisions, conversion rules and benefits included in the valuation are summarized in the Section 5. We understand the City will pre-fund the retiree healthcare benefit cash subsidy through CaIPERS for the fiscal year 2007 /08. The implied subsidy component will not be pre - funded through an irrevocable trust. We further understand the City will make the following contributions for its 2007/08 fiscal year: ■ $6.2 million seed money will be transferred to Ca1PERS OPEB trust in the early part of the fiscal year in order to pre-fund the cash subsidy. This valuation treats the $6.2 million as plan assets reducing the unfunded actuarial accrued liability and creating a Net OPEB Asset at July 1, 2007 of the same amount, ■ $2.7 million for the cash subsidy 2007/08 Annual Required Contribution, and ■ Approximately $0.4 million for the 2007/08 implied subsidy cash flow paid through the medical premiums for the active employees. This valuation assumes the implied subsidy will not be pre- funded through an irrevocable trust. Therefore, we prepared the valuation results based on a 7.75% discount rate for the cash subsidy and 5% discount rate for the implied subsidy. The June 30, 2007 benefit obligations and the 2007/08 plan cost are as follows based on an actuarial roll - forward of the June 30, 2006 valuation results (amounts in 000's): June 30, 2007 • Present Value of Benefits (PVB) $69,371 The Present Value of Benefits is a measure of the total City obligation for expected retiree healthcare benefits due to both past and future service for current employees and retirees. • Actuarial Accrued Liability (AAL) $56,048 The Actuarial Accrued Liability is a measure of the City obligation for benefits earned or allocated to past service. City of Newport Beach ? June 30, 2006 Valuation I ' 4 f 0 SECTION 1 EXECUTIVE SUMMARY The $6.2 million reserve was assumed to be transferred to CaIPERS OPEB Trust in the early 2007 /08. This valuation treats the $6.2 million as plan assets reducing the unfunded actuarial liability and creating a Net OPEB Asset at July 1, 2007 of the same amount. The City should consult with its outside auditor whether this practice is acceptable under GASB 45. GASB 45 requires agencies with more than 200 members prepare actuarial valuations at least every two years. if there is a significant change in benefit provisions, participants, or factors that impact long -term assumptions during this period, a new valuation must be performed. City of Newport Beach June 30, 2006 Valuation - 2 - June 30, 2007 ■ Plan Assets $6,200 Plan Assets include funds that have been segregated and restricted in a trust so that they can only be used to pay plan benefits. ■ Unfunded Actuarial Accrued Liability (UAAL) $49,848 Unfunded Actuarial Accrued Liability is the excess of the AAL over Plan Assets. This represents the amount of the Actuarial Accrued Liability at the valuation date that must still be funded. 2007/08 Plan Cost • Normal Cost (NC) The value of employer promised benefits expected to be earned or $1,339 allocated to the current fiscal year. • Annual Required Contribution (ARC) 4,796 The Annual Required Contribution is the sum of the Normal Cost plus an amortization of the Unfunded Actuarial Accrued Liability (or less an amortization of excess assets) determined as of the end of the fiscal year. ■ Annual OPEB Cost (AOC) 4,801 The Annual OPEB Cost is the expense recognized on the City's income statement for providing post - retirement healthcare benefits. The AOC will equal the ARC, adjusted for prior differences between the ARC and actual contributions. • Net OPEB Obligation /(Asset) (NOO) (6,200) The July 1, 2007 Net OPEB Obligation is the historical difference between the ARC and actual contributions. • Estimated Benefit Payments $2,639 Benefit Payments, or the Pay -As- You -Go -Cost, are the City-paid retiree healthcare benefit payments for the current fiscal year. The $6.2 million reserve was assumed to be transferred to CaIPERS OPEB Trust in the early 2007 /08. This valuation treats the $6.2 million as plan assets reducing the unfunded actuarial liability and creating a Net OPEB Asset at July 1, 2007 of the same amount. The City should consult with its outside auditor whether this practice is acceptable under GASB 45. GASB 45 requires agencies with more than 200 members prepare actuarial valuations at least every two years. if there is a significant change in benefit provisions, participants, or factors that impact long -term assumptions during this period, a new valuation must be performed. City of Newport Beach June 30, 2006 Valuation - 2 - 0 0 SECTION 2 ACCOUNTING INFORMATION GASB 45 is effective for the City for the 2007108 fiscal year. We have performed a June 30, 2006 actuarial valuation and calculated the fiscal year 2007 /08 ARC. The unfunded actuarial accrued liability at June 30, 2007 was based on an actuarial roll - forward of the June 30, 2006 valuation results assuming no demographic and contribution gains/losses. All the gains/losses will reflect in the City's next valuation. The 2007 108 ARC, AOC, and the estimated June 30, 2008 NOO are as follows. Annual Required Contribution (ARC) The 2007/08 Annual Required Contribution includes the Normal Cost plus a 20 -year amortization of the Unfunded AAL, both as a level percentage of payroll and determined as of the end of the fiscal year (amounts in 000's): Annual OPEB Cost (AOC) The AOC is equal to the ARC, except when the City has a NOO at the beginning of the year. In that case, the AOC will equal the ARC adjusted for expected interest on the NOO and reduced by an amortization of the NOO. The 2007/08 AOC is determined as follows (amounts in 000's): Cash Implied Subsidy Subsidy 7.75% 5% Total • Normal Cost $311 $1,029 $1,339 • UAAL Amortization 1.837 1.619 3.457 ■ Total ARC 2,148 2,648 4,796 • ARC as % of Payroll 3.9% 4.8% 8.8% • Projected 2007/08 Payroll 54,748 54,748 54,748 Annual OPEB Cost (AOC) The AOC is equal to the ARC, except when the City has a NOO at the beginning of the year. In that case, the AOC will equal the ARC adjusted for expected interest on the NOO and reduced by an amortization of the NOO. The 2007/08 AOC is determined as follows (amounts in 000's): Net OPEB Obligation (NOO) The NOO is the historical difference between the ARC and actual contributions. If the City always contributes the ARC, then the NOO will equal zero. Benefit payments are considered contributions. Contributions in excess of benefit payments must be segregated in a trust for the sole purpose of paying Plan benefits in order to be considered Plan Assets for purposes of GASB 45. The June 30, 2008 NOO is (amounts in $000's): City of Newport Beach June 30, 2006 Valuation -3- t t) 4 Cash Implied Subsidy Subsidy 7.75% 5% Total • ARC 2,148 2,648 $4,796 • Interest on NOO (481) 0 (481) • Amortization of NOO 486 0 486 • Total AOC 2,153 2,648 4,801 • AOC as % of Payroll 3.9% 4.8% 8.8% Net OPEB Obligation (NOO) The NOO is the historical difference between the ARC and actual contributions. If the City always contributes the ARC, then the NOO will equal zero. Benefit payments are considered contributions. Contributions in excess of benefit payments must be segregated in a trust for the sole purpose of paying Plan benefits in order to be considered Plan Assets for purposes of GASB 45. The June 30, 2008 NOO is (amounts in $000's): City of Newport Beach June 30, 2006 Valuation -3- t t) 4 SECTION 2 ACCOUNTING INFORMATION The City's actual June 30, 2008 NOO will differ slightly because actual benefit payments and contributions may differ from those assumed. The $6.2 million initial asset was assumed to be transferred to irrevocable trust in early 2007/08 2 City's budget for the 2007 /08 cash subsidy ARC 3 Estimated 2007/08 benefit vavments for implied subsidv City of Newport Beach June 3 0, 2006 Valuation - 4 - 11) Cash Implied Subsidy Subsidy 7.75% 5% Total ■ July 1, 2007 NOOI $ (6,200) $0 $ (6,200) ■ 2007/08 AOC 2,153 2,648 4,801 ■ ContributionsBencfit Payments 12.700)2 4j 27) 3 3( .127) ■ June 30, 2008 NOO (6,747) 2,221 (4,526) The City's actual June 30, 2008 NOO will differ slightly because actual benefit payments and contributions may differ from those assumed. The $6.2 million initial asset was assumed to be transferred to irrevocable trust in early 2007/08 2 City's budget for the 2007 /08 cash subsidy ARC 3 Estimated 2007/08 benefit vavments for implied subsidv City of Newport Beach June 3 0, 2006 Valuation - 4 - 11) SECTION 3 ACTUARIAL VALUATION RESULTS Benefit Obligations The following actuarial definitions are used in this section: • The Present Value of Benefits (PVB) or Present Value of Projected Benefits is a measure of the total City obligation for expected retiree healthcare benefits due to both past and future service for current employees and retirees. • The Actuarial Accrued Liability (AAL) is a measure of the City obligation for benefits earned or allocated to past service. • The Normal Cost is the value of City - provided benefits expected to be earned or allocated to the current fiscal year determined as of the end of the fiscal year. • Plan Assets must be segregated in a trust for the sole purpose of paying Plan benefits in order to be considered Plan Assets for GASB 45. • The Unfunded Actuarial Accrued Liability (UAAL) is the difference between the AAL and the Plan Assets. • Expected Benefit Payments is the cash flow expected for the current year for City promised retiree healthcare benefits. It includes payments for current retirees and active employees expected to retire during the year. • The Annual Required Contribution is the employer NC plus the amortized UAAL (or less the amortized excess assets.) For the City's valuation, the UAAL is amortized over 20 years as a level percent of pay. • GASB45 requires that the Implied Subsidy for retirees be included in the AAL and the ARC for plans that are not community rated. An Implied Subsidy exists when the premium for a group of employees is determined by aggregating the experience of the group. For example, assume the premium for actives and non - Medicare eligible retirees is $600 per month. The underlying medical cost varies by age and gender and might actually be $300 per month for a 40 year -old active employee and $900 per month for a 60 year -old retiree. In this case, the younger employee is subsidizing $300 of the older employee's cost. An Implied Subsidy is valued for the City's health plans but not the PEMHCA plans as the PEMHCA plans are considered a community rated for the City. City of Newport Beach June 30, 2006 Valuation SECTION 3 ACTUARIAL VALUATION RESULTS This report develops the AAL and Normal Cost using the Entry Age Normal actuarial cost method. This method is designed to produce a Normal Cost which, if all assumptions are met, will be a level percent of payroll. The following charts illustrate the components of the PVB, with the shaded area representing the unfunded AAL; Forum Norrml Cmo Normal Cmr Present Value of Projected Benefits (Without Plan Assets) Future NaruN / Cmb ' c�IV.,AYI 1 ;ir�•J, iiku;S�lfd.. ,.. Plm Narmol Cmt . Assem Present Value ofPmjccted Benefits (with Plan Assets) City of Newport Beach June 30, 2006 Valuation - 6 - �? -a SECTION 3 ACTUARIAL VALUATION RESULTS Benefit Obligations - June 30, 2007 (amounts in 000's) r----- lg lied''Sudsidy , • Present Value of Benefits • Present Value of Benefits 20,896 • Retirees 36,565 o Total o Actives $8,967 $5,956 $14,923 11,780 o Retirees 8,052 9,831 17,883 Plan Assets o Total 17,019 15,787 32,806 • AAL 0 • Employer Cost 419 • Total • Actives 6,846 4,910 11,756 137 • Retirees 8-,052 9,831 17,883 • Total 14,898 14,741 29,639 • Plan Assets 3_,116 3,084 66,200 • UAAL 11,782 11,657 23,439 • Normal Cost • Employee Cost 191 89 280 o Employer Cost 175 135 311 o Total 366 224 591 • Pay as you go 1,077 1,135 2,212 lg lied''Sudsidy , • Present Value of Benefits 55,299 • Actives 20,896 • Retirees 36,565 o Total • AAL 6,481 • Actives 11,780 • Retirees 11,351 • Total • Plan Assets • UAAL • Normal Cost 0 • Employee Cost 0 • Employer Cost 419 • Total ■ Pay as you go $ 14,414 $10,370 $24,784 66,481 55,299 11,780 20,896 15,669 36,565 8,577 6,052 14,629 6,481 5 299 11,780 15,059 11,351 26,409 0 0 0 15,059 11,351 26,409 0 0 0 610 419 1 029 610 419 1,029 289 137 427 City of Newport Beach June 30, 2006 Valuation - 7- ! % -� SECTION 3 ACTUARIAL VALUATION RESULTS Benefit Obligations — June 30, 2007 (amounts in 000's) ��ofall_ $39,707 29,663 69,370 26,385 29.663 56,048 6,200 49,849 280 1 339 1,619 2,639 We have used a discount rate of 7.75% to value the cash subsidy and 5% to value the implied subsidy since it is the City's intent to pre -fund the cash subsidy and not pre -fund the implied subsidy. All the plan assets were allocated to the cash subsidy and none to the implied subsidy. Plan asset were allocated between the Safety and Miscellaneous based its actuarial accrued liability for cash subsidy. City of Newport Beach j June 30, 2006 Valuation - 8- �� - • Present Value of Benefits • Actives $23,381 $16,326 • Retirees 14,533 15,130 e Total 37,914 31,456 • AAL • Actives 15,423 10,962 • Retirees 14,533 15,130 o Total 29,956 26,092 • Plan Assets 3,116 3,084 • UAAL 26,841 23,008 • Normal Cost • Employee Cost 191 89 o Employer Cost 785 554 • Total 976 643 • Pay as you go 1,366 1,272 ��ofall_ $39,707 29,663 69,370 26,385 29.663 56,048 6,200 49,849 280 1 339 1,619 2,639 We have used a discount rate of 7.75% to value the cash subsidy and 5% to value the implied subsidy since it is the City's intent to pre -fund the cash subsidy and not pre -fund the implied subsidy. All the plan assets were allocated to the cash subsidy and none to the implied subsidy. Plan asset were allocated between the Safety and Miscellaneous based its actuarial accrued liability for cash subsidy. City of Newport Beach j June 30, 2006 Valuation - 8- �� - SECTION 3 ACTUARIAL VALUATION RESULTS Annual Required Contribution (ARC) — 2007/08 (amounts in 000's) � Cash�Substd�r _ _ -__ ,_iV[iscetlaneotis„ _Safe f ^, Tot`af; ;_, 10 ARC -$ • Normal cost $175 $135 $311 • UAAL Amortization 924 914 1,837 ® Total ARC 1,099 1,049 2,148 ■ ARC -% • Normal cost 0.5% 0.6% 0.6% o UAAL Amortization 2.8% 4.1% 3.4% ® Total ARC 3.4% 4.8% 3.9% _ Implied. Subsidy; ` -- • ARC -$ • Normal cost $610 $419 $1,029 • UAAL Amortization 923 696 1,619 • Total ARC 1,533 1,115 2,648 • ARC -% • Normal cost 1.9% 1.9% 1.9% e UAAL Amortization 2.8% 3.2% 3.0% • Total ARC 4.7% 5.1% 4.8% Total • ARC -$ • Normal cost $785 $554 $1,339 • UAAL Amortization 1,847 1,610 3 • Total ARC 2,632 2,164 4,796 • Total Payroll 32,677 22,071 54,748 • ARC -% o Normal cost 2.4% 2.5% 2.4% • UAAL Amortization 5.7% 7.3% 6.3% • Total ARC 8.1% 9.8% 8.8% The UAAL amortization is based on 20 -year level percentage of payroll. City of Newport Beach June 30, 2006 Valuation - 9 - - t l SECTION 3 ACTUARIAL VALUATION RESULTS Cash Flow Projection (amounts in 000's) The following table shows the projected "pay -as- you -go" benefit payments for the next 10 years as estimated from the June 30, 2006 actuarial valuation. The projection assumes the number of City employees remains constant. City of Newport Beach � June 30, 2006 Valuation - 1 0 - El i Cash Implied Year Subsidy Subsidy Total 2007/08 $2,212 $427 $2,639 2008/09 2,286 517 2,803 2009/10 2,398 607 3,005 2010/11 2,471 71.6 3,187 2011/12 2,549 803 3,352 2012/13 2,638 923 3,561 2013/14 2,695 1,030 3,725 2014/15 2,746 1,162 3,908 2015/16 2,793 1,257 4,050 2016/17 2,835 1,367 4,202 City of Newport Beach � June 30, 2006 Valuation - 1 0 - El i SECTION 4 DEMOGRAPHIC INFORMATION Participant Statistics 6/30/06 A ,Actives iVl(J"scellaneous, Safety Total! • Count 498 262 760 • Average Age 43.7 40.1 42.4 • Average Service 11.0 12.8 11.6 • Average Pay $63,551 $81,590 $69,769 • Total Payroll (000's) $31,648 $21,377 $53,025 ® Retirees 72 55 127 • Count 178 178 356 • Average Age 68.4 60.7 64.5 o Average Retirement Age 58.1 51.0 54.5 Participants by Benefit Types Actives Retirees Miscellaneous Safe Medical Plan MERP Old Total NtERP Old Total PEMHCA 104 88 192 66 75 141 City Plan 71 108 179 41 35 76 Waived 72 55 127 27 18 45 Total 247 251 498 134 128 262 Retirees 10 miscellaneous retirees also have MERP account balances. 5 23 safety retirees also have MERP account balances. City of Newport Beach June 30, 2006 Valuation Miscellaneous Safety Medical Plan MERP Old' Total MERP Olds Total PEMHCA 0 115 115 0 139 139 City Plan 0 63 63 0 39 39 Total 0 178 178 0 178 178 10 miscellaneous retirees also have MERP account balances. 5 23 safety retirees also have MERP account balances. City of Newport Beach June 30, 2006 Valuation SECTION 4 DEMOGRAPHIC INFORMATION Active Employee Coverage 6/30/06 ]1�edieal Plan g_ -_ Sao le, 2`Paamd orty _ y Total. Blue Shield HMO PEMHCA 25 17 47 89 Kaiser IB40 PEMHCA 41 6 17 64 PERS Choice PPO PEMHCA 41 18 21 80 PERSCare PPO PEMHCA 6 0 1 7 PORAC PEMHCA 35 18 40 93 PEMHCA Subtotal 148 59 126 333 Blue Cross HMO City 65 37 90 192 Blue Cross POS City 28 16 19 63 Qp Subtotal City 93 53 109 255 Waived Coverage I N/A I N/A N/A 172 Total 241 1 112 235 760 Retiree Coverage — Under 65 6/30/06 Medical Plan Single 2 -Party )Family Total Blue Shield HMO PEMHCA 4 13 3 20 Kaiser 14MO PEMHCA 3 4 1 8 PERS Choice PPO PEMHCA 19 26 9 54 PERSCare PPO PEMHCA 7 2 0 9 PORAC PEMHCA 13 23 12 48 PEMHCA Subtotal 46 68 25 139 Blue Cross HMO City 9 9 7 25 Blue Cross POS City 6 4 4 14 Blue Cross PPO OOS City 3 4 1 8 City Subtotal I 1 18 1 17 1 12 1 47 Other6 0 0 2 2 Total 64 85 39 l88 6 Medicare Risk. Bumham POS, Thomson POS City of Newport Beach [ June 30, 2006 Valuation - 13 - I -' SECTION 4 DEMOGRAPHIC IINFORMATION Actives Converted to MERP _w Set�vise, z A e UnderL ?r ] 4r__! _S9 f!f 1074. -- s 15J9 - —20 }24 r 92529,.iOve&r -;'` Total' Under25 100% 100% - 100% 25 -29 100% 100% 100% - 100% 30 -34 100% 100% 97% 100% - 99% 35 -39 100% 100% 86% 1 78% 53% 1 85% 4044 100% 95% 53% 29% 26% 13% - 45 % 45 -49 100% 77% 22% 11% l0% 4% 5% 19% 50 -54 100% 29% 0% 0% 0% 0% 0% 0% 4% 55 -59 - 0% 0% 0% 0% 0% 0% 0% 0% 60 -64 0% 0% 0% 0% 0% 0% 0% 0% 0% 65 & Over - 100% 0% - - 0% 33% Total 98% 92% 61% 32% 19% 3% 2% 0% 50% City of Newport Beach June 30, 2006 Valuation -12- 11_i. SECTION 41 DEMOGRAPHIC INFORMATION Retiree Coverage — Over Age 65 6/30/06 —,,r 1G9edreal;Plan, _ ,_ _ - - -- Single' - 2`Pa-rty Family $otal, Blue Shield HMO PEMHCA l l 12 0 23 Kaiser HMO PEMHCA 2 5 0 7 PERS Choice PPO PEMHCA 18 19 0 37 PERSCare PPO PEMHCA 26 15 0 41 PORAC PEMHCA 2 5 0 7 PEMHCA Subtotal 59 56 0 115 Blue Cross HMO Medicare City 9 12 3 24 Blue Cross HMO No Medicare City 1 0 0 1 Blue Cross POS Medicare City 17 3 0 20 Blue Cross PPO COS Medicare City 0 1 0 1 Blue Cross PPO OOS No Medicare City 1 0 0 1 Blue Cross 1ND COS Medicare City 2 1 0 3 Qy Subtotal 30 17 3 50 Other? 1 2 0 3 Total 90 75 3 168 7 Medicare Risk, Bumham POS, 11omsmi POS City of Newport Beach June 30 2006 Valuation -14- U .f I' SECTION 4 (DEMOGRAPHIC INFORMATION Age /Service/Pay Distribution Active Employees - Safety 6/30/06 Active Employees - Miscellaneous 6/30/06 __ _.._ .Age .._,..'1Inder�IC','T444_ _ _UnBecl. 11 ;5`-9 +- _110.14 FJJ5493-t'20 =241 r25t29} "[_3U? &,Over,. Totali Under 25 Count 1 5 - - - - 6 Under25 Avers a Pa 54,366 55,598 55,393 25-29 Count 5 38 6 - - - 49 Averse Pay 62,868 60,510 73,186 62,303 30-34 Count 1 17 18 2 - - 38 30-34 Average Pay 62,946 68,361 76,216 85,462 - 72,839 35-39 Count 3 8 16 8 8 - - 43 35-39 Average Pay 72,852 7 030 83,304 85,326 1 91,296 82,340 40-44 Count - 3 11 7 12 2 - - 35 40-44 Avenge Pa 64,159 77,364 85,655 94,348 119,509 - 86,122 4549 Count - 13 2 3 9 16 10 - 40 4549 Averse Pay 61,270 81,380 9312-88 86,938 97,729 98.311 94,296 50.54 Count - - - 3 3 8 21 4 39 Average Pay 69,791 71332 124,982 89,388 92,125 100,424 89,310 98,622 55 -59 Count - 5 - - I 7 5 4 l0 Average Pa 61.012 73,229 70,590 86,658 72,975 92,940 82,628 88,187 60-64 Count - - - 3 - - 3 I I Avers ePa 108,879 124,687 60,875 71_.530 462618 78.875 91,052 91,052 65 & Over Count - - - - I - - 2 Averse Pa 42276 - - 39.884 77,558 77,556 Total Count 10 71 53 1 23 1 33 33 - 10 262 Avero ePa 65,021 63,496 78446 91,649 90,903 90,903 65,513 85,636 81,590 Active Employees - Miscellaneous 6/30/06 City of Newport Beach June 3 0, 2006 Valuation - 15- �.3 semee Age _ _UnBecl. 1-1 5.9 _10.14 1549 20 -24 25 -29 30'& Over T616_I Count 6 - - - 15 Under25 Average Pa 36,136 36,788 25-29 Count 32 6 - 49 Average Pay 49,628 49,201 48,312 Count 24 13 3 48 30-34 Average Pay 53,426 56,254 88,989 - 55,929 Count 22 26 10 7 - 68 35-39 Average Pa 58,587 59,115 64,301 64,629 59.441 Count 16 19 13 26 6 83 40-44 Average Pay 50,801 70,980 69,820 62903 64,554 63,824 Count 13 16 16 20 11 10 - 89 4549 Average Pay 61,270 68,777 62,866 70,011 60.679 57,387 65,337 50.54 Count 7 II 7 10 13 7 6 63 Average Pay 69,791 71332 87,364 67,046 72,462 72,206 83,867 73379 55-59 Count 5 12 10 9 7 8 8 59 Avers a Pay 61.012 73,229 70,590 67,981 72,975 64.802 93,587 72,553 60�i4 Count 3 3 3 7 1 3 1 22 Average Pay 108,879 124,687 60,875 71_.530 462618 78.875 107,484 86,615 65 &Over Count I - - I - - 2 Averse Pay 42276 - - 39.884 41,080 Total Count 129 106 62 80 38 28 15 498 Averse Pay 55.410 66509 69,735 66,387 67,217 65,513 90,626 61551 City of Newport Beach June 3 0, 2006 Valuation - 15- �.3 SECTION 4 DEMOGRAPHIC INFORMATION Age/Service/Pay (Distribution All Active Employees 6/30/06 City of Newport Beach > June 30, 2006 Valuation - 16 - �>_ - - - - Age, Onder l . ; l 4 - 3 9 10 14 1'SaY9 2Q 24 2529 " `30 &.Over I - Totalc_ Under 25 Count 10 11 - - - 21 Average Pay 38,938 44,982 - - - - - - 42,104 2529 Count 16 70 12 98 Average Pa 49,894 55,536 61,193 - - 55,307 30-34 Count 9 41 31 5 - - - 86 Average Pa 51,896 59;618 67,845 87,578 63,401 3539 Count 6 30 42 18 15 - 111 Average Pay 56,541 62,172 68,330 73,645 78,851 - - - 68,312 40-44 Count 3 19 30 20 38 8 - 118 Average Pay 68,501 52,910 73,321 75,362 72,833 78,293 - - 70,438 4549 Count 3 13 18 19 29 27 20 - 129 Average Pay 90 229 61,270 70,177 67,670 75,264 82,635 77,849 - 74,317 50 -54 Count 2 7 11 10 13 21 28 10 102 Average Pay 58,500 69,791 71,332 98,649 72,202 79,952 93,37 86,044 83,030 5559 Count 5 12 10 10 7 13 12 69 Avera Le Pa 61,012 73,229 70,590 69,849 72,975 75,624 89,934 74,802 60 -64 Count 1 3 3 3 7 1 3 2 23 Average Pay 130,780 108,879 124,687 60,875 71,530 46,618 78,875 99,268 86,808 65 & Over Count - 1 - - I I 3 Avera a Pa 42,276 - 39,884 - 77,558 5-3,2-39 Total Count 50 200 159 85 113 64 64 25 760 Average Pa 54,359 58,281 70,488 75,665 73,547 79,593 84,236 88,630 69,769 City of Newport Beach > June 30, 2006 Valuation - 16 - �>_ SECTION 5 (PLAN PROVISIONS The following table summaries medical benefits: a 1Vfl12F • Plan Type o Defined contribution plan o Defined benefit plan o Individual accounts o Effective 12/31/05 • Old Plan a N/A e CalPERS Service and disability Eligibility retirement from the City • Benefit a Reimbursement from Employee o Miscellaneous Account for retirees and dependents: ➢ $400 per month ➢ Medical e PEA & PMA Ret < 1/1/06 Dental 7 $450 per month ➢ Vision o PEA & PMA Ret> 1/1/06 ➢ Long -term care > $400 per month Miscellaneous medical expenses e Retiree & surviving spouse ➢ PEMHCA minimum e Not less than PEM14CA min if part. in PEMHCA ($64.60 in 2006) o Individual MERP account • Pre Retirement o Part A - Mandatory contribution of o $100 per month while active Employee 1% of pay o PEA & PMA + $25 for current Contributions a Immediate upon enrollment retirees • Pre Retirement e Part B - City contributes $1.50 per o N/A City month for each year of age + service Contributions s Employee 100% vested in City contributions at 5 years of service • Leave a Part C — Mandatory transfer of a portion of accumulated leave at Conversion termination e Amount of sick and vacation/flex leave conversion varies by Association e Converted to Employee Account value using cash conversion rates e Not payable in cash • Conversion from a New employees only participate in MERP Old Plan to a Certain employees must convert: MERP > Sworn Safety: age + service < 45 Miscellaneous: age + service _ <49 a Others allowed to convert • Conversion For Employees electing to move from Old Plan to MERP: Contribution a $100 x months contributed to prior plan, max 180 months ($18,000) a Credited to MERP account at retirement City of Newport Beach T, June 30; 2006 Valuation - 1 7 - 1.} SECTION 5 PLAN ]PROVISIONS R1P� City of Newport Beach June 30, 2006 Valuation - 18- (OF )l IT Plan For Employees electing to remain in Old Plan: o $75 x months contributed to prior plan, max 180 months ($13,500) o Credited to MERP account at retirement o No future Part B contributions • Post Retirement o City - PEMRCA minimum only o Miscellaneous Contributions when account value exhausted > $400 per month > Retiree & surviving spouse o PEA & PMA Ret < 1 /1/06 > $450 per month > Retiree & surviving spouse • PEA & PMA Ret> 1/1/06 > $400 per month > Retiree & surviving spouse o Contribution goes to individual MERP account • Forfeitures o Unused Part B account forfeited upon death of retiree and dependents a Used to offset PEMHCA minimum City of Newport Beach June 30, 2006 Valuation - 18- (OF )l SECTION 5 PLAN PROVISIONS Benefits included in the valuation: City of Newport Beach June 30, 2006 Valuation -19- L)- � 1BenefiB.�alaedl • Current o Fixed amount $400 or $450 per month for all Retirees o Implied subsidy for retirees electing City health plans • Future Retirees o Employees electing the Old Plan ➢ City contributions after retirement ($400 /month) D Offset by active employee contribution ($100 or $125 /month) ➢ Conversion contribution o Implied subsidy for all future retirees electing City health plans o Conversion contribution for employees moved from the Old Plan to MERP • PEMHCA a Paid from MERP Account B Minimum e Account B amounts not used forfeited (revert to City) e Assumed no net GASB 45 liability City of Newport Beach June 30, 2006 Valuation -19- L)- SECTION 5 PLAN )PROVISIONS 2006 Medical Premiums - Under Age 65 Southern California Medical9Plani - - j S�n'gle 2 Tarty Family. Blue Shield HMO PEMHCA $ 357.67 $ 715.34 $ 929.94 Kaiser HMO PEMHCA 320.55 641.10 833.43 PERS Choice PPO PEMHCA 384.56 769.12 999.86 PERSCare PPO PEMHCA 646.74 1,293.48 1,681.52 PORAC PEMHCA 399.00 748.00 950.00 Blue Cross HMO City 351.80 689.32 879.56 Blue Cross POS City 445.94 910.90 1,089.70 2007 Medical Premiums - Under Age 65 Southern California MedlealtPl_an SlRgle 2 POfty _. J'amlly. Blue Shield HMO PEMHCA $407.02 $814.04 $1,058.25 Kaiser HMO PEMHCA 360.60 721.20 937.56 PERS Choice PPO PEMHCA 432.64 865.28 1,124.86 PERSCare PPO PEMHCA 731.40 1,462.80 1,901.64 PORAC PEMHCA 439.00 822.00 1,045.00 Blue Cross HMO City 394.01 772.05 985.10 Blue Cross POS City 499.45 1,020.21 1,220.46 City of Newport Beach .tune 30, 2006 Valuation 20 - � �•-` SECTION 5 PLAN PROVISIONS 2006 Medical Premiums - Over Age 65 1ViedreaLPlan iNYedeare Smgl'e,? 2', -arty 1Faoly7 --_ Blue Shield HMO PEMHCA Yes $ 286.49 $ 572.98 $ 859.47 Kaiser HMO PEMHCA Yes 218.59 437.18 655.77 PERS Choice PPO PEMHCA Yes 322.03 644.06 966.09 PERSCare PPO PEMHCA Yes 347.20 694.40 1,041.60 PORAC PEMHCA Yes 351.00 701.00 1,049.00 Blue Cross HMO City Yes No 351.80 975.26 689.32 1,989.18 879.56 N/A Blue Cross POS City Yes No 445.94 1,365.43 910.90 2,730.66 N/A N/A Blue Cross IND COS City Yes 436.48 891.58 1,066.62 Blue Cross PPO COS City No 436.48 891.58 1,066.62 2007 Medical Premiums- Over Age 65 R%dreal�Plan IVIer7icare Sm le 2 Party 1Family, Blue Shield HMO PEMHCA Yes $318.95 $637.90 $956.85 Kaiser HMO PEMHCA Yes 289.68 579.36 869.04 PERS Choice PPO PEMHCA Yes 341.75 683.50 1,025.25 PERSCare PPO PEMHCA Yes 371.68 743.36 1,115.04 PORAC PEMHCA Yes 351.00 701.00 1,049.00 Blue Cross HMO City Yes No 394.00 1,094.26 772.01 2,231.88 985.06 2,231.88 Blue Cross POS City Yes No 499.44 1,529.23 1,020.18 3,058.25 1,020.18 3,058.25 Blue Cross IND COS City Yes 488.85 998.55 1,194.60 Blue Cross PPO OOS City No 488.85 998.55 1,194.60 City of Newport Beach 7 June 30, 2006 Valuation - 21 - `� SECTION 6 Actuarial Methods and Assumptions Actuarial Methods The actuarial cost method used for this valuation is the Entry Age Normal (EAN) cost method. Under the EAN cost method, the Normal Cost for each participant is determined as a level percent of payroll throughout the participant's working lifetime. The Actuarial Accrued Liability (AAL) is the cumulative value, on the valuation date, of prior Normal Costs. For retirees, the AAL is the present value of all projected benefits. The unfunded AAL is amortized over 20 years as a level percent of payroll The Plan is assumed to be ongoing for cost purposes. This does not imply that an obligation to continue the Plan exists. Actuarial Assumptions N Valuation Date June 30, 2006 Roll forward valuation from June 30, 2006 to June 30, 2007 to determine the 2007/08 Ian cost. ® Discount Rate 7.75% for cash subsidy, full pre - funding through CaIPERS OPEB Trust 5% for implied subsidy, no pre-funding, benefits paid from the City's General fund. N Inflation Rate 3.0% per annum. Same as CaIPERS assumption. ■ Aggregate Payroll Increases 3.25% per annum. Same as CalPERS assumption. • Salary Merit Increases CalPERS' 1997 -2002 Experience Study • Demographic Assumptions (Mortality, Withdrawal, Disability) CaIPERS' 1997 -2002 Experience Study. ■ Retirement CalPERS' 1997 -2002 Experience Study Miscellaneous: 2 % @55 Police Safety: 3 % @50 0 Fire Safety: 3 % @50 (Currently 3 %(o),,55, will change to 3 % @50 by 12/31/07) City of Newport Beach June 30, 2006 Valuation -22- (1).4 SECTION 6 ACTUARIAL. METHODS AND ASSUMPTIONS • Healthcare Cost Increases Non - Medicare Medicare Eligible FY HMO PPO HMO PPO 2007 Actual 2007 premiums 2008 10.40% 11.30% 10.80% 11.70% 2009 9.70% 10.60% 10.10% 10.90% 1 1 1 1 1 2017+ 4.50 % 4.50% 4.50% 4.50% • Old Plan Cap Increase 0% ■ Participation at Retirement Current covered —100% Not current Covered — 95% o Medical Plan at Retirement Same proportion as current retirees— 30% elect City Plans ■ Marital Status Married ifEE +l or family coverage Same proportion 60% for actives waiving coverage ■ Spouse Age o Actives: Males 3 years older than females. Retirees: actual age ■ Medicare Eligible o Hired <4/l/86 90% Hired > 4/1/86 100 %n o Everyone eligible for Medicare will elect Part B cov ■ Future New Participants Closed Group — no future new participants assumed. City of Newport Beach i June 30, 2006 Valuation - 23 - I -1 SECTION 6 ACTUARIAL METHODS AND ASSUMPTIONS E Age Based Claim Cost for City's Healthcare Plans Because early retirees and Medicare eligible retirees are paying the same premium rates as actives, an implied subsidy (the difference between expected claims and premiums paid for retirees) is valued for lifetime. The following age -based monthly claim costs are used to calculate the implied subsidy for the City's healthcare plans: (based on 2007 premium rates) HMO POS Age Male Female Male Female 30 $155.73 $286.78 $162.24 $296.70 35 193.26 310.46 202.16 323.64 40 235.36 343.01 247.04 359.49 45 293.04 380.27 308.63 399.58 50 379.01 443.51 400.46 466.73 55 527.60 520.05 559.91 548.18 60 719.80 636.43 765.77 671.30 Non Medicare Eligible 65 807.26 952.87 862.81 1,002.08 70 1,055.89 1,091.28 1,127.25 1,150.95 Medicare Eligible 65 458.99 497.93 491.51 521.39 70 655.84 607.92 701.14 639.70 City of Newport Beach June 3Q 2006 Valuation 24 - ` -1 SECTION 7 GASB OPEB SUMMARY On June 21, 2004, the Governmental Accounting Standards Board approved Statement No. 45 (GASB 45), accounting standards for other (than pensions) postemployment benefits (OPEB). Accounting for these benefits — primarily postretirement medical — can have significant impact on state and local government financial statements. This section summarizes GASB 45. Background Historically, most public sector entities have accounted for OPEB using a "pay -as- you -go" approach; very few have prefunded or even accrued for these benefits. This means OPEB costs are ignored while an employee renders service and recognized only after an employee retires. GASB argues this delayed recognition shifts "costs" from one taxpaying generation to another. The GASB position is that OPEB, like pension benefits, are a form of deferred compensation. Accordingly, GASB 45 requires recognizing OPEB (in the financial statement) as employees render service (and consequently earn the benefit), rather than when paid. Effective (Dates GASB 45 effective dates are phased in similar to GASB Statement No. 34: ■ Fiscal years beginning after December 15, 2006 for GASB 34 phase l governments (total annual revenue of $100 million or more) ■ Fiscal years beginning after December 15, 2007 for GASB 34 phase 2 governments (total annual revenue of$10 million to $100 million) 0 Fiscal years beginning after December 15, 2008 for GASB 34 phase 3 governments (total annual revenue less than $10 million). What Benefits are OPEB? OPEB includes most postemployment benefits, other than pensions, that employees are entitled to after leaving employment: • Retiree medical • Dental • Prescription drug • Vision • Life insurance • Outside group legal • Long -term care • Disability benefits outside a pension plan OPEB does not include vacation, sick leave, COBRA, or ad hoc early retirement incentives, which fall under other GASB accounting statements. City of Newport Beach June 30, 2006 Valuation -25- 7F SECTION 7 GASB OPEB SUMMARY Accounting Standards Under GASB 45, pay -as- you -go accounting is replaced with accrual accounting. This is virtually identical to GASB's approach under Statement No. 27, with the key financial statement components being an Annual Required Contribution, an Annual OPEB Cost, and a Net OPEB Obligation. o Annual Required Contribution (ARC): GASB 45 doesn't require an agency to make up any shortfall (unfunded Actuarial Liability) immediately, nor does it allow an immediate credit for any excess Plan Assets. Instead, the difference is amortized over time. An agency's ARC is nothing more than the employer current Normal Cost (value of benefits being "earned" during a year), plus the amortized unfunded Actuarial Liability (or less the amortized excess Plan Assets). Simply put, ARC is the value of benefits earned during the year plus (or minus) something to move the plan toward being on track for funding. GASB 45 allows actuaries to amortize the unfunded Actuarial Liability (or excess Plan Assets) on a level dollar or level percent of payroll basis. We believe most agencies will want to use a level percent of payroll amortization because it's more consistent with the budget process and how pension contributions are usually calculated. ARC must be based on the underlying OPEB promise (as understood by the plan sponsor and employees). ■ Annual OPEB Cost (AOC): The first year an agency complies with the new standards, the AOC equals the ARC. In subsequent years, the AOC will equal the ARC, adjusted for prior differences between the ARC and AOC. M Net OPEB Obligation (NOO): An agency's NOO is the historical difference between actual contributions made and the ARC. [fan agency has always contributed the ARC, the NOO equals zero. However, an agency has not "made" the contribution unless it has been set aside and cannot legally be used for any other purpose. Implementation Process The implementation process will be relatively straightforward: An agency will hire an actuary to calculate the ARC. The first time an agency does this, their AOC equals their ARC. The agency then decides whether to contribute al I, none, or part of the ARC into a Trust that cannot legally be used for any purpose other than paying OPEB. If an agency always contributes the ARC, then each subsequent year's AOC equals their ARC — and the NOO is zero. The first year an agency does not contribute the ARC, they must establish an NOO equal to the difference between their actual contribution and the ARC. The subsequent year's AOC equals the ARC, adjusted for interest and amortization of the NOO. Disclosure Requirements This may be the most important aspect of GASB 45. When disclosed, some agencies will show large OPEB unfunded liabilities, while others will show small or no unfunded liabilities. These differences may require an adjustment in an agency's bond rating. Plan sponsors must disclose in their financial statement footnotes: City of Newport Beach y June 30, 2006 Valuation -26- �).� SECTION 7 GASB OP EB SUMMARY © Basic plan information ➢ Plan type ➢ Benefits provided ➢ Authority under which benefits were established 0 Plan fund ing/contribution policy information: Required contribution rates for active members and employers shown in dollars or as a percent of payroll ■ Plan Funded Status information: ➢ AOC and the dollar contributions actually made ➢ If the employer has a NOO, also • Components of the AOC • NOO increase or decrease during the year End of year NOO ➢ 3 -year history of • AOC • Percent of AOC contributed during the year • End of year NOO Most recent year's plan Funded Status ➢ Actuarial methods and assumptions used to detennine the ARC, AOC, and Funded Status. In addition, plan sponsors must provide 3 years of historical required supplementary information: • Valuation dates • Actuarial asset values • Actuarial Liability • Unfunded Actuarial Liability (excess Plan Assets) • Plan funded ratio • Annual covered payroll • Ratio of unfunded Actuarial Liability (excess Plan Assets) to annual covered payroll • Factors that significantly affect comparing the above information across the years. City of Newport Beach June 30, 2006 Valuation 27 " i i� SECTION 7 GASB OPIEB SUMMARY Defining the Plan GASB 45 refers to the substantive plan as the basis for accounting. It may differ from the written plan in that it reflects the employer's cost sharing policy based on: ® Past practice or communication of intended changes to a plan's cost sharing provisions, or M Past practice of cost increases in monetary benefits. The substantive plan is the basis for allowing recognition of potential future plan changes. This approach requires entities to acknowledge the underlying promise, not just the written plan. What if retirees participate in the active healthcare plan, but are charged a rate based on composite active and retiree experience? (This was a contentious issue during the statement drafting, with one of the seven board members dissenting from Board adoption of the final statement.) In general, GASB 45 requires recognition of the implied subsidy. However, if benefits are provided through a community rated plan (premium rates based on experience of multiple employers rather than a single employer), and the same premium is charged for active and retired participants, it is appropriate to value unadjusted premiums. Actuarial Assumptions and Discount Rate Requirements Under GASB 45, the actuary must follow current actuarial standards of practice, which generally call for explicit assumptions —meaning each individual assumption represents the actuary's best estimate. GASB 45 also requires basing the discount rate on the source of funds used to pay the benefits. This means the underlying expected long -tern rate of return on Plan Assets for funded plans. Since the source of funds for unfunded plans is usually an agency's general fund, and California and most other state law restricts what investments agencies can have in their general fund, unfunded plans will need to use a low (for example, 4% to 5 %) discount rate. If an agency sets up a Trust and diversifies Trust Plan Assets, however, the discount rate might be much higher (such as 7 %) depending on the Trust fund's expected long -term investment return. Transition Issues Typically, new accounting standards allow transition from old to new requirements. Because historical ARC calculations will rarely be available, GASB 45 takes a prospective transition approach: there is no requirement for an initial transition obligation. But if AOCs, before transition, were calculated consistently with the standard, a NOO at transition can be established at an agency's discretion. Valuation Frequency Requirements and Small Plans GASB 45 requires an actuarial valuation at least every two years for plans with more than 200 (active, inactive, and retired) members. Plans with fewer than 200 members will need a valuation every 3 years. In a significant departure from prior standards, though, GASB 45 allows plans with fewer than 100 members to elect a simplified measurement method not requiring an actuarial certification. City of Newport Beach 1t June 30, 2006 Valuation -28- l� j SUMMARY OF ACTUARIAL INFORMATION REQUIRED FOR CALIPERS FINANCIAL STATEMENTS As part of your agreement to use Cal PIERS to pre -fund OPEB, the following information must be provided to CaIPERS each time an OPEB actuarial valuation report is delivered to CaIPERS. For actuarial valuations performed once every two or three years, employers must in addition to first year information, provide additional information for the other years. This information is extremely important to CalPERS since it will be used to satisfy the requirements of GASB Statement No. 43. If you have questions, please call (888) CaIPERS (225- 7377). Contact Information for Employer ER Name: City of Newport Beach Contact Name: Dan Matuslewicz Phone Number: (949) 644 -3126 Column (c) applies to employers who file actuarial valuations every year. Columns (c) and (d) apply to those who file actuarial valuations every two years. Columns (c), (d) and (e) apply to those who file actuarial valuations every three years. Contact Information for Actuarial Firm Name of Actuarial Firm:, Bartel Associates, LLC Actuary /Contact Name: John Bartel / Bianca Lin Phone Number: 650- 377 -1601 / 650 - 377 -1604 Item No Item Description First YeaP Second Year `Third Year `Comments (a) (b) (c) (d) (e) (f) 1 Actuarial Valuation Date '0 013 012 0 06 2 Frequency of Actuarial valuations biennial 3 Fiscal Year for ARC 2007108 - - - .Roll- forward valua_tion'Prom 613606 4 Actuarial Value of Assets s 6.200,000 5 Market Value of Assets F 8;200;000' 6.0 Actuarial Accrued Liability for Active Members $ 26,385,000 - as of:6 /30/67 6.1 Actuarial Accrued Liability for Separated /Inactive Members We I 6.2 Actuarial Accrued Liability for Recipients $ 29,663.000 'as of 63 Total Accrued Liability $ 56,048;000' as of 6 /30107 7 Annual Covered Payroll $ 54 748,000 Prdjected.2007/08 total payroll 8 Present Value of Future Benefits '$ 69,37,1,006:' - as of 6!30107 -. Open Group: - Amortizationfs basetl on!level" Amortization Method (whether its based on closed or open Level percentage 4f { percentage of pay assuming 9 approach) . pay wlth'fixedi aggregate payroll growth.ab ampdizatipnY "rind 3.25 %1 per ear._ 10.0 Average Remaining Amortization Period 26 11.0 Annual Required Contribution (ARC) in dollars S 4.796,000, end of fiscal year r 11.1 Annual Required Contribution (ARC) as a percentage of 8:81' a roll � 12.0 Normal Cost in dollars $ 1;339(000 I end offisq_alsyear. 12.1 Normal Cost as a percentage of payroll Z5P1 IL 13.0 UAL Amortization in dollars $. 3;457;000 i, end of fiscal year 13.1 UAL Amortization as a percentage of payroll 6.3% 14 Discount Rate Assumption 7.75% for Cash. Subsidy & 5-/ for i - Only�prafundmg the cash 'implied Implied,: Subsidy subsidy, not subsidy 15 For a partially funded plan, the method used to determine Only plefunding, the' cash subsidy, not the blended discount rate. implied subsidy ' Salary Increase Assumption (if relevant to benefit 16 levels) Na 17 Expected Benefit Payments t$ 2.619,000u 18 Number of Active Members 460' Select Period at 6 /30/06 19 Average Attained Age of Actives 42A PPO Indemnity Plan i at6 /30/06 20 Average Years of Service of Actives 111.6 We Actual premium at 6130/06 21 Number of Recipients 356 10.4% 11.3% at W30106 22 Average Attained Age of Recipients 64;5 2009 at6 130106 23 Vision Trend Rates (If Applicable) 111a r - 24 Dental Trend Rates (If Applicable) We 9.1% 9.8% 25 Health Assumptions FILL IN THE TABLE BELOW WHEBEAPPLICABLE (for 6f30 106 Valuation) Provide in the table below the select and ultimate medical and pharmacy cost trend rates where applicable. F: \Users\P.DWShare ftcouncil_agenda_ hems @OD8 staff reponslOPEBTrusIVBA 0708 -17 Newporl Beach CalPERS OPEB Trust Required Info.xlsl0ata Requirements Pre - Medicare Eligible Post - Medicare Eligible Select Period HMO PPO. Indemnity Plan HMO PPO Indemnity Plan Pharmacy 2007 Actual premium Actual premium We Actual premium Actual premium n/a Included in medical rate 2008 10.4% 11.3% 10.4% 11.3% 2009 9.7% 10.6% 9.7% 10.6% 2010 9.1% 9.8% 9.1% 9.8% 2011 8.41A 9.0% 8.4% 9.0% 2012 7.89/ 8.3% 7.8% 8.3% 2013 7.1% 7.5% 7.1% 7.5% 2014 6.5% 6.8% 6.5% 6.8% 2015 5.8% 6.0% 5.8% 6.0% 2016 5.2% 5.3% 5.2% 5.3% 2017+ Ultimate Medical Trend Rates 4.5% 4.50/61 4.5 % 4.5% F: \Users\P.DWShare ftcouncil_agenda_ hems @OD8 staff reponslOPEBTrusIVBA 0708 -17 Newporl Beach CalPERS OPEB Trust Required Info.xlsl0ata Requirements SECTION 6 Actuarial Methods and Assumptions Actuarial Methods The actuarial cost method used for this valuation is the Entry Age Normal (EAN) cost method. Under the EAN cost method, the Normal Cost for each participant is determined as a level percent of payroll throughout the participant's working lifetime. The Actuarial Accrued Liability (AAL) is the cumulative value, on the valuation date, of prior Normal Costs. For retirees, the AAL is the present value of all projected benefits. The unfunded AAL is amortized over 20 years as a level percent of payroll The Plan is assumed to be ongoing for cost purposes. This does not imply that an obligation to continue the Plan exists. Actuarial Assumptions • Valuation Date • June 30, 2006 • Roll forward valuation from June 30, 2006 to June 30, 2007 to determine the 2007/08 plan cost. • Discount Rate • 7.75% for cash subsidy, full pre- funding through CalPERS OPEB Trust • 5% for implied subsidy, no pre-funding, benefits paid from the City's General fund. • Inflation Rate • 3.0% per annum. • Same as CalPERS assumption. • Aggregate Payroll Increases • 3,25% per annum. Same as CalPERS assumption. • Salary Merit Increases • CalPERS' 1997 -2002 Experience Study • Demographic Assumptions (Mortality, Withdrawal, Disability) • CalPERS' 1997 -2002 Experience Study. • Retirement • CalPERS' 1997 -2002 Experience Study • Miscellaneous: 2%@55 • Police Safety: 3 %(a750 • Fire Safety: 3%(a,)50 (Currently 3 %6@55, will change to 3 %na,50 by 12/31/07) City of Newport Beach p June 30, 2006 Valuation -22- BA • SECTION 6 ACTUARIAL METHODS AND ASSUMPTIONS • Healthcare Cost Increases Non - Medicare Medicare Eligible FY HMO PPO 17IMO PPO 2007 Actual 2007 premiums 2008 10.40% 11.30% 10.80% 11.70% 2009 9.70% 10.600/9 10.100/0 10.900/0 1 1 1 1 1 2017+ 4.50% 4.50% 4.50% 4.50% • Old Plan Cap Increase • OD /o • Participation at Retirement • Current covered —100% • Not current Covered — 95% • Medical Plan at Retirement • Same proportion as current retirees — 30% elect City Plans • Marital Status • Married if EE +l or family coverage • Same Proportion 60% for actives waiving coverage • Spouse Age • Actives: Males 3 years older than females. • Retirees: actual age • Medicare Eligible • Hired <4 /1/8690% • Hired> 411186 100D /o • Everyone eligible for Medicare will elect Part B cov • Future New Participants • Closed Group — no future new participants assumed. City of Newport Beach I) June 30, 2006 Valuation - 23 - L 9 0 SECTION 6 ACTUARIAL METHODS AND ASSUMPTIONS ■ Age Based Claim Cost for City's Healthcare Plans Because early retirees and Medicare eligible retirees are paying the same premium rates as actives, an implied subsidy (the difference between expected claims and premiums paid for retirees) is valued for lifetime. The following age -based monthly claim costs are used to calculate the implied subsidy for the City's healthcare plans: (based on 2007 premium rates) MWO POS Age Male Female Male Female 30 $155.73 $286.78 $162.24 $296.70 35 193.26 310.46 202.16 323.64 40 235.36 343.01 247.04 359.49 45 293.04 380.27 308.63 399.58 50 379.01 443.51 400.46 466.73 55 527.60 520.05 559.91 548.18 60 719.80 636.43 765.77 671.30 Non Medicare Eligible 65 807.26 952.87 862.81 1,002.08 70 1,055.89 1,09128 1,127.25 1,150.95 Medicare Eligible 65 458.99 497.93 491.51 521.39 70 655.84 607.92 701.14 639.70 City of Newport Beach 24 ()� June 30, 2006 Valuation L) 0 9 SECTION 7 GASB OPEB SUMMARY On June 21, 2004, the Governmental Accounting Standards Board approved Statement No. 45 (GASB 45), accounting standards for other (than pensions) postemployment benefits (OPEB). Accounting for these benefits — primarily postretirement medical — can have significant impact on state and local government financial statements. This section summarizes GASB 45. Background Historically, most public sector entities have accounted for OPEB using a "pay -as- you -go" approach; very few have prefunded or even accrued for these benefits. This means OPEB costs are ignored while an employee renders service and recognized only after an employee retires. GASB argues this delayed recognition shifts "costs" from one taxpaying generation to another. The GASB position is that OPEB, like pension benefits, are a form of deferred compensation. Accordingly, GASB 45 requires recognizing OPEB (in the financial statement) as employees render service (and consequently earn the benefit), rather than when paid. Effective Dates GASB 45 effective dates are phased in similar to GASB Statement No. 34: • Fiscal years beginning after December 15, 2006 for GASB 34 phase 1 governments (total annual revenue of $100 million or more) • Fiscal years beginning after December 15, 2007 for GASB 34 phase 2 governments (total annual revenue of $10 million to $100 million) • Fiscal years beginning after December 15, 2008 for GASB 34 phase 3 governments (total annual revenue less than $10 million). What Benefits are OPEB? OPEB includes most postemployment benefits, other than pensions, that employees are entitled to after leaving employment: • Retiree medical • Dental • Prescription drug • Vision • Life insurance • Outside group legal • Long -term care • Disability benefits outside a pension plan OPEB does not include vacation, sick leave, COBRA, or ad hoc early retirement incentives, which fall under other GASB accounting statements. City of Newport Beach ? June 30, 2006 Valuation -25- �)_J 9 0 SECTION 7 GASB OPEB SUMMARY Accounting Standards Under GASB 45, pay -as- you -go accounting is replaced with accrual accounting. This is virtually identical to GASB's approach under Statement No. 27, with the key financial statement components being an Annual Required Contribution, an Annual OPEB Cost, and a Net OPEB Obligation. ■ Annual Required Contribution (ARC): GASB 45 doesn't require an agency to make up any shortfall (unfunded Actuarial Liability) immediately, nor does it allow an immediate credit for any excess Plan Assets. Instead, the difference is amortized over time. An agency's ARC is nothing more than the employer current Normal Cost (value of benefits being "earned" during a year), plus the amortized unfimded Actuarial Liability (or less the amortized excess Plan Assets). Simply put, ARC is the value of benefits earned during the year plus (or minus) something to move the plan toward being on track for fimding. GASB 45 allows actuaries to amortize the unfunded Actuarial Liability (or excess Plan Assets) on a level dollar or level percent of payroll basis. We believe most agencies will want to use a level percent of payroll amortization because it's more consistent with the budget process and how pension contributions are usually calculated. ARC must be based on the underlying OPEB promise (as understood by the plan sponsor and employees). ■ Annual OPEB Cost (AOC): The first year an agency complies with the new standards, the AOC equals the ARC. In subsequent years, the AOC will equal the ARC, adjusted for prior differences between the ARC and AOC. ■ Net OPEB Obligation (NOO): An agency's NOO is the historical difference between actual contributions made and the ARC. If an agency has always contributed the ARC, the NOO equals zero. However, an agency has not "made" the contribution unless it has been set aside mid cannot legally be used for any other purpose. Implementation Process The implementation process will be relatively straightforward: An agency will hire an actuary to calculate the ARC. The first time an agency does this, their AOC equals their ARC. The agency then decides whether to contribute all, none, or part of the ARC into a Trust that cannot legally be used for any purpose other than paying OPEB. If an agency always contributes the ARC, then each subsequent year's AOC equals their ARC — and the NOO is zero. The first year an agency does not contribute the ARC, they must establish an NOO equal to the difference between their actual contribution and the ARC. The subsequent year's AOC equals the ARC, adjusted for interest and amortization of the NOO. Disclosure Requirements This may be the most important aspect of GASB 45. When disclosed, some agencies will show large OPEB unfunded liabilities, while others will show small or no unfunded liabilities. These differences may require an adjustment in an agency's bond rating. Plan sponsors must disclose in their financial statement footnotes: City of Newport Beach June 30, 2006 Valuation -26- I� I --------------- - - - - -- 0 0 SECTION 7 GASB OPEB SuromzARY • Basic plan information ➢ Plan type ➢ Benefits provided ➢ Authority under which benefits were established • Plan funding/oontribution policy information: ➢ Required contribution rates for active members and employers shown in dollars or as a percent of payroll • Plan Funded Status information: ➢ AOC and the dollar contributions actually made ➢ If the employer has a NOO, also • Components of the AOC • NOO increase or decrease during the year • End of year NOO ➢ 3 -year history of • AOC • Percent of AOC contributed during the year • End of year NOO ➢ Most recent year's plan Funded Status ➢ Actuarial methods and assumptions used to determine the ARC, AOC, and Funded Status. In addition, plan sponsors must provide 3 years of historical required supplementary information: • Valuation dates • Actuarial asset values • Actuarial Liability • Unfunded Actuarial Liability (excess Plan Assets) • Plan funded ratio • Annual covered payroll • Ratio of unfunded Actuarial Liability (excess Plan Assets) to annual covered payroll • Factors that significantly affect comparing the above information across the years. City oFNewport Beach I June 30, 2006 Valuation - 27 F4 0 0 SECTION 7 GASB OPEB SummARY Defining the Plan GASB 45 refers to the substantive plan as the basis for accounting. It may differ from the written plan in that it reflects the employer's cost sharing policy based on: ■ Past practice or communication of intended changes to a plan's cost sharing provisions, or ■ Past practice of cost increases in monetary benefits. The substantive plan is the basis for allowing recognition of potential future plan changes. This approach requires entities to acknowledge the underlying promise, not just the written plan. What if retirees participate in the active healthcare plan, but are charged a rate based on composite active and retiree experience? (This was a contentious issue during the statement drafting, with one of the seven board members dissenting from Board adoption of the final statement.) In general, GASB 45 requires recognition of the implied subsidy. However, if benefits are provided through a community rated plan (premium rates based on experience of multiple employers rather than a single employer), and the same premium is charged for active and retired participants, it is appropriate to value unadjusted premiums. Actuarial Assumptions and Discount Rate Requirements Under GASB 45, the actuary must follow current actuarial standards of practice, which generally call for explicit assumptions — meaning each individual assumption represents the actuary's best estimate. GASB 45 also requires basing the discount rate on the source of funds used to pay the benefits. This means the underlying expected long -term rate of return on Plan Assets for funded plans. Since the source of funds for unfunded plans is usually an agency's general fund, and California and most other state law restricts what investments agencies can have in their general fund, unfunded plans will need to use a low (for example, 4% to 5 %) discount rate. If an agency sets up a Trust and diversifies Trust Plan Assets, however, the discount rate might be much higher (such as 7 %) depending on the Trust fund's expected long -term investment return. Transition Issues Typically, new accounting standards allow transition from old to new requirements. Because historical ARC calculations will rarely be available, GASB 45 takes a prospective transition approach: there is no requirement for an initial transition obligation. But if AGCs, before transition, were calculated consistently with the standard, a NOO at transition can be established at an agency's discretion. Valuation Frequency Requirements and Small Plans GASB 45 requires an actuarial valuation at least every two years for plans with more than 200 (active, inactive, and retired) members. Plans with fewer than 200 members will need a valuation every 3 years. In a significant departure from prior standards, though, GASB 45 allows plans with fewer than 100 members to elect a simplified measurement method not requiring an actuarial certification. City of Newport Beach June 30, 2006 Valuation -28- FA • • SUMMARY OF ACTUARIAL INFORMATION REQUIRED FOR CALPERS FINANCIAL STATEMENTS As part of your agreement to use CalPERS to pre-fund OPEB, the following information must be provided to CaIPERS each time an OPEB actuarial valuation report is delivered to Ca1PERS. For actuarial valuations performed once every two or three years, employers must in addition to first year information, provide additional information for the other years. This information is extremely Important to CaIPEi2S since it will be used to satisfy the requirements of GASS Statement No. 43. If you have questions, please call (888) CalPERS (225 - 7377). Contact Information for Employer ER Name: City of Newport Beach Contact Name: Dan Matusiewicz Phone Number: (949) 644 -3126 Column (c) applies to employers who file actuarial valuations every year. Columns (c) and (d) apply to those who file actuarial valuations every two years. Columns (c), (d) and (e) apply to those who file actuarial valuations every three years. Contact Information for Actuarial Firm Name of Actuarial Firm- Bartel Associates, LLC Actuary/Contact Name: John Bartel / Bianca Lin Phone Number: 650- 377 -1601 / 650 -377 -1604 u • 7 Annual Covered Payroll B Present Value of Future Benefits 9 Amortization Method (whether its based on closed or open 10.0 jAverage Remaining Amortization Period 11.0 Annual Required Contribution (ARC) InLoAllars 11 1 Annual Required Contribution (ARC) as a porcentage of 12.0 1 Normal Cost in dollars 12.1 1Normal Cost as a Percentago of payroll 13.0 1 UAL Amortization in dollars 13.1 (UAL Amortization as a percentage of payroll 14 10iscount Rate Assumption 15 For a partially funded plan, the method used to determi the blended discount rate 16 Salary Increase Assumption (if relevant to benefit 17 (Expected Benefit Payments 0 11 Provide in the table below the select and ultimate medical and pharmacy cost trend rates where applicable. Pre - Medicare Eligible Post - Medicare Eligible ., 3.. it a a• s. .�. v!i!'txiftapa''' a, �I�� t4 ® Number of Active Members s -. Mt�ntk y ai M r'a s '-v. , 2007 Actual premiur Actual premiurr Actual premium Actual premiurr We Included in medical rate 2008 � 54ILi t N,ihl'Y = � - i - �N 10.4 111%, _ _ Attained - Actives 2009 9.70 10.6% 9.7% 10.6° 2010 9.1 9.8% 9.1% 9.8 2011 8.40 9.0% 8.4% 9.00A Average Years of Service of Active$ 2012 4 8.3 z 7 -8% 8.3 2013 7.1% 7.5% 7.1% 7.54 2014 6.5% k ®N 6.8% Number of Recipients 2015 5.8% 6.0% 5.8% 6.07, 2016 5.2% 5.3% 5.2% 5.3 2017+ Ultimate Medical Trend Rates u t 3 4.57, 4.57, 17 Average Attained Age of Recipients 01, 1 02111 =0 'Em's On A I Vision Trend Rates (If Applicable) =_� Im NO KEA.-, rY �r 1 � �5 ® Dental MI'l Y +�. }• ll • �� .y R Health Assumptions j4S 2 kn 911i�Ssos.u� 3ry''�y Provide in the table below the select and ultimate medical and pharmacy cost trend rates where applicable. F:1UsersIADWShared%c uncil_ agenda _Items=a staff reports %OPEBTruMjSA 07.0 &17 Newport Beach CaIPERS OPES Twat Requires InfGASIData Requirements Pre - Medicare Eligible Post - Medicare Eligible - s -. , _ '-v. , 2007 Actual premiur Actual premiurr We Actual premium Actual premiurr We Included in medical rate 2008 10.45 11.3% 10.4 111%, 2009 9.70 10.6% 9.7% 10.6° 2010 9.1 9.8% 9.1% 9.8 2011 8.40 9.0% 8.4% 9.00A 2012 7.8% 8.3 7 -8% 8.3 2013 7.1% 7.5% 7.1% 7.54 2014 6.5% 6.8% 6.5% 6.8% 2015 5.8% 6.0% 5.8% 6.07, 2016 5.2% 5.3% 5.2% 5.3 2017+ Ultimate Medical Trend Rates q 5 % 4.50 4.57, 4.57, F:1UsersIADWShared%c uncil_ agenda _Items=a staff reports %OPEBTruMjSA 07.0 &17 Newport Beach CaIPERS OPES Twat Requires InfGASIData Requirements 0 CALIFORNIA EMPLOYER'S RETIREE BENEFIT TRUST PROGRAM ( "CERBT ") AGREEMENT AND ELECTION OF CITY OF NEWPORT BEACH (NAME OF EMPLOYER) TO PREFUND OTHER POST EMPLOYMENT BENEFITS THROUGH CaIPERS WHEREAS (1) Government Code Section 22940 establishes in the State Treasury the Annuitants' Health Care Coverage Fund for the prefunding of health care coverage for annuitants ( Prefunding Plan); and WHEREAS (2) The California Public Employees' Retirement System (CaIPERS) Board of Administration (Board) has sole and exclusive control and power over the administration and investment of the Prefunding Plan (sometimes also referred to as CERBT), the purposes of which include, but are not limited to (i) receiving contributions from participating employers and establishing separate Employer Prefunding Accounts in the Prefunding Plan for the performance of an essential governmental function (ii) investing contributed amounts and income thereon, if any, in order to receive yield on the funds and (iii) disbursing contributed amounts and income thereon, if any, to pay for costs of administration of the Prefunding Plan and to pay for health care costs or other post employment benefits in accordance with the terms of participating employers' plans; and WHEREAS (3) CITY OF NEWPORT BEACH (NAME OF EMPLOYER) (Employer) desires to participate in the Prefunding Plan upon the terms and conditions set by the Board and as set forth herein; and WHEREAS (4) Employer may participate in the Prefunding Plan upon (i) approval by the Board and (ii) filing a duly adopted and executed Agreement and Election to Prefund Other Post Employment Benefits (Agreement) as provided in the terms and conditions of the Agreement; and WHEREAS (5) The Prefunding Plan is a trust fund that is intended to perform an essential governmental function within the meaning of Section 115 of the Internal Revenue Code as an agent multiple - employer plan as defined in Governmental Accounting Standards Board (GASB) Statement No. 43 consisting of an aggregation of single - employer plans, with pooled administrative and investment functions; Rev. 21712007: Rev 611812007_ Rev 10/10/2007 NOW, THEREFORE, BE IT RESOLVED THAT EMPLOYER HEREBY MAKES THE FOLLOWING REPRESENTATION AND WARRANTY AND THAT THE BOARD AND EMPLOYER AGREE TO THE FOLLOWING TERMS AND CONDITIONS: A. Representation and Warranty Employer represents and warrants that it is a political subdivision of the State of California or an entity whose income is excluded from gross income under Section 115 (1) of the Internal Revenue Code. B. Adoption and Approval of the Agreement; Effective Date; Amendment (1) Employer's governing body shall elect to participate in the Prefunding Plan by adopting this Agreement and filing with the CalPERS Board a true and correct original or certified copy of this Agreement as follows: Filing by mail, send to: CalPERS Constituent Relations Office CERBT (OPEB) P.O. Box 942709 Sacramento, CA 94229 -2709 Filing in person, deliver to: CalPERS Mailroom Attn: Employer Services Division 400 Q Street Sacramento, CA 95814 (2) Upon receipt of the executed Agreement, and after approval by the Board, the Board shall fix an effective date and shall promptly notify Employer of the effective date of the Agreement. (3) The terms of this Agreement may be amended only in writing upon the agreement of both CaIPERS and Employer, except as otherwise provided herein. Any such amendment or modification to this Agreement shall be adopted and executed in the same manner as required for the Agreement. Upon receipt of the executed amendment or modification, the Board shall fix the effective date of the amendment or modification. (4) The Board shall institute such procedures and processes as it deems necessary to administer the Prefunding Plan, to carry out the purposes of this Agreement, and to maintain the tax exempt status of the Prefunding Plan. Employer agrees to follow such procedures and processes. Rev 10/1012007 2 0 0 C. Actuarial Valuation and Employer Contributions (1) Employer shall provide to the Board an actuarial valuation report on the basis of the actuarial assumptions and methods prescribed by the Board. Such report shall be for the Board's use in financial reporting, shall be prepared at least as often as the minimum frequency required by GASB Statement No. 43, and shall be: (a) prepared and signed by a Fellow or Associate of the Society of Actuaries who is also a Member of the American Academy of Actuaries or a person with equivalent qualifications acceptable to the Board; (b) prepared in accordance with generally accepted actuarial practice and GASB Statement Nos. 43 and 45; and, (c) provided to the Board prior to the Board's acceptance of contributions for the valuation period or as otherwise required by the Board. (2) The Board may reject any actuarial valuation report submitted to it, but shall not unreasonably do so. In the event that the Board determines, in its sole discretion, that the actuarial valuation report is not suitable for use in the Board's financial statements or if Employer fails to provide a required actuarial valuation, the Board may obtain, at Employer's expense, an actuarial valuation that meets the Board's financial reporting needs. The Board may recover from Employer the cost of obtaining such actuarial valuation by billing and collecting from Employer or by deducting the amount from Employer's account in the Prefunding Plan. (3) Employer shall notify the Board of the amount and time of contributions which contributions shall be made in the manner established by the Board. (4) Employer contributions to the Prefunding Plan may be limited to the amount necessary to fully fund Employer's actuarial present value of total projected benefits, as supported by the actuarial valuation acceptable to the Board. As used throughout this document, the meaning of the term "actuarial present value of total projected benefits" is as defined in GASB Statement No. 45. If Employer's contribution causes its assets in the Prefunding Plan to exceed the amount required to fully fund the actuarial present value of total projected benefits, the Board may refuse to accept the contribution. (5) Any Employer contribution will be at least $5000 or be equal to Employer's Annual Required Contribution as that term is defined in GASB Statement No. 45. Contributions can be made at any time following the seventh day after the effective date of the Agreement provided that Employer has first complied with the requirements of Paragraph C. Rev 1011012007 3 D. Administration of Accounts, Investments, Allocation of Income (1) The Board has established the Prefunding Plan as an agent plan consisting of an aggregation of single - employer plans, with pooled administrative and investment functions, under the terms of which separate accounts will be maintained for each employer so that Employer's assets will provide benefits only under employers plan. (2) All Employer contributions and assets attributable to Employer contributions shall be separately accounted for in the Prefunding Plan (Employer's Prefunding Account). (3) Employer's Prefunding Account assets may be aggregated with prefunding account assets of other employers and may be co- invested by the Board in any asset classes appropriate for a Section 115 Trust. (4) The Board may deduct the costs of administration of the Prefunding Plan from the investment income or Employer's Prefunding Account in a manner determined by the Board. (5) Investment income shall be allocated among employers and posted to Employer's Prefunding Account as determined by the Board but no less frequently than annually. (6) If Employers assets in the Prefunding Plan exceed the amount required to fully fund the actuarial present value of total projected benefits, the Board, in compliance with applicable accounting and legal requirements, may return such excess to Employer. E. Reports and Statements (1) Employer shall submit with each contribution a contribution report in the form and containing the information prescribed by the Board. (2) The Board shall prepare and provide a statement of Employer's Prefunding Account at least annually reflecting the balance in Employer's Prefunding Account, contributions made during the period and income allocated during the period, and such other information as the Board determines. F. Disbursements (1) Employer may receive disbursements not to exceed the annual premium and other costs of post employment healthcare benefits and other post employment benefits. (2) Employer shall notify CalPERS in writing in the manner specified by CalPERS of the persons authorized to request disbursements from the Prefunding Plan on behalf of Employer. Rev 10/10/2007 4 • • (3) Employers request for disbursement shall be in writing signed by Employer's authorized representative, in accordance with procedures established by the Board. The Board may require that Employer certify or otherwise establish that the monies will be used for the purposes of the Prefunding Plan. (4) Requests for disbursements that satisfy the requirements of paragraphs (2) and (3) that are received on or after the first of a month will be processed by the 15 'h of the following month. (For example, a disbursement request received on or between March 1st and March 31st will be processed by April 15th; and a disbursement request received on or between April 1 st and April 30th will be processed by May 15th.) (5) CalPERS shall not be liable for amounts disbursed in error if it has acted upon the instruction of an individual authorized by Employer to request disbursements. In the event of any other erroneous disbursement, the extent of CaIPERS' liability shall be the actual dollar amount of the disbursement, plus interest at the actual earnings rate but not less than zero. (6) No disbursement shall be made from the Prefunding Plan which exceeds the balance in Employer's Prefunding Account. G. Costs of Administration Employer shall pay its share of the costs of administration of the Prefunding Plan, as determined by the Board. H. Termination of Employer Participation in Prefunding Plan (1) The Board may terminate Employers participation in the Prefunding Plan if: (a) Employer gives written notice to the Board of its election to terminate; (b) The Board finds that Employer fails to satisfy the terms and conditions of this Agreement or of the Board's rules or regulations. (2) If Employer's participation in the Prefunding Plan terminates for any of the foregoing reasons, all assets in Employer's Prefunding Account shall remain in the Prefunding Plan, except as otherwise provided below, and shall continue to be invested and accrue income as provided in Paragraph D. (3) After Employers participation in the Prefunding Plan terminates, Employer may not make contributions to the Prefunding Plan. Rev 10/1012007 5 r (4) After Employer's participation in the Prefunding Plan terminates, disbursements from Employer's Prefunding Account may continue upon Employer's instruction or otherwise in accordance with the terms of this Agreement. (5) After thirty-six (36) months have elapsed from the effective date of this Agreement: (a) Employer may request a trustee to trustee transfer of the assets in Employer's Prefunding Account. Upon satisfactory showing to the Board that the transfer will satisfy applicable requirements of the Internal Revenue Code and the Board's fiduciary duties, then the Board shall effect the transfer within one hundred twenty (120) days. The amount to be transferred shall be the amount in the Employer's Prefunding Account as of the disbursement date and shall include investment earnings up to the investment earnings allocation date immediately preceding the disbursement date. In no event shall the investment earnings allocation date precede the transfer by more than 120 days. (b) Employer may request a disbursement of the assets in Employer's Prefunding Account. Upon satisfactory showing to the Board that all of Employer's obligations for payment of post employment health care benefits and other post employment benefits and reasonable administrative costs of the Board have been satisfied, then the Board shall effect the disbursement within one hundred twenty (120) days. The amount to be disbursed shall be the amount in the Employer's Prefunding Account as of the disbursement date and shall include investment earnings up to the investment earnings allocation date immediately preceding the disbursement date. In no event shall the investment earnings allocation date precede the disbursement by more than 120 days. (6) After Employer's participation in the Prefunding Plan terminates and at such time that no assets remain in Employer's Prefunding Account, this Agreement shall terminate. (7) If, for any reason, the Board terminates the Prefunding Plan, the assets in Employer's Prefunding Account shall be paid to Employer after retention of (i) amounts sufficient to pay post employment health care benefits and other post employment benefits to annuitants for current and future annuitants, and (ii) amounts sufficient to pay reasonable administrative costs of the Board. (8) If Employer ceases to exist but Employer's Prefunding Plan continues to exist and if no provision has been made by Employer for ongoing payments to pay post employment health care benefits and other post employment benefits to annuitants for current and future annuitants, the Board is authorized to and shall appoint a third parry administrator to carry out Employer's Prefunding Plan. Any and all costs associated Rev 10/10/2007 0 9 with such appointment shall be paid from the assets attributable to contributions by Employer. (9) If Employer should breach the representation and warranty set forth in Paragraph A., the Board shall take whatever action it deems necessary to preserve the tax - exempt status of the Prefunding Plan. I. General Provisions (1) Books and Records. Employer shall keep accurate books and records connected with the performance of this Agreement. Employer shall ensure that books and records of subcontractors, suppliers, and other providers shall also be accurately maintained. Such books and records shall be kept in a secure location at the Employer's office(s) and shall be available for inspection and copying by CaIPERS and its representatives at any time. (2) Audit. (a) During and for three years after the term of this Agreement, Employer shall permit the Bureau of State Audits, CaIPERS, and its authorized representatives, and such consultants and specialists as needed, at all reasonable times during normal business hours to inspect and copy, at the expense of CaIPERS, books and records of Employer relating to its performance of this Agreement. (b) Employer shall be subject to examination and audit by the Bureau of State Audits, CaIPERS, and its authorized representatives, and such consultants and specialists as needed, during the term of this Agreement and for three years after final payment under this Agreement. Any examination or audit shall be confined to those matters connected with the performance of this Agreement, including, but not limited to, the costs of administering this Agreement. Employer shall cooperate fully with the Bureau of State Audits, CalPERS, and its authorized representatives, and such consultants and specialists as needed, in connection with any examination or audit. All adjustments, payments, and /or reimbursements determined to be necessary by any examination or audit shall be made promptly by the appropriate party. (3) Notice. (a) Any notice, approval, or other communication required or permitted under this Agreement will be given in the English language and will be deemed received as follows: Rev 1071072007 1 Personal delivery. When personally delivered to the recipient. Notice is effective on delivery. 2. First Class Mail. When mailed first class to the last address of the recipient known to the party giving notice. Notice is effective three delivery days after deposit in a United States Postal Service office or mailbox. 3. Certified mail. When mailed certified mail, return receipt requested. Notice is effective on receipt, if delivery is confirmed by a return receipt. 4. Overnight Delivery. When delivered by an overnight delivery service, charges prepaid or charged to the sender's account, Notice is effective on delivery, if delivery is confirmed by the delivery service. 5. Telex or Facsimile Transmission. When sent by telex or fax to the last telex or fax number of the recipient known to the party giving notice. Notice is effective on receipt, provided that (i) a duplicate copy of the notice is promptly given by first -class or certified mail or by overnight delivery, or (ii) the receiving party delivers a written confirmation of receipt. Any notice given by telex or fax shall be deemed received on the next business day if it is received after 5:00 p.m. (recipient's time) or on a nonbusiness day. 6. E -mail transmission. When sent by e-mail using software that provides unmodifiable proof (i) that the message was sent, (ii) that the message was delivered to the recipient's information processing system, and (iii) of the time and date the message was delivered to the recipient along with a verifiable electronic record of the exact content of the message sent. Addresses for the purpose of giving notice are as shown in Paragraph B.(1) of this Agreement. (b) Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the party to be notified shall be deemed effective as of the first date that said notice was refused, unclaimed, or deemed undeliverable by the postal authorities, messenger or overnight delivery service. (c) Any party may change its address, telex, fax number, or e-mail address by giving the other party notice of the change in any manner permitted by this Agreement. Rev 10710/2007 8 0 0 (d) All notices, requests, demands, amendments, modifications or other communications under this Agreement shall be in writing. Notice shall be sufficient for all such purposes if personally delivered, sent by first class, registered or certified mail, return receipt requested, delivery by courier with receipt of delivery, facsimile transmission with written confirmation of receipt by recipient, or e-mail delivery with verifiable and unmodifiable proof of content and time and date of sending by sender and delivery to recipient. Notice is effective on confirmed receipt by recipient or 3 business days after sending, whichever is sooner. (4) Modification This Agreement may be supplemented, amended, or modified only by the mutual agreement of the parties. No supplement, amendment, or modification of this Agreement shall be binding unless it is in writing and signed by the party to be charged. (5) Survival All representations, warranties, and covenants contained in this Agreement, or in any instrument,. certificate, exhibit, or other writing intended by the parties to be a part of their Agreement shall survive the termination of this Agreement until such time as all amounts in Employer's Prefunding Account have been disbursed. (6) Waiver No waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this Agreement shall be effective unless it is in writing and signed by the party waiving the breach, failure, right, or remedy. No waiver of any breach, failure, right, or remedy shall be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, nor shall any waiver constitute a continuing waiver unless the writing so specifies. (7) Necessary Acts, Further Assurances The parties shall at their own cost and expense execute and deliver such further documents and instruments and shall take such other actions as may be reasonably required or appropriate to evidence or carry out the intent and purposes of this Agreement. Rev 10/1012007 • • A majority vote of Employer's Governing Body at a public meeting held on the day of the month of into this Agreement. Signature of the Presiding Officer: Printed Name of the Presiding Officer: Name of Governing Body: Name of Employer: Date: in the year authorized entering BOARD OF ADMINISTRATION CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM BY KENNETH W. MARZION ACTUARIAL AND EMPLOYER SERVICES BRANCH CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM To be completed by CalPERS The effective date of this Agreement is: Rev 01 /09/2008 10 CalPERS 0 0 DELEGATION OF AUTHORITY TO REQUEST DISBURSEMENTS RESOLUTION OF THE CITY COUNCIL (GOVERNING BODY) OF THE CITY OF NEWPORT BEACH (NAME OF EMPLOYER) The CITY COUNCIL delegates to the incumbents in (GOVERNING BODY) the positions of Administrative Services Directorand (TITLE) Deputy Director of Administrative Services authority to request on behalf (TITLE) of the Employer disbursements from the Other Post Employment Prefunding Plan and to certify as to the purpose for which the disbursed funds will be used. z Title Witness Date OPEB Delegation of Authority (2107) MAYOR 0 6 A.*,,,- CERTIFICATION OF OPEB ACTUARIAL CaIPM INFORMATION AND FUNDING POLICY CERTIFICATION OF OPEB ACTUARIAL INFORMATION As Actuary for the plan, I certify that the valuation for the City of Newport Beach upon which the enclosed summary of actuarial information is based, meets the following criteria: • The valuation was prepared on the basis of the OPEB assumption model prescribed by the CaIPERS Board and in effect at the time of the valuation. • The valuation has been prepared and signed by a Fellow or Associate of the Society of Actuaries who is also a Member of the American Academy of Actuaries. ' • The valuation has been prepared in accordance with generally accepted actuarial principles. • In the case where the actuarial valuation is to be performed on a biennial cycle: • this valuation includes (ARC) information that covers two fiscal years other actuarial information for the second fiscal year will be provided after benefit payments and contributions are provided by the agency. • The valuation has been prepared in accordance with the requirements set forth in Governmental Accounting Standards Board (GASB) Statements No. 43 and No. 45. • If employer assets to pre-fund other post- employment benefits are invested in an irrevocable OPEB trust other than the California Employers' Retiree Benefit Trust, the liabilities associated with those assets are not included in the summary of actuarial information. I further certify that the discount rate is consistent with the anticipated level of funding pursuant to the relevant section of GASB 43, and the employers certification. June 30, 2006 Valuation Date John E. Bartel, ASA, FCA, EA, MAAA Printed Name of = ctua and Designation}} 2 , L4j I`i1? 007 Signature Date 'In cases where the actuary performing the work does not meet these criteria, the valuation may be acceptable If the person has equivalent qualifications that are acceptable to the CaIPERS Board. Please provide the qualifications of the actuary performing the valuation. O:lClientslCity or Newport Boachl0PEB106 -30 -06 ValuationlReportABA 07-08 -xx Newport Beach CaIPERS OPEB Trust Certifleation.doc r CERTIFICATION OF FUNDING POLICY As the employer, I certify that our funding policy is to contribute consistently an amount at least equal to * % of the ARC. CITY OF NEWPORT BEACH Homer L. Bludau, Ci Printed Name and Signature r Person Signing the Form Date * 0% of the ARC related to the implicit subsidy and an amount greater than,or equal to 100% of the ARC related to the cash (explicit) subsidy. 03ClieatsTity of Newport Beach \OPEM06-30 -06 Valunfion\ReporMBA 07 -08 -x Newport Beach CalPERS OPFB Trust Certification.doc